Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

During the years ended December 31, 2020, 2019, and 2018, the Company recorded no income tax benefits for the net operating losses incurred and research and development credits generated due to the uncertainty of realizing a benefit from those items. Additionally during the year ended December 31, 2020, the Company recorded a tax provision of $0.1 million related to an uncertain tax position. The Company's losses before income taxes were generated in the United States and were partially offset by income before taxes in its Austrian subsidiary.

Loss before the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consisted of the following:


	Year Ended December 31,
(in thousands)	2020		2019		2018
United States	$	(62,539)	$	(52,314)	$	(33,285)
Foreign (Austria)	556		(493)		—
	$	(61,983)	$	(52,807)	$	(33,285)

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


	Year Ended December 31,
	2020		2019		2018
U.S. federal statutory income tax rate	(21.0)	%	(21.0)	%	(21.0)	%
State income taxes, net of federal benefit	(5.9)		(5.8)		(6.2)
Foreign rate differential	—		(0.1)		—
Research and development tax credits	(1.1)		(1.1)		(3.7)
Change in fair value of preferred stock warrant liability	—		0.1		2.4
Other permanent differences	0.9		1.4		0.9
Change in deferred tax asset valuation allowance	27.2		26.8		27.8
Other	0.1		(0.3)		(0.2)
Effective income tax rate	0.2	%	—	%	—	%

Net deferred tax assets as of December 31, 2020 and 2019 consisted of the following:


	December 31,
(in thousands)	2020		2019
Net operating loss carryforwards	$	83,671	$	65,487
Research and development tax credit carryforwards	4,616		3,654
Capitalized research and development expenses	2,193		2,626


Lease liabilities	1,440		765
Other	2,452		1,413
Total deferred tax assets	94,372		73,945
Valuation allowance	(92,197)		(73,410)
Deferred tax assets, net of valuation allowance	$	2,175	$	535
Right of use assets	2,175		535
Total deferred tax liabilities	$	2,175	$	535
Total deferred tax assets, net	$	—	$	—

As of December 31, 2020, the Company had U.S. federal and state net operating loss carryforwards of $242.6 million and $237.5 million, respectively, which may be available to offset future taxable income and begin to expire in 2031 and 2035, respectively. The Company has federal net operating losses $188.5 million, which do not expire, and $54.1 million of federal net operating losses generated prior to 2018 that will expire at various dates through 2037. In addition, as of December 31, 2020, the Company had foreign net operating loss carryforward of $70.8 million, which do not expire but are generally limited in their usage to an annual deduction equal to 75% of taxable income. As of December 31, 2020, the Company also had U.S. federal and state research and development tax credit carryforwards of $3.7 million and $0.9 million, respectively, which may be available to offset future tax liabilities and each begin to expire in 2032 and 2030, respectively.

As of December 31, 2020, uncertain tax position reserves recorded were $0.2 million for U.S. federal and state research and development tax credits. Additionally, during the year ended December 31, 2020, the Company recorded an uncertain tax position of $0.1 million related to withholding taxes on a milestone payment received from a non-US customer.

The following table summarizes the Company’s reserve for uncertain tax positions for the three years ended December 31, 2020:


(in millions)	Reserve for Uncertain Tax Position
Balance as of December 31, 2018	$	—
Acquisition of uncertain tax position reserves through Merger	0.2
Balance as of December 31, 2019	0.2
Increase in unrecognized tax benefit for tax positions taken during year	0.1
Balance as of December 31, 2020	$	0.3

Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the U.S. net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

Each period, the Company evaluates the positive and negative evidence bearing upon its ability to realize its federal, state and foreign deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2020, 2019 and 2018.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2020, 2019 and 2018 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows:


	Year Ended December 31,
(in thousands)	2020		2019		2018
Valuation allowance, beginning of year	$	(73,410)	$	(22,797)	$	(13,546)
Increases recorded to income tax provision	(18,787)		(14,485)		(9,251)
Acquisition of business	—		(36,128)		—
Valuation allowance, end of year	$	(92,197)	$	(73,410)	$	(22,797)

The Company’s U.S. federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2016 through December 31, 2020. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

- 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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