2023-03-21 08:13:14 ET
Summary
- TERN has a growing pipeline of early-stage assets against validated targets.
- TERN's internal discovery team has been productive at developing small molecules against key targets in big markets.
- TERN has an important NASH readout coming in Q3 23.
- Big issue now and long-term: How much value to give to TERN, with early-stage, me-too assets targeting validated assets in large markets.
Our biopharma hedge fund screener at BPIQ.com, revealed that Terns Pharmaceuticals (TERN) became a top 20 holding in 5 of 36 biopharma funds during Q4, which gave us the idea to look closer into this small-cap biopharma company. TERN has a growing clinical-stage pipeline of small molecule therapeutics against some of the hottest validated targets in cancer, liver and metabolic diseases. Its internal drug discover team appears to be very productive at getting new small molecules into clinical trials, which provides current and long-term value. Thus, in our more risk tolerant biopharma accounts, we started positions in this company.
TERN has been a super high-flying stock over the past year, up around 500% (FIG. 1). Yet its enterprise value is still less than $200M. And given that it has clinical stage assets in some multi-billion dollar markets, its stock has multiples of growth potential in the coming few years, if it is hits on just one of its assets. However, its multiple assets against proven targets should give it valuable flexibility in partnering some of the assets out, while identifying a core indication area of focus.
FIG. 1 TERN company overview and stock move over last year
TERN stock overview (BPIQ.com)
TERN's pipeline is early stage (FIG. 2). Although TERN-701, an allosteric BCR-ABL inhibitor gets a lot of attention on investor calls, its Phase 2a trial of TERN-501 in combo with TERN-101 in NASH is its most advanced trial. This trial has an important readout scheduled for Q3 of this year, which we have identified as a BPIQ.com suspected big mover catalyst event. The trial targets a combo of what look like 2 of the best targets in NASH: farnesoid X receptor [FXR] and thyroid hormone receptor beta. However, it will be interesting to see if the combination results in too many side effects. The trial design will provide valuable safety and efficacy data on each drug individually as well as the combo.
FIG. 2. TERN Clinical Stage Pipeline (March 2023)
TERN drug pipeline (BPIQ.com)
Overall, TERN is a bit tricky to value, and to follow with respect to upcoming clinical trial catalysts, because of the early stage of its assets and because its small molecules candidates share mechanisms of action with therapeutic candidates that are approved or further along in development from other companies. Thus, none of TERN's clinical assets are first movers for a given therapeutic target. However, this provides considerable risk reduction, and there are plenty of stories in biopharma where second and later approved therapeutics against a particular target generated high revenue and/or a nice M&A multiple.
in addition to its own upcoming clinical trial readouts, which are mainly phase 1 and phase 2 trials, TERN's stock price/valuation should continue to be significantly impacted by the readouts of other companies' pipeline candidates. See Table 1 for recent and upcoming readouts that are relevant to TERN and its assets.
Table 1. Notable readouts mainly from other company trials that will likely impact TERN:
NASH
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TERN-501 (THR-beta agonist)
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Q3 '23 Ph2a NASH TERN-501 topline data
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[Recent] Dec 2022 Ph3 NASH resmetirom data ( MDGL ) (highly positive results)
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Q2 '23 VK2809 NASH topline efficacy data
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TERN-101 (FXR agonist)
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[Recent] Nov 2023 ICPT's OCA (FXR agonist) updated phase 3 data
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May 19, 2023 ICPT's upcoming Adcomm for OCA for NASH
- June 22, 2023 ICPT's PDUFA for OCA for NASH
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Blood cancer [CML]
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TERN-701 (BCR-ABL inhib) (TERN Ph1 data in 2024)
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Ph1 [China] - Hansoh BCR-ABL inhib (HS-10382 - same as 701) - CML - Update at cancer meeting in 2023
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2H 2023 Initiate Ph1 TERN-701 in CML
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Post approval trial updates from Novartis for Scemblix (3L CML approved Allosteric BCR-ABL) - 1st line CML trial fully enrolled
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Weight Loss
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TERN-601 (GLP-1RA agonist) (TERN Ph1 data in 2024)
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Ph1/2 trial updates from PFE and LLY for their oral/small molecule GLP-1RA inhibitors
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What are AMP's current thoughts and positions on TERN?
Overall, although there is plenty of risk in a company like TERN without any clinical assets beyond stage 2, we are bullish on TERN from a long-term perspective (See Bulleted list below).
What we like about TERN (Bull Thesis):
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TERN has pipeline of internally developed, small molecules that target validated, high value, targets
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Less risk than most biopharmas with only early-stage assets, but lots of upside
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TERN has 2 candidates in Ph2 that target 2 of the best validated targets in NASH: THR-beta and FXR
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TERN appears to have an effective small-molecule discovery engineer and team for identifying highly-valuable targets
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Biopharma hedge funds have been increasing their positions in TERN
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TERN is a top 20 holding of 5 of 36 biopharma hedge funds at the end of Q4 2022 and was in the top 20 of none at the end of Q3
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Only 39 stocks out of ~400 biopharma stocks are held in the top 20s of 5 or more of these 36 hedge funds
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And few of these top 39 stocks held in Top 20s have enterprise values of under ~$300M
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TERN has a lot of upside in the coming years since its current enterprise value is only ~$200M
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TERNS' Small molecule candidates target multi-billion dollar opportunities with clinically validated targets
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TERN can move rapidly thru its upcoming programs in CML (type of blood cancer) and weight loss
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Efficacy data in 2024
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Despite its early stage pipeline, catalyst events from other companies targeting same targets as TERN, could be catalysts for TERN in '23 & '24
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TERN has a cash runway of over 3 yrs and thus can time dilution events at ideal times
What we don't like about TERN (Bear Thesis):
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TERN's assets are very early stage
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Only 1 asset has entered clinical trials in the U.S.
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it is too early to know whether TERN's drug discovery engine is effective or just over-hyped
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TERN's stock price is already up ~500% since 6/1/22 and now there is considerable downside risk
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TERN's therapeutics are me-too drugs, years behind competitive therapeutics in clinical development
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TERN doesn't appear to have much confidence about TERN-101 (FXR agonist), since they discuss it much less than their THR-B agonist.
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TERN mainly only discusses TERN-101 in combination with TERN-501
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It is trickier for retail investors to follow TERN because it requires identifying readouts of a lot of different companies
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TERN's FXR MOA is also the same as ICPT's Ocaliva, which has had difficulties getting FDA approval for NASH despite long, large Ph3 clinical trials
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Ocaliva also has serious side effects with respect to severe itching (pruritus)
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- We have not looked at TERN's patent freedom-to-operate, which should be considered given TERN's me-too/follower drug development approach.
For further details see:
Terns Pharmaceuticals: Early-Stage Biopharma Worthy Of Your Attention