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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company provides for income taxes under ASC 740. Under ASC 740, the Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse.
On November 13, 2023, the Company acquired, in accordance with the terms of the Merger Agreement, the assets of Old Cartesian. In accordance with ASC 805-740-25-3, recognition of deferred tax assets and liabilities is required for substantially all temporary differences and acquired tax carryforwards and credits. The Company has computed estimated temporary differences and acquired tax carryforwards and credits as of the transaction date. The Company will not have tax basis in IPR&D booked as part of the purchase accounting. For accounting purposes, the IPR&D will not be amortized and only subject to impairment review and testing. Though the tax effects may be delayed indefinitely, ASC 740-10-55-63 states that “deferred tax liabilities may not be eliminated or reduced because a reporting entity may be able to delay the settlement of those liabilities by delaying the events that would cause taxable temporary differences to reverse.” The Company can potentially only utilize indefinite-lived assets as it relates to this indefinite lived intangible deferred tax liability reversal. As such, the Company has booked a deferred tax liability for the portion of the liability that cannot be reduced based on scheduling. Additionally, a portion of this target deferred tax liability is offset with the Company’s pre-Merger deferred tax assets on a combined basis, and as such the portion of deferred tax liability reduced by the Company’s pre-Merger deferred tax assets has been charged to income rather than to goodwill.
For the year ended December 31, 2024, the Company recognized a current tax expense of $0.3 million. For the year ended December 31, 2023, the Company recognized a current tax benefit of $19.0 million. The following table reconciles the federal statutory income tax rate to the Company’s effective income tax rate:
Year Ended December 31,
20242023
Statutory U.S. federal rate
21.0 %21.0 %
State income taxes - net of federal benefit
10.5 %2.3 %
Permanent items
1.0 %(1.6)%
Research tax credits
0.3 %0.6 %
Change in fair value of contingent value right liability
127.9 %— %
Change in fair value of forward contract liabilities
(1.9)%(13.2)%
Valuation allowance, net
(160.1)%2.8 %
Stock-based compensation
0.9 %(3.9)%
Effective income tax rate
(0.4)%8.0 %

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows (in thousands):
Year Ended December 31,
20242023
Deferred Tax Assets
Net operating loss carryforwards$44,062 $29,841 
Research and development credits6,024 5,649 
Stock-based compensation expense1,070 8 
Other expenses— 705 
Deferred revenue75,567 84,626 
Operating lease liabilities3,848 2,718 
Contingent value right liability108,832 — 
R&E Capitalization26,863 19,778 
Patent and license costs8,540 9,140 
Gross deferred tax assets274,806 152,465 
Deferred Tax Liabilities
Intangible assets$(41,441)$(41,144)
Depreciation(115)(128)
Operating lease right-of-use assets(1,523)(2,751)
Gross deferred tax liabilities(43,079)(44,023)
Net deferred tax assets before valuation allowance231,727 108,442 
Valuation allowance(247,867)(124,295)
Net deferred tax assets/(liabilities)$(16,140)$(15,853)
The Company has provided a full valuation allowance against its net deferred tax assets, outside of the indefinite tax liability booked as part of the Merger. The Company believes that it is more likely than not that the net deferred tax assets will not be realized.
Realization of future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded that it is more likely than not that the Company will not realize the benefit of its net deferred tax assets. The valuation allowance increased by $123.6 million for the year ended December 31, 2024, primarily as a result of tax loss in the current year and the recognition of a $108.8 million tax benefit related to the Company’s CVR liability. The valuation allowance decreased by $3.5 million for the year ended December 31, 2023, primarily as a result of a tax benefit booked as part of the Merger. As of December 31, 2024, the Company is in the process of winding down operations in Russia and does not expect any tax liability relating to such operations.
At December 31, 2024, the Company has federal net operating loss carryforward of $152.6 million, which can be carried forward indefinitely, subject to an 80% limitation and state net operating loss carryforward of $187.8 million, of which $74.4 million has an unlimited carryforward and the remaining $113.4 million will expire at various times through 2044. The Company has $5.2 million and $1.0 million, respectively, of federal and state research and development tax credit carryforwards, which will expire at various times through 2044. Utilization of the NOL carryforwards and research and orphan drug credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state law due to ownership changes that could occur in the future.
These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. If the Company experiences a change of control, as defined by Section 382 of the Code and similar state law, utilization of the NOL carryforwards or research and orphan drug credit carryforwards may be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL carryforwards or research and orphan drug credit carryforwards before utilization. The Company performed an analysis of ownership changes through December 31, 2023. Based on this analysis, the Company does not believe that any of its tax attributes through December 31, 2023 will expire unutilized due to Section 382 limitations. To the extent the Company enters into future equity transactions, there could be a limitation on the Company’s tax attributes.
The Company applies ASC 740, Income Taxes to uncertain tax positions. As of the adoption date on January 1, 2010 and through December 31, 2024, the Company had no unrecognized tax benefits or related interest and penalties accrued.
As of December 31, 2024, the Company has not completed a detailed study of its research and development and orphan drug credits for the tax years ending December 31, 2023 and December 31, 2024. As a result, the Company will adjust its deferred tax asset balances and include the impacts in the research tax credits and state income taxes – net of federal benefit lines in the effective rate reconciliation next year, once the updated study has been completed.
The Tax Cuts and Jobs Act requires taxpayers to capitalize and amortize, rather than deduct, research and experimental, or R&E, expenditures under Section 174 for tax years beginning after December 31, 2021. These rules became effective for the Company during the year ended December 31, 2022. As a result, the Company has capitalized R&E costs of $45.1 million and $43.9 million for the years ended December 31, 2024 and December 31, 2023, respectively. The Company will amortize these costs for tax purposes over five years if the R&E was performed in the United States and over 15 years if the R&E was performed outside the United States.
Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statement of operations. As of December 31, 2024, the Company had no accrued interest related to uncertain tax positions.
The statute of limitations for assessment by the Internal Revenue Service and state tax authorities is open for tax years 2020 to the present. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state tax authorities to the extent utilized in a future period. The Company files income tax returns in the United States, Massachusetts, and Maryland. There are currently no federal, state or foreign audits in progress.