Cardiome Plays Dealmaker

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Yesterday, development-stage drug maker Cardiome (Nasdaq: CRME) announced that it had licensed a drug candidate from pharma giant Eli Lilly (NYSE: LLY) in order to supplement its small drug pipeline.

The compound Cardiome licensed from Lilly is in testing as a potential treatment for cardiogenic shock, which is a complication resulting from heart dysfunction. The drug candidate has already successfully completed a phase 1 safety study, and Cardiome plans to bring it into initial efficacy testing later in the year, with phase 2 testing beginning in the first half of 2008.

Besides a potential heart treatment named vernakalant, which is awaiting FDA regulatory review for the intravenous version and is in phase 2 testing for the oral version, Cardiome's drug pipeline is completely empty. Getting this early-stage compound from Lilly at a cost of only $20 million up front and $40 million in potential milestone payments is a cheap way to ensure that Cardiome doesn't have to fold up shop, should vernakalant flame out with the FDA later this year. Even better, the drug is expected to cost Cardiome only $5 million in clinical expenditures this year, and thus won't be a burden on its balance sheet.

Just because a major pharma doesn't find a compound's potential lucrative enough to continue its development doesn't mean the compound is worthless. Oftentimes, a smaller specialty pharma will be able to devote more time, energy, or even expertise to a drug for niche indications, so it makes sense to out-license the compound. Some drug developers, like BioMarin (Nasdaq: BMRN), even have billion-dollar-plus valuations as a result of this focus on niche products or orphan indications, so investors shouldn't discount this new compound for Cardiome just because it made it into Lilly's drug development trash bin.

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Fool contributor Brian Lawler wishes soccer weren't a niche sport in the U.S. and does not own shares of any company mentioned in this article. Eli Lilly is an Income Investor recommendation. The Fool has a disclosure policy.