Mizuho still recommends Terns Pharma as a cheap entry to the weight-loss-drug craze

By Ciara Linnane

Small biotech is on track to deliver data from an early-stage trial of its weight-loss pill in the second half of 2024

Mizuho analysts are betting that the stock of small biotech Terns Pharmaceuticals Inc. could rally sharply if the company's oral weight-loss drug proves successful when data from an early-stage trial is released later this year.

The analysts reiterated their buy rating on the stock and a price target of $10 in a note to clients on Tuesday.

The company reported earnings this week. Although as it still has no drugs approved by the Food and Drug Administration, incremental updates on its weight-loss pills and news that it has enough cash to see it through 2026 carry more weight than its numbers, according to Mizuho analysts Graig Suvannavejh and Avantika Joshi.

Terns (TERN) is currently conducting a Phase 1 trial of its TERN-601 small-molecule GLP-1 receptor agonist, the popular class of drugs that includes Wegovy, Ozempic and Mounjaro, which have been approved in injectable form for diabetes or weight loss.

GLP stands for glucagon-like peptide. It works by mimicking the effect of a gut hormone that can help control blood-sugar levels and reduce appetite.

Data from the trial are expected in the second half of 2024, but the company offered some tidbits with its quarterly numbers.

"With single ascending dose (SAD) studies completed, incremental for us was that the multiple ascending dose (MAD) portion of the study has now begun," the analysts wrote in a note to clients on Tuesday.

For more, read: This small-cap stock is expected to take off-if its weight-loss pill trial succeeds

The study is evaluating once-daily dosing of TERN-601 over a 28-day period, in line with how other Phase 1 trials have been conducted.

The company said preliminary safety findings have been "unremarkable," which Mizuho views as a positive. There have been no observations of liver-enzyme elevations, drug-induced liver injury or discontinuations caused by treatment-related adverse events, the note said.

"For context, we remind that safety has been a common investor question, given high rates of GI-related adverse events seen for the two current leading GLP-1 based products for obesity; Pfizer (PFE) discontinued clinical development of its twice-daily dosing danuglipron, an oral GLP-1R agonist candidate that '601 was modeled structurally on, due to high rates of gastrointestinal effects," the analysts wrote.

Pfizer discontinued development of its other GLP-1 agonist, called lotiglipron, because of elevated liver enzymes, they added.

Terns is also expected to release data from a Phase 1 trial of its TERN-701 treatment for chronic myeloid leukemia, or CML, that won orphan-drug designation from the FDA in March, meaning the regulator believes it has promise.

Terns is planning to host an event with key opinion leaders ahead of the data release to help investors understand early data in CML studies, said the Mizuho analysts.

TERN-701 has the potential to be similar to Scemblix, the CML product being developed by Swiss drugmaker Novartis (NVS). Data from a Phase 3 trial of that product is expected to be presented at the American Society of Clinical Oncology's annual event scheduled for June.

"Based on what we've been hearing, the first-line data for Scemblix are expected to be positive; should this indeed turn out to be the case, this, in our opinion, would bode well for the prospects for '701, as it would represent a potential expansion of the product's market opportunity," the analysts wrote.

Terns's stock is down 11% in the year to date, which Mizuho said it finds surprising, given the company's exposure to the obesity market.

The analysts continue to recommend the stock as a cheap entry to that craze, given its $400 million market capitalization, versus the roughly $8 billion market cap now enjoyed by rival Viking Therapeutics Inc. (VKTX).

Viking is also developing an oral weight-loss drug, and data from its Phase 1 trial have been positive.

"We reiterate our Buy rating on [Terns], recommending it for investors as a de-risked, and high-quality story and opportunity in the small/mid-cap biotech landscape," the analysts wrote.

-Ciara Linnane

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05-15-24 1233ET

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