Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The Company records a provision or benefit for income taxes on pre-tax income or loss based on its estimated effective tax rate for the year. During the years ended December 31, 2022 and 2021, the Company recorded net losses of approximately $55.3 million and $43.5 million, respectively, and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit for the years ended December 31, 2022 and 2021.

A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes reflected in the consolidated financial statements is as follows:

	Year Ended December 31,
	2022			2021
Income tax computed at federal statutory tax rate		21.0	%		21.0	%
Permanent differences		(1.4	)%		(0.3	)%
State taxes, net of federal benefit		4.9	%		4.9	%
Research and development and other tax credits		4.4	%		4.7	%
Change in deferred tax asset valuation allowance		25.8	%		(30.4	)%
Loss of Attributes - IRC 382 Ownership Change		(54.7	)%
Other		—			0.1	%
		—	%		—	%

Net deferred tax assets as of December 31, 2022 and 2021 consist of the following (in thousands):

	December 31,
	2022			2021
Deferred tax assets:
Net operating loss carryforwards	$	25,154		$	46,462
Research and development credits		1,751			7,288
Stock-based compensation		1,295			848
Operating lease liabilities		583			382
Capitalized research & experimental expenditures		9,076			—
Deferred revenue		2,763			—
Other		474			73
Total gross deferred tax assets		41,096			55,053
Less: valuation allowance		(40,512	)		(54,697	)
Total deferred tax assets		584			356
Deferred tax liabilities:
Operating lease right-of-use assets		(584	)		(356	)
Total deferred tax liabilities		(584	)		(356	)
Net deferred taxes	$	—		$	—

As a result of the Internal Revenue Code, or IRC, 382 study performed during the current year the Company has written off $67.6 million of federal net operating losses and $5.7 million of federal research and development credits. As of December 31, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $23.7 million which may be able to offset future income tax liabilities and expire at various dates through 2037 and approximately $88.4 million of federal net operating loss carryforwards that may be carried forward indefinitely. As a result of the IRC 382 study performed during the current year, the Company has written off $125.8 million of state net operating losses and $2.8 million of state research and development credits. As of December 31, 2022, the Company had state net operating loss carryforwards of approximately $25.5 million which may be available to offset future income tax liabilities and expire at various dates through 2042.

As of December 31, 2022 and 2021, the Company had federal research and development tax credit carryforwards of approximately $1.4 million and $5.2 million, respectively, available to reduce future tax liabilities which expire at various dates through 2042. As of December 31, 2022 and 2021, the Company had state research and development tax credit carryforwards of approximately $0.4 million and $2.7 million, respectively, available to reduce future tax liabilities which expire at various dates through 2037. The Company has generated research credits but has not conducted a study to document the qualified activity. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

Under the provisions of the IRC, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. The Company has performed an IRC 382 study during the year which resulted in identifying three separate ownership changes that occurred on March 31, 2006, January 17, 2020, and April 13, 2022. Based on these ownership changes and the calculated IRC 382 annual limitations, the Company has written off $67.6 million of federal net operating losses and $5.7 million of federal research and development credits. For state purposes, the Company has written off $125.8 million of state net operating losses and $2.8 million of state research and development credits. The remainder of the attributes have an annual limitation that will impact how the attributes may be utilized in the future.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax

assets at December 31, 2022 and 2021 because the Company’s management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets primarily due to its history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and, as a result, a valuation allowance of approximately $40.5 million and $54.7 million, respectively, has been established at December 31, 2022 and 2021. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance decreased by approximately $14.2 million during the year ended December 31, 2022 due to the write-off of net operating losses and research and development credits as a result of the IRC 382 study compared to the increase of approximately $13.2 million, respectively, during the year ended December 31, 2021 due primarily to the generation of net operating losses.

The Company has recorded adjustments to deferred tax assets for unrecognized tax benefits as of December 31, 2022 and 2021. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of its income tax provision. As of December 31, 2022 and 2021, the Company had not accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized in the Company’s statement of operations and comprehensive loss. In many cases, the Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. The statute of limitations for federal and state tax authorities is closed for years prior to December 31, 2019. However, since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.