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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, 1998


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

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

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

Securities registered pursuant to Section 12(b) of the Act:         None
                                                           ---------------------
<TABLE>
<CAPTION>
<S>                                                         <C>
Securities registered pursuant to Section 12(g) of the Act: Class A Limited Partnership Interest
                                                            ------------------------------------
                                                                      Title of Class)
</TABLE>

     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 (ss. 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]




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     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
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     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.

     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 tumors 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
diagnostic agent is determined on




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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.

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.




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     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 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 will be payable




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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 Option")





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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 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)




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




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     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
tumors 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.

     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



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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
develop Cereport through its own development activities, 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 tumor 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, on behalf of the Partnership, has been 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.

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




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Phase III clinical trials of Cereport administered in combination with
carboplatin. To date, over 700 human subjects have received Cereport in a series
of clinical trials in all indications studied. Through the Phase I, Phase I/II
and Phase III 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 provided 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 newly diagnosed
brain tumors.

NEWLY DIAGNOSED BRAIN TUMOR:  PHASE III CLINICAL TRIAL

     Alkermes commenced a Phase III clinical trial of intravenous Cereport and
carboplatin in newly diagnosed patients with brain tumors in March of 1998. 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 are 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 was initiated following the completion of a series of
Phase I and Phase II studies of Cereport/carboplatin in over 200 patients with
recurrent brain tumors. 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) 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. Enrollment in the study is proceeding behind schedule and 
the Company is currently reevaluating the clinical protocol.

     There can be no assurance that the Phase III clinical trial will enroll 
patients as planned or will be completed. There can be no assurance that the 
outcome of the trial will be sufficient to obtain regulatory approval. In 
addition, the development of alternative treatments for brain tumors may render 
Cereport obsolete or noncompetitive.


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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 eleven 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 was
conducted at one medical center and enrolled 10 patients. Data analysis is 
currently underway.

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 enrolled 25 patients.
     
     In June 1998, Alkermes initiated a Phase II multi-center study in 
pediatric brain tumor patients in collaboration with the Children's Cancer Group
coordinated through the Pediatric Branch of the NCI. Ten centers will enroll up
to a total of 146 children over two to four years.


COLLABORATION WITH ALZA CORPORATION

     As of September 30, 1997, Alkermes and ALZA Corporation ("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 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.




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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, 1998, 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. Two
United States patents have issued from these applications. There can be no
assurance that the claims of the issued United States patents 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 patents 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 and results of operations. Furthermore, there can be no assurance that
any licenses under any patents 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



                                       13

<PAGE>   14




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 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



                                       14



<PAGE>   15



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 tumors 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 which ALZA
has the option to acquire exclusive worldwide commercialization rights to
Cereport, subject to the rights and obligations of the Partnership. 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. See "Collaboration with ALZA Corporation."

     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




                                       15

<PAGE>   16




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 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




                                       16


<PAGE>   17



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.

EMPLOYEES

     The Partnership and the General Partner do not have any full-time
employees. As of March 24, 1999, Alkermes had 274 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 are 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 65,000 square feet at its corporate
headquarters in Cambridge, Massachusetts, a portion of which is used by Alkermes
in the performance of its obligations to the Partnership, under four leases
expiring in the years 2001 to 2002. 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.



                                       17


<PAGE>   18






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.





                                       18



<PAGE>   19



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 24, 1999, 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.




                                       19


<PAGE>   20




ITEM 6.   SELECTED FINANCIAL DATA
          -----------------------

<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                     ----------------------------------------------------------------

                                        1994            1995           1996         1997       1998
                                        ----            ----           ----         ----       ----
<S>                                  <C>            <C>             <C>            <C>        <C>
Statements of
Operations Data (1):
--------------------

Total Revenues                       $  239,709     $   270,050     $   11,481     $  232     $    --
Total Expenses                        8,707,686      11,298,870      4,920,997      4,764      29,348
Net Loss                             (8,467,977)    (11,028,820)    (4,909,516)    (4,532)    (29,348)


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


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


                                        1994            1995           1996         1997       1998
                                        ----            ----           ----         ----       ----
Balance Sheets Data:
--------------------

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

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




                                       20


<PAGE>   21




ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          ---------------------------------------------------------------
          RESULTS OF OPERATIONS
          ---------------------

INTRODUCTION

     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 Partner 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. These statements can be identified by
forward-looking words such as "may", "will", "expect", "anticipate", "believe",
"estimate", "continue" or similar words. Although the General Partner believes
that its expectations are based on reasonable assumptions with the bounds of its
knowledge of its business and operations, 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. Factors
which could cause actual results to differ from expectations include, among
others:

       (i)     the Partnership and the Company could not be permitted by
regulatory authorities to undertake additional clinical trials for Cereport, 
clinical trials could be delayed or regulatory authorities could require
additional clinical trials before approving Cereport;

       (ii)    clinical trials for Cereport may not proceed as planned,
the trials may require more time to enroll patients than anticipated, and even
if they are completed Cereport could prove to be ineffective or unsafe;

       (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)    the Company could reduce or discontinue funding of Cereport;

       (v)     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

       (vi)    technological change in the biotechnology or pharmaceutical
industries and the approval of other drugs or therapies to treat brain tumors 
could render Cereport obsolete or noncompetitive.



                                       21


<PAGE>   22



RESULTS OF OPERATIONS

     YEARS ENDED DECEMBER 31, 1998 AND 1997

          REVENUES

     The Partnership's sole source of revenue for the year ended December 31,
1997 was the interest earned on the investments made with the capital
contributions made by the General 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, 1998 was zero compared to $232 for the corresponding
period of the prior year. Interest income for the year ended December 31, 1998
as compared to 1997 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

     Research and development expenses for the years ended December 31, 1998 and
1997 were both zero. The research and development expenses were zero because of
the completion of the development funding to Alkermes pursuant to the product
development agreement between Alkermes and the Partnership (the "Product
Development Agreement").

     General and administrative expenses for the year ended December 31, 1998
were $29,348 as compared to $4,764 for the year ended December 31, 1997. The
increase was mainly a result of increased professional service fees. 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, 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 Partner and 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. 




                                       22


<PAGE>   23



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

     Research and development expenses for the year ended December 31, 1997
were zero 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 (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).



                                       23


<PAGE>   24

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1998, the Partnership had no remaining assets or
liabilities.

     The Partnership's primary source of funding and capital resources had been
the annual capital contributions by the Limited Partners and the General
Partner. The Limited Partners' capital contributions were remitted to the
Partnership in four annual installments, 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(TM) 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 Corporation
related to the development and commercialization of Cereport. 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 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.





                                       24


<PAGE>   25



     After December 31, 1998, the Partnership is expected to have no future
liquidity or capital resources requirements other than those funded by Alkermes.

     The Partnership does not own or use any software systems or any other
automated equipment. Alkermes and the companies with which it does business use
information and embedded systems in the conduct of their operations. Many
information systems and embedded systems used to control or operate machinery,
equipment and infrastructure in use today are unable to distinguish between the
year 2000 and the year 1900 because they use a two-digit shorthand for calendar
dates, or to correctly recognize the year 2000 as a leap year. If Alkermes does
not identify and correct or replace any such information or embedded systems
prior to January 1, 2000, its operations could be disrupted. Alkermes'
operations could also be disrupted if the companies with which Alkermes does
business similarly are not year 2000 compliant, 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 Alkermes' mission critical information
and embedded systems. The second step is to determine whether any of Alkermes'
information and embedded systems are not year 2000 compliant and to determine
whether the companies with which it does significant business will be year 2000
compliant. The third step is to correct or replace all such information and
embedded systems of Alkermes and then to test the corrected or replacement
information and embedded systems. Alkermes has completed the first step of the
project and continues to work on the second step. Alkermes has identified the
Company's internal information and embedded systems which use the two-digit
shorthand. Alkermes has requested compliance information from companies with
which it does significant business and continues to follow up on such compliance
requests. For those information and embedded systems with known compliance
issues, Alkermes has begun to correct or replace all such information and
embedded systems. Alkermes will continue to address the compliance of companies
with which it does significant business as compliance questionnaires are
received. On February 1, 1999, Alkermes acquired a private company as a new
wholly owned subsidiary. Alkermes has not yet determined whether any of this new
subsidiary's information and embedded systems are year 2000 compliant or what
steps need to be taken to correct or replace any of its information or embedded
systems that are not year 2000 compliant. Alkermes cannot estimate the most
reasonably likely worst case scenario if the information and embedded systems of
its new subsidiary or the companies with which it does significant business fail
until Alkermes completes its evaluation or receives the compliance
questionnaires and can appropriately evaluate such responses.

     This project is being conducted by Alkermes primarily using internal
resources. Alkermes cannot estimate the cost of completion of the project or
complete its contingency plan until Alkermes completes the second step, and
there can be no assurance that the cost of completion of the project will not be
material, that the project will be completed on a timely basis, that any
contingency plans could be promptly completed and implemented or that the use of
Alkermes' internal resources to complete the project will not adversely affect
other aspects of its business. In the event that any of the companies with which
Alkermes does significant




                                       25


<PAGE>   26



business do not successfully achieve year 2000 compliance on a timely basis,
Alkermes' business could be adversely affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          ----------------------------------------------------------

     Not applicable.




                                       26


<PAGE>   27




ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
          --------------------------------------------



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



          Financial Statements as of December 31, 1998 and 1997 and for
                      Each of the Three Years in the Period
            Ended December 31, 1998 and Independent Auditors' Report








                                       27



<PAGE>   28






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, 1998 and 1997, 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, 1998. 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, 1998 and
1997, 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, 1998
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.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 22, 1999






                                       28



<PAGE>   29



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

BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                    1998           1997
<S>                                                  <C>           <C>
ASSETS


TOTAL ASSETS                                         $ -           $ -
                                                     ===           ===


LIABILITIES AND PARTNERS' CAPITAL

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


See notes to financial statements.






                                       29


<PAGE>   30



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

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------------------------------------------------------
<CAPTION>

                                                            1998              1997              1996
<S>                                                       <C>               <C>              <C>
REVENUE - Interest income                                 $      -          $   232          $    11,481
                                                          --------          -------          -----------

EXPENSES:
  Research and development                                       -                -            4,850,000
  General and administrative                                29,348            4,764               70,997
                                                          --------          -------          -----------
                                                            29,348            4,764            4,920,997
                                                          --------          -------          -----------

NET LOSS                                                  $(29,348)         $(4,532)         $(4,909,516)
                                                          ========          =======          ===========

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

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



See notes to financial statements.








                                       30

<PAGE>   31


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

STATEMENTS OF CHANGES  IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
---------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                               Notes
                                                                             Receivable
                                                    Limited     General         from
                                                   Partners     Partner   Limited Partners       Total
<S>                                               <C>           <C>            <C>             <C>
BALANCE, JANUARY 1, 1996                          $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                                --         --             --                 --

  Partner contributions                                   --     29,348             --             29,348

  Net loss for year                                       --    (29,348)            --            (29,348)
                                                  ----------    -------        -------         ----------

BALANCE, DECEMBER 31, 1998                        $       --    $    --        $    --         $       --
                                                  ==========    =======        =======         ==========
</TABLE>


See notes to financial statements.





                                       31


<PAGE>   32


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

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
----------------------------------------------------------------------------------------------------
<CAPTION>
                                                                  1998        1997          1996
<S>                                                             <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                      $(29,348)    $(4,532)    $(4,909,516)
  Adjustment to reconcile net loss to net cash used for
    operating activities:
    Amortization                                                      --          --          15,386
    Changes in assets and liabilities:
      Prepaid expenses to Alkermes, Inc.                              --          --         500,000
      Interest receivable                                             --          --           1,375
      Accrued expenses                                                --     (28,272)          1,808
                                                                --------     -------     -----------

        Net cash used by operating activities                    (29,348)    (32,804)     (4,390,947)
                                                                --------     -------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Partners' cash capital contributions                            29,348          --       2,058,273
                                                                --------     -------     -----------

        Net cash provided by financing activities                 29,348          --       2,058,273
                                                                --------     -------     -----------

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

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

CASH AND CASH EQUIVALENTS, END OF YEAR                          $     --     $    --     $    32,804
                                                                ========     =======     ===========
</TABLE>


See notes to financial statements.






                                       32


<PAGE>   33


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

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------


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


                                       33

<PAGE>   34


contingent assets and liabilities at the balance sheet dates. Estimates include
useful lives of other assets and accrued liabilities.

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 years ended December 31, 1998 and 1997. 

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.
Accordingly, 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. 5,268,104 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.






                                       34

<PAGE>   35
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,

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.




                                       35

<PAGE>   36
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 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 years ended December 31, 1998 and 1997, the Partnership incurred no
research and development expenses related to the RMP program, notwithstanding
the continuing development of such product candidate. The Partnership was
providing funding to Alkermes for research and development expenses for Cereport
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.



                                       36


<PAGE>   37


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 1997 and 1998, Alkermes
provided such services to the Partnership and has confirmed its intention to
provide such services through at least March 31, 2000. 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, 1998, 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.




                                       37

<PAGE>   38



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.

     James M. Frates, age 31, has been a director of the General Partner since
June 1998. Mr. Frates has also been the Chief Financial Officer, Vice President,
Treasurer and Assistant Secretary of Alkermes since June 1998. From June 1996 to
July 1998, he was a Vice President and a Senior Associate of Robertson Stephens
& Company. In June 1996, he obtained his MBA from Harvard Business School. From
July 1992 through September 1994, he was a Senior Associate of Robertson
Stephens.

     Stelios Papadopoulos, age 50, has been a director of the General Partner
since September 1998. Mr. Papadopoulos has also been with PaineWebber, Inc.
since April 1987, presently serving as Chairman, PaineWebber Development Corp.
Mr. Papadopoulos also serves as a director of Diacrin, Inc.

     Charles Cohen, age 48, has been a director of the General Partner since
September 1998. He has also been a consultant to PaineWebber, Inc. since April
1998. From September 1985 to July 1995, he was Chief Executive Officer of
Creative Biomolecules, Inc. Since July 1995, Dr. Cohen has been the Chief
Scientific Officer of Creative Biomolecules, Inc. He also serves as a director
of Creative Biomolecules, Inc.

     (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. Frates has been the Chief Financial Officer, Vice President, Treasurer
and Assistant Secretary of the General Partner since June 1998.




                                       38


<PAGE>   39



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 8, 1999 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 8, 1999, none of the directors or officers of
the General Partner have any security ownership in the Partnership.




                                       39


<PAGE>   40



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------


     Mr. Pops and Mr. Frates 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 the year ended
December 31, 1998, Alkermes made capital contributions to the Partnership,
through the General Partner, of $29,348 to cover all of the Partnership's
expenses.

     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, 1998 and 1997.

                    Statements of Operations for the Years Ended December 31,
                    1998, 1997 and 1996.

                    Statements of Changes in Partners' Capital for
                    the Years Ended December 31, 1998, 1997 and 1996.

                    Statements of Cash Flows for the Years Ended December 31,
                    1998, 1997 and 1996.

                    Notes to Financial Statements.




                                       40


<PAGE>   41



          (2)       Financial Statement Schedules:

                    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.




                                       41

<PAGE>   42



                                   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 29, 1999               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.

          Signature                     Title                         Date
          ---------                     -----                         ----

/s/ Richard F. Pops                                            
------------------------        Director, President and Chief    March 29, 1999
Richard F. Pops                 Executive Officer (Principal
                                Executive Officer)

/s/ James M. Frates                                              March 29, 1999 
------------------------        Director, Vice President,
James M. Frates                 Chief Financial Officer,
                                Treasurer and Assistant
                                Secretary (Principal Financial
                                and Accounting Officer)

/s/ Stelios Papadopoulos                                         March 29, 1999
------------------------        Director
Stelios Papadopoulos

/s/ Charles Cohen                                                March 29, 1999
------------------------        Director
Charles Cohen





                                       42


<PAGE>   43





                        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.




                                       43