Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Taxes

Schedule of summary of the income tax expense(benefit)

The summary of the income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 is as follows, in thousands of dollars:

	Years Ended December 31,
	2018		2017		2016
Current
Federal	$	26,772	$	18,288	$	544
State		5,621		3,822		78
Deferred
Federal		(2,450)		21,493		(39,898)
State		(760)		(269)		(1,576)
Total	$	29,183	$	43,334	$	(40,852)

Schedule of reconciliation of income tax expense at the U.S Federal statutory income tax rate to the entity's effective income tax rate

A reconciliation of income tax expense at the U.S. Federal statutory income tax rate to provision for income taxes at the Company’s effective tax rate is as follows, in thousands of dollars:

	Years Ended December 31,
	2018		2017		2016
Income tax expense computed at U.S. Federal statutory income tax rate (1)	$	29,437	$	35,217	$	17,629
State income taxes		3,674		2,714		(1,523)
Permanent items (3)		(2,196)		(2,311)		715
Research and development credits		(3,199)		(2,196)		(1,902)
Uncertain income tax position		716		(1,137)		143
Effect of rate changes (2)		—		9,694		—
Change in valuation allowance (4)		—		—		(56,019)
Other		751		1,353		105
Income tax expense (benefit)	$	29,183	$	43,334	$	(40,852)

(1)Includes the effect of the Tax Cuts and Jobs Act, which lowered the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1, 2018.

(2)Relates to the remeasurement of existing deferred taxes as a result of the change to the U.S. corporate income tax rate. The impact was a reduction in value of deferred taxes.

(3)Primarily relates to tax benefit from the exercise of employee stock options.

(4)Reduction in the 2016 valuation allowances was attributable to profitable results of operations.

Schedule of significant components of the entity's deferred tax assets (liabilities)

The significant components of the Company’s deferred income tax assets (liabilities) were as follow, in thousands of dollars:

	As of December 31,
	2018		2017
Deferred tax assets:
Convertible bond hedge	$	21,412	$	—
Accrued sales deductions		13,205		8,449
Accrued compensation and stock based compensation		8,218		7,090
Non-recourse liability related to sale of future royalties		5,571		6,377
Research and development credit carryforwards		3,817		3,795
Amortization		3,289		2,073
Net operating loss carryforwards		2,900		5,072
Deferred rent		125		211
Inventory		499		480
Alternative Minimum Tax (AMT) credit		978		1,613
Other		1,143		645
Total deferred tax assets		61,157		35,805
Less: valuation allowance		(9)		—
Deferred tax asset, net of valuation allowance		61,148		35,805
Deferred tax liability:
Debt discount on 2023 Notes		(17,568)		—
Infringement legal costs		(10,697)		(10,557)
Depreciation		(236)		(264)
Section 481(a)		(2,964)		(4,141)
Net deferred tax assets	$	29,683	$	20,843

Schedule of reconciliation of the beginning and ending amount of gross unrecognized tax benefits

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows, in thousands of dollars:

	Years Ended December 31,
	2018		2017		2016
Balance as of January 1	$	8,859	$	9,299	$	9,341
Gross increases related to current year tax positions		1,108		1,178		662
Gross decreases related to current year tax positions		—		—		(169)
Gross  increases related to prior year tax positions		—		947		—
Gross decreases related to prior year tax positions		(484)		—		(375)
Lapse of statute of limitations		(635)		—		—
Change in tax rates		—		(2,565)		(160)
Balance as of December 31	$	8,848	$	8,859	$	9,299