##### Table of Contents



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, 2002                                        
|    |  |                                                                                         
|[ ] |  | 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. Employer   
|incorporation or organization)  |  | Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|88 Sidney Street, Cambridge, MA          |  | 02139-4136
|                                         |  |           
|(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)

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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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.

|                                        |  |                                           |            | 
|--------------------------------------- |  | ----------------------------------------- | ---------- | 
|Class                                   |  | Shares Outstanding as of February 7, 2003
|                                        |  |                                          
|Common Stock, par value $.01            |  |                                           | 64,497,869 | 
|Non-Voting Common Stock, par value $.01 |  |                                           | 382,632    | 

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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Consolidated Financial Statements:                                                   
|                                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                 |                                                                                               | CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                 | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|Exhibit Index                                   
|Ex-99.1 Certification by Chief Executive Officer
|Ex-99.2 Certification by Chief Financial Officer



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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES

INDEX

|                             |                                                                    |                                                      |    |          |   | 
|---------------------------- | ------------------------------------------------------------------ | ---------------------------------------------------- | -- | -------- | - | 
|                             |                                                                    |                                                      |    | Page No.
|                             |                                                                    |                                                      |    |         
|PART I-FINANCIAL INFORMATION |                                                                    |                                                      |    |         
|                             | Item 1. Consolidated Financial Statements                          |                                                      |    |          |  
|                             |                                                                    | Condensed Consolidated Balance Sheets                |    |          | 3 | 
|                             |                                                                    | - December 31, 2002 and March 31, 2002               |    |          |   | 
|                             |                                                                    | Condensed Consolidated Statements of Operations      |    |          | 4 | 
|                             |                                                                    | - Three months ended December 31, 2002 and 2001      |    |          |   | 
|                             |                                                                    | - Nine months ended December 31, 2002 and 2001       |    |          |   | 
|                             |                                                                    | Condensed Consolidated Statements of Cash Flows      |    |          | 5 | 
|                             |                                                                    | - Nine months ended December 31, 2002 and 2001       |    |          |   | 
|                             |                                                                    | Notes to Condensed Consolidated Financial Statements |    |          | 6 | 
|                             | Item 2. Managements Discussion and Analysis of                    |                                                      |    | 14       |  
|                             |                                                                    | Financial Condition and Results of Operations        |    |          |   | 
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk |                                                      |    | 26       |  
|                             | Item 4. Controls and Procedures                                    |                                                      |    | 27       |  
|PART II  OTHER INFORMATION  |                                                                    |                                                      |    |         
|                             | Item 2. Changes in Securities and Use of Proceeds                  |                                                      |    | 28       |  
|                             | Item 6. Exhibits and Reports on Form 8-K                           |                                                      |    | 29       |  
|SIGNATURES                   |                                                                    |                                                      | 31 |         
|CERTIFICATIONS               |                                                                    |                                                      | 32 |         
|EXHIBIT INDEX                |                                                                    |                                                      | 34 |         

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Consolidated Financial Statements:




ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |              |         |             |   | 
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------ | ------- | ------------ | ----------- | ------------ | ------- | ----------- | - | 
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         | December 31, |             | March 31,   
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         | 2002         |             | 2002        
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                | ASSETS       |         |              |             |              |         |             |   | 
|Current Assets:                                        |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | Cash and cash equivalents                                                                          |                                                                                                                                 | $                                              | 109,911,874  |         |              | $           | 16,023,074   |        
|                                                       | Short-term investments                                                                             |                                                                                                                                 |                                                | 47,956,483   |         |              |             | 136,323,768  |        
|                                                       | Receivables from collaborative arrangements                                                        |                                                                                                                                 |                                                | 14,676,362   |         |              |             | 19,039,706   |        
|                                                       | Prepaid expenses and other current assets                                                          |                                                                                                                                 |                                                | 3,383,092    |         |              |             | 5,249,797    |        
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | Total current assets                           |              |         | 175,927,811  |             |              |         | 176,636,345 |  
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Property, Plant and Equipment:                         |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | Land                                                                                               |                                                                                                                                 |                                                | 235,000      |         |              |             | 235,000      |        
|                                                       | Building                                                                                           |                                                                                                                                 |                                                | 5,076,961    |         |              |             | 5,058,936    |        
|                                                       | Furniture, fixtures and equipment                                                                  |                                                                                                                                 |                                                | 55,413,830   |         |              |             | 49,558,745   |        
|                                                       | Leasehold improvements                                                                             |                                                                                                                                 |                                                | 32,149,625   |         |              |             | 15,016,553   |        
|                                                       | Construction in progress                                                                           |                                                                                                                                 |                                                | 34,924,299   |         |              |             | 26,497,064   |        
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | 127,799,715                                    |              |         |              | 96,366,298  |             
|                                                       |                                                                                                    |                                                                                                                                 | Less accumulated depreciation and amortization |              |         | (40,060,316  | )           |              |         | (34,530,467 | )
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | 87,739,399                                     |              |         |              | 61,835,831  |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Investments                                            |                                                                                                    |                                                                                                                                 | 9,272,924                                      |              |         |              | 9,126,093   |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Investment in Reliant Pharmaceuticals, LLC             |                                                                                                    |                                                                                                                                 | 10,645,427                                     |              |         |              | 94,596,536  |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Other Assets                                           |                                                                                                    |                                                                                                                                 | 7,549,642                                      |              |         |              | 8,155,472   |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | Total Assets                                   |              | $       | 291,135,203  |             |              | $       | 350,350,277 |  
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | LIABILITIES AND SHAREHOLDERS EQUITY                                                               |                                                                                                                                 |                                                |              |         |              |             |              |        
|Current Liabilities:                                   |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | Accounts payable and accrued expenses                                                              |                                                                                                                                 | $                                              | 19,668,254   |         |              | $           | 20,764,375   |        
|                                                       | Accrued interest                                                                                   |                                                                                                                                 |                                                | 4,284        |         |              |             | 1,013,521    |        
|                                                       | Accrued restructuring costs                                                                        |                                                                                                                                 |                                                | 3,820,119    |         |              |             |             |        
|                                                       | Deferred revenue                                                                                   |                                                                                                                                 |                                                | 11,761,135   |         |              |             | 7,083,516    |        
|                                                       | Derivative liability                                                                               |                                                                                                                                 |                                                | 9,000,000    |         |              |             |             |        
|                                                       | Long-term obligations  current portion                                                            |                                                                                                                                 |                                                | 3,000,000    |         |              |             | 14,025,000   |        
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | Total current liabilities                      |              |         | 47,253,792   |             |              |         | 42,886,412  |  
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Deferred Revenue                                       |                                                                                                    |                                                                                                                                 | 13,486,640                                     |              |         |              |            |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Long-Term Obligations                                  |                                                                                                    |                                                                                                                                 | 5,775,000                                      |              |         |              | 7,800,000   |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Convertible Senior Subordinated Notes                  |                                                                                                    |                                                                                                                                 | 165,589,000                                    |              |         |              |            |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Convertible Subordinated Notes                         |                                                                                                    |                                                                                                                                 | 676,000                                        |              |         |              | 200,000,000 |             
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Convertible Preferred Stock, par value $.01 per share: |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | authorized and issued, 3,000 and zero shares at
December 31, 2002 and March 31, 2002, respectively |                                                                                                                                 |                                                | 30,000,000   |         |              |             |             |        
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|Shareholders Equity:                                  |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       | Capital stock, par value $.01 per share:                                                           |                                                                                                                                 |                                                |              |         |              |             |              |        
|                                                       |                                                                                                    | authorized, 4,550,000 shares; none issued;
includes 2,997,000 shares of preferred stock
Common stock, par value $.01 per share: |                                                |              |         |              |             |              |         |            
|                                                       |                                                                                                    | authorized, 160,000,000 shares; issued, 64,485,721 and
64,225,395 shares at December 31, 2002 and March 31, 2002,
respectively  |                                                |              | 644,858 |              |             |              | 642,254 |            
|                                                       | Non-voting common stock, par value $.01 per share:                                                 |                                                                                                                                 |                                                |              |         |              |             |              |        
|                                                       |                                                                                                    | authorized, 450,000 shares; issued, 382,632 at
December 31, 2002 and March 31, 2002                                             |                                                |              | 3,826   |              |             |              | 3,826   |            
|                                                       | Additional paid-in capital                                                                         |                                                                                                                                 |                                                | 446,112,693  |         |              |             | 444,425,742  |        
|                                                       | Deferred compensation                                                                              |                                                                                                                                 |                                                | (2,429,309   | )       |              |             | (3,162,448   | )      
|                                                       | Accumulated other comprehensive (loss) income                                                      |                                                                                                                                 |                                                | (260,565     | )       |              |             | 1,619,541    |        
|                                                       | Accumulated deficit                                                                                |                                                                                                                                 |                                                | (415,716,732 | )       |              |             | (343,865,050 | )      
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | Total shareholders equity                     |              |         | 28,354,771   |             |              |         | 99,663,865  |  
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             
|                                                       |                                                                                                    |                                                                                                                                 | Total Liabilities and Shareholders Equity     |              | $       | 291,135,203  |             |              | $       | 350,350,277 |  
|                                                       |                                                                                                    |                                                                                                                                 |                                                |              |         |              |             |             

See notes to condensed consolidated financial statements.

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##### Table of Contents






ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------- | -------------- | ---------- | ------------ | ---------- | ------------ | ---------- | ------------ | ---------- | ------------ | ---------- | ---------- | ----------- | ------------ | ---------- | --------- | ---------- | 
|                                                                                   |                                                                   |                              |                |            | Three Months |            | Three Months |            | Nine Months  |            | Nine Months  |            |           
|                                                                                   |                                                                   |                              |                |            | Ended        |            | Ended        |            | Ended        |            | Ended        |            |           
|                                                                                   |                                                                   |                              |                |            | December 31, |            | December 31, |            | December 31, |            | December 31, |            |           
|                                                                                   |                                                                   |                              |                |            | 2002         |            | 2001         |            | 2002         |            | 2001         |            |           
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |           
|Revenues:                                                                          |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Research and development revenue under
collaborative arrangements |                              | $              | 15,194,913 |              |            | $            | 11,451,330 |              |            | $            | 34,957,409 |            |             | $            | 41,483,008 |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Expenses:                                                                          |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Research and development                                          |                              |                | 21,165,800 |              |            |              | 23,040,406 |              |            |              | 73,951,635 |            |             |              | 66,343,134 |           |            | 
|                                                                                   | General and administrative                                        |                              |                | 5,367,143  |              |            |              | 5,902,600  |              |            |              | 20,579,906 |            |             |              | 17,687,732 |           |            | 
|                                                                                   | Restructuring costs                                               |                              |                | 2,274,497  |              |            |              |           |              |            |              | 5,956,216  |            |             |              |           |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   |                                                                   |                              | Total expenses |            |              | 28,807,440 |              |            |              | 28,943,006 |              |            |            | 100,487,757 |              |            |           | 84,030,866 | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Net operating loss                                                                 |                                                                   |                              | (13,612,527    | )          |              |            | (17,491,676  | )          |              |            | (65,530,348  | )          |            |             | (42,547,858  | )          |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Other income (expense):                                                            |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Interest income                                                   |                              |                | 552,592    |              |            |              | 4,427,945  |              |            |              | 2,986,467  |            |             |              | 13,169,597 |           |            | 
|                                                                                   | Gain on exchange of notes                                         |                              |                | 80,849,437 |              |            |              |           |              |            |              | 80,849,437 |            |             |              |           |           |            | 
|                                                                                   | Interest expense                                                  |                              |                | (2,058,281 | )            |            |              | (2,136,628 | )            |            |              | (6,206,129 | )          |             |              | (6,777,416 | )         |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   |                                                                   | Total other income (expense) |                |            | 79,343,748   |            |              |            | 2,291,317    |            |              |            | 77,629,775 |             |              |            | 6,392,181 |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Equity in losses of Reliant Pharmaceuticals, LLC                                   |                                                                   |                              | 24,481,555     |            |              |            | 2,700,000    |            |              |            | 83,951,109   |            |            |             | 2,700,000    |            |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Net income (loss)                                                                  |                                                                   | $                            | 41,249,666     |            |              |            | ($17,900,359 | )          |              |            | ($71,851,682 | )          |            |             | ($38,855,677 | )          |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Net income (loss) per common share:                                                |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Basic                                                             |                              | $              | 0.64       |              |            |              | ($0.28     | )            |            |              | ($1.12     | )          |             |              | ($0.61     | )         |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Diluted                                                           |                              | $              | 0.62       |              |            |              | ($0.28     | )            |            |              | ($1.12     | )          |             |              | ($0.61     | )         |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|Weighted average common shares used to
compute net income (loss) per common share: |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Basic                                                             |                              |                | 64,409,132 |              |            |              | 63,895,510 |              |            |              | 64,329,456 |            |             |              | 63,511,558 |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 
|                                                                                   | Diluted                                                           |                              |                | 67,059,246 |              |            |              | 63,895,510 |              |            |              | 64,329,456 |            |             |              | 63,511,558 |           |            | 
|                                                                                   |                                                                   |                              |                |            |              |            |              |            |              |            |              |            |            |             |              |            |           |            | 

See notes to condensed consolidated financial statements.

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##### Table of Contents






ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |              |           |            |             |  
|---------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ----------- | ------------ | ----------- | ------------ | --------- | ---------- | ----------- | -
|                                               |                                                                                     |                                                       |                                             |                                           |             | Nine Months  |             | Nine Months 
|                                               |                                                                                     |                                                       |                                             |                                           |             | Ended        |             | Ended       
|                                               |                                                                                     |                                                       |                                             |                                           |             | December 31, |             | December 31,
|                                               |                                                                                     |                                                       |                                             |                                           |             | 2002         |             | 2001        
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Cash flows from operating activities:          |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Net loss                                                                            |                                                       |                                             | ($71,851,682                              | )           |              |             | ($38,855,677 | )        
|                                               | Adjustments to reconcile net loss to net cash used by
operating activities:         |                                                       |                                             |                                           |             |              |             |              |          
|                                               |                                                                                     | Depreciation, amortization and other noncash expenses |                                             |                                           | 9,115,928   |              |             |              | 7,497,385 |           
|                                               |                                                                                     | Equity in losses of Reliant Pharmaceuticals, LLC      |                                             |                                           | 83,951,109  |              |             |              | 2,700,000 |           
|                                               |                                                                                     | Gain on exchange of notes                             |                                             |                                           | (80,849,437 | )            |             |              |          |           
|                                               |                                                                                     | Noncash interest expense                              |                                             |                                           |            |              |             |              | 328,626   |           
|                                               |                                                                                     | Adjustments to other assets                           |                                             |                                           |            |              |             |              | 767,467   |           
|                                               |                                                                                     | Changes in assets and liabilities:                    |                                             |                                           |             |              |             |              |           |           
|                                               |                                                                                     |                                                       | Receivables from collaborative arrangements |                                           |             | 4,363,344    |             |              |           | (7,881,893 | )          
|                                               |                                                                                     |                                                       | Prepaid expenses and other current assets   |                                           |             | 2,382,754    |             |              |           | 879,477    |            
|                                               |                                                                                     |                                                       | Accounts payable and accrued expenses       |                                           |             | (2,061,491   | )           |              |           | 9,407,574  |            
|                                               |                                                                                     |                                                       | Restructuring costs                         |                                           |             | 3,820,119    |             |              |           |           |            
|                                               |                                                                                     |                                                       | Deferred revenue                            |                                           |             | 18,164,259   |             |              |           | (1,046,552 | )          
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               |                                                                                     |                                                       |                                             | Net cash used by operating activities     |             |              | (32,965,097 | )            |           |            | (26,203,593 | )
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Cash flows from investing activities:          |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Additions to property, plant and equipment                                          |                                                       |                                             | (40,115,030                               | )           |              |             | (18,744,045  | )        
|                                               | Proceeds from the sale of equipment                                                 |                                                       |                                             | 50,000                                    |             |              |             | 371,385      |          
|                                               | Proceeds from equipment sale-leaseback                                              |                                                       |                                             | 6,000,174                                 |             |              |             |             |          
|                                               | Purchases of available-for-sale short-term investments                              |                                                       |                                             | (77,913,906                               | )           |              |             | (157,891,229 | )        
|                                               | Sales of available-for-sale short-term investments                                  |                                                       |                                             | 165,331,906                               |             |              |             | 253,209,397  |          
|                                               | Investment in Reliant Pharmaceuticals, LLC                                          |                                                       |                                             |                                          |             |              |             | (100,000,000 | )        
|                                               | Purchases of held-to-maturity short-term investments, net                           |                                                       |                                             |                                          |             |              |             | (39,407,177  | )        
|                                               | Maturities of long-term investments, net                                            |                                                       |                                             |                                          |             |              |             | 64,697,743   |          
|                                               | Decrease (increase) in other assets                                                 |                                                       |                                             | 12,478                                    |             |              |             | (310,000     | )        
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               |                                                                                     |                                                       |                                             | Net cash provided by investing activities |             |              | 53,365,622  |              |           |            | 1,926,074   |  
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Cash flows from financing activities:          |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Proceeds from issuance of common stock                                              |                                                       |                                             | 913,856                                   |             |              |             | 4,017,333    |          
|                                               | Proceeds from issuance of convertible preferred stock                               |                                                       |                                             | 30,000,000                                |             |              |             |             |          
|                                               | Proceeds from issuance of convertible senior subordinated notes                     |                                                       |                                             | 60,000,000                                |             |              |             |             |          
|                                               | Proceeds from loan                                                                  |                                                       |                                             |                                          |             |              |             | 25,000,000   |          
|                                               | Repayment of loan                                                                   |                                                       |                                             | (10,000,000                               | )           |              |             |             |          
|                                               | Payment of long-term obligations                                                    |                                                       |                                             | (3,050,000                                | )           |              |             | (3,883,333   | )        
|                                               | Payment of financing costs in connection with convertible
senior subordinated notes |                                                       |                                             | (4,454,030                                | )           |              |             |             |          
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               |                                                                                     |                                                       |                                             | Net cash provided by financing activities |             |              | 73,409,826  |              |           |            | 25,134,000  |  
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Effect of exchange rate changes on cash        |                                                                                     |                                                       | 78,449                                      |                                           |             |              | (5,900      | )           
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Net increase in cash and cash equivalents      |                                                                                     |                                                       | 93,888,800                                  |                                           |             |              | 850,581     |             
|Cash and cash equivalents, beginning of period |                                                                                     |                                                       | 16,023,074                                  |                                           |             |              | 5,923,282   |             
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Cash and cash equivalents, end of period       |                                                                                     | $                                                     | 109,911,874                                 |                                           |             | $            | 6,773,863   |             
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|Supplementary information:                     |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Cash paid for interest                                                              |                                                       | $                                           | 7,215,366                                 |             |              | $           | 4,583,997    |          
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Note payable and accrued interest converted to common stock                         |                                                       | $                                           |                                          |             |              | $           | 7,506,331    |          
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             
|                                               | Exchange of notes                                                                   |                                                       | $                                           | 114,985,000                               |             |              | $           |             |          
|                                               |                                                                                     |                                                       |                                             |                                           |             |              |             |             

See notes to condensed consolidated financial statements.

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ALKERMES, INC. AND SUBSIDIARIES

CONDENSED 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, 2002 and 2001 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. Such
adjustments, consisting of normal recurring items, were approximately $2.6
million in non-recurring expenses in the nine months ended December 31, 2002
related to the termination of the proposed merger with Reliant Pharmaceuticals,
LLC (Reliant) (See Note 4 below), approximately $6.0 million in restructuring
expenses in the nine months ended December 31, 2002 (See Note 6 below) and
approximately $80.8 million of gain on the exchange of notes (see Note 9
below). These financial statements should be read in conjunction with the
Companys consolidated financial statements and notes thereto for the years
ended March 31, 2002, 2001 and 2000, which are contained in Amendment No. 1 to
the Companys Annual Report for the year ended March 31, 2002 filed on Form
10-K/A. 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 as well as the Companys investment in
Reliant, which is being accounted for under the equity method of accounting.

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 consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America (GAAP) necessarily 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 (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
certain changes in the shareholders equity of the Company that are excluded
from net income (loss). Specifically, other comprehensive income (loss)
includes unrealized holding gains and losses on the Companys
available-for-sale securities and changes in cumulative foreign currency
translation adjustments.

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2. COMPREHENSIVE INCOME (LOSS) (Continued)

Comprehensive income (loss) for the three and nine months ended December 31,
2002 and 2001 is as follows:

|                                                |  |                   |            |                   |  |  |              |  
|----------------------------------------------- |  | ----------------- | ---------- | ----------------- |  |  | ------------ | -
|                                                |  | Three Months      |            | Three Months     
|                                                |  | Ended             |            | Ended            
|                                                |  | December 31, 2002 |            | December 31, 2001
|                                                |  |                   |            |                  
|Net income (loss)                               |  | $                 | 41,249,666 |                   |  |  | ($17,900,359 | )
|Foreign currency translation adjustments        |  |                   | 1,587      |                   |  |  | (11,499      | )
|Unrealized (loss) gain on marketable securities |  |                   | (215,052   | )                 |  |  | 557,328      |  
|                                                |  |                   |            |                   |  |  |              |  
|Comprehensive income (loss)                     |  | $                 | 41,036,201 |                   |  |  | ($17,354,530 | )
|                                                |  |                   |            |                   |  |  |              |  

|                                         |  |                   |              |                   |  |  |              |  
|---------------------------------------- |  | ----------------- | ------------ | ----------------- |  |  | ------------ | -
|                                         |  | Nine Months       |              | Nine Months      
|                                         |  | Ended             |              | Ended            
|                                         |  | December 31, 2002 |              | December 31, 2001
|                                         |  |                   |              |                  
|Net loss                                 |  |                   | ($71,851,682 | )                 |  |  | ($38,855,677 | )
|Foreign currency translation adjustments |  |                   | 56,847       |                   |  |  | (7,261       | )
|Unrealized loss on marketable securities |  |                   | (1,936,953   | )                 |  |  | (1,320,413   | )
|                                         |  |                   |              |                   |  |  |              |  
|Comprehensive loss                       |  |                   | ($73,731,788 | )                 |  |  | ($40,183,351 | )
|                                         |  |                   |              |                   |  |  |              |  

3. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding during the period. For the nine months ended
December 31, 2002 and the three and nine months ended December 31, 2001, the
Company was in a net loss position and, therefore, diluted net loss per share
is the same amount as basic net loss per share. Certain securities were not
included in the computations of diluted net loss per share for those periods
because they would have an antidilutive effect. These securities include (i)
outstanding stock options and awards with respect to 13,963,588 shares of
common stock in the nine months ended December 31, 2002 and 11,645,964 shares
of common stock in the three and nine months ended December 31, 2001; (ii)
382,632 shares of common stock issuable upon conversion of non-voting common
stock; (iii) 9,978 shares of common stock issuable upon conversion of the 3.75%
Convertible Subordinated Notes due 2007 (the 3.75% Subordinated Notes) in the
nine months ended December 31, 2002 and 2,952,030 shares of common stock
issuable upon conversion of the 3.75% Subordinated Notes in the three and nine
months ended December 31, 2001, respectively; (iv) 22,727,024 shares of common
stock issuable upon conversion of the 6.52% Convertible Senior
Subordinated Notes due December 31, 2009 (the 6.52% Senior Notes) in the nine months ended
December 31, 2002; and (v) 762,447 shares of common stock issuable upon
conversion of the convertible preferred stock issued by the Company in December
2002 (the Convertible Preferred Stock) in the nine months ended December 31,
2002.

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3. NET INCOME (LOSS) PER SHARE (Continued)

For the three months ended December 31, 2002, the difference between basic and
diluted shares used in the computation of earnings per common share was
2,650,114 common equivalent shares. These securities include stock options and
awards to purchase 1,258,002 shares of common stock; 382,632 shares of common
stock issuable upon conversion of non-voting common stock; 247,033 shares of
common stock issuable upon conversion of the 6.52% Senior Notes; and 762,447
shares of common stock issuable upon conversion of the Convertible Preferred
Stock.

4. INVESTMENT IN RELIANT PHARMACEUTICALS, LLC

In December 2001, the Company announced a strategic relationship with Reliant
Pharmaceuticals, LLC, a privately held pharmaceutical company marketing
branded, prescription pharmaceutical products to primary care physicians in the
U.S.

As part of the strategic relationship, in December 2001, the Company 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 the Companys investment, Reliant
had an accumulated deficit from operations and a deficit in members capital,
under applicable accounting rules, the Companys share of Reliants losses from
the date of the investment is being 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. The Company records its equity
in the income or losses of Reliant three months in arrears. Reliant is a
privately-held company over which the Company does not exercise control and it
relies on the quarterly unaudited financial statements prepared by Reliant and
provided to the Company to calculate its share of Reliants losses in the
Companys consolidated statements of operations. The Company anticipates that
Reliant will have substantial net losses through 2003, and accordingly,
recorded its 63% share of such losses and Reliants preferred stock dividends
in the Companys consolidated financial statements beginning in the quarter ended March
31, 2002.

Summarized unaudited financial information of Reliant for the three and nine
months ended September 30, 2002 is as follows:

|                   |  |                    |         |                    |  |   |          |  
|------------------ |  | ------------------ | ------- | ------------------ |  | - | -------- | -
|                   |  | Three Months Ended |         | Nine Months Ended 
|(In thousands)     |  | September 30, 2002 |         | September 30, 2002
|                   |  |                    |         |                   
|Revenues           |  | $                  | 38,602  |                    |  | $ | 139,372  |  
|Costs and expenses |  |                    | 68,370  |                    |  |   | 246,185  |  
|Net Loss           |  |                    | (29,783 | )                  |  |   | (106,475 | )

In connection with the Companys $100 million equity investment in Reliant, the
Company has allocated its proportionate share of the assets acquired and
liabilities assumed in accordance with the guidance set forth in Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations. The
Company recorded a $2.7 million noncash charge for in-process

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4. INVESTMENT IN RELIANT PHARMACEUTICALS, LLC (Continued)

research and development through the Consolidated Statements of Operations
under the caption Equity in losses of Reliant Pharmaceuticals, LLC in fiscal
2002. The $2.7 million noncash charge is related to managements estimate of
the amount of the purchase price to be allocated to in-process research and
development.

Termination of Proposed Merger Transaction with Reliant

In March 2002, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) with Reliant. In August 2002, the Company and
Reliant announced the mutual termination of the Merger Agreement. The
companies agreed to terminate due to general market conditions. There were no
payments triggered by the mutual termination and each company paid its own
legal and transaction fees. As a result of the termination of the Merger
Agreement, the Company expensed approximately $2.6 million in the nine months
ended December 31, 2002 of deferred merger costs which are included in general
and administrative expenses.

5. MINIMUM REVENUE AGREEMENT

In August 2002, the Company announced the regulatory approval and expected
commercial launch of Risperdal Consta in Germany and the United Kingdom.
Under the Companys agreements with Janssen Pharmaceutica, Inc. (Janssen) and
based on the foregoing, certain minimum revenues relating to the Companys
sales of Risperdal Consta under a manufacturing and supply agreement are to be
paid by Janssen to the Company in minimum annual amounts for up to ten years
beginning in calendar 2003. The actual amount of such minimum revenues will be
determined by a formula and is currently estimated to aggregate approximately
$150 million. The minimum revenue obligation will be satisfied upon receipt by
the Company of revenues relating to the sales of Risperdal Consta equaling such
aggregate amount of minimum revenues. In December 2002, Janssen prepaid the
first two years of minimum revenues to Alkermes, totaling $23.9 million. These
amounts have been included in deferred revenue until earned.

6. RESTRUCTURING OF OPERATIONS

In August 2002, the Company announced a restructuring program to reduce its
cost structure as a result of the Companys expectations regarding the
financial impact of a delay in the U.S. launch of Risperdal Consta by its
partner Janssen. The restructuring program reduced the Companys workforce by
122 employees, representing 23% of its total workforce and includes
consolidation and closure of certain leased facilities in Cambridge,
Massachusetts, closure of the Companys medical affairs office in Cambridge,
England, write-off of leasehold improvements at leased facilities being vacated
and reductions of other expenses. The workforce reductions were made across
all functions of the Company. Under the restructuring plan, the Company is
focusing its development activities on those programs that are in the later
stages of clinical development and those programs that involve the most
productive collaborations. The Company is aggressively evaluating and prioritizing the programs that offer the greatest commercial
potential.

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6. RESTRUCTURING OF OPERATIONS (Continued)

In connection with the restructuring program, the Company recorded charges of
approximately $2.3 and $6.0 million in the Consolidated Statements of
Operations in the three and nine months ended December 31, 2002, which
consisted of approximately zero and $1.5 million in employee separation
costs, including severance and related benefits, and approximately $2.3 and
$4.5 million in facility consolidation and closure costs, including
significant estimates relating to a lease cancellation fee and the length of
time it will take to sublease certain of the Companys facilities. As of
December 31, 2002, the Company had paid an aggregate of approximately $1.4
and $0.7 million in employee separation costs and facility closure costs,
respectively.

The employee separation costs and the facility consolidation and closure
costs were accrued under Emerging Issues Task Force (EITF) No. 94-3
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring).

The amounts in the accrual are expected to be paid through 2005. Pursuant to
the restructuring plan, the following charges and payments have been recorded
during the nine months ended December 31, 2002:

|                                   |  |               |   |                |  |                  |           |              |  |   |            |          |  |   |           | 
|---------------------------------- |  | ------------- | - | -------------- |  | ---------------- | --------- | ------------ |  | - | ---------- | -------- |  | - | --------- | 
|                                   |  |               |   |                |  |                  |           |              |  |   |            | Balance, | 
|                                   |  | Balance,      |   | Charge for the |  | Payments for the |           | December 31,
|Type of Liability                  |  | June 30, 2002 |   | Period         |  | Period           |           | 2002        
|                                   |  |               |   |                |  |                  |           |             
|Employee termination benefit costs |  | $             |  |                |  | $                | 1,480,025 |              |  | $ | (1,449,530 | )        |  | $ | 30,495    | 
|Facility closure costs             |  |               |  |                |  |                  | 4,476,191 |              |  |   | (686,567   | )        |  |   | 3,789,624 | 
|                                   |  |               |   |                |  |                  |           |              |  |   |            |          |  |   |           | 
|Total                              |  | $             |  |                |  | $                | 5,956,216 |              |  | $ | (2,136,097 | )        |  | $ | 3,820,119 | 
|                                   |  |               |   |                |  |                  |           |              |  |   |            |          |  |   |           | 

7. CONVERTIBLE PREFERRED STOCK

In December 2002, Alkermes and Eli Lilly and Company (Lilly) expanded the
collaboration for the development of inhaled formulations of insulin and hGH
based on the Companys AIR pulmonary drug delivery technology and Lilly
purchased $30 million of Alkermes newly issued Convertible Preferred Stock
pursuant to a stock purchase agreement. Alkermes agreed to use the proceeds
from the Convertible Preferred Stock to primarily fund the development of
inhaled insulin during calendar year 2003 and into calendar year 2004.
Alkermes also agreed to use a portion of the proceeds to fund the hGH
development program during calendar year 2003. Alkermes will not record any
research and development revenue for these programs while the $30 million in
proceeds from the Convertible Preferred Stock are used to fund this
development. In addition, the royalty rate payable to Alkermes based on
revenues of potential inhaled insulin products has been increased. Lilly has
the right to return the Convertible

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7. CONVERTIBLE PREFERRED STOCK (Continued)

Preferred Stock in exchange for a reduction in this royalty rate. The Convertible Preferred Stock is convertible into the Companys
common stock at market price at the Companys option or upon the filing of a
new drug application with the U.S. Food and Drug
Administration for a pulmonary insulin product. The collaboration cannot
terminate without cause until January 2005. Alkermes will register for
resale all of its shares of common stock issued upon conversion of the
Convertible Preferred Stock.

8. EQUIPMENT LEASE

In November 2002, Alkermes and General Electric Capital Corporation (GECC)
entered into a Master Lease Agreement to provide the Company with
sale-leaseback equipment financing under which Alkermes received $6 million in
equipment financing from GECC under the Master Lease Agreement. Under the
terms of the Master Lease Agreement, Alkermes will make lease payments to GECC
over a 36-month period beginning in December 2002. The sale-leaseback
qualified for accounting as an operating lease which resulted in a loss which
has been deferred and will be recognized as an adjustment to rent expense over
the term of the lease agreement.

9. 6.52% SENIOR SUBORDINATED NOTES DUE DECEMBER 31, 2009

In November 2002, the Company filed registration statements with the Securities
and Exchange Commission relating to a proposed exchange offer involving holders
of its 3.75% Convertible Subordinated Notes due 2007 (the 3.75% Subordinated
Notes) and an offer to issue for cash additional new notes to holders of 3.75%
Subordinated Notes participating in the exchange offer. On December 31, 2002,
Alkermes consummated its exchange offer with and cash offer to the holders of
its 3.75% Subordinated Notes. The Company issued $174.6 million aggregate
principal amount of its new 6.52% Convertible Senior Subordinated
Notes due December 31, 2009 (the 6.52% Senior Notes) including $114.6 million of
6.52% Senior Notes issued in exchange for 3.75% Subordinated Notes tendered in
the exchange offer and $60.0 million of 6.52% Senior Notes sold for cash to
holders of the 3.75% Subordinated Notes who participated in the exchange offer.
In accordance with EITF Issue No. 96-19,
Debtors Accounting for a Modification or Exchange of Debt Instruments and
SFAS No. 145 (see Note 10 below), the Company recorded a realized gain on
exchange of debt amounting to $80.8 million in the three months ended December
31, 2002.

The 6.52% Senior Notes are convertible into the Companys common stock, at the
option of the holder, at a price of $7.682 per share, subject to adjustment
upon certain events. The 6.52% Senior Notes bear interest at 6.52% payable
semi-annually, which will commence on June 30, 2003. The 6.52% Senior Notes
are automatically convertible by the Company if the closing price of the
Companys common stock exceeds $11.523 for at least 20 trading days during any
30-day trading period, ending within five trading days prior to the notice of
automatic conversion. If the automatic conversion occurs on or prior to
December 30, 2004 or if the holders voluntarily convert prior to December 30,
2004, the Company will pay additional interest in cash or, at the Companys
option, in common stock, equal to two full years of interest on the converted
6.52% Senior Notes (the Two-Year Interest Make-Whole), less any interest paid
or provided for on the 6.52% Senior Notes prior to conversion. The Two-Year
Interest Make-Whole has been accounted for under the provision of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities and at December 31, 2002 had an estimated initial fair value of $9.0 million

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9. 6.52% SENIOR SUBORDINATED NOTES DUE DECEMBER 31, 2009 (Continued)

which has reduced the amount of outstanding debt and has been recorded as a
current liability. The Two-Year Interest Make-Whole amount will be adjusted to
its fair value on a quarterly basis until it expires or is paid and will be
charged to interest expense. If the Company elects to pay
the interest in common stock, the shares of common stock will be valued at 90%
of the average closing price of the Companys common stock for the five days
immediately preceding the second trading day prior to the conversion date.

The 6.52% Senior Notes are redeemable at any time on or after January 4, 2005
at declining redemption prices plus accrued and unpaid interest. In certain
circumstances, at the option of the holders, the Company may be required to
repurchase the 6.52% Senior Notes. The required repurchase may be in cash or,
at the option of the Company, in common stock, at 105% of the principal amount
of the 6.52% Senior Notes, plus accrued and unpaid interest. As part of the
exchange offer and the issuance of the 6.52% Senior Notes, the Company incurred
approximately $4.5 million of offering costs which are recorded as other assets
and will be charged to interest expense. The offering costs are being
amortized over seven years, the term of the 6.52% Senior Notes. In addition,
during the three months ended December 31, 2002, $3.9 million of unamortized
offering costs relating to the 3.75% Subordinated Notes have been written off
against the gain on the exchange of notes in the Companys consolidated
statements of operations. The net proceeds to the Company after offering costs
were approximately $55.5 million. The Company has reserved
approximately 22.7 million shares
of its common stock for issuance upon conversion of the 6.52% Senior Notes.

The 6.52% Senior Notes are subordinated to the Companys senior indebtedness
but rank senior in right of payment to the 3.75% Subordinated Notes. The
Company is not limited in its ability to incur additional indebtedness.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS No. 145). This statement
is effective for fiscal years beginning after May 15, 2002. SFAS No. 145
rescinds Statement No. 4, which requires all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the
criteria in Accounting Principles Board Opinion No. 30 will be used to classify
those gains and losses. SFAS No.145 also amends Statement No. 13 to require
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The Company adopted this statement effective
April 1, 2002 and the gain related to the exchange of the Companys convertible
subordinated notes has been classified as an operating item pursuant to this
statement.

In August 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability
for

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10. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

a cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The Company
does not believe that the adoption will have a material impact on its financial statements and results of operations. The
restructuring charge recorded in the Consolidated Statements of Operations in
the nine months ended December 31, 2002 was, and any future charges or credits
related to the restructuring program undertaken in August 2002 will also
be, accounted for under the guidance set forth in EITF Issue No. 94-3.

In July 2000, EITF Issue No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables was issued for comment. EITF Issue
No. 00-21 addresses revenue
recognition for arrangements with multiple deliverables. The draft of EITF
Issue No. 00-21 was approved in November 2002 and is effective for revenue arrangements
entered into in fiscal years beginning after June 15, 2003, with early adoption
permitted. The impact of EITF Issue No. 00-21 on the Companys financial statements has
not yet been determined.

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

Introduction

Alkermes, Inc. (together with its subsidiaries, referred to as we, us,
our or the Company), a Pennsylvania corporation organized in 1987, is an
emerging pharmaceutical company developing products based on applying its
sophisticated drug delivery technologies to enhance therapeutic outcomes. Our
areas of focus include: controlled, extended-release of injectable drugs using
our ProLease® and Medisorb® delivery systems, and the development of inhaled
pharmaceuticals based on our proprietary Advanced Inhalation Research, Inc.
(AIR®) pulmonary delivery system. Our business strategy is twofold. We
partner our proprietary technology systems and drug delivery expertise with
many of the worlds finest pharmaceutical companies and we also develop novel,
proprietary drug candidates for our own account. We have a pipeline of
products in various stages of development. In addition to our Cambridge,
Massachusetts headquarters, research and manufacturing facilities, we operate
research and manufacturing facilities in Ohio. Since our inception in 1987, we
have devoted a significant portion of our resources to research and development
programs and the purchase of property, plant and equipment. At December 31,
2002, we had an accumulated deficit of $415.7 million. We expect to incur
substantial additional operating losses over the next few years.

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 rely
for funding, development, manufacturing and/or marketing. While we continue to
develop product candidates in collaboration with others, we also develop
proprietary product candidates for our own account that 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) Johnson & Johnson Pharmaceutical Research and Development, LLC (J&J PRD)
received a non-approvable letter for Risperdal Consta from the FDA and there
can be no assurance that the issues raised in the letter will be resolved in a
timely fashion, if at all; (ii) Nutropin Depot®, Risperdal Consta and our
product candidates (including our proprietary product candidate, Vivitrex), if
approved for marketing, may not produce significant revenues and, in commercial

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use, may have unintended side effects, adverse reactions or incidents of
misuse; (iii) our delivery technologies or product development efforts may not
produce safe, efficacious or commercially viable products; (iv) our
collaborators could elect to terminate or delay programs at any time and
disputes with collaborators or failure to negotiate acceptable new
collaborative arrangements for our technologies could occur; (v) we may be
unable to manufacture our first products, Nutropin Depot and Risperdal Consta,
or to manufacture future products, on a commercial scale or economically; (vi)
after the completion of clinical trials and the submission to the FDA of a New
Drug Application (NDA) for marketing approval and to other health authorities
as a marketing authorization application, the FDA or other health authorities
could refuse to accept such filings or could request additional preclinical or
clinical studies be conducted, each of which could result in significant
delays, or such authorities could refuse to approve the product at all; (vii)
clinical trials are a time-consuming and expensive process; (viii) our product
candidates could be ineffective or unsafe during preclinical studies and
clinical trials and 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 clinical trials could be delayed;
(ix) we could lose our entire investment in Reliant Pharmaceuticals, LLC
(Reliant); (x) we depend on others to market and sell our products and
product candidates; (xi) 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; (xii) technological change in the
biotechnology or pharmaceutical industries could render our product candidates
obsolete or noncompetitive; (xiii) difficulties or set-backs in obtaining and
enforcing our patents and difficulties with the patent rights of others could
occur; (xiv) we will need to spend substantial funds to become profitable and
will, therefore, continue to incur losses for the foreseeable future; and (xv)
we will need to raise substantial additional funding to continue research and
development programs and clinical trials and could incur difficulties or
setbacks in raising such funds.

Critical Accounting Policies

In December 2001, the Securities and Exchange Commission (SEC) requested that
all registrants discuss their most critical accounting policies in
managements discussion and analysis of financial condition and results of
operations. The SEC indicated that a critical accounting policy is one which
is both important to the portrayal of our financial condition and results and
requires managements most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. While our significant accounting policies are more fully
described in Note 2 to our consolidated financial statements included in our
Form 10-K/A for the year ended March 31, 2002, we believe the following
accounting policies to be important to the portrayal of our financial condition
and can require estimates from time to time.

Revenue Recognition Research and development revenue consists of
non-refundable research and development funding under collaborative
arrangements with various corporate partners as well as revenue earned under
certain manufacturing and supply agreements. Research and development funding
generally compensates us for formulation, preclinical and clinical testing
related to the collaborative research programs, and is recognized as revenue at
the time the

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research and development activities are performed under the terms of the
related agreements, when the corporate partner is obligated to pay and when no
future performance obligations exist.

Fees for the licensing of product rights on initiation of collaborative
arrangements are recorded as deferred revenue upon receipt and recognized as
income on a systematic basis (based upon the timing and level of work performed
or on a straight-line basis if not otherwise determinable) over the period that
the related products or services are delivered or obligations as defined in the
agreement are performed. Revenue from milestone or other upfront payments is
recognized as earned in accordance with the terms of the related agreements.
These agreements may require deferral of revenue recognition to future periods.
For the three and nine months ended December 31, 2002, there were estimates
made in connection with upfront fees paid under license agreements that were
immaterial to the overall revenues earned and there were immaterial estimates
made for research and development expenses.

Equity Method Investment in Reliant In connection with the $100 million
equity investment in Reliant in December 2001, we recorded a $2.7 million
noncash charge in fiscal 2002 for in-process research and development based on
managements estimate at the time of the investment (see Results of
Operations below). Reliant is a privately-held company over which we do not
exercise control and we rely on the unaudited quarterly financial statements
prepared by Reliants management and provided to us to calculate our share of
Reliants losses and preferred stock dividends.

Embedded Derivative We
exchanged our 3.75% Convertible Subordinated Notes due 2007 (the 3.75% Subordinated Notes) and offered for
sale new 6.52% Convertible Senior Subordinated Notes due
December 31, 2009 (the 6.52% Senior Notes) to existing holders in December 2002. The 6.52%
Senior Notes are automatically convertible by us if the closing price of our
common stock has exceeded $11.523 for at least 20 trading days during any 30-day
trading period. If the automatic conversion occurs on or prior to December
30, 2004 or if the holders voluntarily convert prior to December 30, 2004, the
Company will pay additional interest equal to two full years of interest on the
converted new notes (the Two-Year Interest Make-Whole), less any interest
paid or provided for on the 6.52% Senior Notes prior to conversion. The
Two-Year Interest Make-Whole has been accounted for under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities
and at December 31, 2002 has an estimated fair value of $9.0 million.

Research and Development Expenses Our research and development expenses
include salaries and related benefits, laboratory supplies, temporary help
costs, external research costs, consulting costs, occupancy costs, depreciation
expense and other allocable costs directly related to our research and
development activities. Research and development expenses are incurred in
conjunction with the development of our technologies, proprietary product
candidates, collaborators product candidates and in-licensing arrangements.
External research costs relate to toxicology studies, pharmacokinetic studies
and clinical trials that are performed for us under contract by external
companies, hospitals or medical centers. All such costs are charged to
research and development expenses as incurred.

Restructuring of Operations In August 2002, we announced a restructuring
program to reduce our cost structure as a result of our expectations regarding
the financial impact of a delay in the U.S. launch of Risperdal Consta by our
partner Janssen. The restructuring program reduced our workforce by 122
employees, representing 23% of our total workforce and includes consolidation
and closure of certain leased facilities in Cambridge, Massachusetts, closure
of our

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medical affairs office in Cambridge, England, write-off of leasehold
improvements at leased facilities being vacated and reductions of other
expenses.

In connection with the restructuring program, we recorded charges of
approximately $2.3 and $6.0 million in the Consolidated Statements of
Operations in the three and nine months ended December 31, 2002, which
consisted of approximately zero and $1.5 million in employee separation costs,
including severance and related benefits, and approximately $2.3 and $4.5
million in facility consolidation and closure costs, including significant
estimates relating to a lease cancellation fee and the length of time it will
take to sublease certain of our facilities. As of December 31, 2002, we had
paid an aggregate of approximately $1.4 and $0.7 million in employee separation
costs and facility closure costs, respectively.

Results of Operations

The net income for the three months ended December 31, 2002 in accordance
with GAAP was $41.2 million or $0.64
basic net earnings per common share and $0.62 diluted net earnings per common
share. This compares to a net loss in accordance with GAAP of $17.9 million
for the three months ended December 31, 2001 or $0.28 basic and diluted loss
per common share. We had net income for the three months ended December 31,
2002 as a result of the $80.8 million gain on the exchange of $199.3 million
principal of the 3.75% Subordinated Notes for $114.6 million principal of the
6.52% Senior Notes in December 2002 as discussed below. Pro forma net loss for
the quarter ended December 31, 2002 was $12.8 million or $0.20 per share
compared to a pro forma net loss of $15.2 million or $0.24 per share for the
same period in 2001. The pro forma net loss for the quarter ended December 31,
2002 excludes the $80.8 million gain related to the convertible debt exchange
referenced above, $24.5 million in noncash charges related to our investment in
Reliant, as well as $2.3 million in restructuring charges. Pro forma net loss
for the quarter ended December 31, 2001 excludes a $2.7 million noncash charge
related to our investment in Reliant in the quarter ended December 31, 2001.
The decrease in the pro forma net loss for the current period versus the prior
period was primarily the result of an increase in research and development
revenues as well as the cost savings from our August 2002 restructuring.

The net loss in accordance with GAAP for the nine months ended December 31,
2002 was $71.9 million or $1.12 basic and diluted loss per common share as
compared to $38.9 million or $0.61 basic and diluted loss per common share.
Excluding the $80.8 million gain, $84.0 million in noncash charges related to
our share of the losses of Reliant and $6.0 million in restructuring costs for
the nine months ended December 31, 2002 there was a pro forma net loss of $62.8
million or $0.98 basic and diluted loss per common share. Pro forma net loss
for the nine months ended December 31, 2001 was $36.2 million or $0.57 basic
and diluted loss per common share and excludes a $2.7 million noncash charge
related to our investment in Reliant in the quarter ended December 31, 2001.
The increase in the pro forma net loss for the nine months ended December 31,
2002 as compared to the nine months ended December 31, 2001 was primarily a
result of an increase in research and development and general and
administrative expenses as we continue to advance our proprietary product
candidates and our collaborators product candidates through development and
clinical trials and prepare for commercialization. The increased loss also
reflected a decrease in revenues as our Risperdal Consta program continues to
evolve from a development stage project into a commercial program.

Alkermes is providing pro forma net loss, which excludes the gain related to
the convertible debt exchange referred to above, certain restructuring and
noncash charges related to the Companys investment in Reliant, as a complement
to results provided in accordance with GAAP. Management believes this pro
forma measure helps indicate underlying trends in our ongoing operations.

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Our research and development revenue under collaborative arrangements for the
three and nine months ended December 31, 2002 was $15.2 and $35.0 million
compared to $11.5 and $41.5 million for the corresponding periods of the prior
year. The increase for the three months ended December 31, 2002 was the result
of increased funding earned under certain collaborative or manufacturing and
supply agreements, including noncash revenue earned as a result of the
termination of a collaboration with a partner. The decrease for the nine
months ended December 31, 2002 as compared to December 31, 2001 was the result
of a milestone payment received during the three months ended June 30, 2001 as
well as decreased funding from certain collaborative arrangements including
funding from Janssen Pharmaceutica, Inc. (Janssen) for the three and nine
months ended December 31, 2002 as the Risperdal Consta project continues to
evolve from a development stage project into a commercial program. See
Results of Operations- Risperdal Consta for further information on the status
of Risperdal Consta. The decrease in research and development funding was
partially offset by an increase in research and development funding earned
under certain other collaborative agreements.

Total operating expenses were $28.8 and $100.5 million for the three and nine
months ended December 31, 2002 as compared to $28.9 and $84.0 million for the
three and nine months ended December 31, 2001. The slight decrease for the
three months ended December 31, 2002 as compared to the same period of the
prior year was primarily from cost savings from our restructuring in August
2002. The increase in the nine months ended December 31, 2002 as compared to
the same period of the prior year was due in part to restructuring
charges of
$6.0 million recorded during the nine months ended
December 31, 2002 as well as increases in research and
development expenses and general and administrative expenses, which are
discussed below.

In August 2002, we announced a restructuring program to reduce our cost
structure as a result of our expectations regarding the financial impact of a
delay in the U.S. launch of Risperdal Consta by our partner Janssen. The
restructuring program reduced our workforce by 122 employees, representing 23%
of our total workforce and includes consolidation and closure of certain leased
facilities in Cambridge, Massachusetts, closure of our medical affairs office
in Cambridge, England, write-off of leasehold improvements at leased facilities
being vacated and reductions of other expenses. The workforce reductions were
made across all functions of the Company. Under the restructuring plan, we are
focusing our development activities on those programs that are in the later
stages of clinical development and those programs that involve the most
productive collaborations. We are aggressively evaluating
and prioritizing the programs that offer the greatest commercial potential.

In connection with the restructuring program, we recorded charges of
approximately $2.3 and $6.0 million in the Consolidated Statements of
Operations in the three and nine months ended December 31, 2002, which
consisted of approximately zero and $1.5 million in employee separation costs,
including severance and related benefits, and approximately $2.3 and $4.5
million in facility consolidation and closure costs, including significant
estimates relating to a lease cancellation fee and the length of time it will
take to sublease certain of our facilities. As of December 31, 2002, we had
paid an aggregate of approximately $1.4 and $0.7 million in employee separation
costs and facility closure costs, respectively.

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The employee separation costs and the facility consolidation and closure
costs were accrued under Emerging Issues Task Force (EITF) 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring).

The amounts in the accrual are expected to be paid through 2005. Pursuant to
the restructuring plan, the following charges and payments have been recorded
during the nine months ended December 31, 2002:

|                                   |  |               |   |                |  |                  |           |                   |  |   |            |   |  |   |           | 
|---------------------------------- |  | ------------- | - | -------------- |  | ---------------- | --------- | ----------------- |  | - | ---------- | - |  | - | --------- | 
|                                   |  | Balance,      |   | Charge for the |  | Payments for the |           | Balance,         
|Type of Liability                  |  | June 30, 2002 |   | Period         |  | Period           |           | December 31, 2002
|                                   |  |               |   |                |  |                  |           |                  
|Employee termination benefit costs |  | $             |  |                |  | $                | 1,480,025 |                   |  | $ | (1,449,530 | ) |  | $ | 30,495    | 
|Facility closure costs             |  |               |  |                |  |                  | 4,476,191 |                   |  |   | (686,567   | ) |  |   | 3,789,624 | 
|                                   |  |               |   |                |  |                  |           |                  
|Total                              |  | $             |  |                |  | $                | 5,956,216 |                   |  | $ | (2,136,097 | ) |  | $ | 3,820,119 | 
|                                   |  |               |   |                |  |                  |           |                   |  |   |            |   |  |   |           | 

We expect to substantially complete our restructuring program by the end of
fiscal 2003. If our restructuring program is implemented in the manner and on
the timeline we intend, we expect to realize expense savings of approximately
$20 to $25 million in fiscal 2003. However, we cannot assure you that our
restructuring program will achieve all of the cost and expense reductions and
other benefits we anticipate or that the plan will be completed on the
timetable anticipated.

Research and development expenses for the three and nine months ended December
31, 2002 were $21.2 and $74.0 million as compared to $23.0 and $66.3 million
for the corresponding periods of the prior year. The decrease in research and
development expenses for the three months ended December 31, 2002 as compared
to the three months ended December 31, 2001 was mainly the result of decreases
in personnel and related costs as a result of costs savings from our
restructuring in August 2002. The increase in research and development
expenses for the nine months ended December 31, 2002 as compared to the nine
months ended December 31, 2001 was mainly the result of increases in external
research expenses 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 and amortization as we continue to expand manufacturing and
other facilities in both Massachusetts and Ohio.

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Below is a summary of our key proprietary and collaborators product candidates
and their respective stages of clinical development.

|                            |  |                                     |  |                     
|--------------------------- |  | ----------------------------------- |  | --------------------
|Product                     |  |                                     |  | Phase of Clinical   
|Candidate                   |  | Indication                          |  | Development (1)     
|                            |  |                                     |  |                     
|Nutropin Depot              |  | Pediatric growth hormone deficiency |  | Marketed            
|Risperdal Consta            |  | Schizophrenia                       |  | (2)                 
|Vivitrex                    |  | Alcohol dependence                  |  | Phase III           
|Vivitrex                    |  | Opioid dependence                   |  | Phase II            
|Nutropin Depot              |  | Adult growth hormone deficiency     |  | Phase III           
|Medisorb AC2993 (Exendin-4) |  | Diabetes                            |  | Phase II            
|AIR Epinephrine             |  | Anaphylaxis                         |  | Phase I             
|ProLease r-hFSH             |  | Infertility                         |  | Phase Ib            
|AIR Insulin                 |  | Diabetes                            |  | Undisclosed         
|AIR hGH                     |  | Growth hormone deficiency           |  | Phase I             
|AIR small molecule products |  | Respiratory disease                 |  | Phase I /Preclinical



| |  |  | (1)Phase I clinical trials indicates that the compound is being tested
in humans for safety and preliminary indications of biological activity
in a limited patient population. Phase II clinical trials indicates
that the trial is being conducted in patients and is to provide
information on dosing and is testing for safety and preliminary evidence
of efficacy. Phase III clinical trials indicates that the trial is
being conducted in patients and is testing the safety and efficacy of the
compound. Preclinical indicates that we or our partners are conducting
formulation, efficacy, pharmacology and/or toxicology testing of a
compound in animal models or biochemical assays.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (2) Approved for sale in thirteen countries. Marketed in Austria,
Denmark, Germany, Switzerland and the United Kingdom. Janssen has also
received marketing approval in Finland, Iceland, Ireland, Israel, Korea,
Mexico, the Netherlands and New Zealand. Received a non-approvable
letter from the FDA. See Results of Operations- Risperdal Consta for
further information on the status of Risperdal Consta.                                                                                                                                                                                                                                                                                         

General and administrative expenses for the three and nine months ended
December 31, 2002 were $5.4 and $20.6 million as compared to $5.9 and $17.7
million for the corresponding periods of the prior year. The decrease in the
three months ended December 31, 2002 as compared to the three months ended
December 31, 2001 was primarily a result of decreases in personnel and related
costs as a result of cost savings from our restructuring in August 2002. The
increase in general and administrative expenses for the nine months ended
December 31, 2002 as compared to the nine months ended December 31, 2002 was
mainly the result of the write-off of $2.6 million in deferred merger costs in
connection with the termination of our proposed merger transaction with
Reliant, which is discussed below. There was also an increase in occupancy
costs, depreciation and amortization and professional fees.

Interest income for the three and nine months ended December 31, 2002 was $0.6
and $3.0 million compared to $4.4 and $13.2 million for the corresponding
periods of the prior year. The decrease in such income for the three and nine
months ended December 31, 2002 as compared to the three and nine months ended
December 31, 2001 was primarily the result of a lower average cash and

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investment balance as compared to the prior year periods as discussed in
Liquidity and Capital Resources below. 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, 2002 was $2.1
and $6.2 million as compared to $2.1 and $6.8 million for the corresponding
periods of the prior year. The decrease in interest expense for nine months
ended December 31, 2002 as compared to the nine months ended December 31, 2001
was primarily the result of a decrease in the average outstanding debt balance
as compared to the prior year period.

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

Reliant

In December 2001, we announced a strategic relationship with Reliant
Pharmaceuticals, LLC. As part of the relationship, 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. Because, at the time of our investment, Reliant had an
accumulated deficit from operations and deficit in members capital, under
applicable accounting rules, our share of Reliants losses from the date of our
investment is being recognized in proportion to our percentage participation in
the Series C financing, and not in proportion to our percentage ownership
interest in Reliant. We record our equity in the income or losses of Reliant
three months in arrears. For the three and nine months ended December 31,
2002, this noncash charge amounted to $24.5 and $84.0 million. Reliant is a
privately held company over which we do not exercise control and we rely on the
unaudited financial statements prepared by Reliant and provided to us to
calculate our share of Reliants losses in our consolidated statements of
operations. We anticipate that Reliant will have substantial net losses
through 2003, and accordingly, recorded our 63% share of such losses
and Reliants preferred stock dividends in our
consolidated financial statements beginning in the quarter ended March 31,
2002.

In connection with our $100 million equity investment in Reliant, we have
allocated our proportionate share of the assets acquired and liabilities
assumed in accordance with the guidance set forth in SFAS No. 141, Business Combinations. We have taken
a $2.7 million noncash charge in the nine months ended December 31, 2001 for
in-process research and development through the Consolidated Statements of
Operations under the caption Equity in losses of Reliant Pharmaceuticals,
LLC. The $2.7 million noncash charge is related to managements estimate of
the amount of the purchase price to be allocated to in-process research and
development.

In March 2002, we entered into an Agreement and Plan of Merger (the Merger
Agreement) with Reliant. In August 2002, we and Reliant announced the
mutual termination of the Merger Agreement. The companies agreed to terminate
due to general market conditions. There were no payments triggered by the
mutual termination and each company has paid its own legal and transaction
fees. As a result of the termination of the Merger Agreement, we expensed
approximately $2.6 million in the nine months ended December 31, 2002 of
deferred merger costs which are included in general and administrative
expenses.

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Risperdal Consta

In August 2001, Janssen Pharmaceutica, L.P. filed an NDA for Risperdal Consta
with the FDA and similar regulatory filings have been submitted to other drug
regulatory agencies worldwide. Risperdal Consta is a Medisorb long-acting
formulation of Janssens antipyschotic drug Risperdal®. In June 2002, J&J
PRD, an affiliate of our collaborative partner Janssen, received a
non-approvable letter for Risperdal Consta from the FDA. Johnson & Johnson has
met with the FDA and is working to answer the agencys questions. There can be
no assurance that the issues raised in the FDAs letter will be resolved on a
timely basis, if at all. In August 2002, we announced
that J&J PRD received approval to market Risperdal Consta in Germany and the
United Kingdom, respectively. Since then, Risperdal Consta has been
approved in several other countries and we have announced that Risperdal Consta
is in late-stage regulatory review in a number of other countries.
Nevertheless, the impact of the FDAs non-approvable letter on other regulatory
filings made worldwide is not known at this time. There can be no assurance
that Risperdal Consta will be approved by the FDA or other regulatory agencies
on a timely basis, if at all. See our Annual Report on Form 10-K/A for the
year ended March 31, 2002, Risk Factors  J&J PRD received a non-approvable
letter for Risperdal Consta from the FDA and the future of Risperdal Consta is
uncertain.

Liquidity and Capital Resources

Cash and cash equivalents and short-term investments were approximately $157.9
million at December 31, 2002 as compared to $152.3 million at March 31, 2002.
The increase in cash and cash equivalents and short-term investments is mainly
a result of several financing activities which took place in the three months
ended December 31, 2002 which are discussed below and is partially offset by
the cash used to fund our operations, to acquire fixed assets and to make
interest and principal payments on our indebtedness.

We invest in cash equivalents, U.S. Government obligations, high-grade
corporate notes and commercial paper, with the exception of our $100 million
investment in Reliant. Our investment objectives for our investments, other
than our investment in Reliant, are, first, to assure liquidity and
conservation of capital, and second, to obtain investment income. Investments
classified as long-term at December 31, 2002 consist of U.S. Government
obligations held as collateral under certain letters of credit, lease and loan
agreements.

All of our investments in debt securities are classified as
available-for-sale and are recorded at fair value. Fair value was determined
based on quoted market prices.

In November 2002, Alkermes and General Electric Capital Corporation (GECC)
entered into a Master Lease Agreement to provide us with sale-leaseback
equipment financing under which we received $6 million in equipment financing
from GECC under the Master Lease Agreement. Under the terms of the Master
Lease Agreement, we will make lease payments to GECC over a 36-month period
which began in December 2002. The sale-leaseback qualified for accounting as
an operating lease which resulted in a loss which has been deferred and will be
recognized as an adjustment to rent expense over the term of the lease
agreement.

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In November 2002, the Company filed
registration statements with the SEC relating to a proposed exchange offer involving holders
of the 3.75% Subordinated Notes and an offer to issue for cash additional new
notes to holders of the 3.75% Subordinated Notes participating in the exchange
offer. On December 31, 2002, we consummated our exchange offer with and cash
offer to the holders of our 3.75% Subordinated Notes. We issued $174.6 million
aggregate principal amount of the 6.52% Senior Notes including $114.6 million
of 6.52% Senior Notes issued in exchange for 3.75% Subordinated Notes tendered
in the exchange offer and $60.0 million of 6.52% Senior Notes sold for cash to
holders of 3.75% Subordinated Notes who participated in the exchange offer.

In December 2002, we and Eli Lilly and
Company, or Lilly, expanded the
collaboration for the development of inhaled formulations of insulin and hGH
based on our AIR pulmonary drug delivery technology and Lilly purchased $30
million of our newly issued Convertible Preferred Stock pursuant to a stock
purchase agreement. We agreed to use the proceeds from the Convertible
Preferred Stock to primarily fund the development of inhaled insulin during
calendar year 2003 and into calendar year 2004. We also agreed to use a
portion of the proceeds to fund the hGH development program during
calendar year 2003. We will not record any research and development revenue
for these programs while the $30 million in proceeds from the Convertible
Preferred Stock are used to fund this development. In addition, the royalty
rate payable to us based on revenues of potential inhaled insulin products
has been increased. Lilly has the right to return the Convertible
Preferred Stock in exchange for a reduction in this royalty rate.
The Convertible Preferred Stock is convertible into our common stock at
market price at our option or upon the filing of a new drug application with
the U.S. Food and Drug Administration for a pulmonary insulin product. The
collaboration cannot terminate without cause until January 2005. We will
register for resale all of our shares of common stock issued upon conversion
of the Convertible Preferred Stock.

In August, we announced the regulatory approval and expected commercial launch
of Risperdal Consta in Germany and the United Kingdom. Under our agreements
with Janssen and based on the foregoing, certain minimum revenues relating to
our sales of Risperdal Consta under a manufacturing and supply agreement are to
be paid by Janssen to us in minimum annual amounts for up to ten years
beginning in calendar 2003. The actual amount of such minimum revenues will be
determined by a formula and is currently estimated to aggregate approximately
$150 million. The minimum revenue obligation will be satisfied upon receipt by
us of revenues relating to our sales of Risperdal Consta equaling such
aggregate amount of minimum revenues. In December 2002, Janssen prepaid the
first two years of minimum revenues to us, totaling $23.9 million.

Alkermes entered into a development and license agreement with GlaxoSmithKline
in May 2000 for the use of the Companys AIR technology in the development of
multiple product candidates for indications in four respiratory disease
categories. GlaxoSmithKline has not met all of its obligations to develop
product candidates under two respiratory disease categories in a timely manner
and, under the terms of the development and license agreement, those two
respiratory disease categories automatically reverted to Alkermes in November
2002. In December 2002, GlaxoSmithKline delivered to Alkermes notice that it
intended to exercise its right to terminate the development and license
agreement by providing Alkermes with 60 days prior written notice, therefore
the remaining two respiratory disease categories reverted to Alkermes in
February 2003.

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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. We expect that our costs, including
research and development costs for our product candidates, will exceed our
revenues significantly for the next few years, which will result in continuing
losses from operations.

Capital expenditures were approximately $13.2 and $40.1 million for the three
and nine months ended December 31, 2002, principally reflecting equipment
purchases and building expansion and improvements. We expect our capital
expenditures to be approximately an additional $10 million in fiscal 2003,
primarily as a result of the expansion of manufacturing and other 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 and GECC have security interests in
certain of our assets.

We have summarized below our material contractual cash obligations as of
December 31, 2002 for our fiscal years ended:

|                                           |  |       |         |       |  |                |        |               |  |               |        |              |  |   |        |  |  |   |         | 
|------------------------------------------ |  | ----- | ------- | ----- |  | -------------- | ------ | ------------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------- | 
|                                           |  |       |         |       |  | (in thousands) |        |               |  |               |        |              |  |   |        |  |  |  
|                                           |  |       |         |       |  | Less Than One  |        | One to Three  |  | Four to Five  |        | After Five  
|                                           |  |       |         |       |  | Year (Fiscal   |        | Years (Fiscal |  | Years (Fiscal |        | Years (After
|Contractual Cash Obligations               |  | Total |         | 2003) |  | 2004-2006)     |        | 2007-2008)    |  | Fiscal 2008) 
|                                           |  |       |         |       |  |                |        |               |  |              
|Convertible Subordinated
Notes -
principal |  | $     | 175,265 |       |  | $              |       |               |  | $             |       |              |  | $ | 676    |  |  | $ | 174,589 | 
|Convertible Subordinated
Notes -
interest  |  |       | 85,684  |       |  |                | 8,591  |               |  |               | 34,225 |              |  |   | 22,789 |  |  |   | 20,079  | 
|Long-term Debt                             |  |       | 21,825  |       |  |                | 14,025 |               |  |               | 7,800  |              |  |   |       |  |  |   |        | 
|Operating Leases                           |  |       | 217,693 |       |  |                | 12,051 |               |  |               | 34,640 |              |  |   | 20,663 |  |  |   | 150,339 | 
|Capital Expansion Programs                 |  |       | 50,000  |       |  |                | 50,000 |               |  |               |       |              |  |   |       |  |  |   |        | 
|                                           |  |       |         |       |  |                |        |               |  |               |        |              |  |   |        |  |  |   |         | 
|Total Contractual Cash
Obligations         |  | $     | 550,467 |       |  | $              | 84,667 |               |  | $             | 76,665 |              |  | $ | 44,128 |  |  | $ | 345,007 | 
|                                           |  |       |         |       |  |                |        |               |  |               |        |              |  |   |        |  |  |   |         | 

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, arrangements
relating to assets or other financing methods or structures. 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

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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.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS No. 145). This statement
is effective for fiscal years beginning after May 15, 2002. SFAS No. 145
rescinds Statement No. 4, which requires all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the
criteria in Accounting Principles Board Opinion No. 30 will be used to classify
those gains and losses. SFAS No. 145 also amends Statement No. 13 to require
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. We adopted this statement effective April 1, 2002
and the gain related to the exchange of our convertible subordinated notes has
been classified as an operating item pursuant to this statement.

In August 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. We do not
believe that the adoption will have a material impact on our financial
statements and result of operations. The restructuring charge recorded in the
Consolidated Statements of Operations in the quarter ended September 30, 2002
was, and any future charges or credits related to the restructuring program
undertaken in August 2002 will also be, accounted for under the guidance
set forth in EITF Issue No. 94-3.

In July 2000, the Emerging Issues Task Force released EITF Issue
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables for
comment. EITF Issue No. 00-21 addresses revenue recognition for arrangements with
multiple deliverables. The draft of EITF Issue No. 00-21 was approved in November 2002
and is effective for revenue arrangements entered into in fiscal years
beginning after June 15, 2003, with early adoption permitted. The impact of
EITF Issue No. 00-21 on our financial statements has not yet been determined.

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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 December
2001 $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. All
of our investments in debt securities are 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 policy we do not believe that we have a material
exposure to interest rate risk. Although our investments, excluding our
investment in Reliant, are subject to credit risk, 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.

A 10% increase or decrease in market interest rates on our 6.52% Senior Notes
and 3.75% Subordinated Notes would result in no material impact on our notes.

The derivative liability associated with the Two-Year Interest Make-Whole
payment provision in our 6.52% Senior Notes is recorded at fair value and is
subject to fluctuation in value based upon, among other factors, the underlying
price of our common stock. The maximum potential derivative liability is $22.8
million, less interest paid on the 6.52% Senior Notes up to and through
December 31, 2004.

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Item 4. Controls and Procedures

As of February 11, 2003, the chief executive officer and chief financial
officer evaluated Alkermes controls and procedures related to its reporting
and disclosure obligations. These officers have concluded that these
disclosure controls and procedures are sufficient to provide that (a) material
information relating to Alkermes, including its consolidated subsidiaries, is
made known to these officers by other employees of Alkermes and its
consolidated subsidiaries, particularly material information related to the
period for which this periodic report is being prepared; and (b) this
information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission.

There have been no significant changes in Alkermes internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of the evaluation.

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PART II. OTHER INFORMATION




Item 2. Changes in Securities and Use of Proceeds

Shareholder Rights Plan

In February 2003, the Board of Directors of Alkermes adopted a shareholder
rights plan (the Rights Plan) under which all common shareholders of record
as of February 20, 2003 will receive rights to purchase shares of a new series
of Preferred Stock. The Rights Plan is designed to enable all Alkermes
shareholders to realize the full value of their investment and to provide for
fair and equal treatment for all shareholders in the event that an unsolicited
attempt is made to acquire Alkermes. The adoption of the Rights Plan
is intended as a means to guard against coercive takeover tactics and
is not in response to any particular proposal. The rights will be distributed as a
non-taxable dividend and will expire in ten years from the record date. Each
right will initially entitle common shareholders to purchase a fractional share
of the Preferred Stock for $80. Subject to certain exceptions, the rights will
be exercisable only if a person or group acquires 15% or more of
Alkermes common stock or announces a tender or exchange offer upon the
consummation of which such person or group would own 15% or more of
Alkermes common stock. Subject to certain exceptions, if any person or group
acquires 15% or more of Alkermes common stock, all rightsholders,
except the acquiring person or group, will be entitled to acquire Alkermes
common stock (and in certain instances the stock of the acquiror) at a
discount. The rights will trade with Alkermes common stock, unless and until
they are separated upon the occurrence of certain future events. Generally,
Alkermes Board of Directors may amend the Rights Plan or redeem the rights
prior to 10 days (subject to extension) following a public announcement that a
person or group has acquired 15% or more of Alkermes common stock.

Private Placement to Collaborative Partner

On December 16, 2002 and in connection with an expansion of a collaboration for
the development of certain products with Eli Lilly and Company (Lilly), we
issued and sold 3,000 shares of our newly issued convertible preferred stock to
Lilly for an aggregate purchase price of $30 million, in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended
(the Securities Act) pursuant to Section 4(2) of the Securities Act and
further pursuant to Rule 506 under Regulation D promulgated under such act. We
reasonably believed Lilly was and is an accredited investor, based on
representations made to us by Lilly and by our review of Lillys filings with
the SEC under the Securities Exchange Act of 1934, as amended. The convertible
preferred stock is convertible into shares of our common stock at any time at
our option or upon certain events, including the filing of a new drug
application with the U.S. Food and Drug Administration with regard to
any pulmonary insulin product developed pursuant to the collaboration, in each
case at a conversion price based on the market price of the common stock at the
time of conversion.



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Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

|       |  |                                                                                                                                                                                                                                                                                                                         
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                         
|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).                                                                       
|3.1(a) |  | Amendment to Third Amended and Restated Articles of
Incorporation as filed with the Pennsylvania Secretary of
State on December 16, 2002 (2002 Preferred Stock Terms)
(Incorporated by reference to Exhibit 3.1 to the Companys
Report on Form 8-K filed on December 16, 2002).                                        
|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    |  | Form of Indenture between the Company and
State Street Bank and Trust Company, as trustee, relating
to the Companys 6.52% Convertible Senior Subordinated
Notes due December 31, 2009 (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form
S-1, as amended (File No. 333-101464)).
|4.2    |  | 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)).                                                                                                                                    
|4.3    |  | 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).                                                                                                                             
|4.4    |  | Indenture, dated as of February 18, 2000,
between Alkermes, Inc. and State Street Bank and Trust
Company, as Trustee relating to the 3.75% Subordinated
Notes due 2007. (Incorporated by reference to Exhibit 4.6
to the Companys Registration Statement on Form S-3, as
amended (File No. 333-31354)).                
|4.5    |  | Rights Agreement between Alkermes, Inc. and EquiServe Trust Co., N.A.
(Incorporated by reference to Exhibit 99.2 to the Companys
Report on Form 8-K/A filed on February 12, 2003).                                                                                                                                     
|99.1   |  | Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 by
Chief Executive Officer.                                                                                                                                                                                             

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|       |  |                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                    
|       |  |                                                                                                                            
|99.2   |  | Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 by
Chief Financial Officer.

(b)  During the quarter ended December 31, 2002, the Company had Current Reports
on Form 8-K, dated December 13, 2002 and December 21, 2002, both under Item 5.

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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, 2003 |  | By: /s/ Richard F. Pops
Richard F. Pops
Chief Executive Officer and
Director
(Principal Executive Officer)                                
|                       
|Date: February 14, 2003 |  | By: /s/ James M. Frates
James M. Frates
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)

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##### Table of Contents



CERTIFICATIONS

I, Richard F. Pops, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Alkermes, Inc.;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                             
|----------------------- |  | ------------------------------------------------------------
|Date: February 14, 2003 |  | /s/  Richard F. Pops
Richard F. Pops
Chief Executive Officer

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##### Table of Contents



CERTIFICATIONS

I, James M. Frates, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Alkermes, Inc.;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                             
|----------------------- |  | ------------------------------------------------------------
|Date: February 14, 2003 |  | /s/  James M. Frates
James M. Frates
Chief Financial Officer

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Exhibit Index

|        |  |                                                                                                                                                                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                         
|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).                                                                       
|3.1(a)  |  | Amendment to Third Amended and Restated Articles of
Incorporation as filed with the Pennsylvania Secretary of
State on December 16, 2002 (2002 Preferred Stock Terms)
(Incorporated by reference to Exhibit 3.1 to the Companys
Report on Form 8-K filed on December 16, 2002).                                        
|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     |  | Form of Indenture between the Company and
State Street Bank and Trust Company, as trustee, relating
to the Companys 6.52% Convertible Senior Subordinated
Notes due December 31, 2009 (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form
S-1, as amended (File No. 333-101464)).
|4.2     |  | 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)).                                                                                                                                    
|4.3     |  | 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).                                                                                                                             
|4.4     |  | Indenture, dated as of February 18, 2000,
between Alkermes, Inc. and State Street Bank and Trust
Company, as Trustee relating to the 3.75% Subordinated
Notes due 2007. (Incorporated by reference to Exhibit 4.6
to the Companys Registration Statement on Form S-3, as
amended (File No. 333-31354)).                
|4.5     |  | Rights Agreement between Alkermes, Inc. and EquiServe Trust Co., N.A.
(Incorporated by reference to Exhibit 99.2 to the Companys
Report on Form 8-K/A filed on February 12, 2003).                                                                                                                                     
|99.1    |  | Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 by
Chief Executive Officer.                                                                                                                                                                                             
|99.2    |  | Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 by
Chief Financial Officer.                                                                                                                                                                                             

(34)