Tiger Lilly or Wilting Daisy?

This could well be one of those quarters that Eli Lilly (NYSE: LLY) management will be happy to forget. Sales growth was pretty feeble and the company decided to write a big check to make drug litigation go away.

On the sales side, total revenue grew 3% as reported, but 2% of that growth came from currency benefits. Although the contribution of new drugs as a percentage of sales climbed again on a sequential basis to 17%, a decline in Zyprexa and diabetes products put a damper on the growth.

While the company reined in its marketing expenses, gross margins worsened and the company maintained double-digit growth in R&D spending. As a result, operating margins shrunk by about 130 basis points and operating income fell about 2%. Fools should note that that figure excludes the Zyprexa charge in this quarter and an asset impairment charge in the year-ago quarter.

The company's lead product, the antipsychotic Zyprexa, was not exactly a bearer of great news this quarter. Not only did the company pony up nearly $700 million to settle litigation, but sales of the drug dropped about 10% to $1.1 billion as competition took its toll.

While the diabetes business didn't have any specific bad news, sales were down 1% as growth in Humalog was outweighed by declines in Humulin and Actos. While the company has begun selling recently approved Byetta in partnership with Amylin Pharmaceuticals (Nasdaq: AMLN), Lilly declined to offer much information beyond the boilerplate "we're very pleased."

It would definitely appear that Lilly is committed to diabetes as a major product-focus area. In addition to launching Byetta, the company licensed an early-stage DPP-IV compound from Japan's TaishoPharmaceuticals and has gone on with a phase 3 study of its inhaled insulin product (partnered with Alkermes (Nasdaq: ALKS).

For now, Lilly seems to me to be a middle-of-the-road type of pharmaceutical stock. There are plenty of worse ideas out there, but there are better ideas, as well. Lilly doesn't have especially robust growth, or an especially high dividend. While inhaled insulin could be a boon to the company in years to come, the pipeline as a whole is not quite as exciting. Though I don't see any particular reason to sell these shares today, I'm also not sure there's any particular reason to look to buy them either.

For more on Eli Lilly:

• Sniffing Out a Possible Diabetes Blockbuster
• The High Cost of Diabetes
• Is Lilly About to Bloom?

Fool contributor Stephen Simpson owns shares of Amylin Pharmaceuticals. The Fool has a strict disclosure policy.