Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. All losses incurred were U.S. based. Significant components of the Company’s deferred tax assets are as follows (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Federal and state net operating loss carryforwards	$	129,898		$	123,144
State and federal research and development tax credit carryforwards		31,951			28,861
Capitalized research and development		5,670			2,363
Stock-based compensation		5,329			3,822
Other		1,222			1,256
Total deferred tax assets		174,070			159,446
Deferred tax liabilities:
Depreciation and amortization		(158	)		(269	)
Other		(53	)		(57	)
Total deferred tax liabilities		(211	)		(326	)
Valuation allowance		(173,859	)		(159,120	)
Net deferred tax assets	$	—		$	—

Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is uncertain. Based on the weight of available positive and negative objective evidence, management believes it more likely than not that the Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $14.7 million and $17.2 million due to the increase in the Company’s taxable losses during the years ended December 31, 2021 and 2020, respectively.

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):

	December 31,
	2021			2020
Income tax benefit at federal statutory tax rate	$	(18,900	)	$	(10,707	)
Change in valuation allowance		14,739			17,181
State income taxes, net of federal benefit		(267	)		(4,768	)
Research credits		(2,802	)		(2,911	)
Cancelled options		141			982
Development financing liability		6,654			—
Permanent differences		429			152
Other, net		6			71
Income tax (benefit) expense	$	—		$	—

Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and determined that the Company’s net operating losses and research and development credits were subject to limitations due to changes in ownership through December 31, 2007. The net operating loss carryforwards reflected in the deferred tax assets at December 31, 2021 have been adjusted to reflect Section 382 limitations resulting from that change. The Company has been in a net operating loss position since 2008. The Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk that additional changes in ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

As of December 31, 2021, the Company had federal net operating loss carryforwards of $522.7 million and state net operating loss carryforwards of $288.3 million to offset future taxable income, if any. In addition, the Company had federal research and development tax credit carryforwards of $10.2 million, federal orphan drug tax credit carryforwards of $24.8 million, and state research and development tax credit carryforwards of $6.2 million. If not utilized, the federal net operating losses for the years beginning before January 1, 2018 of $255.7 million will expire beginning in 2024 through 2037, and the federal net operating losses for the tax years beginning after January 1, 2018 of $267.0 million will be carried forward indefinitely (subject to certain utilization limitations). The state net operating loss carryforwards will expire beginning in 2028 through 2041. The federal research and development and federal orphan drug tax credit carryforwards expire 2021 through 2041, and the state tax credit will carry forward indefinitely. Interest and penalties for the years ended December 31, 2021 and 2020 were not material. The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):

	Total
Balances as of December 31, 2019		6,386
Decreases related to prior year tax positions		(58	)
Increases related to 2020 tax positions		877
Balances as of December 31, 2020	$	7,205
Increases related to prior year tax positions		9
Increases related to 2021 tax positions		783
Balances as of December 31, 2021	$	7,997

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or unusual items for items that arise in the ordinary course of business.

The Company files income tax returns in the U.S. federal and California jurisdictions and is not currently under examination by federal, state, or local taxing authorities for any open tax years. Due to net operating loss carryforwards, the tax years 2001 to 2021 remain open for income tax examination by tax authorities in the U.S. and states in which the Company files tax returns.

In March 2020, the Families First Coronavirus Response Act (FFCR Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum

tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

In June 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

In December 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. The CAA included additional funding through tax credits as part of its economic package for 2021.

The FFCR Act, CARES Act, A.B. 85 and CAA did not have a material impact on the Company’s consolidated financial statements; however, the Company continues to examine the impacts the FFCR Act, CARES Act, A.B. 85 and CAA may have on its business, results of operations, financial condition and liquidity.