Eli Lilly

(LLY) - Get Eli Lilly and Company (LLY) Report

shares are up 2% Monday afternoon after the drug giant beat first-quarter Wall Street estimates by a penny and offered a bullish outlook for the second quarter.

The Indianapolis-based company reported net income of $806.8 million, or 74 cents per share, in the first quarter that ended March 31. The profit beat consensus Wall Street estimates by one penny, according to

Thomson Financial/First Call

, but was down 5% from the year-ago quarter due to one-time gains and special items.

Lilly shares were up $1.59, or 2%, to $79.03 in Monday trading. The broader

American Stock Exchange Pharmaceutical Index

was up fractionally to 385.76.

The drugmaker's worldwide sales increased 14% to $2.8 billion in the first quarter, compared to the year-ago quarter. Sales of Zyprexa, a schizophrenia drug, totaled $637.1 million, an increase of 39% from the first quarter 2000. Sales of osteoporosis drug Evista rose 48% to $149 million.

Lilly is best known as the maker of Prozac, its blockbuster antidepressant drug. Sales of Prozac and its sister drug Serafem rose 4% in the first quarter to $622.9 million, compared to the first quarter 2000. Cheaper, generic forms of the drug are set to hit the market in August, which is expected to sharply reduce the company's sales.

Sales of Zyprexa are also expected to take a hit because

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Pfizer

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is launching a competitive drug dubbed Geodon.

Sanford Bernstein

analyst Richard Evans expects Lilly to report flat-to-negative earnings growth starting in the third quarter and extending into the second quarter of 2002 because of slowing sales of its top-selling drugs. Evans rates Lilly underperform and his firm doesn't do underwriting.

That gives Lilly one more quarter to show earnings growth. This morning, the company said second-quarter earnings are expected to reach a range of 73 cents per share to 75 cents per share. That beats current Wall Street consensus of 71 cents per share.

The company also reiterated previous guidance for full-year 2001 earnings of $2.75 per share to $2.85 per share.

Looking forward, the Lilly story is all about its pipeline of new drugs, two of which are showing potential for blockbuster status.

The company is waiting for U.S. approval to sell Zovant, a drug used to treat sepsis, a potentially fatal blood infection. An application for approval was submitted in January, with approval expected in the second half of the year.

Lilly and partner

Icos

(ICOS)

also recently published promising early results for Cialis, a new treatment for impotence. Late-stage testing is being conducted now which should allow the companies to submit the drug for approval later this year. Cialis, if approved for sale, will compete with Pfizer's Viagra.