This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the "Risk Factors" section of this Quarterly Report on Form 10-Q. Other than statements of historical fact, statements made in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Exchange Act, and
Section 27A of the Act. When used in this report or elsewhere by management from time to time, the words "believe," "anticipate," "intend," "plan," "estimate," "expect," and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations. Forward-looking statements made in this report include, for example, statements about:

• the progress of our clinical programs, including estimated milestones;

• estimates of future performance, capital requirements and needs for financing;

• uncertainties associated with obtaining and enforcing patents and other intellectual property rights; and

• the costs and timing of obtaining drug supply for our pre-clinical and clinical activities.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of the potential risks and uncertainties that may impact their accuracy, see the "Overview" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations and the "Risk Factors" section in Part II of this quarterly report on Form 10-Q. Forward-looking statements reflect our view only as of the date of this report. We undertake no obligation to update any forward-looking statements. You should also review carefully the cautionary statements and risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2008, and in our other filings with the SEC, including our Forms 10-Q and 8-K and our Annual Report to Shareholders.

Overview

We are a biotechnology company focused on the discovery and development of drugs targeting the microenvironment of solid tumors as novel treatments for patients living with cancer. The microenvironment of solid tumors is characterized by, among other things, hypoxia or lack of oxygen, disordered blood vessel growth, and the upregulation of glucose transport. This hypoxic environment is known to be resistant to standard chemotherapy and radiation. It is thought to be responsible for the poor prognosis of many solid tumors and treating the hypoxic environment is currently believed to be a significant unmet medical need. Our product candidates are designed to selectively target the hypoxic microenvironment of tumors either by selective toxin activation in the case of our hypoxia activated prodrug (HAP) program, including TH-302, or potentially utilizing the consequences of increased uptake of glucose in cancer cells relative to most normal cells. Our product candidates glufosfamide and 2DG share certain structural characteristics with glucose but act instead as chemotherapeutic toxins when taken up by a cell.

On October 14, 2009, we entered into an exclusive licensing 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 intends to secure funding for the clinical development of glufosfamide. The agreement between Threshold and Eleison contemplates that Eleison, to satisfy its diligence obligations, will raise sufficient funds to commence clinical development activities with glufosfamide.

Our focus is on product candidates for the treatment of patients with cancer. We have two product candidates for which we have exclusive worldwide marketing rights:

• TH-302, which we discovered, is our lead product candidate for the potential treatment of patients with cancer. It is a novel drug candidate that is activated under the severe hypoxic conditions of most solid tumors. TH-302 is currently in Phase 1 and Phase 1/2 clinical trials, as discussed below. As further discussed below, in May 2009, we reported results from the dose escalation component of the Phase 1 trial and interim results from the Phase 1/2 trials. We expect to present top-line results from the Phase 1 monotherapy and Phase 1/2 combination therapy trials in the first quarter of 2010. We also expect to complete enrollment in the Phase 1/2 monotherapy and Phase 1/2 combination therapy trials in the fourth quarter of 2009. We expect to initiate at least one controlled clinical trial with TH-302 in the first half of 2010.

We are working to discover additional hypoxia activated prodrugs that will selectively target cancer cells.

In July 2007, we initiated a Phase 1 clinical trial evaluating the safety of TH-302 in patients with advanced solid tumors. In the first quarter of 2009, we expanded enrollment of this trial, also known as the 401 trial, to explore potentially higher dosing of TH-302 every three weeks as well as to further investigate single-agent anti-tumor activity in specific tumor types. In August 2008, we initiated a multi-armed Phase 1/2 clinical trial of TH-302 which includes 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, is expected to enroll up to 120 patients and will include a dose escalation phase followed by expansion at the maximum tolerated dose (MTD) of TH-302 within four specific indications with 12 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, will include up to 36 patients (12-24 in the dose escalation arm).

In May 2009, at the American Society for Clinical Oncology (ASCO) 2009 annual meeting and as part of a company presentation concurrent with the meeting, we presented results from thirty-one patients in the dose escalation component of the Phase 1 clinical trial evaluating the safety and preliminary efficacy of TH-302 as a monotherapy in patients with advanced solid tumors. Partial responses were documented in two patients enrolled in this Phase 1 trial. One patient with refractory small cell lung cancer metastatic to the liver had a partial response (PR), as judged by RECIST (Response Evaluation Criteria In Solid Tumors), at their initial response assessment. The patient had received two cycles of TH-302 at 480 mg/m2 and discontinued from the trial after treatment delay, unrelated to therapy, and disease progression. An additional patient with melanoma metastatic to the lung and liver had a RECIST PR after two cycles of TH-302 at 670 mg/m2. Fifty-eight percent of the 31 patients, who had previously failed a median of 3 prior therapies, achieved stable disease (SD) or better.

The first dose limiting toxicities for TH-302 as a monotherapy were reported in the 670 mg/m2 cohort: one patient developed grade 3 perianal and rectal ulcers and a second patient developed grade 3 oral mucositis associated with dehydration. An intermediate dose of 575 mg/m2 was evaluated and determined to be the MTD. Since nausea and vomiting increased at higher doses of TH-302, standard anti-emetic prophylaxis was recommended at doses that exceed 240 mg/m2. Skin and mucosal adverse events increased with dose and in some patients required dose delays or dose reductions at higher doses. Adverse events of grade 3 or higher were reported in 17 (55%) of 31 patients. Adverse events of grade 3 or higher considered related to study drug were reported in three (10%) patients. Hematologic toxicity was minimal with no grade 3 or grade 4 neutropenia or thrombocytopenia and grade 2 neutropenia reported in two patients (6%), grade 2 thrombocytopenia reported in one (3%) patient, and worsening anemia and lymphopenia in fourteen (45%) and twenty (65%) patients, respectively.

As we reported at the ASCO meeting, in the expansion phase of the Phase 1 monotherapy clinical trial, which included weekly doses of TH-302 at the MTD of 575 mg/m2, the drug continued to be tolerated. There were no new unexpected adverse events, with one of the nine additional patients treated at the MTD of 575 mg/m2 having a dose limiting toxicity (DLT) of grade 3 cheilitis (inflammation of the lips). The initial activity seen in small cell lung cancer and malignant melanoma was further supported by an additional PR in each indication in the initial patients treated in the dose expansion. As reported at the ASCO meeting, two of five patients with small cell lung cancer and two of two patients with metastatic melanoma in the monotherapy trial had achieved a RECIST criteria PR. Dosing once every three weeks is also being evaluated in this trial and dose escalation is ongoing. There was one case of pancytopenia (a reduction in the number of red and white blood cells, as well as platelets) at 670 mg/m2 and one DLT of grade 3 fatigue in the initial patient dosed at 940 mg/m2.

In addition, at the ASCO meeting, we reported interim results from the 402 and 403 Phase 1/2 combination therapy clinical trials. In the 402 trial, 30 patients in the dose-escalation phase had been assessed for response in the trial's three separate treatment arms. In the TH-302 plus gemcitabine arm, eleven patients had tumor assessments, three of whom had a PR in the following cancers: ovarian, esophageal and pancreatic. The ovarian response was confirmed, meaning that the RECIST criteria PR was maintained through a subsequent assessment at least 28 days later; the esophageal and pancreatic PRs were unconfirmed. There were six patients

with SD, five of whom had ongoing SD lasting for three to eight cycles of chemotherapy. In the TH-302 plus docetaxel arm, nine patients had tumor assessments, two of whom had a PR in non-small cell lung cancer and anal cancer with both confirmed and ongoing at the time of the presentation. There were five patients with SD, three of whom had ongoing SD lasting for four to five cycles. In the TH-302 plus pemetrexed arm, ten patients had tumor assessments, two of whom had a PR, both in non small cell lung cancer with both confirmed and ongoing after over six months on treatment. There were five patients with SD, three of whom had ongoing SD lasting for five to nine cycles. In the 403 trial, three patients had tumor assessments, two of whom had a confirmed PR. The third patient has ongoing SD for four cycles.

As reported at the ASCO meeting, hematologic toxicity after administering TH-302 in combination with chemotherapy was higher than might be expected if chemotherapy was administered by itself, but was generally well tolerated and not dose limiting. 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. Investigations have been initiated to better understand and treat, or prevent, these toxicities.

On August 4, 2009, TH-302 clinical trial results were presented at the World Congress on Lung Cancer Meeting. The presentation summarized results from the 401 and 402 trials of TH-302. Data from these trials were previously discussed at the ASCO Meeting in May 2009. Results from thirteen patients with relapsed/refractory lung cancer across the two clinical trials were presented. Partial responses were observed in three patients, one patient receiving docetaxel and TH-302 and two patients receiving pemetrexed and TH-302. Eight of twelve (67%) evaluable patients with relapsed or refractory NSCLC achieved stable disease or better. Eight patients with small cell lung cancer (SCLC) who received TH-302 as a monotherapy were assessed for tumor response. Partial responses were observed in two patients. Six of eight (75%) patients achieved stable disease or better.

In September 2009, results from the 402 clinical trial were presented at the 15th Congress of the European CanCer Organisation (ECCO) and 34th Congress of the European Society for Medical Oncology (ESMO). In the 402 trial, 45 patients in the dose-escalation phase had been assessed for response in the trial's three separate treatment arms. In the TH-302 plus gemcitabine arm, fifteen patients had tumor assessments, six of whom had a PR in the following cancers: pancreatic
(2), ovarian, esophageal, squamous non-small cell lung cancer and thyroid. The ovarian response was confirmed, meaning that the RECIST criteria PR was maintained through a subsequent assessment at least 28 days later; the esophageal and pancreatic PRs were unconfirmed. There were seven patients with SD. Of the four patients with first-line pancreatic cancer assessed for response, two achieved PRs and two have had SD. In the TH-302 plus docetaxel arm, eleven patients had tumor assessments, two of whom had a PR in non-small cell lung cancer and anal cancer with both confirmed and ongoing at the time of the presentation. There were six patients with SD. In the TH-302 plus pemetrexed arm, nineteen patients have had tumor assessments, four of whom had a PR, two in non small cell lung cancer and two in transitional cell carcinoma. There were nine patients with SD. Of the eight patients with relapsed or refractory NSCLC treated with TH-302 in combination with either docetaxel or pemetrexed, three patients achieved PRs and four patients achieved stable disease.

On October 8, 2009, TH-302 clinical trial results were presented at the Perspectives in Melanoma XIII Conference. The presentation summarized results from the 401 trial of TH-302 in those patients with metastatic melanoma. Data from these trials were previously discussed at the ASCO Meeting in May 2009. Eight of nine patients with metastatic melanoma were assessed for response. Six of eight (75%) evaluable melanoma patients had SD or better, including three (38%) patients with a PR (one confirmed, one un-confirmed who discontinued treatment after their first tumor assessment due to seizures related to brain metastases, one on study yet to receive a second tumor assessment) as measured by RECIST (Response Evaluation Criteria In Solid Tumors). Four of the eight patients continue to receive TH-302 after receiving TH-302 for 2.6 to 6.2 months.

We are a development stage company incorporated in October 2001. We have devoted substantially all of our resources to research and development of our product candidates. We have not generated any revenue from the sale of our product candidates, and prior to our initial public offering in February 2005, we funded our operations through the private placement of equity securities. In February 2005, we completed our initial public offering that raised net proceeds of $38.1 million, and in October 2005, we completed an offering of common stock that raised net proceeds of $62.4 million. In August 2008, we completed an offering of common stock and warrants that raised net proceeds of $16.8 million. As of September 30, 2009 we had cash, cash equivalents and marketable securities of $8.5 million. Our net loss for the nine months ended September 30, 2009 was $18.9 million and our cumulative net loss since our inception through September 30, 2009 was $203.1 million. In October 2009, we completed an offering of common stock and warrants that raised aggregate gross proceeds of $35.0 million and net proceeds are expected to be approximately $33.1million.

We expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials, start additional clinical trials and continue our discovery efforts. Research and development expenses are expected to increase in 2009 compared to 2008 due to the continued execution of existing clinical trials and beginning of new clinical trials. We expect that our cash, cash equivalents and marketable securities as of September 30, 2009 along with the net proceeds from our October 2009 private placement of shares of common stock and warrants to purchase shares of common stock, will be sufficient to fund our projected operating requirements through the second quarter of 2011, including completing our current ongoing clinical trials and conducting research and discovery efforts toward additional product candidates, working capital and general corporate purposes. Research and development expenses may fluctuate significantly from period to period as a result of the progress and results of our clinical trials.

Results of Operations

Revenue. No revenue was recognized for the three and nine months ended September 30, 2009. For the three months and nine ended September 30, 2008, we recognized revenue of $0.4 million and $1.1 million, respectively, related to the $5.0 million upfront payment received in connection with a 2004 agreement with MediBIC Co. Ltd for the development of glufosfamide in Japan and several other Asian countries. Revenue was fully recognized on a straight-line basis over the estimated development period through 2008. We have no further responsibilities for development activities under this agreement.

Research and Development. Research and development expenses were $4.0 million for the three months ended September 30, 2009 compared to $3.7 million for the three months ended September 30, 2008. The $0.3 million increase in expenses is due primarily to an increase in consulting and personnel related expenses. Research and development expenses were $11.7 million for the nine months ended September 30, 2009 compared to $9.9 million for the nine months ended September 30, 2008. The $1.8 million increase in expenses is due primarily to a $1.4 million increase in clinical and development expenses and a $0.8 million increase in consulting and personnel related expenses, offset by a $0.4 million decrease in stock based compensation.

                                                                  Three months ended        Nine months ended
                                                                    September 30,             September 30,
Research and development expenses by project (in thousands)        2009         2008         2009         2008
TH-302                                                          $    2,928    $  2,052    $     8,075    $ 4,743
Glufosfamide                                                            81         627            232      1,840
2DG                                                                     23          92            162        307
Discovery research                                                     941         901          3,250      2,983

Total research and development expenses                         $    3,973    $  3,672    $    11,719    $ 9,873

Research and development expenses associated with our internally discovered compound TH-302 were $2.9 million for the three months ended September 30, 2009 and $2.1 million for the three months ended September 30, 2008. Research and development expenses associated with TH-302 were $8.l million for the nine months ended September 30, 2009 and $4.7 million for the nine months ended September 30, 2008. TH-302 continues to progress through the Phase 1 monotherapy clinical trial initiated in July 2007, for which in the first quarter of 2009, we expanded enrollment to explore activity in specific indications. In addition, in the third quarter of 2008, we initiated a Phase 1/2 combination therapy clinical trial of TH-302 which includes three separate treatment arms and a Phase 1/2 clinical trial of TH-302 in combination with doxorubicin in patients with advanced soft tissue sarcoma.

Research and development expenses associated with glufosfamide were $0.1 million for the three months ended September 30, 2009 and $0.6 million for the three months ended September 30, 2008. Research and development expenses associated with glufosfamide were $0.2 million for the nine months ended September 30, 2009 and $1.8 million for the nine months ended September 30, 2008. This decline in expenses was due to the completion and announcement of results for our Phase 2 trials in pancreatic cancer and soft-tissue sarcoma in 2007 and discontinuation of our Phase 2 trials in recurrent sensitive small cell lung cancer and platinum-resistant ovarian cancer in October 2007 and January 2008, respectively. In October 2009, we exclusively licensed development and commercialization of glufosfamide to Eleison and as a result, we do not expect to incur research and development expenses associated with glufosfamide in the future.

Research and development expenses associated with 2DG were $23,000 for the three months ended September 30, 2009 and $0.1 million for the three months ended September 30, 2008, and were $0.2 million for the nine months ended September 30, 2009 and $0.3 million for the nine months ended September 30, 2008, as we completed enrollment of the 2DG Phase 1 trial in the second quarter of 2008, and announced results in third quarter of 2008. We are not currently planning or conducting further additional

clinical trials of 2DG.

Discovery research and development expenses were $0.9 million for the three months ended September 30, 2009 compared to $0.9 million for the three months ended September 30, 2008, and were $3.3 million for the nine months ended September 30, 2009 compared to $3.0 million for the nine months ended September 30, 2008 as we continue to focus our efforts towards discovering and developing new drug candidates from our hypoxia activated prodrug platform.

We did not track research and development expenses by project prior to 2003, and therefore we cannot provide cumulative project expenses to date. Due to the risks and uncertainties involved in discovering and developing product candidates, such as clinical trial results, regulatory approval requirements, dependence on third parties and market acceptance, which are described in the "Risk Factors" section in Part II of this Quarterly Report on Form 10-Q, we cannot reasonably estimate the costs and timing of completion of each project or when any project will result in net cash inflows.

We expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials, start additional clinical trials and continue our discovery efforts. Research and development expenses are expected to increase in 2009 compared to 2008 due to the continued execution and expansion of our existing trials.

General and Administrative. General and administrative expenses were $1.2 million for the three months ended September 30, 2009, compared to $1.3 million for the three months ended September 30, 2008. The decrease of $0.1 million is due to lower staffing and facilities expenses and stock based compensation.

General and administrative expenses were $4.1 million for the nine months ended September 30, 2009, compared to $5.1 million for the nine months ended September 30, 2008. The decrease of $1.0 million is due to $0.5 million of decrease in stock-based compensation expenses and $0.5 million in lower consulting expenses and staffing and facilities expenses.

General and administrative expenses are expected to remain approximately the same in 2009 compared to 2008.

Interest Income, Net. Interest income for the three months ended September 30, 2009 was $12,000 compared to $0.1 million for the three months ended September 30, 2008. Interest income for nine months ended September 30, 2009 was $0.1 million compared to $0.4 million for the nine months ended September 30, 2008. The decrease was primarily due to lower invested cash balances and, lower interest rates during the three months ended September 30, 2009 compared to the prior year.

Interest and Other Expense. Interest and other expense was $1.0 million and $3.2 million, for the three and nine months ended September 30, 2009, respectively, compared to $13,000 and $0.1 million for the three and nine months ended September 30, 2008, respectively. The increase was primarily due to the $1.0 million and $3.0 million non cash charge for the three and nine months ended September 30, 2009, respectively, related to the change in fair value of the common stock warrants recorded in interest and other expense as a result of our adoption of new guidance codified in ASC 815, "Derivatives and Hedging" as of January 1, 2009. In accordance with ASC 815, stock warrants with certain terms that were previously accounted for as equity must now be accounted for as a liability with changes to their fair value recognized in the consolidated statement of operations.

Liquidity and Capital Resources

We have incurred net losses of $203.1 million since inception through September 30, 2009. We have not generated and do not expect to generate revenue from sales of product candidates in the near term. From inception until our initial public offering in February 2005, we funded our operations primarily through private placements of our preferred stock. In February 2005, we completed our initial public offering of 1,018,768 shares of common stock, raising net proceeds of $38.1 million. In October 2005, we completed a public offering of 1,066,537 shares of our common stock for net proceeds of $62.4 million. On August 29, 2008, we sold to certain investors an aggregate of 8,970,574 shares of our common stock for a purchase price equal to $2.04 per share and warrants exercisable for a total of 3,588,221 shares of our common stock with an exercise price equal to $2.34 per share, which exercise price was subsequently reduced to $1.86 per share on October 5, 2009 under the anti-dilution provisions of the warrants as a result of the private placement that was completed on that date and discussed below. Net proceeds generated from the offering were $16.8 million. In August 2008, our Board of Directors approved a 1-for-6 reverse split of its common stock, effective August 20, 2008. Accordingly, all references to common shares of stock have been retroactively adjusted to reflect the reverse split. We had cash, cash equivalents and marketable securities of $8.5 million and $22.3 million at September 30, 2009 and December 31, 2008, respectively, available to fund operations.

On October 5, 2009, we sold to certain investors an aggregate of 18,324,599 shares of our common stock for a purchase price equal to $1.86 per share and, for a purchase price equal to $0.05 per share, warrants exercisable for a total of 7,329,819 shares of our common stock for aggregate gross proceeds equal to $35.0 million in connection with the offering. Net proceeds generated from the . . .