Income taxes

12 Months Ended

Dec. 31, 2019

The components of loss before income taxes were as follows (in thousands):


	Year ended December 31,
	2019		2018		2017
U.S.	$	(649,172)	$	(440,473)	$	(266,236)
Foreign	(140,981)		(114,965)		(69,197)
Total	$	(790,153)	$	(555,438)	$	(335,433)

The provision for (benefit from) income taxes were as follows (in thousands):


	Year ended December 31,
	2019		2018		2017
Current:
Federal	$	—	$	—	$	—
State	7		324		115
Foreign	612		222		95
Deferred:
Federal	(966)		(307)		—
State	(198)		(52)		—
Foreign	—		—		—
Total income tax (benefit) expense	$	(545)	$	187	$	210

A reconciliation of income tax provision (benefit) computed at the statutory federal income tax rate to the Company’s effective income tax rate (provision) benefit as reflected in the financial statements is as follows:


	Year ended December 31,
	2019		2018		2017
Federal income tax expense at statutory rate	21.0	%	21.0	%	34.0	%
State income tax, net of federal benefit	3.7	%	5.1	%	4.3	%
Permanent differences	(1.1)	%	0.9	%	2.7	%
Research and development credit	5.4	%	6.5	%	12.8	%
Foreign differential	(3.7)	%	(4.4)	%	(6.9)	%
Federal tax rate change	—	%	0.1	%	(31.6)	%
Other	0.4	%	(0.1)	%	(0.8)	%
Change in valuation allowance	(25.6)	%	(29.1)	%	(14.6)	%
Effective income tax rate benefit (expense)	0.1	%	—	%	(0.1)	%

For the years ended December 31, 2019, 2018 and 2017, the Company recognized an income tax (benefit) expense of $(0.5) million or 0.1%, $0.2 million or 0.0%, and $0.2 million or (0.1)%, respectively. The Company did not recognize any significant tax expense for the years ended December 31, 2019, 2018, or 2017 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,
	2019		2018
Deferred tax assets:
U.S. net operating loss carryforwards (federal and state)	$	439,839	$	298,701
Tax credit carryforwards (federal and state)	213,810		167,517
Capitalized license fees and research and development expenses	16,295		18,083
60 Binney Street lease	—		42,059
Deferred revenue	15,119		21,442
Stock-based compensation	46,111		31,858
Lease liabilities	52,631		—
Accruals and other	15,432		8,886
Total deferred tax assets	799,237		588,546
Intangible assets	(2,518)		(3,579)
Right-of-use assets	(49,480)		—
Fixed assets	(2,670)		(41,472)
Less valuation allowance	(744,569)		(543,495)
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 $201.1 million during the year ended December 31, 2019 due primarily to net operating losses, tax credit carryforwards, and stock-based compensation. Effective January 1, 2019, the Company adopted ASU 2016-02, which resulted in the de-recognition of the 60 Binney Street lease and related fixed assets and the recognition of lease liabilities and right-of-use assets. The Company adjusted its deferred tax balances as a result of the adoption. Please refer to Note 2, Summary of significant accounting policies and basis of presentation, and Note 8, Leases, for further information.

As of December 31, 2019, 2018 and 2017, the Company had U.S. federal net operating loss carryforwards of approximately $1.62 billion, $1.10 billion, and $716.1 million, respectively, which may be available to offset future income tax

liabilities. Of the amount as of December 31, 2019, $913.8 million will carryforward indefinitely while $711.0 million will expire at various dates through 2037. As of December 31, 2019, 2018 and 2017, the Company also had U.S. state net operating loss carryforwards of approximately $1.56 billion, $1.08 billion, and $692.9 million, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2039. 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.

As of December 31, 2019, 2018 and 2017, the Company had federal research and development and orphan drug tax credit carryforwards of approximately $203.1 million, $156.2 million, and $124.1 million, respectively, available to reduce future tax liabilities which expire at various dates through 2039. As of December 31, 2019, 2018 and 2017, the Company had state credit carryforwards of approximately $13.6 million, $14.3 million, and $9.1 million, respectively, available to reduce future tax liabilities which expire at various dates through 2034. During the fourth quarter of 2018, the Company completed an analysis of prior year estimates of U.S. research and development and orphan drug tax credits for the years 2013 through 2017. The analysis resulted in an immaterial adjustment to the Company's income tax benefit, which was offset by an adjustment to the valuation allowance. An analysis of the U.S. research and development and orphan drug credits has not been completed for 2018 and 2019.

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 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, 2016 through December 31, 2018. 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, or state or foreign tax authorities to the extent utilized in a future period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	Unrecognized tax benefits
Balance as of December 31, 2017	$	—
Increases for tax positions related to current period	3,370
Increases for tax positions related to prior periods	8,725
Balance as of December 31, 2018	12,095
Increases for tax positions related to current period	3,554
Increases for tax positions related to prior periods	296
Balance as of December 31, 2019	15,945

The unrecognized tax benefits at December 31, 2019, if recognized, would not affect the Company’s effective tax rate due to its full valuation allowance position. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company has elected to include interest and penalties related to uncertain tax positions as a component of its provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, the Company’s accrued interest and penalties related to uncertain tax positions were not material.