Note 3. Inventories

Inventories, net of $7.5 million in write downs, consist of (in thousands):

	Balance as of

	December 31, 2013		December 31, 2012
Raw materials	$	28,545	$	5,139
Work in process		12		2,635
Finished goods		14,793		17,506
Deferred costs		5,153		73

Inventories, net	$	48,503	$	25,353

As of December 31, 2013 and 2012, the raw materials inventories consist primarily of the active pharmaceutical ingredients, or API, for the commercialization of Qsymia® (phentermine and topiramate extended-release) capsules CIV, the finished goods and deferred costs inventories consist of both Qsymia and STENDRATM (avanafil), while the work in process inventory relates exclusively to Qsymia. The deferred costs represent the costs of product shipped to wholesalers, certified retail pharmacies, certified mail order pharmacies, and commercialization partners but not yet dispensed to patients through prescriptions, and for which recognition of revenue has been deferred.

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories, which are valued using a weighted average cost method calculated for each production batch. The Company periodically evaluates the carrying value of inventory on hand for potential excess amount over demand using the same lower of cost or market approach as that used to value the inventory. As a result of this evaluation, for the year ended December 31, 2013, the Company recognized a total charge of $10.2 million for Qsymia inventories on hand in excess of demand, plus a purchase commitment fee. No such charge was recorded in the year ended December 31, 2012.