11. INCOME TAXES

As of December 31, 2011, the Company had federal and state net operating loss carryforwards of $230.9 million and $201.2 million, respectively, available to reduce future taxable income, which expire 2012 through 2032. Utilization of these net operating losses could be limited under Section 382 of the Internal Revenue Code and similar state laws based on ownership changes and the value of the Company's stock. Approximately $5.0 million of the Company's carryforwards were generated as a result of deductions related to exercises of stock options. When utilized, this portion of the Company's carryforwards, as tax affected, will be accounted for as a direct increase to contributed capital rather than as a reduction of the year's provision for income taxes. The principal differences between net operating loss carryforwards for tax purposes and the accumulated deficit result from timing differences related to depreciation, amortization, treatment of research and development costs, limitations on the length of time that net operating losses may be carried forward, and differences in the recognition of stock-based compensation.

The Company had net deferred tax assets of $116.8 million and $108.7 million at December 31, 2011 and 2010, respectively, primarily from U.S. federal and state net operating loss carryforwards, U.S. federal and state research and development credit carryforwards, share based compensation expense and intangibles. A valuation allowance was recorded to reduce the net deferred tax asset to zero because it is more likely than not that the deferred tax asset will not be realized.

An analysis of the deferred tax assets (liabilities) is as follows:


	December 31,
	2011			2010
	(in thousands)
Net operating loss carryforwards	$	87,270		$	79,813
Difference in depreciation and amortization		2,574			2,882
Capital loss carryforward		5			8
Research and development tax credits		20,740			19,739
Stock compensation		4,153			4,164
Deferred rent		372			430
Deferred revenue		1,124			1,288
Other		571			378

		116,809			108,702
Valuation allowance		(116,809	)		(108,702	)

Net deferred tax asset	$	—		$	—

The net change in the valuation allowance for deferred tax assets was an increase of approximately $8.1 million for the year ended December 31, 2011 and an increase of approximately $5.4 million for the year ended December 31, 2010, mainly due to the increase in the net operating loss carryforwards and research and development tax credits.

The reconciliation between the Company's effective tax rate and the income tax rate is as follows:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Federal income tax rate		34.0	%		34.0	%		34.0	%
Research and development tax credits		54.6			3.9			(4.3	)
Valuation allowance		(507.4	)		(16.8	)		(30.4	)
Permanent Differences		450.0			(12.8	)		(0.2	)
Other		(31.2	)		(8.3	)		0.9

Effective tax rate		0.0	%		0.0	%		0.0	%

The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on its balance sheet at December 31, 2011 or December 31, 2010, and has not recognized interest and/or penalties in the statement of operations for 2011, 2010 or 2009. The Company has not recognized any liability for unrecognized tax benefits. There are no unrecognized tax benefits included in the balance sheet that would, if recognized, affect the effective tax rate.