Income Taxes

The Company had no federal income tax expense and immaterial state tax expense for the years ended December 31, 2017, 2016 and 2015.

The differences between the effective income tax rate and the statutory tax rates during the years ended 2017, 2016 and 2015 are as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Net loss before tax	$	(70,430	)	$	(83,118	)	$	(64,544	)
Statutory combined U.S. federal and state tax rate	34.00		%	34.00		%	34.00		%
Statutory federal and state taxes	(23,946		)	(28,260		)	(21,945		)
Increase (decrease) in taxes recoverable resulting from:
Effect of change in valuation allowance	(4,154		)	28,446			22,350
Non-deductible share-based compensation	695			1,247			923
Tax credits	(2,563		)	(2,906		)	(2,430		)
Share issue costs - temporary difference	—			(78		)	(184		)
Write off of Methylgene US NOL	307			—			—
Differential in income tax rates of foreign subsidiary	(169		)	261			31
Change in tax rate	303			—			—
Tax Cuts and Jobs Act	28,569			—			—
Uncertain tax positions	646			3,921			1,961
Return to provision and other true-ups	368			(2,619		)	(899		)
Other differences	(56		)	(12		)	193
Income tax benefit	$	—		$	—		$	—

Deferred Tax

The following table summarizes the significant components of our deferred tax assets (in thousands):



	December 31,
	2017			2016
Deferred tax assets:
Tangible and intangible depreciable assets	$	17,927		$	990
Stock compensation	4,976			6,635
Provisions	611			853
Net operating loss carry forwards	44,598			66,489
Capital loss carryforward	83			51
Scientific research and experimental development expenditures	5,467			5,531
Research and development tax credits	7,016			4,266
Total gross deferred tax assets	80,678			84,815
Less valuation allowance	(80,678		)	(84,815		)
Net deferred tax assets	$	—		$	—

Total valuation allowance decreased by $4.1 million for the year ended December 31, 2017. The Company has established a full valuation allowance against its deferred tax assets as of December 31, 2017 due to the uncertainty surrounding the realization of such assets as evidenced by the cumulative losses from operations through December 31, 2017.

For Canadian federal income tax purposes, the Company's Canadian federal scientific research and experimental development expenditures amounted to $19.9 million at December 31, 2017, 2016 and 2015 and for provincial income tax purposes amounted to $21.6 million at December 31, 2017, 2016 and 2015. As operations in Canada ceased during 2014, no expenditures were incurred for the years ended December 31, 2017, 2016 and 2015. These expenditures are available to reduce future taxable income and have an unlimited carry forward period. Scientific research and development expenditures are subject to verification by the taxation authorities, and accordingly, these amounts may vary by a material amount. In addition, the Company has research and development tax credit carryforwards for U.S. federal and state income tax purposes as of December 31, 2017 of $7.2 million and $2.9 million, respectively. The federal credits will begin to expire in 2033 unless utilized and the state credits have an indefinite life.

At December 31, 2017, the Company's net operating loss carry forwards ("NOLs") for U.S. federal and state income taxes were $110.3 million and $77.3 million, respectively and the Company's NOLs for Canadian federal and provincial income tax purposes were $80.6 million and $79.9 million, respectively. The NOLs are available to offset future taxable income from both U.S. federal and state tax sources, as well as Canadian federal and provincial tax sources and the tax benefits of which have not been recognized in the consolidated financial statements. The NOLs expire as follows (in thousands):



	US				Canada
	Federal		State		Federal		Provincial
Expires in:
2030	$	—	$	—	$	5,907	$	5,985
2031	—		—		7,059		7,066
2032	—		—		13,308		12,433
2033	2,225		2,232		18,623		19,385
2034	7,276		22,162		32,401		31,809
2035	53,359		52,950		1,084		1,084
2036	23,379		—		777		777
2037	24,044		—		1,408		1,408
	$	110,283	$	77,344	$	80,567	$	79,947

The future utilization of the U.S. federal and state NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or may occur in the future. The Tax Reform Act of 1986 (the "1986 Act") limits a company's ability to utilize certain tax credit carryforwards and net operating loss carryforwards in the event of a cumulative change in ownership in excess of 50% as defined in the Act. During 2017, the Company completed a study to assess whether an ownership change, as identified by Section 382 of the 1986 Act, had occurred from the Company’s formation through December 31, 2017. Based upon the study, the Company determined an ownership change had occurred during 2017, causing the annual utilization of the NOL and credit carryforwards to be limited. The Company does not believe any of the NOL and credit carryforwards generated through December 31, 2017 would expire solely as a result of annual limitations on the utilization of those attributes. The Canadian Federal and Provincial Tax Acts maintain similar rules in the case of acquisition of control, which may limit the utilization of tax attributes.

The Company files income tax returns in the U.S. (federal and state) and Canada (federal and provincial). The Company’s U.S. operations have not been audited for any open taxation years. The Company has experienced losses for U.S. tax purposes and therefore, the taxation authorities may review any loss year, if and when the losses are utilized.

For Canadian tax purposes, the Company remains subject to federal and provincial audit for the December 31, 2013 and subsequent taxable years. Where taxation years remain open, the Company considers it reasonably possible that issues may be raised or tax positions agreed to with the taxation authorities, which may result in increases or decreases of the balance of non-refundable ITCs and NOLs. However, an estimate of such increases and decreases cannot be currently made.

A reconciliation of the beginning and ending amounts of unrecognized tax positions are as follows (in thousands):



	Federal									Provincial/State
	December 31,									December 31,
	2017			2016			2015			2017			2016			2015
Unrecognized tax positions, beginning of year	$	1,095		$	509		$	42		$	7,333		$	2,274		$	18
Gross increase — current period tax positions	588			598			445			227			195			259
Gross decrease — prior period tax positions	—			(9		)	(4		)	(3		)	—			(3		)
Gross increase — prior period tax positions	11			—			26			—			4,866			2,000
Expiration of statute of limitations	(1		)	(3		)	—			(1		)	(2		)	—
Unrecognized tax positions, end of year	$	1,693		$	1,095		$	509		$	7,556		$	7,333		$	2,274

If recognized, none of the unrecognized tax positions would impact the Company's income tax benefit or effective tax rate as long as the Company's deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company's unrecognized tax positions within the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had no accrual for interest or penalties on tax matters as of December 31, 2017 and 2016 and the Company had no ongoing tax audits as of December 31, 2017.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "2017 Act"). The 2017 Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January 1, 2018. The provisional amount related to the re-measurement of certain deferred tax assets, based on the rates at which they are expected to reverse in the future, was $28.6 million. Due to the Company's full valuation allowance position, there was no net impact on the Company's income tax provision for the year ended December 31, 2017 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance.

In conjunction with the 2017 Act, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities at December 31, 2017. There was no net impact on the Company's consolidated financial statements for the year ended December 31, 2017 as the corresponding adjustment was made to the valuation allowance. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the 2017 Act.