It seems like Biogen (NASDAQ:BIIB) just can't catch a break. In March, the biotech giant's late-stage Alzheimer's disease program imploded and now the only product pushing the needle forward is under an economic microscope.

The Institute for Clinical and Economic Review (ICER) is a drug pricing think tank that recently released a 200-page report that explains why Biogen's lead growth driver, Spinraza, is overpriced. If you think that explaining why a $125,000 injection is too expensive seems like a job for Captain Obvious, you're not alone.

Before you completely dismiss ICER's conclusions as a waste of time, though, there are a few details in the report that should make Biogen investors a little more nervous than they already are. 

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Measuring quality

How much is one year completely free of health problems worth? It's not an easy question to answer, but budget-minded governments outside of the U.S. generally refuse to pay more than $150,000 per year. According to ICER, Spinraza adds just 3.24 quality-adjusted life years to a patient with type 1 spinal muscular atrophy (SMA).

Spinraza treatment requires extra loading doses that lift its cost to $750,000 for the first year and $375,000 each year thereafter. The injections must be delivered through a spinal tap, which blows up nontreatment costs as well. According to ICER, each quality-adjusted life year added by Spinraza costs around $1.1 million, which is way beyond the $150,000 boundary that usually defines a cost-effective drug.

A tough competitor on the horizon

Although SMA is the most common genetic cause of infant deaths in the U.S., the affected population is limited to perhaps 25,000 patients. In a couple of months, Biogen may have to begin sharing this limited population. The FDA is currently reviewing an application for a potential new gene therapy for SMA from Novartis (NYSE:NVS) called Zolgensma.

Zolgensma is delivered into the spine as well, but it only needs to be administered once --and convenience isn't the gene therapy's only potential advantage over Spinraza. Patients with SMA lose strength because their motor neurons can't produce enough of the SMN protein. In healthy people, the SMN1 gene produces all the SMN protein they need, and nearly everyone has at least a few copies of SMN2.

The SMN2 gene creates SMN protein, too, but 80% to 90% of the SMN protein this backup gene makes doesn't work properly. Spinraza targets SMN2 and gets it to produce more SMN protein, most of which isn't functional. Zolgensma pastes a new SMN gene into nerve cell genomes so they can produce heaps of functional SMN protein on their own, forever.

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Closer to the mark

Zolgensma is still under review by the FDA, and Novartis expects an approval decision in May. The application is supported by results from the Start trial that treated just 12 patients with the proposed dosage. At the end of 24 months, though, 11 of them were able to sit unassisted, which is a milestone that SMA type 1 patients never achieve.

Novartis won't announce a list price for Zolgensma until it earns approval, so ICER set it at $2 million for a single administration plus $1.7 million for hospital bills. The gene therapy has a large upfront cost, but it also appears to provide 12.23 quality-adjusted life years.

With such a small sample size to work with, it's important to make comparisons with a grain of salt. That said, Zolgensma costs just $243,000 per quality-adjusted year of life gained. That exceeds the $150,000-per-year threshold that most payers find acceptable, but it's a lot closer than Spinraza.

Why Biogen isn't too worried

After a couple of years on the market, Spinraza's backed up by data from thousands of patients and a placebo-controlled trial. Zolgensma results are limited to just 15 patients in a single-arm study, and rumor has it that seven of them were also receiving Spinraza.

Unlike most rich countries, a rare-disease drug's cost per quality-adjusted life year isn't terribly important in the U.S., where a majority of Spinraza sales originate. That's because insurers would rather pay through the nose than face a public relations nightmare for denying infants a life-saving medicine.

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No cliffs ahead

Around 60% of the SMA population can be described as type 1, and this group doesn't have many copies of the SMN2 gene for Spinraza to amplify. Patients with SMA types 2, 3, and 4 give Spinraza a lot more to work with, and Biogen will probably continue marketing the drug to these patients even if Zolgensma earns approval in May.

That means Spinraza sales aren't about to dive off a cliff, but they probably won't grow much further. Since every other drug in Biogen's product lineup is sliding, investors should brace for sinking total revenue in the second half of 2019 and beyond.