Last week, before Myogen ( MYOG) dropped a partnership bombshell on the market, a well-placed insider sold the last of his shares in the company.

John Julian, Myogen's senior vice president of commercial development, walked away from his latest transaction with more than $1 million -- or four times his annual salary. He is among several Myogen insiders, including the CEO and CFO, who began shedding stock under prearranged plans after the shares started rallying last summer.

Myogen suddenly announced Julian's retirement on Monday. Julian follows the company's founder out the door .

Julian, hired in mid-2000 to help bring Myogen's new drugs to the market, executed his final stock sale five days before the company revealed an unpopular agreement with GlaxoSmithKline ( GSK). Under the terms of that deal, Myogen has accepted an upfront payment of just $20 million -- with a mere shot at getting more -- in exchange for certain rights to a drug that, some assumed, would generate nearly $400 million in sales down the road.

"This is a company that, not too long ago, had three major drugs in the pipeline," notes Robert Lawton, a vice president at Westport, Conn.-based Source Capital who is short the stock. "But two of those three drugs are now essentially out of their hands. So now everybody is betting the farm on the last one."

In other words, Myogen -- like so many in the biotechnology space -- now looks like a possible one-hit wonder at best.

Lawton established a short position in Myogen's highflying stock "at $39 and change" before the company's disappointing announcement. The stock went on to hit a record high of $42.27 on Monday morning before plunging 15% to $35.12 the following day on news of the GlaxoSmithKline deal. But Lawton has ticked off a number of reasons -- ranging from the company's poor track record and rich corporate perks to risks associated with the one drug it has left -- for keeping his bearish view intact.

"This is a house of cards, really," Lawton insists. "I'm just thrilled to be short."

Myogen failed to return a phone call from seeking comment on this story.

Track Record

After spending 10 years in business -- and raising nearly $200 million through public offerings -- Myogen has yet to introduce any major drugs to the market.

Myogen has instead relied on a minor drug, licensed from another company, for all of its meager drug sales to date. It sold that drug, known as Perfan I.V., for just $6.1 million last month so that it could focus exclusively on the more promising medications it continues to test.

By then, of course, Myogen had already abandoned one of its three potential breakthroughs. Last June, after pouring nearly $100 million into its development, Myogen walked away from a drug designed to treat heart failure because it failed to significantly outperform placebo in critical late-stage trials.

Myogen then shifted more of its attention to ambrisentan, its next drug headed for possible approval. When Myogen obtained broad rights to ambrisentan five years ago, it touted the drug as a possible treatment for two common ailments -- kidney and heart failure -- and a rare disorder known as pulmonary arterial hypertension, or PAH. At the time, the company estimated that PAH afflicted a mere 100,000 patients worldwide.

Since then, Myogen has found itself focusing on ambrisentan as a treatment for PAH alone. With competing PAH drugs already on the market -- and a new one seeking approval ahead of Myogen's own -- the company now pegs the PAH patient population at 200,000.

Others, including Pfizer ( PFE), continue to see a market that's half that size. And Myogen itself has clearly admitted that market assumptions matter.

"If the markets for our product candidates are smaller than we anticipate, or if our product candidates fail to achieve market acceptance," the company's latest quarterly report states, "we may never generate meaningful product revenues" going forward.

In the meantime, Myogen has already invested more than $50 million in the development of ambrisentan. The company has, in turn, accepted less than half that sum as an upfront payment for non-U.S. rights to the drug. To be fair, the company still controls U.S rights to ambrisentan for now. But some experts believe that just 50,000 patients suffer from PAH in the U.S., and the company could still seek out a partner to reach even those.

Looking ahead, Myogen can secure another $80 million from GlaxoSmithKline if it hits certain unspecified milestones in the future. Otherwise, however, the company will be collecting royalty payments for non-U.S. sales in just the "mid-20% range" -- with GlaxoSmithKline getting the rest -- if and when ambrisentan ever hits the market.

Expensive Partners

Analysts had hoped that Myogen would retain the bulk of those payments instead.

But Lawton, for one, never banked on that himself. Notably, he points out, Myogen licensed the rights to both ambrisentan and darusentan from a larger company -- Abbott Laboratories ( ABT) -- that holds the patents for both drugs. Myogen has already promised Abbott royalties on the drugs in return. In addition, it has offered Abbott first shot at becoming its partner if it seeks assistance bringing darusentan to the market.

If anything, experts agree, Myogen will need even more help with darusentan than it does with its PAH drug.

Darusentan is designed to treat a huge population of patients who suffer from resistant hypertension. Myogen estimates the size of that market at some 1 billion patients worldwide.

"Though we suspect Myogen's worldwide estimates to be aggressive, this is an indication with large market opportunities," C.E. Unterberg Towbin analyst Andrew Fein wrote last month. Myogen "will certainly need the help of a large pharmaceutical company with cardiovascular experience, and we expect the company will look to partner Darusentan. However, given that large pharma is increasingly becoming involved in the pulmonary hypertension game, Myogen might be an even more attractive acquisition candidate."

Touting ambrisentan and darusentan as "two potentially best-in-class unpartnered programs" -- a description that Lawton said he found misleading -- Fein initiated coverage of Myogen last month with a buy recommendation and a Street-high $58 target price on the company's stock.

Side Effects

Fein has cited a lack of serious side effects, including liver toxicity, when explaining his enthusiasm for Myogen's new drugs.

But critics note that Myogen has merely reported final test results for short 12-week trials so far. And they insist that liver enzymes often take longer than that to rise.

In the meantime, Myogen has already uncovered some other major side effects that could result from taking the two drugs.

"The toxicology tests for ambrisentan and darusentan indicated that they both cause birth defects in rabbits and rats," the company's latest quarterly report states. "Other toxicology tests indicated that ambrisentan and darusentan caused damage to the testes, causing infertility in rats, and that ambrisentan had the potential to cause damage to the testes in dogs. We assume that similar toxicities could occur in humans."

For now, Myogen continues to report favorable outcomes on liver enzyme tests for ambrisentan at least. But the company stopped short of answering specific questions about those results during a conference call on Monday. Meanwhile, the company has yet to even launch the critical phase III trials that could reveal any long-term problems associated with darusentan.

Even if darusentan emerges as a success, the deal with GlaxoSmithKline suggests, the drug may not bring Myogen nearly as much money as some people expect. Notably, Fein has been assuming that Myogen would split any profits from darusentan with a future partner equally. But Fein's estimates now look optimistic, given that Myogen stands to collect much smaller royalties on a drug that should require far less work from a marketing partner.

Stock Rally

Last August -- a week before company insiders arranged to sell stock -- Myogen hinted that it might not need a partner for darusentan in the U.S. market at all.

"My early thinking was that this opportunity was so large, and required such a large sales-force component, that we would have to have a partner to really reach the economic portion of the marketplace, and we're beginning to think that that is not a requirement," CEO William Freytag said when reporting favorable trial results for darusentan on Aug. 18. "It still may be something we want to entertain, but ... I think it's fair to say it's not a requirement at this point, as we are understanding it."

Myogen's stock rocketed 60% on the day that Freytag made those comments.

Following that surge, the stock had virtually tripled since the company's adoption of a new discretionary bonus program six months earlier. Under the updated arrangement, disclosed in an 8-K filing a year ago, Myogen executives would see their milestone stock options vest immediately if the company reached any one of several goals. Listed first among those targets was seeing that "the average of our closing stock price equals or exceeds a predetermined milestone (the "Milestone Price") for any consecutive five (5) trading days."

Lawton says he has come across a similar arrangement only once. Several years ago, Computer Associates ( CA) came under fire for tying milestone options to its stock price as well.

"But in their defense, at least they disclosed the milestone price," Lawton says. "I have to say that in all the research I've done in the biotech space -- and elsewhere -- I have never seen" an arrangement like Myogen's own.

Myogen stands out in other ways as well. Notably, the company -- which employs just 100 people -- boasts a market value of nearly $1.5 billion, or 150 times last year's sales. Moreover, it has sold off the only drug that ever generated any revenue and, of course, has yet to muster anything close to a profit at all.

It has offered no future guidance, either.

"It is the combination of all these things that I find odd," Lawton says. "I've seen stocks with twisted market caps based on their potential and the whims of the marketplace. ... But to me, net-net, this is a $20 stock -- on a very, very good day."