Stock Analysis & Valuation Terns Pharmaceuticals, Inc. (TERN)

• Previous Close: $34.60
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method		n/a
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Strategic Investment Analysis

Company Overview

Terns Pharmaceuticals, Inc. (NASDAQ: TERN) is a clinical-stage biopharmaceutical company pioneering innovative small-molecule therapies for non-alcoholic steatohepatitis (NASH) and obesity. Headquartered in Foster City, California, Terns focuses on developing single-agent and combination treatments targeting metabolic and liver diseases. Its pipeline includes TERN-101, a liver-distributed farnesoid X receptor agonist in Phase IIa trials for NASH, and TERN-201, a vascular adhesion protein-1 inhibitor in Phase Ib. Additionally, Terns is advancing TERN-501, a thyroid hormone receptor beta agonist, and TERN-601, an oral GLP-1 receptor agonist for obesity and NASH. With no approved products yet, the company is strategically positioned in the high-growth NASH market, projected to exceed $20 billion by 2030. Terns’ differentiated approach and robust clinical pipeline make it a compelling player in the metabolic disease therapeutics space.

Investment Summary

Terns Pharmaceuticals presents a high-risk, high-reward investment opportunity given its focus on the burgeoning NASH and obesity markets. The company’s diversified pipeline, including novel mechanisms like FXR and THR-β agonists, offers multiple shots on goal. However, as a pre-revenue biotech, Terns carries significant clinical and regulatory risks, evidenced by its $88.8M net loss in FY2023. With $161.4M in cash and a burn rate of ~$70M annually, the company has a ~2-year runway, necessitating future dilutive financing. The stock’s negative beta (-0.17) suggests low correlation to broader markets, potentially appealing for portfolio diversification. Success of lead candidates could drive substantial upside, but investors must tolerate binary clinical trial outcomes.

Competitive Analysis

Terns competes in the highly competitive NASH space, where efficacy and safety differentiation are critical. Its competitive edge lies in: (1) Mechanistic diversity – combining FXR (TERN-101), VAP-1 (TERN-201), and THR-β (TERN-501) approaches unlike single-pathway competitors; (2) Oral administration advantage for TERN-601 (GLP-1) versus injectable peers; and (3) Strategic focus on combination therapies potential. However, Terns trails leaders like Madrigal (FDA-filed resmetirom) and 89bio in development stage. The company’s small-molecule focus provides cost and scalability benefits over biologics but faces stiff competition from deep-pocketed players (e.g., Novo Nordisk, Lilly) in obesity. Terns’ $263M market cap reflects its underdog status versus multi-billion dollar competitors, making it an acquisition target but also vulnerable to competitive pipeline setbacks. Its academic collaborations (e.g., UNC for TERN-201) provide research credibility but require clinical validation.

Major Competitors

• Madrigal Pharmaceuticals (MDGL): Madrigal leads the NASH space with resmetirom (THR-β agonist) under FDA review. Its Phase 3 MAESTRO-NASH data demonstrated fibrosis improvement, setting a high efficacy bar. However, safety concerns (LDL elevation) and first-mover execution risk remain. Terns’ TERN-501 aims to improve on this mechanism with better liver targeting.
• 89bio (ETNB): 89bio’s FGF21 analog pegozafermin shows strong Phase 2 NASH data but requires weekly injections versus Terns’ oral candidates. Its $1.3B valuation reflects advanced pipeline but leaves Terns room for valuation catch-up with positive data.
• Novo Nordisk (NVO): The obesity leader’s GLP-1 drugs (semaglutide) dominate metabolic markets but lack NASH indications. Terns’ oral TERN-601 could differentiate with convenient administration but must overcome Novo’s massive commercial scale and clinical experience.
• Eli Lilly (LLY): Lilly’s tirzepatide shows NASH potential but prioritizes diabetes/obesity. Its dual GIP/GLP-1 mechanism may outcompete TERN-601’s single-target approach, though Terns’ small-molecule strategy could enable combinations Lilly’s biologics cannot.
• Intercept Pharmaceuticals (ICPT): Intercept’s OCA (FXR agonist) failed FDA approval for NASH, validating Terns’ strategy with TERN-101’s non-bile acid FXR approach designed to avoid OCA’s pruritus side effects. Intercept’s commercial infrastructure remains an asset Terns lacks.