R&D Tax Credit for Pharma &
Life Sciences

Industry-Specific Requirements in the Pharmaceutical Sector

Pharmaceutical companies have an excellent starting point for the R&D tax credit thanks to their GxP documentation obligations (GLP, GMP, GCP). Laboratory journals, batch records, validation reports, and stability studies according to ICH guidelines Q1–Q12 document systematic experimental work – precisely what the BSFZ requires as evidence of R&D activity. The art lies in extracting the R&D-relevant components from the extensive regulatory documentation and presenting them in a structured manner.

The distinction between preclinical and clinical phases has a direct impact on eligibility. Preclinical studies (in-vitro assays, animal models, ADME studies, toxicological investigations) are regularly eligible, as they are experimental by definition. In clinical phases I–III, the scientific planning, biostatistical evaluation, and development of analytical methods are particularly eligible. Phase IV studies may be eligible provided they go beyond mere market observation and investigate new scientific questions.

The development of active pharmaceutical ingredients (APIs) and innovative dosage forms offers significant funding potential. Synthesis optimisation, formulation development, process upscaling from laboratory to production scale, and the development of analytical methods (HPLC, mass spectrometry, dissolution testing) are typical eligible activities. Biosimilar development, although the reference product is known, also requires independent R&D to produce comparable quality attributes.

Regulatory submissions (CTD dossiers, approval applications to BfArM or EMA) contain extensive scientific treatises. Modules 2.4 (Nonclinical Overview), 2.5 (Clinical Overview), 2.6 (Nonclinical Written and Tabulated Summaries), and 2.7 (Clinical Summary) of the CTD are frequently prepared by scientists whose working time is proportionally eligible. Our specialised consultants understand the interfaces between Regulatory Affairs and R&D, thereby maximising the eligible assessment base.

Eligible R&D Projects in the Pharmaceutical Sector

The pharmaceutical industry invests the highest share of revenue in R&D across all sectors – and this is precisely where the R&D tax credit applies. From early drug discovery through formulation development to process validation, numerous eligible project types exist, which we illustrate below with concrete examples.

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Drug Discovery and Preclinical Development

Early-stage drug discovery is almost entirely eligible for funding. Eligible activities include the identification and validation of new targets (e.g., through CRISPR screenings or proteomics analyses), systematic hit-to-lead optimisation of lead structures through medicinal chemistry, and preclinical efficacy and safety testing in in-vitro and in-vivo models. A mid-sized pharmaceutical company supported by NOVARIS researched novel kinase inhibitors for a rare autoimmune disease. The technical uncertainty lay in whether sufficient selectivity against related kinases could be achieved while maintaining acceptable oral bioavailability – a classic medicinal chemistry optimisation problem with uncertain outcome. The entire 18-month discovery phase was recognised as industrial research, yielding an R&D tax credit of over €200,000.

Novel Drug Delivery Systems

Developing innovative dosage forms offers significant funding potential, even when the active ingredient itself is already known. Typical eligible projects include researching nanoparticle-based carrier systems (e.g., lipid nanoparticles for mRNA therapies or polymeric micelles for poorly soluble drugs), developing sustained-release formulations with novel matrix systems, or designing targeted delivery platforms using antibody-drug conjugates (ADCs). The technical uncertainty frequently concerns whether the desired release kinetics, stability, and biocompatibility of the carrier system can be achieved simultaneously. NOVARIS supports formulation developers in presenting the experimental nature of their work to the BSFZ – particularly the systematic variation of excipients, manufacturing parameters, and scale-up conditions.

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Biologics and Biosimilar Development

Manufacturing biotechnologically produced medicines places particularly high demands on R&D and is correspondingly eligible. Typical project types include cell line development and optimisation (e.g., CHO cell lines with higher productivity or improved glycosylation profiles), researching continuous bioprocesses (continuous manufacturing) as an alternative to classical batch production, and developing analytical methods for biosimilar characterisation that demonstrate comparability with the reference product. A NOVARIS client from the biotech sector developed a novel upstream process for a monoclonal antibody, where a perfusion culture with integrated real-time process analytics (PAT) was intended to increase product yield by 40%. The uncertainty of whether the desired product quality (aggregation, charge variants, glycosylation pattern) could be maintained under the intensified conditions was convincingly presented as experimental development.

AI-Driven Compound Screening and Computational Drug Design

The use of artificial intelligence in pharmaceutical research is growing rapidly and offers excellent funding opportunities. Eligible projects include developing generative AI models for de novo molecule design (e.g., Graph Neural Networks that propose new molecular structures with desired ADMET properties), researching virtual screening platforms using molecular docking and molecular dynamics, and building predictive toxicity models that enable animal-test-free predictions of organ toxicity. The technical uncertainty lies in whether in-silico predictions show sufficient correlation with experimental data to substantially accelerate early drug discovery. NOVARIS has accompanied several pharmaceutical and biotech companies in applying for AI projects, convincingly presenting the interdisciplinary nature – at the intersection of computer science, chemistry, and biology – as R&D.

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Our tip: In the pharmaceutical industry, process development work that appears to be pure production at first glance is often eligible – for example, researching new granulation processes, developing PAT-based real-time release testing methods, or scale-up research for novel dosage forms. Our pharma-experienced consultants regularly identify additional R&D components in GMP-adjacent areas.