<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended December 31, 2001

         [ ]      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 0-19267

                                 ALKERMES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              PENNSYLVANIA                                    23-2472830
------------------------------------------           ---------------------------
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                     Identification No.)

  64 Sidney Street, Cambridge, MA                             02139-4136
------------------------------------------           ---------------------------
 (Address of principal executive offices)                     (Zip Code)

Registrant's telephone number including area code:  (617) 494-0171
                                                   -----------------------------

                                 Not Applicable
--------------------------------------------------------------------------------
        (Former name, former address, and former fiscal year, if changed
                               since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   X    No
                                              ------    -----

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                                                        Shares Outstanding as of
                         Class                              February 8, 2002
                         -----                          ------------------------
<S>                                                     <C>
         Common Stock, par value $.01                        64,140,108
         Non-Voting Common Stock, par value $.01                382,632
</TABLE>
<PAGE>
                         ALKERMES, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
<S>                                                                     <C>
PART I - FINANCIAL INFORMATION

          Item 1. Consolidated Financial Statements

                  Consolidated Balance Sheets                              3
                  - December 31, 2001 and March 31, 2001

                  Consolidated Statements of Operations                    4
                  - Three months ended December 31, 2001 and 2000
                  - Nine months ended December 31, 2001 and 2000

                  Consolidated Statements of Cash Flows                    5
                  - Nine months ended December 31, 2001 and 2000

                  Notes to Consolidated Financial Statements               6

          Item 2. Management's Discussion and Analysis of                  9
                  Financial Condition and Results of Operations

          Item 3. Quantitative and Qualitative Disclosures About
                  Market Risk                                             14

PART II - OTHER INFORMATION

          Item 5. Other Information                                       15

          Item 6. Exhibits and Reports on Form 8-K                        15

SIGNATURES                                                                16

EXHIBIT INDEX                                                             17
</TABLE>


                                      (2)
<PAGE>
PART I.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS:

                         ALKERMES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                            December 31,           March 31,
                                                                                               2001                  2001
                                                                                           -------------         -------------
<S>                                                                                        <C>                   <C>
                                             A S S E T S
Current Assets:
      Cash and cash equivalents                                                            $   6,773,863         $   5,923,282
      Short-term investments                                                                 192,418,946           249,004,850
      Receivables from collaborative arrangements                                             19,194,657            10,951,763
      Prepaid expenses and other current assets                                                4,485,364             5,726,610
                                                                                           -------------         -------------
           Total current assets                                                              222,872,830           271,606,505
                                                                                           -------------         -------------
Property, Plant and Equipment:
      Land                                                                                       235,000               235,000
      Building                                                                                 5,040,392             4,888,469
      Furniture, fixtures and equipment                                                       47,960,724            43,432,360
      Leasehold improvements                                                                  14,901,948            14,401,828
      Construction in progress                                                                13,575,729               562,331
                                                                                           -------------         -------------
                                                                                              81,713,793            63,519,988
           Less accumulated depreciation and amortization                                    (33,040,544)          (27,200,590)
                                                                                           -------------         -------------
                                                                                              48,673,249            36,319,398
                                                                                           -------------         -------------
Investments                                                                                    8,718,509            73,416,252
                                                                                           -------------         -------------
Investment in Reliant Pharmaceuticals, LLC                                                    97,300,000                    --
                                                                                           -------------         -------------
Other Assets                                                                                   8,758,344             9,955,060
                                                                                           -------------         -------------
           Total Assets                                                                    $ 386,322,932         $ 391,297,215
                                                                                           =============         =============

         L I A B I L I T I E S  A N D  S H A R E H O L D E R S'  E Q U I T Y

Current Liabilities:
      Accounts payable and accrued expenses                                                $  16,959,020         $   9,414,327
      Accrued interest                                                                         2,823,837             2,158,087
      Deferred revenue                                                                         7,476,774             8,523,326
      Long-term obligations - current portion                                                 29,150,000            10,966,626
                                                                                           -------------         -------------
           Total current liabilities                                                          56,409,631            31,062,366
                                                                                           -------------         -------------
Long-Term Obligations                                                                          8,775,000            11,825,000
                                                                                           -------------         -------------
Convertible Subordinated Notes                                                               200,000,000           200,000,000
                                                                                           -------------         -------------
Shareholders' Equity:
      Capital stock, par value $.01 per share: authorized, 4,550,000 shares;
        none issued
      Common stock, par value $.01 per share:
        authorized, 160,000,000 shares; issued, 64,011,727 and
        63,124,248 shares at December 31, 2001 and March 31, 2001, respectively                  640,118               631,243
      Non-voting common stock, par value $.01 per share:
        authorized, 450,000 shares; issued, 382,632 at December 31, 2001 and
        March 31, 2001                                                                             3,826                 3,826
      Additional paid-in capital                                                             442,727,578           427,129,226
      Deferred compensation                                                                   (3,719,727)           (1,024,303)
      Accumulated other comprehensive income                                                   2,852,264             4,179,938
      Accumulated deficit                                                                   (321,365,758)         (282,510,081)
                                                                                           -------------         -------------
           Total shareholders' equity                                                        121,138,301           148,409,849
                                                                                           -------------         -------------
           Total Liabilities and Shareholders' Equity                                      $ 386,322,932         $ 391,297,215
                                                                                           =============         =============
</TABLE>

See notes to consolidated financial statements.


                                      (3)
<PAGE>
                         ALKERMES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months      Three Months      Nine Months       Nine Months
                                                             Ended             Ended             Ended             Ended
                                                          December 31,      December 31,      December 31,      December 31,
                                                              2001              2000              2001              2000
                                                          ------------      ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>               <C>
Revenues:
     Research and development and other revenue under
        collaborative arrangements                        $ 11,451,330      $  9,689,267      $ 41,483,008      $ 46,170,537
                                                          ------------      ------------      ------------      ------------

Expenses:
     Research and development                               23,040,406        15,219,191        66,343,134        47,015,921
     General and administrative                              5,902,600         4,968,541        17,687,732        14,730,013
                                                          ------------      ------------      ------------      ------------
           Total expenses                                   28,943,006        20,187,732        84,030,866        61,745,934
                                                          ------------      ------------      ------------      ------------

Net operating loss                                         (17,471,676)      (10,498,465)      (42,547,858)      (15,575,397)
                                                          ------------      ------------      ------------      ------------

Other income (expense):
     Interest income                                         4,427,945         5,506,031        13,169,597        16,765,426
     Interest expense                                       (2,136,628)       (2,365,148)       (6,777,416)       (7,068,804)
                                                          ------------      ------------      ------------      ------------
                                                             2,291,317         3,140,883         6,392,181         9,696,622
                                                          ------------      ------------      ------------      ------------

Equity in losses of Reliant Pharmaceuticals, LLC            (2,700,000)             --          (2,700,000)             --
                                                          ------------      ------------      ------------      ------------

Net loss                                                   (17,900,359)       (7,357,582)      (38,855,677)       (5,878,775)

Preferred stock dividends                                         --           2,095,044              --           5,830,635
                                                          ------------      ------------      ------------      ------------
Net loss attributable to common shareholders              ($17,900,359)     ($ 9,452,626)     ($38,855,677)     ($11,709,410)
                                                          ============      ============      ============      ============

Basic and diluted loss per common share                   ($      0.28)     ($      0.17)     ($      0.61)     ($      0.21)
                                                          ============      ============      ============      ============

Weighted average number of common shares
     outstanding                                            63,895,510        55,670,025        63,511,558        54,762,414
                                                          ============      ============      ============      ============
</TABLE>

See notes to consolidated financial statements.


                                      (4)
<PAGE>
                         ALKERMES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine Months           Nine Months
                                                                                      Ended                 Ended
                                                                                  December 31,          December 31,
                                                                                      2001                  2000
                                                                                  -------------         -------------
<S>                                                                               <C>                   <C>
Cash flows from operating activities:

    Net loss                                                                      ($ 38,855,677)        ($  5,878,775)
    Adjustments to reconcile net loss to net cash used by
         operating activities:
         Depreciation, amortization and other noncash expenses                        7,497,385             4,945,376
         Equity in losses of Reliant Pharmaceuticals, LLC                             2,700,000                    --
         Noncash interest expense                                                       328,626               372,023
         Adjustments to other assets                                                    767,467               365,686
         Changes in assets and liabilities:
              Receivables from collaborative arrangements                            (7,881,893)          (29,040,877)
              Prepaid expenses and other current assets                                 879,477            (3,527,606)
              Accounts payable and accrued expenses                                   9,407,574               988,179
              Deferred revenue                                                       (1,046,552)             (800,964)
              Other long-term liabilities                                                    --               (29,846)
                                                                                  -------------         -------------
                   Net cash used by operating activities                            (26,203,593)          (32,606,804)
                                                                                  -------------         -------------

Cash flows from investing activities:

    Investment in Reliant Pharmaceuticals, LLC                                     (100,000,000)                   --
    Additions to property, plant and equipment                                      (18,744,045)           (6,039,695)
    Proceeds from the sale of equipment                                                 371,385                    --
    Purchases of available-for-sale short-term investments                         (157,891,229)          (90,025,111)
    Sales of available-for-sale short-term investments                              253,209,397            37,146,104
    (Purchases) maturities of held-to-maturity short-term investments, net          (39,407,177)           86,849,107
    Maturities of long-term investments, net                                         64,697,743             4,460,909
    Increase in other assets                                                           (310,000)             (221,456)
                                                                                  -------------         -------------
                   Net cash provided by investing activities                          1,926,074            32,169,858
                                                                                  -------------         -------------

Cash flows from financing activities:

    Proceeds from issuance of common stock                                            4,017,333             3,754,429
    Proceeds from loan                                                               25,000,000                    --
    Payment of long-term obligations                                                 (3,883,333)           (4,275,000)
    Payment of preferred stock dividends                                                     --            (5,830,635)
    Proceeds from issuance of common stock to collaborative partner                          --             4,999,978
                                                                                  -------------         -------------
                   Net cash provided by (used by) financing activities               25,134,000            (1,351,228)
                                                                                  -------------         -------------

Effect of exchange rate changes on cash                                                  (5,900)              (38,586)
                                                                                  -------------         -------------

Net increase (decrease) in cash and cash equivalents                                    850,581            (1,826,760)
Cash and cash equivalents, beginning of period                                        5,923,282             6,100,643
                                                                                  -------------         -------------
Cash and cash equivalents, end of period                                          $   6,773,863         $   4,273,883
                                                                                  =============         =============

Supplementary information:
    Cash paid for interest                                                        $   4,583,997         $   4,829,786
                                                                                  =============         =============
    Note payable and accrued interest converted to common stock                   $   7,506,331         $          --
                                                                                  =============         =============
</TABLE>



See notes to consolidated financial statements.


                                      (5)
<PAGE>
                         ALKERMES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

The consolidated financial statements of Alkermes, Inc. (the "Company") for the
three and nine months ended December 31, 2001 and 2000 are unaudited and include
all adjustments which, in the opinion of management, are necessary to present
fairly the results of operations for the periods then ended. All such
adjustments are of a normal recurring nature. These financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended March 31, 2001, which includes consolidated financial statements and
notes thereto for the years ended March 31, 2001, 2000 and 1999. In addition,
the financial statements include the accounts of Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, Advanced
Inhalation Research, Inc. ("AIR"), Alkermes Investments, Inc., Alkermes Europe,
Ltd. and Alkermes Development Corporation II ("ADC II"), wholly owned
subsidiaries of the Company.

The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.

The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

2.  COMPREHENSIVE INCOME (LOSS)

Comprehensive income is comprised of net income and other comprehensive income.
Other comprehensive income includes certain changes in the shareholders' equity
of the Company that are excluded from net income (loss). Specifically, other
comprehensive income includes unrealized holding gains and losses on the
Company's "available-for-sale" securities and changes in cumulative foreign
currency translation adjustments.

Comprehensive income (loss) for the three and nine months ended December 31,
2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                 Three Months               Three Months
                                                                    Ended                      Ended
                                                              December 31, 2001          December 31, 2000
                                                              -----------------          -----------------
<S>                                                           <C>                        <C>
Net loss                                                         ($17,900,359)              ($ 7,357,582)
Cumulative foreign currency translation adjustments                   (11,499)                     9,885
Unrealized gain (loss) on marketable securities                       557,328                 (1,585,374)
                                                                 ------------               ------------
Comprehensive loss                                               ($17,354,530)              ($ 8,933,071)
                                                                 ============               ============
</TABLE>


                                      (6)
<PAGE>
<TABLE>
<CAPTION>
                                                                 Nine Months                Nine Months
                                                                    Ended                      Ended
                                                              December 31, 2001          December 31, 2000
                                                              ------------------         -----------------
<S>                                                           <C>                        <C>
Net loss                                                         ($38,855,677)              ($ 5,878,775)
Cumulative foreign currency translation adjustments                    (7,261)                   (29,312)
Unrealized loss on marketable securities                           (1,320,413)                (2,829,124)
                                                                 ------------               ------------
Comprehensive loss                                               ($40,183,351)              ($ 8,737,211)
                                                                 ============               ============
</TABLE>

3.  NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards, or SFAS, No.
133, "Accounting for Derivative Instruments and Hedging Activities," on April 1,
2001. The adoption did not have any impact on the financial position or results
of operations of the Company.

In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 is effective for any business combinations initiated after
June 30, 2001. SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the statements.
Other identifiable intangible assets will continue to be amortized over their
useful lives should they be determinable, otherwise they will be subject to the
same annual impairment test. The Company, as described in Note 5, did apply SFAS
No. 141 to its equity method investment since such investment occurred
subsequent to June 30, 2001. Its impact is discussed in Note 5. The adoption of
SFAS No. 142 is not expected to have a significant impact on the Company's
financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement will supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets or for Long-Lived Assets to
Be Disposed Of," in its entirety, and Accounting Principles Board, or APB
Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," only for segments to be disposed of. The
provisions of this statement are effective for financial statements issued for
fiscal years beginning


                                      (7)
<PAGE>
after December 15, 2001. The Company has not determined the effect, if any, that
adoption of this statement will have on its financial position or results of
operations.



4.  EARNINGS PER SHARE

Basic net loss per share is based on the weighted average number of common
shares outstanding. For the three and nine months ended December 31, 2001,
diluted net loss per common share was the same as basic net loss per common
share because the inclusion of the weighted average number of shares of common
stock issuable upon the exercise of stock options, which total 11,645,964, and
shares of common stock issuable upon conversion of the 3 -3/4% Convertible
Subordinated Notes due 2007 (the "3 -3/4% Notes"), which total 2,952,030, would
have been antidilutive. For the three and nine months ended December 31, 2000,
diluted net loss per common share was the same as basic net loss per common
share because the inclusion of the weighted average number of shares of common
stock issuable upon the exercise of stock options, which total 9,625,410 shares,
and 2,952,030 shares of common stock issuable upon conversion of the 3 -3/4%
Notes, would have been antidilutive.

5.  INVESTMENT IN RELIANT PHARMACEUTICALS, LLC

In December 2001, the Company announced a strategic alliance with Reliant
Pharmaceuticals, LLC, a privately held pharmaceutical company marketing branded
pharmaceutical products to U.S.-based primary care and targeted specialty
physicians.

As part of the alliance, in December 2001, Alkermes purchased approximately 63%
of an offering by Reliant of its Series C Convertible Preferred Units,
representing approximately 19% of the equity interest in Reliant, for a purchase
price of $100 million. The investment is being accounted for under the equity
method of accounting because Reliant is organized as a limited liability company
which is treated in a manner similar to a partnership. Because, at the time of
Alkermes' investment, Reliant had an accumulated deficit from operations and a
deficit in members capital, under applicable accounting rules, Alkermes' share
of Reliant's losses from the date of the investment will be recognized in
proportion to the Company's percentage participation in the Series C financing,
and not in proportion to its percentage ownership interest in Reliant. Alkermes
will record its equity in the income or losses of Reliant three months in
arrears. Alkermes anticipates that Reliant will have substantial net losses in
at least calendar years 2001 and 2002 and will accordingly record its 63% share
of such losses in its consolidated financial statements beginning in the quarter
ended March 31, 2002.

In connection with the Company's $100 million equity investment in Reliant, the
Company is in the process of allocating its proportionate share of the assets
acquired and liabilities assumed in accordance with the guidance set forth in
SFAS No. 141. The Company has taken a $2.7 million noncash charge for in-process
research and development through the income statement under the caption "Equity
in losses of Reliant Pharmaceuticals, LLC." The $2.7 million noncash charge is
related to management's current estimate of the amount of the purchase price to
be allocated to in-process research and development. This analysis of the
purchase price allocation is preliminary and the amount of in-process research
and development is subject to future adjustment.


6.  LONG-TERM OBLIGATIONS - CURRENT PORTION

In connection with the Company's investment in Reliant, in December 2001,
Alkermes borrowed $25 million from one of its investment managers under a loan
agreement that is collateralized by a portion of its investments. The balance
of the loan was $25 million at December 31, 2001 and was included in long-term
obligations - current portion. Interest is at the Federal Funds Rate plus 75
basis points (2.625% at December 31, 2001).


7.  RECLASSIFICATIONS

Certain reclassifications have been made to the prior year periods to conform to
the presentation used in the current year periods.




                                      (8)
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

Alkermes, Inc. (together with our subsidiaries, "we" or "us") is a leader in the
development of products based on sophisticated drug delivery technologies. We
have several areas of focus, including: (i) controlled, sustained-release of
injectable drugs lasting several days to several weeks, utilizing our
ProLease(R) and Medisorb(R) technologies and (ii) the development of
pharmaceutical products based on our proprietary Advanced Inhalation Research,
Inc. ("AIR(TM)") pulmonary technology. Our first product, Nutropin Depot(R), was
launched in the United States by our partner, Genentech, Inc. ("Genentech"), in
June 2000. Nutropin Depot is a long-acting form of Genentech's recombinant human
growth hormone using our ProLease technology. Since our inception in 1987, we
have devoted substantially all of our resources to research and development
programs. We expect to incur substantial additional operating losses over the
next few years. At December 31, 2001, we had an accumulated deficit of $321.4
million.

We have funded our operations primarily through public offerings and private
placements of debt and equity securities, bank loans and payments under research
and development agreements with collaborators. We historically have developed
our product candidates in collaboration with others on whom we relied for
funding, development and/or marketing. While we continue to develop product
candidates in collaboration with others, we have begun to expand the development
of our proprietary product candidates which we fund on our own.

FORWARD-LOOKING STATEMENTS

Any statements herein or otherwise made in writing or orally by us with regard
to our expectations as to financial results and other aspects of our business
may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements relate to our future
plans, objectives, expectations and intentions and may be identified by words
like "believe," "expect," "may," "will," "should," "seek," or "anticipate," and
similar expressions.

Although we believe that our expectations are based on reasonable assumptions
within the bounds of our knowledge of our business and operations, our business
is subject to significant risks and there can be no assurance that actual
results of our development and manufacturing activities and our results of
operations will not differ materially from our expectations. Factors which could
cause actual results to differ from expectations include, among others: (i) we
may be unable to continue to manufacture our first product, Nutropin Depot, or
to manufacture future products on a commercial scale or economically; (ii)
Nutropin Depot and our product candidates, if approved for marketing, may not
produce significant revenues and, in commercial use, may have unintended side
effects, adverse reactions or incidents of misuse; (iii) even if clinical trials
are completed and the data is submitted to the United States Food and Drug
Administration ("FDA") as a New Drug Application ("NDA") for marketing approval
and to other health authorities as a marketing authorization application, the
NDA or marketing authorization application could fail to be accepted, or could
fail to receive approval on a timely basis, if at all; (iv) our collaborators
could elect to terminate or delay programs at any time; (v) we and our
collaborators may not be permitted by regulatory authorities to undertake new or
additional clinical trials for product candidates incorporating our
technologies, or


                                      (9)
<PAGE>
clinical trials could be delayed; (vi) our product candidates could be
ineffective or unsafe during clinical trials; (vii) we could lose our entire
investment in Reliant Pharmaceuticals, LLC; (viii) we depend on others to market
and sell our products and product candidates; (ix) disputes with collaborators
or failure to negotiate acceptable new collaborative arrangements for our
technologies could occur; (x) even if our product candidates appear promising
at an early stage of development, product candidates could fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance, be precluded from
commercialization by proprietary rights of third parties or experience
substantial competition in the marketplace; (xi) technological change in the
biotechnology or pharmaceutical industries could render our product candidates
obsolete or noncompetitive; (xii) difficulties or set-backs in obtaining and
enforcing our patents and difficulties with the patent rights of others could
occur; and (xiii) we could incur difficulties or set-backs in obtaining the
substantial additional funding required to continue research and development
programs and clinical trials.

RESULTS OF OPERATIONS

Our research and development revenue under collaborative arrangements for the
three and nine months ended December 31, 2001 was $11.5 and $41.5 million
compared to $9.7 and $46.2 million for the corresponding periods of the prior
year. The increase for the three months ended December 31, 2001 as compared to
the three months ended December 31, 2000 was the result of an increase in
funding earned under collaborative agreements. The decrease for the nine months
ended December 31, 2001 compared to the nine months ended December 31, 2000 was
primarily the result of a significant non-recurring milestone earned in the nine
months ended December 31, 2000, partially offset by an increase in funding
earned under other collaborative agreements during the current fiscal year.

Total operating expenses increased to $28.9 and $84.0 million for the three and
nine months ended December 31, 2001 from $20.2 and $61.7 million for the three
and nine months ended December 31, 2000. The increase was due to increases in
research and development expenses and general and administrative expenses, which
are discussed below.

Research and development expenses for the three and nine months ended December
31, 2001 were $23.0 and $66.3 million as compared to $15.2 and $47.0 million for
the corresponding periods of the prior year. The increase in research and
development expenses for the three and nine months ended December 31, 2001 as
compared to the three and nine months ended December 31, 2000 was mainly the
result of increases in personnel, external research expenses and lab supplies as
we advance our proprietary product candidates and our collaborators' product
candidates through development and clinical trials and prepare for
commercialization. There was also an increase in occupancy costs and
depreciation expense as we continue to expand our facilities in both
Massachusetts and Ohio. We expect an increase in research and development
expenses during fiscal 2002 resulting from the continuing development of our
proprietary product candidates and collaborators' product candidates.

General and administrative expenses for the three and nine months ended December
31, 2001 were $5.9 and $17.7 million as compared to $5.0 and $14.7 million for
the corresponding periods of the prior year. The increase in the three and nine
months ended December 31, 2001 as compared to the


                                      (10)
<PAGE>
three and nine months ended December 31, 2000 was primarily a result of an
increase in personnel as well as increased professional fees and consulting
costs.

Interest income for the three and nine months ended December 31, 2001 was $4.4
and $13.2 million compared to $5.5 and $16.8 million for the corresponding
periods of the prior year. The decrease in such income for the three and nine
months ended December 31, 2001 as compared to the three and nine months ended
December 31, 2000 was primarily the result of a lower average cash and
investment balance as compared to the prior year periods. Interest income also
decreased as a result of a decline in interest rates as compared to the same
periods in the prior year.

Interest expense for the three and nine months ended December 31, 2001 was $2.1
and $6.8 million as compared to $2.4 and $7.1 million for the corresponding
periods of the prior year. The decrease in interest expense for the three and
nine months ended December 31, 2001 as compared to the three and nine months
ended December 31, 2000 was primarily the result of a decrease in the average
outstanding debt balance as compared to the prior year periods.

In December 2001, we announced a strategic alliance with Reliant
Pharmaceuticals, LLC.  As part of the alliance, in December 2001, we purchased
approximately 63% of an offering by Reliant of its Series C Convertible
Preferred Units, representing approximately 19% of the equity interest in
Reliant, for a purchase price of $100 million.  The investment is being
accounted for under the equity method of accounting because Reliant is organized
as a limited liability company which is treated in a manner similar to a
partnership.  As a result of Reliant's accumulated deficit from operations and
deficit in members capital, our share of Reliant's losses from the date of our
investment will be recognized in proportion to our percentage participation in
the Series C financing, and not in proportion to our percentage ownership
interest in Reliant.  Alkermes will record its equity in the income or losses of
Reliant three months in arrears.  We anticipate that Reliant will have
substantial net losses in at least calendar years 2001 and 2002 and we will
accordingly record our 63% share of such losses in our consolidated financial
statements beginning in the quarter ended March 31, 2002.

In connection with our $100 million equity investment in Reliant, we are in the
process of allocating our proportionate share of the assets acquired and
liabilities assumed in accordance with the guidance set forth in SFAS No. 141.
We have taken a $2.7 million noncash charge for in-process research and
development through the income statement under the caption "Equity in losses of
Reliant Pharmaceuticals, LLC." The $2.7 million noncash charge is related to
management's current estimate of the amount of the purchase price to be
allocated to in-process research and development. This analysis of the purchase
price allocation is preliminary and the amount of in-process research and
development is subject to future adjustment.

We do not believe that inflation and changing prices have had a material impact
on our results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and short-term investments were approximately $199.2
million at December 31, 2001 as compared to $254.9 million at March 31, 2001.
The decrease in cash and cash equivalents and short-term investments was
primarily the result of the $100 million equity investment in Reliant
Pharmaceuticals, LLC in December 2001, as discussed above. The decrease in cash
and short-term investments was also a result of cash used to fund our
operations, to acquire fixed assets and to make principal payments on our
indebtedness. The decrease in cash and short-term investments was partially
offset by investments classified as long-term at March 31, 2001 now having a
maturity period of less than 12 months which, as a result, are classified as
short-term investments at December 31, 2001. In connection with our investment
in Reliant, in December 2001 we received $25 million in proceeds under a loan
agreement with one of our investment managers. The balance of the loan was $25
million at December 31, 2001.


We invest in cash equivalents, U.S. Government obligations, high-grade corporate
notes and commercial paper, with the exception of our recent $100 million
investment in Reliant. Our investment objectives for such investments taken as a
whole are, first, to assure liquidity and conservation of capital, and second,
to obtain investment income. Investments


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<PAGE>
classified as long-term at December 31, 2001 consist of U.S. Government
obligations held as collateral under certain letters of credit, lease and loan
agreements.

During the quarter ended December 31, 2001, the portion of the investment
portfolio that was classified as "held-to-maturity" was changed to
"available-for-sale" to provide more flexibility with our investment portfolio.
All of our investments in debt securities are now classified as "available-for-
sale" and are recorded at fair value. Fair value was determined based on quoted
market prices.

In August 2001, Janssen Pharmaceutica Products, LP submitted an NDA with the FDA
for a long-acting injectable formulation of Risperdal(R) (risperidone) based on
our proprietary Medisorb technology. Similar filings continue to be submitted
with health authorities worldwide. If approved, it would be the first atypical
antipsychotic medication available in a formulation suitable for long-term use
that requires administration just once every two weeks, instead of daily doses.

We have funded our operations primarily through public offerings and private
placements of debt and equity securities, bank loans and payments under research
and development agreements with collaborators. We expect to incur significant
additional research and development and other costs in connection with
collaborative arrangements and as we expand the development of our proprietary
product candidates, including costs related to preclinical studies, clinical
trials and facilities expansion. Therefore, we expect that our costs will exceed
revenues significantly for the next few years, which will result in continuing
losses from operations.

Capital expenditures were approximately $18.7 million for the nine months ended
December 31, 2001, principally reflecting equipment purchases and building
expansion and improvements. We expect our capital expenditures to increase
significantly during fiscal years 2002 and 2003 as we expand our facilities in
both Massachusetts and Ohio. Our capital expenditures for equipment, facilities
and building improvements have been financed to date primarily with proceeds
from bank loans and the sales of debt and equity securities. Under the
provisions of our existing loans, Fleet National Bank has a security interest
in certain of our assets.

We will continue to pursue opportunities to obtain additional financing in the
future. Such financing may be sought through various sources, including debt and
equity offerings, corporate collaborations, bank borrowings, lease arrangements
relating to fixed assets or other financing methods. The source, timing and
availability of any financings will depend on market conditions, interest rates
and other factors. Our future capital requirements will also depend on many
factors, including continued scientific progress in our research and development
programs (including our proprietary product candidates), the magnitude of these
programs, progress with preclinical testing and clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the establishment of additional collaborative arrangements, the
cost of manufacturing facilities and of commercialization activities and
arrangements and the cost of product in-licensing and any possible acquisitions.

We may need to raise substantial additional funds for longer-term product
development, including development of our proprietary product candidates,
regulatory approvals and


                                      (12)
<PAGE>
manufacturing and marketing activities that we might undertake in the future.
There can be no assurance that additional funds will be available on favorable
terms, if at all. If adequate funds are not available, we may be required to
curtail significantly one or more of our research and development programs
and/or obtain funds through arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our technologies, product
candidates or future products.

ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards, or SFAS, No.
133, "Accounting for Derivative Instruments and Hedging Activities," on April 1,
2001. The adoption did not have any impact on our financial position or results
of operations.

In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 is effective for any business combinations initiated after
June 30, 2001. SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the statements.
Other identifiable intangible assets will continue to be amortized over their
useful lives should they be determinable, otherwise they will be subject to the
same annual impairment test. We, as described in Note 5, did apply SFAS No. 141
to our equity method investment since such investment occurred subsequent to
June 30, 2001. The impact is discussed in Note 5. The adoption of SFAS No. 142
is not expected to have a significant impact on our financial position or
results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement will supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets or for Long-Lived Assets to
Be Disposed Of," in its entirety, and Accounting Principles Board, or APB,
Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," only for segments to be disposed of. The
provisions of this statement are effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Company has not determined
the effect, if any, that adoption of this statement will have on our financial
position or results of operations.


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<PAGE>
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As part of our investment portfolio we own financial instruments that are
sensitive to market risks. The investment portfolio, excluding our recent $100
million investment in Reliant, is used to preserve our capital until it is
required to fund operations, including our research and development activities.
Our short-term investments and investments consist of U.S. Government
obligations, high-grade corporate notes and commercial paper. During the quarter
ended December 31, 2001, the portion of the investment portfolio that was
classified as "held-to-maturity" was changed to "available-for-sale" to provide
more flexibility with our investment portfolio. All of our investments in debt
securities are now classified as "available-for- sale" and are recorded at fair
value. Our investments, excluding our investment in Reliant, are subject to
interest rate risk, and could decline in value if interest rates increase. Due
to the conservative nature of our short-term investments and investments we do
not believe that we have a material exposure to interest rate risk. Although our
investments are subject to credit risk (excluding our investment in Reliant),
our investment policies specify credit quality standards for our investments and
limit the amount of credit exposure from any single issue, issuer or type of
investment.

Our "available-for-sale" marketable securities are sensitive to changes in
interest rates. Interest rate changes would result in a change in the fair value
of these financial instruments due to the difference between the market interest
rate and the rate at the date of purchase of the financial instrument. A 10%
decrease in quarter-end market interest rates would result in no material impact
on the net fair value of such interest-sensitive financial instruments.

The interest rates on our 3-3/4% Notes are fixed and, therefore, are not subject
to interest rate risk.


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<PAGE>
PART II.  OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

In December 2001, we announced a strategic alliance with Reliant
Pharmaceuticals, LLC, a privately held pharmaceutical company marketing branded
pharmaceutical products to U.S.-based primary care and targeted specialty
physicians. As part of the alliance, in December 2001, we purchased Series C
Preferred Units of Reliant, representing approximately 19% of the equity
interest in Reliant, for a purchase price of $100 million.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

               (a) Exhibits:

<TABLE>
<CAPTION>
                      Number                   Exhibit
                      ------                   -------
<S>                                 <C>
                      3.1           Third Amended and Restated Articles of
                                    Incorporation as filed with the Pennsylvania
                                    Secretary of State on June 7, 2001.
                                    (Incorporated by reference to Exhibit 3.1 to
                                    the Company's Report on Form 10-K for the
                                    fiscal year ended March 31, 2001).

                      3.2           Amended and Restated By-Laws of Alkermes,
                                    Inc., effective as of February 11, 2001.
                                    (Incorporated by reference to Exhibit 3.2 to
                                    the Company's Report on Form 10-K for the
                                    fiscal year ended March 31, 2001).

                      4.1           Specimen of Common Stock Certificate of
                                    Alkermes, Inc. (Incorporated by reference to
                                    Exhibit 4 to the Company's Registration
                                    Statement on Form S-1, as amended (File No.
                                    33-40250)).

                      4.2           Specimen of Non-Voting Common Stock
                                    Certificate of Alkermes, Inc. (Incorporated
                                    by reference to Exhibit 4.4 to the Company's
                                    Report on Form 10-K for the fiscal year
                                    ended March 31, 1999).

                      4.3           Indenture, dated as of February 18, 2000,
                                    between Alkermes, Inc. and State Street Bank
                                    and Trust Company, as Trustee. (Incorporated
                                    by reference to Exhibit 4.6 to the Company's
                                    Registration Statement on Form S-3, as
                                    amended (File No. 333-31354)).

                      10.1          Series C Preferred Unit Subscription
                                    Agreement, dated as of December 17, 2001,
                                    among Reliant Pharmaceuticals, LLC,
                                    Alkermes, Inc., Bay City Capital Fund III,
                                    L.P. and Pharmbay Investors, L.L.C.
</TABLE>


(b) During the quarter ended December 31, 2001, the Company filed no Reports on
Form 8-K.


                                      (15)
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                           ALKERMES, INC.
                                           (Registrant)



Date:  February 14, 2002                   By:    /s/  Richard F. Pops
                                                --------------------------------
                                                 Richard F. Pops
                                                 Chief Executive Officer and
                                                   Director
                                                   (Principal Executive Officer)


Date:  February 14, 2002                   By:   /s/  James M. Frates
                                               ---------------------------------
                                                 James M. Frates
                                                 Vice President, Chief
                                                 Financial Officer and Treasurer
                                                   (Principal Financial and
                                                      Accounting Officer)





                                      (16)
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                      Exhibit
                      Number        Description
                      -------       -----------
<S>                                 <C>

                      3.1           Third Amended and Restated Articles of
                                    Incorporation as filed with the Pennsylvania
                                    Secretary of State on June 7, 2001.
                                    (Incorporated by reference to Exhibit 3.1 to
                                    the Company's Report on Form 10-K for the
                                    fiscal year ended March 31, 2001).

                      3.2           Amended and Restated By-Laws of Alkermes,
                                    Inc., effective as of February 11, 2001.
                                    (Incorporated by reference to Exhibit 3.2 to
                                    the Company's Report on Form 10-K for the
                                    fiscal year ended March 31, 2001).

                      4.1           Specimen of Common Stock Certificate of
                                    Alkermes, Inc. (Incorporated by reference to
                                    Exhibit 4 to the Company's Registration
                                    Statement on Form S-1, as amended (File No.
                                    33-40250)).

                      4.2           Specimen of Non-Voting Common Stock
                                    Certificate of Alkermes, Inc. (Incorporated
                                    by reference to Exhibit 4.4 to the Company's
                                    Report on Form 10-K for the fiscal year
                                    ended March 31, 1999).

                      4.3           Indenture, dated as of February 18, 2000,
                                    between Alkermes, Inc. and State Street Bank
                                    and Trust Company, as Trustee. (Incorporated
                                    by reference to Exhibit 4.6 to the Company's
                                    Registration Statement on Form S-3, as
                                    amended (File No. 333-31354)).

                      10.1          Series C Preferred Unit Subscription
                                    Agreement, dated as of December 17, 2001,
                                    among Reliant Pharmaceuticals, LLC,
                                    Alkermes, Inc., Bay City Capital Fund III,
                                    L.P. and Pharmbay Investors, L.L.C.
</TABLE>




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