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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES

14. INCOME TAXES

Income tax expense consists of the following:

 

 

 

Year Ended December 31,

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

Current

 

 

 

 

 

 

 

 

 

Federal

 

$

23,438

 

 

$

7,799

 

 

$

40,822

 

State

 

 

3,175

 

 

 

2,177

 

 

 

464

 

Total current

 

 

26,613

 

 

 

9,976

 

 

 

41,286

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

Federal

 

 

(12,606

)

 

 

6,594

 

 

 

26,026

 

State

 

 

(11

)

 

 

(2,194

)

 

 

(625

)

Total deferred

 

 

(12,617

)

 

 

4,400

 

 

 

25,401

 

 

 

 

 

 

 

 

 

 

Total income tax expense, net

 

$

13,996

 

 

$

14,376

 

 

$

66,687

 

 

The impacts of the differences between the expected U.S. federal statutory income tax to our income tax expense are as follows:

 

 

 

Year Ended December 31,

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

Expected tax at federal statutory rate

 

$

7,846

 

 

$

40,747

 

 

$

58,928

 

State income tax expense (benefit), net of federal benefit

 

 

1,864

 

 

 

1,433

 

 

 

(1,414

)

Federal and state research credits

 

 

(90

)

 

 

(1,582

)

 

 

(2,453

)

Foreign derived intangible income deduction

 

 

(11,767

)

 

 

(15,274

)

 

 

—

 

Noncontrolling interest

 

 

—

 

 

 

—

 

 

 

7,468

 

Impact of consolidation and deconsolidation of subsidiaries

 

 

—

 

 

 

—

 

 

 

(8,897

)

Other

 

 

(2,243

)

 

 

1,219

 

 

 

(125

)

Change in valuation allowance

 

 

18,386

 

 

 

(12,167

)

 

 

13,180

 

Total income tax expense, net

 

$

13,996

 

 

$

14,376

 

 

$

66,687

 

 

 

Deferred income taxes reflect the net 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 and deferred tax liabilities are as follows:

 

 

 

December 31,

 

(In thousands)

 

2024

 

 

2023

 

Deferred tax assets

 

 

 

 

 

 

Net operating loss carryforwards

 

$

176,989

 

 

$

182,013

 

Research and development tax credit carryforwards

 

 

21,359

 

 

 

21,357

 

Unrealized loss on investment, net

 

 

11,481

 

 

 

—

 

Deferred royalty obligation, net

 

 

17,452

 

 

 

18,084

 

Other

 

 

6,832

 

 

 

6,467

 

Total deferred tax assets before valuation allowance

 

 

234,113

 

 

 

227,921

 

Valuation allowance

 

 

(187,635

)

 

 

(169,249

)

Total deferred tax assets

 

 

46,478

 

 

 

58,672

 

Deferred tax liabilities

 

 

 

 

 

 

Depreciation and amortization

 

 

(31,626

)

 

 

(39,064

)

Unrealized gain on investment, net

 

 

—

 

 

 

(13,747

)

Inventory fair value adjustment

 

 

(2,798

)

 

 

(6,424

)

Net deferred tax assets (liabilities)

 

$

12,054

 

 

$

(563

)

 

We record deferred tax assets if the realization of such assets is more likely than not to occur. Significant management judgment is required in determining whether a valuation allowance against the deferred tax assets is required. We have considered all available evidence, both positive and negative, such as our historical operating results and predictability of future taxable income, in making such determination. We are also required to exercise significant management’s judgment in forecasting future taxable income. Specifically, we evaluate the following criteria when considering a valuation allowance:

•
the history of tax net operating losses in recent years;
•
predictability of operating results;
•
profitability for a sustained period of time; and
•
level of profitability on a quarterly basis.

As of December 31, 2024, we had federal net operating loss carryforwards of approximately $520.6 million, $456.5 million of which do not expire. As of December 31, 2024, we also had state net operating loss carryforwards of approximately $1.0 billion, which will expire beginning 2030 and state research tax credits of approximately $33.3 million, which do not expire.

Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

We conducted an Internal Revenue Code of 1986, as amended, Section 382 (“Section 382”) analysis of the Company through December 31, 2024 to determine whether an ownership change had occurred since inception. The Section 382 study concluded that it is more likely than not that the Company did not experience an ownership change during the testing period. If we ever undergo an ownership change, the utilization of the pre-ownership change net operating loss carryforwards or pre-ownership change tax attributes, such as research tax credits, to offset the post-ownership change income may be subject to an annual limitation, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. Similar rules may apply under state tax laws.

As of December 31, 2024, $154.8 million of Entasis’ federal net operating losses and $365.8 million of La Jolla’s federal operating losses from the acquisitions in 2022, both subject to annual limitations, were available for future utilization.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2024 and 2023, we had no accrued interest or penalties due to the Company’s net operating losses available to offset any tax adjustments.

We do not have any tax positions for which a significant change in the total amount of gross unrecognized tax benefits is reasonably possible within 12 months of December 31, 2024.

Uncertain Tax Positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits are as follows:

 

(In thousands)

 

Amount

 

Unrecognized tax benefits as of December 31, 2021

 

$

14,872

 

Net increase in tax portions for 2022

 

 

1,452

 

Unrecognized tax benefits as of December 31, 2022

 

 

16,324

 

Net increase in tax portions for 2023

 

 

3,119

 

Unrecognized tax benefits as of December 31, 2023

 

 

19,443

 

Net increase in tax portions for 2024

 

 

41,851

 

Unrecognized tax benefits as of December 31, 2024

 

$

61,294

 

 

The increase of $41.9 million in 2024 was primarily due to our strategic intercompany intellectual property alignment across different jurisdictions.

 

We are subject to taxation in the U.S. and various state and foreign jurisdictions. The tax years 2006 through 2013, 2015 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions. We are not currently subject to any income tax audits by federal or state taxing authorities.

 

In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting legislation. We are in the process of evaluating whether and when these new rules may come into effect and apply to us, including the eligibility to qualify for safe harbor rules. We plan to treat the tax if any as a period cost. We do not believe that the Pillar Two rules apply to us yet. As such, the potential future quantitative impact of the enacted or substantively enacted legislation is not yet reasonably estimable.