11.	Income Taxes

The Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

For the years ended December 31, 2016, 2015, and 2014, the Company has not recorded a provision for federal or state income taxes as it has incurred cumulative net operating losses since inception.

As of December 31, 2016, the Company had federal and state net operating loss carryforwards of approximately $267,500,000 and $227,500,000, respectively, which were available to reduce future taxable income. The federal and state net operating loss carryforwards exclude approximately $38,900,000 and $31,700,000 of deductions related to the exercise of stock options, respectively. This amount represents an excess tax benefit and has not been included in the gross deferred tax asset reflected for net operating losses and is credited directly to additional paid-in capital when realized. The net operating loss carryforwards expire at various times beginning in 2029 for federal purposes and 2019 for state purposes.

The Company also had federal and state tax credits of approximately $8,700,000 and $5,800,000, respectively, which may be used to offset future tax liabilities. These tax credit carryforwards will expire at various times beginning in 2029 for federal purposes and 2017 for state purposes.

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 stockholders over a three-year period in excess of 50%, 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. Following the Roche transaction, as discussed in detail in Note 3, the Company conducted a Section 382 study covering the period from corporate inception through April 7, 2015, which was the closing date of the Roche transaction. This study concluded that limitations on the Company’s NOL carryforwards are not restrictive, with the exception of approximately $1,500,000 of pre-March 31, 2010 NOLs.

The Company has not recorded any reserves for uncertain tax positions as of December 31, 2016 or 2015. If the Company did record a reserve, it would be a component of income tax expense. The Company has not yet conducted a study of research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. As of December 31, 2016, the Company had no accrued interest or penalties related to uncertain tax positions. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The Company is not currently under examination by the Internal Revenue Service or any other jurisdictions for any tax years.

The principal components of the Company’s deferred tax assets are as follows:

	As of December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	102,963		$	67,958
Deferred revenue		2,240			1,732
Accrued bonus		2,963			1,822
Deferred rent		4,137			4,789
Nonaccrual receivables		8,437			9,353
Other		3,509			3,801
Research and development credits		12,512			9,534
Gross deferred tax assets		136,761			98,989
Deferred tax liability		(3,124	)		(6,862	)
Valuation allowance		(133,637	)		(92,127	)
Net deferred tax assets	$	—		$	—

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2016 and 2015, respectively, because the Company’s management has determined that is it more likely than not that these assets will not be fully realized. The increase in the valuation allowance of $41,500,000 in 2016 primarily relates to the net loss incurred by the Company during that period.

A reconciliation of the income tax expense at the federal statutory tax rate to the Company’s effective income tax rate follows:

	Year Ended December 31,
	2016			2015			2014
Statutory tax rate		34.0	%		34.0	%		34.0	%
State taxes, net of federal benefit		3.3	%		4.8	%		3.7	%
Permanent differences		(0.9	)%		(1.0	)%		(1.9	)%
Research and development credits		2.6	%		4.5	%		4.9	%
Other		(2.4	)%		(0.6	)%		—
Change in valuation allowance		(36.6	)%		(41.7	)%		(40.7	)%
Effective tax rate		0.0	%		0.0	%		0.0	%