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

14. Income Taxes

The Company derives its income only from the United States. The Company did not recognize any tax benefits or provisions in 2022 and 2021.

 

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

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

U.S. federal taxes at statutory rate

 

 

21.0

%

 

 

21.0

%

State tax, net of federal benefit

 

 

1.7

%

 

 

1.5

%

Stock compensation

 

 

(2.1

)%

 

 

(3.1

)%

Tax credits

 

 

2.4

%

 

 

2.0

%

Change in valuation allowance

 

 

(22.8

)%

 

 

(21.4

)%

162(m) limitation

 

 

(0.2

)%

 

 

0.0

%

Total

 

 

0.0

 

 

 

0.0

 

 

The types of temporary differences that give rise to significant portions of the Company’s deferred income tax assets and liabilities are set out below (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Net operating loss carryforwards

 

$

58,193

 

 

$

49,070

 

Research and development credits

 

 

24,700

 

 

 

20,809

 

Lease liability

 

 

3,802

 

 

 

4,555

 

Intangible assets

 

 

3,708

 

 

 

3,804

 

Deferred revenue

 

 

49,919

 

 

 

60,285

 

Accrued liabilities

 

 

1,504

 

 

 

1,933

 

Stock-based compensation

 

 

8,066

 

 

 

7,480

 

Sec 174 capitalized research and development costs

 

 

19,709

 

 

—

 

Other

 

 

31

 

 

 

29

 

Total gross deferred income tax assets

 

 

169,632

 

 

 

147,965

 

Less: valuation allowance

 

 

(166,037

)

 

 

(143,355

)

Deferred tax assets, net of valuation allowance

 

 

3,595

 

 

 

4,610

 

Fixed assets

 

 

(43

)

 

 

(253

)

Right-of-use assets

 

 

(3,358

)

 

 

(4,069

)

Prepaid expenses

 

 

(194

)

 

 

(288

)

Deferred tax liabilities

 

 

(3,595

)

 

 

(4,610

)

Net deferred income tax liabilities

 

$

—

 

 

$

—

 

 

The Company has established a valuation allowance against all of its net deferred tax assets. Management considered all available evidence, both positive and negative, including but not limited to our historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings, future taxable income, and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized. The net change in the total valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $22.7 million and $24.8 million, respectively.

The Company had net operating loss carryforwards for federal and state income tax purposes of approximately $268.8 million and $25.7 million, respectively, as of December 31, 2022, available to reduce future taxable income. Of the federal net operating loss carryforwards, $65.6 million will begin to expire in 2034, if not utilized and $203.2 million will carryforward indefinitely. The state net operating loss carryforwards will begin to expire in 2032, if not utilized.

The Company also has federal and state research and development tax credits carryforwards of $23.0 million and $13.0 million, respectively, as of December 31, 2022 available to reduce future income taxes. The federal research and development tax credits will begin to expire in 2031 if not utilized. The state research and development tax credits have no expiration date.

 

Internal Revenue Code section 382 (“IRC Section 382”) places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. The Company has performed an IRC Section 382 analysis and determined there was an ownership change in 2017 that resulted in 382 limitations. When an ownership change occurs, IRC Section 382 limits the use of NOLs and credits in subsequent periods based on the annual 382 limitations. The annual 382 limitations may limit the full use of available tax attributes in one year but the identified ownership changes may not result in expiration of tax attributes for use prior to expiration of their respective carryforward periods. Accordingly, none of the tax attributes have been reduced but limited the full use in 2018. The Company has determined that, while an ownership change has occurred, the applicable limits would not impair the value or anticipated use of the Company’s federal and state net operating losses. Although realization is not assured, management believes it is more likely than not that any limitation under IRC Section 382 will not impair the realizability of the deferred income tax assets related to federal and state net operating loss carryforwards. The Company updated its Section 382 analysis through the year ended December 31, 2022 and concluded no ownership changes occurred in current year which would result in a reduction of its net operating loss or in its research and development credits expiring unused. If additional ownership change occurs, the utilization of net operating loss and credit carryforwards could be significantly reduced.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Balance at the beginning of the year

 

$

7,780

 

 

$

6,454

 

Additions based on tax positions related to current year

 

 

1,391

 

 

 

1,326

 

Adjustment based on tax positions related to prior years

 

 

98

 

 

 

-

 

Balance at end of the year

 

$

9,269

 

 

$

7,780

 

 

Of the unrecognized tax benefits as of December 31, 2022 and 2021, none would affect the Company’s effective tax rate if recognized due to the Company's full valuation allowance position. Interest and penalties have not been accrued for any periods presented.

The Company files income tax returns in the U.S. federal and state jurisdictions. The Company is currently under examination by the state of California for the years 2017 and 2018. The examination contests the Company’s tax position on revenue apportionment for upfront and milestone payments resulting from the Company’s collaboration and licensing agreements. As of the date of this filing, the state of California has not proposed adjustments to the tax returns. Due to the ongoing nature of the examination and discussions with the state of California, the Company is unable to estimate a date by which this matter will be resolved or reasonably estimate the potential impact should the tax position be revised. Based on the Company's current expectations and understanding of the reasonably possible outcomes, the Company does not anticipate that the resolution of this matter would result in a material impact on its financial position or results of operations.