Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2022		2021		2020
Current:
U.S. Federal	$	—	$	—	$	—
U.S. State	7		(576)		823
Foreign	14		1		—
Total Current	$	21	$	(575)	$	823
Deferred:
U.S. Federal	$	—	$	—	$	—
U.S. State	—		—		—
Foreign	—		—		—
Total deferred	$	—	$	—	$	—

The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows:

	Year Ended December 31,
	2022		2021		2020
Taxes at the U.S. statutory tax rate	21.0	%	21.0	%	21.0	%
Effect of Tax Act	—		—		1.1
Change in valuation allowance	(25.1)		(28.2)		(4.0)
Research tax credits	4.9		4.1		(9.2)
Stock-based compensation	(0.5)		3.2		(7.9)
Other	(0.4)		0.1		0.1
Total provision for income taxes	(0.1)	%	0.2	%	1.1	%

Deferred Income Taxes

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

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	67,492	$	59,285
Tax credit carryforwards	69,562		48,058
Research expense capitalization	61,869		—
Contract liabilities	70,824		75,281
Operating lease liabilities	14,712		15,040
Stock-based compensation	44,473		30,185
Accruals and other	18,381		15,385
Gross deferred tax assets	347,313		243,234
Valuation allowance	(332,580)		(228,586)
Net deferred tax assets	14,733		14,648
Deferred tax liabilities:
Property and equipment	(7,314)		(7,424)
Operating lease right-of-use assets	(7,419)		(7,224)
Net deferred tax assets	$	—	$	—

In line with the requirements of the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, our research and development expenditures incurred during the year ended December 31, 2022 have been capitalized for federal income tax purposes, to be amortized over periods of 5 and 15 years for costs incurred in the US and outside the US, respectively. This resulted in a gross deferred tax asset of $61.9 million as of December 31, 2022.

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, especially the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company believes it is not more likely than not that the deferred tax assets will be fully realizable. Accordingly, the Company has provided a 100% valuation allowance against its net deferred tax assets as of December 31, 2022 and 2021. There was an increase in the net valuation allowance of $104.0 million during the year ended December 31, 2022.

As of December 31, 2022, the Company has federal net operating loss (“NOL”) carryforwards of approximately $231.9 million, which are available to reduce future taxable income, and has federal R&D and orphan drug tax credits of approximately $42.6 million and $19.7 million respectively, both of which may be used to offset future tax liabilities. The federal NOL and federal tax credit carryforwards will begin to expire in 2035. The Company also has state NOL carryforwards of approximately $267.0 million, which are available to reduce future taxable income, and has state tax credits of approximately $31.4 million which may be used to offset future tax liabilities. The state NOL will begin to expire in 2035 and the state tax credit carryforwards will be carried forward indefinitely.

The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and state tax authorities and may become subject to an annual limitation in the event of certain future cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

The Company follows the provisions of ASC 740, Accounting for Income Taxes, and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be sustained upon examination by the relevant income tax authorities.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

	December 31,
	2022		2021		2020
Unrecognized tax benefits at January 1	$	13,699	$	8,139	$	5,299
Additions for tax positions taken in a prior year	135		1,042		—
Additions for tax positions taken in the current year	5,537		4,725		3,009
Reductions for tax positions taken in the prior year	—		(207)		(169)
Unrecognized tax benefits at December 31	$	19,371	$	13,699	$	8,139

If recognized, none of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2022. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. As of December 31, 2022, no liability has been recorded for potential interest or penalties. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.