The Company utilizes the liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A reconciliation of the statutory U.S. federal rate to the Company's effective tax rate is as follows:


	Years ended December 31,
	2020		2019		2018
Percent of pre-tax income:
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	14.8	%	10.9	%	18.5	%
Permanent items	0.2	%	(1.0)	%	4.0	%

Impact of state rate changes	0.1	%	0.1	%	(0.2)	%
Research and development credit	3.1	%	2.8	%	(2.4)	%

Change in valuation allowance	(34.8)	%	(33.6)	%	(42.6)	%
Effective income tax rate	4.4	%	0.2	%	(1.7)	%


	Years ended December 31,
	2020		2019		2018
Current:
Federal	$	—	$	—	$	—
State	(3,695)		(111)		(1,063)
Deferred:
Federal	—		—		—
State	—		—		—
Income tax benefit	$	(3,695)	$	(111)	$	(1,063)


	As of December 31,
	2020		2019
Deferred tax assets (liabilities)

License and technology payments	$	7,479	$	7,116
Share-based compensation	23,266		22,131
Accrued expenses	427		362
Right-of-use asset	(40)		(163)
Lease obligation	38		162
Depreciation	6		(18)
Federal and state net operating loss carryforwards	130,524		105,375
Research and development credits	9,959		7,353
Other	7		6
Deferred income tax assets	171,666		142,324
Valuation allowance	(171,666)		(142,324)
Net deferred tax assets	$	—	$	—

The Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible.

The Company incurred tax losses in 2020 and 2019. The Company has carried forward its federal and state tax losses due to the inability of carryback claims. Federal NOLs incurred prior to 2018 will begin to expire in 2034 if not utilized. Post 2017 Federal NOLs have an unlimited life. The state NOLs are expected to begin to expire in 2028. Due to the Company's history of losses and lack of other positive evidence to support taxable income, the Company has recorded a valuation allowance against those remaining deferred tax assets that are not expected to be realized. As of December 31, 2020, the Company has federal NOL carryforwards of approximately $445.0 million.

For the year ended December 31, 2020, the Company recorded a benefit from income taxes of $3.7 million to reflect the settlement of a local tax audit and the associated decrease in the Company's related uncertain tax position, including interest and penalties. For the years ended December 31, 2019 and 2018, the Company recorded an income tax benefit of $0.1 million and $1.1 million, respectively, due primarily to reflect the settlements of local tax audits. During 2019, the Company received $1.8 million related to the refund of the aforementioned AMT credits and recorded a tax receivable of $1.8 million to reflect the

refund of AMT credits it expects to receive over the next three years. On March 27, 2020, in response to the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the immediate refund of minimum tax credits. The Company has recorded a current tax receivable of approximately $1.8 million in anticipation of this refund. During 2020, the Company applied for a refund of the remaining AMT credits of $1.8 million and anticipates receiving this refund in 2021.

The Company generated net income before income taxes for the year ended December 31, 2018. This income was due to the Novo Termination Agreement. With respect to the remaining deferred tax assets, except for the AMT credits previously discussed above, there was no change in the amount of assets realizable at December 31, 2020.

Pursuant to ASC 740, Income Taxes, the Company routinely evaluates the likelihood of success if challenged on income tax positions claimed on its income tax returns. During the year ended December 31, 2020, the Company reduced its uncertain tax liability by approximately $5.2 million following the settlement of state tax audits. The Company increased certain deferred tax assets by $0.3 million and increased the corresponding valuation allowance by an equivalent amount.


Opening balance	$	12,227
Gross amount of increases in unrecognized tax benefits during the period - current year provisions	—
Gross amount of increases in unrecognized tax benefits during the period - prior year provisions	—
Gross amount of decreases in unrecognized tax benefits during the period - other	(659)
Decreases due to settlement with tax authorities during the period	(4,845)
Reduction of unrecognized tax benefits due to expiration of the state of limitations during the period	—
Closing Balance	$	6,723

The Company will continue to evaluate its ability to realize its deferred tax assets on a periodic basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of product candidates currently under development. Any additional changes to the valuation allowance recorded on deferred tax assets in the future would impact the Company’s income taxes.