Fewer injections into the eye and lower cost than the other FDA-approved drug: What's not to like about Regeneron Pharmaceuticals' (Nasdaq: REGN) Eylea, which was approved on Friday?

Well, there's the off-label drug that costs about $50 per dose -- around $10,000 annually less than Eylea.

Regeneron had an interesting dilemma in pricing the age-related macular degeneration market. Its main FDA-approved competition is Roche's Lucentis, which sells for around $2,000 per dose and has to be injected every month. Eylea only has to be injected every other month, so theoretically could be priced at double the cost. But Roche's Avastin is often used to treat AMD, even though it's approved to treat cancer, and because a doctor can get multiple treatments per vial, the cost is reduced down to $50 per treatment.

To compete with Lucentis and make it a more attractive alternative to Avastin, Regeneron decided to undercut Lucentis, pricing Eylea at $1,850 per dose. Remember that the drug only has to be injected half as often, so we're talking about half the cost. Health insurers and Medicare also save money because there will be fewer office visits, which typically cost $250 to $300 each.

Like all doctor-administered drugs, doctors will have to buy Eylea and then bill health insurers and Medicare to get reimbursed. Unfortunately, Eylea will be billed under a miscellaneous code for Medicare until it receives a J-code in 2013, which will delay those payments. Having learned from Dendreon (Nasdaq: DNDN), the company plans to offer extended trade terms and credit options to make sure the doctors don't have to front large amounts of cash before being reimbursed.

There are plenty of examples of superior drugs that had trouble competing with inferior products just because the latter was much cheaper; the launch of generic versions of Merck's (NYSE: MRK) Zocor negatively affecting Pfizer's (NYSE: PFE) Lipitor is a prime example. I think Regeneron did the right thing pricing Eylea where it did, but whether it'll be enough to make a dent in Avastin's market share remains to be seen.

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