Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

15.Income Taxes

As a Cayman Islands entity, Stealth BioTherapeutics Corp is not currently subject to taxation. Stealth BioTherapeutics Inc. is subject to U.S. income tax and certain state income taxes.

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

	Year Ended December 31,
	2021		2020		2019
U.S.	$	11,297	$	5,868	$	3,633
Non-U.S.		41,230		51,589		68,095
Loss before income tax benefit	$	52,527	$	57,457	$	71,728

A reconciliation setting forth the differences between the Company’s effective tax rate and the U.S. statutory tax rate is as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Income tax benefit at federal statutory rate	$	2,373		$	1,232		$	763
State and local income taxes net of federal tax    benefit		7,059			787			247
Federal credits		718			1,210			2,454
IP Transfer		22,176			—			—
Nondeductible/nontaxable permanent items		(1	)		4			(89	)
Share based compensation benefit and other		2			1,644			—
Change in valuation allowance		(32,327	)		(4,877	)		(3,376	)
Income tax benefit	$	—		$	—		$	—
Effective tax rate		0.0	%		0.0	%		0.0	%

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

	Year Ended December 31,
	2021		2020
Deferred tax assets:
Federal and state net operating loss carryforwards	$	3,495	$	1,012
Credits		9,718		8,903
Deferred rent		4		6
Other accrued liabilities		614		509
Depreciation		3		5
Share based compensation		2,875		2,336
Deferred interest		2,053		1,871
Intangible Assets		28,207		—
Total deferred tax assets		46,969		14,642
Deferred tax liabilities:
Other accrued liabilities		—		—
Depreciation		—		—
Total deferred tax liabilities		—		—
Valuation allowance		46,969		14,642
Net deferred tax liability	$	—	$	—

As of December 31, 2021, Stealth BioTherapeutics Inc. had federal and state net operating loss carryforwards of $13.4 million and $10.9 million, respectively. The net operating loss carryforwards expire at various dates beginning in 2034 through 2037 for U.S. and state tax purposes. As of December 31, 2021, the Company had federal and state research and development credit carryforwards of approximately $4.8 million and $2.0 million, respectively, which, if unused, will expire in years 2035 through 2041 (federal) and 2030 through 2036 (state). As of December 31, 2021, the Company also had an orphan drug credit of $3.4 million, which, if unused, will expire in year 2037 through 2041.

Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. As of December 31, 2021, the Company maintains a full valuation allowance for its deferred tax assets due to uncertainty regarding their realization. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more or less than the net amount the Company has recorded. The valuation allowance increased $32.3 million and $4.9 million during the years ended December 31, 2021 and 2020, respectively, due primarily to the generation of net operating losses during the period and the recognition of potential research and development tax credits.

The Company is not currently under any income tax examinations. Due to the Company’s net operating losses, all tax years generally remain open in each jurisdiction. No interest or penalties have been recorded on any unrecognized tax benefits since its inception. The Company does not believe material uncertain tax positions have arisen to date.

Under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards and tax credits, which could be used annually to offset future taxable income.

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in the United States on March 27, 2020. While the CARES Act provides extensive tax changes in response to the COVID-19 pandemic, the provisions are not expected to have a significant impact on the Company’s financial results.