The Impact of Sunk Cost Effects from Research and Development Investment on Firm Profits in Biomedical and Pharmaceutical Enterprises

The biomedical and pharmaceutical industry, being intrinsically tied to human life and health security, currently demonstrates a development paradigm predominantly propelled by biopharmaceutical innovation and cross-disciplinary technological convergence, with sustained growth in Research and Development (R&D) investment intensity observed across the sector. To sustain competitive dominance in the marketplace, enterprises must continuously allocate substantial capital towards pioneering technologies and next-generation product development. However, the substantial allocation of funds to R&D inevitably triggers the sunk cost effect, exerting measurable impacts on corporate profitability. This aspect of the issue has not yet been comprehensively analyzed or thoroughly studied within academic and industry research frameworks. Based on this background, this article will partially supplement the research gaps in this area by combining relevant data. Based on biomedical and pharmaceutical enterprises, this article analyzes the impact of R&D intensity on financial risk and R&D intensity on asset utilization, and summarizes the relationship between R&D intensity and corporate profits. The findings reveal that there is an inverse relationship between R&D intensity and Debt-to-Asset Ratio, a coexistence of high R&D intensity with low Total Asset Turnover, and a nonlinear (roughly inverted U-shaped) correlation between R&D intensity and ROE. Contemporary biomedical and pharmaceutical enterprises are also roughly divided into two categories according to the effect of sunk costs: innovative biomedical and pharmaceutical firms and generic biomedical and pharmaceutical firms.