Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

11.

Income Taxes

Losses before provision for income taxes were as follows in each period presented:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

United States

 

$

(306,758

)

 

$

(291,049

)

 

$

(230,765

)

Foreign

 

 

153

 

 

 

85

 

 

 

22

 

Total loss before provision for income taxes

 

$

(306,605

)

 

$

(290,964

)

 

$

(230,743

)

 

The Company liquidated its Cayman Islands entity in 2018 and elected to treat the entity as disregarded for the fiscal year 2018. As such, the applicable 2018 losses are treated as losses in the United States.

The components of provision for (benefit from) income taxes were as follows in each period presented:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Current provision for (benefit from) income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

(31

)

State

 

 

2

 

 

 

 

 

 

(15

)

Foreign

 

 

13

 

 

 

12

 

 

 

2

 

Total current provision for (benefit from) income

   taxes

 

$

15

 

 

$

12

 

 

$

(44

)

 

A reconciliation of statutory tax rates to effective tax rates were as follows in each of the periods presented:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Federal income taxes at statutory rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

Impact of stock compensation

 

 

(2.4

%)

 

 

0.1

%

 

 

 

Non-deductible executive compensation

 

 

(0.1

%)

 

 

(0.7

%)

 

 

(0.7

%)

Capitalized research

 

 

 

 

 

 

 

 

7.8

%

Other

 

 

0.3

%

 

 

(0.2

%)

 

 

(0.6

%)

Change in valuation allowance

 

 

(18.8

%)

 

 

(20.2

%)

 

 

(27.5

%)

Effective tax rate

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

Deferred tax assets and liabilities reflect the net tax effect 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 our deferred tax assets and liabilities were as follows for each of the dates presented:

 

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating losses

 

$

237,010

 

 

$

162,436

 

Stock-based compensation

 

 

20,672

 

 

 

17,573

 

Capitalized expenses

 

 

12,590

 

 

 

14,129

 

License fees

 

 

8,159

 

 

 

6,870

 

Operating lease liabilities

 

 

4,251

 

 

 

4,325

 

Legal fees

 

 

2,136

 

 

 

1,683

 

Tax credits

 

 

1,580

 

 

 

 

Other

 

 

5,360

 

 

 

3,329

 

Total deferred tax assets

 

 

291,758

 

 

 

210,345

 

Valuation allowance

 

 

(287,349

)

 

 

(205,249

)

Total deferred tax assets

 

 

4,409

 

 

 

5,096

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Operating lease assets

 

 

(3,541

)

 

 

(3,921

)

Other

 

 

(868

)

 

 

(1,175

)

Total deferred tax liabilities

 

 

(4,409

)

 

 

(5,096

)

 

 

 

 

 

 

 

 

 

Net deferred tax assets (liabilities)

 

$

 

 

$

 

 

We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards. We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2020 and 2019. We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $82.1 million for the year ended December 31, 2020 and increased by $78.1 million for the year ended December 31, 2019.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing companies with various tax relief provisions and other stimulus measures. Such measures include, but are not limited to, temporary changes regarding the prior and future utilization of net operating losses, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property, acceleration of AMT credit refunds, and changes to business interest limitations. The Consolidated Appropriations Act was also signed into law on December 27, 2020 to provide further relief measures and renew various expiring tax provisions. Additionally, the IRS issued final regulations and proposed regulations on calculating the limitation on business interest expense, the allowance for the first-year depreciation deduction under IRC Section 168(k), as amended by the Tax Cuts and Jobs Act (the “Tax Act”), for qualified property acquired and placed in service after September 27, 2017, and meals and entertainment deductions. Based on our evaluation, these regulations did not have a material impact on the income tax provision for the years ended December 31, 2020, 2019 and 2018.

Under the Tax Act, as modified by the CARES Act, federal net operating losses generated in tax years beginning on or after January 1, 2018 and in future years may be carried forward indefinitely, but the utilization of such federal net operating losses arising in taxable years beginning on or after January 1, 2021 is limited to 80% of a tax year’s taxable income. The CARES Act temporarily suspends this 80% taxable income limitation, allowing a net operating loss carryforward to fully offset taxable income in tax years beginning before January 1, 2021. Not all states conform to the Tax Act or CARES Act and some states have varying conformity to the Tax Act or CARES Act.

As of December 31, 2020, we had federal and state net operating loss carryforwards for tax return purposes of $811.7 million and $988.1 million, respectively. Of the $811.7 million federal net operating loss carryforwards, $65.3 million will begin to expire in 2032, with the remaining $746.4 million being carried forward indefinitely. Of the $988.1 million state net operating loss carryforwards, $986.4 million will begin to expire in 2030, with the remaining amount not being subject to expiration under applicable state laws.

As of December 31, 2020, we had federal research & development and orphan drug tax credits of $12.9 million and $75.1 million, respectively, to offset future taxes payable. These federal credits begin to expire in 2032 and 2035, respectively, if not utilized. As of December 31, 2020, we had California research & development tax credits of $21.6 million, which do not expire, to offset future taxes payable.

Under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 “ownership change” occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws.

We have completed a Section 382 study of transactions in our stock through December 31, 2020. The study concluded that we have experienced ownership changes since inception and that our utilization of net operating loss carryforwards will be subject to annual limitations. However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization.

The changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2018, 2019 and 2020 are as follows:

 

 

(In thousands)

 

Balance as of January 1, 2018

$

30,051

 

Gross increases for tax positions related to current year

 

12,927

 

Gross increases for tax positions related to prior year

 

704

 

Gross decreases for tax positions related to prior year

 

(2,608

)

Balance as of December 31, 2018

 

41,074

 

Gross increases for tax positions related to current year

 

22,800

 

Gross increases for tax positions related to prior year

 

22,126

 

Gross decreases for tax positions related to prior year

 

 

Balance as of December 31, 2019

 

86,000

 

Gross increases for tax positions related to current year

 

24,648

 

Gross increases for tax positions related to prior year

 

 

Gross decreases for tax positions related to prior year

 

(47

)

Balance as of December 31, 2020

$

110,601

 

 

The Company currently has a full valuation allowance against its U.S. net deferred tax assets, which would impact the timing of the effective tax rate benefit should any uncertain tax position be favorably settled in the future. Of the $110.6 million total unrecognized tax benefits as of December 31, 2020, no amount, if recognized, would affect the Company’s effective tax rate for the years ended December 31, 2020 and 2019.

The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company has not accrued interest and penalties as of December 31, 2020 and 2019 due to available tax losses.

Our significant jurisdictions are the U.S. federal jurisdiction and the California state jurisdiction. All of our tax years remain open to examination by the U.S. federal and California tax authorities. We also file in other state, local and foreign jurisdictions in which we operate, and such tax years remain open to examination.

As of December 31, 2020, we are permanently reinvested with respect to our foreign earnings, which are not material as our foreign operations are not significant.