7. Income taxes

Because of the Company's history of net operating losses, it has not paid income taxes since its inception and the Company had no material unrecognized tax benefits as of December 31, 2011 or 2010. As a result, the Company has no uncertain tax positions that could affect the Company's financial statements.

The Company's deferred tax assets primarily consist of net operating loss, or NOL, carryforwards, deferred revenue, capitalized research and development expense and tax credit carryforwards. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which is uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. At December 31, 2011, the Company has NOL carryforwards of $346.6 million expiring from 2018 to 2031 if not utilized, and tax credit carryforwards of $31.4 million expiring from 2021 to 2031.

Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation in the event of a change in ownership as set forth in Section 382 of the Internal Revenue Code of 1986, as amended. It is possible that there has been, or in the future will be, a change in ownership, which would limit the amount of NOL available to be used in the future. Any limitation may result in the expiration of the NOL and tax credit carryforwards before utilization.

The Company's net deferred tax assets consisted of the following (in thousands):


	December 31,
	2011			2010
Deferred tax assets
Net operating loss carryforwards	$	122,656		$	73,788
Deferred revenue		48,062			41,547
Capitalized research and development		21,226			26,443
Tax credit carryforwards		31,365			26,365
Share-based compensation		10,730			7,318
Depreciation and amortization		2,210			1,931
Other		8,242			5,466

Total deferred tax assets		244,491			182,858
Less: valuation allowance		(244,491	)		(182,858	)

Net deferred tax assets	$	0		$	0

Increases in the valuation allowance were $61.6 million in 2011, $27.4 million in 2010 and $42.4 million in 2009.

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:


	Years ended December 31,
	2011			2010			2009
Statutory federal income tax rate		(35	%)		(35	%)		(35	%)
Tax credits		(3	)		(6	)		(14	)
State income taxes and other		(3	)		0			(3	)
Valuation allowance		41			41			52

Effective tax rate		0	%		0	%		0	%

The Company does not anticipate any significant changes to its unrecognized tax positions or benefits during the next twelve months. Interest and penalties related to the settlement of uncertain tax positions, if any, will be reflected in income tax expense. Tax years 1998 to 2011 remain subject to future examination for federal income taxes.