Experts remain cautious about the market potential for a once-a-day diabetes drug from Merck and Bristol-Myers Squibb, despite data that shows it lowers blood glucose and improves regulation of blood fats in patients with type 2 diabetes.

Merck and Bristol-Myers Squibb, which co-developed the drug, presented the final-stage clinical data for Muraglitazar at the 65th annual meeting of the American Diabetes Association on Sunday.

Type 2 diabetes is the most common form of diabetes. It occurs when cells in the pancreas fail to produce enough insulin, or when the body does not properly recognize insulin and use it to control blood sugar levels.

If approved, the new compound would become the first of a new class of drugs within a family known as glitazars. It is expected to lead to good patient compliance because of its once-a-day regimen.

However, analysts are wary about putting a figure on the drug’s likely sales due to competition with other medicines and potential side effects.

“It could be tough for Muraglitazar to find a home, and to unseat incumbent products Actos and Avandia, despite Muraglitazar's better lipid effects,” wrote Tim Anderson at Prudential Equity Group. However, he estimates Muraglitazar’s 2009 sales will reach $780 million, if it is approved.

That would put it significantly ahead of 2004 sales of Eli Lilly’s drug Actos. Actos brought Eli Lilly $452.9 million in revenues last year.

Bristol-Myers shares rose $0.20 to $25.19 in recent trading while Merck shares fell $0.23 to $31.16.

While the drug has demonstrated significant advantages in controlling blood sugar compared to medium doses of Actos, it is also associated with weight gain and edema, which is the accumulation of excess fluid in a particular part of the body. The weight gain experienced by patients in the trial was typically between 2 to 10 pounds.

“Though TG-lowering is nice, not if it comes at higher edema risk,” analysts at UBS wrote in a research report.

However, scientists involved with the research remained positive about the findings. "Muraglitazar provided effective and durable blood glucose lowering over two years,” said David Kendall, associate professor of medicine at the University of Minnesota Medical School.

He noted that the combined effects of the drug “may reduce the risk of cardiovascular disease in people with type 2 diabetes."