Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

13. Income Taxes

For the years ended December 31, 2014, 2013 and 2012, the Company has not recorded a provision for federal or state income taxes as it has had cumulative net operating losses since inception. The Company's losses before income taxes consist solely of domestic losses.

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

	Years Ended December 31,
	2014			2013			2012
Income tax benefit using U.S. federal statutory rate	$	(1,136	)	$	(2,690	)	$	(2,710	)
Permanent differences		124			299			38
Orphan drug credit permanent addback		674			-			-
State income taxes, net of federal benefit		(303	)		(389	)		(368	)
Tax credits		(2,176	)		(7,164	)		(95	)
Expiring net operating losses and tax credits		312			2,566			287
Change in valuation allowance		4,394			7,286			2,988
Mark to market derivative liability		(1,779	)		-			-
Other		(110	)		92			(140	)
	$	-		$	-		$	-

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

	Years Ended December 31,
	2014			2013			2012
Net operating loss carryforwards	$	29,217		$	26,304		$	26,560
Federal and state tax credits		12,126			9,941			2,777
Deferred revenue		-			1,147			1,139
Accrued expenses		478			332			155
Patents		531			612			692
Other		100			300			27
		42,452			38,636			31,350
Valuation allowance		(42,452	)		(38,636	)		(31,350	)
Net deferred tax asset	$	-		$	-		$	-

Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company's history of operating losses, management of the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2014, 2013 and 2012.

The valuation allowance increased approximately $3.8 million during the year ended December 31, 2014, due primarily to the addition of Orphan Drug Tax credits and the generation of net operating losses. The valuation allowance increased approximately $7.3 million during the year ended December 31, 2013, due primarily to the addition of Orphan Drug Tax credits for 2009 through 2012 as well as the generation of net operating losses during the year ended December 31, 2013, both of which are fully reserved. The valuation allowance increased approximately $3.0 million during the year ended December 31, 2012, due primarily to the generation of net operating losses during the period.

Subject to the limitations described below, as of December 31, 2014, 2013 and 2012, the Company has net operating loss carryforwards of approximately $78.1 million, $69.9 million and $70.3 million, respectively, to offset future federal taxable income, which will expire at various times between 2026 and 2034. The Company does not have any net operating losses that are attributable to excess stock option deductions which would be recorded as an increase in additional paid-in capital. As of December 31, 2014, 2013 and 2012, the Company has state net operating loss carryforwards of approximately $55.1 million, $45.4 million and $50.4 million, respectively, to offset future state taxable income, which will expire at various times through 2034. As of December 31, 2014, 2013 and 2012, the Company has tax credit carryforwards of approximately $12.5 million, $10.3 million and $3.1 million, respectively, to offset future federal and state income taxes, which will expire at various times through 2034.

Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (the "IRS") and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code. This could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company's value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We are in the process of completing an analysis to determine if there were changes in ownership for tax years through 2014, as defined by Section 382 of the Internal Revenue Code that would limit our ability to utilize certain net operating loss and tax credit carryforwards. To the extent the Company undergoes a change in ownership, as defined by Section 382, utilization of the Company’s net operating losses and tax credits carryforwards may become limited.

The Company had no unrecognized tax benefits or related interest and penalties accrued during the years ended December 31, 2014, 2013 and 2012. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense.

The Company is subject to U.S. federal income tax and primarily Massachusetts state income tax. The statute of limitations for assessment by the IRS and state tax authorities is open for tax years ending December 31, 2011 through 2014, although carryforward attributes that were generated prior to tax year 2011 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. Currently, no federal or state income tax returns are under examination by the respective taxing authorities.