Income Taxes

The components of income (loss) before income taxes for the years ended December 31, are as follows:



Income (Loss) Before Income Taxes:	2016			2015			2014

Ireland	$	(22,866	)	$	(29,469	)	$	—
United States	32,786			100,552			(89,739		)
France	(19,638		)	6,622			(392		)
Total income (loss) before income taxes	$	(9,718	)	$	77,705		$	(90,131	)

The income tax provision (benefit) for the years ended December 31, is as follows:



Income Tax Provision (Benefit):	2016			2015			2014

Current:
United States - Federal	$	30,738		$	33,289		$	—
United States - State	1,081			970			—
France	5,267			1,657			1,400
Total current	37,086			35,916			1,400

Deferred:
United States - Federal	(6,443		)	504			(1,713		)
United States - State	(23		)	1,234			(331		)
France	938			(1,747		)	—
Total deferred	(5,528		)	(9		)	(2,044		)

Income tax provision (benefit)	$	31,558		$	35,907		$	(644	)

The items accounting for the difference between the income tax provision (benefit) computed at the jurisdiction of incorporation statutory rate and the Company's effective tax rate are as follows for the years ended December 31:



Reconciliation to Effective Income Tax Rate:	2016			2015			2014

Statutory tax rate ⁽¹⁾	12.5		%	33.3		%	33.3		%
Non-deductible changes in fair value of contingent consideration	(165.0		)%	11.9		%	(24.8		)%
Change in valuation allowance	11.8		%	(9.6		)%	5.3		%
Income tax deferred charge	(9.7		)%	1.3		%	(16.9		)%
International tax rates differential	(31.9		)%	11.0		%	6.7		%
Nondeductible stock based compensation	(14.8		)%	1.3		%	(0.8		)%
Cross-border merger	(100.6		)%	—		%	—		%
Unrecognized tax benefit	(15.2		)%	0.4		%	—		%
State and local taxes (net of federal)	(9.6		)%	1.5		%	0.3		%
Other	(2.3		)%	(4.9		)%	(2.3		)%
Effective income tax rate	(324.8		)%	46.2		%	0.8		%

Income tax provision (benefit) - at statutory tax rate	$	(1,215	)	$	25,876		$	(30,013	)
Non-deductible changes in fair value of contingent consideration	16,036			9,249			22,326
Change in valuation allowance	(1,143		)	(7,425		)	(4,732		)
Income tax deferred charge	938			980			15,273
International tax rates differential	3,097			8,547			(6,023		)
Nondeductible stock based compensation	1,436			1,004			693
Cross-border merger	9,773			—			—
Unrecognized tax benefit	1,475			290			—
State and local taxes (net of federal)	934			1,170			(228		)
Other	227			(3,784		)	2,060
Income tax provision (benefit) - at effective income tax rate	$	31,558		$	35,907		$	(644	)

⁽¹⁾ The statutory rate reflects the Irish statutory tax rate of 12.5% for fiscal 2016, and the French statutory tax rate of 33.3% for fiscal 2015 and 2014.

In 2016, the income tax provision decreased by $4,349 when compared to the same period in 2015. The primary reason for the decrease in the income tax provision is a substantially lower level of pre-tax book income in the United States and France. Increases in the amount of nondeductible expenses due to changes in the fair value of contingent consideration and a reduced amount of income tax benefit from the release of valuation allowances partially offset the income tax benefit from the reduced amount of pre-tax book income in 2016, when compared to 2015. The Company also recorded $9,773 of income tax provision in 2016 related to the cross-border merger.

In 2015, the income tax provision increased by $36,551 when compared to the same period in 2014. The primary reason for the large increase in the income tax provision was a substantial increase in the level of pre-tax book income in the United States and France. Decreases in the amount of nondeductible expenses due to changes in the fair value of contingent consideration and an increase in the benefit from the release of valuation allowances partially offset the income tax provision from the increased amount of pre-tax book income in 2015, when compared to 2014. In 2014, the Company recorded $15,273 of income tax provision related to the transfer of intellectual property from France to Ireland, which did not reoccur in 2015.

Unrecognized Tax Benefits

The Company or one of its subsidiaries files income tax returns in Ireland, France, United States and various states. With few exceptions, the Company is no longer subject to Irish, French, US Federal, and state and local examinations for years before 2012. The Internal Revenue Service (IRS) commenced an examination of the Company's US income tax return for 2015 in the 4th quarter of 2016 that is anticipated to be completed by the end of 2017.

The following table summarizes the activity related to the Company's unrecognized tax benefits for the twelve months ended December 31:



Unrecognized Tax Benefit Activity	2016			2015		2014

Balance at January 1:	$	448		$	—	$	—
Additions based on tax positions related to the current year	1,578			448		—
Additions (reductions) for tax positions of prior years	(340		)	—		—
Statute of limitations expiration	—			—		—
Settlements	—			—		—
Balance at December 31:	$	1,686		$	448	$	—

It is reasonably possible that within the next twelve months, as a result of activities performed in various jurisdictions, that the unrecognized tax benefits could change by up to $250. Interest and penalties could change by up to $50.

At December 31, 2016, 2015, and 2014, there are $1,565, $291, and $0 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2016, 2015, and 2014, the Company recognized approximately $26, $0, and $0 in interest and penalties. The Company had approximately $27, and $0 for the payment of interest and penalties accrued at December 31, 2016, and 2015 respectively.

Deferred Tax Assets (Liabilities)

Deferred income tax provisions reflect the effect of temporary differences between consolidated financial statement and tax reporting of income and expense items. The net deferred tax assets/liabilities at December 31, 2016 and 2015 resulted from the following temporary differences:



Net Deferred Tax Assets and Liabilities:	2016			2015

Deferred tax assets:
Net operating loss carryforwards	$	11,566		$	44,587
Stock based compensation	5,012			1,767
Fair value royalty agreements	3,386			2,435
Fair value contingent consideration	2,152			1,348
Other	583			1,037
Total deferred tax assets	22,699			51,174
Valuation allowances	(7,599		)	(45,516		)
Net deferred tax assets	15,100			5,658

Deferred tax liabilities:
Amortization	(4,349		)	(5,649		)
Accounts receivable	(3,319		)	—
Total deferred tax liabilities	(7,668		)	(5,649		)

Net deferred tax assets	$	7,432		$	9

At December 31, 2016, the Company had $45,907 of net operating losses in Ireland that do not have an expiration date and $14,920 of net operating losses in the United States that expire 2033 through 2035. The US net operating losses were acquired as part of the acquisition of FSC. A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that a deferred tax asset will not be realized. This assessment is based on an evaluation of the level of historical taxable income and projections for future taxable income. For the year ended December 31, 2016, the Company recorded $5,738 of valuation allowances related to Irish net operating losses and $1,272 of valuation allowance on U.S. net operating losses. The U.S. net operating losses are subject to an annual limitation as a result of the acquisition of FSC under internal revenue code section 382 and will not be fully utilized before they expire. In 2016, the Company removed all French net operating losses and the corresponding valuation allowances from the inventory of deferred tax assets as a result of the cross-border merger. For the year ended December 31, 2015, the Company recorded $40,959 and $3,628 of valuation allowances related to French and Irish net operating losses, respectively. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets.

We recorded a valuation allowance against all of our net operating losses in Ireland as of both December 31, 2016, and December 31, 2015. We intend to continue maintaining a full valuation allowance on the Irish net operating losses until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance on the Irish net operating losses will no longer be needed. Release of the valuation allowance would result in the recognition of deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

At December 31, 2016, the Company has no unremitted earnings outside of Ireland as measured on a US GAAP basis. Whereas the measure of earnings for purposes of taxation of a distribution may differ for tax purposes, these earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends or if the Company were to sell its stock in the subsidiaries. It is not practicable to estimate the amount of deferred tax liability on such earnings, if any.

Research and Development Tax Credits Receivable

The French government provides tax credits to companies for spending on innovative R&D. These credits are recorded as an offset of R&D expenses and are credited against income taxes payable in each of the four years after being incurred or, if not so utilized, are recoverable in cash. As of December 31, 2016, the Company’s net Research tax credit receivable amounts to $1,775 and represents a gross research tax credit of $3,376, partially offset by current income tax payable of $1,601. The Company utilized $4,001 of research tax credits in 2016 to offset the tax cost of the cross-border merger. As of December 31, 2015, the Company’s net Research tax credit receivable amounts to $2,382 and represents a gross research tax credit of $3,720, partially offset by current income tax payable of $1,338.

Income Tax Deferred Charge

On December 16, 2014, the Company transferred all of its intangible intellectual property from its French entity to its Irish entity as a part of a global reorganization. The intellectual property includes patents on drug delivery platforms, clinical data sets and other intangible assets related to the pipeline of proprietary products in development. This intra-entity transaction resulted in a charge of $14,088 of related taxes to the French government in December 2014. As this represents an intra-entity transaction, no deferred tax asset has been recognized, but rather was originally recorded as $986 of prepaid expenses and $13,102 of a long-term Income tax deferred charge asset in accordance with ASC 740-10-25-3 (e). This income tax deferred charge asset is amortized over the tax life of the asset at a rate of 7% per year and will result in tax relief in Ireland of $8,500 from 2016 to 2029, subject to the ability to realize tax benefits for additional deductions. At December 31, 2016, the balance of these respective accounts was classified as prepaid expenses of $814 and Income tax deferred charge asset of $10,342. At December 31, 2015, the balance of these respective accounts was classified as prepaid expenses of $842 and Income tax deferred charge asset of $11,581. In 2017, the Company plans to adopt the provisions of ASU 2016-16, related to Intra-Entity Transfers of Assets Other Than Inventory. Adoption of ASU 2016-16 will eliminate the $11,156 income tax deferred charge recorded within the consolidated balance sheet as of December 31, 2016.

Cross-Border Merger

In 2016, we changed our jurisdiction of incorporation from France to Ireland by merging with and into our wholly owned Irish subsidiary. Information about the reincorporation was included in the definitive proxy statement filed with the Securities and Exchange Commission on July 5, 2016. Prior to the Merger, the Company submitted a request to the French tax authority seeking to benefit from a special regime for mergers and demergers, conditional upon a formal consent of the French tax authority which would allow for the deferral of a portion of the tax cost of the cross-border merger. However, to date the Company has not received, nor does it expect to receive consent resulting in the taxation of deferred profits and built in gains of the Company upon completion of the cross-border merger. The completion of the cross-border merger resulted in the recognition of a net income tax provision of $4,001, after considering tax benefits from the utilization of current and prior year French net operating losses. The Company was able to utilize $4,001 of French research and development tax credits to offset the remaining cost of the transaction. The Company also removed $111,495 of French net operating losses as the carryforward of the losses was contingent on receiving favorable consent from the French tax authority. The French net operating losses had a full valuation allowance resulting in no impact to the income tax provision.

On March 8, 2017, the European Court of Justice issued a ruling on case C-14/16, related to the treatment of cross-border mergers amongst entities that operate within Member States of the EU. Based on our initial assessment of the ruling, the Company may not have been required to apply for an advanced ruling from the French Tax Authority in order to defer a portion of the tax cost of the cross-border merger. The impact of this ruling could potentially generate an income tax benefit in 2017 of $3,848 by restoring $2,582 of French research and development tax credits and releasing $1,266 of unrecognized tax benefits originally recognized as part of the cross-border merger. The Company is in the process of assessing the administrative and legal options to potentially secure recovery of these benefits.