LEXICON PHARMACEUTICALS, INC.LXRX
LEXICON PHARMACEUTICALS, INC. Income Taxes Disclosure
Income Taxes
Effective Tax Rate Reconciliation. A reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2025, 2024 and 2023 consists of the following:
| Year Ended December 31, 2025 | ||||||||
| Amount | Percent | |||||||
| (in thousands) | ||||||||
| U.S. Federal Statutory Tax Rate | $ | (10,572) | 21.00 | % | ||||
| Nontaxable or Nondeductible Items | ||||||||
| Incentive Stock Options | 2,449 | (4.86) | % | |||||
| Tax Credits | ||||||||
| Research and Development Credit | (944) | 1.87 | % | |||||
| Changes in Valuation Allowances | 8,872 | (17.62) | % | |||||
| Other | 195 | (0.39) | % | |||||
| Total | $ | — | — | % | ||||
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
Expected income tax expense (benefit) at 21% | $(42,085) | $(37,196) | |||||||||
| State income taxes, net of federal benefit | 319 | (3,895) | |||||||||
| Equity compensation | 3,758 | 1,530 | |||||||||
| Research and development credit | (4,241) | (712) | |||||||||
| State income taxes, tax rate change | 2,922 | (4,723) | |||||||||
| Write off of NOL carryovers due to expiration | 8,111 | — | |||||||||
| Change in valuation allowance | 30,762 | 44,410 | |||||||||
| Other | 454 | 586 | |||||||||
| Income tax benefit | $— | $— | |||||||||
Deferred Tax Assets and Liabilities. Lexicon recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. The components of Lexicon’s deferred tax assets (liabilities) at December 31, 2025 and 2024 are as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 326,625 | $ | 316,034 | |||||||
| Research and development tax credits | 35,186 | 34,243 | |||||||||
| Orphan drug credits | 24,524 | 24,524 | |||||||||
| Capitalized research and development | 37,408 | 38,688 | |||||||||
| Stock-based compensation | 4,093 | 4,327 | |||||||||
| Interest | 2,076 | 1,748 | |||||||||
| Other | 2,904 | 2,726 | |||||||||
| Total deferred tax assets | 432,816 | 422,290 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Other | (1,777) | (1,357) | |||||||||
| Total deferred tax liabilities | (1,777) | (1,357) | |||||||||
| Less: valuation allowance | (431,039) | (420,933) | |||||||||
| Net deferred tax liabilities | $ | — | $ | — | |||||||
Net Operating Losses/Valuation Allowance. At December 31, 2025, Lexicon had both federal and state NOL carryforwards of approximately $1.5 billion and $171.6 million, respectively. The Company had $940.1 million of U.S. federal NOL carryforwards as of December 31, 2025, which can be carried forward indefinitely. The remaining federal and state NOL carryforwards will begin to expire in 2027.
The Company maintains a valuation allowance on net operating losses and other deferred tax assets. Accordingly, the Company has not reported any tax benefit relating to the remaining net operating loss carryforwards and income tax credit carryforwards that are available for utilization in future periods. On a periodic basis, the valuation allowance is reassessed on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. In 2025, the Company reassessed the valuation allowance and considered negative evidence, including the cumulative losses over the three years ended December 31, 2025 and positive evidence including the projections of future income. After assessing both the negative and the positive evidence, the Company concluded that it should continue to maintain the valuation allowance on net operating losses and other deferred tax assets as of December 31, 2025 given the significance of the weight of the negative evidence. Based on recent financial performance and future projections, the Company could record a reversal of all, or a portion
of the valuation allowance associated with U.S. deferred tax assets in future periods. 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. Significant judgment is required in making these assessments to maintain or reverse valuation allowances and, to the extent future expectations change the Company would have to assess the recoverability of these deferred tax assets at that time.
Based on the applicable tax laws and the Company’s cumulative loss position, the Company concluded it was appropriate to establish a full valuation allowance for a majority of its deferred tax assets until an appropriate level of profitability is sustained. During the year ended December 31, 2025, the federal and state valuation allowance increased $10.1 million, primarily due to NOLs generated.
Other. As of December 31, 2025 and 2024, the Company did not have any unrecognized tax benefits and had no accruals for interest or penalties related to income tax matters. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense. The Company is subject to U.S. federal and state income taxes. The tax years 2021 through 2024 remain open to examination by the Internal Revenue Service of the United Sates and the tax years 2020 through 2024 remain open to examination by various state tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 25, 2024 | |
| 2022 | Mar 3, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 15, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 6, 2017 | |
| 2015 | Mar 11, 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.