12. Income Taxes

        The following table presents domestic and foreign components of loss from operations before income taxes:

                                                                                                                                                                                    

 

        The Company recorded no current or deferred tax expense for federal and state purposes and no current foreign tax expense for the years ended December 31, 2017, 2016 and 2015. A foreign deferred tax benefit of approximately $19,000, $18,000 and $19,000 has been recorded for the years ended December 31, 2017, 2016, and 2015, respectively.

        A reconciliation setting forth the differences between the effective tax rate of the Company for the periods ended December 31, 2017, 2016 and 2015 and the U.S. federal statutory tax rate is as follows:

                                                                                                                                                                                    

        The significant components of the Company's deferred tax assets are as follows:

                                                                                                                                                                                    

 

        In December 2017, the U.S. government enacted comprehensive tax legislation ("Tax Reform Act") that includes significant changes to the taxation of business entities. These changes include, among others, (1) a permanent reduction to the corporate income tax rate from 34% to 21%, (2) limiting interest deductions, (3) adopting elements of a territorial tax system and (4) introducing certain anti-base erosion provisions. In addition, under the Tax Reform Act, federal net operating losses generated after December 31, 2017 will not be subject to expiration. In December 2017, the SEC issued guidance, which directs taxpayers to consider the impact of the U.S. legislation as "provisional" when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. As of December 31, 2017, the Company recognized a provisional amount of $0 for the transition tax. The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The provisional amount recorded related to the re-measurement of the deferred tax balance was a tax expense of $13.6 million, which was fully offset by an adjustment to the valuation allowance.

        Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has considered the Company's history of operating losses and concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company will not realize the benefit of its deferred tax assets. Accordingly, with the exception of the deferred tax assets recorded at Cosmix, a full valuation allowance for the net deferred tax asset was recorded as of December 31, 2017 and 2016. Management reevaluates the positive and negative evidence on a quarterly basis.

        The valuation allowance increased by $8.2 million during the year ended December 31, 2017, primarily due to an increase in capitalized research and development costs, research and development credits and stock-based compensation expense; partially offset by a decrease in net operating losses and a lower U.S. federal tax rate due to the Tax Reform Act. The valuation allowance increased by $12.2 million during the year ended December 31, 2016, primarily due to an increase net operating losses, research and development credits and stock-based compensation expense.

        Subject to the limitations described below, as of December 31, 2017 and 2016, the Company had federal net operating loss carryforwards of $55.7 million and $45.1 million, respectively, and state net operating loss carryforwards of $51.2 million and $40.9 million, respectively. The net operating loss carryforwards expire at various dates beginning in 2028 through 2037 for U.S. federal and state purposes. As of both December 31, 2017 and 2016, the Company has trade net operating loss carryforwards of less than $0.1 million at its German subsidiary. There is no expiration of the German net operating loss carryforwards.

        As of December 31, 2017 and 2016, the Company had research and development credits for federal income tax purposes of $4.4 million and $2.5 million, respectively, and research and development credits for state income tax purposes of $1.7 million and $1.5 million, respectively. If not utilized, the available research and development credits for federal and state income tax purposes expire at various dates through 2037 and 2032, respectively.

        Utilization of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 ("IRC Section 382") and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has completed several financings since its inception which may result in a change in control as defined by IRC Section 382 or could result in a change in control in the future.

        As of December 31, 2017 and 2016, the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax positions.

        The Company files income tax returns in the U.S. federal, Massachusetts and foreign jurisdictions. The statute of limitations for assessment by the Internal Revenue Service and state tax authorities remains open for all years since the Company's inception. There are currently no federal or state income tax audits in progress.