Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance. The provision for income taxes for the year ended December 31, 2022 was $0.7 million.There was no provision for taxes for the years ended December 31, 2021 and December 31, 2020.

A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Federal statutory income tax	$	(11,447)	$	17,352	$	(14,559)
State and local income taxes	(615)		783		(4,659)
Research and development credit	(9,366)		(10,492)		(9,669)
Stock-based compensation	3,384		2,424		529
Foreign-derived intangible income	(1,449)		—		—
Other	(74)		95		56
Change in state rate	44		2,599		—
Net change in valuation allowance	20,196		(12,761)		28,302
Income tax provision	$	673	$	—	$	—

The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2022 and 2021 is presented below (in thousands):

	December 31,
	2022		2021
Deferred income tax assets
Net operating loss carryforwards	$	32,898	$	46,629
Research credits	54,825		48,128
Unrealized loss on securities	1,573		327
Capitalized lease assets	5,564		489
Accrued compensation	14,484		9,207
Capitalized research and development costs	21,338		—
Gross deferred income tax assets	130,682		104,780
Valuation allowance	(115,010)		(93,580)
Net deferred income tax assets	15,672		11,200
Deferred income tax liabilities
Patent costs	(2,885)		(3,416)
Deferred revenue	3,225		(3,508)
Licensing costs	(124)		(151)
Capitalized legal costs	(9)		(13)
Depreciation	(6,532)		(288)
Unrealized gain on securities	(9,347)		(3,824)
Gross deferred income tax liabilities	(15,672)		(11,200)
Net deferred income tax asset	$	—	$	—

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted in December 2017 and made substantial changes in the U.S. tax system. One of the changes was elimination of the AMT tax system for corporations and allowance of an income tax refund for AMT tax credit carryforwards. We have received an income tax refund of $0.8 million for the year ended December 31, 2020 for U.S. AMT credit carryforwards. The other significant change made by the TCJA requires research and development costs incurred after December 31, 2021 to be capitalized and amortized over several years. We have recorded a deferred asset as of December 31, 2022 for such capitalized research and development costs. We have net deferred tax assets relating primarily to net operating loss carryforwards and research and development tax credit carryforwards. Due to the uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets at December 31, 2022 and 2021. The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years. During the year ended December 31, 2022, the valuation allowance increased by $21.4 million. The Company’s tax years starting in 2018 through 2021 remain open to potential examination by the U.S. and state taxing authorities due to carryforwards of net operating losses.

As of December 31, 2022, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $102.4 million and $162.1 million, respectively, and available tax credit carryforwards of approximately $38.7 million for federal income tax purposes and $20.4 million for state income tax purposes, which can be carried forward to offset future taxable income, if any. The federal net operating loss carryforwards consist of $59.0 million of losses incurred prior to January 1, 2018, which are subject to carryforward limitations and $43.4 million of losses incurred after January 1, 2018, which may be carried forward indefinitely.

Our federal net operating loss carryforwards expire starting in 2027, state net operating loss carryforwards expire starting in 2035, and federal tax credit carryforwards begin to expire in 2034. Utilization of our net operating loss and tax credit carryforwards are subject to a substantial annual limitation under Section 382 of the Code due to the fact that we have experienced ownership changes. As a result of these changes, certain of our net operating loss and tax credit carryforwards may expire before we can use them.