ARVINAS, INC.ARVN
ARVINAS, INC. Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025, 2024 and 2023, income tax expense totaled $0.3 million, $0.6 million and $0.9 million, respectively, and consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| U.S.: | |||||||||||||||||
| Federal | $ | (0.3) | $ | — | $ | (1.7) | |||||||||||
| State and local | 0.6 | 0.6 | 2.6 | ||||||||||||||
| Total current | 0.3 | 0.6 | 0.9 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S.: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State and local | — | — | — | ||||||||||||||
| Total deferred | — | — | — | ||||||||||||||
| Income tax expense | $ | 0.3 | $ | 0.6 | $ | 0.9 | |||||||||||
The Company generated a taxable loss for the year ended December 31, 2025 primarily due to losses from operations. The Company has not recorded any income tax benefits for the net operating losses incurred in the period due to its uncertainty of realizing a benefit from those items.
The Company generated a taxable income for the year ended December 31, 2024 primarily due to the Novartis License Agreement, the Novartis Asset Agreement and the required capitalization of research and development expenses. The taxable income for federal purposes has been partially offset by losses from operations.
The Company generated a taxable loss for the year ended December 31, 2023 primarily due to losses from operations. The Company has not recorded any income tax benefits for the net operating losses incurred in the period due to its uncertainty of realizing a benefit from those items.
On July 4, 2025, H.R.1, commonly referred to as the One Big Beautiful Bill Act, was signed into law in the U.S., which includes a broad range of tax reform provisions, including extending and modifying certain key Tax Cuts and Jobs Act provisions, and provisions allowing accelerated tax deductions for qualified property and research expenditures. The tax impacts of this legislation do not have a material impact on the Company's consolidated financial statements.
All of the Company’s losses before income taxes were generated in the United States.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2025, 2024 and 2023 were as follows:
| Year ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| (dollars in millions) | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||
U.S. Federal statutory tax rate | $ | (16.9) | 21.0 | % | $ | (41.6) | 21.0 | % | $ | (76.4) | 21.0 | % | |||||||||||||||||||||||
State and local income taxes, net of federal income tax effect | 0.1 | (0.1 | %) | 4.6 | (2.3 | %) | 2.1 | (0.6 | %) | ||||||||||||||||||||||||||
Tax credits | |||||||||||||||||||||||||||||||||||
Research and development tax credit | (6.8) | 8.5 | % | (9.1) | 4.6 | % | (28.0) | 7.6 | % | ||||||||||||||||||||||||||
| Changes in valuation allowance | 16.6 | (20.6 | %) | 43.8 | (22.1 | %) | 98.2 | (26.9 | %) | ||||||||||||||||||||||||||
Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Stock compensation | 7.5 | (9.3 | %) | 2.1 | (1.1 | %) | 4.5 | (1.2 | %) | ||||||||||||||||||||||||||
| Other | (0.2) | 0.1 | % | 0.8 | (0.4 | %) | 0.5 | (0.2 | %) | ||||||||||||||||||||||||||
Effective tax rate | $ | 0.3 | (0.4 | %) | $ | 0.6 | (0.3 | %) | $ | 0.9 | (0.3 | %) | |||||||||||||||||||||||
For the year ended December 31, 2025, state and local income taxes in Connecticut, Massachusetts, and New York comprised the majority of the state and local income taxes, net of federal effect. For the year ended December 31, 2024, state and local income taxes in Connecticut comprised the majority of the state and local income taxes, net of federal effect. For the year ended December 31, 2023, state and local income taxes in New York comprised the majority of the state and local income taxes, net of federal effect.
The following table summarizes income taxes paid, net of refunds received for the years ended December 31, 2025, 2024 and 2023:
| Year ended December 31, | |||||||||||||||||
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| US federal | $ | (0.4) | $ | 0.7 | $ | — | |||||||||||
| US state and local | |||||||||||||||||
| California | * | * | 1.3 | ||||||||||||||
| Massachusetts | * | * | 1.2 | ||||||||||||||
| New York | * | 0.8 | 2.4 | ||||||||||||||
| New York City | * | 0.5 | 2.2 | ||||||||||||||
| New Jersey | * | * | 1.1 | ||||||||||||||
| Pennsylvania | * | * | 1.9 | ||||||||||||||
| Other | — | 0.3 | 1.0 | ||||||||||||||
| Total income taxes paid, net of refunds received | $ | (0.4) | $ | 2.3 | $ | 11.1 | |||||||||||
•The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.
Deferred income taxes represent the tax effect of transactions that are reported in different periods for financial and tax reporting purposes. Temporary differences and carryforwards that give rise to a significant portion of the deferred income tax benefits and liabilities were as follows as of December 31, 2025 and 2024:
| December 31, | |||||||||||
| (dollars in millions) | 2025 | 2024 | |||||||||
| Deferred income tax assets: | |||||||||||
| Loss carryforwards | $ | 145.4 | $ | 31.7 | |||||||
| Capitalized research and development | 131.9 | 161.3 | |||||||||
| Deferred revenue | 81.9 | 155.6 | |||||||||
| Tax credits | 62.1 | 55.8 | |||||||||
| Stock compensation | 56.6 | 60.1 | |||||||||
| Other | 4.4 | 8.3 | |||||||||
| Total deferred income tax assets | 482.3 | 472.8 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Property, equipment and leasehold improvements | (0.9) | (1.4) | |||||||||
| Total deferred income tax liabilities | (0.9) | (1.4) | |||||||||
| Less valuation allowance | (481.4) | (471.4) | |||||||||
| Net deferred income tax liability | $ | — | $ | — | |||||||
A valuation allowance is established when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company has provided a valuation allowance against the full amount of the deferred tax assets since it is more likely than not that the benefits will not be realized. This assessment is based on the Company's historical cumulative losses, which provide strong objective evidence that cannot be overcome with projections of income, as well as the fact the Company expects continuing losses in the future.
All, or a portion of, the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to utilize these potential tax benefits. The valuation allowance increased by $10.0 million and $63.5 million in 2025 and 2024, respectively, due to increases in net operating loss carryforwards, revenue recognition for tax purposes from the Vepdegestrant (ARV-471) Collaboration Agreement and the mandatory capitalization of qualified research and development costs in 2024.
The Company had $533.6 million and $111.0 million of federal net operating loss carryforwards as of December 31, 2025 and 2024, respectively. Federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such carryforwards is limited to 80% of the Company’s taxable income in the year in which carryforwards are used. The Company had $563.2 million and $129.0 million of state and local net operating loss carryforwards as of December 31, 2025 and 2024, respectively, which expire at various dates beginning in 2035. The Company had $44.7 million and $37.7 million of federal tax credit carryforwards as of December 31, 2025 and 2024, respectively. The Company had $22.3 million and $22.4 million of state tax credit carryforwards as of December 31, 2025 and 2024, respectively, which expire at various dates beginning in 2035.
The Company has performed a Section 382 analysis through December 31, 2024 to determine whether an ownership change occurred for tax purposes. Based on this analysis, the Company determined that ownership changes occurred on July 31, 2018 and December 31, 2020 due to various equity offerings, vesting of restricted stock awards and stock option exercises. These ownership changes resulted in Section 382 limitations on the Company’s net operating loss and tax credit carryforwards generated before these dates. However, because the amount of the Section 382 limitations (including carryover of the unused Section 382 limitations and realized built-in gains) exceeds the amount of the Company’s carryforwards generated before these dates, the limitations will not affect the Company's ability to fully utilize these carryforwards.
The Company complies with the provisions of ASC 740, Accounting for Income Taxes, in accounting for its uncertain tax positions. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. As of December 31, 2025 and 2024, the Company recorded net uncertain tax positions of $5.9 million and $5.4 million, respectively, relating primarily to state income tax filing positions in various jurisdictions.
Changes in the Company's gross unrecognized tax benefits were as follows:
| Year ended December 31, | |||||||||||||||||
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Beginning of period balance - gross | $ | 5.9 | $ | 5.9 | $ | 4.1 | |||||||||||
| Increases for tax positions taken during the current period | — | — | 1.8 | ||||||||||||||
| End of period balance - gross | $ | 5.9 | $ | 5.9 | $ | 5.9 | |||||||||||
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in tax expense. The Company's accrual for interest and penalties as of December 31, 2025 and 2024 totaled $1.6 million and $1.0 million, respectively.
The Company is required to file income tax returns in the U.S. Federal and various state jurisdictions. As a result of the Company’s net operating loss carryforwards, the Company’s federal and state statutes of limitations generally remain open for all tax years until its net operating loss and tax credit carryforwards are utilized or expire prior to utilization. The Company is currently under federal income tax examination for the year ended December 31, 2023, and state income tax examination with the state of New York for the years ended December 31, 2021 through December 31, 2023.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 11, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 26, 2019 | |
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.