Taking Threshold To The Bank

After a stunning upward move in shares of Threshold Pharmaceuticals (THLD: Nasdaq) in early February, we sold half of our position and lowered our rating to Hold—which represents us selling our appreciated position. We are taking advantage of another spike in the shares, and selling the other half of our position today as THLD trades at $5.97.

Threshold Pharmaceuticals is a clinical stage biotech with an innovative hypoxia- activated drug, TH-302, in a randomized, open label Phase II trial in TH-302, in a randomized, open label Phase II trial in combination with gemcitabine (Gemzar®) versus Gemzar alone for the front line treatment of pancreatic cancer. Please see our past updates for a broader description of how TH-302 works in an oxygen-constrained environment

We held on to the 50% stake in Threshold even after THLD doubled in price earlier this month because we had a sense that imminent clinical testing data would be solid. After all, we presumed that new partner Merck KGaA had a glimpse of the data, and must have been pleased. At the same time, we didn’t want to let all of our sudden winnings ride on the latest FDA decision given our experience of having felt both the ecstasy and agony of surprising clinical outcomes from development-stage biotechs.

But sure enough, the Phase 2b clinical trial results of TH-302 in patients with pancreatic cancer, which was released on Tuesday, was quite solid. The drug, in conjunction with gemcitabine, the leading treatment for pancreatic cancer, helped keep tumors from growing, adding several months to patients’ lives. The FDA will surely be pleased to note that TH-302 also appears to carry a solid safety profile.

One could argue that shares still have even more upside. After all, the new partnership with Merck KGaA could lead to upwards of $600 million coming to Threshold assuming all clinical future milestones are met, and sales approach levels that analysts expect. The whole company is valued at just half at that amount, even after rising so far so fast. In addition, though few are talking about it right now, TH-302 could also prove to be quite effective in the treatment of other forms of cancer.

Still, we’ve been investing in biotechs for too long not to see a good profit-taking opportunity when it comes along. Though there are arguments for more upside in THLD in the next year or two, it seems to us that all the positive news is out in the near term. It is just as possible that a general market pull back later this year could casually make THLD trade down substantially before future catalysts justify THLD punching through $6 for good.

On a risk/reward basis, profit taking makes sense to us now—just as it also makes sense to continue monitoring THLD for a potential opportunistic entry point in the future. We’d consider taking another position if THLD falls back to $4 or below on no news. And if Threshold’s shares never end up looking back from here, so be it. The bet we made along with insiders nearly a year ago has obviously paid off for us.

To view THLD’s insider history, Click Here.

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