Income Taxes
The components of federal and state income tax expense are as follows (in thousands):
|
| | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 | | 2014 |
Current | | | | | | |
Federal | | $ | — |
| | $ | — |
| | $ | — |
|
State | | — |
| | — |
| | — |
|
Total current | | — |
| | — |
| | — |
|
Deferred expense | | | | | | |
Federal | | 210 |
| | 332 |
| | — |
|
State | | 33 |
| | 33 |
| | — |
|
Total deferred | | 243 |
| | 365 |
| | — |
|
Total income tax expense | | $ | 243 |
| | $ | 365 |
| | $ | — |
|
The components of net deferred tax assets are as follows (in thousands):
|
| | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
Net operating loss carryforwards | | $ | 97,168 |
| | $ | 75,221 |
|
Tax credit carryforwards | | 4,083 |
| | 3,866 |
|
Stock based compensation | | 5,757 |
| | 5,050 |
|
Other | | 58 |
| | 1,430 |
|
Licensing deduction deferral | | 10,263 |
| | 9,910 |
|
Gross deferred tax assets | | 117,329 |
| | 95,477 |
|
Valuation allowance | | (117,329 | ) | | (95,477 | ) |
Net deferred tax asset | | $ | — |
| | $ | — |
|
The components of net deferred tax liabilities are as follows (in thousands):
|
| | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
In-process research and development not subject to future amortization for tax purposes | | $ | 5,661 |
| | $ | 5,418 |
|
Gross deferred tax liability | | $ | 5,661 |
| | $ | 5,418 |
|
The provision for income taxes differs from the provision computed by applying the federal statutory rate to net loss before income taxes as follows (in thousands):
|
| | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 | | 2014 |
Expected federal income tax benefit | | $ | (7,977 | ) | | $ | (21,603 | ) | | $ | (12,447 | ) |
State income taxes after credits | | (1,575 | ) | | (2,375 | ) | | (1,283 | ) |
Unrealized gain on marketable securities | | — |
| | — |
| | — |
|
Changes in warrant value | | (8,728 | ) | | (456 | ) | | (6,503 | ) |
Stock compensation | | (1,782 | ) | | 508 |
| | 3,996 |
|
Effect of change in valuation allowance | | 21,852 |
| | 24,029 |
| | 17,275 |
|
Income tax credits | | (217 | ) | | (276 | ) | | (42 | ) |
Other | | (1,330 | ) | | 538 |
| | (996 | ) |
| | $ | 243 |
| | $ | 365 |
| | $ | — |
|
The Company has incurred net operating losses from inception. At December 31, 2016, the Company had domestic federal and state net operating loss carryforwards of approximately $251.5 million and $200.0 million, respectively, available to reduce future taxable income, which expire at various dates beginning in 2016 through 2036. The Company also had federal and state research and development tax credit carryforwards of approximately $2.6 million and $2.5 million, respectively, available to reduce future tax liabilities and which expire at various dates beginning in 2023 through 2035. The income tax expense for the year ended December 31, 2016 relates to indefinite lived deferred tax liabilities.
At December 31, 2016, approximately $1.4 million of the Company's net operating loss carryforwards were generated as a result of deductions related to the exercises of stock options. If utilized, this portion of the Company's carryforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets.
Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable.
Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred income tax valuation allowance has been recorded against these assets. The valuation allowance increased by $21.8 million and $24.2 million for the years ended December 31, 2015 and 2014, respectively.
The Company files income tax returns in the U.S. federal, Massachusetts, Colorado, California, Connecticut, Georgia, Oregon, and Texas jurisdictions. The Company is subject to tax examinations for the 2012 tax year and beyond. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.