Note

— 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

2016,

2015,

and

2014

are as follows:

	2016			2015			2014
Income tax benefit at federal statutory rate (35%)	$	(19,300	)	$	(15,057	)	$	(15,816	)
State and local income taxes net of federal tax benefit		(1,173	)		(819	)		(1,286	)
Permanent items		1,057			560			258
Rate change		1,080			1,012			22
Expiration of attribute carryforwards		559			330			373
Research and development tax credits		(4,681	)		(10,454	)		(748	)
Orphan drug credit		1,798			4,307			—
Other		822			(218	)		(115	)
Change in valuation allowance		19,838			20,339			17,312
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

months.

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

	2016		2015
Balance at January 1,	$	3,085	$	472
Additions to current period tax positions		1,170		2,616
Additions to prior period tax positions		—		—
Reductions to prior period tax provisions		—		(3	)
Balance at December 31,	$	4,255	$	3,085

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:

	2016			2015
Deferred tax assets:
Net federal and state operating losses	$	158,618		$	142,836
Research and development credits		53,231			48,551
Fixed assets		—			1,054
Deferred revenue		3,484			4,240
Stock-based compensation		8,952			8,605
Other		2,849			2,590
Total deferred tax assets		227,134			207,876
Deferred tax liabilities:
Fixed assets		(674	)		—
Foreign currency derivative		(1,415	)		(2,668	)
Total deferred tax liabilities		(2,089	)		(2,668	)

Valuation allowance		(225,045	)		(205,208	)
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

$19,837

2016,

$20,339

2015

and

$17,312

2014.

As of

December

31,

2016,

the Company had federal operating loss carryforwards of

$431,983,

state operating loss carryforwards of

$403,237,

and research and development and orphan drug credit carryforwards of

$57,487,

which will expire at various dates from

2017

through

2035.

The federal losses begin to expire in

2018,

the state losses begin to expire in

2017

and the research and development credit carryforwards 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

2013

2015

remain open to examination by the major taxing jurisdictions to which the Company is subject. Additionally, years prior to

2013

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

provisions or accruals for interest and penalties in

2016,

2015,

and

2014.