1 New Weight Loss Drug Stock to Buy Now with $1,000 and Hold for 5 Years or More

If you have $1,000 that you don’t really need for an immediate expense, or aren’t saving for a major purchase, investing that amount may be a good option. With competition in the weight loss market heating up and only showing signs of accelerating, now is a smart time for investors to position themselves in the most credible contenders for tomorrow’s winners.

But here’s the catch: Investing in tomorrow’s winners may carry a higher risk than investing in today’s proven winners.

In that connection, Terns Pharmaceuticals (NASDAQ: TERN) is a biotech company developing weight loss therapies that you can invest $1,000 in today if you’re patient enough to hold on to it for at least a few years while it (hopefully) gets its first product approved for sale. Here’s why it’s an attractive biotech stock pick.

Terns reports encouraging results

On September 9, Terns reported results from a Phase 1 clinical trial investigating whether its orally administered GLP-1 weight loss candidate, TERN-601, is safe for use at its intended once-daily dosing regimen.

According to the results of that study, the odds are in its favor. In just 28 days, patients treated with the highest tested dose of the candidate experienced an average weight loss of 4.9% of their mass, more than what patients taking a placebo experienced. That’s a competitive weight loss compared to drugs on the market and in development.

But more importantly, TERN-601 appeared to be reasonably well tolerated by patients.

No patients in any of the dose cohorts tested chose to discontinue their study participation or reduce their dose as a result of the side effects they experienced. That’s in stark contrast to other studies of drugs in the same class, which typically record high rates of patients discontinuing study participation or treatment with the approved drugs because of how uncomfortable they are to take.

In the lowest dose group, 50% of patients reported mild side effects, while in the placebo group, 55% of patients reported the same. Although the two higher doses tested seemed to cause more mild and also more moderate side effects than placebo, which is not surprising, the fact that none of those patients interrupted or discontinued their scheduled doses is very encouraging.

These results point to a bright future

Although Terns’ results are still in the early stages and more extensive research will be conducted in phase 2 trials expected to start in 2025, there are a number of conclusions that support the investment hypothesis for the stock.

First, Terns may have the most tolerable anti-obesity drug candidate at this time. It is therefore plausible that a low dose of TERN-601 taken daily could be a very effective maintenance therapy for patients who have already lost a lot of weight, or for patients who could lose a few pounds but would otherwise avoid more intensive therapy with more severe side effects. Both markets are likely to be huge, especially as weight loss drugs become more popular and as prescribing guidelines change in light of the available drugs approved for sale.

The second conclusion is that TERN-601 does not have any major safety or efficacy concerns that arise from being a pill format rather than an injection, like most other drugs in its class. Since Terns is not testing an injected formulation of its candidate anyway, that is particularly good news because it means that research and development (R&D) resources are not being wasted testing two different formulations. Additionally, it could ultimately mean that the therapy may be less expensive than an injection.

Do not underestimate these risks

As favorable as the latest data from Terns seems, there are still a few risks you should be aware of.

Terns had $225 million in cash, cash equivalents and marketable securities in Q2, which management believes will last through 2026. Given that its net loss in the same period was just $22.7 million, that estimate is reasonable. But it may need to issue new shares or take on debt if funds run out.

There’s also the risk that the Phase 2 study of TERN-601, which will last 12 weeks instead of 28 days, will uncover problems that the Phase 1 study didn’t have time to address. A particularly devastating problem, aside from unforeseen safety concerns, would be if the candidate’s ability to cause weight loss were to plateau significantly after the first month of treatment. But there’s no reason to expect that at this point, so don’t let that deter you from investing.

Since the candidate is still in the early stages of development for its two clinical programs, there are still plenty of catalysts ahead, but it will be years before there is any actual revenue, if there ever is any. Since Terns is developing different drugs than TERN-601, it will also be exposed to both downsides and upsides, which is why a $1,000 investment is a reasonable size for an entry-level position. If you’re impatient, this might not be the right choice for you, as the biotech needs at least a few years before it has a chance to get anything approved for sale.

Should You Invest $1,000 in Terns Pharmaceuticals Now?

Before buying shares in Terns Pharmaceuticals, you should consider the following:

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.