TH-302 is a hypoxia-targeted drug that is thought to be activated under tumor hypoxic conditions.
As per the agreement, Merck will receive co-development rights, exclusive global commercialization rights and Threshold will receive an upfront payment of €19m ($25m) and up to €26.5m ($35m) as additional development milestones during 2012.
Currently, TH-302 is being investigated in a global Phase III clinical trial in patients with soft tissue sarcoma and in a randomized Phase II trial in patients with advanced pancreatic cancer.
Based on the positive results from its randomized Phase II trial in pancreatic cancer, Threshold is also eligible to receive a €15m ($20m) milestone payment.
Under the royalty-bearing portion of the agreement, Threshold retains the option to co-promote TH-302 in the US, while Merck will be responsible for marketing outside the US.
The top-line results from the Phase II randomized trial are expected to be announced this month.