Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
11. Income Taxes
No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. All losses incurred were U.S. based. Significant components of the Company’s deferred tax assets are as follows (in thousands):
 
    
December 31,
 
    
2020
    
2019
 
Deferred tax assets:
                 
Federal and state net operating loss carryforwards
   $ 123,144      $ 107,213  
State and federal research and development tax credit carryforwards
     28,861        25,661  
Capitalized research and development
     2,363        4,725  
Stock-based compensation
     3,822        3,562  
Other
     1,256        1,199  
    
 
 
    
 
 
 
Total deferred tax assets
     159,446        142,360  
Deferred tax liabilities:
                 
Depreciation and amortization
     (269      (372
Other
     (57      (49
    
 
 
    
 
 
 
Total deferred tax liabilities
     (326      (421
Valuation allowance
     (159,120      (141,939
    
 
 
    
 
 
 
Net deferred tax assets
   $ —        $ —    
    
 
 
    
 
 
 
Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is uncertain. Based on the weight of available positive and negative objective evidence, management believes it more likely than not that the Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $17.2 million and $23.6 million
 due to the increase in the Company’s taxable losses during the years ended December 31, 2020 and 2019, respectively.
The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):
 
    
December 31,
 
    
2020
    
2019
 
Income tax benefit at federal statutory tax rate
   $ (10,707    $ (21,589
Change in valuation allowance
     17,181        23,587  
State income taxes, net of federal benefit
     (4,768      3,810  
Research credits
     (2,911      (6,555
Cancelled options
     982        315  
Other
     223        432  
    
 
 
    
 
 
 
Income tax (benefit) expense
   $ —        $ —    
    
 
 
    
 
 
 
Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and determined that the Company’s net operating losses and research and development credits were subject to limitations due to changes in ownership through December 31, 2007. The net operating loss carryforwards reflected in the deferred tax assets at December 31, 2020 have been adjusted to reflect Section 382 limitations resulting from that change. The Company has been in a net operating loss position since 2008. The Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk that additional changes in ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.
As of December 31, 2020, the Company had federal net operating loss carryforwards of $490.4 million and state net operating loss carryforwards of $288.6 million to offset future taxable income, if any. In addition, the Company had federal research and development tax credit carryforwards of $10.1 million, federal orphan drug tax credit carryforwards of $21.4 million, and state research and development tax credit carryforwards of $5.8 million. If not utilized, the federal net operating losses for the years beginning before January 1, 2018 of $255.7 million will expire beginning in 2024 through 2037, and the federal net operating losses for the tax years beginning after January 1, 2018 of $234.7 million will be carried forward indefinitely (subject to certain utilization limitations). The state net operating loss carryforwards will expire beginning in
2028 through
2040. The federal research and development and federal orphan drug tax credit carryforwards expire 2021 through 2040, and the state tax credit will carry forward indefinitely. Interest and penalties for the years ended December 31, 2020 and 2019 were not material
The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):
 
    
Total
 
Balances as of December 31, 2018
   $ 4,584  
Increases related to prior year tax positions      83  
Increases related to 2019 tax positions      1,719  
    
 
 
 
Balances as of December 31, 2019
     6,386  
Decreases related to prior year tax positions      (58
Increases related to 2020 tax positions      877  
    
 
 
 
Balances as of December 31, 2020
   $ 7,205  
    
 
 
 
The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or unusual items for items that arise in the ordinary course of business.
The Company files income tax returns in the U.S. federal and California jurisdictions and is not currently under examination by federal, state, or local taxing authorities for any open tax years. Due to net operating loss carryforwards, all years remain open for income tax examination by tax authorities in the U.S. and states in which the Company files tax returns.