Note 7 — Income Taxes

The Company has incurred net losses since inception and, consequently, has not recorded any U.S. Federal and state income tax expense or benefit. The differences between the Company’s effective tax rate and the statutory tax rate in 2015, 2014, and 2013 are as follows:

	2015			2014			2013
Income tax benefit at federal statutory rate (35%)	$	(15,057	)	$	(15,816	)	$	(10,538	)
State and local income taxes net of federal tax benefit		(819	)		(1,286	)		(839	)
Permanent items		560			258			738
Rate change		1,012			22			1,892
Expiration of attribute carryforwards		330			373			242
Research and development tax credits		(10,454	)		(748	)		(1,206	)
Orphan drug credit		4,307			—			—
Other		(218	)		(115	)		1,144
Change in valuation allowance		20,339			17,312			8,567
Income tax expense	$	—		$	—		$	—

The Company recognizes the impact of a tax position in its financial statements if it is more likely than not that the position will be sustained on audit based on the technical merits of the position. The Company has concluded that it has an uncertain tax position pertaining to its research and development and orphan drug credit carryforwards. The Company has established these credits based on information and calculations it believes are appropriate and the best estimate of the underlying credit. Any changes to the Company’s unrecognized tax benefits are offset by an adjustment to the valuation allowance and there would be no impact on the Company’s financial statements. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2015			2014
Balance at January 1,	$	472		$	284
Additions to current period tax positions		2,616			176
Additions to prior period tax positions		—			12
Reductions to prior period tax provisions		(3	)		—
Balance at December 31,	$	3,085		$	472

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended and similar state tax law.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	2015			2014
Deferred tax assets:
Net federal and state operating losses	$	142,836		$	135,922
Research and development credits		48,551			38,096
Fixed assets		1,054			1,073
Deferred revenue		4,240			3,798
Stock-based compensation		8,605			7,086
Other		2,590			1,178
Total deferred tax assets		207,876			187,153
Deferred tax liabilities:
Foreign currency derivative		(2,668	)		(2,285	)
Total deferred tax liabilities		(2,668	)		(2,285	)

Valuation allowance		(205,208	)		(184,868	)
Net deferred tax assets	$	—		$	—

The majority of the Company’s deferred tax assets relate to net operating loss and research and development carryforwards that can only be realized if the Company is profitable in future periods. It is uncertain whether the Company will realize any tax benefit related to these carryforwards. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets due to uncertainties as to their ultimate realization. The valuation allowance will remain at the full amount of the deferred tax assets until it is more likely than not that the related tax benefits will be realized. The Company’s valuation allowance increased by $20,339 in 2015, $17,312 in 2014, and $8,567 in 2013.

As of December 31, 2015, the Company had federal operating loss carryforwards of $386,219, state operating loss carryforwards of $373,454, and research and development and orphan drug credit carryforwards of $48,551, which will expire at various dates from 2016 through 2035. The federal losses begin to expire in 2018, the state losses begin to expire in 2016 and the research and development contracts begin to expire in 2018.

The Company’s federal and state operating loss carryforwards include $15,655 of excess tax benefits related to a deduction from the exercise of stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments to additional paid-in capital.

Tax years 2012-2014 remain open to examination by the major taxing jurisdictions to which the Company is subject. Additionally, years prior to 2012 are also open to examination to the extent of loss and credit carryforwards from those years. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as components of its income tax provision. However, there were no provisions or accruals for interest and penalties in 2015, 2014, and 2013.