Eli Lilly (LLY.N) said quarterly earnings fell due to higher expenses, but its sales topped expectations and the company slightly raised the lower end of its full-year forecast.

The company, whose third-quarter profit matched Wall Street forecasts, warned on Thursday that its top-selling Zyprexa schizophrenia drug will face a rapid and severe decline in revenue after the $4.5 billion-a-year product on Sunday begins facing competition from cheaper generics in the United States.

Earnings fell to $1.24 billion, or $1.11 per share, from $1.3 billion, or $1.18 per share, a year earlier.

Excluding special items, Lilly earned $1.13 per share, matching the average forecast of analysts, according to Thomson Reuters I/B/E/S.

Global company revenue rose 9 percent to $6.15 billion, topping Wall Street expectations of $6.06 billion. Revenue would have risen 5 percent if not for the weak dollar, which raises the value of overseas sales.

Overall, a decent in-line quarter for the company, yet for many investors it is the longer-term financial outlook that matters, and here Lilly's outlook remains challenging, Sanford Bernstein analyst Tim Anderson said in a research note.

Quarterly sales of Zyprexa, which last month lost patent protection in most of Europe, fell 3 percent to $1.18 billion.

Two of Lilly's other top drugs are girding for their own confrontations with generics. Its Cymbalta anti-depressant, with $4 billion in annual sales, goes generic in mid-2013, and generic forms of its Evista osteoporosis drug arrive in 2014.

Global sales of Cymbalta jumped 29 percent to $1.07 billion in the quarter, while sales of Evista rose 5 percent to $270 million.

Zyprexa, Cymbalta and Evista, which together accounted for 41 percent of the company's third-quarter revenue, are expected to lose three-fourths or more of their sales soon after the generics become available.

Lilly has vowed to remain independent through the three year-patent cliff, rather than merging with another big drugmaker to cushion the generic blows. Instead, it may even boost research spending through 2014 to produce a new crop of drugs as its top-sellers fade from view.

The company has said revenue declines from generics would be significantly offset by higher sales in Japan and emerging markets, as well as demand for the company's animal-health products.

Lilly said total operating expenses rose 10 percent in the quarter, due in part to costs of a new diabetes-drug collaboration with German drugmaker Boehringer Ingelheim. Research and development spending rose 5 percent to $1.28 billion, equivalent to almost 21 percent of total company revenue.

But the company's tax rate fell sharply due to resolution of an IRS audit, shoring up results. Aided by the lower taxes, the Indianapolis drugmaker said it now expects a profit for full-year 2011 of $4.30 to $4.35 per share, from its earlier view of $4.25 to $4.35 per share. That would reflect a profit decline of 8 percent to 9 percent from last year.

(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn and Maureen Bavdek)