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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number 1-14131
 ALKERMES, INC.
 (Exact name of registrant as specified in its charter)
 PENNSYLVANIA
    
    23-2472830(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 88 Sidney Street, Cambridge, MA 02139-4234
(617) 494-0171  (Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
 þ o
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o
 o þ
  As of August 3,Class
    
    2009Common Stock, $.01 par value
    
    
    94,391,642Non-Voting Common Stock, $.01 par value
    
    
    382,632




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##### 



ALKERMES, INC. AND SUBSIDIARIES
 QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1.
    

Condensed
Consolidated Financial Statements (Unaudited):
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2009 and March 31, 2009
    
    
    3Condensed Consolidated Statements of Operations  For the Three Months Ended
June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows  For the Three Months Ended
June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Discloures about Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    28Signatures
    
    
    29Exhibit Index
    
    
    30EX-10.2 First Amendment to Lease Agreement between Alkermes, Inc. and PDM Unit 850, LLC, dated as of June 18, 2009EX-31.1 Rule 13a-14(a)/15d-14(a) CertificationEX-31.2 Rule 13a-14(a)/15d-14(a) CertificationEX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements :
 
 ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 June 30,
    
    
    March 31,2009
    
    
    2009(In thousands, except share and pershare amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    44,900
    
    
    $
    86,893Investments  short-term
    
    
    272,251
    
    
    
    236,768Receivables
    
    
    27,899
    
    
    
    24,588Inventory
    
    
    20,528
    
    
    
    20,297Prepaid expenses and other current assets
    
    
    5,403
    
    
    
    7,500Total current assets
    
    
    370,981
    
    
    
    376,046PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    97,520
    
    
    
    106,461INVESTMENTS  LONG-TERM
    
    
    63,268
    
    
    
    80,821OTHER ASSETS
    
    
    3,442
    
    
    
    3,158TOTAL ASSETS
    
    $
    535,211
    
    
    $
    566,486LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    23,888
    
    
    $
    36,483Deferred revenue  current
    
    
    2,682
    
    
    
    6,840NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES  CURRENT
    
    
    25,667
    
    
    
    25,667Total current liabilities
    
    
    52,237
    
    
    
    68,990NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES  LONG-TERM
    
    
    44,057
    
    
    
    50,221DEFERRED REVENUE  LONG-TERM
    
    
    5,204
    
    
    
    5,238OTHER LONG-TERM LIABILITIES
    
    
    6,846
    
    
    
    7,149Total liabilities
    
    
    108,344
    
    
    
    131,598COMMITMENTS AND CONTINGENCIES (Note 12)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes
3,000,000 shares of preferred stock); none issued
    
    
    
    
    
    
    Common stock, par value, $0.01 per share; 160,000,000 shares authorized;
104,291,025 and 104,044,663 shares issued; 94,391,180 and 94,536,212 shares
outstanding at June 30, 2009 and March 31, 2009, respectively
    
    
    1,042
    
    
    
    1,040Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized;
382,632 shares issued and outstanding at June 30, 2009 and March 31, 2009
    
    
    4
    
    
    
    4Treasury stock, at cost (9,899,845 and 9,508,451 shares at June 30, 2009 and
March 31, 2009, respectively)
    
    
    (129,247
    )
    
    
    (126,025
    )Additional paid-in capital
    
    
    895,791
    
    
    
    892,415Accumulated other comprehensive loss
    
    
    (4,496
    )
    
    
    (6,484
    )Accumulated deficit
    
    
    (336,227
    )
    
    
    (326,062
    )Total shareholders equity
    
    
    426,867
    
    
    
    434,888TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    535,211
    
    
    $
    566,486
  3




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ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months EndedJune 30,2009
    
    
    2008(In thousands, except per shareamounts)REVENUES:Manufacturing revenues
    
    $
    28,804
    
    
    $
    38,610Royalty revenues
    
    
    8,701
    
    
    
    8,581Product sales, net
    
    
    4,226
    
    
    
    Research and development revenue under collaborative arrangements
    
    
    1,450
    
    
    
    31,450Net collaborative profit
    
    
    4,315
    
    
    
    1,351Total revenues
    
    
    47,496
    
    
    
    79,992EXPENSES:Cost of goods manufactured and sold
    
    
    12,666
    
    
    
    14,314Research and development
    
    
    25,586
    
    
    
    22,261Selling, general and administrative
    
    
    19,268
    
    
    
    11,926Total expenses
    
    
    57,520
    
    
    
    48,501OPERATING (LOSS) INCOME
    
    
    (10,024
    )
    
    
    31,491OTHER EXPENSE, NET:Interest income
    
    
    1,561
    
    
    
    3,616Interest expense
    
    
    (1,709
    )
    
    
    (4,226
    )Other expense, net
    
    
    (63
    )
    
    
    (164
    )Total other expense, net
    
    
    (211
    )
    
    
    (774
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (10,235
    )
    
    
    30,717(BENEFIT) PROVISION FOR INCOME TAXES
    
    
    (70
    )
    
    
    1,030NET (LOSS) INCOME
    
    $
    (10,165
    )
    
    $
    29,687(LOSS) EARNINGS PER COMMON SHARE:Basic
    
    $
    (0.11
    )
    
    $
    0.31Diluted
    
    $
    (0.11
    )
    
    $
    0.31WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic
    
    
    94,883
    
    
    
    95,361Diluted
    
    
    94,883
    
    
    
    96,631
  4




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ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Three Months EndedJune 30,2009
    
    
    2008(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (10,165
    )
    
    $
    29,687Adjustments to reconcile net (loss) income to cash flows from operating activities:Share-based compensation expense
    
    
    3,230
    
    
    
    4,495Depreciation
    
    
    9,948
    
    
    
    2,517Other non-cash charges
    
    
    481
    
    
    
    1,336Changes in assets and liabilities:Receivables
    
    
    (3,311
    )
    
    
    6,599Inventory, prepaid expenses and other assets
    
    
    1,167
    
    
    
    1,845Accounts payable and accrued expenses
    
    
    (11,882
    )
    
    
    (13,917
    )Unearned milestone revenue
    
    
    
    
    
    
    (1,552
    )Deferred revenue
    
    
    (4,192
    )
    
    
    1,219Other long-term liabilities
    
    
    (427
    )
    
    
    130Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
attributable to original issue discount
    
    
    (485
    )
    
    
    (691
    )Cash flows (used in) provided by operating activities
    
    
    (15,636
    )
    
    
    31,668CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (2,099
    )
    
    
    (2,573
    )Sales of property, plant and equipment
    
    
    23
    
    
    
    7,717Purchases of investments
    
    
    (203,655
    )
    
    
    (177,386
    )Sales and maturities of investments
    
    
    187,712
    
    
    
    169,384Cash flows used in investing activities
    
    
    (18,019
    )
    
    
    (2,858
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of common stock for share-based compensation
arrangements
    
    
    107
    
    
    
    2,370Excess tax benefit from share-based compensation
    
    
    
    
    
    
    19Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal
    
    
    (5,932
    )
    
    
    Purchase of non-recourse RISPERDAL CONSTA secured 7% notes
    
    
    
    
    
    
    (13,409
    )Payment of capital leases
    
    
    
    
    
    
    (28
    )Purchase of common stock for treasury
    
    
    (2,513
    )
    
    
    (12,580
    )Cash flows used in financing activities
    
    
    (8,338
    )
    
    
    (23,628
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (41,993
    )
    
    
    5,182CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    86,893
    
    
    
    101,241CASH AND CASH EQUIVALENTS  End of period
    
    $
    44,900
    
    
    $
    106,423SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest
    
    $
    1,348
    
    
    $
    2,975Cash paid for taxes
    
    $
    
    
    
    $
    160Non-cash investing and financing activities:Purchased capital expenditures included in accounts payable and accrued expenses
    
    $
    713
    
    
    $
    2,812Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum
tax withholding obligations related to stock based awards
    
    $
    709
    
    
    $
    444
  5




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Principles of Consolidation
 Use of Estimates
 Segment Information
 Reclassifications
 New Accounting Pronouncements
 Accounting for Collaborative Arrangements
Related to the Development and Commercialization of Intellectual Property
 6




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140
  2. COMPREHENSIVE (LOSS) INCOME
  Three Months EndedJune 30(In thousands)
    
    2009
    
    
    2008Net (loss) income
    
    $
    (10,165
    )
    
    $
    29,687Unrealized gains (losses) on available for sale securities:Holding gains (losses)
    
    
    1,988
    
    
    
    (205
    )Reclassification of unrealized losses to realized losses on available for sale securities
    
    
    
    
    
    
    48Unrealized gains (losses) on available for sale securities
    
    
    1,988
    
    
    
    (157
    )Comprehensive (loss) income
    
    $
    (8,177
    )
    
    $
    29,530
 3. EARNINGS PER SHARE
   Three Months EndedJune 30(In thousands)
    
    2009
    
    
    2008Numerator:Net (loss) income
    
    $
    (10,165
    )
    
    $
    29,687Denominator:Weighted average number of common shares outstanding
    
    
    94,883
    
    
    
    95,361Effect of dilutive securities:Stock options
    
    
    
    
    
    
    1,172Restricted stock units
    
    
    
    
    
    
    98Dilutive common share equivalents
    
    
    
    
    
    
    1,270Shares used in calculating diluted (loss) earnings per share
    
    
    94,883
    
    
    
    96,631
  7




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months EndedJune 30(In thousands)
    
    2009
    
    2008Stock options
    
    
    17,444
    
    
    
    14,506Restricted stock units
    
    
    254
    
    
    
    9Total
    
    
    17,698
    
    
    
    14,515
 4. INVESTMENTS
  Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)June 30, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    234,967
    
    
    $
    1,600
    
    
    $
    (24
    )
    
    $
    236,543Corporate debt securities
    
    
    32,242
    
    
    
    346
    
    
    
    
    
    
    
    32,588Other debt securities
    
    
    3,434
    
    
    
    
    
    
    
    (314
    )
    
    
    3,120Total short-term investments
    
    
    270,643
    
    
    
    1,946
    
    
    
    (338
    )
    
    
    272,251Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    6,999
    
    
    
    
    
    
    
    (3
    )
    
    
    6,996Corporate debt securities
    
    
    43,163
    
    
    
    
    
    
    
    (4,018
    )
    
    
    39,145Other debt securities
    
    
    12,475
    
    
    
    
    
    
    
    (2,080
    )
    
    
    10,395Strategic investments
    
    
    738
    
    
    
    138
    
    
    
    
    
    
    
    87663,375
    
    
    
    138
    
    
    
    (6,101
    )
    
    
    57,412Held-to-maturity securities:U.S. government obligations
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    416Certificates of deposit
    
    
    5,440
    
    
    
    
    
    
    
    
    
    
    
    5,4405,856
    
    
    
    
    
    
    
    
    
    
    
    5,856Total long-term investments
    
    
    69,231
    
    
    
    138
    
    
    
    (6,101
    )
    
    
    63,268Total investments
    
    $
    339,874
    
    
    $
    2,084
    
    
    $
    (6,439
    )
    
    $
    335,519March 31, 2009Short-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    $
    225,490
    
    
    $
    2,635
    
    
    $
    (6
    )
    
    $
    228,119Corporate debt securities
    
    
    8,160
    
    
    
    9
    
    
    
    
    
    
    
    8,169Other debt securities
    
    
    500
    
    
    
    
    
    
    
    (20
    )
    
    
    480Total short-term investments
    
    
    234,150
    
    
    
    2,644
    
    
    
    (26
    )
    
    
    236,768Long-term investments:Available-for-sale securities:U.S. government and agency debt securities
    
    
    10,149
    
    
    
    
    
    
    
    (3
    )
    
    
    10,146Corporate debt securities
    
    
    57,887
    
    
    
    
    
    
    
    (6,326
    )
    
    
    51,561Other debt securities
    
    
    16,350
    
    
    
    
    
    
    
    (2,683
    )
    
    
    13,667Strategic investments
    
    
    738
    
    
    
    53
    
    
    
    
    
    
    
    79185,124
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    76,165Held-to-maturity securities:U.S. government obligations
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    416Certificates of deposit
    
    
    4,240
    
    
    
    
    
    
    
    
    
    
    
    4,2404,656
    
    
    
    
    
    
    
    
    
    
    
    4,656Total long-term investments
    
    
    89,780
    
    
    
    53
    
    
    
    (9,012
    )
    
    
    80,821Total investments
    
    $
    323,930
    
    
    $
    2,697
    
    
    $
    (9,038
    )
    
    $
    317,589
 8




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Available-for-Sale
    
    
    Held-to-MaturityAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    Estimated(in thousands)
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueWithin 1 year
    
    $
    156,436
    
    
    $
    156,640
    
    
    $
    5,856
    
    
    $
    5,856After 1 year through 5 years (1)
    
    
    147,616
    
    
    
    147,151
    
    
    
    
    
    
    
    After 5 years through 10 years (1)
    
    
    19,227
    
    
    
    16,719
    
    
    
    
    
    
    
    After 10 years
    
    
    10,000
    
    
    
    8,277
    
    
    
    
    
    
    
    Total
    
    $
    333,279
    
    
    $
    328,787
    
    
    $
    5,856
    
    
    $
    5,856
 
 (1)
    
    Investments in available-for-sale securities within these categories,
with an amortized cost of $124.6 million and an estimated fair value
of $121.0 million, have issuer call dates prior to May 2011. Recognition and Presentation of Other-than-Temporary Impairments
 The Meaning of Other-than-Temporary Impairment
and its Application to Certain Investments
   9




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




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     5. FAIR VALUE MEASUREMENTS
 Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair Value Measurements
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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial
Instruments Interim Financial Reporting,
  June 30,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    1,755
    
    
    $
    1,755
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    243,540
    
    
    
    243,540
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    71,732
    
    
    
    16,275
    
    
    
    
    
    
    
    55,457Other debt securities
    
    
    13,515
    
    
    
    
    
    
    
    
    
    
    
    13,515Strategic equity investments
    
    
    876
    
    
    
    876
    
    
    
    
    
    
    
    Total
    
    $
    331,418
    
    
    $
    262,446
    
    
    $
    
    
    
    $
    68,972
 March 31,(In thousands)
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    822
    
    
    $
    822
    
    
    $
    
    
    
    $
    U.S. government and agency debt securities
    
    
    238,265
    
    
    
    238,265
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    59,730
    
    
    
    
    
    
    
    
    
    
    
    59,730Other debt securities
    
    
    14,147
    
    
    
    
    
    
    
    
    
    
    
    14,147Strategic equity investments
    
    
    791
    
    
    
    791
    
    
    
    
    
    
    
    Total
    
    $
    313,755
    
    
    $
    239,878
    
    
    $
    
    
    
    $
    73,877
  Fair(In thousands)
    
    ValueBalance, March 31, 2009
    
    $
    73,877Total unrealized gains included in comprehensive loss
    
    
    2,737Sales and redemptions, at par value
    
    
    (7,642
    )Balance, June 30, 2009
    
    $
    68,972
 Investments
  12




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  6. INVENTORY
  June 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Raw materials
    
    $
    5,338
    
    
    $
    5,916Work in process
    
    
    5,871
    
    
    
    5,397Finished goods (1)
    
    
    9,319
    
    
    
    7,015Consigned-out inventory
    
    
    
    
    
    
    1,969Inventory
    
    $
    20,528
    
    
    $
    20,297
 
 (1)
    
    At June 30, 2009 and March 31, 2009, the Company had $0.9 million and none,
respectively, of finished goods inventory located at its third-party warehouse and shipping
service provider. 7. PROPERTY, PLANT AND EQUIPMENT
  June 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Land
    
    $
    301
    
    
    $
    301Building and improvements
    
    
    36,325
    
    
    
    36,325Furniture, fixture and equipment
    
    
    67,805
    
    
    
    67,165Leasehold improvements
    
    
    33,980
    
    
    
    33,996Construction in progress
    
    
    42,132
    
    
    
    41,908Subtotal
    
    
    180,543
    
    
    
    179,695Less: accumulated depreciation
    
    
    (83,023
    )
    
    
    (73,234
    )Total property, plant and equipment, net
    
    $
    97,520
    
    
    $
    106,461
 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  June 30,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2009Accounts payable
    
    $
    6,010
    
    
    $
    8,046Accrued compensation
    
    
    5,500
    
    
    
    13,817Accrued interest
    
    
    1,235
    
    
    
    1,549Accured restructuring  current
    
    
    713
    
    
    
    743Amounts due to Cephalon
    
    
    527
    
    
    
    1,169Accrued other
    
    
    9,903
    
    
    
    11,159Total accounts payable and accrued expenses
    
    $
    23,888
    
    
    $
    36,483
 13




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##### Table of Contents



ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 9. SHARE-BASED COMPENSATION
  Three Months EndedJune 30(In thousands)
    
    2009
    
    
    2008Cost of goods manufactured and sold
    
    $
    310
    
    
    $
    429Research and development
    
    
    807
    
    
    
    1,588Selling, general and administrative
    
    
    2,113
    
    
    
    2,478Total share-based compensation expense
    
    $
    3,230
    
    
    $
    4,495
  10. RESTRUCTURING
 ®
 11. INCOME TAXES
   12. COMMITMENTS AND CONTINGENCIES
   14




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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 13. SUBSEQUENT EVENTS
  15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 ® ® ®
 Forward-Looking Statements
   16




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Our Strategy
  Products and Development Programs
 RISPERDAL CONSTA
 ®
  17




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##### Table of Contents



VIVITROL
    Exenatide Once Weekly
 ®
  ®
 18




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##### Table of Contents



ALKS 33
  ALKS 29
  ALKS 27
 ®
  ALKS 36
  Executive Summary
   19




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##### Table of Contents



Results of Operations
 Manufacturing Revenues
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Manufacturing revenues:RISPERDAL CONSTA
    
    $
    27.9
    
    
    $
    36.0
    
    
    $
    (8.1
    )Polymer
    
    
    0.9
    
    
    
    
    
    
    
    0.9VIVITROL
    
    
    
    
    
    
    2.6
    
    
    
    (2.6
    )Manufacturing revenues
    
    $
    28.8
    
    
    $
    38.6
    
    
    $
    (9.8
    )
     Royalty Revenues
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Royalty revenues
    
    $
    8.7
    
    
    $
    8.6
    
    
    $
    0.1
  20




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##### Table of Contents



Product Sales, net
  Three Months Ended June 30,(In millions)
    
    2009
    
    
    % of SalesProduct sales, gross
    
    $
    5.4
    
    
    
    100.0
    %Adjustments to product sales, gross:Free product coupons
    
    
    (0.3
    )
    
    
    (5.6
    )%Product returns (1)
    
    
    (0.2
    )
    
    
    (3.7
    )%Medicaid rebates
    
    
    (0.2
    )
    
    
    (3.7
    )%Prompt-pay discounts
    
    
    (0.1
    )
    
    
    (1.9
    )%Other
    
    
    (0.4
    )
    
    
    (7.4
    )%Total adjustments
    
    
    (1.2
    )
    
    
    (22.3
    )%Product sales, net
    
    $
    4.2
    
    
    
    77.7
    %
 
 (1)
    
    Following the introduction of a return policy for VIVITROL, our
estimate for product returns reflects the deferral of the recognition
of revenue on shipments of VIVITROL to our customers until the product
has left the distribution channel as we do not yet have the history to
reasonably estimate returns related to these shipments. We estimate
the product shipments out of the distribution channel through data
provided by external sources, including information on inventory
levels provided by our customers as well as prescription information.  Research and Development Revenue Under Collaborative Arrangements
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development programs:Four-week RISPERDAL CONSTA
    
    $
    1.1
    
    
    $
    0.9
    
    
    $
    0.2Exenatide once weekly
    
    
    0.3
    
    
    
    4.9
    
    
    
    (4.6
    )AIR Insulin
    
    
    
    
    
    
    25.5
    
    
    
    (25.5
    )Other
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.1
    )Research and development revenue under collaborative arrangements
    
    $
    1.5
    
    
    $
    31.5
    
    
    $
    (30.0
    )
  21




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Net Collaborative Profit
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Net collabortive profit:Milestone revenue  license
    
    $
    
    
    
    $
    1.3
    
    
    $
    (1.3
    )Net payments from Cephalon
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )VIVITROL losses funded by Cephalon, post termination
    
    
    4.3
    
    
    
    
    
    
    
    4.3Net collaborative profit
    
    $
    4.3
    
    
    $
    1.4
    
    
    $
    2.9
  Cost of Goods Manufactured and Sold
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Cost of goods manufactured and sold:RISPERDAL CONSTA
    
    $
    9.7
    
    
    $
    10.8
    
    
    $
    1.1VIVITROL
    
    
    2.0
    
    
    
    3.5
    
    
    
    1.5Polymer
    
    
    1.0
    
    
    
    
    
    
    
    (1.0
    )Cost of goods manufactured and sold
    
    $
    12.7
    
    
    $
    14.3
    
    
    $
    1.6
  Research and Development Expense
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Research and development
    
    $
    25.6
    
    
    $
    22.3
    
    
    $
    (3.3
    )
  22




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Selling, General and Administrative Expense
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Selling, general and administrative
    
    $
    19.3
    
    
    $
    11.9
    
    
    $
    (7.4
    )
  Other Expense, Net
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)Interest income
    
    $
    1.6
    
    
    $
    3.6
    
    
    $
    (2.0
    )Interest expense
    
    
    (1.7
    )
    
    
    (4.2
    )
    
    
    2.5Other expense, net
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    0.1Total other expense, net
    
    $
    (0.2
    )
    
    $
    (0.8
    )
    
    $
    0.6
  Provision for Income Taxes
 ChangeThree Months Ended June 30,
    
    
    Favorable/(In millions)
    
    2009
    
    
    2008
    
    
    (Unfavorable)(Benefit) provision for income taxes
    
    $
    (0.1
    )
    
    $
    1.0
    
    
    $
    1.1
  23




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Liquidity and Capital Resources
   June 30,
    
    
    March 31,(In millions)
    
    2009
    
    
    2009Cash and cash equivalents
    
    $
    44.9
    
    
    $
    86.9Investments  short-term
    
    
    272.2
    
    
    
    236.8Investments  long-term
    
    
    63.3
    
    
    
    80.8Total cash, cash equivalents and investments
    
    $
    380.4
    
    
    $
    404.5Working capital
    
    $
    318.7
    
    
    $
    307.1Outstanding borrowings  current and long-term
    
    $
    69.7
    
    
    $
    75.9
 Cash and Cash Equivalents
  Three Months Ended June 30,(In millions)
    
    2009
    
    
    2008Cash and cash equivalents, beginning of period
    
    $
    86.9
    
    
    $
    101.2Cash (used in) provided by operating activities
    
    
    (15.6
    )
    
    
    31.7Cash used in investing activities
    
    
    (18.0
    )
    
    
    (2.9
    )Cash used in financing activities
    
    
    (8.4
    )
    
    
    (23.6
    )Cash and cash equivalents, end of period
    
    $
    44.9
    
    
    $
    106.4
 Operating Activities
  Investing Activities
  Financing Activities
  24




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Investments
  Investments Fair Value Measurements
 Borrowings
  Contractual Obligations
  Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  Recognition and Presentation of Other-than-Temporary Impairments
 25




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New Accounting Standards
 New Accounting Pronouncements Summary of Significant Accounting
Policies
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 a) Evaluation of Disclosure Controls and Procedures
  b) Change in Internal Control over Financial Reporting
  26




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total
    
    
    Approximate DollarNumber of Shares
    
    
    Value of Shares thatTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    May Yet be Purchasedof Shares
    
    
    Price Paid
    
    
    Part of a Publicly
    
    
    Under the ProgramPeriod
    
    Purchased (a)
    
    
    per Share
    
    
    Announced Program (a)
    
    
    (in millions)April 1 through April 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    103.7May 1 through May 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    103.7June 1 through June 30
    
    
    309,504
    
    
    $
    8.12
    
    
    
    309,504
    
    
    $
    101.1Total
    
    
    309,504
    
    
    $
    8.12
    
    
    
    309,504
 
 (a)
    
    On November 21, 2007, we publicly announced that our board of directors authorized a program
to repurchase up to $175.0 million of our common stock to be repurchased at the discretion of
management from time to time in the open market or through privately negotiated transactions.
On June 16, 2008, we publicly announced that our board of directors authorized the expansion
of this repurchase program by an additional $40.0 million, bringing the total authorization
under this program to $215.0 million. The repurchase program has no set expiration date and
may be suspended or discontinued at any time. At June 30, 2009, we have purchased a total of
8,847,442 shares under this program at a cost of $113.9 million. 
  Item 5. Other Information
  27




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Item 6. Exhibits
  ExhibitNo.10.1
    
    Lease Agreement, dated as of April 22, 2009 between PDM Unit 850,
LLC and Alkermes, Inc. (incorporated by reference to Exhibit 10.5
to the Registrants Report on Form 10-K for the fiscal year ended
March 31, 2009).10.2
    
    First Amendment to Lease Agreement between Alkermes, Inc. and PDM
Unit 850, LLC, dated as of June 18, 2009 (filed herewith).10.3
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Time Vesting Only) (incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K filed on May 22, 2009).10.4
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Performance Vesting Only)
(incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on May 22, 2009).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
 28




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##### Table of Contents



SIGNATURES
  ALKERMES, INC.
(Registrant)By:
    /s/  David A. BroeckerDavid A. BroeckerPresident and Chief Executive Officer
(Principal Executive Officer)By:
    /s/  James M. FratesJames M. FratesSenior Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)  29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo10.1
    
    Lease Agreement, dated as of April 22, 2009 between PDM Unit 850,
LLC and Alkermes, Inc. (incorporated by reference to Exhibit 10.5
to the Registrants Report on Form 10-K for the fiscal year ended
March 31, 2009).10.2
    
    First Amendment to Lease Agreement between Alkermes, Inc. and PDM
Unit 850, LLC, dated as of June 18, 2009 (filed herewith).10.3
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Time Vesting Only) (incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K filed on May 22, 2009).10.4
    
    Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Performance Vesting Only)
(incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on May 22, 2009).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
 30