Watson Shares Fall After Warning

Watson Pharmaceuticals Inc. said Monday that its third-quarter profit will miss forecasts after a court order barred the generic drug maker from distributing copyright-protected educational materials with its new smoking cessation gum.

The news sent Watson shares down $3.75, or 10%, to close at $33 on the New York Stock Exchange.

The Corona-based company will miss estimates by 6 to 7 cents a share, it said. Watson was expected to earn 45 cents, the average estimate of nine analysts surveyed by First Call Corp.

The loss of revenue and costs of inventory and introducing the Polacrilex gum could total as much as $10 million, the company said. Watson had 1998 sales of $556.1 million.

“This will be the first time since Watson went public it will miss estimates,” said Michael Krensavage, an analyst with Brown Bros., Harriman & Co. in New York. Watson went public in 1993.

Watson was sued by SmithKline Beecham after it unveiled Polacrilex, a generic equivalent of SmithKline’s Nicorette gum. SmithKline said the user guide and audiotape included with Watson’s gum infringes its copyright. SmithKline sought damages as well as a ban on sales of the gum.

Watson had denied the allegations, saying federal guidelines require generic manufacturers to use the same labeling the original maker used.

Watson must stop selling the gum with a guide or tape that is “strikingly or substantially similar” to SmithKline’s during the case, a federal judge in New York ruled Friday. The court also ordered Watson to recall products it had already shipped.

Watson shares have fallen 45% this year on a series of run-ins with regulators. The company in July halted production of two drugs amid a probe by the Food and Drug Administration of its Corona plant’s manufacturing processes. Earlier this year, the FDA warned Watson that its Oclassen Pharmaceuticals unit did not properly emphasize risks in brochures promoting a genital warts treatment.

SmithKline’s American depositary receipts, each representing five shares, fell 31 cents to close at $61.81 on the NYSE.