Eli Lilly and Co on Tuesday reported lower than expected first quarter earnings due largely to heavy spending on research, sending its shares 2 per cent lower in premarket trading. But the US drugmaker posted better than expected first quarter sales, driven by its newer treatments for diabetes and cancer. And the company slightly raised its full-year profit view, thanks to a tax benefit in the quarter.

Lilly last year resumed earnings growth following three years of plunging sales for big products facing generic competition. To restock its medicine chest and keep earnings growing over the long term,

Lilly is conducting late-stage studies of experimental treatments for Alzheimer’s disease, breast cancer, headaches and pain. The Phase 3 trials, which involve thousands of patients, weighed on earnings.

Lilly spent $1.22 billion in the quarter for research and development, which analysts said was about $80 million above expectations. Morningstar analyst Damien Conover said the research spending is justified because Lilly has recently introduced potentially lucrative new drugs, including a diabetes treatment called Jardiance that has lowered cardiovascular death in high-risk patients. “The company has one of the best recently launched group of products,” he said, adding that Lilly’s stock was “modestly undervalued” given their potential and the promise of other drugs in development.

Company revenue rose 5 per cent to $4.87 billion in the first quarter, topping Wall Street expectations of $4.82 billion, boosted by sales of another new diabetes treatment called Trulicity and Lilly’s new Cyramza cancer medicine.

Lilly said sales would have risen 8 per cent if not for the stronger dollar, which hurts the value of foreign sales in US currency terms.

Lilly said it now expects full-year earnings, excluding special items, of $3.50 to $3.60 per share. It previously had forecast $3.45 to $3.55 per share. The company said it had first quarter net income of $440 million, or 41 cents per share. That compared with $530 million, or 50 cents per share, in the year-earlier period. Excluding special items, including costs of restructurings, Lilly earned 83 cents per share, below the average analyst estimate of 85 cents per share compiled by Thomson Reuters I/B/E/S.

Reuters