The research and development (R&D) tax credit incentivizes pharmaceutical companies to invest in the development of new or improved business components. Under some circumstances, the R&D activities and related expenditures associated with the packaging of pharmaceuticals can be considered as qualified research expenses that are eligible for the R&D tax credit. The importance of pharmaceutical packaging systems has increased because of stricter requirements under the U.S. Pharmacopeial Convention (USP). The USP is a nonprofit scientific organization that regulates the safety and quality of pharmaceutical packaging systems, including the materials they are made of. Compliance with USP regulations can require significant investments, some of which may be eligible for an R&D tax credit.Innovative Packaging Products And Processes
Pharmaceutical companies must invent and invest in new safe packaging technologies. As an example, a pharmaceutical company may invest in the design of a new elastomeric closure for an existing injectable product. Some of the R&D expenditures involved will be eligible for the tax credit. For instance, because the design of the closure was subsequent to the original development of the product, the materials to build the experimental closure would be considered an R&D supply cost.In addition to packaging innovations, new state-of-the-art equipment to manufacture that packaging may be required as well. For some pharmaceutical companies, the design and installation of new equipment will require an expansion of their existing packaging lines, while those with space limitations may turn to innovation and automation to handle multiple products in the same space.
Employee wages from certain research and experimental packaging activities may also qualify as pharmaceutical R&D expenses. Many companies only identify the core scientific personnel, but many different types of technical personnel are involved in pharmaceutical packaging activities. The R&D credit can cover expenses for anyone who is performing direct research, direct supervision or direct support activities.
Don’t Forget QA
Companies developing new packaging will probably enlist the help of the quality assurance (QA) department to perform testing and evaluation of prototypes. The specific QA activities for designing and perfecting packaging prototypes are eligible for the R&D tax credit.
To both meet the USP packaging guidelines and compete in the changing competitive pharmaceutical environment, the pharmaceutical packaging industry must innovate and design new and improved packaging. With this in mind, pharmaceutical companies should review and analyze all of their new or improved packaging processes to determine which activities are credit eligible.
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