UPDATE 3-Biogen, Elan shares plummet on new Tysabri review

* European regulators to review risk, benefit of Tysabri

* Review follows reports of 23 cases of PML worldwide

* Shares of Biogen fall 5.8 pct; Elan shares plunge 19 pct (Adds company comment, background)

BOSTON, Oct 23 - European regulators said they have begun a review of the multiple sclerosis drug Tysabri after reports of 23 cases of a potentially deadly brain infection.

Tysabri, made by U.S. biotechnology company Biogen Idec Inc and Elan Corp Plc of Ireland, was temporarily withdrawn from the market in 2005 after being linked with progressive multifocal leukoencephalopathy, or PML. It was reintroduced in July, 2006 with stricter safety warnings.

In September, the U.S. Food and Drug Administration said 13 cases of PML had been reported.

Tysabri is considered the most important driver of growth for both companies. Shares of Biogen fell 5.6 percent in midday trading. Shares of Elan fell 21 percent.

"These new cases are likely to alarm physicians whose comfort with the product had been increasing in recent months," said Sanford Bernstein analyst Geoffrey Porges.

The risks and uncertainties surrounding Tysabri have worked to dissuade buyers from acquiring Biogen, but according to Porges, the latest disclosure could make it easier to place a value on the company.

"If this increased risk becomes accepted by the company, physicians and regulators, and they all take appropriate action, the risk of Tysabri becomes defined rather than uncertain," he said. "With that defined risk, the revenue potential, and the associated liability, for an acquirer becomes more knowable."

Biogen and Elan sell Tysabri in a 50-50 partnership. Each has the exclusive right to acquire full ownership of Tysabri if the other is acquired.

The last time Biogen provided an update on the number of PML cases was in July, when it said 11 cases had been reported. Last month, the FDA said 13 cases had been confirmed. Four were reported in United States, adding that the risk of PML increased with the number of infusions.

Investors have speculated for some time that the risk of PML increases with the length of time a patient is on the drug. On Tuesday, Biogen said it has determined that the risk of PML does indeed increase with time.

The company said it was in discussions with the FDA to change the drug's label to reflect the conclusion. Currently the label says it is unclear whether there is a link between the risk of PML and duration of treatment.

It is possible the FDA will require Biogen to spell out that risk more definitively. Representatives from the FDA were not available to comment.

STOPS CASE BY CASE UPDATES

Biogen stopped updating investors on the number of PML cases at the end of July, saying it wanted to focus on the drug's benefits, and would update the medical community at scientific meetings.

Biogen spokeswoman Naomi Aoki declined to comment on Friday on whether the figure of 23 cases cited by the European agency was consistent with its own records, and she reiterated that the company would not update the public case by case.

Aoki said the risk of PML was still within the one in one thousand range listed in the drug's prescribing information. But some analysts think that may not last.

"If one assumes that the new PML cases occurred in patients with more than two years of therapy, the PML rate in this population approaches 1.3 in one thousand," said Geoffrey Meacham, an analyst at J.P. Morgan. "If the 23 PML cases is accurate ... then that would imply an additional 10 cases since early September."

The European Medicines Agency, Europe's top pharmaceuticals watchdog, said on its website it has initiated a review to discuss any additional measures necessary to ensure the safe use of Tysabri.

"At worst, we anticipate (the agency) may recommend a drug holiday after an extended period on therapy," said Christopher Raymond, an analyst at Robert W. Baird. "But it is unlikely to suspend Tysabri's marketing authorization."

Biogen's shares fell 5.8 percent to $44.50 in afternoon trading while shares of Elan fell 19.25 percent to $5.08.