NEW YORK (CNN/Money) - Drug giants Bristol-Myers Squibb and Merck & Co., Inc. said the FDA issued an approvable letter for Pargluva, a big step toward getting the potential diabetes drug on the market, but leading analysts are no longer seeing the drug as a potential blockbuster.

Pargluva, also known as muraglitazar, is a once-a-day, multiple-use pill for type 2 diabetics, the type affecting more than 90 percent of the 18.2 million diabetics in America. Clinical tests have shown that Pargluva lowers blood sugar and reduces the risk of heart disease.

The FDA said it needs more cardiovascular safety data from the drug manufacturers before it can complete the review for Pargluva, Merck (up $0.20 to $27.28, Research) and Bristol-Myers (down $0.13 to $22.36, Research) said.

Bernstein analysts projected that the drug's annual sales will reach more than $600 million by 2011 and David Moskowitz, analyst for Friedman, Billings, Ramsey & Co., recently projected sales of $600 million by 2008, backing off from his earlier, more bullish blockbuster projection that the drug would bring $950 million in revenue.

Barbara Ryan, analyst for Deutsche Bank North America, said sales for Pargluva will peak at about $500 million, because the drug will compete with another Merck drug candidate, MK-0431 or sitagliptin, which is in the pipeline and has not yet been filed with the FDA. She said sitagliptin will probably be filed at the end of 2005 or the beginning of 2006.

"I don't think [Pargluva] will ever top half a billion dollars," said Ryan, noting that Pargluva sales would be split between Merck and Bristol-Myers.

Ryan said the two drug candidates have similar profiles. Sitagliptin is "modestly less effective in terms of glucose control" than Pargluva but with "cleaner" side effects regarding heart risks, according to Ryan. She said that sitagliptin will be a more attractive drug for many patients and physicians.

"By the time muraglitazar gets out there, it'll be yesterday's news," said Ryan.

Merck spokeswoman Amy Rose would not discuss sales projections for the drugs, but said that sitagliptin is in a different class from Pargluva, even though the treatments are similar.

"They treat the same end disease, but they appear in operate in very different ways," said Rose. "They appear to utilize different mechanisms."

Diabetics have difficulty producing insulin naturally, resulting in high blood-sugar levels, so controlling those levels is one of the primary goals in treating diabetes. Many diabetics also suffer from heart disease. In addition to reducing blood sugar, Pargluva would adjust levels of fats in the blood, which could reduce heart disease.

Bristol-Myers developed Pargluva and submitted a new drug application to the FDA in December, 2004. Bristol-Myers has partnered with Merck in producing and distributing the drug. On Sept. 9, an FDA panel of experts voted 8-1 in favor of approving Pargluva. The FDA usually follows the advice of its advisory panels.

Bristol-Myers is a New York City-based drug manufacturer with $19.4 billion in 2004 sales. Merck, a drug maker based in Whitehouse Station, N.J., totaled $22.9 billion in 2004 sales.

Ryan does not own shares of Merck or Bristol-Myers stock.

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To read more about Pargluva, click here.