BST Trade Alert: February 7, 2014
February 7, 2014
Recommendation:
Buy Threshold Pharmaceuticals (NASDAQ: THLD) up to $4.80 per share.
About the Company:
Threshold is an exciting biotech focused on developing drugs that selectively target tumor cells for the treatment of patients living with cancer. The company’s leading drug candidate is TH-302, which is currently being studied in two phase 3 clinical trials and multiple early-stage trials.
If this company’s name sounds familiar to you, you may be reminded of the hugely successful trade we had in THLD back in 2011-12.
We first recommended the stock in June 2011 when it was trading for just $1.63 per share. After trading sideways for several months, THLD took off like a rocket in early 2012. The shares surged on news the company had entered a lucrative co-development partnership with Merck KGaA for TH-302.
Under that deal (which is still in effect today), Threshold has the opportunity to earn up to $550 million in licensing fees and milestone payments. And it has the option to co-commercialize TH-302 in the US.
So far, the company has received around $100 million from Merck KGaA.
Given the volatility and speculative nature of biotech stocks, we felt this impressive rally provided the perfect opportunity for subscribers to cash in on the trade. As such, we recommended selling half the position on February 6th and the other half on February 24th for phenomenal gains of 147% and 278% respectively.
While we have no regrets over the prior trade, we were certainly sad to see a biotech with THLD’s high ceiling leave the portfolio. Fortunately for us, another opportunity to make big money on this stock has presented itself.
First of all, THLD has declined significantly from the peaks it achieved in 2012. So we have an opportunity to pick up shares right now at a nice discount.
What’s more, the company has an important catalyst on the near-term horizon. This catalyst could very well provide the spark this stock needs for another huge rally.
And thanks to the partnership with Merck KGaA, Threshold enjoys a rock-solid financial condition.
With over $90 million in cash on the books, the company has more than enough money to fund its operations over the projected time-frame for this trade. And don’t forget, Merck KGaA is footing the bill for TH-302’s clinical trials.
Now that you know the company’s background, let’s take a closer look at its leading drug candidate.
About the Drug:
Threshold’s most advanced drug in clinical testing is TH-302. Please see our original trade alert for a description of the drug and how it’s designed to work.
TH-302 is currently being studied by Threshold and Merck KGaA in two phase 3 trials as a treatment for soft tissue sarcoma and pancreatic cancer. As these trials are the furthest along, they are garnering the most attention from investors and the media.
However, the two companies are also conducting three phase 1 trials of TH-302. These trials are evaluating the drug as a potential treatment for advanced leukemias, multiple myeloma, renal cell carcinoma, gastrointestinal stromal tumors, and pancreatic neuroendocrine tumors.
In addition to the above studies, TH-302 is also the subject of several early-stage Investigator Sponsored Trials.
These trials are sponsored by The University of Texas Health Science Center, Duke University Medical Center, and North Central Cancer Treatment Group. And they’re evaluating TH-302 as a potential treatment for astrocytoma, various solid tumors, advanced kidney cancer, and liver cancer.
For our purposes, we will be focusing on the late-stage trial of TH-302 in soft tissue sarcoma (the “406 Trial”). This important study is expected to generate the next major potential upside catalyst for THLD.
The 406 Trial is being conducted in partnership with the Sarcoma Alliance for Research through Collaboration (SARC).
The study is a randomized, phase 3 trial that was originally designed to enroll 450 patients with metastatic or locally advanced unresectable soft tissue sarcoma (STS). But due to much higher than expected patient enrollment, the trial’s parameters were expanded from 450 to 620 patients in July 2013.
Despite the trial’s change in size, enrollment was completed on schedule in late December 2013. (And Threshold earned a $12.5 million payment for achieving this milestone.)
The 406 Trial is being conducted under a Special Protocol Assessment with the FDA. It is designed to evaluate the efficacy and safety of TH-302 in combination with doxorubicin, compared to doxorubicin alone.
The primary efficacy endpoint is overall survival. Other efficacy endpoints include progression-free survival, overall response rate, duration of response, and stable disease or better rate.
Interim results are expected around mid-year 2014 while final results are expected in mid-year 2015. And I’m expecting the results to be very good after the terrific success of the earlier phase 2 study of TH-302 in STS (the “403 Trial”).
Check out these results from the phase 2 trial…
Patients who received TH-302 in combination with doxorubicin showed a median progression-free survival (PFS) rate of 6.7 months and median overall survival (OS) of 21.5 months. The one-year survival rate was 73%, the two-year survival rate was 44%, and the overall best response came in at 36%.
According to William D. Tap, MD, section chief of Sarcoma Oncology in Melanoma and Sarcoma Services at Memorial Sloan-Kettering Cancer Center, these results are “very encouraging.”
In an article published on OncLive, Dr. Tap was credited with saying “the median PFS and OS rates are higher than what studies have shown when similar patients have received doxorubicin alone.”
The article went on to report that a study presented to the European Society for Medical Oncology 2012 Congress showed that patients with STS “who received doxorubicin alone in a phase 3 trial achieved a median PFS of 4.6 months and an OS of 12.8 months.”
In other words, the combination of TH-302 and doxorubicin produced a 46% increase in PFS and nearly doubled the overall survival rate in patients with STS.
No question about it, the 403 Trial results show that TH-302 has potential to significantly improve the treatment of patients with STS compared to doxorubicin alone. And this bodes very well for the upcoming 406 Trial results expected mid-year.
Let’s now take a look at the market potential for TH-302 as a treatment for STS.
About the Market for This Drug:
STS is a relatively rare form of cancer. According to the American Cancer Society, 12,020 new soft tissue sarcomas will be diagnosed and 4,740 Americans will die from STS in 2014.
Sarcomas are a group of aggressive cancers originating in the supporting tissues of the body (e.g. muscle, fat, blood vessels or in any other tissue that surrounds and protects the organs of the body). And there are currently few treatment options for this form of cancer.
They are typically treated with surgery, chemotherapy, and radiation. Usually a combination of these treatments offers the best chance to treat STS successfully.
Given the relatively small number of patients suffering from STS, the revenue potential for TH-302 in this market is not that large. With that said, if the 406 Trial is successful, expectations about the drug’s potential as a treatment for many other forms of cancer are likely to rise significantly.
According to Threshold, the drug’s total addressable market is worth more than $10 billion.
About the Potential Catalyst:
Interim results from the phase 3 trial of TH-302 in STS (the 406 Trial) are expected around mid-year 2014.
About the Shares:
THLD has fluctuated in a range between $4.00 and $6.00 over the past year.
With the stock recently trading at $4.35, it’s off about 29% from the 52-week high of $6.11. However, it’s trading just around 8% above the 52-week low of $4.02.
As such, we think the shares offer an attractive entry point right now.
Simply stated, we think the recent market weakness has provided us with a unique opportunity. We can pick up shares of an exciting biotech with a revolutionary anti-cancer drug candidate at a very good price.
What’s more, there is every reason to believe that THLD will trend higher over the next few months. Investors are sure to pile into the stock as the highly anticipated announcement of phase 3 trial results draws near.
And I’m not the only one who thinks so…
The analysts covering THLD have set 12-month price of $10 to $15 per share. The median price target is $12.25. If these projections are accurate, the stock has upside potential of 130% to 245%.
Go ahead and grab your shares of THLD as soon as possible. It’s a great buy at $4.80 or less.
Key Facts:
| Company: | Threshold Pharmaceuticals |
| Ticker: | THLD |
| Recent Price: | $4.35 |
| Market Cap: | $258 million |
| Avg. Daily Volume: | 536,153 shares |
Chart:
Category: BST Trade Alert
