Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(15) Income Taxes

The domestic and foreign components of (loss) income before income taxes were as follows:

(In thousands)	Year ended December 31, 2022			Year ended December 31, 2021
Domestic	$	(60,179	)	$	(112,530	)
Foreign		24,932			3,456
Total	$	(35,247	)	$	(109,074	)

The benefit (expense) from income taxes in 2022 and 2021 consists of current and deferred federal, state and foreign taxes as follows:

(In thousands)	Year ended December 31, 2022			Year ended December 31, 2021
Current:
Federal	$	(243	)	$	230
State		(115	)		(182	)
Foreign		(37	)		(113	)
		(395	)		(65	)
Deferred:
Federal		(30,234	)		4,412
State		(40	)		711
Foreign		—			62
		(30,274	)		5,185
Total benefit from income taxes	$	(30,669	)	$	5,120

The Internal Revenue Code of 1986 contains certain provisions that can limit a taxpayer's ability to utilize net operating loss and tax credit carryforwards in any given year resulting from cumulative changes in ownership interests in excess of 50 percent over a three-year period (“ownership change”). In the event of such a deemed ownership change, Section 382 imposes an annual limitation on pre-ownership change tax attributes. On June 1, 2022, the Company experienced an ownership change. The Company completed a Section 382 analysis and determined that its tax attributes are limited and would require a valuation allowance. As a result, the Company recorded additional valuation allowance on its net operating loss and tax credits carryforwards of approximately $35.3 million (tax effected).

As of December 31, 2022, the Company’s U.S. consolidated federal NOL carryforwards on a tax return basis are approximately $117.6 million which can be carried forward indefinitely and, under the Act, limited to 80% of taxable income in any year in which it will be utilized. Due to the Section 382 limitation a partial valuation allowance has been recorded on its pre-ownership change net operating losses of approximately $12.2 million (tax effected).

Biotie Therapies, Inc. (“Biotie US”), a wholly owned subsidiary of Biotie Finland, files a separate company federal income tax return and has a net operating loss carryforward of approximately $120.8 million as of December 31, 2022. These losses, which begin to expire in 2026, were historically not more likely than not to be realized and had been fully offset with a full valuation allowance and therefore the limitation under Section 382 that occurred during 2022 had no further financial statement impact. In the fourth quarter, in connection with the liquidation proceedings of Biotie Finland Ltd the Company reversed both the deferred tax asset and related valuation allowance which also had no impact to tax expense.

The Company’s capital loss carryforward of approximately $42.3 million is fully offset with a valuation allowance. The capital loss carryforward will expire in 2026. Under Section 382, the utilization of this capital loss would be limited. The Company’s capital loss from tax year 2017 of approximately $428.7 million expired as of December 31, 2022 and accordingly the deferred tax asset and corresponding valuation allowance have been reversed.

The Company had available state NOL carryforwards of approximately $312.9 million and $304.8 million as of December 31, 2022 and 2021, respectively. The state losses are expected to begin to expire in 2027, although not all states conform to the federal carryforward period and occasionally limit the use of net operating losses for a period of time. Due to the Section 382 ownership change and limitation, a partial valuation allowance has been recorded on the unitary and certain separate state NOLs, of approximately $2.7 million.

The Company has $27.0 million of net operating loss carryforwards outside of the U.S. as of December 31, 2022, that begin to expire in 2023, all of which are fully reserved with a valuation allowance.

The Company’s U.S. federal research and development and orphan drug credit carryforwards of $35.1 million and $35.3 million as of December 31, 2022 and 2021, respectively, begin to expire in 2023. Due to the Section 382 limitation, a full valuation allowance has been recorded on the remaining balance. The Company does not expect to pay U.S. federal or state cash taxes as they are in a current year taxable loss.

The timing differences between the financial reporting and tax treatment of income and expenses results in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that any portion of the deferred tax asset will not be recoverable, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted. The Company continued to maintain a full valuation allowance against its net U.S. and net foreign deferred tax assets of Biotie at December 31, 2022. The Company maintains a partial valuation allowance on the Acorda filling group's deferred balances. The Company had a net decrease of $86.5 million of valuation allowance. While the Company recognized a tax expense from recording additional valuation allowance due to the Section 382 limitation, there was an overall decrease in the valuation allowance balance which related to significant deferred tax asset reversals that had been fully reserved as of the beginning of the year. Accordingly, the reversal of the deferred tax asset and related valuation allowance for capital loss carryforwards, Biotie U.S. and other foreign net operating losses had no impact to tax expense.

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

	Year ended December 31, 2022			Year ended December 31, 2021
U.S. federal statutory tax rate		21.0	%		21.0	%
State and local income taxes		(0.3	)%		0.4	%
Stock option compensation		(0.2	)%		(0.1	)%
Stock option shortfall		(8.8	)%		(5.0	)%
GILTI Inclusion		(8.3	)%		—
Uncertain tax positions		0.4	%		0.5	%
Other nondeductible and permanent differences		(7.7	)%		(2.6	)%
U.S. write-off/expiration		(255.8	)%		—
Valuation allowance, net of foreign tax rate     differential		151.6	%		(9.5	)%
Biotie Finland cancellation of debt exclusion		21.7	%		—
Federal return to provision differences		(0.6	)%		—
Effective income tax rate		(87.0	)%		4.7	%

The Company’s overall effective tax rate is affected by the increase in the valuation allowance, the forfeitures of equity based compensation for which no tax deduction is recorded and inclusion of GILTI as a permanent item.

Provisions have been made for deferred taxes based on the differences between the basis of the assets and liabilities for financial statement purposes and the basis of the assets and liabilities for tax purposes using currently enacted tax rates and

regulations that will be in effect when the differences are expected to be recovered or settled. The components of the deferred tax assets and liabilities are as follows:

(In thousands)	December 31, 2022			December 31, 2021
Deferred tax assets:
Net operating loss carryforward	$	74,576		$	77,510
Capital loss carryforward		11,100			116,717
Tax credits		34,301			34,332
Stock based compensation		8,896			12,257
Contingent consideration		10,807			12,730
Employee compensation		1,438			1,513
Rebate and returns reserve		2,003			2,290
Capitalized R&D		1,191			10,696
Derivative liability		—			9
Other		5,421			7,656
Total deferred tax assets	$	149,733		$	275,710
Valuation allowance		(106,702	)		(193,253	)
Total deferred tax assets net of valuation allowance	$	43,031		$	82,457
Deferred tax liabilities:
Intangible assets		(77,876	)		(83,930	)
Convertible debt		(9,190	)		(12,842	)
Depreciation		(167	)		400
Other		-			(15	)
Total deferred tax liabilities	$	(87,233	)	$	(96,387	)
Net deferred tax liability	$	(44,202	)	$	(13,930	)

The Company follows authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The beginning and ending amounts of unrecognized tax benefits reconciles as follows:

(In thousands)	Year ended December 31, 2022			Year ended December 31, 2021
Beginning of period balance	$	6,370		$	7,093
Increases for tax positions taken during a prior period		—			—
Decreases for tax positions taken during a     prior period		(133	)		(723	)
Increases for tax positions taken during the     current period		—			—
	$	6,237		$	6,370

Accrued interest and penalties would be disclosed within the related liabilities lines in the consolidated balance sheet and recorded as a component of income tax expense. All of its unrecognized tax benefits, if recognized, would impact the effective tax rate.

The Company has ongoing state examinations in Massachusetts and New Jersey which cover multiple years. There have been no proposed adjustments at this stage of the examination. The Minnesota examination was finalized during the second quarter of 2022 for years 2018 and 2019 with no adjustments.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company has operations in the United States and Puerto Rico, as well as filing obligations in Finland, Switzerland and Germany. Typically, the period for the statute of limitations ranges from 3 to 5 years, however, this could be extended due to the Company’s NOL carryforward position in a number of its jurisdictions. The tax authorities generally have the ability to review income tax returns for periods where the statute of limitations has previously expired and can subsequently adjust the NOL carryforward

or tax credit amounts. Accordingly, the Company does not expect to reverse any portion of the unrecognized tax benefits within the next year.

The beginning and ending amounts of valuation allowances reconcile as follows:

	Balance at							Balance at
(In thousands)	Beginning of Period		Additions		Deductions			End of Period
Valuation allowance for deferred tax assets:
Year ended December 31, 2021	$	186,491		10,028		(3,266	)	$	193,253
Year ended December 31, 2022	$	193,253		233		(86,784	)	$	106,702