Note

— Income Taxes

The Company has incurred net losses since inception and, consequently, has

not

recorded any U.S. Federal and state income tax expense or benefit. The differences between the Company’s effective tax rate and the statutory tax rate in

2017,

2016,

and

2015

are as follows:

	2017			2016			2015
Income tax benefit at federal statutory rate	$	(23,024	)	$	(19,300	)	$	(15,057	)
State and local income taxes net of federal tax benefit		(1,611	)		(1,173	)		(819	)
Permanent items		910			1,057			560
Rate change		71,155			1,080			1,012
Expiration of attribute carryforwards		918			559			330
Effect of ASU 2016-09		(5,949	)		—			—
Research and development tax credits		(1,977	)		(4,681	)		(10,454	)
Orphan drug credit		564			1,798			4,307
Other		1,639			822			(218	)
Change in valuation allowance		(42,625	)		19,838			20,339
Income tax expense	$	—		$	—		$	—

December 2017,

the Tax Cuts and Jobs Act (“TCJA”) was signed into law. Among other things, the TCJA permanently lowers the corporate federal income tax rate to

21%

from the existing maximum rate of

35%,

effective for tax years including or commencing

January 1, 2018.

As a result of the reduction of the corporate federal income tax rate to

21%,

U.S. GAAP requires companies to revalue their deferred tax assets and deferred tax liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. This revaluation resulted in a provision of

$73,474

to income tax expense in continuing operations and a corresponding reduction in the valuation allowance. As a result, there was

impact on our consolidated statements of operations from the reduction in tax rate. The other provisions of the TCJA did

not

have a material impact on the consolidated financial statements.

We adopted ASU

2016

during the quarter ended

March 31, 2017.

As a result of the adoption, the net federal and state operating losses deferred tax assets increased by

$5,949

million and were offset by a corresponding increase in the valuation allowance. The adoption of ASU

2016

had

impact on our consolidated balance sheets or consolidated statements of operations.

The Company recognizes the impact of a tax position in its financial statements if it is more likely than

not

that the position will be sustained on audit based on the technical merits of the position. The Company has concluded that it has an uncertain tax position pertaining to its research and development and orphan drug credit carryforwards. The Company has established these credits based on information and calculations it believes are appropriate and the best estimate of the underlying credit. Any changes to the Company’s unrecognized tax benefits are offset by an adjustment to the valuation allowance and there would be

impact on the Company’s financial statements. The Company does

not

expect its unrecognized tax benefits to change significantly over the next

months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2017		2016
Balance at January 1,	$	4,255	$	3,085
Additions to current period tax positions		495		1,170
Additions to prior period tax positions		—		—
Reductions to prior period tax provisions		—		—
Balance at December 31,	$	4,750	$	4,255

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future

may

be subject to substantial restrictions in the event of past or future ownership changes as defined in Section

382

of the Internal Revenue Code of

1986,

as amended and similar state tax law.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	2017			2016
Deferred tax assets:
Net federal and state operating losses	$	117,787		$	158,618
Research and development credits		55,208			53,231
Deferred revenue		1,854			3,484
Stock-based compensation		6,424			8,952
Other		2,046			2,849
Total deferred tax assets		183,319			227,134
Deferred tax liabilities:
Fixed assets		(421	)		(674	)
Foreign currency derivative		(478	)		(1,415	)
Total deferred tax liabilities		(899	)		(2,089	)

Valuation allowance		(182,420	)		(225,045	)
Net deferred tax assets	$	—		$	—

The majority of the Company’s deferred tax assets relate to net operating loss and research and development carryforwards that can only be realized if the Company is profitable in future periods. It is uncertain whether the Company will realize any tax benefit related to these carryforwards. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets due to uncertainties as to their ultimate realization. The valuation allowance will remain at the full amount of the deferred tax assets until it is more likely than

not

that the related tax benefits will be realized. The Company’s valuation allowance decreased by

$42,625

2017

primarily because of the remeasurement required by TCJA and increased by

$19,837

2016

and

$20,339

2015.

As of

December

31,

2017,

the Company had federal operating loss carryforwards of

$484,705,

state net operating loss carryforwards of

$431,470,

and research and development and orphan drug credit carryforwards of

$59,958,

which will expire at various dates from

2018

through

2036.

The federal losses begin to expire in

2018,

the state losses begin to expire in

2018

and the research and development credit carryforwards begin to expire in

2018.

Tax years

2014

2016

remain open to examination by the major taxing jurisdictions to which the Company is subject. Additionally, years prior to

2014

are also open to examination to the extent of loss and credit carryforwards from those years. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as components of its income tax provision. However, there were

provisions or accruals for interest and penalties in

2017,

2016

and

2015.