18. Income Taxes

As a result of losses incurred, the Company did not provide for any income taxes in the years ended December 31, 2010, 2011 and 2012. A reconciliation of the Company's effective tax rate to the statutory federal income tax rate is as follows:

	Years ended December 31,

	2010			2011			2012
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of Federal benefit		4.6			4.2			4.5
Permanent differences		(2.6	)		(0.4	)		(0.2	)
Stock compensation		(2.9	)		(1.2	)		(0.3	)
Change in valuation allowance		(39.2	)		(36.3	)		(35.5	)
Tax credits		5.1			3.9			1.1
Foreign rate differentials		—			(4.4	)		(4.1	)
Other		—			(0.8	)		(0.5	)

		—	%		—	%		—	%

Temporary differences that give rise to significant net deferred tax assets as of December 31, 2011 and 2012 are as follows:

(in thousands)	2011			2012

Deferred tax assets
Net operating losses	$	40,633		$	77,806
Capitalized research and development expenses		47,640			40,083
Credit carryforwards		13,380			14,398
Depreciation		2,337			2,931
Deferred compensation		4,450			5,068
Deferred revenues		26,462			29,936
Accrued expenses		676			1,184
Other		922			1,934

Total gross deferred tax asset		136,500			173,340
Intangible assets		(3,817	)		(3,689	)
Valuation allowance		(132,683	)		(169,651	)

Net deferred taxes	$	—		$	—

At December 31, 2012, the Company had net operating loss carryforwards for federal and state income tax purposes of $210.9 million and $155.5 million, respectively. Included in the federal and state net operating loss carryforwards is approximately $10.3 million of deduction related to the exercise of stock options. This amount represents an excess tax benefit, which will be realized when it results in reduction of cash taxes in accordance with Accounting Standards Codification 718. This excess tax benefit will be directly credited to additional paid-in capital when it is realized. The Company's existing federal and state net operating loss carryforwards have begun to expire and will continue to expire through 2032. The Company also has available research and development credits for federal and state income tax purposes of approximately $11.1 million and $4.8 million, respectively. The federal and state research and development credits will begin to expire in 2022 and 2024, respectively. As of December 31, 2012, the Company also had available investment tax credits for state income tax purposes of $0.4 million, which have begun to expire and will continue to expire through 2013. The Company's management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards, deferred revenue and capitalized research and development expenses. Under the applicable accounting standards, management has considered the Company's history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, the Company has established a full valuation allowance against the deferred tax assets.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax. The Company has not currently completed an evaluation of ownership changes through December 31, 2012 to assess whether utilization of the Company's net operating loss or research and development credit carryforwards would be subject to an annual limitation under Section 382 of the Internal Revenue Code. To the extent an ownership change occurs in the future, the net operating loss and credit carryforwards may be subject to limitation.

The Company concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Company's evaluation was performed for the tax years ended December 31, 2009 through 2012, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2012. However, to the extent the Company utilizes net operating losses from years prior to 2009, the statute remains open to the extent of the net operating losses utilized. The Company annually files a federal income tax return and a state income tax return in Massachusetts. The Company's policy is to recognize interest and penalties for uncertain tax positions as a component of income tax expense. The Company has not recognized any interest and penalties historically through December 31, 2012.

The change in the valuation allowance against the deferred tax assets in the years ended December 31, 2010, 2011 and 2012 was as follows:

(in thousands)	Balance at beginning of period				Balance at end of period

December 31, 2010	$	81,420	22,461	—	$	103,881
December 31, 2011	$	103,881	28,802	—	$	132,683
December 31, 2012	$	132,683	36,968	—	$	169,651