Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

No provision for income taxes was recorded for the years ended December 31, 2021, 2020, and 2019. The Company has incurred net operating losses for all the periods presented. The Company has not reflected any benefit of such net operating loss carryforwards in the accompanying consolidated financial statements.

The domestic and foreign components of loss before provision for income tax are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Domestic	$	(115,088	)	$	(90,137	)	$	(89,860	)
Foreign		—			—			—
Total	$	(115,088	)	$	(90,137	)	$	(89,860	)

The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:

	Year Ended December, 31
	2021			2020			2019
Federal statutory income tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		—			—			—
Federal and state tax credits, net of reserves		1.8			2.7			2.5
Stock-based compensation		(0.6	)		(0.7	)		(0.4	)
Other permanent differences		(0.3	)		(0.1	)		(0.1	)
Change in valuation allowance		(21.9	)		(22.9	)		(23.0	)
		0	%		0	%		0	%

The components of the deferred tax assets and liability are as follows (in thousands):

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	85,417		$	73,405
Tax credits, net of reserves		13,965			11,874
Accrued liabilities		678			948
Stock-based compensation		4,904			4,091
Operating lease liability		638			1,411
Fixed and intangible assets		10,765			277
Gross deferred tax assets		116,367			92,006
Valuation allowance		(115,847	)		(90,797	)
Total deferred tax assets		520			1,209
Deferred tax liability:
Operating lease right-of-use asset		(520	)		(1,209	)
Total deferred tax liability		(520	)		(1,209	)
Net deferred tax assets (liability)	$	—		$	—

Realization of the Company’s deferred tax assets is dependent upon the Company generating future taxable income, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance as of December 31, 2021 and 2020. The valuation allowance increased by $25.1 million for the year ended December 31, 2021, and increased by $20.6 million for the year ended December 31, 2020. ASC Topic 740 requires that the tax benefit of deductible temporary differences of carryforwards be recorded as a deferred tax asset to the extent that management assesses that realization is "more likely than not." Future realization of the tax benefit ultimately depends on the existence of sufficient taxable income within the carryback or carryforward period available under the tax law. The Company has set up the valuation allowance against the federal and state deferred tax assets because based on all available evidence, these deferred tax assets are not more likely than not to be realizable.

As of December 31, 2021 and 2020, the Company had approximately $389.7 million and $332.5 million of federal operating loss carryforwards, respectively, and $53.5 million and $53.7 million of state net operating loss carryforwards, respectively, available

to reduce future taxable income. Of the federal net operating loss carryforwards, $129.3 million will begin to expire in 2030, and $260.4 million will carryforward indefinitely, while state net operating losses begin to expire in 2030.

As of December 31, 2021 and 2020, the Company also had research and development tax credit carryforwards of approximately $15.6 million and $13.4 million for federal purposes, respectively, and $7.4 million and $6.3 million for state purposes, respectively, available to offset future taxable income tax. If not utilized, the federal carryforwards will expire in various amounts beginning in 2030, and the state credits can be carried forward indefinitely.

Sections 382 and 383 place a limitation on the amount of taxable income which can be offset by carryforward tax attributes, such as net operating losses or tax credits, after a change in control. Generally, after a change in control, a loss corporation cannot deduct carryforward tax attributes in excess of the limitation prescribed by Section 382 and 383. Therefore, certain of the Company's carryforward tax attributes may be subject to an annual limitation regarding their utilization against taxable income in future periods. As a result of the Company's IPO in 2014, the Company triggered an "ownership change" as defined in Internal Revenue Code Section 382 and related provisions. Additionally, due to stock acquired by investors and reported under Section 13(g), the Company believes that an “ownership change” occurred during 2018, as well. The Company believes that some of its net operating losses and credit carryforwards may be limited by these ownership changes but that any limitation would not have a significant impact to the financial statements since there is no utilization of the net operating losses and credit carryforwards and a full valuation allowance exists against the net operating losses and credit carryforwards for U.S. tax purposes. Subsequent ownership changes since 2018 may subject the Company to annual limitations of its net operating loss and credit carryforwards. Such annual limitation could result in the expiration of the net operating loss and credit carryforwards before utilization.

U.S. tax law subjects a U.S. shareholder to current tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. As a result of no activity in the Company’s dormant foreign subsidiaries, the Company has no GILTI inclusion for the year ended 2021, 2020 and 2019.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in the US on March 27, 2020, which contains several provisions, including, but not limited to, changes to the rules governing net operating losses (NOLs) and technical corrections to certain provisions in the 2017 tax law (“Tax Cuts and Jobs Act”). Since the Company has historical tax losses and records a full valuation allowance against its US deferred tax assets, the impact of these changes was limited to the timing of the availability of its NOLs.

Uncertain Tax Positions

As of December 31, 2021, the Company’s total unrecognized tax benefit was $8.4 million, of which none of the tax benefit, if recognized, would affect the effective income tax rate due to the valuation allowance that currently offsets deferred tax assets. A reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2021, 2020, and 2019 is as follows (in thousands):

	Year Ended December 31,
	2021		2020			2019
Balance at beginning of year	$	7,272	$	5,993		$	4,964
Decreases related to prior year tax positions		—		(24	)		(6	)
Additions based on tax positions related to current year		1,129		1,303			1,035
Balance at end of year	$	8,401	$	7,272		$	5,993

The unrecognized tax benefits, if recognized and in the absence of a full valuation allowance, would increase the Company’s credit carryforwards and hence deferred tax assets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

Interest and penalties are zero, and the Company’s policy is to account for interest and penalties in tax expense on the statement of operations. The Company files income tax returns in the U.S. federal, California and various other state tax jurisdictions. All

periods since inception are subject to examination by U.S. federal, California and other state tax jurisdictions, none of which are currently under examination.