Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Taxes

Note 7. Taxes

Biomea Fusion is subject to U.S. federal and state income taxes as a corporation. Prior to the tax-free reorganization in December 2020, Biomea Fusion, LLC was treated as a pass-through entity for U.S. federal income tax purposes, and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income, was passed through to its unitholders.

There was zero income tax expense for the years ended December 31, 2022, 2021 and 2020. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

	Year Ended December 31,
	2022			2021			2020
Federal statutory income tax rate		21.0	%		21.0	%		21.0	%
State income tax rate		0.5	%		0.5	%		1.1	%
Tax credits		1.1	%		0.2	%		—
Stock-based compensation		(1.1	)%		(1.5	)%		—
Amortization		—			2.6	%		—
LLC loss prior to C-Corp conversion		—			—			(17.7	)%
Change in valuation allowance		(21.5	)%		(22.7	)%		(4.3	)%
Other		—			(0.1	)%		(0.1	)%
Effective income tax rate		0.0	%		0.0	%		0.0	%

Deferred tax assets and liabilities consist of the following (in thousands):

	December 31,
	2022			2021
Deferred tax assets:
Net operating loss carryforwards	$	12,100		$	7,689
Capitalized research and development		10,326			—
Accrued liabilities and reserves		411			65
Stock-based compensation		1,887			675
Intangible assets		1,129			1,044
Operating lease liabilities		480			599
Research and development credits		1,633			278
Property and equipment		—			—
Gross deferred tax assets		27,966			10,350
Valuation allowance		(27,432	)		(9,730	)
Total deferred tax assets		534			620
Deferred tax liabilities:
Property and equipment		(82	)		(48	)
Operating lease right-of-use assets		(452	)		(572	)
Total deferred tax liabilities		(534	)		(620	)
Net deferred tax assets	$	—		$	—

The provisions of ASC Topic 740, Accounting for Income Taxes (ASC 740), require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the years ended December 31, 2022 and 2021, based on all available objective evidence, including the existence of cumulative losses,

the Company determined that it was not more likely than not that the net deferred tax assets were fully realizable. Accordingly, the Company established a full valuation allowance against its deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The Company’s valuation allowance increased by $17.7 million during the year ended December 31, 2022, primarily because of an increase to the Company's net operating losses, credits, stock compensation, and the capitalization of research and development expenses. The Company’s valuation allowance increased by $9.4 million during the year ended December 31, 2021, primarily because of an increase to the Company's net operating loss deferred tax assets, credits and intangible deferred tax assets.

At December 31, 2022, the Company had net operating loss carryforwards available to reduce future taxable income, if any, for federal and state income tax purposes of approximately $57.2 million and $1.3 million, respectively. The federal net operating loss carryforwards at December 31, 2022 can be carried forward indefinitely, subject to an annual limitation of 80% of taxable income. The state net operating loss carryforward begins expiring in 2040.

At December 31, 2022, the Company also had federal and California research and development tax credit carryforwards of $1.3 million and $1.1 million, respectively, available to offset future income tax, if any. The federal credit carryforwards begins expiring in 2040, and the California credits can be carried forward indefinitely.

Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation's ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in the Company's ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Therefore, certain of the Company's carryforward tax attributes may be subject to an annual limitation regarding their utilization against taxable income in future periods. The Company has performed a Section 382 study and has concluded that ownership changes have occurred. As a result, the federal and state NOL carryforwards and tax credit carryforwards maybe subject to annual limitations before being applied to reduce future income tax liabilities.

Uncertain Tax Positions

The Company adopted the provisions of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2022		2021		2020
Beginning balance	$	112	$	—	$	—
Increases for tax provisions related to prior year		133		1		—
Increases for tax provisions related to current year		379		111		—
Ending balance	$	624	$	112	$	—

The unrecognized tax benefits, if recognized, would not affect the effective income tax rate due to the valuation allowance that currently offsets deferred tax assets. Interest and penalties were zero. The Company does not expect the unrecognized tax benefits to change significantly over the next twelve months.

The Company files federal and state income tax returns. All periods since inception are subject to examination by federal and state authorities, where applicable. There are currently no pending income tax examinations.