Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company evaluates the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2022 and that the Company has historically generated pretax losses. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, as of September 30, 2022, the Company continued to maintain a full valuation allowance against its deferred tax assets, except to the extent Net Operating Losses (“NOLs”) have been used to reduce taxable income. The Company’s remaining U.S. Federal NOLs are subject to limitation in accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), which limits allowable NOL deductions to 80% of federal taxable income.

Effective January 1, 2022, a provision of the TCJA has taken effect creating a significant change to the treatment of research and experimental expenditures under Section 174 of the IRC (“Sec. 174 expenses”). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the U.S. to be capitalized and amortized over a five-year period. For expenses associated with research outside of the U.S., Sec. 174 expenses will be capitalized and amortized over a 15-year period.

The Company recognized federal and state income tax expense of $2.4 million and $4.3 million, in total, for the three and nine months ended September 30, 2022, respectively, and did not recognize federal or state income tax expense for the three and nine months ended September 30, 2021. The Company recognized income tax expense related to foreign withholding tax on royalties of $0.1 million and $2.3 million, respectively, for the three and nine months ended September 30, 2022 and $6.0 million and $12.6 million for the three and nine months ended September 30, 2021, respectively.