Another one bites the dust in the quest to develop an effective Alzheimer's disease treatment.

Biogen (BIIB 0.78%) and its partner, Japanese drugmaker Eisai, announced that they would halt two late-stage clinical studies evaluating aducanumab in treating Alzheimer's disease. The decision came after an independent data-monitoring committee for the clinical studies determined that the experimental drug was unlikely to be effective.

Shares of Biogen plunged 28% in early trading on Thursday following the announcement. The stunning setback for the biotech's most promising pipeline candidate left investors with a key question: What's next for Biogen after its Alzheimer's disease drug flop?

"Alzheimers" spelled in wooden blocks with more wooden blocks with letters on them in the background.

Image source: Getty Images.

Game over for a potential blockbuster

As recently as 2017, aducanumab was ranked by market research company EvaluatePharma as the most valuable pipeline asset in the biopharmaceutical industry. The drug slipped a little in the company's 2018 analysis, though, falling to No. 3. EvaluatePharma noted at the time that Biogen's approach to treating Alzheimer's disease was "a high-risk strategy but has the potential for high rewards."

The high risk the research company mentioned stemmed from multiple setbacks for experimental drugs targeting the treatment of Alzheimer's disease. Around 200 Alzheimer's drugs have failed in clinical studies over the years, including high-profile flops for drugs developed by Eli Lilly, Johnson & Johnson, and Pfizer.

A common denominator for many of these drugs was that they focused on addressing the buildup of amyloid protein deposits in brain cells. The "amyloid hypothesis" on which these therapies were based theorized that amyloid deposits cause Alzheimer's disease by disrupting the communication between brain cells, eventually leading to the death of the cells. Like many of its failed predecessors, aducanumab also targeted amyloid proteins.

Biogen had hoped that aducanumab would be successful where others weren't after the company reported promising results from a phase 2 study in late 2016. Some even speculated that the drug could be a game changer in treating Alzheimer's.

Now, however, the game is over for aducanumab. Biogen isn't just discontinuing its phase 3 studies of the drug, it's also throwing in the towel on a couple of earlier-stage clinical studies.

Check out the latest earnings call transcript for Biogen.

A flagging flagship franchise

The late-stage failure for aducanumab is especially devastating for Biogen because the biotech is beginning to need new sources for growth. Sales for Biogen's flagship multiple sclerosis (MS) franchise fell by 4.3% from the prior year in 2018.

Perhaps Biogen's worst headache with its MS drugs is the stiff competition for interferon products Avonex and Plegridy. Sales of the two sank more than 10% last year to around $2.4 billion.

Zinbryta's sales nearly evaporated in 2018 after Biogen and partner AbbVie withdrew the product from the market in the treatment of relapsed MS because of patient safety issues. However, the drug contributed less than $53 million for Biogen at its peak.

Biogen's best-selling drug, Tecfidera, is treading water at best. Sales for the MS drug increased by only 1.4% in 2018, and that growth stemmed solely from price increases. With politicians from both major parties wanting to eliminate major prescription drug price hikes, Biogen could find it more difficult to generate sales growth for Tecfidera in the future.

Other challenges

One bright spot for Biogen is its spinal muscular atrophy (SMA) drug, Spinraza. Sales for the drug in 2018 nearly doubled from the previous year to $1.7 billion.

However, the growth rate for Spinraza has tapered off. Biogen reported flat quarter-over-quarter revenue from the drug in the fourth quarter of 2018. In addition, Spinraza could face competition soon, with Novartis anticipating FDA approval of gene therapy Zolgensma in May.

What about Biogen's pipeline? The picture doesn't look great, especially with aducanumab crossed off the list. Biogen now has only three pipeline candidates in late-stage clinical studies.

One of them, elenbecestat, targets Alzheimer's disease by attempting to block the production of amyloid proteins. Another MS treatment, BIIB098, could win FDA approval by late 2019, but it could also cannibalize sales of Tecfidera.

Biogen's best bet

Biogen does have several promising programs in phase 2 clinical studies. MS drug opicinumab, especially, stands out. It will be years, though, before any of the company's pipeline candidates could be moneymakers.

Probably the best bet for Biogen at this point is to go shopping. The company had $4.9 billion in cash, cash equivalents, and marketable securities as of the end of 2018, and it has a manageable debt level. With aducanumab's flop, it makes sense for Biogen to use some of its financial flexibility to bolster its late-stage pipeline through acquisitions or licensing deals.

But Biogen shouldn't bet the farm on one candidate. The rise and fall of aducanumab provides a cautionary tale for all biotechs.