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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company was treated as a partnership for U.S. federal income tax purposes until its conversion to a corporation on March 31, 2019. The Company had deferred tax assets in existence on March 31, 2019 when the Company became a corporation for U.S. federal income tax purposes. Deferred tax assets were not recognized due to the uncertainty that such assets will be realized. The Company retained the valuation allowance on the deferred tax assets at December 31, 2019.
No provision for income taxes was recorded for the years ended December 31, 2023, 2022, and 2021.
A reconciliation of the federal statutory income tax rate and the Company’s effective income tax rate is as follows (in thousands):
Year Ended December 31,
202320222021
Income tax expense (benefit) at statutory rates$(44,566)$(36,539)$(24,784)
State income tax, net of federal benefit(5,882)(11,821)(7,868)
Permanent items342 1,078 210 
Reserve for uncertain tax positions5,993 2,583 1,170 
Research and development tax credits(24,054)(9,983)(4,792)
Valuation allowance62,004 54,093 35,326 
Stock-based compensation3,331 492 828 
Rate adjustment2,526 (5)(2)
Other306 102 (88)
Income tax expense (benefit)$— $— $— 
Significant components of the Company’s deferred tax assets as of December 31, 2023, and 2022 are shown below (in thousands):
December 31,
20232022
Deferred tax assets:
Net operating loss carryforwards$72,658 $56,854 
Section 174 R&E capitalization52,085 25,039 
Research and development tax credits31,053 12,947 
Deferred revenue125 1,762 
Accrued expenses2,809 3,909 
Intangibles and fixed assets1,265 1,822 
Lease liabilities2,342 3,000 
Stock-based compensation12,451 8,614 
Total deferred tax assets174,788 113,947 
Less valuation allowance(172,822)(111,489)
Net deferred tax assets1,966 2,458 
Deferred tax liabilities:
Right-of-use assets(1,966)(2,458)
Total deferred tax liabilities(1,966)(2,458)
Net deferred tax assets$— $— 
The Company has established a 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 $61.3 million and $54.8 million for the years ended December 31, 2023 and 2022, respectively.
At December 31, 2023, the Company had federal and state net operating loss (NOL) carryforwards of $226.9 million and $355.0 million, respectively. The federal NOL carryforwards will carryforward indefinitely and can offset 80% of future taxable income each year, and the state NOLs begin to expire in 2039 unless previously utilized.
At December 31, 2023, the Company had federal and state research and development tax credits of approximately $11.7 million and $8.8 million, respectively. The federal research and development tax credits
begin to expire in 2039 unless previously utilized, and the California state credits carry forward indefinitely. At December 31, 2023, the Company had federal orphan drug tax credits of $22.8 million, which begin to expire in 2041.
Pursuant to Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the "Code"), 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 by certain stockholders or groups of stockholders of more than 50 percentage points within a three-year testing period. The Company has not completed an ownership change analysis pursuant to Code Section 382 and therefore has established a valuation allowance as the realization of such deferred asset has not met the more likely than not threshold requirement. If ownership changes within the meaning of Code 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 Code 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, 2023, 2022 and 2021 (in thousands):
Year Ended December 31,
202320222021
Gross unrecognized tax benefits at the beginning of the year$4,771 $1,996 $671 
Increases related to current year positions6,156 2,614 1,283 
Increases related to prior year positions122 161 42 
Gross unrecognized tax benefits at the end of the year$11,049 $4,771 $1,996 
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, 2023 or 2022.
As of December 31, 2023, 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.