Verrica Pharmaceuticals Inc.VRCA

Verrica Pharmaceuticals Inc. Income Taxes Disclosure

10-KFiled Mar 11, 20263 min read
Income Taxes
There is no provision for income taxes as the Company has incurred operating losses since inception and maintains a full valuation allowance against its deferred tax assets. Below is a reconciliation of income taxes at the U.S. statutory rate to the effective tax rate (in thousands).
For the Year Ended
December 31, 2025December 31, 2024
US Statutory Rate$(3,756)21.0%$(16,082)21.0%
State and Local Income Taxes, net of Federal Income Tax Effect343 (1.9%)(3,056)4.0%
Tax Credits— —%(173)0.2%
Change in Valuation Allowances (Domestic)2,851 (15.9%)17,203 (22.4%)
Nontaxable or Nondeductible Items117 (0.7%)192 (0.3%)
Stock Compensation410 (2.3%)(9)—%
Deferred Tax True-up35 (0.2%)1,925 (2.5%)
Actual income tax benefit effective tax rate$— —%$— —%
Within the state income tax category, California accounted for the majority, representing over 50% of the total reconciling impact. For the year ended December 31, 2024, the underlying tax effects remain the same, however certain reconciling items have been reallocated consistent with the required ASU 2023-09 disclosure.
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
As of
December 31,
20252024
Deferred tax assets:
 Net operating loss carryovers$58,664 $54,007 
 Sec. 174 capitalization3,723 4,665 
 Share-based compensation4,199 4,135 
 Tax credits3,254 3,254 
 Amortization723 832 
 Embedded derivative— 642 
Lease liabilities376 490 
Accrued compensation372 216 
Accrued collaboration257 — 
 Fixed assets— 10 
 Other2,559 3,119 
 Total deferred tax assets74,127 71,370 
 Less valuation allowance(73,738)(70,887)
 Deferred tax asset, net of valuation allowance389 483 
 Deferred tax liabilities:
 Right-of-use assets(381)(483)
 Fixed assets(8)— 
 Total deferred tax liabilities(389)(483)
 Net deferred tax assets$— $— 
The Company has determined, based upon all available evidence, that it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has provided a full valuation allowance against its net deferred tax asset.
As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $238.6 million and $218.9 million, respectively. The federal net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 (federal of approximately $6.9 million) will begin to expire, if not utilized, by 2033. Under the 2017 federal income tax law changes, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. As of December 31, 2025, the Company had federal and state research and development carryforwards of $3.2 million. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an "ownership change," which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation's ability to use its pre-change net operating loss and tax credit carryforwards may be limited. The Company has not done an analysis to determine whether or not ownership changes have occurred since inception.
The Company will recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company's statement of operations. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.
The 2017 and subsequent federal and state tax years for the Company remain open for the assessment of income taxes.
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Historical Timeline

Fiscal YearFiled
2025Mar 11, 2026Showing above
2024Mar 11, 2025
2023Feb 29, 2024
2022Mar 6, 2023
2021Mar 2, 2022
2020Mar 17, 2021
2019Mar 13, 2020
2018Mar 7, 2019

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.

Other Available Disclosures

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