Elan's shares collapsed in value by almost 70% as the company withdrew Tysabri, its multiple sclerosis drug, after the death of a patient. All clinical trials on the drug were suspended immediately.
Tysabri was approved only last November and carried the hope that it would restore Elan to its turn-of-the-century glory, when it was briefly Ireland's most valuable company. The group then collapsed to the brink of receivership in 2002 after an accounting scandal.
Many analysts had forecast that Tysabri would become the standard drug for multiple sclerosis, a poorly treated disease, within two or three years. Approval had been fast-tracked by the US food and drug administration and peak annual sales of up to $3bn (£1.6bn) had been forecast.
Elan said yesterday that two patients had been diagnosed with an extremely rare disease of the nervous system called progressive multifocal leukoencephalopathy, or PML, and that one had died. Both had been taking Tysabri for two years in combination with Avonex, a drug made by Elan's development partner, the US company Biogen.
There is no proof that Tysabri, which acts by suppressing the immune system, was the cause of the PML cases. However, it will be the prime suspect as Avonex has been on the market since 1996.
Elan had hoped that Tysabri would have applications beyond multiple sclerosis. Some of the 3,000 patients who have been given Tysabri suffer from Crohn's disease and rheumatoid arthritis.
Kelly Martin, Elan's chief executive, expressed confidence that the drug would return quickly if no more cases of PML were found. "I think it is very plausible that, in the absence of anything new that we may find, this product would easily be back on the market by [autumn]," he said.
However, public awareness of drug safety has been heightened by high-profile failures such as Vioxx, Merck's painkiller. George Purges, an analyst at Bernstein & Co, said of Tysabri: "If the drug comes back, it will have a huge safety cloud over it."
The timing for Elan could not have been worse. Only this month it finally settled with the US securities and exchange commission over charges that it failed to disclose material information about its results in regulatory filings. The company paid a fine of $15m and Mr Martin predicted then that Elan could break even in 2006 if Tysabri sold well. The financial position now looks uncertain given that net debt is still at about $800m.
Hopes for Tysabri fuelled a threefold increase in Elan's share price during 2004 to more than €20. That was still a long way from the peak of €73, and yesterday's fall of €14.1 to €6.5 on the Irish market leaves the group valued at just €2.4bn (£1.7bn).
City followers were quick to point out that Elan's previous optimism over Tysabri had not prevented some significant sales of shares by directors last December.
The biggest was by John Groom, a non-executive director and former chief operating officer, who raised $9.45m, or almost £5m, by selling 350,000 of the firm's American depository shares.
Élan, the largest Irish pharmaceutical company, and its US partner Biogen have withdrawn the multiple sclerosis drug ''Tysabri'' from clinical trials after the death of a patient. The drug was seen by many as a possible blockbuster drug with the potential to alleviate much of the suffering of the millions of multiple sclerosis suffers worldwide. However it is now quite unlikely that it will ever make it to market.

The news has seen the shares of both companies fall steeply, with Élan having lost almost 70% of its value after Monday's announcement. Two years ago Élan was the largest Irish PLC, with a value in excess of $20bn, but an accountancy scandal saw its shares fall from over €73 to €1.50 within a few weeks. Since then the stock had risen back to trade between €16 and €18 a share on the back of good restructuring news. However the withdrawal of ''Tysabri'' leaves Elan with almost no potential future revenue streams.

Biogen shares which had hit a 52 week high of $70 just two weeks before the announcement have since fallen to just $41.26. Combined equity losses on Monday for the two firms was over $17.8 billion.

The paitent who died had been taken in combination with another drug - ''Avonex'' - for the last two years. If it emerges that the death was as a result of taking ''Avonex'', then it is possible ''Tysabri'' could be re-introduced to the market. However for the moment rivals will be seeking to steal a lead in the potentially lucrative MS drug market.