3 Things to Watch With Threshold Pharmaceuticals

Threshold Pharmaceuticals (NAS: 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 (NYS: 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 (NYS: 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' (NYS: NVS) Afinitor hold a large chunk of the market. Furthermore, multiple clinical failures have resulted in these two retaining their dominance. Infinity Pharmaceuticals (NAS: 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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The article 3 Things to Watch With Threshold Pharmaceuticals originally appeared on Fool.com.

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.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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