Threshold Pharmaceuticals, Inc., a biotechnology company focused on the discovery and development of drugs targeting tumour hypoxia, has signed a global agreement with Merck KGaA, Darmstadt, Germany, to co-develop and commercialize TH-302, Threshold's small molecule hypoxia-targeted drug.

TH-302 is currently being investigated in a global phase 3 clinical trial in patients with soft tissue sarcoma, a randomized phase 2 trial in patients with advanced pancreatic cancer from which top-line results are expected in February, as well as additional clinical studies in other solid tumours and haematological malignancies.

Under the terms of the agreement, Merck will receive co-development rights, exclusive global commercialization rights and will provide Threshold an option to co-commercialize the therapeutic in the United States. In exchange, Threshold will receive an upfront payment of $25 million and could receive up to $35 million in additional development milestones during 2012. Threshold is also eligible to receive a $20 million milestone payment based on positive results from its randomized phase 2 trial in pancreatic cancer. Total potential milestone payments are $525 million, comprised of $280 million in regulatory and development milestones and $245 million in sales-based milestones.

In the United States, Threshold will have primary responsibility for development of TH-302 in the soft tissue sarcoma indication. Threshold and Merck KGaA will jointly develop TH-302 in all other cancer indications being pursued. Merck KGaA will pay 70% of worldwide development costs for TH-302.

Subject to FDA approval in the United States, Merck KGaA will initially be responsible for commercialization of TH-302 with Threshold receiving a tiered, double-digit royalty on sales. Under the royalty-bearing portion of the agreement, Threshold retains the option to co-promote TH-302 in the United States. Additionally, Threshold retains the option to co-commercialize TH-302 allowing the company to participate in up to 50% of the profits in the United States based on certain revenue tiers. Outside of the United States, Merck KGaA will be solely responsible for the commercialization of TH-302 with Threshold receiving a tiered, double-digit royalty on sales in these territories.

"The addition of TH-302 to our pipeline provides an important opportunity in several different tumor types to expand our oncology development program," said Susan Jane Herbert, Head of Global Business Development and Strategy, Merck Serono. "Given the fact that pancreatic cancer is a very difficult to treat indication, successful phase II results could represent an important upside for our company."

"We are excited by the new resources that our partnership is going to bring to the development of TH-302 and the expertise in clinical development and commercialization that Merck will contribute to this program," said Barry Selick, President and CEO of Threshold. "This collaboration provides Threshold a strong and committed partner with a shared vision for TH-302."

Morrison & Foerster LLP acted as legal counsel for Threshold in this transaction.

TH-302 is a hypoxia-targeted drug that is thought to be activated under tumor hypoxic conditions, a hallmark for many cancer indications. Areas of low oxygen levels (hypoxia) within tissues are common in many solid tumors due to insufficient blood vessel growth. Similarly, the bone marrow of patients with hematological malignancies has also been shown, in some cases, to be extremely hypoxic.

TH-302 has been investigated in over 550 patients in Phase I/II clinical trials to date in a broad spectrum of tumor types, both as a monotherapy and in combination with chemotherapy treatments and other targeted cancer drugs.

Threshold has several ongoing clinical trials including, but not limited to, a controlled phase 2 trial of TH-302 in combination with gemcitabine versus gemcitabine alone in patients with advanced pancreatic cancer and a Phase 3 study evaluating TH-302 in combination with doxorubicin versus doxorubicin alone in patients with soft tissue sarcoma.