Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 13. Income Taxes

We are subject to U.S. federal, state and foreign corporate income taxes. The provision for income taxes is based on income (loss) before provision for income taxes as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
U.S.	$	(16,609)	$	712,486	$	478,050
Non-U.S.		(215,609)		(225,695)		(362,703)
Income (loss) before provision for income taxes	$	(232,218)	$	486,791	$	115,347

Our provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2020		2019		2018
Current:
Federal	$	43,595	$	23,526	$	—
State		18,881		11,553		5,010
Foreign		1,353		5,183		1,303
		63,829		40,262		6,313
Deferred:
State		—		(205)		111
Foreign		(350)		(172)		(570)
		(350)		(377)		(459)
Total provision for income taxes	$	63,479	$	39,885	$	5,854

A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
Provision (benefit) at U.S. federal statutory rate	$	(48,766)	$	102,226	$	24,223
Unbenefited future tax deductions and tax credits		105,923		(73,666)		(51,861)
Excess tax benefits related to share-based compensation		(9,750)		(13,418)		(8,233)
Foreign tax rate differential		30,412		25,419		37,061
Non-deductible officer compensation		7,418		5,213		4,114
Foreign-derived intangible income		(22,830)		(9,153)		—
Other		1,072		3,264		550
Provision for income taxes	$	63,479	$	39,885	$	5,854

The foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S. federal statutory rate.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carry forwards	$	128,088	$	102,001
Federal and state research credits		305,099		400,550
Capitalized research and development		43,806		46,188
Deferred revenue and accruals		27,467		13,609
Non-cash compensation		75,867		67,345
Acquisition-related contingent consideration		32,658		31,956
Intangibles, net		289,848		92,806
Long term investments		25,968		14,899
Other		26,303		21,885
Total gross deferred tax assets		955,104		791,239
Less valuation allowance for deferred tax assets		(930,209)		(770,497)
Net deferred tax assets	$	24,895	$	20,742
Deferred tax liabilities:
Property and equipment	$	(22,841)	$	(19,095)
Total gross deferred tax liabilities		(22,841)		(19,095)
Net deferred tax assets	$	2,054	$	1,647

The net deferred tax asset balance is reported in other assets, net on the consolidated balance sheets as of December 31, 2020 and 2019.

As of December 31, 2020, the Company has net operating loss (“NOL”) carryforwards, research and development credit carryforwards and orphan drug tax credit carryforwards as follows (in thousands):

	Amount		Expiring if not utilized
Net operating loss carryforwards
State	$	361,890	2021 through 2039; indefinite
Foreign		1,250,048	2021 through 2027
Research and development credit carryforwards
Federal		150,598	2036 through 2040
State		23,986	2021 through 2039; indefinite
Orphan drug tax credit carryforwards		162,653	2035 through 2040

The valuation allowance for deferred tax assets increased by approximately $159.7 million during the year ended December 31, 2020, decreased by approximately $66.5 million during the year ended December 31, 2019 and increased by approximately $2.2 million during the year ended December 31, 2018.  The net valuation allowance increase during 2020 was primarily due to the generation of future deductible temporary differences and foreign NOLs offset by a net utilization of research and development (“R&D”) and orphan drug credits in the U.S.

Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.  Such assessment is required on a jurisdiction-by-jurisdiction basis.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based upon our analysis of our historical operating results, as well as projections of our future taxable income (losses) during the periods in which the temporary differences will be recoverable, management believes the uncertainty regarding the realization of our U.S. and Swiss net deferred tax assets requires a full valuation allowance against such net assets as of December 31, 2020. When performing our assessment on projections of future taxable income (losses), we

consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors.  

The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. If such unrecognized tax benefits were realized and not subject to valuation allowances, we would recognize a tax benefit of $31.6 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2020		2019
Balance at beginning of year	$	24,251	$	22,395
Additions related to prior periods tax positions		3,953		726
Reductions related to prior periods tax positions		(216)		(82)
Additions related to current period tax positions		4,119		1,835
Settlements		(201)		—
Reductions due to lapse of applicable statute of limitations		(397)		(557)
Currency translation adjustment		88		(66)
Balance at end of year	$	31,597	$	24,251

Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. During the year ended December 31, 2020, we recorded a negligible reduction to interest and penalties as a component of income tax expense.  During the years ending December 31, 2019 and 2018, we recorded interest and penalties as a component of income tax expense of $0.2 million and $0.1 million, respectively. We do not anticipate any significant changes to our unrecognized tax benefits during the next twelve months.

The Company files U.S. federal, state and local income tax returns and income tax returns in various foreign jurisdictions, with statutes of limitation generally ranging from three to five years during which such tax returns may be audited by the relevant tax authorities. Those statutes could be extended due to NOL or tax credit carryforwards generated during these periods that are subsequently utilized in open tax periods.  In general, tax authorities have the ability to adjust the NOL carryforward or tax credits for three years after utilization of that year’s tax attribute carryforward.