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

10. Income Taxes

The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands):

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

United States

 

$

(129,865

)

 

$

(116,798

)

Foreign

 

 

—

 

 

 

—

 

 

$

(129,865

)

 

$

(116,798

)

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

 

 

December 31,

 

 

 

2024

 

 

2023

 

Federal tax

 

 

21.0

%

 

 

21.0

%

State tax

 

 

—

 

 

 

—

 

Stock-based compensation

 

 

(1.4

)

 

 

(0.9

)

Research and development tax credit

 

 

1.9

 

 

 

2.4

 

Foreign losses not benefited

 

 

—

 

 

 

—

 

Global intangible low-taxed income

 

 

—

 

 

 

—

 

Change in valuation allowance

 

 

(21.5

)

 

 

(22.4

)

Other

 

 

—

 

 

 

(0.1

)

Income tax expense

 

 

—

%

 

 

—

%

The Company has incurred net operating losses for all periods since inception. The Company has not reflected any benefit of such net operating loss carryforwards in the accompanying financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

67,565

 

 

$

58,248

 

Federal and state research and development tax credits

 

 

15,086

 

 

 

12,601

 

Accrued liabilities and reserves

 

 

1,355

 

 

 

1,234

 

Stock-based compensation

 

 

8,588

 

 

 

6,238

 

Depreciation and amortization

 

 

8,036

 

 

 

689

 

Lease liability

 

 

944

 

 

 

1,450

 

Research and development capitalized expenditures

 

 

33,708

 

 

 

27,290

 

Gross deferred tax assets

 

 

135,282

 

 

 

107,750

 

Valuation allowance

 

 

(134,582

)

 

 

(106,652

)

Deferred tax liabilities:

 

 

 

 

 

 

Right of use asset

 

 

(700

)

 

 

(1,098

)

Other

 

 

—

 

 

 

—

 

Gross deferred tax liabilities

 

 

(700

)

 

 

(1,098

)

Net deferred taxes

 

$

—

 

 

$

—

 

 

In accordance with the 2017 Tax Act, research and experimentation (R&E) expenses under Internal Revenue Code Section 174 are required to be capitalized beginning in 2022. R&E expenses are required to be amortized over a period of 5 years for domestic expenses and 15 years for foreign expenses. As a result of this provision of the 2017 Tax Act, deferred tax assets related to capitalized research expenses increased by $6.4 million and $15.5 million during the years ended December 31, 2024 and 2023, respectively.

Realization of deferred tax assets is dependent upon future taxable income, if any. The Company has established a valuation allowance to offset deferred tax assets as of December 31, 2024 and 2023, due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The valuation allowance increased by approximately $27.9 million and $26.2 million during the years ended December 31, 2024 and 2023, respectively. The increase in the valuation allowance is mainly related to the capitalization of research and development expenses under Internal Revenue Code ("IRC") Section 174, capitalization of the Jemincare upfront fee as an intangible under IRC Section 197 and an increase in net operating loss carryforwards incurred during the respective taxable years.

As of December 31, 2024 and 2023, the Company had federal net operating loss carryforwards of approximately $317.6 million and $273.3 million, respectively. The federal net operating loss carryforwards generated during and after fiscal 2018 are carried forward indefinitely, while all others, along with the federal tax credit carryforwards, expire in years beginning in 2035. As of December 31, 2024 and 2023, the Company had state net operating loss carryforwards of approximately $12.1 million, which begin to expire in 2035 and are available to offset future taxable income. As of December 31, 2024 and 2023, the Company had federal research and development tax credit carryforwards of approximately $12.4 million and $10.2 million, respectively. As of December 31, 2024 and 2023, the Company had state research and development tax credit carryforwards of approximately $9.9 million and $8.4 million, respectively. Moreover, as of December 31, 2024, the Company recorded federal and state reserves of approximately $3.1 million and $2.5 million, respectively, as uncertain tax positions. If not utilized, the federal credit carryforwards will begin expiring in 2035. The state credits carry forward indefinitely.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. As a result of such ownership changes, the Company’s ability to realize the potential future benefit of tax losses and tax credits that existed at the time of the ownership change may be significantly reduced. The Company’s deferred tax asset and related valuation allowance would be reduced as a result. The Company has not yet performed a Section 382 study to determine the amount of reduction, if any. The annual limitation may result in the expiration of net operating losses and credits before utilization. Under the 2017 Tax Act as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) the carryforward period of net operating losses generated from 2018 forward is indefinite but the ability to deduct such federal net operating losses is limited to 80% of taxable income; however, the carryforward period for net operating losses generated prior to 2018 remains 20 years. Therefore, the annual limitation may still result in the expiration of certain net operating losses and tax credit carryforwards before their utilization. In February 2022, California Senate Bill 113 “SB 113” was signed into law. SB 113 lifted the limitation for California NOL and Credit utilization disallowed by California Assembly Bill 85. In June 2024, California Senate Bill 167 (“SB 167”) was signed into law, which suspends the NOL utilization for companies whose California taxable income exceeds $1 million and limits R&D credit utilization to $5 million. Given the Company’s loss position, SB113 and SB167 did not impact the Company's tax provision. The Company will continue to monitor possible California net operating loss and credit limitation in future periods.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2024 and 2023 resulting primarily from research and development tax credits claimed for both U.S. and foreign operations on the Company’s annual tax returns were as follows (in thousands):

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

Balance at beginning of year

 

$

4,674

 

 

$

3,663

 

Additions on tax positions related to prior years

 

 

—

 

 

 

(3

)

Additions on tax positions related to current year

 

 

905

 

 

 

1,014

 

Balance at end of year

 

$

5,579

 

 

$

4,674

 

 

The Company does not expect that its uncertain tax positions will materially change in the next 12 months. The reversal of uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets. In accordance with ASC 740, the Company would classify interest and penalties related to uncertain tax positions in income tax expense, if applicable. There was no interest expense or penalties related to unrecognized tax benefits through December 31, 2024.

The Company files income tax returns with varying statutes of limitations in the United States and various states. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All tax returns remain open for examination by federal and state authorities. The tax years from inception in 2015 forward remain open to examination due to the carryover of unused net operating losses and tax credits.

The Inflation Reduction Act of 2022 was signed into law in August 2022 and contained several tax provisions to curb inflation by reducing the deficit, lowering prescription drug prices, investing into domestic energy production while promoting clean energy, and introduced the topic of corporate alternative minimum tax on applicable corporations. There is no impact to the Company’s current tax provision from this legislation.