Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Losses before provision for income taxes were as follows in each period presented:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
United States	$	(340,301	)	$	(306,758	)	$	(291,049	)
Foreign		206			153			85
Total loss before provision for income taxes	$	(340,095	)	$	(306,605	)	$	(290,964	)

The components of provision for (benefit from) income taxes were as follows in each period presented:

	Year Ended December 31,
	2021		2020		2019
	(in thousands)
Current provision for (benefit from) income taxes:
State		4		2		—
Foreign		42		13		12
Total current provision for (benefit from) income    taxes	$	46	$	15	$	12

A reconciliation of statutory tax rates to effective tax rates were as follows in each of the periods presented:

	Year Ended December 31,
	2021			2020			2019
Federal income taxes at statutory rate		21.0	%		21.0	%		21.0	%
Impact of stock compensation		(2.0	%)		(2.4	%)		0.1	%
Non-deductible executive compensation		(0.2	%)		(0.1	%)		(0.7	%)
Other		(0.1	%)		0.3	%		(0.2	%)
Change in valuation allowance		(18.7	%)		(18.8	%)		(20.2	%)
Effective tax rate		0.0	%		0.0	%		0.0	%

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows for each of the dates presented:

	As of December 31,
	2021			2020
	(in thousands)
Deferred tax assets:
Net operating losses	$	308,997		$	237,010
Stock-based compensation		24,181			20,672
Capitalized expenses		10,499			12,590
License fees		8,716			8,159
Operating lease liabilities		7,972			4,251
Legal fees		2,366			2,136
Tax credits		1,580			1,580
Deferred Revenue		12,133			—
Other		7,048			5,360
Total deferred tax assets		383,492			291,758
Valuation allowance		(376,071	)		(287,349	)
Total deferred tax assets		7,421			4,409
Deferred tax liabilities:
Operating lease assets		(7,421	)		(3,541	)
Other		—			(868	)
Total deferred tax liabilities		(7,421	)		(4,409	)
Net deferred tax assets (liabilities)	$	—		$	—

We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards. We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2021 and 2020. We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $88.7 million for the year ended December 31, 2021 primarily due to federal and state NOLs and other U.S. deferred tax assets, which includes accelerated Bayer revenue recognition for tax purposes during 2021.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing companies with various tax relief provisions and other stimulus measures. Such measures include, but are not limited to, temporary changes regarding the prior and future utilization of net operating losses, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property, acceleration of AMT credit refunds, and changes to business interest limitations. The Consolidated Appropriations Act was also signed into law on December 27, 2020 to provide further relief measures and renew various expiring tax provisions. Additionally, the IRS issued final regulations and proposed regulations on calculating the limitation on business interest expense, the allowance for the first-year depreciation deduction under IRC Section 168(k), as amended by the Tax Cuts and Jobs Act (the “Tax Act”), for qualified property acquired and placed in service after September 27, 2017, and meals and entertainment deductions. Based on our evaluation, these regulations did not have a material impact on the income tax provision for the years ended December 31, 2021, 2020 and 2019.

Under the Tax Act, federal net operating losses generated in tax years beginning on or after January 1, 2018 and in future years may be carried forward indefinitely, but the utilization of such federal net operating losses is limited to 80% of current year taxable income. The CARES Act temporarily suspends this 80% taxable income limitation, allowing a net operating loss carryforward to fully offset taxable income in tax years beginning before January 1, 2021. It is uncertain if, and to what extent, various states will conform to the Tax Act or the CARES Act. The Tax Act nor the CARES Act had a material impact to our financial statements.

As of December 31, 2021, for federal income tax purposes, we had net operating loss carryforwards of approximately $1,064.4 million, of which $65.2 million begin to expire in 2032 and $999.2 do not expire, research & development tax credits of approximately $18.0 million which begin to expire in 2032, and orphan drug tax credits of approximately $94.5 million which begin to expire in 2035. For California income tax purposes, we had net operating loss carryforwards of approximately $1,045.5 million which begin to expire in 2032, and research & development tax credits of approximately $30.4 million which do not expire, and Competes tax credit of $2.0 million which begins to expire in 2024. For other states income tax purposes, we had net operating loss carryforwards of approximately $226.6 million which begins to expire in 2030.

Under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 “ownership change” occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws.

We have performed a Section 382 analysis of transactions in our stock through December 31, 2021. We have experienced ownership changes since inception and our utilization of net operating loss carryforwards will be subject to annual limitations. However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization.

The changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2019, 2020 and 2021 are as follows:

	(In thousands)
Balance as of January 1, 2019	$	41,074
Gross increases for tax positions related to current year		22,800
Gross increases for tax positions related to prior year		22,126
Gross decreases for tax positions related to prior year		—
Balance as of December 31, 2019		86,000
Gross increases for tax positions related to current year		24,648
Gross increases for tax positions related to prior year		—
Gross decreases for tax positions related to prior year		(47	)
Balance as of December 31, 2020		110,601
Gross increases for tax positions related to current year		28,171
Gross increases for tax positions related to prior year		5,295
Gross decreases for tax positions related to prior year		—
Balance as of December 31, 2021	$	144,067

The Company currently has a full valuation allowance against its U.S. net deferred tax assets, which would impact the timing of the effective tax rate benefit should any uncertain tax position be favorably settled in the future. For 2021, 2020, and 2019 total unrecognize benefits in the amount of $144.1 million, $110.6 million, and $86.0 million, respectively, no amount, if recognized, would affect the Company’s effective tax rate.

The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company has not accrued interest and penalties as of December 31, 2021 due to available tax losses.

Our significant jurisdictions are the U.S. federal jurisdiction and the California state jurisdiction. All of our tax years remain open to examination by the U.S. federal and California tax authorities. We also file in other state, local and foreign jurisdictions in which we operate, and such tax years remain open to examination.

The 2017 Tax Act imposed a mandatory transition tax on accumulated foreign earnings and generally eliminated U.S. taxes on foreign subsidiary distribution. As of December 31, 2021, the Company is not permanently reinvested with respect to its foreign earnings and has not recorded deferred income taxes and withholding taxes as these taxes are immaterial to the financial statements.