Updated from 12:02 p.m. EDT

Forest Laboratories


shares fell hard Wednesday after the drugmaker said it expects fourth-quarter earnings to be lower than previously expected.

Shares dropped $4.11, or 10.8%, to 33.88. More than 12.5 million shares changed hands, some five times the average daily volume.

The company expects EPS of 40 cents before a one-time charge, compared with 52 cents expected by analysts surveyed by Thomson First Call. The company is taking a charge of $91 million in taxes, or 25 a share, related to the repatriation of $1.24 billion in overseas profit under the American Jobs Creation Act. After the charge, the company expects earnings of 15 cents a share vs. 38 cents a share a year ago.

Revenue for the quarter is seen at about $614 million.

The New York-based company blamed reduced inventory levels at wholesalers and chains and lower-than-expected sales of its antidepressant drugs Celexa and Lexapro. The company recorded only $6 million in sales of its antidepressant Celexa, saying wholesalers are continuing to work off high inventory levels after the introduction of generic versions of the drug in October of last year. Despite Lexapro's increased market share of prescriptions, sales fell to $400 million from $427 million last quarter as wholesalers reduced inventories.

But the earnings shortfall can't be blamed solely on wholesaler destocking, according to a note from Avalon Research Group. "This is a classic example of where Wall Street blindly accepts what management has said without doing the fundamental research," says Nathan Sadeghi, Avalon's director of health care research. "Forest was wildly overvalued," he says. He believes Forest's earnings are at risk and says it will be difficult to expand Lexapro business, since Celexa and Lexapro are "not meaningfully different" and a generic version of Celexa is now available.

The company also blamed lowered earnings on an overall decline in antidepressant prescriptions.

Last week the Food and Drug Administration rejected the company's application to market Lexapro as a treatment of social anxiety disorder; it previously rejected Forest's application to market the drug as a treatment for panic disorder.