Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes for the years ended December 31, 2022 and 2021 was comprised as follows (in thousands):

	Year Ended December 31,
	2022		2021
Current taxes:
Federal	$	108	$	—
State	27		15
Total current taxes	135		15
Deferred taxes:
Federal	—		—
State	—		—
Total deferred taxes	—		—
Total provision for income taxes	$	135	$	15

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

	Year Ended December 31,
	2022		2021
Income tax computed at federal statutory tax rate	21.0	%	21.0	%
State taxes, net of federal benefit	7.9	%	6.9	%
Tax credit carryforwards	10.3	%	3.5	%
Permanent items	(1.8)	%	(0.7)	%
Change in valuation allowance	(36.8)	%	(30.7)	%
Other	(0.9)	%	—	%
Effective tax rate	(0.3)	%	—	%

The principal components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were comprised as follows (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	32,902	$	45,590
Tax credit carryforwards	31,302		25,327
Capitalized research and development	24,878		—
Operating lease liability	2,737		3,739
Intangibles	920		960
Accrued expenses and other	1,588		1,843
Unrealized loss on available-for-sale securities	17		17
Depreciation	756		583
Stock-based compensation	5,840		5,207
Total deferred tax assets	100,940		83,266
Less: valuation allowance	(98,592)		(80,022)
Net deferred tax assets	2,348		3,244
Deferred tax liabilities:
Operating lease right-of-use asset	(2,348)		(3,244)
Depreciation	—		—
Total deferred tax liabilities	(2,348)		(3,244)
Net deferred taxes	$	—	$	—

As of December 31, 2022, the Company had federal and state net operating loss (“NOL”) carryforwards of $120.4 million and $120.6 million, respectively. Federal NOLs generated through the year ended December 31, 2017 expire at various dates from 2032 through 2037, and federal NOLs of $113.0 million generated in years beginning after December 31, 2017 may be carried forward indefinitely. State NOLs expire at various dates from 2035 through 2041. As of December 31, 2022, the Company had federal research and development tax credit carryforwards of $24.1 million which expire at various dates from 2034 through 2042. In addition, as of December 31, 2022, the Company had state research and development and investment tax credit carryforwards of $9.1 million and $0.1 million, respectively. The state research and development tax credit carryforwards expire at various dates from 2030 through 2037 and the state investment tax credit carryforward indefinitely.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which primarily pertain to NOL carryforwards, tax credit carryforwards, the Company’s operating lease liability and stock-based compensation. Management has determined that it is more likely than not that the Company will not realize the benefits of its deferred tax assets, and as a result, a valuation allowance of $98.6 million has been established at December 31, 2022. The increase in the valuation allowance of $18.6 million during the year ended December 31, 2022 was primarily due to capitalization of research and development expense made effective on January 1, 2022 and was part of the Tax Cuts and Jobs Act of 2017 requiring taxpayers to capitalize research and development expenses an amortize them over a five year period, and taxable net income related to increased license revenue under agreements with Gilead during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code of 1986, as amended (“IRC”). This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change.

The Company had no unrecognized tax benefits as of either December 31, 2022 or 2021. During the year ended December 31, 2017, the Company completed a study of its research and development credit carryforwards generated during the years ended December 31, 2016 and 2015. The Company has not conducted a study of its research and development credit carryforwards generated during any subsequent years. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credit carryforwards, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated statements of operations and comprehensive loss if an adjustment were required.

Interest and penalty charges, if any, related to income taxes would be classified as a component of the provision for income taxes in the consolidated statements of operations and comprehensive loss. As of December 31, 2022, the Company has not incurred any material interest or penalty charges.

The Company files income tax returns in the United States federal tax jurisdiction and the Massachusetts state tax jurisdiction. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.