Nice job with the cost-cutting, Eli Lilly (NYSE:LLY), but that patent cliff is only getting closer.

Revenue was up 5% this quarter, which isn't too bad considering the state of the economy. Sales would have increased by 10% had it not been for the stronger dollar hurting year-over-year comparisons. Sales of Lilly's top seller, Zyprexa, were essentially flat. Johnson & Johnson's (NYSE:JNJ) competing antipsychotic Risperdal going off-patent probably contributed to the decreased demand, but other drugs -- like antidepressant Cymbalta, fast-acting insulin Humalog, and cancer treatment Alimta -- posted double-digit increases in sales.

The impressive part of the quarterly report was the 24% increase in earnings. Gross margins were helped by revaluing the price of international inventory thanks to currency changes. A 1% decrease in marketing, selling and administrative expenses also helped boost the bottom line. One place Lilly didn't cut back was research and development spending; drug development costs were up 8% year over year, but Lilly needs to make that investment considering the patent cliff it faces.

Lilly is trading at around eight times the middle of this year's earnings guidance, which sounds cheap, but investors have already factored in the loss of Zyprexa, Cymbalta, Humalog, and Gemzar to generic competition early next decade. Pfizer (NYSE:PFE), another company with a huge pending patent cliff, trades at about the same multiple.

That patent cliff was part of the reason that Lilly outbid Bristol-Myers Squibb (NYSE:BMY) for ImClone last year, but it'll need quite a few more drugs the size of Erbitux to make up for all the blockbusters that will face generic competition relatively soon. There is still potential for prasugrel to compete well against Bristol-Myers and sanofi-aventis' (NYSE:SNY) blockbuster Plavix, if the FDA ever gets around to approving the drug. Once-weekly Byetta is also a likely blockbuster, as long as potential side effects don't derail an FDA approval for Lilly and its marketing partner Amylin Pharmaceuticals (NASDAQ:AMLN).

Cost-cutting is nice, but it doesn't slow down the drive toward the patent cliff. Lilly needs to be on the lookout for other partnerships to fill in the upcoming revenue holes. And that's where investors should be focused, as well.

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Fool contributor Brian Orelli, Ph.D., is a top-line kind of guy. He doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.