In last week's "Who's Buying Now?," Coley Pharmaceutical (NASDAQ:COLY) topped our Foolish list of companies with insider buying. Two of the company's directors collectively bought $1.6 million of its shares in the second week of May. They got a good deal; Coley's trading near all-time lows, and far below its August 2005 IPO price of $16. Of its 26.5 million shares outstanding, and 12 million in float, more than 4 million shares are currently shorted. Given these gloomy facts, what prompted the two directors' apparent confidence?

One Coley partner, Inside Value pick Pfizer (NYSE:PFE), is studying its cancer-treatment candidate PF-3512676. Two key non-small-cell lung cancer (NSCLC) phase 3 trials are under way to compare the drug's effectiveness and safety against standard chemotherapy. The first of these trials reached target patient enrollment in December 2006, the other in April 2007. The endpoint for both trials is median survival time, and the standard treatments' historic average is seven to 10 months, so it's possible that researchers could report some results as early as late 2007. Pfizer is also studying PF-3512676 in other cancer types, including breast cancer and melanoma.

Coley also has a major collaboration with Sanofi-Aventis (NYSE:SNY) for its inhaled allergy treatment AVE-0675. It's in phase 1 trials, after the FDA lifted a clinical hold in January. Coley also has a potentially lucrative partnership with Merck (NYSE:MRK) for VaxImmune, designed to augment the effect of vaccines being developed for infections and Alzheimer's disease. It also signed another non-exclusive licensing deal with Emergent BioSolutions (NYSE:EBS), which hopes to apply VaxImmune in developing anthrax vaccines.

With a projected $70 million in cash left at the end of the year, and a burn rate of $35 million to $39 million for 2007, the two phase 3 clinical cancer trials with Pfizer will be Coley's next major milestones. In addition, look for more licensing deals over the next year, especially for the promising VaxImmune.

I like Coley at its current $230 million market cap, given the company's strong partnerships and the phase 3 trials' near-term potential. With solid phase 2 results showing a greater (but not statistically significant) median survival rate, I believe that PF-3512676 has a good chance for success in phase 3.

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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. See his stock picks and pans for free on Motley Fool CAPS. Mike does not have a position in any company mentioned in this article. The Fool has a disclosure policy.