AstraZeneca helped by new drugs as cholesterol pill fades

* Drugmaker relying on cancer medicines for future growth

* Next (Other OTC: NXGH - news) 12 months key for proving clinical value of pipeline

* New (KOSDAQ: 160550.KQ - news) drug Tagrisso sold better-than-expected $92 mln in Q2 (Adds CEO comments on upcoming clinical data and M&A)

By Ben Hirschler

LONDON, July 28 (Reuters) - Generic competition to cholesterol buster Crestor in the U.S (Other OTC: UBGXF - news) . market pushed second-quarter core earnings down by nearly a third at drugmaker AstraZeneca (NYSE: AZN - news) , which is now banking on new cancer medicines to revive its fortunes.

The profit drop had been expected, however, and investors took heart from encouraging early sales of newer products, lifting the shares 2 percent on Thursday.

Analysts predict falling group sales and profits this year and next before a return to growth in 2018, when the impact of patent expiries will lessen and sales of newer medicines should have picked up speed.

Its new lung cancer drug Tagrisso achieved stronger than expected quarterly sales of $92 million. Heart drug Brilinta and Farxiga for diabetes also did well.

Quarterly core earnings per share, which exclude some items, fell 31 percent to 83 cents as revenue slid 11 percent to $5.60 billion, following the arrival of the first copies of Crestor in the United States in May.

Industry analysts had on average forecast quarterly revenue of $5.58 billion and earnings of 84 cents a share, according to Thomson Reuters (Dusseldorf: TOC.DU - news) .

The British company said it continued to expect a low to mid single-digit percentage decline in both revenue and core earnings at constant exchange rates for the full year.

In addition to falling sales of Crestor and other older drugs like Nexium, AstraZeneca also has to deal with a slump in U.S. revenue this year from its nasal spray flu vaccine Flumist, after health officials decided it was not worth using.

IMMUNO-ONCOLOGY

Chief Executive Pascal Soriot, who saw off a takeover attempt by Pfizer (NYSE: PFE - news) in 2014, is looking beyond current problems and believes AstraZeneca can become a major player in cancer treatment by developing drugs that bolster the immune system and others that disrupt DNA repair mechanisms used by tumour cells.

He said he was particularly encouraged by rapid patient recruitment in immuno-oncology combination drug trials, which are expected to produce make-or-break clinical results in the first half of next year.

"Over the next 12 months the profile of this company will change," Soriot told reporters. "We will start getting very serious proof points and hopefully people will see that our plan is working."

Cancer is currently the hottest area of research across the drugs industry and some analysts believe this could make AstraZeneca a takeover target once again, with speculation focused on Novartis (LSE: 0QLR.L - news) . Soriot declined to comment.

AstraZeneca faces formidable competition from others with new cancer medicines that are already on the market, including Roche, Bristol-Myers Squibb and Merck (Jakarta: 28586808.JK - news) & Co .

To free resources for investment in new products, AstraZeneca has been selling off rights to non-core drugs and such "externalisation" deals helped to boost revenue by $134 million in the second quarter. The company said externalisation revenue would increase in the second half of the year.

Soriot says he can build a business with annual sales of at least $45 billion by 2023, up from $24.7 billion in 2015, though many analysts question this target, which was first set out during the takeover battle with Pfizer. (Editing by John Stonestreet/Ruth Pitchford)