Executive Summary / Key Takeaways

• Terns Pharmaceuticals (NASDAQ: TERN) is a clinical-stage biopharmaceutical company focused on developing small-molecule therapies for serious diseases, primarily chronic myeloid leukemia (CML) and obesity, leveraging targeted mechanisms and potential combination approaches.
• The company's lead programs, TERN-701 (CML) and TERN-601 (obesity), are advancing towards critical clinical data readouts expected in the fourth quarter of 2025, representing significant potential catalysts for the stock.
• TERN-701, a next-generation allosteric BCR-ABL inhibitor, has shown encouraging early molecular responses and safety in Phase 1, demonstrating potential differentiation against existing CML treatments, including asciminib.
• TERN-601, an oral GLP-1 receptor agonist, showed promising Phase 1 weight loss and tolerability data, positioning it in a highly competitive but massive obesity market, with Phase 2 data anticipated to further clarify its profile.
• Supported by a cash, cash equivalents, and marketable securities balance of $334.3 million as of March 31, 2025, Terns expects its existing capital resources to fund planned operations and capital expenditures into 2028, providing runway through these key milestones.

Setting the Stage: Terns Pharmaceuticals' Pursuit of Targeted Therapies

Terns Pharmaceuticals is carving out a niche in the competitive biopharmaceutical landscape by focusing on the development of small-molecule product candidates aimed at serious diseases, with a current emphasis on oncology and obesity. The company's strategy centers on identifying and developing therapies that target specific biological mechanisms, often seeking to improve upon existing treatment modalities or address unmet needs within large patient populations. This approach is underpinned by a history of preclinical discovery and clinical advancement, including strategic agreements and financing rounds necessary to fuel its research and development engine.

The biopharma industry, particularly in areas like oncology and metabolic diseases, is characterized by intense competition, high R&D costs, and significant regulatory hurdles. Terns operates within this challenging environment, seeking to differentiate its pipeline through novel mechanisms and potentially superior profiles. The company's journey has involved building a portfolio of internally discovered candidates and selectively pursuing in-licensing opportunities, positioning itself as a clinical-stage entity with several shots on goal.

Technological Edge: Small Molecules with Specific Intent

At the heart of Terns' strategy is its expertise in developing small-molecule therapies. This approach offers potential advantages such as oral administration, ease of manufacturing, and the ability to target specific intracellular pathways. Terns is applying this to several distinct targets:

• TERN-701 (BCR-ABL Inhibition): This candidate is an allosteric inhibitor specifically targeting the ABL myristoyl pocket. This mechanism is designed to offer potential advantages over active-site inhibitors, including activity against certain resistance mutations that can limit the effectiveness of other tyrosine kinase inhibitors (TKIs) used in CML. Preclinical data highlight improved potency versus asciminib across multiple clinically relevant variants of BCR-ABL, including difficult-to-treat resistance mutations. This suggests the potential for improved clinical responses, particularly in patients who have not responded optimally to other TKIs. The "so what" for investors is the potential for TERN-701 to become a best-in-class therapy for CML patients across various lines of treatment, carving out market share based on a differentiated safety and efficacy profile, especially in resistant populations.
• TERN-601 (GLP-1 Receptor Agonism): Positioned for the massive obesity market, TERN-601 is a small-molecule GLP-1 receptor agonist intended for oral once-daily administration. The convenience of an oral therapy could offer a significant advantage over currently dominant injectable GLP-1 agonists. Phase 1 data demonstrated dose-dependent weight loss, with a maximum placebo-adjusted mean weight loss of 4.9% at the highest dose over just 28 days. Notably, 67% of participants at the top dose lost 5% or more of their baseline body weight. The data also indicated favorable safety and tolerability, with no treatment-related dose interruptions, reductions, or discontinuations despite rapid dose titration. This profile suggests potential for improved tolerability with slower titration in later studies. For investors, the potential for an effective and well-tolerated oral GLP-1 could capture a significant portion of the obesity market, which is currently dominated by injectables.
• TERN-501 (THR-β Agonism): Initially developed for MASH, TERN-501 targets the thyroid hormone receptor beta. While MASH development spend has been limited due to the challenging regulatory landscape, Terns is exploring its potential in other metabolic diseases. Preclinical data highlighted TERN-501's potential as a combination partner for GLP-1R agonists in obesity, showing significantly improved efficacy in an obese mouse model by normalizing energy expenditure, resulting in greater weight loss, increased fat mass loss, and relative preservation of lean mass compared to a GLP-1R agonist alone. This suggests a strategic pivot towards combination therapy, potentially offering broader metabolic benefits and enhanced weight loss, differentiating it from standalone GLP-1s.
• TERN-800 Series (GIPR Modulation): Terns is also engaged in discovery efforts for small-molecule GIPR modulators, prioritizing a GIPR antagonist development candidate. The scientific rationale supports combining GLP-1R agonists with GIPR antagonists for potentially enhanced obesity treatment. This preclinical effort aligns with the combination strategy seen with TERN-501, aiming to develop proprietary combination therapies.

These technological approaches, particularly the specific targeting mechanisms and the exploration of combination therapies, form the basis of Terns' competitive strategy, aiming to offer differentiated profiles in crowded therapeutic areas.

Pipeline Advancement and Upcoming Catalysts

Terns' investment narrative is heavily tied to the progress of its clinical pipeline, with significant milestones anticipated in the near term.

The TERN-701 CARDINAL study (Phase 1) in previously treated chronic phase CML patients has completed dose escalation, with no dose-limiting toxicities observed up to 500 mg QD. The dose expansion portion of the study was initiated in April 2025, evaluating two higher dose levels (320 mg and 500 mg QD) with planned enrollment of up to 40 patients per arm. Positive early data from the dose escalation showed compelling molecular responses even at the lowest dose in heavily pre-treated patients. Additional safety and efficacy data, including read-through to a potential approval endpoint of a six-month major molecular response, are expected in the fourth quarter of 2025. The FDA granted Orphan Drug Designation for TERN-701 for CML in March 2024, acknowledging the potential for this therapy in a rare disease population.

For TERN-601, the Phase 2 FALCON trial in healthy adults with obesity or who are overweight began enrolling patients in March 2025 and is reported to be enrolling well. This follows positive Phase 1 data demonstrating promising weight loss and tolerability. Top-line 12-week data from the FALCON trial are also anticipated in the fourth quarter of 2025. These data will be crucial in assessing TERN-601's potential efficacy and safety profile over a longer treatment duration and against placebo in a larger cohort, providing a clearer picture of its competitiveness in the obesity market.

While TERN-501 development for MASH has been de-emphasized, the company continues to evaluate opportunities in other metabolic diseases, particularly leveraging the preclinical combination data with GLP-1R agonists. The TERN-800 series discovery effort for GIPR modulators continues, aiming to nominate a development candidate for potential combination with GLP-1R agonists like TERN-601.

These upcoming data readouts in late 2025 represent significant catalysts. Positive results could substantially de-risk the lead programs and potentially unlock significant value, while negative or inconclusive results would pose material challenges.

Financial Position and Runway

As a clinical-stage biopharmaceutical company, Terns does not yet generate revenue from product sales and incurs significant operating losses as it invests heavily in R&D. For the three months ended March 31, 2025, the company reported a net loss of $23.9 million, compared to a net loss of $22.4 million for the same period in 2024.

Operating expenses totaled $27.4 million in Q1 2025, up from $25.4 million in Q1 2024. Research and development expenses were relatively stable at $18.7 million in Q1 2025 compared to $18.6 million in Q1 2024. This stability masks shifts in program spending, with external expenses for TERN-701 increasing by $1.0 million (from $3.5M to $4.4M) and TERN-601 increasing by $1.7 million (from $4.1M to $5.8M), reflecting the advancement of these clinical programs. These increases were partially offset by a $1.0 million decrease in spending on other programs and a $1.3 million decrease in unallocated internal personnel-related R&D expenses. General and administrative expenses increased by $1.8 million (from $6.9M to $8.7M), primarily due to higher personnel-related costs and professional services.

Interest income provided a partial offset to operating losses, totaling $3.6 million in Q1 2025, up from $3.2 million in Q1 2024, reflecting higher cash, cash equivalents, and marketable securities balances.

As of March 31, 2025, Terns held $139.0 million in cash and cash equivalents and $195.2 million in marketable securities, totaling $334.3 million. This strong cash position was significantly bolstered by the $161.9 million in net proceeds from the September 2024 public offering. Management has guided that these existing capital resources are expected to be sufficient to fund planned operating expenses and capital expenditure requirements into 2028. This runway is critical as it is anticipated to carry the company through the key 4Q25 data readouts for its lead programs, providing financial stability during a period of high clinical activity. However, the company acknowledges it will need substantial additional funding to support operations beyond 2028, particularly if its product candidates advance towards later-stage trials and potential commercialization.

Navigating a Highly Competitive Landscape

Terns operates in therapeutic areas characterized by significant competition from both established pharmaceutical companies and other biotechnology firms.

In CML, TERN-701 competes with a range of approved tyrosine kinase inhibitors (TKIs), including imatinib (Gleevec), dasatinib (Sprycel), nilotinib (Tasigna), bosutinib (Bosulif), and particularly asciminib (Scemblix), which also targets the ABL myristoyl pocket. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, established players like Novartis (NVS) with Gleevec, Sprycel, and Scemblix hold significant market share. TERN-701's differentiation lies in its potential for improved potency against certain resistance mutations and a potentially favorable drug-drug interaction profile compared to asciminib, as highlighted in preclinical and early clinical data. This technological differentiation is key to carving out a space in this market, especially for patients who are resistant or intolerant to existing therapies.

The obesity market is even more crowded and rapidly evolving, dominated by injectable GLP-1 receptor agonists like Novo Nordisk's (NVO) semaglutide (Wegovy) and Eli Lilly's (LLY) tirzepatide (Zepbound), which also acts on GIP. Viking Therapeutics (VKTX) is another competitor with promising GLP-1/GIP dual agonists in development. These companies have significant scale, established commercialization capabilities, and strong clinical data demonstrating substantial weight loss. Novo Nordisk and Eli Lilly hold dominant market positions, with estimated market shares of 40-50% and 20-30% respectively in obesity treatments. Terns' TERN-601 faces the challenge of demonstrating comparable efficacy and safety to these established injectables while leveraging the potential convenience and cost advantages of an oral small molecule. The preclinical data supporting combination approaches with TERN-501 or the TERN-800 series represent a strategic attempt to differentiate by offering potentially broader metabolic benefits beyond weight loss alone, countering the strong efficacy of competitors' standalone GLP-1/GIP therapies. While Terns' innovation speed in developing novel small molecules is a strength, it lags significantly behind large players like NVO and LLY in terms of financial resources, market share capture, and commercialization experience. Its estimated aggregate market share in NASH/obesity is currently very small (2-5%).

Indirect competition includes lifestyle interventions, bariatric surgery, and potentially cheaper generic alternatives or biosimilars in the future, which could exert pricing pressure. Barriers to entry in biopharma, such as high R&D costs and complex regulatory pathways, are substantial and favor larger, more established companies. Terns' ability to succeed will depend heavily on its clinical data outcomes, the degree of differentiation its candidates offer, and its ability to secure future funding and potential partnerships.

Risks and Challenges

Investing in Terns Pharmaceuticals involves significant risks inherent in the clinical-stage biopharmaceutical sector. Key risks include:

• Clinical Trial Success: The outcomes of the ongoing Phase 1 CARDINAL (TERN-701) and Phase 2 FALCON (TERN-601) trials are uncertain. Failure to achieve desired efficacy or safety endpoints would severely impact the investment thesis. The 4Q25 data readouts are critical inflection points.
• Regulatory Approval: Even with positive clinical data, there is no guarantee that TERN's product candidates will receive regulatory approval from agencies like the FDA. The regulatory landscape, particularly for complex indications like MASH, can be challenging. Furthermore, potential disruptions at government agencies, such as the reported RIF and budget cuts at the FDA, could potentially delay review timelines, impacting the company's ability to secure timely approvals.
• Competition: The markets Terns is targeting are highly competitive. Existing approved therapies and other pipeline candidates from well-funded companies could limit the market potential or pricing power of Terns' candidates, even if approved.
• Future Funding Requirements: While Terns has runway into 2028, it will require substantial additional capital to complete later-stage clinical trials, pursue regulatory approvals, and potentially commercialize its products. The ability to raise this capital on favorable terms is not assured.
• Intellectual Property: The ability to obtain, maintain, and enforce patent protection is critical. Changes in patent law or challenges to Terns' patents could diminish the value of its pipeline.
• Global Economic and Political Risks: Uncertainties related to international trade policies, tariffs (including recent and potential future US tariffs on goods from countries like China where Terns has operations or suppliers), and supply chain disruptions could adversely affect the business.

Outlook and Strategic Focus

Terns' immediate future is centered on executing its ongoing clinical trials and delivering the anticipated data readouts in the fourth quarter of 2025. Successful outcomes for TERN-701 in CML and TERN-601 in obesity would represent significant validation of its small-molecule approach and pipeline potential, potentially paving the way for further clinical development, partnerships, and value creation.

The strategic decision to limit MASH spend on TERN-501 while exploring its potential in other metabolic diseases and combinations reflects a pragmatic approach to portfolio management in the face of evolving market dynamics. The continued investment in the TERN-800 series discovery underscores the long-term vision of developing differentiated combination therapies for obesity.

Management's guidance on cash runway into 2028 provides confidence in the company's ability to fund its planned activities through these critical near-term catalysts. The focus remains on advancing the lead programs, leveraging technological differentiation, and managing operational expenses while seeking opportunities for future growth and funding.

Conclusion

Terns Pharmaceuticals presents a compelling, albeit high-risk, investment case centered on the potential of its small-molecule pipeline to address significant unmet needs in CML and obesity. The company's differentiated approach, particularly with the allosteric BCR-ABL inhibitor TERN-701 and the oral GLP-1 agonist TERN-601, offers potential advantages in highly competitive markets. The upcoming clinical data readouts in the fourth quarter of 2025 are pivotal events that will significantly impact the company's trajectory and valuation.

Supported by a solid cash position expected to last into 2028, Terns has the necessary resources to reach these critical milestones. However, the inherent uncertainties of clinical development, intense competition from well-established players, and the need for substantial future funding beyond the current runway remain significant considerations for investors. The success of Terns hinges on its ability to translate promising early clinical data into compelling later-stage results and navigate the complex regulatory and commercial landscapes. Investors should closely monitor the 4Q25 data and the company's strategic responses to competitive pressures and future funding needs.