Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

12. Income taxes

As of December 31, 2023, the Company had U.S. federal and state tax-effected net operating loss (NOL) carryforwards of $146.9 million and $45.3 million, respectively, which are available to reduce future taxable income. As of December 31, 2023, the Company also had federal and state research tax credits of $49.4 million and $19.6 million, respectively, which may be used to offset future liabilities. The Tax Cuts and Jobs Act enacted on December 22, 2017, altered the carryforward period for federal net operating losses and as a result, all net operating losses generated in 2018 and forward have an indefinite life. Of the federal net operating losses reported, we have accumulated $145.2 million with an indefinite life as of December 31, 2023. The state NOL will begin to expire in 2036. The federal tax credit carryforward will begin to expire in 2037, and the state tax credit will carry forward indefinitely. The NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:

	Year Ended December 31,
	2023			2022			2021
Federal statutory tax		21.00	%		21.00	%		21.00	%
State income tax, net of federal benefit		15.38			13.49			2.75
Valuation allowance		(45.30	)		(43.69	)		(24.06	)
Success payment liabilities		0.58			5.40			(1.40	)
Contingent consideration		3.02			0.26			(1.88	)
Tax credits		6.59			4.93			2.58
Other		(1.27	)		(1.39	)		1.01
Effective income tax rate		0.00	%		0.00	%		0.00	%

The principal components of the Company’s net deferred tax assets are as follows:

	December 31,
	2023			2022
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	192,179		$	154,888
Capitalized research and development		101,136			49,687
Tax credit carryforwards		69,070			44,051
Lease liabilities		31,503			28,050
Stock-based compensation		12,607			6,958
Intangibles		10,744			7,949
Accrued liabilities and allowances		6,050			6,807
Fixed assets		1,073			-
Success payment liabilities		496			516
Other		285			155
Gross deferred tax assets		425,143			299,061
Valuation allowance		(402,658	)		(274,348	)
Deferred tax assets, net of valuation allowance		22,485			24,713
Deferred tax liabilities:
Right-of-use assets		(22,485	)		(23,554	)
Fixed assets		-			(1,159	)
Net deferred taxes assets	$	-		$	-

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized over five years for domestic research and development and fifteen years for foreign research and development. We have included the impact of this provision, which results in a deferred tax asset of approximately $101.1 million as of December 31, 2023.

The valuation allowance relates primarily to net U.S. deferred tax assets from operating losses, research tax credit carryforwards, capitalized research and development, and amounts paid and accrued to enter into various agreements for which the tax treatment requires capitalization and amortization.

The Company maintains a full valuation allowance on its net U.S. deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative losses and its forecasted losses in the near term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the negative evidence outweighed the positive evidence, and a full valuation allowance on its net deferred tax assets should be maintained. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed.

The Company determines its uncertain tax positions based on a determination of whether and how much of the tax benefit the Company takes in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company is generally subject to examination by U.S. federal and local income tax authorities for all tax years in which the loss carryforward is available. The Company applies judgment in its determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of December 31, 2023 and 2022, the Company’s uncertain tax positions were immaterial.