Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

The Company records income tax expense related to profits realized by its U.S. operating subsidiaries. For the years ended December 31, 2024, 2023 and 2022, immaterial income tax expense was recorded due the group’s net operating loss (“NOL”) and full valuation allowance.

The rate reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2024, 2023 and 2022 are as follows:

	December 31,
	2024		2023		2022
Tax effect at statutory rate	21.0	%	21.0	%	21.0	%
State taxes	7.9		6.8		6.4
Federal research and development credits	6.1		4.6		1.5
Stock compensation	0.3		(1.5)		0.1
Disallowed Expenditures	(2.3)		(2.3)		(1.8)
Change in valuation allowance	(33.0)		(28.6)		(27.2)
Total	0.0	%	0.0	%	0.0	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows (in thousands):

	December 31,
	2024			2023
Deferred Tax Assets:
Federal net operating loss carryforwards	$	46,468		$	33,708
State net operating loss carryforwards		15,063			10,194
Research and development credit carryforwards		42,549			25,975
Lease liabilities		22,980			22,443
Deferred revenue		3,603			9,807
Accruals and reserves, stock and other		18,794			13,636
Capitalized Research and Development		110,333			68,340
Total deferred tax assets	$	259,790		$	184,103
Valuation allowance		(236,206	)		(162,375	)
Deferred tax assets	$	23,584		$	21,728
Deferred Tax Liabilities:
Fixed and intangible assets		(10,632	)		(1,884	)
Right-of-use assets		(12,952	)		(19,844	)
Net deferred tax asset	$	—		$	—

The Company has had immaterial income tax expense due to operating losses incurred since inception and no deferred tax provision in the current period. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more-likely-than-not that some portion or all the deferred tax assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on this, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. During 2024, the valuation allowance increased by approximately $74 million primarily due to the increase in the Company’s book loss reported in the period and the generation of additional research and development credits.

Beginning in 2022, Tax Cuts and Jobs Act (TCJA) amended Section 174 and now requires U.S.-based and non-U.S-based research and experimental (R&E) expenditures to be capitalized and amortized over a period of five or 15 years, respectively, for amounts paid in tax years starting after December 31, 2021. Prior to the TCJA amendment, Section 174 allowed taxpayers to immediately deduct R&E expenditures in the year paid or incurred. The Company has applied this required change in accounting method beginning in 2022 and the computation may be adjusted pending future IRS guidance.

As of December 31, 2024, the Company had approximately $221.3 million and $238.3 million of Federal & State operating loss carryforwards respectively. Of the Federal net operating loss carryovers, $211.5 million are not subject to expiration and the remaining Federal and state NOLs begin to expire in 2037. These loss carryforwards are available to reduce future federal taxable income, if any.

As of December 31, 2024, the Company also has federal and state research and development credit carryforwards and orphan drug credit carryforwards of approximately $33.1 million and $12.0 million respectively, which can be used to offset future income taxes. These credits will begin to expire beginning in December 2032. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. The amount of loss carryforwards that may be utilized in any future period may be limited based upon changes in the ownership of the Company’s ultimate parent.

The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes, which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2024, and 2023, the Company has not recorded tax reserves associated with any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of income. As of December 31, 2024, and 2023, the Company had no reserves for uncertain tax positions. For the years ended December 31, 2024, 2023 and 2022, no estimated interest or penalties were recognized on uncertain tax positions.

The Company’s federal and Massachusetts income tax returns for the years ended December 31, 2021 to December 31, 2024 remain open and are subject to examination by the Internal Revenue Service and state taxing authorities. In addition, the Company’s tax carryover attributes such as net operating losses or credits from earlier period are also subject to examination.