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Income Tax
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 14. INCOME TAXES

The provision for income tax expense included on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021 consists of the following:

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Current tax expense - federal and state

 

$

2

 

 

$

1

 

Deferred tax benefit

 

 

—

 

 

 

—

 

Change in valuation allowance

 

 

(2

)

 

 

(1

)

Income tax provision

 

$

—

 

 

$

—

 

The components of the net deferred tax asset as of December 31, 2022 and 2021 are as follows:

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

22,183

 

 

$

13,442

 

Research and development tax credits

 

 

11,074

 

 

 

3,721

 

Capitalized research and development costs

 

 

46,260

 

 

 

33,435

 

Stock-based compensation

 

 

4,396

 

 

 

1,857

 

Accrued bonus

 

 

1,090

 

 

 

1,924

 

Lease liability

 

 

1,165

 

 

 

953

 

Other

 

 

—

 

 

 

26

 

Total deferred tax assets

 

 

86,168

 

 

 

55,358

 

Deferred tax liabilities:

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

—

 

 

 

—

 

Right of use asset

 

 

(1,036

)

 

 

(896

)

Other

 

 

(9

)

 

 

—

 

Total deferred tax liabilities

 

 

(1,045

)

 

 

(896

)

Valuation allowance

 

 

(85,123

)

 

 

(54,462

)

Net deferred tax assets

 

$

—

 

 

$

—

 

A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended December 31, 2022 and 2021 are as follows:

 

 

 

December 31,

 

 

2022

 

2021

Federal statutory rate

 

21.00%

 

21.00%

State income taxes, net of federal tax benefit

 

6.33%

 

10.21%

Permanent differences

 

1.65%

 

0.39%

Tax credits

 

5.65%

 

1.59%

True-up

 

(0.54)%

 

3.87%

Change in rate

 

(4.67)%

 

0.59%

Other items

 

0.00%

 

0.01%

Valuation allowance

 

(29.42)%

 

(37.66)%

Effective tax rate

 

0.00%

 

0.00%

As of December 31, 2022, the Company had federal net operating loss carryforwards of approximately $67.8 million and state net operating loss carryforwards of approximately $124.9 million. The federal net operating losses have an unlimited carryover period and state net operating losses begin to expire in 2038.

As of December 31, 2022, the Company had federal research and development tax credit carryforwards of approximately $6.3 million and state research and development tax credit carryforwards of approximately $1.9 million. The federal research and development tax credits begin to expire in 2039 and state research and development tax credits have an unlimited carryover period.

As of December 31, 2022, the Company had federal orphan drug tax credit carryforwards of approximately $8.0 million. The federal orphan drug tax credits begin to expire in 2042.

All of the federal and state net operating losses may be subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. An annual loss limitation may result in the expiration or reduced utilization of the net operating losses.

As of December 31, 2022, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a full valuation

allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

As of December 31, 2022, the Company’s total amount of unrecognized tax benefits was $5.1 million, none of which would impact the Company’s effective tax rate, if recognized. The Company does not anticipate that the amount of unrecognized tax benefit will significantly increase within the next 12 months.

For the years ended December 31, 2022 and 2021, the activity related to the unrecognized tax benefits were as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

Unrecognized tax benefits at beginning of year

 

$

1,595

 

 

$

—

 

Gross increases - current year tax positions

 

 

2,524

 

 

 

893

 

Gross increases - prior year tax positions

 

 

949

 

 

 

702

 

Unrecognized tax benefits at end of year

 

$

5,068

 

 

$

1,595

 

 

 

 

 

 

 

 

The Company is subject to taxation in the United States and various state jurisdictions. All tax years remain subject to examination for U.S. federal and state purposes. All net operating losses generated to date are subject to adjustment for U.S. federal and state purposes. The Company is not currently under examination in federal or state jurisdictions.