video_overlay_ets
Now Playing: What Is The R&D Tax Credit?

Free R&D Tax Credit Analysis

Let's get started by talking to one of our R&D Tax Credit experts to see how much we can gain you by getting a FREE R&D Tax Credit analysis today!

Home » Services » R&D Tax Credits » Industries »  Pharmaceutical 

Pharmaceutical Industry Qualifying Activities

The pharmaceutical industry is a perfect candidate for R&D tax credits, which were created to encourage American businesses to innovate; they’re now offered by the federal government and 35 states. 

Pharma spends far more its revenue, by percentage, on research and development than other knowledge-based industries. The industry’s R&D expenditures increased by almost 50% between 2015 and 2019. In 2019, the average pharmaceutical company devoted almost 25% of its net revenue to research and development, net of expenses and buyer rebates. That same year, according to the Congressional Budget Office, the pharmaceutical industry directed $83 billion dollars to research and development—which, adjusted for inflation, is almost 10 times what it spent per year in the 1980s. 

When deciding whether to develop a new drug, pharmaceutical companies balance the expected revenue derived from the new product; the projected cost of development; and government policies that might impact the drug’s supply and demand.

Breakdown of Qualifying Activities

R&D spending in the pharmaceutical industry tends to follow this process:

  • invention
  • development
  • incremental innovation
  • product differentiation
  • safety monitoring or clinical trials.

According to the IRS’ Pharmaceutical Industry Research Credit Audit Guidelines – Revised – 4/30/04, the pharmaceutical product development process can be broken down into four stages:

  1. Preclinical/Discovery Research – where new compounds are discovered.
  2. Clinical Development – conducted in three (3) phases.
    Phase I – first trials in humans that test a compound for safety, tolerance and pharmacokinetics. The trials usually employ normal, healthy volunteers.
    Phase II – pilot studies to determine efficacy and safety in selected populations of patients with the disease or condition to be treated, diagnosed, or prevented. Dose and dosing regimens are assigned for magnitude and duration of effect during this phase.
    Phase III – expanded clinical trials intended to gather additional evidence of effectiveness for specific indications and to better understand safety and drug-related adverse effects.
  3. Regulatory Review – the New Drug Application (NDA) is submitted to a regulatory agency, such as the Food and Drug Administration, for marketing and manufacturing approval.
  4. Post-Marketing – activities occurring after approval to market has been granted by the appropriate regulatory agency. These activities include Phase IV studies performed to determine the incidence of adverse reactions; to determine the longterm effect of a drug; to study a patient population not previously studied; and for marketing comparisons against other products and other uses.

When deciding whether to award an R&D tax credit claim, the IRS seeks these types of documentation:

  • tax work papers
  • qualified wages
  • qualified supplies
  • qualified contract research
  • interviews
  • tour of research facility
  • organizational chart and
  • job titles, grade levels, and position descriptions.

Getting an R&D Tax Credit Analysis to see if you qualify is the first step! 

eBook: The Architect's Guide to R&D Tax Credits

This comprehensive e-book is designed to help you recognize which of your activities qualify for R&D tax credits! 

Webinars: R&D Tax Credits

Testimonials: Our valued clients

Andrew Krowne, CPA
Andrew Krowne, CPAKrowne Certified Public Accountants
Read More
“We work with Kimberly Lochridge and her expertise and work-product is top notch. They are our #1 resource for Cost Segregation Studies for all of our clients.”
Lewis B. Kevelson, CPA
Lewis B. Kevelson, CPARachlin LLP
Read More
“I wanted to thank you for the cost segregation and energy tax work you have done for several of the firm’s clients. The results have been very favorable and have resulted in significant tax benefits. You have a very talented team, and I look forward to working with you more in the future.”
Lou J. Fuoco, CPA
Lou J. Fuoco, CPAFuoco Group, LLP
Read More
I have worked with Engineered Tax Services for approximately two years and feel that they are the best in the business in terms of providing cost segregation and energy tax services.
Previous
Next

Case Studies R&D Tax Credit

Manufacturing

R&D Tax Credit Case Study for Specialty Manufacturer in Oregon

1 Year Tax Savings: $18,078 (Federal Only) Study Highlights   Wages $525,358 Supplies $26,953 Rental or lease of computers 27.5-Year Contract Research $11,760 Total Qualified …

Manufacturing

R&D Tax Credit Case Study For Specialty Manufacturer in New York

1 Year Tax Savings: $18,078 (Federal Only) Study Highlights Wages $358,407 Supplies $26,953 Rental or lease of computers 27.5-Year Contract Research $14,227 Total Qualified Research …

R&D Tax Credit

R&D Tax Credit Case Study for Software Developer in Texas

1 Year Tax Savings: $72,430 (Federal Only) Study Highlights Wages $1,342,919 Supplies $0 Rental or lease of computers $0 Contract Research $0 Total Qualified Research …

Top Articles: R&D Tax Credit

new state life sciences r&d tax credit program

New York State Offers a Life Sciences Research and Development Tax Credit

You may know that life sciences are eligible for federal research and development (R&D) tax credits nationwide—but did you know that New York State offers …

Read Full Article
U.S. Rep. Jackie Walorski

Rep. Jackie Walorski Introduces Legislation to Double R&D Tax Credits and Their Benefits

U.S. Rep. Jackie Walorski (R-Ind.), a senior member of the House Ways and Means Committee, showed herself to be possibly the biggest champion of R&D tax …

Read Full Article
possibilities

Possibilities Story: Sleepless in Salt Lake City

As the owner of an engineering firm in Salt Lake City, Utah, I’ve been concerned about the recent downturn in the economy—like a lot of …

Read Full Article