Pharmaceutical

The types of pharmaceutical activities considered to be R&D are different to other industries because the testing procedures that need to be followed to meet regulatory requirements are long, thorough and strict.

The time it takes from the earliest research stages on a particular drug to get it to out to market is usually about a decade. And only a small percentage of promising compounds identified in early research end up with regulatory approval.

R&D in the pharmaceutical industry typically takes place in four stages:

• Drug discovery

This phase is concerned with the identification of promising new chemical entities.

• Pre-clinical trials

Pre-clinical trials are concerned with the non-human testing of compounds. Compounds that are identified as promising at the pre-clinical trial stage move into clinical trials.

• Clinical trials

Clinical trials go through three phases, generally be described as toxicity tests (phase 1), preliminary efficacy tests (phase 2) and comparative efficacy and tolerability tests (phase 3). Work in these first 3 stages will likely be considered R&D. This will include work on applying to and responding to the regulator, and work on doing further testing as requested by the regulator. Most of the work involved in making an application to the regulator would involve work that directly contributes to the resolution of technological uncertainty and would therefore qualify as R&D.

• Post-launch

The post-launch phase occurs when a product has been licensed. Thus this phase involves post-marketing confirmatory studies, special interest studies, longer-term efficacy, tolerability etc. Work in this phase would generally not be considered R&D unless the work involved a scientific or technologically advanced uncertainty.

It seems to be the case that the research activities of discovery, pre-clinical development and Phase 1-3 trials will usually be concerned with the resolution of scientific and technological uncertainty, but that phase 4 (post-launch trials) will not.

Our experience has shown that this is generally an appropriate starting point for examination of claims from pharmaceutical companies. If there are unusual circumstances meaning R&D is done in Phase 4 trials, or not done in some elements of phase 1-3 trials, then this can be examined further. What is important with every claim is that the company claiming can demonstrate by reference, what it has actually done and that the expenditure incurred is based on R&D.

If your company is taking a risk by innovating, improving, or developing a process, product, or service, then it will likely qualify for R&D tax credits.

A good test to determine if the work undertaken qualifies as R&D, is whether your project team faced uncertain outcomes at the start of the project.

That means that your team did not know from the outset whether a particular outcome was achievable.

If you can show that your project goes beyond simply applying existing technologies, then you may be eligible to make a claim.

A business must submit its R&D tax credits claim within 12 months of the end of the accounting period during which the R&D activities took place. To make a claim, the business will need to complete the CT1 form through the Revenue Online System. More details can be found in our blog: How Far Back Can I Claim R&D Tax Credits In Ireland?