Income taxes

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income taxes

9. Income taxes

The Company recorded provisions for income taxes of $0.4 million, $0.3 million, and $0.2 million for the years ended September 30, 2020, 2019, and 2018, respectively.

The significant components of the Company’s deferred tax assets and liabilities are as follows:

	September 30,
(in thousands)	2020			2019
Net operating loss carryforwards	$	112,434		$	73,341
Research and development credit carryforwards		9,407			6,831
Operating lease liability		7,506			—
Other		5,639			4,553
Gross deferred tax assets		134,986			84,725
Less: Valuation allowance		(127,336	)		(84,598	)
Net deferred tax assets		7,650			127
Fixed assets		(105	)		(1	)
Operating lease right-of-use asset		(7,498	)		—
Intangible assets		(47	)		(126	)
Gross deferred tax liabilities		(7,650	)		(127	)
Total net deferred tax asset	$	—		$	—

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

	Year ended September 30,
	2020			2019			2018
Tax expense computed at the federal statutory rate		21	%		21	%		24	%
Change in valuation allowance		(25	)%		(22	)%		4	%
Research and development credit benefit		1	%		1	%		1	%
Change in federal tax rate		—			—			(28	)%
Stock-based compensation		3	%		—			—
Other expenses		—			—			(1	)%
Total income tax expense		—	%		—	%		—	%

Based on the available objective evidence, management believes it is more likely than not that the deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its deferred tax assets at September 30, 2020 and 2019.

As of September 30, 2020, the Company had net operating loss carryforwards of approximately $448.8 million and $278.4 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The net operating losses will begin to expire in fiscal 2032.

The Company also had federal and state research and development credit carryforwards of approximately $8.0 million and $6.9 million, respectively, at September 30, 2020. The federal credits will expire starting in 2033 if not utilized. The California research and development credits have no expiration date. Utilization of the net operating losses and tax credits is subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations may result in the expiration of the net operating losses and tax credits before utilization.

The provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes, prescribe a comprehensive model for the recognition, measurement, and presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. The Company has identified uncertain tax positions related to federal and state research and development credits.

The aggregate changes in the balance of gross unrecognized tax benefits are as follows:

(in thousands)	Federal and state
Balance as of September 30, 2017	$	1,625
Increases related to tax positions taken during 2018		624
Balance as of September 30, 2018		2,249
Increases related to tax positions taken during 2019		1,042
Balance as of September 30, 2019		3,291
Increases related to tax positions taken during 2020		1,409
Balance as of September 30, 2020	$	4,700

The Company does not expect a material change in unrecognized tax benefits in the next twelve months. As of September 30, 2020, approximately $0.2 million of unrecognized tax benefit would, if recognized, impact the Company’s effective income tax rate.

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s management determined that no accrual for interest and penalties was required as of September 30, 2020 and 2019.

The Company’s tax years from 2014 through 2019 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or tax credits. The Company currently has no federal or state tax examinations in progress.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the Tax Act, was enacted into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one time transition tax on the mandatory deemed repatriation of foreign earnings. For net operating losses generated in the years beginning after December 31, 2017, utilization is limited to 80% of taxable income with an unlimited carryforward period. The Company recognized the effect of the tax law changes in the period of enactment, which required a remeasurement of its U.S. deferred tax assets and liabilities. The Company has completed its analysis and accounting with respect to the Tax Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law. The CARES Act changes certain provisions of the Tax Act. The Tax Act and CARES Act did not have a material impact on the Company’s financial statements due to its historical losses and valuation allowance.