Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

I.Income Taxes

For the years ended December 31, 2022, 2021 and 2020, the loss before provision for income taxes consist of the following (in thousands):

	Years Ended December 31,
	2022		2021		2020
Domestic	$	18,417	$	(139,303)	$	(44,372)
Foreign		(240,128)		—		—
Total	$	(221,711)	$	(139,303)	$	(44,372)

For the year ended December 31, 2022, the Company’s total tax expense was all federal current expense. The difference between the Company’s expected tax benefit, as computed by applying the applicable U.S. federal corporate tax rate to loss before the benefit for income taxes, and actual tax is reconciled in the following table (in thousands):

	Years Ended December 31,
	2022		2021		2020
Loss before income tax expense	$	(221,711)	$	(139,303)	$	(44,372)
Expected tax benefit at 21%	$	(46,559)	$	(29,254)	$	(9,318)
Permanent differences		454		606		157
Intra-entity transfer of intangible assets		90,720		—		—
Incentive stock options		769		420		201
State tax provision (benefit) net of federal benefit		29,304		(7,376)		(2,250)
Change in valuation allowance, net		(75,683)		46,987		15,175
Federal research credit		(2,030)		(575)		(228)
Federal orphan drug credit		(9,286)		(7,429)		(6,218)
Expired loss and credit carryforwards		—		345		419
Withholding tax credit		(878)		(4,789)		—
Stock option expirations		—		1,065		2,062
Foreign rate differential		14,407		—		—
Income tax expense	$	1,218	$	—	$	—

In 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law. Among other provisions, the 2017 Tax Act requires taxpayers to capitalize and amortize research and experimental (R&E) expenditures under Section 174 for tax years beginning after December 31, 2021. As such, the rule noted became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of certain R&E costs within its tax provision. The Company will amortize such costs for tax purposes over 5 years if the R&E was performed in the United States and over 15 years if the R&E was performed outside the United States.

During 2022, the Company transferred certain of its intellectual property rights to a newly formed Swiss subsidiary. This transfer resulted in a significant income inclusion for U.S. tax purposes which has been partially offset by utilization of a portion of the Company’s net operating loss (NOL) carryforwards that existed before the transaction. The income inclusion for state tax purposes was completely offset by NOL carryforwards.

At December 31, 2022, the Company had NOL carryforwards of $443.3 million available to reduce federal taxable income, if any, that can be carried forward indefinitely. The Company has $251.1 million of NOL carryforwards

available to reduce state taxable income, if any, that expire in 2036 through 2042. The Company also has federal and state credit carryforwards of $85.6 million and $11.1 million, respectively, available to offset federal and state income taxes, which expire beginning in 2027 and foreign tax credits of $6.5 million that begin to expire in 2030. Due to the degree of uncertainty related to the ultimate use of the loss carryforwards and tax credits, the Company has established a valuation allowance to fully reserve these tax benefits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	115,047	$	264,773
Research and development tax credit carryforwards		103,155		92,832
Property and other intangible assets		1,452		1,150
Deferred revenue		14,561		25,153
Stock-based compensation		18,783		12,195
Operating lease liability		4,421		5,170
Other liabilities		3,144		1,737
Royalty sale		8,393		10,247
Sec 174 R&E capitalization		68,150		—
Total deferred tax assets	$	337,106	$	413,257
Deferred tax liabilities:
Operating lease right of use asset		(2,967)		(3,386)
Royalty sale transaction costs		(107)		(158)
Total deferred tax liabilities	$	(3,074)	$	(3,544)
Valuation allowance		(334,032)		(409,713)
Net deferred tax assets/(liabilities)	$	—	$	—

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has determined that it is not more-likely-than-not that the tax benefits related to the federal and state deferred tax assets will be realized for financial reporting purposes. Accordingly, the deferred tax assets have been fully reserved at December 31, 2022 and 2021. The valuation allowance decreased by $75.7 million during the year ended December 31, 2022.

Utilization of the NOL and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future as provided by Sections 382 and 383 of the Internal Revenue Code of 1986, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and credit carry forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Since the Company’s formation, it has raised capital through the issuance of capital stock on several occasions (both pre and post initial public offering) which, combined with the purchasing shareholders’ subsequent disposition of those shares, may have resulted in a change of control, as defined by Section 382, or could result in a change of control in the future upon subsequent disposition. The Company completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since its formation and determined no ownership change occurred under Section 382 as of December 31, 2022. The Company has not completed a detailed Research and Development Credit Study (including the Orphan Drug Credit); accordingly, a portion of the tax credit carryforward may not be available to offset future income.

The Company accounts for uncertain tax positions under the recognition and measurement criteria of ASC 740-10. For those tax positions for which it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. If the Company does not believe that it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized. As of December 31, 2022 and 2021, no uncertain tax positions have been recorded. Interest and penalties related to the settlement of uncertain tax positions, if any, will be reflected in income tax expense. The Company did not recognize any interest and penalties associated with

unrecognized tax benefits in the accompanying consolidated financial statements. The Company does not expect any material changes to the unrecognized benefits within 12 months of the reporting date. Due to existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate.

The statute of limitations for assessment by the Internal Revenue Service, or IRS, and state tax authorities is open for tax years ending after December 31, 2018, although carryforward attributes that were generated prior to 2018 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.