12. Income Taxes

Due to the ongoing operating losses and the inability to recognize any income tax benefit, there is no provision for income taxes.

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):


	December 31,
	2011			2010
Deferred revenue	$	13,450		$	16,392
Accrued expenses and other current assets		1,714			1,103
Net operating loss carryforward		69,808			48,451
Capitalized research		3,167			4,944
Research and development and other credits		7,076			4,867
Basis difference in fixed assets		256			260
Stock options		2,341			1,641

Total deferred tax assets		97,812			77,658
Valuation allowance		(97,812	)		(77,658	)

Net deferred tax assets	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $20.2 million and $18.8 million during 2011 and 2010, respectively. The Company's deferred tax assets reflect an estimate of the potential limitation of its utilization of its net operating loss carryforwards and research and development and other credits.

As of December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $196.6 million which will begin to expire in the year 2020 and federal research and development tax credits of approximately $4.7 million which will begin to expire in the year 2020. The Company also had orphan drug credits of approximately $4.9 million which will begin to expire in the year 2029.

As of December 31, 2011, the Company had net operating loss carryforwards for state income tax purposes of approximately $183.4 million which will begin to expire in the year 2012 and state research and development tax credits of approximately $4.5 million which have no expiration date.

Utilization of the net operating losses may be subject to substantial annual limitation due to federal and state ownership limitations. The annual limitation could result in the expiration of the net operating losses before utilization.

The Company received payments of $46.8 million from Astellas related to the License Agreement in 2009 and deferred that amount to future years for book purposes. For tax purposes, the Company elected to use the deferral method to reflect the upfront payments from Astellas for tax purposes. In accordance with IRS Revenue Procedure 2004-34, the deferral method allowed the Company to defer this advance payment to 2010 for tax purposes.

The Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company classifies interest and penalties as a component of tax expense.

The Company had unrecognized tax benefits of $2.3 million and $2.1 million as of December 31, 2011 and December 31, 2010, respectively, all of which are offset by a full valuation allowance. These unrecognized tax benefits, if recognized, would not affect the effective tax rate for the periods presented. No interest or penalties have been accrued. The Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change within the next twelve months.

The Company files income tax returns in the U.S. federal and various state tax jurisdictions. The tax years 2000 to 2011 remain open to examination by the U.S. and state tax authorities.

A reconciliation of the change in the unrecognized tax benefits balance from January 1, 2010 to December 31, 2011 is as follows:


(In thousands)	Federal and State Tax
Balance at December 31, 2009	$	1,794
Additions for tax positions related to current year		255
Additions for tax positions related to prior years		24

Balance at December 31, 2010		2,073
Additions for tax positions related to current year		268
Reductions for tax positions related to prior years		(19	)

Balance at December 31, 2011	$	2,322