Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

13. 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, 2024			Year Ended December 31, 2023
Federal income tax at statutory rate		21.00	%		21.00	%
Permanent differences		(0.90	)		(0.04	)
Federal and state research and development credits		15.14			1.47
Federal orphan drug credits		77.47			9.41
State income tax, net of federal benefit		6.09			5.92
Stock compensation (incentive stock options)		(6.23	)		(0.68	)
Stock compensation cancellations		(17.71	)		(0.18	)
Officers' compensation		(5.11	)		(1.06	)
Impact of ownership change		(1,283.66	)		—
Deferred rate change		(6.78	)		(0.02	)
Other		3.75			0.11
Change in valuation allowance		1,196.94			(35.93	)
Effective income tax rate		—	%		—	%

During the years ended December 31, 2024 and 2023, 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, 2024			December 31, 2023
Deferred tax assets:
Capitalized research and development costs	$	38,850		$	30,019
Net operating loss carryforwards		1,436			85,622
Orphan drug credit carryforwards		2,193			23,790
Research and development credit carryforwards		422			11,569
Intangible assets		2,705			6,291
Accrued expenses and other		6,760			6,740
Operating lease liability		2,287			2,911
Gross deferred tax assets		54,653			166,942
Valuation allowance		(51,753	)		(164,483	)
Net deferred tax assets		2,900			2,459
Deferred tax liability		(2,900	)		(2,459	)
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, 2024 and 2023. The valuation allowance decreased by $112.7 million during the year ended December 31, 2024, which is primarily attributable to a limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), related to the Company's net operating loss carryforwards and research and development tax credit carryforwards, as discussed further below. The Company reevaluates the positive and negative evidence at each reporting period.

As of December 31, 2024, the Company had federal net operating loss carryforwards of approximately $5.0 million, which may be available to offset future taxable income and do not expire, but are limited in their usage to an annual deduction equal to 80% of annual taxable income. As of December 31, 2024, the Company also had state net operating loss carryforwards of approximately $6.2 million, which begin to expire in 2044.

As of December 31, 2024, the Company had federal orphan drug credits of approximately $2.2 million, which begin to expire in 2044. As of December 31, 2024, the Company had federal research and development tax credit carryforwards of approximately $0.3 million, which begin to expire in 2039. As of December 31, 2024, the Company also had state research and development tax credit carryforwards of approximately $0.2 million, which begin to expire in 2039.

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, 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 completed a study to assess whether an ownership change has occurred under Section 382, and determined that all net operating loss carryforwards and credits generated before September 12, 2024 are limited. As a result, the carryforwards before the ownership change date of September 12, 2024 are not available for utilization and have been written off. The carryforwards as of December 31, 2024 were generated after the ownership change on September 12, 2024. If the Company experiences a change of control, as defined by Section 382, subsequent to December 31, 2024, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382.

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, 2024, 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, 2024 and 2023, 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, 2024, 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.