What happened

Shares of Biogen (NASDAQ:BIIB) shed 29.2% of their value last month, according to data from S&P Global Market Intelligence. What went wrong for the biotech?

Biogen stock cratered in response to the news that its closely watched Alzheimer's disease drug candidate, aducanumab, was destined to miss its primary endpoints in two ongoing late-stage trials, according to a futility analysis performed by an independent data-monitoring committee. Biogen and partner Eisai, in turn, decided to discontinue aducanumab's clinical development on the heels of this disappointing outcome.  

Falling stock chart laid over columns of blue numbers

Image source: Getty Images.

So what

There are two interrelated reasons why this clinical setback knocked nearly $20 billion off of Biogen's market cap last month. First, aducanumab was projected to become one of the world's best-selling drugs in the next decade. Underscoring this point, a recent report by EvaluatePharma had the drug's net present value pegged at an eye-catching $7.4 billion. That's a lot of potential revenue to lose in a single day. 

Second, Biogen's management arguably didn't prepare the company for this high-value clinical failure. Even though Alzheimer's disease has been a graveyard for experimental medications for the better part of the past two decades, the biotech's management decided against a bolt-on acquisition in the buildup to this readout. As a result, aducanumab was a central part of the biotech's long-term outlook heading into this futility analysis.  

Now what

Biogen needs to go shopping. The company's multiple sclerosis and rare-disease franchises are both facing new competitive threats, and its pipeline probably can't usher in a new era of growth as currently constructed. 

The good news is that Biogen does have the financial capacity (approximately $20 billion) to pursue one or more midsize acquisitions to address this issue. Moreover, there are several companies -- such as Acadia PharmaceuticalsGW Pharmaceuticals, Sage Therapeutics, and Sarepta Therapeutics -- that would fit the bill nicely. Each one of these biopharmas sports a novel drug capable of generating healthy levels of growth.

Biogen, however, has never shown much of an appetite for high-priced acquisitions. And these particular names won't come cheap. As such, investors shouldn't buy this top biotech stock solely on the assumption that a game-changing deal is imminent.