Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
8.
Income Taxes

The total provision for income taxes consists of the following:

   
Year ended December 31,
  
   
2011
    
2010
    
2009
  
Federal income tax provision
   $ 15     $ 27     $ (113 )
State income tax provision
     -       -       6  
Foreign income tax provision
     -       -       5,834  
Total
   $ 15     $ 27     $ 5,727  
 
The Company had significant losses in 2011 and 2010, and as a result there was no material income tax expense for the years ended December 31, 2011 and 2010.  Income tax expense in 2009 was primarily related to $5.8 million of foreign income tax expense recognized in connection with the expansion of the Company's existing collaboration with Takeda in February of 2009.  The Company was paid a $29 million expansion fee, of which $5.8 million was withheld for payment to the Japanese taxing authority.  The Company also recognized $0.1 million of income tax benefit for 2009 relating to research and development refundable credits.

The significant components of net deferred tax assets as of December 31, 2011 and 2010 were as follows (in millions):

   
December 31,
  
   
2011
    
2010
  
Capitalized research and development expenses
   $ 68.7     $ 65.4  
Net operating loss carryforwards
     135.7       117.4  
Research and development and other credit carryforwards
     21.6       20.4  
Other
     14.1       11.1  
Total deferred tax assets
     240.1       214.3  
Valuation allowance
     (240.1 )     (214.3 )
Net deferred tax assets
   $ -     $ -  

The net increase (decrease) in the valuation allowance was $25.8 million, $24.4 million and $(24.8) million for the years ended December 31, 2011, 2010 and 2009, respectively. No net operating loss carry-forward expired in 2011, 2010 or 2009.

ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not.  Based upon the weight of available evidence, which includes our historical operating performance and carry-back potential, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance.

Based on an initial analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and certain other pre-change tax attributes that can be utilized to an annual limitation), the Company experienced an ownership change in 2009, which would substantially limit the future use of its pre-change NOLs and certain other pre-change tax attributes per year. The Company has and will continue to evaluate alternative analyses permitted under Section 382 and IRS notices in order to determine whether or not any ownership changes have occurred and may occur (and if so, when they occurred) that would result in limitations on its NOLs or certain other tax attributes.   To the extent that the Company does not utilize its carry-forwards within the applicable statutory carry-forward periods, either because of Section 382 limitations or the lack of sufficient taxable income, the carry-forwards will expire unused.

The Company files income tax returns in the U.S. federal jurisdiction, State of California and Ireland. The Company's federal income tax returns for tax years 2008 and beyond remain subject to examination by the Internal Revenue Service.  The Company's 2009 federal tax return is currently under audit, and we do not expect a material change to our federal income taxes as reported.  The Company's California and Irish income tax returns for tax years 2007 and beyond remain subject to examination by the Franchise Tax Board and Irish Revenue Commissioner.  In addition, all of the net operating losses and research and development credit carry-forwards that may be used in future years are still subject to adjustment.
 
The Company did not have unrecognized tax benefits as of December 31, 2011 and does not expect this to change significantly over the next twelve months.  The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2011, the Company has not accrued interest or penalties related to uncertain tax positions.