Xeris Biopharma Holdings, Inc.XERS
Xeris Biopharma Holdings, Inc. Income Taxes Disclosure
Income Taxes
The components of loss before income taxes by source were as follows (in thousands):
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Foreign | $ | 46,460 | $ | 21,304 | $ | 3,757 | ||||||||||||||
| United States | (45,906) | (78,408) | (67,261) | |||||||||||||||||
Total income (loss) before income taxes | $ | 554 | $ | (57,104) | $ | (63,504) | ||||||||||||||
The components of income tax benefit by source was as follows (in thousands):
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Foreign | $ | 6,464 | $ | (14,761) | $ | 387 | ||||||||||||||
| United States | 7,856 | (13,410) | (15,855) | |||||||||||||||||
| Change in valuation allowance | (14,320) | 25,903 | 14,219 | |||||||||||||||||
| Total income tax benefit | $ | — | $ | (2,268) | $ | (1,249) | ||||||||||||||
Beginning in 2025 annual reporting, the Company adopted ASU 2023-09 prospectively. See Note 2 — Basis of Presentation and Summary of Significant Accounting Policies and Estimates – Recently Adopted Accounting Pronouncements for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows (in thousands, except percentages):
| Year ended December 31, 2025 | |||||||||||
| $ | % | ||||||||||
| U.S. Federal Statutory Tax Rate | $ | 116 | 21.00% | ||||||||
| State and Local Income Taxes, Net of Federal Income Tax Effect | — | nm1 | |||||||||
| Foreign Tax Effects | |||||||||||
| Ireland | |||||||||||
| Statutory tax rate difference between Ireland and United States | (3,832) | nm | |||||||||
| Changes in valuation allowance | (6,061) | nm | |||||||||
| Other | (49) | nm | |||||||||
| Other foreign jurisdictions tax effects | (290) | nm | |||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
| Subpart F income | 12,606 | nm | |||||||||
| Tax credits | |||||||||||
| Research and development tax credits | (1,224) | nm | |||||||||
| Changes in valuation allowance | (3,712) | nm | |||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Compensation subject to the Section 162(m) limitation | 1,276 | nm | |||||||||
| Stock compensation | 795 | nm | |||||||||
| Non-deductible expenses | 277 | nm | |||||||||
| Other adjustments | 98 | nm | |||||||||
| Effective tax rate | $ | — | —% | ||||||||
1not meaningful
A reconciliation of the U.S. federal statutory income tax rate of 21% to the Company's effective income tax rate for the years ended December 31, 2024 and 2023 (in thousands):
| Years Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Federal tax benefit at statutory rate | $ | (11,992) | $ | (13,336) | ||||||||||
| State tax benefit, net of federal benefit | (4,594) | (4,201) | ||||||||||||
| Research and development and orphan drug credits | (608) | — | ||||||||||||
| Uncertain tax positions | 18 | (28) | ||||||||||||
| Subpart F income | 6,613 | 3,092 | ||||||||||||
| Return to provision adjustment | (16,792) | (1,080) | ||||||||||||
| Statutory tax rate differential | (1,840) | (330) | ||||||||||||
| Changes in valuation allowance | 25,903 | 14,219 | ||||||||||||
| Other | 1,024 | 415 | ||||||||||||
| Total income tax benefit | $ | (2,268) | $ | (1,249) | ||||||||||
The benefit for income taxes for 2024 was attributable to the deferred tax liability set up with the Strongbridge acquisition.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. For the years ended December 31, 2025, 2024 and 2023, the Company evaluated the need to maintain a valuation allowance for deferred tax assets based on the assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating losses | $ | 119,813 | $ | 116,743 | ||||||||||
| Federal research, orphan drug and state tax credits | 10,761 | 9,762 | ||||||||||||
| Stock-based compensation | 4,765 | 9,690 | ||||||||||||
| Section 163(j) interest | 21,919 | 25,286 | ||||||||||||
| Capitalized R&D | — | 8,330 | ||||||||||||
| Operating lease liabilities | 9,613 | 10,584 | ||||||||||||
| Accrued expenses | 16,630 | 12,683 | ||||||||||||
| Inventory reserve | 6,765 | 7,201 | ||||||||||||
| Other temporary differences | 3,987 | 4,978 | ||||||||||||
| Valuation allowance | (184,845) | (199,165) | ||||||||||||
| Total assets | 9,408 | 6,092 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Fixed and intangible assets | (3,147) | — | ||||||||||||
| Operating lease right-of-use assets | (5,630) | (6,092) | ||||||||||||
| Other deferred tax liabilities | (631) | — | ||||||||||||
| Total liabilities | (9,408) | (6,092) | ||||||||||||
| Net deferred tax liabilities | $ | — | $ | — | ||||||||||
As of December 31, 2025, the Company had federal net operating loss carryforwards of $490.7 million and various state net operating loss carryforwards of $429.4 million. As of December 31, 2024, the Company had federal net operating loss carryforwards of $480.1 million and various state net operating loss carryforwards of $375.1 million. Net operating loss carryforwards for the United States federal income tax purposes that were generated prior to January 1, 2018 have a twenty-year carryforward life and will expire in 2037. Under the Tax Cuts and Jobs Act of 2017, federal net operating losses incurred in 2018 and later years may be carried forward indefinitely, but the deductibility of such net operating losses is limited to 80% of the current year’s taxable income. The United States state net operating loss carryforwards will start to expire in 2029 for the earliest net operating loss layers to the extent there is not sufficient state taxable income to utilize those net operating loss carryforwards.
At December 31, 2025, the Company had $7.0 million and $5.8 million of federal and state income tax credits, respectively, to reduce future tax liabilities. At December 31, 2024, the Company had $6.1 million and $5.5 million of federal and state income tax credits, respectively, to reduce future tax liabilities. The federal income tax credits consist primarily of orphan drug credits and research and development credits. The United States state income tax credits consist primarily of California and Illinois research and development credits, as well as Illinois Economic Development for a Growing Economy Tax Credit. Both the United States federal orphan drug credits and research and development credits have a twenty-year carryforward life. The United States federal orphan drug credits and research and development credits will both begin to expire in 2038.
A reconciliation of the beginning and ending amounts of valuation allowances for the years ended December 31, 2025, 2024 and 2023 is as follows (in thousands):
Valuation allowance at December 31, 2023 | $ | (173,262) | ||||||
Increase for 2024 activity | (25,903) | |||||||
Valuation allowance at December 31, 2024 | (199,165) | |||||||
Decrease for 2025 activity | 14,320 | |||||||
Valuation allowance at December 31, 2025 | $ | (184,845) | ||||||
The Company is required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accounts for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken, or are expected to be taken, on an income tax return. The changes in the Company's uncertain income tax positions for the years ended December 31, 2025, 2024 and 2023, excluding interest and penalties, consisted of the following (in thousands):
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Beginning balance - uncertain tax positions | $ | 712 | $ | 694 | $ | 722 | ||||||||||||||
| Increases related to tax positions taken during the current year | 123 | 61 | — | |||||||||||||||||
| Increases/(decreases) related to tax positions taken during the prior year | (1) | (43) | (28) | |||||||||||||||||
| Ending balance - uncertain tax positions | $ | 834 | $ | 712 | $ | 694 | ||||||||||||||
For the years ended December 31, 2025 and 2024, the increase in current year uncertain tax positions was attributable primarily to the United States federal orphan drug credits and research and development and orphan drug credits and the decrease related to tax positions taken during December 31, 2023, was a result of return to provision adjustments. In the Company’s balance sheet, uncertain tax positions of $0.8 million were offset against deferred tax assets. Tax years prior to 2021 generally are not subject to examination by the Internal Revenue Service or state or local taxing authorities.
The Company policy is to include interest and penalties related to uncertain tax penalties, if any, within the provision for taxes in the statements of operations. During the years ended December 31, 2025, 2024 and 2023, the Company incurred no interest and penalties related to income taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 8, 2023 | |
| 2021 | Mar 11, 2022 | |
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.