Shares of Biogen [NASDAQ:BIIB] plunged 4.34% to close at $391.74 per share on July 22 after the company released mixed data from the PRIME clinical trail Phase 1b study of its investigational Alzheimer’s drug BIIB037 (aducanumab), designed to lower levels of toxic beta amyloid beta in the brain. In the study, patients with prodromal or mild Alzheimer’s disease are treated with dosages of varying strength (1-mg, 3-mg, 6-mg and 10-mg) to evaluate the efficacy of the drug.

Consistent with previous results reported in March, the 54-week data from the 6-mg dosage obtained from PET imaging to measure plaque levels, demonstrated a statistically significant reduction of amyloid in the brain. Biogen uses two scales to measure the level of clinical decline associated with the Alzheimer’s Mini Mental State Examination, or MMSE, and clinical dementia rating sum of boxes, or CDR-SB. 
In the MMSE test for the diagnosis of dementia and for the assessment of its progression and severity, Biogen said the difference in results was statistically significant only for the 3-mg and 10-mg dosages. In the CDR-SB test for the evaluation of staging severity of dementia, the difference in results was statistically significant only for the 10-mg dosage. The bottom line is that the drug seemed to slow the progression of Alzheimer’s but failed to show a statistically significant improvement in cognition on the MMSE and CDR-SB scales.

Biogen shares plunged 22.08% on Friday to close at $300.03 per share after the company said they see a sharp slowdown in sales growth for its multiple-sclerosis drug, Tecfidera (dimethyl fumarate), and trimmed its earnings outlook for the full year. In the second-quarter ended June 2015, Biogen reported total revenues of $2.59 billion, up 7% year-over-year and non-GAAP diluted earnings per share (EPS) of $3.93, up 29.8% year-over-year. Wall Street was expecting earnings of $4.10 per share on revenues of $2.71 billion. 

The company reported Tecfidera (dimethyl fumarate) sales of $883.3 million, up 7% quarter-on-quarter, and 26% year-on-year, missing Wall Street expectations of $941.8 million. Biogen said that the decline was impacted by foreign exchanges, particularly in Germany where the unit volume increased.

Interferon revenues, including Avonex (interferon beta 1a) and Plegridy (peginterferon beta-1a), were $690 million compared to $774 million in the same quarter last year. The company said that the majority of the sales decrease was in the U.S., due to an inventory reduction in the wholesale channel. 

Tysabri (natalizumab) revenues were down 13% to $463 million, compared to $533 million in the same quarter last year. The company blamed the decline in revenues outside the U.S. on the recognition of $54 million of previously deferred revenues in Italy in the second quarter of 2014.

Net revenues relating to cancer drugs Rituxan (rituximab) and Gazyva (obinutuzumab) were $338 million compared to $303 million in the same quarter last year. Hemophilia drugs, Alprolix and Eloctate, posted sales of $74 million and $54 million, respectively, compared to $54 million and $43 million in the first-quarter 2015. 

Looking forward, Biogen cut its revenue growth to approximately 6% to 8% compared to 2014, largely due to revised downward expectations for the growth of Tecfidera (dimethyl fumarate). For 2015, the company also cut its adjusted EPS outlook to between $15.50 and $15.95 per share, below the consensus of $16.63 per share. 

Biogen said they are still continuing the development of Tysabri (natalizumab) for acute ischemic stroke, despite that the results from the Phase 2 study failed to meet its primary objective in a mid-stage study of stroke patients. The company also said that in April 2015, the U.S. Food and Drug Administration accepted for review the Biologics License Application for Zinbryta for the treatment of relapsing forms of multiple sclerosis. Zinbryta is being jointly developed by Biogen and AbbVie [NYSE:ABBV].

Biogen is still facing patent litigation from Danish company, Forward Pharma [NASDAQ:FWP], over patent rights for the small molecule dimethyl fumarate (DMF), the same active compound in Biogen’s Tecfidera. In November, Forward Pharma filed a patent infringement lawsuit against Biogen in Germany and asked for damages.

From our technical viewpoint, BIIB is traded at the bottom of the 5-year up trend channel. The stock is moving in an ascending wedge, meaning there is a significant downside risk if the company releases more negative news. In a Bloomberg report, Evercore ISI analyst Umer Raffat said in a July 25 note that Allergan [NYSE:AGN] might be interested buying Biogen or AbbVie. In the case that Allergan buys Biogen, BIIB stock could skyrocket to the top of the trading channel, between $425 and $450 per share.

According to Yahoo Finance, the stock has a one-year price target of $392.13 per share. Biogen will release its third quarter 2015 earnings report in October. Wall Street is expecting revenues of $2.66 billion, up 6% year-on-year, and an EPS of $3.95 per share, up 3.9% year-on-year.

Disclosure: Long Positions in BIIB, ABBV and AGN. No positions in other companies mentioned.