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~~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, a non-accelerated filer, or a smaller reporting company. See the definitions of “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:



			As of ~~February 1,~~
			January 31,
Class	~~2010~~		2011
Common Stock, ~~$.01~~$0.01 par value		~~94,440,904~~		95,340,250
Non-Voting Common Stock, ~~$.01~~$0.01 par value				382,632

PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial ~~Statements~~Statements::

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)


	December 31,			March 31,			December 31,			March 31,
	2009			2009			2010			2010
	(In thousands, except share and per						(In thousands, except share and per
	share amounts)						share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	73,932		$	86,893		$	38,862		$	79,324
Investments — short-term		165,016			236,768			138,523			202,053
Receivables		28,233			24,588			24,169			25,316
Inventory		20,049			20,297			19,169			20,653
Prepaid expenses and other current assets		5,950			7,500			11,897			10,936

Total current assets		293,180			376,046			232,620			338,282

PROPERTY, PLANT AND EQUIPMENT, NET		96,332			106,461			96,219			96,905
INVESTMENTS — LONG-TERM		118,531			80,821			107,628			68,816
OTHER ASSETS		11,857			3,158			10,970			11,597

TOTAL ASSETS	$	519,900		$	566,486		$	447,437		$	515,600


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	29,560		$	36,483		$	35,065		$	37,881
Deferred revenue — current		2,305			6,840			3,360			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			38,425			91,144

NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES — LONG-TERM		31,636			50,221
DEFERRED REVENUE — LONG-TERM		5,120			5,238			4,972			5,105
OTHER LONG-TERM LIABILITIES		6,386			7,149			7,722			6,735

Total liabilities		100,674			131,598			51,119			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; 105,395,641 and 104,815,328 shares issued; 95,328,826 and 94,870,063 shares outstanding at December 31, 2010 and March 31, 2010, respectively								1,051			1,047
Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized; 382,632 shares issued and outstanding at December 31, 2010 and March 31, 2010								4			4
Treasury stock, at cost (10,066,815 and 9,945,265 shares at December 31, 2010 and March 31, 2010, respectively)								(131,065	)		(129,681	)
Additional paid-in capital		903,480			892,415			927,435			910,326
Accumulated other comprehensive loss		(3,980	)		(6,484	)		(2,961	)		(3,392	)
Accumulated deficit		(351,753	)		(326,062	)		(398,146	)		(365,688	)

Total shareholders’ equity		419,226			434,888			396,318			412,616

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	519,900		$	566,486		$	447,437		$	515,600

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	December 31,						December 31,						December 31,						December 31,
	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		$	26,155		$	28,650		$	86,209		$	90,289
Royalty revenues		9,970			7,970			27,489			24,990			9,777			9,970			28,154			27,489
Product sales, net		5,451			—			14,320			—			7,729			5,451			20,402			14,320
Research and development revenue under collaborative arrangements		81			3,736			2,705			40,438			314			81			737			2,705
Net collaborative profit		—			123,422			5,002			125,354			—			—			—			5,002

Total revenues		44,152			155,661			139,805			282,964			43,975			44,152			135,502			139,805

EXPENSES:
Cost of goods manufactured and sold		10,072			5,536			37,830			31,921			12,860			10,072			39,436			37,830
Research and development		22,577			22,669			68,827			64,640			22,503			22,577			69,412			68,827
Selling, general and administrative		17,739			14,568			57,632			38,173			20,521			17,739			58,683			57,632

Total expenses		50,388			42,773			164,289			134,734			55,884			50,388			167,531			164,289

OPERATING (LOSS) INCOME		(6,236	)		112,888			(24,484	)		148,230
OPERATING LOSS														(11,909	)		(6,236	)		(32,029	)		(24,484	)

OTHER EXPENSE, NET:
OTHER INCOME (EXPENSE), NET:
Interest income		1,017			2,574			3,666			8,883			650			1,017			2,175			3,666
Interest expense		(1,423	)		(2,436	)		(4,698	)		(10,905	)		—			(1,423	)		(3,298	)		(4,698	)
Other expense, net		(160	)		(641	)		(290	)		(1,471	)		(83	)		(160	)		(266	)		(290	)

Total other expense, net		(566	)		(503	)		(1,322	)		(3,493	)
Total other income (expense), net														567			(566	)		(1,389	)		(1,322	)

(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														(11,342	)		(6,802	)		(33,418	)		(25,806	)
INCOME TAX PROVISION (BENEFIT)														41			15			(960	)		(115	)

NET (LOSS) INCOME	$	(6,817	)	$	112,715		$	(25,691	)	$	144,100
NET LOSS													$	(11,383	)	$	(6,817	)	$	(32,458	)	$	(25,691	)


(LOSS) EARNINGS PER COMMON SHARE:
Basic	$	(0.07	)	$	1.18		$	(0.27	)	$	1.51
LOSS PER COMMON SHARE:
Basic and diluted													$	(0.12	)	$	(0.07	)	$	(0.34	)	$	(0.27	)

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
Basic and diluted														95,667			94,784			95,502			94,815

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

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


	Nine Months Ended						Nine Months Ended
	December 31,						December 31,
	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							$	(32,458	)	$	(25,691	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation		20,314			7,501			6,210			20,314
Share-based compensation expense		10,811			11,590			15,196			10,811
Other non-cash charges		3,520			4,531			2,273			3,520
Loss on the purchase of non-recourse RISPERDAL CONSTA secured 7% notes		—			1,989
Changes in assets and liabilities:
Receivables		(3,645	)		11,585			1,147			(3,645	)
Inventory, prepaid expenses and other assets		1,199			(4,746	)		4,059			1,199
Accounts payable and accrued expenses		(11,199	)		(4,722	)		(4,928	)		(11,199	)
Unearned milestone revenue		—			(117,657	)
Deferred revenue		(4,653	)		(9,529	)		1,007			(4,653	)
Other long-term liabilities		(1,369	)		(1,415	)		(75	)		(1,369	)
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount		(1,574	)		(4,590	)		(6,611	)		(1,574	)

Cash flows (used in) provided by operating activities		(12,287	)		38,637
Cash flows used in operating activities								(14,180	)		(12,287	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(9,197	)		(4,145	)		(8,029	)		(9,197	)
Sales of property, plant and equipment		249			7,717			260			249
Investment in Acceleron Pharmaceuticals, Inc.		(8,000	)		—			(501	)		(8,000	)
Purchases of investments		(390,818	)		(543,408	)		(324,143	)		(390,818	)
Sales and maturities of investments		427,270			540,721			349,546			427,270

Cash flows provided by investing activities		19,504			885			17,133			19,504

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock for share-based compensation arrangements		182			7,606			1,982			182
Excess tax benefit from share-based compensation		—			75
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal		(17,676	)		—			(45,397	)		(17,676	)
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	)		(43,415	)		(20,178	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(12,961	)		(37,977	)		(40,462	)		(12,961	)
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		$	38,862		$	73,932

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest	$	3,706		$	7,663		$	1,684		$	3,706
Cash paid for taxes	$	53		$	435		$	22		$	53
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses	$	3,933		$	1,883		$	550		$	3,933
Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards	$	858		$	707
Investment in Civitas Therapeutics, Inc.							$	1,320		$	—

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 months ended December 31, ~~2009~~2010 and ~~2008~~2009 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the fiscal 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, 2009, the Company adopted new guidance issued by the Financial Accounting Standards Board (“FASB”) on the accounting for collaborative arrangements. The guidance defined collaborative arrangements and established reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

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

On April 1, 2009, the Company adopted new accounting guidance issued by the FASB on fair value measurements for its nonfinancial assets and liabilities that are subject to measurement at fair value on a non-recurring basis. The adoption of this standard did not impact the Company’s financial position or results of operations; however, this standard may impact 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 this standard did not impact the Company’s financial position or results of operations.

In June 2009, the FASB issued accounting guidance regarding the accounting for transfers of financial assets that will improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of such a transfer on its financial position, financial performance and cash flows, and provide information as to a transferor’s continuing involvement, if any, in transferred financial assets. 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 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.New Accounting Pronouncements

In September 2009, the Emerging Issues Task Force (“EITF”) of the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued accounting guidance related to revenue recognition that amends the previous guidance on arrangements with multiple deliverables. ~~This~~The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the ~~arrangements~~arrangement should be separated, and ~~how~~provides for separate revenue recognition based upon management’s estimate of the ~~consideration should~~selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Accounting guidance previously required that the fair value of the undelivered item be ~~allocated. It also clarifies~~ the ~~method~~price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to ~~allocate~~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 ~~in an arrangement using~~was deferred until all of the ~~estimated selling price.~~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 the Company is currently evaluating the potential impact of this standard on its consolidated financial statements. 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 has decided it will not adopt this standard prior to the effective date of April 1, 2011.

In January 2010, the FASB issued accounting guidance related to fair value measurements that requires additional disclosure related to transfers in and out of Levels 1 and 2 of the fair value hierarchy. The guidance also requires additional disclosure for activity within Level 3 of the fair value hierarchy. The guidance requires a 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 inputs. 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 rollforward 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 Company adopted all provisions of this 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 have an effect upon the Company’s financial position or results of operations. The Company does not expect the adoption of the remaining provisions of this amendment to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued accounting guidance related to the milestone method of revenue recognition for research and development arrangements. Under this guidance, the Company may recognize revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to 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 adoption of this standard to have a ~~significant~~material impact on its financial position or results of operations.

~~2. COMPREHENSIVE (LOSS) INCOME~~

~~Comprehensive (loss)~~ In December 2010, the FASB issued accounting guidance related to how pharmaceutical manufacturers should recognize and classify in their income statements fees mandated by thePatient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010(together the “Acts”). The Acts impose an annual fee on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011. Under the guidance, a liability for this fee should be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that 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

amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The Company adopted the

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

provisions of this pronouncement on January 1, 2011 and the adoption is not expected to have a material effect upon the Company’s financial position or results of operations for the fiscal year ending March 31, 2011.

2. COMPREHENSIVE LOSS

Comprehensive loss is as follows:


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
(In thousands)	2010			2009			2010			2009
Net loss	$	(11,383	)	$	(6,817	)	$	(32,458	)	$	(25,691	)
Unrealized (losses) gains on available-for-sale securities:
Holding (losses) gains, net of tax		(516	)		650			431			2,410
Reclassification of unrealized losses to realized losses on available-for-sale securities		—			94			—			94

Unrealized (losses) gains on available-for-sale securities		(516	)		744			431			2,504

Comprehensive loss	$	(11,899	)	$	(6,073	)	$	(32,027	)	$	(23,187	)

3. ~~EARNINGS~~LOSS PER SHARE

Basic ~~(loss) earnings~~loss per common share is calculated based upon net ~~(loss) income~~loss available to holders of common shares divided by the weighted average number of common shares outstanding. For the ~~calculation~~three and nine months ended December 31, 2010 and 2009, as the Company was in a net loss position, the diluted loss per share does not assume conversion or exercise of ~~diluted earnings~~stock options and awards as they would have an anti-dilutive effect on loss per common ~~share, the Company uses~~share. Therefore, the weighted average number of basic and diluted voting shares of common ~~shares~~stock outstanding ~~as adjusted~~ for the ~~effect of potential outstanding shares, including stock options~~three and ~~stock awards.~~

~~Basic~~nine months ended December 31, 2010 and ~~diluted (loss) earnings per common share are calculated~~2009 were as follows:

Three Months Ended Nine Months Ended
December 31 December 31
(In thousands) 2009 2008 2009 2008
Numerator:
Net (loss) income $ (6,817 ) $ 112,715 $ (25,691 ) $ 144,100

Denominator:
Weighted average number of common shares outstanding 94,784 95,316 94,815 95,246
Effect of dilutive securities:
Stock options — 446 — 974
Restricted stock units — 56 — 178

Dilutive common share equivalents — 502 — 1,152

Shares used in calculating diluted (loss) earnings per share 94,784 95,818 94,815 96,398


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(In thousands)	2010		2009		2010		2009
Weighted average number of common shares outstanding		95,667		94,784		95,502		94,815

The following amounts are not included in the calculation of ~~(loss) earnings~~diluted loss per common share because their effects are anti-dilutive:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	December 31				December 31				December 31,				December 31,
(In thousands)	2009		2008		2009		2008		2010		2009		2010		2009
Stock options		17,658		16,356		17,801		15,366		14,499		17,658		13,614		17,801
Restricted stock units		538		630		318		—		934		538		878		318

Total		18,196		16,986		18,119		15,366		15,433		18,196		14,492		18,119

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

4. INVESTMENTS

Investments consist of the following:


	Amortized		Gross Unrealized					Estimated				Gross Unrealized
	Cost		Gains		Losses			Fair Value						Losses
			(In thousands)							Amortized				Less than			Greater than			Estimated
December 31, 2009
										Cost		Gains		One Year			One Year			Fair Value
										(In thousands)
December 31, 2010
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	126,980	$	202	$	—		$	127,182	$	111,912	$	178	$	(1	)	$	—		$	112,089
International government agency debt securities		28,641		162		—			28,803		18,065		167		—			—			18,232
Corporate debt securities		6,748				(99	)		6,649		6,963		49		—			(11	)		7,001
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		136,940		394		(1	)		(11	)		137,322


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

Total short-term investments		234,150		2,644		(26	)		236,768		138,141		394		(1	)		(11	)		138,523

Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		10,149		—		(3	)		10,146		52,719		—		(644	)		—			52,075
Corporate debt securities		57,887		—		(6,326	)		51,561		34,203		—		(38	)		(567	)		33,598
Other debt securities		16,350		—		(2,683	)		13,667
Strategic investments		738		53		—			791

International government agency debt securities											15,320		—		(95	)		—			15,225
Strategic equity investments											644		229		—			—			873
		85,124		53		(9,012	)		76,165
											102,886		229		(777	)		(567	)		101,771

Held-to-maturity securities:
U.S. government obligations		416		—		—			416
Certificates of deposit		4,240		—		—			4,240		5,440		—		—			—			5,440
U.S. government debt securities											417		—		—			—			417

											5,857		—		—			—			5,857

Total long-term investments		89,780		53		(9,012	)		80,821		108,743		229		(777	)		(567	)		107,628

Total investments	$	323,930	$	2,697	$	(9,038	)	$	317,589	$	246,884	$	623	$	(778	)	$	(578	)	$	246,151


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)

~~The Company’s available-for-sale and held-to-maturity securities at December 31, 2009 have contractual maturities in the following periods:~~

Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
(in thousands) Cost Fair Value Cost Fair Value
Within 1 year $ 72,188 $ 72,095 $ 5,857 $ 5,857
After 1 year through 5 years (1) 149,919 149,787 — —
After 5 years through 10 years (1) 48,777 46,682 — —
After 10 years 10,000 8,284 — —

Total $ 280,884 $ 276,848 $ 5,857 $ 5,857


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

The Company recognizes other-than-temporary impairments through a charge to earnings if it has the intent to sell the debt security or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results. The amount of loss relating to other factors is recorded in accumulated other comprehensive income. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.

For available-for-sale debt securities with unrealized losses, the Company performs an analysis to assess whether it intends to sell, or whether it would more likely than not be required to sell, the security before the expected recovery of the amortized cost basis. If the Company intends to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded within earnings as an impairment loss. Regardless of its intent to sell a security, the Company performs additional analyses on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified when the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security.

For equity securities, when assessing whether a decline in fair value below its cost basis is other-than-temporary, the Company considers the fair market value of the security, the duration of the security’s decline and the financial condition of the issuer. The Company then considers its intent and ability to hold the equity security for a period of time sufficient to recover its carrying value. If the Company determines that it lacks the intent and ability to hold an equity security to its expected recovery, the security’s decline in fair value is deemed to be other-than-temporary and is recorded within operating results as an impairment loss.

Certain of the Company’s investments in corporate debt securities with a cost of $2.0 million consist of investment grade subordinated, medium term, callable step-up floating rate notes (“FRN”) issued by the Royal Bank of Scotland Group (“RBS”). At December 31, 2009, these FRN’s had a composite rating by Moody’s, Standard & Poor’s (“S&P”) and Fitch of A. During the nine months ended December 31, 2009, these FRN’s had minimal or no trades and because a fair value could not 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 assumptions used in the discounted cash flow model included estimates for interest rates, expected holding periods and risk adjusted discount rates, which2010, the Company believes ~~to be~~that the most critical assumptions utilized within the analysis. The valuation analysis considered, among other items, assumptions that market participants would use in their estimates of fair value, such as the creditworthiness and credit spreads of the issuer and when callability features 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 estimated the fair value of these FRN’s to be $1.7 million at December 31, 2009.

unrealized losses on its available-for-sale investments are temporary. In making the determination that the decline in fair value of these ~~FRN’s was temporary, the Company considered various factors, including but not limited to: the length of time each security was in an unrealized loss~~

~~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 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 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 securities the Company has held have been called at par by issuers prior to maturity. The Company will continue 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.

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 at December 31, 2009. 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 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.

~~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~~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.

In December 2010, the Company entered into an arrangement with Civitas Therapeutics, Inc. (“Civitas”) whereby the Company sold, assigned or licensed to Civitas the right, title and interest of the Company in certain of its pulmonary delivery technology and products in exchange for 15% of the issued shares of the Series A preferred stock of Civitas and a royalty on future sales of any products developed using the pulmonary drug delivery technology. In addition, the Company will have a seat on the Civitas board of directors. Civitas is a privately held biopharmaceutical company that secured a $20 million Series A financing, of which $10 million was received in December 2010 and a further $10 million is payable to Civitas upon an acceptance by the U.S. Food and Drug Administration of an investigational new drug application for a pulmonary product. Civitas also entered into an agreement to sublease the Company’s pulmonary manufacturing facility located in Chelsea, Massachusetts and has an option to purchase the Company’s pulmonary manufacturing equipment located at this facility.

At December 31, 2010, the Company has an approximately 13% ownership position in Civitas and accounts for its investment in Civitas under the equity method, as the Company believes it may be able to exercise significant influence over the operating and financial policies of Civitas. Under the equity method, when the Company records its proportionate share of Civitas’ net loss, it decreases other income (expense) in its condensed consolidated statements of operations and reduces the carrying value of its investment in Civitas. The Company can only incur its proportionate share of Civitas’ net loss up to the carrying value of the Company’s investment in Civitas. Conversely, when the Company records its proportionate share of Civitas’ net income, it increases other income (expense) in its condensed consolidated statements of operations and increases the carrying value of its investment in Civitas.

The fair value of the Civitas Series A preferred stock received by the Company exceeded the carrying value of the assets the Company surrendered in this transaction. The difference between these amounts has been deferred and will be recognized as other income, ratably over a period of approximately five years in the Company’s consolidated statements of operations. The carrying value of the Company’s equity investment in Civitas at December 31, 2010 is $1.3 million and is recorded in “Other assets” in its condensed consolidated balance sheets. The carrying value of the deferred gain at December 31, 2010 is $1.2 million and has been allocated between, and is recorded in, “Accounts payable and accrued expenses” and “Other long-term liabilities” in the accompanying condensed consolidated balance sheets.

In December 2009, the Company entered into a collaborative arrangement with, and made an investment in, Acceleron Pharma, Inc. (“Acceleron”). The Company’s ~~strategic investments include~~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 ~~publicly-traded~~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 ~~with which it has or did have a collaborative agreement. For the nine months ended~~and general market conditions. The Company’s investment balance of $8.5 million and $8.0 million at December 31, ~~2009~~2010 and ~~2008,~~March 31, 2010, respectively, is recorded within “Other assets” in 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.~~accompanying condensed consolidated balance sheets.

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


	December 31,		March 31,
(In thousands)	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 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				Nine Months Ended
	December 31				December 31				December 31,				December 31,
(In thousands)	2009		2008		2009		2008		2010		2009		2010		2009
Cost of goods manufactured and sold	$	434	$	291	$	1,263	$	1,148	$	385	$	434	$	1,271	$	1,263
Research and development		759		527		2,485		3,397		1,573		759		4,726		2,485
Selling, general and administrative ~~(1)~~		2,179		2,463		7,063		7,045		3,834		2,179		9,199		7,063

Total share-based compensation expense	$	3,372	$	3,281	$	10,811	$	11,590	$	5,792	$	3,372	$	15,196	$	10,811

~~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”“Inventory” 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.sheets.

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 months ended December 31, ~~2009~~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	)		(662	)
Other adjustments		158			397

Accrued Restructuring, December 31, 2009	$	3,740
Accrued Restructuring, December 31, 2010				$	3,331

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,~~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 of less than $0.1 million and an income tax benefit of ~~$0.1~~$1.0 million ~~during~~for the three and nine months ended December 31, ~~2009,~~2010, respectively. ~~This~~The income tax benefit for the nine months ended December 31, 2010 is 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 provision of less than $0.1 million and the income tax benefit of $0.1 million for the three and nine months ended December 31, 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.

1614


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

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~~are headquartered in Waltham, Massachusetts and ~~commercialize VIVITROL~~^® ~~for alcohol dependence~~have a research facility in Massachusetts and ~~manufacture RISPERDAL~~^® ~~CONSTA~~^® ~~for schizophrenia~~a commercial manufacturing facility in Ohio. We leverage our formulation expertise and ~~bipolar disorder.~~proprietary product platforms to develop, both with partners and on our own, innovative and competitively advantaged medications that can enhance patient outcomes in major therapeutic areas. Our robust pipeline includes extended-release injectable ~~pulmonary~~ and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”) disorders, reward disorders, addiction, diabetes and ~~diabetes. We have research facilities~~autoimmune disorders.

The following discussion should be read in ~~Massachusetts~~conjunction with our condensed consolidated financial statements and ~~a commercial manufacturing facility~~related notes beginning on page 3 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in ~~Ohio. In January~~our Annual Report on Form 10-K for the year ended March 31, 2010, ~~we relocated our corporate headquarters from Cambridge, Massachusetts, to Waltham, Massachusetts.~~which has been filed with the Securities and 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; and ~~similar expressions. These~~contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward looking information. Forward-looking statements may include, but are not limited to, statements concerning: 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 growth of RISPERDAL CONSTA sales; the commercialization of VIVITROL in the United States (“U.S.”) by us and in Russia and the Commonwealth of Independent States (“CIS”) by Cilag GmbH International (“Cilag”), a subsidiary of Johnson & Johnson; recognition of milestone payments from Cilag related to the future sales of VIVITROL in Russia and the CIS; the successful continuation of development activities for 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 the successful manufacture of our products and product candidates, including RISPERDAL CONSTA, VIVITROL and polymer for exenatide once weekly, by us at a commercial scale, and the successful manufacture of exenatide once weekly by Amylin Pharmaceuticals, Inc. (“Amylin”).

~~Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, the forward-looking statements contained~~ in this document are neither promises nor guarantees. Our business is subject to significant risk 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 AnnualQuarterly 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) 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 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, in sufficient quantities and with sufficient yields to meet our or our partners’ requirements or to add additional production capacity for RISPERDAL CONSTA and VIVITROL, or unexpected events could interrupt manufacturing operations at our RISPERDAL CONSTA and VIVITROL manufacturing facility, which is the sole source of supply for these products; (iii) 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 Company (“Lilly”) 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 rawwithout limitation, statements regarding:

•		our expectations regarding our financial performance, including, but not limited to revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;

•		statements by Amylin Pharmaceuticals, Inc. (“Amylin”) concerning the expected commencement date and duration of the thorough QT (“tQT”) study and the date by when it expects to submit results of the tQT study to the United States (“U.S.”) Food and Drug Administration (“FDA”);

•		our expectations regarding our product candidates, including the timing, funding and expense, feasibility and potential for success of clinical development activities; regulatory review; and commercial potential of such product candidates;

•		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 and arrangements involving our properties, including manufacturing facilities; and

1715

~~materials for~~

our ~~production processes~~future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

You are cautioned that forward-looking statements are based on current expectations and are inherently uncertain. Actual performance and results of operations may differ materially 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”) may not find the product producedthose projected or suggested in the ~~Amylin facility comparable~~forward-looking statements due to the product used in the pivotal clinical study which was manufactured in our facility; (xi) our product candidates, if approved for marketing, may not be launched successfully in one or all indications for which marketing is approvedvarious risks and if launched, may not produce significant revenues; (xii) we rely on our partners to determine the regulatory and marketing strategies for RISPERDAL CONSTA and our other partnered, non-proprietary programs; (xiii) RISPERDAL CONSTA, VIVITROL and, if approved, exenatide once weekly, may have unintended side effects, adverse reactions or incidents of misuse 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 may take more time or consume more resources 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) uncertainties, including:

•

the FDA and foreign regulatory agencies may not approve BYDUREON^TM (exenatide for extended-release injectable suspension) and, even if approved, such product may not be successfully 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^® ((risperidone) long-acting injection) and BYDUREON, including the four-week formulation of exenatide currently being developed by us, and our collaborators could elect to terminate or delay programs at any time and disputes with collaborators or failure to negotiate acceptable collaborative arrangements for our technologies could occur;

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~~

clinical trials may take more time or consume more resources than initially envisioned and the ~~completion~~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 applications for marketing authorization for our product candidates, ~~including exenatide once weekly, or after the submission for marketing approval of such product candidates, the FDA or other health authorities could refuse to accept such filings, could~~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 claims 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~~securities;

the impact of recently enacted, and ~~auction~~any future, health reform legislation may be greater than initially expected;

exchange rate ~~securities.~~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 ~~of these factors or to publicly announce the results of any revisions to any of our~~ forward-looking statements ~~other than as required under the federal securities laws.~~

~~Our Strategy~~

We leverage our formulation expertise and drug development technologies to develop, both with partners and on our own, innovative and competitively advantaged drug products that can enhance patient outcomescontained 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. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products. Each of these approaches is discussed in more detail in “Products and Development Programs.”

~~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 bipolar I disorder. The medication uses our proprietary Medisorb^® ~~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 by regulatory authorities in the United Kingdom and Germany in August 2002 and by the FDA in October 2003. RISPERDAL CONSTA is approved for the treatment of schizophrenia in approximately 85 countries and marketed in approximately 60 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 brain disorder characterized by disorganized thinking, delusions and hallucinations. Studies have demonstrated that as many as 75 percent 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. 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. Clinical data have shown that RISPERDAL CONSTA significantly delayed the time to relapse compared to placebo treatment in patients with bipolar 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 the first and only once-monthly injectable medication for the treatment of alcohol dependence. 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. 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 and was launched in June 2006. In December, 2008, we assumed sole responsibility for the commercialization of VIVITROL in the U.S.. In December 2007, we exclusively licensed the right to commercialize VIVITROL for the treatment of alcohol and opioid dependence in Russia and other countries in the CIS to Cilag. In August 2008, the Russian regulatory authorities approved VIVITROL for the treatment of alcohol dependence. Cilag launched VIVITROL in Russia in March 2009.

We are also developing VIVITROL for the treatment of opioid dependence, a serious and chronic brain disease characterized by compulsive, prolonged-self administration of opioid substances that are not used for a medical purpose. In November 2009, we announced positive preliminary results from a phase 3 clinical trial of VIVITROL for the treatment of opioid dependence. The 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 to patients treated with placebo. Based on the positive results of this phase 3 study, we plan to file a supplemental New Drug Application (sNDA) with the FDA in the first half of calendar year 2010.

~~Exenatide Once Weekly~~

~~We are collaborating with Amylin on the development of exenatide once weekly for the treatment of type 2 diabetes. Exenatide once weekly is an injectable formulation of Amylin’s BYETTA~~^® (exenatide). 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. 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~~document as a ~~stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes.~~result of new information, future events or otherwise.

In December 2009, Amylin, Lilly and we announced positive results from the DURATION-5 study designed to compare exenatide once weekly to BYETTA in patients with type 2 diabetes who were not achieving adequate glucose control using background therapies that included diet and exercise, metformin, sulfonylurea, thiazolidinediones or a combination of the agents. Patients randomized to exenatide once weekly experienced 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 end of the study, patients treated with exenatide once weekly achieved 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 the end of the study, with an average loss 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.

~~ALKS 37~~

We are developing ALKS 37, an oral, peripherally-restricted opioid antagonist for the treatment of opioid-induced constipation. Research indicates 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.

~~ALKS 36~~

ALKS 36, a co-formulation of an opioid analgesic and an oral, peripherally-restricted opioid antagonist, is being developed 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.

~~ALKS 33~~

ALKS 33 is an oral opioid modulator for the potential treatment 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 for the treatment of alcohol dependence. ALKS 29 is a co-formulation of ALKS 33, a proprietary opioid modulator, and baclofen, an FDA-approved muscle relaxant and antispasmodic therapeutic. Research suggests that baclofen may attenuate the compulsive component 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.

~~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, Inc. (“Acceleron”). ALKS 6931 is structurally similar to etanercept, commercially available under the name ENBREL~~^®.

~~ALKS 9070~~

~~ALKS 9070 is a once-monthly, injectable, sustained-release version of aripiprazole for the treatment of schizophrenia. ALKS 9070 is our first candidate to leverage our proprietary LinkeRx~~^TM ~~technology platform. Aripiprazole is commercially available under the name ABILIFY~~^® ~~for the treatment of a number of CNS disorders. Based on encouraging preclinical results, ALKS 9070 is expected to enter the clinic in the second half of calendar 2010.~~

Executive Summary

Net loss for the three months ended December 31, ~~2009~~2010 was $11.4 million, or $0.12 per common share, basic and diluted, as compared to a net loss of $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.~~2009. Net loss for the nine months ended December 31, ~~2009~~2010 was $32.5 million, or $0.34 per common share, basic and diluted, as compared to a net loss of $25.7 million, or $0.27 per common ~~share—~~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~~2009. Our most significant commercialized products are RISPERDAL CONSTA, which we manufacture for the treatment of schizophrenia and bipolar I disorder, and VIVITROL^® (naltrexone for extended-release injectable suspension), which we developed, manufacture and commercialize for alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. RISPERDAL CONSTA and VIVITROL comprised 80% and 18%, respectively, of our consolidated revenues for the three months ended December 31, 2010 and 83% and 15%, respectively, of our consolidated revenues for the nine months ended December 31, 2010.

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 the treatment of 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 Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen”) and sold in more than 90 countries, 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, ~~includes $3.6 million~~ and ~~$15.9 million, respectively,~~it is the first long-acting atypical antipsychotic to be available in ~~charges associated~~Japan. 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.

We developed VIVITROL, an extended-release Medisorb formulation of naltrexone, as the first and only once-monthly, non-narcotic, non-addictive injectable medication for the treatment of alcohol dependence and for the prevention of relapse to opioid dependence following opioid detoxification. 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. 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 Commonwealth of Independent States (“CIS”) to Cilag GmbH International (“Cilag”). In August 2008, the Russian regulatory authorities approved VIVITROL for the treatment of alcohol dependence, and Cilag launched VIVITROL in Russia in March 2009.

In October 2010, the FDA approved VIVITROL for the prevention of relapse to opioid dependence, following opioid detoxification.

We are collaborating with Amylin on the development of a once-weekly formulation of exenatide, called BYDUREON, for the treatment of type 2 diabetes. BYDUREON is an extended-release Medisorb injectable formulation of Amylin’s BYETTA^® (exenatide) and is being developed with the ~~relocation~~goal of providing patients with an effective and more patient-friendly treatment option. In April 2010, Eli Lilly & Company (“Lilly”) announced that the European Medicines Agency (“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 that the FDA issued a complete response letter regarding the New Drug Application (“NDA”) for BYDUREON. In the complete response letter, the FDA requested a tQT study and the submission of the results of the clinical study, DURATION-5, to evaluate the efficacy, and the labeling of the safety and effectiveness, of the commercial formulation of BYDUREON. In January 2010, Amylin announced that the FDA provided written approval of the study design for a tQT study for BYDUREON and that, with the approval of the study design, Amylin intends to commence the study in February 2011 and plans to submit the results of this study to the FDA in the second half of calendar 2011.

In April 2010, we announced plans for the development of ALKS 33, a proprietary candidate, 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. 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 combination of ALKS 33 and buprenorphine when administered alone, and in combination, to 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 phase 2a study of the combination therapy for the treatment of cocaine addiction in the first half of calendar year 2011. The phase 2a study is expected to be funded through a grant from the National Institute on Drug Abuse (“NIDA”). NIDA has granted us up to $2.4 million to accelerate the clinical development of the ALKS 33 and buprenorphine combination therapy. Currently, there are no medications approved for the treatment of cocaine addiction.

In December 2010, we announced preliminary results from a phase 2 study of ALKS 33 designed to assess the safety and efficacy of daily oral administration of three different dose levels of ALKS 33 compared to placebo in 400 alcohol dependent patients. The safety, dose response and efficacy profile demonstrated in the study support the unique pharmacologic properties of ALKS 33 and the further study of ALKS 33 for reward disorders and other central nervous system disorders.

In January 2011, we announced that ALKS 33, in combination with buprenorphrine, is being studied for treatment-resistant depression (“TRD”). TRD, which is also known as refractory depression, refers to depressive episodes that are not adequately controlled by standard antidepressant therapy. Depression is a serious and chronic disease that affects more than 20 million American adults each year, and finding the right treatment can be difficult for many patients. Approximately half of depressed patients have an inadequate response to monotherapy, and as many as 20% have chronic depression despite multiple interventions. We plan to file an Investigational New Drug application (“IND”) in mid-calendar year 2011 and initiate a phase 1/2 trial by the end of calendar year 2011.

In April 2010, we commenced a multicenter, randomized, double-blind, placebo-controlled, multi-dose study designed to evaluate the efficacy, safety and tolerability of ALKS 37, an orally active, peripherally-restricted opioid antagonist for the treatment of opioid-induced bowel dysfunction (“OBD”), in approximately 60 patients with OBD. We expect to report preliminary results from the phase 2 study of ALKS 37 in the first quarter of calendar year 2011. The results of this phase 2 study will inform further development of ALKS 36, a co-formulation of an opioid analgesic and ALKS 37, for the treatment of pain without the side effects of constipation.

ALKS 9070 is a once-monthly, injectable, sustained-release version of aripiprazole for the treatment of schizophrenia and leverages our ~~corporate headquarters~~proprietary LinkeRx^TM product platform. Aripiprazole is commercially available under the name ABILIFY^® for the treatment of a number of CNS disorders. We commenced a phase 1/2 clinical study for ALKS 9070 for the treatment of schizophrenia and expect to report topline data from ~~Cambridge, Massachusetts to Waltham, Massachusetts.~~the study of ALKS 9070 in the first half of calendar year 2011.

as compared to the three months ended December 31, 2008, was primarily due to an 8% increase in the number of units shipped to Janssen and an increase in the net unit sales price. The decrease in RISPERDAL CONSTA manufacturing revenues for the nine months ended December 31, 2009, as compared to the nine months ended December 31, 2008, was primarily due to a decrease in the net unit sales price, partially offset by an increase in the number of units shipped to Janssen of less than 1%. 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 in the nine months ended December 31, 2009, as compared to the nine months ended December 31, 2008, was primarily due to a stronger 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~~We earn manufacturing ~~revenues~~revenue on sales of RISPERDAL CONSTA 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 months ended December 31, ~~2009~~2010 and ~~2008,~~2009, 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 decrease in RISPERDAL CONSTA manufacturing revenues for the three months ended December 31, 2010, as compared to the three months ended December 31, 2009, was primarily due to a 6% decrease in the unit net sales price partially offset by a 28% increase in the number of units shipped to Janssen. The decrease in RISPERDAL CONSTA manufacturing revenues for the nine months ended December 31, 2010, as compared to the nine months ended December 31, 2009, was primarily due to a 1% decrease in the unit net sales price, partially offset by an 11% increase in the number of units shipped to Janssen. The decrease in the unit net sales price for both the three and nine month periods is primarily due to increased sales deductions recorded by Janssen on RISPERDAL CONSTA sales as a 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.

We earn manufacturing revenue on sales of polymer under our arrangement with Amylin when product is shipped to them, at an agreed upon price. The polymer is used in the formulation of BYDUREON. The decrease in polymer manufacturing revenues for the three and nine months ended December 31, ~~2009 consist of polymer sales~~2010, as compared to Amylin for use in the formulation of exenatide once weekly. 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~~2009, was due to a 62% and 39% decrease, respectively, in the amount of polymer shipped to Amylin.

We ~~record~~earn manufacturing revenue on sales of VIVITROL ~~manufacturing revenues~~ under our arrangement with Cilag ~~at an agreed upon price~~for resale in Russia when product is shipped to ~~them. We made~~them, at an agreed upon price. The increase in VIVITROL manufacturing revenues for the three months ended December 31, 2010, as compared to the three months ended December 31, 2009, was due to no shipments of VIVITROL to Cilag during the three months ended December 31, ~~2009 or 2008.~~2009. The decrease in VIVITROL manufacturing revenues for the nine months ended December 31, ~~2009 consisted entirely of product shipments~~2010, as compared to ~~Cilag for resale in Russia. During~~ the nine months ended December 31, ~~2008, we had $0.4 million of billings~~2009, was due to ~~Cilag for shipments~~a 71% decrease in the amount of VIVITROL shipped to ~~support the commercialization of VIVITROL in Russia.~~Cilag.

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 months ended December 31, 2009 of $5.0 million 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 initially 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 December 31,							Nine Months Ended December 31,
(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	)	$	9.5	$	8.4	$	(1.1	)	$	31.2	$	30.2	$	(1.0	)
VIVITROL		1.1		0.5		(0.6	)		5.7		7.9		2.2			2.4		1.1		(1.3	)		6.4		5.7		(0.7	)
Polymer		0.6		—		(0.6	)		1.9		—		(1.9	)		1.0		0.6		(0.4	)		1.8		1.9		0.1

Cost of goods manufactured and sold	$	10.1	$	5.5	$	(4.6	)	$	37.8	$	31.9	$	(5.9	)	$	12.9	$	10.1	$	(2.8	)	$	39.4	$	37.8	$	(1.6	)

ended December 31, ~~2008. During the three months ended December 31, 2009, we recorded $3.5 million~~2010, respectively, in relocation and occupancy expenses as a result of ~~costs related to~~ the relocation of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, ~~consisting primarily~~which was substantially completed during the fourth quarter of fiscal 2010. In the ~~acceleration of depreciation on laboratory related leasehold improvements located at our Cambridge facility, which no longer have any benefit or use to us once we exit the Cambridge facility,~~three and the write-down of laboratory equipment that is no longer in use and will be disposed of. In addition, we incurred $2.1 million of R&D expense related to the collaboration and license agreement we signed with Acceleron, in December 2009. These expenses were offset by a decrease in occupancy costs due to the consolidation of space at our Cambridge, Massachusetts facility, as well as a decrease in overhead and support costs allocated to R&D at our Ohio manufacturing facility, as discussed above.

~~The increase in R&D expenses in the~~ nine months ended December 31, ~~2009,~~2010, we spent $3.0 million and $9.6 million more in internal clinical and preclinical study, laboratory and license and collaboration expenses, $1.7 million and $4.7 million more in employee related expenses and $0.8 million and $4.1 million more in professional service expense, as compared to the three and nine months ended December 31, ~~2008, was primarily~~2009. The increase in internal clinical and preclinical study, laboratory and license and collaboration expenses is due to ~~$15.6 million of costs we incurred as a result of the relocation of our corporate headquarters, an increase in clinical and pre-clinical study expense resulting from~~ an increase in the number of ongoing studies and ~~$2.1 million~~clinical trials. The increase in employee related expense is primarily due to an increase in share-based compensation expense due to recent equity grants awarded with a higher grant-date fair value than older grants, as well as the exclusion of certain prior grants that have vested and are no longer included in share-based compensation expense. The increase in professional service expense is primarily due to activities related to the collaboration and license agreement we signed with Acceleron in December 2009. These expenses were partially offset by a decrease in overhead and support costs allocated to R&D at our Ohio manufacturing facility, a decrease in labor and benefits due to a reduction in R&D headcount and a decrease in occupancy costs due to the consolidationapproval of ~~space at our Cambridge, Massachusetts facility.~~VIVITROL for opioid dependence.

A significant portion of our ~~research and development~~R&D expenses (including laboratory supplies, travel, dues and subscriptions, recruiting costs, temporary help costs, consulting costs and allocable costs such as occupancy and depreciation) are not tracked by project as they benefit multiple projects or our technologies in general. Expenses incurred to purchase specific services from third parties to support our collaborative ~~research and development~~R&D activities are tracked by project and ~~are~~may be reimbursed to us by our partners. We generally bill our partners under collaborative arrangements using a negotiated FTE or hourly rate. This rate has been established by us based on our annual budget of employee compensation, employee benefits and the billable non-project-specific costs mentioned above and is generally increased annually based on increases in the consumer price index. Each collaborative partner is billed using a negotiated FTE or hourly rate for the hours worked by our employees on a particular project, plus direct external costs, if any. We account for our ~~research and development~~R&D expenses on a departmental and functional basis in accordance with our budget and management practices.

Selling, General and Administrative Expense


	Three Months Ended				Change			Nine Months Ended				Change
	December 31				Favorable/			December 31				Favorable/			Three Months Ended December 31,							Nine Months Ended December 31,
(In millions)	2009		2008		(Unfavorable)			2009		2008		(Unfavorable)			2010		2009		Change			2010		2009		Change
Selling, general and administrative	$	17.7	$	14.6	$	(3.1	)	$	57.6	$	38.2	$	(19.4	)	$	20.5	$	17.7	$	(2.8	)	$	58.7	$	57.6	$	(1.1	)

Income Taxes


	Three Months Ended December 31,						Nine Months Ended December 31,
(In millions)	2010		2009		Change		2010			2009			Change
Income tax provision (benefit)	$	—	$	—	$	—	$	(1.0	)	$	(0.1	)	$	0.9

We recorded an income tax provision of less than $0.1 million and an income tax benefit of $1.0 million for the three and nine months ended December 31, ~~2009.~~2010, respectively. The ~~decrease~~income tax benefit for the nine months ended December 31, 2010 is 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 ~~other expense, net,~~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 provision of less than $0.1 million and the income tax benefit of $0.1 million for the three and nine months ended December 31, 2009, as compared to the three and nine months ended December 31, 2008, 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 )

~~The income tax benefit of $0.1 million for the nine months ended December 31, 2009 consists primarily of~~respectively, 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~~


	December 31,		March 31,
(In millions)	2010		2010
Cash and cash equivalents	$	38.9	$	79.3
Investments — short-term		138.5		202.1
Investments — long-term		107.6		68.8

Total cash, cash equivalents and investments	$	285.0	$	350.2

Working capital	$	194.2	$	247.1
Outstanding borrowings — current and long-term	$	—	$	51.0

Our cash flows for the nine months ended December 31, ~~2009~~2010 and ~~2008~~2009 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~~


	Nine Months Ended
	December 31,
(In millions)	2010			2009
Cash and cash equivalents, beginning of period	$	79.3		$	86.9
Cash (used in) operating activities		(14.2	)		(12.3	)
Cash provided by investing activities		17.2			19.5
Cash (used in) financing activities		(43.4	)		(20.2	)

Cash and cash equivalents, end of period	$	38.9		$	73.9

Our primary source of liquidity is cash provided by our cash and investment portfolio of $285.0 million at December 31, 2010. The ~~primary reason for the change~~increase in cash ~~(used in) provided by our~~used in operating activities during the nine months ended December 31, ~~2009,~~2010, as compared to the nine months ended December 31, ~~2008,~~2009, is primarily due to the ~~$40.0~~redemption of our non-recourse 7% Notes on July 1, 2010. 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 months ended December 31, ~~2008 related~~2010 to operating activities to account for the 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 condensed consolidated statement of cash flows. This increase in cash used for operating activities was partially offset by an increase in the inflow of cash from our working capital accounts during the nine months ended December 31, 2010, as compared to the ~~termination of the AIR insulin development program and a net reduction in working capital accounts.~~nine months ended December 31, 2009.

second, to generate investment ~~policy. The primary objective of our investment policy is the preservation of capital with a secondary objective of generating income on our investments.~~income. We mitigate credit risk into our ~~cash reserves~~investments by maintaining a ~~well diversified~~well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. However, the value of ~~these securities~~our investments 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, which are backed by foreign governments, and corporate debt securities. Our held-to-maturity investments consist of securities that are restricted and held as collateral under certain letters of credit related to certain of our lease agreements.

~~As explained~~We classify our available-for-sale investments that are 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 December 31, 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 December 31, 2010 and March 31, 2010, 1% and 4%, respectively, of our investments are valued using unobservable, or Level 3, inputs to determine fair ~~value. These investments~~value as they are ~~valued using discounted cash flow models, which use several inputs to determine fair value, including estimates for interest rates, the timing of cash flows, expected holding periods~~not actively trading 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~~could not be derived from quoted 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.

prices. During the three months ended September 30, 2009, trading resumed for certain 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 Level 3 classification to a Level 2 classification. During the threenine months ended December 31, ~~2009, we transferred an additional~~2010, $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 23 investments ~~using market observable inputs.~~were redeemed at par by the issuers.

Borrowings

AtWe did not have any outstanding borrowings at December 31, ~~2009, our borrowings consisted~~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 December 31, 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.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different 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.~~		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 fiscal 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 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 sales of RISPERDAL CONSTA by Janssen 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 months of fiscal year ~~2010.~~2011.


~~Item 4.~~		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.~~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 December 31, 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

PART II — OTHER INFORMATION


~~Item 1.~~		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.~~		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~~during the quarter ended December 31, ~~2009,~~2010. As of December 31, 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~~2010, we acquired, by means of net share settlements, ~~16,318~~25,022 shares of Alkermes common stock at an average price of ~~$8.36~~$11.41 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~~Item 5. Other Information***

~~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,~~2010, Mr. ~~Floyd E. Bloom, a director~~James M. Frates, an executive officer of the Company, entered


	Page No.

*PART I — FINANCIAL INFORMATION*

Item 1. Condensed Consolidated Financial ~~Statements:~~Statements (Unaudited):		3
Condensed Consolidated Balance Sheets — December 31, ~~2009~~2010 and March 31, ~~2009~~2010		3
Condensed Consolidated Statements of Operations — For the Three and Nine Months Ended December 31, ~~2009~~2010 and ~~2008~~2009		4
Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended December 31, ~~2009~~2010 and ~~2008~~2009		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1715
Item 3. Quantitative and Qualitative Discloures about Market Risk		2925
Item 4. Controls and Procedures		2925

*PART II — OTHER INFORMATION*

Item 1. Legal Proceedings		3127
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
~~Item 4. Submission of Matters to a Vote of Security Holders~~		3127
Item 5. Other Information		3127
Item 6. Exhibits		3327
Signatures		3428
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


	Fair			Fair
(In thousands)	Value			Value
Balance, March 31, 2009	$	73,877
Balance, March 31, 2010				$	11,241
Total unrealized gains included in comprehensive loss		4,496			1,514
Sales and redemptions, at par value		(21,049	)		(10,983	)
Transfers out of Level 3		(44,960	)

Balance, December 31, 2009	$	12,364
Balance, December 31, 2010				$	1,772


	December 31,		March 31,		December 31,		March 31,
(In thousands)	2009		2009		2010		2010
Raw materials	$	5,169	$	5,916	$	3,526	$	4,130
Work in process		6,251		5,397		3,550		7,788
Finished goods (1)		8,381		7,015		11,557		8,501
Consigned-out inventory (2)		248		1,969		536		234

Inventory	$	20,049	$	20,297
Total inventory					$	19,169	$	20,653


	Three Months Ended						Nine Months Ended
	December 31						December 31						Three Months Ended December 31,												Nine Months Ended December 31,
(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	%	$	9.8			100.0	%	$	7.2			100.0	%	$	28.0			100.0	%	$	17.7			100.0	%
Adjustments to product sales, gross:
Medicaid rebates														(1.1	)		(11.2	)%		(0.3	)		(4.2	)%		(1.9	)		(6.8	)%		(0.6	)		(3.4	)%
Chargebacks		(0.4	)		(5.6	)%		(0.7	)		(4.0	)%		(0.7	)		(7.1	)%		(0.4	)		(5.6	)%		(1.6	)		(5.7	)%		(0.7	)		(4.0	)%
Reserve for inventory in the channel (1)														0.6			6.1	%		(0.4	)		(5.6	)%		(1.1	)		(3.9	)%		(0.5	)		(2.8	)%
Wholesaler fees		(0.3	)		(4.2	)%		(0.7	)		(4.0	)%		(0.3	)		(3.0	)%		(0.3	)		(4.2	)%		(0.9	)		(3.2	)%		(0.7	)		(4.0	)%
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	)%		(0.6	)		(6.1	)%		(0.3	)		(4.2	)%		(2.1	)		(7.5	)%		(0.9	)		(5.1	)%

Total adjustments		(1.7	)		(23.8	)%		(3.4	)		(19.3	)%		(2.1	)		(21.3	)%		(1.7	)		(23.8	)%		(7.6	)		(27.1	)%		(3.4	)		(19.3	)%

Product sales, net	$	5.5			76.2	%	$	14.3			80.7	%	$	7.7			78.7	%	$	5.5			76.2	%	$	20.4			72.9	%	$	14.3			80.7	%


~~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).~~


	Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
(in thousands)	Cost		Fair Value		Cost		Fair Value
Within 1 year	$	72,188	$	72,095	$	5,857	$	5,857
After 1 year through 5 years (1)		149,919		149,787		—		—
After 5 years through 10 years (1)		48,777		46,682		—		—
After 10 years		10,000		8,284		—		—

Total	$	280,884	$	276,848	$	5,857	$	5,857


	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


(1)		At December 31, ~~2009~~2010 and March 31, ~~2009,~~2010, the Company had ~~$1.6~~$2.1 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 31, ~~2009,~~2010 and March 31, 2010, consigned-out inventory relates to 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 ofVIVITROL 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.


			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~~ ~~(Principal Executive Officer)~~


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


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 December 31, 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).


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


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