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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

16. Income Taxes

The Company’s provision for income taxes consists of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Current income tax provision (expense) benefit:

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

(1,910

)

 

$

(427

)

 

$

—

 

State

 

 

(153

)

 

 

(273

)

 

 

—

 

Total

 

$

(2,063

)

 

$

(700

)

 

$

—

 

 

A reconciliation of the statutory U.S. federal rate and effective rate is as follows:

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

U.S. federal tax

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State tax, net of federal benefit

 

 

0.3

 

 

 

0.6

 

 

 

6.6

 

Change in valuation allowance

 

 

(42.9

)

 

 

(2.8

)

 

 

(26.9

)

Nondeductible compensation

 

 

(17.0

)

 

 

(15.2

)

 

 

(0.2

)

Research and development tax credits

 

 

26.3

 

 

 

16.3

 

 

 

0.0

 

Stock based compensation

 

 

16.5

 

 

 

10.2

 

 

 

0.4

 

Change in state deferred income tax rate

 

 

(0.5

)

 

 

(27.2

)

 

 

0.0

 

Changes in unrecognized tax benefits

 

 

(5.7

)

 

 

(4.8

)

 

 

0.0

 

Change in tax rates and other

 

 

0.1

 

 

 

0.9

 

 

 

(0.9

)

Effective income tax rate

 

 

(1.9

)%

 

 

(1.0

)%

 

 

0.0

%

 

The significant components of the Company’s deferred income tax assets (liabilities) were as follows (in thousands):

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred income tax assets:

 

 

 

 

 

 

U.S. federal net operating loss carryforward

 

$

10,692

 

 

$

29,929

 

State net operating loss carryforward

 

 

287

 

 

 

1,110

 

Research and development expenditures

 

 

65,346

 

 

 

44,047

 

Research and development credits

 

 

26,838

 

 

 

9,829

 

Lease liabilities - operating

 

 

11,641

 

 

 

12,710

 

Stock based compensation

 

 

8,117

 

 

 

4,600

 

Accruals and others

 

 

2,371

 

 

 

1,323

 

Deferred Revenue

 

 

24,423

 

 

 

—

 

Gross deferred income tax assets

 

 

149,715

 

 

 

103,548

 

Less: Valuation allowance

 

 

(137,302

)

 

 

(91,841

)

Total deferred income tax assets

 

 

12,413

 

 

 

11,707

 

Deferred income tax liabilities:

 

 

 

 

 

 

Depreciation

 

 

(6,692

)

 

 

(4,930

)

Right-of-use asset - operating

 

 

(5,143

)

 

 

(5,903

)

Section 481(a) adjustment

 

 

(578

)

 

 

(874

)

Total deferred income tax liabilities

 

 

(12,413

)

 

 

(11,707

)

Net deferred income tax assets (liabilities)

 

$

—

 

 

$

—

 

 

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to Internal Revenue Code Section 174.

The Company records valuation allowances to reduce deferred tax assets to the amount that is not more likely than not to be realized. In assessing the likelihood of realization, management considers (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary difference and carryforwards; (iii) taxable income in prior carryback years if carryback is permitted under applicable tax law; and (iv) tax planning strategies. The Company’s net deferred income tax assets are not more likely than not to be utilized due to the lack of sufficient sources of future taxable income and cumulative book losses which have resulted over the years. The net increase in the valuation allowance for the year ended December 31, 2024 of approximately $45.5 million was primarily due to capitalized research and development expenditures, research and development credits and increase in deferred revenue, partially offset by utilization of net operating loss carryforwards. The change in the valuation allowance for the year ended December 31, 2023 of approximately $2.0 million was primarily due to increase in capitalized research and development expenditures and research and development credits, partially offset by utilization of net operating loss carryforwards.

The Company had federal and State net operating loss (NOL) carryforwards of approximately $51.2 million and $74.8 million, respectively, as of December 31, 2024. The Company also had federal and State research and development tax credit carryforwards of approximately $8.9 million and $3.2 million, respectively, and federal orphan drug credit carryforwards of $24.8 million, available to potentially offset future income taxes, as of December 31, 2024. The federal NOL will be carried forward indefinitely, if not utilized, but is limited to eighty percent of taxable income. The State NOL will begin expiring in 2038, if not utilized, while a portion is carried forward indefinitely. The federal research and development tax credit carryforwards and orphan drug credit carryforwards, if not utilized, will begin to expire in 2042. The California research and development tax credit carryforwards do not expire while other State research and development tax credit carryforward will begin to expire in 2031.

Under Section 382/383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which generally occurs if the percentage of the corporation’s stock owned by 5% stockholders increases by more than 50% over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed a Section 382/383 analysis through December 31, 2024. The Company has experienced ownership changes. Some of the Company’s federal research and development tax credit carryforwards will be permanently limited as a result of the ownership change, which have been excluded from the Company’s deferred income tax assets. Subsequent ownership changes may affect the limitation in future years.

Related to unrecognized tax benefits noted below, interest and penalties related to unrecognized tax benefits are recognized in the provision of income taxes. No penalties or interest were recorded during the years ended December 31, 2024, 2023 and 2022. The Company does not expect its unrecognized tax benefit balance to change materially over the next 12 months. The Company had $9.6 million and $3.5 million, and no unrecognized tax benefits as of December 31, 2024, 2023 and 2022, respectively. Of the unrecognized tax benefits as of December 31, 2024, 2023 and 2022, none would affect the Company’s effective tax rate if recognized due to the Company's full valuation allowance position.

December 31, 2022

 

$

—

 

Additions based on tax positions related to 2023

 

 

809

 

Additions for tax positions of prior years

 

 

2,641

 

December 31, 2023

 

 

3,450

 

Additions based on tax positions related to 2024

 

 

3,177

 

Additions for tax positions of prior years

 

 

2,951

 

December 31, 2024

 

$

9,578

 

The Company’s federal and State tax returns for all years, 2015 through 2023, remain subject to examination by taxing authorities due to the tax attribute carryforwards. The Company is not currently under examination by income tax authorities in federal or State jurisdictions.