Return to Eli Lilly & Co. 

Prozac's profitable run coming to an end for Lilly

Drug maker steels itself for arrival of generic rivals

By Jeff Swiatek

Published: Aug. 2, 2001

The Indianapolis Star

Friday, it should happen.

Prozac will go generic in the United States.

Stripped of a key patent in a surprise court ruling last year, Eli Lilly and Co. no longer has sole rights to sell its famous antidepressant in the world's largest prescription drug market.

The implications are many:

* To patients, doctors and health insurers, who'll see the price of the all-time best-selling depression drug drop from $2.50 for the brand-name capsule to under $2 now and eventually as low as 50 cents for the generic.

* To Lilly, which within the year stands to lose most of Prozac's $2.6 billion in yearly revenue, making up a whopping one-fourth of the firm's total sales.

* And to Lilly's hometown of Indianapolis, where Prozac profits helped underwrite the rapid growth of two sprawling corporate campuses and enriched the Lilly Endowment, the city's main benefactor with hundreds of millions of dollars in civic gifts.

The end of Prozac's 14-year commercial run as a patent-protected drug, including the past nine as Lilly's best seller, hurts Lilly all the more because it comes 2 1/2 years earlier than Lilly hoped to keep the main patent in force.

Add up the Prozac revenue lost to generics from this month through December 2003, and it amounts to perhaps $4 billion that Lilly had counted on but won't get.

On the other hand, that represents billions of dollars in savings to patients, employers and their health plans that will turn to the cheaper generic alternatives.

Prozac ranked as the ninth most widely sold prescription drug in the world last year, with nearly 90 percent of its sales coming in the United States.

The U.S. launch of generic equivalents promises to dramatically cut the cost of fluoxetine hydrochloride -- Prozac's scientific name -- and do it fast.

Barr Laboratories, the feisty Pomona, N.Y., company that spent five years fighting Lilly in court over the Prozac patents, expects to be selling blue-and-tan fluoxetine capsules in drugstores Friday.

The legal go-ahead came last week, when U.S. District Court in Indianapolis certified an appeals court ruling that in validated Prozac's main patent, which ran through 2003.

Until now, Lilly had kept Barr at bay with another patent, which expires today .

Barr's warehouses are piled with generic Prozac as it carries off what's probably the largest generic drug launch in U.S. history.

"We've been making over 2 million capsules a day for some time now" at a plant in Northvale, N.J., said Barr Chairman Bruce Downey.

Prozac going generic will bring "a great consumer benefit" by lowering the drug's price, Downey said.

Of that, there's no doubt, said Dr. Jeff Taylor, regional pharmaceutical director for Aetna, a national health care company.

Prozac ranks as the fourth-most-prescribed drug among Aetna's members. "Because of its widespread use and good effectiveness, it will be a welcome thing," Taylor said of generic Prozac.

Many depressed people who lack coverage for prescription drugs will be able to afford Prozac, in its generic form, for the first time, said Mike Maloney, executive director of KEY Consumer Organization , a statewide advocacy group for mentally ill adults.

"I think it's a wonderful thing. It will make Prozac available to more people," said Maloney, who took Prozac for six years.

At Lilly, the early coming of generic Prozac is the dreaded day that millions of dollars worth of legal defenses couldn't delay any longer.

David T. Wong, one of three Lilly scientists who discovered Prozac, retired from Lilly last year but still feels pangs about any company but Lilly selling the compound.

"It is still difficult to watch your hard work going to benefit your competitors," Wong said.

Generic Prozac probably wouldn't be a reality this week if not for Barr, a 31-year-old company known for its pugnacious and litigious approach to getting generics on the market.

Last year's court ruling to nullify the major Prozac patent stands as the biggest victory yet in the generic drug industry's efforts to undercut patents on brand-name drugs.

The first profiteers will be Barr and a small generic manufacturer in Spring Valley, N.Y., called Pharmaceutical Resources.

Barr will sell the generic version of the most popular form of Prozac, the 20-milligram capsule. Pharmaceutical Resources will market fluoxetine tablets and 40-milligram capsules.

The two generic makers were first to apply to the U.S. Food and Drug Administration for approval to market those forms of generic Prozac. Early-bird status entitles them under federal rules to 180-day exclusivity to sell the generics.

Barr expects to sell more than $300 million worth of generic Prozac in the half-year period, said Downey.

That compares to Barr's annual sales of about $500 million from 80 products. Barr must split generic Prozac profits with a sister company, Apotex, which paid half the $10 million legal tab for the Prozac patent challenge.

Pharmaceutical Resources' share will be much smaller than Barr's, considering that 80 percent of Prozac's sales come from the 20-milligram capsule.

After the 180-day period of generic exclusivity ends, more than half a dozen other generic companies will try to get a piece of the Prozac pie.

"After six months, we're looking at an Oklahoma land rush scenario, with a bunch of competitors trying to ship product to distributors as fast as they can," said Elliot Wilbur, a stock analyst for CIBC World Markets in Los Angeles.

That's when the price of generic Prozac will really drop, to perhaps 50 cents a capsule.

Lilly has little choice but to watch as generics steal the market from its capsules.

In some other countries where Prozac's patents expired, Lilly tried to compete by offering cut-rate generic Prozac but found it's not worth the effort, said Lilly President Sidney Taurel.

"You get into a price war," he said. "The prices go down and down and down. And since you have many players, you end up with a small share of the market and with a much lower price."

Lilly will try to hang on to some Prozac business by boosting sales of a once-weekly formulation and marketing Prozac for severe PMS in women. The two niche markets make up only 4 percent of total Prozac sales.

Even Taurel doesn't dispute that up to 80 percent of Prozac's sales may shift to generics within a year of their arrival, following the typical pattern for a generic introduction.

The only major nation where Prozac retains patent protection is France, where the patent expires early next year.

With Prozac's sales about to plummet, Lilly faces a cash crunch and an alarming bit of history.

Like patients who become hooked on their medicine, pharmaceutical companies rely so heavily on their top products that in recent times, no major drug maker has endured the loss of its No. 1 drug without being forced into a takeover or merger.

Lilly will be the exception, Taurel vows.

"Lilly will do what no pharmacy company has done: Weather the patent loss of its biggest product and continue to grow," he told shareholders at the company's annual meeting in April.

Taurel's performance as Lilly's 11th company head may well be judged on whether his brave words come true.

So far, stock analysts seem impressed.

"What Lilly has done is phenomenal," said Leonard Yaffe, of Bank of America Securities. "Lilly will have filled the void left by Prozac very quickly."

Taurel began preparing to fill the void four years ago. He put former Lilly strategist Mitch Daniels in charge of bracing for the numbing loss of most Prozac revenue, which pours into Lilly's coffers at the rate of $7 million a day.

The team mapped out preparations for what it dubbed Year X, the then-unknown time when Prozac's patent would lapse.

For Lilly's 36,000 employees, the strategies have defined their work these past several years.

Lilly's Year X strategy is this: Capitalize on what remains of Prozac and other depression products, focus on getting every penny of sales out of its four next-largest products plus diabetes drug Actos, and speed up development of new drugs.

Taurel uses the acronym GAIZE to refer to the Lilly drugs that must step up to fill Prozac's role.

The replacements are the anti-cancer agent Gemzar, Actos, Lilly's insulin lines, the antipsychotic Zyprexa and the osteoporosis drug Evista.

Lavished with corporate attention and resources like never before, the GAIZE products have been shot on a growth trajectory.

They accounted for 52 percent of Lilly's total sales in the first half of this year and "are fueling growth for the company," Taurel said.

Lilly also hopes to retain a chunk of Prozac's sales with the PMS version Sarafem and the weekly form of Prozac.

Barr's Downey scoffs at Prozac Weekly, calling it a gimmick. "I think it'll be a bust, frankly."

But doctors may be drawn to Prozac Weekly for its convenience, no small matter when it comes to depressed patients who can easily forget to take a once-a-day dose.

Prozac is the first of the modern antidepressants to go generic, so no one knows how fast generics will be accepted.

Some doctors may be wary of generic Prozac, said Dr. Kathleen Shook , associate medical director of M Plan, Indiana's largest health maintenance organization.

Prescribing generic Prozac "is not just going to be a haphazard, 'Oh, this is cheaper. I'll put you on it,' " she said. Prozac Weekly, she said, "may be better for the (M Plan) member. They only have to take it once a week."

Although the FDA requires generics to be identical to their brand-name counterpart, Indianapolis psychiatrist Dr. Andy Morrison said he's sometimes wary of generics "if a patient's in acute need . . . and not on maintenance medication. I'll usually advise them to go with the brand, just to not take any chances."

For many patients with health insurance, the coming of generic Prozac won't bring big savings. That's because health plans typically pick up much of the actual costs of a drug, charging only a co-payment to members.

The co-payment savings for a patient using a generic instead of the brand-name product typically run $10 to $25 per 30-day prescription.

The most critical part of the Year X plan calls for developing new products faster.

Since 1996, Lilly has doubled its research and development budget, which totaled $2 billion last year.

It's also trying to speed up expected launches in the next 3 1/2 years of 10 products that await FDA approval or are in late-stage development.

That compares with seven new compounds Lilly launched in the 1990s.

"The growth to come out of (the new products) should be top-tier, if not the fastest in the industry, after we go through the Year X," Taurel said.

Thanks to the coming of generic Prozac, Lilly has told investors it expects negative earnings growth the rest of this year and well into 2002, before sales from the newest products finally boost profits.

"Year X has brought a great sense of urgency" to Lilly, Taurel said. "It has helped accelerate a number of actions."

If the Year X strategy works, Indianapolis benefits -- not only by seeing its largest private employer continue to thrive, but from the gains that will accrue to the city's biggest charitable donor, the Lilly Endowment.

The endowment owns 14.4 percent of Lilly, and the better the company's stock does, the more the endowment's assets grow.

The endowment has handed out $1.8 billion in grants during the past four years, focusing its giving on Indianapolis and the rest of the state.

It was Prozac that made much of that grant-giving possible, and it is Prozac that will be the subject of a simple message Taurel said he'll send out to employees today or Friday, paying tribute to Prozac as its patented life ends.

Only an intervention by the U.S. Supreme Court in the patent case could stop Prozac from being reduced to a middling product at Lilly.

Lilly said its lawyers will request that the high court take up the patent dispute, but Lilly admits the chances of the court hearing the appeal are remote.

Taurel, whose 30-year Lilly career parallels Prozac's rise in many respects, is resigned to seeing Prozac fade in importance.

"That's life," he said. "It's time to move on."

.

Return to Eli Lilly & Co.