Eli Lilly and Co posted third-quarter profit well above Wall Street expectations on Wednesday on strong performance of its major prescription drugs and lower taxes, sending shares up 1.9 percent.

Sales of lung cancer treatment Alimta, anti-depressant Cymbalta, Humalog insulin and schizophrenia drug Zyprexa all topped analysts' forecasts.

The drugmaker raised its full-year earnings forecast, but by less than it beat expectations in the third-quarter. An inventory benefit that helped profit margins in the period was not expected to help in the fourth quarter.

The stock could trade up on the third-quarter beat and the upward guidance revision, but could settle back as investors digest the implied fourth-quarter outlook, Wells Fargo analyst Michael Tong said in a research note.

Lilly's shares have trailed rival large drugmakers this year amid concerns it would be unable to fill the revenue gap when Zyprexa, its biggest drug, and other products face U.S. generic competition in the coming years.

All of the underperformance of this company is driven entirely by concerns about them replacing revenue that's going away, Leerink Swann analyst Seamus Fernandez said. Ultimately, that's the critical factor.

Quarterly net income was $941.8 million, or 86 cents per share, compared with a net loss of $465.6 million, or 43 cents per share, a year earlier, when Lilly took big charges related to a marketing probe of Zyprexa.

The Indianapolis-based drugmaker took charges totaling $549.8 million in the latest quarter, including asset impairment and restructuring charges for the sale of a manufacturing plant and a charge related to a legal settlement.

Excluding those charges, Lilly posted earnings of $1.20 per share. On that basis, analysts' average forecast was $1.02, according to Thomson Reuters I/B/E/S.

Lilly's adjusted tax rate fell to 19 percent from 21.1 percent a year earlier. The lower taxes contributed 5 cents to the quarterly outperformance, Leerink's Fernandez said.

Lilly's gross profit margins continued to benefit from the strengthening dollar, as the company revalued its overseas inventories, a benefit it does not expect to sustain in the fourth quarter.

Revenue rose 7 percent to $5.56 billion. Analysts were looking for $5.41 billion.

Volume increases drove revenue up 8 percent, price increases boosted it 2 percent, while the stronger dollar weakened the value of overseas sales, resulting in an overall negative effect of 3 percent.

Zyprexa sales rose 3 percent to $1.22 billion, ahead of the $1.19 billion expected by analysts, helped by higher prices in the United States and the withdrawal of generic competition in Germany. The drug has faced continuing concerns about its tendency to cause weight gains that might lead to diabetes.

Higher demand helped drive Cymbalta sales up 10 percent to $790.2 million, a shade above the $788 million estimate. Alimta sales soared 47 percent to $461.9 million, compared with an estimate of $415.3 million, helped by expanded use.

Sales of the newly approved blood clot drug Effient, which Lilly is counting on to help fuel future growth, totaled $22.6 million in the quarter.

Lilly boosted its full-year forecast for earnings, excluding items, to a range of $4.30 to $4.40 per share, up from $4.20 to $4.30 previously. Analysts expect $4.29.

Lilly said last month it plans to cut 5,500 jobs, or 13.5 percent of its workforce, as it girds for generic competition by 2011 for Zyprexa and its Gemzar cancer treatment. It aims to cut annual costs by $1 billion by the end of 2011.

Lilly's shares rose to $35.90 in premarket trading from a Tuesday close of $35.24 on the New York Stock Exchange. Through Tuesday, they had fallen about 12 percent this year, compared with a 9 percent rise for the NYSE Arca Pharmaceutical index <.DRG> of large drugmakers.

(Reporting by Lewis Krauskopf; Editing by John Wallace and Maureen Bavdek)

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