Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

13.Income Taxes
 

The Company had no income tax expense for the years ended December 31, 2022 and 2021 due to its history of operating losses. The components of income tax expense (benefit) are as follows:

	Years Ended December 31,
	2022			2021
	(in thousands)
Deferred	$	(6,923	)	$	(2,326	)
Change in valuation allowance		6,923			2,326
Total	$	—		$	—

A reconciliation of the Company’s federal income tax rate and effective income tax rate is as follows:

	Years Ended December 31,
	2022			2021
Federal income taxes		21.0	%		21.0	%
Research and development tax credits		0.8	%		0.9	%
Change in valuation allowance		(10.9	)%		(19.7	)%
Debt fair value adjustment		(4.9	)%		(2.0	)%
Partnership income attributable to non-controlling interest		0.0	%		0.0	%
In-process research and development		(4.4	)%		0.0	%
Transaction costs		(1.9	)%		0.0	%
Other, net		0.3	%		(0.2	)%
Effective income tax rate		0.0	%		0.0	%

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are summarized as follows:

	Years Ended December 31,
	2022			2021
	(in thousand)
Deferred tax assets:
Net operating losses	$	144,729		$	12,362
Research and development credits		22,384			1,889
Capitalized research and development expenses		3,586			—
Stock-based compensation		1,353			914
Operating lease liability		318			472
Capital loss carryforward		316			316
Accrued expenses		103			70
Intangibles		61			—
Total deferred tax assets		172,850			16,023
Less: Valuation allowance		(172,637	)		(14,146	)
Total deferred tax assets less valuation allowance		213			1,877
Deferred tax liabilities:
Partnership basis deferred		85			(1,413	)
Right-of-use asset		(280	)		(419	)
Fixed assets		(18	)		(45	)
Total deferred tax liabilities		(213	)		(1,877	)
Net deferred tax assets	$	—		$	—

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Due to the Company’s recent history of operating losses, the Company believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance on its deferred tax assets. The valuation allowance increased by $158.5 million for the year ended December 31, 2022 and $2.3 million for the year ended December 31, 2021. During the year ended December 31, 2022, $151.6 million of the increase in valuation allowance relates to the reverse merger.

As of December 31, 2022, the Company has federal net operating loss carryforwards of approximately $540.9 million of which approximately $303.7 million begins to expire in 2027. The remaining balance can be carried forward indefinitely with utilization limited to 80% of future taxable income. The Company has general business credit carryforwards of $23.2 million as of December 31, 2022, which will begin to expire in 2028.

Utilization of U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 ("Section 382"), and corresponding provisions of state law, due

to ownership changes that may have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. The Company is in the process of performing a study to assess whether a change of control has occurred for the current year merger event and for changes that may have occurred previously. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. The Company has included the impact of this provision, which results in a deferred tax asset of approximately $3.6 million as of December 31, 2022.

On August 16, 2022, the Inflation Reduction Act ("IRA") was enacted into US law. Effective for tax years beginning after December 31, 2022, the IRA imposes a 15% corporate minimum tax, a 1% excise tax on share repurchases, and creates and extends certain tax-related energy incentives. Management does not expect the tax-related provisions of the IRA to have a material impact on the Company's consolidated financial statements.

Unrecognized Tax Benefits

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. As of December 31, 2022, no significant increases or decreases are expected to the Company’s uncertain tax positions within the next twelve months.

	Years Ended December 31,
	2022		2021
	(in thousands)
Beginning balance of unrecognized tax benefits	$	630	$	593
Gross increases based on tax positions related to current year		198		37
Ending balance of unrecognized tax benefits	$	828	$	630

Interest and penalties related to the Company’s unrecognized tax benefits accrued as of December 31, 2022 were not material. The Company does not expect its uncertain tax positions to have material impact on its consolidated financial statements within the next twelve months. All of the unrecognized tax benefits as of December 31, 2022 are accounted for as a reduction in the Company’s deferred tax assets.

The Company files federal income tax returns subject to varying statutes of limitations. The 2018 through 2022 tax years generally remain subject to examination by federal tax authorities.