* Says EBITDA to be little changed this year
* Cancer drug avelumab enters most costly phase of testing
* Drug seen as dictating future of pharma business (Adds study adjustment, shares)
By Ludwig Burger and Patricia Weiss
FRANKFURT, March 9 (Reuters) - German drugs and lab supplies maker Merck KGaA forecast stagnant earnings for 2017 as it spends more on developing a cancer drug it hopes will revive the fortunes of its pharmaceuticals division.
After years of setbacks, Merck KGaA now stands to take a slice of the fast-growing cancer immunotherapy drug market, having partnered with Pfizer for the experimental treatment avelumab.
However, getting avelumab approved for use against newly diagnosed lung tumours, the most common cause of cancer-related deaths, has proven to be more costly and will take about 20 months longer than initially thought, Merck said on Thursday, confirming a Bernstein Research analyst report from late on Wednesday.
The planned completion of the so-called JAVELIN Lung 100 trial has been postponed to April 2019 from August this year.
Among other adjustments, the number of participants will rise to 1,095 from 420 previously, with Bernstein saying this was probably necessary to demonstrate the desired effect more clearly.
Merck forecast its 2017 adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) would be broadly in line with last year's 4.5 billion euros ($4.7 billion).
Shares fell 0.5 percent by early afternoon, which traders and analysts said was related to financial targets coming in short of their expectations.
Avelumab has won the U.S. Food and Drug Administration's priority review status for use against a rare and aggressive form of skin cancer and against bladder cancer and indications are for market launch for both this year.
"For us this is an event of almost historic proportions," Chief Executive Stefan Oschmann told a news conference.
Analysts, however, have cautioned that avelumab is lagging behind a number of rivals in the race for approval in key treatments.
Merck and Pfizer have also taken the drug to the late - and most expensive - phase of testing on humans in tumour types affecting the gastric tract, ovaries and kidney, among others.
Avelumab belongs to a new generation of biotech drugs that stop some tumours from hiding from the immune system, similar to Merck & Co's Keytruda or Roche's Tecentriq, and the future of Merck's relatively small pharma division is seen as hinging on the drug candidate's success.
Merck, which is also the world's largest maker of high-tech chemicals for display screens, said fourth-quarter adjusted EBITDA rose 15 percent to 1.08 billion euros, in line with the average estimate by analysts in a Reuters poll, boosted by the acquisition of lab supplies company Sigma-Aldrich. ($1 = 0.9490 euros) (Reporting by Ludwig Burger; editing by Jason Neely and Keith Weir)