Drug discovery, diagnostics & lab automation
Estimate your credit →Discovery, assay development, scale-up, and device design are inherently experimental, with substantial uncertainty about efficacy, performance, and reproducibility.
The credit is calculated on qualified research expenses (QREs) — primarily wages for engineers and technical staff who spend time on qualifying activities, plus supplies, cloud/compute, and 65% of qualified contract research.
The table below lists the business components that most often qualify, a common example, and the technical uncertainty that makes each one defensible.
| Business component | Example | Technical uncertainty |
|---|---|---|
| Drug discovery & formulation | Novel compound, formulation, or delivery system | Will the candidate achieve efficacy and stability? |
| Assay & diagnostic development | New assay or point-of-care diagnostic | Can it hit sensitivity and specificity targets? |
| Bioprocess & scale-up | Fermentation or cell-culture scale-up | Will the process scale while holding yield and purity? |
| Medical device development | Implant, instrument, or wearable | Will the device meet safety and performance under use? |
| Lab automation & software | LIMS, automated screening, analysis pipeline | How to automate workflows reliably and reproducibly? |
| Analytical method development | New chromatography or mass-spec method | Can the method reliably quantify the target? |
| Computational / genomic biology | Variant-calling pipeline, predictive model | Which model or pipeline yields valid predictions? |
| Process & manufacturing tech | New sterilization or packaging approach | Will it meet sterility and shelf-life requirements? |
A team tests candidate buffer and assay conditions to resolve whether a diagnostic can retain sensitivity after storage. The experimental formulation and analysis may qualify when tied to a defined business component.
Routine lot-release testing, running an established assay, and regulatory paperwork generally are not experimental development. Grant- or sponsor-funded work may also be excluded when payment is assured regardless of outcome and the company lacks substantial rights; agreements matter.
Find your own job titles below. Each row shows the wage category a role usually falls under and the kinds of work that typically do and do not count. Titles alone never make wages eligible; the activity must meet the four-part test.
7 of 7 roles shown
| Role | What they do | Wage category | Typically qualifies | Typically does not |
|---|---|---|---|---|
| Designs experiments to see whether a scientific approach works. | Direct research | Testing biological mechanisms, Experimental assay design +1 more | Literature summaries alone, Routine established assays +1 more | |
Typically qualifies
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| Develops and tests compounds or formulations against technical requirements. | Direct research | Experimental synthesis routes, Formulation stability trials +1 more | Routine batch release, Known formulation replication +1 more | |
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| Finds a reliable way to produce a biological product. | Direct research | Experimental culture conditions, Uncertain purification methods +1 more | Routine commercial batches, Standard equipment operation +1 more | |
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| Builds computational methods for scientific experiments. | Direct research | Experimental analysis algorithms, Uncertain data-processing methods +1 more | Routine analysis using known tools, Dashboard maintenance +1 more | |
Typically qualifies
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| Prepares and runs experiments for the research team. | Direct support | Preparing experimental samples, Recording results from qualifying trials +1 more | Routine diagnostic testing, General lab cleaning +1 more | |
Typically qualifies
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| Collects measurements used to evaluate experimental designs. | Direct support | Trial-specific measurement setup, Comparative experimental testing +1 more | Routine quality-control release, Regulatory submission administration +1 more | |
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| Directly supervises the people performing scientific experiments. | Direct supervision | First-line experimental direction, Reviewing technical alternatives +1 more | Grant administration, Investor updates +1 more | |
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Typically does not
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Wage categories follow IRC Section 41. Only the portion of time spent on qualified research counts, and the percentage must be documented.
Illustrative example using sample figures. Your actual credit depends on your facts; see Form 6765 and consult a tax professional.
The IRS requires qualifying research to satisfy four tests. Here's how they typically map for this industry:
The activity aims at improving a product, process, software, or technique used in the business — not just a business outcome.
The work relies on principles of engineering, computer science, biology, chemistry, or another hard science to resolve uncertainty.
There was genuine uncertainty at the outset about whether — or how — the component could be built or improved.
The team evaluated alternatives: A/B tests, prototypes, benchmarks, simulations, or iterative design-build-test cycles.
Take these into a 15-minute conversation with your team.
The last question matters most. Customer-funded work and work performed outside the US are generally excluded. Funded work is excluded to the extent your business does not bear the financial risk or does not retain substantial rights in the results.
A successful commercial outcome is not required. The activities must still meet the research criteria, and records should show the alternatives tested and results.
No. Eligibility depends on the specific activities, technical uncertainty and applicable exclusions. Routine testing, data collection and regulatory administration need to be separated from qualified research.
Review the agreement to determine who bears the financial risk and retains substantial rights in the results. Grant or customer funding can exclude expenses, so funding alone should not be treated as proof of eligibility.
A portion of eligible contract research expenses may count when the contract-research requirements are met. Review performance location, economic risk and retained rights for each agreement.
Nondepreciable materials consumed in qualified research may qualify as supplies. Depreciable laboratory equipment is generally not a qualifying supply expense.
Keep protocols, lab notebooks, experimental results, design decisions and time-allocation support. Link costs to the research performed and retain the relevant funding agreements.
Most companies underestimate what they can claim. Our study covers every qualifying role, every component, and every year still open for amendment.
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