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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes |
Income Taxes | 13. Income Taxes For financial reporting purposes, income (loss) before income taxes includes the following components (in thousands):
|  | Years Ended December 31, |
|  | 2017 |  | 2016 |  | 2015 |
United States |  | $ | (440,696 | ) | $ | (174,913 | ) | $ | (123,697 | )
Foreign |  |  | (8,425 | ) |  | (28,868 | ) |  | (8,421 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | $ | (449,121 | ) | $ | (203,781 | ) | $ | (132,118 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Following were the components of income tax expense (benefit) for the years ending December 31, 2017 and December 31, 2016:
|  | 2017 |  | 2016 |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |
State |  | $ | 9 |  | $ | 7 |  | $ | — |
Foreign |  |  | 2,276 |  |  | — |  |  | — |
Deferred |  |  |  |  |  |  |  |  |  |
Federal |  |  | (150,015 | ) |  | (1,101 | ) |  | — |
State |  |  | (17,389 | ) |  | (2,645 | ) |  | — |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | $ | (165,119 | ) | $ | (3,739 | ) | $ | — |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2017, 2016 and 2015 are as follows:
|  | Years Ended December 31, |
|  | 2017 |  | 2016 |  | 2015 |
Statutory rate |  |  | (34 | )% |  | (34 | )% |  | (34 | )%
State taxes, net of federal benefit |  |  | (5 | ) |  | (5 | ) |  | (5 | )
Permanent adjustments |  |  | (1 | ) |  | 3 |  |  | 2 |
Contingent consideration |  |  | (18 | ) |  | — |  |  | — |
R&D credit |  |  | (2 | ) |  | (3 | ) |  | (3 | )
Foreign income tax rate differential |  |  | 5 |  |  | 2 |  |  | 1 |
Impact of 2017 Act |  |  | 27 |  |  | — |  |  | — |
Other |  |  | 5 |  |  | (1 | ) |  | 2 |
Valuation allowance |  |  | (14 | ) |  | 36 |  |  | 37 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net |  |  | (37 | )% |  | (2 | )% |  | (0 | )%
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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 to 21%, imposing a mandatory one-time transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions. 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 allows 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 measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment. 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 recorded an income tax benefit of $2.7 million in the Consolidated Statement of Operations, in connection with the reduction in the statutory corporate income tax rate. The Company operates in a consolidated loss position in its foreign operations, and does not have a one-time tax on accumulated earnings of foreign subsidiaries. However, given the significant complexity of the Tax Act, anticipated guidance from the US Treasury about implementing the Tax Act, and the potential for additional guidance from the SEC or the FASB related to the Tax Act, these estimates may be adjusted during the measurement period. The Company continues to analyze the changes in certain income tax deductions, assess calculations of earnings and profits in certain foreign subsidiaries, including if those earnings are held in cash or other assets, and gather additional data to compute the full impacts on the Company's deferred and current tax assets and liabilities. For the year ended December 31, 2017, the Company recorded an income tax benefit of $164.7 million due to the reduction of the deferred tax liability related to Scioderm IPR&D as a result of the announcement of the Phase 3 ESSENCE study. The Company recorded income tax expense of $2.3 million in 2017 for taxes in foreign and state jurisdictions. The Company did not recognize interest or penalties related to income tax during the period ended December 31, 2017 and did not accrue for interest or penalties as of December 31, 2017. The Company does not have an accrual for uncertain tax positions as of December 31, 2017. Tax returns for all years 2010 and thereafter are subject to future examination by tax authorities. Deferred income taxes reflect the net effect of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the deferred tax assets and liabilities are as follows (in thousands):
|  | For Years Ended December 31, |
|  | 2017 |  | 2016 |
Deferred tax assets |  |  |  |  |  |  |
Intellectual property |  | $ | 44,573 |  | $ | 95,956 |
Amortization/depreciation |  |  | 3,082 |  |  | 1,781 |
Research tax credit |  |  | 43,382 |  |  | 32,851 |
Net operating loss carry forwards |  |  | 221,912 |  |  | 223,758 |
Deferred revenue |  |  | 6,158 |  |  | 14,281 |
Non-cash stock issue |  |  | 10,751 |  |  | 11,649 |
Others |  |  | 7,328 |  |  | 3,358 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross deferred tax assets |  |  | 337,186 |  |  | 383,634 |
Deferred tax liabilities |  |  |  |  |  |  |
Business acquisition |  |  | (6,465 | ) |  | (173,771 | )
Royalty payable |  |  | (44,573 | ) |  | (96,829 | )
Convertible notes |  |  | (18,991 | ) |  | (29,845 | )
Advanced R&D payments |  |  | (3,069 | ) |  | — |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total net deferred tax asset |  |  | 264,088 |  |  | 83,189 |
Less valuation allowance |  |  | (270,553 | ) |  | (256,960 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net deferred tax liability |  | $ | (6,465 | ) | $ | (173,771 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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The Company records a valuation allowance for temporary differences for which it is more likely than not that the Company will not receive future tax benefits. At December 31, 2017 and 2016, the Company recorded valuation allowances of $270.6 million and $257.0 million, respectively, representing an increase in the valuation allowance of $13.6 million in 2017 due to the uncertainty regarding the realization of such deferred tax assets, to offset the benefits of net operating losses generated during those years. The deferred tax liability related to business acquisitions pertains to the basis difference in IPR&D acquired by the Company. The Company's policy is to record a deferred tax liability related to acquired IPR&D that 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. As of December 31, 2017, the Company had federal, state, and foreign net operating loss carry forwards ("NOLs") of approximately $777.6 million, $781.8 million, and $47.1 million, respectively. The federal carry forward will expire in 2030 through 2037. Most of the state carry forwards generated prior to 2009 have expired through 2016. The remaining state carry forwards including those generated in 2010 through 2017 will expire in 2030 through 2037. The foreign NOLs have indefinite expiration. Utilization of NOLs may be subject to a substantial limitation pursuant to Section 382 of the Code as well as similar state statutes in the event of an ownership change. Such ownership changes have occurred in the past, and could occur again in the future As a result of these ownership changes, Section 382 places an annual limitation on the amount of NOLs that can be utilized to offset future taxable income each year, which is based on the value of the company at the change date. This limitation could result in expiration of those carry forwards before utilization. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three year period. The Company completed a detailed study of its cumulative ownership changes for 2017 and determined that in 2017, there was no ownership change in excess of 50%; therefore there was no write-down to net realizable value of the federal NOLs and research and development credits subject to the 382 limitations. We also have research and experimentation and orphan drug credit carryforwards of approximately $35.2 million and $8.2 million, respectively, which will expire in the years 2023 through 2037. Deferred tax assets for these carryforwards are subject to a full valuation allowance.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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