For quite some time, Genentech has had the luxury - although some might say the misfortune - of competing against itself in the lucrative market for treating the wet form of age-related macular degeneration, a leading cause of severe vision loss in the elderly. Now, though, the Roche unit is getting competition and a key question is whether the drugmaker will, pardon the expression, blink.

Late last week, the FDA approved a new med called Eylea, which is made by Regeneron Pharmaceuticals (see this), an upstart with board members that include such heavy hitters as former Merck ceo Roy Vagelos and, as of this morning, Marc Tessier-Lavigne, a former executive vp and chief scientific officer at Genentech, who is currently president of Rockefeller University, the medical research institution (read here).

To combat Genentech, the little drugmaker is offering a 5 percent price discount that analysts are calling ’significant’ and a ‘bold step’ that will likely demand a forceful response. And, of course, adding Lavigne - who knows quite well how the Roche unit operates - is designed to send a strong signal that Regeneron is going to work hard to beat Genentech at its own game.

Here is the background: Genentech sells Lucentis, which costs about $1,950 for an injection. By comparison, its Avastin cancer med can cost $50 per injection, although unlike Lucentis, this drug was never approved by the FDA to treat wet AMD. Nonetheless, Avastin is often repackaged for this purpose and opthalmologists use the med because it appears equally effective, but much cheaper.

However, this practice has caused considerable controversy. A US Department of Health & Human Services Office of Inspector General study found that Medicare could have saved more than $1 billion and Medicare patients would have saved $275 million over two years if Avastin had been used instead Lucentis. The National Institutes of Health responded by funding a study showing the drugs are equally effective (see here).

Genentech responded with its own study that reviewed 78,000 Medicare recipients with AMD and found those given Avastin had an 11 percent higher risk of dying (back story). And the drugmaker has consistently warned that off-label use can be perilous, pointing to reports of serious infections and blindness traced to contamination in vials during repackaging, an issue that temporarily led the US Department of Veterans Affairs suspend use (look here).

Now, Genentech must contend with Regeneron, as well. And the small drugmaker is acting quickly to gain market share by pricing an injection of its newly approved med at $1,850, a 5 percent discount to Lucentis. Moreover, treatment with Eylea requires fewer patient visits, prompting analysts to predict that Genentech will have to look twice, pun intended, at its strategy.

“We believe this pricing helps tremendously in the perception battle where Roche has been suffering for last several years due to the wide price discrepancy between Lucentis and Avastin. In addition, it will aid in the reimbursement adoption by insurers and perhaps be preferentially reimbursed to Lucentis,” writes Leerink Swann analyst Joshua Schimmer in a resesarch note, adding that he estimates the cost savings will be roughly $4,000 per year, but could reach $9,500.

Moreover, the approved labeling was in line with expectations. However, RW Baird analyst Christopher Raymond notes that Lucentis may already cost less, in some cases, than the stated pricing due to volume discounts and forthcoming study results may diminish the advantage Regeneron will enjoy by being able to promote more convenient dosing. Another caveat is that a permanent reimbursement code for Medicare will not be forthcoming until January 2013.

“Regeneron has taken a bold step here, but we fear this advantage, as well as the perceived convenience advantage, may be short-lived,” he writes in an investor note this morning. Why? “Genentech is not going to just roll over. We are hard-pressed to see a scenario where Genentech takes no pricing counter-measures.”