INDIANAPOLIS, Aug 9 (Reuters) - Eli Lilly and Co. (LLY.N) said on Wednesday a U.S. federal appeals court reversed a decision from a lower court that had given the company's blockbuster antidepressant drug Prozac patent protection through 2003, raising the likelihood for early generic competition and sending Lilly's stock tumbling.

      In a victory for Barr Laboratories Inc. and other generic drug manufacturers, the court reversed a ruling by the U.S. District Court for the Southern District of Indiana that allowed Lilly to hold two patents on the world's No. 1 antidepressant.

      Assuming a ruling by a U.S. appeals court holds, Indianapolis-based Eli Lilly forecast single-digit earnings per share growth in 2001 and 2002, and said it expected that the entry of generic versions of Prozac into the market to have a financial impact spreading over the two calendar years.

      ``We'll likely see earnings declines in the second half of 2001 and the first half of 2002,'' Charles Golden, executive vice president and chief financial officer, said in a release. Earnings per share had grown by 18 percent between 1999 and 1998.

      Lilly shares tanked 33-7/16 in afternoon trading to 75-1/8 after being halted on the New York Stock Exchange pending the news. Barr Laboratories stock soared 31-5/16 to 77-3/4.    The news also sent shares of Sepracor (SEPR.O) reeling, down 19 percent to 104-1/2. Lilly has a licensing agreement to develop and sell Sepracor's R-fluoxetine, a variation of Prozac that is undergoing clinical trials and is believed to have fewer side effects.

      ``This is by far their No. 1 drug,'' said analyst Neil Sweig of Ryan, Beck-Southeast, referring to Lilly's Prozac. ``This is a significant negative event for Lilly.''    In a separate decision, the federal court affirmed the 2001 patent on Prozac, which recorded worldwide sales of $2.61 billion in 1999.

      Lilly, which also makes the popular osteoporosis drug Evista and schizophrenia drug Zyprexa, vowed to appeal the ruling against its 2003 patent.    ``Clearly, we are disappointed with the appellate court's ruling and I have instructed our attorneys to appeal the decision,'' Sidney Taurel, Lilly's chairman, president and chief executive, said in a statement.

      ``Without appeal, we'd expect generic competition by August 2001 at the very earliest,'' Lilly spokesman Ed West added. ``But we do plan to appeal.''    The rulings clear the way for generic Prozac to enter into the U.S. market sooner than mid-2004, which was when analysts had expected generic competition, analyst Len Yaffe of Bank of America said.

      Yaffe estimated Prozac sales will drop to about $2.5 billion this year.    ``This is a significant issue for Lilly, but one has to remember Lilly has many other (drugs) that are doing exceptionally well,'' he said, noting that Lilly also has a strong pipeline.   In a statement, Barr Laboratories pegged February 2001 as the earliest date for generic competition.

      ``We are pleased that after a thorough review the Court recognises the importance of restricting add-on patents solely designed to extend the patent life of blockbuster drugs at the expense of consumers,'' Bruce Downey, Barr's chairman and CEO, said in a statement.

      In 2002, analyst Sweig said, ``the generic floodgates will open.'' Lilly is looking at having its modified version of Prozac with Sepracor out late in 2002, if everything goes well during the clinical trial, Sweig said.