Income Taxes

The components of federal and state income tax expense (benefit) are as follows (in thousands):



	As of December 31,
	2013		2012
Current
Federal	$	—	$	—
State	—		—
Total current	—		—
Deferred expense (benefit)
Federal	894		(894		)
State	158		(158		)
Total deferred	1,052		(1,052		)
Total income tax expense (benefit)	$	1,052	$	(1,052	)

The components of net deferred tax assets are as follows (in thousands):



	As of December 31,
	2013			2012
Net operating loss carryforwards	$	33,539		$	23,632
Tax credit carryforwards	3,549			3,201
Unrealized gain on marketable securities	—			(1,052		)
Stock based compensation	8,322			7,944
Other	12			(328		)
Licensing deduction deferral	8,682			8,194
Gross deferred tax assets	54,104			41,591
Valuation allowance	(54,104		)	(41,591		)
Net deferred tax asset	$	—		$	—

The components of net deferred tax liabilities are as follows (in thousands):



	As of December 31,
	2013		2012
In-process research and development not subject to future amortization for tax purposes	$	5,053	$	5,053
Gross deferred tax liability	$	5,053	$	5,053

The provision for income taxes differs from the provision computed by applying the federal statutory rate to net loss before income taxes as follows (in thousands):



	As of December 31,
	2013			2012
Expected federal income tax benefit	$	(25,713	)	$	(11,688	)
State income taxes after credits	(3,676		)	(1,067		)
Unrealized gain on marketable securities	1,052			(1,052		)
Changes in warrant value	17,283			3,664
Stock compensation	813			152
Effect of change in valuation allowance	11,408			8,939
Income tax credits	(240		)	—
Other	125			—
	$	1,052		$	(1,052	)

The company has incurred net operating losses from inception. At December 31, 2013, the company had domestic federal and state net operating loss carryforwards of approximately $83.9 million and $49.8 million, respectively, available to reduce future taxable income, which expire at various dates beginning in 2013 through 2033. The company also had federal and state research and development tax credit carryforwards of approximately $2.2 million and $2.0 million, respectively, available to reduce future tax liabilities and which expire at various dates beginning in 2023 through 2032. The income tax expense for the year ended December 31, 2013 relates to the realized gain on sale of marketable securities.

Approximately $280,000 of the company's net operating loss carryforwards were generated as a result of deductions related to the exercises of stock options and disqualifying dispositions. If utilized, this portion of the Company's carrforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets. The deferred tax assets related to net operating losses have been accordingly reduced by $109,000 for the year ended December 31, 2013.

Under the provisions of the Internal Revenue Code, certain substantial changes in the company’s ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable.

Based on an assessment of all available evidence including, but not limited to the company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred income tax valuation allowance has been recorded against these assets. The valuation allowance increased by $12.5 million and $5.1 million for the years ended December 31, 2013 and 2012, respectively.

The company files income tax returns in the U.S. federal, Massachusetts, Colorado, California and Oregon jurisdictions. The company is subject to tax examinations for the 2009 tax year and beyond. The company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The company has not incurred any interest or penalties. In the event that the company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.