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Threshold initiated a Phase 2 trial with TH-302 for the treatment of advanced non-squamous non-small cell lung carcinoma (NSCLC).

The Phase I/II study using TH-301 in NSCLC resulted in a median PFS of 7 months and MOS of 14.9 months surpassing currently available therapies.

The addition of this trial to Threshold's pipeline along with the backing of a Merck KGaA partnership reiterates the potential of this undervalued company.

Company Overview

Threshold Pharmaceuticals (NASDAQ:THLD) is a development stage biopharmaceutical company currently evaluating its lead compound, TH-302, in several clinical trials for the treatment of various solid tumors as well as in combination with several approved anti-cancer drugs. TH-302 targets hypoxic regions of tumors as these areas tend to be resistant to conventional therapies such as chemotherapy and radiation as well as comprise the most mutagenic cell types within the tumor.

TH-302 is unique because it is a prodrug, which means the drug remains inactive in the body until it encounters hypoxic conditions that are usually found within tumors. The inactivity of the drug before it reaches the tumor allows for fewer cytotoxic side effects to normal tissues that are commonly associated with other types of cancer therapies. Once TH-302 encounters a hypoxic region of a tumor, the drug becomes active releasing a DNA alkylating agent which prevents cancerous cells from replicating and growing. Currently, TH-302 is being evaluated in two ongoing pivotal Phase III clinical trials in pancreatic cancer and soft tissue sarcoma.


On July 1, 2014, Threshold announced the initiation of an international 440-patient, double-blind, randomized and placebo controlled trial with TH-302 for the treatment of advanced non-squamous non-small cell lung carcinoma. Approximately 85% of all lung cancers are NSCLCs and 70-75% of these are non-squamous. TH-302 will be evaluated in combination with pemetrexed for NSCLCs. The trial will compare fully dosed pemetrexed with placebo versus fully dosed pemetrexed with 400 mg/m2 TH-302. The primary endpoint is overall survival (OS) with progression-free survival (PFS) and safety as secondary endpoints. Current therapies result in a median PFS of approximately three to four months with median overall survival (MOS) of approximately eight to 10 months.

Chief Executive officer Barry Selick , Ph.D recently stated,

Independent studies have demonstrated the presence of hypoxia in tumors from patients with NSCLC. Early clinical research conducted by Threshold also supports further evaluation of TH-302 in combination with pemetrexed as a potential second-line treatment for patients with non-squamous NSCLC, many of whom still face a poor prognosis because of limited treatment options.

In Threshold's Phase I/II study using TH-301 in combination with full-dose pemetrexed in NSCLC resulted in a median PFS of 7.0 months and MOS of 14.9 months (n=18 patients). Forty percent of these patients achieved a partial response (4 confirmed responses), 40% achieved a stable disease state while 20% had progressive disease. If this Phase II study is successful, TH-301 could become the next treatment for NSCLC as well as a great addition to the Threshold's growing pipeline.

Significantly Undervalued

We believe that Threshold is significantly undervalued at its current price of $4.28 and a market cap of $250 million. In addition to NSCLC, Threshold has two ongoing stage Phase III clinical trials in soft tissue sarcoma and pancreatic cancer. The pancreatic cancer trial is ongoing and PFS analysis in the soft tissue sarcoma is likely to occur in mid-2015 with the potential of FDA approval in late 2016. TH-302 is also in early stage clinical trials in various other indications including but not limited to advanced melanoma, multiple myeloma, astrocytoma, leukemia, and various other solid tumors (Table 1). If successful, TH-302 has the potential to revolutionize current therapy for hypoxic tumors.

In addition to TH-302, Threshold recently acquired the rights to [18F]-HX4, which is a Positron Emission Tomography (PET) imaging agent. This agent has the potential to quantify the level of hypoxia in real time in patients' tumors. The addition of this technology to Threshold's pipeline allows for a potential diagnostic indicator for not only the use of TH-302 but also for monitoring the therapeutic response of TH-302 in patients.

Table 1: Threshold's Pipeline






Soft Tissue Sarcoma

Phase 3


Pancreatic Cancer

Phase 3


Non-squamous Non-small Cell Lung Cancer

Phase 2


Advanced Melanoma

Phase 2


Multiple Myeloma

Phase 1/2



Phase ½



Phase ½


Advanced Leukemias

Phase 1



Phase 1


Various Solid Tumors

Phase 1



Various Solid Tumors

Phase 2

Threshold currently has a strong balance sheet with $86.4 million in cash, cash equivalents and marketable securities. Recently, Threshold entered into an agreement with Merck KGaA to co-develop TH-302. This collaboration with Merck (NYSE:MRK) further validates the potential of their novel technology by a major pharmaceutical company. The agreement includes upfront and milestone payments of $550 million with royalties in the lower double digits. This collaboration provides Threshold with substantial non-dilutive funding as well as the expertise of Merck KGaA for further development as well as commercialization.

Our 12-month price target is $9.50, which is based on the company's strong fundamentals, partnerships and game changing technology. At the current market price of $4.28 and a market cap of about $250 million dollars with 49 million outstanding shares, we believe it is undervalued compared to its competitors. Our financial model predicts that Threshold will become profitable in 2018 assuming FDA approval of its soft tissue sarcoma trial with an EPS 04 $0.27 based on $110 million in revenue. If revenue grows to $170 million by 2019 with an EPS of $0.83, we believe a 35X P/E multiple accurately values Threshold's thus predicting a market price of about $9.50 per share which is equivalent to a market cap of $560 million.

It is important to realize the risks involved in a small cap biotechnology company like Threshold. The above predictions assume TH-302 approval; however, if the data do not support approval or the FDA requires additional trials, the share price could drop dramatically. Additionally, Threshold has no currently approved products or experience in launching a commercialized product. This hurdle is somewhat diminished by the partnership with Merck which includes commercialization assistance. Overall, we believe that Threshold is a great risk/award opportunity for investors looking for a long-term investment.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Zacks Investment Research.