1 new weight loss drug stock you can buy now for $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 if you're not saving it for an expensive purchase, leveraging that amount through investing can be a great option. With competition in the weight loss drug market heating up sharply and only showing signs of accelerating further, now is a good time for investors to position themselves on the most credible contenders for tomorrow's winners.

But here's the catch: investing in tomorrow's winners can involve higher risk than investing in today's proven winners.

In this sense, Terns Pharma (TERN -5.84%) is a biotech company developing weight-loss therapies that's worth investing $1,000 in today, assuming you're patient enough to hold it for at least a couple of years so it can (hopefully) get its first product approved for sale. Here's why it's an attractive biotech stock.

Terns reports encouraging results

On September 9, Terns reported results from a Phase 1 clinical trial evaluating whether its orally administered GLP-1 weight loss candidate, TERN-601, can be used safely at its intended once-daily dosing regimen.

According to the results of this study, the chances are good. In just 28 days, patients treated with the highest dose of the candidate tested lost an average of 4.9% of their body weight, more than patients taking a placebo. This is a competitive weight loss compared to drugs on the market and in development.

More importantly, TERN-601 appeared to be relatively well tolerated by patients.

In none of the dose groups studied was there a single patient who discontinued participation in the study or reduced the dose due to side effects. This is in stark contrast to other studies of drugs in the same class, which typically record high rates of discontinuation from studies or treatment with the approved drugs because taking them is too unpleasant.

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

These results point to a bright future

Although Terns' results are still in the early stages and will therefore undergo a more comprehensive study in Phase 2 trials scheduled to begin in 2025, there are still some insights that support the investment thesis for the stock.

First, Terns may have the most tolerable anti-obesity drug candidate currently available. It is therefore plausible that a low dose of TERN-601 taken daily could provide a highly 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 expected to be huge, especially as weight loss drugs become more widely used and prescribing guidelines change in light of the available drugs approved for sale.

The second finding is that TERN-601 has no major safety or efficacy issues arising from its tablet delivery format rather than an injection, as is the case with most other drugs in this class. Given that Terns is not studying an injectable formulation of its candidate anyway, this is particularly good news because it means that research and development (R&D) resources are not being used inefficiently by testing two different formulations. It could also ultimately mean that the therapy may be cheaper than an injection.

You should not ignore these risks

As favorable as Terns' latest data appears, there are still some risks you should be aware of.

As of the second quarter, Terns had $225 million in cash, cash equivalents, and marketable securities, which management is confident will last through 2026. That estimate is reasonable given the company's net loss of just $22.7 million during the same period. But the company may need to issue new stock or take on debt if funds become tight.

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

Since the candidate is still in the early stages of development of its two clinical programs, there are many catalysts ahead, but it will take years to see any real revenue, if any at all. Since Terns is developing other drugs besides TERN-601, it will be exposed to both downside and upside, which is why a $1,000 investment is a reasonable size for a starting position. If you're impatient, this may not be the right choice for you, as the biotech will need at least a few years before it has a chance to approve anything for sale.