Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Income (loss) before income tax expense consists of the following:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Domestic	$	(457,693	)	$	639,986		$	(634,289	)
Foreign		(199	)		(33,913	)		(45,949	)
	$	(457,892	)	$	606,073		$	(680,238	)

There is no current or deferred provision for income taxes because the Company has historically incurred and utilized operating losses prior to the year ended December 31, 2021. As of December 31, 2021, the Company continues to maintain 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 the valuation allowance.

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

	Year Ended December 31,
	2021			2020			2019
Tax due at statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal		1.9			5.7			2.8
Biogen transaction-related items		—			(10.1	)		—
Stock-based compensation		(5.2	)		0.9			1.4
Foreign rate differential		—			1.2			(1.6	)
Federal and state credits		3.5			(1.5	)		2.4
Change in valuation allowance		(20.7	)		(17.6	)		(25.8	)
Other		(0.5	)		0.4			(0.2	)
		0.0	%		0.0	%		0.0	%

For the year ended December 31, 2021, the impact from stock-based compensation on the Company’s effective tax rate was primarily caused by shortfalls related to exercises and cancellations of non-qualified stock options.

For the year ended December 31, 2020, the Biogen transaction-related items consisted primarily of the excess proceeds from the equity investment under the Biogen Stock Purchase Agreement.

Significant components of the Company’s net deferred tax assets at December 31, 2021 and 2020 are as follows:

	December 31,
	2021			2020
	(in thousands)
Net operating losses	$	305,824		$	222,607
Capitalized start-up costs		735			873
Tax credit carryforwards		106,176			90,460
Accrued expenses		6,684			3,157
Depreciation and amortization		1,401			1,614
Stock-based compensation		49,281			56,520
Right of use asset		(3,702	)		(5,981	)
Lease liability		4,236			6,705
Other		(31	)		148
Total net deferred tax asset before valuation    allowance		470,604			376,103
Valuation allowance		(470,604	)		(376,103	)
Net deferred tax asset	$	—		$	—

As of December 31, 2021, the Company had federal net operating loss carryforwards of $1.3 billion, of which $30.2 million begin to expire in 2033 and the remainder do not expire but are subject to 80% limitation. As of December 31, 2021, the Company had state net operating loss carryforwards of $584.8 million that begin to expire in 2031. As of December 31, 2021, the Company had federal and state research and development tax credits carryforwards of $56.9 million and $11.6 million, respectively, which begin to expire in 2031 and 2028, respectively. As of December 31, 2021, the Company had federal orphan drug tax credit carry forwards of $40.1 million, which begin to expire in 2034.

As of December 31, 2021, net deferred tax assets before the valuation allowance increased $94.5 million, primarily due to the increase of federal and state net operating loss carryforwards due to the loss generated for the year ended December 31, 2021. 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 federal and state net operating loss 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 its federal and state deferred tax assets. Accordingly, a full valuation allowance of $470.6 million and $376.1 million has been established at December 31, 2021 and 2020, respectively. The valuation allowance increased by $94.5 million, decreased by $107.2 million and increased by $174.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, primarily due to generation or utilization of net operating losses.

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 and tax credit carryforwards that may be used in future years. Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a Section 382 study through December 31, 2020. 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, the Company’s net operating loss and tax credit carryforwards as of the ownership change dates are subject to limitation under Section 382; however, these limitations are not expected to cause any of the impacted net operating loss and tax credit carryforwards to expire unused. Any net operating losses 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 and tax credit carryforwards that could be utilized to offset future taxable income and tax.

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. 

The following table reconciles the beginning and ending amounts of gross unrecognized tax benefits, excluding interest and penalties, if any, for the year ended December 31, 2021:

	2021
	(in thousands)
Balance as of January 1	$	-
Increases related to current year tax positions		396
Increases related to prior year tax positions		5,688
Balance as of December 31	$	6,084

For the years ended December 31, 2020 and 2019, there were no gross unrecognized tax benefits.

For the year ended December 31, 2021, the increases in unrecognized tax benefits related to current year and prior year tax positions primarily related to the Company’s federal and state tax credits.

The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision. As of December 31, 2021 and 2020, the Company had no accrued interest or penalties related to income taxes and no amounts have been recognized in the Company’s statements of operations and comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019.

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, state and foreign jurisdictions, where applicable.

There are currently no pending tax examinations, and the Company’s tax returns are generally open under statute from 2018 to the present. Tax attributes such as net operating losses and tax credits generated prior to 2018 and utilized in open years may still be adjusted upon examination.