Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The Company’s loss before income taxes for the years ended December 31, 2022 and 2021 is as follows (in thousands):

	Year ended December 31,
	2022			2021
Domestic	$	(62,281	)	$	(80,587	)
Foreign		(11	)		53
	$	(62,292	)	$	(80,534	)

The Company’s tax benefit for the years ended December 31, 2022 and 2021 is summarized as follows (in thousands):

	Year ended December 31,
	2022			2021
Current
Federal	$	—		$	—
State		—			—
Foreign		—			—
		—			—
Deferred:
Federal		—			—
State		(70	)		—
Foreign		—			—
		(70	)		—
Total income tax benefit	$	(70	)	$	—

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

	Year ended December 31,
	2022				2021
Rate reconciliation:
Federal tax benefit at statutory rate		21.0		%		21.0		%
State tax, net of federal benefit		3.1				1.5
Net operating loss carryforwards		0.1				—
Change in tax rate		(9.6	)			—
Sale of royalty interest		(3.9	)			(16.9	)
Research and development		(0.8	)			0.4
Change in valuation allowance		(9.1	)			(5.6	)
Share-based compensation		(0.6	)			(0.3	)
Other		(0.1	)			(0.1	)
Total provision		0.1		%		—		%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were as follows (in thousands):

	December 31,
	2022			2021
Deferred tax assets
Net operating loss carryforwards	$	41,697		$	43,111
Share-based compensation		3,731			2,874
Research and development credits		7,287			7,827
Capitalized research and development expenses		6,354			—
Accrued expenses and other		82			77
Gross deferred tax assets		59,151			53,889
Valuation allowance		(58,424	)		(52,787	)
Net deferred tax asset		727			1,102
Deferred tax liabilities
Accrued expenses and other		(348	)		(722	)
Acquired in-process research and development		(582	)		(653	)
Net deferred tax liabilities	$	(203	)	$	(273	)

In assessing the need for a valuation allowance, the Company may utilize indefinite-lived deferred tax liabilities from an intangible asset as a future source of income. The Company’s acquired IPR&D intangible asset can be utilized as a source of income arising from the future reversal of temporary difference that can be offset against post 2017 indefinite-lived net operating losses (NOLs). Therefore, the Company is permitted to offset the indefinite-lived deferred tax liability up to the 80 percent limitation for NOLs generated subsequent to January 1, 2018.
 

Beginning in 2022, the 2017 Tax Cuts and Jobs Act requires taxpayers to capitalize research and development expenses with amortization periods over five and fifteen years, depending on where the research is conducted. The Company has $28.3 million of research and development costs being capitalized in 2022. However, given the Company has a valuation allowance against its deferred tax assets, including the capitalized research and development costs, the enacted provision does not have a material impact on the consolidated financial statements.

 

The valuation allowance increased by $5.6 million and $4.5 million for the years ended December 31, 2022 and 2021, respectively.

The following table summarizes carryforwards of federal, state and foreign NOLs as of December 31, 2022 and 2021, respectively (in thousands):

	December 31,
	2022		2021
Combined NOL Carryforwards:
Federal	$	162,335	$	145,265
State		184,382		167,252
Foreign		1,716		1,516

The NOL carryforwards begin expiring in 2032 for both federal and state income tax purposes. As of December 31, 2022, the Company also has federal, state and foreign research and development tax credit carryforwards of $7.3 million that will begin to expire in 2032, unless previously utilized.

The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre change tax credits as well as its NOLs to offset future taxable income. During 2021, the Company conducted a Section 382 study and determined that approximately $63.7 million in NOLs and $2.7 million in research and development tax credits were limited by Section 382 as of December 31, 2021. As a result of the Section 382 analysis, approximately $1.4 million of research and development tax credits are scheduled to expire unused due to the annual Section 382 limitation and therefore were written off in 2021.

The Company will recognize interest and penalties related to uncertain tax positions as income tax expense. As of December 31, 2022, the Company had no accrued interest and penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations. Due to NOL and tax credit carryforwards that remain unutilized, income tax returns from 2019 through 2021 remain subject to examination by the taxing jurisdictions. The NOLs remain subject to review until utilized.