Is drug and bioprocess development eligible?

Yes, regardless of approval status. What matters is whether the outcome was open before the experiment started. The funding rate is 25 % of the assessment basis, or 35 % for SMEs; for contract research commissioned after 27 March 2024, this equals 17.5 % or 24.5 % of the fee before the additional flat rate (Section 4 (1) FZulG).

Pharma & Life Sciences R&D Tax Credit 2026

In pharma the gain in knowledge decides, not the approval status.

The certification office does not assess whether an active ingredient is ultimately approved, but whether a scientific question was open beforehand and answered systematically. A pharma company rarely loses an application on the science; usually it is lost because registration work and research sit in the same project.

Rates, costs and limits

The essentials on the research allowance in pharma and life sciences

Funding rate: 25% of the assessment basis, 35% for SMEs. For projects started after 31 December 2025, a 20% flat rate increases the assessment basis (Section 3 (3b) FZulG); the EUR 12 million cap still applies (Section 3 (5) FZulG).
Eligible: Drug screening, formulation development, bioprocesses, analytical method development and clinical trials in Phase I to III. What counts is not proximity to approval but whether novelty, technical risk and systematic approach can be demonstrated.
What counts: The employer gross salary of research chemists, bioprocess and analytical engineers for the hours spent on the project. Since 2024 also the depreciation of movable assets used exclusively for the project, such as a bioreactor or a flow reactor system. Study and test samples themselves are not eligible.
Ceiling: Assessment base of EUR 12 million per financial year, maximum research allowance EUR 4.2 million.
Contract research: 70% of the cost of commissioned development work is eligible (Section 3 (4) FZulG): CRO and CMO commissions, contract studies and cooperation with university institutes.
Retroactive: Applications for closed financial years from 2022 are possible as long as the assessment period of the respective year is still open; for 2020 and 2021 it has expired (§ 12 FZulG in conjunction with § 169 AO). Projects started before 1 January 2026 do not receive the overhead allowance.

Which activities in pharma and life sciences are eligible?

Proximity to approval does not decide eligibility. The certification office checks every project against three criteria: novelty, technical risk, systematic approach. If one fails, the application fails. Below are the activities we encounter most often at pharma and life sciences companies, with the verdict we expect.

Boundary case: eligibility depends on the specific project.

Drug discovery & screening

Screening for a new target mechanism without a known mode of actionEligible
Eligible. Novelty: For the target mechanism addressed, no mode of action described on the market or in the literature achieves the required selectivity. Technical risk: Whether a molecule with sufficient affinity and selectivity for this target exists at all is not established before screening. Systematic approach: Assay development, screening cascade, hit validation, structure-activity analysis, documented by lab notebooks and analytical reports.
Optimising a known drug scaffold (lead optimisation) for a new indicationBorderline
Borderline. Routine as long as the structure-activity relationship from the original indication transfers. It becomes eligible when the target indication demonstrably requires a different activity profile and the transferability of the known SAR data is itself open.
Repurposing an approved active ingredient for a new indicationBorderline
Borderline. Eligible is the share in which the mechanism of action in the new indication is first established experimentally. Not eligible is a pure literature search for known off-target effects without an own experimental test.
High-throughput screening to an established assay protocol without a new questionNot eligible
Not eligible. The screening method is state of the art, the result (hit yes or no) is the expected output of the procedure, not an open technical question.

Formulation & galenics

Novel lipid nanoparticle or liposomal formulation with unknown release behaviourEligible
Eligible. Whether encapsulation efficiency, release kinetics and stability of the formulation reach the target values is open before the test series. Stability data across several batches and storage conditions is the evidence.
Reformulating an active ingredient for a new route of administration with unresolved bioavailabilityEligible
Eligible. A switch from, say, oral to inhaled or transdermal raises a new, previously unanswered question about bioavailability that is only resolved through testing.
Adjusting the excipient composition to improve stabilityBorderline
Borderline. Eligible if the cause of the instability is unknown beforehand and is investigated systematically. Routine if a standard compendium excipient is swapped according to a known rule.
Line extension: new pack size or dosage form variant using an established processNot eligible
Not eligible. The galenic process is established, the result predictable. Effort for registration documents does not change that.

Bioprocess development & scale-up

Switching from batch to continuous synthesis (flow chemistry) with an open yield and purity targetEligible
Eligible. Whether a flow reactor cascade with inline analytics achieves the required yield and purity in continuous operation cannot be determined before the test series. Several measurement series against a defined target are the evidence of a systematic approach.
New fermentation strategy with unknown cell metabolism behaviourEligible
Eligible. A new host organism or a changed cultivation regime makes yield and product quality undeterminable beforehand. Process parameter screening and metabolite analysis across several runs document that.
Scaling up a bioprocess from lab to pilot scaleBorderline
Borderline. Eligible as soon as parameters such as oxygen transfer, shear stress or heat removal demonstrably no longer scale linearly when scaling up and have to be newly determined. Simply applying known scale-up factors is routine.
Routine batch production to a validated, released processNot eligible
Not eligible. The process is validated, the result predictable for every batch. Deviations are handled per SOP, not researched.

Analytics & method development

New analytical method to quantify a previously undetectable impurity profileEligible
Eligible. Whether a newly developed HPLC or mass spectrometry method achieves the required detection limit for an unknown degradation product is open beforehand. Validation data from several iterations document the path.
Validating an existing analytical method for a new matrixBorderline
Borderline. Eligible if the transferability of the method to the new matrix is unclear beforehand and is tested experimentally. Routine if a standard procedure is simply requalified per ICH guideline.
Routine analysis to pharmacopoeia standards (Ph. Eur./USP) for batch releaseNot eligible
Not eligible. The method and the result are prescribed by the monograph. Even at high sample throughput this remains quality control, not development.

Preclinical & clinical development

Preclinical and clinical trials (Phase I–III) to resolve an open mechanism of action or unknown safety profileEligible
Eligible. As long as the scientific outcome is open before the trial starts, clinical trials are also eligible as experimental development, regardless of whether the candidate is later approved.
Combination trial of two approved active ingredients at a new dosageBorderline
Borderline. Eligible is the share in which the pharmacokinetic interaction of the combination is unknown beforehand and is investigated systematically. Pure dose titration following a known scheme is routine.
Registration trial (Phase IV), post-marketing observation or pure marketing studyNot eligible
Not eligible. The active ingredient is approved, the safety and efficacy profile in the applied indication already established. The open scientific insight is missing.

What is regularly rejected

Regulatory affairs: preparing approval dossiers (CTD, IMPD) and authority communicationNot eligible
Not eligible. Administrative and documentation work to a prescribed format. The underlying trial data can be eligible, the dossier itself is not.
Routine GMP documentation, batch records and release testingNot eligible
Not eligible. Mandatory work under pharmaceutical law whose result is settled. The test protocols created along the way can, however, serve as evidence for an eligible project.
Contract manufacturing (CMO commission) without own development riskNot eligible
Not eligible. Whoever manufactures to someone else's formulation and specification bears no technical risk. The case is different when the client itself develops the process and is accountable for it.
Pharmacovigilance and adverse event reporting in routine operationNot eligible
Not eligible. Statutorily mandated post-approval monitoring with a settled procedure. No gain of knowledge in the sense of the FZulG.

Your project is not listed or sits between two lines? That is the normal case; eligibility is decided on the specific facts, not on the heading. Describe the project to us and we will tell you where it stands.

What evidence does the BSFZ expect in pharma and life sciences?

Pharma and life sciences companies practically never introduce an additional system for the research allowance; they have the evidence already. We evaluate what exists and assign each source to the criterion it supports.

What evidence does the BSFZ expect in pharma and life sciences?
Source	What it proves	Criterion
Lab notebooks · ELN (electronic lab notebook)	Ongoing entries on batches, aborts and repeats show attempt, rejection and new approach, the strongest evidence of experimental development a laboratory can deliver.	Systematic approach · Technical risk
Batch records	Deviations between planned and actual process parameters date when a process was not yet mastered and what it was measured against.	Systematic approach · Technical risk
Analytical reports · HPLC, MS, NMR	Analysis reports with method, calibration and result show that a target value was not achievable at the first attempt.	Technical risk
Study protocols · preclinical and clinical	Protocols with inclusion and exclusion criteria, endpoints and stopping rules document the open scientific outcome beforehand.	Systematic approach
Stability data · ICH climate zones	Long-term and stress-test data across several time points show whether and when a formulation loses its specification, the basis for any statement on technical risk.	Technical risk
Change requests · deviation reports	Deviation reports name the rejected approaches and parameters, exactly the information with which the state of the art can be demonstrated.	Novelty
Time recording · project hours	For the tax office application the hour counts. We map an existing time recording onto the projects instead of introducing a parallel system.	Cost side
CRO/CMO contracts · deliverables	Contracts and deliverables from external contract research document the 70% eligible contract research costs and separate them from pure contract manufacturing.	Scope

The most common mistake in assisted applications is a development process constructed after the fact with phases that never existed at your company. Your real lab notebooks and batch records are the better evidence; they provide a complete, dated record of the procedure.

What comes out of it?

Two calculated cases for projects that started after 31 December 2025, once at the SME rate of 35%, once at the standard rate of 25%.

Biotech company, 40 employees · SME

Employer gross, 10 research chemists and bioprocess engineers: EUR 800,000. Ten research chemists and bioprocess engineers, R&D share documented via project hours, plus a testing contract placed with a CRO

R&D personnel costs (employer gross)EUR 400,000

Contract research, 70 % of EUR 150,000+ EUR 105,000

Overhead flat rate 20 %+ EUR 101,000

Eligible expensesEUR 606,000

Funding rate35 %

Research allowance per yearEUR 212,100

Per year. Applied for retroactively over three open financial years: around EUR 0.5 million, without the overhead allowance, because the project started before 2026.

Pharmaceutical company, 350 employees

Employer gross, 25 scientists in drug discovery and analytics: EUR 2,500,000. Twenty-five scientists working on a new drug class, not an SME. Standard rate 25%, contract research with a university institute

R&D personnel costs (employer gross)EUR 1,375,000

Contract research, 70 % of EUR 300,000+ EUR 210,000

Overhead flat rate 20 %+ EUR 317,000

Eligible expensesEUR 1,902,000

Funding rate25 %

Research allowance per yearEUR 475,500

Per year. The assessment base is capped at EUR 12 million, a maximum of EUR 3.0 million allowance at the standard rate, EUR 4.2 million as an SME.

As a rule of thumb: a research chemist with an employer gross of EUR 80,000 who spends half of the time on eligible projects yields around EUR 16,800 research allowance per year (SME rate, with the overhead allowance — the project starts after 31 December 2025). The whole is capped at an assessment base of EUR 12 million and an allowance of EUR 4.2 million per year. Go to the calculator

Guide: R&D tax credit for pharma and life sciences companies
The eligibility rules, the sources of evidence and a template for the project description, as a PDF.

What pharma and life sciences companies ask us most often

Are clinical trials (Phase I–III) eligible under FZulG?+

Clinical trials in Phase I to III are eligible as experimental development insofar as the scientific outcome is open beforehand and a technical or scientific risk exists. Phase IV trials and pure post-marketing observations after approval are not eligible, because the safety and efficacy profile has already been established. NOVARIS determines the eligible share for each trial phase specifically.

Can CRO and CMO commissions (contract research) be included?+

Yes. For contract research commissioned to CROs or university institutes, 70% of the remuneration paid can be counted as eligible expenditure (Section 3 (4) FZulG). Your company must bear the economic risk and retain ownership of the research results. Pure contract manufacturing by a CMO without its own development risk does not count.

Is regulatory work (approval dossiers, authority communication) eligible?+

Regulatory affairs activities such as preparing approval dossiers or communicating with authorities are not eligible as such, since they do not constitute experimental development within the meaning of the FZulG. However, the scientific evaluation and data collection underlying the dossier can be eligible. We cleanly separate the eligible R&D share from the administrative dossier preparation.

Is contract research with university institutes eligible in the same way as CRO commissions?+

Yes, contract research with university institutes is credited at 70% under Section 3 (4) FZulG in exactly the same way as CRO commissions. What matters is that your company receives the research results and bears the economic risk, regardless of whether the contractor is a private laboratory or a university institute.

Is material for preclinical or clinical trials (test samples, reference substances) eligible?+

Test samples, reference substances and other study material are not eligible as direct material cost. Eligible are the personnel costs of the scientists involved, 70% of commissioned contract research and, since 2024, the depreciation of movable assets used exclusively in the project, such as a bioreactor or a flow reactor system.

Does developing analytical detection methods also count as R&D?+

Yes, when a new detection method is developed because the existing repertoire does not achieve a required detection limit or specificity. Routine analysis to pharmacopoeia standards for batch release, on the other hand, is quality control and not eligible, even if it is laborious.

How do we distinguish formulation development from a pure line extension?+

What matters is whether the physicochemical behaviour of the new formulation, such as release kinetics or stability, was open before the test series. A line extension with a known excipient to compendium standard, or scaling according to manufacturer instructions, is routine, even if it is demanding from a regulatory perspective.

How much effort arises in our research department?+

For a typical pharma project we reckon with two to four hours on the part of the head of research: a technical conversation in which we take up the project, and one approval round on the finished project description. We take over the evaluation of lab notebooks, batch records and time recording as well as both applications.

How does your documentation become an application?

Your lab and your process development already document everything the certification office wants to see, just in a different language. Here is the same set of facts in four registers, from the measurement protocol to the application sentence.

In the lab — What gets written anyway

Flow cascade FK-12, series 2
Yield 84% after residence time adjustment
  // target ≥ 90%, by-product above 85 °C

- NIR PAT probe ....... 2 pcs
- controller model .... v2
- series 3 ............ 93% / < 0.1% ok

In conversation — What the team says about it

"In the batch reactor the yield varied from 65 to 75% batch to batch. We rebuilt it as a cascade of three microreactors, with a Raman probe at the outlet, and after the third residence-time adjustment we were above 90%."

Technically complete and worthless as application text. There is no reference to the state of the art or to the measured variable.

At the BSFZ — What is actually examined

Novelty
Technical risk
Systematic approach

For each of the three criteria the application must contain a verifiable statement. What is described is the knowledge gained on the way to the finished active ingredient.

In the application — What we formulate from it

"For the continuous synthesis of active ingredient intermediate X no process concept existed whose yield and impurity profile over 72 hours of continuous operation had been demonstrated above the required target of 90% yield and below 0.1% impurity. Whether residence time and temperature could be controlled to hold this target corridor could not be determined in advance. The project established this in three measurement series against a defined target."

This is the work. The same facts, four formulations, and only one of them is an application. This translation is our actual service: building, from what your lab produces anyway, the statement the certification office can examine. Not writing more beautifully. Writing differently.

Why do applications fail in pharma and life sciences?

Rejected projects from pharma and life sciences rarely fail on their science. They fail on five recurring patterns, and we see them in self-submitted applications just as in externally assisted ones.

The state of the art is missing

The application describes which active ingredient or process was developed, not why it could not be done with the available pharmacological or process knowledge. Without named comparator compounds, literature data or established processes, the certification office cannot establish novelty. This is the most common reason in our own mandates.

How we do it. We specifically name the drug classes, mechanisms of action and processes that were examined and rejected, each with the property on which they fail.

The registration trial is submitted as the project

A Phase IV trial or post-marketing observation is not excluded per se, but it only becomes eligible if a distinct, previously open scientific insight is identifiable. An application covering "the registration trial" forces the certification office to assess marketing purpose and research together.

How we do it. We check in advance whether part of a trial answers a distinct, open scientific question, and cleanly separate that from pure post-marketing observation.

Regulatory risk instead of technical risk

Approval deadlines, agency queries and dossier timelines are not a technical risk within the meaning of the FZulG. Anyone arguing this way describes an administrative problem and gets it decided as such.

How we do it. We phrase the risk as an open scientific question: which pharmacological, toxicological or process property was not predictable before the start.

The candidate is described as a finished product

The application reads like a prescribing information sheet: strength, indication, dosage form. The certification office is looking for the way there, the rejected candidates and the measurement that proves the difference.

How we do it. We derive the systematic approach from your own artefacts: screening in the lab notebook, trial in the batch record, decision in the deviation report.

Cost side and facts do not match

The BSFZ certifies the project, the tax office checks the costs. Anyone who claims material costs for study samples, or CRO invoices that contradict the project description, loses in the second step, after the certificate has already been issued.

How we do it. We run project description, time recording and research allowance application (ELSTER) against the same scope from the start. The cost side is not created afterwards.

If you already have a rejection, the first step is analysing the decision: which of the five points carries it. That determines whether objection or new application is the right way.

Which other industries use the research allowance?

The sector never decides eligibility — Section 2 FZulG does. These pages show the same three criteria against the activities of each field.

Mechanical engineering — Design, testing, commissioning
Automotive — Drivetrain, battery, driving function
Medical technology — Operating principle, SaMD, pre-approval
Construction — Methods, materials, component tests
Energy & cleantech — Cell, storage, grid control
Aerospace — Structure, propulsion, avionics
Agriculture & FoodTech — Process, formulation, field trial
Software & IT — Algorithm, model, architecture

Send us a lab notebook, not a questionnaire

In the first consultation we talk about your active ingredient or your bioprocess, not about your legal form. After thirty minutes you know which part of your development is eligible, in what order of magnitude, and whether a retroactive application is worthwhile. The first consultation is free; 30 % of the fee falls due with the BSFZ decision, 70 % only after the allowance has been paid out.

Book a first consultation

Official sources

Read on

Max Nodes

Founder and Managing Director of NOVARIS Consulting. Specialised in the German R&D tax credit (FZulG) since 2021; 25 of 25 accompanied BSFZ applications approved (as of 09/2026). Max Nodes

R&D tax credit for pharma and life sciences: compound, formulation, bioprocess

Pharma: develop more precise assays