There is no current or deferred provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. The reported amount of income tax expense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.

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

	Year Ended December 31,
	2018			2017			2016
Tax due at statutory rate		21.0	%		34.0	%		34.0	%
State taxes, net of federal		6.0			5.1			4.2
Stock-based compensation		2.5			6.4			(1.0	)
Foreign rate differential		(4.3	)		(3.2	)		(3.1	)
Federal and state credits		2.5			7.2			10.3
Change in valuation allowance		(27.6	)		(22.5	)		(41.5	)
Other		(0.1	)		—			—
Federal and state rate change		—			(24.6	)		—
Research and orphan drug credit addback		—			(2.4	)		(2.9	)
		0.0	%		0.0	%		0.0	%

Significant components of the Company’s net deferred tax asset at December 31, 2018 and 2017 are as follows:

	December 31,
	2018			2017
	(in thousands)
Net operating losses	$	206,460		$	131,151
Capitalized start-up costs		1,242			1,362
Tax credit carryforwards		63,653			54,523
Accrued expenses		4,498			3,057
Depreciation and amortization		1,001			685
Stock options		30,925			13,573
Others		568			1,090
Total net deferred tax asset before valuation allowance		308,347			205,441
Valuation allowance		(308,347	)		(205,441	)
Net deferred tax asset	$	—		$	—

As of December 31, 2018, the Company had federal and state net operating loss carryforwards of $755.0 million and $760.7 million, respectively, which begin to expire in 2031 and 2030, respectively. As of December 31, 2018, the Company had federal and state research and development tax credits carryforwards of $20.3 million and $4.1 million, respectively, which begin to expire in 2031 and 2027, respectively. As of December 31, 2018, the Company had federal orphan drug tax credit carry forwards of $40.0 million, which begin to expire in 2034.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“The TCJA”). This legislation reduced the U.S. corporate tax rate from the existing rate of 34% to 21% for tax years beginning after December 31, 2017. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities existing as of December 31, 2017 from the 34% federal rate in effect through the end of 2017, to the new 21% rate. This revaluation resulted in a reduction to the Company’s deferred tax asset of $66.4 million as of December 31, 2017. This amount was offset by a corresponding reduction to the Company’s valuation allowance. The other provisions of the TCJA did not have a material impact on the December 31, 2017 consolidated financial statements. Our final determination of the TCJA impact and the remeasurement of our deferred assets and liabilities was completed prior to the deadline of one year from the enactment of the TCJA. For the year ended December 31, 2018, there were no material changes to our analysis originally performed as of December 31, 2017.

As of December 31, 2018, net deferred tax assets increased approximately $102.9 million, primarily due to the operating loss, timing differences related to stock-based compensation and tax credits incurred during the year. This increase in net deferred tax assets was offset by a corresponding increase in the valuation allowance.

Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and tax credit carryforwards. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance of $308.3 million and $205.4 million has been established at December 31, 2018 and 2017, respectively.

Pursuant to Section 382 of the Internal Revenue Code, and similar state tax law, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax carryforwards that may be used in future years. Utilization of the net operating loss (“NOL”) and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a detailed Section 382 study during 2017 on its Net Operating Losses and Credits incurred from the year it began operations in 2011 through December 31, 2016. Based on the study, the Company underwent two ownership changes for Section 382 purposes which occurred on March 11, 2014 and December 31, 2015. As a result of the ownership changes, all of the Company’s NOL and Tax Credit carryforwards as of the ownership change dates are subject to limitation under Section 382. Any NOLs or Tax Credits generated after the December 2015 change are not subject to this annual limitation. However, subsequent ownership changes, as defined by Section 382, may potentially further limit the amount of net operating loss carryforwards that could be utilized to offset future taxable income.

The Company applies the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority.

	Year Ended December 31,
	2018		2017		2016
	(in thousands)
Unrecognized tax benefits—as of the beginning of the year	$	—	$	—	$	—
Gross increases—current period tax positions		—		—		—
Gross decreases—tax positions of prior periods		—		—		—
Unrecognized tax benefits—as of the end of the year	$	—	$	—	$	—

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense when in a taxable income position. As of December 31, 2018 and 2017, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations, and the Company’s tax returns are open under statute from 2015 to the present. The tax attributes prior to 2015 may still be adjusted upon examination. The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision.