UPDATE 1-Bayer to start Phase III study of lung drug

(Writes through, adds details of Bayer's plans, background)

FRANKFURT, Oct 6 (Reuters) - Bayer AG BAYG.DE will start a Phase III study on its experimental pulmonary-hypertension drug riociguat after the oral treatment showed promise in a Phase II trial, the company said on Monday.

The drug improved the ability to endure physical exercise in patients suffering from two types of the life-threatening lung disease, the German drug company said.

The company would begin the third and last stage of testing normally required for regulatory approval towards the end of this year, Bayer added. The development milestone will help Bayer highlight the breadthof its drug pipeline, currently dominated by blood thinner Xarelto and cancer drug Nexavar, each slated to generate up to 2 billion euros ($2.7 billion) in sales per year.

Pulmonary hypertension, which affects more than 2.5 million people worldwide, is a form of high blood pressure in the lungs causing shortness of breath, dizziness and fainting, among other symptoms. The market for treatments is currently dominated by Tracleer, made by Swiss biotech group Actelion Ltd (ATLN.VX), which generated 1.18 billion Swiss francs ($1.0 billion) from the drug last year.

Gilead Sciences Inc (GILD.O) and Pfizer Inc (PFE.N), with their respective products Letaris and Thelin, are also in the race for a share of the market.

On top of the completed Phase II study and the upcoming Phase III trials, Bayer is working on two further Phase II studies on riociguat in patients suffering from other forms of the lung disease. (Reporting by Ludwig Burger; Editing by David Holmes)