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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 1-14131
 ALKERMES, INC.
 (Exact name of registrant as specified in its charter)
 PENNSYLVANIA
    
    23-2472830(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 852 Winter Street, Waltham, MA 02451-1420
(781) 609-6000  (Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  As of February 1,Class
    
    2010Common Stock, $.01 par value
    
    
    94,440,904Non-Voting Common Stock, $.01 par value
    
    
    382,632




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##### 



ALKERMES, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets  December 31, 2009 and March 31, 2009
    
    
    3Condensed Consolidated Statements of Operations  For the Three and Nine Months Ended
December 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows  For the Nine Months Ended
December 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Discloures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit Index
    
    
    35EX-31.1 Section 302 Certification of Chief Executive OfficerEX-31.2 Section 302 Certification of Chief Financial OfficerEX-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements :
 ALKERMES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 December 31,
    
    
    March 31,2009
    
    
    2009(In thousands, except share and pershare amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    73,932
    
    
    $
    86,893Investments  short-term
    
    
    165,016
    
    
    
    236,768Receivables
    
    
    28,233
    
    
    
    24,588Inventory
    
    
    20,049
    
    
    
    20,297Prepaid expenses and other current assets
    
    
    5,950
    
    
    
    7,500Total current assets
    
    
    293,180
    
    
    
    376,046PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    96,332
    
    
    
    106,461INVESTMENTS  LONG-TERM
    
    
    118,531
    
    
    
    80,821OTHER ASSETS
    
    
    11,857
    
    
    
    3,158TOTAL ASSETS
    
    $
    519,900
    
    
    $
    566,486LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    29,560
    
    
    $
    36,483Deferred revenue  current
    
    
    2,305
    
    
    
    6,840NON-RECOURSE
RISPERDAL®
CONSTA® SECURED 7% NOTES  CURRENT
    
    
    25,667
    
    
    
    25,667Total current liabilities
    
    
    57,532
    
    
    
    68,990NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES  LONG-TERM
    
    
    31,636
    
    
    
    50,221DEFERRED REVENUE  LONG-TERM
    
    
    5,120
    
    
    
    5,238OTHER LONG-TERM LIABILITIES
    
    
    6,386
    
    
    
    7,149Total liabilities
    
    
    100,674
    
    
    
    131,598COMMITMENTS AND CONTINGENCIES (Note 13)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes
3,000,000 shares of preferred stock); none issued
    
    
    
    
    
    
    Common stock, par value, $0.01 per share; 160,000,000 shares authorized;
104,354,986 and 104,044,663 shares issued; 94,418,724 and 94,536,212 shares
outstanding at December 31, 2009 and March 31, 2009, respectively
    
    
    1,042
    
    
    
    1,040Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized;
382,632 shares issued and outstanding at December 31, 2009 and March 31, 2009
    
    
    4
    
    
    
    4Treasury stock, at cost (9,936,262 and 9,508,451 shares at December 31, 2009 and
March 31, 2009, respectively)
    
    
    (129,567
    )
    
    
    (126,025
    )Additional paid-in capital
    
    
    903,480
    
    
    
    892,415Accumulated other comprehensive loss
    
    
    (3,980
    )
    
    
    (6,484
    )Accumulated deficit
    
    
    (351,753
    )
    
    
    (326,062
    )Total shareholders equity
    
    
    419,226
    
    
    
    434,888TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    519,900
    
    
    $
    566,486
  3




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ALKERMES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)REVENUES:Manufacturing revenues
    
    $
    28,650
    
    
    $
    20,533
    
    
    $
    90,289
    
    
    $
    92,182Royalty revenues
    
    
    9,970
    
    
    
    7,970
    
    
    
    27,489
    
    
    
    24,990Product sales, net
    
    
    5,451
    
    
    
    
    
    
    
    14,320
    
    
    
    Research and development revenue under collaborative arrangements
    
    
    81
    
    
    
    3,736
    
    
    
    2,705
    
    
    
    40,438Net collaborative profit
    
    
    
    
    
    
    123,422
    
    
    
    5,002
    
    
    
    125,354Total revenues
    
    
    44,152
    
    
    
    155,661
    
    
    
    139,805
    
    
    
    282,964EXPENSES:Cost of goods manufactured and sold
    
    
    10,072
    
    
    
    5,536
    
    
    
    37,830
    
    
    
    31,921Research and development
    
    
    22,577
    
    
    
    22,669
    
    
    
    68,827
    
    
    
    64,640Selling, general and administrative
    
    
    17,739
    
    
    
    14,568
    
    
    
    57,632
    
    
    
    38,173Total expenses
    
    
    50,388
    
    
    
    42,773
    
    
    
    164,289
    
    
    
    134,734OPERATING (LOSS) INCOME
    
    
    (6,236
    )
    
    
    112,888
    
    
    
    (24,484
    )
    
    
    148,230OTHER EXPENSE, NET:Interest income
    
    
    1,017
    
    
    
    2,574
    
    
    
    3,666
    
    
    
    8,883Interest expense
    
    
    (1,423
    )
    
    
    (2,436
    )
    
    
    (4,698
    )
    
    
    (10,905
    )Other expense, net
    
    
    (160
    )
    
    
    (641
    )
    
    
    (290
    )
    
    
    (1,471
    )Total other expense, net
    
    
    (566
    )
    
    
    (503
    )
    
    
    (1,322
    )
    
    
    (3,493
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (6,802
    )
    
    
    112,385
    
    
    
    (25,806
    )
    
    
    144,737PROVISION (BENEFIT) FOR INCOME TAXES
    
    
    15
    
    
    
    (330
    )
    
    
    (115
    )
    
    
    637NET (LOSS) INCOME
    
    $
    (6,817
    )
    
    $
    112,715
    
    
    $
    (25,691
    )
    
    $
    144,100(LOSS) EARNINGS PER COMMON SHARE:Basic
    
    $
    (0.07
    )
    
    $
    1.18
    
    
    $
    (0.27
    )
    
    $
    1.51Diluted
    
    $
    (0.07
    )
    
    $
    1.18
    
    
    $
    (0.27
    )
    
    $
    1.49WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic
    
    
    94,784
    
    
    
    95,316
    
    
    
    94,815
    
    
    
    95,246Diluted
    
    
    94,784
    
    
    
    95,818
    
    
    
    94,815
    
    
    
    96,398
  4




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ALKERMES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Nine Months EndedDecember 31,2009
    
    
    2008(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (25,691
    )
    
    $
    144,100Adjustments to reconcile net (loss) income to cash flows from operating activities:Depreciation
    
    
    20,314
    
    
    
    7,501Share-based compensation expense
    
    
    10,811
    
    
    
    11,590Other non-cash charges
    
    
    3,520
    
    
    
    4,531Loss on the purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    
    
    
    
    1,989Changes in assets and liabilities:Receivables
    
    
    (3,645
    )
    
    
    11,585Inventory, prepaid expenses and other assets
    
    
    1,199
    
    
    
    (4,746
    )Accounts payable and accrued expenses
    
    
    (11,199
    )
    
    
    (4,722
    )Unearned milestone revenue
    
    
    
    
    
    
    (117,657
    )Deferred revenue
    
    
    (4,653
    )
    
    
    (9,529
    )Other long-term liabilities
    
    
    (1,369
    )
    
    
    (1,415
    )Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
attributable to original issue discount
    
    
    (1,574
    )
    
    
    (4,590
    )Cash flows (used in) provided by operating activities
    
    
    (12,287
    )
    
    
    38,637CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property, plant and equipment
    
    
    (9,197
    )
    
    
    (4,145
    )Sales of property, plant and equipment
    
    
    249
    
    
    
    7,717Investment in Acceleron Pharmaceuticals, Inc.
    
    
    (8,000
    )
    
    
    Purchases of investments
    
    
    (390,818
    )
    
    
    (543,408
    )Sales and maturities of investments
    
    
    427,270
    
    
    
    540,721Cash flows provided by investing activities
    
    
    19,504
    
    
    
    885CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of common stock for share-based compensation
arrangements
    
    
    182
    
    
    
    7,606Excess tax benefit from share-based compensation
    
    
    
    
    
    
    75Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
    
    
    (17,676
    )
    
    
    Purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    
    
    
    
    (67,185
    )Payment of capital leases
    
    
    
    
    
    
    (47
    )Purchase of common stock for treasury
    
    
    (2,684
    )
    
    
    (17,948
    )Cash flows used in financing activities
    
    
    (20,178
    )
    
    
    (77,499
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (12,961
    )
    
    
    (37,977
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    86,893
    
    
    
    101,241CASH AND CASH EQUIVALENTS  End of period
    
    $
    73,932
    
    
    $
    63,264SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest
    
    $
    3,706
    
    
    $
    7,663Cash paid for taxes
    
    $
    53
    
    
    $
    435Non-cash investing and financing activities:Purchased capital expenditures included in accounts payable and accrued expenses
    
    $
    3,933
    
    
    $
    1,883Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum
tax withholding obligations related to stock based awards
    
    $
    858
    
    
    $
    707
  5




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ALKERMES, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Principles of Consolidation
 Use of Estimates
 Segment Information
 Reclassifications
 New Accounting Pronouncements
  6




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     2. COMPREHENSIVE (LOSS) INCOME
  Three Months Ended
    
    
    Nine Months EndedDecember 31
    
    
    December 31(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (6,817
    )
    
    $
    112,715
    
    
    $
    (25,691
    )
    
    $
    144,100Unrealized gains (losses) on available-for-sale securities:Holding gains (losses)
    
    
    650
    
    
    
    (1,212
    )
    
    
    2,410
    
    
    
    (1,478
    )Reclassification of unrealized losses to realized losses
on available-for-sale securities
    
    
    94
    
    
    
    556
    
    
    
    94
    
    
    
    1,163Unrealized gains (losses) on available-for-sale securities
    
    
    744
    
    
    
    (656
    )
    
    
    2,504
    
    
    
    (315
    )Comprehensive (loss) income
    
    $
    (6,073
    )
    
    $
    112,059
    
    
    $
    (23,187
    )
    
    $
    143,785
 7




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. EARNINGS PER SHARE
   Three Months Ended
    
    
    Nine Months EndedDecember 31
    
    
    December 31(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net (loss) income
    
    $
    (6,817
    )
    
    $
    112,715
    
    
    $
    (25,691
    )
    
    $
    144,100Denominator:Weighted average number of common shares outstanding
    
    
    94,784
    
    
    
    95,316
    
    
    
    94,815
    
    
    
    95,246Effect of dilutive securities:Stock options
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    974Restricted stock units
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    178Dilutive common share equivalents
    
    
    
    
    
    
    502
    
    
    
    
    
    
    
    1,152Shares used in calculating diluted (loss) earnings per share
    
    
    94,784
    
    
    
    95,818
    
    
    
    94,815
    
    
    
    96,398
  Three Months Ended
    
    
    Nine Months EndedDecember 31
    
    
    December 31(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Stock options
    
    
    17,658
    
    
    
    16,356
    
    
    
    17,801
    
    
    
    15,366Restricted stock units
    
    
    538
    
    
    
    630
    
    
    
    318
    
    
    
    Total
    
    
    18,196
    
    
    
    16,986
    
    
    
    18,119
    
    
    
    15,366
 8




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. INVESTMENTS
  Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)December 31, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    126,980
    
    
    $
    202
    
    
    $
    
    
    
    $
    127,182International government agency debt securities
    
    
    28,641
    
    
    
    162
    
    
    
    
    
    
    
    28,803Corporate debt securities
    
    
    6,748
    
    
    
    
    
    
    
    (99
    )
    
    
    6,649Other debt securities
    
    
    2,501
    
    
    
    
    
    
    
    (119
    )
    
    
    2,382Total short-term investments
    
    
    164,870
    
    
    
    364
    
    
    
    (218
    )
    
    
    165,016Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    61,346
    
    
    
    
    
    
    
    (340
    )
    
    
    61,006International government agency debt securities
    
    
    851
    
    
    
    
    
    
    
    (14
    )
    
    
    837Corporate debt securities
    
    
    43,817
    
    
    
    
    
    
    
    (2,112
    )
    
    
    41,705Other debt securities
    
    
    10,000
    
    
    
    
    
    
    
    (1,716
    )
    
    
    8,284Strategic investments
    
    
    644
    
    
    
    198
    
    
    
    
    
    
    
    842116,658
    
    
    
    198
    
    
    
    (4,182
    )
    
    
    112,674Held-to-maturity securities:U.S. government obligations
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    417Certificates of deposit
    
    
    5,440
    
    
    
    
    
    
    
    
    
    
    
    5,440Total long-term investments
    
    
    122,515
    
    
    
    198
    
    
    
    (4,182
    )
    
    
    118,531Total investments
    
    $
    287,385
    
    
    $
    562
    
    
    $
    (4,400
    )
    
    $
    283,547March 31, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    225,490
    
    
    $
    2,635
    
    
    $
    (6
    )
    
    $
    228,119Corporate debt securities
    
    
    8,160
    
    
    
    9
    
    
    
    
    
    
    
    8,169Other debt securities
    
    
    500
    
    
    
    
    
    
    
    (20
    )
    
    
    480Total short-term investments
    
    
    234,150
    
    
    
    2,644
    
    
    
    (26
    )
    
    
    236,768Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    10,149
    
    
    
    
    
    
    
    (3
    )
    
    
    10,146Corporate debt securities
    
    
    57,887
    
    
    
    
    
    
    
    (6,326
    )
    
    
    51,561Other debt securities
    
    
    16,350
    
    
    
    
    
    
    
    (2,683
    )
    
    
    13,667Strategic investments
    
    
    738
    
    
    
    53
    
    
    
    
    
    
    
    79185,124
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    76,165Held-to-maturity securities:U.S. government obligations
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    416Certificates of deposit
    
    
    4,240
    
    
    
    
    
    
    
    
    
    
    
    4,240Total long-term investments
    
    
    89,780
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    80,821Total investments
    
    $
    323,930
    
    
    $
    2,697
    
    
    $
    (9,038
    )
    
    $
    317,589
  9




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Available-for-Sale
    
    
    Held-to-MaturityAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    Estimated(in thousands)
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueWithin 1 year
    
    $
    72,188
    
    
    $
    72,095
    
    
    $
    5,857
    
    
    $
    5,857After 1 year through 5 years (1)
    
    
    149,919
    
    
    
    149,787
    
    
    
    
    
    
    
    After 5 years through 10 years (1)
    
    
    48,777
    
    
    
    46,682
    
    
    
    
    
    
    
    After 10 years
    
    
    10,000
    
    
    
    8,284
    
    
    
    
    
    
    
    Total
    
    $
    280,884
    
    
    $
    276,848
    
    
    $
    5,857
    
    
    $
    5,857
 
 (1)
    
    Investments in available-for-sale securities within these categories,
with an amortized cost of $98.5 million and an estimated fair value of
$96.6 million, have issuer call dates prior to May 2011.      10




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




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    5. FAIR VALUE MEASUREMENTS
  December 31,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    91
    
    
    $
    91
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    188,188
    
    
    
    188,188
    
    
    
    
    
    
    
    International government agency debt securities
    
    
    29,640
    
    
    
    29,640
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    48,354
    
    
    
    
    
    
    
    46,656
    
    
    
    1,698Other debt securities
    
    
    10,666
    
    
    
    
    
    
    
    
    
    
    
    10,666Strategic equity investments
    
    
    842
    
    
    
    842
    
    
    
    
    
    
    
    Total
    
    $
    277,781
    
    
    $
    218,761
    
    
    $
    46,656
    
    
    $
    12,364
 March 31,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    822
    
    
    $
    822
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    238,265
    
    
    
    238,265
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    59,730
    
    
    
    
    
    
    
    
    
    
    
    59,730Other debt securities
    
    
    14,147
    
    
    
    
    
    
    
    
    
    
    
    14,147Strategic equity investments
    
    
    791
    
    
    
    791
    
    
    
    
    
    
    
    Total
    
    $
    313,755
    
    
    $
    239,878
    
    
    $
    
    
    
    $
    73,877
 12




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Fair(In thousands)
    
    ValueBalance, March 31, 2009
    
    $
    73,877Total unrealized gains included in comprehensive loss
    
    
    4,496Sales and redemptions, at par value
    
    
    (21,049
    )Transfers out of Level 3
    
    
    (44,960
    )Balance, December 31, 2009
    
    $
    12,364
    6. INVENTORY
  December 31,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Raw materials
    
    $
    5,169
    
    
    $
    5,916Work in process
    
    
    6,251
    
    
    
    5,397Finished goods (1)
    
    
    8,381
    
    
    
    7,015Consigned-out inventory (2)
    
    
    248
    
    
    
    1,969Inventory
    
    $
    20,049
    
    
    $
    20,297
 
 (1)
    
    At December 31, 2009 and March 31, 2009, the Company had $1.6 million
and none, respectively, of finished goods inventory located at its
third-party warehouse and shipping service provider.(2)
    
    At December 31, 2009, consigned-out inventory relates to inventory in
the distribution channel for which the Company has not recognized
revenue. At March 31, 2009, consigned-out inventory consisted of $1.8
million of consigned-out inventory and $0.2 million of inventory in
the distribution channel for which the Company had not recognized
revenue. 13




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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 7. PROPERTY, PLANT AND EQUIPMENT
  December 31,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Land
    
    $
    301
    
    
    $
    301Building and improvements
    
    
    36,548
    
    
    
    36,325Furniture, fixture and equipment
    
    
    61,635
    
    
    
    67,165Leasehold improvements
    
    
    33,980
    
    
    
    33,996Construction in progress
    
    
    50,677
    
    
    
    41,908Subtotal
    
    
    183,141
    
    
    
    179,695Less: accumulated depreciation
    
    
    (86,809
    )
    
    
    (73,234
    )Total property, plant and equipment, net
    
    $
    96,332
    
    
    $
    106,461
  8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  December 31,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Accounts payable
    
    $
    6,140
    
    
    $
    8,046Accrued compensation
    
    
    11,482
    
    
    
    13,817Accrued interest
    
    
    1,011
    
    
    
    1,549Amounts due to Cephalon
    
    
    
    
    
    
    1,169Accrued other
    
    
    10,927
    
    
    
    11,902Total accounts payable and accrued expenses
    
    $
    29,560
    
    
    $
    36,483
 9. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Nine Months EndedDecember 31
    
    
    December 31(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of goods manufactured and sold
    
    $
    434
    
    
    $
    291
    
    
    $
    1,263
    
    
    $
    1,148Research and development
    
    
    759
    
    
    
    527
    
    
    
    2,485
    
    
    
    3,397Selling, general and administrative (1)
    
    
    2,179
    
    
    
    2,463
    
    
    
    7,063
    
    
    
    7,045Total share-based compensation expense
    
    $
    3,372
    
    
    $
    3,281
    
    
    $
    10,811
    
    
    $
    11,590
 
 (1)
    
    In September 2009, in connection with the resignation of its former
President and Chief Executive Officer, the Company entered into a
separation agreement that provided for, among other things: the
acceleration of vesting of certain stock options and restricted stock
awards that were scheduled to vest through June 30, 2010; and the
period in which vested stock options are exercisable was extended
until the earlier of June 30, 2011 or the stated expiration date of
the stock options. As a result of these stock option and award
modifications, the Company recorded an expense of $0.9 million during
the three months ended September 30, 2009.  14




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. COLLABORATIONS
 TM
    11. RESTRUCTURING
 ®
 (In thousands)
    
    BalanceAccrued restructuring, March 31, 2009
    
    $
    4,193Payments for facility closure costs
    
    
    (611
    )Other adjustments
    
    
    158Accrued Restructuring, December 31, 2009
    
    $
    3,740
  15




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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 12. INCOME TAXES
   13. COMMITMENTS AND CONTINGENCIES
    14. SUBSEQUENT EVENTS
  16




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##### Table of Contents



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




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Our Strategy
  Products and Development Programs
 RISPERDAL CONSTA
 ®
 18




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##### Table of Contents



VIVITROL
   Exenatide Once Weekly
 ®
 19




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##### Table of Contents



®
   ALKS 37
  ALKS 36
  ALKS 33
  20




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##### Table of Contents



ALKS 29
  ALKS 6931
 TM ®
 ALKS 9070
 TM ®
 Executive Summary
  Results of Operations
 Manufacturing Revenues
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Manufacturing revenues:RISPERDAL CONSTA
    
    $
    27.2
    
    
    $
    21.3
    
    
    $
    5.9
    
    
    $
    87.0
    
    
    $
    88.0
    
    
    $
    (1.0
    )Polymer
    
    
    1.5
    
    
    
    
    
    
    
    1.5
    
    
    
    2.9
    
    
    
    
    
    
    
    2.9VIVITROL
    
    
    
    
    
    
    (0.8
    )
    
    
    0.8
    
    
    
    0.4
    
    
    
    4.2
    
    
    
    (3.8
    )Manufacturing revenues
    
    $
    28.7
    
    
    $
    20.5
    
    
    $
    8.2
    
    
    $
    90.3
    
    
    $
    92.2
    
    
    $
    (1.9
    )
  21




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Royalty Revenues
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Royalty revenues
    
    $
    10.0
    
    
    $
    8.0
    
    
    $
    2.0
    
    
    $
    27.5
    
    
    $
    25.0
    
    
    $
    2.5
  22




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Product Sales, net
  Three Months Ended
    
    
    Nine Months EndedDecember 31
    
    
    December 31(In millions)
    
    2009
    
    
    % of Sales
    
    
    2009
    
    
    % of SalesProduct sales, gross
    
    $
    7.2
    
    
    
    100.0
    %
    
    $
    17.7
    
    
    
    100.0
    %Adjustments to product sales, gross:Chargebacks
    
    
    (0.4
    )
    
    
    (5.6
    )%
    
    
    (0.7
    )
    
    
    (4.0
    )%Wholesaler fees
    
    
    (0.3
    )
    
    
    (4.2
    )%
    
    
    (0.7
    )
    
    
    (4.0
    )%Medicaid rebates
    
    
    (0.3
    )
    
    
    (4.2
    )%
    
    
    (0.6
    )
    
    
    (3.4
    )%Product returns (1)
    
    
    (0.4
    )
    
    
    (5.6
    )%
    
    
    (0.5
    )
    
    
    (2.8
    )%Other
    
    
    (0.3
    )
    
    
    (4.2
    )%
    
    
    (0.9
    )
    
    
    (5.1
    )%Total adjustments
    
    
    (1.7
    )
    
    
    (23.8
    )%
    
    
    (3.4
    )
    
    
    (19.3
    )%Product sales, net
    
    $
    5.5
    
    
    
    76.2
    %
    
    $
    14.3
    
    
    
    80.7
    %
 
 (1)
    
    Following the introduction of a return policy for VIVITROL, our
estimate for product returns reflects the deferral of the recognition
of revenue on shipments of VIVITROL to our customers until the product
has left the distribution channel as we do not yet have the history to
reasonably estimate returns related to these shipments. We estimate
the product shipments out of the distribution channel through data
provided by external sources, including information on inventory
levels provided by our customers as well as prescription information.  Research and Development Revenue Under Collaborative Arrangements
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development programs:Four-week RISPERDAL CONSTA
    
    $
    
    
    
    $
    1.6
    
    
    $
    (1.6
    )
    
    $
    2.0
    
    
    $
    3.5
    
    
    $
    (1.5
    )Exenatide once weekly
    
    
    
    
    
    
    1.5
    
    
    
    (1.5
    )
    
    
    0.4
    
    
    
    9.3
    
    
    
    (8.9
    )AIR Insulin
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    26.8
    
    
    
    (26.8
    )Other
    
    
    0.1
    
    
    
    0.5
    
    
    
    (0.4
    )
    
    
    0.3
    
    
    
    0.8
    
    
    
    (0.5
    )Research and development revenue under
collaborative arrangements
    
    $
    0.1
    
    
    $
    3.7
    
    
    $
    (3.6
    )
    
    $
    2.7
    
    
    $
    40.4
    
    
    $
    (37.7
    )
  23




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##### Table of Contents



Net Collaborative Profit
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Net collabortive profit:Milestone revenue  license
    
    $
    
    
    
    $
    0.8
    
    
    $
    (0.8
    )
    
    $
    
    
    
    $
    3.5
    
    
    $
    (3.5
    )Net payments from Cephalon
    
    
    
    
    
    
    0.7
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    VIVITROL losses funded by Cephalon,
post termination
    
    
    
    
    
    
    1.2
    
    
    
    (1.2
    )
    
    
    5.0
    
    
    
    1.2
    
    
    
    3.8Recognition of deferred and unearned milestone
revenue due to
termination of
VIVITROL collaboration
    
    
    
    
    
    
    120.7
    
    
    
    (120.7
    )
    
    
    
    
    
    
    120.7
    
    
    
    (120.7
    )Net collaborative profit
    
    $
    
    
    
    $
    123.4
    
    
    $
    (123.4
    )
    
    $
    5.0
    
    
    $
    125.4
    
    
    $
    (120.4
    )
  Cost of Goods Manufactured and Sold
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Cost of goods manufactured and sold:RISPERDAL CONSTA
    
    $
    8.4
    
    
    $
    5.0
    
    
    $
    (3.4
    )
    
    $
    30.2
    
    
    $
    24.0
    
    
    $
    (6.2
    )VIVITROL
    
    
    1.1
    
    
    
    0.5
    
    
    
    (0.6
    )
    
    
    5.7
    
    
    
    7.9
    
    
    
    2.2Polymer
    
    
    0.6
    
    
    
    
    
    
    
    (0.6
    )
    
    
    1.9
    
    
    
    
    
    
    
    (1.9
    )Cost of goods manufactured and sold
    
    $
    10.1
    
    
    $
    5.5
    
    
    $
    (4.6
    )
    
    $
    37.8
    
    
    $
    31.9
    
    
    $
    (5.9
    )
    24




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##### Table of Contents



Research and Development Expense
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development
    
    $
    22.6
    
    
    $
    22.7
    
    
    $
    0.1
    
    
    $
    68.8
    
    
    $
    64.6
    
    
    $
    (4.2
    )
    Selling, General and Administrative Expense
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Selling, general and administrative
    
    $
    17.7
    
    
    $
    14.6
    
    
    $
    (3.1
    )
    
    $
    57.6
    
    
    $
    38.2
    
    
    $
    (19.4
    )
  25




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##### Table of Contents



Other Expense, Net
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Interest income
    
    $
    1.0
    
    
    $
    2.6
    
    
    $
    (1.6
    )
    
    $
    3.7
    
    
    $
    8.9
    
    
    $
    (5.2
    )Interest expense
    
    
    (1.4
    )
    
    
    (2.4
    )
    
    
    1.0
    
    
    
    (4.7
    )
    
    
    (10.9
    )
    
    
    6.2Other expense, net
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    0.5
    
    
    
    (0.3
    )
    
    
    (1.5
    )
    
    
    1.2Total other expense, net
    
    $
    (0.6
    )
    
    $
    (0.5
    )
    
    $
    (0.1
    )
    
    $
    (1.3
    )
    
    $
    (3.5
    )
    
    $
    2.2
  Provision for Income Taxes
 Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31
    
    
    Favorable/
    
    
    December 31
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)
    
    
    2009
    
    
    2008
    
    
    (Unfavorable)Provision (benefit) for income taxes
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    (0.3
    )
    
    $
    (0.1
    )
    
    $
    0.6
    
    
    $
    (0.7
    )
  Liquidity and Capital Resources
  26




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##### Table of Contents



December 31,
    
    
    March 31,(In millions)
    
    2009
    
    
    2009Cash and cash equivalents
    
    $
    73.9
    
    
    $
    86.9Investments  short-term
    
    
    165.0
    
    
    
    236.8Investments  long-term
    
    
    118.6
    
    
    
    80.8Total cash, cash equivalents and investments
    
    $
    357.5
    
    
    $
    404.5Working capital
    
    $
    235.6
    
    
    $
    307.1Outstanding borrowings  current and long-term
    
    $
    57.3
    
    
    $
    75.9
 Cash and Cash Equivalents
  Nine Months EndedDecember 31(In millions)
    
    2009
    
    
    2008Cash and cash equivalents, beginning of period
    
    $
    86.9
    
    
    $
    101.2Cash (used in) provided by operating activities
    
    
    (12.3
    )
    
    
    38.6Cash provided by investing activities
    
    
    19.5
    
    
    
    0.9Cash used in financing activities
    
    
    (20.2
    )
    
    
    (77.4
    )Cash and cash equivalents, end of period
    
    $
    73.9
    
    
    $
    63.3
 Operating Activities
  Investing Activities
  Financing Activities
  Investments
  27




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##### Table of Contents



Borrowings
  Contractual Obligations
  TM
  Off-Balance Sheet Arrangements
  28




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##### Table of Contents



Critical Accounting Estimates
   New Accounting Standards
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4.
    
    Controls and Procedures
 a) Evaluation of Disclosure Controls and Procedures
  29




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##### Table of Contents



b) Change in Internal Control over Financial Reporting
  30




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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
  1.
    
    A proposal to elect ten members of the Board of Directors, each to serve until the next
annual meeting of shareholders and until his or her successor is duly elected and qualified,
was approved with the following vote:
 AuthorityNominee
    
    Votes For
    
    WithheldDavid W. Anstice
    
    
    89,865,836
    
    
    
    743,471Floyd E. Bloom
    
    
    87,931,665
    
    
    
    2,677,642Robert A. Breyer
    
    
    88,071,529
    
    
    
    2,537,778David A. Broecker
    
    
    85,071,790
    
    
    
    5,537,517Geraldine Henwood
    
    
    88,720,730
    
    
    
    1,888,577Paul J. Mitchell
    
    
    88,705,326
    
    
    
    1,903,981Richard F. Pops
    
    
    87,184,289
    
    
    
    3,425,018Alexander Rich
    
    
    88,004,480
    
    
    
    2,604,827Mark B. Skaletsky
    
    
    89,890,957
    
    
    
    718,350Michael A. Wall
    
    
    87,712,797
    
    
    
    2,896,510
  2.
    
    A proposal to ratify PricewaterhouseCoopers LLP as our independent registered public
accountants for fiscal 2010 was approved with 88,785,709 votes for, 1,748,293 votes against
and 75,305 abstentions.
 
 Item 5.
    
    Other Information
  31




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32




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##### Table of Contents



Item 6.
    
    Exhibits
  ExhibitNo.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




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##### Table of Contents



SIGNATURES
  ALKERMES, INC.
(Registrant)By:
    /s/ Richard F. PopsRichard F. PopsChairman, President and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ James M. FratesJames M. FratesSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)  34




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.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).
 35