RBC Capital Markets upgraded its rating on shares of Cardiome Pharma Corp. (NASDAQ: CRME) (TSX: COM) to outperform from sector perform on recent weakness and upcoming catalysts, with a price target of $8.

We are upgrading Cardiome based on recent weakness in the shares and our view that there is one upcoming near term positive milestone plus several others over the next twelve months. Cardiome shares closed at $4.20 after declining about 35 percent since the beginning of the year and now provide an adequate risk weighted return relative to our $8 target, said Douglas Miehm, an analyst at RBC Capital Markets.

While certainly a widely anticipated event, the market has apparently grown concerned that Merck & Co. Inc. (NYSE: MRK) has not yet acquired the vernakalant IV rights from Astellas. Miehm believes the market had expected a first quarter event but he anticipates that the transaction will be finalized within the next several weeks.

In Miehm's view, the consolidation of the final piece of the vernakalant puzzle is a positive event for Cardiome as it firmly underscores Merck's interest in the drug, Merck is a more capable R&D partner in the space verus Astellas, the clinical trial path to approval should be handled in a more strategic manner by Merck and he believes it would show a strong level of commitment to the oral program as well.

In addition to the likely Merck/Astellas event, Miehm believes there will be several other milestones over the next 12 months that could prove to be positive catalysts.

Miehm said these include release of the clinical hold on the Astellas phase III trial in late second quarter/third quarter, a decision by Merck to commence the pivotal oral phase III trials in late 2011, a $20 million milestone associated with the start of the phase III oral trials. In addition, it is possible Merck could file for FDA approval of the intravenous version of vernakalant in the U.S. by second half of 2012.

The brokerage widened its first quarter loss per share estimate for Cardiome to $0.12 from $0.10, and its 2011 loss estimate to $0.48 from $0.42. The brokerage reduced its 2012 per share estimate to loss of $0.06 from earnings of $0.29.