For every development-stage drug stock that becomes a multibagger, there is one that implodes. Yesterday, that dubious honor fell upon AtheroGenics (NASDAQ:AGIX) after it announced its lead drug failed in phase 3 testing.

AtheroGenics' lead drug candidate, AGI-1067, was in testing as a treatment for arteriosclerosis (hardening of the arteries). AGIX and partner AstraZeneca (NYSE:AZN) enrolled a large, 6,000-person phase 3 trial studying whether AGI-1067 could improve outcomes in patients with coronary heart disease. As was reported yesterday, AGI-1067 did not show any difference compared to the placebo in the study's primary endpoint of improving outcomes for people with this condition. No more details of the trial results were given, since AGIX is waiting to present the results of the full study at a medical conference, but it was reported that the drug did meet some secondary endpoints of the study.

In a conference call to discuss its future business outlook, AGIX management stated that it was going to continue developing and evaluating AGI-1067. But that's something it really has to say at this point no matter what, considering the company's other programs are at such early stages.

Development partner AstraZeneca has 45 days to decide whether to continue with its collaboration for the drug. But unless some strong subset data is revealed later this month for it to hang on to, expect it to drop its co-development agreement with AGIX.

The outlook for AGI-1067 doesn't look bright at this point, when you consider the huge amount of patients that would need to be enrolled in any additional studies of the drug if AGIX chooses to continue its development. In addition, besides failing to show efficacy on the primary endpoint, AGI-1067 was also associated with a rise in liver-related issues and may no longer be able to claim a clean safety profile. This is important because the drug's safety was one of its main benefits versus a similar compound, probucol.

So does this failed phase 3 study mean the demise of AtheroGenics, or is there still value left in its shares? AGIX started the year with $152 million in cash and investments but had $286 million worth of debt ($86 million coming due in 2008 and the remainder in 2012).

More data on the AGI-1067 phase 3 study will be revealed during the American College of Cardiology meeting on March 27. If this meeting reveals some strong positive trends with the drug's use in some patient subpopulations, then there may still be hope for AGI-1067 -- but any further development of the drug will require years of study.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.