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Threshold Pharmaceuticals (THLD) Initiated At 'Buy' By Brean Capital, $15 PT

 November 21, 2012 03:09 PM

(By Balaseshan) Brean Capital LLC analyst Gene Mack initiated coverage of Threshold Pharmaceuticals Inc. (NASDAQ: THLD) with a "Buy" rating and $15 price target.

Mack said Threshold is a biotechnology company focused on the discovery and development of drugs targeting Tumor Hypoxia, the low oxygen condition found in micro-environments of most solid tumors as well as the bone marrows of some hematologic malignancies. This approach offers broad potential to treat a variety of cancers.

The analyst is forecasting total worldwide sales of $1.6 billion for TH-302 in 2018 for pancreatic cancer and soft tissue sarcoma. Threshold began the first Phase 3 trial for TH-302 in STS under a special protocol assessment (SPA) with the FDA in September 2011.

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The first interim analysis for progression free survival (PFS) will be sometime in the first half of 2013 with another interim analysis planned for overall survival (OS) estimated for 4Q-2013. Mack expects THLD to submit an NDA for STS in 4Q-2014 with a mid-2015 launch assuming priority review.

In February 2012, Threshold announced successful results of a Phase 2b trial in pancreatic cancer, and the analyst expects the company together with its partner Merck KGaA to initiate a Phase 3 trial in year-end 2012 that could enable a launch by year-end 2015 assuming priority review.

Based on the activity of TH-302 in combination with standard front-line chemotherapy and the response rates observed in both STS and pancreatic cancer, Mack's $1.7 billion peak sales estimate for these indications assumes 65% peak U.S. penetration in STS and 35% peak US penetration in pancreatic cancer with more conservative lower penetration rates ex-U.S.

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The analyst's $15 target price for THLD shares is based on the NPV of TH-302 revenue discounted (at 20%) from THLD's global co-development and commercialization agreement with Merck KGaA.

Mack's valuation assumes orphan pricing for TH-302 peaking at $80,000 per patient per year in the U.S. with conservative peak penetration of the U.S. pancreatic cancer market (at 35%), ex-U.S. pancreatic cancer market (25%), U.S. STS market (65%) and ex-U.S. STS market (25%).

The analyst assumes declining price over time in territories outside of the US only. He believes upside to current valuation is likely from commercialization in other tumor types beyond pancreatic and STS.

THLD is trading down 1.30% at $4.57 on Wednesday.



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