Inventories

9 Months Ended

Sep. 30, 2011

Note 4: Inventories

The Company uses the lower of first-in, first-out ("FIFO") cost or market method of accounting for inventory.

Inventories consist of the following:	(in thousands)
	December 31,			September 30,
	2010			2011
Inventory work-in-process, January 1	$	864		$	787
Production		373			302
Spoilage		(450	)		0
Finished goods, net of reserves of $250,000 at December 31, 2010 and at September 30, 2011, respectively.		0			0
Inventory work-in-process, end of period	$	787		$	1,089

The production of Alferon N Injection® from the Work-In-Progress Inventory continued through January 2011 with its conversion into Active Pharmaceutical Ingredient ("API") and is near completion for the related Final Lot Release Test. To formulate, fill and finish Alferon N Injection® Drug Product, we require a U.S. Food and Drug Administration ("FDA") approved third party Contract Manufacturing Organization ("CMO"). In June 2011, our designated CMO reported to us that they had received an FDA 483 form that identified production issues that needed to be addressed prior to resumption of production. As a result, we continue to evaluate alternative CMOs to undertake the formulation Fill and Finish process. When a new CMO is selected, it will be necessary to conduct production tests to qualify the new CMO. The resulting data must then be submitted to the FDA, with the CMO and finished product lots approved by FDA, prior to our being able to commercially sell Alferon N Injection®. While timing cannot be adequately determined until the selection of a CMO is finalized, we estimate that commercial sales of Alferon N Injection® will not resume until the later part of 2012.