Terns Pharmaceuticals, Inc. (TERN): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Terns Pharmaceuticals, Inc. right now, and the picture is complex: they've made a big bet on oncology with TERN-701, but their metabolic assets are running into giants like Novo Nordisk and Eli Lilly. Honestly, as a seasoned analyst, I see a company with $0 in forecast 2025 product revenue, meaning the power dynamics-from specialized suppliers to the payers waiting to negotiate-are heavily skewed against them until they prove clinical success. We saw R&D spending hit $19.9 million in Q3 2025 just to keep pace, so understanding where the real pressure points are is defintely critical. Below, we break down Michael Porter's Five Forces to map out exactly how Terns Pharmaceuticals navigates this high-stakes environment, from supplier leverage to the threat of established substitutes in the CML space.

Terns Pharmaceuticals, Inc. (TERN) - Porter's Five Forces: Bargaining power of suppliers

You're managing a clinical-stage biotech like Terns Pharmaceuticals, Inc., and the suppliers you depend on-for making the drug substance and running the trials-definitely hold sway. Their leverage comes from the specialized nature of what they provide, which is a major cost driver in your Research and Development (R&D) budget.

High reliance on specialized Contract Manufacturing Organizations (CMOs) for small-molecule synthesis.

For Terns Pharmaceuticals, Inc.'s small-molecule candidates like TERN-701, manufacturing requires highly specific, often custom synthesis, meaning you can't easily switch providers. While Terns is focusing internally on advancing TERN-701 towards a pivotal trial, the underlying manufacturing capacity is outsourced to these specialized CMOs. The global biopharmaceutical contract manufacturing market was valued around $17.6 billion in 2023, showing the scale and concentration of expertise Terns must tap into. This reliance means CMOs can dictate terms, especially for late-stage or commercial-scale batches, which Terns will eventually need for TERN-701.

Clinical Research Organizations (CROs) and trial sites hold power due to the specialized nature of Phase 1/2 oncology and metabolic trials.

Running trials like the CARDINAL study in Chronic Myeloid Leukemia (CML) and the now-concluded FALCON trial in obesity requires expert CROs and specialized trial sites, particularly for complex oncology protocols. Terns Pharmaceuticals, Inc.'s R&D expenses reflect this dependency; for the quarter ended September 30, 2025, R&D spend was $19.9 million. A significant portion of that goes directly to third-party costs, including fees paid to CROs for nonclinical studies and clinical trials. The specialized nature of recruiting heavily pre-treated CML patients or managing GLP-1 RA studies means CROs with proven track records in these niches command premium pricing.

Key raw material and specialized reagent suppliers are limited, increasing their leverage over a clinical-stage company.

The active pharmaceutical ingredients (APIs) and specialized reagents needed for Terns Pharmaceuticals, Inc.'s small molecules are often sourced from a small pool of qualified vendors. This scarcity translates directly into pricing power for the supplier. For instance, looking at a relevant specialized chemical input, Polyethylene Glycol prices in the USA reached $1100/MT in September 2025, illustrating how external market factors-like logistics and feedstock costs-can be passed directly to Terns. Given Terns' decision to partner metabolic assets, the pressure to secure favorable supply terms for the remaining oncology asset, TERN-701, is paramount.

Access to key opinion leaders (KOLs) and expert clinical investigators is critical and costly.

Securing the right principal investigators (PIs) and KOLs to champion TERN-701, especially when comparing its efficacy to Novartis's Scemblix, is non-negotiable. These experts are scarce, and their consulting or investigator grant fees are high. These costs feed into both R&D and General and Administrative (G&A) expenses. Terns Pharmaceuticals, Inc.'s G&A expenses for Q3 2025 were $7.8 million, which covers overhead that includes expert engagement necessary for trial design and data interpretation.

Here's a quick look at Terns Pharmaceuticals, Inc.'s financial footing as of late 2025, which dictates how much price pressure they can absorb from suppliers:

The bargaining power of suppliers for Terns Pharmaceuticals, Inc. is generally considered high due to these factors:

• Specialized CMOs for complex small-molecule synthesis.
• High switching costs associated with regulatory-heavy CRO/site contracts.
• Limited sources for key, specialized raw materials.
• Critical, costly reliance on expert Key Opinion Leaders.

Finance: draft 13-week cash view by Friday.

Terns Pharmaceuticals, Inc. (TERN) - Porter's Five Forces: Bargaining power of customers

You're evaluating Terns Pharmaceuticals, Inc. (TERN) as a clinical-stage company, and the customer side of the equation-whether that's a potential partner or a future payer-is where the leverage currently sits. Honestly, for a company pre-commercialization, the bargaining power of customers is elevated across the board.

The most immediate 'customers' are the potential partners Terns Pharmaceuticals needs to out-license its metabolic assets, TERN-601 and TERN-501. Terns has made a definitive strategic pivot, announcing it will discontinue internal clinical development in metabolic disease beyond year-end 2025. This creates a hard deadline for deal-making, giving potential partners significant negotiation leverage over the assets. You see this reflected in the company's financial structure; as of September 30, 2025, Terns held $295.6 million in cash, cash equivalents, and marketable securities, which management projects provides a runway into 2028. That runway is finite, and the need to secure external funding for these programs before the internal investment stops puts Terns Pharmaceuticals in a reactive position for these specific deals.

The financial reality reinforces this negotiation dynamic. Terns Pharmaceuticals reported $0.0M in revenue for Q1 2025, and analyst consensus forecasts revenue to reach $0.00 USD for the next reported quarter. This $0 product revenue forecast for 2025 means Terns has no commercial revenue stream to offset the costs of development or to use as a baseline for partnership negotiations, handing significant power to any entity looking to acquire or co-develop TERN-601 or TERN-501.

When you look down the road to future commercial customers-the payers-their power is structurally high. The healthcare system is seeing continued consolidation, with reports in 2025 noting that payers are executing consolidation and vertical integration strategies, which can lead to reduced patient access and increased prices overall. For any new therapy Terns Pharmaceuticals brings to market, these large, consolidated payers-major insurers and government programs-will demand steep discounts to include a novel therapy on their formularies, especially if the therapy is entering a crowded field.

The bargaining power of prescribers, like oncologists and hospitals, is also a factor, particularly for the oncology asset, TERN-701. While TERN-701 showed compelling Phase 1 data with a cumulative Major Molecular Response (MMR) rate of 75% by 24 weeks and 100% MMR durability at cutoff, it is competing against established, approved tyrosine kinase inhibitors (TKIs). Novartis's Scemblix, for instance, demonstrated a 67.7% MMR at 48 weeks against investigator-selected TKIs in a head-to-head trial for newly diagnosed patients. Furthermore, Scemblix showed a lower discontinuation rate due to adverse reactions of 4.5% compared to 11.1% for Gleevec/second-generation TKIs in a separate analysis. This means oncologists have readily available, proven alternatives that are easily switched to, which limits Terns Pharmaceuticals' pricing flexibility.

Here's a quick comparison of the competitive pressure on Terns Pharmaceuticals' pipeline assets versus established standards:

The pressure from payers and prescribers is compounded by the internal need to secure a partnership for the metabolic assets, as Terns Pharmaceuticals has decided to stop investing in that clinical development by the end of the year. This forces a customer-centric negotiation strategy for TERN-601 and TERN-501.

• Potential partners for metabolic assets have leverage due to Terns Pharmaceuticals' decision to cease internal investment beyond 2025.
• Future payers will exert pressure based on their consolidated market power, which is a continuing trend in 2025.
• Oncologists can easily switch to established TKIs like Scemblix, which showed a lower discontinuation rate of 4.5% in one trial setting.
• The company's current financial state, with $295.6 million in cash as of September 30, 2025, must fund operations until 2028 without immediate product revenue.

Terns Pharmaceuticals, Inc. (TERN) - Porter's Five Forces: Competitive rivalry

You're looking at a market where Terns Pharmaceuticals, Inc. faces established giants and well-funded rivals across its pipeline, which definitely drives up the cost of staying in the game. Honestly, the rivalry is intense, especially in the areas Terns has targeted.

The obesity market rivalry is extremely high with established injectable GLP-1RAs from Novo Nordisk and Eli Lilly. Lilly's Zepbound secured two-thirds of U.S. GLP-1 prescriptions and showed 41% Year-over-Year prescription growth as of Q2 2025. Lilly's combined obesity and diabetes portfolio generated more than $10.09 billion in its latest reported quarter, which was over half of its total revenue of $17.6 billion. Novo Nordisk maintains pricing between $499-$599/month, while Lilly prices between $400-$500/month. Zepbound showed 20.2% weight loss compared to Wegovy's 13.5% in head-to-head comparisons. Novo Nordisk and Eli Lilly together dominate approximately 90% of the global GLP-1 segment. Terns has discontinued internal development of its obesity candidate, TERN-601, after its Phase 2 study showed a maximum placebo-adjusted weight loss of 4.6%.

For TERN-701, targeting Chronic Myeloid Leukemia (CML), the direct competition from Novartis's Scemblix (asciminib), an approved allosteric inhibitor, is significant. Novartis recently lifted its peak sales forecast for Scemblix to at least $4 billion. Scemblix reported sales of $164 million in the first half of 2024, representing 56% (cc) growth. Terns' TERN-701, however, is showing compelling Phase 1 data with a cumulative Major Molecular Response (MMR) rate of 75% by 24 weeks and 100% MMR durability at cutoff.

The MASH/NASH space, where TERN-501 was being developed, is crowded, even though Terns has deprioritized internal development for MASH. Madrigal Pharmaceuticals has an approved THR-β agonist, Rezdiffra. TERN-501's Phase 2a trial showed a 41% placebo-adjusted mean reduction in liver fat content, which was better than the 23% Madrigal chalked up in its midphase study.

This competitive pressure across multiple indications drives high Research & Development (R&D) spending for Terns Pharmaceuticals, Inc. R&D expenses were $19.9 million for the quarter ended September 30, 2025.

Here's a quick look at the direct competitive landscape for Terns' key historical and current assets:

The intensity of the rivalry is further highlighted by the financial commitment required to compete:

• Terns Pharmaceuticals R&D Expenses (Q3 2025): $19.9 million.
• Eli Lilly's obesity/diabetes revenue (Latest Quarter): More than $10.09 billion.
• Scemblix 1H 2024 Sales: $164 million.
• Lilly's Zepbound prescription growth (YoY Q2 2025): 41%.

Terns Pharmaceuticals, Inc. (TERN) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Terns Pharmaceuticals, Inc. (TERN)'s pipeline assets is substantial, stemming from established, multi-generational therapies and non-pharmaceutical alternatives in both the Chronic Myeloid Leukemia (CML) and obesity spaces.

For CML, the threat is high due to the presence of multiple approved, branded, and generic Tyrosine Kinase Inhibitors (TKIs). The global Chronic Myeloid Leukemia treatment Market size is estimated at $10 billion in 2025. Terns Pharmaceuticals, Inc. is targeting this market, which Terns research indicates is a $5bn market for its TERN-701. Novartis's asciminib (Scemblix), a newer TKI, generated $689 million in revenue in 2024. The first-generation TKI, imatinib, faces generic competition, with the average generic price leaving the manufacturer (WAC) in the US being about $5,000/year, though this can inflate to > $130,000/year at the patient level. Ponatinib, approved in 2012, serves as another established option for resistant mutations. The annual incidence of CML in the US is about 2 cases/100,000, translating to approximately 9,600 cases in 2024.

The threat of substitutes in the obesity indication is characterized as very high, primarily driven by established, non-oral, injectable GLP-1 Receptor Agonists (GLP-1RAs). The global GLP-1 receptor agonist market size was estimated at USD 53.46 billion in 2024 and projected to reach USD 70.08 billion in 2025. The obesity/weight management segment is the fastest-growing indication within this market. The parenteral (injectable) segment held the largest revenue share in 2024 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 17.42% from 2025 to 2030. The Semaglutide class, which includes injectable products, held a 49% share of the total GLP-1 market in 2024. The high cost of these established treatments is a major factor, with the cost per member per month for selected GLP-1 medications increasing exponentially from $4.34 in 2022 to $27.23 in Q1 2025 after discounts and rebates. TERN-601 is targeting this market, which is described as a $10 billion behemoth dominated by these weekly injections.

Non-pharmaceutical substitutes present an additional layer of substitution pressure for obesity treatment:

• Lifestyle modification programs are required by 14% of employers who cover GLP-1s for weight loss.
• Bariatric surgery remains a non-patent-protected, definitive alternative for significant weight loss.
• 52% of employers surveyed reported covering GLP-1s for weight loss as of the survey period.

Terns Pharmaceuticals, Inc.'s strategic shift directly acknowledges this competitive and substitute landscape, particularly in the metabolic space. The company announced it 'does not plan to invest in clinical development in metabolic disease beyond year end 2025'. This decision is coupled with a plan to seek a partner for its metabolic assets, including TERN-601. Financially, Terns Pharmaceuticals, Inc. reported a Q2 2025 net loss of $24.1 million, with operating expenses at $27.4 million in the most recent quarter. The company maintains a cash runway into 2028, with a cash balance of $315.4 million as of Q2 2025.

Terns Pharmaceuticals, Inc. (TERN) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for Terns Pharmaceuticals, Inc. remains relatively low, primarily due to the steep financial and regulatory cliffs required to enter the small-molecule oncology space, especially for a targeted therapy like TERN-701.

Low threat due to immense capital requirements; Terns' cash runway into 2028 is a necessity, not a luxury.

Launching a competing small-molecule program requires capital far exceeding what a startup can easily raise without significant, de-risking clinical milestones. Terns Pharmaceuticals, as of September 30, 2025, held $295.6 million in cash, cash equivalents, and marketable securities. This substantial war chest is not excess; it is the necessary buffer to fund operations, including the ongoing Phase 1 CARDINAL trial for TERN-701, through to an expected cash runway extending into 2028. A new entrant would need comparable funding just to reach the late-stage trial phase, which is a massive initial hurdle. Here's the quick math on the scale of investment required for just one late-stage trial:

For oncology programs specifically, the average Phase 3 cost was reported around $41.7 million in one analysis. Another data point suggests Phase 3 trials completed in 2024 averaged $36.58 million. This level of required investment immediately filters out most potential competitors.

High regulatory barriers, including the lengthy FDA approval process and the need for large, expensive Phase 3 trials.

Beyond the sheer cost, the regulatory gauntlet is designed to be arduous. A new entrant must navigate the entire Investigational New Drug (IND) application process and subsequent trial phases. The timeline itself is a barrier; for drugs approved between 2014 and 2018, the time from IND filing to FDA submission averaged 89.8 months. This lengthy process consumes capital and delays revenue generation, making the risk profile very high for unproven entities. The need for large, well-executed Phase 3 trials, often involving over 1,000 participants for efficacy confirmation, demands sophisticated operational infrastructure that new entrants typically lack.

The barriers to entry are compounded by the complexity of the trials themselves:

• Phase 3 procedures increased by 283.2% over the last decade.
• Trial start delays rose to 21.8% in 2024.
• The overall Likelihood of Approval (LoA) for developmental candidates dropped to 7.9% for the 2011-2020 period.

Patent protection on novel small-molecule structures creates a significant intellectual property barrier for competitors.

Terns Pharmaceuticals, Inc.'s development of TERN-701, an allosteric BCR-ABL tyrosine kinase inhibitor, relies on proprietary small-molecule structures. This intellectual property establishes a legal moat. Competitors cannot legally replicate the molecule or its specific mechanism of action without infringing on granted patents, which forces them to start their own discovery programs from scratch, adding years and substantial R&D costs to their entry timeline. The clock is always ticking on patent life, which is a critical factor in recouping investment costs.

Orphan Drug Designation for TERN-701 in CML offers a market exclusivity period, acting as a temporary barrier.

The FDA granted Orphan Drug Designation to TERN-701 for Chronic Myeloid Leukemia (CML), a designation reserved for therapies addressing rare diseases affecting fewer than 200,000 people in the United States. This designation is a direct, temporary barrier to competition for this specific indication. If TERN-701 achieves marketing authorization, the Orphan Drug status provides Terns Pharmaceuticals with a potential seven years of market exclusivity in the US. This exclusivity period shields the drug from direct competition by similar therapies for that duration, making the initial market entry for any potential competitor significantly less attractive.