* Novartis now asking for EU conditional backing
* Company hopes to convert to full backing
* Potential blockbuster drug key part of pipeline
* Bernstein says setback is mildly negative (Adds comment from Novartis executive, analyst comment)
By Katharina Bart
ZURICH, Jan 24 (Reuters) - Novartis still sees heart failure drug serelaxin as a potential blockbuster, even after backing down from original launch plans when the European health regulator dealt the drug a blow.
Serelaxin is a key part of a slew of potential 'blockbuster' drugs the Basel-based drugmaker is looking to as it bets on cancer, heart and respiratory treatments to fill the gaps left by expiries on drugs like Diovan, which lost U.S. patent rights and faces generic competition.
Novartis said it would ask for so-called conditional approval for serelaxin instead of a fully-fledged backing and submit new data in an effort to win backing from the European body, which means delays to the company's hopes for approval this year. It also means the European review of the drug will coincide with one in the United States, serelaxin's other major potential market.
Novartis voiced confidence that the drug would win the initial backing in the second quarter, hit the market, and eventually be parlayed into full approval.
"We would expect sales to be modest initially, but then really take off after the second clinical trial proves its mortality benefit," the Basel-based company's pharmaceutical head David Epstein told journalists on Friday.
Analysts at Jefferies expect the drug to generate peak sales of $1.5 billion a year, but analysts at Bernstein were more subdued.
"While Novartis management has been bullish on the drug's prospects, investors have generally taken a more cautious view because the data seemed mixed," said Bernstein analyst Tim Anderson, adding the news was only mildly negative.
Bernstein rates the stock as outperform.
Serelaxin is a form of a human hormone that relaxes blood vessels and eases stress on the heart and other organs.
Medical treatment of heart failure has changed little since the 1970s but Novartis hopes serelaxin will soon offer cardiologists a new therapy option.
U.S. regulators gave serelaxin "breakthrough therapy" status last year, potentially fast-tracking its development and approval.
The Novartis drug is currently being assessed by health authorities around the world, but Novartis sees the U.S. and Europe as the two most lucrative markets.
Results from a Phase III study last November found it reduced deaths by 37 percent compared with a placebo - and the latest data offers further insight by showing how it performed in different patient sub-groups. (Editing by Jeremy Laurence)