Hitting The Jackpot With Small Cap Bio Pharma Investment, Part 2: A Threshold Investment

In part one of this three part article, I mentioned Antares Pharma (AIS) and iBio (NYSEMKT:IBIO) as two companies that could reward patient investors with a long term 'jackpot' reward. In this article, I will focus on one company I feel investors should look at for both short term, and more importantly, long term big gains.

Threshold Pharma (NASDAQ:THLD) 5/15/12 pps: $6.45. Market cap: $351.52M

Threshold Pharma focuses on the discovery and development of drugs for the microenvironment of solid tumors and the bone marrows of hematologic malignancies as novel treatments for patients living with cancer. Its clinical development product is TH-302, a novel drug candidate, which is in Phase I, Phase II, and Phase III clinical trials for the severe hypoxic regions present in various solid tumors and hematologic malignancies. The company has a license and co-development agreement with Merck (NYSE:MRK) for the development and commercialization of TH-302; and license agreement with Eleison Pharma to develop and commercialize glufosfamide for the treatment of cancer in humans and animals.

Potential Blockbuster drug: TH-302

TH-302 is an anticancer agent in clinical development at Threshold. Preclinically, it is preferentially activated under hypoxic conditions and has demonstrated potent anticancer activity in many preclinical cancer models. TH-302 is converted selectively to the drug's active form, dibromo isophoramide mustard, a potent DNA alkylator, within hypoxic tumor cells. TH-302 targets levels of hypoxia that are common in tumors but are rare in normal tissues - this is how selective targeting of the tumor occurs.

After conversion to the active form of the drug, the more resistant hypoxic cells are exposed to high concentrations of released cytotoxic agent, which can also diffuse into the surrounding oxygenated regions of the tumor, exerting what is referred to as a bystander effect. In this way, TH-302 can kill more of the tumor than can otherwise be accounted for by the hypoxic fraction alone. Because of its selective activation in the hypoxic regions of solid tumors. It is believed that TH-302 will be less likely to produce the systemic toxicity caused by most cytotoxic chemotherapies.

TH-302 is designed to treat a raft of cancer issues as we can see below:

Trial TH-CR-___







Soft Tissue Sarcoma with doxorubicin



Pancreatic Cancer with gemcitabine



Solid tumors with TH-302 monotherapy



Solid tumors with docetaxel, gemcitabine, or pemetrexed



Soft tissue Sarcoma with doxorubicin



Advanced Leukemias with TH-302 monotherapy



RCC & GIST with sunitinib



Astrocytoma with bevacizumab



Multiple Myeloma monotherapy with TH‐302 & with bortezomib



Various solid tumors with pazopanib



Hepatocellular carcinoma with sorafinib


= enrollment completed

= enrollment ongoing

Clicking on the blue links above will take you to the Threshold website where each phase clinical study is explained in detail.

As we can see above, TH-302 has the potential to be a blockbuster drug, similar to Ariad Pharma's (NASDAQ:ARIA) ponatinib, which was designed to inhibit the enzymatic activity of BCR-ABL with very high potency and broad specificity. Ponatinib was intended to target not only native BCR-ABL, but also its isoforms that carry mutations that confer resistance to treatment with existing tyrosine kinase inhibitors, including especially the T315I mutation for which no effective therapy exists. Ponatinib is an internally discovered oral multi-targeted kinase inhibitor that is believed to have broad potential applications in cancer.

The Ariad stock price continues to climb on almost a daily basis, closing yesterday's session at $17.27 a share, up $0.26 cents. 3 years ago on May 15th, 2009, Ariad's stock price closed at $1.39. In 3 years, the Ariad stock price has seen gains nearing 1500%. I believe we will see the same with Threshold, as its stock price was trading at $1.36 in January of this year. Because Threshold has far less shares outstanding than Ariad, I fully expect to see a stock price in 2 years north of $30 a share.

On 04/11/12, Threshold announced it has earned a $20 million milestone payment from Merck KGaA, Darmstadt, Germany, for achieving a statistically significant progression free survival benefit in its 214-patient randomized controlled Phase 2 clinical trial ("404 trial") evaluating the efficacy and safety of two doses of TH-302, a hypoxia-targeted drug, in combination with gemcitabine compared to gemcitabine alone in patients with first-line advanced pancreatic cancer. The observed safety profile was consistent with previous studies of TH-302. These results were recently presented at the American Association of Cancer Research 2012 Annual Meeting in Chicago.

The above only signifies only the 404 trial of TH-302, but it is huge because Pancreatic cancer is one of the most deadliest and untreatable cancers in the world. TH-302's success with this cancer alone would place its value in the billions. Threshold could be on the 'threshold' of something huge here in my opinion, notwithstanding TH-302's orphan drug status, EU approval, and the company's discovery into Hypoxia and how it relates to cancer. Much more detail about TH-302 can be found by clicking the link above and in another Seeking Alpha article which I think is a well written article.

Upcoming short term price catalysts:

Threshold Pharma will be presenting data on TH-302 at the American Society of Clinical Oncology (ASCO), the premier event for oncology professionals including researchers, physicians, and pharmaceutical companies. The company will be presenting data on:

  • Soft tissue sarcomaPhase 3#TPS10100General Poster SessionSun, Jun 3 8:00 AM - 12:00 PM.
  • Advanced leukemiasPhase 1#6585General Poster SessionMon, Jun 4 1:15 PM - 5:15 PM.

Prior to The ASCO presentations, Threshold will present an Abstract on its ASCO presentation, which should be available on May 16.

The following day after presenting its abstract data, the company will engage its 2012 Annual Shareholders' Meeting May 17.

Considering both the long term and short term price appreciation potential here, I would not be surprised to see the stock price approach $8 a share.

Shares Outstanding: 54.50M
Float: 40.73M
% Held by Insiders: 41.08%
% Held by Institutions: 26.00%
Shares Short (as of Apr 30, 2012): 5.95M
Short Ratio (as of Apr 30, 2012): 2.40
Short % of Float (as of Apr 30, 2012): 16.20%

As we can see above, Threshold does not have a lot of shares outstanding, and even less in the float to be traded. Furthermore, Threshold is a perfect short squeeze candidate with over 16% of the float held short as of the end of April. I have always maintained that short sellers of these types of bio pharmas with potential blockbuster drugs are among some of the most 'unwise' money in the market. A perfect recent example of this is what happened with Human Genome Sciences (HGSI).

On April 18th, 2012, the HGSI stock price closed at $7.17 a share, with a short interest of about 23% of the float. On April 19th, the very next day, HGSI rejected an unsolicited $2.59 billion takeover bid by GlaxoSmithKline PLC (NYSE:GSK), which was primarily for HGSI's Benlysta, which made headlines last year as the first new drug approved for lupus in 50 years.

GlaxoSmithKline offered $13 per share, which was an 81 percent premium to Human Genome's closing price on Wednesday of $7.17 per share. Human Genome currently has about 199.1 million outstanding shares, so there was about 30 million shares held short.

Glaxo's bid failed to convince HGSI brass to sell the company, but it sure did destroy those holding shares short, as evident by what happened the very same day- April 19th, 2012, when the stock price opened at $14.20 a share. Effectively, this wiped most out with forced buy-ins due to margin calls.

Those who are considering shorting HGSI now could end up in hot water again. as I believe HGSI has a very bright future, is well managed, and in a good position for strong long term growth. If shorts out there want a company to look at in terms of shorting, try Savient Pharma (OTC:SVNT), as I think that company is terribly managed, and poised for utter failure.

Either way, I foresee a ton of buying pressure coming in to Threshold based on the near term catalysts upcoming, which should force many shorts to cover, adding further upward momentum, causing a short squeeze. Only the most stubborn of short holders will refuse to cover at their own peril on this one.

It seems apparent to me that Glaxo, along with other large pharmas, are aggressively seeking a company with a drug like Threshold has. Because the market cap of Threshold is reasonable, coming in at around $350M, Glaxo might be interested in seeking to acquire Threshold if another large pharma does not make an offer first, so again, shorting Threshold is most unwise in my opinion.

My price target opinions for Threshold Pharma:

I think a price near $8 a share right before ASCO is certainly possible, and $7.50 a share is likely in my strong opinion. My longer term 3 year target on Threshold, assuming everything goes well, is north of $30 a share. Please refer to my Seeking Alpha author profile to check my track record with my price prediction opinions, as you will see I am normally spot on the 'money' with them.

In part three of this three part article, I will focus on another bio pharma with a potential blockbuster drug; ImmunoCellular Therapeutics (NYSEMKT:IMUC), which I think could see a price move of $0.50 cents higher or more in the short term.

Disclosure: I am long THLD, AIS.