Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

9. Income Taxes

Significant components of the provision/(benefit) for income taxes consist of the following:

		September 30,		September 30,			September 30,
	For the Years Ended December 31,
	2011		2010			2009
	($ in ‘000’s)
Current:
Federal	$	1,255	$	(128	)	$	78
State		2,449		82			343
Foreign		—		3			—
	$	3,704	$	(43	)	$	421
Deferred:
Federal		—		—			—
State		—		—			—
Foreign		—		—			—
Total	$	3,704	$	(43	)	$	421

The income tax provision/(benefit) differs from that computed using the federal statutory rate applied to income before taxes as follows:

		September 30,			September 30,			September 30,
	2011			2010			2009
	($ in ‘000’s)
Tax provision/(benefit) computed at the federal statutory rate	$	17,755		$	(16,658	)	$	(6,697	)
State tax, net of federal benefit		2,847			(2,082	)		(981	)
Expired tax attributes		385			32,236			8,097
Credits		(1,464	)		(406	)		(1,644	)
Common stock warrant liability		1,186			(928	)		(2,745	)
Officers compensation		3,801			572			—
Stock based compensation		1,676			1,397			1,533
Permanent items and other		2,039			976			(737	)
Valuation allowance		(24,521	)		(15,150	)		3,595
Income tax provision (benefit)	$	3,704		$	(43	)	$	421

Significant components of the Company’s deferred tax assets as of December 31, 2011 and 2010 are shown below. A valuation allowance has been recognized to offset the net deferred tax assets as realization of such deferred tax assets has not met the more likely than not threshold.

		September 30,			September 30,
	2011			2010
	($ in ‘000’s)
Deferred tax assets:
Net operating loss carry forwards	$	9,483		$	36,279
Research credits		7,766			7,044
Stock based compensation		5,333			2,535
Deferred revenue		9,329			9,611
Depreciation and amortization differences		13,437			14,451
Other, net		1,968			1,914
Valuation allowance		(47,316	)		(71,834	)
	$	—		$	—

At December 31, 2011, we had federal and state net operating loss carry forwards of approximately $19.6 million and $67.2 million, respectively. We have approximately $567,000 of foreign loss carry forwards that began to expire in 2011. The federal and state loss carry forwards begin to expire in 2018 and 2012, respectively, unless previously utilized. At December 31, 2011, we had federal and state research and development tax credits of approximately $8.1 million and $1.2 million, respectively. The federal research tax credit begins to expire in 2023 unless previously utilized. The state research and development credits have an indefinite carryover period.

The utilization of the net operating loss and research and development tax credit carry forwards is subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to the amount of the net operating loss and research and development tax credits carry forwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively.

We completed our most recent Section 382 study in December of 2010. As a result of the ownership changes from that study, we removed approximately $27.9 million of deferred tax assets relating to net operating losses and approximately $4.4 million of deferred tax assets related to research and development credits from the table of deferred taxes presented above as these deferred tax assets are expected to expire unutilized. We will continue to monitor for additional ownership changes as another change could result in additional net operating losses and credits expiring unutilized in the future.

Topic ASC 740 Income Taxes, clarifies the accounting for uncertain tax positions and prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, the authoritative guidance addresses the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. Only tax positions that meet the more likely than not recognition threshold at the effective date may be recognized.

The following table summarizes activity related to our gross unrecognized tax benefits:

		September 30,		September 30,
	2011		2010
	($ in ‘000’s)
Balance at Beginning of year		1,697		—
Adjustments related to prior year tax positions		5		1,310
Increases related to current year tax positions		554		387
Balance at end of year		2,256		1,697

There were no unrecognized tax benefits as of December 31, 2009.

During 2011, we continue to believe that our tax positions meet the more likely than not standard required under the recognition phase of the authoritative guidance. However, we consider the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above.

Approximately $169,000 of the total unrecognized tax benefits as of December 31, 2011, would reduce our annual effective tax rate if recognized. Additional amounts in the summary rollforward could impact our effective tax rate if we did not maintain a full valuation allowance on our net deferred tax assets.

We do not expect our unrecognized tax benefits to change significantly over the next 12 months. With a few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations for years before 2007. Our policy is to recognize interest and/or penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations.

On November 1, 2010 we received notice that we were awarded grants totaling $978,000 under the Qualifying Therapeutic Discovery Project, or QTDP, program administered under Section 48D of the Internal Revenue Code, of which we recorded $978,000 in December 2010 as other income in the consolidated financial statements. The QTDP tax credit is provided under new Section 48D of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148).