RHYTHM PHARMACEUTICALS, INC.RYTM
RHYTHM PHARMACEUTICALS, INC. Income Taxes Disclosure
Income Taxes
The components of loss before income taxes are as follows (in thousands):
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (196,054) | $ | (258,927) | $ | (178,669) | |||||||||||
| Foreign | 12 | (1,329) | (5,445) | ||||||||||||||
| Loss before income taxes | $ | (196,042) | $ | (260,256) | $ | (184,114) | |||||||||||
Components of provision for income taxes are as follows (in thousands):
| As of December 31, | |||||||||||||||||
| Current: | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. Federal | $ | — | $ | — | $ | — | |||||||||||
| U.S. State and Local | — | — | 1 | ||||||||||||||
| Foreign | 497 | 346 | 563 | ||||||||||||||
| Total Current Expense | $ | 497 | $ | 346 | $ | 564 | |||||||||||
| Deferred: | |||||||||||||||||
| U.S. Federal | $ | — | $ | — | $ | — | |||||||||||
| U.S. State and Local | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total Deferred Expense | $ | — | $ | — | $ | — | |||||||||||
The following table presents reconciliation of the income tax expense (benefit) at the federal statutory tax rate to the Company's effective income tax rate for the year ended December 31, 2025 after the adoption of ASU 2023-09:
| December 31, 2025 | |||||||||||||||||
| Amount | Percentage | ||||||||||||||||
| (In thousands) | |||||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | (41,169) | 21.00 | % | |||||||||||||
| State and Local Income Tax, Net of Federal (National) Income Tax Effect | — | — | % | ||||||||||||||
| Foreign Tax Effects: | |||||||||||||||||
| Other Foreign Jurisdictions | 529 | (0.27) | % | ||||||||||||||
| Tax Credits: | |||||||||||||||||
| Research & Development Credits | (13,073) | 6.67 | % | ||||||||||||||
| Changes in Valuation Allowances | 51,008 | (26.02) | % | ||||||||||||||
| Nontaxable or Nondeductible Items: | |||||||||||||||||
| Executive Compensation Limit | 8,661 | (4.42) | % | ||||||||||||||
| Stock-Based Compensation | (2,283) | 1.16 | % | ||||||||||||||
| LG Chem | (3,930) | 2.00 | % | ||||||||||||||
| Deferred royalty financing | 913 | (0.46) | % | ||||||||||||||
| Other | 207 | (0.10) | % | ||||||||||||||
| Other Adjustments | (366) | 0.19 | % | ||||||||||||||
| Income tax expense / Effective Tax Rate | $ | 497 | (0.25) | % | |||||||||||||
The following table presents a reconciliation of the income tax expense (benefit) at the federal statutory tax rate to the Company's effective income tax rate for the years ended December 31, 2024 and 2023, before the adoption of ASU 2023-09 is as follows:
| As of December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Statutory tax rate | 21.00 | % | 21.00 | % | ||||||||||
| State tax, net of federal benefit | 5.61 | 10.24 | ||||||||||||
| Research and development credits | 3.75 | 4.02 | ||||||||||||
| Stock-based compensation | (0.57) | (1.37) | ||||||||||||
| Other | (1.61) | (0.16) | ||||||||||||
| Rate changes | (2.04) | (6.52) | ||||||||||||
| Executive Compensation | (2.26) | (0.32) | ||||||||||||
| License Agreement | (1.51) | — | ||||||||||||
| Change in valuation allowance | (22.50) | (27.10) | ||||||||||||
| Effective tax rate | (0.13) | % | (0.21) | % | ||||||||||
The principal components of the Company's deferred tax assets and liabilities are as follows (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 236,991 | $ | 167,375 | |||||||
| Research and development credits | 19,853 | 17,604 | |||||||||
| Orphan drug credit | 46,211 | 34,603 | |||||||||
| Capitalized license fee | 23,418 | 21,661 | |||||||||
| Stock-based compensation | 8,573 | 5,113 | |||||||||
| Section 174 Costs | 33,718 | 67,624 | |||||||||
| Deferred revenue | — | 336 | |||||||||
| Section 163(j) Interest Limitation | 5,589 | 4,417 | |||||||||
| Accrued Expenses & Other | 7,811 | 7,971 | |||||||||
| Total deferred tax assets | 382,164 | 326,704 | |||||||||
| Valuation allowance | (381,166) | (325,503) | |||||||||
| Net deferred tax assets | 998 | 1,201 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use asset and other | (998) | (1,201) | |||||||||
| Net deferred tax liabilities | (998) | (1,201) | |||||||||
| Total deferred tax assets / liabilities | $ | — | $ | — | |||||||
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its deferred tax assets at December 31, 2025 and 2024, because the Company's management has determined that is it more likely than not that these assets will not be realized. The increase in the valuation allowance of $55.7 million in 2025 and $58.3 million in 2024 primarily relates to the net loss incurred by the Company during each period.
As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $917.3 million and $807.9 million, respectively, which are available to reduce future taxable income. The net operating loss carryforwards expire at various times beginning in 2033 for federal and state purposes. Of the federal net operating loss carryforwards at December 31, 2025, $844.1 million can be carried forward indefinitely. As of December 31, 2025, the Company had gross foreign net operating loss carryforwards of approximately $4.5 million which have an indefinite carryforward period.
As of December 31, 2025, the Company had federal and state research tax credits of approximately $15.3 million and $4.6 million, respectively, which may be used to offset future tax liabilities. Additionally, as of 2025, the Company had a federal orphan drug credit related to qualifying research of $46.2 million. These tax credit carryforwards will begin to expire at various times beginning in 2033 for federal purposes and 2028 for state purposes.
The net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions and other provisions within the Internal Revenue Code. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
The Company has not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries as such amounts are considered to be indefinitely reinvested in these jurisdictions. The accumulated earnings in the foreign subsidiaries are primarily utilized to fund working capital requirements as its subsidiaries continue to expand their operations. The amount of any unrecognized deferred tax liability related to undistributed foreign earnings is immaterial.
The Company has not recorded any reserves for uncertain tax positions as of December 31, 2025 and 2024. The Company has not, as yet, conducted a study of research and development credit carryforwards. This study may result in an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and any adjustment known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheets or statements of operations and comprehensive loss if an adjustment were required.
Interest and penalty charges, if any, related to unrecognized tax benefits will be classified as provision for income taxes in the accompanying statements of operations and comprehensive loss. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company is subject to examination by the U.S. federal, state, local, and foreign income tax authorities for tax years 2013 forward. The Company is not currently under examination by the Internal Revenue Service or any other jurisdictions for any tax years.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 8, 2019 | |
| 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.