Answer to Question #57203 in Economics of Enterprise for wadhahi

Question

Pharmaceutical companies are diversified firms. they sell products in many different therapeutic categories and engage in a variety of vertical activities. from research and development to sales and marketing. Many pharmaceutical companies spend a fixed percentage of their sales revenue in R&D. Do you think this simple rule of thumb is a good idea?

Answer 1

There are positive and negative moments in this companies’ policy:
- Positive: they keep stable cost structure, they have no Force Majeure in their accounting, they can plan R&D for the long term;
- Negative: low rate of new technologies and research implementation, the speed of technology development increases so fixed percentage could be not relevant in short or middle period, these companies are less flexible on the market of R&D.