The Company accounts for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.

For each of the years ended December 31, 2019, 2018 and 2017, the effective income tax rate and tax provision from continuing operations was 0% for all periods, primarily attributable to losses generated and on which any income tax benefits are not likely to be realized.

The following is the reconciliation between the statutory federal income tax rate and the Company’s effective tax rate:

	Year Ended December 31,
	2019			2018			2017
Federal statutory income tax rate		21.0	%		21.0	%		34.0	%
State taxes (tax effected)		7.3			8.6			7.1
Non-deductible expenses and other		(0.5	)		2.5			2.0
Research and development reimbursements		3.2			5.9			6.0
Change in valuation allowance		(31.0	)		(38.0	)		(24.0	)
Tax Act – net deferred tax rate change		—			—			(25.1	)
Total		—	%		—	%		—	%

As of December 31, 2019 and 2018, the components of the Company’s deferred tax assets are as follows (in thousands):

	As of December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards		98,445			49,689
Research and development reimbursement carryforwards		23,061			12,908
Stock-based compensation		8,861			4,349
Start-up costs		22,896			1,237
Depreciation		(1,027	)		(959	)
Other		2,646			1,858
Total deferred tax assets		154,882			69,082
Less: valuation allowance		(154,882	)		(69,082	)
Net deferred tax assets		—			—

The Company’s primary deferred tax assets of $98.4 million and $49.7 million at December 31, 2019 and 2018, respectively, relate to its net operating loss carryforwards (NOLs). Based on a history of cumulative losses in recent periods and consideration of other available positive and negative evidence, the Company has recorded a full valuation allowance to offset the deferred tax assets for both periods presented.

As of December 31, 2019, the Company had approximately $351.1 million and $354.0 million of federal and state net operating losses, respectively, that will begin to expire in 2032. As of December 31, 2019, the Company had approximately $7.2 million and $5.9 million of federal and state research and development tax credit carryovers, respectively. If not utilized, the federal credit carryforward will expire in 2032, and the state credit carryforward does not expire. As of December 31, 2019, the Company had approximately $18.2 million of federal orphan tax credit carryovers, which will begin to expire in 2036 if not utilized. The valuation allowance increased by approximately $85.8 million, $25.7 million and $13.7 million during the years ended December 31, 2019, 2018 and 2017, respectively.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code) if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. Similar rules may apply under the laws of the state of California. The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change (subject to certain adjustments) by the applicable “long-term tax-exempt rate.” Such limitations may result in expiration of a portion of the NOLs and other tax attributes before utilization. Each ownership change resulted in an annual limitation, but all NOLs and other tax attributes generated prior to the ownership changes on April 20, 2015 and August 14, 2017 can be utilized prior to expiration if the Company earns sufficient taxable income. The Company’s March 2019 follow-on stock offering did not result in an ownership change.

As of December 31, 2019, and 2018, the Company did not have a liability related to unrecognized tax benefits. All unrecognized tax benefits have been netted against the research and development and orphan drug credit carryforwards deferred tax asset.

The Company records interest and penalties related to unrecognized tax benefits within interest and other income, net. As of December 31, 2019, and 2018, the Company had not accrued any interest or penalties related to unrecognized tax benefits. The Company is subject to U.S. federal and California income tax assessment for years beginning in 2012 and Australia beginning in 2015. However, since the Company has incurred federal and California net operating losses every year since inception, all of its income tax returns are subject to examination and adjustments by the Internal Revenue Service for at least three years and by the California Franchise Tax Board for four years following the year in which the tax attributes are utilized. The Company does not

believe that there will be a material change in its unrecognized tax positions over the next twelve months. There is no amount of unrecognized tax benefit that, if recognized, would affect the effective tax rate.

The Company accounts for uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company determines whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

The Company includes penalties and interest expense related to income taxes as a component of interest and other income, net; there were no interest or penalties accrued at December 31, 2019 and 2018.

The Company has not been audited by the Internal Revenue Service, any state tax authority, or foreign tax authorities. It is subject to taxation in the United States and Australia. Because of the net operating loss, research credit carryforwards, and orphan drug tax credit carryforwards, substantially all of its tax years, from 2012 to 2019, remain open to U.S. federal and California tax examinations. The statute of limitation in Australia is four years.

At December 31, 2019, 2018 and 2017, the Company's reserve for unrecognized tax benefits is approximately $7.5 million, $3.8 million and $2.5 million, respectively. Due to the full valuation allowance at December 31, 2019, current adjustments to the unrecognized benefits will have no impact to the Company's effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	For the Year Ended December 31,
	2019		2018		2017
Beginning balance	$	3,810	$	2,471	$	1,474
Increases (decreases) of unrecognized tax benefits related to prior year		380		289		(97	)
Increases of unrecognized tax benefits related to current year		3,314		1,050		1,094
Ending balance	$	7,504	$	3,810	$	2,471

The Company does not anticipate material changes to its uncertain tax positions through the next twelve months.