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

14.      Income Taxes

The components of the Company’s loss before income taxes were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Domestic

 

$

189,449

 

 

$

399,709

 

 

$

205,440

 

Foreign

 

 

(4,090

)

 

 

(265

)

 

 

(8,343

)

Total loss before income taxes

 

$

185,359

 

 

$

399,444

 

 

$

197,097

 

 

The components of the Company’s income tax provision were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Current provision for income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

 

 

State

 

 

15

 

 

 

51

 

 

 

14

 

 

International

 

 

1,192

 

 

 

1,092

 

 

 

500

 

 

Total current tax provision

 

 

1,207

 

 

 

1,143

 

 

 

514

 

 

Deferred tax provision:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

 

 

 

 

State

 

 

 

 

 

2,140

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

Total deferred tax provision

 

 

 

 

 

2,140

 

 

 

 

 

Total provision for income taxes

 

$

1,207

 

 

$

3,283

 

 

$

514

 

 

 

The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carryforwards in the accompanying financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Federal statutory income tax rate

 

 

21.0

 

%

 

21.0

 

%

 

21.0

 

%

State income taxes, net of federal benefit

 

 

 

 

 

(0.5

)

 

 

 

 

Federal tax credits

 

 

13.7

 

 

 

5.2

 

 

 

9.5

 

 

Other

 

 

(0.5

)

 

 

(0.2

)

 

 

(0.2

)

 

Premium on equity issuance

 

 

2.2

 

 

 

 

 

 

 

 

Nondeductible permanent items

 

 

(0.9

)

 

 

(0.4

)

 

 

(0.8

)

 

Stock-based compensation

 

 

0.9

 

 

 

(1.0

)

 

 

(0.8

)

 

Uncertain tax positions

 

 

(2.7

)

 

 

(1.0

)

 

 

(1.9

)

 

Change in valuation allowance

 

 

(33.9

)

 

 

(23.6

)

 

 

(26.8

)

 

Foreign rate differential

 

 

(0.5

)

 

 

(0.3

)

 

 

(0.3

)

 

Provision for income taxes

 

 

(0.7

)

%

 

(0.8

)

%

 

(0.3

)

%

 

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets is presented below (in thousands):

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

Deferred tax assets:

 

 

 

 

 

 

 

 

 

Loss carryforwards

 

$

222,902

 

 

$

185,892

 

 

Tax credits

 

 

184,961

 

 

 

158,791

 

 

Stock options

 

 

39,154

 

 

 

40,676

 

 

Accruals and reserves

 

 

24,922

 

 

 

19,622

 

 

Fixed assets and intangibles

 

 

7,242

 

 

 

3,870

 

 

Liability related to sale of future royalties

 

 

86,664

 

 

 

81,424

 

 

Other

 

 

28,642

 

 

 

4,183

 

 

Gross deferred tax assets

 

 

594,487

 

 

 

494,458

 

 

Valuation allowance

 

 

(561,139

)

 

 

(486,796

)

 

Total deferred tax assets

 

 

33,348

 

 

 

7,662

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

 

In-process research and development

 

 

(33,306

)

 

 

(33,306

)

 

Basis difference in equity investments

 

 

(23,019

)

 

 

 

 

Right-of-use lease assets

 

 

(10,329

)

 

 

(7,662

)

 

Gross deferred tax liabilities

 

 

(66,654

)

 

 

(40,968

)

 

Net deferred tax liabilities

 

$

(33,306

)

 

$

(33,306

)

 

 

As of December 31, 2020 and 2019, the Company had approximately $750.2 million and $549.9 million of federal net operating loss carryforwards available to reduce future taxable income that will begin to expire in 2032. As of December 31, 2020 and 2019, the Company had approximately $616.8 million and $520.2 million of state net operating loss carryforwards available to reduce future taxable income that will begin to expire in 2031.

As of December 31, 2020 and 2019, the Company had federal research tax credit carryforwards of $17.7 million and $11.7 million available to reduce future tax liabilities that will begin to expire in 2030. As of December 31, 2020 and 2019, the Company had state research credit carryforwards of $34.5 million and $25.5 million available to reduce future tax liabilities that will be carried forward indefinitely.

As of December 31, 2020 and 2019, the Company had federal Orphan Drug Credits of $179.8 million and $160.0 million available to reduce future tax liabilities that will begin to expire in 2031.

The Company’s ability to use net operating loss and tax credit carryforwards to reduce future taxable income and liabilities may be subject to annual limitations pursuant to Internal Revenue Code Sections 382 and 383 as a result of ownership changes in the past and future. As a result of ownership changes in 2012 and 2011, $3.6 million of federal net operating loss carryforwards, $3.6 million of state net operating loss carryforwards, and $0.2 million of federal tax credits are permanently limited. Deferred tax assets for net operating losses and tax credits have been reduced and a corresponding adjustment to the valuation allowance has been recorded. Based upon information available through the reporting date, the Company is not aware of any other changes in ownership that would result in material limitations under Section 382 as of December 31, 2020.

The valuation allowance increased by $74.3 million and $125.1 million during the year ended December 31, 2020 and 2019, respectively.

The Company recorded unrecognized tax benefits for uncertainties in income taxes. A reconciliation of the Company’s unrecognized tax benefits follows (in thousands):

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Balance at beginning of year

 

$

39,954

 

 

$

33,727

 

 

$

28,377

 

Additions based on tax positions related to current

   year

 

 

6,950

 

 

 

5,575

 

 

 

4,750

 

Additions for tax positions of prior years

 

 

382

 

 

 

652

 

 

 

600

 

Reductions for tax positions of prior years

 

 

(624

)

 

 

 

 

 

 

Balance at end of year

 

$

46,662

 

 

$

39,954

 

 

$

33,727

 

  

 

The entire amount of the unrecognized tax benefits would not impact the Company’s effective tax rate if recognized. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2020 and 2019, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next year.

It is the Company’s intention to reinvest the earnings of its non-U.S. subsidiaries in their operations. As of December 31, 2020, the Company had not made a provision for any incremental foreign withholding taxes on approximately $6.3 million of the excess of the amount of net income for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. If these earnings were repatriated to the U.S., the deferred tax liability associated with these temporary differences would result in a nominal amount of withholding taxes.

The Company files income tax returns in the U.S. federal, California, and other state tax jurisdictions. The federal and state income tax returns from inception to December 31, 2020 remain subject to examination.