5. INVENTORIES

Inventories consist of the following (in thousands):


	Balance as of
	September 30,		December 31,
	2016		2015
Raw materials	$	7,587	$	8,645
Work-in-process		1,112		247
Finished goods		2,013		4,282
Deferred costs		547		428
Inventories	$	11,259	$	13,602

Raw materials inventories consist primarily of the active pharmaceutical ingredients, or API, for Qsymia and STENDRA/SPEDRA. Deferred costs inventories consist primarily of Qsymia and represent Qsymia product shipped to the Company’s wholesalers and certified retail pharmacies, but not yet dispensed to patients through prescriptions, net of prompt payment discounts, 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 amounts over demand using the same lower of cost or market approach as that used to value the inventory. In the second quarter of 2015, the Company recorded inventory impairment charges of $29.5 million primarily for Qsymia API inventory in excess of expected demand.