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

8. Income Taxes

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

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Domestic

 

$

(233,216

)

 

$

(138,913

)

 

$

(238,885

)

Foreign

 

 

19,772

 

 

 

(28,606

)

 

 

(42,088

)

 

 

$

(213,444

)

 

$

(167,519

)

 

$

(280,973

)

At December 31, 2022, the Company had federal, state, and foreign net operating loss (NOL) carryforwards of approximately $480.2 million, $486.4 million, and $1,130.3 million, respectively. The Company recognized state income tax provisions of $2.5 million, $0.4 million and $0.4 million for the years ended December 31, 2022, 2021 and 2020, 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 state tax liabilities in excess of net operating losses in the current year 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, 2021 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 $19.2 million and $143.4 million will expire in 2031 and 2024 respectively unless utilized. The remaining federal and state NOL carryforwards will begin to expire in 2032 and 2025, respectively. At December 31, 2022, the Company had federal and state charitable contribution carryforwards of $179.8 million which will begin to expire in 2023 unless utilized. At December 31, 2022, the Company had $74.2 million of federal R&D credit carryforwards, of which $0.3 million will expire in 2023 unless utilized, and the remaining federal R&D credit carryforwards will begin to expire in 2024. At December 31, 2022, the Company had state R&D credit carryforwards of approximately $3.2 million that will begin to expire in 2025 and $19.1 million that have no expiration date. At December 31, 2022, the Company had foreign NOL carryforwards of approximately $266.5 million that will expire in 2023 unless utilized and $4.4 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,

 

 

 

2022

 

 

2021

 

Deferred tax assets

 

 

 

 

 

 

NOL carryforwards

 

$

225,993

 

 

$

229,476

 

R&D credit carryforwards

 

 

83,074

 

 

 

74,702

 

Stock-based compensation

 

 

51,661

 

 

 

51,170

 

Charitable contributions

 

 

42,677

 

 

 

41,355

 

Capitalized R&D

 

 

38,507

 

 

 

—

 

Intangibles

 

 

24,030

 

 

 

6,741

 

Lease liabilities

 

 

14,730

 

 

 

15,550

 

Other

 

 

13,770

 

 

 

11,700

 

Total deferred tax assets

 

 

494,442

 

 

 

430,694

 

Valuation allowance

 

 

(481,210

)

 

 

(416,630

)

Deferred tax liabilities

 

 

 

 

 

 

Right-of-use assets

 

 

(13,203

)

 

 

(14,063

)

Property and equipment

 

 

(29

)

 

 

(1

)

Total deferred tax liabilities

 

 

(13,232

)

 

 

(14,064

)

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 $64.6 million in 2022 primarily due to an increase in deferred tax assets generated from capitalization of research and development expenses, R&D credits and stock-based compensation and limitation on future executive stock compensation, offset in part by the expiration of Switzerland NOLs, and the remeasurement of deferred tax balance for changes in state tax rates.

An accounting policy may be selected to either (i) treat taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income (“GILTI”) as a current-period expense when incurred or (ii) factor such amounts into a company’s measurement of its deferred taxes. We have elected to account for GILTI as a period cost.

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 NOL carryforwards, at the amount and rate in which it is anticipated they will reverse. 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,

 

 

 

2022

 

 

2021

 

 

2020

 

Amounts computed at statutory federal rate

 

$

(44,823

)

 

$

(35,179

)

 

$

(59,004

)

Stock-based compensation and other permanent differences

 

 

9,050

 

 

 

6,696

 

 

 

991

 

Write-off of IP R&D

 

 

2,449

 

 

 

1,277

 

 

 

9,565

 

R&D credits

 

 

(9,974

)

 

 

(11,727

)

 

 

(17,909

)

Change in valuation allowance

 

 

11,227

 

 

 

36,099

 

 

 

5,925

 

State taxes

 

 

(2,232

)

 

 

(2,617

)

 

 

(5,038

)

Contingencies

 

 

6,993

 

 

 

3,879

 

 

 

2,665

 

Foreign rate differential

 

 

(1,971

)

 

 

2,857

 

 

 

4,208

 

Limitation on executive compensation

 

 

3,918

 

 

 

1,808

 

 

 

3,705

 

Deferred rate adjustment

 

 

922

 

 

 

(2,424

)

 

 

2,130

 

Switzerland tax reform

 

 

—

 

 

 

(923

)

 

 

53,045

 

Expiration of attributes

 

 

16,142

 

 

 

—

 

 

 

—

 

GILTI

 

 

10,804

 

 

 

—

 

 

 

—

 

Other

 

 

26

 

 

 

605

 

 

 

328

 

Income tax expense

 

$

2,531

 

 

$

351

 

 

$

611

 

The tax years 2003-2021 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 $5.1 million, $4.1 million and $2.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. Due to the valuation allowance recorded against the Company’s deferred tax assets, approximately $1.2 million of the total unrecognized tax benefits as of December 31, 2022 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, 2022 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 material interest and/or penalties accrued on the Company’s consolidated balance sheets at December 31, 2022 or 2021, respectively. Further, the Company recognized an immaterial amount of interest and/or penalties in the statement of operations for the years ended December 31, 2022, 2021 and 2020, respectively, related to uncertain tax positions.

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

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Balance at beginning of period

 

$

13,923

 

 

$

9,843

 

 

$

6,945

 

Additions related to current period tax positions

 

 

5,140

 

 

 

3,973

 

 

 

2,722

 

Additions related to prior period tax positions

 

 

38

 

 

 

140

 

 

 

212

 

Reductions related to prior period tax positions

 

 

(37

)

 

 

(33

)

 

 

(36

)

Balance at end of period

 

$

19,064

 

 

$

13,923

 

 

$

9,843