Shares in drug maker Elan plunged by 52 per cent at the start of business on the Irish Stock Exchange this morning.
The fall came on news that a rare and often fatal disease has been diagnosed in a third patient receiving the company's suspended multiple sclerosis drug Tysabri.
Elan and Biogen suspended sales of Tysabri last month after one patient died from progressive multifocal leukoencephalopathy (PML) during a clinical trial of Tysabri in combination with Avonex, Biogen's older multiple sclerosis drug.
The disease was later confirmed in a second patient.
Elan and Biogen said the latest diagnosis was in a patient participating in a trial of Tysabri as a treatment for Crohn's disease who died in December 2003. The patient had been mistakenly diagnosed with brain cancer.
"This is bad. And it's bad because this was a patient who was not evidently on Avonex," said Mr Alexander Hittle of US stockbroker AG Edwards.
"The best hope for the drug was that (the PML cases) was in some way the result of a combination of Tysabri with Avonex, and Tysabri could be brought back onto market as a stand alone therapy. This is going to make it very tough for them to get Tysabri back onto the market."
Biogen and Elan said their evaluation of Tysabri's safety continues, involving assessment of about 3,000 clinical trial patients. Results of the evaluation will be discussed with regulatory agencies to determine the drug's future commercial availability, the companies said.
A Biogen spokesman said the safety review "is going to take months."
"This just lengthens the timeline and reduces the probability of this drug ever coming back to market," said Mr Geoff Porges, analyst for Sanford Bernstein.
Tysabri had been expected to be an important future growth driver for Biogen and was seen as crucial to Elan's fortunes.
Analysts in Dublin were also downbeat about Elan's prospects following the latest setback.
Mr Jack O'Gorman, pharmaceutical analyst at Davy stockbrokers, described the news as a "very bad blow" to Tysabri's hopes for return. "Though it should not alter the time taken for Elan's review of cases, at the very least it will mean it is now a more complex issue for the FDA to assess."
Mr Ian Hunter of Goodbody stockbrokers said the news "greatly reduces the likelihood of the drug coming to the market." Even if the drug is cleared for sale it will probably carry restrictive labelling, reducing the drug to a second-line treatment at most, Mr Hunter said.