R&D credit opportunities for life sciences organizations

Pharmaceutical, biotechnical, agricultural, medical device and biomedical organizations live in a constant state of innovation. The ever-changing technological landscape creates opportunities for driving ideas forward. Many seemingly day-to-day operations are rife with research and development that may qualify for a tax incentive.

To highlight a specific example, artificial intelligence (AI) has dramatically influenced the way pharmaceuticals and medical devices are discovered, manufactured and consumed. The market for AI in drug development alone jumped to $700 million in 2018 from $200 million in 2015, and is expected to continue that growth but at an even quicker pace, with reports estimating market value to reach more than $4 billion in 2024.

Fortunately, federal and state governments offer R&D tax credits to life sciences organizations of all sizes to offset expenses and allow companies to reinvest in themselves. An extensive range of technical activities within the industry qualify for the credit, yet are often overlooked by organizations. Consider the examples below:

1. Designing new drugs, chemical compounds or medical devices
2. Repurposing or reformulating existing drugs
3. Improving the shelf life of a product
4. Developing new or unique delivery systems or blending technology for compounds or medicines
5. Designing and executing experiments or trials
6. Generating prototypes of new products
7. Implementing automation processes or robotics
8. Developing or improving manufacturing processes
9. Researching new technology to incorporate into products
10. Developing scientific theories and research methods

Activities must meet four government-specified criteria in order for an organization to include the associated taxable wages, supplies and/or contract research in the calculation of the R&D tax credit. Companies should also note the activities need only be evolutionary to the organization itself, not to the industry as a whole in order to qualify.

1. The activity must be technological in nature.