Did you miss Viking Therapeutics? Buy this weight loss biotech stock right now.

Shares of biotech companies such as Viking therapeutics (VKTX 6.24%) have exploded upwards of more than 300% in the last 12 months due to its phenomenal clinical data from its late-stage weight loss drug program.

The biotech industry is often full of exciting opportunities for more risk-tolerant investors, and it should come as no surprise that investors who missed out on the Viking rally may be looking for a similar opportunity in this space that could be just as juicy.

While it’s debatable whether the opportunity with Viking is actually in the rearview mirror or simply taking a break until its next set of clinical catalysts — and likely the latter — there’s another earlier weight-loss biotech that worth paying attention to: Terns Pharmaceuticals (TERN -5.84%).

And while there’s no definitive guarantee Terns will emulate Viking’s recent run, its current conditions feature many of the same ingredients that led to the latter’s success. In short, I’d argue that Tern’s stock is poised to take off. Let’s take a look and make some illustrative comparisons.

Conditions are ripe for a big race

While Viking Therapeutics has seen its stock soar due to favorable Phase 2 trial results with its lead candidate, Terns is a little less mature. Its oral anti-obesity program, TERN-601, just reported some good Phase 1 results on Sept. 9, and plans to advance the candidate to Phase 2 sometime in 2025.

In practical terms, investors buying Terns today are thus exposed to a greater degree of clinical data risk than they would be if they were to buy Viking shares, but the upside could also be greater. Data from the Phase 1 study suggest that TERN-601 is sufficiently safe and that its side effects are reasonably tolerable for patients. So the next big hurdle will be to prove that its weight loss effectiveness is both sufficient on its own and at least as good as the products on the market manufactured by Eli Lilly and Novo Nordisk.

Phase 1 data provides insight into how the biotech will fare on those fronts. At the highest dose level tested in the study, the nine patients in the group lost an average of 5.5% of their body weight after 28 days of treatment, or 4.9% on a placebo-adjusted basis.

Although it is not possible to make a scientifically rigorous direct comparison with the weight loss programs of other drug developers for several reasons, Terns’ data preliminarily suggest that its candidate may be (broadly) competitive with the Viking’s in terms of proportion of weight lost per unit time and perhaps superior to Eli Lilly’s Zepbound.

This supports the idea that the market could react very positively to advancing the program through the clinical trial phases, just as it did with Viking. In addition, Terns may also have an advantage over the Viking program in terms of the candidate’s patient tolerability, although a conclusive judgment will have to wait until the company publishes or presents the full results of the study, rather than just a high level summary.

If the early data on better tolerability are substantiated, it could open some doors for the biotech to significantly increase its addressable market. In particular, a highly tolerable diet pill would be ripe to be combined with other Sterni-produced drugs that could treat multiple conditions at once or increase the rate of weight loss.

The long-term picture could become even better than it is

Terns is also pretty well funded, though admittedly nowhere near as cash-strapped as Viking. As of the second quarter, it reported $225 million in cash, equivalents and short-term investments, while research and development (R&D) spending over the past 12 months was just $69.2 million. But given that it had more cash in the bank than Viking at the start of 2023, it’s clear that with the middle dates right, Terns will see an infusion of cash from issuing new stock.

Of course, this is a risk as it would dilute the value of existing shareholders. On the other hand, given the market’s affection for bearish stocks right now, investors will likely be more likely to interpret a new influx of cash as bullish rather than bearish — again, assuming the company’s clinical data continues to impress in the key dimensions we discussed.

So is Terns stock worth buying today in the hope it will follow Viking’s trajectory?

While it may not follow perfectly in the footsteps of larger biotechs, TERN-601 has the potential to be one of the safest, most tolerable and most effective diet pill candidates alive and well, the stock has an argument solid for upside — and the company will have no trouble hitting its next set of milestones from a funding standpoint.

That said, if you can accept that this is a risky biotech stock with no sales for the next few years, it’s worth buying some shares. Right now, Terns’ future is bright and probably just getting started.