CAPScall of the Week: Threshold Pharmaceuticals

For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.

For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Threshold Pharmaceuticals (NAS: THLD) .

What Threshold Pharmaceuticals does
Threshold is among a very crowded field of biotech companies competing to find the next breakthrough cancer-fighting drug. Threshold's lead drug candidate is TH-302, a DNA alkylator that targets levels of hypoxia (low oxygen) that are common in tumors but rare in normal tissue. Because of the abnormal growth patterns of solid tumors, certain malignant cells get starved of oxygen-rich blood, which causes them to divide more slowly and sometimes wind up resistant to most therapies targeted at rapidly dividing cells. Threshold's target is unique in that it purportedly targets these hypoxic cells.

Currently, the company has 11 ongoing clinical and pre-clinical trials running for TH-302. Merck KGaA signed an agreement with Threshold earlier this year to help develop and commercialize the drug.

Whom it competes against
Now here's where things get a bit tricky. Because of the unique pathway of Threshold's drug, it really doesn't have any competitors; however, based on traditional chemotherapy methods across its 11 ongoing studies and trials, it has too many competitors to list.

The study getting the company the most note is its phase 2 clinical trial that uses TH-302 in combination with Eli Lilly's (NYS: LLY) Gemzar to treat pancreatic cancer. In February, the company released clinical data that demonstrated a 39% reduction in the worsening of late-stage patients' pancreatic cancer when TH-302 was used in combination with Gemzar as opposed to just taking Gemzar by itself. Better yet, TH-302 has been relatively well tolerated by patients in its ongoing clinical studies.

By contrast, Infinity Pharmaceuticals (NAS: INFI) pulled the plug on its phase 2 pancreatic cancer drug hopeful, Saridegib, in late January after the company noted it would not meet its efficacy goals. Also, combination drug Folfirinox proved significantly more toxic than the currently approved Gemzar in late-stage trials. In short, successes in late-stage pancreatic cancer are few and far between.

With regard to products already on the market that weren't immediately targeted at pancreatic cancer, Pfizer's (NYS: PFE) Sutent and Novartis' (NYS: NVS) Afinitor fit the bill. Both target advanced solid tumor pancreatic cancer and aim to stop its progression. Threshold clearly will have its work cut out if it gains FDA approval, as these companies have considerably deeper pockets, but don't discount its partnership with Merck KGaA one bit.

The call
After reviewing the prospects for Threshold Pharmaceuticals, I've decided to go against what history tells me and make a CAPScall of outperform on the stock.

History has shown that small-cap biotech stocks targeting cancer don't fare well with the FDA. The reason I think Threshold can buck this trend is its unique pathway, which has thus far shown statistically significant results and has had only minor safety issues with patients. Another reason Threshold provides an intriguing value is that it has allied itself with a large pharmaceutical partner in KGaA, removing some of its after-approval development and launch burden. Finally, it has 11 ongoing trials in various stages, which give TH-302 some margin for error. It's unlikely TH-302 will prove effective in every trial, but the sheer scope of Threshold's research into solid tumors should lead to some successful uses, in my opinion.

This is definitely a riskier pick than one of my normal selections, but I like what I've seen so far.

Just as I'm scouring the market for the next great stock, so is our team of analysts at Rule Breakers. In our latest special report, they detailed a company in the health-care sector whose products could hold the next great breakthrough in medical care. Get your copy for free, and find out what company our analysts are abuzz about.

At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policythat's always of interest without charging you interest.

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