Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

v3.25.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income (loss) before income taxes for the years ended December 31, 2025, 2024, and 2023 was entirely attributable to domestic operations.
The components of the (benefit from) provision for income taxes included in the statements of operations were as follows (in thousands):
Year Ended December 31,
2025 2024 2023
Current:
Federal $ —  $ —  $ — 
State and local 655  281  — 
Foreign —  600  — 
Total current taxes 655  881  — 
Deferred:
Federal (233,679) —  — 
State and local (12,173) —  — 
Foreign —  —  — 
Total deferred taxes (245,852) —  — 
(Benefit from) provision for income taxes $ (245,197) $ 881  $ — 
The benefit from income taxes for the year ended December 31, 2025 was primarily attributable to the release of a significant portion of the valuation allowance previously recorded against our deferred tax assets. The provision for income tax for the year ended December 31, 2024 was primarily related to a foreign withholding tax and state income taxes. There was no provision for income taxes for the year ended December 31, 2023. We do not expect to owe federal income taxes due to the sufficient NOL carryforwards that were generated prior to the enactment of the TCJA, as well as significant research and development credit carryforwards.
In July 2025, the OBBBA was signed into law. The OBBBA includes a broad range of provisions affecting business entities, including the establishment of certain permanent business tax measures. Among other changes, the legislation permits permanent and immediate deduction for domestic research and development expenditures and restoration of favorable tax treatment for certain business provisions. The legislation contains multiple effective dates, with certain provisions effective beginning in 2025 and others phased through 2027. In accordance with ASC 740, Income Taxes, the effects of changes in tax laws are recognized in the period of enactment. Accordingly, we evaluated the provisions of the OBBBA and determined that the most significant impact to us relates to the capitalization requirements for research and experimental expenditures under Section 174. The effects of this provision have been reflected in our income tax provision for the year ended December 31, 2025. The effects of the OBBBA on our financial statements were not material, other than the impact related to Section 174 as described above.
A reconciliation of the (benefit from) provision for income taxes to the amount computed by applying the US federal statutory income tax rate to income (loss) before income taxes for the periods presented is as follows (in thousands, except percentages):
Year Ended December 31,
2025 2024 2023
Amount % Amount % Amount %
Federal statutory tax rate $ 25,593  21.0 % $ 3,907  21.0  % $ (5,261) (21.0) %
State and local, net of federal income tax effect*
(11,518) (9.5 %) 281  1.5 % 15  0.1 %
Foreign tax effect (Indian withholding tax) —  — % 600  3.2 % —  — %
Change in valuation allowance (265,784) (218.1 %) (5,644) (30.3 %) (3,081) (12.3 %)
Research and development tax credits (744) (0.6 %) 540  2.9 % 6,583  26.3 %
Changes in unrecognized tax benefit (82) —  % 46  0.2  % 33  0.1 %
Nontaxable or non-deductible items:
Stock-based compensation 7,300  5.9 % 1,189  6.4 % 1,323  5.3 %
Other 38  —  % (38) (0.1) % 388  1.5 %
Total (benefit from) provision for income taxes/ Effective tax rate $ (245,197) (201.3 %) $ 881  4.8 % $ —  — %
*State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category.
The amount of income taxes paid (net of refunds received) were as follows (in thousands):
Year Ended December 31,
2025 2024 2023
Federal $ —  $ —  $ — 
State and local
Alabama 129  233  15 
Kentucky 256  57  *
Tennessee * 28  14 
New York * * 48 
All states representing less than five percent of total 78  13  4 
Total state and local 463  331  81 
Foreign
India 600  —  — 
Total income taxes paid $ 1,063  $ 331  $ 81 
_______________________
*Denotes less than 5% of total income taxes paid in the respective periods.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows (in thousands):
As of December 31,
2025 2024
Deferred tax assets
Net operating loss carryforwards $ 216,008  $ 222,744 
Orphan drug and research and development credits 63,458  62,314 
Capitalized research and development expenses 5,165  19,604 
Deferred revenue 334  10,181 
Deferred compensation 4,616  11,701 
Other, net 3,296  2,751 
Deferred tax liabilities
Others (327) (61)
Total net deferred tax assets 292,550  329,234 
Less: valuation allowance (46,698) (329,234)
Deferred tax assets, net of allowance $ 245,852  $ — 
Historically, we maintained a full valuation allowance on our outstanding deferred tax assets. In the fourth quarter of 2025, based on our evaluation of all available positive and negative evidence, we concluded that it was more-likely-than not that a significant portion of our federal and state deferred tax assets would be realized. Accordingly, we released the valuation allowance against these deferred tax assets, except for $46.7 million of deferred tax assets associated to the portion of federal research and development credit carryforwards, California NOL and California research and development credit carryforwards. The assessment of the realizability of deferred tax assets involved considerable management judgment and required evaluation of all available evidence, including cumulative recent financial performance, forecasts of future taxable income, and the reversal of taxable temporary differences. As a result of this assessment, we recognized a deferred income tax benefit of $245.9 million during the year ended December 31, 2025. The valuation allowance decreased by approximately $282.5 million and $9.4 million for the years ended December 31, 2025 and 2024, respectively.
As of December 31, 2025, we had federal NOL carryforwards of approximately $919.0 million. Of this amount, approximately $779.9 million will expire beginning in 2026, and the remaining federal NOL carryforwards may be carried forward indefinitely, subject to annual limitation of 80% of taxable income. We also had state NOL carryforwards of approximately $324.6 million, which begin to expire in 2031.
As of December 31, 2025, we had general business credits of approximately $45.6 million, consisting primarily of research and development and orphan drug credits, which begin to expire in 2026 if not utilized. In addition, we had state research and development tax credits of approximately $32.9 million, which do not expire.
In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change NOL carryovers and tax credits. Our NOL carryforwards and tax credits are subject to limitations resulting from ownership changes that occurred in prior periods. We have updated our Section 382 owner shift analysis through December 31, 2025 and concluded that no significant changes in ownership in the periods presented. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 and result in additional limitations.
The following table summarizes the activity related to our gross unrecognized tax benefits (in thousands):
Year Ended December 31,
2025 2024 2023
Balance at the beginning of the year $ 8,780  $ 8,672  $ 9,426 
Decrease related to prior year tax positions —  —  (843)
Increase related to current year tax positions 270  108  89 
Balance at the end of the year $ 9,050  $ 8,780  $ 8,672 
During the years ended December 2025, 2024 and 2023, unrecognized tax benefits increased primarily due to additional research and development and orphan drug credits generated in the respective periods. In 2023, we engaged tax consultant to perform an orphan drug credits study for years 2015 to 2020, which resulted in a $4.7 million decrease in unrecognized tax benefits. The reversal of did not affect our effective tax rate, as a full valuation allowance was in place at that time.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2025, we had no accrued interest or penalties.
We are subject to federal income tax and various state taxes. Because of NOL and research credit carryovers, substantially all of our tax years remain open to examination.