In the Healthcare sector, R&D plays a significant role in several areas, from the development of new medicines to the establishment of new methods and procedures. Generally, the duration of projects in this sector is quite long – especially when we talk about the development of new drugs, which can take up to fifteen years to be researched and completed, with no guarantee of success.

This sector is constantly searching for innovations, given the never-ending need for new medication, treatments, and equipment for different situations and illnesses. The economic environment, therefore, remains volatile, but in constant movement.

Nowadays, small drug companies represent more than 70% about 3,000 drugs in phase III (Clinical Development) clinical trials and are responsible for a growing share of drugs approved by the Food and Drug Administration, representing around one-third since 2009. The federal government is the main funder of basic research in biomedical sciences – research that reduces the R&D costs of private companies and stimulates private investment in R&D, expanding the set of opportunities for developing innovation.

Healthcare and Pharmaceuticals

The Healthcare and Pharmaceuticals industry is a huge beneficiary of R&D tax credits given its continued search for breakthrough innovations. Innovations can range from new drug development to a variety of activities, including:

Drug development: The creation of new medications for various diseases involves extensive research from laboratory testing to clinical trials. Some drugs do not see the light of the day, but all research on that particular drug qualifies for R&D tax credits.

Medical devices: Companies that manufacture and test new medical devices, such as wearables for health monitoring and surgical tools applying innovative technology, are engaging in R&D.

Healthcare technology: Developing software and systems to help in better treatment of patients warrant R&D tax credits. Examples include telehealth systems, electronic health record systems, and patient management platforms if new or significantly better than the current system and software.

Biotechnology research: Biotech companies engage in various R&D research such as gene therapy, genetic engineering, and finding therapy for incurable diseases. These activities involve new or little understood scientific studies that validate the application of R&D tax credits.

Clinical trials and exploratory research: Conducting clinical trials to test new treatments or devices involves a lot of problem-solving both scientifically and logistically. Such research validates the request for R&D tax credits.

Pharmacogenomics: The study of how genes affect a person’s response to drugs is a very new technology. Projects that seek to know how a person’s genes function in prescribing drugs qualify for R&D tax credit.

Also, some factors have influence on the expense’s decisions, such as:

Anticipated lifetime global revenues from a new drug,

Expected costs to develop a new drug

Policies and programs that influence the supply of and demand for prescription drugs.

In recent years, investment in R&D has increased exponentially, with an upward trend since 2012. Private investment in drug R&D among member companies of the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade association, was about $83 million in 2019. Around 10 times more than what was spent by the industry in the 1980s (considering inflationary adjustment), according to the Research and Development in the Pharmaceutical Industry report, made by the Congressional Budget Office.

Pharmaceutical companies invest in R&D in the expectation of future profits. For each drug that a company considers acquiring, the anticipated returns depend on the three main factors: the drug’s expected lifetime global revenue (minus manufacturing and marketing costs), the new drug’s likely R&D costs, and the policies that affect supply and demand for prescription medications. When the expectation of future profits is greater, companies invest in R&D and produce more.

Other projects that qualify for R&D Tax Credit include those aimed to increase performance and safety, and waste of resources. It is crucial to have well-documented processes from the hypothesis to when they are actualized for one to claim for R&D tax credit.

The Research and Development Tax Credit, available to all companies with qualifying R&D expenditures, directly reduces the amount of income tax owed by a company by encouraging the development of medicines to treat diseases – especially unusual ones – vaccines and other projects.

Our Support

In this sector where research is so pervasive, the implementation of an R&D strategy with adequate funding remains critical. Our R&D tax credit experts, engineers and PhDs are here to support you in the implementation of an innovative approach. Through global support, FI Group can give you new insights and opportunities. For a virtual or in-person meeting to optimize your company journey, contact us.

Resources: https://www.cbo.gov/publication/57126#_idTextAnchor004

https://www.fi-group.us/rd-tax-credit-examples-for-different-industries/

R&D Tax Credits in Healthcare Industry

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