Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. 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, 2023 and 2022, the Company recorded net operating losses of approximately $62.7 million and $55.3 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, 2023 and 2022.

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,
	2023			2022
Income tax computed at federal statutory tax rate		21.0	%		21.0	%
Permanent differences		(2.1	)%		(1.4	)%
State taxes, net of federal benefit		6.7	%		4.9	%
Research and development and other tax credits		5.2	%		4.4	%
Change in deferred tax asset valuation allowance		(31.0	)%		25.8	%
Loss of Attributes - IRC 382 Ownership Change		0.5	%		(54.7	)%
Other		(0.3	)%		—
		—	%		—	%

Net deferred tax assets as of December 31, 2023 and 2022 consist of the following (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	29,999		$	25,154
Research and development credits		5,026			1,751
Stock-based compensation		1,132			1,295
Operating lease liabilities		7,466			583
Capitalized research & experimental expenditures		19,036			9,076
Deferred revenue		3,768			2,763
Other		920			474
Total gross deferred tax assets		67,347			41,096
Less: valuation allowance		(59,956	)		(40,512	)
Total deferred tax assets		7,391			584
Deferred tax liabilities:
Operating lease right-of-use assets		(7,391	)		(584	)
Total deferred tax liabilities		(7,391	)		(584	)
Net deferred taxes	$	—		$	—

As of December 31, 2023, 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 $104.6 million of federal net operating loss carryforwards that may be carried forward indefinitely. As a result of the IRC 382 study performed during the prior year the Company wrote off $125.8 million of state net operating losses and $2.8 million of state research and development credits. The Company updated their 382 study in the current year given the changes to the Massachusetts apportionment to single sales resulting in a reduced amount of $121.2 million. As of December 31, 2023, the Company had state net operating loss carryforwards of approximately $48.3 million which may be available to offset future income tax liabilities and expire at various dates through 2043.

As of December 31, 2023 and 2022, the Company had federal research and development tax credit carryforwards of approximately $4.2 million and $1.4 million, respectively, available to reduce future tax liabilities which expire at various dates through 2043. As of December 31, 2023 and 2022, the Company had state research and development tax credit carryforwards of approximately $1.1 million and $0.4 million, respectively, available to reduce future tax liabilities which expire at various dates through 2038. 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 had performed an IRC 382 study during the prior year which resulted in identifying three separate ownership changes that occurred on March 31, 2006, January 17, 2020, and April 13, 2022. We performed an update assessment to our 382 analysis in conjunction with the December 31, 2023 annual audit noting no additional ownership change. For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs or research and development credit carryforwards even if we attain profitability.

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, 2023 and 2022 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 $60 million and $40.5 million,

respectively, has been established at December 31, 2023 and 2022. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance decreased by approximately $19.5 million during the year ended December 31, 2023 due primarily to the generation of net operating losses compared to the decrease by approximately $14.2 million during the year ended December 31, 2022 due primarily to the write-off of net operating losses and research and development credits as a result of the IRC 382 study.

The Company has recorded adjustments to deferred tax assets for unrecognized tax benefits as of December 31, 2023 and 2022. 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, 2023 and 2022, 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, 2020. 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.