##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 Commission file number 1-14131
 ALKERMES, INC.
 (Exact name of registrant as specified in its charter)
 PENNSYLVANIA
    
    23-2472830(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 88 Sidney Street, Cambridge, MA 02139-4234
(617) 494-0171  (Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
 þ o
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ
  As of November 2,Class
    
    2009Common Stock, $.01 par value
    
    
    94,382,663Non-Voting Common Stock, $.01 par value
    
    
    382,632




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##### 



ALKERMES, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1.  Condensed Consolidated Financial Statements:
    
    3Condensed Consolidated Balance Sheets  September 30, 2009 and March 31, 2009
    
    3Condensed Consolidated Statements of Operations  For the Three and Six Months Ended September 30, 2009 and 2008
    
    4Condensed Consolidated Statements of Cash Flows  For the Six Months Ended September 30, 2009 and 2008
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17Item 3.  Quantitative and Qualitative Discloures about Market Risk
    
    28Item 4.  Controls and Procedures
    
    28PART II  OTHER INFORMATIONItem 1.  Legal Proceedings
    
    30Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    30Item 6.  Exhibits
    
    30Signatures
    
    31Exhibit Index
    
    32EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEO & CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements :
 
 ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 September 30,
    
    
    March 31,2009
    
    
    2009(In thousands, except share and per share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    52,992
    
    
    $
    86,893Investments  short-term
    
    
    242,098
    
    
    
    236,768Receivables
    
    
    33,699
    
    
    
    24,588Inventory
    
    
    18,524
    
    
    
    20,297Prepaid expenses and other current assets
    
    
    7,856
    
    
    
    7,500Total current assets
    
    
    355,169
    
    
    
    376,046PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    94,467
    
    
    
    106,461INVESTMENTS  LONG-TERM
    
    
    74,435
    
    
    
    80,821OTHER ASSETS
    
    
    3,206
    
    
    
    3,158TOTAL ASSETS
    
    $
    527,277
    
    
    $
    566,486LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    28,272
    
    
    $
    36,483Deferred revenue  current
    
    
    1,880
    
    
    
    6,840Non-recourse
RISPERDAL®
CONSTA® secured 7% Notes  current
    
    
    25,667
    
    
    
    25,667Total current liabilities
    
    
    55,819
    
    
    
    68,990NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES  LONG-TERM
    
    
    37,862
    
    
    
    50,221DEFERRED REVENUE  LONG-TERM
    
    
    5,115
    
    
    
    5,238OTHER LONG-TERM LIABILITIES
    
    
    6,450
    
    
    
    7,149Total liabilities
    
    
    105,246
    
    
    
    131,598COMMITMENTS AND CONTINGENCIES (Note 12)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes
3,000,000 shares of preferred stock); none issued
    
    
    
    
    
    
    Common stock, par value, $0.01 per share; 160,000,000 shares authorized;
104,304,607 and 104,044,663 shares issued; 94,384,663 and 94,536,212 shares
outstanding at September 30, 2009 and March 31, 2009, respectively
    
    
    1,042
    
    
    
    1,040Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized;
382,632 shares issued and outstanding at September 30, 2009 and March 31, 2009
    
    
    4
    
    
    
    4Treasury stock, at cost (9,919,944 and 9,508,451 shares at September 30, 2009 and
March 31, 2009, respectively)
    
    
    (129,431
    )
    
    
    (126,025
    )Additional paid-in capital
    
    
    900,076
    
    
    
    892,415Accumulated other comprehensive loss
    
    
    (4,724
    )
    
    
    (6,484
    )Accumulated deficit
    
    
    (344,936
    )
    
    
    (326,062
    )Total shareholders equity
    
    
    422,031
    
    
    
    434,888TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    527,277
    
    
    $
    566,486
  3




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ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)REVENUES:Manufacturing revenues
    
    $
    32,835
    
    
    $
    33,039
    
    
    $
    61,639
    
    
    $
    71,649Royalty revenues
    
    
    8,818
    
    
    
    8,439
    
    
    
    17,519
    
    
    
    17,020Product sales, net
    
    
    4,643
    
    
    
    
    
    
    
    8,869
    
    
    
    Research and development revenue under collaborative arrangements
    
    
    1,174
    
    
    
    5,252
    
    
    
    2,624
    
    
    
    36,702Net collaborative profit
    
    
    687
    
    
    
    581
    
    
    
    5,002
    
    
    
    1,932Total revenues
    
    
    48,157
    
    
    
    47,311
    
    
    
    95,653
    
    
    
    127,303EXPENSES:Cost of goods manufactured and sold
    
    
    15,092
    
    
    
    12,071
    
    
    
    27,758
    
    
    
    26,385Research and development
    
    
    20,664
    
    
    
    19,710
    
    
    
    46,250
    
    
    
    41,971Selling, general and administrative
    
    
    20,625
    
    
    
    11,679
    
    
    
    39,893
    
    
    
    23,605Total expenses
    
    
    56,381
    
    
    
    43,460
    
    
    
    113,901
    
    
    
    91,961OPERATING (LOSS) INCOME
    
    
    (8,224
    )
    
    
    3,851
    
    
    
    (18,248
    )
    
    
    35,342OTHER EXPENSE, NET:Interest income
    
    
    1,088
    
    
    
    2,693
    
    
    
    2,649
    
    
    
    6,309Interest expense
    
    
    (1,566
    )
    
    
    (4,243
    )
    
    
    (3,275
    )
    
    
    (8,469
    )Other expense, net
    
    
    (67
    )
    
    
    (666
    )
    
    
    (130
    )
    
    
    (830
    )Total other expense, net
    
    
    (545
    )
    
    
    (2,216
    )
    
    
    (756
    )
    
    
    (2,990
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (8,769
    )
    
    
    1,635
    
    
    
    (19,004
    )
    
    
    32,352(BENEFIT) PROVISION FOR INCOME TAXES
    
    
    (60
    )
    
    
    (63
    )
    
    
    (130
    )
    
    
    967NET (LOSS) INCOME
    
    $
    (8,709
    )
    
    $
    1,698
    
    
    $
    (18,874
    )
    
    $
    31,385(LOSS) EARNINGS PER COMMON SHARE:Basic
    
    $
    (0.09
    )
    
    $
    0.02
    
    
    $
    (0.20
    )
    
    $
    0.33Diluted
    
    $
    (0.09
    )
    
    $
    0.02
    
    
    $
    (0.20
    )
    
    $
    0.32WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic
    
    
    94,886
    
    
    
    95,637
    
    
    
    94,830
    
    
    
    95,211Diluted
    
    
    94,886
    
    
    
    97,356
    
    
    
    94,830
    
    
    
    96,729
  4




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ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months EndedSeptember 30,2009
    
    
    2008(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (18,874
    )
    
    $
    31,385Adjustments to reconcile net (loss) income to cash flows from operating activities:Depreciation
    
    
    15,482
    
    
    
    4,901Share-based compensation expense
    
    
    7,438
    
    
    
    8,309Other non-cash charges
    
    
    2,093
    
    
    
    2,564Loss on the purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    
    
    
    
    1,989Changes in assets and liabilities:Receivables
    
    
    (9,111
    )
    
    
    2,251Inventory, prepaid expenses and other assets
    
    
    10
    
    
    
    890Accounts payable and accrued expenses
    
    
    (8,702
    )
    
    
    (10,785
    )Unearned milestone revenue
    
    
    
    
    
    
    (3,039
    )Deferred revenue
    
    
    (5,083
    )
    
    
    2,092Other long-term liabilities
    
    
    (920
    )
    
    
    (1,363
    )Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
attributable to original issue discount
    
    
    (1,009
    )
    
    
    (4,590
    )Cash flows (used in) provided by operating activities
    
    
    (18,676
    )
    
    
    34,604CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property, plant and equipment
    
    
    (3,885
    )
    
    
    (3,567
    )Sales of property, plant and equipment
    
    
    169
    
    
    
    7,717Purchases of investments
    
    
    (295,318
    )
    
    
    (462,412
    )Sales and maturities of investments
    
    
    298,134
    
    
    
    463,959Cash flows (used in) provided by investing activities
    
    
    (900
    )
    
    
    5,697CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of common stock for share-based compensation
arrangements
    
    
    183
    
    
    
    7,221Excess tax benefit from share-based compensation
    
    
    
    
    
    
    74Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
    
    
    (11,824
    )
    
    
    Purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    
    
    
    
    (67,185
    )Payment of capital leases
    
    
    
    
    
    
    (47
    )Purchase of common stock for treasury
    
    
    (2,684
    )
    
    
    (13,080
    )Cash flows used in financing activities
    
    
    (14,325
    )
    
    
    (73,017
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (33,901
    )
    
    
    (32,716
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    86,893
    
    
    
    101,241CASH AND CASH EQUIVALENTS  End of period
    
    $
    52,992
    
    
    $
    68,525SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest
    
    $
    2,784
    
    
    $
    6,662Cash paid for taxes
    
    $
    53
    
    
    $
    435Non-cash investing and financing activities:Purchased capital expenditures included in accounts payable and accrued expenses
    
    $
    1,967
    
    
    $
    678Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum
tax withholding obligations related to stock based awards
    
    $
    722
    
    
    $
    568
  5




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Principles of Consolidation
 Use of Estimates
 Segment Information
 Reclassifications
 New Accounting Pronouncements
  6




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     2. COMPREHENSIVE (LOSS) INCOME
  Three Months Ended
    
    
    Six Months EndedSeptember 30
    
    
    September 30(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (8,709
    )
    
    $
    1,698
    
    
    $
    (18,874
    )
    
    $
    31,385Unrealized (losses) gains on available-for-sale securities:Holding (losses) gains (1)
    
    
    (228
    )
    
    
    (61
    )
    
    
    1,760
    
    
    
    (266
    )Reclassification of unrealized losses to realized losses on
available-for-sale securities
    
    
    
    
    
    
    559
    
    
    
    
    
    
    
    607Unrealized (losses) gains on available-for-sale securities
    
    
    (228
    )
    
    
    498
    
    
    
    1,760
    
    
    
    341Comprehensive (loss) income
    
    $
    (8,937
    )
    
    $
    2,196
    
    
    $
    (17,114
    )
    
    $
    31,726
 
 (1)
    
    During the three months ended September 30, 2009, the Company
recorded an out of period adjustment of $1.9 million for unrealized
losses on available-for-sale securities. This adjustment had no impact
on reported net loss. 7




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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. EARNINGS PER SHARE
   Three Months Ended
    
    
    Six Months EndedSeptember 30
    
    
    September 30(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net (loss) income
    
    $
    (8,709
    )
    
    $
    1,698
    
    
    $
    (18,874
    )
    
    $
    31,385Denominator:Weighted average number of common shares outstanding
    
    
    94,886
    
    
    
    95,637
    
    
    
    94,830
    
    
    
    95,211Effect of dilutive securities:Stock options
    
    
    
    
    
    
    1,479
    
    
    
    
    
    
    
    1,329Restricted stock units
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    189Dilutive common share equivalents
    
    
    
    
    
    
    1,719
    
    
    
    
    
    
    
    1,518Shares used in calculating diluted (loss) earnings per share
    
    
    94,886
    
    
    
    97,356
    
    
    
    94,830
    
    
    
    96,729
  Three Months Ended
    
    
    Six Months EndedSeptember 30
    
    
    September 30(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Stock options
    
    
    17,821
    
    
    
    13,384
    
    
    
    17,920
    
    
    
    13,858Restricted stock units
    
    
    407
    
    
    
    67
    
    
    
    308
    
    
    
    Total
    
    
    18,228
    
    
    
    13,451
    
    
    
    18,228
    
    
    
    13,858
 8




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. INVESTMENTS
  Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)September 30, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    209,896
    
    
    $
    389
    
    
    $
    
    
    
    $
    210,285International government agency debt securities
    
    
    28,692
    
    
    
    148
    
    
    
    
    
    
    
    28,840Other debt securities
    
    
    3,267
    
    
    
    
    
    
    
    (294
    )
    
    
    2,973Total short-term investments
    
    
    241,855
    
    
    
    537
    
    
    
    (294
    )
    
    
    242,098Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    17,994
    
    
    
    
    
    
    
    (17
    )
    
    
    17,977Corporate debt securities
    
    
    43,162
    
    
    
    
    
    
    
    (3,162
    )
    
    
    40,000Other debt securities
    
    
    11,510
    
    
    
    
    
    
    
    (1,788
    )
    
    
    9,722Strategic investments
    
    
    738
    
    
    
    142
    
    
    
    
    
    
    
    88073,404
    
    
    
    142
    
    
    
    (4,967
    )
    
    
    68,579Held-to-maturity securities:U.S. government obligations
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    416Certificates of deposit
    
    
    5,440
    
    
    
    
    
    
    
    
    
    
    
    5,440Total long-term investments
    
    
    79,260
    
    
    
    142
    
    
    
    (4,967
    )
    
    
    74,435Total investments
    
    $
    321,115
    
    
    $
    679
    
    
    $
    (5,261
    )
    
    $
    316,533March 31, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    225,490
    
    
    $
    2,635
    
    
    $
    (6
    )
    
    $
    228,119Corporate debt securities
    
    
    8,160
    
    
    
    9
    
    
    
    
    
    
    
    8,169Other debt securities
    
    
    500
    
    
    
    
    
    
    
    (20
    )
    
    
    480Total short-term investments
    
    
    234,150
    
    
    
    2,644
    
    
    
    (26
    )
    
    
    236,768Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    10,149
    
    
    
    
    
    
    
    (3
    )
    
    
    10,146Corporate debt securities
    
    
    57,887
    
    
    
    
    
    
    
    (6,326
    )
    
    
    51,561Other debt securities
    
    
    16,350
    
    
    
    
    
    
    
    (2,683
    )
    
    
    13,667Strategic investments
    
    
    738
    
    
    
    53
    
    
    
    
    
    
    
    79185,124
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    76,165Held-to-maturity securities:U.S. government obligations
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    416Certificates of deposit
    
    
    4,240
    
    
    
    
    
    
    
    
    
    
    
    4,240Total long-term investments
    
    
    89,780
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    80,821Total investments
    
    $
    323,930
    
    
    $
    2,697
    
    
    $
    (9,038
    )
    
    $
    317,589
  9




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Available-for-Sale
    
    
    Held-to-MaturityAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    Estimated(in thousands)
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueWithin 1 year
    
    $
    124,069
    
    
    $
    124,061
    
    
    $
    416
    
    
    $
    416After 1 year through 5 years (1)
    
    
    131,784
    
    
    
    131,700
    
    
    
    
    
    
    
    After 5 years through 10 years (1)
    
    
    48,668
    
    
    
    45,578
    
    
    
    
    
    
    
    After 10 years
    
    
    10,000
    
    
    
    8,458
    
    
    
    
    
    
    
    Total
    
    $
    314,521
    
    
    $
    309,797
    
    
    $
    416
    
    
    $
    416
 
 (1)
    
    Investments in available-for-sale securities within these categories,
with an amortized cost of $151.4 million and an estimated fair value
of $148.2 million, have issuer call dates prior to May 2011.      10




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
       11




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    5. FAIR VALUE MEASUREMENTS
  September 30,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    187
    
    
    $
    187
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    228,262
    
    
    
    228,262
    
    
    
    
    
    
    
    International government agency debt securities
    
    
    28,840
    
    
    
    28,840
    
    
    
    Corporate debt securities
    
    
    40,000
    
    
    
    
    
    
    
    27,824
    
    
    
    12,176Other debt securities
    
    
    12,695
    
    
    
    
    
    
    
    
    
    
    
    12,695Strategic equity investments
    
    
    880
    
    
    
    880
    
    
    
    
    
    
    
    Total
    
    $
    310,864
    
    
    $
    258,169
    
    
    $
    27,824
    
    
    $
    24,871March 31,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    822
    
    
    $
    822
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    238,265
    
    
    
    238,265
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    59,730
    
    
    
    
    
    
    
    
    
    
    
    59,730Other debt securities
    
    
    14,147
    
    
    
    
    
    
    
    
    
    
    
    14,147Strategic equity investments
    
    
    791
    
    
    
    791
    
    
    
    
    
    
    
    Total
    
    $
    313,755
    
    
    $
    239,878
    
    
    $
    
    
    
    $
    73,877
 12




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Fair(In thousands)
    
    ValueBalance, March 31, 2009
    
    $
    73,877Total unrealized gains included in comprehensive loss
    
    
    3,687Sales and redemptions, at par value
    
    
    (18,773
    )Transfers out of Level 3
    
    
    (33,920
    )Balance, September 30, 2009
    
    $
    24,871
    6. INVENTORY
  September 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Raw materials
    
    $
    5,174
    
    
    $
    5,916Work in process
    
    
    5,738
    
    
    
    5,397Finished goods (1)
    
    
    7,430
    
    
    
    7,015Consigned-out inventory (2)
    
    
    182
    
    
    
    1,969Inventory
    
    $
    18,524
    
    
    $
    20,297
 
 (1)
    
    At September 30, 2009 and March 31, 2009, the Company had $1.5 million and none,
respectively, of finished goods inventory located at its third-party warehouse and shipping service
provider.(2)
    
    At September 30, 2009, consigned-out inventory relates to
inventory in the distribution channel for which the Company has
not recognized revenue. At March 31, 2009, consigned-out inventory
consisted of $1.8 million of consigned-out inventory and $0.2 million
of inventory in the distribution channel for which the Company has not
recognized revenue. 13




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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 7. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Land
    
    $
    301
    
    
    $
    301Building and improvements
    
    
    36,325
    
    
    
    36,325Furniture, fixture and equipment
    
    
    66,295
    
    
    
    67,165Leasehold improvements
    
    
    33,980
    
    
    
    33,996Construction in progress
    
    
    43,918
    
    
    
    41,908Subtotal
    
    
    180,819
    
    
    
    179,695Less: accumulated depreciation
    
    
    (86,352
    )
    
    
    (73,234
    )Total property, plant and equipment, net
    
    $
    94,467
    
    
    $
    106,461
  8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  September 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Accounts payable
    
    $
    5,457
    
    
    $
    8,046Accrued compensation
    
    
    10,072
    
    
    
    13,817Accrued interest
    
    
    1,123
    
    
    
    1,549Amounts due to Cephalon
    
    
    
    
    
    
    1,169Accrued other
    
    
    11,620
    
    
    
    11,902Total accounts payable and accrued expenses
    
    $
    28,272
    
    
    $
    36,483
 9. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Six Months EndedSeptember 30
    
    
    September 30(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of goods manufactured and sold
    
    $
    519
    
    
    $
    428
    
    
    $
    829
    
    
    $
    857Research and development
    
    
    919
    
    
    
    1,282
    
    
    
    1,726
    
    
    
    2,870Selling, general and administrative (1)
    
    
    2,770
    
    
    
    2,104
    
    
    
    4,883
    
    
    
    4,582Total share-based compensation expense
    
    $
    4,208
    
    
    $
    3,814
    
    
    $
    7,438
    
    
    $
    8,309
 
 (1)
    
    In September 2009, in connection with the resignation of its former
President and Chief Executive Officer, the Company entered into a
separation agreement that provided for, among other things: the
acceleration of vesting of certain stock options and restricted stock
awards that were scheduled to vest through June 30, 2010; and the
period in which vested stock options are exercisable was extended
until the earlier of June 30, 2011 or the stated expiration date of
the stock options. As a result of these stock option and award
modifications, the Company recorded an expense of $0.9 million during
the three months ended September 30, 2009.  14




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. RESTRUCTURING
 ®
 (in
thousands)Accrued restructuring, March 31, 2009
    
    $
    4,193Payments for facility closure costs
    
    
    (416
    )Other adjustments
    
    
    106Accrued restructuring, September 30, 2009
    
    $
    3,883
  11. INCOME TAXES
   12. COMMITMENTS AND CONTINGENCIES
    15




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 13. SUBSEQUENT EVENTS
  16




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Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
 ® ® ®
 Forward-Looking Statements
   17




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Our Strategy
  Products and Development Programs
 RISPERDAL CONSTA
 ®
 18




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##### Table of Contents



VIVITROL
   Exenatide Once Weekly
 ®
  ®
 19




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##### Table of Contents



ALKS 33
  ALKS 29
  ALKS 27
 ®
  ALKS 37
  20




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##### Table of Contents



ALKS 36
  Executive Summary
  Results of Operations
 Manufacturing Revenues
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Manufacturing revenues:RISPERDAL CONSTA
    
    $
    31.9
    
    
    $
    30.7
    
    
    $
    1.2
    
    
    $
    59.8
    
    
    $
    66.6
    
    
    $
    (6.8
    )Polymer
    
    
    0.4
    
    
    
    
    
    
    
    0.4
    
    
    
    1.4
    
    
    
    
    
    
    
    1.4VIVITROL
    
    
    0.5
    
    
    
    2.3
    
    
    
    (1.8
    )
    
    
    0.4
    
    
    
    5.0
    
    
    
    (4.6
    )Manufacturing revenues
    
    $
    32.8
    
    
    $
    33.0
    
    
    $
    (0.2
    )
    
    $
    61.6
    
    
    $
    71.6
    
    
    $
    (10.0
    )
    21




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Royalty Revenues
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Royalty revenues
    
    $
    8.8
    
    
    $
    8.4
    
    
    $
    0.4
    
    
    $
    17.5
    
    
    $
    17.0
    
    
    $
    0.5
  Product Sales, net
  Three Months Ended
    
    
    Six Months EndedSeptember 30
    
    
    September 30(In millions)
    
    2009
    
    
    % of Sales
    
    
    2009
    
    
    % of SalesProduct sales, gross
    
    $
    5.2
    
    
    
    100.0
    %
    
    $
    10.5
    
    
    
    100.0
    %Adjustments to product sales, gross:Wholesaler fees
    
    
    (0.2
    )
    
    
    (3.8
    )%
    
    
    (0.4
    )
    
    
    (3.7
    )%Medicaid rebates
    
    
    (0.1
    )
    
    
    (1.9
    )%
    
    
    (0.3
    )
    
    
    (2.9
    )%Free product coupons
    
    
    
    
    
    
    
    %
    
    
    (0.3
    )
    
    
    (2.9
    )%Prompt-pay discounts
    
    
    (0.1
    )
    
    
    (1.9
    )%
    
    
    (0.2
    )
    
    
    (1.9
    )%Product returns (1)
    
    
    0.1
    
    
    
    1.9
    %
    
    
    (0.1
    )
    
    
    (1.0
    )%Other
    
    
    (0.3
    )
    
    
    (5.8
    )%
    
    
    (0.3
    )
    
    
    (2.9
    )%Total adjustments
    
    
    (0.6
    )
    
    
    (11.5
    )%
    
    
    (1.6
    )
    
    
    (15.3
    )%Product sales, net
    
    $
    4.6
    
    
    
    88.5
    %
    
    $
    8.9
    
    
    
    84.7
    %
 22




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##### Table of Contents



(1)
    
    Following the introduction of a return policy for VIVITROL, our
estimate for product returns reflects the deferral of the recognition
of revenue on shipments of VIVITROL to our customers until the product
has left the distribution channel as we do not yet have the history to
reasonably estimate returns related to these shipments. We estimate
the product shipments out of the distribution channel through data
provided by external sources, including information on inventory
levels provided by our customers as well as prescription information.  Research and Development Revenue Under Collaborative Arrangements
 Three Months Ended
    
    

    Change
    
    
    Six Months Ended
    
    ChangeSeptember 30
    
    

    Favorable/
    

    September 30
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development programs:Four-week RISPERDAL CONSTA
    
    $
    0.9
    
    
    $
    1.0
    
    
    $
    (0.1
    )
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    Exenatide once weekly
    
    
    0.1
    
    
    
    2.9
    
    
    
    (2.8
    )
    
    
    0.4
    
    
    
    7.8
    
    
    
    (7.4
    )AIR Insulin
    
    
    
    
    
    
    1.1
    
    
    
    (1.1
    )
    
    
    
    
    
    
    26.6
    
    
    
    (26.6
    )Other
    
    
    0.2
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    0.4
    
    
    
    (0.1
    )Research and development revenue under
collaborative arrangements
    
    $
    1.2
    
    
    $
    5.3
    
    
    $
    (4.1
    )
    
    $
    2.6
    
    
    $
    36.7
    
    
    $
    (34.1
    )
  Net Collaborative Profit
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Net collabortive profit:Milestone revenue  license
    
    $
    
    
    
    $
    1.3
    
    
    $
    (1.3
    )
    
    $
    
    
    
    $
    2.6
    
    
    $
    (2.6
    )Net payments to Cephalon
    
    
    
    
    
    
    (0.7
    )
    
    
    0.7
    
    
    
    
    
    
    
    (0.7
    )
    
    
    0.7VIVITROL losses funded by Cephalon,
post termination
    
    
    0.7
    
    
    
    
    
    
    
    0.7
    
    
    
    5.0
    
    
    
    
    
    
    
    5.0Net collaborative profit
    
    $
    0.7
    
    
    $
    0.6
    
    
    $
    0.1
    
    
    $
    5.0
    
    
    $
    1.9
    
    
    $
    3.1
  23




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Cost of Goods Manufactured and Sold
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Cost of goods manufactured and sold:RISPERDAL CONSTA
    
    $
    12.1
    
    
    $
    8.1
    
    
    $
    (4.0
    )
    
    $
    21.8
    
    
    $
    18.9
    
    
    $
    (2.9
    )VIVITROL
    
    
    2.6
    
    
    
    4.0
    
    
    
    1.4
    
    
    
    4.6
    
    
    
    7.5
    
    
    
    2.9Polymer
    
    
    0.4
    
    
    
    
    
    
    
    (0.4
    )
    
    
    1.4
    
    
    
    
    
    
    
    (1.4
    )Cost of goods manufactured and sold
    
    $
    15.1
    
    
    $
    12.1
    
    
    $
    (3.0
    )
    
    $
    27.8
    
    
    $
    26.4
    
    
    $
    (1.4
    )
    Research and Development Expense
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development
    
    $
    20.7
    
    
    $
    19.7
    
    
    $
    (1.0
    )
    
    $
    46.3
    
    
    $
    42.0
    
    
    $
    (4.3
    )
   24




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##### Table of Contents



Selling, General and Administrative Expense
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Selling, general and administrative
    
    $
    20.6
    
    
    $
    11.7
    
    
    $
    (8.9
    )
    
    $
    39.9
    
    
    $
    23.6
    
    
    $
    (16.3
    )
  Other Expense, Net
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Interest income
    
    $
    1.1
    
    
    $
    2.7
    
    
    $
    (1.6
    )
    
    $
    2.6
    
    
    $
    6.3
    
    
    $
    (3.7
    )Interest expense
    
    
    (1.6
    )
    
    
    (4.2
    )
    
    
    2.6
    
    
    
    (3.3
    )
    
    
    (8.5
    )
    
    
    5.2Other expense, net
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    (0.8
    )
    
    
    0.7Total other expense, net
    
    $
    (0.6
    )
    
    $
    (2.2
    )
    
    $
    1.6
    
    
    $
    (0.8
    )
    
    $
    (3.0
    )
    
    $
    2.2
  Provision for Income Taxes
 Three Months Ended
    
    
    Change
    
    
    Six Months Ended
    
    
    ChangeSeptember 30
    
    
    Favorable/
    
    
    September 30
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)(Benefit) provision for income taxes
    
    $
    (0.1
    )
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    1.0
    
    
    $
    1.1
  25




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Liquidity and Capital Resources
   September 30
    
    
    March 31,(In millions)
    
    2009
    
    
    2009Cash and cash equivalents
    
    $
    53.0
    
    
    $
    86.9Investments  short-term
    
    
    242.1
    
    
    
    236.8Investments  long-term
    
    
    74.4
    
    
    
    80.8Total cash, cash equivalents and investments
    
    $
    369.5
    
    
    $
    404.5Working capital
    
    $
    299.4
    
    
    $
    307.1Outstanding borrowings  current and long-term
    
    $
    63.5
    
    
    $
    75.9
 Cash and Cash Equivalents
  Six Months EndedSeptember 30(In millions)
    
    2009
    
    
    2008Cash and cash equivalents, beginning of period
    
    $
    86.9
    
    
    $
    101.2Cash (used in) provided by operating activities
    
    
    (18.7
    )
    
    
    34.6Cash (used in) provided by investing activities
    
    
    (0.9
    )
    
    
    5.7Cash used in financing activities
    
    
    (14.3
    )
    
    
    (73.0
    )Cash and cash equivalents, end of period
    
    $
    53.0
    
    
    $
    68.5
 Operating Activities
  Investing Activities
  26




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##### Table of Contents



Financing Activities
  Investments
    Borrowings
  Contractual Obligations
  27




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##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Estimates
   New Accounting Standards
  
 Item 3.
Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 a) Evaluation of Disclosure Controls and Procedures
  28




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##### Table of Contents



b) Change in Internal Control over Financial Reporting
  29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total
    
    
    Approximate DollarNumber of Shares
    
    
    Value of Shares thatTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    May Yet be Purchasedof Shares
    
    
    Price Paid
    
    
    Part of a Publicly
    
    
    Under the ProgramPeriod
    
    Purchased (a)
    
    
    per Share
    
    
    Announced Program (a)
    
    
    (In millions)July 1 through July 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    101.1August 1 through August 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    101.1September 1 through September 30
    
    
    18,900
    
    
    $
    9.04
    
    
    
    18,900
    
    
    $
    101.0Total
    
    
    18,900
    
    
    $
    9.04
    
    
    
    18,900
 
 (a)
    
    On November 21, 2007, we publicly announced that our board of
directors authorized a program to repurchase up to $175.0 million of
our common stock to be repurchased at the discretion of management
from time to time in the open market or through privately negotiated
transactions. On June 16, 2008, we publicly announced that our board
of directors authorized the expansion of this repurchase program by an
additional $40.0 million, bringing the total authorization under this
program to $215.0 million. The repurchase program has no set
expiration date and may be suspended or discontinued at any time. At
September 30, 2009, we have purchased a total of 8,866,342 shares
under this program at a cost of $114.0 million.  
 Item 6. Exhibits
  ExhibitNo.10.1
    
    Separation Agreement by and between Alkermes, Inc. and David A.
Broecker, dated September 10, 2009 (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed
on September 11, 2009).10.2
    
    Amendment No. 2 to Employment Agreement by and between Alkermes,
Inc. and Richard F. Pops, dated September 10, 2009 (incorporated
by reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed on September 11, 2009).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
 30




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##### Table of Contents



SIGNATURES
  ALKERMES, INC.
(Registrant)By:
    /s/ Richard F. PopsRichard F. PopsChairman, President and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ James M. FratesJames M. FratesSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)  31




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.10.1
    
    Separation Agreement by and between Alkermes, Inc. and David A.
Broecker, dated September 10, 2009 (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed
on September 11, 2009).10.2
    
    Amendment No. 2 to Employment Agreement by and between Alkermes,
Inc. and Richard F. Pops, dated September 10, 2009 (incorporated
by reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed on September 11, 2009).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
 32