Biogen (BIIB -1.24%) has gotten off to a great start in 2017 in some respects. The biotech launched promising new spinal muscular atrophy drug (SMA) Spinraza. The Committee for Medicinal Products for Human Use (CHMP) recommended approval for Spinraza in Europe. Biogen spun off its hemophilia business, setting up Bioverativ (BIVV) as a separate entity. 

But with all of this good news, Biogen stock is trading at nearly the same level as it did at the beginning of 2017. Do Biogen shareholders have something to worry about? I think so.

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Image source: Getty Images.

Losing steam 

Biogen achieved its success through the years on the strength of its multiple sclerosis (MS) drugs. However, the company's MS franchise appears to be losing steam.

In the first quarter, Biogen reported double-digit percentage sales increases for only one MS drug -- Tysabri. Top-selling Tecfidera grew sales but by an anemic 1% compared to the prior-year period. Sales for Plegridy increased by only 5% year over year. Revenue generated from Avonex fell 5% from the first quarter of 2016.

That increase for Tysabri also comes with an asterisk. More than 60% of the first-quarter sales increase for the drug stemmed from Biogen receiving payment from the Italian National Medicines Agency for Tysabri sales in prior periods.

It's probably going to get worse in the months ahead for the company's MS drug sales. Roche (RHHBY 1.16%) won U.S. approval for Ocrevus in March. Although Biogen originally developed the drug, Roche licensed it and will keep the lion's share of profits. 

Biogen CFO Paul Clancy acknowledged in the first-quarter conference call that the company expects Ocrevus will hurt its MS franchise sales, with royalties only partly offsetting the losses. Tysabri will likely be most impacted by Roche's new product, but Ocrevus could also take some market share away from Tecfidera.

A risky pipeline

At least Biogen has a strong pipeline chock-full of new MS drugs ready to step up to battle back against Roche. Oh, wait, it doesn't. The biotech doesn't have any late-stage MS candidates in its pipeline. There's only one phase 2 experimental drug -- opicinumab. And the phase 2 study for the anti-LINGO drug doesn't start until the fourth quarter of this year.

What about other prospects in Biogen's pipeline? The company has three late-stage candidates. Two of them target treatment of Alzheimer's disease. Aducanumab is a monoclonal antibody that could reduce amyloid plaques in the brain. E2609 is a BACE inhibitor that blocks amyloid production. 

Others have tried similar approaches in treating Alzheimer's disease and failed miserably. Eli Lilly's monoclonal antibody solanezumab didn't prove effective in a late-stage study last year. Merck threw in the towel on its late-stage BACE inhibitor verubecestat earlier this year. 

Biogen reported encouraging results from an early-stage study of aducanumab in the fourth quarter of 2016. It's possible that the experimental drug could prove successful where others haven't. However, there is certainly a high level of risk associated with Biogen's Alzheimer's disease efforts.

The third late-stage candidate in Biogen's pipeline is Gazyva, which is already on the market for treating chronic lymphocytic leukemia. A phase 3 study is underway for the drug in targeting non-Hodgkin's lymphoma (NHL). As with Ocrevus, though, Roche owns the marketing rights for Gazyva. Approval for the drug in the NHL indication would be good news for Biogen but not enough to offset problems for its MS franchise.

Worry but don't panic

Biogen's hopes are pinned largely on Spinraza for now. There's no doubt that the drug will be a big success. Analysts think Spinraza could reach peak annual sales of around $2.5 billion. Biogen will have to pay royalties to Ionis, but it will reap most of the rewards from the SMA drug. 

Spinraza, though, won't be enough by itself to generate growth if Ocrevus takes a big bite out of the market share for Tysabri and Tecfidera. The expected benefits of the Bioverativ spinoff might not be what Biogen expected, either. The newly formed biotech faces its own competitive challenges in the hemophilia market.

Biogen should be able to still grow earnings, albeit slowly, with the current MS franchise and good progress for Spinraza. And if the company's Alzheimer's disease program is successful, that would be a game changer. Biogen investors probably should be at least somewhat worried about the challenges facing the biotech. However, there's no need for panic.