8. Income Taxes

We have incurred net losses since inception.

The components of our current tax benefit, for the years ended December 31, 2011, 2010 and 2009 was related to a federal and state research and experimentation income tax credit received.

The income tax benefit computed using our net loss and the federal statutory income tax rate differs from our actual income tax benefit, primarily due to the following:


		Years ended December 31,
		2011			2010			2009
Federal income tax benefit at 35%	$	(10,684	)	$	(27,124	)	$	(25,766	)
State income tax benefit, net of federal benefit		(1,442	)		(1,921	)		(1,506	)
Stock-based compensation		2,524			2,577			1,660
Expiration of net operating losses		1,368			-			-
Research and development and orphan drug credits		(499	)		(979	)		(503	)
Change in valuation allowance		8,428			26,884			25,689
Other		298			485			349
Benefit for income taxes	$	(7	)	$	(78	)	$	(77	)


The components of our deferred tax assets are as follows, as of December 31:

					2011			2010
Deferred tax assets:
Net operating loss carryforwards				$	118,088		$	111,794
Amortization of intangibles					1,085			1,193
Research and development and orphan drug credit carryforwards					12,188			11,421
Stock-based compensation					7,480			6,235
Other					2,172			1,942
Total deferred tax assets					141,013			132,585
Valuation allowance					(141,013	)		(132,585	)
Net deferred tax assets				$	-		$	-

Our deferred tax assets represent an unrecognized future tax benefit. A valuation allowance has been established for the entire tax benefit as we believe that it is more likely than not that such assets will not be realized.

As of December 31, 2011, we had available approximately $319.1 million of net operating loss, or NOL, carryforwards, after taking into consideration NOLs expected to expire unused due to the limitations under Section 382 of the Internal Revenue Code, and which includes approximately $9.2 million of deductions related to stock-based compensation, not reflected in deferred tax assets, that are not realized as deferred tax assets until current taxes payable can be reduced. Of these NOL carryforwards, $6.2 million will expire in 2012 and the remaining NOL carryforwards expire in 2018 through 2031. In addition, as of December 31, 2011, we had research and development credit and orphan drug credit carryforwards, after taking into consideration the Section 382 limitation, of $5.2 million and $7.0 million, respectively, to offset future regular tax expense. Since the Company's formation, it has raised capital through the issuance of capital stock on several occasions which, combined with shareholders' subsequent disposition of those shares, has resulted in four changes of control in 1994, 1998, 2001 and 2005, as defined by Section 382. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% within a three-year period. As a result of the most recent ownership change in 2005, utilization of approximately $59.9 million of NOL carryforwards generated prior to the latest change are subject to an annual limitation of approximately $2.2 million under Section 382, determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt

rate. Additionally, we have a recognized built-in gain that increased the annual limitation by $3.3 million for each of the five years after the 2005 ownership change. Any unused annual limitation may be carried over to subsequent years, and the amount of the limitation may, under certain circumstances, be subject to adjustment if the fair value of the Company's net assets are determined to be below or in excess of the tax basis of such assets at the time of the ownership change, and such unrealized loss or gain is recognized during the five-year period after the ownership change. Our NOL carryforwards reflected above are adjusted to remove the portion that will expire due to the limitation. Subsequent ownership changes, as defined in Section 382, could further limit the amount of our NOL carryforwards and research and development credits that can be utilized annually to offset future taxable income.

Tax positions must initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the periods from December 31, 1993 through December 31, 2011, the tax periods which remain subject to examination by major tax jurisdictions as of December 31, 2011.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although there have been no such assessments historically with material impact to our financial results. In the event we receive an assessment for interest and/or penalties, it would be classified in the financial statements as income tax expense.