It's been a busy week for large-cap pharmaceutical investors, with almost all of the biggest companies reporting earnings this week. Yesterday, Motley Fool Income Investor pick Eli Lilly (NYSE:LLY) chimed in with its third-quarter results.

Sales were up 7% to $3.9 billion from the third quarter last year, and earnings grew 10% to $874 million and $0.80 a share. Of that sales increase, 71% was due to increased pricing for its drugs, rather than increased sales volume, which is a more sustainable form of revenue growth. (Still, sales growth is sales growth, no matter how it is achieved.) Thanks to the increased pricing, gross margins were up to 77.7%, and net margins expanded to a solid 22.6%.

Lilly's superstar, the schizophrenia drug Zyprexa, had an OK quarter: sales growth of 5% to $1.1 billion, but flat prescription growth. On the other hand, it was a solid quarter for many of Lilly's smaller drugs. Since nearly all of these have blockbuster potential and long-term patent exclusivity, they should drive years of earnings growth as they capture a larger percentage of Lilly's total sales.

Q3 sales*

Y-O-Y Growth

% of Total Sales

Cymbalta

$349

91%

9%

Cialis

$246

25%

6.4%

Forteo

$149

45%

3.9%

Byetta**

$62

N/A

1.6%


The most interesting news for Lilly shareholders came on Monday, when Lily announced its intention to acquireICOS (NASDAQ:ICOS), its partner on male sexual dysfunction drug Cialis, for $2.1 billion. As I mentioned then, Lilly's decision to acquire ICOS was probably due to its outlook for Cialis; the results announced today showed another strong quarter for the drug, with sales up 25% to $246 million.

Other logical acquisitions for Lilly in the future might be Cubist Pharmaceuticals (NASDAQ:CBST), since it already receives royalties from Cubist's lead product, or Amylin Pharmaceuticals (NASDAQ:AMLN), which shares profits with Lilly for its diabetes drug, Byetta. But at a nearly $6 billion market cap, Amylin might be a little too expensive for Lilly at the moment.

Lilly guided for total 2006 sales to grow at the bottom of its 7%-9% growth range for the year, and for earnings per share to come in at $3.10 to $3.20 a share (an 8% to 11% increase over its 2005 earnings per share, on an adjusted basis). Even though this isn't spectacular earnings growth, Lilly does have a nice 2.8% dividend yield to pacify investors until Cymbalta, Cialis, and Byetta sales reach more meaningful levels. That's something that should be worth waiting for.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.