The Livingston, N.J.-based maker of female fertility drugs announced Tuesday, March 13, that it had hired New York investment bank Cowen and Co. LLC to officially initiate a search for strategic transactions, including a sale.

The move comes just weeks after Columbia received a delisting warning from Nasdaq, laid off 42% of its workforce and watched the best prospect in its new drug pipeline -- a gel called Prochieve intended to prevent preterm births in women with short cervixes -- fail its final test for Food and Drug Administration approval. The agency voted 14-3 against the drug, citing efficacy issues.

To add insult to injury, Columbia is being sued by a group of shareholders who assert that the company perpetuated the notion that Prochieve would pass FDA clinical trials.

Despite the hardships, however, Columbia executives remain confident.

"We feel that the right strategic transaction could add value for the Company and its stockholders," said Frank Condella, Columbia's president and chief executive officer, in a Tuesday statement.

He went on to predict "significant upside" for the company if it was able to land approval from the FDA for the drug in the future.

Columbia sold the rights to market the cream, marketed under the names Prochieve and Crinone, to Parsippany, N.J.-based Watson Pharmaceuticals Inc. in 2010 for $47 million.

The company has yet to cash in on an additional $45.5 million -- which would bring the total Watson would pay to $92.5 million -- because that part of the deal was conditioned on the drug's getting FDA approval.

"This is not surprising, given that the FDA recently rejected the company's progesterone therapy due to concerns about its effectiveness." said Adam Mostafa, a healthcare investment banker at Needham & Co. LLC, of the strategic review Columbia is embarking on.

Columbia has undergone some serious changes, even over the past few months. On Dec. 31, for example, the company reduced its workforce to 14 employees from 24 employees. In a March 1 statement, the company said the layoffs were part of an effort to clean up its balance sheet, leaving it with no debt and $25 million in cash and equivalents. Columbia's 2011 revenue was $43.1 million.

The layoffs will save the company an estimated $1.5 million in fiscal 2012, the March 1 statement said.

In their Jan. 17 lawsuit, Columbia shareholders allege that from Dec. 6, 2010, to Jan. 20, 2012, Columbia executives hyped the likelihood of FDA approval in January, keeping the company's stock afloat until the results were released.

"Columbia conditioned investors to believe Prochieve ... would receive FDA approval through a host of materially false and misleading statements regarding the safety and efficacy of the product, as well as reportedly positive results from PROCHIEVE's clinical trials," the lawsuit reads.

In court papers filed by the shareholders' counsel, James E. Cecchi of New York law firm Pomerantz Haudek Grossman & Gross LLP, said, "Columbia shares declined $1.305 per share or more than 54%, to close at $1.095 per share on January 17, 2012," as soon as the FDA results were unveiled, and as a result of the severe drop in value, "Plaintiff and other Class members have suffered significant damages."

Needham's Mostafa, however, believes Columbia's low stock valuation, coupled with cost-saving measures, could make the company an intriguing acquisition target.

"I imagine given the revenues, balance sheet, etc., someone will take the bet," he said. "But it's a risky one at this juncture, which is likely to be reflected in the final sticker price."

Columbia, which trades on Nasdaq under the ticker symbol CBRX, hit a 52-week high of $4.31 per share on April 6, giving it a market capitalization of around $376 million. On March 13, however, the stock closed at just 70 cents per share, giving it a market capitalization of $61.75 million.