By Ben Hirschler

LONDON, Jan 31 (Reuters) - AstraZeneca's new boss said sales and profits would both fall sharply in 2013 as the drugmaker struggles to turn itself around by investing more in-house and on potential acquisitions.

Chief Executive Pascal Soriot forecast a mid-to-high single digit percentage fall in revenue this year, as patent expiries continue to erode business, with earnings declining "significantly more" due to increased operating costs.

The 2013 outlook was worse than the fall of around 3 percent in sales that analysts had been expecting, and shares in the group slumped 5.4 percent by 1150 GMT on Thursday.

A decision to keep share buybacks on hold and not increase the dividend for the first time in a decade added to the market's disappointment.

Soriot also withdrew mid-term planning assumptions for profit margin and revenue that had been set by previous management, increasing his freedom to pursue a strategy of investing for future growth.

Analysts at Citigroup said he appeared to be setting the scene for doing new deals - something the market has speculated about intensely in recent months.

"We will be open to more disruptive acquisitions, larger acquisitions if they make sense," Soriot told reporters.

But he added: "You have to consider the likelihood of that is lower because I don't think we need a large-scale acquisition to succeed."

Soriot said any deals he struck would complement increased investment in five existing growth areas - the new heart drug Brilinta, emerging markets, diabetes care, respiratory medicine and Japan.

Faced with loss of exclusivity on once best-selling medicines and a thin pipeline of new drugs, AstraZeneca needs to consider bold moves to get back on its feet.

Yet Soriot has to tread carefully when it comes to spending if he is to avoid upsetting investors who own the stock as an income play, given its near 6 percent dividend yield.

He is due to set out his strategy in detail during a keenly-awaited investor day on March 21 in New York.

Many analysts expect he will follow the lead set by Bristol-Myers Squibb, which has used what it calls a "string of pearls" strategy to boost revenue through small or mid-sized purchases. But there has also been talk of a $20 billion-plus deal, such as buying Shire.

Results for the last quarter of 2012, which came better than expected, took second place to the tough outlook for 2013.

Fourth-quarter sales fell 16 percent to $7.28 billion, generating core earnings, which exclude certain items, down 3 percent at $1.56 per share. The slower decline in earnings reflected lower costs and a favourable tax adjustment.

Analysts had, on average, forecast sales of $7.20 billion and earnings of $1.35 per share, according to Thomson Reuters I/B/E/S. Stripping out the tax effect, EPS was broadly in line.

BIG HITS TO COME

AstraZeneca is not alone in facing big patent losses.

But while rivals such as GlaxoSmithKline and Sanofi are past the worst, AstraZeneca's biggest losses are to come, with Nexium for stomach acid and cholesterol fighter Crestor losing U.S. protection in 2014 and 2016 respectively.

As a pure pharmaceuticals group, without the cushion of alternative revenue streams found at more diversified rivals, AstraZeneca is particularly exposed to patent losses on key prescription drugs.

Short-term wins from its new drug pipeline look unlikely, with expectations for experimental rheumatoid arthritis drug fostamatinib dwindling after disappointing clinical trial results last month.

One established medicine that may surprise on the upside is diabetes drug Onglyza, which is marketed with Bristol-Myers and could potentially show a heart benefit in a clinical study that will report later this year.

Heart drug Brilinta, which had been viewed as big winner initially, continued to struggle to generate sales in the three months to end-December, with sales totalling $38 million.

AstraZeneca shares have gained ground in recent months but the stock remains the laggard of the global pharmaceutical sector, trading on around 8.6 times expected earnings, a 30 percent discount to large British rival GSK.

The group has already slashed thousands of jobs to cut costs in recent years, and two weeks ago Soriot removed the heads of both research and worldwide sales.

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