The Company’s loss before income taxes was $23.8 million and $10.2 million for the years ended December 31, 2018 and 2017, respectively and was generated entirely in the United States. The Company did not record current or deferred income tax expense or benefit during the years ended December 31, 2018 and 2017.

A reconciliation of income tax expense (benefit) to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarized for the years ended December 31, 2018 and 2017, respectively, as follows (in thousands):

	Year Ended December 31,
	2018			2017
Income tax benefit at statutory rate	$	(5,008	)	$	(3,484	)
State income tax, net of federal benefit		(1,593	)		(528	)
Permanent items		3			4
Fair value adjustments		15			(164	)
Non-deductible interest expense		706			905
Stock-based compensation		45			21
Orphan drug credit		(475	)		(616	)
Research and development credits		(274	)		(218	)
Uncertain tax positions		222			209
Tax Cuts and Jobs Act		(15	)		10,978
Change in valuation allowance		6,426			(7,110	)
Other		(52	)		3
	$	—		$	—

Significant components of the Company’s deferred tax assets as of December 31, 2018 and 2017 are shown below:

	Year Ended December 31,
	2018			2017
Net deferred tax asset:
Net operating loss carryforwards	$	31,744		$	26,138
Research and development credits		4,615			3,863
Accrued expenses		332			239
Intangibles		69			110
Property and equipment		(18	)		(2	)
Other, net		54			22
Total net deferred tax asset		36,796			30,370
Valuation allowance for deferred tax asset		(36,796	)		(30,370	)
Deferred tax assets, net of valuation allowance	$	—		$	—

As of December 31, 2018 and 2017, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance against the deferred tax assets. This evaluation utilizes the framework contained in ASC 740, Income Taxes, whereby management considers all available positive and negative evidence as of the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not (a probability level of more than 50%) that the asset will not be realized.

Management followed the guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome” and concluded that the Company’s deferred tax assets were not realizable as of December 31, 2018 and 2017 and recorded a valuation allowance of $36.8 million and $30.4 million, respectively, to offset the deferred tax assets. The change in valuation allowance for the years ended December 31, 2018 and 2017 was an increase of $6.4 million and a decrease of $7.1 million, respectively.

At December 31, 2018, the Company had federal and Pennsylvania net operating loss (“NOL”) carryforwards of $111.9 million, and $105.9 million, respectively. The federal NOLs generated prior to 2018 may be used to offset up to 100% of future taxable income and will begin to expire in 2022, unless previously utilized. The federal NOL generated in 2018 of $20.4 million will be available to offset up to 80% of future taxable income and may be carried forward indefinitely. The Pennsylvania NOLs may be used to offset 40% of future taxable income and will begin to expire in 2029, unless previously utilized.

At December 31, 2018, the Company also has federal and Pennsylvania research and development tax credit carryforwards totaling $3.2 million and $0.2 million, respectively. The federal and Pennsylvania research and development tax credit carryforwards will begin to expire in 2028 and 2029, respectively, unless previously utilized.

At December 31, 2018, the Company also has federal orphan drug credit carryforwards of $2.8 million, which will begin to expire in 2036, unless previously utilized.

For all years through December 31, 2018, the Company generated a combination of research and development credits and orphan drug credits. Certain of these credits were derived from studies to document the qualified activities and certain other credits were not derived from studies. For the credits that were calculated through a study, the IRS, on audit, may disagree with the amount of credits calculated. When studies are ultimately performed for the other credits, they may result in an adjustment to those specific credits.

Under the Internal Revenue Code, the utilization of a corporation’s net operating loss and tax credit carryforwards may be limited following a greater than 50% change in ownership over a three-year period. Any unused annual limitation may be carried forward to future years for the balance of the net operating loss and tax credit carryforward period. Under these rules, prior ownership changes may have created a limitation in the Company’s ability to use certain tax carryforwards on a yearly basis. Additionally, certain state operating losses may also be limited, including Pennsylvania, which limits net operating loss carryforward utilization to 35% (40% in 2019 and thereafter) of apportioned taxable income.

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (iii) creating a new limitation on deductible interest expense; and (iv) changing rules related to uses and limitations of net operating carryforwards created in tax years beginning after December 31, 2017.

The Company applied the guidance in SEC Staff Accounting Bulletin 118 when accounting for the enactment-date effects of the Act in 2017 and throughout 2018. At December 31, 2017, the Company had not completed its accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes, related to the remeasurement of deferred tax assets and liabilities. At December 31, 2018, the Company has now completed its accounting for all of the enactment-date income tax effects of the Act, and no adjustments were made to the provisional amounts recorded at December 31, 2017.

The most significant impact of the Tax Act on the Company's consolidated financial statements was the reduction of $11.0 million of the deferred tax assets related to the net operating losses and other deferred tax assets. The reduction was offset by a change in the Company's valuation allowance. Another significant impact of the Tax Act was to reduce the applicable percentage to be used for the Orphan Drug Credit for tax years beginning after December 31, 2017.

The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Tax years 2015 and forward remain open for examination for federal tax purposes and tax years 2015 and forward remain open for examination for the Company’s more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2018 will remain subject to examination until the respective tax year is closed.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2018 and 2017 (in thousands):

	Year Ended December 31,
	2018		2017
Gross unrecognized tax benefits at the beginning of the year	$	1,293	$	1,067
Increases related to current year positions		362		226
Increases related to prior year positions		154		—
Decreases related to prior year positions		—		—
Expiration of unrecognized tax benefits		—		—
Gross unrecognized tax benefits at the end of the year	$	1,809	$	1,293

Due to the Company's valuation allowance, none of the unrecognized tax benefits, if recognized, would affect the Company's effective tax rate.

As of December 31, 2018, and 2017, the Company had unrecognized tax benefits of $1.8 million and $1.3 million, respectively. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2018 and 2017, the Company did not accrue any interest and penalties on uncertain tax positions. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.