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In the first part of the year, Threshold Pharmaceuticals (NASDAQ:THLD) delivered considerable returns for investors with a partnership deal for TH-302 and "positive" top-line Phase II data in pancreatic cancer. However, as the year has gone by, Threshold's future for TH-302 has become less attractive.

From an investor perspective, Threshold does not yet meet criteria we look for. Mixed data with their lead drug, TH-302, will likely keep most institutional investors away for the time being. Additionally, there are little substantive updates expected over the next 3-6 months. Even at current valuation, we still see further downside in the stock due to the lack of catalysts, year-end tax loss selling and disinterest in their programs while competitors advance further ahead.

TH-302 Data Disappoints

Recently at the 2012 European Society of Medical Oncology, Threshold presented the full dataset from their randomized Phase 2 trial in pancreatic cancer. Their Phase II trial tested their lead-drug, TH-302, in combination with gemicitabine (G) versus gemicitabine in first-line pancreatic cancer patients. The trial's primary endpoint was progression-free survival (PFS), where TH-302 performed reasonably well. Pooled median PFS was 5.6 months for those treated with gemcitabine in combination with TH-302 (either 240 mg/m2 or 340 mg/m2) compared to 3.6 months for patients treated with gemcitabine alone with hazard ratio equal to 0.61 with p=0.005.

Although the trial allowed crossover and overall survival was not powered for significance, those on gemcitabine alone had a median overall survival of 6.9 months compared with 9.2 months (.PDF) for patients treated with 340 mg/m2 TH-302 plus G (HR: 0.955, p=0.800) and 8.7 months for patients treated with 240 mg/m2 TH-302 plus G (HR=0.960, p=0.827). Threshold did attempt (.PDF) to look at how the OS was affected by those patients that did not crossover. With this post-hoc analysis, they saw improvements in both hazard rations to HR= 0.76 (p=0.183) for 240 mg/m2 TH-302 plus G arm and HR=0.77 (p=0.207) for 340 mg/m2 TH-302 plus G arm.

Unfortunately, this data still did not impress key-opinion leaders nor investors. On a slightly worse note, the side effect profile does not look that tolerable, specifically the hematological problems. They saw a very large increase in Grade 3/4 thrombocytopenia (63%), Grade 3/4 neutropenia (60%) and Grade 3/4 hemoglobin (27%). These troublesome side effects also raise question marks about whether toxicity will be similar in their current Phase 3 trial in soft-tissue sarcoma. TH-302 is supposed to be targeting the hypoxic tumor environment, but we're inclined to think it is not acting as advertised.

There are also several problems with the study. First, the baseline status favors healthier patients in the TH-302 arms, which had higher proportions of younger patients with better performance status. Another point of concern with their overall survival analysis was the large proportion of TH-302 treated patients that received subsequent treatment with Abraxane plus Gemcitabine or FOLFOX/FOLFIRI/FOLFIRINOX/etc relative to patients treated with Gemcitabine alone. These imbalances favor the TH-302 arms, which makes their overall survival data harder to believe in.

Phase III unlikely to be successful

Merck KGaA's decision to go into Phase III is somewhat questionable. We firmly believe that these data do not support a Phase III trial at this time. Given the small benefit observed in this trial, Merck KGaA would need a very large Phase III in order to be adequately powered for significance. Currently, we would ascribe low odds for success or clinically meaningful data. Data would not likely be ready until 2015 or later depending on the speed of enrollment. We think they would have trouble enrolling patients quickly given what is known about the drug and near-term competitor product data. Additionally, by the time a trial could read out, the entire treatment landscape could be different, with data expected in six months from three different companies for this indication.

Recently, Threshold and Merck KGaA announced they had reached a Special Protocol Agreement with the FDA for the Phase III trial design. Notice the absence of a start date for the trial and size of the trial. The primary endpoint is most certainly going to be overall survival. We suspect enrollment in this trial could be challenging given a lack of interest from key opinion leaders and the possibility of the treatment landscape changing imminently. Celgene (NASDAQ:CELG) is expected to report results from their very large Phase III trial testing Abraxane plus Gemcitabine versus Gemcitabine alone. Many expect this trial to succeed and become the new standard of care, creating a potential hurdle for TH-302's future.

Phase III trial in soft-tissue sarcoma

Separately, Threshold is running a pivotal Phase III trial in chemotherapy naive patients with metastatic or locally advanced unresectable soft tissue sarcoma. The trial will compare the efficacy and safety of TH-302 in combination with doxorubicin versus doxorubicin alone. The basis for starting the trial was a single-arm Phase I/II study. We generally frown on such decisions to move from single-arm trials to randomized Phase III trials. These trials have considerable risk and are more likely to fail than succeed.

Currently, investors are waiting for enrollment updates on this trial, which is not expected to complete until the end of 2013. An interim futility analysis of PFS will occur after 50% of patients are enrolled, which is expected sometime the first part of 2013. Meanwhile, a competitor, ZIOPHARM Oncology (NASDAQ:ZIOP), is expecting topline data by the end of the year and appears to have better efficacy with less hematological toxicity. Again, Threshold is behind competitors with what appears to be an inferior drug.

Conclusion

As the data continue to be looked over by investors, we expect to see further selling pressure in Threshold. In our opinion, Threshold was extremely lucky that Merck KGaA paid them a $20 million milestone payment for this study. They currently have over $60 million in cash, which should last them into late 2013 or early 2014. We believe Threshold is worth less than $200 million in valuation.

See our disclaimer for more information.

Source: What's Left For Threshold? Not Much