Cardiome Investors: Why Shares Crashed 50%

Sometimes in biotech investing, it's important to know when to call it quits. That goes double for companies investing hundreds of millions on drug development. Today Merck (NYS: MRK) did just that, causing shares of partner Cardiome Pharma (NAS: CRME) to be sliced in half.

When Merck wrestled the global rights of Cardiome's atrial fibrillation drug Vernakalant away from Astellas (OTC: ALPMF), the thought was that patients could take the intravenous version in the hospital and the oral version after they were released. Unfortunately, in biotech things rarely work out exactly as planned.

Merck ended the trials for an oral version of Vernakalant after judging that the "decision was based on Merck's assessment of the regulatory environment and projected development timeline." That's likely a nod to the intravenous version of Vernakalant that was put on clinical hold by the FDA in 2010, after a patient suffered cardiogenic shock. Even though it is marketed (as Brinavess) in the EU, the U.S. program has totally stalled out, unless Merck can change the regulators' minds at some point in the future.

Investors should keep in mind that there is still room for success if Merck and Cardiome can get the safety issues figured out. Bristol-Myers Squibb (NYS: BMY) and Pfizer (NYS: PFE) in particular have Eliquis undergoing FDA review currently, with a thumbs-up expected despite the vote being pushed back three months. However, the soon-to-be best-in-class blockbuster that will likely capture half of its multi-billion dollar market works differently than the antiarrhythmic Vernakalant.

The other good news for Cardiome is that their partnership with Merck is ongoing. They have enough net cash ($30 million) to keep the lights on for at least a couple of years, assuming they can successfully cut their cash burn from $25 million to a planned $11 million. The bad news? That pipeline is looking mighty, mighty thin. Right now there is the defunct oral Vernakalant and ... some "early-stage projects." Mighty thin, indeed.

Without any significant catalysts obvious on the horizon, I don't see too much for investors to get excited about. Today's evisceration may have been an overreaction, but I can't help shake the feeling that there are better places to invest.

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At the time thisarticle was published David Williamsonowns shares of Pfizer, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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