Income taxes

12 Months Ended

Dec. 31, 2024

Income taxes

Income taxes

12. Income taxes

A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
		2024		2023
Federal tax benefit at statutory rate		21.0	%	21.0	%
State tax, net of federal benefit		0.5		(1.3)
Research and development credits		2.1		0.7
Share-based compensation		(0.7)		(0.9)
Write-off of IPR&D		—		(15.9)
Change in valuation allowance		(22.8)		(3.6)
Other		(0.1)		—
		—	%	—	%

The components of the Company’s deferred taxes are as follows (in thousands):

	December 31,
	2024		2023
Deferred tax assets:
Net operating loss carryforwards	$	29,346	$	22,784
Research and development intangibles		62,188		10,135
Research and development credits		10,021		3,782
Share-based compensation		2,385		2,533
Deferred revenue		1,474		—
Accruals and reserves		1,236		546
Lease liability		1,026		350
Other		77		75
Gross deferred tax assets		107,753		40,205
Less: valuation allowance		(106,720)		(39,827)
Net deferred tax asset		1,033		378
Deferred tax liability
Depreciation		(125)		(46)
Right-of-use asset		(908)		(332)
Total deferred tax liabilities		(1,033)		(378)
Net deferred taxes	$	—	$	—

The Company had no income tax expense due to the operating losses utilization for the years ended December 31, 2024 and 2023. Management has evaluated the positive and negative evidence bearing upon the realizability of the Company’s net deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of the net deferred tax assets. As a result, the Company has recorded a full valuation allowance at December 31, 2024 and 2023. The valuation allowance increased by $66.9 million and $9.2 million in 2024 and 2023, respectively, due to capitalized IPR&D expense, increase in net operating loss carryforwards and research and development tax credits, and deductible accrued expenses.

Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership, including a sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss and other attributes including research and development credit carry forwards which could be used annually to offset future taxable income. Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. Based upon the evaluation of ownership changes through December 31, 2024, the Company believes that an ownership change likely occurred as a result of the Morphimmune transaction on October 2, 2023, that could limit the Company’s ability to utilize its net operating loss or research and development credit carryforwards. The Company has not generated taxable income or a current tax liability and has not utilized its net operating loss or research and development credit carryforwards as of December 31, 2024.

As of December 31, 2024, the Company had $119.9 million of federal and $95.6 million of state net operating loss carryforwards. If not utilized, the federal and state net operating loss carryforwards expire starting in 2027. Included in the federal net operating loss carryforwards are $102.8 million of net operating losses generated from 2018 to 2024 that will not expire and are limited to offset 80% of the Company’s taxable income for years beginning after December 31, 2020. Certain federal and state net operating loss carryforwards expire at various dates through 2043. As of December 31, 2024, the Company had cumulative $9.9 million of federal and $0.2 million of state R&D tax credits. These tax credit carryforwards will expire at various dates through 2044.

A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows (in thousands):

	December 31,
	2024		2023
Beginning balance	$	37	$	37
Additions for tax positions taken in prior years		19		—
Ending balance	$	56	$	37

If the unrecognized tax benefits for uncertain tax positions as of December 31, 2024 are recognized, there will be no impact to the effective tax rate due to the valuation allowance. The Company recognizes interest and penalties related to the unrecognized tax benefits as a component of income tax expense. As of December 31, 2024, there were no material interest and penalties on uncertain tax benefits. The Company does not anticipate any significant changes to its unrecognized tax benefits in the next 12 months.

The Company filed income tax returns in the United States and Pennsylvania in all tax years since inception. The tax years 2006 and beyond remain open to examination by these jurisdictions. Carryforward attributes generated in all years since inception remain subject to adjustment. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for these years.