|
10. |
INCOME TAXES |
The domestic and foreign components of loss before income taxes are as follows, in thousands:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
(378,293 |
) |
|
$ |
(350,704 |
) |
|
$ |
(245,681 |
) |
|
Foreign |
|
|
(112,581 |
) |
|
|
(59,404 |
) |
|
|
(44,392 |
) |
|
Loss before income taxes |
|
$ |
(490,874 |
) |
|
$ |
(410,108 |
) |
|
$ |
(290,073 |
) |
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. We establish a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax (liability) asset at December 31, 2017 and 2016 are as follows, in thousands:
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
405,784 |
|
|
$ |
346,965 |
|
|
Research and development credits |
|
|
192,094 |
|
|
|
111,394 |
|
|
AMT credits |
|
|
788 |
|
|
|
788 |
|
|
Foreign tax credits |
|
|
— |
|
|
|
3,196 |
|
|
Capitalized research and development and start-up costs |
|
|
13,163 |
|
|
|
18,138 |
|
|
Deferred revenue |
|
|
13,576 |
|
|
|
20,853 |
|
|
Deferred compensation |
|
|
42,990 |
|
|
|
51,355 |
|
|
Intangible assets |
|
|
9,018 |
|
|
|
14,725 |
|
|
Partnership interest |
|
|
— |
|
|
|
1,623 |
|
|
Other |
|
|
11,608 |
|
|
|
7,845 |
|
|
Total deferred tax assets |
|
|
689,021 |
|
|
|
576,882 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
|
(765 |
) |
|
|
(1,524 |
) |
|
Deferred tax asset valuation allowance |
|
|
(688,256 |
) |
|
|
(575,358 |
) |
|
Net deferred tax liability |
|
$ |
— |
|
|
$ |
— |
|
Our effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
At U.S. federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State taxes, net of federal effect |
|
|
3.8 |
|
|
|
3.7 |
|
|
|
4.0 |
|
|
Stock-based compensation |
|
|
3.3 |
|
|
|
(1.4 |
) |
|
|
(1.1 |
) |
|
Tax credits |
|
|
9.9 |
|
|
|
11.8 |
|
|
|
8.0 |
|
|
Orphan drug credit |
|
|
(3.4 |
) |
|
|
(3.5 |
) |
|
|
(2.0 |
) |
|
Other permanent items |
|
|
(1.0 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
Foreign rate differential |
|
|
(8.1 |
) |
|
|
(5.1 |
) |
|
|
(5.4 |
) |
|
Tax reform change |
|
|
(46.5 |
) |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(0.9 |
) |
|
|
— |
|
|
|
— |
|
|
Valuation allowance |
|
|
7.9 |
|
|
|
(40.1 |
) |
|
|
(38.4 |
) |
|
Effective income tax rate |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets. We have concluded, in accordance with the applicable accounting standards, that it is more likely than not that we may not realize the benefit of all of our deferred tax assets. Accordingly, we have recorded a valuation allowance against the deferred tax assets that management believes will not be realized. We reevaluate the positive and negative evidence on a quarterly basis. The valuation allowance increased by $112.9 million, $177.9 million and $129.1 million for the years ended December 31, 2017, 2016 and 2015, respectively, due primarily to additional operating losses.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act, or TCJA, tax reform legislation. The TCJA makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The TCJA reduced the U.S. corporate tax rate from the current rate of 35 percent down to 21 percent starting on January 1, 2018. As a result of the TCJA, we were required to revalue deferred tax assets and liabilities at 21 percent. This revaluation resulted in a provision of $227.9 million to income tax expense in continuing operations and a corresponding reduction in the valuation allowance. As a result, there was no impact to our consolidated statements of comprehensive loss as a result of the reduction in tax rates. The other provisions of the TCJA did not have a material impact on our consolidated financial statements.
Our preliminary estimate of the TCJA and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the TJCA may require further adjustments and changes in our estimates. The final determination of the TCJA and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA.
There was no benefit from income taxes recorded during the years ended December 31, 2017, 2016, and 2015.
On January 1, 2017, we adopted new accounting guidance released in March 2016 that updates the accounting for certain aspects of share-based payments to employees, including the income tax consequences, classification of awards as either equity or liabilities and classification on the consolidated statement of cash flows. On January 1, 2017, the deferred tax assets associated with net operating losses increased by $122.2 million and the deferred tax asset associated with federal and state research credit increased by $30.8 million. These amounts were offset by a corresponding increase in the valuation allowance. The adoption of this standard did not impact our consolidated financial statements.
At December 31, 2017, we had federal and state net operating loss carryforwards of $1.47 billion and $1.55 billion, respectively, to reduce future taxable income that will expire at various dates through 2037. At December 31, 2017, we had federal and state research and development and investment tax credit carryforwards of $180.0 million and $15.3 million, respectively, available to reduce future tax liabilities that expire at various dates through 2037. At December 31, 2017, we had alternative minimum tax credits of $0.8 million that will either be available to reduce future regular tax liabilities or be fully refundable in 2021. We have a valuation allowance against the net operating loss and credit deferred tax assets as it is unlikely that we will realize these assets. Ownership changes, as defined in the Internal Revenue Code, including those resulting from the issuance of common stock in connection with our public offerings, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The amount of the limitation is determined in accordance with Section 382 of the Internal Revenue Code. We have performed an analysis of ownership changes through December 31, 2017. Based on this analysis, we do not believe that any of our tax attributes will expire unutilized due to Section 382 limitations.
At December 31, 2017, 2016 and 2015, we had no unrecognized tax benefits.
The tax years 2014 through 2017 remain open to examination by major taxing jurisdictions to which we are subject, which are primarily in the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period. However, the statute of limitations remains open to the extent we utilize net operating losses or credits from earlier years. We have not recorded any interest and penalties on any unrecognized tax benefits since its inception.