Earlier this week, Cadence Pharmaceuticals (NASDAQ:CADX) reported a net loss of $9.6 million, ending the first quarter with cash and investments of $77.4 million. The company reported no revenue, but it continues to develop two licensed drug candidates now in phase 3 drug trials. These drugs focus on the treatment of conditions common to hospital patients, including pain, fever, and infection.

The company licensed the U.S. and Canadian marketing rights to intravenous (IV) acetaminophen (APAP) from Bristol-Myers Squibb (NYSE:BMY), which currently markets the drug in Europe for the relief of pain and fever. According to data from IMS Health, IV APAP produced 2005 annual sales of more than $140 million in Europe, following its introduction there in mid-2002. Last month, Cadence presented data from an adult study, which demonstrated that IV APAP has a comparable safety profile and produces effects in the body equivalent to oral acetaminophen -- widely used and better known by its brand name, Tylenol, from Johnson and Johnson (NYSE:JNJ). Cadence currently anticipates results for its phase 3 trial of IV APAP in the first half of 2008, with an anticipated New Drug Application filed later that year. The application would include the results of six phase 3 trials already conducted by Bristol-Myers.

The company's other licensed drug candidate is a topical antibiotic called Omigard, which is being tested for the prevention of local catheter site infections. In late April, the company announced a proposal to the FDA to increase the number of patients in its phase 3 clinical trial of Omigard. The company believes this move will increase the statistical power of the trial to detect an advantage of Omigard versus a 10% povidone-iodine solution. However, the move will delay the anticipated completion of enrollment in this trial to mid-2008 instead of later this year. The company plans to update investors on the details of the trial after discussion with the FDA.

In August 2004, Cadence acquired the North American and European marketing rights to Omigard from Canadian-based Migenix for a $2 million upfront fee and a double-digit royalty on net sales. Cadence will owe Migenix as much as $27 million in additional milestone payments, and it bears the responsibility for all development costs and manufacturing activities.

Cadence is picking up the pace of development activities for its two leading drug candidates as it works toward key clinical trial milestones over the next year. If successful, these products would enable the company to occupy a profitable niche in the hospital drug market. I also like the company's low-risk business strategy of acquiring unique, late-stage drug candidates that have a low level of clinical development risk in order to serve a profitable, focused market niche (hospital patients) that the company can market by itself and look to expand upon in the future.

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Fool contributor Mike Havrilla, R.Ph., B.S., Pharm.D., is a Rite Aid pharmacist who lives, writes, works, and enjoys running on the streets and trails in the small Pennsylvania town of Portage. He invites your comments and feedback. Mike does not have a position in any company mentioned in this article. The Fool has a disclosure policy. Johnson and Johnson is an Income Investor recommendation.