Septerna, Inc. Income Taxes Disclosure

11. Income Taxes

As discussed in Note 2, we adopted ASU 2023-09 on a prospective basis beginning with the year ended December 31, 2025. For the year ended December 31, 2025, the tax provision expense was not material. For the year ended December 31, 2024, the Company recorded income tax benefit of $0.5 million.

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The types of temporary differences that give rise to significant portions of the Company’s deferred income tax assets and liabilities are set out below (in thousands):

The Company has established a valuation allowance for the amount of deferred tax assets that are not more likely than not to be realized. Management considered all available evidence, both positive and negative, including but not limited to the Company’s historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings, future taxable income, and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized. The net change in the total valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $11.0 million and $20.9 million, respectively.

As of December 31, 2025, the Company had $45.8 million of federal net operating loss carryforwards and $77.9 million of state net operating loss carryforwards, available to reduce future taxable income. The federal net operating loss carryforwards will carryforward indefinitely. The state net operating loss carryforwards will begin to expire in 2041, if not utilized.

As of December 31, 2025, the Company had federal research and development tax credits carryforward of $5.2 million and state research and development tax credits carryforward of $3.7 million, available to reduce future income taxes. The federal research and development tax credits will begin to expire in 2040 if not utilized. The state research and development tax credits have no expiration date.

Internal Revenue Code section 382 (“IRC Section 382”) places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. When an ownership change occurs, IRC Section 382 limits the use of NOLs and credits in subsequent periods based on the annual 382 limitations. The annual 382 limitations may limit the full use of available tax attributes in one year but the identified ownership changes may not result in expiration of tax attributes for use prior to expiration of their respective carryforward periods. The Company performed a Section 382 analysis through the year ended December 31, 2024 and determined there were ownership changes in 2021 and 2023. The ownership changes did not result in a reduction of its net operating loss or in its research and development credit carryforwards expiring unused.

The reversal of the uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2025 and 2024, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.

The Company files income taxes in the U.S. federal jurisdiction, the state of California and various other U.S. states. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All income tax returns will remain open for examination by the federal, state and foreign authorities for three or four years, from the date of utilization of any NOLs or credits.