Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded $12.1 million of pre-tax book income for the year ended December 31, 2023. The Company recorded a pre-tax book loss for the year ended December 31, 2022. The Company has no foreign operations.

The components of the income tax expense for the years ended December 31, 2023 and 2022 (in thousands) were:

	Year Ended December 31,
	2023		2022
Current:
Federal	$	14,962	$	—
State	3,779		—
Foreign	—		—
Total current tax provision	18,741		—
Deferred:
Federal	—		—
State	—		—
Foreign	—		—
Total deferred tax provision	—		—
Total income tax provision	$	18,741	$	—

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	2022
Federal statutory income tax rate	21.0%	21.0%
State income taxes, net of federal benefit	5.1	5.5
Federal and state research and development tax credits	-50.3	5.0
Non-deductible stock compensation and non-taxable items	11.3	(1.4)
Change in deferred tax asset valuation allowance	170.3	(30.1)
Change in state tax rates	(1.9)	—
Effective income tax rate	155.5%	—%

Net deferred tax assets as of December 31, 2023 and 2022 consisted of the following (in thousands):

	December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	3,617	$	32,148
Research and development tax credit carryforwards	2,706		7,679
Intangible assets	2,326		1,142
Capitalized research and development expenses	32,803		15,747
Deferred revenue	36,726		—
Lease liability	22,581		7,031
Stock compensation	1,709		1,109
Other	—		34
Total deferred tax assets	102,468		64,890
Deferred tax liabilities:
Property and equipment	(2,044)		(298)
Right-of-use asset	(22,237)		(6,869)
Prepaid expenses	(281)		(304)
Total deferred tax liabilities	(24,562)		(7,471)
Valuation allowance	(77,906)		(57,419)
Net deferred tax assets	$	—	$	—

The Company recorded income tax expense of $18.7 million for the year ended December 31, 2023. The income tax expense recorded was driven largely by the current tax liability associated with the tax recognition of the Vertex Agreement payments received during 2023. A significant portion of the taxable income related to the collaboration payment is offset by current year expenses and prior year accumulated losses.

As of December 31, 2023, the Company had federal net operating loss carryforwards of $14.6 million, which may be available to offset future taxable income. None of our federal net operating loss carryforwards will expire, but all are limited in their usage to an annual deduction equal to 80% of annual taxable income. In addition, as of December 31, 2023, the Company had state net operating loss carryforwards of $8.7 million, which may be available to offset future taxable income and expire at various dates beginning in 2036. As of December 31, 2023, the Company also had federal and state research and development tax credit carryforwards of $2.1 million and $0.8 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2039 and 2035, respectively.

Utilization of the NOLs and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOLs and research and development tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. If a change in control as defined by Section 382 has occurred at any time since the Company’s formation, utilization of its NOLs 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, which could then be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOLs or research and development tax carryforwards before their utilization. The Company has determined that ownership changes have occurred in the past and that certain NOLs and research and development tax credit carryforwards will be subject to limitation.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which consist primarily of net operating loss carryforwards and research and development tax credit carryforwards, capitalized research and development expenses and deferred revenue. Management has considered the Company’s history of cumulative net losses incurred since inception, estimated future taxable income, and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of federal and state 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 Company reevaluates the positive and negative evidence at each reporting period.

The valuation allowance increased by $20.5 million and $28.5 million for the years ended December 31, 2023 and 2022, respectively.

The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its consolidated statements of operations. As of December 31, 2023 and 2022, the Company had not recorded any reserves for uncertain tax positions or related interest and penalties.

In 2017, the Tax Cuts and Jobs Act of 2017 (2017 Tax Act) was signed into law. Among other provisions, the 2017 Tax Act requires taxpayers to capitalize and amortize research and experimental (R&E) expenditures under Section 174 for tax years beginning after December 31, 2021. As such, the rule noted became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of certain R&E costs within its tax provision. The Company will amortize such costs for tax purposes over 5 years if the R&E was performed in the United States and over 15 years if the R&E was performed outside the United States.

The Company files income 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. Due to net operating losses incurred, the Company’s tax returns from inception to date are subject to examination by the taxing authorities.