UPDATE 2-Lilly beats forecast, cost cuts, price hikes help

* Q2 EPS, excluding items, $1.24/shr, vs. $1.10/shr

* Cost controls, higher U.S. drug prices help results

* Raises '10 outlook by $0.10/shr, cites 1st-half results

(Adds analyst comment, product sales, byline)

By Ransdell Pierson

NEW YORK, July 22 (Reuters) - Eli Lilly and Co (LLY.N) reported better-than-expected second quarter earnings, helped by cost controls as well as higher prices for many of its biggest medicines.

The drugmaker said on Thursday it earned $1.35 billion, or $1.22 per share, compared with $1.16 billion, or $1.06 per share, in the year-earlier period.

Excluding items the company earned $1.24 per share. Analysts on average expected $1.10 per share, according to Thomson Reuters I/B/E/S.

Company revenue jumped 9 percent to $5.75 billion, ahead of Wall Street expectations of $5.58 billion. Sales would have risen only 8 percent if not for the weaker dollar, which raises the value of overseas sales.

"Lilly beat forecasts in the quarter primarily because sales were about 3 percent better than expected, with Zyprexa and Cymbalta the biggest reasons," said Deutsche Bank analyst Barbara Ryan.

Although results were impressive, Ryan said Lilly faces long-term challenges of keeping earnings on track once schizophrenia treatment Zyprexa begins facing generic competition next year, followed by patent expirations in following years for some of its other top-selling drugs.

For now, at least, she said Lilly's results were "a welcome relief," as were those of Abbott Laboratories (ABT.N), reported on Wednesday.

She said both companies were better able to withstand pricing pressures in Europe and currency fluctuations than many investors expected.

Sales of Zyprexa, Lilly's flagship product, rose 5 percent to $1.26 billion, as higher prices offset lower U.S. demand

Anti-depressant Cymbalta revenue jumped 17 percent to $868 million, driven by higher prices and higher demand. Alimta sales leaped 43 percent to $552 million, helped by its approval last year in Japan as a treatment for lung cancer.

Citing strong results in the first half of the year, Lilly raised its 2010 profit forecast to to $4.50 to $4.65 per share, excluding special items, from its earlier view of $4.40 to $4.55 per share. (Reporting by Ransdell Pierson; Editing by Derek Caney)