* LCZ696 forecasts set to rise after impressive study
* Novartis sees margins on LCZ696 better than for Diovan
* Shares up 3.4 percent to record high (Recasts with shares, analyst reaction, background)
By Ben Hirschler
BARCELONA, Sept 1 (Reuters) - Sales forecasts for Novartis's new heart failure drug are being ramped up by analysts after strikingly good clinical trial results for a medicine doctors expect to transform treatment of the deadly disease.
Shares in the Swiss drugmaker jumped over 3 percent to a record high on Monday as data for LCZ696 released at the weekend beat expectations, showing the medicine slashed deaths and hospitalisations, worked across all groups of patients, and had no serious side effects.
David Epstein, Novartis' head of pharmaceuticals, said the launch of the drug next year promised to be the company's most exciting ever and profit margins on the medicine would be good.
The results of a keenly-awaited clinical trial on LCZ696 were released at the annual meeting of the European Society of Cardiology on Saturday and published in the New England Journal of Medicine with a glowing editorial.
Investigators working on the study and the company itself believe it has potential to replace drugs that have been central to treating heart failure for a quarter of century, opening up a multi-billion dollar sales opportunity.
"It will be possibly the most exciting launch the company has ever had," Epstein told investors.
At 0910 GMT, Novartis shares were up 3.3 percent at 85.1 Swiss francs, after touching a new high of 85.2 francs.
Analyst forecasts for LCZ696 have been climbing in recent months and the consensus for sales in 2019 - four years after its expected launch - stood at $1.9 billion at the end of last week, according to Thomson Reuters Cortellis.
That number now looks out of date, with several analysts in research notes on Monday anticipating peak sales of $5 billion or more.
There could be more upside too. Jefferies analysts, in common with many others, are not currently including in their $5.2 billion sales estimate a second group of heart failure patients beyond those in the current clinical trial.
The study unveiled in Barcelona targeted heart patients with reduced ejection fraction, where the heart muscle does not contract effectively. However, Novartis is also starting a trial in a similar-sized group with preserved ejection fraction, where the ventricles do not relax as they should.
LCZ696 is a vindication of Novartis's strategy of stepping up its research efforts outside oncology, according to Epstein, who is keen to build up a broad portfolio when it comes to reinvesting profits from this drug on future research.
"This data further supports our analyses that show Novartis has the world's best R&D engine globally, even better than Roche ," said Liberum analyst Naresh Chouhan.
Developing the drug was a gamble, given the lack of progress in more than a decade in finding new ways to treat heart failure, in which the heart struggles to pump blood adequately round the body.
Novartis is looking to LCZ696 to help revive its fortunes as the blood pressure pill Diovan - a major source of profits in the past - faces generic competition.
Epstein said the profitability of the new drug would be higher than with Diovan, since the cost of marketing LCZ696 will be lower. That reflects the more specialised nature of heart failure, which requires a smaller sales force.
As a result, LCZ696 should become profitable relatively quickly, though Novartis will be investing to ensure a strong launch. Epstein said he did not expect any increase in the overall sales force because staff would be switched from promoting some older drugs.
The drug is on track to be submitted for regulatory approval by the end of the year and Novartis is hoping for a "priority review" in the United States, which would mean a decision is made within eight months.
A big question mark remains the price of the drug, which Epstein is not discussing yet, although he said it would be "reasonable".
Industry analysts believe it could be priced at around $7-8 a day in the all-important U.S. market and less in Europe. With a compelling clinical profile and very little in the pipelines of other companies in terms of competing products, Novartis looks to be in a strong position.
LCZ696 is a two-in-one pill, taken twice a day, combining Diovan's active ingredient valsartan and another class of drug called a neprilysin inhibitor. (Editing by David Goodman and Mark Potter)
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