Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands):

	December 31,
	2021			2020
United States	$	(66,464	)	$	(49,961	)
Foreign		(2,740	)		(1,941	)
	$	(69,204	)	$	(51,902	)

The components of the provision for income taxes related to Korean withholding taxes on the near-term milestone payment the Company received pursuant to the Hanmi Agreement are as follows (in thousands):

	December 31,
	2021		2020
Current
Foreign		—	$	990
Total provision for income taxes	$	—	$	990

A reconciliation of the statutory U.S. federal rate and effective rate is as follows:

	December 31,
	2021			2020
Federal tax		21.00	%		21.00	%
Stock-based compensation		(0.76	)		(0.55	)
Research and development tax credit		2.39			2.83
Foreign losses not benefited		(2.14	)		—
Withholding taxes, net of federal benefit		—			(1.51	)
Change in valuation allowance		(20.86	)		(23.99	)
Other		0.37			0.31
Income tax expense		—	%		(1.91	%)

The Company has incurred net operating losses for all periods since inception. The Company has not reflected any benefit of such net operating loss carryforwards in the accompanying financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	49,791		$	38,665
Federal and state research and development tax credits		7,756			6,103
Accrued liabilities and reserves		1,644			1,089
Stock-based compensation		2,331			1,273
Gross deferred tax assets		61,522			47,130
Valuation allowance		(61,488	)		(47,060	)
Deferred tax liabilities:
Depreciation and amortization		(34	)		(70	)
Gross deferred tax liabilities		(34	)		(70	)
Net deferred taxes	$	—		$	—

Realization of deferred tax assets is dependent upon future taxable income, if any. The Company has established a valuation allowance to offset deferred tax assets as of December 31, 2021 and 2020, due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The valuation allowance increased by approximately $14.4 million and $12.5 million during the years ended December 31, 2021 and 2020, respectively. The increase in the valuation allowance is mainly related to the increase in net operating loss carryforwards incurred during the respective taxable years.

As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $233.1 million and $177.2 million, respectively. The federal net operating loss carryforwards generated during and after fiscal 2018 are carried forward indefinitely, while all others, along with the federal tax credit carryforwards, expire in years beginning in 2035. As of December 31, 2021 and 2020, the Company had state net operating loss carryforwards of approximately $12.1 million, which begin to expire in 2035 and are available to offset future taxable income. As of December 31, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $6.1 million and $4.8 million, respectively. As of December 31, 2021 and 2020, the Company had state research and development tax credit carryforwards of approximately $5.5 million and $4.3 million, respectively. Moreover, as of December 31, 2021, the Company recorded federal and state reserves of approximately $1.5 million and $1.4 million, respectively, as uncertain tax positions. If not utilized, the federal credit carryforwards will begin expiring in 2035. The state credits carry forward indefinitely.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The tax relief measures under the CARES Act for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The CARES Act did not have a material effect on the realizability of deferred income tax assets or tax expense in 2021. The Company claimed employee retention tax credits in the amount of $0.4 million for the year ended December 31, 2020.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. As a result of such ownership changes, the Company’s ability to realize the potential future benefit of tax losses and tax credits that existed at the time of the ownership change may be significantly reduced. The Company’s deferred tax asset and related valuation allowance would be reduced as a result. The Company has not yet performed a Section 382 study to determine the amount of reduction, if any. The annual limitation may result in the expiration of net operating losses and credits before utilization. Under the new enacted law, the carryforward period of net operating losses generated from 2018 forward is indefinite; however, the carryforward period for net operating losses generated prior to 2018 remains the same. Therefore, the annual limitation may still result in the expiration of certain net operating losses and tax credit carryforwards before their utilization. On February 9, 2022, California Senate Bill 113 “SB 113” was signed into law. SB 113 lifted the limitation for California NOL and Credit utilization disallowed by California Assembly Bill 85. Given the Company’s expected loss position in the current year, the new legislations will not impact the current year provision. The Company will continue to monitor possible California net operating loss and credit limitation in future periods..

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2021 and 2020 resulting primarily from research and development tax credits claimed for both US and foreign operations on the Company’s annual tax returns were as follows (in thousands):

	December 31,
	2021		2020
Balance at beginning of year	$	2,291	$	1,747
Additions on tax positions related to prior years		807		—
Additions on tax positions related to current year		1,336		544
Balance at end of year	$	4,434	$	2,291

The Company does not expect that its uncertain tax positions will materially change in the next 12 months. The reversal of uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets. In accordance with ASC 740, the Company would classify interest and penalties related to uncertain tax positions in income tax expense, if applicable. There was no interest expense or penalties related to unrecognized tax benefits through December 31, 2021.

The Company files income tax returns with varying statutes of limitations in the United States, various states and foreign jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All tax returns remain open for examination by federal and state authorities. The tax years from inception in 2015 forward remain open to examination due to the carryover of unused net operating losses and tax credits.