Lilly Reaches Prozac Settlement With Barr, Novartis (Update7. with analysts comments)
Bloomberg News
January 25, 1999, 4:19 p.m. ET
Lilly Reaches Prozac Settlement With Barr, Novartis (Update7)
Indianapolis, Jan. 25 (Bloomberg) -- Eli Lilly & Co. reached
a $4 million settlement with Barr Laboratories Inc. that could
make it more difficult for Barr to sell a cheaper generic version
of Lilly's top-seller, the antidepressant Prozac.
Barr agreed to drop permanently two claims against Lilly,
which were the basis of a trial scheduled to start today. Barr
now is free to begin the appeal of a federal court's rejection
earlier this month of two other claims, including a challenge on
why Lilly holds two patents on the same compound.
In return for dropping the two claims, Barr and its two co-
defendants in the suit, Novartis AG's Geneva unit and Canada's
Apotex Inc., will share a $4 million settlement intended to cover
their legal expenses. Prozac had 1997 sales of $2.6 billion, or
about $7 million a day.
''It looks good for Lilly,'' said Cynthia Beach, an analyst
with Gerard Klauer Mattison, who has a ''buy'' rating on Lilly.
Shares of Indianapolis-based Lilly, the world's 10th-largest
drugmaker, rose 6 to 86 1/4. Barr, based in Pomona, New York,
fell 2 3/4 to 40 7/8.
The relatively small settlement payment ''reflects the very
good chances that we had of winning this case,'' said Sidney
Taurel, Lilly's chief executive and chairman, in an interview.
''What the $4 million buys for us is avoiding'' some legal costs,
possible volatility in the stock based on concerns about the case
and distraction of management.
Protecting Franchise
The Barr settlement comes as Lilly works to protect its
Prozac franchise by developing a better version of the drug.
Lilly agreed last month to work with Sepracor Inc., a
Marlborough, Massachusetts-based biotechnology company, on a new
version of Prozac that may have fewer side effects.
The Barr settlement gives Lilly more ''time to work on what
I call a super, new Prozac,'' said David Saks, an analyst with
Gruntal & Co.
The Barr settlement was not the only good news for Lilly.
Merck & Co., the world's biggest drugmaker, announced late Friday
that it would not continue testing its MK-869 compound as a
depression drug. The experimental drug, once touted as a
potential rival to Prozac, instead will be tested as a remedy for
nausea associated with chemotherapy. Merck will now focus on a
less-advanced compound as a depression drug.
Lilly's battle with Barr began in 1996 after Barr filed an
application with the U.S. Food and Drug Administration to make a
generic form of Prozac. Lilly sued Barr and other generic
drugmakers, including Novartis' Geneva, which also sought
permission to make generic Prozac.
Earlier this month, Lilly won a pair of pretrial decisions
in the patent battle, reducing Barr's case to two claims from
four. U.S. District Judge Sarah Barker of the Southern District
of Indiana dismissed Barr's claim that Lilly shouldn't hold two
patents on the same drug. She also rejected another Barr
challenge. These two claims form the basis of Barr's appeal.
Charges Dropped
The remaining Barr claims were based on charges of
inequitable conduct and anticipation. These are the ones Barr has
agreed to drop permanently.
Still, Lilly's best hedge against generic competition may be
the Sepracor agreement, analysts said. The Sepracor agreement
compound has patent protection until 2015, while Prozac's two
patents expire in 2001 and 2003.
Many doctors likely would switch patients to the improved
version of Prozac, said Sergio Traversa, an analyst with Mehta
Partners. Other drugmakers have pursued a similar strategy.
Pfizer Inc., for example, switched many patients to a longer-
acting version of the heart drug Procardia, called Procardia XL,
Traversa said.
Barr said the settlement let it ''short-circuit'' the case
against Lilly and speed its battle into the U.S. Court of
Appeals. The year-long appeal was expected whether Lilly or Barr
won the case, said Bruce Downey, the company's chief executive,
in an interview.
Still, the settlement and earlier court decisions are
victories for Lilly, Downey said. Barr would have preferred to
enter the appeals process with court decisions in its favor, he
said.
--Kerry Dooley in the Princeton newsroom (609) 279-4016
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