Income Taxes

For the years ended December 31, 2019 and 2018, the Company did not record a provision for income taxes, as the Company recorded a full valuation allowance against its deferred tax assets.

Deferred tax assets are as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	81,406		$	60,105
Research and development credits	24,011			21,262
Deferred royalty obligation	30,460			31,937
Share-based compensation expense	9,581			11,904
Depreciation and amortization expense	—			1,033
Lease liability	7,127			—
Other	1,263			1,004
Total gross deferred tax assets	153,848			127,245
Deferred tax liabilities:
Depreciation and amortization	(1,612		)	—
Right-of-use lease asset	(3,775		)	—
Valuation allowance	(148,461		)	(127,245		)
Net deferred tax assets	$	—		$	—

The difference between income taxes computed using the U.S. federal income effective tax rate and the provision for income taxes is as follows (in thousands):



	Year Ended December 31,
	2019			2018
Federal statutory rate	$	(24,467	)	$	(41,888	)
State tax benefit	(3,825		)	(14,449		)
Change in valuation allowance	102,583			55,167
Share-based compensation expense	7,532			4,041
State rate true-up	2,513			—
Section 382 limited tax attributes/expired	—			1,936
Establishment of NOLs and credits, post-Section 382 ownership change	(81,368		)	—
Research and development credits	(2,599		)	(5,164		)
Foreign rate differential	(62		)	(58		)
Other permanent differences	(307		)	415
Provision for income taxes	$	—		$	—

As of December 31, 2019 and 2018, the Company established a full valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets.

Pursuant to Section 382 and 383 of the IRC, utilization of the Company’s federal net operating loss (“NOL”)

carryforwards and research and development credit carryforwards may be subject to annual limitations in the event of any significant changes in its ownership structure. These annual limitations may result in the expiration of net operating loss carryforwards and research and development credit carryforwards, unless utilized. The Company has completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss carryforwards and research and development credit carryforwards through March 31, 2019. As a result of a Section 382 ownership change in September 2013, the Company recorded a reduction to its federal and state net operating loss carryforwards of $341.3 million and $170.9 million, respectively. In addition, the Company recorded a reduction to its federal research and development credit carryforwards of $15.5 million.

As of December 31, 2019, the Company had federal and state net operating loss carryforwards of $305.6 million and $227.2 million, respectively. In addition, the Company had estimated federal and California research and development credit carryforwards of $10.8 million and $16.7 million, respectively. Federal net operating loss carryforwards of $183.8 million, state net operating loss carryforwards of $227.2 million and federal research and development credit carryforwards of $10.8 million will begin to expire in 2034, unless utilized. Federal net operating loss carryforwards of $121.8 million and California research and development credit carryforwards of $16.7 million will carry forward indefinitely, unless utilized.

There were no unrecognized tax benefits as of December 31, 2019 and 2018. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets as of December 31, 2019 or December 31, 2018, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2019 and 2018.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax returns since inception are subject to examination by the U.S. and various state tax authorities. The Company is not currently undergoing a tax audit in any federal or state jurisdiction.