NOTE 5. INVENTORIES

Inventories consist of finished goods, raw materials and work in process and are stated at the lower of cost or market and consist of the following (in thousands):



	December 31,		December 31,
	2012		2011

Raw materials	$	1,927	$	1,331
Work-in-process		1,569		668
Finished goods		6,787		2,831
Deferred costs		—		677
Less: allowance for obsolescence		(696)		(112)
Total	$	9,587	$	5,395

Inventories relate to the manufacturing costs of the Company’s Gralise and Zipsor products at December 31, 2012 and Gralise product at December 31, 2011. In August 2011, the Company sold its Glumetza inventory, at cost, to Santarus as part of the commercialization agreement. See Note 2 for further information with regards to the Santarus commercialization agreement.

The fair value of inventories acquired in June 2012 related to the Zipsor acquisition included a step-up in the value of Zipsor inventories of $1.9 million which is being amortized to cost of sales as the acquired inventories are sold. The unamortized amount is $0.7 million at December 31, 2012.

Deferred costs as of December 31, 2011 represent the costs of Gralise and Proquin XR product shipped for which recognition of revenue has been deferred.