UPDATE 1-UK's NICE recommends Novartis eye drug Lucentis

(Adds sales, reaction, background on controversy)

By Ben Hirschler

LONDON Aug 27 (Reuters) - Britain's healthcare cost-effectiveness watchdog NICE has recommended Novartis AG's (NOVN.VX) pricey eye drug Lucentis, under a special scheme that will cap the cost of treatment to the state health service.

The move, which endorses a draft plan agreed last December, means the National Health Service will pay for a maximum of 14 injections of Lucentis per eye, with Novartis agreeing to pay if any more are needed, the National Institute for Health and Clinical Excellence said on Wednesday.

A second drug, Macugen from Pfizer Inc (PFE.N), was rejected as not cost effective.

"Lucentis is an expensive drug, costing more than 10,000 pounds ($18,500) for each eye treated. But that cost needs to be balanced against the likely cost savings," NICE Chief Executive Andrew Dillon said in a statement.

Lucentis generated sales of $223 million for Novartis in 2007.

Experts estimate that up to 14 shots should result in stable vision for most patients and improved vision for around a quarter of them.

Patient groups have campaigned for Lucentis to be made available to thousands of people with wet age-related macular degeneration (AMD), an aggressive form of progressive sight loss that often leads to blindness.

The move was welcomed by the Royal National Institute for the Blind as a victory for thousands of "desperate people".

It follows more than two years of controversy over whether Lucentis should be paid for on the state health service. Some doctors have argued patients could be treated just as well -- and much more cheaply -- with low doses of Roche Holding AG's (ROG.VX) cancer drug Avastin, which works in a similar way.

Clinical trials testing Avastin against Lucentis in AMD are currently underway.

Industry analysts believe Lucentis could eventually generate worldwide sales of more than $1 billion a year, although the size of the opportunity will depend on future competition from Avastin.

Britain is a relatively small market, accounting for under 4 percent of global pharmaceutical sales, but the decisions of NICE are closely followed by payers in other countries.

NICE, which decides which drugs should be prescribed on the state health service, had originally angered patients groups by suggesting only a fifth of patients with AMD should get Lucentis.

The drug was discovered by U.S. biotech firm Genentech Inc DNA.N, which retains commercial rights in the United States. Novartis sells the product elsewhere. (Reporting by Ben Hirschler; editing by Elaine Hardcastle and Sue Thomas)