Threshold Pharmaceuticals: Favourable Risk-Reward Profile

We view Abraxane’s relatively modest overall survival (OS) benefit in pancreatic cancer as leaving the door open for other gemcitabine combinations, namely TH-302. The uptick in Threshold’s share price following Abraxane data suggests renewed investor focus on TH-302, which showed promising Phase II efficacy in pancreatic cancer and has just entered a pivotal Phase III study. The latter triggers a $30m milestone from partner Merck KGaA. Separately, upcoming newsflow for TH-302 in soft tissue sarcoma (STS) during H113 offers a favourable risk-reward profile.

Detailed Abraxane data in pancreatic cancer…
Detailed Phase III data for Celgene’s Abraxane in pancreatic cancer revealed a 1.8-month improvement in OS over gemcitabine alone. We view the OS benefit as relatively modest and, given Celgene’s muted share price reaction, suggesting a result broadly in line with investor expectations. Separately, AB Science’s masitinib has shown higher OS versus gemcitabine alone, albeit in specific subgroups with baseline pain (2.7 months) or a specific genomic biomarker (six months).

…Brings TH-302 back into focus
As a reminder, the TH-302 Phase IIb study in front-line pancreatic cancer showed a 2.4-month increase in PFS and 2.3-month increase in OS over gemcitabine alone – impressive considering this was an open-label crossover study not designed to estimate OS. Based on this data, partner Merck KGaA has just initiated the pivotal Phase III MAESTRO study of TH-302 in front-line pancreatic cancer. MAESTRO is expected to read out in mid-2015, which could place the drug c two years behind Abraxane (US/EU filings H113) and masitinib (EU filing Q412).

Near-term catalysts for TH-302 are in STS
The TH-302 Phase III programme in front-line soft tissue sarcoma (STS) is entering a critical period with competitor data (Ziopharm’s palifosfamide) expected Q113 and an interim PFS futility analysis mid-2013. We remain cautious on approval prospects for palifosfamide given its Phase III design (PFS end point) and failure of a related drug (ifosfamide) to improve OS in the recent EORTC 62012 study. By contrast, recently updated TH-302 Phase II data (PFS 6.7 months, OS 22 months) increase our confidence that the Phase III trial will not be futile following 113 PFS events.

Valuation: EV of $180m
Despite the recent increase in market cap, Threshold’s current EV of only $180m suggests the market still underestimates the potential of TH-302 and the attractive Merck partnership. In this context, we believe the upcoming palifosfamide Phase III data and TH-302 futility analysis offer investors a favourable risk-reward profile.

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