Free Declaration in Support - District Court of California - California

Case 4:07-cv-04972-CW

Document 20-7

Filed 03/07/2008

Page 1 of 41

Exhibit F

MERCHANT BANKING Case 4:07-cv-04972-CW RESEARCH Equities

Document 20-7

Filed 03/07/2008

Page 2 of 41

Initiating coverage

Threshold Pharmaceuticals (NASDAQ: THLD)
Health - Biotechnology / United States

Target Price USD 17.00 Expected performance (12 mth) 34.2% BUY USD 12.67 (Closing price 19/09/05)

Initiating Coverage: Phase III Drug Candidates for Pancreatic Cancer and BPH; Key Data in 2006
20 September 2005 Analyst: Brian Lian, Ph.D. Fortis Securities LLC Tel: +1 212 418 24 66 Email: [email protected]

Initiating Coverage: Metabolic Targeting Platform Effective September 20, we are initiating coverage of THLD with a Buy rating and $17 price target. THLD is developing drugs that target metabolic differences between healthy and diseased tissues, and the company has successfully completed human proof-of-concept studies with its lead programs. We expect THLD to complete a ph.III trial with glufosfamide (pancreatic cancer) in 4Q06, and potentially file an NDA in 2007. Two ongoing trials of TH-070 for benign prostatic hyperplasia (BPH) could also be completed in 4Q06. We believe WW sales from pipeline drugs could exceed $1B in 2012. In our view, THLD's current share price does not incorporate the full potential of its pipeline. Glufosfamide Ph.III Data Expected 4Q06 THLD's lead drug candidate, glufosfamide, is in a ph.III trial in 2nd-line pancreatic cancer. The trial protocol has completed an SPA, and there is no approved therapy for this indication. We believe glufosfamide could potentially reach the market in 2008, and WW sales could reach approx $280MM in 2012. TH-070 Represents a Promising Approach to BPH THLD is conducting a U.S. ph.II and a European ph.III trial of TH-070 for BPH. Previous studies in BPH have demonstrated promising efficacy with few side effects. We believe TH-070 could potentially become an important therapy in the 7MM pt U.S. BPH market. We estimate 2012 WW sales at approx $750MM.

Opinion on qualitative criteria
Accounting Quality of track record Solvency Currency risk Risk of asset write-off Neutral Neutral Neutral Neutral

Share price performance/EPS revision (USD) Price 13 12 11 10 9 8 7 6 5 Sep Jan May Sep Jan May Sep Fortis EPS est. 2005

Year to December (USD m) Revenues Total revenues Expenses Cost of sales R&D expense SG&A expense Other expense Total operating expenses Operating income

2003 (6.3) (2.1) (8.3) (8.3) (8.3) (8.3) 0.1 (84.72) high high high high

2004 (16.3) (7.6) (24.0) (24.0) (23.6) (23.6) 1.2 (20.25) (23.87) (5.83) (4.80) (5.05)

2005e (31.4) (12.2) (43.6) (43.6) (42.2) (42.2) 25.7 (1.64) (0.46) (0.36) (0.41) (0.43)

2006e (34.7) (14.3) (49.0) (49.0) (47.1) (47.1) 34.1 (1.38)

2007e (46.8) (22.8) (69.7) (69.7) (68.5) (68.5) 42.3 (1.62)

Source: JCF, Fortis Bank Equity Research Market capitalisation (USD m) No. of shares (m) Free float 1/3/12 mth perf. (%) High/low 52 weeks Next results due Price/book value (x) Volatility (ß) (5yrs/Nasdaq Comp.) Reuters symbol Bloomberg symbol Website 389.9 30.8 46.5% 25.2/82.3/77.5 12.71/5.53

Other income Pre-tax income Income tax provision Net income Shares outstanding EPS FY EPS Q1 EPS Q2 EPS Q3 EPS Q4

THLD.O THLD US

www.thresholdpharm.com

IMPORTANT: PLEASE READ DISCLOSURES AND DISCLAIMERS AT THE END OF THIS DOCUMENT

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 3 of 41
Fortis Bank

Contents
1. Investment Thesis 1.1. Pipeline Summary 1.2. TH-070 (Lonidamine) for BPH 1.3. Glufosfamide for Pancreatic Cancer 1.4. 2-Deoxyglucose (2-DG) for Solid Tumors 1.5. Commercialization Strategy Near-Term Events Valuation 3.1. Price Target Calculation 3.2. Sensitivity Analysis: TH-070 vs Glufosfamide 3.3. Sensitivity Analysis: TH-070 U.S. Market Penetration 3 3 3 4 4 4 5 6 6 7 8

2. 3.

4.

Pipeline Overview 9 4.1. TH-070 (Lonidamine) for Benign Prostatic Hyperplasia (BPH) 10 4.1.1. TH-070: Current Status and Plans 10 4.1.2. TH-070: Prior Phase II Trial in BPH 11 4.1.3. TH-070: Market Potential in BPH 12 4.1.4. Competitive Environment in BPH 13 4.1.5. TH-070: Marketing and Promotion Plans 16 4.1.6. TH-070: Development History and License Details 16 4.1.7. TH-070: Mechanism of Action 17 4.2. Glufosfamide for Pancreatic Cancer 17 4.2.1. Glufosfamide: Current Status and Plans 18 4.2.2. Glufosfamide: Previous Phase II Pancreatic Data 19 4.2.3. Glufosfamide: Previous Phase II Data in Other Indications 20 4.2.4. Glufosfamide: Market Potential in Pancreatic Cancer 21 4.2.5. Competitive Environment in Pancreatic Cancer 22 4.2.6. Glufosfamide: Marketing and Promotion Plans 23 4.2.7. Glufosfamide: Development History and Licensing Details24 4.2.8. Glufosfamide: Mechanism of Action 24 4.3. 2-Deoxyglucose (2-DG) for Solid Tumors 25 4.3.1. 2-DG: Current Status and Plans 25 4.3.2. 2-DG: Potential Market in Solid Tumors 26 4.3.3. 2-DG: Marketing and Promotion Plans 27 4.3.4. 2-DG: Development History and License Details 27 Licensing and Collaboration Summary Partnering and Marketing Summary Intellectual Property Management Major Institutional Shareholders 28 29 30 31 32 33 34 35 36

5. 6. 7. 8. 9.

10. Product Revenue Estimates 11. Financials 12. Financial Model 13. Investment Risks

2

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 4 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

1. Investment Thesis
Initiating coverage with a Buy rating and $17 price target

Effective September 20, we are initiating coverage of Threshold Pharmaceuticals with a Buy rating and $17 price target. Threshold is developing small molecule therapeutics that are based on the concept of metabolic targeting. The company's drug candidates are designed to exploit metabolic differences between healthy and diseased tissues, which it believes will result in drugs with superior efficacy and milder side effect profiles than existing therapies. We believe Threshold's approach to drug development is attractive, and the company has demonstrated proof-of-concept in humans for each of its pipeline drugs. The underlying rationale, promising clinical results to date, and the market opportunities addressed by Threshold's drug candidates are the key reasons for our Buy rating. 1.1. Pipeline Summary Threshold has three metabolic targeting agents in clinical trials: Glufosfamide, in a pivotal phase III trial for second-line pancreatic cancer, and a phase I/II trial in first-line pancreatic cancer; TH-070, in a U.S.-based phase II trial and a European-based phase III trial, both for benign prostatic hyperplasia (BPH); and 2-deoxyglucose (2-DG), in a phase I trial in combination with docetaxel in advanced solid tumors. We expect to see multiple data points from each of these programs over the next 12-16 months, providing several potential catalysts for Threshold's shares. The following table highlights the company's pipeline.

Platform based on metabolic targeting; three drugs in clinical trials

Threshold Pharmaceuticals, Inc. ­ Product Pipeline

Product Glufosfamide Glufosfamide TH-070 (lonidamine) 2-Deoxyglucose (2-DG)
Source: Fortis Bank Equity Research

Mechanism of Action Targeted alkylator Targeted alkylator Glycolysis inhibitor Glycolysis inhibitor

Indication Pancreatic cancer Pancreatic cancer, combo with gemcitabine Benign prostatic hyperplasia (BPH) Solid tumors, combo with docetaxel

Status Phase III Phase I/II Phase II and III Phase I

U.S. phase II, EU ph.III BPH trials ongoing; data 4Q06

1.2. TH-070 (Lonidamine) for BPH Threshold's most significant potential revenue driver is the small molecule glycolysis inhibitor TH-070, for BPH. The company is currently conducting a U.S.-based phase II trial of TH-070 in approximately 200 BPH patients, and a European-based phase III trial in approximately 480 patients. We believe enrollment in both trials will be completed in 1Q06, and that data from each could be available in 4Q06. Pending successful completion of the ongoing studies, we believe Threshold will initiate a pivotal U.S. phase III trial in 2007. We are enthusiastic about the market potential of TH-070 in BPH. According to the American Urological Association, approximately 50% of men over the age of 50 have BPH, with prevalence increasing linearly with age. There are currently approximately 18 million BPH patients in the U.S., and an additional 30 million or more in Europe. According to the NIH, only about one-third of these patients are diagnosed (approximately 7 million men in the U.S.). Currently available therapies are limited by side effects including dizziness, impotence, and loss of libido, or require several months of treatment before demonstrating a therapeutic benefit. Despite these shortcomings, branded therapies generated over $1.2B in U.S. sales in 2004 (IMS Health). We believe there is a significant opportunity for a safe and effective therapy in this market. Threshold recently reported data from a 28-day phase II trial of TH-070 in which the drug showed promising efficacy in men with symptomatic BPH. The trial achieved all endpoints with statistical significance, and a treatment effect was observed six months later. Importantly, TH-070 appears to have a benign side effect profile. Further evidence for the drug's safety comes from the fact
3

TH-070 market: approx 50% of men over the age of 50 have BPH

28-day phase II trial reached all endpoints with statistical significance

20 September 2005

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 5 of 41
Fortis Bank

that it has been approved for oncology indications in Europe since 1987, and thousands of patients have received therapy. In our view, TH-070's rapid onsetof-action, durable treatment effect, and established safety profile make it one of the most attractive therapies currently in development for BPH. We believe Threshold could potentially launch TH-070 in late 2009. Our 2012 worldwide revenue estimate for TH-070 is approximately $750 million. 1.3. Glufosfamide for Pancreatic Cancer Threshold's most advanced product candidate is the small molecule antitumor drug glufosfamide, for pancreatic cancer. The company is conducting a pivotal phase III trial of glufosfamide in approximately 300 gemcitabine refractory pancreatic cancer patients. Threshold expects to complete enrollment in this trial in 1Q06, and we believe data could be available in 4Q06. There are currently no approved drugs for second-line pancreatic cancer, and we believe glufosfamide could represent the first approved therapy in this indication. A prior phase II trial in first-line patients indicated the drug's promise in pancreatic cancer, with higher ORR's and 2-year survival rates observed than those reported for gemcitabine, the current standard of care. Pending a successful phase III trial, we believe Threshold could file an NDA for second-line pancreatic cancer in early 2007. If approved, we believe glufosfamide could be launched in 2008. We estimate 2012 worldwide glufosfamide sales at approximately $280 million. Threshold is also conducting a phase I/II trial of glufosfamide in combination with gemcitabine in first-line pancreatic cancer. This trial is currently in its final phase I dosing cohort in patients with advanced solid tumors, and will begin treating pancreatic cancer patients in its phase II portion shortly. We expect to see data from the phase I portion of the trial in 4Q05. Despite the expected FDA approval of Tarceva (DNA/OSIP/Roche, Not Rated), we believe that there are limited options available to first-line pancreatic cancer patients, and that an additional therapy could rapidly gain market share. For example, Tarceva added approximately 15 days to the median survival of first-line pancreatic cancer patients, and these patients typically experienced added side effects compared with single agent gemcitabine. In addition to pancreatic cancer, Threshold also plans to initiate a clinical program for glufosfamide in another tumor type. Our current model does not include first-line pancreatic cancer sales, or sales in other indications, however we believe such use would represent additional upside. 1.4. 2-Deoxyglucose (2-DG) for Solid Tumors Threshold is also developing the small molecule glycolysis inhibitor 2deoxyglucose for the treatment of solid tumors. The company is currently conducting a phase I trial of 2-DG as a single agent and in combination with docetaxel in patients with advanced solid tumors. We expect to see topline data from this study in 4Q05. While the company has not indicated specific tumor types it will choose for a potential phase II trial, we believe breast, colorectal, NSCLC, ovarian, and prostate are possibilities. Assuming a potential 2011 U.S. launch, our current model suggests that these indications represent revenue potential of approximately $80 million. Our estimates will mature as Threshold completes additional trials. 1.5. Commercialization Strategy Threshold currently controls all development and commercialization rights to its drug candidates. The company will pay a single-digit royalty to Baxter Healthcare (BAX, Not Rated) on glufosfamide sales, and a small royalty on 2DG sales to certain patent licensors. We believe Threshold will attempt to market its oncology drugs alone in the U.S. with a targeted sales force of approximately 40-50 reps. Outside the U.S., we expect the company to seek a partner for the European and Asian markets. In BPH, we believe Threshold will seek a partner in both the U.S. and ex-U.S. markets. We expect the company to seek a co-promotion agreement in the U.S., and a royalty-bearing agreement in other markets.
20 September 2005

Phase III trial in 2 -line pancreatic cancer ongoing; data in 4Q06

nd

Phase I/II combo with gemcitabine in 1st-line pancreatic cancer ongoing

Phase I trial ongoing; single agent and combo with docetaxel in solid tumors

Company may market oncology alone in the U.S.; copromote BPH in U.S.

4

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 6 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

2. Near-Term Events
Glufosfamide ph.I combo data, 2-DG ph.I data expected 4Q05

Key near-term events include the completion of enrollment in the ongoing pivotal phase III trial of glufosfamide in pancreatic cancer, expected in 1Q06; data from the phase I part of the ongoing phase I/II trial of glufosfamide in combination with gemcitabine for advanced solid tumors, in 4Q05; additional topline data from the phase I trial of 2-deoxyglucose in advanced solid tumors, expected in 4Q05; and completion of enrollment in the U.S. phase II and European phase III trials of TH-070 in BPH, expected in 1Q06. In 4Q06, the company expects to report data from the pivotal phase III trial of glufosfamide in refractory pancreatic cancer, as well as topline data from its ongoing European phase III trial of TH-070 in BPH. Data from the U.S. phase II trial of TH-070 in BPH are also expected in 4Q06, and could be reported around the same time as the European data. We believe these 2H06 events will be key for Threshold, as they will help determine the likelihood of successfully filing an NDA for glufosfamide, and may clarify what the future clinical path for TH-070 will look like. The table below outlines the important near-term events for Threshold.

Ph.III pancreatic cancer and ph.II,III BPH data expected in 4Q06

Threshold Pharmaceuticals, Inc. ­ Key Upcoming Milestones

Product Glufosfamide Glufosfamide Glufosfamide Glufosfamide TH-070 (lonidamine) TH-070 TH-070 TH-070 TH-070 2-Deoxyglucose (2-DG)
Source: Fortis Bank Equity Research

Event Complete enrollment, ph.III trial, 2nd-line pancreatic cancer Topline data, ph.III trial, 2nd-line pancreatic cancer Topline data, ph.I combo trial with gemcitabine in adv solid tumors Topline data, ph.II combo trial with gemcitabine, first-line pancreatic cancer Complete enrollment, U.S. ph.II BPH trial Complete enrollment, European ph.III BPH trial Topline data, U.S. ph.II BPH trial Topline data, European ph.III BPH trial Initiate U.S. ph.III BPH trial Topline data, ph.I trial in solid tumors

Expected 1Q06 4Q06 4Q05 2H06 1Q06 1Q06 4Q06 4Q06 1H07 4Q05

20 September 2005

5

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 7 of 41
Fortis Bank

3. Valuation
$17 target based on 30x multiple of weighted 2012 EPS estimate of $1.29

3.1. Price Target Calculation Our 12 to 18-month price target for Threshold's shares is $17. We base this on a 30x multiple of our probability-weighted 2012 EPS estimate of $1.29, discounted at 15% for six years. We believe 15% is an appropriate discount rate due to the probability adjustment that has been applied to each product candidate. Our revenue estimates for each product are based on our models for pricing and penetration in both the U.S. and Europe (detailed in each product's respective section, and summarized in Section 10). We assume approximately 61 million shares outstanding in 2012. Our estimates assume Threshold will copromote TH-070 in the U.S., and receive a royalty of approximately 15% on ex-U.S. sales. The figure below outlines our price target calculation.

Threshold Pharmaceuticals, Inc. ­ Present Value of Development Candidates
Threshold Pharmaceuticals, Inc. - Present Value of Development Candidates Approx net margin Product Probability of Potential 2012 (1) Candidate approval U.S. Revenue TH-070 55% $527 12% Glufosfamide 55% $178 23% 2-DG 20% $60 25% 2012 Ex-U.S. Royalty (2) $22 $10 $2 Total EPS Contribution* $1.40 $0.84 $0.28 Weighted EPS Contribution * $0.77 $0.46 $0.06

$1.29 Total Revenue $765 $34 $2.52 * Assumes 61 million shares out in 2012. Notes: (1) Assumes profit share on U.S. lonidamine sales; sole-promotion of cancer drugs in U.S. (2) After tax royalty on ROW sales of all products, approx 10% of net sales. 2012E EPS: Discounted Years EPS Multiple 5% 10 10 15 14 20 19 25 24 30 29 35 34 40 38 45 43 $1.29 6.0 10% 7 11 15 18 22 25 29 33

15% 6 8 11 14 17 19 22 25

Discount Rate 20% 4 6 9 11 13 15 17 19

25% 3 5 7 8 10 12 13 15

30% 3 4 5 7 8 9 11 12

35% 2 3 4 5 6 7 9 10

Source: Fortis Bank Equity Research

As an alternative to the probability-adjusted approach, we also valued Threshold's shares based on a multiple of estimated 2012 product revenue. Assuming total worldwide product sales of approximately $1.1 billion, we applied a 35% discount rate and a 5x multiple to arrive at a theoretical equity value of approximately $15. We prefer the probability-adjusted method, as it evaluates individual product candidates. In our view, both methods incorporate relatively conservative estimates for product revenue.
Threshold Pharmaceuticals, Inc. ­ Sales Multiple Valuation

Multiple of 2012E Sales 2012E sales Discount Years Shares out in 2012 Discounted value per share Multiple Value per share
Source: Fortis Bank Equity Research

$1,110 35% 6.0 61 $3.01 5 $15.03

6

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 8 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

Study assesses relative contribution of THLD's main product candidates

3.2. Sensitivity Analysis: TH-070 vs Glufosfamide We performed a sensitivity analysis to assess the relative contribution to share value from each of Threshold's two main product candidates, TH-070 (BPH) and glufosfamide (pancreatic cancer). This analysis maintains all of the assumptions built into the prior valuation: TH-070 copromotion in the U.S., with an approximately 15% royalty to Threshold from ex-U.S. sales; oncology drugs sole-promoted by Threshold in the U.S., and an approximately 15% royalty from ex-U.S. oncology drug sales. Other factors such as price and penetration rates were unchanged. What the analysis demonstrates is the effect of approval probability on Threshold's share price. Approval of both agents, using our revenue builds and assumptions, leads to an approximately $28 share price. Assuming TH-070 is approved, and that glufosfamide never reaches the market, this analysis suggests an approximately $19 share value. Conversely, if TH-070 fails and glufosfamide is approved, the analysis suggests that shares are worth approximately $12. Our current assessment of each drug's approval probability is 55%, resulting in our $17 price target.

Bottom line: TH-070 is worth approx $19; glufosfamide approx $12

Threshold Pharmaceuticals ­ U.S. Approval Probabilities vs Equity Value

Glufosfamide probability of approval

17 5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

5% $2 $3 $4 $5 $7 $8 $9 $10 $11 $12

15% $4 $5 $6 $7 $8 $9 $11 $12 $13 $14

25% $6 $7 $8 $9 $10 $11 $12 $13 $15 $16

35% $8 $9 $10 $11 $12 $13 $14 $15 $16 $17

TH-070 probability of approval 45% 55% 65% $9 $11 $13 $11 $12 $14 $12 $13 $15 $13 $15 $16 $14 $16 $17 $15 $17 $19 $16 $18 $20 $17 $19 $21 $18 $20 $22 $19 $21 $23

75% $15 $16 $17 $18 $19 $20 $21 $22 $24 $25

85% $17 $18 $19 $20 $21 $22 $23 $24 $25 $26

95% $19 $20 $21 $22 $23 $24 $25 $26 $27 $28

Source: Fortis Bank Equity Research

6% penetration in BPH used here; greater market penetration possible

The take home message from this analysis is that TH-070 is worth more to Threshold's share value (approximately $19) than glufosfamide (approximately $12), though not as much as each drug's potential market size might suggest (7 million vs 35K U.S. patients). We believe three things are worth mentioning in this analysis. First, our revenue model calls for TH-070 co-promotion in the U.S., with glufosfamide sole-promoted, leaving relatively less BPH-derived net income to Threshold compared with oncology. Second, pricing for a BPH therapy is expected to be lower than for a cancer drug (approx. $1300/yr vs approx $32,000). Finally, our model assumes a conservative 6% penetration rate into the U.S. BPH market for TH-070, and only 2% in Western Europe (an even larger market than the U.S.). Clearly, greater BPH market penetration would lead to a correspondingly higher contribution from TH-070 to the value of Threshold's shares. An illustration of market penetration vs share value is highlighted in the following section.

20 September 2005

7

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 9 of 41
Fortis Bank

Intended to determine pricing, penetration effects on share value

3.3. Sensitivity Analysis: TH-070 U.S. Market Penetration To better understand the potential of TH-070, we performed a sensitivity analysis of the drug in the U.S. BPH market, where we believe Threshold will enter a copromotion agreement with a partner. This assessment maintains the margins (approx 12% net to Threshold), approval probabilities (55%), and all other aspects of the valuation we performed when determining the price target for Threshold's shares. Our goal was to determine the effect of TH-070 pricing and market penetration among U.S. BPH patients on Threshold's theoretical share value, as shown here.

Threshold Pharmaceuticals ­ Share Value as a Function of TH-070 Price, Market Penetration in 2012

TH-070 annual price

17 $700 $900 $1,100 $1,350 $1,500 $1,700 $1,900

2% $9 $10 $11 $12 $12 $13 $14

4% $11 $12 $13 $14 $15 $16 $17

6% $12 $13 $15 $17 $18 $19 $21

TH-070 U.S. market penetration 8% 10% 20% $13 $14 $21 $15 $17 $25 $17 $19 $29 $19 $22 $34 $21 $23 $37 $22 $25 $41 $24 $28 $45

25% $24 $29 $34 $40 $44 $49 $54

30% $27 $33 $39 $46 $51 $57 $62

35% $30 $37 $44 $52 $58 $64 $71

40% $34 $41 $49 $59 $64 $72 $80

Source: Fortis Bank Equity Research

Best-in-class drug for BPH could be priced at a premium

What this analysis demonstrates is that modest penetration leads to share prices above current trading levels, while aggressive penetration leads to substantially higher equity values. While we maintain our 6% penetration assumption and $1,350 annual price for therapy (2012 estimates), we note that a best-in-class drug for BPH could potentially be priced above this level, and would almost certainly enjoy a greater than 6% market share. Prices for current BPH therapies, such as Avodart (GSK, Not Rated), Proscar (MRK, Not Rated), and Flomax (Boehringer Ingelheim) range from $700 to $1,200 per year. Thus, we believe TH-070 has significant upside revenue potential. As a reminder, these figures assume a 55% probability of approval for TH-070. A positive outcome in either ongoing trial of TH-070 would likely increase the drug's approval chances. The revenue potential of TH-070 in BPH is a key reason for our Buy recommendation on Threshold shares.

Sales potential of TH-070 in BPH is a key reason for our Buy rating

8

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 10 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

4. Pipeline Overview
Pipeline based on metabolic targeting; clinical programs in cancer and BPH

Threshold is developing a pipeline of drug candidates that is based on the concept of metabolic targeting. The company's technology platform is focused on exploiting metabolic differences between diseased and healthy tissue, in order to selectively target affected tissues. Threshold's most advanced programs are in cancer and benign prostatic hyperplasia (BPH). In cancer, the well-known difference in glucose uptake in tumors compared with healthy tissue has provided the basis for drug candidates that are based on glucose and its analogs. In BPH, the prostate's unique dependence on glycolysis compared with other tissues has led to the development drugs that interrupt this metabolic pathway. The end result of Threshold's strategy is the development of therapeutic agents that preferentially target diseased tissues, leaving non-diseased areas relatively unaffected. We believe this approach holds promise, as successful drugs would potentially demonstrate superior efficacy and milder side effects. The table below provides an overview of Threshold's pipeline.

Threshold Pharmaceuticals, Inc. ­ Pipeline

Product Glufosfamide Glufosfamide TH-070 (lonidamine) 2-Deoxyglucose (2-DG)
Source: Fortis Bank Equity Research

Mechanism of Action Targeted alkylator Targeted alkylator Glycolysis inhibitor Glycolysis inhibitor

Indication Pancreatic cancer Pancreatic cancer, combo with gemcitabine Benign prostatic hyperplasia (BPH) Solid tumors, combo with docetaxel

Status Phase III Phase I/II Phase II and III Phase I

Glufosfamide in 2 -line pancreatic: SPA, Fast-Track; pivotal data 2H06

nd

Threshold's oncology drug candidates include the small molecule glucose-based therapeutics glufosfamide and 2-deoxyglucose (2DG). Glufosfamide is currently in a pivotal phase III trial in second-line gemcitabine refractory pancreatic cancer. The company's phase III trial protocol for glufosfamide has successfully completed an SPA from the FDA, and Threshold plans to submit an NDA for this drug pending a successful study outcome. Data are expected in late 2006, and a filing could occur in 1H07. A phase I/II trial of glufosfamide in combination with gemcitabine in advanced solid tumors is also ongoing, with phase I results expected in 4Q05. Following completion of the phase I portion, Threshold plans to initiate the phase II portion in first-line pancreatic cancer patients. We expect the phase II portion to begin in late 2005 or early 2006. We believe data could be available in late 2006. Threshold's small molecule glycolysis inhibitor 2-DG is currently in an ascending-dose phase I trial in advanced solid tumors. This study will the assess safety, tolerability, and preliminary efficacy of single agent 2-DG as well as the combination of 2-DG with the approved antitumor agent docetaxel. Topline data from this trial are expected in 4Q05. Threshold's lead drug candidate for BPH is TH-070, an orally available small molecule hexokinase inhibitor. By inhibition of hexokinase, TH-070 disrupts glycolysis, the primary source of energy for prostatic epithelial cells, and has been shown to induce apoptosis in prostate cells. Threshold is currently conducting two clinical trials of TH-070 in BPH. The first is a U.S.-based phase II trial in approximately 200 patients, while the second is a European phase III trial in approximately 480 patients. We believe both studies will be completed in 2006, and we expect topline data in 2H06. We are especially interested in TH070, due to the drug's established safety profile, promising preliminary efficacy, and the size of the global BPH market. Each of the company's drug candidates is discussed in detail in the following sections.

Ph.I/II in 1 -line pancreatic: combo w/gemcitabine, topline data 4Q05

st

Glucose derivative 2-DG; ph.I in solid tumors, topline data in 4Q05

TH-070 in BPH: ph.II U.S. trial, ph.III EU trial ongoing, data expected 4Q05

20 September 2005

9

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 11 of 41
Fortis Bank

TH-070: originally developed for oncology; promising ph.II data in BPH

4.1. TH-070 (Lonidamine) for Benign Prostatic Hyperplasia (BPH) Threshold is developing the orally active hexokinase inhibitor TH-070 (lonidamine) for the treatment of BPH. TH-070 was originally developed for oncology indications, and was launched in Italy in 1987 by Acraf Spa. TH-070 was marketed in a variety of solid tumors, including prostate, NSCLC, breast, and cervical. Threshold licensed the preclinical, clinical, and regulatory dossier from Acraf in 2Q04, in exchange for an upfront payment of $375,000, and additional sales-based milestone payments totaling approximately $2.2 million. Threshold holds the exclusive rights to develop TH-070 worldwide, excluding certain European countries and certain countries of the former Soviet Union, where the license is non-exclusive. Importantly, Threshold owes no royalty on TH-070 sales. We believe this agreement was attractive as it provided Threshold the rights to a potentially significant revenue driver for less than $3 million. Threshold is currently conducting two clinical trials of TH-070 in patients with BPH; a 200 patient phase II trial in the U.S., and a 480 patient phase III trial in Europe. Each of these trials is discussed in the following section. Based on previous phase II data demonstrating promising activity in BPH (section 4.1.2) and TH-070's established safety profile, we are enthusiastic about TH-070's market potential. We believe that Threshold will attempt to enter into a copromotion agreement in the U.S., and license the drug in ex-U.S. markets. Assuming a potential 2009 product launch, we believe worldwide TH-070 sales could reach approximately $748 million in 2012. The following table gives a topline overview of TH-070.

WW TH-070 sales could reach approx $748 million in 2012

Threshold Pharmaceuticals - TH-070 Overview

Potential 2012 WW Indication Status Next Data Est. Market Size Launch Est. Revenue Est. Benign Prostatic Ongoing 200 pt ph.II Data from both trials Approximately 18MM U.S. Late 2009 $748MM Hyperplasia (BPH) and 480 pt ph.III trials expected 4Q06 pts; >50MM worldwide

Source: Fortis Bank Equity Research

4.1.1. TH-070: Current Status and Plans Ph.II: 28-day treatment period, with 3month follow-up

Ongoing Phase II Trial Threshold is currently conducting two clinical trials of TH-070. The first is a randomized, 5-arm, double-blind, placebo-controlled, multicenter, phase II study in approximately 200 patients with BPH. The protocol calls for patients to be assigned to one of 5 treatment groups, evenly randomized to receive TH-070 doses of 5mg, 25mg, 50mg, 150mg, or placebo, administered once per day over a 28-day treatment period, with a 3-month follow-up. This trial was initiated in 2Q05, and we expect it to be fully enrolled in 1Q06. We believe topline data could be available in 4Q06. The phase II trial's primary goal will be to determine dose-response, safety, and pharmacokinetics, with efficacy assessed by change in prostate volume, change in International Prostate Symptom Scores (IPSS), change in urine flow, and change in PSA levels. We believe that data from a previous phase II trial, which demonstrated a statistically significant improvement on each of these measures using 150mg doses of TH-070, bodes well for the higher doses studied in this trial. In addition, as it is a dose-ranging study, failure of the lower-dose cohorts to meet the primary efficacy endpoints is not necessarily a negative. The following table highlights the ongoing phase II study.

Efficacy measures include change in prostate volume, change in IPSS

10

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 12 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

TH-070 U.S. Phase II BPH Trial Overview

Patients 200

Eligibility criteria Prostate vol >30cc Urine flow <15mL/sec IPSS >13 PSA >1ng/mL

Design 14-day placebo run-in, then randomize to 5 arms (1:1:1:1:1), placebo or TH-070 doses of 5, 25, 50, 150mg/day; 28 day treatment period with follow-up at 3 mos

Endpoints Prostate vol, urine flow, IPSS, PSA, safety, vs placebo; measured at end of treatment, and after 3 mo follow up.

Timing Initiated 2Q05; complete enrollment expected in 1Q06; topline expected 4Q06

Source: Fortis Bank Equity Research

Trial will help identify protocol for future registration trials

The phase II trial will be important for Threshold in two ways. First, it will help verify the results of a prior 30-patient trial (described in section 4.1.2 below), which met its endpoints at 28 days, and demonstrated a durable treatment effect at 6-months. Second, this study will help identify an appropriate dosing regimen to use in a subsequent pivotal trial. We believe the main questions to answer with TH-070 involve whether the drug is best used in an intermittent fashion, or whether chronic dosing is preferred. A better understanding of the treatment effect at 3 months will help Threshold identify a suitable protocol for its registration program. Ongoing Phase III Trial Threshold is also conducting a European phase III trial of TH-070 in BPH. This study is a randomized, double-blind, placebo-controlled, multicenter trial in approximately 480 patients with symptomatic BPH. Patients will be randomized to receive daily doses of TH-070 at 50mg, 150mg, or placebo, for a three month treatment period. The primary endpoint is change in International Prostate Symptom Score (IPSS), with additional endpoints measuring change in prostate volume, urine flow rate, and PSA level after three months. There will also be a one-month follow up assessment. The trial is intended to confirm the efficacy that was shown in the prior phase II study (discussed in section 4.1.2 below). This trial was initiated in 3Q05 and we expect enrollment to take approximately 6 months. Data could be available in late 2006. The following table highlights the study.

Ph.III: 3-mo treatment period with 1month follow-up

TH-070 European Phase III BPH Trial Overview
Patients 480 Eligibility criteria Prostate vol >30cc Urine flow <15mL/sec IPSS >13 PSA >1ng/mL Design 14-day placebo run-in, then randomize to 3 arms (1:1:1); placebo or TH-070 doses of 50 or 150mg/day; 3-mo treatment period with follow-up 30 days later Endpoints IPSS, Prostate vol, urine flow, PSA, safety, vs placebo; measured at end of treatment, and after 1-mo follow up. Powering Timing

90% powered to Initiated 3Q05; enrollment demonstrate a 2.5 unit expected in 1Q06; topline difference in IPSS possible 4Q06 scores vs placebo (1) at 3 mos (p=0.025)

Notes: (1) Assumes placebo effect of 2.5 units; overall treatment effect expected to be approx 5 units.

Source: Fortis Bank Equity Research

European phase III data potentially included in a U.S. registration package

Threshold believes that success in its European phase III trial may allow them to include the data in a U.S. registration package for BPH. The company plans to conduct an additional phase III trial in the U.S. following conclusion of the ongoing clinical studies. We believe that if Threshold can determine a suitable dosing strategy from its current clinical programs, and if the European trial succeeds, that the company stands a reasonable chance of filing for approval in the 2008-2009 timeframe. This assumes that an additional U.S. phase III trial is successfully concluded by late 2008. We believe a potential product launch could then occur in late 2009.
4.1.2. TH-070: Prior Phase II Trial in BPH

Open-label phase II trial of TH-070 in 30 BPH patients

In 2Q05, Threshold reported the results from an open-label phase II trial of TH070 in 30 BPH patients. This trial was conducted at a single center in Bari, Italy,

20 September 2005

11

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 13 of 41
Fortis Bank

and was intended to demonstrate the preliminary efficacy of TH-070 in BPH. No trials had previously been conducted in BPH patients. Patients received 150mg doses of TH-070 once-daily over a 28-day treatment period, and were followed up six months later. The trial's primary endpoint assessed preliminary effects of TH-070 on prostate volume at day 28, with secondary endpoints evaluating change in prostate specific antigen (PSA) levels, urine flow, residual urine volume, and International Prostate Symptoms Scores (IPSS). The following table outlines the trial results at 28 and 200 days.
TH-070: Summary of Phase II Trial Results

Doses 150mg daily dose for 28 days -

Day 28

Mean reduction in prostate vol (p-value)* PSA level -11.2% (p<0.001) -17.8% (p=0.002) -4.3% -14.8% (p=0.012)

IPSS change from baseline Improvement in (%, p-value) urine flow -7.3 points, 34.3% (p=0.002) (-37%, p<0.001) -9.7 points, (-50%) 45.6% (p<0.001)

Change in postvoid residual urine volume Data -61.5% (p<0.001) Rev Urol. 2005; 7 (suppl.7), S27-S33 -52.5% (p=0.003) -

200

*Primary endpoint at 28 days.
Source: Fortis Bank Equity Research

All 28-day endpoints were achieved with statistical significance

We believe the phase II data are promising; all 28-day endpoints were achieved with statistical significance. We find the duration of TH-070's effect at 6-months to be impressive, as there appears to be sustained symptomatic improvement on multiple endpoints. This study was originally designed to enroll a second arm dosed at 150mg TID (450mg per day), however this arm was not initiated due to the observed efficacy and lack of side-effects at 150mg. Importantly, no treatment-related adverse events were reported (the single reported AE, gross hematuria, was judged not related to treatment). We caution that the trial did not include a placebo run-in (the ongoing trials do include such a run-in), and that the sample size was limited (30 patients at day 28; 25 at day 200). However, as a preliminary proof of concept study, we believe it yielded encouraging data. Compared with existing BPH therapies such as alpha-blockers and 5-alpha reductase inhibitors, the preliminary TH-070 data suggest efficacy on-par with, or superior to, marketed drugs. Should the ongoing clinical trials confirm these data, we believe TH-070 would be one of the most promising BPH treatments in late-stage clinical development.
4.1.3. TH-070: Market Potential in BPH

Positive data from ongoing ph.II and III trials would be significant catalysts

Approximately 50% of men between age 50 and 60 are affected by BPH

The worldwide market for BPH is substantial. According to the American Urological Association, approximately 50% of men between the ages of 50 and 60 are affected by BPH, with prevalence increasing linearly with age such that up to 90% of men over age 80 have histological evidence of the condition. As a result, the estimated incidence of BPH in the U.S. is approximately 18.5 million. The prevalence of BPH in Western Europe is estimated to be approximately 32 million, due to the relatively larger European population between the ages of 50 and 90.

12

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 14 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

BPH: Estimated Patient Population

U.S. Europe Estimated BPH Patients (1) 18.5 32.0 Moderate to severe subgroup (2) 12.2 21.1 Estimated diagnosed patients (3) 7.4 12.0 Notes: (1) AUA/NIH, numbers in millions (2) Threshold Pharmaceuticals (3) Est. based on 1999-2000 NIH figs.
Source: Fortis Bank Equity Research

Approx 6.4 million doctor visits in 2000 ended in a BPH diagnosis

A key issue to consider when assessing the BPH market opportunity is the degree of symptom severity in affected patients. While approximately 18 million men may have histological evidence of BPH, the number seeking therapy is somewhat lower. According to the National Kidney and Urologic Diseases Information Clearinghouse of the NIH, there were approximately 6.4 million doctor visits that ended in a BPH diagnosis in 2000. We believe this reflects approximately 35% to 40% of the overall BPH population. Threshold believes that up to 66% of BPH patients (12 million U.S. men) may be characterized as moderate to severe based on self-reported IPSS scores, and that this could represent the potential number seeking therapy. We believe that a conservative assessment of the market opportunity would include the 35-40% of the broader BPH population that has been diagnosed with BPH after proactive consultation with a doctor, although we recognize that growth from this figure would almost certainly occur if a safe and effective therapy were shown to dramatically improve patient symptoms. We currently estimate a 2009 market entry date for TH-070, and we estimate that initial pricing could be approximately $1,250 annually. We estimate that the market size for symptomatic patients seeking treatment is approximately 30% of the total BPH patient population. Assuming modest penetration into this market, we believe worldwide sales could reach approximately $748 million in 2012. Our estimate includes approximately $527 million in U.S. sales, where we believe Threshold will enter into a copromotion agreement, and approximately $221 million in Western European sales, where we expect Threshold to license the rights to TH-070 in exchange for a royalty. We believe both the size of the market and our penetration rates are conservative, and that significant upside could result from either market expansion or increased market share.

We estimate $527MM in U.S. sales $221 MM in Western Europe

TH-070: Estimated Market Opportunity

TH 070 - U.S. 2008 2009 2010 2011 BPH patients (1) 5,674,035 5,787,515 5,903,266 6,198,429 Penetration 0.0% 0.2% 2.0% 4.0% Treated patients 8,681 118,065 247,937 Price per year $1.2 $1.2 $1.3 $1.3 Sales ($MM) $0.0 $10.7 $150.3 $325.1 Notes: (1) American Urological Society, and NIH figures for estimated number of patients diagnosed with BPH.

2012 6,508,350 6.0% 390,501 $1.4 $527.4

TH 070 - Europe 2008 2009 2010 2011 2012 BHP patients 9,789,487 9,985,277 10,184,983 10,388,682 10,908,116 Penetration 0.0% 0.0% 0.1% 1.0% 2.0% Treated patients 10,185 103,887 218,162 Price per year $0.9 $0.9 $1.0 $1.0 $1.0 Sales ($MM) $0.0 $0.0 $9.7 $102.2 $221.0 Notes: (1) Estimated from U.S. prevalence rates (American Urological Association/NIH) and Western European population statistics.
Source: Fortis Bank Equity Research

4.1.4. Competitive Environment in BPH

Current therapies for BPH largely fall into one of two classes: alpha blockers or 5-alpha reductase inhibitors. Despite the known efficacy and tolerability issues associated with these treatments, sales of current BPH therapies exceed $1.3B
20 September 2005 13

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 15 of 41
Fortis Bank

annually (2004 U.S. sales figure). We expect this market to grow considerably, due to growth in the aging population and the continued transition toward medical therapy for BPH and away from surgical intervention. The table below highlights current therapies for BPH and recent sales data.
Representative Therapies for Benign Prostatic Hyperplasia

Drug Proscar Avodart Flomax Xatral Cardura Hytrin

Generic name Finisteride Dutasteride Tamsulosin Alfuzosin Doxazosin Terazosin

Company Merck GSK Boehringer Ingelheim sanofi aventis Pfizer Abbott

Mechanism Type II 5-alpha-reductase inhibitor Type I and II 5-alpha-reductase inhibitor alpha1A/1D adrenergic receptor antagonist alpha1 adrenergic receptor antagonist alpha1 adrenergic receptor antagonist alpha1 adrenergic receptor antagonist

Annual Sales (note 1) $382.3 $91.1 $745.8 $58.7 $13.2 $53.6

(1) In millions; for the 12-months ending July 31, 2005.
Source: Fortis Bank Equity Research

Current BPH therapies - side effects, slow time-to-onset are concerns

Each of these two major classes has been shown to provide benefit to patients with BPH, however both classes have significant shortcomings as well. Alpha blockers, for example, only address symptoms of BPH (urinary urgency, frequency, incomplete bladder emptying), and not the underlying disorder (oversized prostate volume and continued growth). This is the result of these drugs' mechanism of action; alpha-blockers relax smooth muscle, but do not address the prostate's continued growth. In addition, this class of drugs demonstrates significant side effects, most notably dizziness, ejaculation disturbances, and rhinitis. As a result, we believe long-term BPH treatment with alpha-blockers may lead to sub-optimal clinical outcomes. The 5-alpha reductase inhibitors are generally effective at reducing prostate volume and the need for surgery, however these drugs demonstrate a slower onset-of-action than alpha-blockers (9-12 mos vs 3-5 mos) and can be associated with various sexual side effects, including impotence and decreased libido. A recent 4-year study has demonstrated that combining an alpha-blocker with a 5alpha reductase inhibitor leads to enhanced clinical outcomes compared with either therapy alone (N Engl J Med 2003;349,2387-2398). Two shorter trials have failed to show benefit in patients taking such combinations. We believe this further suggests that current therapeutic approaches are limited primarily by slow onset of action or undesirable side effects. The following table provides a summary of the current treatment options, along with key data from registration trials. For a top-line comparison, data from Threshold's phase II trial of TH-070 are included.

5- reductase inhibitors: side effects include impotence, decreased libido

14

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 16 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

Overview of Current Therapies for BPH

Drug TH-070 (1)

Class Glycolysis inhibitor

IPSS change -7.3

Improvement in urinary flow 3.2 mL/sec

Prostate volume -11.2%

PSA -17.8%

Notable side effects (approx % of pts) 1 case of hematuria, not associated with treatment Impotence (5-8%); decreased libido (3-6%) Impotence (0.8-5%); decreased libido (0.3-6%) Ejaculation disturbances (18%); dizziness (17%); rhinitis (18%) Dizziness (approx 6%)

Proscar (2)

5-alpha-reductase inhibitor 5-alpha-reductase inhibitor alpha-blocker

-3.3

1.9 mL/sec

-17.9%

-

Avodart (3)

-3.3

1.6 mL/sec

-24.7%

-

Flomax (4)

-7.7

1.8 mL/sec

-

-

Xatral (5)

alpha-blocker

-5.7

1.8 mL/sec

-

-

Cardura (6)

alpha-blocker

-6.1

2.6 mL/sec

-

-

Dizziness (16%); fatigue (8%); edema (3%) Dizziness (9%); asthenia (7%); hypotension (4%)

Hytrin (7)

alpha-blocker

-

2.8 mL/sec

-

-

Notes: (1) Data at 28 days, from ph.II trial (2) PLESS pivotal study at 4-yrs, 5mg doses (3) At 12 mos, 0.5mg dose, avg of 3 pivotal trials (4) At 13 wks, 0.8mg dose, avg of 2 pivotal trials (5) At 12 wks, 10mg dose, avg of 3 pivotal trials (6) At 12 wks, 1 pivotal trial, 4 mg dose, pts assessed w/modified IPSS system (7) At 24 wks, avg of 2 pivotal trials, pooled data from 5 dose groups; pts not assessed via IPSS
Source: Fortis Bank Equity Research

Current BPH treatment options leave opportunity for new therapies

We believe currently available treatment options leave substantial opportunity for new BPH therapies. We believe that if TH-070 continues to demonstrate a rapid, significant improvement in BPH symptoms, and if further studies confirm the drug's effect on prostate volume and growth, that it could become a leading therapy in this indication. We are particularly impressed with TH-070's safety profile, and note that the drug's most significant side effects, muscle aches and fatigue, are typically associated with doses of up to 18x those currently under study. Notably, the phase II trial in BPH did not demonstrate these side effects. Therefore, we believe TH-070 represents an improvement over current therapies in both efficacy and tolerability. Several companies are developing new drugs for BPH. These range from the LHRH antagonists Teverelix (Ardana, Not Rated) and Ozarelix (SPPI, Not Rated), to the vitamin D analog BXL-628 (BioXell), to the photosensitizing agent Lemuteporfin (QLTI, Not Rated). In addition, Nymox (NYMX, Not Rated) is developing NX-1207, a former Alzheimer's disease development candidate, for BPH. Each of these drugs is in phase II clinical trials. The following table highlights selected drugs in development for BPH.

20 September 2005

15

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 17 of 41
Fortis Bank

Representative Drugs in Development for BPH

Drug Teverelix (sub-cutaneously dosed decapeptide) BXL-628 (vitamin D analog) Lemuteporfin (i.v. infused benzoporphyrin) NX-1207 Ozarelix (SPI-153; intramuscularly dosed decapeptide)

Company Mechanism Ardana (licensed from LHRH antagonist Aeterna Zentaris) BioXell QLT Inc. Nymox Vitamin D3 agonist Photosensitizing agent -

Stage Ph.II completed in 2Q05 Ph.IIb ongoing Ph.II ongoing Ph.II ongoing Ph.II ongoing

Relevant data At 16 wks: 34% reduction in IPSS scores, 11.5% reduction in prostate volume (vs baseline) Ph.IIa data at 12 wks: 7.2% reduction in prostate volume (vs placebo) Ph.I/II data at 2 yr follow-up: 9.3 pt reduction in IPSS score -

Spectrum (licensed LHRH antagonist from Aeterna Zentaris)

Source: Fortis Bank Equity Research

TH-070 compares well with current developmental therapies

In our view, most of these developmental therapies have shortcomings relative to TH-070. We believe the LHRH antagonist class, administered via injection, will have difficulty in competing with a once-daily oral therapy such as TH-070. This is also true of the photosensitizing agent Lemuteporfin, which is dosed as an i.v. infusion. Current data from BXL-628 appear to suggest only modest efficacy, while we do not have enough information on NX-1207 to draw any top-line conclusion. We believe these development candidates leave a significant opening for a conveniently dosed, effective, safe therapy for BPH, and we believe TH-070 fills this void.
4.1.5. TH-070: Marketing and Promotion Plans

We expect Threshold to partner TH-070 in major markets

Threshold plans to enter into partnership agreements for TH-070 in all major markets. In Europe and Asia, we believe the company will attempt to enter into a licensing agreement and collect a royalty on net sales. In North American markets, Threshold plans to enter into a partnership that would allow them to share in a portion of the marketing costs in exchange for a commensurate portion of the drug's net profits. While the majority of BPH prescriptions are written by a primary care physician, we believe Threshold could address a portion of these, targeting specialists such as urologists using a relatively small sales force. We believe this could allow the company to maintain a reasonably controlled cost-structure.
4.1.6. TH-070: Development History and License Details

Threshold licensed Acraf's clinical and regulatory documentation

Threshold licensed the rights to the clinical and regulatory documentation regarding TH-070 (lonidamine) from Acraf, Spa in 2Q04. Acraf originally developed lonidamine for oncology, and launched it in Italy for solid tumor applications in 1987. Under the terms of the license, Threshold received the rights to use of Acraf's clinical and regulatory documentation in other potential indications. The license is exclusive in regions outside of Western Europe and certain Eastern European and certain former Soviet Union countries, where Acraf may develop the drug or sublicense it to other partners. As part of the agreement, Threshold made an upfront payment of approximately $375,000 to Acraf, and is obligated to make future milestone payments of up to approximately $2.2 million. Importantly, Threshold does not owe Acraf any sales-related royalty payments. Threshold also purchased a preliminary clinical supply of the active pharmaceutical ingredient in TH-070, amounting to 22 kilograms. In addition, Acraf has the right of first refusal on manufacturing 75% of the commercial demand for TH-070. We believe Threshold's purchase, for a total cost of approximately $2.5 million, was a bargain based on the market potential of TH-070.
20 September 2005

Total cost of license: approximately $2.5 million

16

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 18 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

TH-070: Summary of License Agreement

Partner Acraf Spa

Indication Any

Financials: Upfront Key dates and Milestones Initiated in 2Q04 $375K upfront to Acraf; THLD may pay up to an additional $2.2MM in additional milestones.

Responsibilities THLD responsible for all development activities

Terms THLD holds exclusive WW rights to development outside of France, Germany, UK, Italy, Portugal, Spain, Hungary, certain Eastern European, and certain former Soviet Union countries (Acraf territory). In those areas, the license is non-exclusive. Acraf has co-exclusive right to data generated by THLD in cancer indications (only in Acraf territory).

Source: Fortis Bank Equity Research

4.1.7. TH-070: Mechanism of Action Small-molecule hexokinase inhibitor; interrupts glycolysis in prostate cells

TH-070 is a small-molecule inhibitor of the enzyme hexokinase, which catalyzes the first step of the metabolic pathway known as glycolysis. In normal tissue, energy for basic cellular processes is generated from both the citric acid cycle and by glycolysis. In prostate cells, the citric acid cycle is virtually incapacitated by two phenomena: the strong dependence of seminal fluid on citrate for sperm cell growth and survival, which thereby removes a required chemical from the cycle; and the unusually high concentration of zinc in seminal fluid, which inhibits the metabolism of residual citrate through the cycle. Therefore, because of the unique physiological requirements of sperm, the citric acid cycle is effectively shut down in prostate tissue, making it exquisitely dependent on glycolysis for energy production. TH-070's potent inhibition of glycolysis thereby disrupts the primary energy source for prostate cell growth. Absent of a means for energy, prostate cells enter into apoptosis, leading to a reduction in prostate volume, and ultimately providing relief of BPH symptoms. We believe these properties make TH-070 an ideal candidate for development in BPH. 4.2. Glufosfamide for Pancreatic Cancer Threshold is developing the small molecule glucose derivative glufosfamide for the treatment of pancreatic cancer. Glufosfamide is comprised of glucose linked to the alkylating agent ifosfamide mustard, which is the anti-tumor portion of the approved anticancer agent ifosfamide (Ifex, BMY, Not Rated). Threshold believes that by linking ifosfamide mustard to glucose, the drug will be selectively absorbed by cancer cells, due to the known tendency of such cells to upregulate glucose metabolism compared with normal cells (the Warburg effect). The resulting increased exposure to the cytotoxic ifosfamide mustard leads to enhanced antitumor efficacy compared with the parent mustard alone. We believe the scientific rationale for this approach to cancer treatment is well established, and previous clinical trials with glufosfamide have demonstrated the drug's antitumor potential. The preclinical and preliminary clinical promise were key reasons behind Threshold's decision to license glufosfamide from Baxter Healthcare in 3Q03. We believe glufosfamide could become an important addition to the available treatment options for pancreatic cancer patients, based on its preliminary efficacy and promising side effect profile. Our estimate for 2012 worldwide glufosfamide revenue is approximately $280 million. The following table provides a topline overview of glufosfamide.

Absent of a means for energy, prostate cells enter into apoptosis

Glufosfamide: glucose linked to the alkylating agent ifosfamide mustard

We estimate 2012 WW glufosfamide revenue at approx $280MM

20 September 2005

17

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 19 of 41
Fortis Bank

Threshold Pharmaceuticals ­ Glufosfamide Overview

Indication Pancreatic cancer

Status Next Data Ongoing pivotal 300 pt Ph.III data 4Q06; ph.III trial in 2nd-line; ph.I/II ph.I/II data 4Q05 gemcitabine combo trial in 55 first-line pts

Est. Market Size Approx. 32K U.S. pts; approx. 41K Western Europe pts

Potential 2012 WW Launch Est. Revenue Est. Late 2007 or $280MM 2008

Source: Fortis Bank Equity Research

4.2.1. Glufosfamide: Current Status and Plans Two clinical trials of glufosfamide ongoing in pancreatic cancer

Threshold is currently conducting two clinical trials of glufosfamide in pancreatic cancer. A pivotal phase III trial of single agent therapy in second-line metastatic pancreatic cancer was initiated in 3Q04, and we believe this trial will be fully enrolled in 1Q06. Data could be available in 4Q06. A phase I/II trial of glufosfamide in combination with gemcitabine in first-line pancreatic cancer was initiated in 4Q04, and we expect to see data from the phase I portion in 4Q05. Pending a successful pivotal trial outcome, we believe Threshold could file an NDA for glufosfamide in 2007, with a potential launch in 2008. Phase III Pancreatic Cancer Trial The protocol for Threshold's ongoing phase III trial of glufosfamide has successfully completed an SPA from the FDA, and the drug has been granted Fast-Track status by the Agency. The phase III trial is a randomized, controlled, double-blind, multicenter, two-arm study comparing glufosfamide plus best supportive care (BSC) to BSC alone in approximately 300 second-line pancreatic cancer patients. Patients who have failed first-line treatment with gemcitabine will be randomized 1:1 to receive treatment with glufosfamide as a six-hour i.v. infusion every three weeks, or BSC. As a reminder, BSC includes pain medication, antibiotics as needed, and palliative measures that exclude systemic treatments intended to kill cancer cells. The table below provides an overview of Threshold's phase III trial with glufosfamide.

Ph. III trial completed SPA from the FDA; drug has Fast-Track status

Glufosfamide Phase III Trial Overview: 2nd-Line Pancreatic Cancer

Doses Patients Design 6-hour i.v. 300 2-arm trial: glufosfamide plus infusions of best-supportive care (BSC) vs 5g/m2 every BSC alone. Trial completed SPA. 3 wks

Endpoints Primary endpt overall survival; secondary - ORR, duration of response, PFS, 6 and 12 mo survival rates

Powering 90% powered to demonstrate 50% improvement over BSC (p=0.05). We estimate BSC survival at approx 2-3 mos

Status Timelines Enrolling Initiated 3Q04; enrollment to complete 1Q06; data 4Q06

Source: Fortis Bank Equity Research

There is no approved therapy in second-line pancreatic cancer

We are enthusiastic about glufosfamide's potential in second-line pancreatic cancer as there is no approved therapy in this indication. However, it is difficult to assess how glufosfamide will affect median survival in this population. Currently, the estimated median survival for patients who receive best supportive care following treatment with gemcitabine is approximately 2-3 months (see, for example, Oettle et al., ASCO 2005, abst. 4031). There are no data on glufosfamide in this population. However we believe previous data from glufosfamide in first-line pancreatic cancer suggest it may provide benefit for these patients (see section 4.2.2). The drug has compared favorably with gemcitabine in this setting. The following table summarizes recent best supportive care data in second-line patients, and reviews the available first-line data from glufosfamide's prior phase II trial. This is not meant for comparison, it is provided for reference purposes.

18

20 September 2005

Case 4:07-cv-04972-CW
Fortis Bank

Document 20-7

Filed 03/07/2008

Page 20 of 41

Threshold Pharmaceuticals (NASDAQ: THLD)

Overview of Best-Supportive Care and Glufosfamide in Pancreatic Cancer

First-line BSC (1) Glufosfamide (2) Patients 34 Median survival 5.3 mos 2-yr survival 9% ORR 6% TTP 1.4 mos Second-line Patients 46 Ongoing ph.III: 300 ORR 0% Ongoing Median survival 2.3 mos Ongoing TTP Ongoing Notes: (1) Oettle et al., ASCO 2005, abst. 4031. (2) Eur J Cancer 2003, 39, 2334-2340
Source: Fortis Bank Equity Research

We are encouraged by glufosfamide's 6% ORR and 9% 2-year survival data in the first-line setting. In addition, we note that the ongoing phase III trial employs a 6 hour i.v. infusion. This infusion regimen led to a CR in one refractory pancreatic cancer patient in a prior phase I trial of glufosfamide. This may suggest improved efficacy compared with the one-hour regimen used in the firstline trial, however, it is difficult to make a conclusion from one patient. Phase I/II Pancreatic Cancer Trial Threshold is also conducting a phase I/II trial of glufosfamide in combination with gemcitabine in first-line pancreatic cancer. This trial was initiated in 4Q04 and we believe topline data from the phase I portion will be available in 4Q05. The trial is a single arm, multicenter study examining escalating glufosfamide doses in combination with the standard approved dose of gemcitabine (1250mg/m2). Up to 24 patients with advanced solid tumors will be enrolled in the phase I portion, while phase II will enroll approximately 30 treatment naïve patients with advanced pancreatic cancer. The trial is currently dosing the final phase I cohort, which we believe is using 5000mg/m2 of glufosfamide. The following table provides an overview of the study.

Phase I/II combo trial of glufosfamide with gemcitabine; ph.I data 4Q05

Glufosfamide + Gemcitabine: Phase I/II Trial Overview

Indication Ph.I portion advanced solid tumors. Ph.II - 1st-line pancreatic

Doses Escalating glufosfamide doses to 5000mg/m2 + 1250mg/m2 gemcitabine, Q3W

Patients Design Ph.I - 24 Single-arm, multicenter trial. To Ph.II - 30 identify MTD for combo use, then preliminary efficacy in 1stline pancreatic

Endpoints Safety, PK, efficacy. Ph.II endpoints - overall survival, 6 and 12 mo survival rates, PFS

Status In the last of 4 planned dosing groups in ph.I portion

Timelines Initiated 4Q04; ph.I data 4Q05; ph.II to begin 1H06

Source: Fortis Bank Equity Research

Phase II data from the combo are expected in 4Q06

We believe glufosfamide's side effect profile, which has previously consisted of manageable neutropenia, leukopenia, nausea, and fatigue, will allow administration of full doses of both drugs. In addition, preclinical data from pancreatic xenografts in rodents suggest that the combo is superior to either single agent. We believe phase II data from the combo, expected in 4Q06, will determine the broader market potential for glufosfamide in pancreatic cancer. Should these data demonstrate efficacy superior to gemcitabine alone, we believe they will lead to increased glufosfamide use beyond the 2nd-line setting. We believe this could potentially lead to combo use in both first line and refractory patients.
4.2.2. Glufosfamide: Previous Phase II Pancreatic Data

Glufosfamide was previously studied as first-line therapy in advanced pancreatic cancer in a phase II trial conducted by the EORTC. This was a multicenter,
20 September 2005 19

Case 4:07-cv-04972-CW
Threshold Pharmaceuticals (NASDAQ: THLD)

Document 20-7

Filed 03/07/2008

Page 21 of 41
Fortis Bank

open-label, study designed to assess glufosfamide's activity in pancreatic cancer, following promising preliminary data from an earlier phase I trial in advanced solid tumors. In that trial, which enrolled patients with various tumor types, one case of complete remission was observed in a refractory pancreatic cancer patient. The phase II trial enrolled 34 patients who were dosed with glufosfamide at 5000mg/m2 every three weeks as a one-hour i.v. infusion. The trial results are highlighted in the following table.
Glufosfamide in 1 -Line Pancreatic Cancer: Summary of Phase II Trial Results
st

Patients 34

Design Pts received 1-hour i.v. infusions of 5000mg/m2 every 3 wks

Endpoints Response by RECIST, duration of response, assessment of toxicity

Results 6% PR, 32% SD, 5.3 mo median survival, 9% estimated 2-yr survival, TTP 1.4 mos

Adverse events (number) Grade 3 fatigue (3), Gr.3 nausea/vomiting (4), Gr.3 hypokalaemia or h