14. Income Taxes

The Company generated a pretax loss of $25.6 million, $18.6 million and $14.4 million in the United States for the years ended December 31, 2013, 2012 and 2011, respectively. Since inception, the Company has not generated any pretax income or loss outside of the United States. The Company did not record a provision or benefit for income taxes during the years ended December 31, 2013, 2012 and 2011. The Company follows FASB ASC No. 740, Income Taxes for the Computation and Presentation of its Tax Provision. The following table presents a reconciliation of the tax expense computed at the statutory federal rate and the Company's tax expense for the period presented (in thousands):

	Year Ended December, 31,

	2013			2012			2011
U.S. federal taxes at statutory rate	$	(8,697	)	$	(6,341	)	$	(4,911	)
State taxes (net of federal benefit)		11			(1,074	)		(843	)
Permanent differences		1,145			261			(108	)
Tax credits		(502	)		(113	)		(181	)
Change in valuation allowance		8,043			7,267			6,043


Total	$	—		$	—		$	—

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):

	As of December 31,

	2013			2012			2011
Current deferred tax assets:
Net operating loss carryforwards	$	—		$	—		$	—
Research and development credit		—			—			—
Stock-based compensation		—			—			—
Genzyme co-promotion agreement		1,005			1,001			—
Accruals and deferred rent		599			148			—


Gross deferred tax assets		1,604			1,149			—
Valuation allowance		(1,603	)		(1,145	)		—


Net deferred tax assets		1			4			—


Deferred tax liabilities:
Property and equipment		—			—			—


Gross deferred tax liabilities		—			—			—


Net current deferred tax liabilities		1			4			—


Non-current deferred tax assets:
Net operating loss carryforwards		28,569			20,536			16,547
Research and development credit		1,455			954			723
Stock-based compensation		313			154			50
Genzyme co-promotion agreement		787			2,048			—
Accruals, depreciation and deferred rent		106			9			197


Gross deferred tax assets		31,230			23,701			17,517
Valuation allowance		(31,216	)		(23,622	)		(17,469	)


Net deferred tax assets		14			79			48


Deferred tax liabilities:
Property and equipment		(15	)		(83	)		(48	)


Gross deferred tax liabilities		(15	)		(83	)		(48	)


Net non-current deferred tax liabilities		(1	)		(4	)		—


Total deferred tax assets	$	—		$	—		$	—

The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding realization of such assets. The valuation allowance increased $8.1 million and $7.3 million during the years ended December 31, 2013 and 2012, respectively.

The Company had $0.3 million of cumulative excess tax benefits from stock option deductions generated subsequent to the adoption of the authoritative guidance regarding stock-based compensation, which are not included in the net operating loss carryforward amounts above since they have not met the required realization criteria. The Company considers stock option deduction benefits in excess of book compensation charges realized when it obtains an incremental benefit determined by the "with and without" calculation method, under which excess tax benefits related to stock-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company. When realized, these benefits will increase additional paid-in capital.

As of December 31, 2013, the Company had net operating loss carryforwards of approximately $75.1 million and $54.0 million available to reduce future taxable income, if any, for Federal and state income tax purposes, respectively. The U.S. federal net operating loss carryforwards will begin to expire in 2026 while for state purposes, the net operating losses will begin to expire in 2018.

As of December 31, 2013, the Company had credit carryforwards of approximately $1.4 million and $1.0 million available to reduce future taxable income, if any, for Federal and California state income tax purposes, respectively. The Federal credit carryforwards begin to expire in 2028. California credits have no expiration date.

The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses and tax credits may be limited as prescribed under Internal Revenue Code Section 382 and 383 ("IRC Section 382"). Events which may cause limitations in the amount of the net operating losses or tax credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 rules and similar state provisions. In the event the Company has any changes in ownership, net operating losses and research and development credit carryovers could be limited and may expire unutilized.

As of December 31, 2013, the Company had unrecognized tax benefits of $0.7 million, all of which would not currently affect the Company's effective tax rate if recognized due to the Company's deferred tax assets being fully offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing at December 31, 2013 will significantly increase or decrease within the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,

	2013		2012		2011
Unrecognized tax benefits, beginning of period	$	481	$	341	$	263
Gross increases—tax position in prior period		68		67		—
Gross decrease—tax position in prior period		—		—		—
Gross increases—current period tax positions		178		73		78
Lapse of statute of limitations		—		—		—


Unrecognized tax benefits, end of period	$	728	$	481	$	341

It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2013.

The Company's major tax jurisdictions are the United States and California. All of the Company's tax years will remain open for examination by the Federal and state tax authorities for three and four years, respectively, from the date of utilization of the net operating loss or research and development credit. The Company does not have any tax audits pending.