This Weight Loss Stock Could Skyrocket by 462%, According to Wall Street

Last year, Viking Therapeutics, a mid-cap biotech, made waves after it reported excellent phase 2 results for an investigational medicine for weight loss, the industry's hottest and perhaps fastest-growing therapeutic area. Analysts remain bullish on Viking, but another weight loss company boasts even more significant upside potential, judging by Wall Street's predictions: Terns Pharmaceuticals (NASDAQ: TERN).

The average price target for this small-cap drugmaker's stock, $19.06 (per Yahoo! Finance), implies that the stock could skyrocket by about 462% from its current levels. Does that make it a buy?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Terns Pharmaceuticals' approach to weight loss

Terns Pharmaceuticals focuses on developing weight loss and oncology medicines. Its two leading candidates, TERN-601 and TERN-501 -- both in the anti-obesity field -- are close to entering phase 2 studies. The stock's returns in the next few years will depend on clinical and regulatory progress for these and other investigational medicines. Are they promising enough to warrant Wall Street's bullish predictions?

Let's discuss each in turn. TERN-601 is a potential once-daily oral GLP-1 medicine. Currently there are no GLP-1 medicines in the market; the leading weight loss candidates are injected subcutaneously. Some patients might prefer an oral formulation, so if it passes all the clinical and regulatory hoops it needs, TERN-601 could see some decent success. In a phase 1 study, the medicine led to a statistically significant mean weight loss of 5.5% (4.9% placebo-adjusted) in 28 days. Terns Pharmaceuticals could be onto something with this product.

The company's other leading candidate, TERN-501, also seems promising. GLP-1 medicines are effective, but the body responds to the weight loss by increasing energy conservation, leading to fewer calories burned and less weight loss. TERN-501 is being developed to help enhance the efficacy of GLP-1 medicines by stabilizing energy expenditures during the process. If this therapy proves effective, prescribing it along with GLP-1 therapies could become standard, so there's a vast potential for TERN-501.

Beyond these two investigational weight loss medicines, Terns is developing TERN-701, a potential cancer treatment that recently produced positive interim data in a phase 1 study in patients with chronic myeloid leukemia. The company plans to release more data from this trial in the fourth quarter.

Lots of upside potential and even more risk

If any company can soar by 462% in a year, it would be a small-cap biotech with exciting pipeline candidates in a high-growth therapeutic area. That describes Terns Pharmaceuticals well. However, it's hard to predict these things. And TERN-601 and TERN-501 haven't even started phase 2 studies yet. Mid-stage data from its two weight loss candidates could be major catalysts that send its share price soaring, but Terns might not even provide updates on these products in the next 12 months.

The company's work with TERN-701 is far less likely to lead to significant gains -- the medicine is still only in a phase 1 study. In other words, there's little reason to expect Terns to deliver the kinds of returns Wall Street hopes for in the next year. In fact, the stock continues to move in the wrong direction, and with good reason. Despite its promising leading candidates, Terns Pharmaceuticals' prospects look highly uncertain. Here's one reason why.

Terns was initially developing TERN-501 for metabolic dysfunction-associated steatohepatitis (MASH), but it abandoned that project after successful (but not successful enough, considering the competitive landscape) phase 2 clinical trials. Ending that program might have been the right move, but the episode highlights how difficult it will be to develop successful therapies in fields that are becoming increasingly crowded.

Other companies are testing oral GLP-1 medicines; several of them are ahead of Terns Pharmaceuticals on this project. Other drugmakers are also working on medications that work similarly to TERN-501. Ultimately, the most effective candidates are likely to go on to dominate. However, currently there's no good reason to expect Terns' medicines to deliver blowout clinical trial results. If one does, the stock could soar.

But if it doesn't, investors could end up with worthless shares in a few years. For most prospective buyers, the risk isn't worth it, as there are much more attractive biotech stocks on the market.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $292,207!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,326!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $480,568!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Continue »

*Stock Advisor returns as of March 3, 2025

Prosper Junior Bakiny has positions in Viking Therapeutics. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.