2.13 Inventory

Tell us and clarify in future filings the meaning of “normal operating cycle” as used in your accounting policy disclosure and why the criteria is appropriate for classification of inventory as long-term. Discuss the shelf-life associated with your product and explain why you believe you will be able to realize the inventory prior to the expiration of the shelf life.

You indicate that you have pre-FDA approved inventory on hand and that you expect this to continue to impact your cost of sales. Please quantify the remaining pre-FDA approved inventory as of [the end of the third quarter of fiscal year 2] and how long you expect this to continue to impact cost of sales. If material, please provide this disclosure in future filings, similar to your disclosure in the Notes to the Financial Statements in your Form 10-K for [fiscal year 1].

We note your disclosure that inventories are carried at the lower of cost or market. Please tell us how this is consistent with ASC 330-10-35-1B, which indicates that inventories should be valued at the lower of cost or net realizable value.

You disclose that certain manufacturing costs associated with product shipments of [X] were expensed prior to FDA approval and, therefore, were not included in cost of goods sold as of [the end of fiscal year 1] and [the end of the first quarter of fiscal year 2]. Please tell us and provide proposed disclosure to be included in future periodic reports that addresses the following:

• The cost of the inventory build-up prior to your regulatory approval that had been expensed in prior periods as research and development expenses (i.e. zero cost inventories),
• The estimated selling value of zero cost inventory on hand at [the end of the first quarter of fiscal year 2] and when you expect, based on your current sales trends, the zero cost inventories to be depleted, and
• The shelf life of your inventory and your consideration of whether or not any additional inventory will be determined to be obsolete in future periods.

We note your reference to excess and obsolete inventory reserves here and the rollforward analysis in your Schedule II disclosures. Please clarify for us whether you maintain an inventory valuation allowance through which subsequent recoveries are recorded, and if so, explain how that is consistent with the guidance noted in SAB Topic 5.BB and ASC 330-10-35-14. Otherwise, revise your disclosures regarding inventory reserves in future filings.