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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
On October 2, 2017, immediately prior to the completion of its initial public offering (IPO), the Company engaged in a series of transactions whereby Deciphera Pharmaceuticals, LLC became a wholly owned subsidiary of Deciphera Pharmaceuticals, Inc., a Delaware corporation. As part of the transactions, shareholders of Deciphera Pharmaceuticals, LLC exchanged their shares of Deciphera Pharmaceuticals, LLC for shares of Deciphera Pharmaceuticals, Inc. on a one-for-5.65 basis (the Conversion).
Prior to the Conversion on October 2, 2017, the Company had been treated as a partnership for tax purposes and had not been subject to U.S. federal or state income taxation. As a result, the Company had not recorded any U.S. federal or state income tax benefits for the net losses incurred prior to October 2, 2017 or for earned research and orphan drug credits as the operating losses incurred by the Company had been passed through to its members. Upon consummation of the Conversion on October 2, 2017, the Company became subject to Corporate U.S. federal and state income taxes.
During the years ended December 31, 2021, 2020, and 2019, the Company reported net losses, and as a result, recorded no income tax benefits for the net operating losses (NOLs), due to its uncertainty of realizing a benefit from those items.
Net loss by jurisdiction is as follows:
Year Ended December 31,
(in thousands)202120202019
U.S.$(281,129)$(266,483)$(192,256)
Foreign(18,835)(6)— 
Net loss$(299,964)$(266,489)$(192,256)
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
Year Ended December 31,
202120202019
Federal statutory income tax rate21.0 %21.0 %21.0 %
State taxes, including credits, net of federal benefit3.2 2.4 7.0 
Federal research and orphan drug credit2.5 2.1 5.4 
Stock-based compensation0.1 5.4 4.7 
Permanent adjustments and other(0.3)0.5 (0.9)
Increase in deferred tax asset valuation allowance(26.5)(31.4)(37.2)
Effective income tax rate— %— %— %
During 2020, the Company completed a detailed study of its research and development and orphan drug credits. As a result, the Company adjusted its deferred tax asset balances and the impacts are included in the research and orphan drug credit line in the effective rate reconciliation above. The impacts of the decreases in the deferred tax asset balances have been completely offset by a decrease in the Company's valuation allowance which is included in the increase in deferred tax asset valuation allowance line in the reconciliation above.
Net deferred tax assets consisted of the following:
December 31,
(in thousands)20212020
Deferred tax assets (liabilities):
Net operating loss carryforwards$216,377 $159,192 
Research and orphan drug credit carryforwards40,077 31,142 
Stock-based compensation15,701 8,928 
Accrued expenses9,560 3,779 
Operating lease liabilities9,019 9,321 
Property and equipment(322)(387)
Operating lease assets(8,904)(8,811)
Other1,028 16 
Total gross deferred tax assets282,536 203,180 
Valuation allowance(282,536)(203,180)
Net deferred tax assets$— $— 
The change in the valuation allowance was as follows:
Year Ended December 31,
(in thousands)20212020
Valuation allowance as of beginning of year$(203,180)$(119,647)
Net increases recorded to income tax provision(79,356)(83,533)
Valuation allowance as of end of year$(282,536)$(203,180)
As of December 31, 2021, the Company had NOL carryforwards for federal income tax purposes of $870.9 million, of which $16.6 million begin to expire in 2037 and $854.3 million may be carried forward indefinitely but are subject to an 80% limitation. As of December 31, 2021, the Company had NOL carryforwards for state income tax purposes of $688.8 million, which begin to expire in 2035. As of December 31, 2021, the Company also had available research and orphan drug credit carryforwards for federal and state income tax purposes of $36.6 million and $4.5 million, respectively, which begin to expire in 2037 and 2032, respectively. We also had foreign NOL carryforwards of $19.3 million as of December 31, 2021, which will begin to expire in 2026. Utilization of the NOL carryforwards and research and orphan drug credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), and similar state law due to ownership changes that could occur in the future.
These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. If the Company experiences a change of control, as defined by Section 382 of the Code and similar state law, at any time since the IPO, utilization of the NOL carryforwards or research and orphan drug credit carryforwards may be subject to an annual
limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL carryforwards or research and orphan drug credit carryforwards before utilization. The Company performed an analysis of ownership changes through December 31, 2020. Based on this analysis, the Company does not believe that any of its tax attributes through December 31, 2020 will expire unutilized due to Section 382 limitations. The Company has not conducted a formal study to assess whether a change of control has occurred or whether there have been multiple changes of control since December 31, 2020 due to the recency of the previous study and significant complexity and cost associated with such a study.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company's history of cumulative net losses incurred since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2021. Management reevaluates the positive and negative evidence at each reporting period.
The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2021. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense when, if ever, it is in a taxable income position. As of December 31, 2021 and 2020, 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 and comprehensive loss.
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 income tax examinations. The Company's tax years that are open under statute are from December 31, 2018 to the present, although carryforward attributes that were generated prior to 2018 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company's policy is to record interest and penalties related to income taxes as part of its income tax provision.