Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

No provision for income taxes was recorded for the years ended December 31, 2023, December 31, 2022 and December 31, 2021. The Company has incurred net operating losses only in the United States since its inception. The Company has not reflected any benefit of such net operating loss carryforwards in the financial statements.

The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

	Year Ended December 31,
	2023			2022			2021
Federal statutory income tax rate		21.0	%		21.0	%		21.0	%
State income taxes		1.3	%		1.9	%		0.7	%
Change in valuation allowance		(29.1	%)		(23.4	%)		(25.2	%)
Stock Based Compensation		0.7	%		(1.2	%)		(0.2	%)
Research tax credits		8.3	%		4.4	%		3.8	%
Other permanent differences		(0.1	%)		(0.1	%)		(0.1	%)
Section 162(m) Limitation		(2.1	%)		(2.6	%)		0.0	%
Provision for income taxes		0.0	%		0.0	%		0.0	%

The tax effects of temporary differences and carryforwards of the deferred tax assets are presented below (in thousands):

	As of December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	34,717		$	31,777
Research and development credit carryforwards		19,997			9,454
Lease liability		610			739
Intangible assets		1,096			1,166
Stock-based compensation		2,593			1,713
Accruals and reserves		1,257			1,666
Deferred revenue		-			2,881
Capitalized research & development expenditures		36,267			15,134
Gross deferred tax assets		96,537			64,530
Less: Valuation allowance		(95,888	)		(63,761	)
Deferred tax assets, net of valuation allowance		649			769
Deferred tax liabilities:
Right-of-use assets		(477	)		(527	)
Property and equipment		(172	)		(242	)
Net deferred tax assets	$	—		$	—

The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

As of December 31, 2023, the Company had net operating loss carryforwards of $135.3 million available to reduce future taxable income, if any, for federal income tax purposes. As of December 31, 2023, the Company had net operating loss carryforwards of $89.6 million available to reduce future taxable income, if any, for state income tax purposes. If not utilized, the federal carryforwards of $11.6 million and the state carryforwards of $89.6 million will begin to expire in 2037 and 2036, respectively. The federal net operating loss carryforwards of $123.7 million arising after December 31, 2017 do not expire.

The Company also had federal and state research and development credit carryforwards of $12.0 million and $6.4 million, respectively. The Company also had Orphan Drug Credits, or ODC, related to the orphan drug designation of darovasertib in 2022, of $6.3 million. The federal credits will expire starting in 2037 if not utilized, and the state research credit can be carried forward indefinitely.

The Tax Reform Act of 1986 limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed a Section 382 analysis through December 31, 2023. The Company has not experienced ownership changes in the current year. Subsequent ownership changes may affect the limitation in future years.

Related to unrecognized tax benefits noted below, the Company accrued no penalties or interest during the years ended December 31, 2023, December 31, 2022 and December 31, 2021. The Company does not expect its unrecognized tax benefit balance to change materially over the next 12 months.

The Company had $3.8 million and $2.0 million of unrecognized tax benefits as of December 31, 2023 and December 31, 2022, respectively.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands).

Balance as of January 1, 2022	$	1,304
Increase related to prior year tax positions		51
Increase related to current year tax positions		607
Balance as of December 31, 2022	$	1,962
Increase related to prior year tax positions		372
Increase related to current year tax positions		1,488
Balance as of December 31, 2023	$	3,822

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Arizona, California, New Jersey, Wisconsin, North Carolina and Pennsylvania. For jurisdictions in which tax filings have been filed, all tax years 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 losses or credits.

The Inflation Reduction Act was signed into law on August 16, 2022, and contained several tax provisions to curb inflation by reducing the deficit, lowering prescription drug prices, investing into domestic energy production while promoting clean energy, and introduced the topic of corporate alternative minimum tax on applicable corporations. There is no impact to the Company’s current tax provision.

In accordance with the 2017 Tax Act, research and experimental (R&E) expenses under Internal Revenue Code Section 174 are required to be capitalized beginning in 2022. R&E expenses are required to be amortized over a period of 5 years for domestic expenses and 15 years for foreign expenses. The Company has reflected this in its current tax provision.

The Company is under audit in California for tax years 2020-2021.