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Income Taxes

12 Months Ended

Dec. 31, 2020

14. Income Taxes

The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2020, 2019 and 2018.

A reconciliation of the income tax expense computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:


	Year Ended
	December 31,
	2020		2019		2018
Income tax computed at federal statutory tax rate	21	%	21	%	21	%
State taxes, net of federal benefit	5.20	%	5.20	%	6.4	%
General business credit carryovers	4.80	%	2.80	%	4.4	%
Stock Options	(1.8)	%	(2.2)	%	0.7	%
Non-deductible expenses	(0.1)	%	(0.1)	%	(0.1)	%
Change in valuation allowance	(29.10)	%	(26.70)	%	(32.4)	%
	—	%	—	%	—	%

The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2020 and 2019 (in thousands):


	Year Ended
	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	70,751	$	50,511
Tax credit carryforwards		19,353		13,767
Accrued expenses		11,372		2,219
Capitalized patent costs		46,197		39,070
Lease Liabilities		7,083		7,879
Deferred revenue		25,724		31,880
Construction financing lease obligation		—		—
Other		5,204		7,865
Total deferred tax assets		185,684		153,191
Less valuation allowance		(178,307)		(144,540)
Net deferred tax assets		7,377		8,651
Deferred tax liabilities		(7,377)		(8,651)
Depreciation and amortization		(567)		(859)
Right-of-use assets		(6,810)		(7,792)
Net deferred taxes	$	—	$	—

The Company has incurred net operating losses (“NOL”) since inception. At December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of $261.9 million and $185.4 million, respectively. Of the amount as of December 31, 2020, $186.4 million will carryforward indefinitely while $75.5 million will expire beginning in 2033 and will continue to expire through 2037. As of December 31, 2020, and 2019, the Company also had state net operating loss carryforwards of approximately $258.4 million and $183.3 million, respectively, which may be available to offset future income tax liabilities and will expire beginning in 2035 and will continue to expire through 2039. Loss generated in 2020 expires in 2040.

Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the NOL and tax credit carryforward are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as other similar state provisions. The Company conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2019 would limit or otherwise restrict its ability to utilize its NOL and research and development credit carryforwards. As a result of this analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards. However, future changes in ownership occurring after December 31, 2019 could affect the limitation in future years, and any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which principally comprise of NOL carryforwards, research and development credit carryforwards and capitalized license and patent costs. The Company’s management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and as a result, a valuation allowance of $178.3 million and $144.5 million has been established at December 31, 2020 and 2019, respectively. The increase in the valuation allowance of $33.8 million for the year ended December 31, 2020 was primarily due to current period pre-tax losses incurred and research tax credits generated.

The Company applies ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to income taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies

present related to the tax benefit. At December 31, 2020 and 2019, the Company had no unrecognized tax benefits. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statements of operations.

The Company has not as yet conducted a study of its research and development credit carry forwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets or statements of operations if an adjustment were required.

The Company files income tax returns in the U.S. federal tax jurisdiction, the Massachusetts state jurisdiction, the California state jurisdiction and the Colorado state jurisdiction. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The Company did not have any international operations as of December 31, 2020. There is a 2018 IRS audit in process.

- 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.

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