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Threshold Pharma rises on analyst 'Buy' rating

NEW YORK (AP) -- Shares of Threshold Pharmaceuticals Inc. rose Friday after a Stifel Nicolaus analyst began covering the stock with a "Buy" rating, expecting hefty royalty payments on its cancer drug TH-302.

THE SPARK: Analyst Joel Sendek said the company has reported promising results from studies of TH-302 as a treatment for both prostate cancer and sarcoma. While the drug is several years away from a possible marketing approval, Sendek said Threshold's revenue from royalties could top $65 million in royalty revenue in 2017 and then rise to nearly $157 million in 2018. In 2017, the company should be profitable based on TH-302 royalties alone, he said.

Sendek established a price target of $13 per share.

THE BIG PICTURE: The South San Francisco, Calif., company and its partner Merck KGaA are conducting a slew of trials of TH-302. They are testing the drug as a treatment for pancreatic cancer, leukemia, and solid tumors and in combination with other drugs in addition to the sarcoma and prostate cancer studies.

Regulators in the U.S. and Europe have awarded orphan drug exclusivity to TH-302, meaning that if the drug is approved, it will be years before competing products reach the market.

SHARE ACTION: Threshold Pharmaceuticals shares gained 61 cents, or 8.2 percent, to $8.04 in late afternoon trading. The stock was worth $1.32 at the beginning of February, but surged after Threshold announced its marketing agreement with Merck. The companies reported positive clinical trial data for the drug later the same month.