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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

8. Income Taxes

Domestic and foreign pre-tax loss is as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Domestic

 

$

(138,913

)

 

$

(238,885

)

 

$

(123,411

)

Foreign

 

 

(28,606

)

 

 

(42,088

)

 

 

(110,972

)

 

 

$

(167,519

)

 

$

(280,973

)

 

$

(234,383

)

At December 31, 2021, the Company had federal, state, and foreign net operating loss (NOL) carryforwards of approximately $551.2 million, $426.2 million, and $1,354.3 million, respectively. The Company recognized state income tax provisions of $0.4 million, $0.4 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company recognized foreign income tax in the amount of $0.2 million for the year ended December 31, 2020. These tax liabilities were associated with minimum taxes and a patent box entry tax for Switzerland. Utilization of the domestic NOL and research and development (R&D) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

The Company previously completed a study to assess whether an ownership change, as defined by Section 382 of the Code, had occurred from the Company’s formation through December 31, 2013. Based upon this study, the Company determined that several ownership changes had occurred. Accordingly, the Company reduced its deferred tax assets related to the federal NOL carryforwards and the federal R&D credit carryforwards that are anticipated to expire unused as a result of these ownership changes. These tax attributes were excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. The Company completed a study through December 31, 2020 and concluded no additional ownership changes occurred. Future ownership changes may further limit the Company’s ability to utilize its remaining tax attributes.

Federal and state NOL carryforwards of $6.9 million and less than $0.1 million will expire in 2025 unless utilized. The remaining federal and state NOL carryforwards will begin to expire in 2026. At December 31, 2021, the Company had federal and state charitable contribution carryforwards of $171.3 million and $21.8 million will expire in 2022 unless utilized. At December 31, 2021, the Company had $65.8 million of federal R&D credit carryforwards, of which $0.3 million will expire in 2022 unless utilized, and the remaining federal R&D credit carryforwards will begin to expire in 2023. At December 31, 2021, the Company had state R&D credit carryforwards of approximately $2.8 million that will begin to expire in 2024 and $18.5 million that have no expiration date. At December 31, 2021, the Company had foreign NOL carryforwards of approximately $218.5 million that will expire in 2022 unless utilized and $3.4 million that have no expiration date. The Company continues to record the deferred tax assets related to these attributes, subject to valuation allowance, until expiration occurs.

The components of the deferred tax assets are as follows (in thousands):

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred tax assets

 

 

 

 

 

 

NOL carryforwards

 

$

229,476

 

 

$

218,905

 

R&D credit carryforwards

 

 

74,702

 

 

 

63,886

 

Stock-based compensation

 

 

51,170

 

 

 

47,547

 

Charitable contributions

 

 

41,355

 

 

 

28,470

 

Lease liabilities

 

 

15,550

 

 

 

11,675

 

Intangibles

 

 

6,741

 

 

 

7,109

 

Capitalized R&D

 

 

—

 

 

 

6,073

 

Other

 

 

11,700

 

 

 

9,390

 

Total deferred tax assets

 

 

430,694

 

 

 

393,055

 

Valuation allowance

 

 

(416,630

)

 

 

(380,533

)

Deferred tax liabilities

 

 

 

 

 

 

Right-of-use assets

 

 

(14,063

)

 

 

(11,142

)

Property and equipment

 

 

(1

)

 

 

(1,380

)

Total deferred tax liabilities

 

 

(14,064

)

 

 

(12,522

)

Total net deferred tax assets

 

$

—

 

 

$

—

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $36.1 million in 2021 primarily due to an increase in deferred tax assets generated from net operating losses, R&D credits and stock-based compensation expense, offset in part by the remeasurement of deferred tax balance for changes in state tax rates, and limitations on executive stock compensation.

During 2019, Switzerland implemented tax reform that is effective for tax years 2020 and forward. As a result, the Company has remeasured the deferred tax assets, primarily comprised of net operating loss carryforwards, at the amount and rate in which it is anticipated they will reverse. The tax reform also allowed the Company to take as a deduction for Cantonal purposes only, a portion of the increase in value of the intellectual property transferred to Switzerland. This deduction was available as a result of establishing Lucerne as the Cantonal location for the Company. As a result, during 2019 a deferred tax asset of $57.0 million was established which was the estimated amount that would be allowed as a future deduction. During December 2020, the Company moved to Basel-City from Lucerne. As a result, the intellectual property deduction is no longer available and has been reversed. The deferred tax assets and net operating losses were remeasured at the amount and rate in which they are anticipated to reverse as a result of the change in jurisdiction. The adjustments made to the deferred tax assets are offset by a valuation allowance.

A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the pretax loss is summarized as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Amounts computed at statutory federal rate

 

$

(35,179

)

 

$

(59,004

)

 

$

(49,365

)

Stock-based compensation and other permanent differences

 

 

6,696

 

 

 

991

 

 

 

5,691

 

Write-off of IP R&D

 

 

1,277

 

 

 

9,565

 

 

 

—

 

R&D credits

 

 

(11,727

)

 

 

(17,909

)

 

 

(16,687

)

Change in valuation allowance

 

 

36,099

 

 

 

5,925

 

 

 

99,846

 

State taxes

 

 

(2,617

)

 

 

(5,038

)

 

 

(2,138

)

Contingencies

 

 

3,879

 

 

 

2,665

 

 

 

1,861

 

Foreign rate differential

 

 

2,857

 

 

 

4,208

 

 

 

20,413

 

Limitation on executive compensation

 

 

1,808

 

 

 

3,705

 

 

 

1,178

 

Deferred rate adjustment

 

 

(2,424

)

 

 

2,130

 

 

 

—

 

Switzerland tax reform

 

 

(923

)

 

 

53,045

 

 

 

(59,181

)

Other

 

 

605

 

 

 

328

 

 

 

(742

)

Income tax expense

 

$

351

 

 

$

611

 

 

$

876

 

The tax years 2002-2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. The Company recorded an uncertain tax position reserve of $4.1 million, $2.9 million and $1.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. Due to the valuation allowance recorded against the Company’s deferred tax assets, an immaterial amount of the total unrecognized tax benefits as of December 31, 2021 would reduce the annual effective tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2021 will significantly change within the next twelve months. The Company’s practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense. The Company had no interest and/or penalties accrued on the Company’s consolidated balance sheets at December 31, 2021 or 2020, respectively. Further, the Company did not recognize any interest and/or penalties in the statement of operations for the years ended December 31, 2021, 2020 and 2019, respectively, related to uncertain tax positions.

The following table provides a reconciliation of changes in unrecognized tax benefits (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

9,843

 

 

$

6,945

 

 

$

5,037

 

Additions related to current period tax positions

 

 

3,973

 

 

 

2,722

 

 

 

1,908

 

Additions related to prior period tax positions

 

 

140

 

 

 

212

 

 

 

—

 

Reductions related to prior period tax positions

 

 

(33

)

 

 

(36

)

 

 

—

 

Balance at end of period

 

$

13,923

 

 

$

9,843

 

 

$

6,945