16. Income Taxes

As of December 31, 2012 the Company had federal and state net operating loss ("NOL") carryforwards of approximately $194.4 million and $161.6 million, respectively, which may be used to offset future taxable income. The Company also had federal and state tax credits of $2.8 million and $0.4 million, respectively, to offset future tax liabilities. The NOL and tax credit carryforwards will expire at various dates through 2032, and are subject to review and possible adjustment by federal and state tax authorities. The Internal Revenue Code contains provision that may limit the NOL and tax credit carryforwards available to be used in any given year in the event of certain changes in the ownership interests of significant stockholders under Section 382 of the Internal Revenue Code.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows (in thousands):

	Year Ended December 31,

	2012			2011			2010
Income tax benefit using U.S. federal statutory rate	$	(23,504	)	$	(14,509	)	$	(4,974	)
State income taxes, net of federal benefit		(2,774	)		(1,854	)		411
Stock-based compensation		72			49			34
Research and development tax credits		(55	)		(385	)		(320	)
Change in the valuation allowance		25,175			17,041			4,838
Permanent items		709			91			3
Other		377			(433	)		8

	$	—		$	—		$	—

The Company is subject to Massachusetts net worth taxes, not based on income, which is largely offset by allowable tax credits and recorded as a component of operating expenses.

The principal components of the Company's deferred tax assets are as follows (in thousands):

	December 31,

	2012			2011
Current assets:
Accrued expenses	$	343		$	62

Gross current deferred tax assets		343			62

Valuation allowance		(343	)		(62	)

Net current deferred tax assets	$	—		$	—

Non-current assets:
Net operating loss carryforwards	$	74,487		$	49,838
Capitalized research and development		1,042			1,431
Research and development credits		3,067			2,977
Depreciation and amortization		90			128
Other		851			269

Gross non-current deferred tax assets		79,537			54,643
Valuation allowance		(79,537	)		(54,643	)

Net non-current deferred tax assets	$	—		$	—

The Company has recorded a valuation allowance against its deferred tax assets in each of the years ended December 31, 2012 and 2011, because the Company's management believes that it is more likely than not that these assets will not be realized. The increase in the valuation allowance in 2012 primarily relates to the net loss incurred by the Company.

As of December 31, 2012, the Company has no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted a study of research and development ('R&D') credit carryforwards. In addition, the Company has not, as yet, conducted an Internal Revenue Code Section 382 study, which could impact its ability to utilize NOL and tax credit carryforwards available to be used. These studies may result in adjustments to the Company's R&D credit carryforwards and NOL carryfowards; 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 R&D 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 balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest or penalties on any unrecognized benefits since inception.

The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities remains open for all tax years. The Company files income tax returns in the United States and Massachusetts. There are currently no federal or state audits in progress.