Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s loss before income taxes was generated from its U.S. operations and foreign operations as follows:

	Year Ended December 31,
	2023		2022
United States	$	51,004	$	66,103
Foreign	10,505		8,214
Loss before taxes	$	61,509	$	74,317

The following table shows the expense (benefit) for income taxes:

	Year Ended December 31,
	2023		2022
Current provision:
Federal	$	—	$	—
State	138		113
Foreign	33		—
Total current provision	$	171	$	113
Deferred provision (benefit):
Federal	$	1	$	(8)
State	4		(10)
Foreign	—		—
Total deferred (benefit) provision	$	5	$	(18)
Total provision for income taxes	$	176	$	95

As of December 31, 2023, the Company has federal net operating loss (“NOL”) carryforwards of $317,668, of which $72,579 will begin to expire in 2034. The federal NOLs generated in 2018 and in the subsequent years in the amount of $245,089 have an indefinite carryforward period. As of December 31, 2023, the Company has state NOL carryforwards of $227,347, which will begin to expire in 2024. As of December 31, 2023, the Company has federal research and development (“R&D”) credit carryforwards of $2,929, which will begin to expire in 2034. The Company also has California R&D credit carryforwards of $2,918, which has an indefinite carryforward period.

The NOL and the R&D credit carryforwards generated by the Company in tax years ended February 11, 2018 and prior have been included in the consolidated and unitary income tax returns of Alphaeon Corporation (“Alphaeon”). After the Company left Alphaeon consolidated and unitary income tax group on February 11, 2018, the Company files its own standalone income tax returns. Deferred tax assets in the accompanying consolidated financial statements reflect the Company's standalone tax attributes that are reportable on its own income tax returns.

In general, if a company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period, utilization of its pre-change NOL carryforwards and R&D credit carryforwards is subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state laws. The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change, subject to certain adjustments, by the applicable long-term tax-exempt rate. The annual limitations may result in the expiration of NOL and R&D credit carryforwards before utilization and may be material. The Company has started but has not completed an analysis to determine whether its NOL and R&D credits generated through December 31, 2023 are likely to be limited by Section 382 and 383. The Company anticipates that an ownership change as defined under Section 382 may have occurred and that the resulting limitation would significantly reduce the Company’s ability to utilize its NOL and R&D credit carryforwards before they expire. Additionally, future ownership changes under Section 382 and 383 may also limit the Company's ability to fully utilize any remaining tax benefits. The Company’s net deferred income tax

assets have been offset by a valuation allowance. Therefore, any resulting reduction to the Company’s NOL and R&D credit carryforwards once the analysis is complete will be offset by a corresponding reduction of the valuation allowance and there would be no impact on the Company’s consolidated balance sheet, statement of operations, or cash flows.

The components of deferred tax assets and liabilities were as follows:

	As of December 31,
	2023		2022
Deferred income tax assets:
Net operating losses	$	83,257	$	80,494
Stock compensation	5,442		5,168
Research and Development credits	2,617		2,617
Accrued compensation	5,955		4,675
Operating lease liabilities	1,567		646
Accrued legal settlement	17,674		19,203
R&E Capitalization	3,415		1,100
Fixed asset depreciation	183		—
Other, net	5,126		2,135
Valuation allowance	(116,073)		(103,695)
Total deferred income tax assets	9,163		12,343
Deferred income tax liabilities:
Intangible amortization	(7,730)		(11,525)
Operating lease right-of-use assets	(1,460)		(495)
Fixed asset depreciation	—		(345)
Total deferred income tax liabilities	(9,190)		(12,365)
Net deferred income taxes	$	(27)	$	(22)

A reconciliation of the difference between the provision (benefit) for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows:

	Year Ended December 31,
	2023		2022
Income tax at statutory rate	$	(12,917)	$	(15,607)
State income taxes, net of Federal benefit	(1,981)		(2,673)
Revaluation of contingent royalty obligation	1,078		1,462
Meals and entertainment	385		358
Change in state tax rate	218		(3)
Officers' compensation	793		(1,529)
Foreign Rate Differential	222		10
Stock compensation	449		299
Other, net	(449)		(391)
Valuation allowance	12,378		18,169
Income tax provision (benefit)	$	176	$	95

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2023		2022
Beginning balance	$	2,924	$	2,924
Increases to prior year tax positions	—		—
Increases to current year tax positions	—		—
Ending balance	$	2,924	$	2,924

The Company has considered the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above. The Company’s effective income tax rate would not be impacted if the unrecognized tax benefits are recognized. Additional amounts in the summary rollforward could impact the Company’s effective tax rate if it did not maintain a full valuation allowance on its net deferred tax assets. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2023 and 2022. The Company’s tax returns for all years since inception are open for audit.