LIGAND PHARMACEUTICALS INCLGND
LIGAND PHARMACEUTICALS INC Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025, 2024, and 2023, the Company had the following income before income tax from continuing operations (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 126,428 | $ | (25,855) | $ | 62,140 | |||||||||||
| Foreign | 32,532 | 28,373 | 1,520 | ||||||||||||||
| Income before income tax from continuing operations | $ | 158,960 | $ | 2,518 | $ | 63,660 | |||||||||||
The components of the income tax expense (benefit) for continuing operations are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current expense (benefit): | |||||||||||||||||
| Federal | $ | 8,725 | $ | 18,277 | $ | (1,186) | |||||||||||
| State | 280 | 718 | 218 | ||||||||||||||
| Foreign | 3,612 | 3,355 | 780 | ||||||||||||||
| Total current expense (benefit) | 12,617 | 22,350 | (188) | ||||||||||||||
| Deferred expense (benefit): | |||||||||||||||||
| Federal | 27,538 | (17,767) | 9,374 | ||||||||||||||
| State | 574 | 77 | 655 | ||||||||||||||
| Foreign | (6,222) | 1,890 | — | ||||||||||||||
| Total deferred expense (benefit) | 21,890 | (15,800) | 10,029 | ||||||||||||||
| Total income tax expense (benefit) | $ | 34,507 | $ | 6,550 | $ | 9,841 | |||||||||||
A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal income tax rate to the net income (loss) from continuing operations is summarized as follows (in thousands):
| Year Ended | ||||||||
| December 31, 2025 | ||||||||
| Amount | Percent | |||||||
| Income taxes expense at statutory federal rate | $ | 33,457 | 21.00 | % | ||||
State and local taxes, net of federal income tax effect(1) | 646 | 0.41 | % | |||||
| Foreign tax effects | ||||||||
| United Kingdom | ||||||||
| Other | 390 | 0.24 | % | |||||
| Changes in valuation allowance | (9,389) | (5.89) | % | |||||
| Austria | ||||||||
| Other | (518) | (0.33) | % | |||||
| India | ||||||||
| Withholding Tax | 1,115 | 0.70 | % | |||||
| Effect of cross-border tax laws | ||||||||
| Subpart F, net | 6,063 | 3.81 | % | |||||
| Foreign derived intangible income | (314) | (0.20) | % | |||||
| Tax credits | ||||||||
| Foreign tax credits | (1,115) | (0.70) | % | |||||
| Solar tax credit | (650) | (0.41) | % | |||||
| R&D credit | (134) | (0.08) | % | |||||
| Changes in valuation allowance | 3,683 | 2.31 | % | |||||
| Nontaxable or nondeductible items | ||||||||
| Section 162(m) officer’s compensation | 5,468 | 3.43 | % | |||||
| Equity compensation | (4,373) | (2.74) | % | |||||
| Permanent Items - Other | (137) | (0.09) | % | |||||
| Changes in unrecognized tax benefits | (4) | — | % | |||||
| Other | 319 | 0.20 | % | |||||
| Provision for income taxes | $ | 34,507 | 21.66 | % | ||||
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include Pennsylvania and Kansas for 2025.
A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal income tax rate to the net income (loss) from continuing operations is summarized as follows (in thousands):
| Year ended | |||||||||||
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Tax at statutory federal rate | $ | 529 | $ | 13,448 | |||||||
| Subpart F income | 5,649 | 479 | |||||||||
| Officer compensation | 3,921 | 844 | |||||||||
| Foreign tax differential on income/loss of foreign subsidiaries | 1,115 | (38) | |||||||||
| Share-based compensation | 602 | 1,241 | |||||||||
| Provision to return adjustments | 293 | 2,200 | |||||||||
| Rate change for changes in federal, foreign or state law | 111 | 342 | |||||||||
| Contingent liabilities | 88 | (116) | |||||||||
| Change in uncertain tax positions | 94 | (7,206) | |||||||||
| State, net of federal benefit | (85) | 397 | |||||||||
| Research and development credits | (324) | (405) | |||||||||
| FDII | (832) | (1,037) | |||||||||
| Change in valuation allowance | (1,638) | (1,184) | |||||||||
| Foreign tax credits | (3,232) | — | |||||||||
| Other | 259 | 876 | |||||||||
| Total | $ | 6,550 | $ | 9,841 | |||||||
The amount of cash taxes paid are as follows (in thousands):
| Year Ended December 31, | |||||
| 2025 | |||||
| Federal | $ | 3,660 | |||
| State | 204 | ||||
| Foreign | 3,938 | ||||
| Income taxes, net of amounts refunded | $ | 7,802 | |||
In 2025, the only jurisdiction with cash taxes paid that equaled or exceeded 5% of total income taxes paid were Federal, UK, and Austria.
We have determined that our foreign earnings are not indefinitely reinvested and have properly accrued for the tax impacts.
Significant components of our deferred tax assets and liabilities as of December 31, 2025 and 2024 are shown below. We assess the positive and negative evidence to determine if sufficient future taxable income will be generated to realize the existing deferred tax assets. Our evaluation of evidence resulted in management concluding that the majority of our deferred tax assets will be realized. However, we maintain a valuation allowance to offset certain net deferred tax assets as management believes realization of such assets are uncertain as of December 31, 2025, 2024 and 2023. The valuation allowance decreased by $7.3 million in 2025 due to a partial release of valuation allowance in the United Kingdom offset by a one time recording of a federal and state valuation allowance recognized in connection with the disposition of LNHC Inc. The valuation allowance decreased by $1.6 million in 2024 and decreased by $1.2 million in 2023.
We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them on our consolidated balance sheet as a non-current deferred income tax asset or liability (as applicable). Deferred tax assets (liabilities) are comprised of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 32,514 | $ | 40,385 | |||||||
| 2030 Notes original issue discount | 22,814 | — | |||||||||
| Research credit carryforwards | 19,223 | 24,404 | |||||||||
| Stock compensation | 11,570 | 10,726 | |||||||||
| Financial royalty assets | 12,879 | — | |||||||||
| Capitalized R&D | — | 7,090 | |||||||||
| Other | 7,775 | 13,733 | |||||||||
| 106,775 | 96,338 | ||||||||||
| Valuation allowance for deferred tax assets | (48,331) | (55,649) | |||||||||
| Net deferred tax assets | 58,444 | 40,689 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Identified intangibles | (45,781) | (69,150) | |||||||||
| Mark-to-market | (38,226) | — | |||||||||
| Other | (2,111) | (3,991) | |||||||||
| Net deferred tax liabilities | (86,118) | (73,141) | |||||||||
| Deferred income taxes, net | $ | (27,674) | $ | (32,452) | |||||||
As of December 31, 2025, we had federal net operating loss carryforwards set to expire through 2037 of $4.3 million and $162.1 million of state net operating loss carryforwards that begin to expire in 2028. We have $24.3 million of California research and development credit carryforwards that have no expiration date. In addition, we had approximately $81.1 million of non-U.S. net operating loss carryovers and approximately $14.5 million of non-U.S. capital loss carryovers that have no expiration date.
As of December 31, 2024, we had federal net operating loss carryforwards set to expire through 2037 of $21.4 million and $162.8 million of state net operating loss carryforwards that begin to expire in 2028. We also had $6.2 million of federal research and development credit carryforwards, which expire through 2040. We had $29.5 million of California research and development credit carryforwards that have no expiration date. In addition, we had approximately $98.4 million of non-U.S. net operating loss carryovers and approximately $14.4 million of non-U.S. capital loss carryovers that have no expiration date.
Pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of our net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of December 31, 2025 are net of any previous limitations due to Section 382 and 383.
We account for income taxes by evaluating a probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Our remaining liabilities for uncertain tax positions are presented net of the deferred tax asset balances on the accompanying consolidated balance sheet.
A reconciliation of the amount of unrecognized tax benefits at December 31, 2025, 2024 and 2023 is as follows (in thousands):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 22,471 | $ | 22,363 | $ | 29,096 | |||||||||||
| Additions based on tax positions related to the current year | 5,342 | 27 | 47 | ||||||||||||||
| Additions for tax positions of prior years | 192 | 477 | 3 | ||||||||||||||
| Reductions for tax positions of prior years | (361) | (396) | (6,783) | ||||||||||||||
| Balance at end of year | $ | 27,644 | $ | 22,471 | $ | 22,363 | |||||||||||
Included in the balance of unrecognized tax benefits at December 31, 2025 is $20.6 million of tax benefits that, if recognized would impact the effective rate.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025 and December 31, 2024, we recognized an immaterial amount of interest and penalties. We file income tax returns in the United States, various state jurisdictions, Austria, and United Kingdom with varying statutes of limitations. The federal statute of limitation remains open for the 2022 tax year to the present. The state income tax returns generally remain open for the 2021 tax year through the present. The United Kingdom statute of limitation remains open for the 2021 tax year to the present. The Austrian statute of limitation remains open for the 2021 tax year to the present. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized. The Company’s 2019 and 2020 California tax returns are under examination by the California Franchise Tax Board. The Company does not anticipate that the examination will result in a material adjustment to its financial statements. No other income tax returns are currently under examination.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 26, 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.