Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company operated as a nontaxable partnership until its conversion on March 31, 2019. The Company had deferred tax assets in existence on March 31, 2019 when the Company became a taxable entity. The Company has retained a valuation allowance on these deferred tax assets due to the uncertainty that such assets will be realized.

No provision for income taxes was recorded for the years ended December 31, 2022, 2021, and 2020.

A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is summarized as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Income tax expense (benefit) at statutory rates	$	(36,539)	$	(24,784)	$	(9,315)
State income tax, net of federal benefit	(11,821)		(7,868)		(3,004)
Permanent items	1,078		210		1
Reserve for uncertain tax positions	2,583		1,170		398
Research and development tax credits	(9,983)		(4,792)		(1,639)
Valuation allowance	54,093		35,326		13,488
Other	589		738		71
Income tax expense (benefit)	$	—	$	—	$	—

Significant components of the Company’s deferred tax assets as of December 31, 2022, and 2021 are shown below (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	56,854	$	41,443
Section 174 R&E capitalization	25,039		—
Research and development tax credits	12,947		5,586
Deferred revenue	1,762		3,117
Accrued expenses	3,909		477
Intangibles and fixed assets	1,822		2,137
Lease liability	3,000		3,291
Stock-based compensation	8,614		3,668
Total deferred tax assets	113,947		59,719
Less valuation allowance	(111,489)		(56,693)
Net deferred tax assets	2,458		3,026
Deferred tax liabilities:
Right-of-use asset	(2,458)		(3,026)
Total deferred tax liabilities	(2,458)		(3,026)
Net deferred tax assets	$	—	$	—

The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that the deferred tax assets will be realizable, the valuation allowance will be released. The change in the valuation allowance was an increase of $54.8 million and $35.4 million for the years ended December 31, 2022 and 2021, respectively.

At December 31, 2022, the Company had federal and state net operating loss (NOL) carryforwards of $172.9 million and $293.2 million, respectively. The state NOLs begin to expire in 2039 unless previously utilized.

At December 31, 2022, the Company had federal and state research and development tax credits of $9.0 million and $4.8 million, respectively. The federal research and development tax credits begin to expire in 2039 unless previously utilized, and the state credits carry forward indefinitely. At December 31, 2022, the Company had federal orphan drug tax credits of $4.6 million, which begin to expire in 2041.

Pursuant to IRC Section 382 and Section 383, the Company’s ability to use NOL and R&D tax credit carryforwards (tax attribute carryforwards) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company is in the process of completing an ownership change analysis pursuant to IRC Section 382 through December 31, 2022. The analysis is expected to be completed in 2023. If ownership changes within the meaning of IRC Section 382 have occurred, the amount of remaining tax attribute carryforwards available to offset future taxable income and income taxes in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets, along with the corresponding valuation allowance, associated with such tax attributes could be significantly reduced upon an ownership change within the meaning of IRC Section 382. Due to the existence of the valuation allowance, changes in the Company’s deferred tax assets from any such limitation will not impact the Company’s effective tax rate.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 (in thousands):

	Year Ended December 31,
	2022		2021		2020
Gross unrecognized tax benefits at the beginning of the year	$	1,996	$	671	$	156
Increases related to current year positions	2,614		1,283		446
Increases related to prior year positions	161		42		62
Other true up	—		—		7
Gross unrecognized tax benefits at the end of the year	$	4,771	$	1,996	$	671

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by a corresponding adjustment to the deferred tax asset valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties as of December 31, 2022 or 2021.

As of December 31, 2022, the Company’s tax years since conversion to a corporation in 2019 are subject to examination by U.S. federal and various state taxing authorities.