Since 2015, the domestic drug review and approval of new policies released intensively, in the country to guide enterprises to improve drug quality standards, accelerate the listing of new varieties, to encourage the development of innovative drugs under the background of the pharmaceutical companies generally increased investment in research and development, to promote research and development from generic drugs to innovative drugs to the direction of upgrading. At present, the R&D expenditure of mainstream pharmaceutical manufacturing enterprises accounted for more than 6% of operating income, and some leading enterprises even reached 18%. In the long run, R&D expenditures will largely determine a company's subsequent product pipeline and development potential.
From the perspective of accounting treatment, R&D expenditures can be expensed in both capitalized and expensed forms. Capitalized expenditures are expenditures that can be included in assets and amortized over the life of the benefit, which can be simply understood as not being included in expenses in the current period and left to be amortized slowly in the future. This approach is mainly for the later stages of development, affecting the profits of enterprises in future years. Expensed expenditures refer to expenditures that need to be charged to current profit and loss, mainly for the early stage of research, affecting the current year's profit. Take innovative drug research and development as an example, usually the preliminary research, preclinical research, clinical phase Ⅰ, Ⅱ for the research stage, from phase Ⅲ clinical trials for the development stage. Of course, some companies judge the conditions of R & D expenditures expensing, capitalization may not be consistent with the previous description, but in general, the R & D expenditures will be expensed is a more robust accounting treatment.
Comprehensively, analyzing the financial statements of pharmaceutical companies can be done through four main perspectives, i.e., growth indicators, profitability indicators, quality of earnings indicators, and R&D investment-related indicators, to help investors make more accurate judgments about their investments in pharmaceutical companies.