Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

The income tax expense recorded during the year ended December 31, 2022 of $0.5 million was related to foreign withholding taxes on the milestone payment received in connection with the Zai Agreement. The income tax expense recorded during the year ended December 31, 2021 of $3.3 million was related to foreign withholding taxes on the up-front fee in connection with the Zai Agreement. The Company had no federal income tax expense and immaterial state tax expense for the year ended December 31, 2020.

The differences between the effective income tax rate and the statutory tax rates during the years ended 2022, 2021 and 2020 are as follows (in thousands):

	Year Ended December 31,
	2022			2021			2020
Net loss before tax	$	(740,359)		$	(578,485)		$	(357,937)
Statutory U.S. federal tax rate	21.00		%	21.00		%	21.00		%
Tax computed at federal statutory rate	(155,475)			(121,482)			(75,167)
State income taxes, net of federal benefit	(2,305)			(4,657)			(13,490)
Increase (decrease) in taxes recoverable resulting from:
Effect of change in valuation allowance	198,064			150,487			110,985
Non-deductible share-based compensation	6,754			4,783			2,724
Tax deductions for share-based compensation	3,876			(17,243)			(17,991)
Tax credits	(73,383)			(30,289)			(15,672)
Dissolution of Canadian entity	24,761			—			—
Foreign withholding taxes	508			3,299			—
Change in tax rate	(11,224)			2,972			—
Unrecognized tax benefits	6,965			7,573			3,857
Return to provision and other true-ups	(3,871)			115			25
Non-deductible officers’ compensation	5,969			8,318			4,697
Other differences	(131)			(577)			32
Income tax expense	$	508		$	3,299		$	—

Deferred Tax

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

	December 31,
	2022		2021
Deferred tax assets:
Tangible and intangible depreciable assets	$	183,129	$	29,576
Stock compensation	46,013		26,738
Provisions	12,385		5,740
Lease liability	11,739		9,916
Non-current investment	1,814		673
Net operating loss carryforward	254,820		299,204
Capital loss carryforward	—		89
Canada scientific research and experimental development expenditures	—		5,471
U.S. research and development tax credits	118,019		51,550
Total gross deferred tax assets	627,919		428,957
Less valuation allowance	(619,686)		(421,044)
Net deferred tax assets	$	8,233	$	7,913
Deferred tax liabilities:
Right-of-use asset	$	(8,233)	$	(7,913)
Net deferred income taxes	$	—	$	—

The total valuation allowance increased by $198.6 million for the year ended December 31, 2022. The Company has established a full valuation allowance against its net deferred tax assets as of December 31, 2022 due to the uncertainty surrounding the realization of such assets as evidenced by the cumulative losses from operations through December 31, 2022.

At December 31, 2022, the Company’s net operating loss carry forwards (“NOLs”) for U.S. federal, California, and other state income tax purposes were $1.1 billion, $271.8 million and $1.6 million, respectively. The U.S. federal and California NOLs begin to expire in 2033, and the other state NOLs begin to expire at various dates starting in 2037.

The future utilization of the U.S. federal and state NOL and credit carryforwards to offset future taxable income and tax, respectively, 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 “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% (by value) as defined in the Act.

During 2017, the Company completed a study to assess whether an ownership change, as defined by Section 382 of the Act, had occurred from the Company’s formation through December 31, 2017. The results of the study have been extended through December 31, 2022. 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, 2022 would expire solely as a result of annual limitations on the utilization of those attributes.

The Company has research and development tax credit carryforwards for U.S. federal and state income tax purposes as of December 31, 2022 of $69.7 million and $30.0 million, respectively. The federal credits will begin to expire in 2033 unless utilized and the state credits will begin to expire in 2036. Further, the Company has orphan drug tax credit carryforwards for U.S. federal income tax purposes as of December 31, 2022 of $49.0 million. The credits will begin to expire in 2041 unless previously utilized.

For Canadian Federal and provincial income tax purposes, the Company’s Canadian NOLs and credits for federal scientific research and experimental development expenditures no longer exist as MethylGene was dissolved during 2022.

The Company files income tax returns in the U.S. (federal and state), Netherlands, Switzerland, and will file final returns in 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.

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

	December 31,
	2022		2021		2020
Unrecognized tax positions, beginning of year	$	24,817	$	17,046	$	12,916
Gross increase — current period tax positions	9,115		7,849		4,130
Gross decrease — current period tax positions	—		—		—
Gross decrease — prior period tax positions	(1,940)		(78)		—
Gross increase — prior period tax positions	—		—		—
Expiration of statute of limitations	—		—		—
Unrecognized tax positions, end of year	$	31,992	$	24,817	$	17,046

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 net 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, 2022, 2021 and 2020.