Industries · Pharma & Biotech

R&D tax credit for pharma, biotech & life sciences

Discovery and development are experimentation by definition — which puts much of life-sciences R&D squarely within the credit. Because these claims also draw real audit scrutiny, rigorous, defensible substantiation is what separates a claim that holds up from one that doesn’t. That rigor is exactly Ricerca’s strength.

Why life-sciences R&D qualifies

A new or improved compound, formulation, assay, or process is a business component. Discovery and development inherently involve resolving genuine scientific and technical uncertainty through a systematic process of experimentation — screening, formulating, running assays, and iterating on results — which is precisely what the credit rewards.

Every qualifying activity must pass the IRC §41 four-part test — permitted purpose, technological in nature (the biological and physical sciences), elimination of uncertainty, and a process of experimentation. Much of preclinical and bench science maps to this naturally.

Two facts shape every life-sciences claim. First, audit scrutiny is high, so substantiation must be contemporaneous and defensible. Second, the funded-research screen matters: grant- and contract-funded work may be excluded where you don’t bear the risk or retain rights. We screen both before anything is claimed.

Qualifying activities

The life-sciences work that commonly qualifies

Representative activities we see meet the four-part test across discovery, development, and process science.

Drug discovery

Target identification, screening, and hit-to-lead work where outcomes are genuinely uncertain.

Formulation

Developing and optimizing formulations to meet stability, bioavailability, and delivery requirements.

Assay development

Designing and validating assays where the right method and conditions must be worked out experimentally.

Analytical method development

Developing and validating analytical methods to characterize compounds, impurities, and performance.

Preclinical studies

In vitro and in vivo studies that resolve uncertainty about safety, efficacy, or mechanism.

Qualifying clinical-stage activities

Certain clinical-stage development activities can qualify depending on the facts and the work performed.

Bioprocess & scale-up

Process development and scale-up of fermentation, purification, and manufacturing to meet new requirements.

Regulatory-driven experimentation

Experimentation undertaken to resolve technical questions raised in development and regulatory pathways.

Computational modeling

In silico modeling and simulation that systematically evaluates alternatives during research.

Qualified Research Expenses

Typical QRE categories for life sciences

What spending counts toward the credit — tailored to how research organizations actually spend.

Scientist & technician wages

Wages for scientists and technicians performing, supervising, or directly supporting qualified research.

§41(b)(2)(A)–(B)

Reagents & lab consumables

Reagents, media, and lab consumables used up in qualified research — not depreciable instruments.

§41(b)(2)(C)

Contract research / CRO (65%)

65% of amounts paid to U.S. CROs and contract researchers for qualified research performed on your behalf.

§41(b)(3)

Cloud & compute

Amounts paid to rent compute for modeling, simulation, and data analysis used in qualified research.

§41(b)(2)(A)(iii)

The funded-research screen (§41(d)(4)(H)): research paid for by a grant or contract under which you don’t bear the financial risk or retain substantial rights is generally excluded. The funding terms and the rights-and-risk analysis are decisive — we evaluate them before anything is claimed.

Don’t forget §174A

Domestic research is fully deductible again

New IRC §174A restores immediate, full expensing of domestic research & experimental costs for tax years beginning after December 31, 2024 — including qualified domestic discovery and development. Captured alongside the §41 credit, you get the deduction and the credit.

Understand §174A

Illustrative example

What a biotech study can look like

A hypothetical scenario to show how the pieces fit together. It is not a quote, projection, or promise of results.

Clinical-stage biotech

Illustrative

Research payroll: $4M
Share qualified: ~70%
Reagents & consumables: $1.2M
U.S. CRO work: $2M
Estimated QRE: ~$5.3M
Illustrative federal credit: ≈ $320K–$530K

Illustrative only. Figures are hypothetical and rounded; CRO work is included at 65% and assumes no funded-research exclusion applies. The federal credit commonly works out to roughly 6–10% of QRE depending on method and filing history. Your result depends entirely on your facts. This is not a quote or a guarantee.

FAQ

Pharma & biotech — frequently asked questions

Do CRO and contract research costs count?

Yes, at 65% of the amount paid under §41(b)(3), provided the qualified research is performed in the United States and you bear the financial risk and retain substantial rights. Work performed outside the U.S. is excluded, so the location and contractual terms of CRO engagements matter.

Does clinical work qualify?

Certain clinical-stage activities can qualify, but it depends heavily on the facts — what was actually performed, whether genuine technical uncertainty was being resolved, and how the work was funded. The analysis is activity-by-activity rather than a blanket yes or no.

What about grant-funded research?

Funded research is generally excluded from the credit under §41(d)(4)(H). When a grant or contract pays for the research and you don’t bear the risk or retain rights to the results, that work typically can’t be claimed. The funding terms and the rights-and-risk analysis are decisive, so they’re screened carefully before anything is claimed.

How do you defend a claim given high audit scrutiny?

Life-sciences claims draw scrutiny, so substantiation has to be rigorous. A Ricerca study builds contemporaneous documentation mapped to the four-part test by business component — project records, protocols, lab data, and CRO terms — and our R&D experts review and finalize the work. The goal is a claim that holds up on examination.

Do reagents and lab consumables count?

Yes. Reagents, media, and other tangible property consumed in qualified research are eligible supply QREs under §41(b)(2)(C). Depreciable instruments and lab equipment are excluded — the line is between what’s used up in research and what’s a capital asset.

Does §174A apply to our domestic R&E?

Yes. Domestic research & experimental costs are eligible for immediate, full expensing under §174A for tax years beginning after December 31, 2024 — so qualified domestic discovery and development can be deducted now. See our Section 174A guide.

Build a claim that holds up on exam

Tell us about your research and CRO work, and we’ll map your qualifying activities to the four-part test — screening for funded research and capturing §174A — with contemporaneous, expert-finalized substantiation. Contact us for pricing tailored to your study.