MSD needs to undertake a "major restructuring" in the wake of lacklustre sales and recent R&D setbacks, according to analysts at Leerink Swann.

Seamus Fernandez and Ario Arabi write in a research report that pressure is building on MSD's management to improve R&D productivity, maintain operating margins and return cash to investors, and signs of a shake-up of the business would be "well received".

The note comes shortly after MSD cuts its earnings forecasts for 2013 in the face of continued pressure from patent expiries on big-selling brands such as asthma treatment Singulair (montelukast), as well as greater competition to growth products such as diabetes treatment Januvia (sitagliptin).

Chief executive Kenneth Frazier insisted last month that MSD was continuing to manage costs effectively, but the analysts would like to see $1 billion or more carved off operating expenses.

MSD has traditionally been a big spender on R&D, but has suffered a series of disappointments in its late-stage pipeline of late, including delays to osteoporosis candidate odanacatib and neuromuscular blocker Bridion (sugammadex) and a narrower-than-hoped FDA approval for insomnia drug suvorexant.

The Leerink Swann team would like it to bring its R&D spending down from its current level of around $8 billion a year, and suggests that "every $1 billion reduction of operating expenses would add $0.25 a share to MSD's bottom line".

This would also bring the company's absolute R&D "spend closer to Pfizer" - which lays out around $6.5 billion on R&D a year - but would "still be in line with several of its diversified competitors' … at [around] 14% of sales."

MSD has already implemented sweeping reductions to its manufacturing network in the wake of its 2009 merger with Schering-Plough, saying earlier this year that it reduced its manufacturing network to 75 sites from more than 90.

There are already signs that changes could be afoot under new R&D chief Roger Perlmutter, who has already suggested that measures need to be taken to improve productivity, without sacrificing MSD's innovation culture.

Perlmutter said during MSD's second-quarter results conference that "ultimately you innovate or you die [but] you need to do it as effectively, efficiently and productively as possible."