Shares in generic-drug maker Barr Laboratories (BRL) opened higher Thursday after a federal appeals court ruled late Wednesday to permit the company to sell a generic version of the antidepressant drug Prozac.

The court ruling was a setback for drugmaker

Eli Lilly

(LLY) - Get Report

, which racked up $2.5 billion in Prozac sales in 2000. Few expected Lilly to win this fight, but shares in the company still fell Thursday.

Shares in Barr rose $3.01, or 4.4%, to $70.71 in early Thursday trading. Lilly shares were off $1.25, or 1.5%, to $83.45.

Lilly said Wednesday that it is reviewing further legal options, including an appeal to the

Supreme Court

, but most analysts believe the company has little hope of keeping Barr and its generic Prozac at bay. The only questions still remaining are when the generic version will hit the market, and how long Barr will be able to sell the generic version exclusively.

In a conference call Thursday morning, Barr CEO Bruce Downey crowed over the court ruling, but conceded that the expected Aug. 3 launch date for the company's generic product might be pushed back slightly until all the legal loose ends are tied up.

"We won again and they lost again," said Downey, referring to a legal battle with Lilly over Prozac patents that goes back to last year. "We expect to get final approval from the

Food and Drug Administration

on Aug. 2, but there may be legal events that stop it. If final procedural matters extend into August, that might extend our launch date a bit, but we have confidence of being able to sell

generic Prozac in the July quarter."

UBS Warburg

analyst Steven Valiquette believes Barr will sell $375 million of generic Prozac in fiscal 2002, which begins in July 2001. Valiquette has a buy rating on Barr and his firm has done underwriting for the company.

On the flip side, generic competition will decimate Lilly's Prozac sales. Drug analyst Richard Evans of

Sanford Bernstein

has predicted that sales will fall from $2.5 billion in 2000 to $1.8 billion in 2001 and $500 million in 2002. Evans rates Lilly underperform and his firm doesn't do investment banking.

Under U.S. law, Barr, as the first challenger to Lilly's Prozac patent, is entitled to a 180-day window of exclusivity to sell its product, beginning on the day of the final court decision or at product launch. But Lilly is also entitled to a six-month extension on its exclusivity to test Prozac for pediatric use. Debate is under way to determine whether these two conflicting exclusivity periods should run concurrently or sequentially. The FDA has leaned early toward a concurrent decision, which would reduce Barr's exclusive selling window to four and half months.

But several members of


have stepped up to bat for Barr, pushing for a sequential decision, which would give Barr the full six-month window. A final decision by the FDA is expected in July.