THLD Lazard Research Report

NOTE: You can download the attached FULL PDF

We upgrade our rating to BUY from HOLD based on our increased conviction for compelling Phase II results for TH-302 in combination with standard chemotherapeutics.

Recently Threshold reported 2Q LPS of $(0.41), wider than our LPS estimate of $(0.34); delta due to higher R&D expense coupled with greater expense related to the revaluing of warrants.

Cash position remains the most critical near-term overhang; we forecast continued positive TH-302 data will lead to renewed investor interest and a partnership in 1H10.

Robust ‘302 development should lead to meaningful data in 4Q09 when we anticipate positive top-line Phase I monotherapy and interim Phase I combination data.

Early signs of efficacy in TH-302 Phase I solid tumor trial are encouraging in our opinion and underpin our thesis. Preliminary combination data of TH-302 with multiple chemotherapy regimens is very compelling in our opinion and the safety profile of combination therapy appears manageable.

Catalysts: Multiple data presentations from Ph I monotherapy expansion cohorts and Ph. I/II combination trials in 4Q09; capital raise/other financing activity.

Risks: Lack of efficacy for TH-302; THLD has less than six months of cash and significant financial risk; future financial requirements may dilute investors Upgrade to BUY from HOLD and institute $2 price target. We derive our 12-month price target by calculating the company’s cash/share in 3Q10.

Our cash/share estimate assumes continued positive data for TH-302, which catalyzes a partnership in 1H10. We utilize a share count of

19.4 million in 3Q10 after accounting for a financial raise in 4Q09.

To be conservative we do not include an additional technology value for the company.

Investment thesis: We forecast that positive data for TH-302 in 4Q will catalyze corporate interest and provide the company with sufficient capital.