##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 1-14131
  ALKERMES, INC.
 (Exact name of registrant as
    specified in its charter)
  PENNSYLVANIA(State or other jurisdiction
    of
    incorporation or organization)88 Sidney Street, Cambridge, MA(Address of principal
    executive offices)

23-2472830(I.R.S. Employer
    Identification No.)02139-4234(Zip Code)   Registrants
    telephone number including area code:(617) 494-0171
 (Former name, former address, and former fiscal year, if
    changed since last report)
  þ o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
    As of November 2,Class

2007Common Stock, $.01 par value


101,822,912Non-Voting Common Stock, $.01 par value


382,632




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##### 



ALKERMES,
    INC. AND SUBSIDIARIES
  INDEX
  
  Page No.PART I  FINANCIAL
    INFORMATIONItem 1.


Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets 
    September 30, 2007 and March 31, 2007


3Condensed Consolidated Statements of
    Operations  For the Three and Six Months Ended
    September 30, 2007 and 2006


4Condensed Consolidated Statements of Cash
    Flows  For the Six Months Ended September 30,
    2007 and 2006


5Notes to Condensed Consolidated Financial
    Statements


6Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


12Item 3.


Quantitative and Qualitative Disclosures about
    Market Risk


23Item 4.


Controls and Procedures


24PART II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


25Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


25Item 4.


Submission of Matters to a Vote of Security
    Holders


25Item 5.


Other Information


26Item 6.


Exhibits


26Signatures


27Exhibit Index


28EX-31.1 RULE 13a-14(a)/15d-14(a) CERTIFICATIONSEX-31.2 RULE 13a-14(a)/15d-14(a) CERTIFICATIONSEX-32.1 CERTIFICATION PURSUANT TO SECTION 906   2




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PART 1.
    FINANCIAL INFORMATION
  Item 1.
    Condensed
    Consolidated Financial Statements:  ALKERMES,
    INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
  September 30,


March 31,2007


2007(In thousands, except share and per share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
86,419


$
80,500Investments  short-term


271,381



271,082Receivables


43,878



56,049Inventory


21,202



18,190Prepaid expenses and other current assets


8,246



7,054Total current assets


431,126



432,875PROPERTY, PLANT AND EQUIPMENT:Land


301



301Building and improvements


31,858



25,717Furniture, fixtures and equipment


67,420



64,203Equipment under capital lease


464



464Leasehold improvements


33,313



32,345Construction in progress


46,480



42,442179,836



165,472Less: accumulated depreciation and amortization


(47,992
)


(41,877
)Property, plant and equipment  net


131,844



123,595RESTRICTED INVESTMENTS


5,146



5,144OTHER ASSETS


4,766



7,007TOTAL ASSETS

$
572,882


$
568,621LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses

$
21,914


$
45,855Accrued interest


2,975



2,976Unearned milestone revenue  current portion


6,073



11,450Deferred revenue  current portion


125



200Long-term debt  current portion


982



1,579Total current liabilities


32,069



62,060NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES


158,553



156,851UNEARNED MILESTONE REVENUE  LONG-TERM PORTION


114,576



117,300DEFERRED REVENUE  LONG-TERM PORTION


23,082



22,153OTHER LONG-TERM LIABILITIES


5,842



6,796TOTAL LIABILITIES


334,122



365,160COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; authorized,
    4,550,000 shares (includes 3,000,000 shares of
    preferred stock); issued, none






Common stock, par value, $0.01 per share; authorized,
    160,000,000 shares; 102,595,913 and 101,550,673 shares
    issued, 101,772,236 and 100,726,996 shares outstanding at
    September 30, 2007 and March 31, 2007, respectively


1,026



1,015Non-voting common stock, par value, $0.01 per share; authorized,
    450,000 shares; issued and outstanding, 382,632 shares
    at September 30, 2007 and March 31, 2007


4



4Treasury stock, at cost (823,677 shares at
    September 30, 2007 and March 31, 2007)


(12,492
)


(12,492
)Additional paid-in capital


857,120



837,727Accumulated other comprehensive income


203



753Accumulated deficit


(607,101
)


(623,546
)TOTAL SHAREHOLDERS EQUITY


238,760



203,461TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
572,882


$
568,621    3




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ALKERMES,
    INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
    OPERATIONS
 (unaudited)
  Three Months Ended


Six Months EndedSeptember 30,


September 30,2007


2006


2007


2006(In thousands, except per share amounts)REVENUES:Manufacturing revenues

$
24,137


$
26,122


$
55,654


$
48,315Royalty revenues


7,348



5,813



14,330



10,952Research and development revenue under collaborative arrangements


21,206



17,624



44,656



32,088Net collaborative profit


5,909



11,611



12,898



21,353Total revenues


58,600



61,170



127,538



112,708EXPENSES:Cost of goods manufactured


9,218



11,822



19,363



21,160Research and development


28,317



29,817



60,936



55,680Selling, general and administrative


14,487



15,677



29,887



32,207Total expenses


52,022



57,316



110,186



109,047OPERATING INCOME


6,578



3,854



17,352



3,661OTHER INCOME (EXPENSE):Interest income


4,246



4,734



8,648



9,069Interest expense


(4,077
)


(4,034
)


(8,150
)


(9,507
)Other income (expense), net


1,151



(664
)


1,177



123Total other income (expense)


1,320



36



1,675



(315
)INCOME BEFORE INCOME TAXES


7,898



3,890



19,027



3,346INCOME TAXES


200



164



2,582



335NET INCOME

$
7,698


$
3,726


$
16,445


$
3,011EARNINGS PER COMMON SHARE:BASIC

$
0.08


$
0.04


$
0.16


$
0.03DILUTED

$
0.07


$
0.04


$
0.16


$
0.03WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:BASIC


101,595



101,331



101,663



97,581DILUTED


104,315



105,543



104,446



102,536    4




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ALKERMES,
    INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
    FLOWS
 (unaudited)
  Six Months EndedSeptember 30,2007


2006(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
16,445


$
3,011Adjustments to reconcile net income to cash flows from operating
    activities:Share-based compensation


10,295



14,718Depreciation and amortization


6,114



5,767Other non-cash charges


2,187



2,228Change in fair value of warrants


(1,426
)


(153
)Gain on sale of equipment






(9
)Changes in assets and liabilities:Receivables


10,939



(24,482
)Inventory, prepaid expenses and other assets


(8,116
)


(12,465
)Accounts payable, accrued expenses and accrued interest


(20,707
)


(5,963
)Unearned milestone revenue


(8,101
)


63,076Deferred revenue


2,086



(100
)Other liabilities


(155
)


71Cash flows from operating activities


9,561



45,699CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment


(14,609
)


(14,715
)Proceeds from the sale of equipment






15Purchases of short and long-term investments


(291,480
)


(189,668
)Sales and maturities of short and long-term investments


293,861



190,922Cash flows from investing activities


(12,228
)


(13,446
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock


9,122



4,304Excess tax benefit from stock options


108



Payment of debt


(644
)


(588
)Purchase of treasury stock






(12,492
)Cash flows from financing activities


8,586



(8,776
)NET INCREASE IN CASH AND CASH EQUIVALENTS


5,919



23,477CASH AND CASH EQUIVALENTS  Beginning of period


80,500



33,578CASH AND CASH EQUIVALENTS  End of period

$
86,419


$
57,055SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest

$
5,999


$
4,569Cash paid for income taxes

$
980


$
270Non-cash investing and financing activities:Conversion of 2.5% convertible subordinated notes into common
    stock

$



$
125,000Purchased capital expenditures included in accounts payable and
    accrued expenses

$
246


$
Net share exercise of warrants into common stock of the issuer

$
2,994


$
Receipt of Alkermes shares as payment to satisfy withholding tax
    obligations related to employee stock awards

$
924


$
    5




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis
    of Presentation
    Form 10-K
    Principles of Consolidation
  Use of Estimates
  Income
    Taxes
  Accounting for Uncertainty in Income
    Taxes Accounting for Income Taxes.
  New
    Accounting Pronouncements
  Fair Value Measurements
 6




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair Value Option for Financial Assets and
    Financial Liabilities Including an Amendment of FASB Statement
    No. 115
  07-03, Accounting for Nonrefundable Advance Payments for Goods
    or Services to Be Used in Future Research and Development
    Activities, (EITF 07-03), EITF 07-03, EITF 07-03 EITF 07-03;
  2.
    COMPREHENSIVE
    INCOME    Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006(In thousands)Net income

$
7,698


$
3,726


$
16,445


$
3,011Unrealized (losses) gains on available-for-sale investments


(25
)


119



(550
)


453Comprehensive income

$
7,673


$
3,845


$
15,895


$
3,464   3.
    EARNINGS
    PER COMMON SHARE   7




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


Six MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006(In thousands)Numerator:Net income

$
7,698


$
3,726


$
16,445


$
3,011Denominator:Weighted average number of common shares outstanding


101,595



101,331



101,663



97,581Effect of dilutive securities:Stock options


2,371



3,086



2,451



4,105Restricted stock awards


349



312



332



220Redeemable convertible preferred stock






814







630Dilutive common share equivalents


2,720



4,212



2,783



4,955Shares used in calculating diluted earnings per common share


104,315



105,543



104,446



102,536     Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006(In thousands)Stock options


10,284



11,557



11,760



7,4142.5% convertible subordinated notes














3,6993.75% convertible subordinated notes






10







10Total


10,284



11,567



11,760



11,123   4.
    SHARE-BASED
    COMPENSATION    Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006(In thousands)Cost of goods manufactured

$
334


$
903


$
960


$
1,163Research and development


1,785



2,232



3,636



5,068Selling, general and administrative


2,429



3,236



5,699



8,487Total

$
4,548


$
6,371


$
10,295


$
14,718  8




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    INVENTORY  first-in,
  September 30,


March 31,2007


2007(In thousands)Raw materials

$
8,676


$
7,238Work in process


7,350



4,291Finished goods


5,176



6,661Total

$
21,202


$
18,190   6.
    ACCOUNTS
    PAYABLE AND ACCRUED EXPENSES    September 30,


March 31,2007


2007(In thousands)Accounts payable and accrued accounts payable

$
5,248


$
12,097Accrued expenses related to collaborative arrangements


487



16,155Accrued compensation


8,425



10,917Accrued other


7,754



6,686Total

$
21,914


$
45,855   7.
    INCOME
    TAXES       9




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        8.
    LEGAL
    MATTERS     10




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      9.
    SEGMENT
    INFORMATION   11




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Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  ® ® ®
    Forward-Looking
    Statements
    ® scale-up
 12




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and/or
    Our
    Strategy
    Product
    Developments
  RISPERDAL
    CONSTA
  ® ®
   13




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VIVITROL
      AIR
    Insulin
    Once-Weekly
    Exenatide
  ® and/or
   14




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##### Table of Contents



ALKS
    29
    ALKS
    27
  ®
    AIR
    parathyroid hormone
    Critical
    Accounting Policies
  Form 10-K Form 10-K.
  Provision for Income Taxes 
  Accounting for Uncertainty in Income Taxes
 15




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Results
    of Operations
           16




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17




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##### Table of Contents



Three Months


Six MonthsEnded


EndedSeptember 30,


September 30(In thousands)

2007


2006


2007


2006Milestone revenue  cost recovery(1)

$



$
16,162


$
5,256


$
43,586Milestone revenue  license


1,312



1,392



2,621



2,583Total milestone revenue  cost recovery and license


1,312



17,554



7,877



46,169Payments to Cephalon to reimburse their net losses up to the
    cumulative loss cap






(5,943
)


(5,223
)


(24,816
)Payments from Cephalon to reimburse our expenses incurred after
    the cumulative loss cap was reached


4,597







10,244



Net collaborative profit

$
5,909


$
11,611


$
12,898


$
21,353     (1)
    
    Through September 30, 2007, the cumulative net losses on
    VIVITROL were $162.2 million, of which $61.5 million
    was incurred by us on behalf of the collaboration and
    $100.7 million was incurred by Cephalon on behalf of the
    collaboration.     18




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19




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Accounting for Certain Investments in Debt and Equity
    Securities
     20




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Financial
    Condition
                 21




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Liquidity
    and Capital Resources
        and/or
     22




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Contractual
    Obligations
  Form 10-K
  Off-Balance
    Sheet Arrangements
    Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk            Foreign
    Currency Exchange Rate Risk
   23




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Item 4.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rule 13a-15(e)
  (b)
    Change
    in Internal Control over Financial Reporting   24




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PART II.
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings  Form 10-Q Form 10-K
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 4.
    Submission
    of Matters to a Vote of Security Holders      AuthorityNominee

Votes For


WithheldFloyd E. Bloom


92,156,104



1,377,293Robert A. Breyer


87,640,010



5,893,387Geraldine Henwood


92,486,924



1,046,473Paul J. Mitchell


92,571,224



962,173Richard F. Pops


91,527,324



2,006,073Alexander Rich


92,237,160



1,296,237David A. Broecker


91,709,597



1,823,800Mark B. Skaletsky


92,348,099



1,185,298Michael A. Wall


91,520,702



2,012,695          25




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Item 5.
    Other
    Information  S-1 S-1
  Item 6.
    Exhibits    ExhibitNo.31
.1

Rule 13a-14(a)/15d-14(a)
    Certifications (furnished herewith).31
.2

Rule 13a-14(a)/15d-14(a)
    Certifications (furnished herewith).32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 (furnished herewith)  26




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SIGNATURES
       By:
    /s/  David
    A. Broecker      By:
    /s/  James
    M. Frates       27




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EXHIBIT INDEX
  ExhibitNo31
.1

Rule 13a-14(a)/15d-14(a)
    Certification (furnished herewith).31
.2

Rule 13a-14(a)/15d-14(a)
    Certification (furnished herewith).32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 (furnished herewith).  28