Elan shares gave up almost one-fifth of their value on the Dublin market yesterday. Investors took their lead from the US where the stock fell sharply overnight following news that the US regulator had only partly approved the return of multiple sclerosis drug Tysabri to the market.

Market sources said several factors contributed to the sell-off of Elan stock.

The immediate market reaction to the US Food and Drug Administration (FDA) approval focused on what was seen as the more restrictive than expected recommendations on usage of the breakthrough drug.

However, there was a feeling among traders that a number of investors sold the shares "on the news" after chasing the price up in recent weeks on the expectation of a favourable ruling from the FDA. Short-sellers looking to protect hedged positions were also understood to have been active in the market.

By the close last night, Elan was trading 18.3 per cent weaker in Dublin on €12.06 in what was a falling market.

Earlier, Elan and its US partner Biogen hosted a conference call for analysts in which they emphasised the need for a gradual roll-out of the drug.

However, the two companies were quick to point out that, while the FDA recommendation was for use in patients who "have not responded adequately to, or cannot tolerate, other treatments", there was no prohibition in the labelling on the use of Tysabri as a first-line treatment.

The wording of the FDA recommendation was behind several analysts' bearish view of the stock. Citigroup's Andrew Swanson said the drug had been effectively restricted to use as a second-line therapy. "We believe the restrictive indication and the risk management programme will limit Elan's ability to sell enough Tysabri to justify the current valuation," he said.

In Dublin, Jack Gorman, analyst at Elan's broker Davy, was more upbeat. "In our view, the FDA label, alongside the European equivalent, allows Tysabri to pursue an addressable global market of approximately 450,000-500,000 patients."

He acknowledged that patients who have quit other MS therapies - estimated to number 50,000 in the US alone - are the most obvious near-term target.

Elan, which expects European approval of the drug to follow in July, reckons it needs 20,000 patients to break even.

The company hopes to start dosing commercial patients in July after completion of an educational programme for therapists, who will have to indicate in writing that they recommend the drug while patients will have to sign that they understand the risks.