Updated from 7:58 a.m.EST

A big increase in marketing costs at

Eli Lilly

(LLY) - Get Report

offset a 17% jump in revenue, as the drugmaker reported fourth-quarter earnings that were roughly flat with a year ago.

Lilly earned $747.2 million, or 69 cents a share, on revenue of $3.47 billion in the latest quarter, compared with $736.6 million, or 68 cents a share, on revenue of $2.96 billion a year ago. The latest quarter included a gain from the sale of Lilly's dapoxetine patents as well as charges for asset impairment, restructuring and other items. Excluding those factors, earnings fell 2% from a year ago to $723.3 million, or 67 cents a share.

Analysts were looking for earnings of 67 cents a share, excluding charges on revenue of $3.29 billion in the quarter. The stock was recently gaining 43 cents, or 0.64%, to $67.35.

In the fourth quarter, Lilly's marketing and administrative expenses rose 23% to $1.134 billion, reflecting spending to support the new and pending product launches and the impact of foreign exchange rates. Research and development costs were $710 million, up 24% from a year ago.

During a conference call, Lilly said it expects midteen growth in R&D costs in 2004. "This reflects a number of items," the company said. "We'll increase spending on discovery, which has been flat over the past few years." Some of the expense will also go toward products that are in phase III trial.

Also factored into R&D guidance are expirations. "It is important to remind people that even though we don't anticipate patent expirations this year, we are beginning to prepare for that time."

Lilly said it expects some additional buildup in its sales force in 2004, after an increase last year.

Last quarter, revenue growth was paced by a 16% rise in sales of Lilly's schizophrenia treatment Zyprexa, which won regulatory approval in the fourth quarter, to $1.15 billion and an 18% rise in sales of its diabetes drugs Humulin, Humalog and Actos to $706 million.

During the call, executives acknowledged that sales of Zyprexa in the U.S. have slowed amid worries about diabetes as a possible side effect. But the company said sales were growing strongly outside the country. "We don't detect the same level of concern outside the U.S., when it comes to diabetes risk."

The company said that it expects some cannibalization of sales of Zyprexa by Symbyax, another newly approved drug for bipolar depression. "But in total, we'll have more sales," Lilly added.

Meanwhile, sales of chemotherapy drug Gemzar rose 8% to $282.6 million in the fourth quarter while sales of osteoporosis drug Evista rose 3% to $244.6 million.

Lilly is optimistic about its erectile dysfunction drug Cialis, which gained approval in the fourth quarter. The drug is being marketed under the company's joint venture with ICOS. "This will be an important drug to watch in the first quarter, once we've implemented advertising," the firm said.

The drug maker affirmed earnings guidance of 65 cents to 67 cents a share in the first quarter and $2.80 to $2.85 a share in all of 2004. Analysts surveyed by Thomson First Call were forecasting earnings of 66 cents a share in the quarter and $2.84 a share in the year.

For full-year 2004, Lilly sees sales rising in the low double digits, with gross margins roughly flat with 2003. Analysts expected revenue of $13.74 billion in the period.