Threshold Pharmaceuticals has signed a global agreement with Germany-based Merck to co-develop and commercialize TH-302, Threshold's small molecule hypoxia-targeted drug.

Merck will receive co-development rights, exclusive global commercialization rights and will provide Threshold an option to co-commercialize the therapeutic in the U.S. 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 ongoing randomized phase II trial of TH-302 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 U.S., Threshold will have primary responsibility for development of TH-302 in the soft tissue sarcoma indication. Threshold and Merck will jointly develop TH-302 in all other cancer indications being pursued. Merck will pay 70% of worldwide development costs for TH-302.

Subject to FDA approval in the U.S., Merck initially will be responsible for commercialization of TH-302 with Threshold receiving a tiered, double-digit royalty on sales. Additionally, Threshold retains the option to co-commercialize TH-302, allowing the company to participate in up to 50% of the profits in the U.S. based on certain revenue tiers. Outside the U.S., Merck will be solely responsible for the commercialization of TH-302, with Threshold receiving the same royalty plan as in the U.S.

"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."

Currently, TH-302 is being studied in a global phase III clinical trial in patients with soft tissue sarcoma; a randomized phase II 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 tumors and hematological malignancies.