##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
| 
|  |  | For the quarterly period ended September 30, 2005                                           
| 
|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
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|88 Sidney Street, Cambridge, MA                                    |  | 02139-4136                              
|(Address of principal executive offices)                           |  | (Zip Code)                              

Registrants telephone number including area code:


(617) 494-0171


(Former name, former address, and former fiscal year, if
changed since last report)


þ o


þ o


o þ




|                                        |  |                   |            | 
|--------------------------------------- |  | ----------------- | ---------- | 
|                                        |  | As of November 2, |           
|Class                                   |  | 2005              |           
|                                        |  |                   |           
|Common Stock, $.01 par value            |  |                   | 91,108,896 | 
|Non-Voting Common Stock, $.01 par value |  |                   | 382,632    | 









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ALKERMES, INC. AND SUBSIDIARIES


INDEX


|                                                 |  |                                                                                                                          |    |          |    | 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------ | -- | -------- | -- | 
|                                                 |  |                                                                                                                          |    | Page No. |   
|                                                 |  |                                                                                                                          |    |          |   
|                                                 |  | PART I  FINANCIAL
    INFORMATION                                                                                       |    |          |    | 
|Item 1.                                          |  | Condensed Consolidated Financial Statements
    (Unaudited):                                                             |    |          |    | 
|                                                 |  | Condensed Consolidated Balance
    Sheets  September 30, 2005 and March 31,
    2005                                    |    |          | 3  | 
|                                                 |  | Condensed Consolidated Statements of
    Operations  For the Three and Six Months Ended
    September 30, 2005 and 2004 |    |          | 4  | 
|                                                 |  | Condensed Consolidated Statements of Cash
    Flows  For the Six Months Ended September 30,
    2005 and 2004           |    |          | 5  | 
|                                                 |  | Notes to Condensed Consolidated Financial
    Statements                                                                 |    |          | 6  | 
|Item 2.                                          |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |    |          | 16 | 
|Item 3.                                          |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                           |    |          | 28 | 
|Item 4.                                          |  | Controls and Procedures                                                                                                  |    |          | 29 | 
|PART II  OTHER
    INFORMATION                 
|Item 1.                                          |  | Legal Proceedings                                                                                                        |    |          | 30 | 
|Item 2.                                          |  | Unregistered Sales of Equity Securities and
    the Use of Proceeds                                                      |    |          | 30 | 
|Item 4.                                          |  | Submission of Matters to a Vote of Security
    Holders                                                                  |    |          | 30 | 
|Item 6.                                          |  | Exhibits                                                                                                                 |    |          | 31 | 
|Signatures                                       |  |                                                                                                                          | 32 |         
|Exhibit Index                                    |  |                                                                                                                          | 33 |         
|EX-31.1 SECTION 302 CERTIFICATION OF CEO        
|EX-31.2 SECTION 302 CERTIFICATION OF CFO        
|EX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO



2



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##### Table of Contents






PART 1. FINANCIAL INFORMATION







|        |                                                             
|------- | ------------------------------------------------------------
|Item 1. | Condensed Consolidated Financial Statements
    (Unaudited):

ALKERMES, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |   |         |          |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------- | -------- | --------- | - | ------- | -------- | ------- | 
|                                                                                                                                                                         |                                                                                                                                                                                                      | September 30,                       |         |          | March 31, |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | 2005                                |         |          | 2005      |  
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | (Unaudited)                         |         |          |          
|                                                                                                                                                                         |                                                                                                                                                                                                      | (In thousands, except share         |        
|                                                                                                                                                                         |                                                                                                                                                                                                      | and per share amounts)              |        
|ASSETS                                                                                                                                                                  
|CURRENT ASSETS:                                                                                                                                                          |                                                                                                                                                                                                      |                                     |         |          |           |   |         |         
|                                                                                                                                                                         | Cash and cash equivalents                                                                                                                                                                            |                                     | $       | 43,833   |           |   | $       | 47,485   |        
|                                                                                                                                                                         | Investments  short-term                                                                                                                                                                             |                                     |         | 292,282  |           |   |         | 155,082  |        
|                                                                                                                                                                         | Receivables, net                                                                                                                                                                                     |                                     |         | 23,851   |           |   |         | 18,815   |        
|                                                                                                                                                                         | Inventory, net                                                                                                                                                                                       |                                     |         | 7,711    |           |   |         | 3,766    |        
|                                                                                                                                                                         | Prepaid expenses and other current assets                                                                                                                                                            |                                     |         | 3,730    |           |   |         | 2,580    |        
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | Total current assets                |         |          | 371,407   |   |         |          | 227,728 | 
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|PROPERTY, PLANT AND EQUIPMENT:                                                                                                                                           |                                                                                                                                                                                                      |                                     |         |          |           |   |         |         
|                                                                                                                                                                         | Land                                                                                                                                                                                                 |                                     |         | 301      |           |   |         | 269      |        
|                                                                                                                                                                         | Building                                                                                                                                                                                             |                                     |         | 20,024   |           |   |         | 19,150   |        
|                                                                                                                                                                         | Furniture, fixtures and equipment                                                                                                                                                                    |                                     |         | 72,151   |           |   |         | 66,805   |        
|                                                                                                                                                                         | Equipment under capital lease                                                                                                                                                                        |                                     |         | 464      |           |   |         | 464      |        
|                                                                                                                                                                         | Leasehold improvements                                                                                                                                                                               |                                     |         | 45,359   |           |   |         | 45,991   |        
|                                                                                                                                                                         | Construction in progress                                                                                                                                                                             |                                     |         | 15,003   |           |   |         | 11,307   |        
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     | 153,302 |          |           |   | 143,986 |         
|                                                                                                                                                                         | Less accumulated depreciation and amortization                                                                                                                                                       |                                     |         | (52,412  | )         |   |         | (48,798  | )      
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | Property, plant and equipment  net |         |          | 100,890   |   |         |          | 95,188  | 
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|RESTRICTED INVESTMENTS  Long-term                                                                                                                                       |                                                                                                                                                                                                      |                                     | 5,147   |          |           |   | 4,903   |         
|OTHER ASSETS                                                                                                                                                             |                                                                                                                                                                                                      |                                     | 11,100  |          |           |   | 11,055  |         
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|TOTAL ASSETS                                                                                                                                                             |                                                                                                                                                                                                      | $                                   | 488,544 |          |           | $ | 338,874 |         
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                    
|CURRENT LIABILITIES:                                                                                                                                                     |                                                                                                                                                                                                      |                                     |         |          |           |   |         |         
|                                                                                                                                                                         | Accounts payable and accrued expenses                                                                                                                                                                |                                     | $       | 19,435   |           |   | $       | 18,803   |        
|                                                                                                                                                                         | Accrued interest                                                                                                                                                                                     |                                     |         | 3,239    |           |   |         | 2,248    |        
|                                                                                                                                                                         | Accrued restructuring costs                                                                                                                                                                          |                                     |         | 845      |           |   |         | 1,228    |        
|                                                                                                                                                                         | Unearned milestone revenue  current portion                                                                                                                                                         |                                     |         | 100,132  |           |   |         |         |        
|                                                                                                                                                                         | Derivative liability related to convertible subordinated notes                                                                                                                                       |                                     |         | 1,034    |           |   |         | 265      |        
|                                                                                                                                                                         | Long-term debt  current portion                                                                                                                                                                     |                                     |         | 1,168    |           |   |         | 1,124    |        
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | Total current liabilities           |         |          | 125,853   |   |         |          | 23,668  | 
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES                                                                                                                           |                                                                                                                                                                                                      |                                     | 152,157 |          |           |   | 150,730 |         
|CONVERTIBLE SUBORDINATED NOTES                                                                                                                                           |                                                                                                                                                                                                      |                                     | 123,411 |          |           |   | 123,022 |         
|LONG-TERM DEBT                                                                                                                                                           |                                                                                                                                                                                                      |                                     | 2,137   |          |           |   | 2,733   |         
|UNEARNED MILESTONE REVENUE  LONG-TERM PORTION                                                                                                                           |                                                                                                                                                                                                      |                                     | 46,280  |          |           |   |        |         
|OTHER LONG-TERM LIABILITIES                                                                                                                                              |                                                                                                                                                                                                      |                                     | 4,535   |          |           |   | 4,609   |         
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | Total liabilities                   |         |          | 454,373   |   |         |          | 304,762 | 
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|CONVERTIBLE PREFERRED STOCK, par value, $.01 per share;
    authorized and issued, 3,000 shares at September 30,
    2005 and March 31, 2005 (at liquidation preference) |                                                                                                                                                                                                      |                                     | 30,000  |          |           |   | 30,000  |         
|COMMITMENTS AND CONTINGENCIES                                                                                                                                            |                                                                                                                                                                                                      |                                     |         |          |           |   |         |         
|                                                                                                                                                                        
|SHAREHOLDERS EQUITY:                                                                                                                                                    |                                                                                                                                                                                                      |                                     |         |          |           |   |         |         
|                                                                                                                                                                         | Capital stock, par value, $.01 per share; authorized,
    4,550,000 shares (includes 2,997,000 shares of
    preferred stock); issued, none                                                          |                                     |         |          |           |   |         |          |        
|                                                                                                                                                                         | Common stock, par value, $.01 per share; authorized,
    160,000,000 shares; issued and outstanding, 90,255,107 and
    89,999,526 shares at September 30, 2005 and
    March 31, 2005, respectively |                                     |         | 903      |           |   |         | 900      |        
|                                                                                                                                                                         | Nonvoting common stock, par value, $.01 per share;
    authorized 450,000 shares; issued and outstanding,
    382,632 shares at September 30, 2005 and
    March 31, 2005                            |                                     |         | 4        |           |   |         | 4        |        
|                                                                                                                                                                         | Additional paid-in capital                                                                                                                                                                           |                                     |         | 632,628  |           |   |         | 630,492  |        
|                                                                                                                                                                         | Deferred compensation                                                                                                                                                                                |                                     |         | (229     | )         |   |         |         |        
|                                                                                                                                                                         | Accumulated other comprehensive loss                                                                                                                                                                 |                                     |         | (87      | )         |   |         | (221     | )      
|                                                                                                                                                                         | Accumulated deficit                                                                                                                                                                                  |                                     |         | (629,048 | )         |   |         | (627,063 | )      
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|                                                                                                                                                                         |                                                                                                                                                                                                      | Total shareholders equity          |         |          | 4,171     |   |         |          | 4,112   | 
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                               |                                                                                                                                                                                                      | $                                   | 488,544 |          |           | $ | 338,874 |         
|                                                                                                                                                                         |                                                                                                                                                                                                      |                                     |         |          |           |  



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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |        |        | 
|----------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------------------- | ------ | ------ | ------------------ | - | ------- | ------------------ | ------ | - | ------------------ | ------- | ------ | - | ------- | ------ | ------ | 
|                                                      |                                                                        | Three Months                             |        |        | Three Months       |   |         | Six Months         |        |   | Six Months         |        
|                                                      |                                                                        | Ended                                    |        |        | Ended              |   |         | Ended              |        |   | Ended              |        
|                                                      |                                                                        | September 30, 2005                       |        |        | September 30, 2004 |   |         | September 30, 2005 |        |   | September 30, 2004 |        
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      |                                                                        | (Unaudited)                              |       
|                                                      |                                                                        | (In thousands, except per share amounts) |       
|REVENUES:                                             |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |       
|                                                      | Manufacturing and royalty revenues                                     |                                          | $      | 17,561 |                    |   | $       | 9,938              |        |   | $                  | 35,148  |        |   | $       | 17,903 |       
|                                                      | Research and development revenue under collaborative arrangements      |                                          |        | 16,733 |                    |   |         | 8,096              |        |   |                    | 23,984  |        |   |         | 11,606 |       
|                                                      | Net collaborative profit                                               |                                          |        | 12,394 |                    |   |         |                   |        |   |                    | 12,394  |        |   |         |       |       
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      |                                                                        | Total revenues                           |        |        | 46,688             |   |         |                    | 18,034 |   |                    |         | 71,526 |   |         |        | 29,509 | 
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|EXPENSES:                                             |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |       
|                                                      | Cost of goods manufactured                                             |                                          |        | 4,360  |                    |   |         | 2,390              |        |   |                    | 8,877   |        |   |         | 7,631  |       
|                                                      | Research and development                                               |                                          |        | 19,370 |                    |   |         | 22,589             |        |   |                    | 40,992  |        |   |         | 46,722 |       
|                                                      | Selling, general and administrative                                    |                                          |        | 9,109  |                    |   |         | 7,379              |        |   |                    | 18,061  |        |   |         | 14,418 |       
|                                                      | Restructuring                                                          |                                          |        |       |                    |   |         |                   |        |   |                    |        |        |   |         | 11,896 |       
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      |                                                                        | Total expenses                           |        |        | 32,839             |   |         |                    | 32,358 |   |                    |         | 67,930 |   |         |        | 80,667 | 
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|OPERATING INCOME (LOSS)                               |                                                                        |                                          | 13,849 |        |                    |   | (14,324 | )                  |        |   | 3,596              |         |        |   | (51,158 | )     
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|OTHER INCOME (EXPENSE):                               |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |       
|                                                      | Interest income                                                        |                                          |        | 3,019  |                    |   |         | 660                |        |   |                    | 4,650   |        |   |         | 1,291  |       
|                                                      | Interest expense                                                       |                                          |        | (5,212 | )                  |   |         | (1,187             | )      |   |                    | (10,381 | )      |   |         | (2,375 | )     
|                                                      | Derivative (loss) income related to convertible subordinated
    notes |                                          |        | (503   | )                  |   |         | 1,172              |        |   |                    | (769    | )      |   |         | 2,690  |       
|                                                      | Other income (expense), net                                            |                                          |        | 599    |                    |   |         | (585               | )      |   |                    | 919     |        |   |         | (860   | )     
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      |                                                                        | Total other income (expense)             |        |        | (2,097             | ) |         |                    | 60     |   |                    |         | (5,581 | ) |         |        | 746    | 
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|NET INCOME (LOSS)                                     |                                                                        | $                                        | 11,752 |        |                    | $ | (14,264 | )                  |        | $ | (1,985             | )       |        | $ | (50,412 | )     
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|EARNINGS (LOSS) PER COMMON SHARE:                     |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |       
|                                                      | BASIC                                                                  |                                          | $      | 0.13   |                    |   | $       | (0.16              | )      |   | $                  | (0.02   | )      |   | $       | (0.56  | )     
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      | DILUTED                                                                |                                          | $      | 0.12   |                    |   | $       | (0.16              | )      |   | $                  | (0.02   | )      |   | $       | (0.56  | )     
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |         |        |   |         |       
|                                                      | BASIC                                                                  |                                          |        | 90,558 |                    |   |         | 90,067             |        |   |                    | 90,475  |        |   |         | 89,930 |       
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        
|                                                      | DILUTED                                                                |                                          |        | 96,599 |                    |   |         | 90,067             |        |   |                    | 90,475  |        |   |         | 89,930 |       
|                                                      |                                                                        |                                          |        |        |                    |   |         |                    |        |   |                    |        



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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |         |          |         |        |         |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------------- | ------------------ | ------- | -------- | ------- | ------ | ------- | ------- | -
|                                                     |                                                                                 | Six Months                                                             |                                                         |                                                     | Six Months         |        
|                                                     |                                                                                 | Ended                                                                  |                                                         |                                                     | Ended              |        
|                                                     |                                                                                 | September 30, 2005                                                     |                                                         |                                                     | September 30, 2004 |        
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|                                                     |                                                                                 | (Unaudited)                                                            |                                                        
|                                                     |                                                                                 | (In thousands)                                                         |                                                        
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                 |                                                                        |                                                         |                                                     |                    |         |          |        
|                                                     | Net loss                                                                        |                                                                        | $                                                       | (1,985                                              | )                  |         | $        | (50,412 | )     
|                                                     | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                        |                                                         |                                                     |                    |         |          |         |       
|                                                     |                                                                                 | Depreciation and amortization                                          |                                                         |                                                     | 5,183              |         |          |         | 5,441  |        
|                                                     |                                                                                 | Restructuring charges                                                  |                                                         |                                                     |                   |         |          |         | 11,896 |        
|                                                     |                                                                                 | Other noncash charges                                                  |                                                         |                                                     | 2,700              |         |          |         | 1,201  |        
|                                                     |                                                                                 | Derivative loss (income) related to convertible subordinated
    notes |                                                         |                                                     | 769                |         |          |         | (2,690 | )      
|                                                     |                                                                                 | (Gain) loss on warrants held                                           |                                                         |                                                     | (868               | )       |          |         | 860    |        
|                                                     |                                                                                 | Changes in assets and liabilities:                                     |                                                         |                                                     |                    |         |          |         |        |        
|                                                     |                                                                                 |                                                                        | Receivables                                             |                                                     |                    | (5,036  | )        |         |        | 2,268   |        
|                                                     |                                                                                 |                                                                        | Inventory, prepaid expenses and other current assets    |                                                     |                    | (5,095  | )        |         |        | (141    | )      
|                                                     |                                                                                 |                                                                        | Accounts payable, accrued expenses and accrued interest |                                                     |                    | 1,623   |          |         |        | 6,396   |        
|                                                     |                                                                                 |                                                                        | Accrued restructuring costs                             |                                                     |                    | (671    | )        |         |        | (938    | )      
|                                                     |                                                                                 |                                                                        | Unearned milestone revenues                             |                                                     |                    | 146,412 |          |         |        |        |        
|                                                     |                                                                                 |                                                                        | Deferred revenue                                        |                                                     |                    |        |          |         |        | (13,396 | )      
|                                                     |                                                                                 |                                                                        | Other long-term liabilities                             |                                                     |                    | 214     |          |         |        |        |        
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|                                                     |                                                                                 |                                                                        |                                                         | Net cash provided by (used in) operating activities |                    |         | 143,246  |         |        |         | (39,515 | )
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                 |                                                                        |                                                         |                                                     |                    |         |          |        
|                                                     | Additions to property, plant and equipment                                      |                                                                        |                                                         | (10,910                                             | )                  |         |          | (8,076  | )     
|                                                     | Proceeds from the sale of equipment                                             |                                                                        |                                                         | 92                                                  |                    |         |          | 14      |       
|                                                     | Purchases of available-for-sale investments                                     |                                                                        |                                                         | (514,080                                            | )                  |         |          | (12,910 | )     
|                                                     | Sales of available-for-sale investments                                         |                                                                        |                                                         | 376,703                                             |                    |         |          | 68,712  |       
|                                                     | Decrease (increase) in other assets                                             |                                                                        |                                                         | 53                                                  |                    |         |          | (27     | )     
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|                                                     |                                                                                 |                                                                        |                                                         | Net cash (used in) provided by investing activities |                    |         | (148,142 | )       |        |         | 47,713  |  
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                 |                                                                        |                                                         |                                                     |                    |         |          |        
|                                                     | Proceeds from issuance of common stock                                          |                                                                        |                                                         | 1,796                                               |                    |         |          | 1,577   |       
|                                                     | Payment of debt                                                                 |                                                                        |                                                         | (552                                                | )                  |         |          | (40     | )     
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|                                                     |                                                                                 |                                                                        |                                                         | Net cash provided by financing activities           |                    |         | 1,244    |         |        |         | 1,537   |  
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                 |                                                                        | (3,652                                                  | )                                                   |                    |         | 9,735    |        
|CASH AND CASH EQUIVALENTS  Beginning of period      |                                                                                 |                                                                        | 47,485                                                  |                                                     |                    |         | 9,899    |        
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|CASH AND CASH EQUIVALENTS  End of period            |                                                                                 | $                                                                      | 43,833                                                  |                                                     |                    | $       | 19,634   |        
|                                                     |                                                                                 |                                                                        |                                                         |                                                     |                    |        
|SUPPLEMENTARY INFORMATION:                           |                                                                                 |                                                                        |                                                         |                                                     |                    |         |          |        
|                                                     | Cash paid for interest                                                          |                                                                        | $                                                       | 7,333                                               |                    |         | $        | 1,575   |       



5



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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |                      
| | ---------------------
| | Basis of Presentation







Principles of Consolidation


Use of Estimates




| |                             
| | ----------------------------
| | New Accounting Pronouncement

Share-Based
Payment Accounting for Stock-Based Compensation




6



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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                           
|-- | --------------------------------------------------------------------------
|2. | LICENSE AND COLLABORATION AGREEMENT AND SUPPLY AGREEMENT WITH
    CEPHALON









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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue Recognition Related to the License and
    Collaboration Agreement and Supply Agreement (together, the
    Agreements) with Cephalon







8



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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                          
| | ---------------------------------------------------------
| | Manufacturing Revenues Related to the Cephalon Agreements







| |                                                                
| | ---------------------------------------------------------------
| | Net Collaborative Profit Related to the Cephalon
    Agreements





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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|   |                            
|-- | ---------------------------
|3. | COMPREHENSIVE INCOME (LOSS)



|                                                |  |                    |        |   |                    |   |         |                    |  |   |                    |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------- | ------------------ |  | - | ------------------ | - |  | - | ------- | -
|                                                |  | Three Months       |        |   | Three Months       |   |         | Six Months         |  |   | Six Months         |  
|                                                |  | Ended              |        |   | Ended              |   |         | Ended              |  |   | Ended              |  
|                                                |  | September 30, 2005 |        |   | September 30, 2004 |   |         | September 30, 2005 |  |   | September 30, 2004 |  
|                                                |  |                    |        |   |                    |   |         |                    |  |   |                    |  
|                                                |  | (Unaudited)        |        |   | (Unaudited)        |   |         | (Unaudited)        |  |   | (Unaudited)        |  
|(In thousands)                                  |  |                    |        |   |                    |   |         |                   
|Net income (loss)                               |  | $                  | 11,752 |   |                    | $ | (14,264 | )                  |  | $ | (1,985             | ) |  | $ | (50,412 | )
|Unrealized (loss) gain on marketable securities |  |                    | (2     | ) |                    |   | (131    | )                  |  |   | 134                |   |  |   | (583    | )
|                                                |  |                    |        |   |                    |   |         |                    |  |   |                    |  
|Comprehensive income (loss)                     |  | $                  | 11,750 |   |                    | $ | (14,395 | )                  |  | $ | (1,851             | ) |  | $ | (50,995 | )
|                                                |  |                    |        |   |                    |   |         |                    |  |   |                    |  



|   |                                 
|-- | --------------------------------
|4. | EARNINGS (LOSS) PER COMMON SHARE



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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                        |  | Three Months Ended |        |  | Six Months Ended |  
|                                                                        |  | September 30,      |        |  | September 30,    |  
|                                                                        |  |                    |        |  |                  |  
|                                                                        |  | 2005               |        |  | 2004             |   |         | 2005 |  |   | 2004   |  
|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |  
|                                                                        |  | (Unaudited)        |        |  | (Unaudited)      |  
|(In thousands)                                                          |  |                    |        | 
|Numerator:                                                              |  |                    |        |  |                  |   |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                                                       |  | $                  | 11,752 |  |                  | $ | (14,264 | )    |  | $ | (1,985 | ) |  | $ | (50,412 | )
|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |  
|Denominator:                                                            |  |                    |        |  |                  |   |         |      |  |   |        |   |  |   |         |  
|Weighted average number of common shares outstanding                    |  |                    | 90,558 |  |                  |   | 90,067  |      |  |   | 90,475 |   |  |   | 89,930  |  
|Effect of dilutive securities:                                          |  |                    |        |  |                  |   |         |      |  |   |        |   |  |   |         |  
|Stock options                                                           |  |                    | 3,674  |  |                  |   |        |      |  |   |       |   |  |   |        |  
|Restricted stock awards                                                 |  |                    | 81     |  |                  |   |        |      |  |   |       |   |  |   |        |  
|Convertible preferred stock                                             |  |                    | 2,286  |  |                  |   |        |      |  |   |       |   |  |   |        |  
|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |  
|Dilutive common share equivalents                                       |  |                    | 6,041  |  |                  |   |        |      |  |   |       |   |  |   |        |  
|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |  
|Shares used in calculating diluted earnings (loss) per common
    share |  |                    | 96,599 |  |                  |   | 90,067  |      |  |   | 90,475 |   |  |   | 89,930  |  
|                                                                        |  |                    |        |  |                  |   |         |      |  |   |        |  

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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |  |                    |       |  |                  |   |        |      |  |   |        |  |  |   |        |  
|--------------------------------------- |  | ------------------ | ----- |  | ---------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | -
|                                        |  | Three Months Ended |       |  | Six Months Ended |  
|                                        |  | September 30,      |       |  | September 30,    |  
|                                        |  |                    |       |  |                  |  
|                                        |  | 2005               |       |  | 2004             |   |        | 2005 |  |   | 2004   | 
|                                        |  |                    |       |  |                  |   |        |      |  |   |        | 
|                                        |  | (Unaudited)        |       |  | (Unaudited)      |  
|(In thousands)                          |  |                    |       | 
|Numerator:                              |  |                    |       |  |                  |   |        |      |  |   |        |  |  |   |        |  
|Adjustment for interest                 |  | $                  | 787   |  |                  | $ | 787    |      |  | $ | 1,574  |  |  | $ | 1,574  |  
|Adjustment for derivative loss (income) |  |                    | 503   |  |                  |   | (1,172 | )    |  |   | 769    |  |  |   | (2,690 | )
|                                        |  |                    |       |  |                  |   |        |      |  |   |        | 
|Total                                   |  | $                  | 1,290 |  |                  | $ | (385   | )    |  | $ | 2,343  |  |  | $ | (1,116 | )
|                                        |  |                    |       |  |                  |   |        |      |  |   |        | 
|Denominator:                            |  |                    |       |  |                  |   |        |      |  |   |        |  |  |   |        |  
|Stock options                           |  |                    |      |  |                  |   | 15,794 |      |  |   | 17,610 |  |  |   | 15,794 |  
|Restricted stock awards                 |  |                    |      |  |                  |   | 100    |      |  |   | 81     |  |  |   | 100    |  
|Convertible preferred stock             |  |                    |      |  |                  |   | 2,269  |      |  |   | 2,835  |  |  |   | 2,020  |  
|2.5% convertible subordinated notes     |  |                    | 9,025 |  |                  |   | 9,025  |      |  |   | 9,025  |  |  |   | 9,025  |  
|3.75% convertible subordinated notes    |  |                    | 10    |  |                  |   | 10     |      |  |   | 10     |  |  |   | 10     |  
|                                        |  |                    |       |  |                  |   |        |      |  |   |        | 
|Total                                   |  |                    | 9,035 |  |                  |   | 27,198 |      |  |   | 29,561 |  |  |   | 26,949 |  
|                                        |  |                    |       |  |                  |   |        |      |  |   |        | 



|   |                         
|-- | ------------------------
|5. | STOCK-BASED COMPENSATION







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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                      |         |                    |        |      |                  |   |         |             |   |   |             |       |   |   |         |       |  
|--------------------------------------------------------------------------------------------------------------------- | ------- | ------------------ | ------ | ---- | ---------------- | - | ------- | ----------- | - | - | ----------- | ----- | - | - | ------- | ----- | -
|                                                                                                                      |         | Three Months Ended |        |      | Six Months Ended |  
|                                                                                                                      |         | September 30,      |        |      | September 30,    |  
|                                                                                                                      |         |                    |        |      |                  |  
|                                                                                                                      |         | 2005               |        |      | 2004             |   |         | 2005        |   |   | 2004        |      
|                                                                                                                      |         |                    |        |      |                  |   |         |             |   |   |             |      
|                                                                                                                      |         | (Unaudited)        |        |      | (Unaudited)      |   |         | (Unaudited) |   |   | (Unaudited) |      
|(In thousands, except per share amounts)                                                                              |         |                    |        |      |                  |   |         |            
|Net income (loss)  as reported                                                                                       |         | $                  | 11,752 |      |                  | $ | (14,264 | )           |   | $ | (1,985      | )     |   | $ | (50,412 | )    
|Add  stock-based compensation expense as reported in
    the consolidated statements of operations                   |         |                    | 57     |      |                  |   | 83      |             |   |   | 115         |       |   |   | 161     |      
|Deduct  total stock-based compensation expense
    determined under the fair-value method for all options and awards |         |                    | (5,298 | )    |                  |   | (4,735  | )           |   |   | (11,111     | )     |   |   | (9,203  | )    
|                                                                                                                      |         |                    |        |      |                  |   |         |             |   |   |             |      
|Net income (loss)  pro-forma                                                                                         |         | $                  | 6,511  |      |                  | $ | (18,916 | )           |   | $ | (12,981     | )     |   | $ | (59,454 | )    
|                                                                                                                      |         |                    |        |      |                  |   |         |             |   |   |             |      
|Reported earnings (loss) per common share:                                                                            |         |                    |        |      |                  |   |         |             |   |   |             |       |   |   |         |      
|                                                                                                                      | Basic   |                    | $      | 0.13 |                  |   | $       | (0.16       | ) |   | $           | (0.02 | ) |   | $       | (0.56 | )
|                                                                                                                      | Diluted |                    | $      | 0.12 |                  |   | $       | (0.16       | ) |   | $           | (0.02 | ) |   | $       | (0.56 | )
|Pro forma earnings (loss) per common share:                                                                           |         |                    |        |      |                  |   |         |             |   |   |             |       |   |   |         |      
|                                                                                                                      | Basic   |                    | $      | 0.07 |                  |   | $       | (0.21       | ) |   | $           | (0.14 | ) |   | $       | (0.66 | )
|                                                                                                                      | Diluted |                    | $      | 0.07 |                  |   | $       | (0.21       | ) |   | $           | (0.14 | ) |   | $       | (0.66 | )



|                                                                               |  |               |       |  |               |   |       |               |  |   |               |   |  |   |      |  
|------------------------------------------------------------------------------ |  | ------------- | ----- |  | ------------- | - | ----- | ------------- |  | - | ------------- | - |  | - | ---- | -
|                                                                               |  | Three Months  |       |  | Three Months  |   |       | Six Months    |  |   | Six Months    |  
|                                                                               |  | Ended         |       |  | Ended         |   |       | Ended         |  |   | Ended         |  
|                                                                               |  | September 30, |       |  | September 30, |   |       | September 30, |  |   | September 30, |  
|                                                                               |  | 2005          |       |  | 2004          |   |       | 2005          |  |   | 2004          |  
|                                                                               |  |               |       |  |               |   |       |               |  |   |               |  
|Expected life (years)                                                          |  |               | 4     |  |               |   | 4     |               |  |   | 4             |   |  |   | 4    |  
|Risk-free interest rate                                                        |  |               | 4.18% |  |               |   | 3.33% |               |  |   | 3.95          | % |  |   | 3.59 | %
|Expected stock price volatility                                                |  |               | 52%   |  |               |   | 71%   |               |  |   | 53            | % |  |   | 71   | %
|Weighted average fair value per share of options granted during
    the period |  | $             | 6.05  |  |               | $ | 6.41  |               |  | $ | 5.75          |   |  | $ | 6.96 |  



|   |          
|-- | ---------
|6. | INVENTORY



|                |  |               |       |  |           |   |       | 
|--------------- |  | ------------- | ----- |  | --------- | - | ----- | 
|                |  | September 30, |       |  | March 31, |  
|                |  | 2005          |       |  | 2005      |  
|                |  |               |       |  |           |  
|                |  | (Unaudited)   |       |  |          
|(In thousands)  |  |               |       | 
|Raw materials   |  | $             | 3,448 |  |           | $ | 1,667 | 
|Work-in-process |  |               | 1,558 |  |           |   | 992   | 
|Finished goods  |  |               | 2,705 |  |           |   | 1,107 | 
|                |  |               |       |  |           |  
|Total           |  | $             | 7,711 |  |           | $ | 3,766 | 
|                |  |               |       |  |           |  

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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |              
|-- | -------------
|7. | RESTRUCTURING







|                   |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |       |       | 
|------------------ | ------------------------- | --------- | ----- | ----- | ----------- |  | --- | ----------- | ------- | ------------- | ---- | ---- | ---- | - | ----- | ----- | ----- | 
|                   |                           | Balance   |       |       |             |  |     |             | Balance |              
|                   |                           | March 31, |       |       | Charges/    |  |     |             |         | September 30, |     
|Type of Liability  |                           | 2005      |       |       | Adjustments |  |     | Payments    |         |               | 2005 |     
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|(In thousands)     |                           |           |       |       |             |  |     | (Unaudited) |        
|2004 Restructuring |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |      
|                   | Employee separation costs |           | $     | 9     |             |  | $   |            |         |               | $    |     |      |   | $     | 9     |      
|                   | Facility closure costs    |           |       | 2,965 |             |  |     |            |         |               |      | (282 | )    |   |       | 2,683 |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           |           | 2,974 |       |             |  |    |             |         |               | (282 | )    |      |   | 2,692 |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|2002 Restructuring |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |      
|                   | Employee separation costs |           |       |      |             |  |     |            |         |               |      |     |      |   |       |      |      
|                   | Facility closure costs    |           |       | 389   |             |  |     | (34         | )       |               |      | (355 | )    |   |       |      |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           |           | 389   |       |             |  | (34 | )           |         |               | (355 | )    |      |   |      |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           | Total     |       | $     | 3,363       |  |     | $           | (34     | )             |      | $    | (637 | ) |       | $     | 2,692 | 
|                   |                           |           |       |       |             |  |     |             |         |               |      |     



|   |           
|-- | ----------
|8. | LITIGATION



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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                 
|-- | ----------------
|9. | SUBSEQUENT EVENT



15



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Forward-Looking Statements






16



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License and Collaboration Agreement and Supply Agreement with
Cephalon




17



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Product Developments




| |         
| | --------
| | Vivitrex





| |            
| | -----------
| | AIR Insulin



18



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| |              
| | -------------
| | Exenatide LAR



tm




| |                
| | ---------------
| | Product Summary



|                  |  |                           |  |              |  |               |                | 
|----------------- |  | ------------------------- |  | ------------ |  | ------------- | -------------- | 
|                  |  |                           |  |              |  | Collaborative |               
|Product Candidate |  | Indication                |  | Stage(1)     |  | Partner       |               
|                  |  |                           |  |              |  |               |               
|Risperdal Consta® |  | Schizophrenia             |  | Marketed     |  |               | Janssen        | 
|Vivitrex®         |  | Alcohol Dependence        |  | NDA accepted |  |               | Cephalon       | 
|Vivitrex®         |  | Opioid Dependence         |  | Phase II     |  |               | Cephalon       | 
|AIR® Insulin      |  | Diabetes                  |  | Phase III    |  |               | Lilly          | 
|Exenatide LAR     |  | Diabetes                  |  | Phase II     |  |               | Amylin         | 
|AIR® hGH          |  | Growth Hormone Deficiency |  | Phase I      |  |               | Lilly          | 
|AIR® Epinephrine  |  | Anaphylaxis               |  | Phase I      |  |               | Not applicable | 
|Others            |  | Various                   |  | Preclinical  |  |               | Undisclosed    | 

19



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Phase I clinical trials indicates that the
    compound is being tested in humans for safety and preliminary
    indications of biological activity in a limited patient
    population. Phase II clinical trials indicates
    that the trial is being conducted in patients and is to provide
    information on dosing and preliminary evidence of efficacy.
    Phase III clinical trials indicates that the
    trial is being conducted in patients and is seeking statistical
    evidence of the safety and efficacy of the compound.
    Preclinical indicates that we or our partners are
    conducting formulation, efficacy, pharmacology and/or toxicology
    testing of a compound in animal models or biochemical assays.

Critical Accounting Policies






| |   |                                                 
| | - | ------------------------------------------------
| |  | Revenue recognition;                            
|
| |  | Derivatives embedded in certain debt securities;
|
| |  | Warrant valuation;                              
|
| |  | Cost of goods manufactured;                     
|
| |  | Research and development expenses;              
|
| |  | Restructuring charges;                          
|
| |  | Accrued expenses; and                           
|
| |  | Stock options and awards.                       

Revenue Recognition Policies




| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue Recognition Related to the License and
    Collaboration Agreement and Supply Agreement (together, the
    Agreements) with Cephalon





20



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| |                                                          
| | ---------------------------------------------------------
| | Manufacturing Revenues Related to the Cephalon Agreements







| |                                                                
| | ---------------------------------------------------------------
| | Net Collaborative Profit Related to the Cephalon
    Agreements





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Manufacturing and Royalty Revenues




Research and Development Revenue Under Collaborative
Arrangements




22



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Results of Operations














23



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|                                        |                                                                             |                    |        |       | 
|--------------------------------------- | --------------------------------------------------------------------------- | ------------------ | ------ | ----- | 
|                                        |                                                                             | Three and Six      |       
|                                        |                                                                             | Months Ended       |       
|Net Collaborative Profit Summary        |                                                                             | September 30, 2005 |       
|                                        |                                                                             |                    |       
|(In thousands)                          |                                                                             | (Unaudited)        |       
|Milestone revenue  cost recovery:      |                                                                             |                    |        |      
|                                        | Alkermes expenses to collaboration                                          |                    | $      | 6,556 | 
|                                        | Cephalon net losses to collaboration                                        |                    |        | 1,194 | 
|                                        | Alkermes expenses related to Vivitrex for which Alkermes is
    responsible |                    |        | 5,838 | 
|                                        |                                                                             |                    |       
|Total milestone revenue  cost recovery |                                                                             |                    | 13,588 |      
|Milestone revenue  license             |                                                                             |                    |       |      
|Payments made to Cephalon               |                                                                             |                    | (1,194 | )    
|                                        |                                                                             |                    |       
|Net collaborative profit                |                                                                             | $                  | 12,394 |      
|                                        |                                                                             |                    |       



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|                   |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |       |       | 
|------------------ | ------------------------- | --------- | ----- | ----- | ----------- |  | --- | ----------- | ------- | ------------- | ---- | ---- | ---- | - | ----- | ----- | ----- | 
|                   |                           | Balance   |       |       |             |  |     |             | Balance |              
|                   |                           | March 31, |       |       | Charges/    |  |     |             |         | September 30, |     
|Type of Liability  |                           | 2005      |       |       | Adjustments |  |     | Payments    |         |               | 2005 |     
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|(In thousands)     |                           |           |       |       |             |  |     | (Unaudited) |        
|2004 Restructuring |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |      
|                   | Employee separation costs |           | $     | 9     |             |  | $   |            |         |               | $    |     |      |   | $     | 9     |      
|                   | Facility closure costs    |           |       | 2,965 |             |  |     |            |         |               |      | (282 | )    |   |       | 2,683 |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           |           | 2,974 |       |             |  |    |             |         |               | (282 | )    |      |   | 2,692 |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|2002 Restructuring |                           |           |       |       |             |  |     |             |         |               |      |      |      |   |       |      
|                   | Employee separation costs |           |       |      |             |  |     |            |         |               |      |     |      |   |       |      |      
|                   | Facility closure costs    |           |       | 389   |             |  |     | (34         | )       |               |      | (355 | )    |   |       |      |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           |           | 389   |       |             |  | (34 | )           |         |               | (355 | )    |      |   |      |      
|                   |                           |           |       |       |             |  |     |             |         |               |      |     
|                   |                           | Total     |       | $     | 3,363       |  |     | $           | (34     | )             |      | $    | (637 | ) |       | $     | 2,692 | 
|                   |                           |           |       |       |             |  |     |             |         |               |      |     











Liquidity and Capital Resources




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27



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##### Table of Contents







Contractual Obligations








Off-Balance Sheet Arrangements









|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk





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##### Table of Contents









Foreign Currency Exchange Rate Risk











|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures



|    |                                                 
|--- | ------------------------------------------------
|(a) | Evaluation of Disclosure Controls and Procedures





|    |                                                    
|--- | ---------------------------------------------------
|(b) | Change in Internal Control over Financial Reporting



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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








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



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|                  |  |           |            |           |          |  |            | 
|----------------- |  | --------- | ---------- | --------- | -------- |  | ---------- | 
|                  |  |           |            | Authority |         
|Nominee           |  | Votes For |            |           | Withheld | 
|                  |  |           |            |           |          | 
|Floyd E. Bloom    |  |           | 58,065,192 |           |          |  | 24,153,417 | 
|Robert A. Breyer  |  |           | 67,478,150 |           |          |  | 14,740,459 | 
|Gerri Henwood     |  |           | 81,117,600 |           |          |  | 1,101,009  | 
|Paul J. Mitchell  |  |           | 75,365,503 |           |          |  | 6,853,106  | 
|Richard F. Pops   |  |           | 68,311,035 |           |          |  | 13,907,574 | 
|Alexander Rich    |  |           | 58,628,002 |           |          |  | 23,590,607 | 
|Paul Schimmel     |  |           | 54,898,603 |           |          |  | 27,320,006 | 
|Mark B. Skaletsky |  |           | 76,449,741 |           |          |  | 5,768,868  | 
|Michael A. Wall   |  |           | 68,096,965 |           |          |  | 14,121,644 | 






|        |         
|------- | --------
|Item 6. | Exhibits



Exhibit Index


|        |    |    |  |                                                                                                                                                     
|------- | -- | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |   
|No.     |    |   
|        |    |   
|        | 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).

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SIGNATURES






| |               
| | --------------
| | ALKERMES, INC.
| | (Registrant)  



| |     |                    
| | --- | -------------------
| | By: | /s/ Richard F. Pops

| |                                     
| | ------------------------------------
| |                                     
| | Richard F. Pops                     
| | Chief Executive Officer and Director
| | (Principal Executive Officer)       





| |     |                    
| | --- | -------------------
| | By: | /s/ James M. Frates

| |                                                            
| | -----------------------------------------------------------
| |                                                            
| | James M. Frates                                            
| | Vice President, Chief Financial Officer 
     and Treasurer
| | (Principal Financial and Accounting Officer)               



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##### Table of Contents






EXHIBIT INDEX


|        |    |    |  |                                                                                                                                                     
|------- | -- | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |   
|No.     |    |   
|        |    |   
|        | 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).

33