DRUG MAKERS IN HOT RACE TO FIND THE NEXT PROZAC

It began one morning 12 years ago, when Matthew, then 24, could barely
crawl out of bed. He persevered at podiatry school in Chicago for six
months while becoming increasingly nervous and agitated. Finally, he saw a
psychiatrist. The diagnosis was chronic depression, and the doctor wrote a
prescription for an antidepressant.

Such medications -- Prozac, Zoloft and Paxil are the most widely used --
have truly been wonder drugs, becoming as much a staple of daily life as
Big Macs or Tylenol as they have helped lift the gloom from the lives of
many of the nearly 18 million Americans who the National Institute of
Mental Health says are affected each year by depression.

But they do not work for everyone. Matthew, who spoke on the condition that
his last name not be used, is one of about 3.6 million depressed people who
doctors say get no help from existing medications.

After spending $15,000 of his own money on doctor fees and medication to
learn only that lithium is white, Depakote orange and Prozac yellow and
pale green, Matthew, now a medical technician in Ocean Township, N.J.,
wonders if he will ever find a cure.

"I'm not that optimistic that a company can develop a drug that can help
me," he said, "but I'm willing to wait and see."

He may not have to wait long. Sometime in the next five years -perhaps as
soon as 2001 -- Eli Lilly & Co.'s patents on Prozac will expire, and Lilly
and a half-dozen other giant pharmaceutical companies are spending hundreds
of millions of dollars in the hope of developing the drug that supplants
Prozac as the market leader.

Sales of antidepressants, meanwhile, are expected to reach $8 billion in
the United States at about the time Lilly loses its exclusive rights to
Prozac. So, "there clearly is a lot at stake here," said Bruce L. Downey,
the chief executive of Barr Laboratories, a drug maker involved in a legal
fight with Lilly over the right to produce a generic version of Prozac.

Speaking of Barr's fight with Lilly -- but in a comment that could refer to
the whole, bruising race -- he added, "I can guarantee you that in this
battle, no stone will be left unthrown."

Still, it is not guaranteed that the Next Big Thing in antidepressants will
be a boon for the industry -- or even much help for people like Matthew.
Many industry analysts say they expect that any new brand-name best seller
will be a drug that is no more effective than Prozac, but simply has fewer
side effects. Moreover, the introduction of generic Prozac may lead
cost-cutting managed health care companies to require doctors to prescribe
it rather than the more expensive antidepressants under development.

Either of those scenarios would fall short of the hopes of many doctors. To
satisfy them, the ultimate antidepressant would work immediately in every
patient, have no side effects and allow patients to follow simple dosage
regimens. It could also be given to manic-depressives without causing a
manic episode.

"People are used to taking Tylenol and feeling better shortly thereafter,
not weeks later," said Dr. Steven E. Hyman, director of the National
Institute of Mental Health. "If someone is suicidal, you may not have
weeks."

It is unclear which, if any, of the drugs under development will be Hyman's
aspirin for depression. Some drug makers are taking entirely new approaches
to combating depression; the entries from Novartis, Warner-Lambert and
Pfizer are so young they have yet to be named.

In any event, drugs from giant companies are akin to children of blue-blood
families: they tend to succeed even when they are mediocre.

The market is certainly enormous; this year, sales of antidepressants in
the United States are expected to hit $6.3 billion, according to IMS
Health, a health care consulting firm. Depression costs American businesses
$23 billion a year in lost work time and productivity, according to the
National Foundation for Depressive Illness, making it one of the nation's
most expensive ailments.

It is also one of the most painful. People who cannot be helped by
medication are often forced to live with insomnia, fatigue and a pervasive
feeling of despair.

Lilly's corporate headquarters in Indianapolis is on the front lines of the
antidepressant battle. Walk into just about any meeting room there, and one
is likely to find executives scratching their heads over how to survive
"Year X" -- when Prozac loses its patent protections.

Exactly when that will happen is unclear, because the separate patents on
the drug's chemical makeup and how it works with a chemical in the brain
expire three years apart, beginning in 2001. Barr Laboratories has applied
to the Food and Drug Administration to make a generic Prozac, and Lilly has
sued, contending patent infringement.

Such legal battles can last for years -- particularly when a product as
valuable as Prozac is at stake. Seldom has one brand been so central to a
company's success. This year, Prozac will contribute nearly 30 percent of
Lilly's estimated $10 billion in worldwide sales, making it one of the
best-selling drugs ever.

To replace the revenue that will be lost once Prozac's patents expire,
Lilly plans to introduce several new drugs, including two antidepressants
and a compound that would relieve the complications of diabetes.

"We have plenty of strategies in place to prosper in Year X," said Sidney
Taurel, Lilly's chief executive. "The worst scenario that I'm expecting is
for earnings gains to fall into the single digits during Year X and then
climb back to double digits the year after."

If the company falls short, however, investors may want a word with Taurel.
Many analysts contend that the race to supplant Prozac should never have
begun. Instead, they say, LIlly should have maintained its stranglehold by
developing a replacement for Prozac sooner.

"Several pharmaceutical companies have had a problem replacing the drug
that made them famous," said Neil Sweig, a pharmaceuticals analyst with
Southeast Research Partners, a research firm. "It's a hard thing to do. One
thing in Lilly's favor, though, is that none of the antidepressants that
have

come out recently are better than Prozac. This is a fight that is just
beginning."

For Lilly shareholders, the big question is how soon Year X will arrive.
Sweig forecasts that Lilly earnings will rise to $2.958 billion in 2000, up
nearly 70 percent, excluding extraordinary charges, from last year's
levels. If Prozac has no generic competition in 2001, he says, Lilly's
earnings will increase 16 percent in 2001 and 15 percent more in 2002.

But if generics are able to eat away 50 percent of Prozac's sales, Sweig
says Lilly's earnings will be flat in 2001 before falling about 15 percent
a year later.

The introduction of Prozac in 1988 ushered in a new class of drugs that
were much more effective and had fewer side effects than older
antidepressants like Elavil and Tofranil. The new drugs, selective
serotonin reuptake inhibitors, or SSRIs, bolster serotonin, a brain
chemical believed to be deficient in some depressed people.

The drugs they largely displaced, a class called tricyclics, had operated
by bolstering the levels of serotonin and norepinephrine in the brain but
sometimes caused severe side effects.

No one, including Lilly's top executives, could have predicted Prozac's
effect on the world. In less than 10 years, it played a huge role in making
depression a socially acceptable illness.

In 1988, only 130.7 million prescriptions were written in the United States
for psychotherapeutics, which include antidepressants and antipsychotic and
anti-anxiety drugs. Prozac, or fluoxetine hydrochloride, had 1.45 million
of the total, according to IMS Health. By last year, the category had
expanded to 232.6 million prescriptions, with Prozac contributing 9.88
million.

With that success, it appears, it was easy for Lilly to get complacent. "It
is a valid criticism that we have a gap in our pipeline," said Dr. August
M. Watanabe, executive vice president for science and technology at Lilly.
"But the reason we call Prozac's expiration Year X is because we are not
certain when it is. And we may have plenty of time to develop new drugs."

Lilly has several options to protect Prozac's market, but none are easy.
Industry analysts have long expected the company to license a new version
of Prozac from Sepracor Inc., a specialty pharmaceutical company in
Marlborough, Mass., known for improving existing drugs largely by
eliminating their side effects. Such a deal, analysts say, could secure
Lilly's franchise, minimizing any potential loss of sales.

Lilly's chief executive, Taurel, declined to discuss the likelihood of an
agreement with Sepracor, and Sepracor officials also declined, perhaps
because no alliance is in the offing. Last week, David P. Southwell,
Sepracor's chief financial officer, said the company was pondering several
options for its purified form of Prozac. Sepracor itself might market the
drug, for example, or license it to one of Lilly's rivals, including
Schering-Plough or Johnson & Johnson.

"We have 65 salespeople now," Southwell said. "We didn't have any two
months ago. When we looked at the revenue stream -- we try to get royalties
from our products instead of taking cash up front -- we discovered we'd make

more money selling it with this little sales force than if we licensed it
to another company. But we are studying several possibilities."

Another potential problem for Lilly is Barr's challenge on the Prozac
patents. If Barr is successful, it will be allowed to sell a generic
version of the drug exclusively for six months before other competitors can
crowd in. Downey expects generic Prozac to take 75 percent of the brand's
sales -- about $2.25 billion -- in those first six months on the market.

Taurel dismissed the notion that Lilly could lose Prozac's patents before
2003. But if he thought he might lose to Barr in court, he probably could
afford to buy himself a little leeway. Because Barr is relatively tiny,
with only $377 million in annual sales, analysts have long speculated that
Lilly could settle the dispute, giving Barr a cash payment of $50 million
or so and the right to make generic Prozac sometime before 2003, but not as
soon as if Barr had prevailed in court.

However, a settlement appears unlikely. Downey, who spent 25 years as a
trial lawyer, said on Friday: "My goal is to win and launch. If there is a
settlement, that will be up to the other side." Taurel declined to comment
on any of these possibilities.

Any deal-making that sustains Prozac's hold on the marketplace could leave
many psychiatrists dissatisfied. Although doctors generally agree that
SSRIs are the best antidepressants yet, they have complaints about every
drug in the category -- Prozac in particular.

Paxil, by SmithKline Beecham; Zoloft, Pfizer's entry in the category, and
Celexa, a new SSRI by Warner-Lambert and Forest Laboratories, can take as
long as five weeks to take full effect. Prozac can, too -- but it takes as
long as four weeks to wash out of a patient's bloodstream after use is
discontinued, meaning that doctors must wait that long before prescribing
another drug. Prozac can also cause anxiety at first use.

Moreover, all four drugs, which together control about 96 percent of the
American antidepressant market, can cause sexual dysfunction. Adding to
that misery, SSRIs have no therapeutic effect in 20 percent of all cases
and cannot be safely mixed with several other commonly used medications.

Prozac "has not always been effective with people on either end of the
scale, the ones who are barely impaired and those who are very ill," said
Dr. Donald Klein, director of research at the New York State Psychiatric
Institute. "But Prozac is very effective with people in the middle."

Few drug makers can afford to stumble in the race for a new best-selling
antidepressant. Investors have come to expect quarterly earnings gains of
20 percent or higher from the big pharmaceutical companies, leaving little
room to write off hundreds of millions of dollars in research and
development costs for a drug that does not work.

To avoid such losses, drug companies typically try to develop multiple uses
for a single compound. The trailblazer is this regard was Glaxo Wellcome's
antidepressant Wellbutrin, which last year also began sales as Zyban, a
smoking-cessation medication.

With Prozac coming off patent, Lilly has learned to play this game, too.
One of its two new antidepressants is also under development as a treatment
for incontinence, an ailment that appears to be medically unrelated. The
drug, duloxetine, is expected to be released in 2001 as an
anti-incontinence pill and a year later as an antidepressant.

Some Lilly rivals say that the plans for duloxetine are a sign of
desperation -- that it is a lackluster antidepressant being trotted out to
market only because the company lacked a more formidable replacement for
Prozac.

Lilly officials acknowledge that they took another look at duloxetine
because of the approach of Year X, but they say the later, more accurate
tests proved the drug a more effective antidepressant than had been
originally believed.

Lilly says it also hopes that duloxetine will take effect more quickly than
Prozac. But it is unlikely to be as popular. Watanabe described duloxetine
as similar to Effexor, the new antidepressant of American Home Products.
Yet, Effexor has earned less than 4 percent of the national antidepressant
market since its introduction in 1993.

The problem, doctors say, is that when patients are satisfied with an
antidepressant they often refuse to switch, even to something that is
better.

Lilly's other new antidepressant is a combination of Prozac and Zyprexa,
its enormously successful antipsychotic drug. In a pilot study of 30 people
who had been treated unsuccessfully with two antidepressants, one group
received Prozac, another was given a placebo and a third group was given
the Prozac-Zyprexa combination. The group receiving the combination had a
sharply higher response, Lilly discovered, than those who had been given
Prozac alone or a placebo.

But the FDA gives closer scrutiny to any combination of drugs because of
possible interactions, so combining Zyprexa with Prozac could invite
regulatory delay.

Two other drugs under development appear to offer more hope of being the
kind of compound desired by both market analysts and doctors. Merck and
Novartis are among the companies working on one of them, which would
introduce a completely new class of antidepressant.

Instead of raising levels of certain chemicals in the brain, as the SSRIs
and other antidepressants do, this type of drug blocks receptors of a
chemical, known as Substance P, that is believed to affect depression.
Scientists discovered that by blocking the Substance P receptors, they
might treat everything from migranes to anxiety.

In the initial phases of trials on humans, Merck's drug has shown promising
results. In a recent six-week study, 213 people with moderate to severe
depression were given the Substance P blocker, a placebo or Paxil. Merck's
drug reduced depression as effectively as Paxil, without many of the side
effects -- notably sexual dysfunction.

"It's a novel way of treating depression, but we are still in the early
days of the program," said Dr. Scott Reines, vice president for clinical
research at Merck. "It's too early to tell if it will work with severely
depressed people. And there's no way we can say when it will be coming out."

The other contender appears to be Sepracor's new purified Prozac compound,
even though some doctors are skeptical about its effectiveness.

The drug has two enormous advantages: It will always be known as improved
Prozac, regardless of which company sells it. And it has a better chance of
approval by the FDA, given that the original version of Prozac has been
safely administered to millions of patients in the last 10 years.

"Hopefully, it will be have a quicker wash-out and substantially less
drug-to-drug interaction," Southwell, the Sepracor official, said.

Still, the company that develops the next big antidepressant must be able
to sell it. Sepracor's sales force of 65 is hardly competition for Lilly's
troop of 2,400.

Now that the FDA is permitting direct-to-consumer advertisements of
prescription drugs, any major pharmaceutical company could drum up a market
for a new antidepressant with a big advertising campaign. Sepracor lacks
the deep pockets for that, but Johnson & Johnson and Schering-Plough, with
which Sepracor may reach a licensing deal, are both shrewd television
marketers.

Schering used television ads to build a market for its Claritin
antihistamine, which is expected to have $3 billion in sales this year,
with 58 percent of the American antihistamine market. Johnson & Johnson is
one of the best known and respected consumer brands in the world.

Lilly, by contrast, with far less background in consumer marketing, ran its
first television ads on depression two months ago. But Taurel says he is
ready to take more risks and may advertise more ot its wares where
appropriate, to prop up Lilly's sales.

Doctors are watching the corporate dogfight with amusement. Lilly had no
clue that Prozac would be such an enormous success, and the owner of the
next giant antidepressant will probably not instantly grasp the full value
of its test-tube contents, either.

"You may never know where the next antidepressant may come from," Hyman
said. "So don't be so leery of a drug that is an antidepressant now when it
was originally created to treat something else. One of the first
antidepressants, iproniazid, was originally invented to treat tuberculosis."