We are a biotechnology company focused on the discovery and development of drugs targeting the microenvironment of solid tumors and the bone marrows of some hematologic malignancies (blood cancers) as novel treatments for patients living with cancer. The microenvironment of these tissues is characterized by, among other things, hypoxia or lack of oxygen. This hypoxic environment is known to be resistant to standard chemotherapy and radiation. It is thought to be responsible for the poor prognosis of patients with solid tumors and hematological malignancies and treating the hypoxic environment is currently believed to be a significant unmet medical need. Our hypoxia activated prodrug (“HAP”) product candidates, including TH-302, are designed to specifically target the hypoxic microenvironment of tumors by selective activation of the prodrug to release a potent cytotoxin. Our focus is on product candidates for the treatment of patients with cancer. Our clinical development efforts are currently focused on TH-302, for which we entered a license and co-development agreement with Merck KGaA for worldwide development and commercialization. TH-302, which we discovered, is a novel drug candidate that is activated under severe hypoxic conditions and was designed to specifically target the severe hypoxic regions that are believed to be present in all solid tumors and hematologic malignancies.

TH-302 is currently in Phase 1, Phase 2 and Phase 3 clinical trials. The development plan for TH-302 is designed to investigate the efficacy and safety across a broad range of solid tumors and hematologic malignancies. We reported updated top-line results from the initial Phase 1 monotherapy trial of TH-302 (401 trial) including indication-specific data in patients with metastatic melanoma and small-cell lung cancer (SCLC). We have also reported results from each of four Phase 1/2 combination therapy investigations of a chemotherapy agent plus TH-302 in solid tumors involving combining TH-302 with doxorubicin, gemcitabine, docetaxel and pemetrexed. We have also reported results from our clinical study of TH-302 in patients with advanced leukemias (407 trial) and initiated a clinical study of TH-302 in patients with multiple myeloma (408 trial). In addition, investigations have been initiated to explore the combination of TH-302 with anti-angiogenic therapies including a Phase 1/2 dose escalation clinical trial of TH-302 in combination with sunitinib (Sutent ^® ) in patients with advanced renal cell carcinoma or gastrointestinal stromal tumors (410 trial) and physician initiated clinical trial of TH-302 administered in either combination with bevacizumab (Avastin ^® ) in patients with recurrent high grade astrocytoma including glioblastoma or in combination with pazopanib (Votrient ^® ) in patients with solid tumors.

In January 2011, we reported updated top-line results from our Phase 1/2 combination clinical trials in patients with first-line pancreatic cancer treated with gemcitabine plus TH-302 (402 trial). In June of 2010 we initiated a randomized, controlled Phase 2 trial of TH-302 in combination with gemcitabine in patients with first-line pancreatic cancer (404 trial). The study completed enrollment in June of 2011. In February of 2012 we reported top-line results from the randomized Phase 2b trial. The median progression-free survival (PFS) was 5.6 months for patients treated with gemcitabine in combination with TH-302 at 240 mg/m2 and 340 mg/m2 compared to 3.6 months for patients treated with gemcitabine alone. The PFS hazard ratio comparing the TH-302 combination to gemcitabine alone was 0.61 (95% confidence interval: 0.43—0.87) which was highly statistically significant (p = 0.005) and represented a 63% improvement in PFS. The response rate in the combination arms was 22% compared to 12% in the gemcitabine alone group. Results also demonstrated greater efficacy in the higher TH-302 dose group compared to the lower dose group. The combination was well tolerated with a safety profile that was consistent with our prior study of this combination regimen. As in that study, skin and mucosal toxicities related to TH-302 were dose dependent but not dose limiting. We expect to provide detailed results from this trial in the second quarter of 2012 as well as updated top-line results, including overall survival in the second half of 2012.

During 2011, we presented updated top-line results from our Phase 1/2 combination therapy in patients with soft tissue sarcoma treated with doxorubicin plus TH-302 at the maximum tolerated dose of 300 mg/m ² (403

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trial). In February 2011, we reached agreement with the FDA on the design and planned analysis of a pivotal Phase 3 trial in patients with soft tissue sarcoma (406 trial). As part of the Special Protocol Assessment (SPA) submission, the FDA agreed that the design and planned analysis of the proposed Phase 3 trial adequately addresses the objectives necessary to support a regulatory submission. We initiated the pivotal Phase 3 trial in September of 2011 and expect to provide an update on the interim analysis, which will be conducted by an Independent Data Monitoring Committee (IDMC) in the beginning of 2013.

We are working to broaden the applicability of TH-302 to other cancers and in combination with other approved anti-cancer drugs as well as to discover additional hypoxia activated prodrugs that will selectively target cancer cells.

Our Strategy

Our goal is to create a leading biotechnology company that develops and commercializes drugs based on targeting the tumor microenvironment. We focus on inactive prodrugs of known chemotherapeutic agents or related analogs that undergo relatively selective activation in the tumor microenvironment and potentially allow for an improved safety and efficacy profile for the drug. Key elements of our strategy are to:

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Market Opportunities

Current Therapies for Cancer

Many different approaches are used in treating cancer, including surgery, radiation and drugs or a combination of these approaches. Drugs used to treat cancer include chemotherapeutics, hormones and immune-based therapies. Traditionally, strategies for designing cancer therapies have focused on killing cancer cells that exhibit rapid division and growth, and most conventional cancer drugs have been evaluated and optimized using cellular and animal models that reflect rapid cell growth.

However, most solid tumors are actually composed of both rapidly and slowly dividing cells. Conventional cancer treatments are not designed to target the slowly dividing cells found in portions of solid tumors and therefore typically do not succeed in killing all cancerous cells. As a tumor grows, its vasculature is disordered and chaotic, leaving portions of the tumor with regions where the oxygen concentration is significantly lower than in healthy tissues. This condition is called Tumor Hypoxia. Solid tumors have significant hypoxic regions, and because these regions have limited access to the blood supply and oxygen, the cells in them divide slowly, making them resistant to traditional chemotherapy and radiation treatment, which target rapidly dividing cells. Similarly, some chemotherapeutic agents delivered in the blood supply are less able to penetrate into hypoxic regions because they are more distant from the blood supply. Moreover, many scientists now believe that hypoxia can lead to changes in the fundamental properties of tumor cells, including genetic mutations, which can give rise to drug resistance and enhanced metastatic potential. Thus, therapeutics that target hypoxic zones could provide significant additional anti-tumor activity and clinical benefit over current chemotherapeutic and radiation therapies.

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Another disadvantage of current cancer therapies that target rapidly dividing cells is their toxic side effects. Because rapidly dividing cells are also found in many healthy tissues, particularly the gastrointestinal tract, bone marrow and hair follicles, nearly all conventional chemotherapy drugs cause severe side effects which may lead to bleeding, infection and anemia, as well as other side effects, such as diarrhea and hair loss. Likewise, radiation generally cannot be administered without causing significant damage to healthy tissue surrounding a tumor. Since our prodrugs are designed to undergo tumor selective activation, we anticipate that they should have a favorable safety profile and produce less toxicity to normal tissues at the doses that are effective in treating tumors than is the case with traditional therapies.

Many of the types of cancers we are targeting with TH-302 are widespread:

Lung Cancer

The American Cancer Society estimates that 221,130 people were diagnosed with lung cancer in the United States in 2011, and approximately 156,940 people died from the disease.

Melanoma

The American Cancer Society estimates that 70,230 people were diagnosed with melanoma in the United States in 2011, and approximately 8,790 people died from the disease.

Pancreatic Cancer

The American Cancer Society estimates that 44,030 patients were diagnosed with pancreatic cancer in the United States in 2011, and approximately 37,660 patients died from the disease.

Prostate Cancer

The American Cancer Society estimates that 240,890 people were diagnosed with prostate cancer in the United States in 2011, and approximately 33,720 people died from the disease.

Soft Tissue Sarcoma

The American Cancer Society estimates that 10,980 people were diagnosed with soft tissue sarcoma in the United States in 2011, and approximately 3,920 people died from the disease.

Advance Leukemias

The American Cancer Society estimates that 44,600 people were diagnosed with leukemia in the United States in 2011, and approximately 21,780 people died from the disease. Chronic lymphocytic leukemia is the most common leukemia in the United States, accounting for a third of cases diagnosed each year. Acute myelogenous leukemia accounts for 29% of diagnosed adult leukemias.

Multiple Myeloma

The American Cancer Society estimates that 22,520 people were diagnosed with myeloma in the United States in 2011, and approximately 10,610 people died from the disease.

TH-302

Our lead product candidate for cancer is TH-302, a novel prodrug candidate we discovered. In in vitro studies, it is preferentially activated under severe hypoxic conditions and has demonstrated potent anticancer activity in multiple preclinical cancer models. TH-302 combines a 2-nitroimidazole oxygen-sensing trigger with

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a masked deoxyribonucleic acid (“DNA”) crosslinker. Upon activation in oxygen deficient zones, TH-302 is converted selectively to the drug’s active form, dibromo isophosphoramide mustard, a potent alkylator. TH-302 targets levels of severe hypoxia that are found in tumors but are rare in normal tissues—this is how selective targeting of the tumor occurs. After conversion to the active form of the drug, the hypoxic cells are exposed to high concentrations of released cytotoxic agent, which can also diffuse into the adjacent regions of the tumor. TH-302 was designed to produce less of the systemic hematologic toxicity caused by most cytotoxic chemotherapies, while targeting the hypoxic regions of tumors known to be more difficult to treat with standard therapies.

Preclinical studies of TH-302

In addition to all of the standard toxicity and pharmacokinetic studies that are required to enable an investigational new drug (IND) application, numerous in vitro and in vivo efficacy studies with TH-302 have been conducted. A summary of the pre-clinical efficacy studies with TH-302 follows. Over 45 different human tumor-derived cell lines, representing 18 different tumor types, have been evaluated for their sensitivity to TH-302 and all were shown to have enhanced sensitivity to TH-302 under hypoxic conditions compared to higher oxygen concentrations. No cell lines that were investigated were resistant to TH-302 under hypoxic conditions. In addition, we have also evaluated TH-302 in ectopic xenograft models of cancer, in which human tumor cells are implanted beneath the skin of mice and permitted to grow as tumors. More than 20 of these studies were conducted using five different tumor types and multiple drug combinations. In these models, the combination of TH-302 with either chemotherapeutic agents or radiation consistently added efficacy above that seen with the single agent chemotherapeutic. We conducted animal studies of TH-302 in orthotopic mouse models of human cancer, in which human cancer cells are implanted into the corresponding mouse tissue and tumors are allowed to develop before treatment, to assess the efficacy of TH-302 in treating a variety of cancer types. In these models, TH-302 demonstrated promising efficacy when used in combination with standard chemotherapeutic agents. In an orthotopic mouse model of human pancreatic cancer, in which mice were treated with either gemcitabine or gemcitabine in combination with TH-302, complete responses were observed in one out of eight animals treated with TH-302 in combination with gemcitabine. In comparison, no complete responses were seen following single-agent gemcitabine therapy. In a similar mouse model of human prostate cancer, complete responses were observed in four out of eight animals treated with TH-302 in combination with taxol therapy. In comparison, no complete responses were reported with single-agent taxol. TH-302 was also tested in combination with docetaxel therapy in a metastatic mouse model of human hormone refractory prostate cancer. The combination of TH-302 with docetaxel resulted in eight out of ten complete responses. In comparison, three out of eight complete responses were reported with single-agent docetaxel. TH-302 has been evaluated in a metastatic mouse model of human lung cancer, alone and in combination with docetaxel. These preclinical results, which reflect our overall experience with cell-based animal models, indicate that combination therapies with TH-302 may be efficacious in the treatment of human solid tumors. There can be no assurance, however, that these animal studies will accurately predict the results of human clinical trials.

More recently, preclinical studies of TH-302 efficacy in hematological malignancies (also known as blood cancers, for example, leukemias, multiple myeloma, and lymphomas) were initiated. The role of hypoxia in the pathogenesis of hematological malignancies and its role in disease progression is an emerging area of active research in the cancer biology community. We have conducted preclinical studies with TH-302 in both cell- and animal models of multiple myeloma. Our in vitro results show that TH-302 alone and the combination of TH-302 plus Bortezomib synergistically induced apoptosis (programmed cell death). In addition, the combination of TH-302 plus Bortezomib conducted in a mouse model of multiple myeloma showed statistically significant improvements in multiple disease parameters, including circulating paraprotein levels, the standard endpoint for assessing efficacy of drug in multiple myeloma. Through an academic collaboration we have also demonstrated preclinical efficacy of TH-302 in a mouse model of acute leukemia. TH-302 treatment resulted in marked in vitro hypoxic-specific cell death of human leukemia cells under the same conditions where traditional chemotherapeutic agents such as cytarabine and doxorubicin were not effective. In vivo , TH-302 treatment significantly inhibited leukemia disease progression in a mouse model in which immunocompromised mice were

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injected with a human leukemia cell line. These preclinical studies in hematological malignancy models provide the basis for human clinical evaluation of TH-302 in patients with multiple myeloma and leukemia. There can be no assurance, however, that these animal studies will accurately predict the results of human clinical trials.

Numerous published studies have demonstrated that clinically approved antiangiogenic agents, such as sunitinib (Sutent) and sorafenib (Nexavar) result in an increase in the hypoxic fractions in animal models of cancer. A series of animal studies were conducted to characterize hypoxia following administration of antiangiogenics and to investigate the activity TH-302 in combination with antiangiogenic. In these studies when TH-302 was also administered with sunitinib or sorafenib, a complementary effect was observed. Importantly, body weight loss, a toxicity indicator, was not significantly increased with TH-302 in combination with any of the antiangiogenics in these studies. These animal studies suggest that TH-302 enhances the anti-tumor efficacy of sunitinib and sorafenib by apparently selectively targeting the antiangiogenic-induced increases in tumor hypoxia. These studies provide a translational rationale for combining TH-302 with antiangiogenics.

TH-302 Monotherapy Clinical Trial

In July 2007, we commenced a first-in-human Phase 1 clinical trial of TH-302 monotherapy, as a 30 to 60-minute intravenous infusion. This trial, also known as the 401 trial enrolled 129 patients, with enrollment completed in the second quarter of 2010. The trial was initiated as a dose-escalation clinical trial to determine the MTD, dose limiting toxicity, safety, pharmacokinetics and preliminary efficacy of weekly dosing of TH-302.

In January 2009 the Phase 1 clinical trial was expanded to a Phase 1/2 clinical trial to investigate the activity of TH-302 at the MTD in patients with advanced/metastatic melanoma, SCLC or non-small cell lung cancer (NSCLC). At the same time the trial was expanded to establish the MTD utilizing a once every three week dosing regimen.

In December 2009 the clinical trial enrollment was further expanded to investigate the activity of TH-302 at a dose level of 480 mg/m ² in patients with advanced/metastatic melanoma, SCLC and a set of histologies and tumor indications in which activity was reported in the combination trial.

During 2010, we reported updated top-line efficacy results from all patients in the trial including data on specific indications. Partial responses (“PRs”) were documented in eight of thirty-six patients (22%) with metastatic melanoma and two of ten patients (20%) with refractory SCLC and two of eight patients (25%) with squamous cell carcinoma of the head or neck. The PRs were the best responses as assessed by Response Evaluation Criteria in Solid Tumors (RECIST). There can be no assurance that our initial results will be replicated with the treatment of additional patients.

In June 2010, we initiated a Phase 1 open label clinical trial of TH-302 in patients with advanced leukemias. The objectives of the Phase 1 trial are to determine the MTD, DLT, safety, tolerability, clinical activity and pharmacokinetics of TH-302 in patients with advanced leukemia. In December 2011, we reported top-line efficacy and safety data. The starting dose in the trial was 120mg/m2 daily for 5 days of a 21-day cycle and the highest dose investigated in the study was 550 mg/m2. At this dose two patients developed dose limiting mucosal toxicity. The maximum tolerated daily dose (MTD) of TH-302 was established at 460 mg/m2. Efficacy assessments have demonstrated TH-302 activity in multiple subjects with relapsed/refractory acute myeloid leukemia and acute lymphoblastic leukemia as evidenced by stabilization or reduction of bone marrow and peripheral blast counts. One patient had a complete response with incomplete platelet recovery with resolution of leukemia cutis. There can be no assurance that our initial results will be replicated with the treatment of additional patients.

In March 2012, we initiated a Phase 1/2 open label clinical trial of TH-302 in patients with relapsed/refractory multiple myeloma. The objectives of the trial are to determine the MTD, DLT, safety, tolerability, clinical activity and pharmacokinetics of TH-302 in patients with multiple myeloma. The study has three parts. In Part A, the monotherapy MTD will be established. In Part B, a monotherapy expansion at the MTD will be conducted. In Part C, the combination of TH-302 with bortezomib will be investigated.

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TH-302 Combination Therapy Clinical Trials

In August 2008, we initiated a multi-armed Phase 1/2 clinical trial of TH-302 which included three separate treatment arms, with each arm combining TH-302 with a different chemotherapeutic agent for the treatment of patients with solid tumors. This trial, also known as the 402 trial, enrolled 160 patients including 71 patients treated with TH-302 plus gemcitabine, 51 patients treated with TH-302 plus docetaxel and 38 patients treated with TH-302 plus pemetrexed. Each of the combination treatments had a dose escalation phase to establish the MTD and a dose expansion phase at the recommended Phase 2 doses of TH-302 within four specific indications with approximately 12-40 patients treated in each indication. In September 2008, we also initiated a Phase 1/2 clinical trial of TH-302 in combination with doxorubicin in patients with advanced soft tissue sarcoma. This trial, also known as the 403 trial, enrolled 101 patients (16 in the dose escalation arm). These combination trials were designed to allow further development in hormone refractory prostatic carcinoma, metastatic pancreatic cancer, NSCLC and soft tissue sarcoma. These indications have been highlighted in view of the high degree of efficacy of TH-302 in combination with chemotherapy in relevant pre-clinical models combined with the significant unmet medical needs represented by each of these tumor types.

Hematologic toxicity after administering TH-302 in combination with chemotherapy was higher than might be expected if chemotherapy was administered by itself, and the myelosuppression, as manifested by reduced platelet count or reduced neutrophil count, was the primary dose limiting toxicity. Skin and mucosal toxicities were TH-302 dose dependent with a trend for increased frequency and greater severity at higher doses. Although these skin and mucosal toxicities have been bothersome in some patients and resulted in dose reductions or delays in therapy, these events have been reversible with an improvement in symptoms between cycles and following dose reductions. At the current dose level the hematologic, skin and mucosal toxicities have been acceptable. Investigations are ongoing to better understand and treat, or prevent, these toxicities. The addition of TH-302 to standard chemotherapies does not appear to enhance the toxicity in other body systems.

A series of updated data were reported since the initiation of the two combination clinical studies. In October 2010, results from the 402 clinical trial were presented at the 35th Congress of the European Society for Medical Oncology (ESMO). In the 402 trial, one hundred and forty-two patients had been assessed for response in the trial’s three separate treatment arms. In the TH-302 plus gemcitabine arm, sixty-four patients had tumor assessments, fourteen (22%) of whom had a PR or CR in the following cancers: pancreatic (8), ovarian, esophageal, squamous NSCLC, neuroendocrine and thyroid. In the TH-302 plus docetaxel arm, forty-four had tumor assessments, six patients (14%) of whom had a PR in the following cancers: prostate (3), NSCLC (2) and anal. There were twenty-seven patients (61%) with SD. In the TH-302 plus pemetrexed arm, thirty-four patients have had tumor assessments, eleven patients (32%) of whom had a PR in the following cancers: NSCLC (6), transitional cell carcinoma (2), pancreatic, anal and hepatocellular. There were twelve patients (35%) with SD. Of the thirty-two patients with relapsed or refractory NSCLC treated with TH-302 in combination with either docetaxel or pemetrexed, eight patients achieved PRs and fourteen patients achieved SD. The median PFS in this group was 4.2 months (95% CI: 2.8 months to Not Reached). In the TH-302 plus docetaxel treatment arm, 15 patients with castration resistant prostate cancer were treated. Of the 13 patients with at least one evaluable post-treatment tumor assessment, 3 patients (23%) had a partial response, 9 patients (69%) achieved stable disease and one patient (8%) had progressive disease. Eleven of the 15 (73%) patients had a PSA reduction of greater than 50%. There can be no assurance that our initial results will be replicated with the treatment of additional patients.

A number of studies were initiated to investigate the safety and efficacy of TH-302 in combination with anti-angiogenic therapies. In June 2011, a Phase 1/2 dose escalation clinical trial of TH-302 in combination with sunitinib in patients with advanced renal cell carcinoma (RCC) and gastrointestinal stromal tumor (GIST) was initiated. In July 2011, we announced that the Cancer Therapy & Research Center at the University of Texas Health Science Center at San Antonio initiated a clinical trial of TH-302 in combination with bevacizumab in patients with recurrent high grade astrocytoma including glioblastoma. Also in July 2011, we announced that The National Comprehensive Cancer Network (NCCN), a not-for-profit alliance of 21 of the world’s leading cancer centers, awarded a grant to Dr. Herb Hurwitz, Associate Professor of Medicine at the Duke Cancer Institute, to initiate a Phase 1 clinical trial to evaluate the safety and preliminary activity of TH-302 in combination with pazopanib in various advanced solid tumors.

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Advanced Pancreatic Cancer: TH-302 in combination with gemcitabine

In January 2011, results from the patients with pancreatic cancer treated with TH-302 plus gemcitabine were presented at The American Society of Clinical Oncology Gastrointestinal Cancer Symposium. Of the forty-seven patients with first-line pancreatic cancer forty-three, were assessed for response one achieved a CR, eight achieved PRs and thirty have had SD. The majority of these patients received a TH-302 dose of 240 mg/m2 or 340 mg/m2. Among the patients receiving 340 mg/m2 of TH-302, there was one patient with a CR, 6 patients with a PR, 13 patients with SD and one patient with PD. Among the patients receiving 240 mg/m2 of TH-302, there were 13 patients with SD and 3 patients with PD. Median overall survival (OS), based upon data for all 47 patients regardless of TH-302 dose, was 8.5 months (95% CI: 6.9 to 13.4 months) and median progression-free survival (PFS) was 5.9 months (95% CI: 4.8 months to not reached).

In June 2010 we initiated a randomized, controlled Phase 2b trial of TH-302 in combination with gemcitabine in patients with first-line pancreatic cancer. 214 patients with previously untreated, locally advanced, unresectable or metastatic pancreatic adenocarcinoma were enrolled and treated in the clinical trial at various sites in the United States. Tumor response assessments were performed at baseline and every eight weeks using the RECIST 1.1 criteria. Patients were randomized equally into one of three cohorts: TH-302 at a dose of 240 mg/m2 plus gemcitabine or TH-302 at a dose of 340 mg/m2 plus gemcitabine or gemcitabine alone. If a patient’s cancer progressed while on gemcitabine alone, the patient could crossover into one of the TH-302 plus gemcitabine cohorts. The primary efficacy endpoint of the trial is a comparison of progression free survival between the two combination arms and the gemcitabine alone arm. The secondary endpoints are overall response rate, overall survival, event-free survival, CA 19-9 response rate as well as various safety parameters.

In February 2012 we reported the top-line results from the Phase 2b trial. The median progression-free survival (PFS) was 5.6 months for patients treated with gemcitabine in combination with TH-302 at 240 mg/m2 and 340 mg/m2 compared to 3.6 months for patients treated with gemcitabine alone. The PFS hazard ratio comparing the TH-302 combination to gemcitabine alone was 0.61 (95% confidence interval: 0.43—0.87) which was highly statistically significant (p = 0.005) and represented a 63% improvement in PFS. The response rate in the combination arms was 22% compared to 12% in the gemcitabine alone group. Results also demonstrated greater efficacy in the higher TH-302 dose group compared to the lower dose group. The combination was well tolerated with a safety profile that was consistent with our prior study of this combination regimen. As in that study, skin and mucosal toxicities related to TH-302 were dose dependent but not dose limiting. We expect to provide detailed results from the trial in the second quarter of 2012, as well as updated top-line results, including overall survival in the second half of 2012.

Advanced Soft Tissue Sarcoma: TH-302 in combination with doxorubicin

In November 2010, results from the Phase 1 and Phase 2 components of the 403 clinical trial were presented at the 16th Annual Connective Tissue Oncology Society (CTOS) Meeting for the first fifty-seven patients in the trial. Fifty-four patients had at least one evaluable post-treatment tumor assessment, including eighteen (33%) with a PR. Twenty-one patients went on to receive single agent TH-302 after completing 6 cycles of the combination regimen. Twenty-eight (52%) patients achieved SD while eight (15%) had PD. Median PFS was 6.4 months (95% CI: 5.6 months to 6.9 months). The six-month progression-free rate was 56%. In the trial after observing significant, but not dose limiting toxicity at a TH-302 dose of 240 mg/m ² , prophylactic growth factor support was initiated. Two dose limiting toxicities, grade 3 cellulitis with grade 4 neutropenia and grade 4 thrombocytopenia were observed in two of four patients treated at a TH-302 dose of 340 mg/m ² . The MTD was then established at 300 mg/m ² . Forty-seven of the fifty-seven patients received the MTD of 300 mg/m ² . At the MTD the frequency of grade 3/4 neutropenia was 24% and of grade 3/4 thrombocytopenia was 26%. The most common adverse events were fatigue (65%), nausea (65%), alopecia (47%) and stomatitis (37%). Seventeen patients developed a rash. The combined regimen was well tolerated with no additive toxicity to doxorubicin and no other cumulative toxicities. Skin and mucosal toxicities were reversible and have not been dose limiting at the maximum tolerated dose.

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In November 2011, results from the Phase 2 component of the 403 clinical trial were presented at the 17th Annual Connective Tissue Oncology Society (CTOS) Meeting for the 91 patients with previously untreated advanced soft tissue sarcoma treated at the TH-302 MTD of 300 mg/m ² in combination with doxorubicin. Eighty-nine patients had at least one evaluable post-treatment tumor assessment, including two (2%) with CR and thirty (34%) with a PR. Twenty-one patients went on to receive single agent TH-302 after completing 6 cycles of the combination regimen. Forty-three (48%) patients achieved SD while fourteen (16%) had PD. Median PFS was 6.7 months (95% CI: 6.2 months to 8.1 months). The six-month progression-free rate was 63%. At the MTD the frequency of grade 3/4 neutropenia was 20% and of grade 3/4 thrombocytopenia was 25%. The most common adverse events were nausea (70%), fatigue (67%), stomatitis (41%) and anorexia (40%). The combined regimen was well tolerated with apparent cumulative toxicities. Skin and mucosal toxicities were reversible and not dose limiting at the maximum tolerated dose.

In February 2011, as part of the Special Protocol Assessment (SPA) submission, the FDA agreed that the design and planned analysis of a proposed Phase 3 trial in patients with soft tissue sarcoma adequately addresses the objectives necessary to support a regulatory submission. In September 2011, the Phase 3 trial was initiated. This 450 patient, randomized, open-label, multi-center trial will compare two treatment regimens for patients with metastatic and/or advanced unresectable soft tissue sarcoma who have not received prior doxorubicin. This trial is designed to demonstrate the clinical benefit of TH-302 in combination with doxorubicin compared to doxorubicin alone based on a primary efficacy endpoint of overall survival. The trial includes a futility interim analysis based on progression-free survival expected to occur about half-way into enrollment and an interim analysis based on overall survival expected to occur at the end of enrollment. Patients will be randomized to receive TH-302 (300 mg/m ² on days 1 and 8 of a 21 day cycle) in addition to the standard dosing schedule of doxorubicin (75 mg/m ² on day 1 of the 21 day cycle) compared to doxorubicin alone. The Company is expecting to report results from the interim analysis, which will be conducted by the IDMC in the beginning of 2013.

Glufosfamide

From 2004 through 2009 we conducted clinical development of glufosfamide, a drug candidate that shares certain structural characteristics with glucose but acts instead as a chemotherapeutic agent when taken up by a cell. In October 2009, we entered into an exclusive license agreement with Eleison Pharmaceuticals, Inc. (“Eleison”). Pursuant to the agreement we granted Eleison exclusive worldwide rights to develop and commercialize glufosfamide for the treatment of cancer in humans and animals, and certain other uses. Under the agreement, Eleison is responsible for the development, manufacturing and marketing of glufosfamide. Eleison and Threshold will share equally in the profits of commercialization, if the further clinical development of glufosfamide leads to regulatory approval and marketing. No further development by Threshold Pharmaceuticals is planned.

Discovery Research

We have research programs focused on better understanding the mechanism and maximizing the effectiveness of TH-302 in the treatment of cancer as well as identifying new therapeutic candidates that target the microenvironments of solid tumors and hematological malignancies, particularly the severely hypoxic compartments. These extremely low oxygen conditions are not found in most normal tissues. The hypoxic zones of tumors are known to be resistant to standard chemotherapeutics and to radiation therapy. Hypoxia is also believed to contribute to more aggressive, invasive, and metastatic cancer phenotypes. Tumor hypoxia correlates with poor prognosis in cancer patients and is believed to represent a significant unmet medical need. The general nature of hypoxia in cancers offers the possibility for cancer therapeutics which are broadly useful in many indications with an associated large market opportunity. It is also now known that certain anticancer therapies (e.g. anti-angiogenic agents) lead to an increase in tumor hypoxia and may support the combination of those therapies with hypoxia-targeted agents.

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Our most advanced efforts targeting these regions are the design and development of novel hypoxia activated cytotoxic prodrug compounds. A prodrug is an inactive compound that is converted in the human body by enzymatic processes that result in the formation of an active drug. The prodrug concept is well established in chemotherapy and was initially only employed to modify the pharmacokinetic properties of compounds through non-specific activation processes. More recently the concept has been applied to the design of agents that are selectively activated in tumor tissues through specific activation processes.

Our prodrug candidates typically have two distinct parts, a toxic portion (the chemotherapeutic toxin) and an attached trigger molecule. To prevent general toxicity, the trigger molecule masks the toxin until the prodrug is activated by the low oxygen concentration in the hypoxic zones of solid tumors and hematological malignancies. Once activated, the toxin kills cells in its vicinity. We have designed prodrug candidates that are triggered only at the very low oxygen levels found in these hypoxic regions. Our experiments indicate that we can achieve a greater than 100-fold difference in cytotoxicity between cells in normal oxygen levels and hypoxic cells. Our lead investigational drug candidate, TH-302, was our first product candidate from this program. TH-302 is highly selective and produces a DNA cross-linking toxin upon activation. Hypoxia activated prodrugs of other toxin classes are being pursued. Lead compounds have demonstrated promising in vitro activity and additional characterization, evaluation and optimization of these compounds is currently underway.

Our expertise includes broad capabilities in chemical synthesis, biological assay development and in vitro and in vivo compound evaluation and pharmacology. Our medicinal chemistry expertise allows us to turn initially promising compounds generated by our chemists into drug candidates. We believe that our research focus combined with our integrated drug discovery platform provides us with the capacity to optimize our chances of successfully translating our laboratory observations with TH-302 to the clinic as well as to identify, discover and develop novel therapies for the treatment of cancer.

Manufacturing and Supply

The production of TH-302 employs small molecule organic chemistry procedures that are standard for the pharmaceutical industry. We currently rely on contract manufacturers for the manufacture of active pharmaceutical ingredient (“API”), and final drug product of TH-302. Under our license and co-development agreement with Merck KGaA, we are dependent on Merck for clinical and commercial supply of TH-302, except for clinical trials for United States approval of TH-302 for soft tissue sarcoma and for any other clinical trials for which we are responsible. For these latter cases, we can obtain clinical supply directly from existing or new suppliers.

We are currently using contract manufacturers to manufacture TH-302 API and TH-302 drug product. We have scheduled manufacturing to meet our clinical supply needs for 2012. We based our estimates for the amount of drug we will need on assumptions about trial enrollment and trial dose levels. If we are not successful in manufacturing sufficient quantities of TH-302 API and drug product or consume more drug product than anticipated because of a higher than expected trial utilization or have quality issues that limit the utilization of the drug product, we may experience a significant delay in our TH-302 clinical program.

Additional agreements for more supplies of each of our product candidates will be needed to complete clinical development and/or commercialize them. These products will need to satisfy all cGMP manufacturing requirements, including passing product specifications. Our inability to satisfy these requirements could delay our clinical programs.

During the years ended December 31, 2011, 2010 and 2009, we spent $24.4 million, $18.9 million and $15.8 million, respectively, on research and development, including product development, discovery research and contract manufacturing activities.

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License and Development Agreements

Agreement with Merck KGaA

On February 2, 2012, we entered into a global license and co-development agreement with Merck KGaA, of Darmstadt, Germany, to co-develop and commercialize TH-302, our small molecule hypoxia-targeted drug. Under the terms of the agreement, Merck will receive co-development rights, exclusive global commercialization rights and will provide us an option to co-commercialize TH-302 in the United States. In exchange, we will receive an upfront payment of $25 million and could receive another $35 million in additional development milestones that are independent of continued development of TH-302 in pancreatic cancer during 2012. We are also eligible to receive a $20 million milestone payment based on positive results from its randomized Phase 2 trial 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 United States, we will have primary responsibility for development of TH-302 in the soft tissue sarcoma indication. We and Merck KGaA will jointly develop TH-302 in all other cancer indications being pursued. Merck KGaA will pay 70% of worldwide development costs for TH-302. Subject to FDA approval in the United States, Merck KGaA will initially be responsible for commercialization of TH-302 while we will receive a tiered, double-digit royalty on sales. Under the royalty-bearing portion of the agreement, we retain the option to co-promote TH-302 in the United States. Additionally, we retain the option to co-commercialize TH-302 upon the achievement of certain sales and regulatory milestones, allowing us to participate in up to 50% of the profits in the United States depending on total sales. Outside of the United States, Merck KGaA will be solely responsible for the commercialization of TH-302 while we will receive a tiered, double-digit royalty on sales in these territories. The agreement became effective on March 12, 2012, upon termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The agreement will continue on a country-by-country basis until the later of the last to expire patent covering TH-302 in such country or ten years following the commercial launch of a product containing TH-302 in such country, unless terminated earlier. Merck has the right to terminate the agreement after the achievement of certain milestones, and each party has the right to terminate the agreement following uncured material breach by the other party.

Agreement with Eleison Pharmaceuticals, Inc.

On October 14, 2009, we entered into an exclusive license agreement with Eleison Pharmaceuticals, Inc. (“Eleison”). Pursuant to the agreement we granted Eleison exclusive worldwide rights to develop and commercialize glufosfamide for the treatment of cancer in humans and animals, and certain other uses. Under the agreement, Eleison is responsible for the development, manufacturing and marketing of glufosfamide. Eleison and Threshold will share equally in the profits of commercialization, if the further clinical development of glufosfamide leads to regulatory approval and marketing.

Eleison will pay us 50% of its profits from commercialization on a quarterly basis, beginning on the date of first commercial sale, if any. Eleison has the right to sublicense some or all of its rights under the agreement, and will pay us 50% of amounts received under any sublicenses, including, without limitation, any royalty payments, license fee payments, milestone payments and payments for any equity or debt purchases by a sublicensee, within 30 days of the receipt of any such amounts or payments by Eleison. Eleison will bear all costs associated with development, commercialization and patent prosecution, and will control product development and commercialization. In addition, Eleison will be responsible for all royalty and milestone payments due under the Baxter license and MediBIC development agreement. The agreement contemplates that Eleison, to satisfy its diligence obligations, will raise sufficient funds to commence clinical development activities with glufosfamide.

In the event that Eleison fails to satisfy its diligence obligations, we may, at our option, terminate the agreement for material breach or convert the license granted under the agreement to a non-exclusive license.

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The agreement will remain in effect as long as Eleison continues to sell glufosfamide anywhere in the world or receives payments under any sublicenses. Each party is entitled to terminate the agreement upon the other party’s material breach after expiration of a 60-day cure period (30 days in the event of a payment breach). Each party is entitled to terminate the agreement immediately upon the bankruptcy or similar petition of the other party that is not discharged within 60 days, or the assignment for the benefit of creditors by, or the appointment of a receiver over the property of, the other party. In addition, Eleison may terminate the agreement for convenience at any time on 90 days written notice to us.

Following any termination by Eleison for convenience or by us for Eleison’s material breach, all licensed rights will revert to us. Following any termination by Eleison for our material breach, all licensed rights will fully vest in Eleison, provided that Eleison will be required to pay us 50% of the profit sharing payments it otherwise would have been required to pay us under the agreement.

Patents and Proprietary Rights

Our policy is to patent the technologies, inventions and improvements that we consider important to the development of our business. As of December 31, 2011, we owned or held exclusive license to United States and foreign patents and patent applications and Patent Cooperation Treaty patent applications relating to our research and development programs.

Our TH-302 product candidate and its use in the treatment of cancer are claimed in US and corresponding foreign patents and patent applications in major market countries and are owned by us. We are seeking or have already obtained compound per se patent protection for TH-302 as well as claims directed to its use, alone and in combination with other cancer drugs, in the treatment of cancer. We also own other United States, PCT, and foreign patent applications relating to the results of our research on hypoxia-activated prodrugs and their use as cancer drugs and related reagents and methods.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our pending patent applications will result in the issuance of any patents. Moreover, an issued patent does not guarantee us the right to practice the patented technology or commercialize the patented product. Other parties may have blocking patents that could be used to prevent us from commercializing our patented products and practicing our patented technology. Our issued patents and those that may be issued in the future may be challenged, invalidated, or circumvented, which could limit our ability or render us unable to stop competitors from marketing related products as well as shorten the term of patent protection that we may have for our products. In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that do not infringe our intellectual property rights. For these reasons, we may have competition for our products. Moreover, because of the extensive time required for development, testing and regulatory review of a potential therapeutic product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information by requiring our employees and certain of our consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements on commencement of their employment or engagement. Agreements with our employees also forbid them from using third party trade secret or other confidential information in their work. We also require confidentiality or material transfer agreements from third parties that receive our confidential data or proprietary materials.

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The biotechnology and pharmaceutical industries are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. For so long as our product candidates are in clinical trials, we believe our clinical activities fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. This exemption does not apply to commercialization activities; however’ if our product candidates are commercialized, then the possibility of a patent infringement claim against us increases. While we attempt to ensure that our clinical product candidates and the methods we employ to manufacture them, as well as the methods for their use we intend to promote, do not infringe other parties’ patents and other proprietary rights, there can be no assurance that they do not, and competitors or other parties may assert that we infringe their proprietary rights in any event.

Competition

We operate in the highly competitive segment of the pharmaceutical market comprised of pharmaceutical and biotechnology companies that research, develop and commercialize products designed to treat cancer. Many of our competitors have significantly greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approval for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are active in cancer research, some in direct competition with us. We also compete with these organizations to recruit scientists and clinical development personnel.

Each cancer indication for which we are developing products has a number of established medical therapies with which our candidates will compete. Most major pharmaceutical companies and many biotechnology companies are aggressively pursuing cancer development programs, including traditional therapies and therapies with novel mechanisms of action. Our TH-302 product candidate for targeting the tumor hypoxia may eventually compete with other companies who are developing or were developing drugs that target tumor hypoxia such as Proacta Incorporated. A number of biotechnology and pharmaceutical companies are marketing and/or developing cancer therapeutics competing in prostate, lung, pancreatic, melanoma and soft tissue sarcoma. Such companies include: AstraZeneca PLC, Genentech, Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, GlaxoSmithKline plc, Bayer Pharmaceuticals, Hoffmann-LaRoche, Inc., Infinity Pharmaceuticals, Johnson & Johnson, Onyx Pharmaceuticals, Inc., Merck KGaA, Novartis AG, Pfizer, Inc., Amgen Inc., Clovis Oncology, ImClone Systems, Inc., Millennium Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc., Telik, Inc., Sanofi-Aventis U.S., Sunesis Pharmaceuticals, Inc., Plexxikon Inc., Celgene Corporation, Abraxis Bioscience Inc., ARIAD Pharmaceuticals, Inc. and ZIOPHARM Oncology, Inc.

Governmental Regulation and Product Approval

The manufacturing and marketing of our potential products and our ongoing research and development activities are subject to extensive regulation by the FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries.

United States Regulation

Before any of our products can be marketed in the United States, they must secure approval by the FDA. To secure this approval, any drug we develop must undergo rigorous preclinical testing and clinical trials that demonstrate the product candidate’s safety and effectiveness for each chosen indication for use. This extensive regulatory process controls, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of biopharmaceutical products.

In general, the process required by the FDA before investigational drugs may be marketed in the United States involves the following steps:

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Preclinical Testing

In the United States, drug candidates are tested in animals until adequate proof of safety is established. These preclinical studies generally evaluate the mechanism of action of the product and assess the potential safety and efficacy of the product. Tested compounds must be produced according to applicable current good manufacturing practice, or cGMP, requirements and preclinical safety tests must be conducted in compliance with FDA and international regulations regarding good laboratory practices, or GLP. The results of the preclinical tests, together with manufacturing information and analytical data, are generally submitted to the FDA as part of an IND, which must become effective before human clinical trials may commence. The IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA requests an extension or raises concerns about the conduct of the clinical trials as outlined in the application. If the FDA has any concerns, the sponsor of the application and the FDA must resolve the concerns before clinical trials can begin. Submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development, and the FDA must grant permission for each clinical trial to start and continue. Regulatory authorities may require additional data before allowing the clinical trials to commence or proceed from one Phase to another, and could demand that the trials be discontinued or suspended at any time if there are significant safety issues. Furthermore, an independent institutional review board, or IRB, for each medical center proposing to participate in the conduct of the clinical trial must review and approve the clinical protocol and patient informed consent before the center commences the clinical trial.

Clinical Trials

Clinical trials for new drug candidates are typically conducted in three sequential phases that may overlap. In Phase 1 involves the initial introduction of the drug candidate into humans and are conducted in volunteers or in patients with a specific disease depending on the intended use. The emphasis in Phase 1 is on testing for safety or adverse effects, dosage, tolerance, metabolism, distribution, excretion, and clinical pharmacology. Phase 2 involves clinical trials in a limited patient population to determine the initial efficacy of the drug candidate for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and safety risks. Once a compound shows evidence of effectiveness and is found to have an acceptable safety profile in Phase 2 clinical trials, pivotal controlled Phase 3 clinical trials are undertaken to more fully evaluate clinical outcomes and to establish the overall risk/benefit profile of the drug, and to provide, if appropriate, an adequate basis for product labeling. During all clinical trials, physicians monitor patients to determine effectiveness of the drug candidate and observe and report any reactions or safety risks that may result from use of the drug candidate. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.

The data from the clinical trials, together with preclinical data and other supporting information that establishes a drug candidate’s safety, are submitted to the FDA in the form of an NDA or NDA supplement (for approval of a new indication if the product candidate is already approved for another indication). Under applicable laws and FDA regulations, each NDA submitted for FDA approval is usually given an internal administrative review within 45 to 60 days following submission of the NDA. If deemed complete, the FDA will “file” the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable. The FDA has established internal substantive review goals

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of six months for priority NDAs (for drugs addressing serious or life threatening conditions for which there is an unmet medical need) and ten months for regular NDAs. The FDA, however, is not legally required to complete its review within these periods, and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, is not typically an actual approval, but an “action letter” that describes additional work that must be done before the NDA can be approved. The FDA’s review of an NDA may involve review and recommendations by an independent FDA advisory committee. The FDA may deny approval of an NDA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional pivotal Phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval.

Data Review and Approval

Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and requires the expenditure of substantial financial resources. Information generated in this process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to market may vary substantially. We cannot be certain that we will submit applications for required authorizations to manufacture and/or market potential products or that any such application will be reviewed and approved by the appropriate regulatory authorities in a timely manner, if at all. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit, or prevent regulatory approval. Success in early stage clinical trials does not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations, and dosages, or have conditions placed on them that restrict the commercial applications, advertising, promotion, or distribution of these products.

Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA may also request additional clinical trials after a product is approved. These so-called Phase 4 studies may be made a condition to be satisfied after a drug receives approval. The results of Phase 4 studies can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s voluntary adverse drug reaction reporting system. The product may be subject to withdrawal of the approval if effectiveness is not confirmed in the Phase 4 studies. Any products manufactured or distributed by us pursuant to FDA approvals would be subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug. Furthermore, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.

The FDA closely regulates the marketing and promotion of drugs. Approval may be subject to post-marketing surveillance and other record keeping and reporting obligations, and involve ongoing requirements. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by the FDA. While physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA, manufacturers may only promote for the approved indications and in accordance with the provisions of the approved label. Failure to

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comply with FDA requirements can result in adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties.

Special Protocol Assessments

A clinical trial sponsor may submit a request for a special protocol assessment (SPA) from the FDA. Under the SPA procedure, a sponsor may seek the FDA’s agreement on the design and size of a clinical trial intended to form the primary basis of an effectiveness claim. If the FDA agrees in writing, its agreement may not be changed after the trial begins, except in limited circumstances, such as when a substantial scientific issue essential to determining the safety and effectiveness of a product candidate is identified after a Phase 3 clinical trial is commenced and agreement is obtained with the FDA. If the outcome of the trial is successful, the sponsor will ordinarily be able to rely on it as the primary basis for approval with respect to effectiveness. The FDA, however, may make an approval decision based on a number of factors, including the degree of clinical benefit, and the FDA is not obligated to approve an NDA as a result of an SPA, even if the clinical outcome is positive.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, for seven years. These circumstances are an inability to supply the drug in sufficient quantities or a situation in which a new formulation of the drug has shown superior safety or efficacy. This exclusivity, however, also could block the approval of our product for seven years if a competitor obtains earlier approval of the same drug for the same indication.

Anti-Kickback and False Claims Laws

In the United States, we are subject to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback and false claims laws. The federal Anti-Kickback Law makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, offer, receive or pay any remuneration, directly or indirectly, in exchange for, or to induce, the referral of business, including the purchase, order or prescription of a particular drug, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. Violations of the law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the federal Anti-Kickback Law. Some of these state prohibitions apply to referral of patients for healthcare services reimbursed by any source, not only the Medicare and Medicaid programs. Due to the breadth of these laws, and the potential for additional legal or regulatory change addressing some of our practices, it is possible that our practices or our relationships with physicians might be challenged under anti-kickback laws, which could harm us.

False claims laws prohibit anyone from knowingly presenting, or causing to be presented, for payment to third-party payors (including Medicare and Medicaid) claims for reimbursed items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of Medicaid rebate information and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products, are subject to scrutiny under these laws. In addition, pharmaceutical companies have been prosecuted under the federal False

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Claims Act in connection with their off-label promotion of drugs. Penalties for a violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim. In addition, certain states have enacted laws modeled after the federal False Claims Act. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and suffer a decline in our stock price.

Drug Price Competition and Patent Term Restoration Act of 1984

Under the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Amendments, a portion of a product’s patent term that was lost during clinical development and application review by the FDA may be restored. The Hatch-Waxman Amendments also provide for a statutory protection, known as nonpatent market exclusivity, against the FDA’s acceptance or approval of certain competitor applications. The Hatch-Waxman Amendments also provide the legal basis for the approval of abbreviated new drug applications, or ANDAs, for generic drugs.

Patent term restoration can compensate for patent life lost during product development and the regulatory review process by returning up to five years of patent life for a patent that covers a new product or its use. This period is generally one-half the time between the effective date of an IND (falling after issuance of the patent) and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term restorations, however, are subject to a maximum extension of five years, and the patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years. The application for patent term extension is subject to approval by the United States Patent and Trademark Office in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. Up to five years of interim one year extensions are available if a product is still undergoing development or FDA review at the time of its expiration.

The Hatch-Waxman Amendments also provide for a period of statutory protection for new drugs that receive NDA approval from the FDA. If a new drug receives NDA approval as a new chemical entity, meaning that the FDA has not previously approved any other new drug containing the same active moiety, then the Hatch-Waxman Amendments prohibit an abbreviated new drug application or an NDA where the applicant does not own or have a legal right of reference to all of the data required for approval, or a “505(b)(2)” NDA, to be submitted by another company for a generic version of such drug, with some exceptions, for a period of five years from the date of approval of the NDA. The statutory protection provided pursuant to the Hatch-Waxman Amendments will not prevent the filing or approval of a full NDA. In order to gain approval of a full NDA, however, a competitor would be required to conduct its own preclinical investigations and clinical trials. If NDA approval is received for a new drug containing an active ingredient that was previously approved by the FDA but the NDA is for a drug that includes an innovation over the previously approved drug, for example, an NDA approval for a new indication or formulation of the drug with the same active ingredient, and if such NDA approval was dependent upon the submission to the FDA of new clinical investigations, other than bioavailability studies, then the Hatch-Waxman Amendments prohibit the FDA from making effective the approval of an ANDA or a 505(b)(2) NDA for a generic version of such drug for a period of three years from the date of the NDA approval. This three year exclusivity, however, only covers the innovation associated with the NDA to which it attaches. Thus, the three year exclusivity does not prohibit the FDA, with limited exceptions, from approving ANDAs or 505(b)(2) NDAs for drugs containing the same active ingredient but without the new innovation.

While the Hatch-Waxman Amendments provide certain patent term restoration and exclusivity protections to innovator drug manufacturers, it also permits the FDA to approve ANDAs for generic versions of their drugs. The ANDA process permits competitor companies to obtain marketing approval for a drug with the same active ingredient for the same uses but does not require the conduct and submission of clinical trials demonstrating safety and effectiveness for that product. Instead of safety and effectiveness data, an ANDA applicant needs only to submit data demonstrating that its product is bioequivalent to the innovator product as well as relevant

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chemistry, manufacturing and control data. The Hatch-Waxman Amendments also instituted a third type of drug application that requires the same information as an NDA including full reports of clinical and preclinical studies except that some of the information from the reports required for marketing approval comes from studies which the applicant does not own or have a legal right of reference. This type of application, a “505(b)(2) NDA,” permits a manufacturer to obtain marketing approval for a drug without needing to conduct or obtain a right of reference for all of the required studies.

Finally, the Hatch-Waxman Amendments require, in some circumstances, an ANDA or a 505(b)(2) NDA applicant to notify the patent owner and the holder of the approved NDA of the factual and legal basis of the applicant’s opinion that the patent listed by the holder of the approved NDA in FDA’s Orange Book is not valid or will not be infringed (the patent certification process). Upon receipt of this notice, the patent owner and the NDA holder have 45 days to bring a patent infringement suit in federal district court and obtain a 30-month stay against the company seeking to reference the NDA. The NDA holder could still file a patent suit after the 45 days, but if they did, they would not have the benefit of the 30-month stay. Alternatively, after this 45-day period, the applicant may file a declaratory judgment action, seeking a determination that the patent is invalid or will not be infringed. Depending on the circumstances, however, the applicant may not be able to demonstrate a controversy sufficient to confer jurisdiction on the court. The discovery, trial and appeals process in such suits can take several years. If such a suit is commenced, the Hatch-Waxman Act provides a 30-month stay on the approval of the competitor’s ANDA or 505(b)(2) NDA. If the litigation is resolved in favor of the competitor or the challenged patent expires during the 30-month period, unless otherwise extended by court order, the stay is lifted and the FDA may approve the application. Under regulations recently issued by the FDA, and essentially codified under the recent Medicare prescription drug legislation, the patent owner and the NDA holder have the opportunity to trigger only a single 30-month stay per ANDA or 505(b)(2) NDA.

Foreign Approvals

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under European Union regulatory systems, we may submit marketing authorizations either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

The policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our investigational drugs or approval of new diseases for our existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Other Government Regulation

Our research and development activities use biological and hazardous materials that are dangerous to human health and safety or the environment. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes

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resulting from these materials. We are also subject to regulation by the Occupational Safety and Health Administration, or OSHA, the California and federal environmental protection agencies and to regulation under the Toxic Substances Control Act. OSHA or the California or federal EPA may adopt regulations that may affect our research and development programs. We are unable to predict whether any agency will adopt any regulations that could have a material adverse effect on our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of our business in complying with these laws and regulations.

Employees

As of December 31, 2011, we had 31 full-time employees, including 11 who hold Ph.D. and/or M.D. degrees. Twenty six of our employees are engaged in research and development, and our remaining employees are management or administrative staff. None of our employees is subject to a collective bargaining agreement. We believe that we have good relations with our employees.

Our Corporate Information

We were incorporated in Delaware on October 17, 2001. Our principal executive offices are located at 170 Harbor Way Suite 200 South San Francisco 94080. Our telephone number is (650) 474-8200.

Available Information

We file electronically with the Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains an Internet site that contains reports, proxy information and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov . The materials are also available at the SEC’s Public Reference Room, located at 100 F Street, Washington, D.C. 20549. The public may obtain information through the public reference room by calling the SEC at 1-800-SEC-0330.

You may obtain a free copy of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day of filing with the SEC on our website at http://www.thresholdpharm.com or by contacting the Investor Relations Department at our corporate offices by calling (650) 474-8200.

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