3 Things to Watch With Threshold Pharmaceuticals

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Threshold Pharmaceuticals (Nasdaq: THLD  ) is a developmental stage biotechnology company whose lead drug candidate, TH-302, is targeted at treating solid tumors and bone marrow malignancies.

Today, let's look at three things investors should be watching regarding Threshold Pharmaceuticals, as they will provide us with better insight into the company.

1. Threshold's pipeline
This will be one of the easier pipelines you'll ever investigate because it involves the use of TH-302, and nothing else, in a myriad of clinical trials -- 11 to be exact.

TH-302 is a DNA alkylator that's unique in that it targets hypoxic (low oxygen) cells often found in tumors but rarely found in normal tissue. With the rapid growth of tumors, there are often areas of the tumor that are deprived of oxygen, making TH-302 an ideal interceptor of the tumor. Currently, TH-302 is targeted at pancreatic cancer, leukemia, solid tumors of various forms, and is being used as a combination therapy in every case. It also has been given orphan drug status, which would protect it for years against competition if approved. Threshold signed an agreement with Merck KGaA in February that gave the company a $25 million upfront payment, as well as the potential for up to $525 million in additional royalties.

The most important clinical trial to date has been TH-302's combination with Eli Lilly's (NYSE: LLY  ) Gemzar to treat pancreatic cancer. The phase 2 study, released in February, demonstrated a 39% reduction in patients' conditions worsening as a combination therapy, as opposed to just taking Gemzar by itself. Further data was released earlier this week that demonstrated a median survival rate for the combination therapy that was 2.3 months longer than just Gemzar alone, however, the relative risk of death was only reduced by 4.5%. Both Merck KGaA and Threshold plan to move forward with phase 3 clinical testing despite the tamed results.

Another catalyst expected before the end of year is data on two phase 1 clinical trials. The first is a combination therapy of TH-302 with Pfizer's (NYSE: PFE  ) Sutent to test the efficacy and safety of the combinations' treatment of renal cell carcinoma and gastrointestinal stromal tumors. The second trial will use TH-302 with Takeda Pharmaceuticals' Velcade to test the safety and efficacy of that combination to treat a form of bone cancer known as multiple myeloma.

2. Eyeing the traditional competitors and overcoming history
Threshold has quite the challenge on its hands. Not only will it need to contend with biopharmaceutical companies that churn out quarterly profits that can dwarf Threshold's market value, but it's going to need to overcome the stigma that small biotech companies have a very poor track record at getting cancer drugs approved by the Food and Drug Administration.

Since most investors' eyes are on Threshold's pancreatic cancer combination with Gemzar, let's focus on pre-existing treatments in that arena. At the moment, Pfizer's Sutent and Novartis' (NYSE: NVS  ) Afinitor hold a large chunk of the market. Furthermore, multiple clinical failures have resulted in these two retaining their dominance. Infinity Pharmaceuticals (Nasdaq: INFI  ) shelved its pancreatic drug hopeful, Saridegib, in January after noting the drug would not meet its efficacy goals. As I noted in June in the article linked above, the combination therapy known as Folfirinox also proved far too toxic and was also shelved. Clinical trials have rarely translated into success when treating pancreatic cancer, especially for smaller biotech companies, which presents a unique challenge to Threshold.

3. Cash burn
In a realistic sense, Threshold is still years away from an FDA approval and commercializing its combination drug, TH-302. In the meantime, concurrently running 11 clinical trials is extremely expensive, and even having a stellar marketing partner like Merck KGaA isn't going to guarantee enough cash to successfully run every trial. Therefore, it's likely that Threshold will need to raise cash through share offerings in the near future in order to shore up its balance sheet prior to moving forward with multiple trials in 2013.

As of Threshold's most recently ended quarter, the company boasted $66.5 million in cash with no debt. However, in an average year it's not unreasonable to expect Threshold to burn through $20 million to $30 million in cash, even with various milestone payments from Merck KGaA. In short, I'd expect a share offering to come shortly -- especially with the stock near a 52-week high.

Foolish roundup
Now that you know what to watch for, it should be easier to analyze Threshold Pharmaceuticals' successes and pitfalls in the future and hopefully give you a competitive investing edge.

If you're still craving even more info on Threshold Pharmaceuticals, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 20, 2012, at 10:58 AM, Bincolle wrote:

    I think you need to reread the deal with Merk...Merk pays 70% of the development costs associated with 302. So let's assume a burn rate of 30 M a year. Thld needs 9 M a year. So with their cash on hand that leaves them with enough cash for roughly 7 years. This without any more cash from Merk. The CEO states they could have 100M in the bank by year end. This means 11 years roughly without any more cash. By your own admission thld will be sending 302 to market long before they run dry. (at least in some cancers). How about a little less hand waving and a bit more fact checking...

  • Report this Comment On September 20, 2012, at 2:02 PM, caution1st wrote:

    Bincolle is right! This is another half true inaccurate and incomplete article from FOOL!

    1) The overall survival figure you qoute is from a trial which was not designed to show a statistical significance of improved OS. The fact it allowed patients to take TH-302 when the chemo-drug stopped working or became intolerable skewed the overall survival of the chemo drug arm. In other words it made the chemo drug look better than it actually was and by contrast reduced the difference between the TH-302 patients and the patients that didn't receive TH-302.

    2) TH-302 will not face the competitive forces other drugs would face because it is an add-on drug. It is used in combination with other chemo drugs to make them more effective. Actually the more chemo drugs that are in use the bigger the potential market.

    3) The deal with Merck will give THLD a cash position of about $100 million by year end. Merck KGaA is picking up 70% of all development and trial cost of TH-302 and in fact is now leading the phase3 pancreas trial you mention. You will see a greatly reduce "burn rate in the 3rd and 4th quarters this year and going forward. With the milestones payments coming this year and next the company has more than enough cash to get its drug to market and proceed with even more than the 11 trials currently being pursued.

    Next time do some homework, and try to be a more knowledgeable before putting yourself out as someone who is authoritative.

    Author paid by FOOL post like a fool.

  • Report this Comment On September 20, 2012, at 3:34 PM, valueinvestor10 wrote:

    Someone at Motley Fool didn't do their homework.

    First of all, there are numerous trials for TH-302 because it is believed to be effective for many types of soft cell cancers and it has navigated p to Phase III trials.

    2. Only a real fool wold dismiss a small company because other small ones have failed. Talk about a stupid comment.

    3. Merck is picking up 70% of trial costs and has committed for long term partnering. Do you think they just pulled a number out of the air? They know what the costs are and are projecting a huge profit down the road.

    4. The many years may very well be one year from now or less. The road to a combination drug through the FDA is substantially less cumbersome.

    Come on guys. If you are going to write an article on a biotech company, at least hire someone who knows the business and isn't so lazy that one third of their article is just an opinion about small companies.

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