Krystal Biotech, Inc.KRYS
Krystal Biotech, Inc. Income Taxes Disclosure
Income Taxes
Income before income tax benefit (expense) by jurisdiction consisted of the following:
| Years Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| U.S. | $ | 187,938 | $ | 93,808 | $ | 7,795 | ||||||||||||||
| Foreign | 1,533 | 1,548 | 5,102 | |||||||||||||||||
Income before income taxes | $ | 189,471 | $ | 95,356 | $ | 12,897 | ||||||||||||||
The benefit (expense) for income taxes consists of the following:
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
Current: | |||||||||||||||||
| Federal | $ | (2,987) | $ | (1,445) | $ | (125) | |||||||||||
| State | (8,257) | (4,599) | (1,702) | ||||||||||||||
| Foreign | (671) | (153) | (138) | ||||||||||||||
Total current tax (expense) | $ | (11,915) | $ | (6,197) | $ | (1,965) | |||||||||||
Deferred: | |||||||||||||||||
| Federal | $ | 19,637 | $ | — | $ | — | |||||||||||
| State | 7,188 | — | — | ||||||||||||||
| Foreign | 450 | — | — | ||||||||||||||
Total deferred tax benefit | $ | 27,275 | $ | — | $ | — | |||||||||||
Total: | |||||||||||||||||
| Federal | $ | 16,650 | $ | (1,445) | $ | (125) | |||||||||||
| State | (1,069) | (4,599) | (1,702) | ||||||||||||||
| Foreign | (221) | (153) | (138) | ||||||||||||||
Total benefit (expense) for income taxes | $ | 15,360 | $ | (6,197) | $ | (1,965) | |||||||||||
Income taxes paid, net of refunds, consisted of the following:
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | 12,210 | $ | 1,740 | $ | — | |||||||||||
| State: | |||||||||||||||||
| Kentucky | 3,055 | 1,158 | — | ||||||||||||||
| Pennsylvania | (880) | 880 | — | ||||||||||||||
| California | — | 276 | — | ||||||||||||||
| Other States | 149 | 1,611 | — | ||||||||||||||
| Total State | 2,324 | 3,925 | — | ||||||||||||||
Foreign | 259 | — | — | ||||||||||||||
| Total Taxes Paid (Net of Refunds) | $ | 14,793 | $ | 5,665 | $ | — | |||||||||||
A reconciliation of income tax (benefit) expense computed at the statutory federal and state income tax rate for the year to income tax expense as reflected in our financial statements for years ended December 31, 2025, 2024 and 2023 are as follows:
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
(in thousands, except percentages) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| Federal Income Tax Expense at Statutory Rate | $ | 39,791 | 21.0 | % | $ | 20,025 | 21.0 | % | $ | 2,708 | 21.0 | % | |||||||||||||||||||||||
State and Local Income Taxes, Net of Federal Income Tax Effect (a) | (5,227) | (2.8) | (547) | (0.6) | 1,340 | 10.4 | |||||||||||||||||||||||||||||
| Change in Valuation Allowance | (51,231) | (27.1) | (8,833) | (9.3) | 1,258 | 9.8 | |||||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items | |||||||||||||||||||||||||||||||||||
| Stock compensation | (2,721) | (1.4) | (4,793) | (5.0) | (1,715) | (13.3) | |||||||||||||||||||||||||||||
| Executive compensation | 4,570 | 2.4 | 2,645 | 2.8 | 2,675 | 20.7 | |||||||||||||||||||||||||||||
| Other nontaxable or nondeductible items | 81 | — | 71 | 0.1 | 95 | 0.7 | |||||||||||||||||||||||||||||
| Effect of Cross Border Tax Laws | |||||||||||||||||||||||||||||||||||
| Global Intangible Low-taxed Income (GILTI) | 1 | — | (220) | (0.2) | 623 | 4.8 | |||||||||||||||||||||||||||||
| Foreign Derived Intangible Income (FDII) | (1,178) | (0.6) | (635) | (0.7) | — | — | |||||||||||||||||||||||||||||
| Tax Credits | |||||||||||||||||||||||||||||||||||
| R&D tax credits | (3,596) | (1.9) | (3,150) | (3.3) | (2,782) | (21.6) | |||||||||||||||||||||||||||||
| Orphan drug credits | (931) | (0.5) | (1,416) | (1.5) | (1,570) | (12.2) | |||||||||||||||||||||||||||||
| Other credits | — | — | 16 | — | (106) | (0.8) | |||||||||||||||||||||||||||||
| Change in Unrecognized Tax Benefits | 5,227 | 2.8 | 3,316 | 3.5 | — | — | |||||||||||||||||||||||||||||
| Other Adjustments | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | (114) | (0.1) | 389 | 3.0 | |||||||||||||||||||||||||||||
| Other adjustments | (45) | — | 5 | — | (16) | (0.1) | |||||||||||||||||||||||||||||
| Foreign Tax Effects | |||||||||||||||||||||||||||||||||||
| Australia | |||||||||||||||||||||||||||||||||||
| Other nondeductible expenses | — | — | (137) | (0.1) | 137 | 1.1 | |||||||||||||||||||||||||||||
| Valuation allowance | — | — | (52) | (0.1) | (140) | (1.1) | |||||||||||||||||||||||||||||
| Other Australia | — | — | 57 | 0.1 | 11 | 0.1 | |||||||||||||||||||||||||||||
| Switzerland | |||||||||||||||||||||||||||||||||||
| Foreign rate differential | (69) | — | (62) | (0.1) | (470) | (3.6) | |||||||||||||||||||||||||||||
| Valuation allowance | — | — | — | — | (475) | (3.7) | |||||||||||||||||||||||||||||
| Other Switzerland | 31 | — | (2) | — | — | — | |||||||||||||||||||||||||||||
| Other Foreign Jurisdictions | (63) | — | 23 | — | 3 | — | |||||||||||||||||||||||||||||
Total Tax (Benefit) Expense | $ | (15,360) | (8.1) | % | $ | 6,197 | 6.5 | % | $ | 1,965 | 15.2 | % | |||||||||||||||||||||||
(a) In 2025 and 2024, state and local income taxes in Kentucky comprised the majority of the state and local income taxes, net of federal effect category. In 2023, state and local income taxes in Kentucky and Pennsylvania comprised the majority of the state and local income taxes, net of federal category.
The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows:
| December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 13,245 | 14,539 | ||||||||
| Stock compensation | 11,432 | 9,090 | |||||||||
| Lease liability | 2,205 | 1,784 | |||||||||
| Accrued expenses | 2,419 | 1,929 | |||||||||
| Section 174 R&D capitalization | 4,382 | 27,230 | |||||||||
| Intangible assets | 15,946 | 17,632 | |||||||||
| Credits | 1,855 | 10,376 | |||||||||
| Inventory | 1,018 | 558 | |||||||||
Other | 16 | — | |||||||||
| Deferred tax assets | 52,518 | 83,138 | |||||||||
| Valuation allowance | (14,214) | (68,094) | |||||||||
| Deferred tax assets | 38,304 | 15,044 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (11,761) | (11,771) | |||||||||
| Right-of-use assets | (1,750) | (1,543) | |||||||||
| Prepaid expenses | (1,388) | (1,647) | |||||||||
| Unrealized gain on marketable securities | (581) | (83) | |||||||||
| Total deferred tax liabilities | (15,480) | (15,044) | |||||||||
| Net deferred tax assets | $ | 22,824 | $ | — | |||||||
The Company has evaluated the positive and negative evidence bearing upon the realizability of its net U.S. deferred tax assets. Under the applicable accounting standards, management has considered the Company’s history of operating losses and the uncertainty around any sustained future profitability. The Company has concluded that it is more likely than not that the Company will realize the benefits of its net deferred tax assets. Accordingly, the Company has decreased the valuation allowance for deferred tax assets from $68.0 million as of December 31, 2024 to $14.2 million as of December 31, 2025.
As of December 31, 2025 and 2024, the Company had federal research and development credit carryforwards of $0.5 million and $6.6 million, respectively. The federal tax credit carryforwards will begin to expire in 2042 if not utilized.
As of December 31, 2025 and 2024, the Company also had orphan drug tax credit carryforwards of $0.1 million and $3.8 million, respectively. The orphan drug tax credit carryforwards will begin to expire in 2042 if not utilized.
As of December 31, 2025 and 2024, the Company had state research and development credit carryforwards of $1 million and $0.7 million respectively. The state research and development credit carryforwards will begin to expire in 2038 if not utilized.
As of December 31, 2025, the Company had cumulative U.S. state net operating loss carryforwards of $166.2 million. The state net operating losses are available to offset future state income tax liabilities and will begin to expire in 2037.
Under the provisions of the Internal Revenue Code, the net operating loss carryforwards and tax credits utilized during the year are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Internal Revenue Code Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.
At December 31, 2025, deferred tax assets have been recognized on our consolidated balance sheets related to federal research and development credits and orphan drug credits. The Company fully utilized its federal net operating losses in 2025. If we have previously had, or have in the future, one or more Section 382 or 383 “ownership changes,” including in connection with our initial public offering or another offering, or if we do not generate sufficient taxable income, we may not be able to utilize a material portion of our federal tax credits.
The "One Big Beautiful Bill Act" (OBBBA) enacted on July 4, 2025, introduced notable changes to the U.S. Internal Revenue Code, including immediate expensing of domestic Section 174 costs. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. As previously required under the Tax Cuts and Jobs Act, we capitalized research and development expenditures in the years ended December 31, 2022 through December 31, 2024. With the enactment of OBBBA, we began deducting 2025 and cumulative domestic Section 174 costs.
As of December 31, 2025, we have a deferred tax asset of $4.4 million related to capitalized Section 174 expenditures.
The Company files income tax returns in the United States at the federal and state level and in foreign jurisdictions in which the Company conducts business activities. The federal and state income tax returns are subject to tax examinations for the tax years ended December 31, 2022 through December 31, 2025. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Federal or state tax authorities to the extent utilized in a future period. Additionally, the Company is subject to tax examinations by taxing authorities in foreign jurisdictions where it has business operations. At this time, the Company is not undergoing examination by the Internal Revenue Service or any state or foreign taxing authorities.
The Company is subject to income taxes in U.S. federal, various state, and foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite the belief that the tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. We do not anticipate significant increases or decreases to the amount of unrecognized tax benefits within the next twelve months.
As of December 31, 2025, 2024, and 2023 the Company had unrecognized tax benefits of $10.0 million, $4.2 million and zero, respectively, of which $8.0 million, $3.3 million, and zero, respectively, if fully recognized would decrease the Company’s effective tax rate. A reconciliation of unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 are as follows:
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Unrecognized tax benefits - January 1 | $ | 4,152 | $ | — | $ | — | |||||||||||
| Gross increases to tax positions in prior periods | 34 | ||||||||||||||||
| Gross increases to current period tax positions | 5,863 | 4,152 | — | ||||||||||||||
| Settlements with tax authorities | — | — | — | ||||||||||||||
| Lapse in statute of limitations | $ | — | $ | — | $ | — | |||||||||||
| Unrecognized tax benefits - December 31 | $ | 10,049 | $ | 4,152 | $ | — | |||||||||||
As of December 31, 2025, 2024, and 2023 the Company had accrued interest and penalties related to unrecognized tax benefits of $0.8 million, $0.2 million, and zero, respectively. The Company recognizes interest expense and any related penalties from unrecognized tax benefits in income tax expense.
The Company is also subject to taxation in various states and other foreign jurisdictions including Switzerland, Netherlands, France, Germany, Japan, United Kingdom, Italy and Spain.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 10, 2020 | |
| 2017 | Mar 12, 2018 | |
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.