In just three weeks, Biogen (NASDAQ:BIIB) gave up most of the gains its stock had built over the past 12 months. The general stock market pullback was one factor behind the decline, of course. However, Biogen also had its own issues that were even more significant.

Should investors consider buying Biogen stock on the dip? It's best to first understand the risks the company faces in the future before making a decision.

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Alzheimer's worries

Two developments last week negatively affected Biogen. First, Merck (NYSE:MRK) announced on Feb. 13 that it was discontinuing a late-stage study evaluating BACE1 inhibitor verubecestat in treating Alzheimer's disease. Biogen and partner Eisai also have a BACE1 inhibitor, E2609, in late-stage testing.

Merck's announcement wasn't a shock. Verubecestat had already flopped in a phase 2/3 clinical study targeting treatment of Alzheimer's disease last year. However, it marked yet another in a string of Alzheimer's disease clinical failures for pharma companies. And it raised doubts about whether Biogen's BACE1 inhibitor candidate will be successful.

But Biogen's lead Alzheimer's candidate, aducanumab, isn't a BACE1 inhibitor. Aducanumab is a monoclonal antibody that attempts to reduce amyloid plaques in the brain, potentially slowing the progress of Alzheimer's disease. BACE1 inhibitors try to prevent buildup of amyloid plaque. Merck's failure with verubecestat shouldn't have any bearing on the prospects for aducanumab.

However, Biogen's chief medical officer, Alfred Sandrock, told analysts at the Leerink healthcare conference on Feb. 14 that it's expanding the number of patients in its late-stage study for aducanumab by 510 patients to deal with greater-than-expected variability in the primary endpoint. This news caused Biogen stock to sink over increased fears about the risk of failure for aducanumab.

Despite the latest developments, Sandrock stated that Biogen "still believes in the amyloid hypothesis," referring to the idea that amyloid deposits cause Alzheimer's disease. A competing view, called the tau hypothesis, speculates that the disease is caused by accumulation of tau protein rather than amyloid buildup. 

More problems

Biogen also faces other challenges. The biotech had hoped to pick up another approved indication in treating stroke for blockbuster multiple sclerosis (MS) drug Tysabri. However, Biogen halted a phase 2 study earlier this month after the drug didn't prove more effective than a placebo.

The bigger issues for Biogen, though, stem from competition for its current products. Roche's (NASDAQOTH:RHHBY) Ocrevus presents a threat to Tecfidera and Tysabri, two of Biogen's biggest moneymakers. Although Biogen receives royalties from sales of Ocrevus, the negatives of lost market share for its existing products outweigh the positives from those royalties.

Celgene's (NASDAQ:CELG) ozanimod could be another formidable rival to Tecfidera. Ozanimod could have the best safety profile among newer MS drugs. Celgene expects FDA approval for the drug later this year.

Then there's spinal muscular atrophy (SMA) drug Spinraza. The drug enjoyed a great first full year on the market in 2017, generating sales of nearly $884 million. However, competition could be on the way. 

Avexis (NASDAQ:AVXS) is evaluating gene-therapy drug AVXS-101 in a pivotal clinical study for treating SMA type 1, the most severe form of the disease. The clinical-stage biotech also has a phase 1 study under way for AVXS-101 in treating SMA type 2. Although Avexis is still at least a couple of years away from filing for approval for its drug, Biogen might not have a monopoly in treating SMA for too much longer. 

A buying opportunity?

Biogen doesn't have a great answer to challenges facing its MS franchise. That makes continued success for Spinraza and good results for aducanumab critical to the biotech.

One potential solution for addressing the threat that AVXS-101 presents to Spinraza could be for Biogen to buy Avexis. Biogen had $6.75 billion in cash, cash equivalents, and marketable securities at the end of 2017. It could afford to scoop up Avexis, which currently has a market cap around $4.3 billion.

However, there's not much Biogen can do about potential risks for aducanumab. It's hard to overstate the importance of the Alzheimer's drug to Biogen's future. Market research firm EvaluatePharma ranks aducanumab as the most valuable pipeline asset in the biopharmaceutical industry. If eventually approved, the drug could easily make more than $10 billion annually at its peak -- and perhaps much more.

So does buying Biogen on the dip make sense? It depends largely on what you think the prospects for aducanumab are, and I think there are biotech stocks with better risk-reward profiles than Biogen. If the company's lead Alzheimer's disease candidate delivers on its potential, Biogen stock is a bargain right now. The problem is that there's no way to know if that will happen.

Keith Speights owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.