UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2009~~September 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14131

ALKERMES, INC.

(Exact name of registrant as specified in its charter)



PENNSYLVANIA		23-2472830
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

852 Winter Street, Waltham, MA ~~02451-1420~~02451
(781) 609-6000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yesoþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer ~~or a smaller reporting company. See the definitions of “large~~and large accelerated ~~filer,” “accelerated~~ filer” ~~and “smaller reporting company”~~ in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yeso Noþ

The number of shares outstanding of each of the issuer’s classes of common stock was:



	Class		As of ~~February~~November 1,
~~Class~~ 2010		~~2010~~
	Common Stock, ~~$.01~~$0.01 par value		~~94,440,904~~	95,233,058
	Non-Voting Common Stock, ~~$.01~~$0.01 par value			382,632

PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements:

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)


	December 31,			March 31,
	2009			2009			September 30,			March 31,
	(In thousands, except share and per						2010			2010
	share amounts)						(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	73,932		$	86,893		$	37,256		$	79,324
Investments — short-term		165,016			236,768			193,222			202,053
Receivables		28,233			24,588			35,770			25,316
Inventory		20,049			20,297		��	18,257			20,653
Prepaid expenses and other current assets		5,950			7,500			14,696			10,936

Total current assets		293,180			376,046			299,201			338,282

PROPERTY, PLANT AND EQUIPMENT, NET		96,332			106,461			97,184			96,905
INVESTMENTS — LONG-TERM		118,531			80,821			43,087			68,816
OTHER ASSETS		11,857			3,158			9,660			11,597

TOTAL ASSETS	$	519,900		$	566,486		$	449,132		$	515,600


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	29,560		$	36,483		$	31,123		$	37,881
Deferred revenue — current		2,305			6,840			3,894			2,220
NON-RECOURSE RISPERDAL^® CONSTA^® SECURED 7% NOTES — CURRENT		25,667			25,667
Non-Recourse RISPERDAL^® CONSTA^® Secured 7% Notes — Current								—			51,043

Total current liabilities		57,532			68,990			35,017			91,144

NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES — LONG-TERM		31,636			50,221
DEFERRED REVENUE — LONG-TERM		5,120			5,238			5,123			5,105
OTHER LONG-TERM LIABILITIES		6,386			7,149			6,901			6,735

Total liabilities		100,674			131,598			47,041			102,984


COMMITMENTS AND CONTINGENCIES (Note 13)

SHAREHOLDERS’ EQUITY:
Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes 3,000,000 shares of preferred stock); none issued		—			—
Common stock, par value, $0.01 per share; 160,000,000 shares authorized; 104,354,986 and 104,044,663 shares issued; 94,418,724 and 94,536,212 shares outstanding at December 31, 2009 and March 31, 2009, respectively		1,042			1,040
Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized; 382,632 shares issued and outstanding at December 31, 2009 and March 31, 2009		4			4
Treasury stock, at cost (9,936,262 and 9,508,451 shares at December 31, 2009 and March 31, 2009, respectively)		(129,567	)		(126,025	)
Common stock, par value, $0.01 per share; 160,000,000 shares authorized; 105,248,764 and 104,815,328 shares issued; 95,206,971 and 94,870,063 shares outstanding at September 30, 2010 and March 31, 2010, respectively								1,050			1,047
Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized; 382,632 shares issued and outstanding at September 30, 2010 and March 31, 2010								4			4
Treasury stock, at cost (10,041,793 and 9,945,265 shares at September 30, 2010 and March 31, 2010, respectively)								(130,779	)		(129,681	)
Additional paid-in capital		903,480			892,415			921,024			910,326
Accumulated other comprehensive loss		(3,980	)		(6,484	)		(2,445	)		(3,392	)
Accumulated deficit		(351,753	)		(326,062	)		(386,763	)		(365,688	)

Total shareholders’ equity		419,226			434,888			402,091			412,616

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	519,900		$	566,486		$	449,132		$	515,600

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						September 30,						September 30,
	2009			2008			2009			2008			2010			2009			2010			2009
	(In thousands, except per share amounts)												(In thousands, except per share amounts)
REVENUES:
Manufacturing revenues	$	28,650		$	20,533		$	90,289		$	92,182		$	33,163		$	32,835		$	60,054		$	61,639
Royalty revenues		9,970			7,970			27,489			24,990			9,460			8,818			18,377			17,519
Product sales, net		5,451			—			14,320			—			6,469			4,643			12,673			8,869
Research and development revenue under collaborative arrangements		81			3,736			2,705			40,438			155			1,174			423			2,624
Net collaborative profit		—			123,422			5,002			125,354			—			687			—			5,002

Total revenues		44,152			155,661			139,805			282,964			49,247			48,157			91,527			95,653

EXPENSES:
Cost of goods manufactured and sold		10,072			5,536			37,830			31,921			13,911			15,092			26,576			27,758
Research and development		22,577			22,669			68,827			64,640			23,932			20,664			46,909			46,250
Selling, general and administrative		17,739			14,568			57,632			38,173			18,436			20,625			38,162			39,893

Total expenses		50,388			42,773			164,289			134,734			56,279			56,381			111,647			113,901

OPERATING (LOSS) INCOME		(6,236	)		112,888			(24,484	)		148,230
OPERATING LOSS														(7,032	)		(8,224	)		(20,120	)		(18,248	)

OTHER EXPENSE, NET:
Interest income		1,017			2,574			3,666			8,883			673			1,088			1,525			2,649
Interest expense		(1,423	)		(2,436	)		(4,698	)		(10,905	)		(2,168	)		(1,566	)		(3,298	)		(3,275	)
Other expense, net		(160	)		(641	)		(290	)		(1,471	)		(82	)		(67	)		(183	)		(130	)

Total other expense, net		(566	)		(503	)		(1,322	)		(3,493	)		(1,577	)		(545	)		(1,956	)		(756	)

(LOSS) INCOME BEFORE INCOME TAXES		(6,802	)		112,385			(25,806	)		144,737
PROVISION (BENEFIT) FOR INCOME TAXES		15			(330	)		(115	)		637
LOSS BEFORE INCOME TAXES														(8,609	)		(8,769	)		(22,076	)		(19,004	)
INCOME TAX BENEFIT														(943	)		(60	)		(1,001	)		(130	)

NET (LOSS) INCOME	$	(6,817	)	$	112,715		$	(25,691	)	$	144,100
NET LOSS													$	(7,666	)	$	(8,709	)	$	(21,075	)	$	(18,874	)


(LOSS) EARNINGS PER COMMON SHARE:
Basic	$	(0.07	)	$	1.18		$	(0.27	)	$	1.51
LOSS PER COMMON SHARE:
Basic and diluted													$	(0.08	)	$	(0.09	)	$	(0.22	)	$	(0.20	)

Diluted	$	(0.07	)	$	1.18		$	(0.27	)	$	1.49

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic		94,784			95,316			94,815			95,246
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic and diluted														95,511			94,886			95,419			94,830

Diluted		94,784			95,818			94,815			96,398

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


	Nine Months Ended						Six Months Ended
	December 31,						September 30,
	2009			2008			2010			2009
	(In thousands)						(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(25,691	)	$	144,100
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Net loss							$	(21,075	)	$	(18,874	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation		20,314			7,501			4,062			15,482
Share-based compensation expense		10,811			11,590			9,404			7,438
Other non-cash charges		3,520			4,531			1,899			2,093
Loss on the purchase of non-recourse RISPERDAL CONSTA secured 7% notes		—			1,989
Changes in assets and liabilities:
Receivables		(3,645	)		11,585			(10,454	)		(9,111	)
Inventory, prepaid expenses and other assets		1,199			(4,746	)		1,791			10
Accounts payable and accrued expenses		(11,199	)		(4,722	)		(7,710	)		(8,702	)
Unearned milestone revenue		—			(117,657	)
Deferred revenue		(4,653	)		(9,529	)		1,692			(5,083	)
Other long-term liabilities		(1,369	)		(1,415	)		(75	)		(920	)
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount		(1,574	)		(4,590	)		(6,611	)		(1,009	)

Cash flows (used in) provided by operating activities		(12,287	)		38,637
Cash flows used in operating activities								(27,077	)		(18,676	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(9,197	)		(4,145	)		(6,719	)		(3,885	)
Sales of property, plant and equipment		249			7,717			206			169
Investment in Acceleron Pharmaceuticals, Inc.		(8,000	)		—			(501)			—
Purchases of investments		(390,818	)		(543,408	)		(240,371	)		(295,318	)
Sales and maturities of investments		427,270			540,721			276,437			298,134

Cash flows provided by investing activities		19,504			885
Cash flows provided by (used in) investing activities								29,052			(900	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock for share-based compensation arrangements		182			7,606			1,354			183
Excess tax benefit from share-based compensation		—			75
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal		(17,676	)		—			(45,397	)		(11,824	)
Purchase of non-recourse RISPERDAL CONSTA secured 7% notes		—			(67,185	)
Payment of capital leases		—			(47	)
Purchase of common stock for treasury		(2,684	)		(17,948	)		—			(2,684	)

Cash flows used in financing activities		(20,178	)		(77,499	)		(44,043	)		(14,325	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(12,961	)		(37,977	)		(42,068	)		(33,901	)
CASH AND CASH EQUIVALENTS — Beginning of period		86,893			101,241			79,324			86,893

CASH AND CASH EQUIVALENTS — End of period	$	73,932		$	63,264		$	37,256		$	52,992

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest	$	3,706		$	7,663		$	1,684		$	2,784
Cash paid for taxes	$	53		$	435		$	31		$	53
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses	$	3,933		$	1,883		$	578		$	1,967
Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards	$	858		$	707

ALKERMES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~(unaudited)~~ — (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Alkermes, Inc. (the “Company” or “Alkermes”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. The Company developed, manufactures and commercializes VIVITROL^® for alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. The Company also manufactures RISPERDAL^® CONSTA^® for schizophrenia and bipolar I disorder. The Company’s pipeline includes extended-release injectable and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”) disorders, reward disorders, addiction, diabetes and autoimmune disorders. The Company is headquartered in Waltham, Massachusetts and has a research facility in Massachusetts and a commercial manufacturing facility in Ohio.

The accompanying condensed consolidated financial statements of Alkermes ~~Inc. (the “Company” or “Alkermes”)~~ for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2010 and 2009 ~~and 2008~~ are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, ~~2009.~~2010. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”) (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to present fairly the results of operations for the reported periods.

These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto which are contained in the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2009,~~2010, filed with the Securities and Exchange Commission (“SEC”).

The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

Principles of Consolidation— The condensed consolidated financial statements include the accounts of Alkermes, Inc. and its wholly-owned subsidiaries: Alkermes Controlled Therapeutics, Inc.; Alkermes Europe, Ltd.; and RC Royalty Sub LLC (“Royalty Sub”). The assets of Royalty Sub are not available to satisfy obligations of Alkermes and its subsidiaries, other than the obligations of Royalty Sub, including Royalty Sub’s non-recourse RISPERDAL CONSTA secured 7% notes (the “non-recourse 7% Notes”), and the assets of Alkermes are not available to satisfy obligations of Royalty Sub. Intercompany accounts and transactions have been eliminated.

Use of Estimates— The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the following: (1) reported amounts of assets and liabilities; (2) disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements; and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Segment Information— The Company operates as one business segment, which is the business of developing, manufacturing and commercializing innovative medicines designed to yield better therapeutic outcomes and improve the lives of patients with serious diseases. The Company’s chief decision maker, the Chairman, President and Chief Executive Officer, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.

~~Reclassifications~~— $4.6 million that was previously classified as “Purchase of non-recourse RISPERDAL CONSTA Secured 7% notes” for the nine months ended December 31, 2008, was reclassified to “Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount” in the accompanying condensed consolidated statements of cash flows to conform to current period presentation.

New Accounting Pronouncements

~~On April 1,~~In September 2009, the ~~Company adopted new guidance issued by~~Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued accounting guidance related to revenue recognition that amends the previous guidance on arrangements with multiple deliverables. The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the ~~accounting~~arrangement should be separated, and provides for ~~collaborative arrangements. The~~separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Accounting guidance ~~defined collaborative arrangements and established reporting requirements for transactions between participants~~previously required that the fair value of the undelivered item be the price of the item either sold in a ~~collaborative arrangement and~~separate transaction between ~~participants~~unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under the previous guidance, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This guidance is effective prospectively for revenue arrangements entered into or materially modified in the Company’s fiscal year beginning April 1, 2011, and ~~third parties. The~~the Company is currently evaluating the potential impact of this standard on its consolidated financial statements. Early adoption is permitted, however, adoption of this ~~standard did not have an impact on~~guidance as of a date other than April 1, 2011 will require the ~~Company’s financial position or results~~Company to apply this guidance retrospectively effective as of ~~operations.~~April 1, 2010, and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption.

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

~~On April 1, 2009,~~In January 2010, the ~~Company adopted new~~FASB issued accounting guidance ~~issued by the FASB on~~related to fair value measurements ~~for its nonfinancial assets~~that requires additional disclosure related to transfers in and ~~liabilities that are subject to measurement at~~out of Levels 1 and 2 of the fair value onhierarchy. The guidance also requires additional disclosure for activity within Level 3 of the fair value hierarchy. The guidance requires a ~~non-recurring basis.~~reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 and describe the reasons for the transfers. In addition, this guidance requires a reporting entity to present information separately about purchases, sales issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3. This accounting standard was effective for interim and annual reporting periods beginning after December 31, 2009, other than for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 31, 2010 and for interim periods within those fiscal years. The ~~adoption~~Company adopted all provisions of this ~~standard~~pronouncement, except for those related to the disclosure of disaggregated Level 3 activity, on January 1, 2010, and as this guidance only amends required disclosures in the Company’s condensed consolidated financial statements, it did not ~~impact~~have an effect upon the Company’s financial position or results of ~~operations; however, this standard may impact~~operations. The Company does not expect the Company in subsequent periods and require additional disclosures. Also, effective April 1, 2009, the Company adopted new accounting guidance issued by the FASB on fair value measurements in determining whether a market is active or inactive and whether third-party transactions with similar assets and liabilities are distressed in determining the fair value of its assets and liabilities measured at fair value on a recurring basis. The adoption of the remaining provisions of this ~~standard did not~~amendment to have a significant impact ~~the Company’s~~on its consolidated financial ~~position or results of operations.~~statements.

In ~~June 2009,~~April 2010, the FASB issued accounting guidance ~~regarding~~related to the ~~accounting~~milestone method of revenue recognition for ~~transfers~~research and development arrangements. Under this guidance, the Company may recognize revenue contingent upon the achievement of ~~financial assets that will improve the relevance, representational faithfulness and comparability of the information that~~ a ~~reporting entity provides~~milestone in its ~~financial statements about a transfer of financial assets,~~entirety, in the ~~effects of such a transfer on its financial position, financial performance and cash flows, and provide information as~~period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to ~~a transferor’s continuing involvement, if any, in transferred financial assets. The~~be considered substantive. This guidance is effective on a prospective basis for research and development milestones achieved in the Company’s fiscal year beginning April 1, 2011. Early adoption is permitted, however, adoption of this guidance as of a date other than April 1, 2011 will require the Company to apply this guidance retrospectively effective as of April 1, 2010, and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. The Company plans to implement this guidance prospectively and the effect of this guidance will be limited to future transactions. The Company does not expect ~~the~~ adoption of this standard to have a ~~significant impact on its financial position or results of operations.~~

In June 2009, the FASB issued accounting guidance on business combinations and noncontrolling interests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations and noncontrolling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. The guidance is effective for the Company’s fiscal year beginning April 1, 2010, and the Company does not expect the adoption of this standard to have a significant impact on its financial position or results of operations.

In September 2009, the Emerging Issues Task Force (“EITF”) of the FASB issued accounting guidance related to revenue recognition that amends the previous guidance on arrangements with multiple deliverables. This guidance provides principles and application guidance on whether multiple deliverables exist, how the arrangements should be separated and how the consideration should be allocated. It also clarifies the method to allocate revenue in an arrangement using the estimated selling price. This guidance is effective for the Company’s fiscal year beginning April 1, 2011, and the Company does not expect the adoption of this standard to have a significantmaterial impact on its financial position or results of operations.

2. COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

Comprehensive ~~(loss) income~~loss is as follows:

Three Months Ended Nine Months Ended
December 31 December 31
(In thousands) 2009 2008 2009 2008
Net (loss) income $ (6,817 ) $ 112,715 $ (25,691 ) $ 144,100
Unrealized gains (losses) on available-for-sale securities:
Holding gains (losses) 650 (1,212 ) 2,410 (1,478 )
Reclassification of unrealized losses to realized losses on available-for-sale securities 94 556 94 1,163

Unrealized gains (losses) on available-for-sale securities 744 (656 ) 2,504 (315 )

Comprehensive (loss) income $ (6,073 ) $ 112,059 $ (23,187 ) $ 143,785


	Three Months Ended						Six Months Ended
	September 30,						September 30,
(In thousands)	2010			2009			2010			2009
Net loss	$	(7,666	)	$	(8,709	)	$	(21,075	)	$	(18,874	)
Unrealized gains on available-for-sale securities:
Holding gains (losses), net of tax		453			(228	)		947			1,760

Unrealized gains (losses) on available-for-sale securities		453			(228	)		947			1,760

Comprehensive loss	$	(7,213	)	$	(8,937	)	$	(20,128	)	$	(17,114	)

3. LOSS PER SHARE

Basic loss per common share is calculated based upon net loss available to holders of common shares divided by the weighted average number of common shares outstanding. For the three and six months ended September 30, 2010 and 2009, as the Company was in a net loss position, the diluted loss per share does not assume conversion or exercise of stock options and awards as they would have an anti-dilutive effect on loss per share. Therefore, the weighted average number of basic and diluted voting shares of common stock outstanding for the three and six months ended September 30, 2010 and 2009 were as follows:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
(In thousands)	2010		2009		2010		2009
Weighted average number of common shares outstanding		95,511		94,886		95,419		94,830


			Gross Unrealized
					Losses
	Amortized				Less than			Greater than			Estimated
	Cost		Gains		One Year			One Year			Fair Value
	(In thousands)
September 30, 2010
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	164,185	$	402	$	(1	)	$	—		$	164,586
International government agency debt securities		18,078		265		—			—			18,343
Corporate debt securities		9,029		78		—			(15	)		9,092

		191,292		745		(1	)		(15	)		192,021

Money market funds		1,201		—		—			—			1,201

Total short-term investments		192,493		745		(1	)		(15	)		193,222

Long-term investments:
Available-for-sale securities:
Corporate debt securities		25,238		—		—			(664	)		24,574
Auction rate securities		5,000		—		—			(571	)		4,429
International government agency debt securities		4,994		—		(1	)		—			4,993
U.S. government and agency debt securities		1,997		—		(1	)		—			1,996
Strategic equity investments		644		594		—			—			1,238

		37,873		594		(2	)		(1,235	)		37,230

Held-to-maturity securities:
Certificates of deposit		5,440		—		—			—			5,440
U.S. government debt securities		417		—		—			—			417

		5,857		—		—			—			5,857

Total long-term investments		43,730		594		(2	)		(1,235	)		43,087

Total investments	$	236,223	$	1,339	$	(3	)	$	(1,250	)	$	236,309


March 31, 2010
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	160,876	$	204	$	—		$	—		$	161,080
International government agency debt securities		23,441		136		—			(1	)		23,576
Corporate debt securities		15,225		14		—			(2	)		15,237
Asset backed debt securities		983		—		—			(24	)		959

		200,525		354		—			(27	)		200,852

Money market funds		1,201		—		—			—			1,201

Total short-term investments		201,726		354		—			(27	)		202,053

Long-term investments:
Available-for-sale securities:
Corporate debt securities		26,109		—		—			(942	)		25,167
U.S. government and agency debt securities		24,727		—		(39	)		—			24,688
Auction rate securities		10,000		—		—			(1,454	)		8,546
International government agency debt securities		3,225		—		(2	)		—			3,223
Strategic equity investments		644		691		—			—			1,335

		64,705		691		(41	)		(2,396	)		62,959

Held-to-maturity securities:
Certificates of deposit		5,440		—		—			—			5,440
U.S. government debt securities		417		—		—			—			417

		5,857		—		—			—			5,857

Total long-term investments		70,562		691		(41	)		(2,396	)		68,816

Total investments	$	272,288	$	1,045	$	(41	)	$	(2,423	)	$	270,869

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

~~4. INVESTMENTS~~

~~Investments consist of the following:~~

Amortized Gross Unrealized Estimated
Cost Gains Losses Fair Value
(In thousands)
December 31, 2009

Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities $ 126,980 $ 202 $ — $ 127,182
International government agency debt securities 28,641 162 — 28,803
Corporate debt securities 6,748 (99 ) 6,649
Other debt securities 2,501 — (119 ) 2,382

Total short-term investments 164,870 364 (218 ) 165,016

Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities 61,346 — (340 ) 61,006
International government agency debt securities 851 — (14 ) 837
Corporate debt securities 43,817 — (2,112 ) 41,705
Other debt securities 10,000 — (1,716 ) 8,284
Strategic investments 644 198 — 842

116,658 198 (4,182 ) 112,674

Held-to-maturity securities:
U.S. government obligations 417 — — 417
Certificates of deposit 5,440 — — 5,440

Total long-term investments 122,515 198 (4,182 ) 118,531

Total investments $ 287,385 $ 562 $ (4,400 ) $ 283,547

March 31, 2009

Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities $ 225,490 $ 2,635 $ (6 ) $ 228,119
Corporate debt securities 8,160 9 — 8,169
Other debt securities 500 — (20 ) 480

Total short-term investments 234,150 2,644 (26 ) 236,768

Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities 10,149 — (3 ) 10,146
Corporate debt securities 57,887 — (6,326 ) 51,561
Other debt securities 16,350 — (2,683 ) 13,667
Strategic investments 738 53 — 791

85,124 53 (9,012 ) 76,165

Held-to-maturity securities:
U.S. government obligations 416 — — 416
Certificates of deposit 4,240 — — 4,240

Total long-term investments 89,780 53 (9,012 ) 80,821

Total investments $ 323,930 $ 2,697 $ (9,038 ) $ 317,589

~~During the nine months ended December 31, 2009, the Company had $427.3 million of proceeds~~ Proceeds from the sales and maturities of ~~investments. The proceeds from the sales~~marketable securities, excluding strategic equity investments, which were primarily reinvested and ~~maturities of its investments~~ resulted in realized gains ~~of $0.2 million~~ and ~~realized~~ losses, ~~of less than $0.1 million.~~were as follows:

~~ALKERMES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

position; the extent to which fair value was less than cost; ~~the~~ financial condition and near term prospects of the issuers; and the Company’s intent not to sell these securities and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.

The estimated fair value of these FRN’s could change significantly based on future financial market conditions. These FRN’s held by the Company did not trade either because they were nearing their scheduled call dates or due to abnormally high credit spreads on the debt of the issuers, or both. Similar securitiesCompany’s strategic equity investments include common stock in public companies with which the Company has ~~held have been called at par by issuers prior to maturity.~~or had a collaborative arrangement. In addition, in December 2009, the Company entered into a collaborative arrangement with, and made an investment in, Acceleron Pharma, Inc. (“Acceleron”). The Company’s Chairman, President and Chief Executive Officer is one of nine members of Acceleron’s board of directors. The Company’s December 2009 investment in Acceleron consisted of an $8.0 million purchase of shares of Series D-1 convertible, redeemable preferred stock. In July 2010, the Company invested an additional $0.5 million in exchange for shares of Series E convertible, redeemable preferred stock and common stock warrants. The Company accounts for its investment in Acceleron under the cost method as Acceleron is a privately-held company over which the Company does not exercise significant influence. The Company will continue to monitor this investment to evaluate whether any decline in its value has occurred that would be other-than-temporary, based on the implied value from any recent rounds of financing completed by Acceleron, specific events at Acceleron, market prices of comparable public companies and general market conditions. The Company’s investment balance of $8.5 million and $8.0 million at September 30, 2010 and March 31, 2010, respectively, is recorded within “Other assets” in the accompanying condensed consolidated balance sheets.

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

5. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:


	September 30,
(In thousands)	2010		Level 1		Level 2		Level 3
Cash equivalents and money market funds	$	1,303	$	1,303	$	—	$	—
U.S. government and agency debt securities		166,582		166,582		—		—
International government agency debt securities		23,336		23,336		—		—
Corporate debt securities		33,666		—		31,912		1,754
Auction rate securities		4,429		—		—		4,429
Strategic equity investments		1,238		1,238		—		—

Total	$	230,554	$	192,459	$	31,912	$	6,183


	March 31,
	2010		Level 1		Level 2		Level 3
Cash equivalents and money market funds	$	1,289	$	1,289	$	—	$	—
U.S. government and agency debt securities		185,768		185,768		—		—
International government agency debt securities		26,799		26,799		—		—
Corporate debt securities		40,404		—		38,668		1,736
Auction rate securities		8,546		—		—		8,546
Asset backed debt securities		959		—		—		959
Strategic equity investments		1,335		1,335		—		—

Total	$	265,100	$	215,191	$	38,668	$	11,241

There were no transfers or reclassifications of any securities between Level 1 and Level 2 during the ~~financial markets and if there is continued deterioration,~~six months ended September 30, 2010. The following table illustrates the rollforward of the fair value of ~~these~~the Company’s investments whose fair value is determined using Level 3 inputs:


	Fair
(In thousands)	Value
Balance, March 31, 2010	$	11,241
Total unrealized gains included in comprehensive loss		925
Sales and redemptions, at par value		(5,983	)

Balance, September 30, 2010	$	6,183

Substantially all of the Company’s investments in corporate debt securities ~~could decline further resulting~~have been classified as Level 2 investments. These securities have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market observable data. The market observable data includes reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events. The Company validates the prices developed using the market observable data by obtaining market values from other pricing sources, analyzing pricing data in ~~an other-than-temporary impairment charge.~~certain instances and confirming that the relevant markets are active.

The Company’s two investments in auction rate securities consist of taxable student loan revenue bonds issued by the Colorado Student Obligation Bond Authority (“Colorado”), with a cost of $5.0 million, and Brazos Higher Education Service Corporation (“Brazos”), with a cost of $5.0 million, which service student loans under the Federal Family Education Loan Program (“FFELP”). The bonds are collateralized by student loans purchased by the authorities, which are guaranteed by state sponsored agencies and reinsured by the U.S. Department of Education. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals. The Colorado and Brazos securities were rated Aaa and Baa3 by Moody’s, respectively, at December 31, 2009. Due to repeated failed auctions since January 2008, the Company no longer considers these securities to be liquid and has classified them as long-term investments in the condensed consolidated balance sheets. The securities continue to pay interest during the periods in which the auctions have failed.

~~Since the security auctions have failed and fair value cannot be derived from quoted prices, the~~ Company used a discounted cash flow model to determine the estimated fair value of ~~the securities~~its Level 3 investments. The Company’s most significant Level 3 investment at ~~December 31, 2009.~~September 30, 2010 consists of its investment in a student loan backed auction rate security, with an amortized cost of $5.0 million, which was not trading at September 30, 2010. The assumptions used in the discounted cash flow model include estimates for interest rates, timing of cash flows, expected holding periods and risk adjusted discount rates, which include provisions for default and liquidity risk, which the Company believes to be the most critical assumptions utilized within the analysis. The valuation analysis considers, among other items, assumptions that market participants would use in their estimates of fair value, such as the collateral underlying the security, the creditworthiness of the issuer and any associated guarantees, the timing of expected future cash flows, the timing of, and the likelihood that the security will have a successful auction or when callability features may be exercised by the issuer. ~~These~~The securities were also compared, where possible, to other observable market data with similar characteristics to the securities held by the Company. ~~The Company estimated the fair value of the auction rate securities to be $8.3 million at December 31, 2009.~~

In making the determination that the decline in fair value of the auction rate securities was temporary, the Company considered various factors, including, but not limited to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; financial condition and near term prospects of the issuers; and the intent not to sell these securities and assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis. The estimated fair value of the auction rate securities could change significantly based on future financial market conditions. The Company continues to monitor the securities and the financial markets and if there is continued deterioration, the fair value of these securities could decline further resulting in an other-than-temporary impairment charge.

At December 31, 2009, the Company’s investments in asset backed debt securities consist of medium term floating rate notes (“MTN”) of Aleutian Investments, LLC (“Aleutian”) and Meridian Funding Company, LLC (“Meridian”), which are qualified special purpose entities (“QSPE’s”) of Ambac Financial Group, Inc. (“Ambac”) and MBIA, Inc. (“MBIA”), respectively. Ambac and MBIA are guarantors of financial obligations and are referred to as monoline financial guarantee insurance companies. The QSPE’s, which purchase pools of assets or securities and fund the purchase through the issuance of MTN’s, have been established to provide a vehicle to access the capital markets for asset backed debt securities and corporate borrowers. The MTN’s include sinking fund redemption features which match-fund the terms of redemptions to the maturity dates of the underlying pools of assets or securities in order to mitigate potential liquidity risk to the QSPE’s. At December 31, 2009, $7.4 million of the Company’s initial $9.9 million investment in MTN’s had been redeemed through scheduled and unscheduled sinking fund redemptions at par value.

1110

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

The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of monoline financial guarantee insurance companies, including Ambac and MBIA. At December 31, 2009, Ambac had ratings of Caa2 and CC by Moody’s and S&P, respectively, and MBIA had ratings of Ba3 and BB+ by Moody’s and S&P, respectively. Because the MTN’s are not actively trading in the credit markets and fair value cannot be derived from quoted prices, the Company used a discounted cash flow model to determine the estimated fair value of the securities at December 31, 2009. The Company’s valuation analyses consider, among other items, assumptions that market participants would use in their estimates of fair value such as the collateral underlying the security, the creditworthiness of the issuer and the associated guarantees by Ambac and MBIA, the timing of expected future cash flows, including whether the callability features of these investments may be exercised by the issuer. These securities were also compared, where possible, to securities with observable market data with similar characteristics to the securities held by the Company. The Company believes there are several significant assumptions that are utilized in its valuation analyses, the most critical of which is the discount rate, which includes a provision for default and liquidity risk. The Company estimated the fair value of the asset backed securities to be $2.4 million at December 31, 2009.

The Company may not be able to liquidate its investment in these securities before the scheduled redemptions or until trading in the securities resumes in the credit markets, which may not occur. At December 31, 2009, the Company determined that the securities had been temporarily impaired due to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; the financial condition and near term prospects of the issuers; current redemptions made by the issuers; and the intent not to sell these securities and assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.

The Company’s strategic investments include common stock in publicly-traded companies with which it has or did have a collaborative agreement. For the nine months ended December 31, 2009 and 2008, the Company recognized $0.1 million and $1.2 million, respectively, in charges for other-than-temporary losses on its strategic investments due to declines in their fair value.

~~5. FAIR VALUE MEASUREMENTS~~

December 31,
(In thousands) 2009 Level 1 Level 2 Level 3
Cash equivalents $ 91 $ 91 $ — $ —
U.S. government and agency debt securities 188,188 188,188 — —
International government agency debt securities 29,640 29,640 — —
Corporate debt securities 48,354 — 46,656 1,698
Other debt securities 10,666 — — 10,666
Strategic equity investments 842 842 — —

Total $ 277,781 $ 218,761 $ 46,656 $ 12,364

March 31,
(In thousands) 2009 Level 1 Level 2 Level 3
Cash equivalents $ 822 $ 822 $ — $ —
U.S. government and agency debt securities 238,265 238,265 — —
Corporate debt securities 59,730 — — 59,730
Other debt securities 14,147 — — 14,147
Strategic equity investments 791 791 — —

Total $ 313,755 $ 239,878 $ — $ 73,877

~~ALKERMES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The following table is a rollforward of the fair value of the Company’s investments whose fair value is determined using Level 3 inputs:~~

Fair
(In thousands) Value
Balance, March 31, 2009 $ 73,877
Total unrealized gains included in comprehensive loss 4,496
Sales and redemptions, at par value (21,049 )
Transfers out of Level 3 (44,960 )

Balance, December 31, 2009 $ 12,364

The fair values of the Company’s investments in certain of its corporate debt securities and other debt securities, including auction rate securities and asset backed debt securities, are determined using certain inputs that are unobservable and considered significant to the overall fair value measurement. During the nine months ended December 31, 2009, certain of the corporate debt securities and asset backed debt securities held by the Company had minimal or no trades and the security auctions for the Company’s auction rate securities had failed. The Company is unable to derive a fair value for these investments using quoted market prices and used discounted cash flow models as described in Note 4, Investments.

During the three months ended September 30, 2009, trading resumed for certain of the Company’s investments in corporate debt securities and these corporate debt securities, with a fair value of $33.9 million, were transferred from a Level 3 classification to a Level 2 classification. During the three months ended December 31, 2009, the Company transferred an additional $11.0 million of corporate debt securities to a Level 2 classification as trading resumed for these securities. At December 31, 2009, the Company derived a fair value for its Level 2 investments using market observable inputs.

The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature. The Company’s non-recourse RISPERDAL CONSTA secured 7% ~~Notes~~notes (the “non-recourse 7% Notes”) were fully redeemed on July 1, 2010 and had a carrying value of ~~$57.3 million and $75.9~~$51.0 million and a fair value of ~~$55.0 million and $74.7~~$48.7 million at ~~December 31, 2009 and~~ March 31, ~~2009, respectively.~~2010. The estimated fair value of the non-recourse 7% Notes at March 31, 2010 was based on a discounted cash flow model.

6. INVENTORY

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consists of the following:


	December 31,		March 31,		September 30,		March 31,
(In thousands)	2009		2009		2010		2010
Raw materials	$	5,169	$	5,916	$	3,822	$	4,130
Work in process		6,251		5,397		6,306		7,788
Finished goods (1)		8,381		7,015		7,505		8,501
Consigned-out inventory (2)		248		1,969		624		234

Inventory	$	20,049	$	20,297
Total inventory					$	18,257	$	20,653

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

~~7. PROPERTY, PLANT AND EQUIPMENT~~9. LONG-TERM DEBT

~~Property, plant and equipment consist~~Long-term debt consists of the following:

December 31, March 31,
(In thousands) 2009 2009
Land $ 301 $ 301
Building and improvements 36,548 36,325
Furniture, fixture and equipment 61,635 67,165
Leasehold improvements 33,980 33,996
Construction in progress 50,677 41,908

Subtotal 183,141 179,695
Less: accumulated depreciation (86,809 ) (73,234 )

Total property, plant and equipment, net $ 96,332 $ 106,461


	September 30,		March 31,
	2010		2010
Non-recourse 7% Notes	$	—	$	51,043
Less: current portion		—		(51,043	)

Long-term debt	$	—	$	—

~~As a result~~On July 1, 2010, in addition to the scheduled principal payment of $6.4 million, the Company fully redeemed the balance of the ~~Company’s relocation of its corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts in January 2010, the Company recorded a charge of $14.8~~non-recourse 7% Notes for $39.2 million, to depreciation during the nine months ended December 31, 2009. The depreciation charge relates to the acceleration of depreciation on laboratory related leasehold improvements located at the Company’s Cambridge facility, which no longer has any benefit or future use to the Company, and the write-down of laboratory equipment that is no longer in use and will be disposed of.

~~8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES~~

~~Accounts payable and accrued expenses consist~~representing 101.75% of the ~~following:~~

December 31, March 31,
(In thousands) 2009 2009
Accounts payable $ 6,140 $ 8,046
Accrued compensation 11,482 13,817
Accrued interest 1,011 1,549
Amounts due to Cephalon — 1,169
Accrued other 10,927 11,902

Total accounts payable and accrued expenses $ 29,560 $ 36,483

outstanding principal balance in accordance with the terms of the Indenture for the non-recourse 7% Notes. The non-recourse 7% Notes were previously scheduled to mature on January 1, 2012.

9.10. SHARE-BASED COMPENSATION

Share-based compensation expense consists of the following:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	December 31				December 31				September 30,				September 30,
(In thousands)	2009		2008		2009		2008		2010		2009		2010		2009
Cost of goods manufactured and sold	$	434	$	291	$	1,263	$	1,148	$	525	$	519	$	886	$	829
Research and development		759		527		2,485		3,397		1,637		919		3,152		1,726
Selling, general and administrative ~~(1)~~		2,179		2,463		7,063		7,045		2,786		2,770		5,366		4,883

Total share-based compensation expense	$	3,372	$	3,281	$	10,811	$	11,590	$	4,948	$	4,208	$	9,404	$	7,438

~~ALKERMES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~10. COLLABORATIONS~~

In December 2009, the Company entered into a collaboration and license agreement with Acceleron Pharma, Inc. (“Acceleron”). In exchange for a nonrefundable upfront payment of $2.0 million, an equity investment in Acceleron of $8.0 million and certain potential milestone payments and royalties, the Company has obtained an exclusive license to Acceleron’s proprietary long-acting Fc fusion technology platform, called the Medifusion^TM technology, which is designed to extend the circulating half-life of proteins and peptides. The first drug candidate being developed with this technology is a long-acting form of a TNF receptor-Fc fusion protein for the treatment of rheumatoid arthritis and related autoimmune diseases. The Company and Acceleron have agreed to collaborate on the development of product candidates from the Medifusion technology. Pursuant to the terms of the agreement, Acceleron will develop up to two selected drug compounds using the Medifusion technology through preclinical studies, at which point the Company will assume responsibility for all clinical development and commercialization of these two compounds and any other compounds the Company elects to develop resulting from the platform. Acceleron will retain all rights to the technology for products derived from the TGF-beta superfamily.

The Company’s $8.0 million investment in Acceleron consists of shares of Series D-1 convertible, redeemable preferred stock, which represents a 3% ownership position in Acceleron. The Company’s Chief Executive Officer has been one of nine members of Acceleron’s board of directors. The Company is accounting for its investment in Acceleron under the cost method as Acceleron is a privately-held company over which the Company does not exercise significant influence. Accordingly, the Company does not record any share of Acceleron’s net income or losses, but would record dividends, if received. The carrying value of the investment is $8.0 million at December 31, 2009 and is recorded within “other assets” in the accompanying condensed consolidated balance sheet. The Company will monitor this investment to evaluate whether any decline in its value has occurred that would be other than temporary, based on the implied value from any recent rounds of financing completed by the investee, market prices of comparable public companies, and general market conditions.

In addition to the upfront payment and equity investment, the Company will reimburse Acceleron for any time, at an agreed-upon full-time equivalent (“FTE”) rate, and materials Acceleron incurs during development. The Company is obligated to make developmental and sales milestone payments in the aggregate of up to $110.0 million per product in the event that certain development and sales goals are achieved. The Company is also obligated to make tiered royalty payments in the mid-single digits on annual net sales in the event any products developed under the agreement are commercialized.

During the three months ended December 31, 2009, the Company incurred expenses of $0.1 million in connection with its arrangement with Acceleron, which is recorded within research and development expense in the accompanying condensed consolidated statement of operations. Additionally, the $2.0 million upfront payment was charged to research and development expense as technological feasibility of the acquired technology has not been established.

11. RESTRUCTURING

In connection with the 2008 restructuring program, in which the Company and Eli Lilly and Company announced the decision to discontinue the AIR^® Insulin development program (the “2008 Restructuring”), the Company recorded net restructuring charges of approximately $6.9 million ~~during~~in the year ended March 31, 2008. Activity related to the 2008 Restructuring in the ~~nine~~six months ended ~~December 31, 2009~~September 30, 2010 was as follows:


(In thousands)	Balance			Balance
Accrued restructuring, March 31, 2009	$	4,193
Accrued restructuring, March 31, 2010				$	3,596
Payments for facility closure costs		(611	)		(451	)
Other adjustments		158			340

Accrued Restructuring, December 31, 2009	$	3,740
Accrued restructuring, September 30, 2010				$	3,485

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

12. INCOME TAXES

The Company records a deferred tax asset or liability based on the difference between the financial statement and tax bases of assets and liabilities, as measured by enacted tax rates assumed to be in effect when these differences reverse. At ~~December 31, 2009,~~September 30, 2010, the Company determined that it is more likely than not that the deferred tax assets may not be realized and a full valuation allowance continues to be recorded.

The Company ~~had~~recorded an income tax ~~provision~~benefit of $0.9 million and $1.0 million for the three and six months ended September 30, 2010, respectively, primarily related to a $0.8 million tax benefit for bonus depreciation pursuant to theSmall Business Jobs Act of 2010 (“Act”). Bonus depreciation increases the Company’s 2010 alternative minimum tax (“AMT”) net operating loss (“NOL”) carryback and will allow the Company to recover AMT paid in the carryback period. The tax benefit was recorded as a discrete item during the three months ended September 30, 2010, the period in which the Act was enacted. The income tax benefit of less than $0.1 million and ~~an income tax benefit of~~ $0.1 million ~~during the three and nine months ended December 31, 2009, respectively. This income tax provision and benefit~~ for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2009, ~~respectively, primarily represents~~represented the amount the Company ~~estimates~~estimated it ~~will~~would benefit from theHousing and Economic Recovery Act of 2008. This legislation allows for certain taxpayers to forego bonus depreciation in lieu of a refundable cash credit based on certain qualified asset purchases. The income tax benefit of $0.3 million and provision of $0.6 million for the three and nine months ended December 31, 2008 ~~respectively, is related to the U.S. alternative minimum tax (“AMT”)~~. The utilization of tax loss carryforwards is limited in the calculation of AMT and, as a result, a federal tax benefit and charge were recorded in the three and nine months ended December 31, 2008, respectively. The AMT liability is available as a credit against future tax obligations upon the full utilization or expiration of the Company’s net operating loss carryforward and research and development credits.

13. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company does not believe that it is ~~not aware of~~currently party to any such proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.

In April 2009, the Company entered into a lease agreement in connection with the relocation of its corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, which began in January 2010. The initial lease term, which began in December 2009, is for 10 years with provisions for the Company to extend the lease term up to an additional 10 years. In June 2009, the Company executed an amendment to the lease agreement which increased the square footage leased by the Company by approximately 15%. The total rent expense related to the new headquarters is approximately $3.1 million annually during the initial lease term.

In April 2009, the Company entered into an agreement to sublease a portion of its Cambridge, Massachusetts headquarters. Under the terms of the agreement, the Company exited and made available certain of its Cambridge, Massachusetts facility to the leasee on August 1, 2009 and recorded a charge of $1.0 million, which equals the amount of rent expense in excess of estimated sublease income associated with the vacated space the Company expects to collect through the remainder of the lease term.

~~14. SUBSEQUENT EVENTS~~

The Company has evaluated events occurring subsequent to December 31, 2009 through February 4, 2010, which is the date the Company’s financial statements were issued. The Company does not have any recognized or nonrecognized subsequent events to disclose.

1613


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

~~Alkermes, Inc. (as used~~The following discussion should be read in ~~this section, together~~conjunction with our ~~subsidiaries, “us”, “we”, “our” or~~condensed consolidated financial statements and related notes beginning on page 6 of this Quarterly Report on Form 10-Q, and the ~~“Company”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. We developed, manufacture~~audited financial statements and ~~commercialize VIVITROL~~^® ~~for alcohol dependence~~notes thereto, and ~~manufacture RISPERDAL~~^® ~~CONSTA~~^® ~~for schizophrenia~~Management’s Discussion and ~~bipolar disorder. Our robust pipeline includes extended-release injectable, pulmonary~~Analysis of Financial Condition and ~~oral products for~~Results of Operations included in our Annual Report on Form 10-K, which has been filed with the ~~treatment of prevalent, chronic diseases, such as central nervous system disorders, addiction~~Securities and diabetes. We have research facilities in Massachusetts and a commercial manufacturing facility in Ohio. In January 2010, we relocated our corporate headquarters from Cambridge, Massachusetts, to Waltham, Massachusetts.Exchange Commission (“SEC”).

Forward-Looking Statements

~~Any statements herein or otherwise made in writing or orally~~This document contains and incorporates by ~~us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements~~reference “forward-looking statements” within the meaning of Section 27A of the ~~Private~~ Securities ~~Litigation Reform~~ Act of ~~1995. These~~1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, these statements ~~relate to our future plans, objectives, expectations and intentions and may~~can be identified by ~~words like “believe,” “expect,” “designed,”~~the use of forward-looking terminology such as “may,” “will,” “could,” “should,” ~~“seek,~~“would,” or“expect,” “anticipate,” “continue” or other similar words. These statements discuss future expectations; contain projections of results of operations or of financial condition, or state trends and ~~similar expressions. These~~known uncertainties or other forward looking information. Forward-looking statements ~~may~~in this Quarterly Report on Form 10-Q include, without limitation, statements regarding:

our expectations regarding our financial performance, including, but ~~are~~ not limited to ~~statements concerning:~~revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;

our expectations regarding the achievement of certain business and operating goals and future operating results and profitability; manufacturing revenues; product sales and royalty revenues; spending relating to research and development, manufacturing, and selling and marketing activities; financial goals and projections of capital expenditures; recognition of revenues; future financings; continued growthcommercialization of RISPERDAL CONSTA ~~sales;~~and VIVITROL including the ~~commercialization~~sales and marketing efforts of ~~VIVITROL in~~our partners Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen”), and our ability to establish and maintain successful sales and marketing, reimbursement and distribution arrangements for VIVITROL;

•

our expectation and timeline for regulatory approval of the New Drug Application (“NDA”) submission for BYDUREON^TM (exenatide for extended-release injectable suspension) and, if approved, the commercialization of BYDUREON by Amylin Pharmaceuticals, Inc. (“Amylin”), and Eli Lilly & Co. (“Lilly”);

our expectations regarding our product candidates, including the ~~United States (“U.S.”) by us~~development, regulatory review and ~~in Russia~~commercial potential of such product candidates and the ~~Commonwealth of Independent States (“CIS”) by Cilag GmbH International (“Cilag”), a subsidiary of Johnson & Johnson; recognition of milestone payments from Cilag~~costs and expenses related ~~to the future sales of VIVITROL in Russia and the CIS; the successful continuation of development activities for~~ thereto;

our programs, including exenatide once weekly, VIVITROL for opioid dependence (including our plans to file a supplemental NDA (“sNDA”) for VIVITROL for the treatment of opioid dependence), ALKS 29, ALKS 33, ALKS 36 and ALKS 37, ALKS 6931, ALKS 9070; the expectation and timeline for regulatory approval of the New Drug Application (“NDA”) submission for exenatide once weekly; the patentability of our new chemistry-based LinkeRx^TM ~~technology platform; and~~expectations regarding the successful manufacture of our products and product candidates, including RISPERDAL CONSTA ~~VIVITROL~~ and ~~polymer for exenatide once weekly,~~VIVITROL, by us at a commercial scale, and our expectations regarding the successful manufacture of ~~exenatide once weekly~~BYDUREON by ~~Amylin Pharmaceuticals, Inc. (“Amylin”).~~our partner Amylin;

the continuation of our collaborations and other significant agreements and our ability to establish and maintain successful development collaborations;

the impact of new accounting pronouncements;

our expectations concerning the status, intended use and financial impact of our properties, including manufacturing facilities; and

our future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

~~Although we believe~~You are cautioned that ~~our expectations~~forward-looking statements are based on ~~reasonable assumptions within the bounds~~current expectations and are inherently uncertain. Actual performance and results of ~~our knowledge of our business and~~ operations may differ materially from those projected or suggested in the forward-looking statements ~~contained in this document are neither promises nor guarantees. Our business is subject~~due to ~~significant risk~~various risks and uncertainties, and there can be no assurance that our actual results will not differ materially from our expectations. Factors which could cause actual results to differ materially from our expectations set forth in our forward-looking statements are set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2009 and subsequent Quarterly Reports on Form 10-Q, and include, among others: (i) including:

manufacturing and royalty revenues from RISPERDAL CONSTA may not continue to grow, particularly because we rely on our partner, Janssen, ~~Pharmaceutica, Inc., a division of Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Janssen Pharmaceutica International, a division of Cilag International (together “Janssen”),~~ to forecast and market and sell this ~~product and because our partner markets and sells INVEGA~~^® ~~SUSTENNA™, a competing~~ product; ~~(ii)~~

we may be unable to manufacture RISPERDAL CONSTA, VIVITROL and ~~polymer for exenatide once weekly,~~our product candidates in sufficient quantities and with sufficient yields to meet our orand our partners’ ~~requirements or~~requirements;

Amylin may not be able to ~~add additional production capacity for RISPERDAL CONSTA and VIVITROL, or unexpected events could interrupt manufacturing operations at our RISPERDAL CONSTA and VIVITROL~~successfully operate the manufacturing facility ~~which is the sole source of supply~~ for ~~these products; (iii)~~ BYDUREON;

we may be unable to develop the commercial capabilities, and/or infrastructure, necessary to successfully commercialize VIVITROL; ~~(iv) Cilag may be unable to receive approval for VIVITROL for~~

the treatment of opioid dependence in Russia and for the treatment of alcohol and opioid dependence in the CIS; (v) Cilag may be unable to successfully commercialize VIVITROL in Russia and the CIS; (vi) third party payors may not cover or reimburse us for purchases of our products; (vii) if approved, Eli Lilly and CompanyUnited States (“~~Lilly”~~U.S.”) and Amylin may be unable to successfully commercialize exenatide once weekly; (viii) we may be unable to scale-up and manufacture our product candidates commercially or economically; (ix) we may not be able to source raw

~~materials for our production processes from third parties; (x) Amylin may not be able to successfully operate the manufacturing facility for exenatide once weekly and the U.S.~~ Food and Drug Administration (“FDA”) and foreign regulatory agencies may not ~~find the product produced in the Amylin facility comparable to the product used in the pivotal clinical study which was manufactured in our facility; (xi) our product candidates,~~approve BYDUREON and, even if approved, ~~for marketing,~~such product may not be ~~launched~~ successfully ~~in one or all indications for which marketing is approved and, if launched, may not produce significant revenues; (xii)~~ commercialized;

we rely solely on our collaborative partners to determine and implement, and to inform us in a timely manner of any developments concerning, the regulatory and marketing strategies for RISPERDAL CONSTA and ~~our other partnered, non-proprietary programs; (xiii) RISPERDAL CONSTA, VIVITROL and, if approved,~~BYDUREON, including the four-week formulation of exenatide once weekly ~~may have unintended side effects, adverse reactions or incidents of misuse~~currently being developed by us, and ~~the FDA or other health authorities could require post approval studies or the removal of our products from the market; (xiv)~~ our collaborators could elect to terminate or delay programs at any time and disputes with collaborators or failure to negotiate acceptable ~~new~~ collaborative arrangements for our technologies could occur; ~~(xv) clinical trials~~

•

RISPERDAL CONSTA, VIVITROL and BYDUREON, if and when approved, experience and will continue to experience competition, including from competing products marketed by our collaborative partners, such as INVEGA^® SUSTENNA^TM (paliperidone palmitate), and from marketing approvals for new products;

third party payors may ~~take more time~~not cover or ~~consume more resources~~reimburse our products;

the impact of recently enacted, and any future, health reform legislation may be greater than initially envisioned; (xvi) results of earlier clinical trials may not necessarily be predictive of the safety and efficacy results in larger clinical trials, and the results of clinical trials may not be predictive of the safety or efficacy results of the product in commercial use; (xvii) expected;

our product candidates could be ineffective or unsafe during preclinical studies and clinical trials, and we and our collaborators may not be permitted by regulatory authorities to undertake new or additional clinical trials for product candidates incorporating our technologies, or clinical trials could be delayed or terminated; ~~(xviii) after the completion of clinical trials for~~

RISPERDAL CONSTA, VIVITROL, BYDUREON, if and when approved, and our product candidates ~~including exenatide once weekly,~~in commercial use may have unintended side effects, adverse reactions or ~~after the submission for marketing approval~~incidents of ~~such product candidates,~~misuse and the FDA or other health authorities could require post approval studies or require removal of our products from the market;

clinical trials may take more time or consume more resources than initially envisioned and the results of earlier clinical trials may not necessarily be predictive of the safety and efficacy results of larger clinical trials;

U.S. and foreign regulatory agencies may refuse to accept ~~such filings, could~~applications for marketing authorization for our product candidates, may request additional preclinical or clinical studies be conducted or request a safety monitoring program, any of which could result in significant delays or the failure of such products to receive marketing approval; (xix) even if our product candidates appear promising at an early stage of development, product candidates could fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical, fail to achieve marketapproval or acceptance ~~be precluded from commercialization by proprietary rights of third parties or experience substantial competition~~ in the marketplace; ~~(xx) technological change in the biotechnology or pharmaceutical industries could render our products and/or product candidates obsolete or non-competitive; (xxi)~~

difficulties ~~or set-backs~~ in obtaining and enforcing our patents ~~including but not limited to those related to our LinkeRx technology platform,~~ and difficulties with the patent rights of others could occur; ~~(xxii)~~

we may suffer potential costs resulting from product liability or other third party claims;

we may incur losses in the future; (xxiii) we may need to raise substantial additional funding to continue research and development programs and clinical trials and other operations and could incur difficulties or setbacks in raising such funds, which may be further impacted by current economic conditions and the lack of available credit sources; (xxiv) our methodology for determining the fair value of our investments may change; and (xxv)

we may not be able to liquidate or otherwise recoup our investments in corporate debt securities ~~asset backed debt securities~~ and auction rate ~~securities.~~securities;

exchange rate valuations and fluctuations may negatively impact our revenues, results of operations and financial condition; and

the other risks and uncertainties described or discussed in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2010.

The forward-looking statements ~~made in this document are made only~~contained and incorporated herein represent our judgment as of the date ~~hereof~~of this Quarterly Report, and we caution readers not to place undue reliance on such statements. The information contained in this Quarterly Report is provided by us as of the date of this Quarterly Report, and, except as required by law, we do not ~~intend~~undertake any obligation to update any forward-looking statements contained in this document as a result of ~~these~~new information, future events or otherwise.

Unless otherwise indicated, information contained in this Quarterly Report concerning the disorders targeted by our products and product candidates and the markets in which we operate is based on information from various sources (including industry publications, medical and clinical journals and studies, surveys and forecasts and our internal research), on assumptions that we have made, which we believe are reasonable, based on those data and other similar sources and on our knowledge of the markets for our products and development programs. Our internal research has not been verified by any independent source and we have not independently verified any third-party information. These projections, assumptions and estimates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, ~~or to publicly announce the results of any revisions to any~~including those described in Part 1, Item 1A, “Risk Factors” of our ~~forward-looking statements~~Annual Report on Form 10-K for the year ended March 31, 2010. These and other ~~than~~factors could cause results to differ materially from those expressed in the estimates included in this prospectus.

Overview

Alkermes, Inc. (as used in this section, together with our subsidiaries, “us”, “we”, “our” or the “Company”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. We developed, manufacture and commercialize VIVITROL^® (naltrexone for extended-release injectable suspension) for alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. We also manufacture RISPERDAL^® CONSTA^® ((risperidone) long-acting injection) for schizophrenia and bipolar I disorder. Our robust pipeline includes extended-release injectable and oral products for the treatment of prevalent, chronic diseases, such as ~~required under the federal securities laws.~~

~~Our Strategy~~central nervous system (“CNS”) disorders, reward disorders, addiction, diabetes and autoimmune disorders. We are headquartered in Waltham, Massachusetts and have a research facility in Massachusetts and a commercial manufacturing facility in Ohio.

We leverage our formulation expertise and ~~drug development technologies~~proprietary product platforms to develop, both with partners and on our own, innovative and competitively advantaged ~~drug products~~medications that can enhance patient outcomes in major therapeutic areas. We enter into select collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our ~~technologies.~~proprietary product platforms. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products. ~~Each~~

Financial Highlights

Net loss for the three months ended September 30, 2010 was $7.7 million, or $0.08 per common share, basic and diluted, as compared to a net loss of ~~these approaches is discussed~~$8.7 million, or $0.09 per common share, basic and diluted, for the three months ended September 30, 2009. Net loss for the six months ended September 30, 2010 was $21.1 million, or $0.22 per common share, basic and diluted, as compared to a net loss of $18.9 million, or $0.20 per common share, basic and diluted, for the six months ended September 30, 2009. Revenues for the three and six months ended September 30, 2010 were driven by strong manufacturing and royalty revenues from RISPERDAL CONSTA. Worldwide sales of RISPERDAL CONSTA by Janssen were $377.7 million and $733.4 million for the three and six months ended September 30, 2010, respectively, an increase of 7.1% and 4.7% from the three and six months ended September 30, 2009, respectively.

On July 1, 2010, we redeemed the remaining non-recourse RISPERDAL CONSTA secured 7% notes (the “non-recourse 7% Notes”) for $45.6 million. As a result of this transaction, we recorded charges of $1.4 million relating to the write-off of the unamortized portion of deferred financing costs and $0.8 million primarily related to the premium paid on the redemption of the non-recourse 7% Notes. We expect to save $3.2 million in ~~more detail in “Products~~interest and ~~Development Programs.”~~accretion expense through the previously scheduled maturity date of January 1, 2012 as a result of redeeming the non-recourse 7% Notes.

Products and Development Programs

RISPERDAL CONSTA

RISPERDAL CONSTA is a long-acting formulation of risperidone, a product of Janssen, and is the first and only long-acting, atypical antipsychotic approved by the FDA for ~~both~~ the treatment of ~~both~~ schizophrenia and for the treatment of bipolar I disorder. The medication uses our proprietary Medisorb^® injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injection every two weeks. RISPERDAL CONSTA is marketed by

Janssen and is exclusively manufactured by us. RISPERDAL CONSTA was first approved for the treatment of schizophrenia by regulatory authorities in the United Kingdom and Germany in August 2002 and by the FDA in October 2003. The Pharmaceuticals and Medical Devices Agency in Japan approved RISPERDAL CONSTA for the treatment of schizophrenia in April 2009. RISPERDAL CONSTA is the first long-acting atypical antipsychotic to be available in Japan. RISPERDAL CONSTA is approved for the treatment of schizophrenia in approximately 85 countries and marketed in approximately 6070 countries, and Janssen continues to launch the product around the world. ~~In the U.S., RISPERDAL CONSTA is also approved for the treatment of bipolar I disorder.~~

Schizophrenia is a chronic, severe and disabling brain ~~disorder characterized~~disorder. The disease is marked by positive symptoms (hallucinations and delusions) and negative symptoms (depression, blunted emotions and social withdrawal), as well as by disorganized ~~thinking, delusions~~thinking. An estimated 2.4 million Americans have schizophrenia, with men and ~~hallucinations.~~women affected equally. Worldwide, it is estimated that one person in every 100 develops schizophrenia, one of the most serious types of mental illness. Studies have demonstrated that as many as ~~75 percent~~75% of patients with schizophrenia have difficulty taking their oral medication on a regular basis, which can lead to worsening of symptoms. Clinical data have shown that treatment with RISPERDAL CONSTA may lead to improvements in symptoms, sustained remission and decreases in hospitalization in patients with schizophrenia.

In May 2009, the FDA approved RISPERDAL CONSTA as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder. RISPERDAL CONSTA is also approved for the maintenance treatment of bipolar I disorder in Canada, Australia and Saudi Arabia.

Bipolar disorder is a brain disorder that causes unusual shifts in a person’s mood, energy and ability to function. It is often characterized by debilitating mood swings, from extreme highs (mania) to extreme lows (depression). Bipolar I disorder is characterized based on the occurrence of at least one manic episode, with or without the occurrence of a major depressive episode. Bipolar disorder is believed to affect approximately 5.7 million American adults, or about 2.6% of the U.S. population age 18 and older, in a given year. The median age of onset for bipolar disorders is 25 years. Clinical data have shown that RISPERDAL CONSTA significantly delayed the time to relapse compared to placebo treatment in patients with bipolar I disorder.

In August 2009, we received notification from Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG, that based on a portfolio review, it has decided not to pursue further development of the four-week long-acting injectable formulation of risperidone.

VIVITROL

We developed VIVITROL, an extended-release Medisorb formulation of naltrexone, ~~which is~~as the first and only once-monthly, non-narcotic, non-addictive injectable medication for the treatment of alcohol ~~dependence.~~dependence and for the prevention of relapse to opioid dependence following opioid detoxification.

Alcohol dependence is a serious and chronic brain disease characterized by cravings for alcohol, loss of control over drinking, withdrawal symptoms and an increased tolerance for alcohol. According to the National Institute on Alcohol Abuse and Alcoholism’s 2001—2002 National Epidemiologic Survey on Alcohol and Related Conditions, it is estimated that more than 18 million Americans suffer from alcohol dependence. Adherence to medication is particularly challenging with this patient population. In clinical trials, when used in combination with psychosocial support, VIVITROL was shown to reduce the number of drinking days and heavy drinking days and to prolong abstinence in patients who abstained from alcohol the week prior to starting treatment. VIVITROL was approved by the FDA in April 2006 for the treatment of alcohol dependence and was launched in the U.S. in June ~~2006.~~2006 with our then partner, Cephalon, Inc. (“Cephalon”). In December 2008, we assumed ~~sole~~ responsibility for the commercialization of VIVITROL in the ~~U.S..~~U.S. from Cephalon. In December 2007, we exclusively licensed the right to commercialize VIVITROL for the treatment of alcohol dependence and opioid dependence in Russia and other countries in the ~~CIS~~Commonwealth of Independent States (“CIS”) to ~~Cilag.~~Cilag GmbH international (“Cilag”). In August 2008, the Russian regulatory authorities approved VIVITROL for the treatment of alcohol dependence. Cilag launched VIVITROL in Russia in March 2009. In March 2010, the FDA approved a Risk Evaluation and Mitigation Strategy (“REMS”), for VIVITROL that consists of a Medication Guide and other customary REMS assessment requirements.

~~We are also developing VIVITROL for the treatment of opioid~~Opioid dependence is a ~~serious and~~ chronic brain disease characterized by ~~compulsive, prolonged-self administration~~cognitive, behavioral and physiological symptoms in which an individual continues to use opioids despite significant harm to oneself and others. In addition to the use of heroin, an illegal opioid drug, opioid dependence includes the non-medical use of opioid ~~substances that are not used~~analgesics, including prescription pain relievers, and represents a growing public health problem in the U.S. According to the 2009 U.S. National Survey on Drug Use and Health, an estimated 1.6 million people aged 18 or older were dependent on pain relievers or heroin. In October 2010, the FDA approved VIVITROL for ~~a medical purpose. In November 2009, we announced positive preliminary results from a phase 3 clinical trial~~the prevention of relapse to opioid dependence, following opioid detoxification. The FDA approval of VIVITROL for the ~~treatment~~prevention of relapse to opioid ~~dependence. The~~dependence, following opioid detoxification was based on data from a six-month phase 3 study met its primary efficacy endpoint, and all secondary endpoints, and data showed that patients treated once-monthly with VIVITROL demonstrated statistically significant higher rates of clean (opioid-free) urine screens, compared toin which patients treated with ~~placebo. Based on~~VIVITROL in combination with psychosocial support sustained complete abstinence (opioid-free urine screens and negative self-report of opioid use) during the ~~positive results of this phase 3~~ study ~~we plan to file~~period at a ~~supplemental New Drug Application (sNDA)~~rate significantly greater than those patients treated with ~~the FDA~~placebo in ~~the first half of calendar year 2010.~~combination with psychosocial support.

~~Exenatide Once Weekly~~BYDUREON

We are collaborating with Amylin on the development of ~~exenatide~~a once weekly formulation of exenatide, called BYDUREON, for the treatment of type 2 diabetes. ~~Exenatide once weekly~~BYDUREON is an injectable formulation of Amylin’s BYETTA^® (exenatide). and is being developed with the goal of providing patients with an effective and more patient-friendly treatment option. BYETTA is an injection administered twice daily. Diabetes is a disease in which the body does not produce or properly use insulin. Diabetes can result in serious health complications, including cardiovascular, kidney and nerve disease. Diabetes is believed to affect more than 24 million people in the U.S. and an estimated 285 million adults worldwide. Approximately 90 — 95% of those affected have type 2 diabetes.

According to the Centers for Disease Control and Prevention’s National Health and Nutrition Examination Survey, approximately 60% of people with diabetes do not achieve their target blood sugar levels with their current treatment regimen. In addition, 85% of type 2 diabetes patients are overweight and 55% are considered obese. BYETTA was approved by the FDA in April 2005 as adjunctive therapy to improve blood sugar control in patients with type 2 diabetes who have not achieved adequate control on metformin and/or a sulfonylurea, which are commonly used oral diabetes medications. In December 2006, the FDA approved BYETTA as an add-on therapy for people with type 2 diabetes unable to achieve adequate glucose control on thiazolidinediones, a class of diabetes medications. ~~Amylin has an agreement with Lilly for the development and commercialization of exenatide, including exenatide~~

~~once weekly. Exenatide once weekly is being developed with the goal of providing patients with an effective and more patient-friendly treatment option.~~

~~In May 2009, Amylin submitted a NDA to the FDA for the treatment of type 2 diabetes. The FDA accepted the submission in July 2009.~~

~~In July 2009, Amylin, Lilly and we announced positive results from the DURATION-3 study designed to compare exenatide once weekly to LANTUS~~^® (insulin glargine) in 467 patients with type 2 diabetes taking stable doses of metformin alone or in combination with a sulfonylurea. Patients randomized to exenatide once weekly experienced a statistically superior reduction in A1C, a measure of average blood sugar over three months, of 1.5 percentage points from baseline, compared to a reduction of 1.3 percentage points for LANTUS after completing 26 weeks of treatment. At the end of the study, patients treated with exenatide once weekly achieved a mean A1C of 6.8 percent compared with a mean A1C of 7.0 percent in those treated with LANTUS. Treatment with exenatide once weekly also produced a statistically significant difference in weight, with a mean weight loss of 5.8 pounds at 26 weeks, compared with a mean weight gain of 3.1 pounds for LANTUS, a difference of 8.9 pounds between the treatments. In addition, patients treated with exenatide once weekly reported significantly fewer episodes of confirmed hypoglycemia than those patients treated with LANTUS.

In October 2009, the FDA approved BYETTA as a stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. Amylin has an agreement with Lilly for the development and commercialization of exenatide, including BYDUREON.

In ~~December 2009,~~March 2010, Amylin received a complete response letter in reference to the NDA for BYDUREON submitted in May 2009. The complete response letter did not include requests for new pre-clinical or clinical trials. Requests raised in the letter primarily related to the finalization of the product labeling with accompanying REMS and clarification of existing manufacturing processes. In April 2010, Amylin announced that it had submitted a response to the FDA’s complete response letter. In May 2010, the FDA accepted the response and issued a PDUFA action date of October 22, 2010 for the NDA.

In April 2010, Lilly announced that the EMA had accepted the Marketing Authorization Application filing for BYDUREON for the treatment of type 2 diabetes.

In October 2010, Amylin, Lilly and we announced ~~positive~~that the FDA issued a complete response letter regarding the NDA for BYDUREON. In the complete response letter, the FDA requested a thorough QT (tQT) study and the submission of the results ~~from~~of the DURATION-5 study ~~designed~~ to ~~compare exenatide once weekly~~evaluate the efficacy, and the labeling of the safety and effectiveness, of the commercial formulation of BYDUREON.

ALKS 33

ALKS 33, one of our proprietary candidates, is an oral opioid modulator that we are developing for the potential treatment of addiction and other CNS disorders. In November 2009, we initiated a phase 2 clinical study to ~~BYETTA~~assess the safety and efficacy of multiple doses of ALKS 33 in patients with ~~type 2 diabetes who were not achieving adequate glucose control using background therapies that included diet~~alcohol dependence and ~~exercise, metformin, sulfonylurea, thiazolidinediones or~~to further define the clinical profile of ALKS 33.

In April 2010, we announced plans for the development of ALKS 33 for the treatment of binge-eating disorder and as a combination therapy with buprenorphine, an existing medication for the treatment of opioid addiction, for the treatment of addiction and mood disorders. Binge-eating disorder is characterized by recurrent binge eating episodes during which a person feels a loss of control over his or her eating. Unlike bulimia, binge eating episodes are not followed by purging, excessive exercise or fasting. As a result, people with binge-eating disorder often are overweight or obese. It is estimated that approximately 1% to 2% of Americans suffer from binge-eating disorder. We expect to receive data from a phase 2 study of ALKS 33 in binge eating disorder in the first half of calendar 2011.

In October 2010, we announced positive topline results from a randomized, double-blind, multi-dose, placebo-controlled phase 1 clinical study that assessed the safety, tolerability and pharmacodynamic effects of the ~~agents. Patients randomized~~combination of ALKS 33 and buprenorphine when administered alone and in combination to ~~exenatide once weekly experienced~~12 opioid-experienced users. Data from the study showed that the combination therapy was generally well tolerated and sublingual administration of ALKS 33 effectively blocked the agonist effects of buprenorphine. Based on these positive results, we expect to initiate a statistically superior reduction in A1C, a measure of average blood sugar over three months, of 1.6 percentage points from baseline, compared to a reduction of 0.9 percentage points for BYETTA after completing 24 weeks of treatment. At the endphase 2a study of the combination therapy for the treatment of cocaine addiction in the first half of calendar year 2011. The phase 2a study ~~patients treated with exenatide once weekly achieved~~is expected to be funded through a ~~mean A1C of 7.1 percent compared with a mean A1C of 7.7 percent in those treated with BYETTA. Both treatment groups achieved statistically significant weight loss by~~grant from the ~~end~~National Institute on Drug Abuse (“NIDA”). NIDA has granted us up to $2.4 million to accelerate the clinical development of the ~~study, with an average loss~~ALKS 33 and buprenorphine combination therapy. Currently, there are no medications approved for the treatment of 5.1 pounds for patients taking exenatide once weekly and 3.0 pounds for patients taking BYETTA. Additional studies designed to demonstrate the superiority of exenatide once weekly compared to commonly prescribed diabetes medications are ongoing.cocaine addiction.

ALKS 37

We are developing ALKS 37, an ~~oral,~~orally active, peripherally-restricted opioid antagonist for the treatment of opioid-induced ~~constipation. Research indicates~~constipation (“OIC”). According to IMS Health, over 243 million prescriptions were written for opioids in 2009 in the U.S. Many studies indicate that a high percentage of patients receiving opioids are likely to experience side effects affecting gastrointestinal motility. There are currently no available oral treatments for this condition, which has severe quality of life implications. In October 2009, we initiated a phase 1 study of ALKS 37 in approximately 40 healthy volunteers. The randomized, double-blind, placebo-controlled study will assess the safety, tolerability, pharmacokinetic and pharmacologic effects of a single oral administration of five doses of ALKS 37. We expect to report topline results from the study in the first half of calendar 2010. ALKS 37 is a component of ALKS ~~36.~~36, which is discussed below.

In April 2010, we commenced a multicenter, randomized, double-blind, placebo-controlled, multidose study designed to evaluate the efficacy, safety and tolerability of ALKS 37 in approximately 60 patients with OIC. We expect to report preliminary results from the phase 2 study of ALKS 37 in the first quarter of calendar 2011.

ALKS 36

In October 2009, we announced our intention to develop ALKS 36, which is expected to consist of a co-formulation of an opioid analgesic and ~~an oral, peripherally-restricted opioid antagonist, is being developed~~ALKS 37, for the treatment of pain without the side effects of constipation. Research indicates that a high percentage of patients receiving opioids are likely to experience side effects affecting gastrointestinal motility. A pain medication that does not inhibit gastrointestinal motility, such as ALKS 36, could provide an advantage over current therapies. The preliminary results from the phase 2 study of ALKS 37, which are expected in the first quarter of calendar 2011, will inform further development of ALKS 36.

ALKS 339070

ALKS 339070 is ~~an oral opioid modulator for the potential treatment~~a once-monthly, injectable, sustained-release version of ~~addiction and other central nervous system disorders. In October 2009, we announced positive topline data from two clinical trials of ALKS 33. Data from the~~

studies, ALK33-003 and ALK33-004, showed that ALKS 33 was generally well tolerated and successfully blocked the effects of an opioid with a duration of action that supports once daily dosing. ALK33-003 was a phase 1 randomized, double-blind, placebo-controlled, multi-dose study designed to assess the steady-state pharmacokinetics, safety and tolerability of ALKS 33 in 30 healthy subjects. ALK33-004 was a phase 1, randomized, single-blind, placebo-controlled, single-dose study designed to test the ability of ALKS 33 to block the subjective and objective effects of a potent opioid agonist, remifentanil (a commercially available analgesic) in 24 healthy, non-dependent, opioid-experienced subjects. In November 2009, we announced the initiation of a phase 2 clinical study to assess the safety and efficacy of multiple doses of ALKS 33 in patients with alcohol dependence and to further define the clinical profile of ALKS 33.

~~ALKS 29~~

~~We are developing ALKS 29, an oral combination therapy~~aripiprazole for the treatment of ~~alcohol dependence.~~schizophrenia. ALKS 299070 is our first candidate to leverage our proprietary LinkeRx^TM product platform. Aripiprazole is commercially available under the name ABILIFY^® for the treatment of a ~~co-formulation~~number of CNS disorders. We recently initiated a phase 1 clinical study of ALKS ~~33, a proprietary opioid modulator,~~9070, and ~~baclofen, an FDA-approved muscle relaxant and antispasmodic therapeutic. Research suggests that baclofen may attenuate~~we expect to report topline data from this study in the ~~compulsive component~~first half of ~~alcohol dependence. As a co-formulation of ALKS 33 and baclofen, ALKS 29 is designed to address both the compulsive and impulsive components of alcohol dependence.~~calendar 2011.

ALKS 6931

ALKS 6931 is a long-acting form of a TNF receptor-FC fusion protein for the treatment of rheumatoid arthritis and related autoimmune diseases. ALKS 6931 is our first candidate being developed using the Medifusion^TM technology licensed from Acceleron ~~Pharmaceuticals,~~Pharma, Inc. ~~(“Acceleron”).~~ ALKS 6931 is structurally similar to etanercept, commercially available under the name ENBREL^®. We continue to conduct preclinical studies of ALKS 6931 and intend to wait to file an IND until such preclinical work is complete and we are convinced that we have the most optimized clinical candidate.

ALKS ~~9070~~7921

ALKS ~~9070~~7921, the second candidate from the LinkeRx platform, is a once-monthly, injectable, ~~sustained-release~~extended-release version of ~~aripiprazole~~olanzapine for the treatment of schizophrenia. ~~ALKS 9070 is our first candidate to leverage our proprietary LinkeRx~~^TM ~~technology platform. Aripiprazole~~Olanzapine is commercially available under the trade name ~~ABILIFY~~ZYPREXA^® (olanzapine). We are engineering ALKS 7921 to seek to prevent early, inadvertent release of free olanzapine into systemic circulation and, in so doing, to provide another valuable option for ~~the treatment of a number of CNS disorders. Based on encouraging preclinical results, ALKS 9070 is expected~~patients and physicians to ~~enter the clinic in the second half of calendar 2010.~~manage schizophrenia.

~~Executive Summary~~

Net loss for the three months ended December 31, 2009 was $6.8 million, or $0.07 per common share — basic and diluted, as compared to net income of $112.7 million, or $1.18 per common share — basic and diluted, for the three months ended December 31, 2008. Net loss for the nine months ended December 31, 2009 was $25.7 million or $0.27 per common share— basic and diluted, as compared to net income of $144.1 million, or $1.51 per common share — basic and $1.49 per common share — diluted, for the nine months ended December 31, 2008. Net loss for the three and nine months ended December 31, 2009 includes $3.6 million and $15.9 million, respectively, in charges associated with the relocation of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts.

Results of Operations

Manufacturing Revenues


	Three Months Ended					Change		Nine Months Ended				Change
	December 31					Favorable/		December 31				Favorable/			Three Months Ended September 30,							Six Months Ended September 30,
(In millions)	2009		2008			(Unfavorable)		2009		2008		(Unfavorable)			2010		2009		Change			2010		2009		Change
Manufacturing revenues:
RISPERDAL CONSTA	$	27.2	$	21.3		$	5.9	$	87.0	$	88.0	$	(1.0	)	$	32.6	$	31.9	$	0.7		$	59.0	$	59.8	$	(0.8	)
Polymer		1.5		—			1.5		2.9		—		2.9			0.6		0.4		0.2			1.1		1.4		(0.3	)
VIVITROL		—		(0.8	)		0.8		0.4		4.2		(3.8	)		—		0.5		(0.5	)		—		0.4		(0.4	)

Manufacturing revenues	$	28.7	$	20.5		$	8.2	$	90.3	$	92.2	$	(1.9	)	$	33.2	$	32.8	$	0.4		$	60.1	$	61.6	$	(1.5	)

September 30, 2010, as compared to the three months ended ~~December 31, 2008,~~September 30, 2009, was primarily due to ~~an 8%~~a 9% increase in the number of units shipped to Janssen, ~~and an increase~~partially offset by a decrease in the unit net ~~unit~~ sales ~~price.~~price of 2%. The decrease in RISPERDAL CONSTA manufacturing revenues for the ~~nine~~six months ended ~~December 31, 2009,~~September 30, 2010, as compared to the ~~nine~~six months ended ~~December 31, 2008,~~September 30, 2009, was primarily due to a 2% decrease in the unit net ~~unit~~ sales price, partially offset by an increase in the number of units shipped to Janssen of ~~less than 1%~~5%. The increase in the net unit sales price in the three months ended December 31, 2009, as compared to the three months ended December 31, 2008, was primarily due to a weaker U.S. dollar in relation to the foreign currencies in which the product was sold. The decrease in the net unit sales price infor both the ~~nine months ended December 31, 2009, as compared to the nine months ended December 31, 2008, was~~three and six month period is primarily due to increased sales deductions recorded by Janssen on RISPERDAL CONSTA sales as a ~~stronger~~result of healthcare reform in the U.S., as further described in Product Sales, net, below; and the strengthening of the U.S. dollar in relation to the foreign currencies in which the product was sold. See Part I, Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for information on foreign currency exchange rate risk related to RISPERDAL CONSTA revenues.

Under our manufacturing and supply agreement with Janssen, we earn manufacturing revenues when product is shipped to Janssen, based on a percentage of Janssen’s estimated unit net sales price. Revenues include a quarterly adjustment from Janssen’s estimated unit net sales price to Janssen’s actual unit net sales price for product shipped. In the three and ~~nine~~six months ended ~~December 31,~~September 30, 2010 and 2009, ~~and 2008,~~ our RISPERDAL CONSTA manufacturing revenues were based on an average of 7.5% of Janssen’s unit net sales ~~price of RISPERDAL CONSTA.~~price. We anticipate that we will continue to earn manufacturing revenues at 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA for product shipped in the fiscal year ending March 31, ~~2010~~2011 and beyond.

~~Polymer~~The increase in polymer manufacturing revenues for the three ~~and nine~~ months ended ~~December 31,~~September 30, 2010, as compared to the three months ended September 30, 2009, ~~consist~~was primarily due to a 30% increase in the amount of polymer ~~sales~~shipped to ~~Amylin~~Amylin. The decrease in polymer manufacturing revenues for ~~use~~the six months ended September 30, 2010, as compared to the six months ended September 30, 2009, was primarily due to a 13% decrease in the ~~formulation~~amount of ~~exenatide once weekly.~~polymer shipped to Amylin. We record manufacturing revenues under our arrangement with Amylin for polymer sales at an agreed upon price when product is shipped to them. ~~During the three and nine months ended December 31, 2008, we did not make any shipments of~~The polymer ~~to Amylin.~~

~~We record VIVITROL manufacturing revenues under our arrangement with Cilag at an agreed upon price when product~~ is shipped to them. We made no shipments during the three months ended December 31, 2009 or 2008. VIVITROL manufacturing revenues for the nine months ended December 31, 2009 consisted entirely of product shipments to Cilag for resale in Russia. During the nine months ended December 31, 2008, we had $0.4 million of billings to Cilag for shipments of VIVITROL to support the commercialization of VIVITROL in Russia.

~~Effective December 1, 2008 (the “Termination Date”), we ended our collaboration with Cephalon and assumed full responsibility for the marketing and sale of VIVITROL~~used in the U.S., and assumed title to certain VIVITROL inventory which we had previously sold to Cephalon prior to the termination. In the three months ended December 31, 2008, we reduced VIVITROL manufacturing revenues by $0.8 million to reverse the previous saleformulation of this inventory to Cephalon. VIVITROL manufacturing revenues for the nine months ended December 31, 2008 consisted of $2.8 million of billings to Cephalon for failed product batches, $0.7 million of net shipments of VIVITROL to Cephalon and $0.3 million related to manufacturing profit on VIVITROL, which equaled a 10% markup on VIVITROL cost of goods manufactured, all of which occurred prior to the termination of the VIVITROL collaboration.BYDUREON.

Royalty Revenues


	Three Months Ended				Change		Nine Months Ended				Change
	December 31				Favorable/		December 31				Favorable/		Three Months Ended September 30,						Six Months Ended September 30,
(In millions)	2009		2008		(Unfavorable)		2009		2008		(Unfavorable)		2010		2009		Change		2010		2009		Change
Royalty revenues	$	10.0	$	8.0	$	2.0	$	27.5	$	25.0	$	2.5	$	9.5	$	8.8	$	0.7	$	18.4	$	17.5	$	0.9

Research and Development Revenue Under Collaborative Arrangements

Three Months Ended Change Nine Months Ended Change
December 31 Favorable/ December 31 Favorable/
(In millions) 2009 2008 (Unfavorable) 2009 2008 (Unfavorable)
Research and development programs:
Four-week RISPERDAL CONSTA $ — $ 1.6 $ (1.6 ) $ 2.0 $ 3.5 $ (1.5 )
Exenatide once weekly — 1.5 (1.5 ) 0.4 9.3 (8.9 )
AIR Insulin — 0.1 (0.1 ) — 26.8 (26.8 )
Other 0.1 0.5 (0.4 ) 0.3 0.8 (0.5 )

Research and development revenue under collaborative arrangements $ 0.1 $ 3.7 $ (3.6 ) $ 2.7 $ 40.4 $ (37.7 )


	Three Months Ended September 30,							Six Months Ended September 30,
(In millions)	2010		2009		Change			2010		2009		Change
Research and development revenue
under collaborative arrangements	$	0.2	$	1.2	$	(1.0	)	$	0.4	$	2.6	$	(2.2	)

InThe decrease in research and development (“R&D”) revenue under collaborative arrangements for the three and six months ended September 30, 2010, as compared to the three and six months ended September 30, 2009, was primarily due to the decision made by our collaborative partner, Johnson & Johnson Pharmaceutical Research and Development, L.L.C. (“J&JPRD”) in August 2009 ~~we announced that Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG, decided~~ not to pursue further development of ~~the four-week~~a four week formulation of RISPERDAL CONSTA. The four week RISPERDAL CONSTA ~~for the treatment~~program contributed $0.9 million and $1.9 million of ~~schizophrenia. Accordingly, we do not expect to recognize~~ revenue ~~from this development program in the future. The NDA for exenatide once weekly was filed with the FDA in May 2009 and, as a result, revenues under the program decreased in~~during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2009, as compared to the three and nine months ended December 31, 2008. The decrease in revenue from the AIR Insulin program in the three and nine months ended December 31, 2009, as compared to the three and nine months ended December 31, 2008, was due to the termination of the AIR Insulin development program in March 2008.respectively.

Net Collaborative Profit

Three Months Ended Change Nine Months Ended Change
December 31 Favorable/ December 31 Favorable/
(In millions) 2009 2008 (Unfavorable) 2009 2008 (Unfavorable)
Net collabortive profit:
Milestone revenue — license $ — $ 0.8 $ (0.8 ) $ — $ 3.5 $ (3.5 )
Net payments from Cephalon — 0.7 (0.7 ) — — —
VIVITROL losses funded by Cephalon, post termination — 1.2 (1.2 ) 5.0 1.2 3.8
Recognition of deferred and unearned milestone revenue due to termination of VIVITROL collaboration — 120.7 (120.7 ) — 120.7 (120.7 )

Net collaborative profit $ — $ 123.4 $ (123.4 ) $ 5.0 $ 125.4 $ (120.4 )

Net collaborative profit for the ~~nine~~three and six months ended ~~December 31,~~September 30, 2009 of $0.7 million and $5.0 million, respectively, consisted of revenue earned as a result of the $11.0 million payment we received from Cephalon to fund ~~its~~their share of estimated VIVITROL losses during the one-year period following the ~~Termination Date.~~termination of the VIVITROL collaboration in December 2008. We recorded the $11.0 million ~~payment~~ as deferred revenue and recognized it as revenue through the application of a proportional performance model based on VIVITROL losses. ~~This deferred revenue~~The $11.0 million payment was ~~completely~~fully recognized as ~~of July 31, 2009, and we do not expect to recognize any further net collaborative profit. Net collaborative profit~~revenue during the ~~three and nine~~six months ended December 31, 2008 consisted primarily of $120.7 million of unearned milestone and deferred revenue that existed at the Termination Date, which was recognized in the three months ended December 31, 2008, as we had no remaining performance obligations to Cephalon and the amounts were nonrefundable.September 30, 2009.

Cost of Goods Manufactured and Sold


	Three Months Ended				Change			Nine Months Ended				Change
	December 31				Favorable/			December 31				Favorable/			Three Months Ended September 30,						Six Months Ended September 30,
(In millions)	2009		2008		(Unfavorable)			2009		2008		(Unfavorable)			2010		2009		Change		2010		2009		Change
Cost of goods manufactured and sold:
RISPERDAL CONSTA	$	8.4	$	5.0	$	(3.4	)	$	30.2	$	24.0	$	(6.2	)	$	11.3	$	12.1	$	0.8	$	21.8	$	21.8	$	—
VIVITROL		1.1		0.5		(0.6	)		5.7		7.9		2.2			2.4		2.6		0.2		4.0		4.6		0.6
Polymer		0.6		—		(0.6	)		1.9		—		(1.9	)		0.2		0.4		0.2		0.8		1.4		0.6

Cost of goods manufactured and sold	$	10.1	$	5.5	$	(4.6	)	$	37.8	$	31.9	$	(5.9	)	$	13.9	$	15.1	$	1.2	$	26.6	$	27.8	$	1.2

$1.2 million of interest and accretion expense, ~~net,~~as compared to $3.3 million of interest and accretion expense in the six months ended September 30, 2009. We expect to save $3.2 million in interest and accretion expense through the previously scheduled maturity date of January 1, 2012 as a result of redeeming the non-recourse 7% Notes on July 1, 2010.

Income Tax Benefit


	Three Months Ended September 30,								Six Months Ended September 30,
(In millions)	2010			2009			Change		2010			2009			Change
Income tax benefit	$	(0.9	)	$	(0.1	)	$	0.8	$	(1.0	)	$	(0.1	)	$	0.9

We recorded an income tax benefit of $0.9 million and $1.0 million for the three and ~~nine~~six months ended ~~December 31, 2009,~~September 30, 2010, respectively, primarily related to a $0.8 million tax benefit for bonus depreciation pursuant to theSmall Business Jobs Act of 2010(“Act”). Bonus depreciation increases our 2010 alternative minimum tax (“AMT”) net operating loss (“NOL”) carryback and will allow us to recover AMT paid in the carryback period. The tax benefit was recorded as ~~compared to~~a discrete item during the three ~~and nine~~ months ended ~~December 31, 2008,~~September 30, 2010, the period in which the Act was ~~due to decreases in other-than-temporary impairment charges taken on our investments in the common stock of certain publicly held companies.~~

~~Provision for Income Taxes~~

Three Months Ended Change Nine Months Ended Change
December 31 Favorable/ December 31 Favorable/
(In millions) 2009 2008 (Unfavorable) 2009 2008 (Unfavorable)
Provision (benefit) for income taxes $ — $ (0.3 ) $ (0.3 ) $ (0.1 ) $ 0.6 $ (0.7 )

enacted. The income tax benefit of less than $0.1 million and $0.1 million for the ~~nine~~three and six months ended ~~December 31,~~September 30, 2009 ~~consists primarily of~~represented the amount we ~~expect to~~estimated we would benefit from theHousing and Economic Recovery Act of 2008. This legislation allows for certain taxpayers to forego bonus depreciation in lieu of a refundable cash credit based on certain qualified asset purchases. The income tax benefit of $0.3 million and the income tax provision of $0.6 million for the three and nine months ended December 31, 2008 ~~respectively, is related to the U.S. alternative minimum tax (“AMT”)~~. The utilization of tax loss carryforwards is limited in the calculation of AMT and, as a result, a federal tax benefit and charge was recorded in the three and nine months ended December 31, 2008, respectively. The AMT liability is available as a credit against future tax obligations upon the full utilization or expiration of our net operating loss carryforward.

Liquidity and Capital Resources

We have funded our operations primarily with funds generated by our business operations and through public offerings and private placements of debt and equity securities, bank loans, term loans, equipment financing arrangements and payments received under research and development agreements and other agreements with collaborators. We expect to incur significant additional research and development and other costs as we expand the development of our proprietary product candidates, including costs related to preclinical studies and clinical trials. Our costs, including research and development costs for our product candidates, manufacturing, and sales, marketing and promotional expenses for any current or future products marketed by us or our collaborators, if any, may exceed revenues in the future, which may result in losses from operations. In addition, we have an ongoing share repurchase plan and have repurchased a portion of our outstanding debt and may continue with some or all of these activities in the future. We believe that our current cash and cash equivalents and short and long-term investments, combined with anticipated interest income and anticipated revenues, will generate sufficient cash flows to meet our anticipated liquidity and capital requirements for the foreseeable future.

Our financial condition is summarized as follows:

December 31, March 31,
(In millions) 2009 2009
Cash and cash equivalents $ 73.9 $ 86.9
Investments — short-term 165.0 236.8
Investments — long-term 118.6 80.8

Total cash, cash equivalents and investments $ 357.5 $ 404.5

Working capital $ 235.6 $ 307.1
Outstanding borrowings — current and long-term $ 57.3 $ 75.9

~~Cash and Cash Equivalents~~


	September 30,			March 31,
(In millions)	2010			2010
Cash and cash equivalents	$	37.3		$	79.3
Investments — short-term		193.2			202.1
Investments — long-term		43.1			68.8

Total cash, cash equivalents and investments	$	273.6		$	350.2

Working capital	$	264.2		$	247.1
Outstanding borrowings — current and long-term	$	—		$	51.0

Our cash flows for the six months ended September 30, 2010 and 2009 were as follows:

	Six Months Ended
	September 30,
(In millions)	2010			2009
Cash and cash equivalents, beginning of period	$	79.3		$	86.9
Cash (used in) operating activities		(27.1	)		(18.7	)
Cash provided by (used in) investing activities		29.1			(0.9	)
Cash (used in) financing activities		(44.0	)		(14.3	)

Cash and cash equivalents, end of period	$	37.3		$	53.0

Our ~~cash flows for the nine months ended December 31, 2009 and 2008 were as follows:~~

Nine Months Ended
December 31
(In millions) 2009 2008
Cash and cash equivalents, beginning of period $ 86.9 $ 101.2
Cash (used in) provided by operating activities (12.3 ) 38.6
Cash provided by investing activities 19.5 0.9
Cash used in financing activities (20.2 ) (77.4 )

Cash and cash equivalents, end of period $ 73.9 $ 63.3

~~Operating Activities~~

~~The~~ primary ~~reason for the change in~~source of liquidity is cash ~~(used in)~~ provided by our operating activities. The increase in cash used in operating activities during the ~~nine~~six months ended ~~December 31, 2009,~~September 30, 2010, as compared to ~~December 31, 2008,~~the six months ended September 30, 2009, is primarily due to the ~~$40.0~~redemption of our non-recourse 7% Notes on July 1, 2010 and an increase in amounts paid to our suppliers of $2.4 million. On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, ~~payment~~ we ~~received from Lilly~~redeemed the balance of our non-recourse 7% Notes in full in exchange for $39.2 million, representing 101.75% of the outstanding principal balance in accordance with the terms of the Indenture for the non-recourse 7% Notes. We allocated $6.6 million of the principal payments made during the ~~nine~~six months ended ~~December 31, 2008 related~~September 30, 2010 to operating activities to account for the ~~termination~~original issue discount on the non-recourse 7% Notes, and the remaining $45.4 million of principal payments was allocated to financing activities in the ~~AIR insulin development program and a net reduction in working capital accounts.~~

~~Investing Activities~~condensed consolidated statement of cash flows.

The increase in cash flows provided by ~~our~~ investing activities induring the ~~nine~~six months ended ~~December 31, 2009,~~September 30, 2010, as compared to the ~~nine~~six months ended ~~December 31, 2008,~~September 30, 2009, is primarily due anto the net conversion of $36.1 million of our investments to cash during the six months ended September 30, 2010, as compared to $2.8 million during the six months ended September 30, 2009.

The increase in cash from sales and maturities of investments, net of investment purchases, partially offset by an increase in fixed asset purchases made during the period in connection with the relocation of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, and the purchase of $8.0 million of preferred stock of Acceleron in connection with our collaboration and license agreement. Also, during the nine months ended December 31, 2008, we received $7.7 million from the sale of equipment, as compared to $0.3 million from the sale of equipment during the nine months ended December 31, 2009.

~~Financing Activities~~

~~The decrease in cash~~flows used in financing activities during the ~~nine~~six months ended ~~December 31, 2009,~~September 30, 2010, as compared to the ~~nine~~six months ended ~~December 31, 2008,~~September 30, 2009, is primarily due to ~~us not purchasing~~the redemption of our non-recourse 7% Notes during the nine months ended December 31, 2009; we purchased $15.3 million less common stock for treasury; and we received $7.4 million less in cash from the exercise of employee stock options, partially offset by the $17.7 million of scheduled principal payments we made on ~~our non-recourse 7% Notes during the nine months ended December 31, 2009.~~

~~Investments~~

We invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, U.S. and foreign government instruments and other interest bearing marketable debt instruments in accordance with ourJuly 1, 2010,

2723

partially offset by the purchase of $2.7 million of treasury stock during the six months ended September 30, 2009. During the six months ended September 30, 2010, we did not make any purchases of treasury stock.

Our investments at September 30, 2010 consist of the following:


	Amortized		Gross Unrealized					Estimated
(in millions)	Cost		Gains		Losses			Fair Value
Investments — short-term	$	192.4	$	0.8	$	—		$	193.2
Investments — long-term available-for-sale		37.9		0.5		(1.2	)		37.2
Investments — long-term held-to-maturity		5.9		—		—			5.9

Total	$	236.2	$	1.3	$	(1.2	)	$	236.3

Our investment ~~policy. The primary objective of our~~objectives are, first, to preserve liquidity and conserve capital and, second, to generate investment ~~policy is the preservation of capital with a secondary objective of generating income on our investments.~~income. We mitigate credit risk in our cash reserves by maintaining a well diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. However, the value of these securities may be adversely affected by the instability of the global financial markets which could, in turn, adversely impact our financial position and our overall liquidity. Our available-for-sale investments consist primarily of short and long-term U.S. government and agency debt securities, debt securities issued by foreign agencies and backed by foreign governments and corporate debt securities. Our held-to-maturity investments consist of investments that are restricted and held as collateral under certain letters of credit related to certain of our lease agreements.

~~As explained~~We classify available-for-sale investments in ~~Note 4, Investments~~an unrealized loss position, which do not mature within 12 months, as long-term investments. We have the intent and ~~Note 5, Fair Value Measurements, in the “Notes~~ability to ~~Condensed Consolidated Financial Statements,” 4%~~hold these investments until recovery, which may be at maturity, and it is more likely than not that we would not be required to sell these securities before recovery of their amortized cost. At September 30, 2010, we performed an analysis of our investments ~~which~~with unrealized losses for impairment and determined that they are ~~reported at fair value on a recurring basis,~~temporarily impaired.

At September 30, 2010 and March 31, 2010, 3% and 4%, respectively, of our investments are valued using unobservable, or Level 3, inputs to determine fair ~~value.~~value as they are not actively trading and fair values could not be derived from quoted market prices. These investments ~~are valued using discounted cash flow models, which use several inputs to determine fair value, including estimates for interest rates, the timing~~consist primarily of cash flows, expected holding periods and risk adjusted discount rates, which include provisions for default and liquidity risk. We validate the fair values, when possible, by comparing the fair values to other observable market data with similar characteristics to the securities held by us. While we believe the valuation methodologies are appropriate, the use of valuation methodologies is highly judgmental and changes in methodologies can have a ~~material impact on the values of these assets, our financial position and overall liquidity.~~

student loan backed auction rate security. During the ~~three~~six months ended September 30, ~~2009, trading resumed for certain~~2010, $6.0 million of ~~the Company’s investments in corporate debt securities, with a fair value of $33.9 million, and those corporate debt securities were transferred from a~~our Level 3 ~~classification to a Level 2 classification. During~~investments were redeemed at par by the three months ended December 31, 2009, we transferred an additional $11.0 million of corporate debt securities to a Level 2 classification as trading resumed for these securities. At December 31, 2009, we derived a fair value for our Level 2 investments using market observable inputs.issuers.

Borrowings

~~At December 31, 2009, our~~We did not have any outstanding borrowings ~~consisted~~at September 30, 2010. On July 1, 2010, in addition to a scheduled principal payment of ~~$57.7~~$6.4 million, ~~principal amount~~we redeemed the balance of our non-recourse 7% Notes ~~which have a carrying value~~in full in exchange for $39.2 million, representing 101.75% of ~~$57.3 million. Principal and interest payments on~~the outstanding principal balance in accordance with the terms of the Indenture for the non-recourse 7% ~~Notes are due quarterly,~~Notes. We expect to save $3.2 million in interest and accretion expense through the ~~non-recourse 7% Notes are~~previously scheduled ~~to be paid in full on~~maturity date of January 1, ~~2012.~~2012 as a result of redeeming these notes on July 1, 2010.

Contractual Obligations

~~In April 2009, we entered into a lease agreement in connection with the relocation~~Refer to Part II, Item 7 of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, which began in January 2010. The initial lease term, which began in December 2009, is for 10 years with provisions for us to extend the lease term up to an additional 10 years. In June 2009, we executed an amendment to the lease agreement which increased the square footage leased by us by approximately 15%. Operating expenses and rent will commence for the additional space in September 2010 and September 2011, respectively, and the lease amendment has the same termination date as the original lease. The total rent expense related to the new headquarters is approximately $3.1 million annually during the initial lease term.

~~In December 2009, we and Acceleron entered into a license agreement granting us exclusive rights to Acceleron’s proprietary long-acting Fc fusion technology platform, called the Medifusion~~^TM technology, which is designed to extend the circulating half-life of proteins and peptides. We and Acceleron agreed to collaborate on the development of product candidates from the Medifusion technology. We paid Acceleron a nonrefundable upfront payment of $2.0 million and are obligated to reimburse Acceleron for any time, at an agreed-upon FTE rate, and materials Acceleron incurs during development. We are obligated to make developmental and sales milestone payments in the aggregate of up to $110.0 million per product in the event that certain development and sales goals are achieved. We are also obligated to make tiered royalty payments in the mid-single digits on annual net sales in the event any products developed under the agreement are commercialized.

~~There are no other material changes to the contractual cash obligations as disclosed in~~ our Annual Report on Form 10-K for the year ended March 31, ~~2009.~~2010 in the “Contractual Obligations” section for a discussion of our contractual obligations. Our contractual obligations as of September 30, 2010 were not materially changed from the date of that report with the exception of the non-recourse 7% Notes which, as noted in the “Borrowings” section above, were redeemed in full on July 1, 2010.

Off-Balance Sheet Arrangements

At ~~December 31, 2009,~~September 30, 2010, we were not a party to any off-balance sheet ~~arrangements.~~arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources material to investors.

assumptions or conditions. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March 31, ~~2009~~2010 in the “Critical Accounting Estimates” section for a discussion of our critical accounting estimates.

On April 1, 2009, we adopted new accounting guidance on the recognition and presentation of other-than-temporary impairments and enhanced our process for reviewing debt securities with unrealized losses for possible impairment to include a determination as to if we have the intent to sell a debt security or if it is more likely than not that we would be required to sell the security before recovery of its amortized cost basis. Also, an other-than-temporary impairment shall be considered to have occurred if we do not expect to recover the entire amortized cost basis of a security, regardless of our intent to hold the security to maturity. This enhancement to our impairment assessment process did not have a material impact on our financial position or results of operations.

New Accounting Standards

Refer to New Accounting Pronouncements included in Note 1, ~~Summary~~“Summary of Significant Accounting ~~Policies,~~Policies” in the ~~“Notes~~accompanying Notes to Condensed Consolidated Financial ~~Statements”~~Statements for a discussion of new accounting standards.


Item 3.		*Quantitative and Qualitative Disclosures about Market Risk*

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended March 31, ~~2009. In response to the instability in the global financial markets, we have~~2010. We regularly ~~reviewed~~review our marketable securities holdings and ~~shifted~~shift our investment holdings to those ~~deemed~~that best meet our investment objectives, which are, first, to ~~have reduced risk.~~preserve liquidity and conserve capital and, second, to generate investment income. Apart from such adjustments to our investment portfolio, there have been no material changes to our market risks in the first ~~nine~~six months of fiscal year ~~2010 to our market risks,~~2011, and we do not anticipate any near-term changes in the nature of our market risk exposures or in our management’s objectives and strategies with respect to managing such exposures.

We are exposed to foreign currency exchange risk related to manufacturing and royalty revenues that we receive on RISPERDAL CONSTA as summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended March 31, ~~2009.~~2010. There has been no material change in our assessment of our sensitivity to foreign currency exchange rate risk during the first ~~nine~~six months of fiscal year ~~2010.~~2011.


Item 4.		*Controls and Procedures*

a) Evaluation of Disclosure Controls and Procedures

~~We have carried out an evaluation, under the supervision and~~Our management, with the participation of our ~~management, including our principal executive officer~~Chief Executive Officer and ~~principal financial officer, of~~Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, ~~or the Securities Exchange Act)~~(the “Exchange Act”)) at ~~December 31, 2009.~~September 30, 2010. Based ~~upon~~on that evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer concluded that ~~at December 31, 2009,~~ our disclosure controls and procedures ~~are~~were effective ~~in providing~~as of September 30, 2010 to provide reasonable assurance that ~~(a)~~ the information required to be disclosed by us in the reports that we file ~~or submit~~ under the ~~Securities~~ Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~SEC~~SEC’s rules and forms and ~~(b)~~that such information is accumulated and communicated to our management, including our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

PART II — OTHER INFORMATION


Item 1.		*Legal Proceedings*

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We do not believe that we are ~~not aware of~~currently party to any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations and financial condition.


Item 2.		*Unregistered Sales of Equity Securities and Use of Proceeds*

~~We did not repurchase any of our stock during the three months ended December 31, 2009.~~ On November 21, 2007, ~~we publicly announced that~~ our board of directors authorized a program to repurchase up to $175.0 million of our common stock to be repurchased at the discretion of management from time to time in the open market or through privately negotiated transactions. On June 16, 2008, ~~we publicly announced that our~~the board of directors authorized the expansion of this ~~repurchase program by an additional $40.0 million, bringing the total authorization under this~~ program to $215.0 million. ~~The repurchase~~We did not purchase any shares under this program ~~has no set expiration date and may be suspended or discontinued at any time. At December 31, 2009,~~during the quarter ended September 30, 2010. As of September 30, 2010, we ~~had~~have purchased a total of 8,866,342 shares under this program at a cost of $114.0 million.

During the three months ended ~~December 31, 2009~~September 30, 2010, we acquired, by means of net share settlements, ~~16,318~~80 shares of Alkermes common stock at an average price of ~~$8.36~~$12.62 per share related to the vesting of employee stock awards to satisfy employee withholding tax obligations.


~~Item 4.~~		*~~Submission of Matters to a Vote of Security Holders~~*

~~We held our annual meeting of shareholders on October 6, 2009. The following proposals were voted upon at the meeting:~~

A proposal to elect ten members of the Board of Directors, each to serve until the next annual meeting of shareholders and until his or her successor is duly elected and qualified, was approved with the following vote:

Authority
Nominee Votes For Withheld
David W. Anstice 89,865,836 743,471
Floyd E. Bloom 87,931,665 2,677,642
Robert A. Breyer 88,071,529 2,537,778
David A. Broecker 85,071,790 5,537,517
Geraldine Henwood 88,720,730 1,888,577
Paul J. Mitchell 88,705,326 1,903,981
Richard F. Pops 87,184,289 3,425,018
Alexander Rich 88,004,480 2,604,827
Mark B. Skaletsky 89,890,957 718,350
Michael A. Wall 87,712,797 2,896,510

On September 10, 2009, subsequent to the mailing of our proxy statement but before the annual meeting of the shareholders, David A. Broecker resigned from our Board of Directors and declined to stand for reelection as previously disclosed on our Current Report on Form 8-K filed with the SEC on September 11, 2009.

~~A proposal to ratify PricewaterhouseCoopers LLP as our independent registered public accountants for fiscal 2010 was approved with 88,785,709 votes for, 1,748,293 votes against and 75,305 abstentions.~~


Item 5.		*Other Information*

The Company’s policy governing transactions in its securities by its directors, officers and employees permits its officers, directors and employees to enter into trading plans in accordance with Rule 10b5-1 under the Exchange Act. During the ~~three months~~quarter ended ~~December 31, 2009,~~September 30, 2010, Mr. ~~Floyd E. Bloom,~~Robert A. Breyer and Mr. Michael A. Wall, each a director of the Company, and Dr. Elliot W. Ehrich and Mr. Gordon G. Pugh, each an executive officer of the Company, entered


	Page No.
*PART I — FINANCIAL INFORMATION*
Item 1. Condensed Consolidated Financial Statements:		3
Condensed Consolidated Balance Sheets — ~~December 31, 2009~~September 30, 2010 and March 31, ~~2009~~2010		3
Condensed Consolidated Statements of Operations — For the Three and ~~Nine~~Six Months Ended ~~December 31,~~September 30, 2010 and 2009 ~~and 2008~~		4
Condensed Consolidated Statements of Cash Flows — For the ~~Nine~~Six Months Ended ~~December 31,~~September 30, 2010 and 2009 ~~and 2008~~		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1714
Item 3. Quantitative and Qualitative Discloures about Market Risk		2925
Item 4. Controls and Procedures		2925

*PART II — OTHER INFORMATION*

Item 1. Legal Proceedings		3126
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
~~Item 4. Submission of Matters to a Vote of Security Holders~~		3126
Item 5. Other Information		3126
Item 6. Exhibits		3326
Signatures		3427
Exhibit Index		35
EX-31.1 ~~Section 302 Certification of Chief Executive Officer~~
EX-31.2 ~~Section 302 Certification of Chief Financial Officer~~
EX-32.1 ~~Section 906 Certification of Chief Executive Officer and Chief Financial Officer~~
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	December 31				December 31				September 30,				September 30,
(In thousands)	2009		2008		2009		2008		2010		2009		2010		2009
Stock options		17,658		16,356		17,801		15,366		13,898		17,821		13,736		17,920
Restricted stock units		538		630		318		—		909		407		850		308

Total		18,196		16,986		18,119		15,366		14,807		18,228		14,586		18,228


	Three Months Ended						Nine Months Ended						Three Months Ended												Six Months Ended
	December 31						December 31						September 30,												September 30,
(In millions)	2009			% of Sales			2009			% of Sales
													2010			% of Sales			2009			% of Sales			2010			% of Sales			2009			% of Sales
Product sales, gross	$	7.2			100.0	%	$	17.7			100.0	%	$	10.8			100.0	%	$	5.2			100.0	%	$	18.2			100.0	%	$	10.5			100.0	%
Adjustments to product sales, gross:
Reserve for inventory in the distribution channel (1)														(2.1	)		(19.4	)%		0.1			1.9	%		(1.7	)		(9.3)	%		(0.1	)		(1.0)	%
Chargebacks		(0.4	)		(5.6	)%		(0.7	)		(4.0	)%		(0.5	)		(4.6	)%		(0.2	)		(3.9)	%		(0.9	)		(5.0)	%		(0.3	)		(2.7)	%
Medicaid rebates														(0.3	)		(2.8	)%		(0.1	)		(1.9)	%		(0.8	)		(4.4)	%		(0.3	)		(2.7)	%
Wholesaler fees		(0.3	)		(4.2	)%		(0.7	)		(4.0	)%		(0.3	)		(2.8	)%		(0.2	)		(3.8)	%		(0.6	)		(3.3)	%		(0.4	)		(3.9)	%
Medicaid rebates		(0.3	)		(4.2	)%		(0.6	)		(3.4	)%
Product returns (1)		(0.4	)		(5.6	)%		(0.5	)		(2.8	)%
Other		(0.3	)		(4.2	)%		(0.9	)		(5.1	)%		(1.1	)		(10.2	)%		(0.2	)		(3.8)	%		(1.5	)		(8.2)	%		(0.5	)		(4.9)	%

Total adjustments		(1.7	)		(23.8	)%		(3.4	)		(19.3	)%		(4.3	)		(39.8	)%		(0.6	)		(11.5)	%		(5.5	)		(30.2)	%		(1.6	)		(15.2)	%

Product sales, net	$	5.5			76.2	%	$	14.3			80.7	%	$	6.5			60.2	%	$	4.6			88.5	%	$	12.7			69.8	%	$	8.9			84.8	%


Exhibit
No.
31.1		Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).

31.2		Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101		The following materials from Alkermes, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text (furnished herewith).


	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
(in thousands)	Cost		Fair Value		Cost		Fair Value
(In thousands)									Cost		Fair Value		Cost		Fair Value
Within 1 year	$	72,188	$	72,095	$	5,857	$	5,857	$	72,430	$	72,527	$	5,857	$	5,857
After 1 year through 5 years (1)		149,919		149,787		—		—		123,024		123,408		—		—
After 5 years through 10 years (1)		48,777		46,682		—		—		28,067		27,649		—		—
After 10 years		10,000		8,284		—		—		5,000		4,429		—		—

Total	$	280,884	$	276,848	$	5,857	$	5,857	$	228,521	$	228,013	$	5,857	$	5,857


(1)		Investments in available-for-sale securities within these categories, with an amortized cost of ~~$98.5~~$49.1 million and an estimated fair value of ~~$96.6~~$48.6 million, have issuer call dates prior to May 2011.


(1)		At ~~December 31, 2009~~September 30, 2010 and March 31, ~~2009,~~2010, the Company had ~~$1.6~~$0.8 million and ~~none, respectively,~~$0.7 million of finished goods inventory located at its ~~third-party~~third party warehouse and shipping service provider.

(2)		At ~~December~~September 30, 2010 and March 31, ~~2009,~~2010, consigned-out inventory relates to VIVITROL inventory in the distribution channel for which the Company has not recognized revenue. At March 31, 2009, consigned-out inventory consisted of $1.8 million of consigned-out inventory and $0.2 million of inventory in the distribution channel for which the Company had not recognized revenue.


~~(1)~~		In September 2009, in connection with the resignation of its former President and Chief Executive Officer, the Company entered into a separation agreement that provided for, among other things: the acceleration of vesting of certain stock options and restricted stock awards that were scheduled to vest through June 30, 2010; and the period in which vested stock options are exercisable was extended until the earlier of June 30, 2011 or the stated expiration date of the stock options. As a result of these stock option and award modifications, the Company recorded an expense of $0.9 million during the three months ended September 30, 2009.


(1)		~~Following~~Our reserve for inventory in the ~~introduction of a return policy for VIVITROL, our~~distribution channel is an estimate ~~for product returns~~that reflects the deferral of the recognition of revenue on shipments of VIVITROL to our customers until the product has left the distribution channel, as we do not yet have the history to reasonably estimate returns related to these shipments. We estimate the product shipments out of the distribution channel ~~through~~based on data provided by external sources, including information on inventory levels provided by our customers as well as prescription information.

•		an increase in the minimum statutory Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1%;

•		an extension of the Medicaid rebate to drugs dispensed to Medicaid beneficiaries enrolled with managed care organizations; and

•		an expansion of the 340(B)/Public Health Services (“PHS”) drug pricing program, which provides drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers in an outpatient setting.


			Authority
Nominee	Votes For		Withheld
David W. Anstice		89,865,836		743,471
Floyd E. Bloom		87,931,665		2,677,642
Robert A. Breyer		88,071,529		2,537,778
David A. Broecker		85,071,790		5,537,517
Geraldine Henwood		88,720,730		1,888,577
Paul J. Mitchell		88,705,326		1,903,981
Richard F. Pops		87,184,289		3,425,018
Alexander Rich		88,004,480		2,604,827
Mark B. Skaletsky		89,890,957		718,350
Michael A. Wall		87,712,797		2,896,510


	ALKERMES, INC. (Registrant)
	By:	/s/ Richard F. Pops
		~~Richard F. Pops~~Chairman, President and Chief Executive Officer
		~~Chairman, President and Chief Executive Officer~~ (Principal Executive Officer)



	By:	/s/ James M. Frates
		~~James M. Frates~~Senior Vice President, Chief Financial Officer and Treasurer
		~~Senior Vice President, Chief Financial Officer and Treasurer~~ (Principal Financial and Accounting Officer)