Annual report pursuant to Section 13 and 15(d)

Inventories

Inventories

12 Months Ended

Dec. 31, 2021

InventoriesInventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost or net realizable value. The Company capitalizes inventory costs related to products to be sold in the ordinary course of business.

The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. For our product LUPKYNIS, the Company commenced capitalization of inventory once FDA approval was deemed to be probable, which occurred during the third quarter of 2020. Capitalized costs of inventories for LUPKYNIS mainly include third party manufacturing costs, transportation, storage, insurance, depreciation and allocated internal labor.

The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories.

The components of inventory are as follows:


(in thousands)	December 31, 2021		December 31, 2020
Raw materials	$	2,217	$	—
Work in process	12,566		13,927
Finished goods	4,543		—
Total inventories, net	$	19,326	$	13,927

As of December 31, 2020, $13.9 million of pre-launch inventory recognized on the consolidated balance sheet was classified as work in process. In addition, as of December 31, 2021 we have inventory deposits of $3.9 million that are primarily related to the purchase of drug substance that are currently recorded under prepaid expenses and other current assets.