10-Q: Terns Pharma Shifts Focus to Oncology, Halts Metabolic Programs

Terns Pharmaceuticals reports strong TERN-701 data and FDA Orphan Drug Designation, while discontinuing its metabolic disease programs to streamline its pipeline.

Summary

• Reported a net loss of $72.6 million for the nine months ended September 30, 2025, compared to $67.1 million for the same period in 2024.
• Cash, cash equivalents, and marketable securities totaled $295.6 million as of September 30, 2025, down from $344.3 million at December 31, 2024.
• Net cash used in operating activities increased to $63.1 million for the nine months ended September 30, 2025, from $55.4 million in the prior year.
• Announced a strategic pivot in October 2025, discontinuing TERN-601 and other metabolic assets (TERN-501, TERN-800 series) to focus on rapidly advancing TERN-701.
• TERN-701, an allosteric BCR-ABL inhibitor for CML, showed encouraging Phase 1 CARDINAL trial data with a 75% overall major molecular response (MMR) rate by 24 weeks in efficacy-evaluable patients (n=32) as of June 30, 2025.
• TERN-701 received FDA Orphan Drug Designation for CML in March 2024.
• Topline 12-week data from the Phase 2 FALCON trial for TERN-601 in obesity showed a maximum placebo-adjusted weight loss of 4.6% and a 12% discontinuation rate due to adverse events, including reversible Grade 3 liver enzyme elevations.
• The company is seeking strategic partners for TERN-501 and TERN-801 after discontinuing internal investment.

Sentiment

Score: 6

Explanation: The strong clinical data for TERN-701 and its Orphan Drug Designation are significant positives, indicating potential for a high-impact oncology drug. However, the complete discontinuation of all metabolic programs (TERN-601, TERN-501, TERN-800 series) due to insufficient results for TERN-601, while a strategic streamlining, represents a reduction in pipeline breadth and a failure in a major program. The increased net loss and cash burn are also concerns, though the extended cash runway into 2028 provides some stability. The strategic focus on oncology is a clear direction, but the overall sentiment is tempered by the metabolic program failures.

Positives

• TERN-701 Phase 1 CARDINAL trial demonstrated a 75% overall major molecular response (MMR) rate by 24 weeks in efficacy-evaluable patients (n=32) as of June 30, 2025.
• TERN-701 showed an encouraging safety profile in the CARDINAL trial, with 87% (48/55) patients remaining on treatment and no dose-limiting toxicities observed.
• FDA granted Orphan Drug Designation for TERN-701 for the treatment of CML in March 2024.
• Existing cash, cash equivalents, and marketable securities of $295.6 million are believed to be sufficient to fund planned operating expenses and capital expenditure requirements into 2028.
• Interest income increased to $10.13 million for the nine months ended September 30, 2025, from $9.15 million in the prior year.

Negatives

• Net loss increased to $72.6 million for the nine months ended September 30, 2025, from $67.1 million for the same period in 2024.
• Net cash used in operating activities increased to $63.1 million for the nine months ended September 30, 2025, from $55.4 million in the prior year, indicating higher cash burn.
• Discontinuation of TERN-601 and other metabolic assets (TERN-501, TERN-800 series) following Phase 2 FALCON trial results for TERN-601, which showed limited efficacy (4.6% weight loss) and safety concerns (Grade 3 liver enzyme elevations).
• Accumulated deficit grew to $494.1 million as of September 30, 2025.
• Research and development expenses increased by $6.88 million for the nine months ended September 30, 2025, compared to the same period in 2024.

Risks

• Disruptions at the FDA and other government agencies from funding cuts, personnel losses, regulatory reform, and government shutdowns could hinder the ability to obtain guidance and secure timely approval of product candidates.
• Uncertainty surrounding U.S. trade policy, including tariffs and U.S.-China tensions, could negatively impact costs of materials, production processes, and supply chain, especially for manufacturers and suppliers located in China.
• Potential impact of legislation like the BIOSECURE Act, which could restrict or prohibit working with certain Chinese biotechnology companies, disrupting material supply.
• Changes in tax laws or their implementation/interpretation (e.g., Inflation Reduction Act, One Big Beautiful Bill Act) could adversely affect business and financial condition, including effective tax rate, liabilities, and cash obligations.
• The development and commercialization of therapeutics for obesity is highly competitive, making it challenging to establish collaborations or strategic partnerships for metabolic programs on favorable terms.
• Need for substantial additional funding to support operating activities beyond the current cash runway into 2028, which may lead to dilution or unfavorable debt terms.

Future Outlook

The company expects to incur significant expenses and operating losses for the foreseeable future as it advances the preclinical and clinical development of its product candidates, particularly TERN-701. It anticipates needing substantial additional funding beyond its current cash runway into 2028, which may be obtained through equity or debt financings, collaborations, or licensing arrangements. The company also expects to incur significant commercialization expenses if TERN-701 receives marketing approval.

Management Comments

• "These emerging data reinforce our belief that TERN-701 has the potential to be a best-in-disease therapy, with broad opportunity across all CML treatment lines."
• "We announced that we will not advance TERN-601 or invest in other metabolic assets, including TERN-501 or the TERN-800 series, while reiterating our focus on rapidly advancing TERN-701."
• "We are seeking a strategic partner to advance the TERN-501 program."
• "We are seeking a strategic partner to advance TERN-801."
• "We believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2028."

Industry Context

The company operates in highly competitive oncology and metabolic disease sectors. For CML, TERN-701 aims to be a next-generation allosteric BCR-ABL inhibitor, competing with existing tyrosine kinase inhibitors (TKIs) and investigational TKIs. In obesity, the market is competitive with numerous product candidates in development, and the company's decision to discontinue internal metabolic programs reflects the challenges in this space, particularly regarding efficacy and safety profiles compared to competitors. The company is now seeking partners for its remaining metabolic assets, indicating a shift away from direct competition in this area.

Comparison to Industry Standards

• The 75% overall major molecular response (MMR) rate for TERN-701 in heavily pretreated, refractory CML patients (median 3 prior TKIs, 36% prior asciminib) is encouraging, especially compared to the challenges faced by patients who have failed multiple prior therapies. This suggests a potentially competitive profile against existing TKIs and other investigational agents like asciminib or ponatinib.
• The 4.6% maximum placebo-adjusted weight loss for TERN-601, coupled with a 12% discontinuation rate due to adverse events and Grade 3 liver enzyme elevations, appears to be below the efficacy and safety profiles of leading GLP-1 receptor agonists in the obesity market, such as Ozempic (semaglutide) or Wegovy (semaglutide), which have shown higher weight loss percentages and generally more manageable side effect profiles in their respective trials. This likely contributed to the decision to discontinue the program.

Management Changes

Stakeholder Impact

• Shareholders: Potential for increased value from focused oncology pipeline (TERN-701) but also risk from reduced pipeline diversity and increased cash burn. Dilution risk from future capital raises.
• Employees: Management changes have occurred, and the strategic pivot could impact roles related to metabolic programs.
• Customers/Patients: CML patients may benefit from a potentially "best-in-disease" therapy (TERN-701). Patients in obesity trials for TERN-601 will no longer have that option.
• Suppliers/Creditors: Continued operational expenses and need for future funding indicate ongoing business activity, but also reliance on external financing.

Next Steps

• Present a more expansive and updated dataset from the TERN-701 CARDINAL trial at the 67th ASH Annual Meeting in December 2025.
• Continue to advance the TERN-701 program, including the ongoing dose expansion phase of the CARDINAL trial.
• Seek strategic partners to advance the TERN-501 and TERN-801 programs.
• Potentially publish detailed results from the Phase 2 FALCON trial for TERN-601 in the future.
• Obtain substantial additional funding through equity offerings, debt financings, collaborations, strategic alliances, or licensing arrangements to support future operations beyond 2028.
• Continue to monitor evolving global economic conditions, international trade policies, and regulatory developments.

Key Dates

Recommendation

The company has made a decisive strategic shift to focus its resources on TERN-701, an oncology asset with promising Phase 1 clinical data and FDA Orphan Drug Designation. This focus could unlock significant value if TERN-701 continues to demonstrate strong efficacy and safety in later trials. However, the discontinuation of all metabolic programs (TERN-601, TERN-501, TERN-800 series) represents a significant reduction in pipeline breadth and a failure of a major program (TERN-601) to meet expectations. While the cash runway extends into 2028, the company still faces increased net losses and cash burn, necessitating future capital raises which could lead to dilution. Given the mixed bag of strong oncology data and pipeline contraction, a "hold" recommendation is appropriate. Investors should monitor the progress of TERN-701's CARDINAL trial and the company's ability to secure partnerships for its metabolic assets and manage its cash burn.

Keywords

Terns Pharmaceuticals, TERN, 10-Q, oncology, CML, chronic myeloid leukemia, TERN-701, BCR-ABL inhibitor, CARDINAL trial, Orphan Drug Designation, metabolic disease, obesity, TERN-601, GLP-1 receptor agonist, FALCON trial, TERN-501, THR-agonist, MASH, TERN-800 series, GIPR modulator, drug development, clinical trials, biotechnology, pharmaceuticals, financial results, SEC filing