|
13. |
Income Taxes |
No provision for income taxes was recorded for the years ended December 31, 2017, 2016 and 2015. The Company has incurred net operating losses for all the periods presented. The Company has not reflected any benefit of such net operating loss carryforwards in the accompanying consolidated financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.
The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal statutory income tax rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
State income taxes, net of federal benefit |
|
|
0.36 |
|
|
|
(0.21 |
) |
|
|
6.11 |
|
|
Federal and state tax credits |
|
|
5.10 |
|
|
|
4.68 |
|
|
|
2.54 |
|
|
Change in valuation allowance |
|
|
(8.04 |
) |
|
|
(36.67 |
) |
|
|
(42.14 |
) |
|
Stock-based compensation |
|
|
(1.06 |
) |
|
|
(1.26 |
) |
|
|
(0.49 |
) |
|
Other, net |
|
|
— |
|
|
|
(0.54 |
) |
|
|
(0.02 |
) |
|
Change in tax law |
|
|
(30.36 |
) |
|
|
— |
|
|
|
— |
|
|
Provision (benefit) for income taxes |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
The components of the deferred tax assets and liabilities are as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
20,230 |
|
|
$ |
19,882 |
|
|
Tax credits |
|
|
9,514 |
|
|
|
5,344 |
|
|
Depreciation and amortization |
|
|
1,700 |
|
|
|
3,025 |
|
|
Accruals and reserves |
|
|
1,158 |
|
|
|
936 |
|
|
Gross deferred tax assets |
|
|
32,602 |
|
|
|
29,187 |
|
|
Valuation allowance |
|
|
(32,602 |
) |
|
|
(29,187 |
) |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
Due to the Company’s lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance as of December 31, 2017 and 2016. The valuation allowance increased by $3.4 million and $17.3 million during the years ended December 31, 2017 and 2016, respectively.
As of December 31, 2017, the Company had approximately $88.4 million and $25.5 million, respectively, of federal and state operating loss carryforwards available to reduce future taxable income that will begin to expire in 2030 and 2028, respectively, for federal and state tax purposes.
As of December 31, 2017, the Company also had research and development tax credit carryforwards of approximately $0.2 million and $0.9 million for federal and state purposes available to offset future taxable income tax, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2028, and the state credits can be carried forward indefinitely.
As of December 31, 2017, the Company had orphan drug tax credit carryforwards of approximately $11.8 million for federal purposes available to offset future taxable income tax. If not utilized, the federal carryforwards will begin to expire in 2033 .
Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in future, as required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company assessed whether an ownership change, as defined by Section 382 of the Code, occurred from its formation through December 31, 2017. Based upon this assessment, no reduction was made to the federal and state NOL carryforwards or federal and state tax credit carryforwards under these rules.
Uncertain Tax Positions
A reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at beginning of year |
|
$ |
1,831 |
|
|
$ |
404 |
|
|
$ |
99 |
|
|
Additions based on tax positions related to prior year |
|
|
— |
|
|
|
19 |
|
|
|
46 |
|
|
Additions based on tax positions related to current year |
|
|
1,387 |
|
|
|
1,408 |
|
|
|
259 |
|
|
Balance at end of year |
|
$ |
3,218 |
|
|
$ |
1,831 |
|
|
$ |
404 |
|
If the $3.2 million of unrecognized tax benefits is recognized, there would not be an effect on the effective tax rate. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. At December 31, 2017, the unrecognized tax benefits for uncertain tax positions were offset against deferred tax assets and would not affect the income tax rate if recognized due to the Company being in a full valuation allowance position.
The Company’s policy is to account for interest and penalties in tax expense on the statement of operations. The Company files income tax returns in the U.S. federal and state jurisdictions. All periods since inception are subject to examination by U.S. federal and state jurisdictions. There were no such interest or penalties during the years ended December 31, 2017, 2016 and 2015.