Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31, 2023			Year Ended December 31, 2022
Federal income tax at statutory rate		21.00	%		21.00	%
Permanent differences		(0.71	)		(0.46	)
Federal and state research and development credits		1.47			1.44
Federal orphan drug credits		9.41			7.23
State income tax, net of federal benefit		5.92			5.78
Officers' compensation		(1.06	)		(0.23	)
Impact of ownership change		—			(2.92	)
Other		(0.10	)		(0.13	)
Change in valuation allowance		(35.93	)		(31.71	)
Effective income tax rate		—	%		—	%

During the years ended December 31, 2023 and 2022, the Company incurred book and tax losses and, because it maintains a full valuation allowance on its net deferred tax assets, did not recognize federal or state income tax expense or benefit.

The Company’s deferred tax assets and liabilities consist of the following (in thousands):

	December 31, 2023			December 31, 2022
Deferred tax assets:
Net operating loss carryforwards	$	85,622		$	75,005
Capitalized research and development costs		30,019			16,911
Orphan drug credit carryforwards		23,790			14,628
Research and development credit carryforwards		11,569			10,140
Intangible assets		6,291			6,918
Accrued expenses and other		6,740			5,232
Operating lease liability		2,911			3,613
Deferred revenue		—			251
Gross deferred tax assets		166,942			132,698
Valuation allowance		(164,483	)		(129,512	)
Net deferred tax assets		2,459			3,186
Deferred tax liability		(2,459	)		(3,186	)
Net deferred tax assets	$	—		$	—

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the net deferred tax assets. The Company considered its history of cumulative net losses incurred since inception and its lack of commercialization of any products since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2023 and 2022. The valuation allowance increased by $35.0 million during the year ended December 31, 2023, which is primarily attributable to increases in net operating loss carryforwards as a result of current year net losses, increases in capitalized research and development costs, and the generation of research and development and orphan drug tax credit carryforwards. The Company reevaluates the positive and negative evidence at each reporting period.

As of December 31, 2023, the Company had federal net operating loss carryforwards of approximately $312.3 million, a portion of which begin to expire in 2036. Approximately $288.7 million of the federal net operating losses can be carried forward indefinitely. As of December 31, 2023, the Company also had state net operating loss carryforwards of approximately $317.1 million, which begin to expire in 2036.

As of December 31, 2023, the Company had federal orphan drug credits of approximately $23.8 million, which begin to expire in 2040. As of December 31, 2023, the Company had federal research and development tax credit carryforwards of approximately $7.6 million, which begin to expire in 2035. As of December 31, 2023, the Company also had state research and development tax credit carryforwards of approximately $4.9 million, which begin to expire in 2030.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2021 would limit or otherwise restrict the Company's ability to utilize its pre-change net operating losses and research and development tax credit carryforwards to offset future taxable income. As a result of the analysis, the Company does not believe that there are any significant limitations on its ability to utilize its net operating losses and research and development tax credit carryforwards to offset future taxable income. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since December 31, 2021. If the Company has experienced a change of control, as defined by Section 382, subsequent to December 31, 2021, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit

carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. As of December 31, 2023, the Company’s tax years are still open under statute from 2016 to the present.

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of the provision for income taxes. As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations. For the year ended December 31, 2023, the Company generated research and development tax credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development tax 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 the Company’s research and development tax credit carryforwards and, if an adjustment is required, this adjustment would result in an adjustment to the deferred tax asset established for the research and development tax credit carryforwards and the valuation allowance.