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UPDATE 2-AstraZeneca lung cancer study fails in big setback for company

(Adds Tagrisso study, Merck alliance)

LONDON, July 27 (Reuters) - AstraZeneca's combination of two injectable immunotherapy drugs, durvalumab and tremelimumab, failed to help patients as hoped in a closely watched advanced lung cancer trial, the British company said on Thursday.

Initial results from the study, known as MYSTIC, found the combination was no more effective at stopping disease progression than chemotherapy in patients expressing a protein called PD-L1 on 25 percent or more of their cancer cells.

As a secondary endpoint, although not formally tested, Imfinzi monotherapy also would not have met a pre-specified threshold of progression-free survival benefit, the company added.

The clinical study was seen as key to proving the value of the group's new drug pipeline. Uncertainty about its outcome has been heightened by recent speculation about the tenure of Chief Executive Pascal Soriot.

"Despite the outcome of the initial readout, we must be patient as the MYSTIC trial continues as planned to evaluate overall survival," Soriot said.

Immunotherapies, which boost the immune system's ability to fight tumours, promise to revolutionise cancer care, prompting a race among companies to develop rival treatments. Lung cancer is the single biggest market opportunity.

The news came as AstraZeneca reported drug sales fell again in the second quarter, hit by loss of patents on blockbusters like cholesterol pill Crestor.

Despite income from disposals and external deals, first-quarter revenue fell 10 percent in dollar terms to $5.05 billion, while core earnings per share (EPS) rose 5 percent to $87 cents.

Industry analysts, on average, had forecast revenue of $5.0 billion and earnings of 80 cents, according to Thomson Reuters data.

AstraZeneca reiterated its outlook for the full year that revenue would decline at a low to mid single-digit percentage rate, with core EPS dropping by a low to mid-teens percentage.

There was some better news elsewhere, with the company announcing that its lung cancer pill Tagrisso had significantly improved progression-free survival another clinical trial called FLAURA.

AstraZeneca also said it had set up a strategic oncology collaboration with Merck & Co to study cancer drug combinations. (Reporting by Ben Hirschler; Editing by Keith Weir)