v3.25.4

Income Taxes | 12 Months Ended
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Dec. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Note 14. Income Taxes We are subject to U.S. federal, state and foreign corporate income taxes. The provision for income taxes is based on income before provision for income taxes as follows (in thousands):
| Year Ended December 31,
| 2025 |  | 2024 |  | 2023
U.S. | $ | 1,571,743 |  |  | $ | 401,760 |  |  | $ | 1,084,254 |
Non-U.S. | 92,708 |  |  | (85,130) |  |  | (250,039) |
Income before provision for income taxes | $ | 1,664,451 |  |  | $ | 316,630 |  |  | $ | 834,215 |
Our provision for income taxes consists of the following (in thousands):
| Year Ended December 31,
| 2025 |  | 2024 |  | 2023
Current: |  |  |  |  |
Federal | $ | 80,508 |  | $ | 322,682 |  | $ | 344,407
State | 42,998 |  | 43,955 |  | 48,106
Foreign | 6,610 |  | 2,931 |  | 3,001
| 130,116 |  | 369,568 |  | 395,514
Deferred: |  |  |  |  |
Federal | 240,361 |  |  | (106,549) |  | (139,468)
State | 7,072 |  |  | 21,824 |  | (19,625) |
Foreign | 252 |  |  | (828) |  |  | 195 |
| 247,685 |  |  | (85,553) |  |  | (158,898) |
Total provision for income taxes | $ | 377,801 |  |  | $ | 284,015 |  |  | $ | 236,616 |
Income taxes paid, net of (refunds) received, consisted of the following for the year ended December 31, 2025 (in thousands):
| Year Ended December 31,
| 2025
Federal | $ | 178,100 |
State |
Kentucky | 20,798
Tennessee | (10,836)
All other states | 19,345
Foreign | 4,771 |
Total income taxes paid | $ | 212,178 |
Income taxes paid prior to the adoption of ASU 2023-09 for the years ended December 31, 2024 and 2023 were $373.1 million and $378.2 million respectively. A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows (in thousands):
| Year Ended December 31, 2025
| $ |  | %
U.S. federal statutory rate | $ | 349,535 |  | 21.0 | %
State and local income taxes, net of federal benefit(1) | 36,394 |  | 2.2 | %
Foreign tax effects | (12,607) |  | (0.8)%
Effects of changes in tax laws or rates enacted in the current period | (49,289) |  |  | (3.0) | %
Effect of cross-border tax laws |  |  |
Foreign-derived intangible income | (34,240) |  |  | (2.1)%
Tax Credits |  |  |
Research and development tax credits | (59,998) |  |  | (3.6)%
Changes in valuation allowances | 123,243 |  |  | 7.4%
Nontaxable or nondeductible items | 13,528 |  | 0.8%
Changes in unrecognized tax benefits | 14,208 |  | 0.9%
Other adjustments | (2,973) |  | (0.1)%
Effective income tax rate | $ | 377,801 |  |  | 22.7%
1 State taxes in Kentucky, California, and Delaware made up the majority (greater than 50%) of the tax effect in this category. Our effective tax rate for the year ended December 31, 2025 was higher than the U.S. statutory rate primarily due to state income taxes and an increase in our valuation allowance against certain U.S. deferred tax assets. This was partially offset by tax rate benefits associated with research and development and orphan drug tax credit generations, the foreign derived intangible income deduction and the enactment of U.S. tax legislation discussed below. As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the U.S. statutory federal income tax rate as follows (in thousands):
|  |  | Year Ended December 31,
|  |  | 2024 |  | 2023
Provision at U.S. federal statutory rate |  |  | $ | 66,492 |  |  | $ | 175,185
State and local income taxes |  |  | 51,753 |  |  | 21,145
Foreign tax rate differential |  |  | 61,026 |  | (96,434)
Income tax credits |  |  | (70,989) |  |  | (1,433,507) |
Change in valuation allowance |  |  | 21,425 |  | 1,572,951 |
Change in uncertain tax positions |  |  | 6,418 |  | 5,943
Foreign-derived intangible income |  |  | (31,786) |  |  | (32,891) |
Stock based compensation |  |  | 25,647 |  | 20,971 |
Acquisitions accounted for as research and development expenses |  |  | 149,287 |  | 4,200 |
Other |  |  | 4,742 |  | (947)
Provision for income taxes |  |  | $ | 284,015 |  | $ | 236,616
The 2024 acquisitions accounted for as research and development expenses in the table above reflects the impact of non-deductible charges associated with the Escient acquisition. The 2023 foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S. federal statutory rate of 21%. It also includes a tax benefit associated with the remeasurement of foreign deferred tax assets resulting from the cancellation of a tax holiday. The 2023 income tax credits in the table above includes a tax benefit associated with the issuance of non-refundable Swiss income tax credits. The 2023 remeasurement of foreign deferred tax assets and the Swiss income tax credits are fully offset with a valuation allowance in the table above. Significant components of our deferred tax assets and liabilities are as follows (in thousands):
| December 31,
| 2025 |  | 2024
Deferred tax assets: |  |  |
Net operating loss carry forwards | $ | 304,075 |  |  | $ | 315,969 |
Income tax credits | 1,482,932 |  |  | 1,398,495 |
Capitalized research and development | 554,454 |  |  | 648,989 |
Deferred revenue and accruals | 96,463 |  |  | 190,446 |
Non-cash compensation | 92,482 |  |  | 100,788 |
Acquisition-related contingent consideration | 17,426 |  |  | 27,796 |
Intangibles, net | 219,005 |  |  | 229,741 |
Long term investments | 2,889 |  |  | 6,697 |
Other | 24,582 |  |  | 20,814 |
Total gross deferred tax assets | 2,794,308 |  |  | 2,939,735 |
Less valuation allowance for deferred tax assets | (2,266,136) |  |  | (2,139,673) |
Net deferred tax assets | $ | 528,172 |  |  | $ | 800,062 |
Deferred tax liabilities: |  |  |
Property and equipment | $ | (7,046) |  |  | $ | (30,676) |
Other | (5,832) |  |  | (7,315) |
Total gross deferred tax liabilities | (12,878) |  |  | (37,991) |
Net deferred tax assets | $ | 515,294 |  |  | $ | 762,071 |
During the year ended December 31, 2025, the Company’s net deferred tax assets decreased by $246.8 million. This was primary due to a deduction associated with the settlement of the Novartis contract dispute and deductions related to previously capitalized domestic research and development expenses arising from the enactment of U.S. tax legislation discussed below. As of December 31, 2025, the Company continues to maintain a valuation allowance on certain U.S. temporary differences, foreign net operating losses (“NOLs”) and the non-refundable Swiss income tax credits granted in the year ended December 31, 2023. The valuation allowance for deferred tax assets increased by approximately $126.5 million during the year ended December 31, 2025 and increased by approximately $43.4 million during the year ended December 31, 2024. The valuation allowance increase during 2025 was primarily due to future deductible temporary differences mainly associated with foreign research and development expenses required to be capitalized and amortized and the effects of translation of our foreign tax assets that require a valuation allowance. The valuation allowance increase during 2024 was primarily due to future deductible temporary differences mainly associated with U.S. research and development expenses required to be capitalized and amortized and the acquisition of Escient’s U.S. NOLs, a portion of which was not more-likely-than-not to be realized as of December 31, 2024. As of December 31, 2025, we had NOL carryforwards, research and development credit carryforwards and foreign income tax credit carryforwards as follows (in thousands):
| Amount |  | Expiring if not utilized
Net operating loss carryforwards |  |  |
Federal | $ | 72,370 |  | Indefinite
State | 926,027 |  | 2027 through 2045; indefinite
Foreign | 1,743,380 |  | 2026 through 2041; indefinite
Research and development credit carryforwards |  |  |
Federal | $ | 9,431 |  | 2039 through 2044
State | 14,310 |  | 2026 through 2043
Swiss income tax credit carryforwards | 1,469,989 |  | 2028
The federal NOL and tax credit carryforward are subject to an annual limitation under Internal Revenue Code Section 382. The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. If such unrecognized tax benefits were realized, we would recognize a tax benefit of $89.0 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):
| Year Ended December 31,
| 2025 |  | 2024
Balance at beginning of year | $ | 87,723 |  | $ | 69,145
Additions related to prior periods tax positions | 3,539 |  | 9,173
Reductions related to prior periods tax positions | (2,226) |  |  | (2,014) |
Additions related to current period tax positions | 8,749 |  | 5,939
Additions related to acquisitions | — |  | 9,114
Settlements | (24) |  |  | (71) |
Reductions due to lapse of applicable statute of limitations | (333) |  |  | (3,538) |
Currency translation adjustment | 173 |  |  | (25)
Balance at end of year | $ | 97,601 |  | $ | 87,723
Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. During the years ending December 31, 2025 and 2024, we recorded interest and penalties as a component of income tax expense of $5.6 million and $8.5 million, respectively. As of December 31, 2025 and 2024, the Company has accrued liabilities of $24.3 million and $18.7 million, respectively, for interest and penalties related to its uncertain tax positions. One or more of our legal entities file income tax returns in the U.S. and in certain foreign jurisdictions. Our income tax returns may be examined by tax authorities in those jurisdictions. Significant disputes may arise with tax authorities involving issues such as the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws and regulations and relevant facts. In the U.S., the statute of limitations remains open beginning with tax year 2021. We are currently under U.S. federal audit for tax year 2021. The Organization for Economic Cooperation and Development Pillar 2 guidelines, supported by over 130 countries worldwide, establish a 15% global minimum tax on adjusted financial results. Pillar 2 legislation has been enacted in multiple jurisdictions in which we operate and became effective beginning in 2024. We have evaluated the impact of Pillar 2 on our business, and determined there are no material impacts on our effective tax rate at this time. We will continue to monitor additional enactments and guidance as they occur and assess any future impacts in the period they become effective. On July 4, 2025, the U.S. enacted legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA modified key provisions of the Tax Cuts and Jobs Act of 2017, including but not limited to, the expensing of domestic research costs, the deduction for Foreign-Derived Intangible Income, and the Global Intangible Low-Taxed Income regime. The OBBBA introduces multiple elections and features various effective dates, with some provisions effective in 2025 and others in subsequent years. Under ASC 740, entities are required to recognize the impact of new income tax legislation in the period of enactment. We have reflected a favorable impact to our effective tax rate and the realizability of certain U.S. deferred tax assets in our financial statements for the period ending December 31, 2025. We will continue to evaluate the OBBBA’s various provisions and elections for our tax return filing.

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