Biotech stocks can provide astronomical returns but also depressing losses. Before investing in these volatile stocks, investors need to understand the full picture, including fundamentals, technical, and upcoming catalysts. Below are 2 biotechs that appear to be well on their way to greatness.
Threshold Pharmaceuticals, Inc. (NASDAQ:THLD)
Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) is an early stage biotechnology company engaged in the discovery, development, and commercialization of cancer therapeutics based on a novel and powerful approach of targeting tumor hypoxia. There is a lot to like about Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), including its recent trading action, fundamentals, partnerships, and upcoming business catalysts. The 2 year chart below shows the large trading move that the stock has seen.
The share price saw a large jump in early 2012 because of a flurry of positive press releases. Threshold announced a partnership with Merck KGaA (known as the “German Merck”.) Merck KGaA is very well known in Germany and is one of the largest biotechnology companies in Europe. The deal was extremely favorable for Threshold. Under the terms of the deal, Threshold received a $25 million upfront payment. Additionally, the company received a $20 million milestone payment based on positive results from its randomized Phase II clinical trial for pancreatic cancer. In total, the agreement gives Threshold the opportunity to earn up to $525 million in total milestone payments. The real bright spot of the deal is that Merck KGaA agreed to pay 70% of the worldwide development costs for TH-302. This means that investors will have to worry less about dilution than is normally typical for biotech companies of this size.
As mentioned above, this agreement is for Threshold Pharmaceuticals, Inc. (NASDAQ:THLD)’s therapy candidate called TH-302. TH-302 is being tested in multiple studies for the treatment of pancreatic cancer, soft tissue sarcoma, and other solid tumors. The two main trials for Threshold are TH-CR 406 and MAESTRO. TH-CR 406 is a Phase III clinical trial of TH-302 in combination with doxorubicin to treat patients with soft tissue sarcoma. MAESTRO is a Phase III clinical trial of TH-302 in combination with gemcitabine to treat patients with pancreatic cancer. The company is expected to release interim results of these trials in the fall this year with complete results expected in late 2014.
Fundamentally, Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) also appears to be making great strides. For biotechs, cash is king. Threshold ended 2012 with $11 million in cash & cash equivalents and $59.8 million in short term investments for a total of $70.8 million. This was an increase of approximately $50 million from 2011 cash levels. Threshold also improved on the income statement by generating $5.9 million in revenue compared to just $62,000 for 2011.
Risks
Despite all of the above, it’s important for investors realize the potential downfalls to investing in Threshold Pharmaceuticals, Inc. (NASDAQ:THLD). First, the volatility for Threshold has been intense over the past 2 years. The share price traded as low $1.20 and as high as $9.28. It now trades at $5.48 and appears to have settled down but that will most likely change later this year once trial results are released. Second, the competition for pancreatic cancer therapies is intense. Celgene Corporation (NASDAQ:CELG) is heavily involved in this area with its potential therapy called Abraxane. In fact, just recently, the US Food and Drug Administration granted priority review for Abraxane. Celgene is seeking approval of Abraxane in combination with a product called Gemzar.. Should Abraxane receive approval, Celgene stands to gain a foothold on the market and potentially put Threshold in a catch up position. Additionally, Celgene Corporation (NASDAQ:CELG) could potentially be a tough opponent for Threshold based on its fundamentals. Analysts are expecting Celgene to show sales growth of 11.7% in 2013 and 14.5% in 2014. On top of that, Celgene was able to grow its year over year revenue by 13.5% from $4.84 billion to $5.5 billion. Celgene Corporation (NASDAQ:CELG) is not a company to be taken lightly and Threshold investors should understand this.
On the soft tissue sarcoma treatment, Threshold appears to be in the lead. At one point earlier this year, ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) was thought to be a serious challenger. However, its Phase III trial was a complete disaster which sent the shares falling nearly 65% after the disappointing news.
Despite the failure for ZIOPHARM Oncology Inc. (NASDAQ:ZIOP)’s soft tissue sarcoma treatment, the company hasn’t given up hope yet. Ziopharm is continuing to explore palifosfamide (its candidate for soft tissue sarcoma) in an adaptive Phase III clinical trial for small cell lung cancer. The data from this trial is expected in early 2014. Additionally, ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) is progressing with its IL-12 platform. This platform is currently in Phase II trials which are evaluating its effectiveness in treating metastatic melanoma.
Ziopharm also ended its 2013 first quarter with $55.7 million in cash available. Given that the company lost $102 million in 2012, this cash should be able to take Ziopharm through at least September of this year. However, a secondary offering should be expected at some point during the next 12 months.
Conclusion
Despite the competition from Celgene and Eli Lilly & Co. (NYSE:LLY) in pancreatic cancer, I think Threshold has proven itself with its extremely smart partnership with Merck KGaA, its cash management, and its impressive clinical trial results. With an exciting second half of the year coming for Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), investors should definitely keep their eye on this one.
The article Threshold Pharmaceuticals: A Biotech That Investors Need To Know About originally appeared on Fool.com and is written by Ted Mayer.
Ted Mayer has no position in any stocks mentioned. The Motley Fool recommends Celgene. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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