Income Taxes

12 Months Ended

Dec. 31, 2020

There was no provision for income taxes for the years ended December 31, 2020, 2019 and 2018, because the Company has incurred operating losses since inception. At December 31, 2020, the Company concluded that it is not more likely than not that the Company will realize the benefit of its deferred tax assets due to its history of losses. Accordingly, a full valuation allowance has been applied against the net deferred tax assets.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. In addition to some permanent technical corrections to the Tax Cuts and Jobs Act (TCJA), the law made temporary changes to provide taxpayers with tax relief and incentives due to the Coronavirus. The Act delayed certain changes to NOLs under the TCJA and allow additional NOL carryback periods, allowed for the deferral of payroll tax payments, made changes to the interest expense limitation rules to allow additional expensing amount other changes. The Act did not have a material effect on the Company’s tax provision.

As of December 31, 2020, 2019 and 2018, the Company had net deferred tax assets, before valuation allowance, of approximately $202.8 million, $174.2 million and $152.2 million, respectively. Realization of the deferred assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. As of December 31, 2020, 2019 and 2018, the Company had federal net operating loss (“NOL”) carryforwards of approximately $700.7 million, $618.1 million and $539.2 million, respectively. Of the total federal NOL carryforwards, $347.4 million will expire at various dates beginning in 2028, if not utilized; the remaining federal NOLs do not expire. As of December 31, 2020, 2019 and 2018, the Company had state NOL carryforwards of approximately $530.3 million, $527.1 million and $526.6 million, respectively. The state NOL carryforwards will expire at various dates beginning in 2022, if not utilized.

The Company has research and developmental tax credits of $26.1 million. The tax credit carryforwards will expire beginning in 2031, if not utilized.

The Company files income tax returns in the U.S. federal jurisdiction, and various states. With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for years before 2016.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:


	December 31,
	2020		2019		2018
Federal income tax (benefit) at statutory rate	(21.0)	%	(21.0)	%	(21.0)	%
Change in state tax rate	—	%	(0.2)	%	—	%
Permanent items	0.6	%	(1.0)	%	(0.5)	%
R&D tax credits, net of reserves	(16.3)	%	—	%	—	%
Other	0.8	%	0.7	%	0.5	%
Change in valuation allowance	35.9	%	21.5	%	21.0	%
Effective income tax rate	0.0	%	0.0	%	0.0	%

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. If the Company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period, a Section 382 ownership change could be deemed to have occurred. If a Section 382 change occurs, the Company’s future utilization of the net operating loss carryforwards and credits as of the ownership change will be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Such an annual limitation may result in the expiration of net operating losses before utilization.

The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. The Company recognized $2.6 million for unrecognized income tax benefits for the year ended December 31, 2020. There were no unrecognized income tax benefits for the years ended December 31, 2019. The Company does not expect this amount to change in the next twelve months. At December 31, 2020, all of the amount of unrecognized tax benefits, if recognized, would result in a deferred tax asset and corresponding increase in the entity’s valuation allowance. Such unrecognized tax benefit would not affect the effective rate if recognized.

Significant components of the Company’s deferred tax assets are summarized in the table below:


	December 31,
	2020		2019
	(in thousands)
Deferred tax assets:
Federal and state operating loss carryforwards	$	172,530	$	154,912
Equity compensation	21,454		17,217
R&D tax credits, net of reserves	23,452		—
Other	10,361		2,089
Total deferred tax assets	227,797		174,218
Deferred tax liabilities:
Convertible debt	(24,795)		—
Other	(159)		—
Total deferred tax liabilities	(24,954)		—
Valuation allowance	(202,843)		(174,218)
Net deferred tax assets	$	—	$	—

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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