Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes [Abstract]

Income Taxes

9. Income Taxes

Loss before income taxes is comprised of (in thousands):

	Year Ended December 31,
	2023			2022			2021
United States	$	(334,707	)	$	(258,493	)	$	(29,966	)
Foreign		742			508			818
Loss before income taxes	$	(333,965	)	$	(257,985	)	$	(29,148	)

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

	Year Ended December 31,
	2023			2022		2021
Current:
Federal	$	35,861		$	10,522	$	(200	)
State		(3,687	)		1,129		(690	)
Foreign		147			86		339
Total current income tax expense (benefit)		32,321			11,737		(551	)
Deferred:
Federal		—			—		—
State		—			—		—
Total deferred income tax benefit		—			—		—
Total income tax expense (benefit)	$	32,321		$	11,737	$	(551	)

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

	Year Ended December 31,
	2023					2022					2021
Pre-tax loss	$	(333,965	)			$	(257,985	)			$	(29,148	)
Statutory rate		(70,133	)	21.0	%		(54,177	)	21.0	%		(6,121	)	21.0	%
State income tax net of federal benefit		(22,597	)	6.8	%		(13,622	)	5.3	%		4,278		(14.7	)%
Foreign		(22	)	0.0	%		(49	)	0.0	%		143		(0.5	)%
Net change in valuation allowance		175,388		(52.5	)%		104,951		(40.7	)%		2,885		(9.9	)%
Loss on debt transactions		—		—			—		—			262		(0.9	)%
Tax credits		(67,131	)	20.1	%		(39,729	)	15.4	%		(23,198	)	79.6	%
Deferred tax true-up		4		0.0	%		(20	)	0.0	%		(24	)	0.1	%
Tax rate change		1,023		(0.3	)%		(3,091	)	1.2	%		12,838		(44.0	)%
Non-deductible compensation		3,814		(1.1	)%		3,023		(1.2	)%		5,085		(17.4	)%
Other non-deductible items		327		(0.1	)%		57		0.0	%		84		(0.3	)%
Foreign-derived intangible income benefit		(7,493	)	2.2	%		—		—			—		—
Stock-based compensation		19,546		(5.9	)%		14,030		(5.4	)%		4,720		(16.2	)%
Other		(405	)	0.1	%		364		(0.1	)%		(1,503	)	5.1	%
Effective rate	$	32,321		(9.7	)%	$	11,737		(4.5	)%	$	(551	)	1.9	%

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, 2023 and 2022 are as follows (in thousands):

	Year Ended December 31,
	2023			2022
Deferred Tax Assets:
Net operating loss carryovers	$	77,964		$	87,802
Tax credits		239,962			277,436
Deferred revenue		71,683			85,700
Stock-based compensation		77,468			86,983
Intangible and capital assets		104,380			104,649
Convertible debt		16,849			34,384
Capitalized research and development expenses		238,738			119,635
Long-term lease liabilities		43,718			45,612
Sale of future royalties		144,608			—
Other		10,343			15,813
Total deferred tax assets	$	1,025,713		$	858,014
Deferred Tax Liabilities:
Fixed assets		(4,166	)		(4,475	)
Right-of-use assets		(42,007	)		(44,504	)
Other		(1,910	)		(313	)
Net deferred tax asset	$	977,630		$	808,722
Valuation allowance		(977,630	)		(808,722	)
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 $169 million from December 31, 2022 to December 31, 2023. The increase was primarily related to increases in our deferred tax assets for capitalized research and development expenses and sale of future royalties.

At December 31, 2023, we had federal and state, primarily California, tax net operating loss carryforwards of $242.8 million and $398.8 million, respectively. Our federal tax loss carryforwards are available indefinitely. Our California tax loss carryforwards will begin to expire in 2032. At December 31, 2023, we also had federal and California research and development tax credit carryforwards of $169.7 million and $124.4 million, respectively. Our federal research and development tax credit carryforwards will begin to expire in 2038. Our California research and development tax credit carryforwards are available indefinitely. Our 2023 current tax expense includes a benefit of approximately $3.2 million related to utilization of state tax loss carryforwards, primarily California.

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,
	2023			2022			2021
Beginning balance of unrecognized tax benefits	$	56,567		$	55,085		$	54,163
Decrease for lapse of statute of limitations		(14,993	)		—			—
Decrease for prior period tax positions		(737	)		(267	)		(695	)
Increase for prior period tax positions		429			259			263
Increase for current period tax positions		2,032			1,490			1,354
Ending balance of unrecognized tax benefits	$	43,298		$	56,567		$	55,085

Included in the balance of unrecognized tax benefits at December 31, 2023, 2022 and 2021 was $0.3 million, $6.2 million and $6.2 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 $7.6 million within the next 12 months due to the lapse of statute of limitations on underlying tax positions primarily related to amortization of certain capitalized state research and development expenditures.

We recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2023, 2022 and 2021, we recognized $0.1 million, $0.8 million and $0.5 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. U.S. tax years 2020 through 2022 remain open to examination and tax years 2019 through 2022 remain open to examination by major state taxing jurisdictions, primarily California, although net operating loss and credit carryforwards generated prior to these periods 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.