2 Under-the-Radar Stocks That Could Soar

Key Points

• Terns Pharmaceuticals and Rhythm Pharmaceuticals are developing weight loss medicines.

• Terns Pharmaceuticals has an upcoming data readout for a promising oral candidate.

• Rhythm Pharmaceuticals is targeting label expansions for its lone approved therapy.

• 10 stocks we like better than Terns Pharmaceuticals ›

While oncology is the largest therapeutic area in the pharmaceutical industry by revenue, the anti-obesity space has grabbed the most attention over the past couple of years. This niche is still in its infancy, though, and it is projected to grow rapidly at least through the end of the decade. Many drugmakers, both large and small, are seeking to make a significant impact in this area. The most successful ones will reap substantial financial benefits and perhaps generate market-crushing returns in the process.

Two relatively unknown biotechs that are developing promising therapies in this field are Terns Pharmaceuticals (NASDAQ: TERN) and Rhythm Pharmaceuticals (NASDAQ: RYTM). These biotechs could soar provided they deliver solid progress. Here's what investors need to know.

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 »

Image source: Getty Images.

1. Terns Pharmaceuticals

Terns Pharmaceuticals is a small-cap, clinical-stage biotech. One of the company's leading candidates is TERN-601, a mid-stage oral GLP-1 candidate. Terns Pharmaceuticals has recently initiated a 12-week phase 2 clinical trial for this medicine in weight loss. It expects data from it in the fourth quarter. Although several approved anti-obesity medicines are generating substantial sales, an oral option could address some remaining issues. Oral pills come with lower manufacturing costs than subcutaneous injections.

With oral medications, drugmakers will have the opportunity to ramp up manufacturing and target even more patients, especially considering many are practically allergic to needles. TERN-601 is still just in mid-stage studies. And based on recent developments from competing biotech and pharmaceutical companies working on oral GLP-1 medicines, it won't be easy for Terns Pharmaceuticals to impress the market. However, if it can post strong results for TERN-601, Terns Pharmaceuticals' shares could soar later this year.

Terns Pharmaceuticals does have other pipeline candidates. It is developing TERN-501 as a potential medicine for metabolic dysfunction-associated steatohepatitis and as a potential combination therapy that could enhance the efficacy of GLP-1 medicines. Terns Pharmaceuticals' TERN-701 is a potential cancer therapy in a phase 1 study, with an upcoming data readout scheduled for the fourth quarter.

That said, Terns' performance will largely depend on progress related to TERN-601. And if this investigational medicine fails in mid-stage studies, the stock will plummet. So, although there is plenty of upside potential here, there is also above-average risk. Invest accordingly.

2. Rhythm Pharmaceuticals

Rhythm Pharmaceuticals is targeting a niche of the market for weight management drugs. The company is developing medicines that help patients with obesity due to various rare conditions. Rhythm's Imcivree, first approved in 2020, is indicated for weight management in patients with certain protein deficiencies. The medicine doesn't generate much sales, but it is making progress. In the second quarter, Rhythm Pharmaceuticals' revenue increased by 66.8% to $48.5 million.

Recent clinical progress has made Rhythm's prospects more attractive. It reported strong phase 3 results for setmelanotide (the active ingredient in Imcivree) in patients with obesity resulting from hypothalamic damage. Rhythm Pharmaceuticals recently submitted regulatory applications for the medicine in this indication. It could earn this label expansion by the end of the year.

Elsewhere, the company's bivamelagon also aced a phase 2 study in hypothalamic obesity. Rhythm Pharmaceuticals plans to initiate phase 3 studies for bivamelagon next year. Bivamelagon has the added advantage of being an oral medicine, whereas setmelanotide is administered via subcutaneous injection. Strong phase 3 results for bivamelagon could also jolt the stock. Rhythm's addressable market is relatively small.

Between Imcivree's current indications and the potential new approvals and label expansions in hypothalamic obesity, the company is targeting a potential patient population of up to 35,500 patients in the regions it is focusing on: the U.S., Europe, and Japan. However, there is also a need for medications that target these conditions specifically -- most weight management medicines don't do that. There are no therapies approved for weight management in hypothalamic obesity, for example.

Rhythm Pharmaceuticals could be the dominant player in these smaller weight management markets. That's before we add several other phase 2 and phase 3 clinical trials that could lead to even more label expansions for setmelanotide. Rhythm Pharmaceuticals remains somewhat risky. Clinical or regulatory setbacks with setmelanotide or bivamelagon could negatively impact the stock. But the company could deliver outstanding returns in the next five years, provided it can launch bivamelagon and add new indications to setmelanotide.

Should you invest $1,000 in Terns Pharmaceuticals right now?

Before you buy stock in Terns Pharmaceuticals, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Terns Pharmaceuticals wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $661,694!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,082,963!*

Now, it’s worth noting Stock Advisor’s total average return is 1,067% — a market-crushing outperformance compared to 190% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 15, 2025

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.