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

2019,

2018,

and

2017

are as follows:

	2019			2018			2017
Income tax benefit at federal statutory rate (21% for 2019, 2018 and 2017)	$	(22,868	)	$	(21,263	)	$	(23,024	)
State and local income taxes net of federal tax benefit		(1,591	)		(2,547	)		(1,611	)
Permanent items		691			503			910
Rate change		625			(29	)		71,155
Expiration of attribute carryforwards		3,976			2,183			918
Effect of ASU 2016-09		-			-			(5,949	)
Research and development tax credits		(4,938	)		(4,905	)		(1,977	)
Orphan drug credit		-			-			564
Other		281			18			1,639
Change in valuation allowance		23,824			26,040			(42,625	)
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 the Company’s Consolidated Statements of Operations from the reduction in tax rate.

The Company 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

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

2016

had

impact on the Company’s 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:

	2019		2018
Balance at January 1,	$	5,976	$	4,750
Additions to current period tax positions		1,234		1,226
Additions to prior period tax positions		-		-
Reductions to prior period tax provisions		-		-
Balance at December 31,	$	7,210	$	5,976

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:

	2019			2018
Deferred tax assets:
Net federal and state operating losses	$	155,190		$	137,234
Research and development credits		63,275			59,509
Stock-based compensation		9,786			7,108
Leasing obligations		1,070			-
Other		3,801			5,258
Total deferred tax assets		233,122			209,109
Deferred tax liabilities:
Fixed assets		(114	)		(418	)
Right of use asset		(803	)		-
Foreign currency derivative		-			(231	)
Total deferred tax liabilities		(917	)		(649	)

Valuation allowance		(232,205	)		(208,460	)
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 increased by

$23,824

2019,

increased by

$26,040

2018,

and decreased by

$42,625

2017

primarily because of the remeasurement required by TCJA.

As of

December

31,

2019,

the Company had federal operating loss carryforwards of

$653,524,

state operating loss carryforwards of

$509,639,

and research and development and orphan drug credit carryforwards of

$70,485,

which will expire at various dates from

2020

through

2037.

Federal losses, state losses, research and development credit carryforwards begin to expire in

2020.

Tax years

2016

2019

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

2016

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

2019,

2018

and

2017.