Summit Therapeutics Inc.SMMT
Summit Therapeutics Inc. Income Taxes Disclosure
Income Tax
The Company is primarily subject to corporation taxes in the U.S. and the U.K. The calculation of the Company’s tax provision involves the application of both U.S. and U.K. tax law and requires judgment and estimates. The Company has also assessed the applicability of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Pillar 2 rules, which establish a global minimum tax rate. Based on the Company’s current financial position and revenue it does not meet the thresholds for Pillar 2 to apply. Therefore, the provisions and requirements under Pillar 2 do not impact our financial statements for the reporting period.
The provision for income taxes is determined using the asset and liability approach. Tax laws may require items to be included in tax filings at different times than the items are reflected in the financial statements. A current asset or liability is recognized for the estimated taxes receivable or payable for the current year.
Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are initially recognized at enacted tax rates in force at the time of initial recognition and are subsequently adjusted for any enacted changes in tax rates and tax laws. Subsequent changes to deferred taxes originally recognized in equity are recognized in income.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company has recorded a full valuation allowance against the deferred tax assets in excess of its deferred tax liabilities, as the deferred tax liabilities represent future reversals of existing taxable temporary differences. The Company records interest and penalties related to income tax matters as part of income tax expense.
Uncertain Tax Positions
The Company accounts for uncertain tax positions taken in its tax filings by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities having full knowledge of the facts and applicable tax rules. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated financial statements. The amount of benefits that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties.
Due to the Company’s full valuation allowance, the unrecognized tax benefits are not expected to materially impact the Company’s effective tax rate when recognized or significantly increase or decrease in the next 12 months. In addition, the
Company’s policy is to recognize interest and penalties related to uncertain tax positions as part of its income tax provision. However, for the years ended December 31, 2025 and 2024, the Company had no interest or penalties related to unrecognized tax benefits because any potential disallowance would not result in current tax but only result in a reduction to the Company’s net operating loss carryforwards.
Loss Before Income Taxes
The components of the Company’s loss before income taxes are as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Foreign | $ | (326,729) | $ | (199,040) | $ | (499,810) | ||||||||||||||
| United States | (752,857) | (22,275) | (115,118) | |||||||||||||||||
| Loss before income taxes | $ | (1,079,586) | $ | (221,315) | $ | (614,928) | ||||||||||||||
Deferred Income Taxes
The Company has not recognized a current or deferred provision for federal, state or non-United States income taxes in either of the years ending December 31, 2025 or December 31, 2024.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes.
The major components of deferred tax assets and liabilities are as follows:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforward | $ | 73,583 | $ | 59,413 | |||||||
| Research and development credit carryforward | 16,092 | 7,869 | |||||||||
| Stock-based compensation | 32,158 | 14,001 | |||||||||
| Section 174 Research and Development Capitalization | 11,034 | 14,167 | |||||||||
| Other | 711 | 475 | |||||||||
| Total deferred tax assets | 133,578 | 95,925 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Other | (417) | (337) | |||||||||
| Total deferred tax liabilities | (417) | (337) | |||||||||
| Net deferred tax assets before valuation allowance | 133,161 | 95,588 | |||||||||
| Valuation allowance | (133,161) | (95,588) | |||||||||
| Deferred tax, net | $ | — | $ | — | |||||||
For the year ended December 31, 2025 and 2024, the Company recorded a deferred tax asset of $133,578 and $95,925, respectively.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards, research and development credits, stock-based compensation expense, and research and development costs capitalized for tax purposes. Management has considered the Company’s history of cumulative net losses in each taxing jurisdiction, estimated future taxable income, as well as prudent and feasible tax planning strategies, and has concluded that it is more likely than not that the Company will not realize the tax benefits in each
jurisdiction. Accordingly, a full valuation allowance has been established against these net deferred tax assets as of December 31, 2025 and 2024, respectively. The Company reevaluates the positive and negative evidence at each reporting period.
The changes in the valuation allowance during the years ended December 31, 2025, 2024 and 2023 primarily related to net operating loss carryforwards and capitalized research and development expenses.
The change in the valuation allowance was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Valuation allowance as of beginning of year | $ | (95,588) | $ | (84,751) | $ | (64,016) | |||||||||||
| Net increases recorded to income tax provision | (37,573) | (10,837) | (20,735) | ||||||||||||||
| Valuation allowance as of end of year | $ | (133,161) | $ | (95,588) | $ | (84,751) | |||||||||||
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2025 and 2024, the Company had U.S. Federal gross operating loss carryforwards of approximately $93,210 and $44,270, respectively, which may be available to offset future income tax liabilities. The 2017 Tax Cuts and Jobs Act (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely but generally limits the net operating loss deduction to the lesser of the net operating loss carryover or 80% of a corporation’s taxable income (subject to Section 382 of the Internal Revenue Code of 1986, as amended). In addition, the Company has approximately $21,335 in U.S. State gross loss carryforwards which expire through various dates through 2044.
As of December 31, 2025, the Company had an estimated U.S. federal and state research and development tax credit carryforwards of $15,565 and $5,002, respectively, which may be available to offset future tax liabilities, and each begin to expire in 2041 and 2037, respectively.
As of December 31, 2025 and 2024, the Company had U.K. gross operating loss carryforwards of approximately $211,096 and $198,653 respectively, which may be available to offset future income tax liabilities. To the extent that U.K. taxable profits exceed £5,000 in each year, the loss available to utilize against profits in excess of £5,000 will be restricted to 50%. The U.K. loss carryforwards do not lapse and therefore, the full amount will be relieved over time provided there are sufficient profits against which the losses can be utilized.
Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation. Any limitation may result in the loss of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.
U.K. tax losses are subject to additional restrictions where there is a change in ownership in the business and certain other conditions are met. An ownership change of a U.K. tax resident company would occur where (directly or indirectly) a single person acquires more than half of the ordinary share capital of a company, or two or more persons each acquire a holding of at least 5% of the ordinary share capital of a company and these holdings together amount to more than half the ordinary share capital of a company. Where a change in ownership has occurred, and within three years prior to that change in ownership and five years afterwards, there is a major change in the nature and conduct of trade of that company or the trade of that business becomes small or negligible, any losses carried forward will be extinguished from the point of the change in ownership. In addition, losses accrued subsequent to April 1, 2017 will be extinguished on a change of ownership when there is a major change in the nature or conduct of a company’s business, or where there is a major change in the scale of that business, or a company ceases to carry on a particular trade or business. The Company has not completed a study to assess whether a change of ownership has occurred since its formation, or whether there has been a major change in the Company’s business that would
restrict the U.K. tax losses. Any limitation may result in the loss of a portion of the net operating loss carryforwards before utilization.
Deemed U.S. Income Inclusions
The TCJA created a requirement that US corporations include in income earnings of certain controlled foreign corporations under the global intangible low taxed income (“GILTI”) regime. Pursuant to the FASB Staff Q&A, Topic 740 No.5. Accounting for Global Intangible Low-taxed Income, the Company is allowed to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as period expense only. The Company has elected to account for GILTI in the year the tax is incurred and include the current tax impact of GILTI in the effective tax rate. Given the Company’s loss position in the U.S. and the valuation allowance recorded against its U.S. net deferred tax assets, these provisions have not had a material impact on the Company’s consolidated financial statements.
Annual Effective Tax Rate Reconciliation
A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||
| Tax at federal statutory rate | (226,702) | 21.0 | % | (46,476) | 21.0 | % | (129,048) | 21.0 | % | ||||||||||||||||||||
| State income tax, net of federal tax benefit | — | — | % | (17) | — | % | — | — | % | ||||||||||||||||||||
| Research and development credits | (6,828) | 0.6 | % | (4,782) | 2.2 | % | (2,275) | 0.4 | % | ||||||||||||||||||||
| Nontaxable or nondeductible Items | |||||||||||||||||||||||||||||
| Stock-based compensation | 134,033 | (12.4) | % | (130) | 0.1 | % | 2,978 | (0.5) | % | ||||||||||||||||||||
| Other | 299 | — | % | 77 | — | % | 521 | (0.1) | % | ||||||||||||||||||||
| Foreign Tax Effects | |||||||||||||||||||||||||||||
Cayman Islands Statutory income tax rate differential | 67,969 | (6.3) | % | 41,570 | (18.8) | % | 104,282 | (17.0) | % | ||||||||||||||||||||
| Other foreign jurisdictions | 644 | (0.1) | % | 229 | (0.1) | % | 678 | (0.1) | % | ||||||||||||||||||||
| Changes in unrecognized tax benefits | 1,357 | (0.1) | % | 956 | (0.4) | % | 800 | (0.1) | % | ||||||||||||||||||||
| Change in valuation allowance | 29,228 | (2.7) | % | 8,573 | (4.0) | % | 22,064 | (3.6) | % | ||||||||||||||||||||
Total | $ | — | — | % | $ | — | — | % | $ | — | — | % | |||||||||||||||||
Unrecognized Tax Benefit Reconciliation
The Company records unrecognized tax benefits in accordance with ASC 740-10, Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of December 31, 2025, 2024, and 2023, the Company had total unrecognized tax benefits of $3,903, $2,122, and $1,064, respectively.
A reconciliation of unrecognized tax benefits from continuing operations is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Unrecognized tax benefits, beginning of year | $ | 2,122 | $ | 1,064 | $ | — | ||||||||||||||
| Increases related to prior year tax positions | 592 | 122 | 610 | |||||||||||||||||
| Increases related to current year tax positions | 1,189 | 936 | 454 | |||||||||||||||||
| Unrecognized tax benefits, end of year | $ | 3,903 | $ | 2,122 | $ | 1,064 | ||||||||||||||
Audit Examinations
In the U.S., the Company files a Federal consolidated income tax return and income tax returns in various states. In the U.S., the filings for tax years from 2020 remain subject to examination by the U.S. Internal Revenue Service and state tax authorities. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for years 2020 through present. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In the U.K., tax returns for the year ended December 31, 2023 remains subject to examination by HMRC.
Legislative Impacts
On July 4, 2025, H.R. 1, a U.S. budget reconciliation bill, was signed into law. The Company has assessed the provisions of the new legislation and has integrated the resulting impacts into its effective income tax rate. Management has concluded that the bill does not have an impact on the Company's consolidated financial statements for the current period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 31, 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.