Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

13. Income taxes

As of December 31, 2021, the Company had U.S. federal and state tax-effected net operating loss (NOL) carryforwards of $101.9 million and $12.4 million, respectively, which are available to reduce future taxable income. As of December 31, 2021, the Company also had federal and state research tax credits of $17.5 million and $6.5 million, respectively, which may be used to offset future liabilities. The federal NOL carries forward indefinitely, and the state NOL will begin to expire in 2038. The federal tax credit carryforward will begin to expire in 2038, 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.

In connection with the 2019 Cobalt acquisition, the Company recorded a deferred tax liability of $7.5 million associated with the acquired intangible asset, and the Company recorded a tax benefit of $7.5 million for the year ended December 31, 2019 related to the release of valuation allowance on U.S. deferred tax assets as a result of this deferred tax liability.

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

	Year Ended December 31,
	2021			2020			2019
Federal statutory tax		21.00	%		21.00	%		21.00	%
State income tax, net of federal benefit		2.75			2.09			3.06
Valuation allowance		(24.06	)		(15.18	)		(16.32	)
Success payment liabilities		(1.40	)		(4.58	)		-
Contingent consideration		(1.88	)		(3.89	)		(2.71	)
Tax credits		2.58			1.88			1.93
Other		1.01			(1.32	)		(1.50	)
Effective income tax rate		0.00	%		0.00	%		5.46	%

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

	December 31,
	2021			2020
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	114,368		$	58,527
Lease liabilities		25,754			16,971
Tax credit carryforwards		24,008			11,908
Intangibles		5,986			-
Accrued liabilities and allowances		4,401			3,643
Success payment liabilities		3,290			2,785
Stock-based compensation		1,854			-
Other		-			25
Gross deferred tax assets		179,661			93,859
Valuation allowance		(156,622	)		(70,989	)
Deferred tax assets, net of valuation allowance		23,039			22,870
Deferred tax liabilities:
Right-of-use assets		(21,940	)		(14,577	)
Fixed assets		(1,050	)		(935	)
Intangibles		-			(6,870	)
Stock-based compensation		-			(488	)
Other		(49	)		-
Deferred tax liabilities		(23,039	)		(22,870	)
Net deferred taxes assets	$	-		$	-

The valuation allowance relates primarily to net U.S. deferred tax assets from operating losses, research tax credit carryforwards, 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 loss in the first year of operation 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, 2021 and 2020, the Company’s uncertain tax positions were immaterial.