Terns Pharmaceuticals: Weight Loss Drug TERN-601 Is Competitive (NASDAQ:TERN)

When I last wrote about Terns Pharmaceuticals, Inc. (NASDAQ:TERN) in July 2023, the company was in clinical trials with a leukemia drug and a liver disease drug, and I rated it as shop your prospects in those disease areas. Now TERN has reported results from a four-week study of its oral GLP-1 receptor agonist (TERN-601) showing impressive weight loss, meaning the company may have an obesity drug of its own. This article takes a look at the weight loss drug and the way forward for TERN.

TERN-601 enters the Weight Loss Arena

On September 9, 2024, TERN announced that its oral GLP-1 agonist, TERN-601, achieved a placebo-adjusted weight loss of 4.9% in just four weeks in a 37-person Phase 1 study obese or overweight (non-diabetic). While seeing that impressive weight loss for four weeks at the daily dose of 740 mg, a lower dose of 500 mg still achieved a placebo-adjusted weight loss of -3.8% at four weeks.

By comparison, Viking Therapeutics ( VKTX ) reported a placebo-adjusted weight loss of 3.3% at 28 days in a study of an oral version of its GLP-1/GIP receptor agonist, VK2735. It should be noted that the placebo group in the VK2735 study appeared to be slightly elevated (compared to the low-dose VK2735 groups). In any case, it appears that the TERN offering is similar to the VKTX offering in terms of effectiveness at four weeks, at least as well as we can tell based on a cross-test comparison.

In terms of tolerability, TERN followed a rapid dose escalation with the 740 mg TERN-601 group starting at 100 mg daily but increasing to 740 mg by day 12. Such rapid titration is probably not clinically necessary , although it allowed the drug to produce impressive weight loss at 28 days, and a slower titration could be used to increase tolerability. Remarkably, there were still no discontinuations in the 37 patients in the study, including the 9 patients treated with 740 mg of TERN-601. That said, six out of nine patients experienced mild vomiting at the 740 mg dose, which I think meets the value of a slower titration.

TERN-601: Commercial viability an advantage

A clear advantage of TERN-601 is the commercial viability of producing large doses of a small molecule drug, something that has not been as easy to do for larger peptide drugs. For example, Novo Nordisk (NVO) semaglutide (a modified peptide, molecular weight over 4000 Daltons) is available orally, Rybelsus (doses of 3 mg, 7 mg and 14 mg once daily, approved for type 2 diabetes) . Rybelsus may not be as effective in weight loss as the subcutaneous injection (Ozempic/Wegovy; doses of 0.25 mg once weekly to 2.4 mg once weekly). It is possible that higher doses or newer formulations would address the issue of reduced efficacy for Rybelsus, but even with Ozempic/Wegovy there were shortfalls. Of course, these shortages are driven by considerable demand, but the increase in production was not something that NVO could handle in the short term.

With TERN-601, the company noted the drug’s manufacturing scalability, which is good news considering the dosage used.

Terns Pharmaceuticals Financial Overview

TERN ended Q2 ’24 with cash, cash equivalents and marketable securities of $225.3 million, which it believes will be sufficient to fund expenses in 2026. Research and development expenses were $18.4 million in Q2 ’24, with G&A expenses of $7.2 million in the same quarter. TERN reported a net loss of $22.7 million in Q2 ’24 and net cash used in operating activities of $39 million in the first six months of 2024. Indeed, at this rate of cash burn (about 80 million USD per year) TERN could make to have a cash track by 2026. Of course, spending could rise, with TERN planning to begin a Phase 2 study of TERN-601 in 2025 after positive Phase 1 data this week.

TERN announced a public offering of $125 million of common stock on September 9, 2024, with an option for the underwriters to purchase an additional $18.75 million in shares. Gross revenues of more than $140 million would certainly help confirm that TERN has the financial firepower to deepen its assets into clinical development, although in my opinion even the current cash balance was not a concern on short term.

As of July 26, 2024, there were 70,371,911 shares of TERN common stock outstanding, giving TERN a market capitalization of $641.8 million. There was little reaction to the share proposal after hours on September 9, 2024, suggesting that dilution may be tolerated. Of course, if the bid price is too low, the stock could drop.

Evaluation of TERN actions, risks and conclusion

Terns Pharmaceuticals, Inc.’s TERN-601 appears to be competitive in terms of efficacy, certainly manageable to date, compared to other oral weight loss drugs. I still rate TERN as a buy because the company is now in the race to develop another weight loss drug, and while the race is very competitive, the potential market is huge. Indeed, Goldman Sachs Research suggests that the obesity market could grow to $100 billion annually by 2030. As such, I believe it is only necessary for these weight loss drugs to carve out a small niche in the market, and TERN -601 at least has the advantage of being an oral variant.

The risks of any long in TERN are multiple, some of which I will discuss here. First, if the price reaction to TERN’s common stock is negative, the stock may not recover well from any decline, if at all.

Second, TERN is due to produce interim data from a Phase 1 study of TERN-701 in chronic myeloid leukemia in December 2024. If those results are not well received, the stock could fall sharply. I’m bullish on TERN-701 and so I don’t think a sale is guaranteed, but this is pretty speculative on my part, so there are certainly no guarantees.

Finally, TERN can use its funds to promote other members of the pipeline that haven’t necessarily generated the same excitement as TERN-601. For example, the company also has its drug for non-alcoholic steatohepatitis, TERN-501. If the company makes moves to develop that agent, but the market sees it as a waste of funds, then the stock could drop.