These aren't great times to be the Food and Drug Administration. In the wake of Merck's (NYSE:MRK) well-publicized problems with Vioxx and other problems with anti-depression and anti-hyperactivity drugs, the FDA has become a lightning rod for criticism. Consumers want cheap drugs with no serious side effects, companies want cheap and prompt approvals, and Congress wants it all to just go away.

Into this environment come two high-profile and high-potential experimental diabetes medications. This week, FDA advisory panels will consider the marketing approval applications of Exubera, the inhaled insulin from Pfizer (NYSE:PFE)/Sanofi (NYSE:SNY)/Nektar (NASDAQ:NKTR), and Pargluva, the dual PPAR (peroxisome proliferators-activator receptor) agonist, taken in pill form, from Bristol-Myers (NYSE:BMY) and Merck.

Both of these drugs have legitimate blockbuster potential, meaning that sales could potentially reach or exceed $1 billion. And both are potentially controversial from a safety standpoint. It seems quite likely, then, that many eyes will be following the panels' recommendations for these two drugs and how the FDA responds to their advice.

Panel meetings
First, a quick (and simplified) look at what exactly is going to happen this week. In each case, the FDA is sponsoring an expert panel review. The FDA brings together selected physicians, clinicians, public health officials, and other assorted types into a meeting room and has them discuss the pros and cons of the drug in question. Even though both drugs are for diabetes, there are separate panels for each.

When it's all said and done, the panel can vote to recommend for or against the application in question and can also suggest potential label language or issues, or both, that the FDA should resolve before a final decision. Although the FDA is not obligated to follow the panel's recommendations, it usually does so. Accordingly, while a thumbs up from the panel for either drug would be positive, it wouldn't guarantee approval. Likewise, a negative recommendation wouldn't necessarily doom the drug in question.

Nevertheless, I believe that panel reviews are going to become increasingly important. Drugs are getting ever more advanced, and some of these newer drugs are proving to have unexpected side effects that only show themselves years after the fact. With that in mind, and the present "Vioxx vortex," I would expect that the agency would listen much more closely to the panel's recommendations and take expressions of caution quite seriously.

Exubera will be the first to the get the third degree from the FDA's Endocrinologic and Metabolic Drugs Advisory Committee on Thursday. This has been a long time coming, as the original target date was supposedly more than three years ago and safety concerns related to lung function held up the process.

Since then, Exubera has been shown to be as effective as injections in controlling the blood glucose of diabetics. In addition, most of those who have used inhaled insulin reportedly prefer it to injections. As such, there is the notion that patients using inhaled systems will be more compliant with care and so will have fewer long-term side effects such as blindness, nerve damage, and heart disease.

Safety will be a concern, though. There has been an association between using Exubera and short-term decreases in lung function. More recent studies have shown fewer problems, but many people remain concerned about the long-term health effects of introducing drugs like insulin through the lungs.

Making matters worse -- or at least more challenging for the company: This is a first-of-its-kind drug. Sure, the FDA has approved a variety of insulins before, as well as a variety of inhaled drugs. But the two have never been combined. That would suggest to this Fool, then, that the panel will be especially cautious and measured in its statements, though I think the benefits of making inhaled insulin available will win out in the end.

It should also be noted, though, that approval is only the first step on the road to blockbuster status. Labeling would have to be finalized with the FDA, reimbursement codes would have to be secured, favorable coverage decisions would have to be made by insurers, and physician detailing would have to take place.

For a more thorough treatment of the potential for inhaled insulin (as well as other competitors), please check out our prior piece on the subject.

Pargluva (muraglitazar)
The day after Exubera's panel meeting, Pargluva will get its review. As mentioned, Pargluva is a dual-PPAR agonist; the first of its kind to advance to an FDA panel meeting.

Dual-PPAR agonists are seen as the successor class to thiazolidinedione (TZD) drugs like Actos and Avandia, both of which have achieved more than $1 billion in annual sales. Although TZDs do often result in some weight gain for patients, they are effective in reducing HbA1c levels: HbA1c, or glycosylated hemoglobin, is an important clinical measure of longer-term glucose control.

While effective, these drugs are not perfect. Many patients experience elevated fluid retention while taking the drugs, and that can lead to edema, as well as potentially aggravating dangerous pre-existing heart conditions. Also, one particular TZD called Rezulin had an even worse problem: It induced hepatitis in some patients, and there were fatalities before the manufacturer (Warner Lambert, now part of Pfizer) pulled the drug from the market.

Clearly then, safety will be a key topic of discussion. Studies performed so far have indicated higher incidences of edema in patients taking Pargluva as opposed to those taking the TZD pioglitazone (better known as Actos from Eli Lilly (NYSE:LLY)/Takeda Pharmaceuticals). More worrisome, there have also been higher incidences of heart failure-related events in the groups taking Pargluva. So although Pargluva has been shown to be even more effective than TZDs in controlling blood glucose, there are safety concerns that the panel will have to take into consideration.

Going a step further, Bristol-Myers and Merck are so far ahead with Pargluva partly because of a potential risk discovered with other experimental dual-PPAR agonist candidates. Early rodent data showed a concerning trend toward rare cancer types in test subjects. As a result, the FDA forced all companies to complete two-year rodent safety/toxicity studies before proceeding with human studies with durations beyond six months.

Unlike some competitors who were caught flat-footed by the FDA action and saw their development timelines unexpectedly and meaningfully extended, Bristol-Myers was prepared and experienced no such setback. Consequently, Pargluva (if approved) would have a nearly two-year head start on any potential competitors.

Bottom line
I would not suggest that Fools buy or sell any stocks simply in anticipation of what might happen at these panel meetings. Though the drugs in question are certainly important for their sponsoring companies, even little Nektar is not at a make-or-break point if the panel would happen to recommend against its drug (that said, it'll take a dive if the panel shakes its head and should rise further with a panel nod). What's more, the road between a panel decision and a final FDA decision can be long and winding indeed, so investors shouldn't look at this as an opportunity for quick profits.

Beyond the stocks of the companies facing the panel, though, these meetings could have broader implications for the pharmaceutical industry. Will the panelists (and, by extension, the FDA) be more nervous about recommending approval of drugs with some possible risks, or will they leave the ultimate responsibilities with patients and their health-care providers?

It's a perilous seesaw for everyone involved: We all want safe drugs, but we also want access to leading-edge drugs when we're sick and more conventional approaches have failed to work. We also want convenience, at any cost, and we also want simplicity. And certainly the companies in question would like to sell brand new medicines without having to look over their shoulders to see if plaintiff attorneys are licking their chops and tying on tennis shoes to go chase down ambulances.

I would expect that both drugs would get cautious positive recommendations. There will likely be admonitions for stern warning labels, diligent health-care provider and patient education, and a multitude of follow-on clinical studies, but the data seems pretty positive for both candidates. Of course, what will ultimately happen to those drugs and companies in the competitive marketplace is a topic for another day. After all, approval gets you into the game, but reimbursement, marketing, and prescription growth are what ultimately generate the revenue.

For more Foolish Takes on diabetes:

Merck is a Motley Fool Income Investor pick; Pfizer is an Inside Value selection. For a sampling of all our newsletters, click here.

Fool contributor Stephen Simpson owns shares of Sanofi-Aventis. The Motley Fool has a disclosure policy .

If the Fool has helped you profit from investing, consider sharing the wealth with those in need. You can donate to American Red Cross relief efforts for victims of Hurricane Katrina by clicking the banner at the top of this page.