Upstream Bio, Inc. Income Taxes Disclosure
11. Income Taxes
The Company's entire pretax loss for the year ended December 31, 2025 and 2024 was from its U.S. domestic operations. During the years ended December 31, 2025 and 2024, the Company did not record a provision for income taxes because it has incurred net operating losses since inception and maintains a full valuation allowance against its deferred tax assets.
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows (amount in thousands):
|
|
|
|
Year Ended December 31, 2025 |
|
|||||
|
|
|
|
Amount |
|
|
Rate |
|
||
U.S. federal statutory income tax rate |
|
|
|
$ |
(30,123 |
) |
|
|
21.0 |
% |
State and local income taxes, net of federal income tax effect |
|
|
|
|
— |
|
|
|
0.0 |
|
Effect of changes in tax laws or rates enacted in the current period |
|
|
|
|
— |
|
|
|
0.0 |
|
Tax Credits |
|
|
|
|
|
|
|
|
||
Research and development tax credits |
|
|
|
|
(2,136 |
) |
|
|
1.5 |
|
Change in valuation allowance |
|
|
|
|
32,342 |
|
|
|
(22.5 |
) |
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
(83 |
) |
|
|
0.0 |
|
Effective income tax rate |
|
|
|
$ |
— |
|
|
|
(0.0 |
)% |
|
|
|
|
Year Ended December 31, 2024 |
|
|||||
|
|
|
|
Amount |
|
|
Rate |
|
||
U.S. federal statutory income tax rate |
|
|
|
$ |
(13,189 |
) |
|
|
21.0 |
% |
State and local income taxes, net of federal income tax effect |
|
|
|
|
— |
|
|
|
0.0 |
|
Effect of changes in tax laws or rates enacted in the current period |
|
|
|
|
— |
|
|
|
0.0 |
|
Tax Credits |
|
|
|
|
|
|
|
|
||
Research and development tax credits |
|
|
|
|
(2,897 |
) |
|
|
4.6 |
|
Change in valuation allowance |
|
|
|
|
16,270 |
|
|
|
(25.9 |
) |
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
(184 |
) |
|
|
0.3 |
|
Effective income tax rate |
|
|
|
$ |
— |
|
|
|
(0.0 |
)% |
The Company's effective tax rate does not include any impact from state and local income taxes as the Company has been in losses since inception.
The significant components of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands):
|
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
|
|
$ |
19,917 |
|
|
$ |
10,994 |
|
Research and development tax credit carryforward |
|
|
|
|
6,616 |
|
|
|
3,754 |
|
Operating lease liability |
|
|
|
|
347 |
|
|
|
501 |
|
Accrued expenses |
|
|
|
|
1,118 |
|
|
|
705 |
|
Stock-based compensation |
|
|
|
|
3,828 |
|
|
|
2,261 |
|
Capitalized research and development expense |
|
|
|
|
56,357 |
|
|
|
25,525 |
|
Amortization of acquired IPR&D |
|
|
|
|
15,928 |
|
|
|
17,412 |
|
Total deferred tax assets before valuation allowance |
|
|
|
|
104,111 |
|
|
|
61,152 |
|
Valuation allowance |
|
|
|
|
(103,632 |
) |
|
|
(60,664 |
) |
Total deferred tax assets - net of valuation allowance |
|
|
|
$ |
479 |
|
|
$ |
488 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
||
ROU asset |
|
|
|
|
(334 |
) |
|
|
(488 |
) |
Other |
|
|
|
|
(145 |
) |
|
|
— |
|
Total deferred tax liabilities |
|
|
|
$ |
(479 |
) |
|
$ |
(488 |
) |
Net deferred tax asset (liability) |
|
|
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2025, the Company had federal and state net operating loss (“NOLs”) carryforwards of $66.9 million and $92.9 million, respectively. As of December 31, 2024, the Company had federal and state NOLs carryforwards of $37.6 million and $49.1 million, respectively. The federal NOLs are not subject to expiration and are limited in utilization to 80% of taxable income and the state NOLs begin to expire in 2041. The Company also has federal and state research and development credits of $5.7 million and $1.2 million, respectively, which will, if not utilized, begin to expire in 2043 and 2037, respectively.
Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets. Accordingly, a full valuation allowance of $103.6 million and $60.7 million has been established as of December 31, 2025 and 2024, respectively.
Changes in valuation allowance for deferred tax assets during the years ended December 31, 2025 and 2024 related primarily to the increase in NOL carryforwards and research and development tax credit carryforwards, offset by amortization of acquired IPR&D in 2025 and were as follows (in thousands):
|
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
|
2025 |
|
|
2024 |
|
||
Valuation allowance at beginning of year |
|
|
|
$ |
(60,664 |
) |
|
$ |
(39,695 |
) |
Increases recorded to income tax provision |
|
|
|
|
(42,968 |
) |
|
|
(20,969 |
) |
Valuation allowance at end of year |
|
|
|
$ |
(103,632 |
) |
|
$ |
(60,664 |
) |
Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. 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, due to the significant cost and complexity associated with a study. There could also be additional ownership changes in the future which may result in additional limitations on the utilization of NOL carryforwards and credits.
As of December 31, 2025, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its consolidated statements of operations and comprehensive loss. For the years ended December 31, 2025 and 2024, no estimated interest or penalties were recognized on uncertain tax positions.
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 December 31, 2021, to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. The resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements.
The Company does not pay income taxes at the federal or state level as it has been in losses since inception.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 26, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
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.