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Income Taxes
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Significant components of our net deferred tax assets at December 31, 2015 and 2014 are shown below (in thousands). A valuation allowance of $182.5 million and $179.0 million has been established to offset the net deferred tax assets as of December 31, 2015 and 2014, respectively, as realization of such assets is uncertain.
 
 
December 31,

 
2015

2014
Deferred tax assets:
 



Net operating loss carryforwards
 
$
104,505

 
$
120,707

Deferred revenue
 
16,344

 
18,034

Research and development credits
 
54,846

 
34,146

Share-based compensation
 
6,286

 
5,381

Other, net
 
906

 
891


 
182,887

 
179,159

Valuation allowance for deferred tax assets
 
(182,507
)
 
(178,965
)
Deferred tax assets, net of valuation
 
380

 
194

Deferred tax liabilities:
 
 
 
 
Depreciation
 
(380
)
 
(194
)
Net deferred tax liabilities
 
(380
)
 
(194
)
Net deferred tax assets
 
$

 
$


The provision for income taxes on earnings subject to income taxes differs from the statutory federal income tax rate due to the following (in thousands):
 
 
December 31,

 
2015

2014

2013
Federal income tax at 34%
 
$
(10,804
)
 
$
(23,247
)
 
$
(28,383
)
State income tax, net of federal benefit
 
5,526

 
(1,761
)
 
(1,745
)
Increase in valuation allowance
 
3,897

 
16,998

 
33,525

Foreign income subject to tax at other than federal statutory rate
 
14,945

 
12,747

 

Tax effect on non-deductible expenses and other
 
6,042

 
540

 
5,219

Research and development credits
 
(19,606
)
 
(5,277
)
 
(8,616
)

 
$

 
$

 
$


At December 31, 2015, we had federal and California tax net operating loss carryforwards of approximately $320.0 million and $329.0 million, respectively. Included in these amounts are federal and California net operating losses of approximately $49.1 million and $34.2 million, respectively, attributable to stock option, RSA, RSU, and PRSU deductions for which the tax benefit will be credited to equity when realized. The federal tax net operating loss carryforwards will begin to expire in 2018, unless previously utilized. The California tax net operating loss carryforwards will expire in 2016, 2017 and 2028 and beyond in the amounts of $13.1 million, $10.4 million and $302.0 million, respectively.
At December 31, 2015, we also had federal and California research and development tax credit carryforwards of approximately $28.0 million and $15.1 million, respectively. The federal research and development tax credits will begin to expire in 2024 unless previously utilized. The California research and development tax credits will carryforward indefinitely until utilized. Additionally, we had Orphan Drug Credit carryforwards of $16.9 million which will begin to expire in 2024.
Pursuant to Internal Revenue Code Section 382, the annual use of the net operating loss carryforwards and research and development tax credits could be limited by any greater than 50% ownership change during any three year testing period. As a result of any such ownership change, portions of our net operating loss carryforwards and research and development tax credits are subject to annual limitations. We completed an updated Section 382 analysis regarding the limitation of the net operating losses and research and development credits as of June 30, 2014. Based upon the analysis, we determined that ownership changes occurred in prior years. However, the annual limitations on net operating loss and research and development tax credit carryforwards will not have a material impact on the future utilization of such carryforwards.
At December 31, 2015, our unrecognized income tax benefits and uncertain tax positions were $4.9 million and would not, if recognized, affect the effective tax rate. We had no such unrecognized income tax benefits or uncertain tax positions at December 31, 2014. Interest and/or penalties related to uncertain income tax positions are recognized by us as a component of income tax expense. For the years ended December 31, 2015, 2014 and 2013, we recognized no interest or penalties.
We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiary as it is our intention to utilize those earnings in the foreign operations for an indefinite period of time. At December 31, 2015 and 2014, there were no undistributed earnings in the foreign subsidiary.
We are subject to taxation in the U.S. and in various state and foreign jurisdictions. Our tax years for 1998 and forward are subject to examination by the U.S. and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.