Well, I'm not always sure on such severe medication like Prozac. Maybe try a homeopathic solution first. There is great herbs that help with stress. Just ask your vet about it.
I've heard about this but haven't seen or heard from friends that anybody actually has known of a case like this. Hopefully they find what it is, soon. Poor kitties.
I'm sure it'll be fine. Even if it just grows back around the incision you will most likely not be able to see it. Your kitty will be just fine. I know we tend to worry about that, but I'm sure he feels fine.
It does sound like an allergy. Just get it checked, and write down a list of stuff that might be new in his environment. That will help the vet to make find out what it is caused by.