LOS ANGELES/NEW YORK - Biogen Idec and Elan have notified regulators of two new cases of a potentially deadly brain disease in multiple sclerosis (MS) patients being treated with Tysabri.

Biogen shares dropped about 23 percent in after-hours trading, while Elan's shares fell 45 percent in New York.

"This is going to have very broad, very wide ramifications for the commercial prospects of the drug because there's just a lot of uncertainty here," said Cowen & Co analyst Eric Schmidt.

Tysabri, co-marketed by Ireland's Elan and Cambridge, Massachusetts-based Biogen, was withdrawn from the market in 2005 after three patients developed the brain infection known as progressive multifocal leukoencephalopathy (PML).

The drug returned to the market in 2006 with warnings after the U.S. Food and Drug Administration decided MS patients willing to accept the risks should be able to have access to the drug's potential benefits.

The two new PML patients, one of whom is hospitalized, are in the European Union, the companies said.

More cases are likely and physicians are likely to reduce the number of patients they start on the drug as they are reminded of long-term potential safety issues, Morgan Stanley analyst Steven Harr said in a research note.

Elan and Biogen said more than 31,800 patients were being treated with Tysabri as of the end of June and second-quarter sales totalled $200 million (100 million pounds).

"We've said all along, and the FDA has also stated and it's clearly outlined in our label that we expect to see additional cases of PML," Biogen spokeswoman Naomi Aoki said. "These are the first cases we've seen since the reintroduction in the U.S. and approval in Europe two years ago."

She said the company believes that heightened clinical vigilance has been the best way to monitor for PML and that heightened vigilance was critical in identifying these cases.

Schmidt said, the "key fear factor in the market place is going to be what happens when you treat beyond two, two and a half years ... Nobody knows the answer and that's kind of scary."

"I think you'll see a general pause in the market place, especially in the U.S., where safety has become more of a lightning rod issue, in part driven by the litigious nature of our society," the analyst said.

Tysabri also won U.S. approval this year to treat adults with moderate to severe Crohn's disease who have had a poor response to, or cannot take, other therapies.

Shares of Biogen, which closed at $69.76 on Nasdaq, fell to $53.68 after hours, while shares of Elan, which closed at $20.05 on the New York Stock Exchange, were trading at $11.00.

Elan's shares had already lost one-third of their value on Wednesday when investors sold the stock after disappointing data on an experimental Alzheimer's drug Elan is developing with Wyeth.

Biogen and Elan have a scheduled a conference call with analysts and investors for Friday morning.