DepoMed (DEPO)

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, inventory write-downs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three months ended March 31, 2009, as compared to the prior year, was as follows (in thousands):

Cost of sales for the three months ended March 31, 2009 and 2008 relates primarily to costs associated with the sale of GLUMETZA and Proquin XR. Cost of sales decreased slightly in three months ended March 31, 2009 as compared to the prior year, primarily because the three months ended March 31, 2008 included approximately $0.3 million in inventory write-downs related to slow moving Proquin XR inventory that we expected would not be sold prior to its expiration date.

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Cost of Sales

        Cost of sales consists of costs of active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing and supply process, distribution costs and shipping costs related to our product sales. Total costs of sales are summarized in the following table (in thousands):

        Cost of sales increased in 2008 over 2007 primarily as a result of an increase in GLUMETZA product sales. As noted above under "CRITICAL ACCOUNTING POLICIES—Revenue Recognition", beginning in the third quarter of 2008, we began to recognize GLUMETZA product sales at time title transfers to our customer. This resulted in a one-time increase of approximately $1.0 million in costs of sales during the year ended December 31, 2008. Cost of sales increased in 2007 over 2006 primarily as a result of an increase in GLUMETZA product sales. The costs of manufacturing associated with deferred revenue on Proquin XR product shipments are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Cost of Sales

        Cost of sales consists of costs of active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing and supply process, distribution costs and shipping costs related to our product sales. Total costs of sales are summarized in the following table (in thousands):

        Cost of sales increased in 2008 over 2007 primarily as a result of an increase in GLUMETZA product sales. As noted above under "CRITICAL ACCOUNTING POLICIES—Revenue Recognition", beginning in the third quarter of 2008, we began to recognize GLUMETZA product sales at time title transfers to our customer. This resulted in a one-time increase of approximately $1.0 million in costs of sales during the year ended December 31, 2008. Cost of sales increased in 2007 over 2006 primarily as a result of an increase in GLUMETZA product sales. The costs of manufacturing associated with deferred revenue on Proquin XR product shipments are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Cost of Sales

        Cost of sales consists of costs of active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality
testing, internal employee costs related to the manufacturing and supply process, distribution costs and shipping costs related to our product sales. Total costs of sales are summarized in the
following table (in thousands):

        Cost
of sales increased in 2008 over 2007 primarily as a result of an increase in GLUMETZA product sales. As noted above under "CRITICAL ACCOUNTING
POLICIES—Revenue Recognition", beginning in the third quarter of 2008, we began to recognize GLUMETZA product sales
at time title transfers to our customer. This resulted in a one-time increase of approximately $1.0 million in costs of sales during the year ended December 31, 2008. Cost of
sales increased in 2007 over 2006 primarily as a result of an increase in GLUMETZA product sales. The costs of manufacturing associated with deferred revenue on Proquin XR product shipments are
recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, inventory write-downs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three and nine months ended September 30, 2008, as compared to the prior year, was as follows (in thousands):

Cost of sales for the three and nine months ended September 30, 2008 and 2007 relates primarily to costs associated with the sale of GLUMETZA and Proquin XR. Cost of sales increased in 2008 over 2007 primarily as a result of an increase in GLUMETZA product sales. As noted above under “CRITICAL ACCOUNTING POLICIES – Revenue Recognition”, beginning in the third quarter of 2008, we began to recognize GLUMETZA product sales at time title transfers to our customer. This resulted in a one-time increase of approximately $1.0 million in costs of sales during the three and nine months ended September 30, 2008. During the three and nine months ended September 30, 2008, cost of sales also included approximately $0.3 million and $0.6 million, respectively, in inventory write-downs related to slow moving Proquin XR inventory that we expect will not be sold prior to its expiration date.

The costs of manufacturing associated with deferred revenue on Proquin XR product shipments are recorded as deferred costs, which are included in inventory, until such time the related deferred revenue is recognized.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, inventory write-downs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three and six months ended June 30, 2008, as compared to the prior year, was as follows (in thousands):

Cost of sales for the three and six months ended June 30, 2008 and 2007 relates primarily to costs associated with the sale of GLUMETZA and Proquin XR. Cost of sales increased in 2008 over 2007 primarily as a result of an increase in GLUMETZA product sales. During the six months ended June 30, 2008, cost of sales also included approximately $0.3 million in inventory write-downs related to slow moving Proquin XR inventory that we expect will not be sold prior to its expiration date.

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Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, inventory write-downs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three months ended March 31, 2008, as compared to the prior year, was as follows (in thousands):

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Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three and nine months ended September 30, 2007, as compared to the prior year, was as follows (in thousands):

Cost of sales for the three and nine months ended September 30, 2007 relates primarily to costs associated with the sale of GLUMETZA. Costs of sales for the three and nine months ended September 30, 2006 relates primarily to costs associated with the supply of ProQuin XR to Esprit. The costs of manufacturing associated with deferred revenue on GLUMETZA product shipments are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Total cost of sales for the three and six months ended June 30, 2007, as compared to the prior year, was as follows (in thousands):

Cost of sales for the three and six months ended June 30, 2007 relates primarily to costs associated with the sale of GLUMETZA.  Costs of sales for the three and six months ended June 30, 2006 relates primarily to costs associated with the supply of ProQuin XR to Esprit. The costs of manufacturing associated with deferred revenue on GLUMETZA product shipments are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to ProQuin XR and GLUMETZA product sales. Cost of sales increased in 2006 as a result of the GLUMETZA launch in September 2006. The costs of manufacturing associated with deferred revenue on GLUMETZA product shipments are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized. We expect cost of sales to continue to increase in 2007, as we expect product sales of GLUMETZA to increase over 2006 levels.

Cost of Sales

Cost of sales for the three and nine months ended September 30, 2006 was $320,000 and $1,446,000, respectively. However, cost of sales did not include the costs of certain material previously expensed. Prior to commercialization, materials that were purchased were expensed to research and development. If we would have accounted for this material in cost of sales, our cost of sales would have been approximately $42,000 greater for the nine months ended September 30, 2006. Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs.

Cost of Sales

Cost of sales for the three and six months ended June 30, 2006 was $1,051,000 and $1,125,000, or approximately 90% and 89% of product sales, respectively. However, cost of sales did not include the costs of certain material previously expensed. Prior to commercialization, materials that were purchased were expensed to research and development. If we would have accounted for this material in cost of sales, our cost of sales would have been approximately $42,000 greater than the reported amount or 92% of product sales for the six months ended June 30, 2006. Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal employee costs related to the manufacturing process and shipping costs.