Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

We recorded an income tax provision of $0.3 million, $0.4 million, and $0.3 million, respectively, for the years ended December 31, 2023, 2022 and 2021. Our current income tax provision consists of state income tax due from our KPSC entity, as well as foreign income taxes due from our German and Israel subsidiaries, both of which operate on a cost-plus profit margin. We did not have a deferred income tax provision for the years ended December 31, 2023, 2022 and 2021.

The components of income (loss) before income taxes were as follows (in thousands):

	For the Years Ended December 31,
	2023			2022			2021
Foreign	$	247		$	892		$	(30,052	)
U.S.		(143,023	)		(165,814	)		(93,768	)
Total	$	(142,776	)	$	(164,922	)	$	(123,820	)

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of our deferred tax assets are comprised of the following (in thousands):

	As of December 31,
	2023			2022
Deferred tax assets:
U.S. and state net operating loss carryforwards	$	198,158		$	189,629
Research and development credits		108,682			100,436
Fixed assets and intangible assets		25,028			27,312
Stock-based compensation		8,500			13,818
Accruals and other temporary differences		6,380			6,613
Interest Expense - Sec 163(j)		6,894			9,236
Lease liability		1,461			2,193
Deferred royalty obligation		8,310			1,805
Capitalized research and development		47,986			27,748
Deferred royalty embedded derivative		671			679
Unicap - Sec 263A		800			1,214
Valuation allowance		(411,838	)		(379,166	)
Total deferred tax assets		1,032			1,517
Deferred tax liabilities:
Convertible debt amortization		(7	)		(5	)
Right-of-use asset		(1,025	)		(1,512	)
Total deferred tax liabilities		(1,032	)		(1,517	)
Net deferred tax assets	$	—		$	—

The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for us during 2022 and resulted in capitalized research and development costs of $135.9 million and $131.4 million as of December 31, 2023 and 2022, respectively. We will amortize these costs for tax purposes over 5 years for research and development performed in the U.S. and over 15 years for research and development performed outside the U.S.

We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets. Based on our history of operating losses, we have concluded that it is more likely than not that the benefit of our deferred tax assets will not be realized. Accordingly, we have provided a full valuation allowance for deferred tax assets as of December 31, 2023 and 2022. The valuation allowance increased by approximately $32.7 million during the year ended December 31, 2023 primarily due to increased capitalization of research and development expenditures as required by changes to the tax laws from the TCJA as described above and increased U.S. and state net operating loss carryforwards due to the generation of taxable losses in 2023.

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

	For the Years Ended December 31,
	2023			2022			2021
Federal income tax expense at statutory rate		21.0	%		21.0	%		21.0	%
State income tax, net of federal benefit		4.0	%		4.0	%		0.8	%
Permanent differences		(1.0	)%		(3.3	)%		(2.7	)%
Research and development credit		7.3	%		6.3	%		11.3	%
Foreign rate differential		—	%		—	%		(5.2	)%
Change in valuation allowance		(22.9	)%		(29.3	)%		(35.4	)%
Migrated intellectual property		—	%		—	%		13.9	%
Stock-based compensation and 162m adjustment		(5.0	)%		(2.0	)%		(4.3	)%
Provision to return adjustments		(2.8	)%		—	%		(0.5	)%
Other		(0.8	)%		3.1	%		0.9	%
Effective income tax rate		(0.2	)%		(0.2	)%		(0.2	)%

As of December 31, 2023, 2022 and 2021, we had U.S. federal net operating loss carryforwards of approximately $768.5 million, $737.4 million and $735.2 million, respectively, which may be able to offset future income tax liabilities. Of the $768.5 million carryforward as of December 31, 2023, $475.6 million of the carryforward has an indefinite life and $292.9 million will expire at various dates through 2037. As of December 31, 2023, 2022 and 2021, we had U.S. state net operating loss carryforwards of approximately $655.7 million, $616.4 million and $590.3 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates through 2043. As of December 31, 2023, 2022 and 2021, we did not have any foreign net operating loss carryforwards to offset future foreign income tax liabilities.

As of December 31, 2023, 2022 and 2021, we had federal research and development and orphan drug tax credit carryforwards of approximately $99.3 million, $90.9 million and $80.6 million, respectively, available to reduce future tax liabilities, which expire at various dates through 2043. As of December 31, 2023, 2022 and 2021, we had state research and development tax credit carryforwards of approximately $11.9 million, $12.0 million and $9.4 million, respectively, available to reduce future tax liabilities, which expire at various dates through 2038. We completed a study of research and development tax credits through December 31, 2022 and adjusted our deferred tax asset for the results of that study. For the year ended December 31, 2023, we generated research credits but have not conducted a study to document the qualified activities. This study may result in an adjustment to our 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 our 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.

Prior to executing the Original Menarini Agreement in December 2021, the rights to, among other things, develop, manufacture and commercialize selinexor in the Menarini Territory were transferred from our former Bermuda subsidiary, Karyopharm Therapeutics (Bermuda) Ltd., to Karyopharm Therapeutics Inc. For tax purposes, the transfer is treated as a return of capital and the fair market value of the rights are recorded as an intangible asset that is amortized over a fifteen-year period. The fair market value of the rights was determined to be equal to the $75.0 million upfront payment we received from Menarini and was recorded as a $17.2 million deferred tax asset, fully offset by a valuation allowance.

Under the provisions of the Internal Revenue Code, 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 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of us immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Previously, we have completed several financings since our inception, which have resulted in changes in control as defined by Sections 382 and 383 of the Internal Revenue Code. We reduced our deferred tax assets for tax attributes we believe will expire unused. In the future, we may complete financings that could result in a change in control, which will reduce our deferred tax assets for tax attributes we believe will expire unused due to the change in control limitations.

We will recognize interest and penalties related to uncertain tax positions in the income tax provision. As of December 31, 2023, 2022 and 2021, we had no accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized.

We or one of our subsidiaries file income tax returns in the U.S. and various state and foreign jurisdictions. Our federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2020 through December 31, 2023. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.