UPDATE 2-Merck KGaA, Threshold drug fails in late-stage cancer trials

The new disappointment leaves CEO-designate Stefan Oschmann, a pharmaceuticals expert, with a narrow drug development pipeline that rests mainly on cancer immune therapy avelumab, jointly developed with Pfizer.

Oschmann, slated to take the top job in April, joined Merck in early 2011, about a year before Merck agreed to collaborate with South San Francisco-based Threshold.

"Evofosfamide was among Merck's highest profile pipeline projects and thus played a non-negligible role in Merck's quest to rebuild its pipeline particularly in oncology," said Equinet Bank analyst Marietta Miemietz.

UBS analysts said they had estimated annual peak sales of 400 million euros ($433 million) for the drug's use in soft tissue sarcoma and 800 million euros in pancreatic cancer, previously putting the probability of market launch at 50 percent.

The two partners have also been testing evofosfamide against skin and lung cancer in the second phase of drug trials required for regulatory approval, and against further cancer types in the first phase.

The drug is designed to attack body tissue that is short of oxygen supply, also known as hypoxia, because cancerous cells often grow without connecting to the oxygen-carrying blood vessels around them.

"While we believe there remains substantial data to support the role of hypoxia in cancer treatment resistance, we are deeply frustrated with our inability in these trials to impact that in a meaningful way," Threshold CEO Barry Selick said in a statement.