Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

10.  Income Taxes

For the years ended December 31, 2022 and 2021, the Company did not record a provision for federal or state income taxes as it has incurred cumulative net operating losses since inception.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows for the years ended December 31, 2022 and 2021:

	Year Ended December 31,
	2022		2021
Federal income tax (benefit) at statutory rate	21.00	%	21.00	%
Permanent differences	(0.66)		—
Federal research and development credits and adjustments	3.88		0.44
Nondeductible research costs	—		(17.75)
State income tax, net of federal benefit	5.67		0.82
Stock compensation	(1.20)		(0.25)
Other	(0.58)		0.01
Change in valuation allowance	(28.11)		(4.27)
Effective income tax rate	—	%	—	%

The Company’s deferred tax assets consisted of the following (in thousands):

	Year Ended December 31,
	2022		2021
Deferred tax assets
Net operating loss carryforwards	$	80,136	$	75,849
Tax credit carryforwards		12,073		10,063
Capitalized research and development		8,094		139
Capitalized legal expenses		964		1,048
Lease liability		257		99
Other differences		2,365		1,977
Total gross deferred tax assets		103,889		89,175
Less valuation allowance		(103,630)		(89,068)
Net deferred tax assets		259		107
Deferred tax liabilities
ROU asset		(259)		(107)
Net deferred taxes	$	—	$	—

For taxable years beginning after December 31, 2021, the Tax Cuts and Jobs Act (the “Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code (“IRC”) Section 174. As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenses pursuant to IRC Section 174 increased to approximately $8.1 million for the year ended December 31, 2022.

The Company recorded an increase to the valuation allowance of $14.6 million during the year ended December 31, 2022 due primarily to the federal and state net operating losses and tax credits generated in the current year as well as to the new capitalized research requirements under Section 174 of the IRC. The Company recorded an increase to the valuation allowance of $11.2 million during the year ended December 31, 2021 which was also primarily due to the federal and state net operating losses and tax credits generated.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses and expectation of future losses, the deferred tax assets were fully offset by a valuation allowance at December 31, 2022 and 2021.

As of December 31, 2022, the Company had approximately $294.8 million of federal and $288.5 million of state net operating loss respectively, which may be available to offset future taxable income, if any, of which $150.6 million of federal and $288.5 million of state carryforwards will expire at various dates from 2028 through 2042. Additionally, $144.2 million of federal net operating loss carryforwards will carry forward indefinitely.  The Company had $9.8 million of federal and $2.9 million of state tax credit carryforwards available to reduce future tax liabilities as of December 31, 2022, which will expire at varying times through the year 2042.

The IRC provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the IRC) that could limit the Company’s ability to utilize these carryforwards. The Company has completed a study to assess whether an ownership change under Section 382 of the IRC has occurred and as a result the Astria Federal and State net operating loss and research and development credit carryforwards are significantly limited for use. Accordingly, the Company’s ability to utilize the aforementioned carryforwards are limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company will not be able to take full advantage of all of its current carryforwards for federal or state income tax purposes.

As of December 31, 2022 and 2021, the Company did not have any significant unrecognized tax benefits. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expenses in the accompanying consolidated statements of operations.  The Company has not any accrued interest or penalties related to uncertain tax positions.

The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2019 through December 31, 2022. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state taxing authorities to the extent utilized in a future period.