"This is a huge blow to Tysabri," Jack Gorman, an analyst at Davy, which acts as stockbroker to Elan, said in a research note.
"Although the risk management programme seems to have picked them up quickly, which is good, the impact on neurologist take-up puts our forecasts at serious risk."
Second-quarter sales of the product totalled $200 million.
The latest slide means shares in Dublin-based Elan have lost three quarters of their value this week. The stock slumped 30 percent on Wednesday after disappointing dataon an experimental Alzheimer's drug Elan is developing with Wyeth. (See accompanying video for more on Elan and Biogen's stocks...)
The shares were off 54 percent at 6.20 euros in morning trading, after a low of 4 euros.
The news delivered a fresh blow to the Irish stock market which is the world's second worst performing behind Vietnam over the last 12 months. Elan's slide dragged the Irish Stock Exchange Index 7 percent lower on Friday.
Elan had been one of the few gainers this year on a market that has slumped 60 percent since early 2007 and is heavily weighted with banks and construction companies hit by the bursting of Ireland's property bubble.
Elan, whose recovery from a brush with bankruptcy in 2002 has been linked closely to Tysabri, will hold a conference call with Biogen at 1:30 pm London time.
No Plany to Pull Drug
Tysabri was withdrawn in 2005 after three patients developed the potentially deadly brain infection progressive multifocal leukoencephalopathy (PML). The drug returned to the market in
2006 with warnings and tougher prescription guidelines.
A company spokeswoman said the withdrawal of Tysabri was not under consideration, adding that new cases of PML had always been expected.
"The benefit-risk profile of Tysabri remains favorable," she said.
Tysabri and bapineuzumab, the experimental Alzheimer's drug under development with Wyeth, accounted for most of the value in analysts' financial models for Elan -- at least up until this
Gorman said his sum-of-the-parts $27-32 valuation for the group's U.S. shares attributed $16.50 a share to Alzheimer's, $8.50 to Tysabri and the balance to other operations, including
the drug technology unit that Elan is looking to sell or float.
That calculation is now under review after the stock hit $11 in after-hours trade in New York on Thursday.
UBS and Credit Suisse analysts cut their price targets for the Dublin-listed shares to 14 from 24 euros and to 16 from 20 euros respectively.
Elan and Biogen sought to put the latest brain disease cases in perspective, pointing out that more than 31,800 patients were being treated with Tysabri as of the end of June.
The partners hope to get 100,000 patients on therapy by the end of 2010.
Goodbody analyst Ian Hunter agreed the number of PML cases was extremely low but said the fact that both cases occurred in patients who had been on the drug for over a year was a concern.