14. Income taxes
The components of loss before income taxes were as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. |
$ |
(266,236 |
) |
|
$ |
(210,188 |
) |
|
$ |
(162,287 |
) |
|
Foreign |
|
(69,197 |
) |
|
|
(53,931 |
) |
|
|
(4,436 |
) |
|
Total |
$ |
(335,433 |
) |
|
$ |
(264,119 |
) |
|
$ |
(166,723 |
) |
The provision for (benefit from) income taxes were as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
115 |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
95 |
|
|
|
— |
|
|
|
60 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
— |
|
|
|
(588 |
) |
|
|
— |
|
|
State |
|
— |
|
|
|
(24 |
) |
|
|
— |
|
|
Foreign |
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total income tax expense (benefit) |
$ |
210 |
|
|
$ |
(612 |
) |
|
$ |
60 |
|
A reconciliation of income tax provision (benefit) computed at the statutory federal income tax rate to the Company’s effective income tax rate (benefit) provision as reflected in the financial statements is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal income tax expense at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State income tax, net of federal benefit |
|
|
4.3 |
% |
|
|
3.3 |
% |
|
|
4.2 |
% |
|
Permanent differences |
|
|
2.7 |
% |
|
|
(5.3 |
%) |
|
|
(6.4 |
%) |
|
Research and development credit |
|
|
12.8 |
% |
|
|
15.0 |
% |
|
|
14.6 |
% |
|
Foreign differential |
|
|
(6.9 |
%) |
|
|
(7.0 |
%) |
|
|
(1.0 |
%) |
|
Federal tax rate change |
|
|
(31.6 |
%) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Other |
|
|
(0.8 |
%) |
|
|
0.0 |
% |
|
|
(0.5 |
%) |
|
Change in valuation allowance |
|
|
(14.6 |
%) |
|
|
(39.9 |
%) |
|
|
(44.9 |
%) |
|
Effective income tax rate (benefit) |
|
|
(0.1 |
%) |
|
|
0.1 |
% |
|
|
0.0 |
% |
For the years ended December 31, 2017, 2016 and 2015, the Company recognized an income tax (expense) benefit of $(0.2) million or (0.1%), $0.6 million or 0.1%, and $(0.1) million or 0.0%, respectively. The Company did not recognize any significant tax benefit for the years ended December 31, 2017, December 31, 2016, and December 31, 2015 as the Company was subject to a full valuation allowance.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are composed of the following (in thousands):
|
|
Year Ended December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
U.S. net operating loss carryforwards (federal and state) |
$ |
194,160 |
|
|
$ |
106,064 |
|
|
Tax credit carryforwards (federal and state) |
|
131,289 |
|
|
|
87,117 |
|
|
Capitalized research and development expenses |
|
241 |
|
|
|
631 |
|
|
60 Binney Street lease |
|
42,025 |
|
|
|
47,191 |
|
|
Deferred revenue |
|
12,795 |
|
|
|
18,231 |
|
|
Capitalized license fees |
|
13,388 |
|
|
|
11,752 |
|
|
Accruals and other |
|
25,781 |
|
|
|
32,172 |
|
|
Total deferred tax assets |
|
419,679 |
|
|
|
303,158 |
|
|
Intangible assets |
|
(4,567 |
) |
|
|
(8,129 |
) |
|
Fixed assets |
|
(42,062 |
) |
|
|
(48,902 |
) |
|
Less valuation allowance |
|
(373,050 |
) |
|
|
(246,127 |
) |
|
Net deferred taxes |
$ |
— |
|
|
$ |
— |
|
A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets. The valuation allowance increased on a net basis by approximately $126.9 million during the year ended December 31, 2017 due primarily to net operating losses and tax credit carryforwards, which are partially offset by the decrease in federal statutory rate due to tax reform.
As of December 31, 2017, 2016 and 2015, the Company had U.S. federal net operating loss carryforwards of approximately $716.1 million, $466.8 million, and $347.5 million, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2037. As of December 31, 2017, 2016 and 2015, the Company also had U.S. state net operating loss carryforwards of approximately $692.9 million, $456.8 million, and $335.0 million, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2037. At December 31, 2016, $195.4 million and $195.4 million of federal and state net operating losses, respectively, related to excess equity based compensation tax deductions, the benefits for which will be recorded to additional paid-in capital when recognized through a reduction of cash taxes paid. As a result of adopting FASB ASU 2016-09 in the first quarter of 2017, the Company recorded a cumulative-effect adjustment to retained earnings of $76.7 million to record a net deferred tax asset relative to these tax attribute carryforwards. The deferred tax asset was offset by a corresponding adjustment to the valuation allowance. At December 31, 2017, 2016 and 2015, the Company also had approximately $0.0 million, $0.0 million, and $0.6 million, respectively, of foreign net operating loss carryforwards that may be available to offset future income tax liabilities; these carryforwards do not expire.
As of December 31, 2017, 2016 and 2015, the Company had federal research and development and orphan drug tax credit carryforwards of approximately $124.1 million, $83.2 million, and $44.9 million, respectively, available to reduce future tax liabilities which expire at various dates through 2037. As of December 31, 2017, 2016 and 2015, the Company had state credit carryforwards of approximately $9.1 million, $6.0 million, and $3.8 million, respectively, available to reduce future tax liabilities which expire at various dates through 2032.
Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception which it believes has resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2017, 2016 and 2015, the Company had no significant accrued interest or penalties related to uncertain tax positions and no significant amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss.
For all years through December 31, 2017, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.
The Company or one of its subsidiaries files income tax returns in the United States, and various state and foreign jurisdictions. The federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2014 through December 31, 2016. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted. This law substantially amended the Internal Revenue Code and among other things, permanently reduced the U.S. corporate income tax rate from 35% to 21%. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. In accordance with SAB 118, the Company has determined that its deferred tax asset value and associated valuation allowance reduction of $106.0 million is a provisional amount and a reasonable estimate at December 31, 2017. The final impact may differ from this provisional amount due to, among other things, changes in interpretations and assumptions the Company has made thus far and the issuance of additional regulatory or other guidance. The Company expects to complete the final impact within the measurement period.