12.

Income Taxes

During the quarter ended September 30, 2012, the Company established a European business headquarters in Switzerland to manage its operations in Europe. Other subsidiaries were also established to support anticipated sales activities within the region.

In connection with the establishment of its European operations, the Company transferred certain intellectual property rights related to ponatinib to its wholly-owned subsidiary in Switzerland. Although the transfer of intellectual property rights between consolidated entities did not result in any gain in the consolidated results of operations, the Company generated a taxable gain in the U.S. tax jurisdiction that is substantially offset by existing tax loss and credit carryforwards. Any taxes incurred related to the intercompany transactions are treated as a prepaid tax in the Company’s consolidated balance sheet and amortized to income tax expense over the life of the intellectual property. Income tax expense for the three and nine-month periods ended September 30, 2012 and 2011 are de minimus.

Since the Company has not yet achieved sustained profitable operations, management believes its deferred tax assets do not satisfy the more-likely-than-not realization criteria and has recorded a valuation allowance for all deferred tax assets as of December 31, 2011 and September 30, 2012. The valuation allowance is expected to decrease in 2012 due to the utilization of U.S. net operating loss carryforwards related primarily to the taxable gain on transfer of intellectual property rights to its subsidiary in Switzerland. At December 31, 2011, the Company had available net operating loss carryforwards of approximately $457 million for federal tax purposes and $80 million for state tax purposes. The Company estimates that its available net operating loss carryforwards at December 31, 2012 will be in excess of $300 million for federal tax purposes and will be zero for state tax purposes after taking into account 2012 operating losses and the intercompany gain on the transfer of intellectual property rights.

The Company does not recognize a tax benefit unless it is more-likely-than-not that the tax position will be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for uncertain tax positions that may result in tax payments. During the period ended September 30, 2012, the Company’s uncertain tax positions increased to approximately $18 million, related to certain uncertain tax benefits that arose in 2012. Of this amount, the Company has reduced its deferred tax assets and associated valuation allowance by $16 million and recorded a long term liability of $2 million. If such unrecognized tax benefits were realized and not subject to valuation allowances, the entire amount would impact the tax provision. No uncertain tax positions are expected to be resolved within the next twelve months.