Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

The Company’s losses before provision for income taxes are as follows (in thousands):
 

	Year Ended December 31,
	2023			2022			2021
U.S. loss before taxes	$	(164,953	)	$	(142,661	)	$	(84,217	)
Foreign income before taxes		2,529			590			266
Loss before income taxes	$	(162,424	)	$	(142,071	)	$	(83,951	)

The income tax (expense) benefit applicable to income before income taxes consists of the following:

	Year Ended December 31,
	2023		2022			2021
Current income taxes:
Federal	$	37	$	—		$	—
State		67		18			—
Foreign		887		157			37
Total current		991		175			37
Deferred taxes:
Federal		—		(5,503	)		—
State		—		(1,078	)		—
Total deferred		—		(6,581	)		—
Income tax (benefit) expense	$	991	$	(6,406	)	$	37

The Company acquired Satiogen in a tax-free reorganization, whereby the Company did not receive a step-up in tax basis of the acquired intangible assets, resulting in a deferred tax liability of $6.6 million. The deferred tax liability provided an additional source of taxable income to support the realization of the pre-existing deferred tax assets. As a result, a portion of the Company’s valuation allowance was released and a $6.6 million tax benefit was recorded for the year ended December 31, 2022.

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

	Year Ended December 31,
	2023				2022				2021
Federal statutory income tax rate		21.00		%		21.00		%		21.00		%
State tax		3.57				7.40				1.32
Permanent differences		(0.50	)			(0.65	)			(1.70	)
Other		(0.13	)			(0.93	)			0.02
Executive compensation		—				(2.99	)			—
Global intangible low-taxed income		(1.69	)			(1.43	)			—
Tax credits		1.91				4.96				7.72
Change in valuation allowance		(24.77	)			(22.85	)			(28.41	)
Total tax benefit		(0.61	)	%		4.51		%		(0.05	)	%

The significant components of the Company’s deferred taxes are as follows (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Net operating losses	$	40,455		$	34,522
Capitalized research and development		38,065			23,569
Tax credit carryforwards		30,071			26,747
Interest limitation attributes		15,814			3,127
Stock-based compensation		8,419			6,726
Intangibles		4,055			4,733
Accrued expenses		3,953			3,101
Inventory		2,316			426
Lease liability		269			460
Total deferred tax assets		143,417			103,411
Deferred tax liabilities:
Operating lease right-of-use assets		(161	)		(272	)
Fixed assets		(37	)		(100	)
Total deferred tax liabilities		(198	)		(372	)
Valuation allowance		(143,219	)		(103,039	)
Net deferred tax assets	$	—		$	—

The valuation allowance increased by $40.2 million, $32.5 million and $23.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. The tax benefit of deductible temporary differences or carryforwards is recorded as a deferred tax asset to the extent that management assesses the realization is “more likely than not.” Future realization of the tax benefit ultimately depends on the existence of sufficient taxable income within the period available under the tax law. At December 31, 2023 and 2022, the Company has set up valuation allowances against all federal and state net deferred tax assets, because based on all available evidence, these deferred tax assets are not more than likely to be realizable.

The Company had federal, California and other state net operating loss carryforwards of approximately $166.9 million, $30.0 million and $59.7 million at December 31, 2023, and $153.1 million, $19.1 million and $17.7 million at December 31, 2022, respectively. Federal losses do not expire, and California net operating and other state income net operating losses will begin to expire in 2038 and 2032, respectively, if not utilized. The Company also has federal general business credit and California research and development credit carryforwards totaling $36.5 million and $4.8 million at December 31, 2023, and $32.5 million and $4.2 million at December 31, 2022, respectively. The federal research and development credit carryforwards will begin to expire in 2039, unless previously utilized. The California research credits do not expire.

In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period (a “Section 382 ownership change”), utilization of its pre-change NOL carryforwards and the research and development 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. Such limitations may result in expiration of a portion of the NOL carryforwards and research and development credit carryforwards before utilization and may be material. As of December 31, 2023, the Company determined that it has not experienced an ownership change and determined that NOLs and tax credits are not subject to a limitation pursuant to Section 382.

The Company recognizes the financial statements effects of a tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination.

A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,
	2023		2022
Balance at beginning of year	$	9,254	$	6,399
(Decrease) related to prior year tax positions		—		—
Increases related to current year tax positions		1,200		2,855
Balance at end of year	$	10,454	$	9,254

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 roll-forward above. The Company does not expect that its uncertain tax positions will materially change in the next twelve months. The Company’s effective income tax rate would not be impacted if the unrecognized tax benefits were recognized in 2023 and 2022, as the Company is in a full valuation allowance position.

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. All of the Company’s tax returns in all jurisdictions remain open to examination since inception. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. As of December 31, 2023 and 2022, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.

The Company has not provided U.S. income or foreign withholding taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2023 and 2022, because it intends to permanently reinvest such earnings outside of the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability will be immaterial, due to the participation exemption put in place in the Tax Act.