(Corrects to remove mention of Avapro, which is not Lilly drug)
* Q3 profit per share 83 cents vs. forecast of 77 cents
* Q3 sales $5.6 billion, in line with forecast
* Lifts 2012 forecast to $3.30-$3.40 per share
* Shares rise 2.2 percent
By Ransdell Pierson
July 25 (Reuters) - Eli Lilly and Co's quarterly earnings beat Wall Street forecasts, and the company said on Wednesday that profit margins should improve after 2014, once the worst pain from patent expirations on its top drugs has abated.
The company, whose shares rose 2.2 percent to $42.91 in premarket trading, raised its 2012 profit outlook because the stronger U.S. dollar has reduced the cost of overseas goods.
Other drugmakers, by contrast, have suffered badly because of the stronger greenback -- rival Johnson & Johnson, cut its full-year profit forecast last week due to the drag on overseas sales.
Lilly's results, as expected, were battered by the recent patent expirations on its biggest product, schizophrenia treatment Zyprexa. The pain intensifies late next year, when $5-billion-a-year depression drug Cymbalta goes generic.
Lilly said it still expected to return to revenue and income growth after 2014, largely due to the launch of new medicines.
"This growth, combined with our continued focus on expense management should lead to expanding (profit) margins," the company said in a release.
Industry analysts welcomed the promise of improved profit margins but said it was too early to know whether cost-cutting might be a bigger contributor than the introduction of new prescription drugs.
"The key controversy remaining is: Can they really improve margins if the pipeline fails to deliver?" ISI Group analyst Mark Schoenebaum said in a research note. "So what if the revenue doesn't grow?"
Lilly's most important experimental drug is solanezumab, an Alzheimer's disease treatment that has completed two late-stage trials. The company, which is expected by next month to unveil data from the highly anticipated studies, did not provide any updates on the medicine or discuss a similar treatment being developed by Pfizer Inc.
The Indianapolis drugmaker on Wednesday said it earned $924 million, or 83 cents per share, in the second quarter, compared with $1.2 billion, or $1.07 per share, a year earlier.
Excluding special items, the company earned 83 cents per share. Analysts on average expected 77 cents, according to Thomson Reuters I/B/E/S.
"The (earnings) beat was due to stronger underlying demand of key products such as Cymbalta, as well as the favorable impact of a stronger U.S. dollar on our cost of goods sold," said Lilly spokesman Mark Taylor.
Global sales of $5.6 billion were in line with Wall Street expectations of $5.59 billion.
The company said it would continue with cost-cutting programs as it grapples with generic competition for Zyprexa and other medicines.
Lilly said it now expected full-year 2012 earnings of $3.30 to $3.40 per share, excluding special items. It had previously forecast $3.15 to $3.30.
Even so, the improved forecast would still represent a 23 percent decline from 2011 results and a 28 percent drop from 2010 profit -- due to the fallout from Zyprexa generics.
Quarterly global sales of Zyprexa, the company's biggest product until it lost U.S. patent protection in October, fell 73 percent to $380 million as cheaper generics flooded the market.
Sales of Cymbalta, now Lilly's top product, jumped 22 percent to $1.22 billion. (Reporting By Ransdell Pierson; Editing by Jeffrey Benkoe, Maureen Bavdek and Lisa Von Ahn)