Centessa Pharmaceuticals plcCNTA
Centessa Pharmaceuticals plc Income Taxes Disclosure
Income Taxes
As of December 31, 2024, the Company had a total of $2.6 million of unrecognized tax benefits which, if recognized, would impact the Company’s effective tax rate. The Company does not anticipate a significant change to this balance in the twelve months following December 31, 2024. The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2024, there was no accrued interest or penalties related to unrecognized tax benefits.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (amounts in thousands):
| December 31, 2024 | December 31, 2023 | ||||||||||
Deferred tax assets: | |||||||||||
| Tax loss carryforwards | $ | 96,444 | $ | 77,435 | |||||||
| Capitalized research and development | 13,606 | 14,440 | |||||||||
| Research and development credits | 11,063 | 10,488 | |||||||||
| Other | 3,068 | 3,246 | |||||||||
| Total deferred tax assets | 124,181 | 105,609 | |||||||||
| Valuation allowance | (94,894) | (73,239) | |||||||||
Deferred tax assets, net of allowance | 29,287 | 32,370 | |||||||||
Deferred tax liabilities: | |||||||||||
Other | (2,701) | (2,723) | |||||||||
Net deferred tax assets | $ | 26,586 | $ | 29,647 | |||||||
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighed the evidence based on its objectivity. After consideration of the evidence, including the Company's history of cumulative net losses in the U.K., the Company has concluded that it is more likely than not that the Company will not realize the benefits of its U.K. deferred tax assets and accordingly the Company has provided a valuation allowance for the full amount of the net deferred tax assets in the U.K. The Company has considered the history of cumulative net profits in an operating entity in the United States, which carries out services for other entities in the group and recognizes most of the interest income from cash, cash equivalents and short term investments, and estimated that entity’s future taxable income and concluded that it is more likely than not that the Company will realize the benefits of the deferred tax assets in that entity, and has not provided a valuation allowance against the net deferred tax assets in that entity. For the year ended December 31, 2024, the consolidated valuation allowance increased by $21.7 million. For the year ended December 31, 2023, the consolidated valuation allowance decreased by $20.6 million, primarily reflecting the release of a valuation allowance following an internal reorganization of subsidiaries in the U.S. in 2023.
Components of the Company’s pre-tax loss are as follows (amounts in thousands):
| Year Ended December 31, 2024 | Year Ended December 31, 2023 | ||||||||||
(Loss) income before tax: | |||||||||||
| UK | $ | (248,649) | $ | (187,643) | |||||||
| Non-UK | 15,736 | 11,502 | |||||||||
| Total | $ | (232,913) | $ | (176,141) | |||||||
The income tax expense (benefit) consists of the following (amounts in thousands):
| December 31, 2024 | December 31, 2023 | ||||||||||
Federal - U.S. | |||||||||||
| Current | $ | (513) | $ | 1,237 | |||||||
| Deferred | 2,599 | (26,272) | |||||||||
State - U.S. | |||||||||||
| Current | 702 | 233 | |||||||||
| Deferred | 56 | (256) | |||||||||
| Foreign | |||||||||||
| Current | — | 2 | |||||||||
| Deferred | — | — | |||||||||
Income tax expense (benefit) | $ | 2,844 | $ | (25,056) | |||||||
A reconciliation of the United Kingdom (“UK”) income tax rate to the Company’s effective tax rate is as follows:
| Year Ended December 31, 2024 | Year Ended December 31, 2023 | ||||||||||
| Statutory tax rate benefit | 25 | % | 24 | % | |||||||
Non-deductible share-based compensation | (3) | % | (4) | % | |||||||
| Other non-deductible expenses | (4) | % | (2) | % | |||||||
Enhanced UK research and development expenses | 6 | % | 10 | % | |||||||
Losses surrendered for UK research tax incentive | (18) | % | (28) | % | |||||||
UK non-taxable research and development incentive | 3 | % | 3 | % | |||||||
U.S. research & development tax credits | — | % | 1 | % | |||||||
Unrecognized tax benefits | — | % | (1) | % | |||||||
Return to provision adjustments | — | % | 2 | % | |||||||
Release of U.S. valuation allowance | — | % | 15 | % | |||||||
Increase in valuation allowance | (10) | % | (6) | % | |||||||
| Effective income tax rate | (1) | % | 14 | % | |||||||
The following table summarizes carryforwards of U.S. federal and UK net operating losses (NOL) and U.S. research tax credits (amounts in thousands):
| December 31, 2024 | December 31, 2023 | ||||||||||
| UK | $ | 365,638 | $ | 278,989 | |||||||
U.S. | $ | 33,423 | $ | 45,484 | |||||||
UK income tax returns from 2022 remain open for examination and UK NOLs do not expire. In the U.S., income tax returns from 2021 and later remain open for examination and unutilized U.S. NOLs and credit carryforwards are subject to examination until utilized. If not utilized prior to the specified dates, U.S. federal NOLs totaling $3.2 million and a U.S. R&D tax credit carryforward of $11.1 million would expire starting in 2036 and $38.8 million of U.S. state NOLs would expire beginning in 2036.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) provides for limitation on the use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined
in Code) that could limit the Company’s ability to utilize these carryforwards, in relation to its principal operating unit in the U.S. Pursuant to Section 382 of the Code, an ownership change occurs when the stock ownership of a 5% stockholder increases by more than 50% over a three-year testing period. The Company’s U.S. entities may have experienced various ownership changes, as defined by the Code, as a result of past financings and may in the future experience an ownership change. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited.
A reconciliation of gross unrecognized tax benefits, as of December 31, 2024 and 2023 is as follows (amounts in thousands):
| 2024 | 2023 | ||||||||||
Gross unrecognized tax benefits at beginning of period | $ | 2,614 | $ | — | |||||||
Increase related to current year tax positions | — | 2,614 | |||||||||
Gross unrecognized tax benefits at end of period | $ | 2,614 | $ | 2,614 | |||||||
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.