2 Under-the-Radar Stocks That Could Soar

Terns Pharmaceuticals and Rhythm Pharmaceuticals are advancing promising weight-loss therapies in the burgeoning anti-obesity market. Terns Pharmaceuticals is awaiting Q4 Phase 2 data for its oral GLP-1 candidate, TERN-601, which could offer significant advantages over injectables if successful, though it carries high risk. Rhythm Pharmaceuticals, focusing on rare obesity conditions, reported Q2 revenue growth of 66.8% to $48.5 million and is seeking label expansion for its approved therapy, Imcivree, by year-end, while also progressing an oral candidate, bivamelagon, into Phase 3 next year. Both companies present high-risk, high-reward investment profiles based on upcoming clinical milestones and market opportunities in their respective niches.

Analysis

The burgeoning anti-obesity market frames the divergent strategies of two biotechs, Terns Pharmaceuticals (TERN) and Rhythm Pharmaceuticals (RYTM). Terns represents a classic high-risk, high-reward clinical-stage play, with its future valuation largely tied to a single binary event: the Q4 data readout from the Phase 2 trial of its oral GLP-1 candidate, TERN-601. While a successful trial could be a major catalyst given the market's demand for oral alternatives, failure presents substantial downside risk. In contrast, Rhythm Pharmaceuticals offers a partially de-risked profile as a commercial-stage entity. It reported strong Q2 revenue of $48.5 million, a 66.8% year-over-year increase, driven by its approved therapy, Imcivree. Rhythm is targeting a niche in rare obesity disorders and has a near-term catalyst in a potential year-end label expansion for hypothalamic obesity, supported by positive Phase 3 data. The company is further advancing its pipeline with bivamelagon, an oral candidate entering Phase 3, aiming to solidify its dominant position within its targeted, albeit smaller, patient populations.

Key Decisions for Investors

• Consider Terns Pharmaceuticals a speculative, event-driven investment, as its value is overwhelmingly dependent on the success of the pivotal Q4 Phase 2 data for its oral GLP-1 candidate, TERN-601.
• Investors may find Rhythm Pharmaceuticals' profile more attractive due to its commercial traction, reflected in 66.8% Q2 revenue growth, and its clear path to near-term value creation through the Imcivree label expansion in the underserved hypothalamic obesity market.
• Monitor Rhythm's regulatory progress for the Imcivree label expansion as a key near-term catalyst, while acknowledging the high risk and potential for significant volatility in Terns' stock leading into its Q4 data release.
• Given the inherent clinical and regulatory risks for both companies, any position should be sized to reflect the potential for significant downside in the event of pipeline setbacks.