updated 4/19/2004 9:27:15 AM ET 2004-04-19T13:27:15

Eli Lilly and Co. on Monday said first-quarter earnings dipped 2 percent in part because of a $362 million expense related to an acquisition, but the drug maker’s results still beat analysts’ expectations.

Lilly also reported its fifth straight quarter of double-digit sales growth.

The Indianapolis-based company reported net income of $400 million, or 37 cents per share, for the January-March period compared with $407 million, or 38 cents a share, a year ago when Lilly recorded a $354 million one-time charge for employee severance costs.

Gross sales rose to $3.38 billion from $2.89 billion in the first quarter of 2003.

This year’s $362 million charge covers costs tied to Lilly’s November purchase of biotechnology company Applied Molecular Evolution Inc.

Excluding one-time expenses and gains, Lilly’s net income rose 15 percent to nearly $763 million, or 70 cents per share, compared with $661 million, and 61 cents a share, a year earlier. Analysts surveyed by Thomson First Call forecast a profit of 66 cents per share for the latest quarter.

Lilly’s top-selling drug, the anti-psychotic Zyprexa, posted a 15 percent first-quarter sales gain and $1.1 billion in sales, accounting for about one-third of overall Lilly sales.

Zyprexa, which is undergoing a patent challenge and faces competition from newer anti-psychotics, posted just 2 percent U.S. sales growth compared with 36 percent growth overseas. A judge who heard evidence in the patent trial this year is expected to rule on a challenge by generic drug companies this summer.

Six of Lilly’s newest drugs combined to post $309 million in combined sales for the quarter, accounting for about 9 percent of Lilly’s overall sales.

New drugs Lilly expects to begin marketing this year and next give the company a short-term pipeline that many analysts consider the best in the industry.

“With our multiple launches and outstanding pipeline, we are positioned well to deliver on our promise of strong, sustained earnings growth,” said Sidney Taurel, Lilly’s chairman, president and chief executive.

For the second quarter, Lilly forecasts earnings of 67 cents to 69 cents per share, with full-year earnings of $2.80 to $2.85.

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