Terns Pharmaceuticals faces market pressure following stock offering announcement

Terns Pharmaceuticals, Inc., a clinical-stage biopharmaceutical company developing small-molecule product candidates for serious diseases such as oncology and obesity, has seen a significant decline in its share price following the pricing of its upsized public offering. On 10 September 2024, the company announced it would offer 11,919,048 shares of common stock at $10.50 per share. Additionally, certain investors were offered pre-funded warrants to purchase 2,380,952 shares at a price of $10.4999 per warrant. The gross proceeds from this offering are expected to be approximately $150.15 million, excluding any exercise of the underwriters’ option to purchase additional shares.

Following this announcement, Terns Pharmaceuticals shares fell by 7%, closing at $10.40 on 11 September 2024. This drop comes after the shares reached a 52-week high of $11.40 on Tuesday. The significant decline highlights investor concerns over potential dilution and the uncertain prospects of early-stage biopharmaceutical investments.

Details of the Public Offering

Jefferies LLC and TD Cowen are acting as the lead book-running managers for the offering, with BMO Capital Markets and UBS Investment Bank also participating as bookrunners. Citizens JMP and Mizuho are co-lead managers. Terns Pharmaceuticals has also granted the underwriters a 30-day option to purchase up to an additional 2,145,000 shares of common stock at the offering price, less any underwriting discounts and commissions. The offering is expected to close on 12 September 2024, pending customary closing conditions.

The proceeds from this offering are set to be directed toward funding research, clinical trials, development, and manufacturing of Terns Pharmaceuticals’ key product candidates. These include TERN-701, an allosteric BCR-ABL inhibitor, TERN-601, a small-molecule GLP-1 receptor agonist, and other programs in the TERN-800 series. The funds will also be used for working capital and general corporate purposes.

Market Reaction and Investor Sentiment

Despite the potential long-term benefits of the capital raise, the market’s immediate reaction has been negative. The decline in share price suggests that investors are cautious about the dilution effect of the new shares being issued. This reaction is not uncommon in the biotechnology sector, where the issuance of additional shares can dilute the value of existing shares, especially if the raised capital does not lead to immediate value creation.

The shares of Terns Pharmaceuticals reached their highest point in a year at $11.40 on Tuesday, only to drop to $10.40 after the announcement of the offering’s terms. This 7% decline highlights the volatility that can accompany public offerings in the biopharmaceutical sector, particularly when a company is still in the clinical development phase and reliant on future drug approvals and market opportunities to generate revenue.

Strategic Positioning and Future Prospects

Terns Pharmaceuticals remains focused on advancing its portfolio of small-molecule therapies targeting oncology and metabolic diseases. The successful pricing of the public offering could provide the necessary funds to further its pipeline and clinical trials. However, the market’s response reflects a wait-and-see approach, where investors are likely to focus on the progress and results of Terns Pharmaceuticals’ key programs such as TERN-701 and TERN-601.

While the capital raise provides a financial runway for the company’s ambitious drug development plans, the near-term share price decline underscores the challenges faced by clinical-stage companies in maintaining investor confidence amid capital raises. Moving forward, the company will need to demonstrate clinical successes and potential market opportunities to regain investor trust and drive its stock price upward.