Eli Lilly & Co. (NYSE:LLY) made the best of bad news in the fourth quarter of 2012. Although revenue and earnings fell from the prior year, the company beat analyst expectations on both fronts. Shares were up nearly 3% in early trading today.

By the numbers

For the full year, revenue fell by 7% to $22.6 billion from 2011. Revenue for fourth quarter was $5.96 billion, which was down 1% year-on-year.  However, that amount beat average analyst expectations of $5.81 billion.

Earnings per share for all of 2012 came in at $3.66, a drop of 6% compared to 2011. For the fourth quarter, Lilly earned $0.74 per share, 4% lower than the prior year. Excluding special items, earnings per share for the fourth quarter were $0.85. While that number reflects a 2% decline from 2011, it topped average analyst expectations of $0.78 per share.

Lilly upped its earnings guidance for full-year 2013 from $4.03 to $4.18 per share to $4.10 to $4.25 per share. Non-GAAP earnings guidance was also raised from $3.75 to $3.90 per share to $3.82 to $3.97 per share. Both GAAP and non-GAAP earnings guidance increases were due to the estimated benefit from a one-time impact associated with the R&D tax credit in the American Taxpayer Relief Act of 2012.

Behind the numbers The reason for Lilly's falling revenue and earnings can be summed up in one word: Zyprexa. Sales of the schizophrenia drug plunged by $2.9 billion in 2012 as it lost market share to generics.

Lilly's good news from both fourth quarter and the full year were that other drugs in its portfolio saw strong growth, which helped to mitigate some of Zyprexa's decline. Sales for antidepressant drug Cymbalta jumped by 20% to nearly $833 million in 2012. Forteo, which is used in the treatment of osteoporosis, saw sales grow by $201 million, a 21% increase. Heart drug Effient's sales shot up at the fastest rate, with its 51% growth reflecting nearly $155 million additional revenue in 2012.

Animal Health provided the other significant boost to revenue. Sales for the business unit increased by nearly $358 billion, a 21% jump over 2011. Overall, though, the growth from animal health and the aforementioned drugs couldn't overcome the huge drop-off from Zyprexa and lesser sales declines from Humulin and Evista.

Looking ahead The future for Lilly presents yet another good news/bad news picture. On the positive side, cancer drug Erbitux, which the company developed with Bristol Myers Squibb Co. (NYSE:BMY), continues to gain regulatory approvals across the world. Lilly also received European approval recently with its partner Boehringer Ingelheim for diabetes drug Trajenta.

Several drugs far along in Lilly's pipeline show potential. Phase 3 results were positive for ramucirumab in the second-line treatment of gastric cancer. Lilly is likely to submit for regulatory approval for the drug in the coming months. The company could also file for approval for other drugs in 2013, including diabetes drugs dulaglutide and empagliflozin. Rheumatoid arthritis drug baricitinib, licensed from Incyte Corporation (NASDAQ:INCY) , will be in phase 3 this year and could prove to be a winner down the road for both companies.