Call it Lilly’s squeeze play.

Indianapolis-based Eli Lilly and Co. is now in the predicament of watching revenue fall as its patents on older products expire, even as the company needs to spend more money on marketing and research to boost sales of new drugs.

Lilly hopes it can score a run by launching new products before its high level of spending gets it thrown out at first base.

But its margin for error is even smaller than Wall Street analysts expected, which bumped Lilly’s stock price down a notch late last week. Lilly expects its 2012 profits to range between $3.10 and $3.20 per share, compared with analysts’ estimates of $3.61 per share.

Sales of Zyprexa, Lilly’s best-selling drug that lost patent protection in October, are falling faster than expected in international markets. Analysts thought the drug would bring in $2.1 billion this year, but Lilly now expects $500 million less than that.

Analysts also thought Lilly would reduce its spending this year compared with 2011—chopping $300 million—but now the firm says that’s not to be. It needs to boost sales efforts on its existing products. And it has to keep pouring money into its drug pipeline, which currently has an unprecedented 66 molecules in human trials. Twelve of those are in Phase 3, the final testing stage before regulatory approval.

“We’ve successfully rebuilt our mid- to late-stage pipelines to position Lilly for growth post-2014,” Derica Rice, Lilly’s chief financial officer, said during a Jan. 5 conference call with analysts and investors. But, he added, “the growth in our Phase 3 pipeline will ... create upward pressure on R&D spend.”

Lilly’s bet is that it can get enough of those molecules approved as new products to offset its loss of Zyprexa sales, as well as sales of four other blockbusters that are seeing patents expire by 2013.

But doing that requires money, something Lilly will have less of over the next three years. That’s not to say the company can’t afford that; it’s just a question of how much it has to chop its profits—or its work force—to get it done.

Lilly executives have been adamant that the company’s revenue won’t fall below $20 billion (from more than $24 billion last year) and its profits won’t dip below $3 billion (compared with nearly $5 billion last year).

To help in that process, Lilly over the past two years eliminated 5,500 jobs and cut its expenses $1 billion. But Citbank analyst John Boris doesn’t see how Lilly can stay above its minimum revenue and profit goals without more cuts—$900 million of them, he estimates.

“Therefore, we expect LLY to implement some level of cost cutting by [year’s end],” wrote Boris, referring to Lilly by its ticker symbol, in a Jan. 6 note to investors. And because he doesn’t expect Lilly’s pipeline to produce enough new sales to replace expiring blockbusters, Boris said Lilly will have to acquire more companies to get its sales and profits growing after 2014.

But not every analyst agrees entirely. Barclays Capital analyst Tony Butler expects Lilly’s pipeline to produce annual sales ranging between $2.5 billion and $4.5 billion by as early as 2015. And by 2020, he said, Lilly’s new products could be racking up $14 billion each year.

“However,” Butler noted, “these pipeline assets [which include the heart drug evacetrapib and the rheumatoid arthritis drug LY3009104], would require a significant amount of continued R&D investment.”