##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 1-14131
 ALKERMES, INC.
 (Exact name of registrant as specified in its charter)
 PENNSYLVANIA
    
    23-2472830(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)88 Sidney Street, Cambridge, MA
    
    02139-4234(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number including area code:
(617) 494-0171  (Former name, former address, and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer
þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  As ofClass
    
    November 5, 2008Common Stock, $.01 par value
    
    
    94,932,052Non-Voting Common Stock, $.01 par value
    
    
    382,632




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##### 



ALKERMES, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements:
    
    3Condensed Consolidated Balance Sheets  September 30, 2008 and March 31, 2008
    
    3Condensed Consolidated Statements of Income  For the Three and Six Months Ended
September 30, 2008 and 2007
    
    4Condensed Consolidated Statements of Cash Flows  For the Six Months Ended
September 30, 2008 and 2007
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    27Item 4.
    
    Controls and Procedures
    
    28PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    29Item 1A.
    
    Risk Factors
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    29Item 5.
    
    Other Information
    
    30Item 6.
    
    Exhibits
    
    30Signatures
    
    
    
    31Exhibit Index
    
    
    
    3231.1 Rule 13a-14(a)/15d-14(a) Certification31.2 Rule 13a-14(a)/15d-14(a) Certification32.1 Certification pursuant to 18 U.S.C. Section 1350
  2




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements:
 ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 September 30,
    
    
    March 31,2008
    
    
    2008(In thousands, except shareand per share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    68,525
    
    
    $
    101,241Investments  short-term
    
    
    263,913
    
    
    
    240,064Receivables
    
    
    36,047
    
    
    
    47,249Inventory
    
    
    15,721
    
    
    
    18,884Prepaid expenses and other current assets
    
    
    15,354
    
    
    
    5,720Total current assets
    
    
    399,560
    
    
    
    413,158PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    301
    
    
    
    301Building and improvements
    
    
    36,371
    
    
    
    35,003Furniture, fixtures and equipment
    
    
    65,293
    
    
    
    63,364Equipment under capital lease
    
    
    464
    
    
    
    464Leasehold improvements
    
    
    33,614
    
    
    
    33,387Construction in progress
    
    
    40,686
    
    
    
    42,859176,729
    
    
    
    175,378Less: accumulated depreciation
    
    
    ( 67,922
    )
    
    
    ( 62,839
    )Total property, plant and equipment  net
    
    
    108,807
    
    
    
    112,539INVESTMENTS  LONG-TERM
    
    
    93,395
    
    
    
    119,056OTHER ASSETS
    
    
    3,256
    
    
    
    11,558TOTAL ASSETS
    
    $
    605,018
    
    
    $
    656,311LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    23,623
    
    
    $
    36,046Unearned milestone revenue  current portion
    
    
    5,728
    
    
    
    5,927Deferred revenue  current portion
    
    
    298
    
    
    
    Long-term debt  current portion
    
    
    
    
    
    
    47Non-recourse RISPERDAL CONSTA secured 7% notes  current portion
    
    
    15,835
    
    
    
    Total current liabilities
    
    
    45,484
    
    
    
    42,020NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES
    
    
    76,054
    
    
    
    160,324UNEARNED MILESTONE REVENUE  LONG-TERM PORTION
    
    
    108,890
    
    
    
    111,730DEFERRED REVENUE  LONG-TERM PORTION
    
    
    28,397
    
    
    
    27,837OTHER LONG-TERM LIABILITIES
    
    
    7,228
    
    
    
    9,086TOTAL LIABILITIES
    
    
    266,053
    
    
    
    350,997COMMITMENTS AND CONTINGENCIES (Note 12)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares
authorized (includes 3,000,000 shares of preferred stock); none
issued and outstanding
    
    
    
    
    
    
    Common stock, par value, $0.01 per share; 160,000,000 shares
authorized; 103,912,534 and 102,977,348 shares issued;
94,912,489 and 95,099,166 shares outstanding at September 30,
2008 and March 31, 2008, respectively
    
    
    1,039
    
    
    
    1,030Non-voting common stock, par value, $0.01 per share;
450,000 shares authorized; 382,632 shares issued and
outstanding at September 30, 2008 and March 31, 2008
    
    
    4
    
    
    
    4Treasury stock, at cost (9,000,045 and 7,878,182 shares at
September 30, 2008 and March 31, 2008, respectively)
    
    
    ( 120,970
    )
    
    
    ( 107,322
    )Additional paid-in capital
    
    
    885,259
    
    
    
    869,695Accumulated other comprehensive loss
    
    
    ( 1,185
    )
    
    
    ( 1,526
    )Accumulated deficit
    
    
    ( 425,182
    )
    
    
    ( 456,567
    )TOTAL SHAREHOLDERS EQUITY
    
    
    338,965
    
    
    
    305,314TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    605,018
    
    
    $
    656,311
  3




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ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share amounts)REVENUES:Manufacturing revenues
    
    $
    33,039
    
    
    $
    24,137
    
    
    $
    71,649
    
    
    $
    55,654Royalty revenues
    
    
    8,439
    
    
    
    7,348
    
    
    
    17,020
    
    
    
    14,330Research and development revenue
under collaborative arrangements
    
    
    5,252
    
    
    
    21,206
    
    
    
    36,702
    
    
    
    44,656Net collaborative profit
    
    
    581
    
    
    
    5,909
    
    
    
    1,932
    
    
    
    12,898Total revenues
    
    
    47,311
    
    
    
    58,600
    
    
    
    127,303
    
    
    
    127,538EXPENSES:Cost of goods manufactured
    
    
    12,071
    
    
    
    9,218
    
    
    
    26,385
    
    
    
    19,363Research and development
    
    
    19,710
    
    
    
    28,317
    
    
    
    41,971
    
    
    
    60,936Selling, general and administrative
    
    
    11,679
    
    
    
    14,487
    
    
    
    23,605
    
    
    
    29,887Total expenses
    
    
    43,460
    
    
    
    52,022
    
    
    
    91,961
    
    
    
    110,186OPERATING INCOME
    
    
    3,851
    
    
    
    6,578
    
    
    
    35,342
    
    
    
    17,352OTHER (EXPENSE) INCOME:Interest income
    
    
    2,693
    
    
    
    4,246
    
    
    
    6,309
    
    
    
    8,648Interest expense
    
    
    (4,243
    )
    
    
    (4,077
    )
    
    
    (8,469
    )
    
    
    (8,150
    )Other (expense) income
    
    
    (666
    )
    
    
    1,151
    
    
    
    (830
    )
    
    
    1,177Total other (expense) income
    
    
    (2,216
    )
    
    
    1,320
    
    
    
    (2,990
    )
    
    
    1,675INCOME BEFORE INCOME TAXES
    
    
    1,635
    
    
    
    7,898
    
    
    
    32,352
    
    
    
    19,027INCOME TAX (BENEFIT) PROVISION
    
    
    (63
    )
    
    
    200
    
    
    
    967
    
    
    
    2,582NET INCOME
    
    $
    1,698
    
    
    $
    7,698
    
    
    $
    31,385
    
    
    $
    16,445EARNINGS PER COMMON SHARE:BASIC
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.33
    
    
    $
    0.16DILUTED
    
    $
    0.02
    
    
    $
    0.07
    
    
    $
    0.32
    
    
    $
    0.16WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:BASIC
    
    
    95,637
    
    
    
    101,595
    
    
    
    95,211
    
    
    
    101,663DILUTED
    
    
    97,356
    
    
    
    104,315
    
    
    
    96,729
    
    
    
    104,446
  4




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ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months EndedSeptember 30,2008
    
    
    2007(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    31,385
    
    
    $
    16,445Adjustments to reconcile net income to cash flows from operating activities:Share-based compensation
    
    
    8,309
    
    
    
    10,295Depreciation
    
    
    4,901
    
    
    
    6,114Other non-cash charges
    
    
    2,564
    
    
    
    2,187Loss on the purchase of the 7% Notes
    
    
    1,989
    
    
    
    Change in fair value of warrants
    
    
    
    
    
    
    (1,426
    )Changes in assets and liabilities:Receivables
    
    
    2,251
    
    
    
    10,939Inventory, prepaid expenses and other assets
    
    
    890
    
    
    
    (8,116
    )Accounts payable and accrued expenses
    
    
    (10,785
    )
    
    
    (20,707
    )Unearned milestone revenue
    
    
    (3,039
    )
    
    
    (8,101
    )Deferred revenue
    
    
    2,092
    
    
    
    2,086Other liabilities
    
    
    (1,363
    )
    
    
    (155
    )Cash flows from operating activities
    
    
    39,194
    
    
    
    9,561CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (3,567
    )
    
    
    (14,609
    )Sales of property, plant and equipment
    
    
    7,717
    
    
    
    Purchases of investments
    
    
    (462,412
    )
    
    
    (291,480
    )Sales and maturities of investments
    
    
    463,959
    
    
    
    293,861Cash flows from investing activities
    
    
    5,697
    
    
    
    (12,228
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock
    
    
    7,221
    
    
    
    9,122Excess tax benefit from stock options
    
    
    74
    
    
    
    108Payment of debt
    
    
    (47
    )
    
    
    (644
    )Purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    (71,775
    )
    
    
    Purchase of treasury stock
    
    
    (13,080
    )
    
    
    Cash flows from financing activities
    
    
    (77,607
    )
    
    
    8,586NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (32,716
    )
    
    
    5,919CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    101,241
    
    
    
    80,500CASH AND CASH EQUIVALENTS  End of period
    
    $
    68,525
    
    
    $
    86,419SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest
    
    $
    6,662
    
    
    $
    5,999Cash paid for income taxes
    
    $
    435
    
    
    $
    980Non-cash investing and financing activities:Purchased capital expenditures included in accounts payable and accrued expenses
    
    $
    233
    
    
    $
    246Net share exercise of warrants into common stock of the issuer
    
    $
    
    
    
    $
    2,994Receipt of Alkermes shares for the purchase of stock options or as payment to
satisfy minimum withholding tax obligations related to stock based awards
    
    $
    568
    
    
    $
    924
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ALKERMES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Principles of Consolidation ® ®
 Use of Estimates
 New Accounting Pronouncements
 Accounting for
Collaborative Arrangements Related to the Development and Commercialization of Intellectual
Property
 Disclosures about Derivative Instruments and Hedging Activities
 6




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    1,698
    
    
    $
    7,698
    
    
    $
    31,385
    
    
    $
    16,445Unrealized gains
(losses) on
available-for-sale
securities:Holding losses
    
    
    (61
    )
    
    
    (25
    )
    
    
    (266
    )
    
    
    (550
    )Reclassification of
unrealized losses
to realized losses
on
available-for-sale
securities
    
    
    559
    
    
    
    
    
    
    
    607
    
    
    
    Unrealized gains
(losses) on
available-for-sale
securities
    
    
    498
    
    
    
    (25
    )
    
    
    341
    
    
    
    (550
    )Comprehensive income
    
    $
    2,196
    
    
    $
    7,673
    
    
    $
    31,726
    
    
    $
    15,895
 3. EARNINGS PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    1,698
    
    
    $
    7,698
    
    
    $
    31,385
    
    
    $
    16,445Denominator:Weighted average number of common
shares outstanding
    
    
    95,637
    
    
    
    101,595
    
    
    
    95,211
    
    
    
    101,663Effect of dilutive securities:Stock options
    
    
    1,479
    
    
    
    2,371
    
    
    
    1,329
    
    
    
    2,451Restricted stock awards
    
    
    240
    
    
    
    349
    
    
    
    189
    
    
    
    332Dilutive common share equivalents
    
    
    1,719
    
    
    
    2,720
    
    
    
    1,518
    
    
    
    2,783Shares used in calculating diluted
earnings per common share
    
    
    97,356
    
    
    
    104,315
    
    
    
    96,729
    
    
    
    104,446
  4. INVESTMENTS
   7




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




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. FAIR VALUE MEASUREMENTS
 Fair Value Measurements Effective Date of FASB Statement No. 157
 Determining the Fair Value of a Financial Asset When the Market for that Asset
is not Active
  Level 1
 Level 2
 Level 3
 9




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  SignificantOther
    
    
    SignificantQuoted Prices in
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Active Markets
    
    
    Inputs
    
    
    Inputs(In thousands)
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents
    
    $
    7,025
    
    
    $
    7,025
    
    
    $
    
    
    
    $
    U.S. government and agency
and municipal debt
securities
    
    
    250,231
    
    
    
    250,231
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    89,107
    
    
    
    4,240
    
    
    
    84,867
    
    
    
    Asset backed debt securities
    
    
    7,283
    
    
    
    
    
    
    
    
    
    
    
    7,283Auction rate securities
    
    
    9,272
    
    
    
    
    
    
    
    
    
    
    
    9,272Strategic equity investments
    
    
    1,414
    
    
    
    1,414
    
    
    
    
    
    
    
    Total
    
    $
    364,332
    
    
    $
    262,910
    
    
    $
    84,867
    
    
    $
    16,555
    Fair Value(In thousands)Balance, April 1, 2008
    
    $
    18,612Total unrealized losses included in earnings
    
    
    Total unrealized losses included in comprehensive income
    
    
    (468
    )Redemptions
    
    
    (1,589
    )Balance, September 30, 2008
    
    $
    16,555
 The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115
 10




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   6. INVENTORY
  September 30,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2008Raw materials
    
    $
    8,338
    
    
    $
    8,373Work in process
    
    
    2,215
    
    
    
    3,060Finished goods
    
    
    5,168
    
    
    
    7,451Total
    
    $
    15,721
    
    
    $
    18,884
 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  September 30,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2008Accounts payable
    
    $
    5,019
    
    
    $
    7,042Accrued compensation
    
    
    8,255
    
    
    
    11,245Accrued interest
    
    
    1,750
    
    
    
    2,975Accrued restructuring  current portion
    
    
    804
    
    
    
    4,037Accrued other
    
    
    7,795
    
    
    
    10,747Total
    
    $
    23,623
    
    
    $
    36,046
 8. RESTRUCTURING
 ®
  OtherFacility
    
    
    
    
    
    
    Contract(In thousands)
    

Closure
    
    
    Severance
    
    
    Losses
    
    
    TotalBalance, April 1, 2008
    
    $
    4,930
    
    
    $
    2,881
    
    
    $
    37
    
    
    $
    7,848Additions
    
    
    
    
    
    
    78
    
    
    
    70
    
    
    
    148Payments
    
    
    (490
    )
    
    
    (2,952
    )
    
    
    (107
    )
    
    
    (3,549
    )Other adjustments
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    99Balance, September 30, 2008 (1)
    
    $
    4,539
    
    
    $
    7
    
    
    $
    
    
    
    $
    4,546
 
 (1)
    
    The restructuring liability at September 30, 2008 consists of $0.8 million classified as
current and $3.7 million classified as long-term in the accompanying condensed consolidated balance
sheet. ®
 11




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  9. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of goods manufactured
    
    $
    428
    
    
    $
    334
    
    
    $
    857
    
    
    $
    960Research and development
    
    
    1,282
    
    
    
    1,785
    
    
    
    2,870
    
    
    
    3,636Selling, general and administrative
    
    
    2,104
    
    
    
    2,429
    
    
    
    4,582
    
    
    
    5,699Total
    
    $
    3,814
    
    
    $
    4,548
    
    
    $
    8,309
    
    
    $
    10,295
  10. EXTINGUISHMENT OF DEBT
  11. INCOME TAXES
  Housing and Economic
Recovery Act of 2008
 12. COMMITMENTS AND CONTINGENCIES
   12




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  13. SEGMENT INFORMATION
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 ® ® ®
  Forward-Looking Statements
   14




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Our Strategy
  15




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Product Developments
 RISPERDAL CONSTA
 ®
      VIVITROL
  16




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Exenatide Once Weekly
 ®
  in vitro in vivo
 ALKS 29
  17




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ALKS 27
  ALKS 33
 in vivo in vitro
 Critical Accounting Policies
  Results of Operations
   18




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##### Table of Contents



Revenues
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeManufacturing revenue:RISPERDAL CONSTA
    
    $
    30.7
    
    
    $
    22.9
    
    
    $
    7.8
    
    
    $
    66.7
    
    
    $
    53.1
    
    
    $
    13.6VIVITROL
    
    
    2.3
    
    
    
    1.2
    
    
    
    1.1
    
    
    
    5.0
    
    
    
    2.5
    
    
    
    2.5Total manufacturing revenue
    
    
    33.0
    
    
    
    24.1
    
    
    
    8.9
    
    
    
    71.7
    
    
    
    55.6
    
    
    
    16.1Royalty revenue
    
    
    8.4
    
    
    
    7.4
    
    
    
    1.0
    
    
    
    17.0
    
    
    
    14.3
    
    
    
    2.7Research and development
revenue under collaborative
arrangements
    
    
    5.3
    
    
    
    21.2
    
    
    
    (15.9
    )
    
    
    36.7
    
    
    
    44.7
    
    
    
    (8.0
    )Net collaborative profit
    
    
    0.6
    
    
    
    5.9
    
    
    
    (5.3
    )
    
    
    1.9
    
    
    
    12.9
    
    
    
    (11.0
    )Total revenues
    
    $
    47.3
    
    
    $
    58.6
    
    
    $
    (11.3
    )
    
    $
    127.3
    
    
    $
    127.5
    
    
    $
    (0.2
    )
      19




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Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Milestone revenue  cost recovery
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5.3Milestone revenue  license
    
    
    1.3
    
    
    
    1.3
    
    
    
    2.6
    
    
    
    2.6Total milestone revenue  cost recovery and license
    
    
    1.3
    
    
    
    1.3
    
    
    
    2.6
    
    
    
    7.9Net payments (to) from Cephalon
    
    
    (0.7
    )
    
    
    4.6
    
    
    
    (0.7
    )
    
    
    5.0Net collaborative profit
    
    $
    0.6
    
    
    $
    5.9
    
    
    $
    1.9
    
    
    $
    12.9
     20




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Expenses
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeCosts of goods manufactured:RISPERDAL CONSTA
    
    $
    8.1
    
    
    $
    8.1
    
    
    $
    
    
    
    $
    18.9
    
    
    $
    17.2
    
    
    $
    1.7VIVITROL
    
    
    4.0
    
    
    
    1.1
    
    
    
    2.9
    
    
    
    7.5
    
    
    
    2.2
    
    
    
    5.3Total cost of goods manufactured
    
    
    12.1
    
    
    
    9.2
    
    
    
    2.9
    
    
    
    26.4
    
    
    
    19.4
    
    
    
    7.0Research and development
    
    
    19.7
    
    
    
    28.3
    
    
    
    (8.6
    )
    
    
    42.0
    
    
    
    60.9
    
    
    
    (18.9
    )Selling, general and administrative
    
    
    11.7
    
    
    
    14.5
    
    
    
    (2.8
    )
    
    
    23.6
    
    
    
    29.9
    
    
    
    (6.3
    )Total expenses
    
    $
    43.5
    
    
    $
    52.0
    
    
    $
    (8.5
    )
    
    $
    92.0
    
    
    $
    110.2
    
    
    $
    (18.2
    )
      21




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Other (Expense) Income
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeInterest income
    
    $
    2.7
    
    
    $
    4.2
    
    
    $
    (1.5
    )
    
    $
    6.3
    
    
    $
    8.7
    
    
    $
    (2.4
    )Interest expense
    
    
    (4.2
    )
    
    
    (4.1
    )
    
    
    (0.1
    )
    
    
    (8.5
    )
    
    
    (8.2
    )
    
    
    (0.3
    )Other (expense) income
    
    
    (0.7
    )
    
    
    1.2
    
    
    
    (1.9
    )
    
    
    (0.8
    )
    
    
    1.2
    
    
    
    (2.0
    )Total other (expense) income
    
    $
    (2.2
    )
    
    $
    1.3
    
    
    $
    (3.5
    )
    
    $
    (3.0
    )
    
    $
    1.7
    
    
    $
    (4.7
    )
   Income Taxes
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeIncome tax (benefit) provision
    
    $
    (0.1
    )
    
    $
    0.2
    
    
    $
    (0.3
    )
    
    $
    1.0
    
    
    $
    2.6
    
    
    $
    (1.6
    )
 Housing and Economic
Recovery Act of 2008
  22




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Liquidity and Capital Resources
  September 30,
    
    
    March 31,(In millions)
    
    2008
    
    
    2008Cash and cash equivalents
    
    $
    68.5
    
    
    $
    101.2Investments  short-term
    
    
    263.9
    
    
    
    240.1Investments  long-term
    
    
    93.4
    
    
    
    119.1Total cash, cash equivalents and investments
    
    $
    425.8
    
    
    $
    460.4Working capital
    
    $
    354.1
    
    
    $
    371.1Outstanding borrowings  current and long-term
    
    $
    91.9
    
    
    $
    160.4
   Fair Value Measurements
  Level 1
 Level 2
 Level 3
 23




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24




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
  Borrowings
  25




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Capital Requirements
     Contractual Obligations
  Off-Balance Sheet Arrangements
  26




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
     Foreign Currency Exchange Rate Risk
  27




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Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Change in Internal Control over Financial Reporting
  28




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The current credit and financial market conditions may exacerbate certain risks affecting our
business.
   Our investment portfolio may become impaired by further deterioration of the capital markets.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Approximate DollarTotal
    
    
    Value of SharesNumber of Shares
    
    
    that May YetTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    be Purchasedof Shares
    
    
    Price Paid
    
    
    Part of a Publicly
    
    
    Under the ProgramPeriod
    
    Purchased(a)
    
    
    per Share
    
    
    Announced Program(a)
    
    
    (in millions)April 1 through April 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    81.6May 1 through May 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81.6June 1 through June 30
    
    
    1,038,455
    
    
    
    12.11
    
    
    
    1,038,455
    
    
    
    109.1July 1 through July 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109.1August 1 through August 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109.1September 1 through September 30
    
    
    38,700
    
    
    
    12.89
    
    
    
    38,700
    
    
    $
    108.6Total
    
    
    1,077,155
    
    
    $
    12.14
    
    
    
    1,077,155
 29




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##### Table of Contents



(a)
    
    In November 2007, our board of directors authorized a program to
repurchase up to $175.0 million of our common stock to be repurchased
at the discretion of management from time to time in the open market
or through privately negotiated transactions. The repurchase program
has no set expiration date and may be suspended or discontinued at any
time. We publicly announced the share repurchase program in our press
release dated November 21, 2007. In June 2008, the board of directors
authorized the expansion of this repurchase program by an additional
$40.0 million, bringing the total authorization under this program to
$215.0 million. We publicly announced the expansion of the repurchase
program in our press release dated June 16, 2008.  
 Item 5. Other Information
  
 Item 6. Exhibits
  ExhibitNo.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).

31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
 30




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SIGNATURES
  ALKERMES, INC.
(Registrant)By:
    /s/  David A. BroeckerDavid A. BroeckerPresident and Chief Executive Officer
(Principal Executive Officer)By:
    /s/  James M. FratesJames M. FratesSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)  31




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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).
 32