XOMA's (Nasdaq: XOMA) diabetes, heart, eye, SJIA, rheumatoid, arthritis, gout drug, XOMA 052, looks like it's going to get one less adjective for its description. The drug appears dead in the water as a treatment for diabetes.

In a phase 2b trial, XOMA 052 failed to reduce patients' HbA1c at any of the four doses tested compared to placebo. There's just no way to sugarcoat that.

The company certainly tried though, pointing out that the drug decreased C-reactive protein, a biomarker for heart attacks, at all the doses and increased good cholesterol at two of the doses. That's great for cardiovascular disease, which many diabetics have, but HbA1c is still the gold standard for diabetes drugs.

Diabetes was the most compelling indication for XOMA 052. If it had worked, the once-monthly drug could have been very compelling compared to daily pills like Merck's (NYSE: MRK) Januvia and Takeda's Actos and weekly injections like Bydureon, which Eli Lilly (NYSE: LLY), Amylin Pharmaceuticals (Nasdaq: AMLN), and Alkermes (Nasdaq: ALKS) are developing.

XOMA and its new partner, Laboratoires Servier, will start studies in cardiovascular disease in 2012. The problem is that it takes a lot of patients and a long time to get enough cardiovascular events -- heart attacks, strokes, and the like -- to show that a drug helps patients' cardiovascular systems. Is the $70 million or so that XOMA has in the coffers enough to get it to the end? I highly doubt it.

There's also an eye disease called Behcet's uveitis, which offers a cheaper pathway to market, but probably isn't all that compelling from a revenue point of view. The other potential indications are even farther behind.

After the smack-down investors gave XOMA today, the drugmaker looks somewhat compelling, trading at close to cash on hand. Sure it's going to burn through a lot of that as it further develops XOMA 052, but if it works in cardiovascular disease, investors will be rewarded over the long-long-long-long haul.

We should get a better idea of its cardiovascular effects when the full data set is released. Investors would be wise to confirm that the decrease in C-reactive protein is dose dependent and that the increase in good cholesterol wasn't a fluke before betting on this dark horse.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.