Inventory incurred prior to FDA approval

[Table of Contents](#ie2ffba3ee5384c86becdb38ff117ca9a_7)In November 2011, we began commercialization and distribution of JAKAFI, in April 2020, we began commercialization and distribution of PEMAZYRE, and in October 2021, we began commercialization and distribution of OPZELURA. Our product revenues are concentrated in a number of these customers. The concentration of credit risk related to our JAKAFI, PEMAZYRE and OPZELURA product revenues is as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Percentage of Total NetProduct Revenues for theThree Months Ended |  | Percentage of Total NetProduct Revenues for theNine Months Ended |
|  | September 30, |  | September 30, |
|  | 2022 |  | 2021 |  | 2022 |  | 2021 |
| Customer A | 19  | % |  | 19  | % |  | 19  | % |  | 19  | % |
| Customer B | 10  | % |  | 11  | % |  | 11  | % |  | 12  | % |
| Customer C | 15  | % |  | 17  | % |  | 18  | % |  | 18  | % |
| Customer D | 5  | % |  | 9  | % |  | 5  | % |  | 10  | % |
| Customer E | 9  | % |  | 11  | % |  | 10  | % |  | 11  | % |

We are exposed to risks associated with extending credit to customers related to the sale of products. Customers A, B, C, D and E comprised, in aggregate, 36% and 31% of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively. The concentration of credit risk relating to our other product revenues or accounts receivable is not significant.We assessed our collaborative and customer receivable assets as of September 30, 2022 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis. As of September 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts.Note 6. InventoryOur inventory balance consists of the following (in thousands):

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | September 30,2022 |  | December 31,2021 |
| Raw materials | $ | 32,289  |  |  | $ | 1,275  |  |
| Work-in-process | 35,465  |  |  | 39,895  |  |
| Finished goods | 33,379  |  |  | 15,768  |  |
| Total inventory | $ | 101,133  |  |  | $ | 56,938  |  |

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At September 30, 2022, $45.9 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months. At September 30, 2022, $55.3 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months. We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations. The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins.We capitalize inventory after U.S. Food and Drug Administration (FDA) approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to FDA approval are recorded as research and development expense in our statements of operations. At September 30, 2022, inventory with approximately $56.8 million of product costs incurred prior to FDA approval had not yet been sold. We expect to sell the pre-commercialization inventory over the next 28 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials. 13
