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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For financial reporting purposes, the components of loss from continuing operations before income taxes are presented in the following table.
 Year Ended December 31,
(In thousands)202120202019
United States$(193,176)$(170,812)$(325,769)
Foreign(34,132)(55,996)(93,734)
Total$(227,308)$(226,808)$(419,503)
The following table summarizes carryforwards of net operating losses and tax credits as of December 31, 2021.
(in millions)Amount
Federal net operating losses$669.2 
State net operating losses427.7 
Foreign net operating losses289.2 
Federal research and development credits6.4 
State research and development credits4.2 
Orphan drug research and development credits2.0 
At December 31, 2021, our federal, state, and foreign (primarily related to the U.K.) net operating loss carryforwards, including the acquired net operating losses from our acquisition of Modis, were approximately $669.2 million, $427.7 million and $289.2 million, respectively, which may be subject to limitations as described below. If not utilized, a significant portion of our federal net operating loss carryforwards incurred prior to 2018 will begin to expire in 2029 and the state net operating loss carryforwards incurred prior to 2018 will begin to expire in 2022. Under the Tax Cut and Jobs Act of 2017 (Tax Act), federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely. However, the deductibility of such federal net operating losses is limited to 80% of taxable income. As of December 31, 2021, of the $669.2 million in total federal net operating loss carryforwards, $414.7 million do not expire. It is uncertain if and to what extent various states will conform to the Tax Act. In the U.K., our net operating loss carryforwards do not expire, but the use of net operating loss carryforwards in relation to U.K. taxable income incurred on or after April 1, 2017 will be limited each year to £5.0 million plus an incremental 50% of U.K. taxable income, subject to a regulatory established allowance per group.
In addition, we have federal and California research and development income tax credit carryforwards of approximately $6.4 million and $4.2 million. If not utilized, the federal research and development income tax credit carryforwards will begin to expire in 2031. The California research and development income tax credit carryforwards do not expire and can be carried forward indefinitely. As of December 31, 2021, we had federal orphan drug tax credit carryforwards of $2.0 million, which begin to expire in 2036. Due to the net operating loss carryforwards, all years remain open for income tax examination by tax authorities in the United States, various states and foreign tax jurisdictions in which we file tax returns. We are currently not under audit by any tax jurisdiction.
As of December 31, 2021, we have experienced at least three ownership changes. The first ownership change occurred in August 2006 and resulted in a reduction to our net operating loss carryforwards of $1.9 million. We had a second ownership change in September 2011 which resulted in reductions to our federal net operating loss carryforwards of $121.1 million, research and development income tax credits of $3.0 million, and California net operating loss carryforwards of $53.3 million. We had a third ownership change in January 2014, which did not result in any reductions of federal and California net operating loss carryforwards or research and development income tax credits. We recently completed an evaluation of the potential effect of Section 382 on our ability to utilize our net operating losses, including those acquired from our acquisition of Modis. Any operating losses and other tax attributes generated by us subsequent to January 2014, including those acquired from our acquisition of Modis, are currently not subject to any IRC Section 382 limitations. Pursuant to the IRC, the use of our net operating loss and research and development income tax credit carryforwards may be limited in the event of a future cumulative change in ownership of more than 50% within a three-year period.
A reconciliation of income tax provision to amounts computed by applying the statutory federal income tax rate to loss from continuing operations before income taxes is shown as follows (in thousands):
 December 31,
202120202019
Income tax at federal statutory rate$(47,735)$(47,630)$(88,096)
State taxes, net of federal benefit(5,803)(4,316)(65)
Non-deductible acquired IPR&D charge and other expenses(1)
— — 52,044 
Change in valuation allowance54,799 40,039 21,155 
Impact of foreign rate change on deferred taxes(12,405)(2,950)1,887 
Other permanent differences2,117 3,993 4,101 
State tax rate benefit164 (1,346)(18)
Foreign rate differential393 752 1,883 
Stock-based compensation2,484 1,180 (2,674)
Net operating losses surrendered under U.K.’s R&D tax relief scheme— — 9,349 
State apportionment adjustments482 (2,673)48 
Impact of foreign exchange rate differences5,679 (4,532)— 
Credits and other(70)58 386 
Income tax expense (benefit)$105 $(17,425)$— 
(1)Represents amounts attributable to our asset acquisition of Modis. See Note 4 for additional information.
The significant components of deferred tax assets (liabilities) are as follows:
 December 31,
(In thousands)20212020
Deferred tax assets:
Federal, state and foreign net operating loss carryforwards$237,708 $186,963 
Capitalized research and development666 486 
Accrued expenses5,895 2,498 
Research and development credits5,343 5,343 
Amortization2,718 2,949 
Lease liability2,291 2,534 
Stock-based compensation10,212 7,878 
Other, net2,523 2,690 
Total deferred tax assets267,356 211,341 
Less: valuation allowance(231,335)(176,594)
Total deferred tax assets, net of valuation allowance$36,021 $34,747 
Deferred tax liabilities:
Operating lease right-of-use asset$(1,423)$(1,585)
IPR&D(18,573)(15,857)
Discount on Notes(16,025)(17,305)
Total deferred tax liabilities(36,021)(34,747)
Total net deferred tax liabilities$— $— 
For the year ended December 31, 2021, a provision for income taxes of $0.1 million has been recognized related primarily to our subsidiaries located outside of the United States. For the year ended December 31, 2020, income tax benefit of $17.4 million resulted from a change in our valuation allowance balance associated with the completion of our in-process research and development program for Fintepla. Prior to regulatory approval of Fintepla in June 2020, our indefinite-lived asset was not subject to amortization. Upon completion of the IPR&D program, the indefinite-lived intangible asset was reclassified to an intangible asset subject to amortization over its estimated useful life. As a result, future reversals of deferred tax liabilities related to finite-lived intangible assets provided a source of income when assessing the realizability of our U.K. net operating loss carryforwards. We therefore recorded a $17.4 million income tax benefit in 2020 with a corresponding reduction to our valuation allowance on our U.K. deferred tax assets. The income tax benefit included the effects of foreign exchange
differences on remeasurement of the deferred tax liability. An immaterial portion of the adjustment for foreign exchange differences was related to prior periods.
As of December 31, 2021 and 2020, we have established a full valuation allowance against our U.S. and foreign deferred tax assets that are in excess of our reversing taxable temporary differences in those jurisdictions as we determined it is more likely than not that the tax benefit will not be realized.
The increase in valuation allowance of $54.7 million during 2021 was primarily attributable to tax benefits generated from current period net operating losses. The increase in valuation allowance of $25.1 million during 2020 was primarily attributable to tax benefits generated from net operating losses, offset by the impact of tax benefits from intangibles that became subject to amortization for financial statement purposes discussed above.
We recognize liabilities for uncertain tax positions based on a two-step process. 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.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
 December 31,
 202120202019
Beginning balance of unrecognized tax benefits$3,638 $3,541 $1,487 
Gross increases based on tax positions related to current year— — 1,495 
Gross increases based on tax positions related to prior years97 559 
Gross decreases based on tax positions related to prior years— — — 
Settlements with taxing authorities— — — 
Expiration of statute of limitations— — — 
Ending balance of unrecognized tax benefits$3,638 $3,638 $3,541 
As at December 31, 2021 and 2020, there were no unrecognized tax benefits that, if recognized, would affect our effective tax rate as any tax benefit would increase a deferred tax asset, which is currently offset by a full valuation allowance.
We record interest and, if applicable, penalties related to income tax matters as a component of income tax expense. No interest or penalties have been recorded for all periods presented. We do not expect any significant increases or decreases to our unrecognized tax benefits in the next twelve months.