Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The Company recorded $2.6 million of income tax expense during the year ended December 31, 2023, primarily related to a change in estimate with respect to the tax treatment of the GSK License Agreement, which resulted in taxable income and the utilization of $235.9 million of U.S. federal net operating losses and $7.1 million of U.S. federal R&D tax credits in its 2022 U.S. federal tax return.

During the years ended December 31, 2023 and 2022, the Company recorded no income tax benefits for the net operating income (losses) incurred in each year or interim period due to its uncertainty of realizing a benefit from those items.

The Company’s provision for income taxes is comprised of the following for the periods ended December 31, 2023 and 2022 (in thousands):

	Year Ended December 31,
	2023		2022
Current:
Federal	$	2,488	$	—
State		110		—
Foreign		—		—
		2,598		—
Deferred:
Federal		—		—
State		—		—
Foreign		—		—
		—		—
Provision for income taxes	$	2,598	$	—

The domestic and foreign components of income (loss) before income taxes were as follows (in thousands):

	Year Ended December 31,
	2023		2022
Domestic	$	25,404	$	(46,249	)
Foreign		—		(166	)
Income (loss) before income taxes	$	25,404	$	(46,415	)

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

	Year Ended December 31,
	2023				2022
Federal statutory income tax rate		21.0				(21.0	)
Federal and state research and development tax credit		(4.9	)			(4.3	)
State taxes, net of federal benefit		(0.4	)			(2.3	)
Nondeductible stock compensation		8.5				—
Other nondeductible items		0.3				1.0
Other		(1.0	)			—
Reduction in tax attributes		13.9				—
Increase in deferred tax asset valuation allowance		(27.2	)			26.6
Effective income tax rate		10.2		%		—

Net deferred tax assets as of December 31, 2023 and 2022 consisted of the following (in thousands):

	December 31,
	2023			2022
Net operating loss carryforwards	$	25,646		$	78,619
Deferred revenue		47,014			—
Research and development tax credit carryforwards		7,612			14,294
Capitalized research and development expenses, net		21,342			11,613
Other		6,264			10,264
Total deferred tax assets		107,878			114,790
Valuation allowance		(107,878	)		(114,790	)
Net deferred tax assets	$	—		$	—

As of December 31, 2023, the Company had U.S. federal, state and foreign net operating loss carryforwards of $94.7 million, $90.9 million and $4.6 million respectively. All federal NOLs can be carried forward indefinitely. The state NOLs begin to expire in 2033 and will expire at various dates through 2043. The foreign NOLs do not expire. As of December 31, 2023, the Company also had federal and state research and development tax credit carryforwards of $6.0 million and $2.1 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2033 and 2028, respectively.

Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. If the Company experiences a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. The Company recently completed a Section 382 study and concluded that the Company underwent several ownership changes as defined by the Code, the last of which occurred during the year ended December 31, 2018. Any carryforwards that will expire prior to utilization were removed from deferred tax assets, with a corresponding reduction of the valuation allowance. Future ownership changes may limit the Company's ability to utilize remaining tax attributes.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2023 and 2022. Management reevaluates the positive and negative evidence at each reporting period.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023 and 2022 related primarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards, and were as follows (in thousands):

	December 31,
	2023			2022
Valuation allowance as of beginning of year	$	(114,790	)	$	(102,444	)
Increases recorded to income tax provision		6,912			(12,346	)
Valuation allowance as of end of year	$	(107,878	)	$	(114,790	)

The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2023 or 2022. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2023 or 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s statement of operations and comprehensive loss.

The Company has not, as yet, conducted a study of its research and development credit carryforwards. 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 credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.

The Company had filed separate U.S. income tax returns return for each of its subsidiaries prior to its reorganization in 2015. The Company now files U.S. income tax returns as a U.S. consolidated group. In Massachusetts, the Company files income tax returns as a combined group except for its Massachusetts Securities Corporation subsidiary, which is a separate income tax filing. The statute of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities remains open for all years since 2019. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state authorities to the extent utilized in a future period. No federal or state tax audits are currently in process.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), was signed into law in the United States in March 2020. The CARES Act adjusted a number of provisions of the tax code, including the calculation and eligibility of certain deductions and the treatment of net operating losses and tax credits. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the year ended December 31, 2023, or to the Company’s net deferred tax assets as of December 31, 2023.

On December 22, 2017, the TCJA was signed into law. Under the TCJA provisions, effective with tax years beginning on or after January 1, 2022, taxpayers can no longer immediately expense qualified research and development expenditures, including all direct, indirect, overhead and software development costs. Taxpayers are now required to capitalize and amortize these costs over five years for research conducted within the United States or fifteen years for research conducted abroad.