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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    December 31, 2007o

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

23-2472830(I.R.S. Employer
    Identification No.)88 Sidney Street, Cambridge, MA(Address of principal
    executive offices)

02139-4234(Zip Code)   Registrants
    telephone number including area code:(617) 494-0171 (Former
    name, former address, and former fiscal year, if changed since
    last report)
  þ o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
    As of February 6,Class

2008Common Stock, $.01 par value


99,699,954Non-Voting Common Stock, $.01 par value


382,632




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##### 



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


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


3Condensed Consolidated Statements of
    Income  For the Three and Nine Months Ended
    December 31, 2007 and 2006


4Condensed Consolidated Statements of Cash
    Flows  For the Nine Months Ended December 31,
    2007 and 2006


5Notes to Condensed Consolidated Financial
    Statements


6Item 2.


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


13Item 3.


Quantitative and Qualitative Disclosures about
    Market Risk


25Item 4.


Controls and Procedures


26PART II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


27Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


27Item 4.


Submission of Matters to a Vote of Security
    Holders


28Item 6.


Exhibits


28Signatures


29Exhibit Index


30EX-10.1 Employment Agreement (Richard F. Pops)EX-10.2 Employment Agreement (David A. Broecker)EX-10.3 Form of Employment AgreementEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32 Section 906 Certification of CEO & CFO   2




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PART 1.
    FINANCIAL INFORMATION Item 1.  Condensed
    Consolidated Financial Statements:  ALKERMES,
    INC. AND SUBSIDIARIES
  CONDENSED
    CONSOLIDATED BALANCE SHEETS
 (unaudited)
  December 31,


March 31,2007


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

$
320,931


$
80,500Investments


190,535



271,082Receivables


40,256



56,049Inventory


23,054



18,190Prepaid expenses and other current assets


7,088



7,054Total current assets


581,864



432,875PROPERTY, PLANT AND EQUIPMENT:Land


301



301Building and improvements


32,602



25,717Furniture, fixtures and equipment


67,783



64,203Equipment under capital lease


463



464Leasehold improvements


33,349



32,345Construction in progress


47,705



42,442182,203



165,472Less: accumulated depreciation


(50,687
)


(41,877
)Total property, plant and equipment  net


131,516



123,595RESTRICTED INVESTMENTS


5,146



5,144OTHER ASSETS


11,958



7,007TOTAL ASSETS

$
730,484


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

$
29,958


$
45,855Accrued interest


2,975



2,976Unearned milestone revenue  current portion


5,820



11,450Deferred revenue  current portion






200Long-term debt  current portion


651



1,579Total current liabilities


39,404



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


159,430



156,851UNEARNED MILESTONE REVENUE  LONG-TERM PORTION


113,393



117,300DEFERRED REVENUE  LONG-TERM PORTION


27,837



22,153OTHER LONG-TERM LIABILITIES


5,774



6,796TOTAL LIABILITIES


345,838



365,160COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)SHAREHOLDERS EQUITY:Capital stock, par value, $0.01 per share; 4,550,000 shares
    authorized (includes 3,000,000 shares of preferred stock);
    none issued and outstanding






Common stock, par value, $0.01 per share;
    160,000,000 shares authorized; 102,797,809 and
    101,550,673 shares issued; 99,969,036 and
    100,726,996 shares outstanding at December 31, 2007
    and March 31, 2007, respectively


1,028



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


4



4Treasury stock, at cost (2,828,773 and 823,677 shares at
    December 31, 2007 and March 31, 2007, respectively)


(41,599
)


(12,492
)Additional paid-in capital


864,362



837,727Accumulated other comprehensive (loss) income


(929
)


753Accumulated deficit


(438,220
)


(623,546
)TOTAL SHAREHOLDERS EQUITY


384,646



203,461TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
730,484


$
568,621    3




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


Nine Months EndedDecember 31,


December 31,2007


2006


2007


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

$
14,275


$
28,763


$
69,929


$
77,078Royalty revenues


7,384



5,673



21,714



16,625Research and development revenue under collaborative arrangements


23,985



19,532



68,641



51,620Net collaborative profit


5,127



8,445



18,025



29,798Total revenues


50,771



62,413



178,309



175,121EXPENSES:Cost of goods manufactured


7,499



12,989



26,862



34,149Research and development


30,395



29,908



91,331



85,588Selling, general and administrative


15,249



16,365



45,136



48,572Total expenses


53,143



59,262



163,329



168,309OPERATING (LOSS) INCOME


(2,372
)


3,151



14,980



6,812OTHER INCOME (EXPENSE):Gain on sale of investment in Reliant Pharmaceuticals, Inc.


174,631







174,631



Interest income


4,292



4,260



12,940



13,329Interest expense


(4,088
)


(4,141
)


(12,238
)


(13,648
)Other (expense) income, net


(393
)


89



784



212Total other income (expense)


174,442



208



176,117



(107
)INCOME BEFORE INCOME TAXES


172,070



3,359



191,097



6,705INCOME TAXES


3,189



426



5,771



761NET INCOME

$
168,881


$
2,933


$
185,326


$
5,944EARNINGS PER COMMON SHARE:BASIC

$
1.66


$
0.03


$
1.82


$
0.06DILUTED

$
1.63


$
0.03


$
1.78


$
0.06WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:BASIC


101,703



100,896



101,676



98,690DILUTED


103,914



104,746



104,097



103,156    4




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ALKERMES,
    INC. AND SUBSIDIARIES
  CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
  Nine Months EndedDecember 31,2007


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

$
185,326


$
5,944Adjustments to reconcile net income to cash flows from operating
    activities:Share-based compensation


15,477



22,218Depreciation


9,380



8,838Other non-cash charges


3,580



2,645Change in fair value of warrants


(1,425
)


510Gain on sale of investment in Reliant Pharmaceuticals, Inc.


(174,631
)


Loss on disposal of equipment


645



Changes in assets and liabilities:Receivables


14,368



(11,079
)Inventory, prepaid expenses and other assets


(7,904
)


(10,040
)Accounts payable, accrued expenses and accrued interest


(14,004
)


(11,598
)Unearned milestone revenue


(9,537
)


58,760Deferred revenue


6,909



18,516Other liabilities


(180
)


202Cash flows from operating activities


28,004



84,916CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment


(17,618
)


(24,728
)Proceeds from the sale of equipment






159Purchases of investments


(371,342
)


(217,453
)Sales and maturities of investments


453,403



214,193Proceeds from the sale of investment in Reliant Pharmaceuticals,
    Inc.


166,865



Cash flows from investing activities


231,308



(27,829
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock


9,510



5,868Excess tax benefit from stock options


211



Payment of debt


(975
)


(817
)Purchase of treasury stock


(27,627
)


(12,492
)Cash flows from financing activities


(18,881
)


(7,441
)NET INCREASE IN CASH AND CASH EQUIVALENTS


240,431



49,646CASH AND CASH EQUIVALENTS  Beginning of period


80,500



33,578CASH AND CASH EQUIVALENTS  End of period

$
320,931


$
83,224SUPPLEMENTAL CASH FLOW DISCLOSURE:Cash paid for interest

$
9,004


$
10,647Cash paid for income taxes

$
980


$
896Non-cash investing and financing activities:Conversion of 2.5% convertible subordinated notes into common
    stock

$



$
125,000Redemption of redeemable convertible preferred stock

$



$
15,000Purchased capital expenditures included in accounts payable and
    accrued expenses

$
328


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

$
2,994


$
Receipt of Alkermes shares for the purchase of stock options or
    as payment to satisfy minimum withholding tax obligations
    related to employee stock awards

$
1,480


$
Funds held in escrow from the sale of investment in Reliant
    Pharmaceuticals, Inc.

$
7,766


$
    5




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




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair Value Option for Financial Assets and
    Financial Liabilities Including an Amendment of FASB Statement
    No. 115
  No. 07-03, Accounting for Nonrefundable Advance Payments for Goods
    or Services to Be Used in Future Research and Development
    Activities, No. 07-03), No. 07-03, No. 07-03 No. 07-03
  No. 07-01, Accounting for Collaborative Arrangements, No. 07-01). No. 07-01 No. 07-01 No. 07-01
  2.
    COMPREHENSIVE
    INCOME    Three Months


Nine MonthsEnded


EndedDecember 31,


December 31,(In thousands)

2007


2006


2007


2006Net income

$
168,881


$
2,933


$
185,326


$
5,944Unrealized losses on available for sale securities:Holding losses


(1,469
)


(1,152
)


(2,019
)


(699
)Reclassification of unrealized loss to realized loss on
    available for sale securities during the period


337







337



Unrealized losses on available for sale securities


(1,132
)


(1,152
)


(1,682
)


(699
)Comprehensive income

$
167,749


$
1,781


$
183,644


$
5,245  7




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    EARNINGS
    PER COMMON SHARE      Three Months


Nine MonthsEnded


EndedDecember 31,


December 31,(In thousands)

2007


2006


2007


2006Numerator:Net income

$
168,881


$
2,933


$
185,326


$
5,944Denominator:Weighted average number of common shares outstanding


101,703



100,896



101,676



98,690Effect of dilutive securities:Stock options


2,159



2,723



2,354



3,633Restricted stock awards


52



291



67



244Redeemable convertible preferred stock






836







589Dilutive common share equivalents


2,211



3,850



2,421



4,466Shares used in calculating diluted earnings per common share


103,914



104,746



104,097



103,156     Three Months


Nine MonthsEnded


EndedDecember 31,


December 31,(In thousands)

2007


2006


2007


2006Stock options


11,899



12,053



11,919



9,5402.5% convertible subordinated notes














2,4613.75% convertible subordinated notes






10







10Total


11,899



12,063



11,919



12,011  8




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    SHARE-BASED
    COMPENSATION    Three Months


Nine MonthsEnded


EndedDecember 31,


December 31,(In thousands)

2007


2006


2007


2006Cost of goods manufactured

$
319


$
931


$
1,279


$
2,094Research and development


2,055



1,897



5,691



6,965Selling, general and administrative


2,808



4,672



8,507



13,159Total

$
5,182


$
7,500


$
15,477


$
22,218     5.
    INVESTMENTS        6.
    INVENTORY  first-in,
  December 31,


March 31,(In thousands)

2007


2007Raw materials

$
8,995


$
7,238Work in process


6,895



4,291Finished goods


7,164



6,661Total

$
23,054


$
18,190  9




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    ACCOUNTS
    PAYABLE AND ACCRUED EXPENSES    December 31,


March 31,(In thousands)

2007


2007Accounts payable

$
9,127


$
12,097Accrued expenses related to collaborative arrangements


747



16,155Accrued compensation


9,385



10,917Accrued other


10,699



6,686Total

$
29,958


$
45,855   8.
    SALE OF
    INVESTMENT IN RELIANT PHARMACEUTICALS, INC.      9.
    INCOME
    TAXES       10




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        10.
    LEGAL
    MATTERS     11




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ALKERMES,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      11.
    SEGMENT
    INFORMATION    12.
    TREASURY
    STOCK    13.
    SUBSEQUENT
    EVENTS   12




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Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  ® ® ®
    Forward-Looking
    Statements
    scale-up
 13




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and/or
    Our
    Strategy
    Product
    Developments
  RISPERDAL
    CONSTA
  ®
     14




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VIVITROL
    country-by-country
  agreed-upon
  AIR
    Insulin
   15




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Exenatide
    Once Weekly
  ® and/or
    ALKS
    29
    ALKS
    27
  ®
   16




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AIR
    parathyroid hormone
    Critical
    Accounting Policies
  Form 10-K Form 10-K.
  Provision for Income Taxes 
  Accounting for Uncertainty in Income Taxes
      Results
    of Operations
         17




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18




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Nine MonthsThree Months Ended


EndedDecember 31,


December 31,(In thousands)

2007


2006


2007


2006Milestone revenue  cost recovery(a)

$



$
7,250


$
5,256


$
50,836Milestone revenue  license


1,312



1,195



3,932



3,778Total milestone revenue  cost recovery and license


1,312



8,445



9,188



54,614Payments to Cephalon to reimburse their net losses up to the
    cumulative loss cap










(5,223
)


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


3,815







14,060



Net collaborative profit

$
5,127


$
8,445


$
18,025


$
29,798     (a)
    
    Through December 31, 2007, the cumulative net losses on
    VIVITROL were $169.1 million, of which $65.3 million
    was incurred by us on behalf of the collaboration and
    $103.8 million was incurred by Cephalon on behalf of the
    collaboration.     19




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20




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21




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Accounting for Certain Investments in
    Debt and Equity Securities
      Financial
    Condition
       22




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Form 10-Q
 23




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Liquidity
    and Capital Resources
        and/or
        Contractual
    Obligations
  Form 10-K
 24




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Off-Balance
    Sheet Arrangements
    Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk            Foreign
    Currency Exchange Rate Risk
   25




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Item 4.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rule 13a-15(e)
  (b)
    Change
    in Internal Control over Financial Reporting   26




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PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Form 10-Q Form 10-K
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Approximate DollarTotal


Value of SharesNumber of Shares


that May YetTotal Number


Average


Repurchased as


be Repurchasedof Shares


Price Paid


Part of a Publicly


Under thePeriod

Repurchased(a)


per Share


Announced Program(a)


Programs(a)(In thousands, except share and per share amounts)October 1 through October 31













$
2,508November 1 through November 30


828,600


$
14.09



828,600


$
165,833December 1 through December 31


1,090,727


$
14.62



1,090,727


$
149,887Total


1,919,327


$
14.39



1,919,327     (a)
    
    In September 2005, our Board of Directors authorized a program
    to repurchase up to $15.0 million of our common stock to be
    repurchased at the discretion of management from time to time in
    the open market or through privately negotiated transactions.
    The repurchase program has no set expiration date and may be
    suspended or discontinued at any time. We publicly announced the
    share repurchase program in our press release for the fiscal
    2006 second quarter financial results dated November 3,
    2005. No shares were purchased under this program during the
    nine months ended December 31, 2007. No repurchase
    authorization remains outstanding under this program as of
    December 31, 2007.In November 2007, our Board of Directors authorized a program to
    repurchase up to $175.0 million of our common stock to be
    repurchased at the discretion of management from time to time in
    the open market or through privately negotiated transactions.
    The repurchase program has no set expiration date and may be
    suspended or discontinued at any time. We publicly announced the
    share repurchase program in our press release dated
    November 21, 2007. The approximate dollar value of shares
    that may yet be purchased under this program is
    $149.9 million as of December 31, 2007.     27




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Item 4.
    Submission
    of Matters to a Vote of Security Holders  form 10-Q
  Item 6.
    Exhibits    ExhibitNo.10
.1

Employment Agreement, dated as of December 12, 2007, by and
    between Richard F. Pops and the Registrant.10
.2

Employment Agreement, dated as of December 12, 2007, by and
    between David A. Broecker and the Registrant.10
.3

Form of Employment Agreement, dated as of December 12,
    2007, by and between the Registrant and each of Kathryn L.
    Biberstein, Elliot W. Ehrich, M.D., James M. Frates,
    Michael J. Landine, Gordon G. Pugh.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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SIGNATURES    
  By:
    /s/  David
    A. Broecker      By:
    /s/  James
    M. Frates       29




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EXHIBIT INDEX  ExhibitNo10
.1

Employment Agreement, dated as of December 12, 2007, by and
    between Richard F. Pops and the Registrant.10
.2

Employment Agreement, dated as of December 12, 2007, by and
    between David A. Broecker and the Registrant.10
.3

Form of Employment Agreement, dated as of December 12,
    2007, by and between the Registrant and each of Kathryn L.
    Biberstein, Elliot W. Ehrich, M.D., James M. Frates,
    Michael J. Landine, Gordon G. Pugh.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