Article Delivers a Blow to Philip Morris Stock : Smoking: Newspaper details years of company nicotine research. Specter of lawsuit liability raised.

The stock of Philip Morris Cos. fell sharply Thursday after a newspaper report sparked worries that nicotine may be regulated as a drug and that the world’s largest tobacco company could be more vulnerable in lawsuits.

The New York Times reported that Philip Morris, maker of Marlboro, Merit and other cigarette brands, conducted years of research on how nicotine affects the brain, body and behavior of smokers.

The New York-based company has argued that the nicotine in cigarettes should not be regulated as a drug, but documents show that company researchers used laboratory methods typically used in drug research to study how nicotine affects smokers, the newspaper reported.

The researchers wrote about the “pharmacologic” effects of nicotine, including its effect on heart rate, intestinal action, brain waves and general arousal, according to the report, which was based on 2,000 pages of documents that included previously undisclosed research, the newspaper said.

Peter Grossi, a lawyer for Philip Morris, acknowledged that the company has tested different levels of tar, nicotine and other components in cigarettes in an effort to determine consumer response and acceptance.

But, he said, “we have not deliberately varied the tar and nicotine ratios” of cigarettes.

Industry analysts said the report fueled investor fears over how the company’s products might be regulated and whether the company could be more vulnerable in product liability lawsuits.

Analyst Marc Cohen at Goldman, Sachs & Co. said there is nothing new in the report but that Wall Street investors were selling the stock anyway.

“I don’t think it’s a great revelation that nicotine has physiological and psychological effects,” Cohen said.

But “these are issues that are very uncomfortable for people to deal with,” he said. “It has an impact on the way investors think and view the stock.”

Philip Morris shares fell as much as $2.125 in early trading Thursday but recovered some ground and closed off $1.50 at $71.50 in consolidated New York Stock Exchange trading.

The company said it would release a statement on the newspaper report later Thursday.

Critics of tobacco companies told the New York Times that the studies indicate Philip Morris understood more completely than it has acknowledged the effects of cigarettes on smokers and failed to disclose information to regulators.

The nearly 15 years of research goes against recent company arguments that nicotine should not be regulated by laws applying to drugs, the newspaper report said.

John Coale, a Washington lawyer and part of a group of 60 lawyers that filed the nation’s largest class-action against the tobacco industry, said his group will attempt to get copies of the documents on which the article was based.

The class-action case, based on allegations that the industry hid information that nicotine causes addiction, is pending in New Orleans. The tobacco industry has asked a federal appeals court to review the decision that granted the case class-action status.