F. Income Taxes

The difference between the Company's expected tax benefit, as computed by applying the U.S. federal corporate tax rate of 34% to loss before the benefit for income taxes, and actual tax is reconciled in the following chart (in thousands):

	Year Ended June 30,
	2015			2014			2013
Loss before income tax expense	$	(60,739	)	$	(71,364	)	$	(72,811	)

Expected tax benefit at 34%	$	(20,651	)	$	(24,264	)	$	(24,756	)
Permanent differences		2,766			1,953			1,540
State tax benefit net of federal benefit		(3,252	)		(4,062	)		(3,921	)
Increase in valuation allowance, net		27,940			26,011			25,624
Federal research credit		(1,407	)		(1,002	)		(2,260	)
Federal orphan drug credit		(5,471	)		—			—
Expired loss and credit carryforwards		75			1,364			3,773

Benefit for income taxes	$	—		$	—		$	—

At June 30, 2015, the Company has net operating loss carryforwards of approximately $249.3 million available to reduce federal taxable income, if any, that expire in 2020 through 2035 and $87.1 million available to reduce state taxable income, if any, that expire in fiscal 2020 through fiscal 2035. Included in the federal and state carryforwards is $25.6 million and $22.2 million, respectively, related to deductions from the exercise of stock options and the related tax benefit which will result in an increase in additional paid-in capital if and when realized through a reduction of taxes paid in cash. The Company also has federal and state credit carryforwards of approximately $28 million available to offset federal and state income taxes, which expire beginning in fiscal 2016. Due to the degree of uncertainty related to the ultimate use of the loss carryforwards and tax credits, the Company has established a valuation allowance to fully reserve these tax benefits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of June 30, 2015 and 2014 are as follows (in thousands):

	June 30,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	89,362		$	144,230
Federal and state tax credit carryforwards		25,131			14,453
Property and other intangible assets		2,532			2,386
Deferred revenue		16,179			24,095
Stock-based compensation		11,379			9,047
Deferred lease incentive		4,279			3,908
Other liabilities		3,177			1,234
Royalty sale		78,427			—

Total deferred tax assets	$	230,466		$	199,353

Deferred tax liabilities:
Accounting method change		(983	)		—
Royalty sale transaction costs		(2,190	)		—

Total deferred tax liabilities	$	(3,173	)	$	—

Valuation allowance		(227,293	)		(199,353	)

Net deferred tax assets/(liabilities)	$	—		$	—

The valuation allowance increased by $27.9 million during 2015 due primarily to the tax treatment of the royalty sale and additional net loss incurred during the year, partially offset by the utilization of net operating loss carryforwards.

Utilization of the NOL and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and credit carry forwards that can be utilized annually to offset future taxable income and tax, respectively. 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 percentage points over a three-year period. Since the Company's formation, it has raised capital through the issuance of capital stock on several occasions (both pre and post initial public offering) which, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control, as defined by Section 382, or could result in a change of control in the future upon subsequent disposition. Additionally, the Company has not completed a Research and Development Credit Study, accordingly it is probable that a portion of the tax credit carryforward may not be available to offset future income. During fiscal year 2015, the Company completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since its formation. The study was performed in anticipation of the Royalty Obligation transaction being completed (see Note E), as that transaction for tax purposes is considered a gain on the sale of royalties and is taxable in the year it occurs. The result of the study indicated that the Company would be able to utilize its NOL's to fully offset the taxable income that resulted from the royalty transaction. Accordingly, there is no provision for income taxes in the current year.

Interest and penalties related to the settlement of uncertain tax positions, if any, will be reflected in income tax expense. The Company did not recognize any interest and penalties associated with unrecognized tax benefits in the accompanying consolidated financial statements. The Company does not expect any material changes to the unrecognized benefits within 12 months of the reporting date. Due to existence of the valuation allowance, future changes in the Company's unrecognized tax benefits will not impact our effective tax rate. The Company's loss and credit carryforwards are subject to adjustment by state and federal taxing authorities, commencing when those losses are utilized to reduce taxable income.