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Income taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income taxes

14. Income taxes

The loss from operations before tax benefit (expense) consisted of the following for the years ended December 31, 2022, 2021, and 2020:

​

​

​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

    

2020

Domestic

​

$

(591,126)

​

$

(487,726)

​

$

(452,475)

Foreign

​

 

3,639

​

 

(30,614)

​

 

49,543

Total

​

$

(587,487)

​

$

(518,340)

​

$

(402,932)

​

The Income Tax Provision consisted of the following for the years ended December 31, 2022, 2021 and 2020:

​

​

​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

    

2020

Current:

 

​

  

 

​

  

 

​

  

U.S. Federal

​

$

—

​

$

—

​

$

—

U.S. State and Local

​

 

(4,224)

​

 

(3,844)

​

 

(24,984)

Foreign

​

 

(1,582)

​

 

(1,340)

​

 

(4,372)

Deferred:

​

 

​

​

 

  

​

 

  

U.S. Federal

​

 

23,689

​

 

—

​

 

—

U.S. State and Local

​

 

10,587

​

 

(377)

​

 

(5,872)

Foreign

​

 

—

​

 

—

​

 

—

Total tax benefit (expense)

​

$

28,470

​

$

(5,561)

​

$

(35,228)

​

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:

​

​

​

​

​

​

​

​

​

​

    

December 31, 

 

​

    

2022

    

2021

    

2020

 

Federal income tax provision at statutory rate

​

21.00

%  

21.00

%  

21.00

%  

State income tax provision, net of federal benefit

​

3.07

 

(0.74)

 

(3.31)

 

Permanent differences

​

(1.83)

 

(4.06)

 

(6.66)

 

Research and development

​

5.89

 

4.50

 

4.93

 

Change in valuation allowances

​

(23.36)

 

(29.03)

 

(26.40)

 

Change in deferred tax assets

​

(0.10)

 

12.05

 

2.93

 

Foreign tax rate differential

​

(0.17)

 

0.01

 

0.72

 

Tax rate change

​

0.34

 

0.01

 

(1.46)

 

(Accrual) Release of uncertain tax positions

​

—

​

(4.78)

​

(0.61)

​

Other

​

—

 

(0.03)

 

0.12

 

Effective income tax rate

​

4.84

%  

(1.07)

%  

(8.74)

%

​

Accounting for income taxes under U.S. GAAP requires that individual tax-paying entities of the company offset all deferred tax liabilities and assets within each particular tax jurisdiction and present them as a noncurrent deferred tax liability or asset. Amounts in different tax jurisdictions cannot be offset against each other. The noncurrent deferred income tax asset is recorded within deposits and other assets on the balance sheet. The amount of deferred income taxes are as follows:

​

​

​

​

​

​

​

​

​

    

December 31, 

​

​

2022

    

2021

Assets:

 

​

  

 

​

  

Noncurrent deferred income taxes

​

$

—

​

$

—

Liabilities:

​

 

  

​

 

  

Noncurrent deferred income taxes

​

 

(102,834)

​

 

(137,110)

Deferred income taxes - net

​

$

(102,834)

​

$

(137,110)

​

The significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Deferred tax assets:

 

​

  

 

​

  

Accrued expense

​

$

2,124

​

$

8,208

Amortization

​

 

52,532

​

 

87,998

Federal tax credits

​

 

174,802

​

 

142,595

State tax credits

​

 

9,787

​

 

8,054

Federal net operating losses

​

 

69,957

​

 

76,589

State net operating losses

​

 

10,316

​

 

9,159

Foreign net operating losses

​

 

4,837

​

 

3,316

Capitalized research and development costs

​

 

110,219

​

 

241

Share based compensation and other

​

 

27,054

​

 

15,273

Liability for sale of future royalties

​

​

185,589

​

​

148,503

Noncash interest expense

​

​

30,160

​

​

26,040

Other comprehensive loss

​

 

(719)

​

 

143

Total gross deferred tax assets

​

 

676,658

​

 

526,119

Less valuation allowance

​

 

(672,172)

​

 

(525,570)

Total deferred tax assets, net of valuation allowance

​

$

4,486

​

$

549

Deferred tax liabilities:

​

 

  

​

 

  

Depreciation

​

$

(4,486)

​

$

(549)

Indefinite lived intangible

​

 

(102,834)

​

 

(137,110)

Total gross deferred tax liabilities

​

 

(107,320)

​

 

(137,659)

Net deferred tax assets (liabilities)

​

$

(102,834)

​

$

(137,110)

​

For the year ended December 31, 2022, the Company generated taxable income in the U.S. of $61.6 million.  The Company has not recorded any federal income tax provision after considering the federal NOL, section 250 deduction, available general business credits, and foreign tax credits. The Company recorded a state income tax provision of $4.2 million which is primarily attributable to state income taxes paid in the current year.

At December 31, 2022 and 2021, the Company recorded a valuation allowance against its net deferred tax assets of $672.2 million and $525.6 million, respectively. The change in the valuation allowance during the years ended December 31, 2022 and 2021 was $146.6 million and $146.0 million, respectively. A valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards become deductible or are utilized. As of December 31, 2022, the Company had $333.1 million and $164.9 million of federal and state net operating loss carryforwards, respectively.

The Company recorded a deferred tax liability in conjunction with the Agilis Merger of $122.0 million in 2018, related to the tax basis difference in the IPRD indefinite-lived intangibles acquired. The Company’s policy is to record a deferred tax liability related to acquired IPR&D which may eventually be realized either upon amortization of the asset when the research is completed, and a product is successfully launched or the write-off of the asset if it is abandoned or unsuccessful. In July 2022, the Company received EMEA approval for a portion of the IPR&D assets, and thus, began the amortization of the intangible.

As of December 31, 2022, research and development credit carryforward for federal purposes is $29.0 million. In addition, the Orphan Drug Credit Carryover available as of December 31, 2022 is $145.8 million. The Company’s federal credit carryforwards could begin to expire in 2023 if not otherwise utilized as projected.

As a result of U.S. tax reform legislation, federal net operating losses generated in 2018 carryforward indefinitely. State net operating loss carryforwards begin to expire in 2037. Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change and has determined that a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, did occur in June of 2013. Accordingly, about $231.5 million of the Company’s NOL carryforwards are limited and the Company can only use $16.7 million for the first five years from the ownership change and $5.7 million per year going forward. Therefore, $169.2 million of the NOL’s will be freed up over the next 10 years and $62.3 million are expected to expire unused which are not included in the deferred tax assets listed above. At December 31, 2020, the Company utilized $364.1 million of NOLs of which $97.7 million was the section 382 NOL. The Company did not utilize any NOLs in the year ended December 31, 2021. At December 31, 2022, the Company utilized $49.3 million of NOLs of which $11.4 million is section 382 NOL. At December 31, 2022, there is $333.1 million available for immediate use and an additional $5.7 million will free up in 2023.

The income tax benefit (expense) for the years ended December 31, 2022 and 2021 differed from the amounts computed by applying the U.S. federal income tax rate of 21% to loss before tax expense as a result of the IPR&D assets becoming partially amortizable in 2022, foreign taxes, the impact of temporary difference, including the updated section 174,  the impact of permanent differences, including “global intangible low-taxed income” (“GILTI”), tax credits generated, true up of net operating loss carryforwards, and increase in the Company’s valuation allowance.

Under the 2017 Tax Cuts and Jobs Act, the ability to currently deduct qualifying research and experimental costs under section 174, as well as software development costs, are eliminated for tax years beginning after December 31, 2021. Under the new rule, these costs must be capitalized and amortized over a five-year or fifteen-year period, depending on whether the research is conducted in the U.S. or abroad, respectively. The rule became effective for the Company during the year, and resulted in an increased current taxable income of the Company by $450.1 million for the tax year ended December 31, 2022.

The Company applies the elements of FASB ASC 740-10 regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of December 31, 2022, the Company recorded unrecognized tax benefits in the amount of $27.2 million including interest and penalties through 2022. The Company’s policy is to recognize interest and penalties related to tax matters within the income tax provision. Tax years beginning in 2014 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. The Company is currently under a wage tax audit in Germany for tax years 2018 through 2021. Although the outcome of tax audits is always uncertain, the company does not expect any adjustment to result for these years as of December 31, 2022.

For all years through December 31, 2016, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and

development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

As a result of U.S. tax reform legislation, distributions of profits from non-U.S. subsidiaries are not expected to cause a significant incremental U.S. tax impact in the future. However, distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. As of December 31, 2022, for purposes of ASC 740-10-25-3, the Company had $65.1 million of undistributed earnings from non-U.S. subsidiaries that it intends to reinvest permanently in its non-U.S. operations. As these ASC 740-10-25-3 earnings are considered permanently reinvested, no tax provision has been accrued. It is not feasible to estimate the amount of tax that might be payable on the eventual remittance of such earnings.

Unrecognized Tax Benefits

A reconciliation of the gross amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

​

​

​

​

Unrecognized Tax Benefits

Balance at December 31, 2021

​

27,217

Additions based on tax positions related to the current year

 

—

Balance at December 31, 2022

$

27,217

​

Uncertain tax positions, for which management's assessment is that there is a more than 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subject to certain recognition and measurement criteria. The nature of the uncertain tax positions is often very complex and subject to change, and the amounts at issue can be substantial. The Company develops its cumulative probability assessment of the measurement of uncertain tax positions using internal experience, judgment, and assistance from professional advisors. The Company re-evaluates these uncertain tax positions on a quarterly basis based on a number of factors including, but not limited to, changes in facts or circumstances, changes in tax law, and effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

For the year ended December 31, 2022, the Company did not record any unrecognized tax benefits. While it is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months, the Company is unable to estimate the amount of any such change.

The Company records penalties and tax-related interest expense on unrecognized tax benefits as a component of the provision for income taxes in the accompanying consolidated statement of operations. The Company has not recorded any interest and penalties related to uncertain tax positions for the year ended December 31, 2022, in the accompanying consolidated balance sheet.  Future changes in the Company’s unrecognized tax benefits will affect the Company’s annual effective tax rate.