Income Taxes

12 Months Ended

Dec. 31, 2019

For financial reporting purposes, income (loss) before income taxes includes the following components:



	Years Ended December 31,
(in thousands)	2019			2018			2017
United States	$	(393,955	)	$	(309,183	)	$	(440,696	)
Foreign	38,045			(39,906		)	(8,425		)
Total	$	(355,910	)	$	(349,089	)	$	(449,121	)

Following were the components of income tax expense (benefit) for the years ended December 31, 2019, 2018, and 2017:



(in thousands)	2019			2018			2017
Current
Federal	$	—		$	—		$	—
State	—			6			9
Foreign	2,877			(100		)	2,276
Deferred
Federal	(984		)	—			(150,015		)
State	(1,415		)	—			(17,389		)
Foreign	—			—			—
Total	$	478		$	(94	)	$	(165,119	)

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2019, 2018 and 2017 are as follows:



	Years Ended December 31,
	2019		2018		2017
Statutory rate	(21	)%	(21	)%	(34	)%
State taxes, net of federal benefit	—		(4	)	(5	)
Nondeductible IPR&D	—		6		(1	)
Contingent consideration	—		1		(18	)
Tax credits	(16	)	(10	)	(2	)
Foreign income tax rate differential	9		2		5
Impact of 2017 Act	—		—		27
Nondeductible debt conversion	(1	)	—		—
Other	—		—		5
Valuation allowance	29		26		(14	)
Net	—	%	—	%	(37	)%

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act significantly revises U.S. tax law by, among other provisions, lowering the U.S. 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. The Company did not have any significant offshore earnings from which to record the mandatory transition tax. During 2018 the Company operated in a consolidated loss position in its foreign operations and did not have a one-time tax on accumulated earnings of foreign subsidiaries.

As of December 31, 2017, the Company provisionally recorded certain impacts of the Tax Act including the adjustment to our net deferred tax liability arising from the reduction in the federal tax rate as well as the impact of mandatory deemed repatriation. Adjustments to these provisional amounts that we recorded in 2018 did not have a significant impact on the Company's Consolidated Financial Statements. The Company's accounting for the effects of the enactment of the Tax Act are now complete.

The Company recorded an income tax expense of $2.9 million in 2019 for taxes in foreign jurisdictions and a $2.4 million tax benefit in 2019 for taxes in U.S. federal and state jurisdictions.

The Company did not recognize interest or penalties related to income tax during the period ended December 31, 2019 and did not accrue for interest or penalties as of December 31, 2019. The Company does not have an accrual for uncertain tax positions as of December 31, 2019. Tax returns for years 2015 through 2018 are open to examination by tax authorities. The Company is also subject to examination in any period for which it has net operating losses.

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:



	For Years Ended December 31,
(in thousands)	2019			2018
Deferred tax assets
Intellectual property	$	46,521		$	48,339
Amortization/depreciation	2,329			3,732
Research tax credit	141,669			96,509
Net operating loss carry forwards	286,850			248,398
Deferred reimbursement	2,230			4,401
Non-cash stock issue	19,058			16,850
Interest carry forward limitation	2,224			1,032
Other	15,986			10,852
Gross deferred tax assets	516,867			430,113
Deferred tax liabilities
Business acquisition	(5,051		)	(6,465		)
Royalty payable	(46,521		)	(48,339		)
Convertible notes	(653		)	(16,666		)
Advanced R&D payments	(2,611		)	(2,103		)
Other	(725		)	—
Total net deferred tax assets	461,306			356,540
Less: valuation allowance	(466,357		)	(363,005		)
Net deferred tax liability	$	(5,051	)	$	(6,465	)

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, 2019 and 2018, the Company recorded valuation allowances of $466.4 million and $363.0 million, respectively, representing an increase in the valuation allowance of $103.4 million in 2019, 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, 2019, the Company had federal, state, and foreign net operating loss carry forwards ("NOLs") of approximately $1,036 million, $897.8 million, and $30.6 million, respectively. The federal carry forward for losses generated prior to 2018 will expire in 2029 through 2037. Federal net operating losses incurred in 2018 and onward have an indefinite expiration under the 2017 Tax Act. Most of the state carry forwards generated prior to 2009 have expired through 2016. The remaining state carry forwards including those generated in 2009 through 2019 will expire in 2029 through 2039. The foreign NOLs are subject to differing expirations beginning in 2026. Utilization of NOLs may be subject to a substantial limitation pursuant to Section 382 of the Internal Revenue Code of 1986, as amended ( 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. Under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, if a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation's ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership some of which are outside our control. We completed a detailed study of our NOLs and determined that there was not an ownership change in excess of 50%. Ownership changes in future periods may place additional limits on our ability to utilize net operating loss and tax credit carry forwards. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

The Company also has research and experimentation and orphan drug credit carryforwards of approximately $27.6 million and $114.0 million, respectively, which will expire in the years 2021 through 2039. Deferred tax assets for these carryforwards are subject to a full valuation allowance.