Relay Therapeutics, Inc. Income Taxes Disclosure
13. Income Taxes
During the years ended December 31, 2025, 2024, and 2023, the Company recorded no income tax benefits due to losses incurred and the uncertainty of future taxable income.
A reconciliation of the expected income tax (benefit) computed using the U.S. Federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2025, 2024, and 2023:
|
|
December 31, |
||||||||||||||||
|
|
2025 |
|
2024 |
|
2023 |
||||||||||||
|
|
Amount |
|
|
Percentage |
|
Amount |
|
|
Percentage |
|
Amount |
|
|
Percentage |
|||
U.S. federal statutory tax rate |
|
$ |
(58,061 |
) |
|
21.0% |
|
$ |
(70,918 |
) |
|
21.0% |
|
$ |
(71,814 |
) |
|
21.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
State taxes, net of federal taxes |
|
|
5 |
|
|
0.0% |
|
|
(1 |
) |
|
0.0% |
|
|
(2 |
) |
|
0.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tax credits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
(8,416 |
) |
|
3.1% |
|
|
(14,764 |
) |
|
4.4% |
|
|
(12,996 |
) |
|
3.8% |
Orphan drug |
|
|
2,510 |
|
|
(0.9)% |
|
|
(13,282 |
) |
|
3.9% |
|
|
— |
|
|
0.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Change in valuation allowance |
|
|
52,747 |
|
|
(19.1)% |
|
|
77,975 |
|
|
(23.1)% |
|
|
79,661 |
|
|
(23.3)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Stock compensation |
|
|
10,949 |
|
|
(4.0)% |
|
|
22,658 |
|
|
(6.7)% |
|
|
5,850 |
|
|
(1.7)% |
Other |
|
|
266 |
|
|
(0.1)% |
|
|
(1,668 |
) |
|
0.5% |
|
|
(699 |
) |
|
0.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Effective tax rate |
|
$ |
— |
|
|
0.0% |
|
$ |
— |
|
|
0.0% |
|
$ |
— |
|
|
0.0% |
For the years ended December 31, 2025, 2024, and 2023, taxes in California comprised the majority of state taxes, net of federal taxes.
The Company’s deferred tax assets and liabilities at December 31, 2025 and 2024, consist of the following:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating losses |
|
$ |
235,130 |
|
|
$ |
166,311 |
|
Tax credit carryforwards |
|
|
96,552 |
|
|
|
88,707 |
|
Capitalized R&D |
|
|
130,388 |
|
|
|
154,424 |
|
Lease liability |
|
|
11,208 |
|
|
|
14,820 |
|
Stock compensation |
|
|
15,659 |
|
|
|
16,892 |
|
Intangibles |
|
|
1,728 |
|
|
|
1,341 |
|
Depreciation and amortization |
|
|
619 |
|
|
|
967 |
|
Other |
|
|
57 |
|
|
|
2,346 |
|
Total gross deferred tax assets |
|
|
491,341 |
|
|
|
445,808 |
|
Valuation allowance |
|
|
(480,517 |
) |
|
|
(431,929 |
) |
Net deferred tax assets |
|
|
10,824 |
|
|
|
13,879 |
|
Deferred tax liabilities |
|
|
|
|
|
|
||
Operating lease assets |
|
|
(10,824 |
) |
|
|
(13,879 |
) |
Total deferred tax liabilities |
|
|
(10,824 |
) |
|
|
(13,879 |
) |
|
|
$ |
— |
|
|
$ |
— |
|
The Company has incurred net operating losses ("NOLs") since inception. As of December 31, 2025 and 2024, the Company had federal NOL carryforwards of $923.9 million and $596.3 million, respectively, available to reduce federal taxable income, of which $43.1 million begin to expire in 2035 and $880.8 million do not expire. The Company also had state NOL carryforwards of $625.6 million and $625.2 million as of December 31, 2025 and 2024, respectively, available to reduce state taxable income, which begin to expire in 2035.
As of December 31, 2025 and 2024, the Company also had available federal research and development tax credit carryforwards of $55.9 million and $47.5 million, respectively, available to reduce federal tax liabilities, which begin to expire in 2035.
As of December 31, 2025 and 2024, the Company also had available state research and development tax credit carryforwards of $29.9 million and $27.0 million, respectively, available to reduce state tax liabilities, which being to expire in 2030.
As of December 31, 2025 and 2024, the Company also had available federal orphan drug tax credit carryforwards of $17.0 million and $19.5 million, respectively, available to reduce federal tax liabilities, which begin to expire in 2042.
Utilization of NOL and research and development credit carryforwards may generally be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 ("Sections 382 and 383") due to ownership changes that have occurred previously or could occur in the future. Such ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset any post-ownership change in taxable income and tax, respectively. The most recent Section 382 study was performed by the Company up to December 31, 2025, through which it was noted that a historic ownership change has likely occurred. Nonetheless, the Company has concluded that, as of December 31, 2025, the prospective utilization of NOL and research and development credit carryforwards from inception through December 31, 2025 (and, therefore, the corresponding federal and state deferred tax assets) should not be restricted by Sections 382 and 383, although ownership changes after December 31, 2025 could impact the Company’s ability to utilize such tax attributes in the future.
The Company recorded a valuation allowance against its deferred tax assets for the years ended December 31, 2025 and 2024, because the Company’s management believes it is more likely than not that such assets will not be realized. The valuation allowance increased by $48.6 million and $132.1 million for the years ended December 31, 2025 and 2024, respectively, primarily as a result of operating losses generated with no corresponding financial statement benefit.
The Company had no unrecognized tax benefits as of December 31, 2025 and 2024.
The Company files tax returns, as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from inception to the present.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBB”) was enacted in the U.S. The OBBB includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act ("TCJA") and restoration of favorable tax treatment for certain business provisions including the expensing of domestic research and development expenditures. The OBBB did not have a material impact on the Company's consolidated financial statements or footnotes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Mar 25, 2021 | |
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.