AstraZeneca

(AZN) - Get Report

, the pharmaceutical maker formed in 1999 by the merger of Britain's

Zeneca Group

and Sweden's

Astra

, reported a 14% increase in first-quarter earnings Wednesday on a 6% increase in sales. But the strong dollar hurt the company's results, and much of the gain it reported came from a popular ulcer drug that competitors can sell next year when the U.S. patent expires.

With the looming expiration of the patent on Prilosec, known as Losec outside of the U.S., coupled with few potentially big new drugs in AstraZeneca's pipeline, the company's shares fell 7/8 or 2.1% to 41 1/8 in late afternoon trading. Earlier in London, the shares fell 3% to 2,603 pence.

For the first quarter ended March 31, net profit for ongoing activities, excluding the agrochemicals business and other one-time adjustments, rose to $720 million, or 41 cents a diluted share, from $632 million, or 36 cents a share a year earlier.

Revenue rose to $3.892 billion from $3.651 billion a year ago.

"The strengthening of the dollar, particularly against the Euro, reduced reported sales and profits for our ongoing operations by 3% and this trend is expected to continue throughout the rest of the year," said Tom McKillop, chief executive of AstraZeneca, in a statement.

Losec accounted for 41% of AstraZeneca's revenue, rising 12.3% to $1.59 billion from $1.41 billion a year ago. However, AstraZeneca loses the patent in the U.S. for this blockbuster drug next year and the company has few products that can replace its sales heft. Sales for the rest of the company's drug products rose only 2.6% to $2.27 billion from $2.22 billion.

AstraZeneca is fighting to extend the patent for Prilosec beyond October 2001. As for other drugs that are due to go off patent, "there is very little post-patent strategy we can adopt," said Jon Symonds, chief financial officer of AstraZeneca, in an interview. The patent for oncology drug Nolvadex will expire in August 2002 and for cardiovascular drug Zestril will expire in December 2001, though that may be granted a pediatric extension to June 2002. Sales of Nolvadex were down 2.8% to $139 million, while Zestril sales dropped 8.3% to $276 million.

Two new drugs did post solid sales growth. Revenue from antischizophrenia treatment Seroquel rose 74.5%, to $82 million from $47 million last year, and cardiovascular drug Atacand rose 75%, to $56 million from $32 million.

Symonds said he is looking forward to the anticipated launch of Nexium, a successor to Losec, at the beginning of next year. "That's a significant part of our post-patent strategy," he said. He also noted the publication of a phase II results for the company's superstatin and the publication in June of phase II data for an oral thrombin inhibitor. He also has high hopes for expedited approval of Iressa, a new cancer treatment.

The London-based company's agrochemicals unit recorded 6.5% sales growth, to $706 million from $663 million last year. Despite the solid numbers, Symonds said, "I wouldn't read too much into them. Over the next three to four months, we'll have to see what the annual results will look like. They should be better than last year because of our restructuring, but that doesn't mean the industry cycle has turned."

AstraZeneca and Switzerland's

Novartis

(NVTSY)

are in the process of merging their agrochemical businesses and spinning off the unit, in the second half of 2000, as an entity called

Syngenta

.