The shares fall wiped about pounds 40m off Protean's market value to pounds 70m following its warning that half-year profits to 30 September would be lower than current market expectations.
The company blamed management failures at DWA which compounded tougher trading conditions in the wake of German government spending cuts.
But Geoff Spink, managing director of Protean, said action was being taken to overcome the problem at DWA. A new managing director, Anita Sayer, had already replaced Armin Bechtel, the previous incumbent.
DWA, a water purification and renal dialysis business based near Heildelberg, was bought last year for pounds 12.9m. Protean said at the time that the deal was aimed at entering the German market and expanding sales of its existing products. In 1994, DWA made profits of about pounds 2m on sales of pounds 9m.
Mr Spink said: "We have essentially faced two problems. The first is that the German economy is facing cuts in public spending as a result of what Chancellor Kohl has called spending 'deferrals'. DWA is heavily dependent on government spending.
"The second problem is that our managing director was extremely good at strategic thinking but was unable to respond to the stimuli of what was happening to the economy."
In June, Protean reported a 37 per cent jump in full year pre-tax profits to pounds 10.3m.