Vanda Pharmaceuticals Inc.VNDA
Vanda Pharmaceuticals Inc. Income Taxes Disclosure
Income Taxes
The following is a summary of the domestic and foreign components of income (loss) before income taxes for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Domestic | $ | (138,908) | $ | (23,042) | $ | 6,184 | |||||||||||
| Foreign | 261 | 121 | 155 | ||||||||||||||
Total income (loss) before income taxes | $ | (138,647) | $ | (22,921) | $ | 6,339 | |||||||||||
The following is a summary of the provision (benefit) for income taxes for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 55 | $ | 1,654 | $ | 2,577 | |||||||||||
| State | 185 | 749 | 2,447 | ||||||||||||||
| Foreign | 143 | 58 | 91 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 78,684 | (4,760) | (2,240) | ||||||||||||||
| State | 2,722 | (1,719) | 970 | ||||||||||||||
| Foreign | 38 | (3) | (15) | ||||||||||||||
Provision (benefit) for income taxes | $ | 81,827 | $ | (4,021) | $ | 3,830 | |||||||||||
The Company assesses the need for a valuation allowance against its deferred tax assets each quarter through the review of all available positive and negative evidence. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The analysis is highly dependent upon historical and projected pretax income. Projected pretax income includes significant assumptions related to revenue, which could be affected by the success of the commercial launches of Fanapt® in bipolar I disorder, PONVORY® in RMS and NEREUSTM in the prevention of vomiting induced by motion, which was approved on December 30, 2025, and HETLIOZ® generic competition, as well as commercial and research and development activities, including spend on our commercial launches and late-stage clinical activities, and our ability to obtain regulatory approval from the FDA for products or new indications in development, among other factors. In the fourth quarter of 2025, after considering all available positive and negative evidence, including but not limited to historical, current and future projected results and significant risks and uncertainties related to forecasts, the Company concluded that it is not more likely than not that substantially all of its deferred tax assets are realizable in future periods and recorded a valuation allowance against all net deferred tax assets, resulting in a non-cash income tax expense of $113.7 million for the year ended December 31, 2025. If the Company has cumulative pretax income in future periods and/or if the Company’s projections indicate pretax income in future periods or if there are meaningful changes to the Company’s business operations, the conclusion about the appropriateness of the valuation allowance could change in a future period. A future reduction of the valuation allowance, in whole or in part, would result in a non-cash income tax benefit during the period of reduction. The potential timing and amount of any future valuation allowance release has yet to be determined and requires an analysis that is highly dependent upon historical and future projected earnings, among other factors. Any such adjustment could have a material impact on the Company’s financial position and results of operations.
The following is a reconciliation between the federal statutory tax rate and the Company’s effective tax rate for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| (in thousands, except percentages) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||
U.S. federal tax at statutory rate | $ | (29,116) | 21.0 | % | $ | (4,813) | 21.0 | % | $ | 1,331 | 21.0 | % | ||||||||||||||
State and local taxes, net of federal tax effect* | 2,414 | (1.7) | % | (2,017) | 8.8 | % | 1,178 | 18.6 | % | |||||||||||||||||
Foreign tax effects | 126 | (0.1) | % | 29 | (0.1) | % | 43 | 0.7 | % | |||||||||||||||||
Effects of changes in tax laws or rates enacted in the current period | — | — | % | — | — | % | — | — | % | |||||||||||||||||
Effect of cross-border tax laws | (4) | — | % | 3 | — | % | 1 | — | % | |||||||||||||||||
Tax credits | ||||||||||||||||||||||||||
Research and development credits | (2,493) | 1.8 | % | (1,672) | 7.3 | % | (4,391) | (69.3) | % | |||||||||||||||||
Orphan drug credits | (775) | 0.6 | % | (237) | 1.0 | % | (288) | (4.5) | % | |||||||||||||||||
Change in valuation allowance | 107,490 | (77.5) | % | — | — | % | — | — | % | |||||||||||||||||
Nontaxable or nondeductible items | ||||||||||||||||||||||||||
Section 162(m) limitation | 791 | (0.6) | % | 1,043 | (4.5) | % | 1,088 | 17.2 | % | |||||||||||||||||
Stock-based compensation | 968 | (0.7) | % | 1,623 | (7.1) | % | 1,916 | 30.2 | % | |||||||||||||||||
Nondeductible meals & entertainment expense | 1,243 | (0.9) | % | 479 | (2.1) | % | 295 | 4.6 | % | |||||||||||||||||
Other | 121 | (0.1) | % | 178 | (0.8) | % | 57 | 0.9 | % | |||||||||||||||||
Changes in unrecognized tax benefits | 1,062 | (0.8) | % | 1,363 | (5.9) | % | 2,600 | 41.0 | % | |||||||||||||||||
| Effective tax rate | $ | 81,827 | (59.0) | % | $ | (4,021) | 17.6 | % | $ | 3,830 | 60.4 | % | ||||||||||||||
*The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, New Jersey, and Florida for the year ended December 31, 2025, California and Florida for the year ended December 31, 2024, and Pennsylvania for the year ended December 31, 2023.
The following is a summary of the components of the Company’s net deferred tax assets and the related tax valuation allowance as of December 31, 2025 and 2024.
| (in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforwards | $ | 22,000 | $ | 5,962 | |||||||
| Stock-based compensation | 3,306 | 3,606 | |||||||||
| Accrued expenses | 2,427 | 2,113 | |||||||||
| Allowance for returns and credit losses | 2,099 | 1,716 | |||||||||
| Research and development and orphan drug credit carryforwards | 39,289 | 36,214 | |||||||||
| Capitalized research and development expenses | 50,432 | 38,393 | |||||||||
Intangible assets | 1,500 | — | |||||||||
| Other | 6,201 | 4,537 | |||||||||
| Total deferred tax assets | 127,254 | 92,541 | |||||||||
| Deferred tax liabilities | |||||||||||
| Intangible assets | — | (961) | |||||||||
| Other | (2,853) | (1,253) | |||||||||
| Total deferred tax liabilities | (2,853) | (2,214) | |||||||||
| Deferred tax assets, net | 124,401 | 90,327 | |||||||||
| Less: Valuation allowance | 124,401 | 8,887 | |||||||||
| Net deferred tax assets | $ | — | $ | 81,440 | |||||||
The following is a summary of changes in the Company’s tax valuation allowance for the years ended December 31, 2025, 2024 and 2023:
| (in thousands) | Balance at Beginning of Year | Additions | Reductions | Balance at End of Year | |||||||||||||||||||
| Year Ended | |||||||||||||||||||||||
| December 31, 2025 | $ | 8,887 | $ | 115,514 | $ | — | $ | 124,401 | |||||||||||||||
| December 31, 2024 | 8,547 | 340 | — | 8,887 | |||||||||||||||||||
| December 31, 2023 | 7,136 | 1,411 | — | 8,547 | |||||||||||||||||||
The Company has NOL and other tax credit carryforwards in several jurisdictions. As of December 31, 2025, the Company has $13.8 million of deferred tax assets relating to U.S. federal NOL carryforwards. As of December 31, 2025 the Company has deferred tax assets of $20.6 million and $18.6 million related to U.S. federal and state research and development credits and orphan drug credits, respectively. Both of these tax attributes will begin to expire in 2031. In addition, the Company has $8.2 million of deferred tax assets relating to other U.S. NOL carryforwards, which primarily relate to the District of Columbia. NOLs for the District of Columbia will begin to expire in 2032 and state NOLs will begin to expire in 2034. A valuation allowance is recorded against these U.S. federal and state deferred tax assets.
The following is a summary of cash paid for income taxes, net of refunds received, for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | 140 | $ | 2,010 | $ | 2,525 | |||||||||||
State | |||||||||||||||||
Pennsylvania | * | * | 680 | ||||||||||||||
Other states | (294) | 334 | 341 | ||||||||||||||
| Foreign | 64 | 103 | 17 | ||||||||||||||
Total cash paid for income taxes, net of refunds received | $ | (90) | $ | 2,447 | $ | 3,563 | |||||||||||
* Income taxes paid, net of refunds received, did not rise to the level of separate disclosure (5%) during tax year.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Unrecognized tax benefits at the beginning of the year | $ | 18,796 | $ | 18,312 | $ | 15,485 | |||||||||||
| Increases (decreases) related to prior year tax positions | 87 | (159) | 919 | ||||||||||||||
| Increases related to current year tax positions | 796 | 742 | 2,003 | ||||||||||||||
| Settlements | — | — | — | ||||||||||||||
Statute lapses | $ | (104) | $ | (99) | $ | (95) | |||||||||||
| Unrecognized tax benefits at the end of the year | $ | 19,575 | $ | 18,796 | $ | 18,312 | |||||||||||
The amount of uncertain tax benefits that, if recognized, would impact the effective tax rate is $19.6 million. Generally, the tax years 2022 through 2024 remain open to examination by the major taxing jurisdiction to which the Company is subject. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state or foreign tax authorities, to the extent utilized in a future period.
Certain tax attributes of the Company, including NOLs and credit carryforwards, would be subject to limitation under Section 382 and 383 should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended (IRC) occur. The limitation resulting from a change in ownership could affect the Company’s ability to utilize its NOLs and credit carryforwards (tax attributes) to offset future taxable income. An ownership change occurred in the year ended December 31, 2014. The Company believes that the ownership change in 2014 will not impact its ability to utilize NOL and credit carryforwards; however, future ownership changes may cause the Company’s existing tax attributes to have additional limitations.
In July 2025, the One Big Beautiful Bill Act (OBBBA), which contains a broad range of tax reforms affecting businesses, was signed into law in the U.S. The OBBBA includes numerous changes to existing tax law including extending or making permanent certain business and international tax measures initially established under the 2017 Tax Cuts and Jobs Act, which were set to expire. Additionally, the OBBBA permanently eliminates the requirement to capitalize and amortize U.S.-based research and development expenditures over five years and provides the option to make these expenditures fully deductible in the period incurred. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 8, 2024 | |
| 2022 | Feb 9, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 11, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 17, 2017 | |
| 2015 | Feb 12, 2016 | |
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.