INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

14. INCOME TAXES

Income tax expense consists of the following:

	Year Ended December 31,
(In thousands)	2023			2022			2021
Current
Federal	$	7,799		$	40,822		$	—
State		2,177			464			7
Total current		9,976			41,286			7
Deferred
Federal		6,594			26,026			70,893
State		(2,194	)		(625	)		5,539
Total deferred		4,400			25,401			76,432
Total income tax expense, net	$	14,376		$	66,687		$	76,439

The impacts of the differences between the expected U.S. federal statutory income tax to our income tax expense are as follows:

	Year Ended December 31,
(In thousands)	2023			2022			2021
Expected tax at federal statutory rate	$	40,747		$	58,928		$	93,507
State income tax, net of federal benefit		1,433			(1,414	)		848
Federal and state research credits		(1,582	)		(2,453	)		1,260
Section 250 deduction		(15,274	)		—			—
Noncontrolling interest		—			7,468			(21,626	)
Impact of consolidation and deconsolidation of subsidiaries		—			(8,897	)		—
Other		1,219			(125	)		1,129
Change in valuation allowance		(12,167	)		13,180			1,321
Total income tax expense, net	$	14,376		$	66,687		$	76,439

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 our deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(In thousands)	2023			2022
Deferred tax assets
Net operating loss carryforwards	$	182,013		$	149,646
Research and development tax credit carryforwards		21,357			21,230
Unrealized loss on investment, net		—			6,032
Deferred royalty obligation, net		18,084			17,404
Other		6,467			8,527
Total deferred tax assets before valuation allowance		227,921			202,839
Valuation allowance		(169,249	)		(144,808	)
Total deferred tax assets		58,672			58,031
Deferred tax liabilities
Depreciation and amortization		(39,064	)		(50,587	)
Unrealized gain on investment, net		(13,747	)		—
Inventory fair value adjustment		(6,424	)		(12,410	)
Other		—			(805	)
Net deferred tax liabilities	$	(563	)	$	(5,771	)

We record deferred tax assets if the realization of such assets is more likely than not to occur. Significant management judgment is required in determining whether a valuation allowance against the deferred tax assets is required. We have considered all available evidence, both positive and negative, such as our historical operating results and predictability of future taxable income, in making such determination. We are also required to exercise significant management’s judgment in forecasting future taxable income. Specifically, we evaluate the following criteria when considering a valuation allowance:

•the history of tax net operating losses in recent years;

•predictability of operating results;

•profitability for a sustained period of time; and

•level of profitability on a quarterly basis.

As of December 31, 2023, we had federal net operating loss carryforwards of approximately $543.5 million, which will expire beginning 2034. As of December 31, 2023, we also had state net operating loss carryforwards of approximately $1.0 billion, which will expire beginning 2029 and state research tax credits of approximately $33.3 million, which do not expire.

Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

We conducted an Internal Revenue Code of 1986, as amended, Section 382 (“Section 382”) analysis of the Company through December 31, 2022 to determine whether an ownership change had occurred since inception. The Section 382 study concluded that it is more likely than not that the Company did not experience an ownership change during the testing period. If we ever undergo an ownership change, the utilization of the pre-ownership change net operating loss carryforwards or pre-ownership change tax attributes, such as research tax credits, to offset the post-ownership change income may be subject to an annual limitation, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. Similar rules may apply under state tax laws.

As a result of the acquisition of Entasis, we conducted a study of Entasis’ ownership changes and estimated that we will be able to utilize $155.6 million of its federal net operating losses, which are subject to annual limitations.

As a result of the acquisition of La Jolla, we also performed an analysis of its ownership changes and estimated that we will be able to utilize $309.5 million of its federal net operating losses, which are subject to annual limitations.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2023 and 2022, we had no accrued interest or penalties due to the Company’s net operating losses available to offset any tax adjustments.

Uncertain Tax Positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits are as follows:

(In thousands)	Amount
Unrecognized tax benefits as of December 31, 2020		15,185
Net decrease in tax portions for 2021		(313	)
Unrecognized tax benefits as of December 31, 2021		14,872
Net increase in tax portions for 2022		1,452
Unrecognized tax benefits as of December 31, 2022		16,324
Net increase in tax portions for 2023		3,119
Unrecognized tax benefits as of December 31, 2023	$	19,443

We are subject to taxation in the U.S. and various state jurisdictions. The tax years 2006 through 2013, 2015 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions.

In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting legislation. We are in the process of evaluating whether and when these new rules may come into effect and apply to us. We plan to treat the tax if any as a period cost. We do not believe that the Pillar Two rules apply to us yet. As such, the potential future quantitative impact of the enacted or substantively enacted legislation is not yet reasonably estimable.