v3.26.1
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

9. INCOME TAXES

There was no provision for income taxes for the years ended December 31, 2025 and 2024, because the Company has incurred losses since inception. At December 31, 2025 and 2024 the Company concluded it was not more likely than not that it would realize its deferred tax assets, and therefore has recorded a full valuation allowance.

The Company paid no income taxes for the years ended December 31, 2025 and 2024, respectively.

For the years ended December 31, 2025 and 2024, income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pre-tax loss as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2025

 

 

2024

 

U.S. federal provision (benefit)

 

 

 

 

 

 

 

 

 

 

At statutory rate

 

$

(5,514

)

 

21.0

%

 

$

(8,786

)

 

21.0

%

Change in valuation allowance

 

 

5,105

 

 

-19.4

%

 

 

9,199

 

 

-22.0

%

Nontaxable or Nondeductible Items

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

343

 

 

-1.3

%

 

 

709

 

 

-1.7

%

Transaction costs

 

 

454

 

 

-1.7

%

 

 

—

 

 

0.0

%

Nontaxable or nondeductible items

 

 

90

 

 

-0.4

%

 

 

14

 

 

0.0

%

Tax credits

 

 

 

 

 

 

 

 

 

 

Research and development credit

 

 

(478

)

 

1.8

%

 

 

(1,136

)

 

2.7

%

Total

 

$

—

 

 

0.0

%

 

$

—

 

 

0.0

%

State income taxes in California comprise the majority of the state income taxes, net of federal effect category for the years ended December 31, 2025 and 2024, respectively.

Significant components of the Company’s deferred tax assets at December 31, 2025 and 2024 are shown below.

 

 

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

 

Net operating losses

 

$

152,074

 

 

$

143,896

 

Research and development tax credits

 

 

21,198

 

 

 

20,513

 

Amortization

 

 

489

 

 

 

603

 

Lease liability

 

 

2,354

 

 

 

2,625

 

Stock based compensation

 

 

1,583

 

 

 

1,167

 

Other

 

 

98

 

 

 

491

 

Capitalized R&D

 

 

7,901

 

 

 

10,041

 

Total gross deferred tax assets

 

 

185,697

 

 

 

179,336

 

Less: valuation allowance

 

 

(183,498

)

 

 

(176,799

)

Total deferred tax assets

 

 

2,199

 

 

 

2,537

 

Deferred tax liability:

 

 

 

 

 

 

Right-of-use assets

 

 

(2,180

)

 

 

(2,518

)

Fixed assets

 

 

(19

)

 

 

(19

)

Total gross deferred tax liabilities

 

 

(2,199

)

 

 

(2,537

)

Net deferred tax assets

 

$

—

 

 

$

—

 

 

The valuation allowance increased by $6.7 million from December 31, 2024 to December 31, 2025 due primarily to the generation of net operating losses and research and development credits.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the "change in valuation allowance" line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance (in thousands):

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

2025

 

 

2024

 

Beginning Balance

 

 

176,799

 

 

 

164,643

 

Change related to continuing operations

 

 

6,699

 

 

 

12,156

 

Ending Balance

 

$

183,498

 

 

$

176,799

 

 

As of December 31, 2025, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $534.5 million and $501.9 million, respectively. As of December 31, 2024, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $502.2 million and $487.8 million, respectively.

The federal and state net operating loss carryforwards begin to expire in 2031 and 2025, respectively, if not utilized. Federal net operating losses of $313.3 million are not subject to expiration.

As of December 31, 2025, the Company had federal and state research and development carryforwards of approximately $14.7 million and $4.4 million, respectively. The Company also had $7.4 million of Orphan Drug Credit. As of December 31, 2024, the Company had federal and state research and development carryforwards of approximately $14.1 million and $4.1 million, respectively. The federal and state credits begin to expire in 2031 and 2029, respectively, if not utilized; $3.3 million of the state credits can be carried forward indefinitely.

Utilization of some of the federal and state net operating loss and credit carryforwards may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed a Section 382 study as of December 31, 2025. At least $455.8 thousand of legacy Millendo federal net operating losses are expected to expire unused due to prior ownership changes.

The Company has the following activity relating to unrecognized tax benefits as of December 31, 2025 and 2024:

 

 

2025

 

 

2024

 

Beginning balance

 

$

5,239

 

 

$

4,923

 

Gross increase - tax position in current period

 

 

167

 

 

 

316

 

Ending balance

 

$

5,406

 

 

$

5,239

 

As of December 31, 2025 and 2024, none of the unrecognized tax benefits would impact the Company's effective tax rate due to the valuation allowance. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the accompanying balance sheet as of December 31, 2025 and 2024, respectively, and has not recognized penalties and/or interest in the accompanying statements of operations for the years ended December 31, 2025 and 2024, respectively.

The Company is subject to taxation in the United States, California, Massachusetts, and Michigan. The Company's tax years from inception are subject to examination by the IRS and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits.