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Shares of Cardiome jumped as much as 51 percent to 37 Canadian cents on the Toronto Stock Exchange on Tuesday. Its U.S.-listed shares also rose 52 percent on the Nasdaq.
The company said in September that Merck returned the global marketing and development rights for intravenous and oral versions of their heart drug, six months after dropping the development of the oral version.
The drug vernakalant is an experimental treatment for chronic atrial fibrillation, a heart rhythm disorder that can lead to stroke and heart failure.
Cardiome, which had a cash balance of $53.6 million at the end of September, owed Merck $50 million. Merck had granted Cardiome an interest-bearing credit facility of up to $100 million.
The companies signed the collaboration and licensing agreement for vernakalant in April 2009.
"Complete resolution of our $50 million debt obligation to Merck removes a significant financial and operational overhang for Cardiome," said William Hunter, interim CEO of Cardiome, which develops drugs for diseases of the heart and circulatory system.
The settlement will terminate the credit facility and will release and discharge the collateral security taken in respect of the advances under the line of credit, Cardiome said in a statement.
Brokerage firm Canaccord Genuity raised its price target on the stock to 40 cents from 35 cents.
Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Roshni Menon