Updated from 7:21 a.m. EDT

Bristol-Myers Squibb ( BMY) posted third-quarter results that fell below analysts' estimates, and the New York pharmaceuticals giant adjusted its full-year target slightly lower, citing investments in its growth strategy.

However, Chief Executive Peter Dolan told analysts Friday that he still expects the company to return to earnings growth starting in 2007. That prediction stands, he added, despite a setback for the experimental diabetes drug Pargluva.

On Thursday, the company announced that it may cancel work on the medication due to its belief that it could need five more years of clinical testing to satisfy questions posed by the Food and Drug Administration. Last week, the FDA granted conditional approval for the drug, despite concerns by some researchers and analysts about Pargluva's potential heart risks.

At the time, analysts speculated that Bristol-Myers and its marketing partner Merck ( MRK) would delay Pargluva's launch by a year until late 2006. But Bristol-Myers said its ongoing clinical trials weren't designed to answer the FDA's questions.

Dolan said Friday that Bristol-Myers will discuss with the agency what it must do to secure approval. In addition, the company and Merck are negotiating the cancelation of their marketing agreement. Shares of Bristol-Myers dropped 77 cents, or 3.6%, to $20.90. Merck's stock was up 40 cents, or 1.5%, to $27.32.

For the third quarter, Bristol-Myers earned $964 million, or 49 cents a share, up from the year-ago $758 million, or 38 cents a share. Revenue for the quarter ended Sept. 30 dropped to $4.77 billion from $4.78 billion a year earlier.

The difference in profit primarily resulted from a $569 million pretax gain on the sale of the company's U.S. and Canadian over-the-counter drug businesses during the third quarter of 2005 and a $105 million pretax charge in the year-ago quarter for accelerated depreciation and severance payments.

Excluding one-time items, the latest third-quarter earnings were $602 million, or 31 cents a share, vs. $865 million, or 44 cents a share, last year. Analysts polled by Thomson First Call had been looking for a 33-cent profit on sales of $4.9 billion.

In addition, Bristol-Myers said it expects full-year EPS to be in the middle of its predicted range of $1.35 to $1.45, excluding special items. Previously, it had forecast earnings at the upper end of the range. The Wall Street consensus had been $1.44.

The company's third-quarter performance and the Pargluva announcement did little to change analysts' generally glum view. "We had expected limited commercial success of Pargluva because of cardiovascular risks," Albert Rauch, of A.G. Edwards wrote in a Thursday research report.

The latest news doesn't affect his earnings per share calculations through 2007. He has a hold rating on Bristol-Myers. He doesn't own shares, but his firm has had a noninvestment banking relationship with the company.

Rauch and other analysts, like Tim Anderson of Prudential Equity Group, say the biggest of Bristol-Myers' many problems remains a patent challenge to Plavix, an anticoagulant and the company's best-selling product.

Licensed from Sanofi-Aventis ( SNY), Plavix produced $980 million in sales for the third quarter, up 9% from the same period last year. A U.S. court case against a generic drugmaker is scheduled to start in April.

Risks to Bristol-Myers "include unsuccessful patent litigation for Plavix, Pravachol sales declines out of line with our forecast, and pipeline setbacks that could delay the introduction of news products," Anderson wrote in a research report that says Pargluva "appears dead."

He has an underweight rating on the stock, and he doesn't own shares. His firm doesn't have an investment banking relationship.

Pravachol is the cholesterol drug that faces U.S. patent expiration in April. Worldwide third-quarter sales fell 12% to $527 million. The U.S. sales component dropped 7% to $297 million because of increased competition and changes in managed health-care firms' reimbursement practices, Bristol-Myers said.

Still, there was some good news. Sales of the schizophrenia drug Abilify jumped to $260, up 58% from the year-ago quarter, and the HIV/AIDS drug Reyataz gained 66% to $176 million. Another HIV/AIDS drug, Sustiva, added 8% to $170 million, while the colorectal cancer drug Erbitux advanced 27% to $107 million. The Avapro and Avalide blood pressure medications gained 4% to $251 million. Except for Reyataz and Sustiva, each of these drugs was developed by another company.

More from Stocks

PayPal Just Revealed a Clever New Deal With Google

PayPal Just Revealed a Clever New Deal With Google

Dow Tumbles as Trump Calls Off North Korea Summit

Dow Tumbles as Trump Calls Off North Korea Summit

Jim Cramer: Why I am So Bullish on Apple's Services Revenue

Jim Cramer: Why I am So Bullish on Apple's Services Revenue

Jim Cramer: Does Saudi Arabia Think Oil Prices Are Too High?

Jim Cramer: Does Saudi Arabia Think Oil Prices Are Too High?

Video: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation

Video: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation