Note 5 –

Inventory

Inventory is comprised of the following:

	December 31,
(in thousands)	2014		2013

Raw materials	$	–	$	52
Finished goods, net of reserves		27		60
Total inventories, net	$	27	$	112

As of December 31, 2014, there was $0.5 million of raw materials purchased prior to October 4, 2013, the date the FDA approved updated SURFAXIN product specifications and enabled the commercial introduction of SURFAXIN. These raw materials have a carrying value of zero, as the costs to purchase this material were expensed in the period of purchase as research and development expense, and accordingly are not reflected in the inventory balances shown above. These raw materials are anticipated to be used in manufacturing development, research and development activities and in the manufacture of commercial product.

Inventory reserves as of December 31, 2014 and December 31, 2013 were $2.4 million and $0.5 million, respectively. Inventory reserves reflect costs of SURFAXIN finished goods inventories that are not anticipated to be recoverable through the commercial sale of the product during the initial launch period due to product expiration. These reserves ensure that the inventory carrying values do not exceed net realizable value. Inventory reserves are recorded as a component of cost of goods sold.