09-2 INTERNET CASE 9.5 R & D in the Pharmaceutical Industry The pharmaceutical i
ID: 2565268 • Letter: 0
Question
09-2 INTERNET CASE 9.5 R & D in the Pharmaceutical Industry The pharmaceutical industry spends billions of dollars each year on research and development. Rather than capitalize these R&D; expenditures as intangible assets, companies are required to charge them to expense in the vear incurred Perform a keyword search of Pharmaceutical Companies using the search engine of your choice (e.g., Yahoo, Google) Your search will result in a list of companies that research and develop pharmaceutical products. Select three of these companies and obtain their 10-K reports using the SEC's EDGAR system or going directly to the websites of the companies you choose Instructions a. For each of the companies you selected, determine 1. Total R&D; expense for the most current year. 2. Total R&D; expense as a percentage of total operating costs and expenses 3. Total R&D; expense as a percentage of net sales 4. The percentage by which operating income would have increased had the entire R&D; expenditure been recorded as an intangible asset instead of being charged to expense of drugs being researched and developed by each of these companies innovative and promising? Explain b. Using information from the 10-K reports, summarize briefly the kinds To a potential investor, which company appears to be the most Internet sites are time and date sensitive. It is the purpose of these exercises to have you explore the Internet. You may need to use the yahoo.com (or another favorite search Yahoo! search engine engine) to find a company's current web addressExplanation / Answer
The companies that are indulged in the pharma business or that are engaged in the technology business have to carry on research and development in order to invent newer products, services and drugs. Hence, the costs incurred on this account are termed as the research and development expenses.
The companies being considered are Gilead Sciences and Johnson and Johnson.
The figures of the year 2015 are being considered from the 10K report of these companies.
Part a:
The following table shows the various calculations:
(Amounts in $ in millions)
Particulars
Gilead Sciences
Johnson and Johnson
1
Research and development expense
3,014.00
9,046.00
Total operating costs
14,045.00
54,665.00
2
R&D expense as % of total operating profits
21.46%
16.55%
(3014/14045*100)
(9046/54665*100)
Research and development expense
3,014.00
9,046.00
Net sales
32,151.00
70,074.00
(3014/32151*100)
(9046/70074*100)
3
R&D expense as % of net sales
9.37%
12.91%
4
% by which the net income would have changed in case, the R&D expense would have been capitalised
21.46%
16.55%
Explanations:
2. The research and development expense is expressed as the % of operating profit by the following formula:
Research and development costs as per the income statement of 10K report/(Net sales-net income)
3. The research and development expense is expressed as the % of net sale by the following formula:
Research and development costs as per the income statement of 10K report/Net sale as per the income statement of 10K report of the company.
4. For the purposes of calculating the part 4, it is stated that the net income of the company would change by the % of the research and development expense expressed as the % of the total operating costs. Hence, it would be 21.46% for Gilead Sciences and 12.9% for Johnson.
Part b:
The company Gilead Sciences discovers, develops and commercializes the innovative medicines in the areas wherein there is a medical need. Further, the company is engaged in the discovery and the investigation of the drug candidates so that it can invent new drugs that would curb the life threatening diseases.
The company Johnson and Johnson engages itself in the collaborative arrangements with the other companies involved in the pharma business or in the biotech business and develops and commercialises the drugs candidates or the intellectual property.
(Amounts in $ in millions)
Particulars
Gilead Sciences
Johnson and Johnson
1
Research and development expense
3,014.00
9,046.00
Total operating costs
14,045.00
54,665.00
2
R&D expense as % of total operating profits
21.46%
16.55%
(3014/14045*100)
(9046/54665*100)
Research and development expense
3,014.00
9,046.00
Net sales
32,151.00
70,074.00
(3014/32151*100)
(9046/70074*100)
3
R&D expense as % of net sales
9.37%
12.91%
4
% by which the net income would have changed in case, the R&D expense would have been capitalised
21.46%
16.55%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.