Elan plunges on illness report

Conor Keane, Business Correspondent

However, the shares rallied later in the day as the market digested the news.

The shares closed at 5.51, down 79 cents, a 12.54% fall on the day.

The US Food and Drug Administration (FDA) confirmed it was reviewing a link between Tysabri and a possible case of the rare brain infection PML.

"The case is being reviewed," FDA spokeswoman Lenore Gelb said.

The Boston Globe had reported that Biogen, with which Elan developed the treatment, had told the FDA a fourth patient may have contracted progressive multifocal leukoencephalopathy (PML).

Elan and partner Biogen withdrew Tysabri from the market in February after the drug was linked to the disorder, Two of three patients diagnosed with the disorder have died. However, the company continues to manufacture the product in a display of confidence that it will be allowed back on the market.

Shares in Swiss rival Serono, which also makes an MS drug, rose on the back of the report.

Responding to the Boston Globe report, Elan said it did not comment on rumours or individual cases going through the safety evaluation process. No one from Biogen was immediately available for comment.

Richard Parkes, analyst at ING in London, told Reuters it was difficult to gauge the potential impact of the report.

"If the story is true and the case is confirmed, it highlights two things the possibility that we could still see further cases, and the risks in trying to get the product back on to the market," he said. "It would not be good news. The share price was reflecting optimism that the product gets back to the market but I think it's early days it's pure speculation until the safety review is complete and we've seen the data."

The Boston Globe report said that because PML was so rare, confirmation of a new case could make it more difficult for Elan and Biogen to convince the FDA of the drug's safety.

Elan's share price has over the years been heavily influenced by US media reports.

In 2001, a story in the Wall Street Journal disclosing the possibility of Enron-like accounting, difficulties which led to an investigation by the US Securities and Exchange Commission (SEC), resulted in the share price going into freefall.

Last week, Elan chief executive Kelly Martin reiterated his confidence that Tysabri would return to the market.

At the company's annual meeting in Dublin, he said the safety probe into Tysabri was on track to conclude by mid-to-late summer, after which discussions with the FDA could begin.

Elan stock has fallen 70% since the suspension of Tysabri, and it had been pinning its hopes of a return to profitability on the drug. It clawed its way back from a brush with bankruptcy three years ago.

Additional reporting Reuters and Bloomberg.