Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(11)Income Taxes

During 2022, the Company recorded a current income tax expense of $42.1 million. The income tax expense recorded for 2022 was driven by the tax from the gain on sale of Cullinan Pearl, partially offset by the release of the valuation allowance for the utilization of current year and certain historical tax attributes against the gain from the sale. Refer to Note 3 for additional details on the sale of Cullinan Pearl. During 2021, the Company did not record a current or deferred income tax expense or benefit due to current and historical losses incurred by the Company. The Company’s net income (loss) before income taxes consists solely of domestic income and losses.

A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate in 2022 and 2021 is as follows:

	Year ended December 31,
	2022			2021
Federal statutory rate		21.00	%		21.00	%
State taxes, net of federal benefit		4.71	%		9.96	%
Valuation allowance		1.13	%		(32.12	)%
Other		0.97	%		1.16	%
		27.81	%		—	%

As of December 31, 2022 and 2021, the net deferred income tax asset balance related to the following:

	December 31,
	2022			2021
	(in thousands)
Deferred tax assets:
Net operating loss	$	10,531		$	31,414
Capitalized research and development		18,724			—
Capitalized organizational and start-up expenses		127			140
Licenses		461			1,875
Accrued expenses		1,977			968
Research and development credit		1,110			1,563
Equity-based compensation		12,087			8,584
Basis difference on gain on sale of Cullinan Pearl		1,805			—
Lease liability		1,345			—
Gross deferred tax assets		48,167			44,544
Valuation allowance		(46,766	)		(44,552	)
Net deferred tax asset		1,401			(8	)
Deferred tax liability
ROU asset		1,108			—
Depreciation and amortization		293			(8	)
Net deferred tax asset	$	—		$	—

The Company's net operating loss ("NOL") and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service ("IRS") and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions, NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%. The rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a company and any change in ownership arising from new issuances of stock by the company.

As of December 31, 2022 and 2021, the Company had federal NOL carryforwards, of $42.6 million and $117.4 million, respectively, which may be available to offset future income tax liabilities. As of December 31, 2022, $36.8 million of the Company's federal NOL carryforwards can be carried forward indefinitely, and the remaining $5.8 million begins to expire in 2036. As of December 31, 2022 and 2021, the Company had state NOL carryforwards of $27.1 million and $119.0 million, respectively, which may be available to offset future income tax liabilities. As of December 31, 2022, the Company's state NOL carryforwards begin to expire in 2036.

As of December 31, 2022 and 2021, the Company had federal research and development tax credit carryforwards of $0.9 million and $1.3 million, respectively. As of December 31, 2022, the Company's federal research and development tax credit carryforwards begin to expire in 2036. As of each of December 31, 2022 and 2021, the Company had state research and development tax credit carryforwards of $0.3 million which can be carried forward indefinitely.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which primarily consist of capitalized research and development costs, temporary differences on equity-based compensation, and NOL carryforwards. The Company has considered its history of cumulative net losses, with the exception of the one-time gain on the sale of Cullinan Pearl in 2022, 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 its deferred tax assets. As a result, as of December 31, 2022, the Company has maintained a full valuation allowance against its remaining net deferred tax assets. The Company’s valuation allowance increased during 2022 and 2021 due primarily to the generation of NOLs as follows:

	Year ended December 31,
	2022		2021
	(in thousands)
Valuation allowance at beginning of year	$	44,552	$	22,642
Increases recorded to income tax provision		1,712		21,674
Increases recorded to equity		502		236
Valuation allowance at end of year	$	46,766	$	44,552

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the states in which the Company operates or does business in.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company records uncertain tax positions as liabilities and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2022 and 2021, the Company has not recorded a liability for any uncertain tax positions in its consolidated financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations and comprehensive income (loss). As of December 31, 2022 and 2021, no accrued interest or penalties are included in the consolidated balance sheets.

The Company files 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 in the U.S. There are currently no pending tax examinations. The Company's federal and state income tax returns are generally subject to tax examinations for tax years 2016 and later. To the extent that the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS and the state tax authorities to the extent utilized in a future period.