Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) Might Just Have Become A Buyout Target

Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) collapsed last week on the announcement that its lead trial had missed its primary endpoint. It fell further as markets heard that the company was losing its COO to resignation, and that its plan of action going forward was to revisit an older asset that pretty much hit a wall at the end of last year, in an attempt to revive the program with some freed up funds from the lead.As things stand, the company trades for a nearly 90% discount to its November 2015 highs, and sentiment has pretty much fallen off a cliff.This is going to be a tough quarter for Threshold and its shareholders – indeed, it already has been – and the overwhelming opinion looks to be that the company is heading for dissolution.The scavengers among us, however, are looking to see if there's any potential salvageable value among the wreckage. The optimists among us think that, while it's certainly not enough to support a pre-collapse valuation, there might be just enough to warrant some upside on the current price.Things would have to run smoothly between now and realization, but the potential is there, and right now, it doesn’t look like many have seen it. Here's what you need to know.We'll brush over the recent failure, as its now no longer that important. As a quick overview, Threshold was developing a drug called tarloxotinib in three different cancer targets: metastatic squamous cell carcinoma of the head and neck (SCCHN) or skin (SCCS) and advanced non-small cell lung cancer (NSCLC). The trial under way was a phase II proof of concept, and the data interim. The skin cancer arm did show some level of evaluable response, but the SCCHN and NSCLC did not, and the company decided to halt all three as a result.So, where are the funds to be reallocated?Threshold is now focusing on a drug called evofosfamide, which until the end of last year was its primary asset in the targeting of hypoxic solid tumors. Hypoxic here just refers to a lack of oxygen, which is an environment in which many solid tumors thrive. Evofosfamide only becomes active in this type of environment, so the thinking was that the drug would remain inactive until it reached the tumor. This would make it selective to tumor cells, and even though it's essentially a modified chemo agent, it would be far less toxic to the patient based on the reduced dosage needed (in turn, based on the selectivity).Two phase III studies took place last year, and to put it simply, neither were successful. However, in a regional subgroup (Japan) the drug seemed to work better than its average impact. In the Japanese sample, the risk of death was reduced by 48% for patients on the treatment arm compared to patients on the control arm.Threshold has jumped on this figure and is going after an approval in Japan based on the data. It's optimistic, and would be a nice salvage score, but we don't think it's particularly realistic. If anything, the Japanese authorities are going to back and request more data, and Threshold just isn’t in a position to do that right now given its current capital standing.What is interesting to us, however, is some evidence that the company's drug might work as an adjuvant to immune checkpoint antibodies in a range of cancers. Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK) are pumping hundreds of millions into their ICA programs as we speak, and if Threshold can put together a book of data showing its asset improves the efficacy of one of these two candidates, the company would be a no-brainer takeover target. A target that, by our reasoning, would be worth far more than the company's current market capitalization suggests.We've got our ears to the ground for any progress on this ICA adjuvant program and/or takeover deal. Subscribe below and we'll update you as we get news!Disclosure: We have no position in THLD and have not been compensated for this article.