One of the really depressing things about the big-cap pharmaceutical space these days is that there's just not that much good news to go around. Sure, companies like Wyeth (NYSE:WYE) and Schering-Plough (NYSE:SGP) are getting their businesses moving again, and there have been brighter spots like cervical cancer vaccines, and new drugs for cancer and diabetes. But by and large, it really feels like the best that most companies can achieve today is to hit their targets and not screw up.

With that in mind, Eli Lilly (NYSE:LLY) had a good quarter, insofar as it slightly exceeded earnings expectations and didn't lower guidance. Sales were up 10% in the quarter on a 7% increase in volume, though it should be remembered that the year-ago quarter wasn't incredibly strong. Although gross margins improved a bit, higher selling, general, and administrative expenses and research expenses reduced the operating margin. As such, operating earnings grew only 8% over the prior year.

Sales of diabetes products were a bright spot for Lilly, up 13% for the group as a whole (and up 14% in the United States). Humalog had solid mid-teens growth, Actos squeaked out a double-digit gain, and Humulin brought up the rear with gains in the low single digits. Earlier in the quarter, the company also began phase 3 studies for its inhaled insulin product (in partnership with Alkermes (NASDAQ:ALKS)). Though this product is likely at least a year behind Pfizer's (NYSE:PFE) Exubera, that might not be so terrible. After all, Lilly will get to see Pfizer have all the "fun" of blazing the trails for reimbursement and initial physician/patient acceptance.

Like many pharmaceutical companies, Lilly heavily relies on one drug -- Zyprexa in this case -- for a big chunk of revenue. Zyprexa sales were up 1% overall but down 10% in the U.S., and the company isn't expecting any big turnaround in sales growth. Other drugs like Gemzar and Evista are growing reasonably well (in the mid-single digits), but those two combined barely rate half of Zyprexa's sales.

Lilly's outlook is still questionable to me. In the short run, there are worries about Zyprexa, Strattera, and even the diabetes franchise. What's more, the late-stage pipeline is pretty weak, with only two major drugs (ruboxistaurin and Prasugrel) likely to come out before the end of 2007 (maybe three if we include inhaled insulin). Although the company does spend a lot on research and development, it looks like it will be a long time before investors see the fruits of those investments. So while Lilly has managed to stay on target, I'm just not sure that it can hit the mark for new investors.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).