Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the years ended December 31, 2021, 2020, and 2019, the Company did not record any federal or state income tax expense given its continued operating losses.

A reconciliation between income tax benefit and the expected tax benefit at the statutory rate for the years ended December 31, 2021, 2020, and 2019 are as follows:

	For the Year Ended December 31,
	2021		2020		2019
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	6.2	%	6.1	%	6.1	%
Research and development tax credits	3.5	%	4.1	%	2.7	%
Orphan drug tax credits	2.9	%	2.3	%	4.6	%
Expiration of NOLs/Credits	(9.8)	%	(29.8)	%	(4.0)	%
Permanent adjustments and other	(0.2)	%	0.3	%	(0.6)	%
Stock based compensation	(9.4)	%	—	%	—	%
Change in valuation allowance	(14.2)	%	(4.0)	%	(29.8)	%
Effective income tax rate	—	%	—	%	—	%

The principal components of the Company’s deferred tax assets at December 31, 2021 and December 31, 2020, respectively, are as follows:

	December 31,
	2021		2020
Deferred Tax Assets:
NOL carryforwards	$	68,802	$	60,759
Research and development tax credit carryforwards	14,801		14,923
Orphan drug tax credit carryforwards	20,096		18,778
Depreciation and amortization	7,493		8,478
Capitalized research and development expenditures	37,528		34,832
Stock options	3,344		6,584
Accrued expenses and other	916		708
Oberland agreement	14,637		15,872
Lease liability ASC 842	1,371		1,846
Total gross deferred tax asset	168,988		162,780
Valuation allowance	(167,424)		(160,987)
Net deferred tax asset	$	1,564	$	1,793
Deferred tax liabilities:
Right of use asset ASC 842	(1,564)		(1,793)
Total gross deferred tax liabilities	$	(1,564)	$	(1,793)
Net deferred tax assets (liabilities)	$	—	$	—

For the years ended December 31, 2021, 2020, and 2019, the Company had tax-effected federal net operating losses (“NOL”), of $58.4, $52.8, and $52.8 million, respectively. The operating losses generated prior to 2019 will expire in years 2022 through 2038, unless previously utilized. The federal operating loss carryforward generated in 2019 and later can be carried forward indefinitely and can be used to offset up to 80% of taxable income of each future tax year. For the years ended

December 31, 2021, 2020, and 2019, the Company had tax-effected state NOLs of $10.4, $8.0, and $5.9 million, respectively. The operating losses will expire in years 2022 through 2040, unless previously utilized.

For the years ended December 31, 2021, 2020, and 2019, the Company had federal research and development credit carryforwards of $11.3 million, $11.4 million, and $11.9 million, respectively. The credits will expire in the years 2022 through 2040.

For the years ended December 31, 2021, 2020, and 2019, the Company had state research and development credit carryforwards of $3.5 million, $3.5 million, and $3.5 million respectively. The credits will expire in the years 2022 through 2036, unless previously utilized.

For the years ended December 31, 2021, 2020, and 2019, the Company had orphan drug tax credit carryforwards of $20.1 million, $18.8 million, and $18.1 million, respectively. These credits, if any, relate to qualified expenses incurred for fimepinostat and emavusertib (CA-4948) since receiving the Orphan Drug designation.

As required by U.S. GAAP, the Company’s management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. Accordingly, a valuation allowance of approximately $167.4 million has been established at December 31, 2021.

The valuation allowance increased approximately $6.4 million and $1.2 million during the years ended December 31, 2021 and 2020. The increases in the valuation allowance are primarily due to an increase in net deferred tax assets with an offsetting valuation allowance related to income recorded for tax related to the Oberland royalty purchase agreement.

Utilization of the NOL may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a §382 study in 2019 and determined no ownership changes have occurred and no limitation on NOLs through December 31, 2018. There could be additional ownership changes in the future, which may result in additional limitations in the utilization of the carryforward NOLs and credits, and the Company does not expect to have any taxable income for the foreseeable future.

An individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. At December 31, 2021 and 2020, the Company had no unrecognized tax benefits. The Company has not, as yet, conducted a study of its R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under FASB Codification Topic 740 Income Taxes. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required.

The tax years 2006 through 2021 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the U.S., as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period. The Company is currently not under examination by the IRS or any other jurisdictions for any tax years. The Company recognizes both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest or penalties on any unrecognized tax benefits since its inception.