|
12. |
Income Taxes |
During the years ended December 31, 2017, 2016 and 2015, the Company recorded no income tax benefits for the net operating losses incurred in each year or interim period, due to its uncertainty of realizing a benefit from those items.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal statutory income tax rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
Research and development tax credits |
|
|
(7.7 |
) |
|
|
(8.8 |
) |
|
|
(5.7 |
) |
|
State taxes, net of federal benefit |
|
|
(4.8 |
) |
|
|
(5.8 |
) |
|
|
(5.3 |
) |
|
Stock-based compensation |
|
|
1.2 |
|
|
|
(6.3 |
) |
|
|
4.1 |
|
|
Revaluation of preferred stock warrant liability |
|
|
33.1 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
0.3 |
|
|
Change in deferred tax asset valuation allowance |
|
|
12.5 |
|
|
|
54.8 |
|
|
|
40.6 |
|
|
Effective income tax rate |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Net deferred tax assets as of December 31, 2017 and 2016 consisted of the following:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
32,997 |
|
|
$ |
18,481 |
|
|
Research and development tax credit carryforwards |
|
|
25,405 |
|
|
|
14,991 |
|
|
Capitalized organization costs |
|
|
306 |
|
|
|
483 |
|
|
Stock-based compensation expense |
|
|
7,714 |
|
|
|
5,624 |
|
|
Charitable Contributions |
|
|
8 |
|
|
|
6 |
|
|
Deferred Revenue |
|
|
26,480 |
|
|
|
42,742 |
|
|
Accrued expenses |
|
|
4,613 |
|
|
|
5,560 |
|
|
Capitalized research and development expenses |
|
|
73 |
|
|
|
115 |
|
|
Total deferred tax assets |
|
$ |
97,596 |
|
|
|
88,002 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(3,470 |
) |
|
|
(5,008 |
) |
|
Total deferred tax liabilities |
|
|
(3,470 |
) |
|
|
(5,008 |
) |
|
Valuation allowance |
|
$ |
(94,126 |
) |
|
|
(82,994 |
) |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The tax rate change resulted in (i) a reduction in the gross amount of the Company’s deferred tax assets recorded as of December 31, 2017, without an impact on the net amount of its deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA.
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal tax purposes. The remeasurement of the Company’s deferred tax assets and liabilities was offset by a change in the valuation allowance.
The Company is still in the process of analyzing the impact to the Company of the TCJA and its analysis is not yet complete. Where the Company has been able to make reasonable estimates of the effects related to the TCJA, the Company has recorded provisional amounts. The ultimate impact to the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts.
The provisional amount recorded related to the remeasurement of our deferred tax balance was a $29,546 expense that was offset by a valuation allowance.
As of December 31, 2017, the Company had net operating loss carryforwards for federal and state income tax purposes of $120,707 and $121,016, respectively, which both begin to expire in 2035. As of December 31, 2017, the Company also had available research and development tax credit carryforwards for federal and state income tax purposes of $22,557 and $ 3,606, respectively, which begin to expire in 2031 and 2028, respectively. The federal research and development tax credits include an orphan drug credit carryforward of $14,475. Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since our formation, we have raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control as defined by Section 382 or could result in a change of control in the future upon subsequent disposition. We conducted an analysis under Section 382 to determine if historical changes in ownership through August 31, 2015 would limit or otherwise restrict our ability to utilize these NOL and R&D credit carryforwards. As a result of this analysis, we do not believe there are any significant limitations on our ability to utilize these carryforwards. However, future changes in ownership after August 31, 2015 could affect the limitation in future years. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2017 and 2016. Management reevaluates the positive and negative evidence at each reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2017, 2016 and 2015 related primarily to the increases in net operating loss carryforwards, research and development tax credit carryforwards, stock-based compensation and decrease of deferred rate due to tax reform were as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Valuation allowance at beginning of year |
|
$ |
(82,994 |
) |
|
$ |
(32,777 |
) |
|
$ |
(10,522 |
) |
|
Decreases recorded as benefit to income tax provision |
|
|
29,546 |
|
|
|
— |
|
|
|
— |
|
|
Increases recorded to income tax provision |
|
|
(40,678 |
) |
|
|
(50,217 |
) |
|
|
(22,255 |
) |
|
Valuation allowance as of end of year |
|
$ |
(94,126 |
) |
|
$ |
(82,994 |
) |
|
$ |
(32,777 |
) |
As of December 31, 2017, 2016, and 2015, the Company had no unrecognized tax benefits. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense. The Company does not expect any significant change in its uncertain tax positions in the next 12 months.
During the year ended December 31, 2016, the Company was awarded a tax incentive for job creation from the Massachusetts Life Sciences Center. The program was established in 2008 in order to incentivize life sciences companies to create new sustained jobs in Massachusetts. Jobs must be maintained for at least five years, during which time the grant proceeds can be recovered by the Massachusetts Department of Revenue ("DOR") if the Company does not meet and maintain its job creation commitments. The award was received in 2016 and recorded in other current liabilities as of December 31, 2016 as the Company did not meet the job creation commitments. During the year ended December 31, 2017, the Company met the job creation commitments and recorded $0.3 million as other income in the consolidated statement of operations for the portion of the award earned through the year ended December 31, 2017. The balance of the incentive award has been recorded in our consolidated balance sheet as a liability until such time that the award is fully earned.