Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

12. INCOME TAXES

The Company had income tax expense of $0.04 million for the year ended December 31, 2024 and no income tax expense for the year ended 2023. The Company has incurred net operating losses for all the periods presented. The Company has not reflected the benefit of any such net operating loss carryforwards in the accompanying financial statements. In 2019, the domicile of the reporting entity has changed from Denmark to the United States resulting in a tax rate of 21% in 2024 and 2023. This is discussed further below.

The components of net loss are as follows (in thousands):

	Year Ended December 31,
	2024			2023
Domestic	$	(11,386	)	$	(8,142	)
Foreign		(10,053	)		(30,207	)
Total	$	(21,439	)	$	(38,349	)

Reconciliation of effective tax rate

The effective tax rate for the years ended December 31, 2024 and 2023 is different from the statutory rate primarily due to the valuation allowance against deferred tax assets as a result of insufficient sources of income. The reconciliation of the statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2024			2023
Income tax benefit at the statutory rate		21.0	%		21.0	%
Orphan Drug Credit		0.3			2.3
Permanent differences		(4.7	)		(2.4	)
State income taxes		1.7			1.6
Foreign rate differential		0.5			0.8
Change in valuation allowance		(18.8	)		(23.3	)
Total		—	%		—	%

Deferred taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s deferred tax assets and liabilities consisted of the following (in thousands):

	December 31,
Deferred tax assets:	2024			2023
Net operating loss carryforwards	$	55,193		$	52,393
Orphan Drug Credit		8,988			8,924
U.S. research and development credits		1,191			1,191
Stock-based compensation		748			803
Section 174 R&D costs		25			—
Amortization		1,041			—
Fixed assets		9			16
Accruals		31			84
Total deferred tax assets	$	67,226		$	63,411
Valuation allowance		(67,226	)		(63,411	)
Net deferred tax assets	$	—		$	—

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more-likely-than-not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of taxable income and loss after permanent items, estimates of future profitability, the Company’s overall prospects of future business and pursuant to the pursuit of strategic alternatives, the Company determined that it is more-likely-than-not that the Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets. On the basis of this evaluation, a full valuation allowance at December 31, 2024 and December 31, 2023 was recorded of $67.2 million and $63.4 million, respectively, to reduce the net deferred tax assets to their estimated realizable value. The change in valuation allowance was $3.8 million.

The Company is subject to taxation in the United States, United Kingdom and Denmark. As of December 31, 2024, tax years 2019 and forward were generally open to examination by the United States and foreign tax authorities. There Company is not under examination by any taxing authorities.

As of December 31, 2024, the Company had gross U.S. federal net operating losses (“NOLs”) of $43.6 million and federal research and development credits (“R&D credits”) of $1.2 million and Orphan Drug Credit (“ODC”) of $9.0 million to offset tax liabilities. The federal R&D credit and ODC carryforwards begin to expire in 2033 and 2042, respectively. All of the federal NOLs have an infinite life. The Company also had gross state NOLs of $38.4 million, which are available to offset state tax liabilities. The state NOLs begin to expire in 2040. The Company also had NOLs in Denmark of $198.3 million which have an indefinite life. Federal and state NOLs and R&D credit and ODC carryforwards are also subject to annual limitations in the event that cumulative changes in the ownership interests of significant stockholders exceed 50% over a three-year period, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986 (the “Code”). The Company has not completed an analysis to determine if the NOLs and R&D credits are limited due to a change in ownership.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties as income tax expense. The Company does not have any material unrecognized tax benefits which would affect the effective tax rate if recognized. The Company does not have any unrecognized tax benefits which would reverse within the next twelve months.

The Company is eligible for the Danish enhanced research and development tax allowance, providing for an increase in the deductible value of the amount of certain R&D expenditures. The deduction for R&D expenditures is set at 101.5% for 2019, 130% for 2020 through 2022, 108% for 2023 through 2025 and 114% for 2026.

The Company qualifies for the RDEC in United Kingdom, which is a taxable credit payable at 20% (13% prior to April 2023) for certain R&D expenditures. The net benefit of the credit is 15% (10.53% prior to April 2023) after taking the UK corporation tax rate into account.