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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997

[ ]      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 0-26758

                        ALKERMES CLINICAL PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                <C>
                  DELAWARE                                       043-145043
(State or other jurisdiction of organization)      (I.R.S. Employer Identification No.)
</TABLE>

     64 Sidney Street, Cambridge, MA                                  02139-4136
 (Address of principal executive offices)                             (Zip Code)

Registrant's telephone number including area code:                (617) 494-0171


Securities registered pursuant to Section 12(b) of the Act:                 None


Securities registered pursuant to Section 12(g) of the Act: Class A Limited
Partnership Interest (Title of Class)

         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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]

         State the aggregate market value of voting stock held by non-affiliates
of the Registrant: There is no voting equity security of the Registrant and
there is no market, public or private, for the equity securities of the
Registrant.

         NO DOCUMENTS ARE INCORPORATED BY REFERENCE IN THIS REPORT
ON FORM 10-K.
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ITEM 1.  BUSINESS

         The following Business section contains forward-looking statements
which involve risks and uncertainties. The Partnership's and the Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Important Factors Regarding Forward-Looking Statements."

GENERAL

         Alkermes Clinical Partners, L.P. (the "Partnership") was formed in
February 1992 under the laws of the State of Delaware. The Partnership operates
pursuant to an Agreement of Limited Partnership, dated as of February 7, 1992,
as amended. The sole general partner of the Partnership, Alkermes Development
Corporation II, a Delaware corporation (the "General Partner"), is a wholly
owned subsidiary of Alkermes, Inc. ("Alkermes" or the "Company"). The limited
partners of the Partnership are investors who purchased Class A and Class B
limited partnership interests in the Partnership in a private placement that
closed in April 1992 and their transferees. See "The Private Placement and
Warrant Exchange."

         The principal objective of the Partnership is to develop and derive
income from the sale or license of a family of molecules designated by Alkermes
as Receptor-Mediated Permeabilizers(TM) ("RMPs(TM)") for human pharmaceutical
use in the United States and Canada. The principal technology is Cereport(TM),
formerly known as RMP-7(TM), a product candidate designed to facilitate drug
delivery to the central nervous system.

         Cereport, a member of the family of RMPs, is a nine amino acid peptide
based on bradykinin, a compound occurring naturally in the body and known to
affect vascular permeability. Cereport is a proprietary, synthetic analog of
bradykinin developed to increase transiently the permeability of the blood-brain
barrier. Following injection, Cereport increases permeability by triggering a
brief relaxation of the tight cellular junctions of the blood-brain barrier.
During the time the tight junctions are relaxed, permeability is increased and
drug molecules in the bloodstream can diffuse into the brain in concentrations
greater than can usually be achieved without Cereport. Preclinical and clinical
data also suggest that Cereport can be administered at doses that selectively
increase permeability in the region of brain tumor and other pathology while not
significantly affecting permeability in healthy brain tissue.

         Cereport exerts a pharmacologic effect on the vasculature of the brain
and does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. The Partnership, through a Product Development Agreement
with Alkermes described below, is developing Cereport to be manufactured,
packaged and dispensed as a standalone product. In the clinical setting,
Cereport is administered in conjunction with a therapeutic or diagnostic agent.
Timing of Cereport administration relative to that of the therapeutic or


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diagnostic agent is determined on a drug by drug basis to optimize barrier
permeability during the time of peak drug plasma concentrations.

         Cereport is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with it. The
General Partner believes Cereport may be administered along with cancer
chemotherapeutic and anti-infective agents not currently used in the treatment
of central nervous system disorders because of their limited ability to
penetrate the blood-brain barrier.

         Based on the successful completion of Phase I and Phase I/II clinical
trials, Alkermes initiated multiple Phase II clinical trials for intravenous and
intra-arterial Cereport and carboplatin in patients with recurrent malignant
glioma. Three multi-center Phase II clinical trials of intravenous Cereport and
carboplatin and one multi-center Phase II clinical trial of intra-arterial
Cereport and carboplatin were completed. The results of the three Phase II
intravenous Cereport clinical trials have provided the basis for the Company's
decision to proceed into a Phase III clinical trial of intravenous Cereport and
carboplatin in newly diagnosed patients with brain tumor in the United States
and Europe.

         Alkermes intends to commence a Phase III clinical trial of intravenous
Cereport and carboplatin in newly diagnosed patients with brain tumor. This
trial has been designed as a randomized controlled Phase III clinical trial of
Cereport administered in combination with carboplatin in patients with newly
diagnosed glioblastoma multiforme, the highest grade and most rapidly fatal
classification of primary brain tumor.

         As of September 30, 1997, Alkermes entered into an agreement with ALZA
Corporation ("ALZA") relating to the development and commercialization of
Cereport. Under the terms of the agreement, ALZA has an option to obtain
exclusive worldwide commercialization rights to Cereport, subject to the rights
of the Partnership. See "Collaboration with ALZA Corporation."

THE PRIVATE PLACEMENT AND WARRANT EXCHANGE

         On April 10, 1992, Alkermes and the Partnership sold in a private
placement (the "Private Placement") (i) 920 Class A units (the "Class A Units"),
each unit consisting of one Class A limited partnership interest in the
Partnership, a 1992 warrant (a "Class A 1992 Warrant") to purchase 2,800 shares
of the Company's Common Stock, par value $.01 per share ("Common Stock"), and a
1995 warrant (the "Class A 1995 Warrants") to purchase 300 shares of Common
Stock, and (ii) one Class B unit (the "Class B Unit") consisting of one Class B
limited partnership interest in the Partnership, a 1992 warrant (the "Class B
1992 Warrant") to purchase 5,600 shares of Common Stock and a 1995 warrant (the
"Class B 1995 Warrant") to purchase 600 shares of Common Stock. The purchase
price was $50,000 for each Class A Unit and $100,000 for the Class B Unit.
Certain persons employed by or affiliated with Alkermes or PaineWebber
Development Corporation, the


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sales agent for the Units (the "Sales Agent"), or its affiliates were entitled
to purchase units for $47,000, and Alkermes, the Sales Agent and its affiliates
were entitled to purchase units for $45,000.

         The Class A 1992 Warrants, the Class A 1995 Warrants, the Class B 1992
Warrant and the Class B 1995 Warrant were issued by Alkermes in consideration of
the grant by each limited partner to Alkermes of an option to purchase, under
certain circumstances, the limited partnership interest held by such limited
partner. See "The Purchase Agreement."

         The Class A 1992 Warrants and the Class B 1992 Warrant may be exercised
during the period which began on August 1, 1994 and ends on July 31, 1999, and
upon the payment of a warrant exercise price per share of $20.03. The Class A
1995 Warrants and the Class B 1995 Warrant may be exercised during the period
which began on April 15, 1995 and ends on April 14, 2000, and upon the payment
of a warrant exercise price per share of $3.54.

          The Sales Agent purchased the Class B Unit in the Private Placement.
An affiliate of the Sales Agent (the "Fund Affiliate") purchased 133 Class A
Units in the Private Placement. In consideration of such purchase, the Company
issued to the Fund Affiliate a warrant to purchase 13,300 shares of Common Stock
(the "Fund Warrant"). The Fund Warrant had the same exercise period and exercise
price ($20.03) as the Class A 1992 Warrants. As part of the Private Placement,
the Company also issued to an affiliate of the Sales Agent (the "Incentive
Affiliate") a warrant to purchase 77,100 shares of Common Stock (the "Incentive
Warrant"). The Incentive Warrant had an exercise period which began on August 1,
1994 and ended on July 31, 1997 and had a warrant exercise price per share of
$20.83.

         The Company completed an exchange offer on January 27, 1995 with
respect to the foregoing warrants. Pursuant to the exchange offer, Class A
limited partners ("Class A Limited Partners") had the option to exchange both
the Class A 1992 Warrants and the Class A 1995 Warrants for a new 1994 Class A
Warrant to purchase, at $5.00 per share, 1,700 shares of the Company's Common
Stock for every 3,100 shares of Common Stock issuable upon exercise of the Class
A 1992 Warrant and Class A 1995 Warrant exchanged therefor. The Sales Agent (the
"Class B Limited Partner") had the option to exchange both the Class B 1992
Warrant and the Class B 1995 Warrant for a new 1994 Class B Warrant to purchase
3,400 shares of the Company's Common Stock at $5.00 per share. The Fund
Affiliate had the option to exchange the Fund Warrant for a new 1994 Fund
Warrant to purchase 7,293 shares of Common Stock at $5.00 per share. The
Incentive Affiliate had the option to exchange the Incentive Warrant for a new
1994 Incentive Warrant to purchase 42,280 shares of Common Stock at $5.25 per
share. The 1994 Class A Warrants, 1994 Class B Warrant, and 1994 Fund Warrant
are exercisable during the period which began on April 1, 1995 and ends on March
31, 2000. The 1994 Incentive Warrant is exercisable during the period which
began on April 1, 1995 and ends on March 31, 1998.


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         Holders of approximately 92% of the Class A 1992 Warrants and the Class
A 1995 Warrants originally issued exchanged such warrants in response to the
exchange offer. The Sales Agent, the Fund Affiliate and the Incentive Affiliate
also exchanged the warrants they acquired in the Private Placement for new 1994
warrants.


THE PRODUCT DEVELOPMENT AGREEMENT

         The Partnership entered into a Product Development Agreement, dated as
of March 6, 1992, with Alkermes (the "Product Development Agreement") pursuant
to which Alkermes granted to the Partnership an exclusive, royalty-free license
to certain patent rights and other technology owned or controlled by the Company
related to RMPs (the "Background Technology"). The license granted to the
Partnership is limited to Background Technology necessary or materially useful
for the development and commercialization of products based on RMPs (each a
"Product") for human pharmaceutical use in the United States and Canada (the
"Field of Activity").

         Under the Product Development Agreement, the Partnership granted to
Alkermes an exclusive, royalty-free license to all patent rights and other
technology arising from research and development conducted under the Product
Development Agreement (the "Program Technology" which, taken together with the
Background Technology, comprises the "Technology") for exploitation outside the
Field of Activity.

         Alkermes has agreed, pursuant to the Product Development Agreement, to
the extent permitted by Partnership funds (including any funds which the Company
may, in its discretion, elect to contribute to the Partnership) to use its best
efforts to perform the research and development necessary to engage in the Field
of Activity (the "Research Program"). Through June 30, 1996, the Partnership
reimbursed Alkermes for its research and development expenses on behalf of the
Partnership and paid a management fee equal to ten percent (10%) of such
expenses.

         The Partnership's funds have been expended and no United States Food
and Drug Administration ("FDA") marketing approval has been received for the
sale by or on behalf of the Partnership of any Product in the Field of Activity.
In such an event, the Product Development Agreement provides that the General
Partner is to determine the amount of additional funds required by the
Partnership in the upcoming year, and the Company will have the right, in its
sole discretion, to contribute such funds to the Partnership or to pay such
funds in any manner to which the Company and the General Partner agree
(including the direct payment of research and development expenses). The Company
is paying and intends to continue to pay research and development expenses
directly.

         The Company has agreed to use its best efforts to manufacture and
market the Products in the Field of Activity directly or through third parties
in the United States and

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Canada in accordance with the marketing program approved by the Board of
Directors of the General Partner (the "Marketing Program"). If at any time the
Board of Directors of the General Partner shall determine to discontinue the
Marketing Program with respect to any Product or Products, the Company's
obligation to market such Product or Products will cease.

         Prior to the end of each quarter of each year, the General Partner
reviews the progress of the Research Program during the preceding three-month
period to determine whether the continuation of all or any part thereof is in
the best interests of the Limited Partners. The General Partner is to begin
similar reviews of the Marketing Program after the beginning of Phase II/III
clinical trials for RMPs. If at any time the Board of Directors of the General
Partner determines that the Research Program is infeasible or uneconomic and
should be discontinued with respect to one or more products, or if the Board of
Directors of the General Partner determines to discontinue the Marketing Program
with respect to all Products, or if the Company decides not to contribute the
additional funds to the Partnership which are determined by the General Partner
to be required when all Partnership funds have been expended and no FDA
marketing approval has been received for the sale of any product in the Field of
Activity, the Product Development Agreement and the Purchase Option (as defined
below under "The Purchase Agreement") will terminate.

         The Partnership granted to the Company a royalty-bearing right and
license to make, use, modify and improve the Technology within the Field of
Activity (the "Interim License"). The Company has agreed to pay to the
Partnership within 60 days after the end of each calendar quarter until the
Interim License terminates a payment equal to twelve percent (12%) of revenues
on sales of RMPs in the United States and Canada. The Company has also agreed to
pay to the Partnership, to the extent necessary to allow the Partnership to pay
projected distributions in any calendar year, quarterly payments equal to ten
percent (10%) of revenues on sales of RMPs in Europe. The Company will be
required, under certain circumstances, to make payments to the Partnership in an
amount equal to a percentage of the revenues of the Company from the sale of
certain products which are competitive with any of the Partnership's products,
which percentage of revenues will be no greater than one-half of the applicable
percentage of revenues on sales of products. Any payments based on sales of RMPs
in Europe may be reduced if such sales are made through sublicensees or other
third parties. All such payments are referred to as "Interim License Payments."
In addition, the Company has agreed to pay to the Partnership a milestone
payment (the "Milestone Payment") equal to twenty percent (20%) of the aggregate
capital contributions of all Partners, payable, at the Company's option, in cash
or shares of Common Stock, upon the receipt of the first approval from the FDA
to market any product in the Field of Activity. The Partnership Agreement
provides for the allocation of such payments among the Partners.

         Upon termination of the Interim License (which will occur upon exercise
or termination of the Purchase Option), any royalties on sales of certain
competitive products

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will be payable until the fifth anniversary of such termination. Upon
termination of the Interim License, the Company has also agreed to pay to the
Partnership, to the extent necessary to pay projected distributions to the
partners in any year, payments of ten percent (10%) of the Company's revenues on
sales of RMPs in Europe, and after each Class A Limited Partner has received
payments under the Partnership Agreement aggregating eight hundred percent
(800%) of its capital contribution, such payments will be reduced to nine
percent (9%) of the Company's revenues on sales of RMPs in Europe, and after
each Class A Limited Partner has received payments under the Partnership
Agreement aggregating one thousand percent (1,000%) of its capital contribution,
such payments will be reduced to four percent (4%) of the Company's revenues on
sales of RMPs in Europe. Any payments based on European sales of certain
competitive products and RMPs may be reduced if such sales are made through
sublicensees or other third parties. Any payments based on European sales of
RMPs will terminate on the last day of the calendar quarter in which the
eleventh anniversary of the exercise or termination of the Purchase Option
occurs.

         The Company has agreed to file patent and similar applications, at the
expense of the Partnership, that it or the Partnership believes in its
reasonable business judgment are necessary or useful to protect the
Partnership's interest in the Technology and has agreed to use reasonable
diligence to prosecute and maintain in force such applications and any resultant
patents or similar rights.

         The Company will have the right but not the obligation to bring patent
infringement actions against third parties that infringe any of the
Partnership's rights with respect to the Technology. The Company has agreed to
pay all expenses (including attorneys' fees) incurred in connection with such
infringement action, subject to reimbursement to the extent described below. If
as a result of any such infringement action, a judgment is executed in favor of
the Company or a settlement is reached with the infringing party, the Company
has agreed to divide the proceeds thereof between itself and the Partnership in
proportion to their respective relative economic interests in the Technology
affected by such judgment or settlement giving consideration to the countries
and Products involved. Expenses incurred by the Company in bringing such action
are to be allocated between the Partnership and the Company in the same
proportions as the proceeds thereof. The Partnership's allocation of such
expenses is to be reimbursed by the Partnership to the Company out of the
proceeds received by the Partnership. In addition, the Partnership will retain
the right to maintain such patent infringement actions, at its own expense,
should the Company fail to do so.


THE PURCHASE AGREEMENT

         The Company entered into a purchase agreement dated as of March 6, 1992
(the "Purchase Agreement") with each investor in the Private Placement and the
Class B Limited Partner. Under the terms of the Purchase Agreement, each Class A
Limited Partner and the Class B Limited Partner granted to the Company an
irrevocable option (the "Purchase


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Option") to purchase his, her or its interest in the Partnership (a "Class A
Partnership Interest" or "Class B Partnership Interest" as applicable). The
Purchase Option is exercisable only if all Class A and Class B Partnership
Interests (collectively, the "Partnership Interests") are to be purchased and
such option is exercised by sending a notice to all Class A and Class B Limited
Partners on a date during the 45-day period commencing on the date which is the
earlier of (a) the date which is the last day of the first month in which the
Partnership shall have received Interim License Payments equal to fifteen
percent (15%) of the Limited Partner's Capital Contributions (excluding the
Milestone Payment) and the last day of the twenty-fourth full month after the
date of the Company's first commercial sale of any Product within the Field of
Activity and (b) the last day of the forty-eighth full month after the date of
such first commercial sale. The date of purchase (if any) of the Partnership
Interests (the "Purchase Date") pursuant to the Purchase Agreement must take
place within 60 days after the Purchase Option is exercised.

         The Purchase Option will terminate upon the occurrence of any of the
following termination events: (i) the bankruptcy of the Company, (ii) the
cessation of operations by the Company, (iii) the seizure or attachment of all
or a substantial part of the Company's assets or (iv) the termination of the
Research Program or the Marketing Program. In addition, the Purchase Option will
terminate upon the earlier of (a) the Company's notice to the Partnership and
the Limited Partners that it does not intend to exercise the Purchase Option or
(b) the expiration unexercised of the Purchase Option. Upon any such
termination, the Partnership will be free to license or sell the Technology. The
Purchase Option will also terminate on the Purchase Date.

         If the Company exercises the Purchase Option, the Company has agreed to
pay to each Class A Limited Partner an advance payment of $40,000 per Class A
Partnership Interest plus certain royalty payments, both of which are payable in
the manner described below. The advance payment may be paid, at the Company's
option, in (i) cash, or (ii) Common Stock in an amount equal to the number of
shares of Common Stock obtained by dividing $40,000 by ninety-five percent (95%)
of the average closing price per share of Common Stock for the 15 trading days
immediately preceding the fifth trading day prior to the date the Purchase
Option is exercised (subject to adjustments as aforesaid).

         Under the terms of the Purchase Agreement, the Company agreed that it
will, on or prior to the date that it exercises the Purchase Option, register
under the Securities Act of 1933, as amended, all shares of Common Stock to be
delivered to partners under the Purchase Agreement. Shares of Common Stock may
be used to make the advance payment only if they are then listed on a national
securities exchange or quoted on the Nasdaq National Market.

         In addition to the advance payment described above, but subject to the
limitations stated below, each Class A Limited Partner is to receive quarterly
payments equal to such Class A Limited Partner's pro rata portion (based on the
ratio that such Class A Limited

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Partner's capital contribution to the Partnership bears to the aggregate capital
contributions of (i) all Limited Partners or (ii) after the Class B Threshold
Date (as defined below), all Class A Limited Partners) of (i) twelve percent
(12%) of revenues on sales of RMPs in the United States and Canada and (ii) ten
percent (10%) of revenues on sales of RMPs in Europe, and after each such Class
A Limited Partner has received payments pursuant to the Purchase Agreement
aggregating eight hundred percent (800%) of his capital contribution, such
royalties will be reduced to nine percent (9%) in the United States, Canada and
Europe and after each such Class A Limited Partner has received payments
pursuant to the Purchase Agreement aggregating one thousand percent (1,000%) of
his capital contribution, such royalties will be reduced to four percent (4%) in
the United States, Canada and Europe, in each case provided that royalties on
sales of RMPs in Europe will be payable only to the extent necessary to pay
projected distributions in any calendar year; and provided further, that
royalties on sales of RMPs in Europe may be reduced if such sales are made
through sublicensees or other third parties. Beginning with the first day (the
"Class B Threshold Date") of the calendar quarter following the calendar quarter
by the end of which each Class A Limited Partner will have received
distributions pursuant to the Partnership Agreement and the Purchase Agreement
in an aggregate amount equal to or greater than $50,000 for each Unit (or
$25,000 for each half Unit owned by such Class A Limited Partner), the Class A
Limited Partners will receive only ninety-five percent (95%) of the above
royalties. Such royalties will terminate on the last day of the calendar quarter
in which the eleventh anniversary of the Purchase Date occurs (the "Cut-Off
Date"). Under certain circumstances, Limited Partners will also receive
royalties in an amount equal to a percentage of the revenues of the Company from
the sale of certain products which are competitive with any Product, which
percentage of revenues will be no greater than one half of the applicable
percentage of revenues on sales of Products.

         If Alkermes exercises the Purchase Option, the Class B Limited Partner
is to receive, in addition to an advance payment of $80,000, payable in cash or
stock in the same manner as described above for Class A Limited Partners,
quarterly payments equal to (i) prior to the date on which the Class B Threshold
occurs, the Class B Limited Partner's pro rata portion (based upon the ratio
that the Class B Limited Partner's capital contribution bears to the aggregate
capital contributions of all Limited Partners) of the royalties described in the
previous paragraph and (ii) beginning with the date the Class B Threshold occurs
and ending with the Cut-Off Date, five percent (5%) of all such royalties.

         The Purchase Agreement provides that, at any time after the Company has
purchased the Partnership Interests, the Company will have the right to make
offers to pay cash or other consideration in satisfaction of its outstanding
royalty payment obligations under the Purchase Agreement. If at any time holders
of at least sixty-six and two-thirds percent (66-2/3%) in value of the
Partnership Interests of all former Class A Limited Partners ("Class A Royalty
Payment Recipients") shall have accepted the terms of any such offer, the
Company will have the right, for 60 days after the date on which such Class A
Royalty Payment Recipients have indicated acceptance, to prepay its obligations
to all such Class A



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Royalty Payment Recipients. Such prepayment will be on the terms of the most
recent offer accepted by such Class A Royalty Payment Recipients.

         The Company also agreed to use its best efforts to manufacture Products
and to sell the products for use in the Field of Activity. If the Company
determines that such manufacture and sale is not commercially practicable, it
has agreed to use its best efforts to license or sell the Technology to a third
party.

         The Company is not permitted to assign, delegate or transfer its rights
under the Purchase Agreement (with certain exceptions) without the prior written
consent of (i) sixty-six and two thirds percent (66-2/3%) in interest of the
Class A Royalty Payment Recipients for which the Company shall not have made all
payments required to be made pursuant to the Purchase Agreement and (ii) the
Class B Limited Partner, which consent shall not be unreasonably withheld. The
Partnership Agreement provides for the allocation among the Limited Partners of
any proceeds resulting from the assignment, delegation or transfer of the
Company's rights under the Purchase Agreement. The Limited Partners are not
permitted to assign, transfer, or sell their rights under the Purchase Agreement
without the prior written consent of the Company, which consent may be withheld
in the Company's absolute discretion, except that (i) the Limited Partners may
assign the Common Stock delivered to them pursuant to the Purchase Agreement and
(ii) the Class B Limited Partner may assign its rights to any present or former
officer(s) or director(s) of PaineWebber Development Corporation.

CEREPORT

         Cereport is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability.
Cereport is a proprietary, synthetic analog of bradykinin developed by Alkermes
on behalf of the Partnership pursuant to the Product Development Agreement, to
increase transiently the permeability of the blood-brain barrier. Following
injection, Cereport increases permeability by triggering a brief relaxation of
the tight cellular junctions of the blood-brain barrier. During the time the
tight junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without Cereport. Preclinical and clinical data also suggest
that Cereport increases the uptake of pharmaceuticals in the region of brain
tumor and other pathology.

         Cereport exerts a pharmacologic effect on the vasculature of the brain
and does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. In the clinical setting, Cereport is administered in
conjunction with the therapeutic or diagnostic agent. Timing of Cereport
administration relative to that of the therapeutic or diagnostic agent is
determined on a drug-by-drug basis to optimize barrier permeability during the
time of peak drug plasma concentrations.



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         Cereport is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with it. The
General Partner believes Cereport may be administered along with cancer
chemotherapeutic and anti-infective agents not currently used in the treatment
of central nervous system disorders because of their limited ability to
penetrate the blood-brain barrier.

         Cereport has the potential to be used in combination with a variety of
agents in various disease settings. The goal of the General Partner is to expand
the applications of Cereport through its own development activities through the
Product Development Agreement and, when appropriate, collaborations with
pharmaceutical companies. Alkermes may collaborate with companies having drugs
whose uses could be expanded to include central nervous system indications. In
such cases, Alkermes and its partner could collaborate in the clinical
development of the combination without any exchange of product rights.

BRAIN TUMOR

         Cereport is being tested for the treatment of primary brain tumor,
recurrent malignant glioma, metastatic brain tumor and pediatric brain tumor.
Brain tumors can be classified into two major groups: primary brain tumors,
which originate and recur in the brain, and metastatic brain tumors, which are
tumors that have spread to the brain from other parts of the body. Each year in
the United States and Europe a total of 40,000 patients are diagnosed with
primary brain tumors, of which approximately 60%-70% are malignant glioma, and
150,000 patients are diagnosed with metastatic brain tumors.

         Current treatment for brain tumors is limited and inadequate. Standard
treatment typically involves surgery to remove cancerous tissue, followed by
radiation therapy. After initial treatment with surgery and/or radiotherapy,
brain tumors often recur. Upon recurrence, tumors typically progress rapidly,
neurological function and quality of life deteriorate and patients die within
months. Chemotherapy has played only a limited role in treatment, in part due to
the limited access of many chemotherapeutic agents to the brain because of the
normally restrictive blood-brain barrier. Carboplatin is a chemotherapeutic
approved for use by the FDA and other regulatory authorities worldwide for use
in the treatment of various tumor types outside of the brain, but is limited in
its ability to penetrate into the brain. Cereport is designed to enable more
effective use of chemotherapeutic agents like carboplatin in the treatment of
brain tumors by transiently increasing the permeability of the blood-brain
barrier.

         Alkermes is pursuing two alternative treatment strategies for Cereport
and carboplatin in patients with malignant brain tumor; intravenous and
intra-arterial administration. The Company believes that pursuing both treatment
methods strengthens the scientific foundation of the clinical trials program and
increases the likelihood of observing a treatment effect in patients.


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RECURRENT MALIGNANT GLIOMA CLINICAL TRIALS

     The General Partner's clinical strategy for Cereport has been to establish
a foundation of safety and pharmacologic effect of increasing blood-brain
barrier permeability prior to entering Phase III clinical trials of Cereport
administered in combination with carboplatin. To date, over 600 human subjects
have received Cereport in a series of clinical trials in all indications
studied. Through the Phase I and Phase I/II clinical trials, Cereport was shown
to have a good safety profile in volunteers and patients. Transient flushing was
the most consistent adverse event noted and nausea and vomiting were determined
to be the dose limiting toxicity. There was no evidence of increased toxicity
associated with the combination of Cereport and carboplatin, and the drug
combination was generally well tolerated by patients.

         Based on the successful completion of Phase I and Phase I/II clinical
trials, Alkermes initiated multiple Phase II clinical trials both of intravenous
and intra-arterial Cereport and carboplatin in patients with recurrent malignant
glioma. Three multi-center Phase II clinical trials of intravenous Cereport and
carboplatin and one multi-center Phase II clinical trial of intra-arterial
Cereport and carboplatin were completed. The results of the three Phase II
intravenous Cereport clinical trials provide the basis for the Company's
decision to proceed in the United States and Europe into a Phase III clinical
trial of intravenous Cereport and carboplatin in patients with brain tumor.

NEWLY DIAGNOSED BRAIN TUMOR:  PHASE III CLINICAL TRIAL

         Alkermes intends to commence a Phase III clinical trial of intravenous
Cereport and carboplatin in newly diagnosed patients with brain tumor. This
Phase III study is a randomized controlled Phase III clinical trial of Cereport
administered in combination with carboplatin in patients with newly diagnosed
glioblastoma multiforme, the highest grade and most rapidly fatal classification
of primary brain tumor.

         In the study, patients will be randomized to receive one of three
treatments following their initial surgery or biopsy and prior to standard
radiotherapy; (i) the combination of Cereport/carboplatin administered once
every three weeks for up to three months (four cycles), followed by standard
radiotherapy, (ii) the combination of placebo/carboplatin administered once
every three weeks for up to three months (four cycles), followed by standard
radiotherapy, or (iii) no chemotherapy prior to standard radiotherapy.

         The Phase III trial is being initiated following the completion of a
series of Phase I and Phase II studies of Cereport/carboplatin in over 200
patients with recurrent brain tumor. These studies provide extensive evidence of
the safety of the combination of Cereport and carboplatin and of preliminary
efficacy in recurrent brain tumor patients as measured by MRI response rates,
objective functional assessment and survival. Further, these studies showed that
patients who had received less previous treatment (radiotherapy and/or
chemotherapy)


                                       12
<PAGE>   13
had better outcomes than more heavily pretreated patients. Based on these data,
the Phase III study is focused on the treatment of newly diagnosed patients
immediately following initial surgery. Treatment at this time, prior to the
damaging effects of radiotherapy, is expected to provide the greatest clinical
benefit to patients.

RECURRENT MALIGNANT GLIOMA:  INTRA-ARTERIAL PHASE II CLINICAL TRIAL

         Alkermes initiated a multi-center, open label Phase II clinical trial
in the United States of intra-arterial Cereport and carboplatin in March 1996.
Enrollment of 51 patients with recurrent malignant glioma was completed in
September 1996 at nine medical centers. The preliminary results showed that
treatment with intra-arterial Cereport and carboplatin was generally well
tolerated, and resulted in positive responses in 63% of patients as measured by
stabilization or reduction in tumor volume as measured by MRI, and overall
median survival of 47 weeks.

METASTATIC BRAIN TUMOR CLINICAL TRIAL

         Alkermes initiated a multi-center Phase I/II non-controlled, open label
clinical trial in Europe of intravenous Cereport and carboplatin in patients
with metastatic brain tumor in April 1996. The study is currently being
conducted at two medical centers and is expected to enroll approximately 80
patients.

         Alkermes also initiated a Phase I/II non-controlled, open label
clinical trial in the United States of intra-arterial Cereport and carboplatin
in patients with metastatic brain tumor in October 1995. The study is being
conducted at one medical center and is expected to enroll approximately 18
patients.

PEDIATRIC BRAIN TUMOR CLINICAL TRIAL

         In August 1996, Alkermes, in collaboration with the Pediatric Branch of
the National Cancer Institute ("NCI"), initiated a non-controlled, open label
Phase I/II clinical trial of intravenous Cereport and carboplatin in pediatric
brain tumor patients who had failed other therapies. The study is being
sponsored and conducted by the Pediatric Branch of the NCI and is expected to
enroll approximately 24 patients.

COLLABORATION WITH ALZA CORPORATION

         As of September 30, 1997, Alkermes and ALZA entered into an agreement
relating to the development and commercialization of Cereport. Under the terms
of the agreement, ALZA made a $10.0 million upfront payment to Alkermes to fund
clinical development; in return, ALZA has the option to acquire exclusive
worldwide commercialization rights to Cereport, subject to the rights and
obligations of the Partnership. If ALZA chooses to exercise its option, ALZA
will make additional payments to cover costs associated with


                                       13
<PAGE>   14
advanced clinical development. If Cereport is commercialized successfully by
ALZA, ALZA will pay Alkermes certain milestone payments. Alkermes would be
responsible for the manufacturing of Cereport, and the two companies would share
approximately equally in profits from sales of the product.

PATENTS AND PROPRIETARY RIGHTS

         The Partnership's success will be dependent, in part, on Alkermes'
ability to obtain patent protection for its and the Partnership's products, to
maintain trade secret protection and to operate without infringing upon the
proprietary rights of others.

         Alkermes has a proprietary portfolio of patent rights and exclusive
licenses to patents and patent applications. Alkermes has filed numerous United
States and international patent applications directed to composition of matter
as well as processes of preparation and methods of use, including applications
relating to: permeabilizers, certain rights to which have been licensed to the
Partnership, of which one United States patent was issued in each of May 1992,
December 1993, April 1996, December 1996 and November 1997. In the future, the
Company plans to file further United States and foreign patent applications
directed to new or improved products and processes. The United States patents
issued to the Company will expire between 2010 and 2014. Alkermes intends to
file additional patent applications when appropriate and intends to defend its
and the Partnership's patent positions aggressively.

         Alkermes has exclusive rights through a licensing agreement to two
issued United States patents and corresponding foreign patent applications in
many countries relating to RMPs. The United States patents that have been
licensed to the Company will expire in the year 2013. Under this licensing
agreement, the Company currently pays minimum annual royalties. During the
fiscal year ended March 31, 1997, such fees were $50,000. In addition, under all
licensing agreements, Alkermes is obligated to pay royalties on future sales of
products, if any, covered by the licensed patents.

         Two applications for patents were filed by a third party in the United
States and in Europe that contain claims covering certain analogs and uses
thereof of the same naturally occurring molecule on which Cereport is based. One
United States patent has issued from these applications. There can be no
assurance that the claims of the issued United States patent are not infringed
and the claims of future patents issuing from these applications, if any, will
not be infringed by the Partnership's or the Company's proposed manufacture, use
or sale of Cereport. There can be no assurance that Alkermes or the Partnership
would prevail in any legal action seeking damages or injunctive relief for
infringement of any patent that might issue under such applications or that any
license required under any such patent would be made available or, if available,
would be available on acceptable terms. There can be no assurance that the cost
of defending an infringement action would not be substantial and would not have
a material adverse effect on the Company's business, financial condition



                                       14
<PAGE>   15
and results of operations. Furthermore, there can be no assurance that any
licenses under any patent would be made available on commercially viable terms,
if at all. Failure to obtain a required license could result in the inability to
proceed with RMP-based products.

         The patent positions of pharmaceutical, biopharmaceutical and
biotechnology firms, including the Partnership and Alkermes, are generally
uncertain and involve complex legal and factual questions. In addition, there
can be no assurance that the Company's or its licensors' current patent
applications will be allowed or that the claims of any patents issued to
Alkermes or its licensors (in connection with either the Company's product
candidates or the Partnership's product candidate, or both) will be sufficiently
broad to protect the Company's or the Partnership's technology or to provide
Alkermes or the Partnership with any competitive advantages. Moreover, no
assurance can be given that patents issued to Alkermes (in connection with
either the Company's product candidates or the Partnership's product candidate,
or both), or its respective licensors, if any, will not be contested, narrowed,
invalidated or circumvented. In addition, if Alkermes or the Partnership brings
a patent infringement action or otherwise brings an action to protect its own
proprietary rights against third parties or is required to defend against a
charge of patent infringement, substantial costs could be incurred.

         In the future, the Partnership and the Company may be required to
obtain additional licenses to patents or other proprietary rights of third
parties. There can be no assurance that any such licenses will be available on
acceptable terms, if at all, and failure to obtain such licenses could result in
delays in marketing the Partnership's products or the inability to proceed with
the development, manufacture or sale of product candidates requiring such
licenses.

         The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.

         The Company's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Company. The agreements provide
that all confidential information developed or made known to an individual
during the course of the employment or consulting relationship shall be kept
confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual while employed by the Company shall be
the exclusive property of the Company. There can be no assurance, however, that
these agreements will provide


                                       15
<PAGE>   16
meaningful protection for the Company's or the Partnership's trade secrets in
the event of unauthorized use or disclosure of such information.


COMPETITION

         The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. The Partnership and Alkermes face, and
will continue to face, intense competition in the development, manufacturing,
marketing and commercialization of RMP product candidates from academic
institutions, government agencies, research institutions, biotechnology and
pharmaceutical companies, including its collaborators, and drug delivery
companies. The General Partner believes that there are currently no products
approved by the FDA for increasing the permeability of the blood-brain barrier.
There are, however, many novel experimental therapies for the treatment of brain
tumor and central nervous system infections being tested in the United States
and Europe. There can be no assurance that developments by others will not
render RMP product candidates or technologies obsolete or noncompetitive or that
the Company's collaborators will not choose to use competing drug delivery
methods. At the present time, Alkermes has no sales force, commercial
manufacturing capability or marketing experience. In addition, many of the
competitors and potential competitors of the Partnership and Alkermes have
substantially greater capital resources, manufacturing and marketing experience,
research and development resources and production facilities than does Alkermes.
Many of these competitors also have significantly greater experience than
Alkermes in undertaking preclinical testing and clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals. There
can be no assurance that the Company will be able to compete successfully with
such companies. The existence of products developed by the Company's
competitors, or other products or treatments of which the Company is not aware,
or products or treatments that may be developed in the future, may adversely
affect the marketability of products developed by the Company.

MANUFACTURING AND MARKETING

         Cereport is a small peptide manufactured using standard synthetic
techniques. Alkermes relies on an independent European pharmaceutical company
for the manufacture and supply of Cereport. Scale up of Cereport manufacturing
process to support international clinical trials and commercial launch has been
completed. The Partnership and Alkermes believe that, if necessary, there are
other companies which could manufacture and supply the requirements for
Cereport. Nevertheless, there can be no assurance that any manufacturer of
Cereport will continue to meet demands for quality, quantity, cost and
timeliness.

         As of September 30, 1997, Alkermes and ALZA entered into an agreement
relating to the development and commercialization of Cereport. Under the terms
of the agreement, ALZA made a $10.0 million upfront payment to Alkermes to fund
clinical development; in


                                       16
<PAGE>   17
return, ALZA has the option to acquire exclusive worldwide commercialization
rights to Cereport, subject to the rights and obligations of the Partnership. If
ALZA chooses to exercise its option, ALZA will make additional payments to cover
costs associated with advanced clinical development. If Cereport is
commercialized successfully by ALZA, ALZA will pay Alkermes certain milestone
payments. Alkermes would be responsible for the manufacturing of Cereport, and
the two companies would share approximately equally in profits from sales of the
product.

         Alkermes currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any product
candidate approved by the FDA, Alkermes must either develop a marketing and
sales force or enter into arrangements with third parties to market and sell its
products. There can be no assurance that Alkermes will successfully develop such
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations. To
the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues received by Alkermes
(and consequent payments to the Partnership or the Limited Partners, as
applicable) will be dependent on the efforts of others, and there can be no
assurance that such efforts will be successful.

GOVERNMENT REGULATION

         The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing facilities
are also regulated by state, local and other authorities.

         As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such


                                       17
<PAGE>   18
applications involves considerable data collection, verification, analysis and
expense. In responding to an NDA or PLA, the FDA may grant marketing approval,
request additional information or deny the application if it determines that the
application does not satisfy its regulatory approval criteria.

         Prior to marketing, any product developed by Alkermes for the
Partnership must undergo an extensive regulatory approval process, which
includes preclinical testing and clinical trials of such product candidate to
demonstrate safety and efficacy. This regulatory process can require many years
and the expenditure of substantial resources. Data obtained from preclinical
testing and clinical trials are subject to varying interpretations, which can
delay, limit or prevent FDA approval. In addition, changes in FDA approval
policies or requirements may occur or new regulations may be promulgated which
may result in delay or failure to receive FDA approval. Similar delays or
failures may be encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.

         Among the conditions for NDA or PLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with Good Manufacturing Process ("GMP"). Before
approval of an NDA or PLA, the FDA will perform a prelicensing inspection of the
facility to determine its compliance with GMP and other rules and regulations.
In complying with GMP, manufacturers must continue to expend time, money and
effort in the area of production and quality control to ensure full technical
compliance. After the establishment is licensed, it is subject to periodic
inspections by the FDA.

         The requirements which the Company must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its or the Partnership's products in such countries can be as rigorous and
costly as those described above.

         The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research. Compliance with laws and
regulations relating to the protection of the environment has not had a material
effect on capital expenditures, earnings or the competitive position of the
Company. However, the extent of government regulation which might result from
any legislative or administrative action cannot be accurately predicted.


                                       18
<PAGE>   19
EMPLOYEES

         The Partnership and the General Partner do not have any full-time
employees. As of December 31, 1997, Alkermes had 186 full-time employees. A
significant number of the Company's management and professional employees have
had prior experience with pharmaceutical, biotechnology or medical product
companies. Alkermes believes that it has been highly successful in attracting
skilled and experienced scientific personnel; however, competition for such
personnel is intense. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relations with employees to be
good.


ITEM 2.  PROPERTIES

         The Registrant and the General Partner do not own or lease any
property. Alkermes leases and occupies approximately 97,000 square feet of
laboratory and office space in Cambridge, Massachusetts, a portion of which is
used by Alkermes in the performance of its obligations to the Partnership, under
five leases expiring in the years 2001 to 2008. The leases contain provisions
permitting Alkermes to extend the term of such leases for up to ten years.
Alkermes believes that its Massachusetts facility is adequate for its
preclinical and clinical operations. Alkermes does not manufacture and does not
expect to manufacture Cereport for clinical trials. Alkermes has engaged a third
party to manufacture preclinical, clinical and commercial supplies of Cereport.


ITEM 3.  LEGAL PROCEEDINGS

         Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.



                                       19
<PAGE>   20
PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

         There is no trading market for the Limited Partnership Interests,
public or otherwise. Any transfer of a limited partnership interest is severely
restricted by certain conditions outlined in the Partnership Agreement, and
requires the consent of the General Partner which can be withheld in its sole
discretion.

         As of March 19, 1998, there was one holder of a General Partnership
Interest, one holder of a Class B Partnership Interest and 1,102 holders of
Class A Partnership Interests.

         There have been no cash distributions to the partners to date.
Distributions in the future, if any, will be made by the General Partner to the
partners as soon as practicable after the end of any fiscal quarter, in
proportion to the partners' respective capital accounts as of the end of such
quarter. Distributable cash, which must be distributed to the partners, is
generally defined as the excess of cash revenues over certain expenditures and
other amounts determined by the General Partner to be necessary for the proper
operation of the Partnership's business. The capital account of each partner
will be increased by such partner's cash contributions (net of selling
commissions, investment banking fees, warrant valuation fees and financial
advisory fees allocated to the Partner) to the Partnership decreased by the
amount of any cash distribution and the fair market value of other property from
the Partnership to such partner, and increased or decreased by such partner's
allocation of the net gain or loss of the Partnership for Federal income tax
purposes ("Profits" and "Losses", respectively). Partnership profits and losses
are allocated 99% to the Limited Partners (pro rata to their capital accounts)
and 1% to the General Partner.



                                       20
<PAGE>   21
ITEM 6.  SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                  Year Ended December 31,

                                1993               1994              1995             1996            1997
                                ----               ----              ----             ----            ----

<S>                         <C>                <C>                <C>               <C>              <C>
Statements of
Operations Data (1):

Total Revenues              $    90,677        $   239,709        $   270,050       $   11,481       $  232
Total Expenses                9,344,980          8,707,686         11,298,870        4,920,997        4,764
Net Loss                     (9,254,303)        (8,467,977)       (11,028,820)      (4,909,516)      (4,532)


Net Loss Per Class A
and B Unit                  $    (9,948)       $    (9,102)       $   (11,855)      $   (5,238)      $ (--)
                            ===========        ===========        ===========       ==========       ======



Average Units
Outstanding                         921                921                921              921          921
                            ===========        ===========        ===========       ==========       ======


                                1993               1994              1995             1996            1997
                                ----               ----              ----             ----            ----
Balance Sheets Data:

Total Assets                $ 4,444,882        $ 8,136,618        $ 2,882,239       $   32,804       $  --
Long-term Obligations         4,735,000               --                 --               --            --
</TABLE>

(1) The Partnership did not make any cash distributions to its partners during
any of the periods presented.


                                       21
<PAGE>   22
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

INTRODUCTION

         Alkermes Clinical Partners, L.P. (the "Partnership") was formed on
February 7, 1992, and is managed by its general partner, Alkermes Development
Corporation II (the "General Partner"), a wholly owned subsidiary of Alkermes.
The Partnership was organized to fund the further development and clinical
testing of a family of molecules, designated by Alkermes as RMPs, for human
pharmaceutical use in the United States and Canada.

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

         Any statements set forth below or otherwise made in writing or orally
by the Partnership or the General Partners with regard to its expectations as to
financial results and other aspects of its business may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the General Partner believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, the Partnership's or the Company's
business is subject to significant risks and there can be no assurance that
actual results of the Partnership's or the Company's development activities and
its results of operations will not differ materially from its expectations.
Accordingly, the Partnership hereby identifies the following important factors,
among others, which could cause its results to differ from any results which
might be projected, forecasted or estimated by the Partnership or the General
Partner in any such forward-looking statements: (i) the Partnership and the
Company could not be permitted by regulatory authorities to undertake additional
clinical trials for Cereport or clinical trials could be delayed or regulatory
authorities could require additional clinical trials; (ii) Cereport could be
ineffective or unsafe during clinical trials; (iii) the Company could incur
difficulties or set-backs in obtaining the substantial additional funding
required to continue research and development programs and clinical trials; (iv)
even if Cereport appears promising at an early stage of development, it 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; and (v) technological change in the
biotechnology or pharmaceutical industries could render Cereport obsolete or
noncompetitive.

RESULTS OF OPERATIONS

         Years ended December 31, 1997 and 1996

                  Revenues

         The Partnership's sole source of revenue for the years ended December
31, 1997 and 1996 was the interest earned on the investments made with the
capital contributions made by the General

                                       22
<PAGE>   23
Partner and the limited partners of the Partnership (the "Limited Partners")
prior to their disbursement to Alkermes for research and development and/or
other Partnership expenses. Interest income for the year ended December 31, 1997
was $232 compared to $11,481 for the corresponding period of the prior year.
Interest income for the year ended December 31, 1997 as compared to 1996
decreased as a result of the decrease in cash. The Partnership anticipates that
it will have no interest income in the foreseeable future as the Partnership's
assets were depleted during the quarter ended September 30, 1997. The decrease
in the cash of the Partnership is a result of the completion of the payment of
the development funding to Alkermes during the quarter ended June 30, 1996.

                  Expenses

         There were no research and development expenses for the year ended
December 31, 1997 as compared to $4,850,000 for the year ended December 31,
1996. The decrease in research and development expenses was a result of the
completion of the development funding to Alkermes pursuant to the product
development agreement between Alkermes and the Partnership (see "The Product
Development Agreement").

         General and administrative expenses for the year ended December 31,
1997 were $4,764 as compared to $70,997 for the year ended December 31, 1996.
The decrease was mainly a result of the depletion of the Partnership's assets
during the quarter ended September 30, 1997. Alkermes is obligated through the
General Partner to perform general and administrative services for the
Partnership at its expense, unless Alkermes exercises its Purchase Option (see
"Liquidity and Capital Resources").


         Years ended December 31, 1996 and 1995

                  Revenues

         The Partnership's sole source of revenue for the years ended December
31, 1996 and 1995 was the interest earned on the investments made with the
capital contributions made by the General Partner and the Limited Partners of
the Partnership prior to their disbursement to Alkermes for research and
development and/or other Partnership expenses. Interest income for the year
ended December 31, 1996 was $11,481 compared to $270,050 for the corresponding
period of the prior year. Interest income for the year ended December 31, 1996
as compared to 1995 decreased as a result of the decrease in cash and cash
equivalents and short-term investments. The decrease in the cash and cash
equivalents and short-term investments of the Partnership are a result of the
substantial completion of the annual capital contributions by the Limited
Partners and the General Partner in 1995 and the payment of the development
funding to Alkermes which was completed during the quarter ended June 30, 1996.


                                       23
<PAGE>   24
                  Expenses

         Research and development expenses for the year ended December 31, 1996
were $4,850,000 as compared to $11,059,000 for the year ended December 31, 1995.
The decrease in research and development expenses was a result of the completion
of the development funding to Alkermes pursuant to the Product Development
Agreement between Alkermes and the Partnership.

         General and administrative expenses for the year ended December 31,
1996 were $70,997 as compared to $141,204 for the year ended December 31, 1995.
The decrease was mainly a result of a decrease in amortization of organization
costs and legal fees.

         There was no interest expense for the year ended December 31, 1996 as
compared to $98,666 for the year ended December 31, 1995. The decrease was a
result of the repayment in April 1995 of the $4,735,000 note payable to
Alkermes.


LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, the Partnership had no remaining current assets
or current liabilities.

         The Partnership's primary source of funding and capital resources has
been the annual capital contributions by the Limited Partners and the General
Partner. The Limited Partners' capital contributions have been remitted to the
Partnership in four annual installment payments, the fourth and final payment of
which was due on April 15, 1995. There have been and will be no additional
capital contributions received by the Partnership from the Limited Partners
after the quarter ended June 30, 1996.

         The Partnership was funding research and development expenses for
Cereport from capital contributions received from Partners. Such development is
being conducted for the Partnership by Alkermes pursuant to the Product
Development Agreement. The research and development funding to Alkermes ended
during the quarter ended June 30, 1996 when such capital contributions were
substantially depleted. None of the Partners is obligated to make any further
capital contributions. Because the funding was not sufficient for Alkermes to
complete clinical trials and seek regulatory approval of Cereport, Alkermes has
used its own resources, and intends to continue to obtain such resources through
equity offerings, bank borrowings and its collaborative arrangements. Effective
September 30, 1997, Alkermes entered into an agreement with ALZA related to the
development and commercialization of Cereport. Under this agreement, Alkermes
has received clinical development funding. Alkermes is required to fund the
development of Cereport to maintain its Purchase Option with the Limited
Partners.

         The Partnership used its remaining cash and cash equivalents during the
quarter ended September 30, 1997 to pay for administrative services for the
Partnership. Alkermes is obligated, through the General Partner, to perform
administrative services for the Partnership, such as


                                       24
<PAGE>   25
preparing financial statements, tax returns and reports to the Limited Partners.
Alkermes intends to continue to cause the General Partner to perform such
services at its expense since the Partnership's current assets are depleted to
maintain its Purchase Option with the Limited Partners, unless it exercises its
Purchase Option and thereby acquires all limited partnership interests in the
Partnership. The activities performed by Alkermes and the General Partner
constitute all of the activities undertaken by or on behalf of the Partnership.

         The Partnership does not own or use any software systems or any other
automated equipment. Alkermes and the companies with which it does business,
however, use software systems and embedded technology in the conduct of their
operations. Many software systems and much technology in use today are unable to
distinguish the year 2000 and the year 1900 because they use a two-digit
shorthand for calendar dates. If Alkermes does not identify and correct such
shorthand prior to January 1, 2000, its operations could be disrupted. Alkermes'
operations could also be disrupted if the companies with which it does business
similarly do not identify and correct such shorthand, and such failure adversely
affects their ability to do business with Alkermes.

         To address these issues, Alkermes has undertaken a three-step
comprehensive project. The first step is to identify all of its software and
embedded technology as well as the software and embedded technology of all
companies with which it does business that would affect Alkermes. The second
step is to determine whether any of Alkermes' software and technology, and any
of the software and technology of the companies with which it does business, use
the two-digit shorthand. The third step is to correct or replace all such
software and technology, and then to test the corrected or replacement software
and technology. Alkermes has completed the first step of the project, expects to
complete the second step by the end of calendar year 1998, and will commence the
third step promptly upon completion of the second step. This project is being
conducted by Alkermes using internal resources. Alkermes cannot estimate the
cost of completion of the project until it completes the second step, and there
can be no assurance that the cost of completion will not be material or that the
use of its internal resources to complete the project will not adversely affect
other aspects of its business.

         After December 31, 1997, the Partnership is expected to have no future
liquidity or capital resources requirements other than those funded by Alkermes.

                                       25
<PAGE>   26
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:


                        ALKERMES CLINICAL PARTNERS, L.P.
                             (A LIMITED PARTNERSHIP)



          Financial Statements as of December 31, 1997 and 1996 and for
                      Each of the Three Years in the Period
            Ended December 31, 1997 and Independent Auditors' Report



                                       26
<PAGE>   27
INDEPENDENT AUDITORS' REPORT


To the Partners of
  Alkermes Clinical Partners, L.P.
Cambridge, Massachusetts

We have audited the accompanying balance sheets of Alkermes Clinical Partners,
L.P. (a Limited Partnership) as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' capital, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1997 and
1996, and the results of its operations, changes in its partners' capital and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.

As discussed in Note 7 to the financial statements, the Partnership completed
its development funding to Alkermes, Inc. (an affiliate) and none of the
partners are obligated to make any further capital contributions to the
Partnership. Alkermes, Inc., through the General Partner, is obligated to
continue to provide administrative services at its expense after the
Partnership's assets are depleted to maintain its purchase option with the
limited partners and has indicated that it intends to cause the General Partner
to perform such administrative services at its expense, unless it exercises its
purchase option and acquires all the interests.



/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Boston, Massachusetts
January 26, 1998


                                       27
<PAGE>   28
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                              1997          1996
                                              ----          ----
<S>                                          <C>        <C>
ASSETS

CURRENT ASSETS:
      Cash                                   $ --       $32,804
                                              ----       -------
           Total current assets                --        32,804
                                              ----       -------


TOTAL ASSETS                                 $ --       $32,804
                                              ====       =======


LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
      Accrued expenses                       $ --       $28,272
                                              ----       -------
           Total current liabilities           --        28,272
                                              ----       -------

PARTNERS' CAPITAL                              --         4,532
                                              ----       -------

TOTAL LIABILITIES AND PARTNERS' CAPITAL      $ --       $32,804
                                              ====       =======
</TABLE>


See notes to financial statements.



                                       28
<PAGE>   29
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                 1997              1996               1995

<S>                                           <C>             <C>                <C>
REVENUE - Interest income                            $232            $11,481           $270,050
                                              ------------    ---------------    ---------------

EXPENSES:
     Research and development                          --          4,850,000         11,059,000
     General and administrative                     4,764             70,997            141,204
     Interest expense                                  --                 --             98,666
                                              ------------    ---------------    ---------------
                                                    4,764          4,920,997         11,298,870
                                              ------------    ---------------    ---------------

NET LOSS                                          ($4,532)       ($4,909,516)      ($11,028,820)
                                              ============    ===============    ===============

NET LOSS PER CLASS A AND B UNIT                        $--           ($5,238)          ($11,855)
                                              ============    ===============    ===============

AVERAGE UNITS OUTSTANDING                             921                921                921
                                              ============    ===============    ===============
</TABLE>


See notes to financial statements.




                                       29
<PAGE>   30
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF CHANGES  IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  NOTES RECEIVABLE
                                                                LIMITED            GENERAL             FROM
                                                                PARTNERS           PARTNER        LIMITED PARTNERS        TOTAL
                                                              ------------        ---------        ------------        ------------
<S>                                                           <C>                 <C>              <C>                 <C>
BALANCE, JANUARY 1, 1995                                      $ 13,851,972        $  86,361        ($10,817,800)       $  3,120,533

    Partner contributions                                           67,275          113,463          10,583,324          10,764,062

    Net loss for year                                          (10,918,532)        (110,288)               --           (11,028,820)

    Write-off of notes receivable from limited partners           (231,104)            --               231,104                --
                                                              ------------        ---------        ------------        ------------

BALANCE, DECEMBER 31, 1995                                       2,769,611           89,536              (3,372)          2,855,775

    Partner contributions                                        2,054,901             --                 3,372           2,058,273

    Net loss for year                                           (4,824,512)         (85,004)               --            (4,909,516)
                                                              ------------        ---------        ------------        ------------

BALANCE, DECEMBER 31, 1996                                            --              4,532                --                 4,532

    Net loss for year                                                 --             (4,532)               --                (4,532)
                                                              ------------        ---------        ------------        ------------

BALANCE, DECEMBER 31, 1997                                    $       --          $    --          $       --          $       --
                                                              ============        =========        ============        ============
</TABLE>

See notes to financial statements.


                                       30
<PAGE>   31
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   1997              1996                1995
<S>                                                               <C>           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                       ($4,532)      ($4,909,516)       ($11,028,820)
   Adjustment to reconcile net loss to net cash used for
        operating activities:
        Amortization                                                 --              15,386              55,278
        Changes in assets and liabilities:
             Prepaid expenses to Alkermes, Inc.                      --             500,000           1,759,000
             Interest receivable                                     --               1,375              52,629
             Accrued expenses                                     (28,272)            1,808               1,838
             Accrued interest payable                                --                --              (256,459)
                                                                  -------       -----------        ------------

                  Net cash used by operating activities           (32,804)       (4,390,947)         (9,416,534)
                                                                  -------       -----------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Sales of short-term investments                                   --                --             2,444,150
                                                                  -------       -----------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Partners' cash capital contributions                              --           2,058,273          10,764,062
   Payment of note payable to Alkermes, Inc.                         --                --            (4,735,000)
                                                                  -------       -----------        ------------

                  Net cash provided by financing activities          --           2,058,273           6,029,062
                                                                  -------       -----------        ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                         (32,804)       (2,332,674)           (943,322)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       32,804         2,365,478           3,308,800
                                                                  -------       -----------        ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                $--       $    32,804        $  2,365,478
                                                                  =======       ===========        ============

SUPPLEMENTAL CASH FLOW DISCLOSURE -
   Interest paid                                                      $--               $--        $     98,666
                                                                  =======       ===========        ============

NONCASH SUPPLEMENTAL DISCLOSURE -
   Write-off of notes receivable from limited partners                $--               $--        $    231,104
                                                                  =======       ===========        ============
</TABLE>

See notes to financial statements.






                                       31
<PAGE>   32
ALKERMES CLINICAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
____________________________________________


1.  ORGANIZATION AND BUSINESS OPERATIONS

Alkermes Clinical Partners, L.P. (the "Partnership") was formed on February 7,
1992 and is managed by its general partner, Alkermes Development Corporation II
(the "General Partner"), a wholly owned subsidiary of Alkermes, Inc.
("Alkermes"). The Partnership was organized to fund the further development and
clinical testing of a family of molecules, designated by Alkermes as
Receptor-Mediated Permeabilizers ("RMPs"), for human pharmaceutical use in the
United States and Canada.

On April 10, 1992, the Partnership and Alkermes sold in a private placement (i)
920 Class A units, each unit (a "Class A Unit") consisting of one Class A
limited partnership interest in the Partnership, a Class A 1992 warrant (a
"Class A 1992 Warrant") to purchase 2,800 shares of Alkermes' common stock, and
a Class A 1995 warrant (a "Class A 1995 Warrant") to purchase 300 shares of
Alkermes' common stock, and (ii) one Class B unit (the "Class B Unit")
consisting of one Class B limited partnership interest (the "Class B Interest")
in the Partnership, a Class B 1992 warrant (the "Class B 1992 Warrant") to
purchase 5,600 shares of Alkermes' common stock, and a Class B 1995 warrant (the
"Class B 1995 Warrant") to purchase 600 shares of Alkermes' common stock. The
purchase price was $50,000 for each Class A Unit, $10,718 of which was paid at
the time of subscription, and the balance of which was evidenced by an investor
note (each, an "Investor Note" and collectively, the "Investor Notes"), $12,372
of which was paid during 1993, $14,166 of which was paid during 1994 and the
remainder of which was paid in April 1995. The purchase price for the Class B
Unit was $100,000, $21,000 of which was paid at the time of subscription, and
the balance of which was evidenced by a promissory note, $24,744 of which was
paid during 1993, $28,332 of which was paid during 1994 and the remainder of
which was paid in April 1995.

The net proceeds from the sale of the units were used primarily to fund the
further development and clinical testing of RMPs, which testing is being
conducted for the Partnership by Alkermes pursuant to a Product Development
Agreement by and between Alkermes and the Partnership (the "Product Development
Agreement") (see Note 3).

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The Partnership prepares its financial statements on the
accrual basis of accounting.

USE OF ESTIMATES - The preparation of the Partnership's financial statements in
conformity with generally accepted accounting principles 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 balance sheet dates. Estimates include useful lives of other assets and
accrued liabilities.

ORGANIZATION COSTS - Costs incurred in connection with the organization of the
Partnership were capitalized and amortized using the straight-line method over
four years.

ACCRUED EXPENSES - Included in accrued expenses at December 31, 1996 were
amounts totaling approximately $2,771 which were due to Alkermes.




                                       32
<PAGE>   33
NET LOSS PER CLASS A AND B LIMITED PARTNERSHIP INTEREST - Net loss per Class A
and B limited partnership interest is calculated with the net loss attributable
only to the limited partners of the partnership (each, a "Limited Partner" and
collectively, the "Limited Partners") and excludes the loss attributable to the
General Partner. There were no losses attributable to the Limited Partners for
the year ended December 31, 1997. In February 1997, the Financial Accounting
Standards Board released Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share," which the Partnership adopted in the
fourth quarter of 1997. The adoption of SFAS No. 128 did not have any impact on
the Partnership's financial statements because the Partnership does not have,
and is not expected to have, any common stock equivalents.

RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred.

INCOME TAXES - Federal and state income taxes are the responsibility of the
General Partner and each of the Limited Partners of the Partnership. No
provision for income taxes has been recorded.

3.  PRODUCT DEVELOPMENT AGREEMENT

In March 1992, the Partnership entered into the Product Development Agreement
with Alkermes, pursuant to which Alkermes licensed to the Partnership certain
technologies of Alkermes relating to RMPs. The Partnership paid Alkermes a
nonrefundable fee of $1,750,000 under the Product Development Agreement for
prior research and costs incurred by Alkermes relating to RMPs and has recorded
such fee as research and development expense in the period ended December 31,
1992.

The Partnership has granted to Alkermes an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United States
and Canada (the "Interim License"). Upon the first marketing approval of an RMP
product by the United States Food and Drug Administration, the Partnership is to
receive a payment from Alkermes equal to 20% of the aggregate capital
contributions of all partners (the "Milestone Payment"). Additionally, the
Partnership is to receive royalty payments from Alkermes equal to 12% of United
States and Canadian revenues and 10% of European revenues, in certain
circumstances, from any sales of RMPs by Alkermes. The Interim License will
terminate if Alkermes does not exercise its purchase option to acquire all of
the Limited Partners' interests in the Partnership, as discussed below.

Alkermes, Inc. has been issued five patents, U.S. Patent No. 5,112,596 in May
1992, U.S. Patent No. 5,268,164 in December 1993, U.S. Patent No. 5,506,206 in
April 1996, U.S. Patent No. 5,585,355 in December 1996 and U.S. Patent No.
5,686,416 in November 1997, the rights to which have been licensed to the
Partnership pursuant to the Product Development Agreement.

4.  PARTNERSHIP PURCHASE OPTION

In consideration for the Class A 1992 Warrants, the Class A 1995 Warrants, the
Class B 1992 Warrant and the Class B 1995 Warrant, each Limited Partner has
granted to Alkermes an option to purchase (the "Purchase Option"), under certain
circumstances, the limited partnership interest in the Partnership held by such
Limited Partner. Upon the exercise of the Purchase Option, each owner of a Class
A limited partnership interest (a "Class A Limited Partner") will be entitled to
receive an initial payment of, at the option of Alkermes, $40,000 in cash or
approximately $42,100 in Alkermes' common stock, as well as certain additional
payments (which are subject to certain limitations) based on Alkermes' net
revenues from sales of RMPs in the United States, Canada and Europe (the
"royalty stream") as follows:

o    12% of net revenues to Alkermes on sales of RMPs in the United States and
     Canada and 10% of net revenues to Alkermes on sales of RMPs in Europe,
     until each Class A Limited Partner has received an aggregate of $400,000
     per interest from the initial payment and the royalty stream; and
     thereafter,


                                       33
<PAGE>   34
o    9% of net revenues to Alkermes on sales of RMPs in the United States,
     Canada and Europe, until each Class A Limited Partner has received an
     aggregate of $500,000 per interest from the initial payment and the royalty
     stream; and thereafter,

o    4% of net revenues to Alkermes on sales of RMPs in the United States,
     Canada and Europe.


If Alkermes exercises the Purchase Option, the holder of the Class B Interest
(the "Class B Limited Partner") will receive, in addition to an advance payment
of $80,000, payable in cash or stock in the same manner as described above for
the Class A Limited Partners, quarterly payments equal to (i) prior to the date
on which the Class B Threshold (as described below) occurs, the Class B Limited
Partner's pro rata portion (based upon the ratio that the Class B Limited
Partner's capital contribution bears to the aggregate capital contributions of
all Limited Partners) of the royalties described in the previous paragraph, and
(ii) beginning on the date on which the Class B Threshold occurs, the Class A
Limited Partners will receive only 95% of the above royalties. The Class B
Threshold will occur on the first day of the calendar quarter that follows the
calendar quarter in which each Class A Limited Partner will have received
distributions in an aggregate amount equal to its capital contribution.

Royalties on sales of RMPs in Europe will be payable only in certain
circumstances. The royalties described above will terminate on the last day of
the calendar quarter eleven years after Alkermes exercises the Purchase Option.

Alkermes may exercise the Purchase Option to purchase all of the limited
partnership interests in the Partnership upon the earlier of: (i) the date that
is the later of the last day of the first month in which the Partnership shall
have received payments under the Interim License (excluding the Milestone
Payment) equal to 15% of the Limited Partners' capital contributions and the
expiration of 24 months after the first commercial sale of an RMP product under
the Interim License and (ii) the expiration of 48 months after the first
commercial sale of an RMP product under the Interim License.

5.  PARTNERS' CAPITAL

The Partnership allocates its profits or losses for each fiscal year 1% to the
General Partner and 99% to the Limited Partners. The Partnership allocates the
profits and losses allocated to the Limited Partners pro rata in accordance with
the Limited Partners' capital contributions, as adjusted for certain allocations
and returns to each Limited Partner. The capital contributions made by each
Class A Limited Partner and the Class B Limited Partner are discussed in Note 1.
Losses in excess of the Limited Partners' capital contributions are allocated to
the General Partner. After the Class B Threshold occurs (see Note 4), the
Partnership will allocate to the Class B Limited Partner 5% of profits and
losses allocated to the Limited Partners and will allocate to the Class A
Limited Partners 95% of profits and losses allocated to the Limited Partners.
Such allocation to the Class A Limited Partners will be made pro rata based on
such Limited Partners' capital contributions, as adjusted for certain
allocations and returns to such Limited Partners.

6.  WARRANT EXCHANGE

Alkermes completed an exchange offer on January 27, 1995, with respect to the
warrants issued in connection with the formation of the Partnership. Pursuant to
the exchange offer, each Class A Limited Partner had the option to exchange both
its Class A 1992 Warrant and Class A 1995 Warrant for a new 1994 Class A Warrant
("1994 Class A Warrant") to purchase at $5.00 per share, 1,700 shares of
Alkermes' common stock for every 3,100 shares of common stock issuable upon
exercise of the Class A 1992 Warrant and Class A 1995 Warrant exchanged
therefore. The Class B Limited Partner had the option to exchange both the Class
B 1992 Warrant and Class B



                                       34
<PAGE>   35
1995 Warrant for a new 1994 Class B Warrant ("1994 Class B Warrant") to purchase
3,400 shares of Alkermes' common stock at $5.00 per share.

Of the Class A 1992 Warrants and Class A 1995 Warrants originally issued,
approximately 92% were exchanged in response to the exchange offer. The Class B
1992 Warrant and Class B 1995 Warrant were also exchanged in the exchange offer.
Certain other warrants issued in connection with the formation of the
Partnership were also exchanged for new 1994 warrants. The exchange offer
resulted in a decrease of a total of 1,225,927 shares of Alkermes' common stock
which would be issuable upon exercise of the outstanding warrants.

Each 1994 Class A Warrant and the 1994 Class B Warrant may be exercised during
the period beginning on April 1, 1995 and ending on March 31, 2000.

7.  COMPLETION OF SCHEDULED FUNDING

For the year ended December 31, 1997, the Partnership incurred no research and
development expenses related to the RMP program, notwithstanding the continuing
development of such program. The Partnership was providing funding to Alkermes
for research and development expenses for Cereport, formerly known as RMP-7,
from capital contributions received from Partners. Funding to Alkermes ended
during the quarter ended June 30, 1996 when such capital contributions were
substantially depleted. None of the Partners of the Partnership is obligated to
make any further capital contributions. Since the funding was not sufficient for
Alkermes to complete clinical trials and seek regulatory approval of Cereport,
Alkermes has used its own resources, and intends to continue to use its own
resources, to develop Cereport. Alkermes has obtained and intends to continue to
obtain such resources through equity offerings, bank borrowings and its
collaborative arrangements. Alkermes is required to fund the development of
Cereport to maintain its purchase option with the Limited Partners.

Alkermes is also obligated, through the General Partner, to perform
administrative services for the Partnership, such as preparing financial
statements, tax returns and reports to Partners. During 1996 and 1997, Alkermes
provided such services to the Partnership and has confirmed its intention to
provide such services through at least March 31, 1999. Alkermes intends to
continue to cause the General Partner to perform such services at its expense
since the Partnership's current assets are depleted, unless it exercises its
Purchase Option and thereby acquires all the interests in the Partnership. The
services performed by Alkermes and the General Partner constitute all of the
activities undertaken by or on behalf of the Partnership.

After December 31, 1997, the Partnership is expected to have no future liquidity
or capital resources requirements other than those funded by Alkermes.

8.  RELATED PARTY TRANSACTIONS

In February and April 1996, Alkermes purchased from the Partnership an aggregate
of 74 Class A Units that were owned by Limited Partners who defaulted on their
payment obligations. The total purchase price for such Units was the aggregate
of unpaid installments, approximately $2,052,000.



                                       35
<PAGE>   36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

                  Not applicable.


PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


         (a)      Directors of the General Partner.

         Richard F. Pops, age 36, has been a director of the General Partner
since its inception in 1992. Mr. Pops has also been Chief Executive Officer and
a director of Alkermes since February 1991. From February 1991 to June 1994, Mr.
Pops was also President of Alkermes.

         Michael J. Landine, age 44, has been a director of the General Partner
since its inception in 1992. Mr. Landine has also been the Chief Financial
Officer of Alkermes since March 1988. From March 1988 to December 1994, he also
served as Vice President, and since December 1994 as a Senior Vice President of
Alkermes. He has also been Treasurer of Alkermes since April 1991. He is
currently an advisor to Walker Magnetics Group, an international manufacturer of
industrial equipment. Mr. Landine is a certified public accountant.

         Peter Reikes, age 37, has been a director of the General Partner since
1994. Mr. Reikes has also been with PaineWebber, Inc. since 1985, presently
serving as Managing Director, Investment Banking Division. Mr. Reikes also
serves as a director of Gensia Development Corporation, Repligen Development
Corporation, Genzyme Development Corporation and Cephalon Development
Corporation.


         (b)      Executive Officers of the General Partner.

         Mr. Pops has been the President of the General Partner since its
inception and the Chief Executive Officer of the General Partner since 1993.

         Mr. Landine has been the Vice President, Treasurer and Assistant
Secretary of the General Partner since its inception and the Chief Financial
Officer of the General Partner since 1993.




                                       36
<PAGE>   37
ITEM 11. EXECUTIVE COMPENSATION

         The General Partner receives no compensation for performing its duties
under the Partnership Agreement. It will receive only its pro rata share of
Partnership distributions and distributions upon liquidation of the Partnership
and reimbursement for its expenditures for the payment of properly incurred
obligations of the Partnership. Furthermore, the officers and directors of the
General Partner receive no compensation other than reimbursement for appropriate
expenses incurred while conducting the business of the General Partner.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of all persons known to the
Partnership to be the beneficial owners of more than 5% of any class of the
Partnership's securities as of March 19, 1998 is as follows:

<TABLE>
<CAPTION>

                              Name and Address of                                                         Percent of
Title of Class                Beneficial Owner                        Beneficial Ownership                Class
<S>                           <C>                                     <C>                                 <C>
General Partner               Alkermes Development                    One General Partner                  100.0%
Interest                      Corporation II                          Interest
                              64 Sidney Street
                              Cambridge, MA  02139

Class A Limited               PaineWebber R&D Partners                133 Class A Limited                   14.5%
Partnership Interests         III, L.P.                               Partnership Interests
                              1285 Avenue of the
                              Americas
                              New York, NY  10019

                              Alkermes, Inc.                          74 Class A Limited                     8.0%
                              64 Sidney Street                        Partnership Interests
                              Cambridge, MA  02139

Class B Limited               PaineWebber Development                 One Class B Limited                  100.0%
Partnership Interest          Corporation                             Partnership Interest
                              1285 Avenue of the
                              Americas
                              New York, NY  10019
</TABLE>

         Exclusive management and control of the Partnership's business is
vested in the General Partner. As of March 19, 1998, none of the directors or
officers of the General Partner have any security ownership in the Partnership.


                                       37
<PAGE>   38
ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         Mr. Pops and Mr. Landine are officers of Alkermes and Mr. Pops is also
a director of Alkermes. In March 1992, the Partnership entered into certain
agreements with Alkermes, which are described above in Item 1. In its fiscal
year ended March 31, 1997, Alkermes recorded net revenues of $1,415,313 from the
Partnership pursuant to the Product Development Agreement.

         The purchase price for Class A Units was paid in four annual
installments. The final payment was due on April 15, 1995. The holders of 74
Class A Units failed to pay all of such payments and the Partnership foreclosed
on such units. In February and April 1996, Alkermes subsequently purchased these
Class A Units for approximately $2,052,000, the amount of the uncollected
payments.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


         (a)      Documents filed as part of the Report:

                  (1)         Financial Statements of the Registrant and
                              Independent Auditors' Report thereon:

                              Independent Auditors' Report.

                              Balance Sheets, December 31, 1997 and 1996.

                              Statements of Operations for the Years Ended
                              December 31, 1997, 1996 and 1995.

                              Statements of Changes in Partners' Capital for the
                              Years Ended December 31, 1997, 1996 and 1995.

                              Statements of Cash Flows for the Years Ended
                              December 31, 1997, 1996 and 1995.

                              Notes to Financial Statements.


                  (2)         Financial Statement Schedules:


                                       38
<PAGE>   39
                              Schedules have been omitted because of the absence
                              of conditions under which they are required or
                              because the required information is included in
                              the financial statements or the notes thereto.

                  (3)         Exhibits

Exhibit
Number

3.1               Alkermes Clinical Partners, L.P. Agreement of Limited
                  Partnership, dated as of February 7, 1992.*

3.1(a)            Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of September 29, 1992.*

3.1(b)            Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of March 30, 1993.*

4.1               Alkermes Clinical Partners, L.P. Agreement of Limited
                  Partnership, dated as of February 7, 1992.*

4.1(a)            Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of September 29, 1992.*

4.1(b)            Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of March 30, 1993.*

10.1              Product Development Agreement, dated as of March 6, 1992,
                  between the Partnership and Alkermes.*

10.2              Purchase Agreement, dated as of March 6, 1992, by and among
                  Alkermes and each of the Limited Partners, from time to time,
                  of the Partnership.*

11                Statement Regarding Computation of Per Share Loss.

27                Financial Data Schedule.

*  Incorporated by reference to Exhibits to the Registrant's Registration
   Statement on Form 10 filed September 13, 1995.

         (b)      The Registrant has not filed any reports on Form 8-K.

                                       39
<PAGE>   40
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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 CLINICAL PARTNERS, L.P.
                             (Registrant)

                             By its General Partner

                             ALKERMES DEVELOPMENT CORPORATION II



Date:  March 30, 1998         By:      /s/ Richard F. Pops
                                       --------------------
                                       Richard F. Pops
                                       President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the General Partner of the
Registrant on behalf of the Registrant and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
              Signature                            Title                  Date

<S>                                <C>                                <C>

/s/ Richard F. Pops                Director, President and Chief      March 30, 1998
------------------------------     Executive Officer (Principal
Richard F. Pops                    Executive Officer)


/s/ Michael J. Landine             Director, Vice President,          March 30, 1998
-----------------------------      Chief Financial Officer,
Michael J. Landine                 Treasurer and Assistant
                                   Secretary (Principal Financial
                                   and Accounting Officer)



/s/ Peter Reikes                   Director                           March 30, 1998
-----------------------------
Peter Reikes
</TABLE>
<PAGE>   41
                        ALKERMES CLINICAL PARTNERS, L.P.
                           ANNUAL REPORT ON FORM 10-K

                                  EXHIBIT INDEX

Exhibit
Number                     Exhibit

3.1               Alkermes Clinical Partners, L.P. Agreement of Limited
                  Partnership, dated as of February 7, 1992.*

3.1(a)            Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of September 29, 1992.*

3.1(b)            Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of March 30, 1993.*

4.1               Alkermes Clinical Partners, L.P. Agreement of Limited
                  Partnership, dated as of February 7, 1992.*

4.1(a)            Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of September 29, 1992.*

4.1(b)            Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
                  of Limited Partnership, dated as of March 30, 1993.*

10.1              Product Development Agreement, dated as of March 6, 1992,
                  between the Partnership and Alkermes.*

10.2              Purchase Agreement, dated as of March 6, 1992, by and among
                  Alkermes and each of the Limited Partners, from time to time,
                  of the Partnership.*

11                Statement Regarding Computation of Per Share Loss.

27                Financial Data Schedule.

*  Incorporated by reference to Exhibits to the Registrant's Registration
   Statement on Form 10 filed September 13, 1995.