Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

6. Income Taxes

Income (loss) before income taxes is comprised of (in thousands):

	Year Ended December 31,
	2022			2021			2020
United States	$	(258,493	)	$	(29,966	)	$	(137,222	)
Foreign		508			818			2,670
Income (loss) before income taxes	$	(257,985	)	$	(29,148	)	$	(134,552	)

Our income tax expense (benefit) was as follows (in thousands):

	Year Ended December 31,
	2022		2021			2020
Current:
Federal	$	10,522	$	(200	)	$	(837	)
State		1,129		(690	)		3,782
Foreign		86		339			518
Total current income tax expense (benefit)		11,737		(551	)		3,463
Deferred:
Federal		—		—			341,728
State		—		—			—
Total deferred income tax benefit		—		—			341,728
Total income tax expense (benefit)	$	11,737	$	(551	)	$	345,191

Our expense (benefit) for income taxes differs from the amount computed by applying the U.S. federal statutory rate to income (loss) before taxes. The sources and tax effects of the differences are as follows (in thousands):

	Year Ended December 31,
	2022					2021					2020
Pre-tax income (loss)	$	(257,985	)			$	(29,148	)			$	(134,552	)
Statutory rate		(54,177	)	21.0	%		(6,121	)	21.0	%		(28,256	)	21.0	%
State income tax net of federal benefit		(13,622	)	5.3	%		4,278		(14.7	)%		(37,705	)	28.0	%
Foreign		(49	)	0.0	%		143		(0.5	)%		49		0.0	%
Net change in valuation allowance		104,951		(40.7	)%		2,885		(9.9	)%		460,898		(342.5	)%
Loss on debt transactions		—		—			262		(0.9	)%		—		—
Tax credits		(39,729	)	15.4	%		(23,198	)	79.6	%		(18,774	)	14.0	%
Deferred tax true-up		(20	)	0.0	%		(24	)	0.1	%		(206	)	0.2	%
Tax rate change		(3,091	)	1.2	%		12,838		(44.0	)%		(32,951	)	24.5	%
Non-deductible compensation		3,023		(1.2	)%		5,085		(17.4	)%		7,931		(5.9	)%
Other non-deductible items		57		0.0	%		84		(0.3	)%		193		(0.1	)%
Stock-based compensation		14,030		(5.4	)%		4,720		(16.2	)%		17,435		(13.0	)%
Impacts from Akcea Merger		—		—			—		—			(22,032	)	16.4	%
Other		364		(0.1	)%		(1,503	)	5.1	%		(1,391	)	0.9	%
Effective rate	$	11,737		(4.5	)%	$	(551	)	1.9	%	$	345,191		(256.5	)%

Deferred income taxes reflect the net tax effects 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 as of December 31, 2022 and 2021 are as follows (in thousands):

	Year Ended December 31,
	2022			2021
Deferred Tax Assets:
Net operating loss carryovers	$	87,802		$	85,600
Tax credits		277,436			269,538
Deferred revenue		85,700			104,330
Stock-based compensation		86,983			86,611
Intangible and capital assets		104,649			92,542
Convertible debt		34,384			45,681
Interest expense limitation		—			6,996
Capitalized research and development expenses		119,635			—
Long-term lease liabilities		45,612			5,119
Other		15,813			9,929
Total deferred tax assets	$	858,014		$	706,346
Deferred Tax Liabilities:
Fixed assets		(4,475	)		(3,303	)
Right-of-use assets		(44,504	)		(4,159	)
Other		(313	)		(1,111	)
Net deferred tax asset	$	808,722		$	697,773
Valuation allowance		(808,722	)		(697,773	)
Total net deferred tax assets and liabilities	$	—		$	—

We evaluate our deferred tax assets regularly to determine whether adjustments to the valuation allowance are appropriate due to changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, we rely on our recent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment. Although we believe our estimates are reasonable, we are required to use significant judgment in determining the appropriate amount of valuation allowance recorded against our deferred tax assets.

Our valuation allowance increased by $111 million from December 31, 2021 to December 31, 2022. The increase was primarily related to increases in our deferred tax asset for capitalized research and development expenses.

At December 31, 2022, we had federal and state, primarily California, tax net operating loss carryforwards of $242.8 million and $461.3 million, respectively. Our federal tax loss carryforwards are available indefinitely. Our California tax loss carryforwards will begin to expire in 2031. At December 31, 2022, we also had federal and California research and development tax credit carryforwards of $224.9 million and $110.7 million, respectively. Our federal research and development tax credit carryforwards will begin to expire in 2035. Our California research and development tax credit carryforwards are available indefinitely.

Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

We analyze filing positions in all U.S. federal, state and foreign jurisdictions where we file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of the applicable tax authority sustaining our position.

The following table summarizes our gross unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2022			2021			2020
Beginning balance of unrecognized tax benefits	$	55,085		$	54,163		$	69,784
Decrease for prior period tax positions		(267	)		(695	)		(24,154	)
Increase for prior period tax positions		259			263			7,023
Increase for current period tax positions		1,490			1,354			1,510
Ending balance of unrecognized tax benefits	$	56,567		$	55,085		$	54,163

Included in the balance of unrecognized tax benefits at December 31, 2022, 2021 and 2020 was $6.2 million, $6.2 million and $6.4 million respectively, that if we recognized, could impact our effective tax rate, subject to our remaining valuation allowance.

We estimate that it is reasonably possible that the balance of our gross unrecognized tax benefits may decrease by approximately $15.0 million within the next 12 months due to the lapse of statute of limitations on underlying tax positions primarily related to tax credits.

We recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2022, 2021 and 2020, we recognized $0.8 million, $0.5 million and $0.3 million, respectively, of accrued interest and penalties related to gross unrecognized tax benefits.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. The tax years 2018 through 2021 remain open to examination by major taxing jurisdictions, primarily federal and California, although net operating loss and credit carryforwards generated prior to 2018 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have been used in an open period or are used in a future period.

We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries as we consider those earnings to be permanently reinvested. It is not practicable for us to calculate the amount of unrecognized deferred tax liabilities associated with these earnings.