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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  As ofClass
    
    February 2, 2009Common Stock, $.01 par value
    
    
    94,501,982Non-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  December 31, 2008 and March 31, 2008
    
    
    3Condensed Consolidated Statements of Income  For the Three and Nine Months Ended December 31, 2008
and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  For the Nine Months Ended December 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35Exhibit Index
    
    
    36Ex-31.1 - Sec 302 Certification of Principal Executive OfficerEx-32.1 - Sec 302 Certification of Principal Financial and Accounting OfficerEx-32.1 - Sec 906 Certification of Principal Executive Officer and Principal Financial Officer
  2




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ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
 December 31,
    
    
    March 31,2008
    
    
    2008(In thousands, except share andper share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    63,264
    
    
    $
    101,241Investments  short-term
    
    
    281,464
    
    
    
    240,064Receivables
    
    
    26,713
    
    
    
    47,249Inventory
    
    
    21,113
    
    
    
    18,884Prepaid expenses and other current assets
    
    
    14,920
    
    
    
    5,720Total current assets
    
    
    407,474
    
    
    
    413,158PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    301
    
    
    
    301Building and improvements
    
    
    36,460
    
    
    
    35,003Furniture, fixtures and equipment
    
    
    65,148
    
    
    
    63,364Equipment under capital lease
    
    
    464
    
    
    
    464Leasehold improvements
    
    
    33,711
    
    
    
    33,387Construction in progress
    
    
    41,735
    
    
    
    42,859177,819
    
    
    
    175,378Less: accumulated depreciation
    
    
    (70,520
    )
    
    
    (62,839
    )Total property, plant and equipment  net
    
    
    107,299
    
    
    
    112,539INVESTMENTS  LONG-TERM
    
    
    78,865
    
    
    
    119,056OTHER ASSETS
    
    
    3,029
    
    
    
    11,558TOTAL ASSETS
    
    $
    596,667
    
    
    $
    656,311LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    30,310
    
    
    $
    36,046Unearned milestone revenue  current portion
    
    
    
    
    
    
    5,927Deferred revenue  current portion
    
    
    11,705
    
    
    
    Long-term debt  current portion
    
    
    
    
    
    
    47Non-recourse RISPERDAL CONSTA secured 7% notes  current portion
    
    
    23,750
    
    
    
    Total current liabilities
    
    
    65,765
    
    
    
    42,020NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES
    
    
    68,692
    
    
    
    160,324UNEARNED MILESTONE REVENUE  LONG-TERM PORTION
    
    
    
    
    
    
    111,730DEFERRED REVENUE  LONG-TERM PORTION
    
    
    5,369
    
    
    
    27,837OTHER LONG-TERM LIABILITIES
    
    
    7,272
    
    
    
    9,086TOTAL LIABILITIES
    
    
    147,098
    
    
    
    350,997COMMITMENTS AND CONTINGENCIES (Note 13)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes 3,000,000 shares
of preferred stock); none issued and outstanding
    
    
    
    
    
    
    Common stock, par value, $0.01 per share; 160,000,000 shares authorized; 104,020,561
and 102,977,348 shares issued; 94,516,877 and 95,099,166 shares
outstanding at December 31, 2008 and March 31, 2008, respectively
    
    
    1,040
    
    
    
    1,030Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized;
382,632 shares issued and outstanding at December 31, 2008 and March 31, 2008
    
    
    4
    
    
    
    4Treasury stock, at cost (9,503,684 and 7,878,182 shares at December 31, 2008 and March 31, 2008,
respectively)
    
    
    (125,978
    )
    
    
    (107,322
    )Additional paid-in-capital
    
    
    888,811
    
    
    
    869,695Accumulated other comprehensive loss
    
    
    (1,841
    )
    
    
    (1,526
    )Accumulated deficit
    
    
    (312,467
    )
    
    
    (456,567
    )TOTAL SHAREHOLDERS EQUITY
    
    
    449,569
    
    
    
    305,314TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    596,667
    
    
    $
    656,311
  3




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ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share amounts)REVENUES:Manufacturing revenues
    
    $
    20,533
    
    
    $
    14,275
    
    
    $
    92,182
    
    
    $
    69,929Royalty revenues
    
    
    7,970
    
    
    
    7,384
    
    
    
    24,990
    
    
    
    21,714Research and development revenue under
collaborative arrangements
    
    
    3,736
    
    
    
    23,985
    
    
    
    40,438
    
    
    
    68,641Net collaborative profit
    
    
    123,422
    
    
    
    5,127
    
    
    
    125,354
    
    
    
    18,025Total revenues
    
    
    155,661
    
    
    
    50,771
    
    
    
    282,964
    
    
    
    178,309EXPENSES:Cost of goods sold
    
    
    5,536
    
    
    
    7,499
    
    
    
    31,921
    
    
    
    26,862Research and development
    
    
    22,669
    
    
    
    30,395
    
    
    
    64,640
    
    
    
    91,331Selling, general and adminstrative
    
    
    14,568
    
    
    
    15,249
    
    
    
    38,173
    
    
    
    45,136Total expenses
    
    
    42,773
    
    
    
    53,143
    
    
    
    134,734
    
    
    
    163,329OPERATING INCOME (LOSS)
    
    
    112,888
    
    
    
    (2,372
    )
    
    
    148,230
    
    
    
    14,980OTHER (EXPENSE) INCOME:Gain on sale of investment in Reliant
Pharmaceuticals, Inc.
    
    
    
    
    
    
    174,631
    
    
    
    
    
    
    
    174,631Interest income
    
    
    2,574
    
    
    
    4,292
    
    
    
    8,883
    
    
    
    12,940Interest expense
    
    
    (2,436
    )
    
    
    (4,088
    )
    
    
    (10,905
    )
    
    
    (12,238
    )Other (expense) income
    
    
    (641
    )
    
    
    (393
    )
    
    
    (1,471
    )
    
    
    784Total other (expense) income
    
    
    (503
    )
    
    
    174,442
    
    
    
    (3,493
    )
    
    
    176,117INCOME BEFORE INCOME TAXES
    
    
    112,385
    
    
    
    172,070
    
    
    
    144,737
    
    
    
    191,097INCOME TAX (BENEFIT) PROVISION
    
    
    (330
    )
    
    
    3,189
    
    
    
    637
    
    
    
    5,771NET INCOME
    
    $
    112,715
    
    
    $
    168,881
    
    
    $
    144,100
    
    
    $
    185,326EARNINGS PER COMMON SHARE:BASIC
    
    $
    1.18
    
    
    $
    1.66
    
    
    $
    1.51
    
    
    $
    1.82DILUTED
    
    $
    1.18
    
    
    $
    1.63
    
    
    $
    1.49
    
    
    $
    1.78WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:BASIC
    
    
    95,316
    
    
    
    101,703
    
    
    
    95,246
    
    
    
    101,676DILUTED
    
    
    95,818
    
    
    
    103,914
    
    
    
    96,398
    
    
    
    104,097
  4




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ALKERMES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    144,100
    
    
    $
    185,326Adjustments to reconcile net income to cash flows from operating activities:Share-based compensation
    
    
    11,590
    
    
    
    15,477Depreciation
    
    
    7,501
    
    
    
    9,380Other non-cash charges
    
    
    4,531
    
    
    
    4,225Loss on the purchase of non-recourse RISPERDAL CONSTA 7% Notes
    
    
    1,989
    
    
    
    Gain on sale of investment in Reliant Pharmaceuticals, Inc.
    
    
    
    
    
    
    (174,631
    )Change in the fair value of warrants
    
    
    
    
    
    
    (1,425
    )Changes in assets and liabilities:Receivables
    
    
    11,585
    
    
    
    14,368Inventory, prepaid expenses and other assets
    
    
    (4,746
    )
    
    
    (7,904
    )Accounts payable and accrued expenses
    
    
    (4,722
    )
    
    
    (14,004
    )Unearned milestone revenue
    
    
    (117,657
    )
    
    
    (9,537
    )Deferred revenue
    
    
    (9,529
    )
    
    
    6,909Other liabilities
    
    
    (1,415
    )
    
    
    (180
    )Cash flows provided by operating activities
    
    
    43,227
    
    
    
    28,004CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (4,145
    )
    
    
    (17,618
    )Sales of property, plant and equipment
    
    
    7,717
    
    
    
    Purchases of investments
    
    
    (543,408
    )
    
    
    (371,342
    )Sales and maturities of investments
    
    
    540,721
    
    
    
    453,403Proceeds from the sale of investment in Reliant Pharmaceuticals, Inc.
    
    
    
    
    
    
    166,865Cash flows provided by investing activities
    
    
    885
    
    
    
    231,308CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock
    
    
    7,606
    
    
    
    9,510Excess tax benefit from stock options
    
    
    75
    
    
    
    211Payment of debt
    
    
    (47
    )
    
    
    (975
    )Purchase of non-recourse RISPERDAL CONSTA secured 7% Notes
    
    
    (71,775
    )
    
    
    Purchase of treasury stock
    
    
    (17,948
    )
    
    
    (27,627
    )Cash flows used in financing activities
    
    
    (82,089
    )
    
    
    (18,881
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (37,977
    )
    
    
    240,431CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    101,241
    
    
    
    80,500CASH AND CASH EQUIVALENTS  End of period
    
    $
    63,264
    
    
    $
    320,931SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest
    
    $
    7,663
    
    
    $
    9,004Cash paid for income taxes
    
    $
    435
    
    
    $
    980Non-cash investing and financing activities:Purchased capital expenditures included in accounts payable and accrued expenses
    
    $
    1,883
    
    
    $
    328Net 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
    
    $
    707
    
    
    $
    1,480
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ALKERMES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)
 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
 ® ® ®
 Basis of Presentation
    Principles of Consolidation
  Use of Estimates
  Revenue Recognition
 Revenue Recognition in Financial
Statements Revenue Recognition
 Revenue Recognition
When Right of Return Exists
 6




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Collaborations
 New Accounting Pronouncements
 Accounting for
Collaborative Arrangements Related to the Development and Commercialization of Intellectual
Property
 Disclosures about Derivative Instruments and
Hedging Activities
 2. COLLABORATIONS
  7




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3. COMPREHENSIVE INCOME
  ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    112,715
    
    
    $
    168,881
    
    
    $
    144,100
    
    
    $
    185,326Unrealized losses on available-for-sale securities:Holding losses
    
    
    (1,212
    )
    
    
    (1,469
    )
    
    
    (1,478
    )
    
    
    (2,019
    )Reclassification of unrealized losses to realized losses on
available-for-sale securities
    
    
    556
    
    
    
    337
    
    
    
    1,163
    
    
    
    337Unrealized losses on available-for-sale securities
    
    
    (656
    )
    
    
    (1,132
    )
    
    
    (315
    )
    
    
    (1,682
    )Comprehensive income
    
    $
    112,059
    
    
    $
    167,749
    
    
    $
    143,785
    
    
    $
    183,644
 4. EARNINGS PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    112,715
    
    
    $
    168,881
    
    
    $
    144,100
    
    
    $
    185,326Denominator:Weighted average number of common shares outstanding
    
    
    95,316
    
    
    
    101,703
    
    
    
    95,246
    
    
    
    101,676Effect of dilutive securities:Stock options
    
    
    446
    
    
    
    2,159
    
    
    
    974
    
    
    
    2,354Restricted stock units
    
    
    56
    
    
    
    52
    
    
    
    178
    
    
    
    67Dilutive common share equivalents
    
    
    502
    
    
    
    2,211
    
    
    
    1,152
    
    
    
    2,421Shares used in calculating diluted earnings per share
    
    
    95,818
    
    
    
    103,914
    
    
    
    96,398
    
    
    
    104,097
  5. INVESTMENTS
  December 31,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2008Current investments:Available-for-sale
    
    $
    281,464
    
    
    $
    240,064Long-term investments:Available-for-sale
    
    
    74,212
    
    
    
    114,403Held-to-maturity
    
    
    4,653
    
    
    
    4,653Total long-term investments
    
    
    78,865
    
    
    
    119,056Total investments
    
    $
    360,329
    
    
    $
    359,120
 8




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




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  6. 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
 10




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  December 31,(In thousands)
    
    2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    1,163
    
    
    $
    1,163
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    267,565
    
    
    
    267,565
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    76,504
    
    
    
    4,240
    
    
    
    72,264
    
    
    
    Asset backed debt securities
    
    
    6,607
    
    
    
    
    
    
    
    
    
    
    
    6,607Auction rate securities
    
    
    8,858
    
    
    
    
    
    
    
    
    
    
    
    8,858Strategic equity investments
    
    
    795
    
    
    
    795
    
    
    
    
    
    
    
    Total
    
    $
    361,492
    
    
    $
    273,763
    
    
    $
    72,264
    
    
    $
    15,465
   (In thousands)
    
    Fair ValueBalance, April 1, 2008
    
    $
    18,612Total unrealized losses included in earnings
    
    
    Total unrealized losses included in comprehensive income
    
    
    (902
    )Redemptions, at par value
    
    
    (2,245
    )Balance, December 31, 2008
    
    $
    15,465
 The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115
 11




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 7. INVENTORY
  December 31,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2008Raw materials
    
    $
    7,699
    
    
    $
    8,373Work in process
    
    
    5,261
    
    
    
    3,060Finished goods
    
    
    6,917
    
    
    
    7,451Consigned-out inventory
    
    
    1,236
    
    
    
    Total
    
    $
    21,113
    
    
    $
    18,884
 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  December 31,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2008Accounts payable
    
    $
    5,364
    
    
    $
    7,042Accrued compensation
    
    
    9,211
    
    
    
    11,245Accrued interest
    
    
    1,662
    
    
    
    2,975Accrued restructuring  current portion
    
    
    771
    
    
    
    4,037Accrued other
    
    
    13,302
    
    
    
    10,747Total
    
    $
    30,310
    
    
    $
    36,046
 9. RESTRUCTURING
 ®
  Facility
    
    
    
    
    
    
    Other Contract(In thousands)
    
    Closure
    
    
    Severance
    
    
    Losses
    
    
    TotalBalance, April 1, 2008
    
    $
    4,930
    
    
    $
    2,881
    
    
    $
    37
    
    
    $
    7,848Additions
    
    
    
    
    
    
    78
    
    
    
    70
    
    
    
    148Payments
    
    
    (725
    )
    
    
    (2,959
    )
    
    
    (107
    )
    
    
    (3,791
    )Other adjustments
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    149Balance, December 31, 2008 (1)
    
    $
    4,354
    
    
    $
    
    
    
    $
    
    
    
    $
    4,354
 
 (1)
    
    At December 31, 2008, the restructuring liability consists of $0.8 million classified
as current and $3.6 million classified as long-term in the accompanying condensed
consolidated balance sheets. ®
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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of goods manufactured
    
    $
    291
    
    
    $
    319
    
    
    $
    1,148
    
    
    $
    1,279Research and development
    
    
    527
    
    
    
    2,055
    
    
    
    3,397
    
    
    
    5,691Selling, general and administrative
    
    
    2,463
    
    
    
    2,808
    
    
    
    7,045
    
    
    
    8,507Total
    
    $
    3,281
    
    
    $
    5,182
    
    
    $
    11,590
    
    
    $
    15,477
  11. EXTINGUISHMENT OF DEBT
  12. INCOME TAXES
  Collaborations Housing and Economic
Recovery Act of 2008
  13. COMMITMENTS AND CONTINGENCIES
   13




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ALKERMES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 14. SEGMENT INFORMATION
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 ® ® ®
 Forward-Looking Statements
   15




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Our Strategy
  Product Developments
 RISPERDAL CONSTA
 ®
   16




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VIVITROL
      17




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Exenatide Once Weekly
 ®
  in vitro in vivo
 ALKS 29
   ALKS 27
 ®
 ALKS 33
  18




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in vivo in vitro
  Critical Accounting Estimates
  Product Revenue Recognition
 Financial Highlights  Three and Nine Months Ended December 31, 2008
    19




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Results of Operations
 Revenues
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeManufacturing revenues:RISPERDAL CONSTA
    
    $
    21.3
    
    
    $
    12.9
    
    
    $
    8.4
    
    
    $
    88.0
    
    
    $
    66.1
    
    
    $
    21.9VIVITROL
    
    
    (0.8
    )
    
    
    1.4
    
    
    
    (2.2
    )
    
    
    4.2
    
    
    
    3.9
    
    
    
    0.3Total manufacturing revenues
    
    
    20.5
    
    
    
    14.3
    
    
    
    6.2
    
    
    
    92.2
    
    
    
    70.0
    
    
    
    22.2Royalty revenues
    
    
    8.0
    
    
    
    7.4
    
    
    
    0.6
    
    
    
    25.0
    
    
    
    21.7
    
    
    
    3.3Research and development revenue under
collaborative arrangements
    
    
    3.8
    
    
    
    24.0
    
    
    
    (20.2
    )
    
    
    40.4
    
    
    
    68.6
    
    
    
    (28.2
    )Net collaborative profit
    
    
    123.4
    
    
    
    5.1
    
    
    
    118.3
    
    
    
    125.4
    
    
    
    18.0
    
    
    
    107.4Total revenues
    
    $
    155.7
    
    
    $
    50.8
    
    
    $
    104.9
    
    
    $
    283.0
    
    
    $
    178.3
    
    
    $
    104.7
 Manufacturing Revenues
     20




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Royalty Revenues
  Research and Development Revenue Under Collaborative Arrangements
    21




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Net Collaborative Profit
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Milestone revenue  cost recovery
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5.3Milestone revenue  license
    
    
    0.8
    
    
    
    1.3
    
    
    
    3.5
    
    
    
    3.9Total milestone revenue  cost recovery and license
    
    
    0.8
    
    
    
    1.3
    
    
    
    3.5
    
    
    
    9.2Net payments from Cephalon
    
    
    0.7
    
    
    
    3.8
    
    
    
    
    
    
    
    8.8VIVITROL losses funded by Cephalon, post termination
    
    
    1.2
    
    
    
    
    
    
    
    1.2
    
    
    
    Recognition of deferred and unearned milestone revenue
due to termination of VIVITROL collaboration
    
    
    120.7
    
    
    
    
    
    
    
    120.7
    
    
    
    Net collaborative profit
    
    $
    123.4
    
    
    $
    5.1
    
    
    $
    125.4
    
    
    $
    18.0
 revenue  license,
  Expenses
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeCost of goods sold:RISPERDAL CONSTA
    
    $
    5.0
    
    
    $
    5.9
    
    
    $
    0.9
    
    
    $
    24.0
    
    
    $
    23.0
    
    
    $
    (1.0
    )VIVITROL
    
    
    0.5
    
    
    
    1.6
    
    
    
    1.1
    
    
    
    7.9
    
    
    
    3.9
    
    
    
    (4.0
    )Total cost of goods sold
    
    
    5.5
    
    
    
    7.5
    
    
    
    2.0
    
    
    
    31.9
    
    
    
    26.9
    
    
    
    (5.0
    )Research and development
    
    
    22.7
    
    
    
    30.4
    
    
    
    7.7
    
    
    
    64.6
    
    
    
    91.3
    
    
    
    26.7Selling, general and administrative
    
    
    14.6
    
    
    
    15.2
    
    
    
    0.6
    
    
    
    38.2
    
    
    
    45.1
    
    
    
    6.9Total expenses
    
    $
    42.8
    
    
    $
    53.1
    
    
    $
    10.3
    
    
    $
    134.7
    
    
    $
    163.3
    
    
    $
    28.6
 Cost of Goods Sold
 22




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Research and Development
    Selling, General and Administrative
  23




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Other (Expense) Income
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeInterest income
    
    $
    2.6
    
    
    $
    4.3
    
    
    $
    (1.7
    )
    
    $
    8.9
    
    
    $
    12.9
    
    
    $
    (4.0
    )Interest expense
    
    
    (2.4
    )
    
    
    (4.1
    )
    
    
    1.7
    
    
    
    (10.9
    )
    
    
    (12.2
    )
    
    
    1.3Other (expense) income
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (1.5
    )
    
    
    0.8
    
    
    
    (2.3
    )Gain on sale of investment in Reliant
Pharmaceuticals, Inc.
    
    
    
    
    
    
    174.6
    
    
    
    (174.6
    )
    
    
    
    
    
    
    174.6
    
    
    
    (174.6
    )Total other (expense) income
    
    $
    (0.5
    )
    
    $
    174.4
    
    
    $
    (174.9
    )
    
    $
    (3.5
    )
    
    $
    176.1
    
    
    $
    (179.6
    )
 Interest income
  Interest expense
  Other (expense) income
  Gain on sale of investment in Reliant Pharmaceuticals, Inc.
  Income Taxes
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeIncome tax (benefit) provision
    
    $
    (0.3
    )
    
    $
    3.2
    
    
    $
    3.5
    
    
    $
    0.6
    
    
    $
    5.8
    
    
    $
    5.2
 24




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Housing and Economic Recovery Act of 2008
  Liquidity and Capital Resources
  December 31,
    
    
    March 31,(In millions)
    
    2008
    
    
    2008Cash and cash equivalents
    
    $
    63.3
    
    
    $
    101.2Investments  short-term
    
    
    281.4
    
    
    
    240.1Investments  long-term
    
    
    78.9
    
    
    
    119.1Total cash, cash equivalents and investments
    
    $
    423.6
    
    
    $
    460.4Working capital
    
    $
    341.7
    
    
    $
    371.1Outstanding borrowings  current and long-term
    
    $
    92.4
    
    
    $
    160.4
 Operating Activities
  Investing Activities
  Financing Activities
   25




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Fair Value Measurements
  Level 1
 Level 2
 Level 3
   26




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27




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Borrowings
  Capital Requirements
    Contractual Obligations
  Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  28




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Foreign Currency Exchange Rate Risk
   
 Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  29




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(b) Change in Internal Control over Financial Reporting
  30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  VIVITROL may not be successfully marketed and sold by Alkermes and may not generate significant
revenues
    31




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##### Table of Contents



Sales of our products are dependent, in part, on the availability of reimbursement from
third-party payors such as federal and state government agencies under programs such as Medicare
and Medicaid, and private insurance plans.
     Our customer base for VIVITROL is highly concentrated.
   32




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total
    
    
    Approximate DollarNumber of Shares
    
    
    Value of Shares thatTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    May Yet be Purchasedof Shares
    
    
    Price Paid
    
    
    Part of a Publicly
    
    
    Under the ProgramPeriod
    
    Purchased (a)
    
    
    per Share
    
    
    Announced Program (a)
    
    
    (in millions)October 1 through October 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108.6November 1 through November 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108.6December 1 through December 31
    
    
    487,300
    
    
    
    9.99
    
    
    
    487,300
    
    
    $
    103.7Total
    
    
    487,300
    
    
    $
    9.99
    
    
    
    487,300
 
 (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 4. Submission of Matters to a Vote of Security Holders
  1.
    
    A proposal to elect ten members to the board of directors, each to serve until the next
annual meeting of shareholders and until his or her successor is duly elected and qualified,
was approved with the following vote:
 AuthorityNominee
    
    Votes For
    
    WithheldFloyd E. Bloom
    
    
    74,430,211
    
    
    15,422,831Robert A. Breyer
    
    
    73,993,424
    
    
    15,859,618Geraldine Henwood
    
    
    74,755,604
    
    
    15,097,438Paul J. Mitchell
    
    
    73,167,273
    
    
    16,685,769Richard F. Pops
    
    
    73,985,663
    
    
    15,867,379Alexander Rich
    
    
    72,842,293
    
    
    17,010,749David A. Broecker
    
    
    74,183,909
    
    
    15,669,133Mark B. Skaletsky
    
    
    72,838,407
    
    
    17,014,635Michael A. Wall
    
    
    69,941,022
    
    
    19,912,020David W. Anstice
    
    
    88,613,546
    
    
    1,239,496
 2.
    
    A proposal to approve the Alkermes 2008 Stock Option and Incentive Plan was approved with
57,876,227 votes for, 23,164,456 votes against, 74,496 abstentions and 8,737,863 broker
non-votes.
 33




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##### Table of Contents



3.
    
    A proposal to ratify PricewaterhouseCoopers LLP as our independent registered public
accountants for fiscal year 2009 was approved with 88,932,454 votes for, 854,501 votes
against and 66,087 abstentions.
 
 Item 5. Other Information
  
 Item 6. Exhibits
  ExhibitNo.10.1
    
    Alkermes, Inc., 2008 Stock Option and Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Registrants Report on Form
8-K filed on October 7, 2008).10.2
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Incentive Stock Option) (incorporated by
reference to Exhibit 10.2 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.3
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Non-Qualified Option) (incorporated by
reference to Exhibit 10.3 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.4
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Non-Employee Director) (incorporated by
reference to Exhibit 10.4 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.5
    
    Amendment to Employment Agreement by and between Alkermes, Inc.
and Richard F. Pops (incorporated by reference to Exhibit 10.5 to
the Registrants Report on Form 8-K filed on October 7, 2008).10.6
    
    Amendment to Employment Agreement by and between Alkermes, Inc.
and David A. Broecker (incorporated by reference to Exhibit 10.6
to the Registrants Report on Form 8-K filed on October 7, 2008).10.7
    
    Form of Amendment to Employment Agreement by and between Alkermes,
Inc. and each of each of Kathryn L. Biberstein, Elliot W. Ehrich,
M.D., James M. Frates, Michael J. Landine, Gordon G. Pugh
(incorporated by reference to Exhibit 10.7 to the Registrants
Report on Form 8-K filed on October 7, 2008).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).
 34




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##### Table of Contents



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)  35




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EXHIBIT INDEX
 ExhibitNo.10.1
    
    Alkermes, Inc., 2008 Stock Option and Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Registrants Report on Form
8-K filed on October 7, 2008).10.2
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Incentive Stock Option) (incorporated by
reference to Exhibit 10.2 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.3
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Non-Qualified Option) (incorporated by
reference to Exhibit 10.3 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.4
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock Option
Award Certificate (Non-Employee Director) (incorporated by
reference to Exhibit 10.4 to the Registrants Report on Form 8-K
filed on October 7, 2008).10.5
    
    Amendment to Employment Agreement by and between Alkermes, Inc.
and Richard F. Pops (incorporated by reference to Exhibit 10.5 to
the Registrants Report on Form 8-K filed on October 7, 2008).10.6
    
    Amendment to Employment Agreement by and between Alkermes, Inc.
and David A. Broecker (incorporated by reference to Exhibit 10.6
to the Registrants Report on Form 8-K filed on October 7, 2008).10.7
    
    Form of Amendment to Employment Agreement by and between Alkermes,
Inc. and each of each of Kathryn L. Biberstein, Elliot W. Ehrich,
M.D., James M. Frates, Michael J. Landine, Gordon G. Pugh
(incorporated by reference to Exhibit 10.7 to the Registrants
Report on Form 8-K filed on October 7, 2008).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).
 36