Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

    Income (loss) before provision for income taxes includes the following components (in thousands):

	Year Ended December 31,
	2021		2020		2019
Domestic	$	(524,440)	$	(445,370)	$	(441,494)
Foreign	1,160		1,423		1,440
Loss before provision for income taxes	$	(523,280)	$	(443,947)	$	(440,054)

Provision for Income Taxes

    The provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2021		2020		2019
Current:
Federal	$	—	$	—	$	—
State	50		165		139
Foreign	609		364		495
Total current income tax expense	659		529		634
Deferred:
Federal	—		—		—
State	—		—		—
Foreign	(102)		(36)		(21)
Total deferred income tax expense	(102)		(36)		(21)
Provision for income taxes	$	557	$	493	$	613

Our income tax provision related to continuing operations differs from the amount computed by applying the statutory income tax rate of 21% to our pretax loss as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Income tax benefit at federal statutory rate	$	(109,889)	$	(93,229)	$	(92,411)
Research credits	(4,727)		(3,081)		(10,511)
Change in valuation allowance	97,914		87,060		104,440
Non-cash interest expense on liability related to sales of future royalties	9,936		6,356		5,259
Non-cash royalty revenue related to sales of future royalties	(7,891)		(7,967)		(7,624)
Loss on revaluation of liability related to the sale of future royalties	4,940		—		—
Stock-based compensation	6,627		7,929		(672)
Other	3,647		3,425		2,132
Provision for income taxes	$	557	$	493	$	613

Deferred Tax Assets and Liabilities

    Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We measure deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	564,712	$	456,284
Research and other credits	139,996		132,994
Operating lease liabilities	34,680		35,672
Stock-based compensation	33,408		32,517
Liability related to the sale of future royalties	23,757		32,737
Development derivative liability	6,639		—
Other	10,651		11,688
Deferred tax assets before valuation allowance	813,843		701,892
Valuation allowance for deferred tax assets	(785,748)		(670,103)
Total deferred tax assets	28,095		31,789
Deferred tax liabilities:
Operating lease right-of-use assets	(27,204)		(29,707)
Other	(564)		(1,856)
Total deferred tax liabilities	(27,768)		(31,563)
Net deferred tax assets	$	327	$	226

    Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of our lack of U.S. earnings history, other than income resulting from revenue recognized from the BMS Collaboration Agreement, and projected future losses, we have fully reserved our net U.S. deferred tax assets with a valuation allowance. The valuation allowance increased by $115.6 million and $95.0 million during the years ended December 31, 2021 and 2020, respectively. The increase in the valuation allowance is consistent with the increase in net operating loss carryforwards in the respective periods.

    Net Operating Loss and Tax Credit Carryforwards

    As of December 31, 2021, we had a net operating loss carryforward for federal income tax purposes of approximately $2.4 billion, portions of which will begin to expire in 2022 and a total state net operating loss carryforward of approximately $1.5 billion, portions of which will begin to expire in 2026. We have federal research credits of approximately $103.3 million, which will begin to expire in 2023 and state research credits of approximately $47.0 million which have no expiration date. We have federal orphan drug credits of $19.4 million which will begin to expire in 2026. Utilization of some of the federal and state

net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

Unrecognized tax benefits

    We have the following activity relating to unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2021		2020		2019
Beginning balance	$	78,665	$	77,410	$	27,419
Tax positions related to current year:
Additions	2,371		2,512		49,858
Reductions	—		—		—
Tax positions related to prior years:
Additions	58		193		277
Reductions	(490)		(1,450)		(144)
Settlements	—		—		—
Lapses in statute of limitations	—		—		—
Ending balance	$	80,604	$	78,665	$	77,410

    If we are eventually able to recognize our uncertain tax positions, our effective tax rate may be reduced. We currently have a full valuation allowance against our U.S. net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Adjustments to the substantial majority of our uncertain tax positions would result in an adjustment of our net operating loss or tax credit carryforwards rather than resulting in a cash outlay.

    We file income tax returns in the U.S., California, Alabama, certain other states and India. As a result of our net operating loss and research credit carryforwards, substantially all of our domestic tax years remain open and subject to examination. We may be subject to examination in India from time to time, but we do not believe that any liability resulting from such an examination would have a material effect on our financial position or results of operations.

Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for income taxes in the consolidated statements of operations. During the years ended December 31, 2021, 2020 and 2019, no significant interest or penalties were recognized relating to unrecognized tax benefits. Although it is reasonably possible that certain unrecognized tax benefits could change in the future, we do not anticipate any significant changes over the next twelve months.