The court's decision on Wednesday is a major blow to Lilly, which counts on Prozac for about a quarter of its total sales and had sought to defend itself from competitors for two more years.
The ruling is beneficial not only for consumers, but for generic drugmaker Barr Laboratories Inc., which has battled Lilly over its Prozac patent since 1996.
Barr said the court ruling -- which overturned a lower court's decision that kept Prozac's patent alive until December 2003 -- should clear the way for it to make a generic Prozac by February. But Lilly is expected to apply for, and receive, a six-month extension by agreeing to test the drug in children.
"We are very pleased with the decision," said Bruce Downey, Barr's chairman and chief executive. He promised the generic version of Prozac will be substantially cheaper than the brand-name version.
Typically, generics are at least half the price of brand-name equivalents, which can result in brand-name drugs losing about 80 percent of their sales within two years.
Prozac costs about $2.63 a day. It has lost market share in recent years to Pfizer's Zoloft and SmithKline's Paxil. Earlier this year, Prozac lost its status as the top-selling anti-depressant in the United States in terms of new prescriptions, falling behind both drugs.
Still, Prozac still had $2.6 billion in sales in 1999, about $2 billion of which was in the United States.
Lilly plans to appeal the ruling from the Washington-based U.S. Court of Appeals. If the ruling stands, Lilly said its earnings will decline significantly in the second half of next year and in 2002.
"While we're clearly disappointed with today's ruling and plan to appeal it, we nonetheless are thoroughly prepared to implement a comprehensive contingency plan," said Charles Golden, Lilly's executive vice president and chief financial officer.
Lilly's plan includes getting U.S. approval to launch a next generation Prozac pill and introducing the first-ever drug to treat sepsis, a deadly blood infection. Lilly also hopes to expand sales of several drugs, including the anti-psychotic Zyprexa and diabetes drug Actos.