Generic Drug Development R&D Tax Credits

Innovate your generic pharmaceutical development efforts. Generic drug companies across the U.S. are engaged in formulation optimisation, bioequivalence method development, manufacturing process improvement and regulatory lifecycle enhancements. Many of these initiatives satisfy the criteria for the federal R&D Tax Credit under IRC §41, with additional state‑level opportunities.

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R&D Tax Credits for Generic Drug Development

Examples of qualifying activities in generic drug development

Formulation optimisation Adjusting excipient blends, tablet coatings, dissolution profiles, or delivery formats to match reference drug.
Manufacturing process improvement Pilot manufacturing runs, granulation/compression parameter adjustments, scale‑down models, blend uniformity studies.
Bioequivalence/dissolution method development Developing or validating new analytical assays to show equivalence, side‑by‑side testing of generics vs innovator.
Impurity/degradation pathway investigation Studying new impurity profiles, stability under different container/closure systems, generic stability challenge.
Regulatory submission support & novel generics Developing biosimilar versions, reformulating for niche segments (paediatric, orphan indications), modifying process for fewer impurities or improved shelf‑life.

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What qualifies as R&D in generic drug development?

Generic Drug Development R&D Tax Credit Services

To qualify, your generic‑development activities must:

Aim at a permitted purpose — such as a new or improved generic formulation, more efficient manufacturing process, enhanced bioavailability, or novel regulatory‑submission method.
Tackle technical uncertainty — for example: “Can this generic match the reference product’s dissolution and release profile under variable manufacturing conditions?”, “Will the scale‑up process maintain uniformity and impurity control across batches?”, “Can a novel excipient system deliver equivalent therapeutic effect while meeting regulatory criteria?”
Use a process of experimentation — formulation trials, side‑by‑side generic vs. reference product testing, pilot manufacturing runs, scale‑up modelling, method validation comparisons.
Be technological in nature, grounded in pharmaceutical science, formulation engineering, biopharmaceutics, process engineering or analytical chemistry.

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Qualified Research Expenses (QREs)

Expense Type

Examples in Generic Drug Development

Eligibility Notes

Wages

Formulation scientists, process engineers, analytical chemists

Direct and support roles engaged in research

Supplies

Trial formulation materials, reference product samples, reagents

Consumed or used in the experimentation process

Software / Cloud

Simulation or modelling software for scale‑up, analytics platforms

Eligible when used for qualified research

Contract Research

External labs for dissolution/bioequivalence testing, pilot vendors

Subcontract research generally qualifies

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Roles commonly involved in qualifying activities

Formulation scientists and generic‑development specialists
Biopharmaceutics and analytical chemists
Process engineers working on manufacturing scale‑up or optimisation
Quality/regulatory engineers managing validation studies
Project leads coordinating formulation/manufacturing trials

What does not qualify

Routine manufacture of generic products under established formulations without change or experimentation
Standard production or regulatory filing without method development, testing, or technical uncertainty
Administrative, marketing, sales or general business operations
Capital equipment purchases that are not directly tied to a documented research experiment

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

Maintain detailed records such as:

Formulation trial logs, version history of excipient blends, dissolution/bioequivalence study results
Pilot manufacturing runs, batch logs, scale‑up modelling reports, yield/scrap comparison data
Analytical method validation logs, IP/trial design notes, side‑by‑side testing results
Employee time tracking by project, supply usage logs tied to experiments These support the four‑part test of permitted purpose, technical uncertainty, process of experimentation and technological nature.

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Frequently Asked Questions

Yes — when they engage in new or improved formulations, manufacturing process innovation, bioequivalence or analytical method development, not routine generic production.

Wages of development staff, trial formulation supplies, software or analytics tools, contract research costs with method validation or pilot manufacturing.

Routine manufacturing without innovation, generic substitution without development, purely operational or administrative tasks.

Track formulation iteration history, trial logs, pilot run data, employee project time logs, supply/test‑kit consumption tied to experiments.