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Income Taxes
12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

9. INCOME TAXES

 

There was no provision for income taxes for the years ended December 31, 2024 and 2023, because the Company has incurred losses since inception. At December 31, 2024 and 2023 the Company concluded it was not more likely than not that it would realize its deferred tax assets, and therefore has recorded a full valuation allowance.

For the years ended December 31, 2024 and 2023, income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pre-tax loss as follows (in thousands):

 

 

2024

 

 

2023

 

U.S. federal provision (benefit)

 

 

 

 

 

 

At statutory rate

 

$

(8,786

)

 

$

(6,192

)

State taxes

 

 

(2,958

)

 

 

(2,492

)

Valuation allowance

 

 

12,156

 

 

 

9,129

 

Tax credits

 

 

(1,136

)

 

 

(836

)

Stock-based compensation

 

 

709

 

 

 

371

 

Permanent differences

 

 

15

 

 

 

20

 

Total

 

$

 

 

$

 

 

Significant components of the Company’s deferred tax assets at December 31, 2024 and 2023 are shown below.

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating losses

 

$

143,896

 

 

$

136,901

 

Research and development tax credits

 

 

20,513

 

 

 

19,240

 

Amortization

 

 

603

 

 

 

730

 

Lease liability

 

 

2,625

 

 

 

3,018

 

Stock based compensation

 

 

1,167

 

 

 

809

 

Other

 

 

491

 

 

 

449

 

Capitalized R&D

 

 

10,041

 

 

 

6,466

 

Total gross deferred tax assets

 

 

179,336

 

 

 

167,613

 

Less: valuation allowance

 

 

(176,799

)

 

 

(164,643

)

Total deferred tax assets

 

 

2,537

 

 

 

2,970

 

Deferred tax liability:

 

 

 

 

 

 

Right-of-use assets

 

 

(2,518

)

 

 

(2,970

)

Fixed assets

 

 

(19

)

 

 

 

Total gross deferred tax liabilities

 

 

(2,537

)

 

 

(2,970

)

Net deferred tax assets

 

$

 

 

$

 

 

The valuation allowance increased by $12.2 million from December 31, 2023 to December 31, 2024 due primarily to the generation of net operating losses and research and development credits.

As of December 31, 2024, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $502.2 million and $487.8 million, respectively. As of December 31, 2023, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $482.1 million and $457.8 million, respectively.

The federal and state net operating loss carryforwards begin to expire in 2031 and 2024, respectively, if not utilized. Federal net operating losses of $281.1 million are not subject to expiration.

As of December 31, 2024, the Company had federal and state research and development carryforwards of approximately $14.1 million and $4.1 million, respectively. The Company also had $7.4 million of Orphan Drug Credit. As of December 31, 2023, the Company had federal and state research and development carryforwards of approximately $12.7 million and $4.0 million, respectively. The federal and state credits begin to expire in 2031 and 2029, respectively, if not utilized; $3.0 million of the state credits can be carried forward indefinitely.

Utilization of some of the federal and state net operating loss and credit carryforwards may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed a Section 382 study as of December 31, 2024. At least $455.8 thousand of legacy Millendo federal net operating losses are expected to expire unused due to prior ownership changes.

The Company has the following activity relating to unrecognized tax benefits as of December 31, 2024 and 2023:

 

 

2024

 

 

2023

 

Beginning balance

 

$

4,923

 

 

$

4,650

 

Gross increase - tax position in current period

 

 

316

 

 

 

273

 

Ending balance

 

$

5,239

 

 

$

4,923

 

As of December 31, 2024 and 2023, none of the unrecognized tax benefits would impact the Company's effective tax rate due to the valuation allowance. The Company does not anticipate the uncertain tax positions will materially change in the next 12 months. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the accompanying balance sheet as of December 31, 2024 and 2023,

respectively, and has not recognized penalties and/or interest in the accompanying statements of operations for the years ended December 31, 2024 and 2023, respectively.

The Company is subject to taxation in the United States, California, Massachusetts, and Michigan. The Company's tax years from inception are subject to examination by the IRS and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits.