Income Taxes

12 Months Ended

Dec. 31, 2018

The income tax provision (benefit) was $0.2 million, $(0.3) million and $0.1 million and the effective rates were approximately 0%, 0% and 0% for the years ended December 31, 2018, 2017 and 2016, respectively. The income tax (benefit) for the year ended December 31, 2017 reflects the reversal of the valuation allowance related to alternative minimum tax (AMT) that the Company paid in 2009. As a result of the Tax Cuts and Jobs Act (the Tax Act), the Company recorded a noncurrent receivable to reflect the refund due to the Company in future periods relating to the previously paid AMT. In addition, the income tax provision (benefit) for the years ended December 31, 2018, 2017 and 2016 reflected current income tax expense recorded as a result of the taxable income in certain of the Company's non-US subsidiaries.

For the years ended December 31, 2018 and 2017, the Company was also subject to foreign income taxes as a result of legal entities established for activities in Europe and Japan. The Company's loss before income taxes in the US and globally was as follows (in thousands):



	Years Ended December 31,
	2018			2017			2016
US	$	(286,211	)	$	(136,682	)	$	(140,354	)
Foreign	(37,865		)	(56,239		)	(35,821		)
Total	$	(324,076	)	$	(192,921	)	$	(176,175	)

The Company's income tax (benefit) provision consisted of the following (in thousands):



	Years Ended December 31,
	2018		2017			2016
Current:
Federal	$	—	$	—		$	—
State	4		3			3
Foreign	197		142			95
	201		145			98
Deferred:
Federal	—		(417		)	—
State	—		—			—
Foreign	—		—			—
	—		(417		)	—
Total	$	201	$	(272	)	$	98

The reconciliation between the federal statutory tax rates and the Company's effective tax rate is as follows:



	Years Ended December 31,
	2018		2017		2016
Statutory federal tax rate	21	%	34	%	34	%
Permanent items	—	%	(3	)%	(3	)%
State income taxes, net of federal benefit	5	%	4	%	4	%
R&D and other tax credits	2	%	8	%	8	%
Foreign income taxes	(1	)%	(6	)%	(4	)%
Impact of Tax Act	—	%	(49	)%	—	%
Change in valuation allowance	(27	)%	12	%	(39	)%
Other	—	%	—	%	—	%
Effective tax rate	—	%	—	%	—	%

Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities consist of the following:



	As of December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	231,918		$	186,342
General business credits	109,502			66,371
Product license	6,902			7,730
Inventory	7,651			—
Other	24,855			17,217
Gross deferred tax assets	$	380,828		$	277,660
Deferred tax liabilities:
Intangibles	$	(15,424	)	$	(16,360	)
Convertible debt	(32,799		)	—
Deferred tax liabilities	$	(48,223	)	$	(16,360	)
Net deferred tax assets	$	332,605		$	261,300
Valuation allowance	(332,605		)	(261,300		)
Net deferred tax assets	$	—		$	—

The net deferred tax assets (prior to applying the valuation allowance) of $332.6 million and $261.3 million at December 31, 2018 and 2017, respectively, primarily consist of net operating loss carryforwards for income tax purposes. Due to the Company's history of operating losses, the Company recorded a full valuation allowance on its net deferred tax assets by increasing the valuation allowance by $71.3 million in 2018 and decreasing by $23.3 million in 2017, respectively, as it was more likely than not that such tax benefits will not be realized. As of December 31, 2017, the Company's gross deferred tax assets were also impacted by the Tax Act which required the change to a 21% US tax rate (see below for further discussion on the Tax Act).

At December 31, 2018, the Company had federal net operating loss carryforwards for income tax purposes of approximately $880.6 million. Due to the limitation on NOLs as more fully discussed below, $709.7 million of the NOLs are available to offset future taxable income, if any. The NOL carryovers and general business tax credits expire in various years beginning in 2018. For state tax purposes, the Company has approximately $515.3 million of New Jersey NOLs available to offset against future taxable income. The Company also has California and Virginia NOLs that are entirely limited due to Section 382 (as discussed below).

From 2014 through 2017, the Company completed an Internal Revenue Code Section 382 (Section 382) analysis in order to determine the amount of losses that are currently available for potential offset against future taxable income, if any. It was determined that the utilization of the Company's NOL and general business tax credit carryforwards generated in tax periods up to and including December 2010 were subject to substantial limitations under Section 382 due to ownership changes that occurred at various points from the Company's original organization through December 2010. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of shareholders that own, directly or indirectly, 5% or more of a corporation's stock, in the stock of a corporation by more than 50 percentage points over a testing period (usually 3 years). Since the Company's formation, it has raised capital through the issuance of common stock on several occasions which, combined with the purchasing shareholders' subsequent disposition of those shares, have resulted in multiple changes in ownership, as defined by Section 382, since the Company's formation in 1999. These ownership changes resulted in substantial limitations on the use of the Company's NOLs and general business tax credit carryforwards up to and including December 2010. The Company continues to track all of its NOLs and tax credit carryforwards but has provided a full valuation allowance to offset those amounts.

On December 22, 2017, the US government enacted the Tax Act. The Tax Act significantly revises US tax law by, among other provisions, lowering the US federal statutory income tax rate from 35% to 21%, imposing a mandatory one-time transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions.

The Tax Act

ASC 740, Income Taxes requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the Tax Act’s provisions, the SEC staff issued SAB 118, which allowed companies to record the tax effects of the Tax Act on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available.

The Tax Act did not have a material impact on the Company's financial statements because its deferred temporary differences are fully offset by a valuation allowance and the Company does not have any significant offshore earnings from which to record the mandatory transition tax. The Company completed its analysis during the fourth quarter of 2018 and no additional tax effects of the Act were required to be recorded for the year ended December 31, 2018.

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 $4.1 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):



	Net Deferred Tax Assets
Balance as of January 1,	$	—	$	—
Additions related to prior period tax positions	3,345		—
Additions related to current period tax positions	742		—
Balance as of December 31,	$	4,087	$	—

The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for the federal tax returns for the years ended 2014 and later, and is generally open for certain states for the years 2013 and later. The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss carryforwards would be subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin.

The Company's policy is to recognize interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company has recorded no such expense. As of December 31, 2018 and 2017, the Company has recorded reserves for unrecognized income tax benefits of $4.1 million and $0.0 million, respectively. As any adjustment to the Company’s uncertain tax positions would not result in a cash tax liability, it has not recorded any accrued interest or penalties related to its uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next 12 months.