All those

Bristol-Myers Squibb

(BMY) - Get Report

investors looking forward to Thursday's presentation of the latest quarterly data would be better served by looking ahead to two crucial third-quarter events.

Just after Labor Day, the company's experimental treatments for rheumatoid arthritis and for diabetes will be reviewed by federal advisory committees. If either drug is delayed, denied, deferred or disparaged, the company will face a setback in its bid to come back from the problems that have plagued it for several years.

Although the Food and Drug Administration doesn't always follow the recommendations of its advisory panels, it usually does. The drugs, Pargluva for diabetes and Orencia for rheumatoid arthritis, have been identified by company executives as key players for the second half of the decade. Another compound, Baraclude for chronic hepatitis B, was approved by the FDA in March.

Hurt by past accounting irregularities, government investigations and recent and coming patent expirations on key products, the company needs more winners, and fast. Its stock has been essentially flat for three years, now trading at about one-third of its value from December 2000. And Bristol-Myers remains the least-liked Big Pharma company among analysts polled by Thomson First Call.

For those of you looking backward, here's what Thomson First Call says about the second quarter, which ended June 30. Excluding special items, the consensus predicts earnings of 36 cents a share on sales of $4.8 billion. For the same period last year, excluding one-time items, the company earned 46 cents a share on sales of $5.4 billion.

There will be a significant one-time item for the second quarter due to a settlement in June with the U.S. Attorney's Office in New Jersey relating to past problems with

wholesaler inventories and accounting practices. The government won't file criminal charges if the company complies with all of the terms of the settlement within two years.

As a result, Bristol-Myers Squibb agreed to pay an additional $300 million to a shareholder fund that had been set up 11 months ago in a settlement with the

Securities and Exchange Commission

. The company will record an additional reserve of $249 million in the second quarter.

The Challenges

The second quarter, says Robert Hazlett of SunTrust Robinson Humphrey, will be aided by strong growth in Abilify for schizophrenia, Reyataz for HIV/AIDS, and the colon cancer drug Erbitux, which is sold in collaboration with

ImClone Systems

(IMCL)

.

Bristol-Myers Squibb also can expect decent growth for the blood pressure drug Avapro and the anticoagulant Plavix, Hazlett wrote in a recent research report. He doesn't own shares of the company, and his firm doesn't have an investment banking relationship.

Plavix will keep executives and investors on pins and needles as long as a patent challenge remains unresolved. Bristol-Myers Squibb and partner

Sanofi-Aventis

(SNY) - Get Report

are being sued by two generic companies that want a court to declare invalid a U.S. patent that remains in force until 2011.

Although Plavix is the biggest legal issue, the biggest R&D issues will be displayed when FDA advisers take up Orencia on Sept. 6 and Pargluva on Sept. 9. Both drugs have shown promising efficacy in late-stage clinical trials, but both face regulatory and marketplace challenges.

Pargluva could be the first FDA-approved drug in a group called dual peroxisome proliferators-activator receptor agonists, or PPAR.

This class has posed challenges for several companies.

Merck

(MRK) - Get Report

halted a late-stage clinical trial in 2003 after detecting rare malignant tumors in mice. "The clinical relevance of these findings in humans is unknown," Merck said at the time. Merck also is co-marketing Pargluva.

AstraZeneca

(AZN) - Get Report

said last year that it would delay its regulatory application by one year until 2007. AstraZeneca didn't find any problems with the drug Galida, but it extended long-term clinical studies by an extra year due to the "worldwide regulatory authority review of the safety and toxicology" of the PPAR group.

Both companies presented data on their PPAR drugs at a June scientific session of the American Diabetes Association, but the reviews were mixed. The PPARs "appear to offer no substantial antiglycemic benefits" over existing drugs, says a recent report by Sagient Research Systems, of San Diego, whose BioMedtracker report analyzes medical and financial prospects in biotechnology. "Antiglycemic" refers to a drug's ability to control or reduce blood sugar.

Sagient says both drugs "appear to have a stronger effect" on lipids, or fat-like substances. Too many lipids in the bloodstream can lead to clogged arteries, heart attack and stroke. "While we expect they will be used to some extent to reach lipid goals, because of uncertainty over their safety profile, this will most likely be limited," Sagient says.

Possible PPAR side effects were cited recently by UBS analyst Carl Seiden. "We view the medical risk/benefit profile as potentially problematic," he says in a research report. Seiden adds that his recent visit with top executives demonstrated "encouraging progress on a turnaround," but the turnaround won't start until 2007.

Join the Crowd

Seiden has a reduce rating on Bristol-Myers due to three risks: the prospect of a Plavix patent defeat (which he doesn't expect), a poor FDA review of Pargluva and a delayed launch of Orencia.

Orencia will enter a crowded market of biotech-derived rheumatoid arthritis drugs. Orencia works differently than the major competitors, which include Remicade from

Johnson & Johnson

(JNJ) - Get Report

, Enbrel from

Wyeth

(WYE)

and

Amgen

(AMGN) - Get Report

, and Humira from

Abbott

(ABT) - Get Report

.

Seiden is "quite bullish" on Orencia, but he worries that the company might not have enough manufacturing capacity to meet the expected demand.

"Management seems very sensitive to the risk of underestimating initial demand during the launch phase, and, to avoid any potential supply problems, is currently weighing the trade-offs" between a limited launch immediately after FDA approval vs. waiting until a new plant comes on line in mid-2006. The plant is owned by another company.