Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Historically, the Company has calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete events). For the three- and nine-month periods ended September 30, 2021, the Company has computed its provision for income taxes under the discrete method, which allows the Company to calculate its tax provision based upon the actual effective tax rate for the year-to-date period. We determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three- and nine-month periods ended September 30, 2021. The Company’s income tax expense is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Income tax (benefit) expense	$	(6,422)	$	(1,076)	$	(2,967)	$	1,425

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realizability of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more-likely-than-not realizable, the Company evaluated all available positive and negative evidence, and weighed the objective evidence and expected impact. The Company assessed the need for a valuation allowance against certain state tax credit carryforwards added through the Progenics Acquisition. The Company continues to record other valuation allowances of $1.2 million against the net deferred tax assets of its U.K. subsidiary, and $2.0 million against the net deferred tax assets of its Sweden subsidiary.

In connection with the Company’s acquisition of the medical imaging business from Bristol-Myers Squibb (“BMS”) in 2008, the Company recorded a liability for uncertain tax positions related to the acquired business and simultaneously entered into a tax indemnification agreement with BMS under which BMS agreed to indemnify the Company for any payments made to settle those uncertain tax positions with the state taxing authorities. Accordingly, a long-term receivable is recorded to account for the expected value to the Company of future indemnification payments to be paid on behalf of the Company by BMS, net of actual tax benefits received by the Company. The tax indemnification receivable is recorded within other long-term assets.

During the third quarter of 2021, the Company entered into a settlement agreement with one state and accordingly reduced the amount of the uncertain tax positions by $5.5 million. The settlement payment to that state and the tax indemnification payment from BMS will be made in the fourth quarter of 2021. The Company continues to accrue interest on the outstanding uncertain tax positions.

In accordance with the Company’s accounting policy, the change in the tax liabilities, penalties and interest associated with these obligations (net of any offsetting federal or state benefit) is recognized within income tax expense. As these reserves change (for example, by the state tax settlement noted above), adjustments are included in income tax expense while the offsetting adjustment is included in other income. Assuming that the remaining receivable from BMS continues to be considered recoverable by the Company, there will be no effect on net income and no net cash outflows related to these liabilities.

In addition to the state tax settlement noted above, for the nine months ended September 30, 2021, the Company released $0.7 million of liabilities for uncertain tax positions, including interest and penalties of $0.5 million. This included a release of liabilities of $0.1 million, including interest and penalties of $0.4 million, due to a change in estimate with respect to the Company’s indemnified uncertain tax positions arising from new information obtained during the year. The remaining release of $0.2 million of liability was due to the lapse of a statute of limitations.

On June 19, 2020, the Company completed the Progenics Acquisition in a transaction that is expected to qualify as a tax-deferred reorganization under Section 368 of the Internal Revenue Code. The transaction resulted in an ownership change of Progenics under Section 382 of the Internal Revenue Code and a limitation on the utilization of Progenics’ precombination tax attributes. All of Progenics’ precombination federal research and Orphan drug credits have been removed from the balance sheet, and the gross carrying value of the tax loss carryforwards reduced to their realizable value on the opening balance sheet, in accordance with the Section 382 limitation. Deferred tax liabilities arising from the purchase accounting basis step-up in identified intangibles were recorded at acquisition, resulting in an initial net overall deferred tax liability for Progenics after the application of acquisition accounting.

The Company finalized the acquisition accounting for income taxes in the first quarter of 2021 resulting in a reduction of deferred tax assets, primarily related to state research credit carryforwards and an increase to goodwill of $2.6 million.