<PAGE>   1
                                                                    Exhibit 10.1



                THIRD LOAN SUPPLEMENT AND MODIFICATION AGREEMENT


         This Third Loan Supplement and Modification Agreement ("this
Agreement") is made as of September 24, 1998 by and among Alkermes, Inc., a
Pennsylvania corporation ("Alkermes"), Alkermes Controlled Therapeutics, Inc., a
Pennsylvania corporation ("ACT I"), Alkermes Controlled Therapeutics Inc. II, a
Pennsylvania corporation ("ACT II") (Alkermes, ACT I and ACT II being
hereinafter referred to collectively as the "Borrowers" and individually as a
"Borrower") and Fleet National Bank (the "Bank"). The Bank is the successor by
merger to Fleet Bank of Massachusetts, N.A. ("Fleet Mass"). For good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Bank agree as follows:

         1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain letter
agreement dated September 27, 1996 among the Borrowers and the Bank, as amended
by the below-defined First Loan Supplement and the below-defined Second Loan
Supplement (as so amended, the "Letter Agreement"); (ii) that certain $1,500,000
original principal amount promissory note dated December 19, 1995 made by
Alkermes and payable to the order of Fleet Mass, as amended by Allonge to Note
dated September 27, 1996 among Alkermes, ACT I and the Bank (said December 19,
1995 promissory note, as so amended, being hereinafter referred to as the "1995
Note"); (iii) that certain $5,000,000 original principal amount promissory note
dated September 27, 1996 (the "Ohio Term Note") made by Alkermes and ACT II and
payable to the order of the Bank; (iv) that certain $2,500,000 original
principal amount promissory note dated June 2, 1997 (the "1997 Term Note") made
by the Borrowers and payable to the order of the Bank; (v) that certain Security
Agreement dated as of September 27, 1996 from the Borrowers to the Bank, as
amended by the First Loan Supplement and the Second Loan Supplement (as so
amended, the "Security Agreement"); (vi) that certain Pledge Agreement dated as
of September 27, 1996 from Alkermes to the Bank, as affected by the First Loan
Supplement and the Second Loan Supplement (as so affected, the "Pledge"); (vii)
that certain Mortgage and Security Agreement dated as of September 27, 1996 from
ACT II to the Bank relating to premises of ACT II in Clinton County, Ohio, as
affected by the First Loan Supplement and the Second Loan Supplement (as so
affected, the "Ohio Mortgage"); (viii) that certain promissory note dated March
19, 1998 (the "March 1998 Term Note") in the face principal amount of the
$4,000,000 made by the Borrowers and payable to the order of the Bank; (ix) that
certain promissory note of even date herewith in the face principal amount of
$9,000,000 (the "Tranche A September 1998 Term Note") made by the Borrowers and
payable to the order of the Bank; and (x) that certain promissory note of even
date herewith in the face principal amount of $11,000,000 (the "Tranche B
September 1998 Term Note") made by the Borrowers and payable to the order of the
Bank. The Letter Agreement, the 1995 Note, the Ohio Term Note, the 1997 Term
Note, the Security Agreement, the Pledge, the Ohio Mortgage, the March 1998 Term
Note, the Tranche A September 1998 Term Note and the Tranche B September 1998
Term Note are hereinafter referred to collectively as the "Financing Documents".
Copies of the forms of the Tranche A September 1998 Term Note and the Tranche B
September 1998 Term Note are attached hereto as Exhibits 1 and 2, respectively.
As used herein, the term "First Loan Supplement" will be deemed to refer to that
certain Loan Supplement and Modification Agreement dated as of June 2, 1997




<PAGE>   2

among the Borrowers and the Bank, and the term "Second Loan Supplement" will be
deemed to refer to that certain Second Loan Supplement and Modification
Agreement dated as of March 19, 1998.

         2. SEPTEMBER 1998 TERM LOANS. (a) MAKING OF TRANCHE A SEPTEMBER 1998
TERM LOANS. Subject to the terms and conditions hereof, the Bank will make one
or more loans (the "Tranche A September 1998 Term Loans") to the Borrowers, as
the Borrowers may request, on any Business Day prior to the first to occur of
(i) the close of business on March 31, 1999 or (ii) the earlier termination,
pursuant to Section 2(m) below, of the within-described facility for Tranche A
September 1998 Term Loans. A Tranche A September 1998 Term Loan will be made not
more than once per calendar month. Each Tranche A September 1998 Term Loan will
be in such amount as may be requested by the Borrowers in order to pay or
reimburse the costs of Qualifying Equipment; provided that (i) no Tranche A
September 1998 Term Loan will be made after the close of business on March 31,
1999; (ii) the aggregate original principal amounts of all Tranche A September
1998 Term Loans will not exceed $9,000,000; and (iii) no Tranche A September
1998 Term Loan will be in an amount in excess of 100% of the invoiced actual
costs of the tangible property constituting the items of Qualifying Equipment
with respect to which such Tranche A September 1998 Term Loan is made (excluding
taxes, shipping, software, installation charges, training fees and other "soft
costs"). In connection with the making of each Tranche A September 1998 Term
Loan, and as a precondition thereto, the Borrowers will provide the Bank with:
(i) invoices supporting the costs of the relevant Qualifying Equipment; (ii)
such evidence as the Bank may reasonably request showing that each such item of
Qualifying Equipment has been delivered to and installed at Alkermes' premises
at 281 Albany Street, Cambridge, MA (in the case of Qualifying Equipment owned
by Alkermes or ACT I) or ACT II's premises in Wilmington, Ohio (in the case of
Qualifying Equipment owned by ACT II), has become fully operational, has been
paid for by the relevant Borrower and is owned by the relevant Borrower free of
all liens and interests of any other person or entity (other than the security
interest of the Bank pursuant to the Security Agreement); (iii) executed Uniform
Commercial Code financing statements reflecting the items of Qualifying
Equipment with respect to which such Tranche A September 1998 Term Loan is being
made and an appropriate supplement to the Security Agreement reflecting such
items; and (iv) evidence satisfactory to the Bank that the Qualifying Equipment
is fully insured against casualty loss, with insurance naming the Bank as
secured party and first loss payee. As used herein, "Qualifying Equipment" means
equipment purchased by the Borrowers for use in the Borrowers' business which
meets all of the following criteria: (i) such equipment consists of one of the
items shown on the Equipment List heretofore delivered by the Borrowers to the
Bank or has otherwise been approved by the Bank for use in supporting a Tranche
A September 1998 Term Loan, (ii) each item of such equipment shall have been
acquired by the Borrowers within 90 days prior to the date of the Tranche A
September 1998 Term Loan financing same (except that for the purposes of the
first Tranche A September 1998 Term Loan the Borrowers may include within
Qualifying Equipment items acquired more than 90 days prior to the date of such
first Tranche A September 1998 Term Loan (but in any event after January 1,
1997) and installed at ACT II's premises in Wilmington, Ohio and/or at Alkermes'
premises at 281 Albany Street, Cambridge, MA), (iii) no such item of equipment
shall have been used to support any prior loan made by the Bank, (iv) each item
of such equipment shall have been delivered to and installed at Alkermes'
premises in Cambridge, 



                                      -2-




<PAGE>   3

MA (in the case of Qualifying Equipment owned by Alkermes or ACT I) or ACT II's
premises in Wilmington, Ohio (in the case of Qualifying Equipment owned by ACT
II) and shall have become fully operational, (v) the relevant Borrower shall
have paid in full for each item of such equipment and shall hold title to same,
free of all interests and claims of any other person or entity (other than the
security interest of the Bank), and (vi) the Bank shall hold a fully perfected
first security interest in such equipment. The Tranche A September 1998 Term
Loans will be evidenced by the Tranche A September 1998 Term Note. Each Borrower
hereby irrevocably authorizes the Bank to make or cause to be made, on a
schedule attached to the Tranche A September 1998 Term Note or on the books of
the Bank, at or following the time of the making of any Tranche A September 1998
Term Loan and of receiving any payment of principal of any Tranche A September
1998 Term Loan, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Tranche A September 1998 Term Loans.
The amount so noted shall constitute presumptive evidence as to the amount owed
jointly and severally by the Borrowers with respect to principal of the Tranche
A September 1998 Term Loans. Failure of the Bank to make any such notation shall
not, however, affect any obligation of any Borrower or any right of the Bank
hereunder or under the Tranche A September 1998 Term Note. The Tranche A
September 1998 Term Loans will be made jointly to the Borrowers and repayment
thereof will be the joint and several obligation of the Borrowers. The Tranche A
September 1998 Term Loans will be used by the Borrowers solely to pay (or to
reimburse the Borrowers for) the costs of acquisition of Qualifying Equipment.


         (b) REPAYMENT OF TRANCHE A SEPTEMBER 1998 TERM LOANS. The Borrowers
shall repay (and shall be jointly and severally obligated to repay) principal of
the Tranche A September 1998 Term Loans in 17 equal consecutive quarterly
installments (each in an amount equal to 1/18th of the aggregate principal
amount of the Tranche A September 1998 Term Loans outstanding at the close of
business on March 31, 1999), commencing on June 30, 1999 and continuing on the
last Business Day of each calendar quarter thereafter, PLUS an 18th and final
installment payment due and payable on September 30, 2003 in an amount equal to
the then outstanding principal balance of the Tranche A September 1998 Term
Loans and all interest then accrued but unpaid thereon. The Borrowers may
prepay, at any time or from time to time, without premium or penalty, the whole
or any portion of each Tranche A September 1998 Term Loan which then constitutes
a Floating Rate Loan; provided that on the date of each such prepayment the
Borrowers pay all interest under the Tranche A September 1998 Term Note accrued
but unpaid to the date of payment on the Tranche A September 1998 Term Loans or
the portion thereof so prepaid. The Borrowers may prepay at any time any Tranche
A September 1998 Term Loan which is a Fixed Rate Loan; provided that (i) the
Borrowers give the Bank not less than two (2) Business Days' prior written
notice of their intent so to prepay, (ii) the Borrowers pay all interest on each
Tranche A September 1998 Term Loan (or portion thereof) so prepaid accrued to
the date of prepayment, (iii) any voluntary prepayment with respect to any such
Tranche A September 1998 Term Loan (if less than the then aggregate balances of
all Tranche A September 1998 Term Loans then outstanding) shall be in the
principal amount of at least $1,000,000, and (iv) the Borrowers shall forthwith
pay (and shall be jointly and severally obligated to pay) all amounts owing to
the Bank pursuant to the provisions of Section 2(h). Any partial prepayment of
principal of the Tranche A September 1998 Term Loans will be applied to




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<PAGE>   4

installments of principal (including, without limitation, the final installment)
of the Tranche A September 1998 Term Loans thereafter coming due in inverse
order of normal maturity. Amounts paid or prepaid with respect to any Tranche A
September 1998 Term Loan are not available for reborrowing.

         (c) MAKING OF TRANCHE B SEPTEMBER 1998 TERM LOANS. Subject to the terms
and conditions hereof, the Bank will also make one or more loans (the "Tranche B
September 1998 Term Loans") to the Borrowers, as the Borrowers may request, on
any Business Day prior to the first to occur of (i) the close of business on
March 31, 1999 or (ii) the earlier termination, pursuant to Section 2(m) below,
of the within-described facility for Tranche B September 1998 Term Loans. A
Tranche B September 1998 Term Loan will be made not more than once per calendar
month. Each Tranche B September 1998 Term Loan will be in such amount as may be
requested by the Borrowers in order to pay or reimburse the costs of Qualifying
Leasehold Improvements; provided that (i) no Tranche B September 1998 Term Loan
will be made after the close of business on March 31, 1999; (ii) the aggregate
original principal amounts of all Tranche B September 1998 Term Loans will not
exceed $11,000,000; and (iii) no Tranche B September 1998 Term Loan will be in
an amount in excess of 100% of the invoiced actual costs of the fixtures and
other leasehold improvements constituting the items of Qualifying Leasehold
Improvements with respect to which such Tranche B September 1998 Term Loan is
made (excluding taxes, shipping, software, installation charges, training fees
and other "soft costs"). In connection with the making of each Tranche B
September 1998 Term Loan, and as a precondition thereto, the Borrowers will
provide the Bank with: (i) invoices supporting the costs of the relevant
Qualifying Leasehold Improvements; (ii) such evidence as the Bank may reasonably
request showing that each such item of Qualifying Leasehold Improvements has
been installed at, affixed to or incorporated into Alkermes' premises at 281
Albany Street, Cambridge, MA (in the case of Qualifying Leasehold Improvements
owned by Alkermes) or ACT II's premises in Wilmington, Ohio (in the case of
Qualifying Leasehold Improvements owned by ACT II), has become fully functional,
has been paid for by the relevant Borrower and is owned by the relevant Borrower
(being Alkermes or ACT II) free of all liens and interests of any other person
or entity (other than the security interest of the Bank pursuant to the Security
Agreement and except for any leasehold improvements which are so incorporated
into the relevant real estate that same become the property of the owner of such
real estate); (iii) except in the case of leasehold improvements which are so
incorporated into the relevant real estate that same become the property of the
owner of such real estate, executed Uniform Commercial Code financing statements
reflecting the items of Qualifying Leasehold Improvements with respect to which
such Tranche B September 1998 Term Loan is being made and an appropriate
supplement to the Security Agreement reflecting such items; and (iv) except in
the case of leasehold improvements which are so incorporated into the relevant
real estate that same become the property of the owner of such real estate,
evidence satisfactory to the Bank that the Qualifying Leasehold Improvements are
fully insured against casualty loss, with insurance naming the Bank as secured
party and first loss payee. As used herein, "Qualifying Leasehold Improvements"
means fixtures or other leasehold improvements purchased by the Borrowers for
use in connection with the Borrowers' business which meet all of the following
criteria: (i) such fixtures or other leasehold improvements consist of one of
the items shown on the Leasehold Improvements List heretofore delivered by the
Borrowers to the Bank or have otherwise been approved by the Bank for use in


                                      -4-



<PAGE>   5

supporting a Tranche B September 1998 Term Loan, (ii) each item of such
Qualifying Leasehold Improvements shall have been acquired by the Borrowers
within 90 days prior to the date of the Tranche B September 1998 Term Loan
financing same (except that for the purposes of the first Tranche B September
1998 Term Loan the Borrowers may include within Qualifying Leasehold
Improvements items acquired more than 90 days prior to the date of such first
Tranche B September 1998 Term Loan (but in any event after January 1, 1997) and
installed at, affixed to or incorporated into ACT II's premises in Wilmington,
Ohio and/or installed at, affixed to or incorporated into Alkermes' premises at
281 Albany Street, Cambridge, MA), (iii) no such fixtures or other leasehold
improvements shall have been used to support any prior loan made by the Bank,
(iv) each item of such fixtures and other leasehold improvements shall have been
delivered to and installed at Alkermes' premises in Cambridge, MA (in the case
of Qualifying Leasehold Improvements owned by Alkermes) or ACT II's premises in
Wilmington, Ohio (in the case of Qualifying Leasehold Improvements owned by ACT
II) and shall have become fully functional, (v) the relevant Borrower shall have
paid in full for each item of such fixtures and other leasehold improvements and
shall hold title to same, free of all interests and claims of any other person
or entity (other than the security interest of the Bank and except for any
leasehold improvements so incorporated into the relevant real estate that same
become the property of the owner of such real estate), and (vi) except in the
case of leasehold improvements so incorporated into the relevant real estate
that same become the property of the owner of such real estate, the Bank shall
have a fully perfected first security interest in all such fixtures and other
leasehold improvements. The Tranche B September 1998 Term Loans will be
evidenced by the Tranche B September 1998 Term Note. Each Borrower hereby
irrevocably authorizes the Bank to make or cause to be made, on a schedule
attached to the Tranche B September 1998 Term Note or on the books of the Bank,
at or following the time of the making of any Tranche B September 1998 Term Loan
and of receiving any payment of principal of any Tranche B September 1998 Term
Loan, an appropriate notation reflecting such transaction and the then aggregate
unpaid principal balance of the Tranche B September 1998 Term Loans. The amount
so noted shall constitute presumptive evidence as to the amount owed jointly and
severally by the Borrowers with respect to principal of the Tranche B September
1998 Term Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of any Borrower or any right of the Bank
hereunder or under the Tranche B September 1998 Term Note. The Tranche B
September 1998 Term Loans will be made jointly to the Borrowers and repayment
thereof will be the joint and several obligation of the Borrowers. The Tranche B
September 1998 Term Loans will be used by the Borrowers solely to pay (or to
reimburse the Borrowers for) the costs of acquisition of Qualifying Leasehold
Improvements.

         (d) REPAYMENT OF TRANCHE B SEPTEMBER 1998 TERM LOANS. The Borrowers
shall repay (and shall be jointly and severally obligated to repay) principal of
the Tranche B September 1998 Term Loans in 17 equal consecutive quarterly
installments (each in an amount equal to 1/40th of the aggregate principal
amount of Tranche B September 1998 Term Loans outstanding at the close of
business on March 31, 1999), commencing on June 30, 1999 and continuing on the
last Business Day of each calendar quarter thereafter, PLUS an 18th and final
"balloon" payment due and payable on September 30, 2003 in an amount equal to
the then outstanding principal balance of the Tranche B September 1998 Term
Loans and all interest then accrued but unpaid thereon. The Borrowers may
prepay, at any time or from time to time, 



                                      -5-




<PAGE>   6

without premium or penalty, the whole or any portion of each Tranche B September
1998 Term Loan which then constitutes a Floating Rate Loan; provided that on the
date of each such prepayment the Borrowers pay all interest under the Tranche B
September 1998 Term Note accrued but unpaid to the date of payment on the
Tranche B September 1998 Term Loans or the portion thereof so prepaid. The
Borrowers may prepay at any time any Tranche B September 1998 Term Loan which is
a Fixed Rate Loan; provided that (i) the Borrowers give the Bank not less than
two (2) Business Days' prior written notice of their intent so to prepay, (ii)
the Borrowers pay all interest on each Tranche B September 1998 Term Loan (or
portion thereof) so prepaid accrued to the date of payment, (iii) any voluntary
prepayment with respect to any such Tranche B September 1998 Term Loan (if less
than the then aggregate balances of all Tranche B September 1998 Term Loans then
outstanding) shall be in the principal amount of at least $1,000,000, and (iv)
the Borrowers shall forthwith pay (and shall be jointly and severally obligated
to pay) all amounts owing to the Bank pursuant to the provisions of Section
2(h). Any partial prepayment of principal of the Tranche B September 1998 Term
Loans will be applied to installments of principal (including, without
limitation, the final "balloon" payment) of the Tranche B September 1998 Term
Loans thereafter coming due in inverse order of normal maturity. Amounts paid or
prepaid with respect to any Tranche B September 1998 Term Loan are not available
for reborrowing.

         (e) INTEREST RATE FOR SEPTEMBER 1998 TERM LOANS. Except as otherwise
provided below in this Section 2(e), interest on the September 1998 Term Loans
will be payable at a fluctuating rate per annum (the "Floating Rate") which
shall at all times be equal to the Prime Rate as in effect from time to time,
with a change in such rate of interest to become effective on each day when a
change in the Prime Rate becomes effective. Subject to the conditions set forth
herein, the Borrowers may elect (i) that any September 1998 Term Loan to be made
under Section 2(a) or Section 2(c) will be made as a LIBOR Loan or (ii) that all
or a portion of any September 1998 Term Loan which is outstanding as a Floating
Rate Loan (but not any COF Loan) be converted to a LIBOR Loan. Each such
election shall be made by the Borrowers giving to the Bank a written notice
received by the Bank within the time period and containing the information
described in the next following sentence (a "LIBOR Borrowing/Conversion
Notice"). The LIBOR Borrowing/Conversion Notice must be received by the Bank no
later than 10:00 a.m. (Boston time) on that day which is two Business Days prior
to the date of the proposed borrowing or the proposed conversion, as the case
may be, must specify that the making of a LIBOR Loan is being requested or a
conversion to a LIBOR Loan is being requested, as the case may be, must state
the amount (which shall be $1,000,000 or an integral multiple of $100,000 in
excess of $1,000,000) of the LIBOR Loan requested to be made or into which a
Floating Rate Loan is to be converted and must specify the proposed commencement
date and the duration (one month, two months or three months) of the relevant
Interest Period. Notwithstanding anything provided elsewhere in this Agreement,
the Borrowers may not elect any Interest Period with respect to any principal
installment of a September 1998 Term Loan if such Interest Period would end
after the due date of such principal installment. Any LIBOR Borrowing/Conversion
Notice shall, upon receipt by the Bank, become irrevocable and binding on the
Borrowers, and the Borrowers shall, upon demand and receipt of a Bank
Certificate with respect thereto, forthwith indemnify (and shall be jointly and
severally obligated to indemnify) the Bank against any loss or expense incurred
by the Bank as a result of any failure by the 



                                      -6-



<PAGE>   7

Borrowers to obtain or maintain any requested LIBOR Loan, including, without
limitation, any loss or expense incurred by reason of the liquidation or
redeployment of deposits or other funds acquired by the Bank to fund or maintain
such LIBOR Loan. At the end of any Interest Period for any LIBOR Loan, the
principal amount represented by such LIBOR Loan shall become a Floating Rate
Loan, unless continued as a LIBOR Loan to the extent and on the terms and
conditions contained in this Agreement by delivery to the Bank of a new LIBOR
Borrowing/Conversion Notice conforming to the requirements set forth above in
this Section. Notwithstanding any other provision of this Agreement, the Bank
need not make any LIBOR Loan at any time when there exists any Default or Event
of Default.

         At any time, the Borrowers may convert to a COF Loan all (but not less
than all) of the September 1998 Term Loans then outstanding and not previously
so converted. If the Borrowers desire such conversion to a COF Loan, they must
notify the Bank of same not less than two Business Days prior to the proposed
conversion and request that the Bank offer with respect to such September 1998
Term Loans a rate of interest which shall be fixed (subject to adjustment as
provided in this Agreement) for the period commencing on the date of such
conversion and ending on the final maturity date applicable to such September
1998 Term Loans (a "Fixed Rate Period"). Following such request for a fixed
rate, the Bank will endeavor to offer a proposed COF Interest Rate for such
outstanding September 1998 Term Loans not previously so converted at a rate
determined as provided below and under conditions determined by the Bank in its
sole discretion. The Borrowers may elect to accept such offer in the manner and
within the time period specified in such offer. Any such election shall be
irrevocable on the part of the Borrowers. Upon such election, the interest rate
payable with respect to such outstanding September 1998 Term Loans not
previously so converted shall be fixed (subject to adjustment as provided in
this Agreement) for the relevant Fixed Rate Period and at the rate communicated
by the Bank for this purpose as its proposed COF Interest Rate. Any proposed COF
Interest Rate offered under this paragraph with respect to the September 1998
Term Loans will be a rate per annum equal to the sum of (i) 1.25% per annum PLUS
(ii) the COF Rate for the applicable Fixed Rate Period (expressed as a per annum
rate); provided, however, that the COF Interest Rate shall in no event exceed
the maximum rate permitted by applicable law. In any event, there will at no
time be more than four Fixed Rate Periods in effect with respect to the
September 1998 Term Loans or any of same.

         No Borrower shall have any claim against the Bank with respect to
computation of any proposed COF Interest Rate. If any Borrower is dissatisfied
with any proposed COF Interest Rate, the Borrowers' sole remedy with respect
thereto shall be not to accept such proposed COF Interest Rate within the
applicable time period, and thus to cause interest on the relevant September
1998 Term Loans to continue to be payable at the Floating Rate (subject to the
ability of the Borrowers to elect LIBOR Loans as hereinabove provided).
Notwithstanding the foregoing provisions hereof, the Bank need not offer a
proposed COF Interest Rate for any period of time with respect to which the
Bank, in its sole discretion, determines that there are no recognized sources of
funding available to it for such time period or principal amount or that the
cost of funds with respect thereto would be unreasonably high or if there then
exists any Default or Event of Default.



                                      -7-




<PAGE>   8

         (f)      INTEREST PAYMENTS ON SEPTEMBER 1998 TERM LOANS. The Borrowers
will pay interest on the principal amount of the September 1998 Term Loans
outstanding from time to time, from the date hereof until payment of the
September 1998 Term Loans and the September 1998 Term Notes in full and the
termination of this Agreement. Interest on Floating Rate Loans and COF Loans
will be payable monthly in arrears on the first Business Day of each month.
Interest on each LIBOR Loan will be paid in arrears on the applicable Interest
Payment Date. In any event, interest on each September 1998 Term Loan shall also
be paid on the date of payment of such September 1998 Term Loan in full.
Interest on Floating Rate Loans shall be payable at the Floating Rate. The rate
of interest payable on any LIBOR Loan will be the LIBOR Interest Rate applicable
thereto. The rate of interest payable on any COF Loan will be the COF Interest
Rate applicable thereto. In any event, overdue principal of any September 1998
Term Loan and, to the extent permitted by law, overdue interest on any September
1998 Term Loan shall bear interest at a rate per annum which at all times shall
be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the Prime Rate,
compounded monthly and payable on demand.

         (g)      RATE DETERMINATION PROTECTION.  In the event that:

                  (i)      the Bank shall determine that, by reason of
                  circumstances affecting the London interbank market or
                  otherwise, adequate and reasonable methods do not exist for
                  ascertaining the LIBOR Interest Rate which would otherwise be
                  applicable during any Interest Period, or

                  (ii)     the Bank shall determine that:

                           (A) the making or continuation of any LIBOR Loan has
                           been made impracticable or unlawful by (1) the
                           occurrence of any contingency that materially and
                           adversely affects the London interbank market or (2)
                           compliance by the Bank with any applicable law or
                           governmental regulation, guideline or order or
                           interpretation or change thereof by any governmental
                           authority charged with the interpretation or
                           administration thereof or with any request or
                           directive of any such governmental authority (whether
                           or not having the force of law); or

                           (B) LIBOR (as adjusted to take into account any
                           applicable Reserve Rate) will not, in the reasonable
                           determination of the Bank, adequately and fairly
                           reflect the cost to the Bank of funding LIBOR Loans
                           for such Interest Period

                  then the Bank shall forthwith give notice of such
                  determination (which shall be conclusive and binding on the
                  Borrowers) to the Borrowers. In such event the obligation of
                  the Bank to make LIBOR Loans shall be suspended until the Bank
                  determines that the circumstances giving rise to such
                  suspension no longer exist, whereupon the Bank shall notify
                  the Borrowers.


                                      -8-



<PAGE>   9

         (h)      PREPAYMENT OF FIXED RATE LOANS. The following provisions of
this Section 2(h) shall be effective only with respect to Fixed Rate Loans: As
to any Fixed Rate Loan, the Borrowers shall have the right (subject to the
payment of the yield maintenance fee described below) to prepay such Fixed Rate
Loan at any time. If, due to acceleration of any September 1998 Term Note or due
to voluntary or mandatory repayment or prepayment or due to any other reason,
the Bank receives payment of any principal of a LIBOR Loan on any date prior to
the last day of the relevant Interest Period or receives payment of all or any
portion of any installment of a COF Loan prior to the regularly scheduled due
date for such installment or if any LIBOR Loan is converted to a COF Loan or to
a Floating Rate Loan (which conversion will not in any event occur except
pursuant to the second paragraph of Section 2(e) above or pursuant to Section
2(j) below), the Borrowers shall, upon demand and receipt of a Bank Certificate
from the Bank with respect thereto, pay (and shall be jointly and severally
obligated to pay) forthwith to the Bank a yield maintenance fee in an amount
computed as follows: The current rate for United States Treasury securities
(bills on a discounted basis shall be converted to a bond equivalent) with a
maturity date closest to the last day of the Interest Period applicable to the
affected LIBOR Loan (or, as to any prepayment of any installment of a COF Loan,
the due date of the installment so prepaid) shall be subtracted from the "cost
of funds" component of the fixed rate for the relevant Fixed Rate Loan in effect
at the date of prepayment or conversion. If the result is zero or a negative
number, there shall be no yield maintenance fee. If the result is a positive
number, then the resulting percentage shall be multiplied by the amount of the
principal balance being prepaid. The resulting amount shall be divided by 360
and multiplied by the number of days remaining in the relevant Interest Period
(or, as to any prepayment of any installment of a COF Loan, the number of days
remaining until the due date of the installment so prepaid). Said amount shall
be reduced to present value calculated by using the number of days remaining in
the relevant Interest Period (or, as to any prepayment of any installment of a
COF Loan, the number of days remaining until the due date of the installment so
prepaid) and by using the above-referenced United States Treasury security rate
as the discount rate. The resulting amount shall be the yield maintenance fee
due to the Bank upon prepayment or conversion of the applicable Fixed Rate Loan.
Any acceleration of a Fixed Rate Loan due to an Event of Default will give rise
to a yield maintenance fee calculated with the respect to such Fixed Rate Loan
on the date of such acceleration in the same manner as though the Borrowers had
exercised a right of prepayment at that date, such yield maintenance fee being
due and payable at that date. As to the September 1998 Term Loans, the
provisions of this Section 2(h) are in lieu of the last paragraph of Section 1.6
of the Letter Agreement.

         (i)      INCREASED COSTS; CAPITAL ADEQUACY.

                  (i)      If the adoption, effectiveness or phase-in, after the
                  date hereof, of any applicable law, rule or regulation, or any
                  change therein, or any change in the interpretation or
                  administration thereof by any governmental authority, central
                  bank or comparable agency charged with the interpretation or
                  administration thereof, or compliance by the Bank with any
                  request or directive (whether or not having the force of law)
                  of any such authority, central bank or comparable agency:



                                      -9-



<PAGE>   10

                           (A) shall subject the Bank to any Imposition or other
                           charge with respect to any Fixed Rate Loan or the
                           Bank's agreement to make Fixed Rate Loans, or shall
                           change the basis of taxation of payments to the Bank
                           of the principal of or interest on any Fixed Rate
                           Loan or any other amounts due under this Agreement in
                           respect of Fixed Rate Loans or the Bank's agreement
                           to make or maintain Fixed Rate Loans (except for
                           changes in the rate of tax on the over-all net income
                           of the Bank); or

                           (B) shall impose, modify or deem applicable any
                           reserve, special deposit, deposit insurance or
                           similar requirement (including, without limitation,
                           any such requirement imposed by the Board of
                           Governors of the Federal Reserve System, but
                           excluding, with respect to any LIBOR Loan, any such
                           requirement already included in the applicable
                           Reserve Rate) against assets of, deposits with or for
                           the account of, or credit extended by, the Bank or
                           shall impose on the Bank or on the London interbank
                           market any other condition affecting any Fixed Rate
                           Loans or the Bank's agreement to make Fixed Rate
                           Loans

                  and the result of any of the foregoing is to increase the cost
                  to the Bank of making or maintaining any Fixed Rate Loan or to
                  reduce the amount of any sum received or receivable by the
                  Bank under this Agreement and/or any September 1998 Term Note
                  and/or with respect to any Fixed Rate Loan by an amount deemed
                  by the Bank to be material, then, upon demand by the Bank and
                  receipt of a Bank Certificate from the Bank with respect
                  thereto, the Borrowers shall pay (and shall be jointly and
                  severally obligated to pay) to the Bank such additional amount
                  or amounts as the Bank certifies to be necessary to compensate
                  the Bank for such increased cost or reduction in amount
                  received or receivable.

                  (ii)     If the Bank shall have determined that the adoption,
                  effectiveness or phase-in after the date hereof of any
                  applicable law, rule or regulation regarding capital
                  requirements for banks or bank holding companies, or any
                  change therein after the date hereof, or any change after the
                  date hereof in the interpretation or administration thereof by
                  any governmental authority, central bank or comparable agency
                  charged with the interpretation or administration thereof, or
                  compliance by the Bank with any request or directive of such
                  entity regarding capital adequacy (whether or not having the
                  force of law) has or would have the effect of reducing the
                  return on the Bank's capital with respect to any September
                  1998 Term Loan or with respect to its agreement hereunder to
                  make September 1998 Term Loans (all such September 1998 Term
                  Loans, whether or not subject to any COF Interest Rate or any
                  LIBOR Interest Rate) to a level below that which the Bank
                  could have achieved (taking into consideration the Bank's
                  policies with respect to capital adequacy immediately before
                  such adoption, effectiveness, phase-in, change or compliance
                  and assuming that the Bank's capital was then fully utilized)
                  by any amount deemed by the Bank to be material: (A) the Bank
                  shall promptly after its determination of such occurrence
                  deliver a Bank Certificate with respect thereto to 


                                      -10-



<PAGE>   11

                  the Borrowers; and (B) the Borrowers shall pay (and shall be
                  jointly and severally obligated to pay) to the Bank as an
                  additional fee from time to time on demand such amount as the
                  Bank certifies to be the amount that will compensate it for
                  such reduction.

                  (iii)    A Bank Certificate of the Bank claiming compensation
                  under this Section 2(i) shall be conclusive in the absence of
                  manifest error. Such certificate shall set forth the nature of
                  the occurrence giving rise to such claim for compensation, the
                  additional amount or amounts to be paid to the Bank hereunder
                  and the method by which such amounts are determined. In
                  determining any such amount, the Bank may use any reasonable
                  averaging and attribution methods.

                  (iv)     No failure on the part of the Bank to demand
                  compensation on any one occasion shall constitute a waiver of
                  its right to demand such compensation on any other occasion
                  and no failure on the part of the Bank to deliver any Bank
                  Certificate in a timely manner shall in any way reduce any
                  obligation of the Borrowers to the Bank under this Section
                  2(i). As to the September 1998 Term Loans, the provisions of
                  this Section 2(i) are in lieu of the provisions of Section 6.2
                  of the Letter Agreement.

         (j)      ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any other
provision of this Agreement, if the introduction of or any change in or in the
interpretation or administration of any law or regulation applicable to the Bank
or the Bank's activities in the London interbank market shall make it unlawful,
or any central bank or other governmental authority having jurisdiction over the
Bank or the Bank's activities in the London interbank market shall assert that
it is unlawful, or otherwise make it impossible, for the Bank to perform its
obligations hereunder to make LIBOR Loans or to continue to fund or maintain
LIBOR Loans, then on notice thereof and demand therefor by the Bank to the
Borrowers, (i) the obligation of the Bank to fund LIBOR Loans shall terminate
and (ii) the Borrowers shall convert to Floating Rate Loans all of the affected
LIBOR Loans on or prior to the last day on which such LIBOR Loans may legally
remain outstanding.

         (k)      FACILITY FEES. With respect to the September 1998 Term Loans,
the Borrowers are paying to the Bank, at the date of execution and delivery of
this Agreement, a non-refundable facility fee in the amount of $100,000. The fee
described in this Section 2(k) is in addition to any balances and fees required
by the Bank or any of its affiliates in connection with any other services now
or hereafter made available to Alkermes and/or any of its affiliates.

         (l)      CONDITIONS TO ADVANCE. Without limiting the foregoing, any
September 1998 Term Loan is subject to the further conditions precedent that on
the date on which such September 1998 Term Loan is made (and after giving effect
thereto):

         (i)      All statements, representations and warranties of each
Borrower made in the Letter Agreement and/or in the Security Agreement shall
continue to be correct in all material respects as of the date of such September
1998 Term Loan.



                                      -11-




<PAGE>   12

         (ii)     All covenants and agreements of each Borrower contained herein
and/or in any of the other Loan Documents (as defined in the Letter Agreement)
shall have been complied with in all material respects on and as of the date of
such September 1998 Term Loan.

         (iii)    No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default shall have occurred and be
continuing.

         (iv)     No material adverse change shall have occurred in the
financial condition of any Borrower from that disclosed in the financial
statements then most recently furnished to the Bank.

         Each request by the Borrowers for any September 1998 Term Loan, and
each acceptance by any Borrower of the proceeds of any September 1998 Term Loan,
will be deemed a joint and several representation and warranty by the Borrowers
that at the date of such September 1998 Term Loan and after giving effect
thereto all of the conditions set forth in the foregoing clauses (i)-(iv) of
this Section 2(l) will be satisfied.

         (m)      TERMINATION ON DEFAULT. The Borrowers agree that if any Event
of Default shall occur and be continuing, the Bank may, in addition to and not
in limitation of its other rights and remedies described in Section 5.2 of the
Letter Agreement, terminate the within facility for September 1998 Term Loans by
written notice to the Borrowers (except that such termination will be deemed to
have occurred automatically and without any requirement for notice if there
shall occur any Event of Default described in clause (h) of Section 5.1 of the
Letter Agreement).

         (n)      DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, as used in this Agreement, the following terms have the following
respective meanings:

         "Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrowers to the
Bank pursuant to Sections 2(e), 2(h) or 2(i) of this Agreement, which
certificate shall be submitted by the Bank to the Borrowers in connection with
each demand made at any time by the Bank upon the Borrowers with respect to any
such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrowers to the Bank upon each demand. A claim by the Bank for all
or any part of any additional amount required to be paid by the Borrowers may be
made before and/or after the end of the Interest Period or other period of time
to which such claim relates or during which such claim has arisen and before
and/or after any payment hereunder to which such claim relates. Each Bank
Certificate shall set forth in reasonable detail the basis for and the
calculation of the claim to which it relates.

         "Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank; provided, however,
that if the applicable provision relates to a LIBOR Loan, then the term
"Business Day" shall not include any day on which dealings are not 


                                      -12-




<PAGE>   13

carried on in the London interbank market or on which banks are not open for
business in London.

         "COF Interest Rate" - As to any COF Loan for any period of time, that
per annum rate of interest which is determined by the Bank to represent the sum
of (i) the COF Rate applicable to the relevant period of time for the relevant
principal amount as amortized over such period of time PLUS (ii) 1.25% per
annum.

         "COF Loan" - If applicable, all or any portion of the outstanding
September 1998 Term Loans which bears interest at a COF Interest Rate.

         "COF Rate" - As to any principal amount and for any period of time,
that per annum rate of interest which the Bank is required to pay, or is
offering to pay, for wholesale liabilities of a similar principal amount and for
a similar period of time, adjusted for reserve requirements and for such other
requirements as may from time to time be imposed by federal, state or local
governmental and/or regulatory agencies, all as determined from time to time in
its sole discretion by the Bank's treasury group.

         "Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default.

         "Eurocurrency Liabilities" - Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.

         "Event of Default" - As defined in ss.5.1 of the Letter Agreement.

         "Fixed Rate Loan" - All or any portion of any September 1998 Term Loan
which is either a LIBOR Loan or a COF Loan.

         "Floating Rate" - As defined in Section 2(e).

         "Floating Rate Loan" - All or any portion of the outstanding September
1998 Term Loans which bears interest calculated by reference to the Prime Rate.

         "Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any Fixed Rate Loan, excluding, however, any taxes imposed directly
on the Bank's income and any franchise taxes imposed on it by the jurisdiction
under the laws of which the Bank is organized or any political subdivision
thereof.

         "Interest Payment Date" - As to each LIBOR Loan, the Interest Payment
Date shall be the last day of the Interest Period applicable thereto.



                                      -13-



<PAGE>   14

         "Interest Period" - As to each LIBOR Loan, the period commencing with
the date of the making of such LIBOR Loan and ending one month, two months or
three months thereafter (as selected by the Borrowers in their LIBOR
Borrowing/Conversion Notice relating thereto); provided that (A) any such
Interest Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day unless such Business Day
occurs in a new calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day, (B) any such Interest Period which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall end on the last
Business Day of such calendar month, and (C) no Interest Period may be selected
as to any principal amount of a September 1998 Term Loan if such Interest Period
would end after the regularly scheduled due date for such principal amount.

         "LIBOR" - With respect to each Interest Period for a LIBOR Loan, that
rate per annum (rounded upward, if necessary, to the nearest 1/32nd of one
percent) which represents the offered rate for deposits in U.S. Dollars, for a
period of time comparable to such Interest Period, which appears on the Telerate
page 3750 as of 11:00 a.m. (London time) on that day that is two (2) London
Banking Days preceding the first day of such Interest Period; provided, however,
that if the rate described above does not appear on the Telerate System on any
applicable interest determination date, LIBOR for such Interest Period shall be
the rate (rounded upwards as described above, if necessary) for deposits in
dollars for a period substantially equal to such Interest Period shown on the
Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that
service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on that day that is two (2) London Banking Days prior to the beginning of
such Interest Period. "London Banking Day" shall mean any date on which
commercial banks are open for business in London. If both the Telerate and
Reuters systems are unavailable, then LIBOR for any Interest Period will be
determined on the basis of the offered rates for deposits in U.S. Dollars for a
period of time comparable to such Interest Period which are offered by four
major banks in the London interbank market at approximately 11:00 a.m., London
time, on that day that is two (2) London Banking Days preceding the first day of
such Interest Period, as selected by the Bank. The principal London office of
each of four major London banks will be requested to provide a quotation of its
U.S. Dollar deposit offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in U.S. Dollars to leading
European banks for a period of time comparable to such Interest Period offered
by major banks in New York City at approximately 11:00 a.m., New York City time,
on that day that is two London Banking Days preceding the first day of such
Interest Period. In the event that the Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR for the proposed
Interest Period cannot be determined. The Bank shall give prompt notice to the
Borrowers of LIBOR as determined for each LIBOR Loan and such notice shall be
conclusive and binding, absent manifest error.



                                      -14-



<PAGE>   15

         "LIBOR Interest Rate" - For any Interest Period, an interest rate per
annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:

                           *LIR =     LIBOR    + 1.25%
                                   -----------         
                                   [1.00 - RR]

                                Where LIR = LIBOR Interest Rate
                                LIBOR     = See definition of LIBOR
                                RR        = Reserve Rate

                           *LIR and each component thereof to be rounded upwards
                           to the next higher 1/32nd of 1%

The LIBOR Interest Rate will be adjusted during any Interest Period to reflect
any change in the Reserve Rate during such Interest Period.

         "LIBOR Loan" - All or any portion of the outstanding September 1998
Term Loans which bears interest at a LIBOR Interest Rate.

         "London" - The City of London in England.

         "Prime Rate" - That variable rate of interest per annum designated by
the Bank from time to time as its prime rate, it being understood that such rate
is merely a reference rate and does not necessarily represent the lowest or best
rate being charged to any customer.

         "Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Loans. The LIBOR Interest Rate shall be adjusted automatically on and
as of the effective date of any change in the Reserve Rate.

         "September 1998 Term Loans" - Collectively, the Tranche A September
1998 Term Loans and the Tranche B September 1998 Term Loans.

         "September 1998 Term Notes" - Collectively, the Tranche A September
1998 Term Note and the Tranche B September 1998 Term Note.

         "Tranche A September 1998 Term Loan" - As defined in Section 2(a)
above.

         "Tranche A September 1998 Term Note" - As defined in Section 1 above.

         "Tranche B September 1998 Term Loan" - As defined in Section 2(c)
above.

         "Tranche B September 1998 Term Note" - As defined in Section 1 above.



                                      -15-


<PAGE>   16

         3.       CONCERNING THE LETTER AGREEMENT. The parties agree as follows
with respect to the Letter Agreement:

         a.       That the September 1998 Term Loans constitute "Additional Term
Loans" as defined in Section 1.5 of the Letter Agreement and are thus included
within the definitions of "Term Loan" and "Term Loans" for all purposes of the
Letter Agreement.

         b.       That each of the September 1998 Term Notes constitutes an
"Additional Term Note" as defined in Section 1.5 of the Letter Agreement and is
thus included within the definitions of "Note" and "Notes" for all purposes of
the Letter Agreement. Without limitation of the foregoing provisions of this
paragraph 3b and of paragraph 3a above, the Borrowers acknowledge that the
provisions of the Letter Agreement as to payment and collection of amounts owed
thereunder (including, without limitation, Sections 1.7, 5.2 and 5.3 of the
Letter Agreement) and as to costs, expenses and charges (including, without
limitation, Section 6.1 of the Letter Agreement) apply to the September 1998
Term Loans and to the September 1998 Term Notes.

         c.       That the first sentence of Section 2.1(j) of the Letter
Agreement is hereby amended by inserting therein, immediately after the words
"(the `Cambridge Premises')", the following:

                  "(provided that the Borrowers may move their principal place
                  of business to 350 Massachusetts Avenue, Cambridge, MA 02139,
                  with notice of such move being promptly given to the Bank
                  together with such Uniform Commercial Code amendments and/or
                  financing statements as the Bank may reasonably request, and
                  upon such move and such notice said premises at 350
                  Massachusetts Avenue, Cambridge, MA 02139 will constitute the
                  `Cambridge Premises' of the Borrowers)"

         d.       That Section 3.4 of the Letter Agreement is hereby amended by
adding to such Section, at the end thereof, the following:

                  "Alkermes will maintain at all times its primary operating
                  accounts with the Bank."

         e.       That clause (i) of Section 3.5 of the Letter Agreement is
hereby amended by adding to such clause, at the end thereof, the following:

                  "Further, within 90 days after the beginning of each fiscal
                  year of Alkermes, Alkermes will deliver to the Bank a copy of
                  the operating budget of Alkermes for such fiscal year,
                  prepared by the management of Alkermes and approved by its
                  Board of Directors."



                                      -16-




<PAGE>   17

         f.       That the Letter Agreement is hereby amended by deleting in its
entirety Section 3.6 thereof and by substituting in its stead the following:

                  "3.6. CASH BALANCE; CAPITAL BASE. Alkermes will maintain, as
                  at the end of each fiscal quarter of Alkermes (commencing with
                  September 30, 1998), (i) an Unencumbered Cash Balance of not
                  less than $40,000,000 and (ii) a consolidated Capital Base of
                  not less than $40,000,000."

         g.       That the Letter Agreement is hereby amended by deleting in its
entirety Section 3.7 thereof and by substituting in its stead the following:

                  "3.7. LIQUIDITY RATIO. Alkermes will maintain, as at the end
                  of each fiscal quarter of Alkermes (commencing with September
                  30, 1998), a Liquidity Ratio of not less than 1.5 to 1. As
                  used herein, `Liquidity Ratio' means the ratio of (x) Net
                  Quick Assets to (y) Total Liabilities."

         h.       That Section 4.1 of the Letter Agreement is hereby amended by
deleting the period at the end of such Section and by substituting in its stead
the following:

                  "; and (x) Alkermes' 6 1/2% Convertible Subordinated
                  Debentures issued under an Indenture, dated as of March 1,
                  1998, between Alkermes and State Street Bank and Trust
                  Company, as Trustee."

         i.       That Section 4.3 of the Letter Agreement is hereby amended by
deleting therefrom the number "$500,000" and by substituting in its stead the
following:

                  "$5,000,000"

         j.       That Section 4.4 of the Letter Agreement is hereby amended by
deleting therefrom the number "$1,000,000" and by substituting in its stead the
following:

                  "$5,000,000"

         k.       That Section 4.5 of the Letter Agreement is hereby amended by
deleting from the last sentence of such Section the words "ss.ss.3.7 and 3.8"
and by substituting in their stead the following:

                  "ss.3.6"

         l.       That Section 4.6 of the Letter Agreement is hereby amended by
deleting in its entirety clause (i) thereof.

         m.       That Article IV of the Letter Agreement is hereby amended by
adding to said Article, at the end thereof, the following:



                                      -17-


<PAGE>   18

                  "4.11. DIVIDENDS. No Borrower will make any distributions to
                  its shareholders, pay any dividends (other than dividends
                  payable solely in the capital stock of such Borrower) or
                  redeem, purchase or otherwise acquire, directly or indirectly,
                  any of its capital stock; provided, however, that so long as
                  no Default or Event of Default exists at the date of payment
                  or could result therefrom, Alkermes may effect an exchange of
                  and pay dividends on its $3.25 Convertible Exchangeable
                  Preferred Stock at an annual rate of $3.25 per share.

                  4.12. SUBORDINATED DEBT. No Borrower will directly or
                  indirectly make any optional or voluntary prepayment or
                  purchase of Subordinated Debt or modify, alter or add any
                  provisions with respect to payment of Subordinated Debt. No
                  Borrower will make any payment of any principal of or interest
                  on any Subordinated Debt at any time when there exists, or if
                  there would result therefrom, any Default or Event of Default
                  hereunder."

         n.       That Section 5.1 of the Letter Agreement is hereby amended by
deleting the period at the end of clause (m) of said Section 5.1 and by
substituting in its stead the following:

                  "; or (n) any default shall exist and remain unwaived or
                  uncured with respect to any Subordinated Debt of any Borrower
                  or with respect to any instrument evidencing, guaranteeing,
                  securing or otherwise relating to any such Subordinated Debt,
                  or any such Subordinated Debt shall not have been paid when
                  due, whether by acceleration or otherwise, or shall have been
                  declared to be due and payable prior to its stated maturity,
                  or any event or circumstance shall occur which permits, or
                  with the lapse of time or the giving of notice or both would
                  permit, the acceleration of the maturity of any Subordinated
                  Debt by the holder or holders thereof."

         o.       That Section 6.5 of the Letter Agreement is hereby amended by
inserting into said Section, immediately after the words "letter agreement", the
following:

                  "and each of the Notes"

         p.       That Section 6.6 of the Letter Agreement is hereby amended by
deleting from such Section the words "Michael J. Landine, Senior Vice President
and Chief Financial Officer" and by substituting in their stead the following:

                  "Patricia L. Allen, Director of Finance"

         q.       That each of Sections 6.8, 6.9, 6.11, 6.12 and 6.13 of the
Letter Agreement (as inserted by the Second Loan Supplement) are modified by
deleting the words "Term Note" and "Term Notes" in each place in said Sections
where same appear and by substituting in their stead, in each such place, the
words "Note" and "Notes", respectively.



                                      -18-




<PAGE>   19

         r.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Cambridge
Premises", the following:

                  "`Capital Base' - As determined at any time, the sum of (i)
                  the consolidated Tangible Net Worth of Alkermes and
                  Subsidiaries then existing PLUS (ii) the principal amount of
                  Subordinated Debt of Alkermes then outstanding (nothing
                  contained herein being deemed to authorize the incurrence of
                  any additional Subordinated Debt)."

         s.       By deleting in its entirety the definition of "Cash
Equivalents" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:

                  "`Cash-Equivalents' - Any of the following: (i) readily
                  marketable direct obligations of or obligations guarantied by,
                  the United States of America or any agency thereof and
                  entitled to the full faith and credit of the United States of
                  America, (ii) demand deposits with the Bank or with any other
                  commercial bank chartered by the United States or by any state
                  and having undivided capital and surplus of not less than
                  $100,000,000, (iii) interests in mutual funds, substantially
                  all of the assets of which shall be governmental obligations
                  of the type described in clause (i) of this sentence, (iv)
                  repurchase agreements secured by U.S. Treasury or agency
                  obligations or (v) bankers' acceptances, commercial paper and
                  corporate notes, all rated A-1 or P-1 or better."

         t.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Collateral",
the following:

                  "`Default' - Any event or circumstance which, with the passage
                  of time or the giving of notice or both, could become an Event
                  of Default."

         u.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "ERISA", the
following:

                  "`Event of Default' - As defined in ss.5.1 of this letter
                  agreement."

         v.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Mortgage", the
following:

                  "`Net Quick Assets' - Such current assets of the Borrowers as
                  consist of cash, Cash-Equivalents, short-term investments and
                  accounts receivable due from customers (less an allowance for
                  bad debt consistent with the Borrowers' prior experience).





                                      -19-



<PAGE>   20

         w.       That Section 7.1 of the Letter Agreement is hereby amended by
deleting in its entirety the definition of "Prime Rate" appearing in such
Section and by substituting in its stead the following:

                  "`Prime Rate' - That variable rate of interest per annum
                  designated by the Bank from time to time as its prime rate, it
                  being understood that such rate is merely a reference rate and
                  does not necessarily represent the lowest or best rate being
                  charged to any customer."

         x.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "R&D
Transaction", the following:

                  "`Subordinated Debt' - Any Indebtedness of Alkermes, including
                  its $3.25 Convertible Exchangeable Preferred Stock, which is
                  expressly subordinated, pursuant to a subordination agreement
                  in form and substance satisfactory to the Bank, to all
                  Indebtedness now or hereafter owed by Alkermes to the Bank."

         y.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Subsidiary",
the following:

                  "`Tangible Net Worth' - An amount equal to the total assets of
                  any Person (excluding (i) the total intangible assets of such
                  Person and (ii) any assets representing amounts due from any
                  officer, employee or other affiliate of such Person) minus the
                  total liabilities of such Person. Total intangible assets
                  shall be deemed to include, but shall not be limited to, the
                  excess of cost over book value of acquired businesses
                  accounted for by the purchase method, formulae, trademarks,
                  trade names, patents, patent rights and deferred expenses
                  (including, but not limited to, unauthorized debt discount and
                  expense, organizational expense, capitalized software costs
                  and experimental and development expenses)."

         z.       That Section 7.1 of the Letter Agreement is hereby amended by
inserting into such Section, immediately after the definition of "Term Loans",
the following:

                  "`Total Liabilities' - As to Alkermes, all Indebtedness of
                  Alkermes and/or any of its Subsidiaries, taken on a
                  consolidated basis, which would properly be shown as
                  liabilities on the face of a consolidated balance sheet of
                  Alkermes (and not merely in the notes thereto), such
                  consolidated balance sheet being prepared consistently with
                  the annual audited financial statements of Alkermes and
                  Subsidiaries dated as at March 31, 1998 heretofore delivered
                  to the Bank."

         aa.      By deleting in its entirety the definition of "Unencumbered
Cash Balance" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:




                                      -20-



<PAGE>   21

                  "`Unencumbered Cash Balance' - At any time, the total of all
                  cash and Cash-Equivalents of Alkermes (and, to the extent
                  expressly provided below, certain Subsidiaries of Alkermes)
                  which are not subject to any pledge, lien, encumbrance or
                  right of set-off (other than a right of set-off in favor of an
                  investment manager for its normal management fees) in favor of
                  any other Person. The Unencumbered Cash Balance will in no
                  event be deemed to include the sums from time to time pledged
                  to the Bank pursuant to ss.1.8 above. Further, the
                  Unencumbered Cash Balance will in no event be deemed to
                  include any cash or Cash-Equivalents of any partnership or
                  other entity in which Alkermes now or hereafter may have an
                  interest, except that for the purposes of satisfying the
                  Unencumbered Cash Balance test set forth in Section 3.6 above
                  as at any date, Alkermes' `Unencumbered Cash Balance' will be
                  deemed to include both the unencumbered cash and unencumbered
                  Cash-Equivalents then held by a wholly-owned Subsidiary of
                  Alkermes which is operated pursuant to 30 Del. Code
                  ss.1902(b)(8) and the unencumbered cash and unencumbered
                  Cash-Equivalents then held by ACT I."

         4.       CONCERNING THE SECURITY AGREEMENT. The parties agree as 
follows with respect to the Security Agreement:

         a.       That each September 1998 Term Loan constitutes an "Additional
Term Loan" for the purposes of the Security Agreement and is thus included for
all purposes within the definition of "Obligations" appearing in Section 1 of
the Security Agreement; and that references in Section 17 of the Security
Agreement, as amended hereby, to the "September 1998 Term Loans" will be deemed
to refer to the September 1998 Term Loans, as hereinabove defined.

         b.       That the September 1998 Term Note constitutes an "Additional
Term Note" for the purposes of the Security Agreement and is thus included
within the definition of "Loan Documents" appearing in Section 1 of the Security
Agreement.

         c.       That the items listed on Exhibit 3 attached hereto (together
with all items constituting Qualifying Equipment supporting any Tranche A
September 1998 Term Loan made subsequent to the date hereof and together with
all items constituting Qualifying Leasehold Improvements supporting any Tranche
B September 1998 Term Loan made subsequent to the date hereof, except for any
leasehold improvements which are so incorporated into the relevant real estate
that same become the property of the owner of such real estate) are deemed 
to be "Additional Loan Collateral" for the purposes of the Security Agreement
and are thus included within the definitions of "Equipment" and "Collateral"
appearing in Section 1 of the Security Agreement; and that the items listed on
Exhibit 3 attached hereto (together with all items constituting Qualifying
Equipment supporting any Tranche A September 1998 Term Loan made subsequent to
the date hereof and together with all items constituting Qualifying Leasehold
Improvements supporting any Tranche B September 1998 Term Loan made subsequent
to the date hereof, except for any leasehold improvements which are so
incorporated into the relevant real estate that same become the property of the
owner of such real estate) shall also be



                                      -21-



<PAGE>   22





deemed to be "September 1998 Loan Collateral" for the purposes of Section 17 of
the Security Agreement.

         d.       That the equipment lists set forth in Exhibit A to the
Security Agreement are hereby amended by adding thereto (without releasing or
deleting any item shown on such lists immediately prior to the date hereof) all
of the items appearing on Exhibit 3 attached hereto.

         e.       That Section 17 of the Security Agreement is hereby amended in
its entirety to read as follows:

         "17.     PARTIAL RELEASE. The Secured Party agrees that, upon the
         satisfaction of the Partial Release Conditions (hereinafter defined) in
         relation to the 1995 Term Loan, the Ohio Term Loan, the 1997 Term Loan,
         the 1998 Term Loans or the September 1998 Term Loans, the Secured Party
         will, at the Debtors' request, execute and deliver to the Debtors a
         release of the 1995 Loan Collateral or the Ohio Loan Collateral or the
         1997 Loan Collateral or the 1998 Loan Collateral or the September 1998
         Loan Collateral (as appropriate) from the lien of this Security
         Agreement (including appropriate releases on Form UCC-3) and, upon
         execution and delivery of such release, the 1995 Loan Collateral, the
         Ohio Loan Collateral, the 1997 Loan Collateral, the 1998 Loan
         Collateral or the September 1998 Loan Collateral (as the case may be)
         will no longer be deemed `Collateral' subject to this Security
         Agreement. As used herein, the `Partial Release Conditions' will be
         deemed satisfied only if ALL of the following shall have occurred: (i)
         the 1995 Term Loan or the Ohio Term Loan or the 1997 Term Loan or the
         1998 Term Loans or the September 1998 Term Loans (as the case may be)
         shall have been paid in full, (ii) the cash and/or readily-marketable
         Government Securities pledged to the Secured Party under Section 1.8 of
         the Letter Agreement shall have an aggregate fair market value of not
         less than the `Required Minimum Value' (as defined in the Letter
         Agreement) and Alkermes shall agree to maintain such pledged cash
         and/or readily-marketable Government Securities in such amount so that
         the fair market value thereof shall never be less than such `Required
         Minimum Value' and (iii) there shall then exist no Event of Default nor
         any event or circumstance which, with the passage of time or the giving
         of notice or both, could become an Event of Default. At the time of the
         making of any Additional Term Loan, the Bank and the Debtors may, by
         written modification to this Security Agreement, set forth the
         circumstances, if any, under which a partial release may be obtained
         with respect to the Additional Loan Collateral pledged in connection
         with the relevant Additional Term Loan."

         5.       CONCERNING THE PLEDGE. The parties agree as follows with
respect to the Pledge:

         a.       That each of the September 1998 Term Notes constitutes an
"Additional Term Note" as described in Section 2 of the Pledge, with the result
that each of the September 1998 Term Notes is included within the "Loan
Documents" as defined in Section 2 of the Pledge.





                                      -22-




<PAGE>   23

         b.       That each September 1998 Term Loan is included within the 
"Secured Obligations" as defined in Section 2 of the Pledge.

         6.       CONCERNING THE OHIO MORTGAGE. The parties agree that each of
the September 1998 Term Notes constitutes one of the "Other Term Notes"
described in the WITNESSETH clause of the Ohio Mortgage, with the result that
the September 1998 Term Loans are among the obligations secured by the Ohio
Mortgage.

         7.       AMENDED DOCUMENTS. Wherever in any Financing Document, or in
any certificate or opinion to be delivered in connection therewith, reference is
made to the Letter Agreement, to the Security Agreement, to the Pledge and/or to
the Ohio Mortgage, from and after the date hereof same will be deemed to refer
to the relevant Financing Document as amended or otherwise affected hereby.

         8.       FEES. In order to induce the Bank to enter into this
Agreement, the Borrowers jointly and severally agree to pay, on demand, all
costs and expenses (including, without limitation, reasonable fees and expenses
of the Bank's attorneys) incurred by the Bank in connection with this Agreement
and/or the transactions contemplated hereby.

         9.       REPRESENTATIONS. In order to induce the Bank to enter into
this Agreement, each Borrower represents and warrants as follows:

         a.       The execution, delivery and performance of each of this
Agreement and the September 1998 Term Notes have been duly authorized by each
Borrower by all necessary corporate and other action, will not require the
consent of any third party and will not conflict with, violate the provisions
of, or cause a default or constitute an event which, with the passage of time or
the giving of notice or both, could cause a default on the part of any Borrower
under its charter documents or by-laws or under any contract, agreement, law,
rule, order, ordinance, franchise, instrument or other document, or result in
the imposition of any lien or encumbrance (except in favor of the Bank) on any
property or assets of any Borrower.

         b.       Each Borrower has duly executed and delivered each of this 
Agreement and the September 1998 Term Notes.

         c.       Each of this Agreement and each of the September 1998 Term
Notes is the legal, valid and binding joint and several obligation of each
Borrower, enforceable against each Borrower jointly and severally in accordance
with its respective terms.

         d.       The statements, representations and warranties made in the
Letter Agreement, in the Security Agreement and/or in the other Financing
Documents continue to be correct as of the date hereof; except as amended,
updated and/or supplemented by the attached Supplemental Disclosure Schedule.




                                      -23-




<PAGE>   24

         e.       The covenants and agreements of the Borrowers contained in the
Letter Agreement, in the Security Agreement and/or in the other Financing
Documents have been complied with on and as of the date hereof.

         f.       No event which constitutes or which, with notice or lapse of
time, or both, could constitute, an Event of Default (as defined in the Letter
Agreement) has occurred and is continuing.

         g.       No material adverse change has occurred in the financial
condition of any Borrower from that disclosed in the annual audited financial
statements of Alkermes dated March 31, 1998, heretofore furnished to the Bank.

         10.      FULL FORCE AND EFFECT. Except as expressly affected hereby,
the Letter Agreement and each of the other Financing Documents remains in full
force and effect as heretofore.

         11.      NO WAIVER. Nothing contained herein will be deemed to
constitute a waiver or a release of any provision of any of the Financing
Documents. Nothing contained herein will in any event be deemed to constitute an
agreement to give a waiver or release or to agree to any amendment or
modification of any provision of any of the Financing Documents on any other or
future occasion.




                                      -24-





<PAGE>   25

         Executed, as an instrument under seal, as of the day and year first
above written.

                                    ALKERMES, INC.


                                    By: /s/ Robert A. Breyer
                                        ----------------------------------------
                                        Name: Robert A. Breyer
                                        Title: President


                                    ALKERMES CONTROLLED
                                    THERAPEUTICS, INC.


                                    By: /s/ Robert A. Breyer
                                        ----------------------------------------
                                        Name: Robert A. Breyer
                                        Title: Vice President


                                    ALKERMES CONTROLLED
                                    THERAPEUTICS INC. II


                                    By: /s/ Robert A. Breyer
                                        ----------------------------------------
                                        Name: Robert A. Breyer
                                        Title: Vice President


Accepted and agreed:
FLEET NATIONAL BANK


By: /s/ Irina Case
    -------------------------------
    Name: Irina Case
    Title: Vice President




                                      -25-