ALNYLAM PHARMACEUTICALS, INC.ALNY
ALNYLAM PHARMACEUTICALS, INC. Income Taxes Disclosure
14. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes were as follows:
Years Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Domestic | $ | 18,300 | $ | (571,926) | $ | (450,311) | |||||||||||
| Foreign | 304,852 | 194,551 | 16,794 | ||||||||||||||
Income (loss) before income taxes | $ | 323,152 | $ | (377,375) | $ | (433,517) | |||||||||||
During the year ended December 31, 2025, our foreign income of $304.9 million primarily relates to income generated in Switzerland.
The (provision for) benefit from income taxes consisted of the following:
Years Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current provision: | |||||||||||||||||
State | $ | (1,934) | $ | (1,600) | $ | (4,022) | |||||||||||
| Foreign | (9,669) | (5,944) | (3,416) | ||||||||||||||
| Total current provision | (11,603) | (7,544) | (7,438) | ||||||||||||||
Deferred benefit: | |||||||||||||||||
| Foreign | 2,198 | 106,762 | 713 | ||||||||||||||
| Total deferred benefit | 2,198 | 106,762 | 713 | ||||||||||||||
Total (provision for) benefit from income taxes | $ | (9,405) | $ | 99,218 | $ | (6,725) | |||||||||||
During the year ended December 31, 2025, we recorded a provision for income taxes of $9.4 million. This is comprised of $2.2 million of foreign deferred benefit, $1.9 million of domestic state current provision and $9.7 million of foreign current provision.
As further described in Note 2, Summary of Significant Accounting Policies, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of our effective income tax rate to the statutory federal income tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:
| (In thousands) | Year Ended December 31, 2025 | ||||||||||
| Rate | Amount | ||||||||||
| At U.S. federal statutory rate | 21.0 | % | $ | (67,861) | |||||||
State taxes, net of federal effect (1) | (0.7) | 2,103 | |||||||||
Foreign tax effects | |||||||||||
Switzerland | |||||||||||
Statutory tax rate difference between Switzerland and United States | (11.1) | 35,749 | |||||||||
Statutory permanent item | (1.5) | 4,932 | |||||||||
Favorable tax ruling | (6.4) | 20,576 | |||||||||
Canton taxes, Zug | (0.1) | 457 | |||||||||
Other foreign jurisdictions | 1.2 | (3,706) | |||||||||
| Effect of cross-border tax laws | |||||||||||
Global Intangible Low-Taxed Income | 26.7 | (86,241) | |||||||||
| Subpart F Income | 0.2 | (752) | |||||||||
| Tax credits | |||||||||||
Research and development credit | (8.6) | 27,654 | |||||||||
Orphan drug credit | (10.9) | 35,115 | |||||||||
| Changes in valuation allowances | 2.9 | (9,373) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
Stock-based compensation expense | (28.1) | 90,695 | |||||||||
Nondeductible officers compensation | 10.2 | (32,802) | |||||||||
Loss related to convertible debt | 2.8 | (8,919) | |||||||||
Other items | 0.7 | (2,153) | |||||||||
| Changes in unrecognized tax benefits | 5.9 | (18,993) | |||||||||
Other items | (1.3) | 4,114 | |||||||||
| Effective income tax rate | 2.9 | % | $ | (9,405) | |||||||
(1) State taxes in Kentucky and Massachusetts made up the majority of the tax effect in this category. | |||||||||||
The following table is a reconciliation of our effective income tax rate to the statutory federal income tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09:
Years Ended December 31, | |||||||||||
| (In thousands) | 2024 | 2023 | |||||||||
| At U.S. federal statutory rate | 21.0 | % | 21.0 | % | |||||||
State taxes, net of federal effect | 10.1 | 8.6 | |||||||||
Stock-based compensation expense | 9.6 | 3.9 | |||||||||
| Tax credits | 7.5 | 6.7 | |||||||||
| Nondeductible compensation | (3.8) | (3.0) | |||||||||
| Other permanent items | (1.8) | 0.8 | |||||||||
| Foreign rate differential | 2.7 | (0.7) | |||||||||
| Bermuda tax law enactment | — | 85.9 | |||||||||
| Internal reorganization of certain intellectual property rights | (10.5) | 12.6 | |||||||||
| Other | (1.2) | 1.7 | |||||||||
| Uncertain tax position reserve | (14.3) | — | |||||||||
Revaluation of deferred taxes due to rate change | (0.6) | 5.1 | |||||||||
| Valuation allowance | 7.6 | (144.1) | |||||||||
| Effective income tax rate | 26.3 | % | (1.5) | % | |||||||
The amounts of income tax related taxes paid, net of refunds received were as follows:
| (In thousands) | Year Ended December 31, 2025 | ||||
State | |||||
Kentucky | $ | 7,700 | |||
All other | 56 | ||||
Foreign | |||||
Germany | 1,228 | ||||
Italy | 2,847 | ||||
Brazil | 1,210 | ||||
All other | 2,047 | ||||
Income taxes, net of amounts refunded | 15,088 | ||||
Other taxes | 200 | ||||
Total | $ | 15,288 | |||
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. We establish a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax assets were as follows:
| As of December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 987,117 | $ | 882,569 | |||||||
| Research and development and other credit carryforwards | 452,264 | 391,642 | |||||||||
Liabilities related to the sale of future royalties and development funding | 426,826 | 378,657 | |||||||||
| Change in fair value of development derivative liability | — | 107,797 | |||||||||
Operating lease liabilities | 60,102 | 60,313 | |||||||||
| Deferred revenue | 1,223 | 14,515 | |||||||||
| Deferred compensation | 69,981 | 62,110 | |||||||||
| Intangible assets | 593,725 | 634,323 | |||||||||
| Capitalized research and development expenditures | 235,622 | 349,279 | |||||||||
| Other | 90,623 | 86,425 | |||||||||
| Total deferred tax assets | 2,917,483 | 2,967,630 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment, net | (17,367) | (18,596) | |||||||||
| Unrealized gain on marketable securities | — | (2,042) | |||||||||
Operating lease right-of-use assets | (41,812) | (41,196) | |||||||||
| Deferred tax asset valuation allowance | (2,732,329) | (2,788,933) | |||||||||
Net deferred tax assets | $ | 125,975 | $ | 116,863 | |||||||
On July 4, 2025, President Trump signed H.R. 1, the “One Big Beautiful Bill Act,” or the Act, into law. The legislation includes several changes to federal tax law that are designed to allow for more favorable deductibility of certain business expenses and more favorable rules for determining the limitation on business interest expense. The Act includes certain changes to the U.S. taxation of foreign activity, including changes to foreign tax credits, global intangible low-taxed income, foreign-derived intangible income, and base erosion and anti-abuse tax, among other changes. These changes are generally effective for tax years beginning after December 31, 2025, except for changes related to the immediate expensing of research and development expenditures and the reinstatement of 100% bonus depreciation, which were retroactively effective for tax years beginning after December 31, 2024 and for property placed in service after January 19, 2025, respectively. The changes that were retroactively enacted were reflected in the income tax provision for the year ended December 31, 2025 and did not have a material effect on our financial statements.
On December 27, 2023, the Government of Bermuda enacted the Corporate Income Tax Act of 2023, or Corporate Income Tax Act, which introduces a corporate income tax regime in Bermuda with a statutory tax rate of 15% effective January 1, 2025. Companies are not subject to income tax in Bermuda prior to this change and with the transition into the Corporate Income Tax Act there is an economic transition adjustment that requires the tax basis of certain Bermudian assets to be established at fair market value. Upon the enactment of the Corporate Income Tax Act, we determined the fair market value of our identifiable intangible assets in Bermuda and recognized a deferred tax asset in our consolidated financial statements for the year ended December 31, 2023. We recorded a full valuation allowance against this deferred tax asset as we had generated historical losses and expected to generate future losses. In the year ended December 31, 2024, we transferred the identifiable intangible assets in Bermuda to Switzerland.
We regularly reassess the valuation allowance on our deferred income tax assets. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that we will be able to recover deferred tax assets. Such assessment is required on a jurisdiction-by-jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
We assessed the valuation allowance on our Switzerland deferred tax assets and considered positive evidence, including, among other things, income generated in Switzerland in the current year, three-year cumulative Switzerland income, and expected future profitability in Switzerland. After assessing both the positive evidence and negative evidence, we determined it was more likely than not that certain Switzerland deferred tax assets would be realized in the future and released the associated valuation allowance during the year ended December 31, 2024, which resulted in an income tax benefit of $108.0 million.
During the year ended December 31, 2025, we continued to maintain a valuation allowance on certain Switzerland deferred tax assets that may not be realized in future periods. As of December 31, 2025, we maintained a full valuation allowance against our U.S. deferred tax assets. We continue to maintain a valuation allowance on our U.S. deferred tax assets because we have a history of cumulative losses. On a quarterly basis, we reassess the valuation of our U.S. deferred income tax assets weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Based on our recent financial performance and our future projections, we could potentially record a reversal of all or a portion of the U.S. valuation allowance within the foreseeable future. However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment.
The valuation allowance decreased by $56.6 million as of December 31, 2025 compared to December 31, 2024, primarily as a result of a change in accounting method that was set up through equity in the amount of $71.4 million offset with an increase to the valuation allowance due to additional tax attributes generated of $14.8 million.
The valuation allowance decreased by $28.5 million as of December 31, 2024 compared to December 31, 2023, primarily as a result of the release of the valuation allowance on certain Switzerland deferred tax assets, which primarily consisted of the tax basis in intellectual property transferred from Bermuda and net operating losses, offset by an increase to the valuation allowance due to additional net operating losses in the U.S.
The valuation allowance increased by $623.0 million as of December 31, 2023 compared to December 31, 2022, primarily due to capitalized research and development costs and internally developed intellectual property.
As of December 31, 2025, we had federal and state net operating loss carryforwards, or NOLs, of $3.23 billion and $3.70 billion, respectively, to reduce future taxable income. Federal NOLs of $873.0 million, generated before 2018, will begin expiring in varying amounts through 2037 unless utilized. The remaining federal NOLs of $2.36 billion, generated after 2017, will be carried forward indefinitely and could be used to offset up to 80% of taxable income in all other future tax years. State NOLs will begin expiring in varying amounts through 2045 unless utilized. As of December 31, 2025, we also had foreign NOLs of $731.8 million to reduce future taxable income which will begin expiring in varying amounts through 2032.
As of December 31, 2025, we had federal research and development, including orphan drug, carryforwards of $411.7 million, available to reduce future tax liabilities that expire at various dates through 2045. As of December 31, 2025, we had state research and development and investment tax credit carryforwards of $51.4 million, available to reduce future tax liabilities, that expire at various dates through 2040.
We have a full valuation allowance against our U.S. federal and state net operating loss and tax credit carryforwards, as well as a valuation allowance against certain foreign net operating loss carryforwards, as we determined it was more likely than not that we would not realize these assets. Ownership changes, as defined in the Internal Revenue Code and similar state provisions, including those resulting from the issuance of common stock in connection with our public offerings, may limit the amount of federal and state net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The amount of the limitation is determined in accordance with Section 382 of the Internal Revenue Code and similar state provisions. We have performed an analysis of ownership changes through December 31, 2025. Based on this analysis, we do not believe that any of our federal and state tax attributes will expire unutilized due to Section 382 limitations.
Our reserves related to income taxes are based on a determination of whether, and how much of, a tax benefit taken by us in our tax filings or positions is more likely than not to be realized and ultimately sustained upon challenge by a taxing authority based upon its technical merits and subject to certain recognition and measurement criteria.
As of December 31, 2024, we had gross unrecognized tax benefits related to income tax reserves of $59.4 million primarily related to federal and state research and orphan drug credit carryforwards. As of December 31, 2025, we had gross unrecognized tax benefits related to income tax reserves primarily related to federal and state research and orphan drug credit carryforwards of $78.0 million, of which $10.5 million relate to current year positions and $9.5 million relate to prior year positions. During the year ended December 31, 2025, the Company settled an Italian audit related to tax years 2020 through 2023 in the amount of $1.3 million. We do not have any other material gross unrecognized tax benefits related to income tax reserves. We do not expect any of our unrecognized tax benefits related to income tax reserves, if recognized, to impact our effective tax rate due to full valuation allowance in the U.S. Our policy is to record interest and penalties related to unrecognized tax benefits related to income taxes in our income tax provision. No amounts for interest or penalties related to unrecognized tax benefits have been recognized in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023.
Years Ended December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Beginning balance | $ | 59,371 | $ | — | |||||||
| Additions based on tax positions related to current period | 10,460 | 5,080 | |||||||||
| Additions for tax positions of prior periods | 9,467 | 54,291 | |||||||||
| Settlements | (1,329) | — | |||||||||
| Ending balance | $ | 77,969 | $ | 59,371 | |||||||
We have not recorded a deferred tax liability with respect to excess book over tax outside basis differences, including unremitted earnings and cumulative translation adjustments, in our foreign subsidiary investments, as it is our current intention to permanently reinvest such outside basis differences with certain exceptions. Any permanently reinvested outside basis differences could reverse if we make distributions, sell our foreign subsidiaries or various other events occur, none of which were considered probable as of December 31, 2025. Determination of the amount of deferred tax liabilities described above is not practicable.
During the year ended December 31, 2025, we evaluated whether to repatriate cash from certain foreign subsidiaries and determined that any related deferred tax liabilities would not be material to our consolidated financial statements.
The tax years 2022 through 2025 remain open to examination by the Internal Revenue Service and certain state tax authorities, although net operating loss and tax credit carryforwards generated prior to 2022 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 10, 2022 | |
| 2020 | Feb 11, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 14, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 15, 2017 | |
| 2015 | Feb 12, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.