UPDATE 3-New AstraZeneca CEO plans to invest through tough year

* Mid-to-high single digit percent fall seen in 2013 sales

* EPS to fall significantly more as operating costs rise

* Q4 sales $7.28 billion, vs I/B/E/S consensus $7.20 bln

* Q4 core EPS $1.56 vs $1.35, helped by tax adjustment

* Shares fall 5.4 percent on worse-than-expected outlook (Adds CEO comments, further reaction, latest shares)

By Ben Hirschler

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

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

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

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

Soriot also withdrew mid-term planning assumptions forprofit margin and revenue that had been set by previousmanagement, increasing his freedom to pursue a strategy ofinvesting for future growth.

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

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

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

Soriot said any deals he struck would complement increasedinvestment in five existing growth areas - the new heart drugBrilinta, emerging markets, diabetes care, respiratory medicineand Japan.

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

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

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

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

Results for the last quarter of 2012, which came better thanexpected, 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 3percent at $1.56 per share. The slower decline in earningsreflected lower costs and a favourable tax adjustment.

Analysts had, on average, forecast sales of $7.20 billionand earnings of $1.35 per share, according to Thomson ReutersI/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 areto come, with Nexium for stomach acid and cholesterol fighterCrestor losing U.S. protection in 2014 and 2016 respectively.

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

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

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

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

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

The group has already slashed thousands of jobs to cut costsin recent years, and two weeks ago Soriot removed the heads ofboth research and worldwide sales. (Editing by Dan Lalor and Jane Merriman)