Zentalis Pharmaceuticals, Inc.ZNTL
Zentalis Pharmaceuticals, Inc. Income Taxes Disclosure
Income Taxes
Zentalis Pharmaceuticals, Inc. is a corporation for tax purposes and is subject to income taxes which have been included in the consolidated financial statements.
The amount of net loss before income taxes and loss on equity method investment for the years ended December 31, 2025, 2024 and 2023 is as follows (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. net loss before income taxes | $ | (136,986) | $ | (165,490) | $ | (293,284) | |||||||||||
| Foreign net income (loss) before income taxes | 368 | (200) | 378 | ||||||||||||||
| Net loss before income taxes, including loss on equity method investment | $ | (136,618) | $ | (165,690) | $ | (292,906) | |||||||||||
The following table presents the current and deferred income tax provision (benefit) for federal, state and foreign income taxes (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax provision: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 328 | 228 | 41 | ||||||||||||||
| Foreign | 63 | 12 | 249 | ||||||||||||||
| Total current tax provision | 391 | 240 | 290 | ||||||||||||||
| Deferred tax provision: | |||||||||||||||||
| Federal | — | — | (891) | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | 51 | (63) | — | ||||||||||||||
| Total deferred tax provision | 51 | (63) | (891) | ||||||||||||||
| Total provision (benefit) for income taxes: | $ | 442 | $ | 177 | $ | (601) | |||||||||||
The following table is a reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total provision for income taxes (in thousands):
| Year ended December 31, | |||||||||||
| 2025 | |||||||||||
| U.S. Federal Statutory Tax Rate | $ | (28,690) | 21.0 | % | |||||||
State and Local Income Tax, net of Federal Income Tax Effect (1) | 261 | (0.2) | % | ||||||||
| Foreign Tax Effects | (1) | — | % | ||||||||
| Effect of Cross-Border Tax Laws | (44) | — | % | ||||||||
| Tax Credits | |||||||||||
| Research & Development Credit, Net | (3,644) | 2.7 | % | ||||||||
| Change in Valuation Allowance | 26,369 | (19.3) | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Stock Options | 5,053 | (3.7) | % | ||||||||
| Other Adjustments | 1,138 | (0.8) | % | ||||||||
| Effective Tax Rate | $ | 442 | (0.3) | % | |||||||
(1) State taxes in New York made up the majority (greater than 50%) of the tax effect in this category.
| Year ended December 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Expected tax at 21% | $ | (34,796) | 21.0 | % | $ | (61,509) | 21.0 | % | ||||||||||||||||||
| State income tax, net of federal tax | (2,565) | 1.5 | % | (2,384) | 0.8 | % | ||||||||||||||||||||
| Research credits | (7,393) | 4.5 | % | (2,031) | 0.7 | % | ||||||||||||||||||||
| Share-based compensation | 11,295 | (6.8) | % | 3,008 | (1.0) | % | ||||||||||||||||||||
| Deemed royalty | — | — | % | 8,263 | (2.8) | % | ||||||||||||||||||||
| Kalyra deconsolidation and impairment | 2,461 | (1.5) | % | — | — | % | ||||||||||||||||||||
| Other | 320 | (0.2) | % | 586 | (0.2) | % | ||||||||||||||||||||
| Section 162(m) limitations | 2,985 | (1.8) | % | 5,028 | (1.7) | % | ||||||||||||||||||||
| Effective Tax Rate Change | — | — | % | (10,420) | 3.6 | % | ||||||||||||||||||||
| Change in valuation allowance | 27,870 | (16.8) | % | 58,858 | (20.1) | % | ||||||||||||||||||||
| Provision for income taxes | $ | 177 | (0.1) | % | $ | (601) | 0.2 | % | ||||||||||||||||||
The following table presents the Company's income taxes paid, net of refunds (in thousands):
| Year ended December 31, | |||||
| 2025 | |||||
| Federal | $ | — | |||
| States | |||||
| California | 11 | ||||
| New York | 72 | ||||
| Other U.S. States | 2 | ||||
| Foreign | — | ||||
| Total Income Taxes Paid | $ | 85 | |||
Deferred income taxes as of each of the following periods reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax asset or liability are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating loss | $ | 145,810 | $ | 98,506 | |||||||
| Compensation | 1,903 | 2,411 | |||||||||
| Share-based compensation | 9,068 | 11,375 | |||||||||
| ASC 842 lease liability | 9,720 | 10,474 | |||||||||
| Intangibles | 9,445 | 10,079 | |||||||||
| Capitalized research and experimental expenditures | 72,117 | 85,872 | |||||||||
| Research credits | 41,552 | 36,849 | |||||||||
| Other | 28 | 422 | |||||||||
| Total gross deferred tax assets | 289,643 | 255,988 | |||||||||
| Valuation allowance | (281,978) | (247,025) | |||||||||
| Net deferred tax assets | 7,665 | 8,963 | |||||||||
| Deferred tax liabilities | |||||||||||
| Depreciable assets | (487) | (874) | |||||||||
| ASC 842 right of use asset | (6,452) | (7,988) | |||||||||
| Other | (675) | — | |||||||||
| Deferred tax liabilities | (7,614) | (8,862) | |||||||||
| Net deferred tax assets | $ | 51 | $ | 101 | |||||||
Realization of a portion of the Company's deferred tax assets is dependent upon the Company generating sufficient taxable income in future years to obtain benefit from the reversal of temporary differences. Management considered all available evidence under existing tax law and anticipated expiration of tax statutes and determined that a valuation allowance of $282.0 million and $247.0 million was required as of December 31, 2025 and 2024, for those deferred tax assets that are not expected to provide future tax benefits. The increase in valuation allowance of $35.0 million was primarily related to net operating loss during the period ended December 31, 2025 offset in part by a decrease in capitalized research and experimental expenditures due to the deduction of current year domestic incurred costs.
At December 31, 2025, we have gross federal and state net operating loss ("NOL") carryforwards of approximately $591.3 million and $336.0 million, respectively. The federal NOL carryforwards generated prior to January 1, 2018 begin to expire in 2035. The federal NOL generated after 2017 of $577.1 million can be carried forward indefinitely and be available to offset up to 80% of future taxable income each year. The state NOL carryforwards begin to expire in 2035.
At December 31, 2025, we have federal research and orphan drug tax credit carryforwards and state research tax credit carryforwards, net of reserves, of approximately $34.0 million and $10.0 million, respectively. The federal credit carryovers begin to expire in 2034, and the state credit carryforwards do not expire and generally can be carried forward indefinitely until utilized, except for $0.4 million which expire in 2032.
Pursuant to Internal Revenue Code ("Code") Sections 382 and 383, annual use of the Company’s federal and California net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has completed a Code Section 382 analysis through June 30, 2023 regarding the limitation of NOL carryforwards and other tax attributes. The Company experienced ownership changes in 2015, 2019 and 2022. Additionally, several of the subsidiaries experienced an ownership change in 2020 based on the Section 382 rules for the time period prior to when the Company was a consolidated group for tax purposes. The Company’s attributes are subject to annual limitations, and the Company estimates that all tax attributes can be utilized prior to expiration. There is a risk that additional ownership changes may occur in the future. If a future change in ownership occurs, the NOL carryforwards and other tax attributes could be limited or restricted. Additionally, the Company’s NOLs prior to the tax consolidation are also subject to the separate return loss year (“SRLY”) rules. The SRLY rules may limit one member from offsetting taxable income with losses generated from another member prior to joining the consolidated group.
Uncertain Tax Positions
In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The following table reconciles the beginning and ending amount of unrecognized tax benefits for the fiscal years ended December 31, 2025, 2024 and 2023 (in thousands):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Gross unrecognized tax benefits at the beginning of the year | $ | 14,810 | $ | 4,214 | $ | 4,297 | |||||||||||
| Increase related to current year tax positions | 827 | 1,151 | 857 | ||||||||||||||
| Increase related to prior year tax positions | 392 | 9,445 | — | ||||||||||||||
| Decrease related to prior year tax positions | — | — | (940) | ||||||||||||||
| Gross unrecognized tax benefits at end of the year | $ | 16,029 | $ | 14,810 | $ | 4,214 | |||||||||||
Included in the balance of unrecognized tax benefits at December 31, 2025 is $15.3 million that, if recognized, would not impact the Company's income tax benefit or effective tax rate as long as our deferred tax asset remains subject to a valuation allowance.
The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2025 or December 31, 2024.
The Company files federal and state income tax returns in the United States as well as income tax returns in Australia. Due to the Company's unutilized NOLs and credits, all years remain subject to income tax examination by authorities. The Company is not currently under examination by federal, state or foreign jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 26, 2026 | Showing above |
| 2024 | Mar 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Mar 25, 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.