Project Summary
A pharmaceutical company developed a custom extended-release tablet for an active pharmaceutical ingredient (API) with a narrow therapeutic window where standard matrix tablet and coated pellet approaches failed to achieve the required plasma concentration profile over a 24-hour dosing interval without producing dose-dumping under fed-state conditions. By applying for the R&D Tax Credit, this company was able to attain a Total State Credit of $652,727 and a Total Federal Credit of $933,521.
Project Overview
To qualify for the R&D Tax Credit, each activity must satisfy the IRS four-part test. CSSI’s analysis confirmed that the qualifying activities identified for this company met all four criteria:
- Business Component: Developing an improved oral dosage form that meets target drug release, bioavailability, and safety under variable physiological conditions.
- Elimination of Uncertainty: It was unclear whether a hybrid hydrophilic matrix with a modified polymer blend ratio could achieve the required release profile across fasted and fed states without dose-dumping or premature release.
- Process of Experimentation: The team tested polymer blends through in-vitro dissolution and fed/fasted crossover studies, iterating on formulation until bioavailability and safety targets were consistently met.
- Technological in Nature: Grounded in pharmaceutical science, polymer chemistry, and biopharmaceutics.
| Employee Wages | $18,341,463 |
| Supply and Contractor Costs | $4,052,819 |
| Total QRE’s | $9,311,527 |
| Total State Credit | $652,727 |
| Total Federal Credit | $933,521 |
Study Results
The analysis identified a total of $9,311,527 in Qualifying Research Expenses (QREs) for the tax year. Employee wages accounted for the majority of the QRE figure, with $6,121,808 of $18,341,463 in total payroll attributable to qualifying research activities under IRC §41. Supply costs contributed an additional $1,586,820 in qualifying expenses, and contractor expenses added $1,602,899, the 65% allowable portion of $2,465,999 paid to third parties. Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $933,521 and a state R&D Tax Credit of $652,727, for a total tax credit benefit of $1,586,248.
Key Takeaways
- Pharmaceutical and bioscience companies are natural candidates for the R&D Tax Credit. Formulation development, dissolution testing, and bioavailability studies all involve the kind of iterative, science-based problem-solving that satisfies the four-part test.
- QREs often span all three expense categories. This engagement captured $6.1M in qualifying wages, $1.6M in supply costs, and $1.6M in contractor expenses, a reminder that materials used in laboratory testing and outside research partners can substantially expand the credit beyond payroll alone.
- Contract research adds meaningful value at the 65% allowable rate. The company’s $2.5M in third-party expenses contributed over $1.6M to total QREs under IRC §41, capturing work performed by CROs and specialized testing partners
- State credits can rival the federal benefit. Here, the state credit added $652,727 on top of $933,521 federal, bringing the total benefit to $1,586,248, nearly doubling the value of a federal-only analysis.
- Defensibility depends on documentation. Existing formulation records, dissolution data, fed/fasted study results, and reformulation logs supported each component of the four-part test, the foundation of CSSI’s engineering-based, audit-ready approach.
Ready to Discover Your R&D Tax Credits Potential?
If your company is developing or improving products, formulas, or processes, you may be leaving significant tax credits on the table. CSSI’s engineering-based approach ensures every qualifying activity is identified, documented, and defensible, so you capture the full value of the work your team is already doing.
Request a Free Analysis today and find out what your business could qualify for.
