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 June 30,December 31, 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
(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): Yesþ Noo
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See the definitions of ” large“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 August 3,
January 31,
Class 20102011
Common Stock, $.01$0.01 par value  95,106,46295,340,250 
Non-Voting Common Stock, $.01$0.01 par value  382,632 
 

 

 

ALKERMES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30,DECEMBER 31, 2010
INDEX
     
  Page No.
PART I - FINANCIAL INFORMATION
     
Item 1.PART I — FINANCIAL INFORMATION
Condensed Consolidated Financial Statements:
3
  
Item 1. Condensed Consolidated Financial Statements (Unaudited):
3
Condensed Consolidated Balance Sheets — June 30,December 31, 2010 and March 31, 2010
 3
 
Condensed Consolidated Statements of Operations — For the Three and Nine Months Ended June 30,December 31, 2010 and 2009
 4
 
Condensed Consolidated Statements of Cash Flows — For the ThreeNine Months Ended June 30,December 31, 2010 and 2009
 5
 
Notes to Condensed Consolidated Financial Statements
 6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 1415
Item 3.
Quantitative and Qualitative DisclosuresDiscloures about Market Risk
 2625
Item 4.
Controls and Procedures
 2625
     
PART II -— OTHER INFORMATION

     
Item 1.
Legal Proceedings
 27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 27
Item 5.
Other Information
 27
Item 6.
Exhibits
 27
Signatures
 28
Exhibit Index  
 EX-31.1
 EX-31.2
 EX-32.1
 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

2

PART 1.I. FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements:
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(unaudited)
                
 June 30, March 31, December 31, March 31, 
 2010 2010 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$ 89,994 $ 79,324  $38,862 $79,324 
Investments — short-term 202,197 202,053  138,523 202,053 
Receivables 24,266 25,316  24,169 25,316 
Inventory 20,472 20,653  19,169 20,653 
Prepaid expenses and other current assets 10,501 10,936  11,897 10,936 
         
Total current assets 347,430 338,282  232,620 338,282 
         
PROPERTY, PLANT AND EQUIPMENT, NET 97,896 96,905  96,219 96,905 
INVESTMENTS — LONG-TERM 36,332 68,816  107,628 68,816 
OTHER ASSETS 10,083 11,597  10,970 11,597 
         
TOTAL ASSETS$ 491,741 $ 515,600  $447,437 $515,600 
         
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
  
CURRENT LIABILITIES:  
Accounts payable and accrued expenses$ 29,311 $ 37,881  $35,065 $37,881 
Deferred revenue — current 1,862 2,220  3,360 2,220 
Non-Recourse RISPERDAL® CONSTA® Secured 7% Notes — Current
 44,750 51,043  — 51,043 
         
Total current liabilities 75,923 91,144  38,425 91,144 
         
DEFERRED REVENUE — LONG-TERM 5,054 5,105  4,972 5,105 
OTHER LONG-TERM LIABILITIES 7,214 6,735  7,722 6,735 
         
Total liabilities 88,191 102,984  51,119 102,984 
         
  
COMMITMENTS AND CONTINGENCIES (Note 12) 
COMMITMENTS AND CONTINGENCIES (Note 13) 
  
SHAREHOLDERS’ EQUITY:  
Common stock, par value, $0.01 per share; 160,000,000 shares authorized; 105,146,630 and 104,815,328 shares issued; 95,104,917 and 94,870,063 shares outstanding at June 30, 2010 and March 31, 2010, respectively 1,049 1,047 
Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized; 382,632 shares issued and outstanding at June 30, 2010 and March 31, 2010 4 4 
Treasury stock, at cost (10,041,713 and 9,945,265 shares at June 30, 2010 and March 31, 2010, respectively)  (130,778)  (129,681)
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 915,270 910,326  927,435 910,326 
Accumulated other comprehensive loss  (2,898)  (3,392)  (2,961)  (3,392)
Accumulated deficit  (379,097)  (365,688)  (398,146)  (365,688)
         
Total shareholders’ equity 403,550 412,616  396,318 412,616 
         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$ 491,741 $ 515,600  $447,437 $515,600 
         
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(unaudited)
        
 Three Months Ended                
 June 30, Three Months Ended Nine Months Ended 
 2010 2009 December 31, December 31, 
 (In thousands, except per share 2010 2009 2010 2009 
 amounts) (In thousands, except per share amounts) 
REVENUES:  
Manufacturing revenues$ 26,891 $ 28,804  $26,155 $28,650 $86,209 $90,289 
Royalty revenues 8,917 8,701  9,777 9,970 28,154 27,489 
Product sales, net 6,204 4,226  7,729 5,451 20,402 14,320 
Research and development revenue under collaborative arrangements 268 1,450  314 81 737 2,705 
Net collaborative profit - 4,315  — — — 5,002 
             
Total revenues 42,280 47,496  43,975 44,152 135,502 139,805 
             
EXPENSES:  
Cost of goods manufactured and sold 12,665 12,666  12,860 10,072 39,436 37,830 
Research and development 22,977 25,586  22,503 22,577 69,412 68,827 
Selling, general and administrative 19,726 19,268  20,521 17,739 58,683 57,632 
             
Total expenses 55,368 57,520  55,884 50,388 167,531 164,289 
             
OPERATING LOSS  (13,088)  (10,024)  (11,909)  (6,236)  (32,029)  (24,484)
             
OTHER EXPENSE, NET: 
OTHER INCOME (EXPENSE), NET: 
Interest income 852 1,561  650 1,017 2,175 3,666 
Interest expense  (1,130)  (1,709) —  (1,423)  (3,298)  (4,698)
Other expense, net  (101)  (63)  (83)  (160)  (266)  (290)
             
Total other expense, net  (379)  (211)
Total other income (expense), net 567  (566)  (1,389)  (1,322)
             
LOSS BEFORE INCOME TAXES  (13,467)  (10,235)  (11,342)  (6,802)  (33,418)  (25,806)
INCOME TAX BENEFIT  (58)  (70)
INCOME TAX PROVISION (BENEFIT) 41 15  (960)  (115)
             
NET LOSS$ (13,409)$ (10,165) $(11,383) $(6,817) $(32,458) $(25,691)
             
  
LOSS PER COMMON SHARE:  
Basic and diluted$ (0.14)$ (0.11) $(0.12) $(0.07) $(0.34) $(0.27)
             
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:  
Basic and diluted 95,326 94,883  95,667 94,784 95,502 94,815 
             
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(unaudited)
                
 Three Months Ended Nine Months Ended 
 June 30, December 31, 
 2010 2009 2010 2009 
 (In thousands) (In thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$ (13,409)$ (10,165) $(32,458) $(25,691)
Adjustments to reconcile net loss to cash flows from operating activities:  
Depreciation 2,105 9,948  6,210 20,314 
Share-based compensation expense 4,456 3,230  15,196 10,811 
Other non-cash charges 146 481  2,273 3,520 
Changes in assets and liabilities:  
Receivables 1,050  (3,311) 1,147  (3,645)
Inventory, prepaid expenses and other assets 2,051 1,167  4,059 1,199 
Accounts payable and accrued expenses  (8,202)  (11,882)  (4,928)  (11,199)
Deferred revenue  (409)  (4,192) 1,007  (4,653)
Other long-term liabilities 4  (427)  (75)  (1,369)
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount  (650)  (485)  (6,611)  (1,574)
         
Cash flows used in operating activities  (12,858)  (15,636)  (14,180)  (12,287)
         
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchase of property, plant and equipment  (4,336)  (2,099)  (8,029)  (9,197)
Sales of property, plant and equipment 30 23  260 249 
Investment in Acceleron Pharmaceuticals, Inc.  (501)  (8,000)
Purchases of investments  (102,790)  (203,655)  (324,143)  (390,818)
Sales and maturities of investments 135,917 187,712  349,546 427,270 
         
Cash flows provided by (used in) investing activities 28,821  (18,019)
Cash flows provided by investing activities 17,133 19,504 
         
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from the issuance of common stock for share-based compensation arrangements 474 107  1,982 182 
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal  (5,767)  (5,932)  (45,397)  (17,676)
Purchase of common stock for treasury -  (2,513) —  (2,684)
         
Cash flows used in financing activities  (5,293)  (8,338)  (43,415)  (20,178)
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,670  (41,993)
NET DECREASE IN CASH AND CASH EQUIVALENTS  (40,462)  (12,961)
CASH AND CASH EQUIVALENTS — Beginning of period 79,324 86,893  79,324 86,893 
         
CASH AND CASH EQUIVALENTS — End of period$ 89,994 $ 44,900  $38,862 $73,932 
         
SUPPLEMENTAL CASH FLOW DISCLOSURE:  
Cash paid for interest$ 898 $ 1,348  $1,684 $3,706 
Cash paid for taxes$ 31 $ -  $22 $53 
Non-cash investing and financing activities:  
Purchased capital expenditures included in accounts payable and accrued expenses$ 1,635 $ 713  $550 $3,933 
Investment in Civitas Therapeutics, Inc. $1,320 $— 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

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 for the three and nine months ended June 30,December 31, 2010 and 2009 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the fiscal year ended March 31, 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, 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. On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, the Company redeemed the non-recourse 7% Notes in full in exchange for $39.2 million, which was 101.75% of the outstanding principal balance in accordance with the provisions of the purchase and sales agreement.
     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.

6

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –— (Continued)
New Accounting Pronouncements
     In September 2009, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued accounting guidance related to revenue recognition that amends the previous guidance on arrangements with multiple deliverables. The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Accounting guidance previously required that the fair value of the undelivered item be the 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 determine when the product was not individually sold because of its unique features. Under the previous guidance, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This guidance is effective prospectively for revenue arrangements entered into or materially modified in the Company’s fiscal year beginning April 1, 2011, and the Company is currently evaluating the potential impact of this standard on its consolidated financial statements. Early adoption is permitted;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 information about purchases, sales issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3.3 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 roll forwardrollforward 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;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 material impact on its financial position or results of operations.
     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 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

7

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 Three Months Ended Nine Months Ended 
 June 30, December 31, December 31, 
(In thousands) 2010 2009  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 
             
Net loss$ (13,409)$ (10,165)
Unrealized gains on available-for-sale securities: 
Holding gains, net of tax 494 1,988 
    
Unrealized gains on available-for-sale securities 494 1,988 
Unrealized (losses) gains on available-for-sale securities  (516) 744 431 2,504 
             
Comprehensive loss$ (12,915)$ (8,177) $(11,899) $(6,073) $(32,027) $(23,187)
             
3.LOSS PER SHARE
     Basic loss per common share is calculated based upon net loss available to holders of common shares divided by the weighted average number of common shares outstanding. For the three and nine months ended June 30,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 stock options and awards as they would have an anti-dilutive effect on loss per common share. Therefore, the weighted average number of basic and diluted voting shares of common stock outstanding for the three and nine months ended June 30,December 31, 2010 and 2009 were 95,326,137 and 94,883,071, respectively.as follows:
                 
  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 diluted loss per common share because their effects are anti-dilutive:
                        
 Three Months Ended Three Months Ended Nine Months Ended
 June 30, December 31, December 31,
(In thousands) 2010 2009  2010 2009 2010 2009
    
Stock options 13,768 17,444  14,499 17,658 13,614 17,801 
Restricted stock units 795 254  934 538 878 318 
             
Total 14,563 17,698  15,433 18,196 14,492 18,119 
             

8

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –— (Continued)
4.INVESTMENTS
Investments consist of the following:
                                        
 Gross Unrealized    Gross Unrealized   
 Losses    Losses   
 Amortized Less than Greater than Estimated Amortized Less than Greater than Estimated 
 Cost Gains One Year One Year Fair Value Cost Gains One Year One Year Fair Value 
 (In thousands)  (In thousands) 
June 30, 2010
 
 
December 31, 2010
 
Short-term investments:  
Available-for-sale securities:  
U.S. government and agency debt securities$ 173,578 $ 413 $ - $ - $ 173,991  $111,912 $178 $(1) $— $112,089 
International government agency debt securities 18,090 172 - - 18,262  18,065 167 — — 18,232 
Corporate debt securities 8,192 63 - - 8,255  6,963 49 —  (11) 7,001 
Asset backed debt securities 492 - -  (4) 488 
                     
 200,352 648 -  (4) 200,996  136,940 394  (1)  (11) 137,322 
                     
Money market funds 1,201 - - - 1,201  1,201 — — — 1,201 
                     
Total short-term investments 201,553 648 -  (4) 202,197  138,141 394  (1)  (11) 138,523 
                     
Long-term investments:  
Available-for-sale securities:  
U.S. government and agency debt securities 52,719 —  (644) — 52,075 
Corporate debt securities 26,108 - -  (1,038) 25,070  34,203 —  (38)  (567) 33,598 
Auction rate securities 5,000 - -  (711) 4,289 
International government agency debt securities 15,320 —  (95) — 15,225 
Strategic equity investments 644 472 - - 1,116  644 229 — — 873 
                     
 31,752 472 -  (1,749) 30,475  102,886 229  (777)  (567) 101,771 
                     
Held-to-maturity securities:  
Certificates of deposit 5,440 - - - 5,440  5,440 — — — 5,440 
U.S. government obligations 417 - - - 417 
U.S. government debt securities 417 — — — 417 
                     
 5,857 - - - 5,857  5,857 — — — 5,857 
                     
Total long-term investments 37,609 472 -  (1,749) 36,332  108,743 229  (777)  (567) 107,628 
                     
Total investments$ 239,162 $ 1,120 $ - $ (1,753)$ 238,529  $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  $160,876 $204 $— $— $161,080 
International government agency debt securities 23,441 136 -  (1) 23,576  23,441 136 —  (1) 23,576 
Corporate debt securities 15,225 14 -  (2) 15,237  15,225 14 —  (2) 15,237 
Asset backed debt securities 983 - -  (24) 959  983 — —  (24) 959 
                     
 200,525 354 -  (27) 200,852  200,525 354 —  (27) 200,852 
                     
Money market funds 1,201 - - - 1,201  1,201 — — — 1,201 
                     
Total short-term investments 201,726 354 -  (27) 202,053  201,726 354 —  (27) 202,053 
                     
Long-term investments:  
Available-for-sale securities:  
Corporate debt securities 26,109 - -  (942) 25,167  26,109 — —  (942) 25,167 
U.S. government and agency debt securities 24,727 -  (39) - 24,688  24,727 —  (39) — 24,688 
Auction rate securities 10,000 - -  (1,454) 8,546  10,000 — —  (1,454) 8,546 
International government agency debt securities 3,225 -  (2) - 3,223  3,225 —  (2) — 3,223 
Strategic equity investments 644 691 - - 1,335  644 691 — — 1,335 
                     
 64,705 691  (41)  (2,396) 62,959  64,705 691  (41)  (2,396) 62,959 
                     
Held-to-maturity securities:  
Certificates of deposit 5,440 - - - 5,440  5,440 — — — 5,440 
U.S. government obligations 417 - - - 417 
U.S. government debt securities 417 — — — 417 
                     
 5,857 - - - 5,857  5,857 — — — 5,857 
                     
Total long-term investments 70,562 691  (41)  (2,396) 68,816  70,562 691  (41)  (2,396) 68,816 
                     
Total investments$ 272,288 $ 1,045 $ (41)$ (2,423)$ 270,869  $272,288 $1,045 $(41) $(2,423) $270,869 
                     
     The proceeds from the sales and maturities of marketable securities, excludingCompany’s strategic equity investments include common stock in public companies with which were primarily reinvested and resulted in realized gains and losses, were as follows:
         
  Three Months Ended
  June 30,  June 30, 
(in thousands) 2010  2009 
     
Proceeds from the sales and maturities of marketable securities$ 135,917 $ 187,712 
Realized gains$ 37 $ 186 
Realized losses$ 18 $ 1 
the Company has or had a collaborative arrangement.

9

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –— (Continued)
     The Company’s available-for-sale and held-to-maturity securities at June 30, 2010 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$ 69,512 $ 69,557 $ 5,857 $ 5,857 
After 1 year through 5 years (1)  127,270   127,662   -   - 
After 5 years through 10 years (1)  29,678   28,847   -   - 
After 10 years  5,000   4,289   -   - 
         
Total$ 231,460 $ 230,355 $ 5,857 $ 5,857 
         
(1)Investments in available-for-sale securities within these categories, with an amortized cost of $58.9 million and an estimated fair value of $58.3 million, have issuer call dates prior to May 2011.
At June 30,December 31, 2010, the Company believes that the unrealized losses on its available-for-sale investments are temporary. The investments with unrealized losses consist primarily of corporate debt securities and an auction rate security. In making the determination that the decline in fair value of these securities wasis 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 amortized cost; the financial condition and near term prospects of the issuers; and the Company’s intent not to sell these securities and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.
     TheIn 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 strategic equity investments include common stockpulmonary manufacturing facility located in public companies with whichChelsea, Massachusetts and has an option to purchase the Company’s pulmonary manufacturing equipment located at this facility.
     At December 31, 2010, the Company has or had a collaborative arrangement with.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 also has an $8.0 millioncan 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 collaborative partner, Acceleron Pharma, Inc. (“Acceleron”), whichperiod 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 withinin “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 at June 30,sheets.
     In December 2009, the Company entered into a collaborative arrangement with, and made an investment in, Acceleron Pharma, Inc. (“Acceleron”). The Company’s Chairman, President and Chief Executive Officer is one of nine members of Acceleron’s board of directors. The Company’s December 2009 investment in Acceleron consisted of an $8.0 million purchase of shares of Series D-1 convertible, redeemable preferred stock. In July 2010, the Company invested an additional $0.5 million in exchange for shares of Series E convertible, redeemable preferred stock and March 31, 2010.common stock warrants. The Company accounts for its investment in Acceleron under the cost method as Acceleron is a privately-held company over which the Company does not exercise significant influence. The Company will continue to monitor this investment to evaluate whether any decline in its value has occurred that would be other-than-temporary, based on the implied value from any recent rounds of financing completed by Acceleron, specific events at Acceleron, market prices of comparable public companies and general market conditions. The Company’s investment balance of $8.5 million and $8.0 million at December 31, 2010 and March 31, 2010, respectively, is recorded within “Other assets” in the accompanying condensed consolidated balance sheets.

10

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.FAIR VALUE MEASUREMENTS
     The following table presents information about the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
                                
 June 30,       December 31,       
(In thousands) 2010 Level 1 Level 2 Level 3 2010 Level 1 Level 2 Level 3 
        
Cash equivalents and money market funds$ 1,301 $ 1,301 $ - $ -  $1,302 $1,302 $— $— 
U.S. government and agency debt securities 173,991 173,991 - -  164,164 164,164 — — 
International government agency debt securities 18,262 18,262 - -  33,457 33,457 — — 
Corporate debt securities 33,325 - 31,589 1,736  40,599 — 38,827 1,772 
Auction rate securities 4,289 - - 4,289 
Asset backed debt securities 488 - - 488 
Strategic equity investments 1,116 1,116 - -  873 873 — — 
                 
Total$ 232,772 $ 194,670 $ 31,589 $ 6,513  $240,395 $199,796 $38,827 $1,772 
                 
                
 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 
        

10

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
                 
  March 31,          
  2010  Level 1  Level 2  Level 3 
Cash equivalents and money market funds $1,289  $1,289  $—  $— 
U.S. government and agency debt securities  185,768   185,768   —   — 
International government agency debt securities  26,799   26,799   —   — 
Corporate debt securities  40,404   —   38,668   1,736 
Auction rate securities  8,546   —   —   8,546 
Asset backed debt securities  959   —   —   959 
Strategic equity investments  1,335   1,335   —   — 
             
Total $265,100  $215,191  $38,668  $11,241 
             
     There were no transfers or reclassifications of any securities between Level 1 and Level 2 during the threenine months ended June 30,December 31, 2010. The following table illustrates the rollforward of the fair value of the Company’s investments whose fair value is determined using Level 3 inputs:
Fair
(In thousands)Value
Balance, March 31, 2010$11,241
Total unrealized gains included in comprehensive loss764
Sales and redemptions, at par value(5,492)
Balance, June 30, 2010$6,513
     
  Fair 
(In thousands) Value 
Balance, March 31, 2010 $11,241 
Total unrealized gains included in comprehensive loss  1,514 
Sales and redemptions, at par value  (10,983)
    
Balance, December 31, 2010 $1,772 
    
     Substantially all of the Company’s investments in corporate debt securities have been classified as Level 2.2 investments. These securities have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market observable data. The market observable data includes reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers current spot rates and other industry and economic events. The Company validates the prices developed using the market observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.
     The Company used a discounted cash flow model to determine the estimated fair value of its Level 3 investments. The Company’s most significant Level 3 investment at June 30, 2010 consists of its investment in a student loan backed auction rate security, with an amortized cost of $5.0 million, which was not trading at June 30, 2010. The assumptions used in the discounted cash flow model include estimates for interest rates, timing of cash flows, expected holding periods and risk adjusted discount rates, which include provisions for default and liquidity risk, which the Company believes to be the most critical assumptions utilized within the analysis. The valuation analysis considers, among other items, assumptions that market participants would use in their estimates of fair value, such as the collateral underlying the security, the creditworthiness of the issuer and any associated guarantees, the timing of expected future cash flows, the timing of, and the likelihood that the security will have a successful auction or when callability features may be exercised by the issuer. The securities were also compared, where possible, to other observable market data with similar characteristics to the securities held by the Company.
       The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature. The Company’s non-recourse RISPERDAL CONSTA secured 7% Notesnotes (the “non-recourse 7% Notes”) were fully redeemed on July 1, 2010 and had a carrying value of $44.7 million and $51.0 million and a fair value of $44.9 million and $48.7 million at June 30, 2010 and March 31, 2010, respectively. The estimated fair value of the non-recourse 7% Notes at June 30, 2010 is equal to the outstanding principal amount as the non-recourse 7% Notes were redeemed in full on July 1, 2010. The estimated fair value of the non-recourse 7% Notes at March 31, 2010 was based on a discounted cash flow model.

11

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.INVENTORY
     Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consists of the following:
                
 June 30, March 31,  December 31, March 31, 
(In thousands) 2010 2010  2010 2010 
    
Raw materials$ 4,049 $ 4,130  $3,526 $4,130 
Work in process 6,232 7,788  3,550 7,788 
Finished goods (1) 9,980 8,501  11,557 8,501 
Consigned-out inventory (2) 211 234  536 234 
         
Total inventory$ 20,472 $ 20,653  $19,169 $20,653 
         
 
(1) At June 30,December 31, 2010 and March 31, 2010, the Company had $2.1 million and $0.7 million of finished goods inventory located at its third party warehouse and shipping service provider.
 
(2) At June 30,December 31, 2010 and March 31, 2010, consigned-out inventory relates to VIVITROL inventory in the distribution channel for which the Company hashad not recognized revenue.
7. PROPERTY, PLANT AND EQUIPMENT
     Property, plant and equipment consist of the following:
         
  December 31,  March 31, 
(In thousands) 2010  2010 
Land $301  $301 
Building and improvements  36,782   36,759 
Furniture, fixture and equipment  63,695   62,501 
Leasehold improvements  44,466   42,660 
Construction in progress  42,845   43,695 
       
Subtotal  188,089   185,916 
Less: accumulated depreciation  (91,870)  (89,011)
       
Total property, plant and equipment, net $96,219  $96,905 
       
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
     Accounts payable and accrued expenses consist of the following:
         
  December 31,  March 31, 
(In thousands) 2010  2010 
Accounts payable $9,063  $8,197 
Accrued compensation  12,624   15,276 
Accrued other  13,378   14,408 
       
Total accounts payable and accrued expenses $35,065  $37,881 
       

1112

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –— (Continued)
7.PROPERTY, PLANT AND EQUIPMENT9. LONG-TERM DEBT
     Property, plant and equipment consistLong-term debt consists of the following:
         
  June 30,  March 31, 
(In thousands) 2010  2010 
     
Land$ 301 $ 301 
Building and improvements  36,771   36,759 
Furniture, fixture and equipment  63,184   62,501 
Leasehold improvements  42,645   42,660 
Construction in progress  44,844   43,695 
     
Subtotal  187,745   185,916 
Less: accumulated depreciation  (89,849)  (89,011)
     
Total property, plant and equipment, net$ 97,896 $ 96,905 
     
8.ACCOUNTS PAYABLE AND ACCRUED EXPENSES
         
  December 31,  March 31, 
(In thousands) 2010  2010 
Non-recourse 7% Notes $—  $51,043 
Less: current portion  —   (51,043)
       
Long-term debt $—  $— 
       
     Accounts payable and accrued expenses consistOn July 1, 2010, in addition to the scheduled principal payment of $6.4 million, the Company fully redeemed the balance of the following:
         
  June 30,  March 31, 
(In thousands) 2010  2010 
     
Accounts payable$ 8,352 $ 8,197 
Accrued compensation  7,580   15,276 
Accrued other  13,379   14,408 
     
Total accounts payable and accrued expenses$ 29,311 $ 37,881 
     
non-recourse 7% Notes 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. 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  Three Months Ended Nine Months Ended 
 June 30,  December 31, December 31, 
(In thousands) 2010 2009  2010 2009 2010 2009 
    
Cost of goods manufactured and sold$ 361 $ 310  $385 $434 $1,271 $1,263 
Research and development 1,515 807  1,573 759 4,726 2,485 
Selling, general and administrative 2,580 2,113  3,834 2,179 9,199 7,063 
             
Total share-based compensation expense$ 4,456 $ 3,230  $5,792 $3,372 $15,196 $10,811 
             
     At June 30,December 31, 2010 and March 31, 2010, $0.6 million and $0.5 million, respectively, of share-based compensation costexpense was capitalized and recorded as Inventory“Inventory” in the accompanying condensed consolidated balance sheets.
10.11. 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 in the year ended March 31, 2008. Activity related to the 2008 Restructuring in the threenine months ended June 30,December 31, 2010 was as follows:
(In thousands)Balance
Accrued restructuring, March 31, 2010$3,596
Payments for facility closure costs(239)
Other adjustments281
Accrued Restructuring, June 30, 2010$3,638
     
(In thousands) Balance 
Accrued restructuring, March 31, 2010 $3,596 
Payments for facility closure costs  (662)
Other adjustments  397 
    
Accrued Restructuring, December 31, 2010 $3,331 
    
     At June 30,December 31, 2010 and March 31, 2010, the restructuring liability related to the 2008 Restructuring consists of $0.7 million and $0.6 million classified as current, respectively, and $2.6 million and $3.0 million classified as long-term, respectively, in the accompanying

12

ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
condensed consolidated balance sheets. As of June 30,December 31, 2010, the Company had paid in cash, written off, recovered and made restructuring charge adjustments that totaled approximately $0.3$0.6 million in facility closure costs, $2.9 million in employee separation costs and $0.2 million in other contract termination costs in connection with the 2008 Restructuring. The $3.6$3.3 million remaining in the restructuring accrual at June 30,December 31, 2010 is expected to be paid out through fiscal 2016 and relates primarily to future lease costs associated with an exited facility.

13

11.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 June 30,December 31, 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 recorded an income tax provision of less than $0.1 million and an income tax benefit of $0.1$1.0 million for the three and nine months ended June 30,December 31, 2010, respectively. 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 recognition of $0.3 million of income2010 alternative minimum tax expense(“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 within other comprehensive loss associated withduring the increasethree months ended September 30, 2010, the period in which the valueAct was enacted. The income tax provision of certain securities that it carried at fair market value. Theless than $0.1 million and the income tax benefit of $0.1 million for the three and nine months ended June 30,December 31, 2009, respectively, represented the amount the Company estimated it would benefit from theHousing and Economic Recovery Act of 2008.2008.
12.13. 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 ofcurrently 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.
13.SUBSEQUENT EVENTS
       On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, the Company redeemed the non-recourse 7% Notes in full in exchange for $39.2 million, which was 101.75% of the outstanding principal balance in accordance with the provisions of the purchase and sales agreement.

1314

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
       The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 5 of this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, which has been filed with the Securities and Exchange Commission (“SEC”).
     Alkermes, Inc. (as used in this section, together with our subsidiaries, “us”, “we”, “our” or the “Company”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. We developed, manufacture and commercialize VIVITROL® (naltrexone for extended-release injectable suspension) for alcohol dependence and manufacture RISPERDAL®CONSTA® [(risperidone) long-acting injection] for schizophrenia and bipolar I disorder. Our robust pipeline includes extended-release injectable and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”) disorders, reward disorders, addiction, diabetes and autoimmune disorders. We are headquartered in Waltham, Massachusetts and have a research facility in Massachusetts and a commercial manufacturing facility in Ohio.
We leverage our formulation expertise and 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. We enter into select collaborationsOur robust 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 following discussion should be read in conjunction with pharmaceuticalour condensed consolidated financial statements and biotechnology companies to develop significant new product candidates, basedrelated notes beginning on existing drugspage 3 of this Quarterly Report on Form 10-Q, and incorporatingthe audited consolidated financial statements and notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our proprietary product platforms. In addition, we apply our innovative formulation expertiseAnnual Report on Form 10-K for the year ended March 31, 2010, which has been filed with the Securities and drug development capabilities to create our own new, proprietary pharmaceutical products.Exchange Commission (“SEC”).
Forward-Looking Statements
     This document contains and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, these statements can be identified by the use of forward-lookingforward looking terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue” or other similar words. These statements discuss future expectations; and contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward looking information. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding:
• our expectations regarding our financial performance, including, but not limited to revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;
 
• our expectations regarding the commercialization of RISPERDAL CONSTA and VIVITROLincluding the sales and marketing efforts of our partners Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen”), and our ability to establish and maintain successful sales and marketing, reimbursement and distribution arrangements for VIVITROL;
•our expectation and timeline for regulatory approval of the New Drug Application (“NDA”) submission for BYDUREONTM (exenatide for extended-release injectable suspension) and, if approved, the commercialization of BYDUREONstatements by Amylin Pharmaceuticals, Inc. (“Amylin”), concerning the expected commencement date and Eli Lilly & Co.duration of the thorough QT (“Lilly”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 expectation and timeline for regulatory approval of the supplemental NDA (“sNDA”) submission for VIVITROL for the treatment of opioid dependence and, if approved, our ability to commercialize VIVITROL in this new indication;
• our expectations regarding our product candidates, including the timing, funding and expense, feasibility and potential for success of clinical development activities; regulatory reviewreview; and commercial potential of such product candidates and the costs and expenses related thereto;candidates;
 •our expectations regarding the successful manufacture of our products and product candidates, including RISPERDAL CONSTA and VIVITROL, by us at a commercial scale, and our expectations regarding the successful manufacture of BYDUREON by our partner Amylin;
• the continuation of our collaborations and other significant agreements and our ability to establish and maintain successful development collaborations;
 •our expectations regarding the financial impact of recently enacted healthcare reform legislation and

14

foreign currency exchange rate fluctuations and valuations;
• 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
•our future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

15

our 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 those projected or suggested in the forward-looking statements due to various risks and uncertainties, including:
•manufacturing and royalty revenues from RISPERDAL CONSTA may not continue to grow, particularly because we rely on our partner, Janssen, to forecast and market and sell this product;
•we may be unable to manufacture RISPERDAL CONSTA, VIVITROL and our product candidates in sufficient quantities and with sufficient yields to meet our and our partners’ requirements;
•Amylin may not be able to successfully operate the manufacturing facility for BYDUREON;
•we may be unable to develop the commercial capabilities, and/or infrastructure, necessary to successfully commercialize VIVITROL;
• the Food and Drug Administration, or FDA and foreign regulatory agencies may not approve BYDUREON or VIVITROLTM (exenatide for opioid dependenceextended-release injectable suspension) and, even if approved, such productsproduct 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 once weekly 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;
•RISPERDAL CONSTA, VIVITROL and BYDUREON, if and when approved, experience and will continue to experience competition, including from competing products marketed by our collaborative partners, such as INVEGA® SUSTENNATM (paliperidone palmitate), and from marketing approvals for new products;
•third party payors may not cover or reimburse our products;
•the impact of recently enacted, and any future, health reform legislation may be greater than initially expected;
•our product candidates could be ineffective or unsafe during preclinical studies and clinical trials, and we and our collaborators may not be permitted by regulatory authorities to undertake new or additional clinical trials for product candidates incorporating our technologies, or clinical trials could be delayed or terminated;
•RISPERDAL CONSTA, VIVITROL, BYDUREON, if and when approved, and our product candidates in commercial use may have unintended side effects, adverse reactions or incidents of misuse and the FDA or other health authorities could require post approval studies or require removal of our products from the market;
•clinical trials may take more time or consume more resources than initially envisioned and the results of earlier clinical trials may not necessarily be predictive of the safety and efficacy results of larger clinical trials;
•U.S. and foreign regulatory agencies may refuse to accept applications for marketing authorization for our product candidates, may request additional preclinical or clinical studies be conducted or request a safety monitoring program, any of which could result in significant delays or the failure of such products to receive marketing approval or acceptance in the marketplace;
•difficulties in obtaining and enforcing our patents and difficulties with the patent rights of others could occur;
•we may suffer potential costs resulting from product liability or other third party claims;
•we may incur losses in the future;
•we may not be able to liquidate or otherwise recoup our investments in corporate debt securities, asset backed debt securities and auction rate securities;
•exchange rate valuations and fluctuations may negatively impact our revenues, results of operations and
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;
clinical trials may take more time or consume more resources than initially envisioned and the results of earlier clinical trials may not necessarily be predictive of the safety and efficacy results of larger clinical trials;
U.S. and foreign regulatory agencies may refuse to accept applications for marketing authorization for our product candidates, may request additional preclinical or clinical studies be conducted or request a safety monitoring program, any of which could result in significant delays or the failure of such products to receive marketing approval or acceptance in the marketplace;
difficulties in obtaining and enforcing our patents and difficulties with the patent rights of others could occur;

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financial condition; and
•the 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.
we may suffer potential costs resulting from product liability claims or other third party claims;
we may incur losses in the future;
we may not be able to liquidate or otherwise recoup our investments in corporate debt securities;
the impact of recently enacted, and any future, health reform legislation may be greater than initially expected;
exchange rate valuations and fluctuations may negatively impact our revenues, results of operations and financial condition; and
the other risks and uncertainties described or discussed in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2010.
     The forward-looking statements contained and incorporated herein represent our judgment as of the date 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 undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.
       Unless otherwise indicated, information contained in this Quarterly Report concerning the disorders targeted by our products and product candidates and the markets in which we operate is based on information from various sources (including industry publications, medical and clinical journals and studies, surveys and forecasts and our internal research), on assumptions that we have made, which we believe are reasonable, based on those data and other similar sources and on our knowledge of the markets for our products and development programs. Our internal research has not been verified by any independent source and we have not independently verified any third-party information. These projections, assumptions and estimates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2010. These and other factors could cause results to differ materially from those expressed in the estimates included in this prospectus.
Financial HighlightsExecutive Summary
     Net loss for the three months ended June 30,December 31, 2010 was $13.4$11.4 million, or $0.14$0.12 per common share, – basic and diluted, as compared to a net loss of $10.2$6.8 million, or $0.11$0.07 per common share, — basic and diluted, for the three months ended June 30,December 31, 2009. RevenuesNet loss for the nine months ended December 31, 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, basic and diluted, for the nine months ended December 31, 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 June 30,December 31, 2010 was driven by strong manufacturing and royalty83% and 15%, respectively, of our consolidated revenues from RISPERDAL CONSTA. Worldwide sales of RISPERDAL CONSTA by Janssen were $355.7 million, an increase of 2.3% fromfor the threenine months ended June 30, 2009.
Products and Development Programs
RISPERDAL CONSTADecember 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 United States (“U.S.”) Food and Drug Administration (“FDA”),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. RISPERDAL CONSTA2009, and it is the first long-acting atypical antipsychotic to be available in Japan. RISPERDAL CONSTA is approved for the treatment of schizophrenia in approximately 85 countries and marketed in approximately 70 countries, and Janssen continues to launch the product around the world.
       Schizophrenia is a chronic, severe and disabling brain disorder. The disease is marked by positive symptoms (hallucinations and delusions) and negative symptoms (depression, blunted emotions and social withdrawal), as well as by disorganized thinking. An estimated 2.4 million Americans have schizophrenia, with men and women affected equally. Worldwide, it is estimated that one person in every 100 develops schizophrenia, one of the most serious types of mental illness. Studies have demonstrated that as many as 75% of patients with schizophrenia have difficulty taking their oral medication on a regular basis, which can lead to worsening of symptoms. Clinical data have shown that treatment with RISPERDAL CONSTA may lead to improvements in symptoms, sustained remission and decreases in hospitalization in patients with schizophrenia.
In May 2009, the FDA approved RISPERDAL CONSTA as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder. RISPERDAL CONSTA is also approved for the maintenance treatment of bipolar I disorder in Canada, Australia and Saudi Arabia.

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       Bipolar disorder is a brain disorder that causes unusual shifts in a person’s mood, energy and ability to function. It is often characterized by debilitating mood swings, from extreme highs (mania) to extreme lows (depression). Bipolar I disorder is characterized based on the occurrence of at least one manic episode, with or without the occurrence of a major depressive episode. Bipolar disorder is believed to affect approximately 5.7 million American adults, or about 2.6% of the U.S. population age 18 and older, in a given year. The median age of onset for bipolar disorders is 25 years. Clinical data have shown that RISPERDAL CONSTA significantly delayed the time to relapse compared to placebo treatment in patients with bipolar I disorder.
VIVITROL
     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. Alcohol dependence is a serious and chronic brain disease characterized by cravings for alcohol, lossthe prevention of control over drinking, withdrawal symptoms and an increased tolerance for alcohol. Accordingrelapse to the National Institute on Alcohol Abuse and Alcoholism’s 2001—2002 National Epidemiologic Survey on Alcohol and Related Conditions, it is estimated that more than 18 million Americans suffer from alcohol dependence. Adherence to medication is particularly challenging with this patient population. In clinical trials, when used in combination with psychosocial support, VIVITROL was shown to reduce the number of drinking days and heavy drinking days and to prolong abstinence in patients who abstained from alcohol the week prior to starting treatment.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 with our partner, Cephalon, Inc. (“Cephalon”). In December 2008, we assumed responsibility for the commercialization of VIVITROL in the U.S. from Cephalon.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.Cilag GmbH International (“Cilag”). In August 2008, the Russian regulatory authorities approved VIVITROL for the treatment of alcohol dependence.dependence, and Cilag launched VIVITROL in Russia in March 2009.
     In MarchOctober 2010, the FDA approved a Risk Evaluation and Mitigation Strategy (“REMS”), for VIVITROL that consists of a Medication Guide and other customary REMS assessment requirements.
       We are also developing VIVITROL for the treatmentprevention of relapse to opioid dependence, a serious and chronic brain disease characterized by compulsive, prolonged self-administration offollowing opioid substances that are not used for a medical purpose. According to the 2008 U.S. National Survey on Drug Use and Health, an estimated 1.3 million people aged 18 or older were dependent on pain relievers or heroin. 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 (rate of opioid-free urine screens) and all secondary endpoints (study retention, reduction in craving, self-reported opioid use as compared to placebo). VIVITROL was generally well tolerated in the study and no patients on VIVITROL discontinued the study due to adverse events. Based on these positive results, in April 2010, we submitted a sNDA for VIVITROL to the FDA for approval as a treatment for opioid dependence. The FDA designated VIVITROL for the treatment of opioid dependence as a priority review, which accelerates the FDA’s target review timeline from ten months to six months and issued a Prescription Drug User Fee Act (“PDUFA”) action date for the sNDA of October 12, 2010.detoxification.

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       In June 2010, the FDA notified us of the tentative scheduling of a Psychopharmacologic Drugs Advisory Committee meeting on September 16, 2010 for review of our sNDA for VIVITROL for the treatment of opioid dependence.
BYDUREON
     We are collaborating with Amylin on the development of a once weeklyonce-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 goal of providing patients with an effective and more patient-friendly treatment option. BYETTA is an injection administered twice daily. Diabetes is a disease in which the body does not produce or properly use insulin. Diabetes can result in serious health complications, including cardiovascular, kidney and nerve disease. Diabetes is believed to affect more than 24 million people in the U.S. and an estimated 285 million adults worldwide. Approximately 90 — 95% of those affected have type 2 diabetes.

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According to the Centers for Disease Control and Prevention’s National Health and Nutrition Examination Survey, approximately 60% of people with diabetes do not achieve their target blood sugar levels with their current treatment regimen. In addition, 85% of type 2 diabetes patients are overweight and 55% are considered obese. BYETTA was approved by the FDA in April 2005 as adjunctive therapy to improve blood sugar control in patients with type 2 diabetes who have not achieved adequate control on metformin and/or a sulfonylurea, which are commonly used oral diabetes medications. In December 2006, the FDA approved BYETTA as an add-on therapy for people with type 2 diabetes unable to achieve adequate glucose control on thiazolidinediones, a class of diabetes medications. In October 2009, the FDA approved BYETTA as a stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. Amylin has an agreement with Lilly for the development and commercialization of exenatide, including BYDUREON.
       In May 2009, Amylin submitted a NDA for BYDUREON to the FDA for the treatment of type 2 diabetes. The FDA accepted the submission in July 2009. In March 2010, the FDA issued a complete response letter in reference to the NDA for BYDUREON. The complete response letter did not include requests for new pre-clinical or clinical trials. Requests raised in the letter primarily related to the finalization of the product labeling with accompanying REMS and clarification of existing manufacturing processes. In April 2010, Amylin announced that it had submitted a response to the FDA’s complete response letter. In May 2010, the FDA accepted the response and issued a PDUFA action date of October 22, 2010 for the NDA.
       In April 2010,Eli Lilly & Company (“Lilly”) announced that the EMAEuropean Medicines Agency (“EMA”) had accepted the Marketing Authorization Application filing for BYDUREON for the treatment of type 2 diabetes.
In JuneOctober 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 from DURATION-4,of the fourth in a series of studies designed to test the superiority of BYDUREON as compared to other type 2 diabetes medications. This 26-week clinical study, compared BYDUREON monotherapyDURATION-5, to JANUVIA®, ACTOS® (pioglitazone HCI) and metformin, three oral type 2 diabetes medications commonly prescribed early inevaluate the treatment of type 2 diabetes. Study participants were not achieving adequate A1C control using diet and exercise, and were not on any diabetes therapy when they entered the study. A1C is a measure of average blood sugar over three months. The primary endpoint was reduction in A1C, while secondary endpoints included change in body weight along with other parameters of glucose control, cardiovascular health and patient-reported outcomes. After 26 weeks of treatment, patients randomized to BYDUREON experienced a reduction in A1C of 1.5 percentage points from baseline, which was significantly greater than the reduction of 1.2 percentage points for JANUVIA. Patients randomized to metformin experienced a reduction in A1C of 1.5 percentage points, and patients receiving ACTOS experienced a reduction of 1.6 percentage points. Patients receiving BYDUREON, ACTOS and metformin treatment achieved an average A1C of less than 7 percent by study end. Treatment with BYDUREON produced an average weight loss of 4.5 pounds, which was statistically significantly greater than the average 1.7 pounds patients lost with JANUVIAefficacy, and the average 3.3 pounds patients gained with ACTOS. Patients receiving metformin experienced an average weight losslabeling of 4.4 pounds.
ALKS 33
       ALKS 33 is an oral opioid modulator that we are developing for the potential treatment of addiction and other CNS disorders. In November 2009, we initiated a phase 2 clinical study to assess the safety and efficacyeffectiveness, of multiple dosesthe commercial formulation of ALKS 33BYDUREON. 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 patients with alcohol dependenceFebruary 2011 and plans to further definesubmit the clinical profileresults of ALKS 33.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. Binge-eating disorderIn 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 characterized by recurrent binge eatingexpected 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 during which a person feels a loss of control over his or her eating. Unlike bulimia, binge eating episodesthat are not followedadequately controlled by purging, excessive exercise or fasting. Asstandard antidepressant therapy. Depression is a result, people with binge-eating disorder often are overweight or obese. It is estimatedserious and chronic disease that approximately 1%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 2%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 Americans suffer from binge-eating disorder.
ALKS 37calendar year 2011.
     We are developingIn 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 constipationbowel dysfunction (“OIC”OBD”). According to IMS Health, over 243 million prescriptions were written for

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opioids in 2009 in the U.S. Many studies indicate that a high percentage of patients receiving opioids are likely to experience side effects affecting gastrointestinal motility. There are currently no available oral treatments for this condition, which has severe quality of life implications. ALKS 37 is a component of ALKS 36, which is discussed below.
       In April 2010, we commenced a multicenter, randomized, double-blind, placebo-controlled, multidose study designed to evaluate the efficacy, safety and tolerability of ALKS 37, in approximately 60 patients with OIC.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,
       In October 2009, we announced our intention to develop ALKS 36, which is expected to consist of a co-formulation of an opioid analgesic and ALKS 37, for the treatment of pain without the side effects of constipation. Research indicates that a high percentage of patients receiving opioids are likely to experience side effects affecting gastrointestinal motility. A pain medication that does not inhibit gastrointestinal motility, such as ALKS 36, could provide an advantage over current therapies. The preliminary results from the phase 2 study of ALKS 37, which are expected in the first quarter of calendar 2011, will inform further development of ALKS 36.
ALKS 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 leverageschizophrenia and leverages our proprietary LinkeRxTM product platform. Aripiprazole is commercially available under the name ABILIFY® for the treatment of a number of CNS disorders. Based on encouraging preclinical results,We commenced a phase 1/2 clinical study for ALKS 9070 is expected to enter the clinic in the second half of calendar 2010.
ALKS 6931
       ALKS 6931 is a long-acting form of a TNF receptor-FC fusion protein for the treatment of rheumatoid arthritisschizophrenia and related autoimmune diseases. ALKS 6931 is our first candidate being developed using the MedifusionTM technology licensed from Acceleron Pharma, Inc. ALKS 6931 is structurally similarexpect to etanercept, commercially available under the name ENBREL®.
ALKS 7921
       ALKS 7921, the second candidatereport topline data from the LinkeRx platform, is a once-monthly, injectable, extended-release versionstudy of olanzapine forALKS 9070 in the treatmentfirst half of schizophrenia. Olanzapine is commercially available under the trade name ZYPREXA® (olanzapine). We are engineering ALKS 7921 to prevent early, inadvertent release of free olanzapine into systemic circulation and, in so doing, to provide another valuable option for patients and physicians to manage schizophrenia.calendar year 2011.

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Results of Operations
Manufacturing Revenues
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Manufacturing revenues:  
RISPERDAL CONSTA  $ 26.3   $ 27.9   $ (1.6) $25.5 $27.2 $(1.7) $84.4 $87.0 $(2.6)
Polymer 0.6 0.9  (0.3) 0.6 1.5  (0.9) 1.7 2.9  (1.2)
VIVITROL 0.1 — 0.1 0.1 0.4  (0.3)
                   
Manufacturing revenues  $ 26.9   $ 28.8   $ (1.9) $26.2 $28.7 $(2.5) $86.2 $90.3 $(4.1)
                   
     The decrease in RISPERDAL CONSTA manufacturing revenues for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, was primarily due to a 6% decrease in the unit net sales price, partially offset by an increase in the number of units shipped to Janssen of less than 1%. The decrease in the net unit sales price is primarily due to increased costs incurred by Janssen as a result of healthcare reform in the U.S., as further described inProduct Sales, net, below and the strengthening of the U.S. dollar in relation to the foreign currencies in which the product was sold. See Part I, Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for information on foreign currency exchange rate risk related to RISPERDAL CONSTA revenues.
       Under our manufacturing and supply agreement with Janssen, weWe earn manufacturing revenuesrevenue 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 June 30,December 31, 2010 and 2009, our RISPERDAL CONSTA manufacturing revenues were based on an average of 7.5% of Janssen’s unit net sales 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, 2011 and beyond.
     The decrease in polymerRISPERDAL CONSTA manufacturing revenues for the three months ended June 30,December 31, 2010, as compared to the three months ended June 30,December 31, 2009, was primarily due to a 35%6% decrease in the amountunit net sales price partially offset by a 28% increase in the number of polymerunits shipped to Amylin.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 recordearn manufacturing revenuesrevenue on sales of polymer under our arrangement with Amylin for polymer sales at an agreed upon price when product is shipped to them.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, 2010, as compared to the three and nine months ended December 31, 2009, was due to a 62% and 39% decrease, respectively, in the amount of polymer shipped to Amylin.
     We earn manufacturing revenue on sales of VIVITROL under our arrangement with Cilag for resale in Russia when product is shipped to 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. The decrease in VIVITROL manufacturing revenues for the nine months ended December 31, 2010, as compared to the nine months ended December 31, 2009, was due to a 71% decrease in the amount of VIVITROL shipped to Cilag.

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Royalty Revenues
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Royalty revenues  $ 8.9   $ 8.7   $ 0.2  $9.8 $10.0 $(0.2) $28.2 $27.5 $0.7 
                   
     Substantially all of our royalty revenues for the three and nine months ended June 30,December 31, 2010 and 2009 were related to sales of RISPERDAL CONSTA. Under our license agreements with Janssen, we record royalty revenues equal to 2.5% of Janssen’s net sales of RISPERDAL CONSTA in the period that the product is sold by Janssen. RISPERDAL CONSTA royalty revenues for the three and nine months ended June 30,December 31, 2010 were based on RISPERDAL CONSTA sales of $387.8 million and $1,121.3 million, respectively. RISPERDAL CONSTA royalty revenues for the three and nine months ended December 31, 2009 were based on RISPERDAL CONSTA sales of $355.7$398.7 million and $347.8$1,099.1 million, respectively. 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.

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Product Sales, net
     Our product sales consist of sales of VIVITROL in the U.S. to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments deducted from VIVITROL product sales, gross to arrive at VIVITROL product sales, net for sales of VIVITROL in the U.S. during the three and nine months ended June 30,December 31, 2010 and 2009:
             
 Three Months Ended Three Months Ended                                 
 June 30, June 30,  Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 % of Sales 2009 % of Sales  2010 %of Sales 2009 %of Sales 2010 %of Sales 2009 %of Sales 
Product sales, gross  $ 7.4     100.0 %  $ 5.4     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  (0.5)  (6.8)%  (0.2)  (3.7)%  (1.1)  (11.2)%  (0.3)  (4.2)%  (1.9)  (6.8)%  (0.6)  (3.4)%
Chargebacks  (0.4)  (5.4)%  (0.1)  (1.8)%  (0.7)  (7.1)%  (0.4)  (5.6)%  (1.6)  (5.7)%  (0.7)  (4.0)%
Coupons -    -   %  (0.3)  (5.6)%
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)  (3.0)%  (0.3)  (4.2)%  (0.9)  (3.2)%  (0.7)  (4.0)%
Other  (0.3)  (0.4)%  (0.6)  (11.1)%  (0.6)  (6.1)%  (0.3)  (4.2)%  (2.1)  (7.5)%  (0.9)  (5.1)%
                          
Total adjustments  (1.2)  (12.6)%  (1.2)  (22.2)%  (2.1)  (21.3)%  (1.7)  (23.8)%  (7.6)  (27.1)%  (3.4)  (19.3)%
                          
Product sales, net  $ 6.2  87.4 %  $ 4.2  77.8 % $7.7  78.7% $5.5  76.2% $20.4  72.9% $14.3  80.7%
                          
(1)Our reserve for inventory in the distribution channel is an estimate 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 based on data provided by external sources, including information on inventory levels provided by our customers as well as prescription information.
     The increase in product sales, gross for the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was primarily due to a 19%14% and 36% increase in the number of units sold into the distribution channel, respectively, and a 15%20% and 16% increase in price.the sales price, respectively. The increase in Medicaid rebates as a percentage of gross sales for the three and nine months ended December 31, 2010, as compared to the three and nine months ended December 31, 2009, is primarily due to an increase in customers purchasing VIVITROL through Medicaid and an increase in the Medicaid rebate per unit due to an increase in our selling price on October 1, 2010 as well as an increase in Medicaid rebates due to the U.S. healthcare reform legislation.
     Our product sales may fluctuate from period to period as a result of factors such as end user demand, which can create uneven purchasing patterns by our customers. Our product sales may also fluctuate as the result of changes or adjustments to our reserves or changes in government or customer rebates. For example, in March 2010, U.S. healthcare reform legislation was enacted, which contains several provisions that impact our business. Although many provisions of the new legislation do not take effect immediately, several provisions became effective in the first quarter of calendar 2010, including the following:
•an increase in the minimum statutory Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1%;
•an extension of the Medicaid rebate to drugs dispensed to Medicaid beneficiaries enrolled with managed care organizations; and
•an expansion of the 340(B)/Public Health Services (“PHS”) drug pricing program, which provides drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers in an outpatient setting.
In addition, beginning in calendar 2011, we may incur our share of a new fee assessed on all branded prescription drug manufacturers and importers. This feeexpect will be calculated based upon VIVITROL’s percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare, Medicaid and Veterans’ Administration and Public Health Service discount programs) made during the previous year. The aggregated industry-wide fee is expected to total $28 billion through 2019, ranging from $2.5 billion to $4.1 billion annually. Presently, uncertainty exists as many of the specific determinations necessary to implement this new legislation have yet to be decided and communicated to industry participants. For example, determinations as to how the annual fee on branded prescription drugs will be calculated and allocated remain to be clarified, though, as noted above, this provision will not be effective until calendar 2011.
       We expect that during the remainder of fiscal year 2011 and into the future,negatively affect our net sales as a percentage of gross sales, will be negatively affected as a result of certain aspects of the recently enacted healthcare legislation, specifically, the increase in the minimum Medicaid rebates, the expansion of those entities entitled to receive Medicaid rebates based on the use of our product (i.e. managed Medicaid), and the expansion of those entities entitled to purchase our products at a discounted basis under the 340(B)/PHSPublic Health Services drug pricing program. It is possible that the effect of this legislation could further adversely impact our future revenues and werevenues. We are still assessing the full extent of this legislation’s future impact on our business.

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Research and Development Revenue Under Collaborative Arrangements
             
  Three Months Ended Change
  June 30, Favorable/
(In millions) 2010 2009 (Unfavorable)
Research and development revenue under
collaborative arrangements		  $ 0.3   $ 1.5   $ (1.2)
       
       The decrease in research and development revenue under collaborative arrangements for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, was primarily due to the decision made by our collaborative partner, Johnson & Johnson Pharmaceutical Research and Development, L.L.C. (“J&JPRD”) in August 2009 not to pursue further development of a four week formulation of RISPERDAL CONSTA. The four week RISPERDAL CONSTA program contributed $1.1 million of revenue during the three months ended June 30, 2009.
Net Collaborative Profit
             
  Three Months Ended Change
  June 30, Favorable/
(In millions) 2010 2009 (Unfavorable)
Net collaborative profit  $ -     $ 4.3   $ (4.3)
       
     Net collaborative profit for the threenine months ended June 30,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 their share of estimated VIVITROL losses during the one-year period following the termination of the VIVITROL collaboration in December 2008. We initially recorded the $11.0 million as deferred revenue and recognized it as revenue through the application of a proportional performance model based on VIVITROL losses. The $11.0 million payment was fully recognized as revenue during the six months ended September 30, 2009.
Cost of Goods Manufactured and Sold
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Cost of goods manufactured and sold:  
RISPERDAL CONSTA  $ 10.4   $ 9.7   $ (0.7) $9.5 $8.4 $(1.1) $31.2 $30.2 $(1.0)
VIVITROL 1.7 2.0 0.3  2.4 1.1  (1.3) 6.4 5.7  (0.7)
Polymer 0.6 1.0 0.4  1.0 0.6  (0.4) 1.8 1.9 0.1 
                   
Cost of goods manufactured and sold  $ 12.7   $ 12.7   $ (0.0) $12.9 $10.1 $(2.8) $39.4 $37.8 $(1.6)
                   
     The increase in cost of goods manufactured for RISPERDAL CONSTA in the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was primarily due to a 7% increase in the unit cost of RISPERDAL CONSTA28% and an11% increase in the number of units shipped to Janssen, respectively, partially offset by a 12% and 7% decrease in the unit cost of less than 1%.RISPERDAL CONSTA, respectively. The decrease in the unit cost of RISPERDAL CONSTA in the three and nine months ended December 31, 2010, as compared to the three and nine months ended December 31, 2009, was partially due to a decrease in costs incurred for scrap of $0.9 million and $1.9 million, respectively.
     The increase in cost of goods manufactured and sold for VIVITROL in the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was primarily due to a $1.0 million reduction in costs incurred for failed batches55% and costs related to the restart of the manufacturing line, partially offset by a 32%12% increase in the number of units sold out of the sales channel. Includeddistribution channel, respectively. Also included in cost of goods manufactured and sold for VIVITROL duringin the three and nine months ended June 30,December 31, 2010 are idle capacity charges of $0.5$0.4 million which isand $1.8 million, respectively, that are the result of managing VIVITROL inventory levels and reducing manufacturing output. No idle capacity charges were incurred during the three and nine months ended December 31, 2009. These increases to cost of goods manufactured and sold for VIVITROL were partially offset by a decrease in the amounts incurred for scrap of $0.1 million and $1.9 million in the three and nine months ended December 31, 2010, as compared to the three and nine months ended December 31, 2009, respectively.
The decreaseincrease in the cost of goods manufactured for polymer in the three months ended June 30,December 31, 2010, as compared to the three months ended June 30,December 31, 2009, was due to a $0.3 million increase in costs incurred for scrap and $0.3 million in idle capacity charges, partially offset by a 62% decrease in the amount of polymer shipped to Amylin. The decrease in the cost of goods manufactured for polymer in the nine months ended December 31, 2010, as compared to the nine months ended December 31, 2009, was primarily due to a 35%39% decrease in the amount of polymer shipped to Amylin.

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Research and Development Expense
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Research and development  $ 23.0   $ 25.6   $ 2.6  $22.5 $22.6 $0.1 $69.4 $68.8 $(0.6)
                   
     The decrease inamount of research and development (“R&D”) expensesexpense did not materially change in the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was primarily due to savingsalthough the composition of the expense has changed. We saved $4.6 million and $19.4 million in the three and nine months

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ended December 31, 2010, respectively, in relocation and occupancy expenses as a result of the relocation of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts. The moveMassachusetts, which was substantially completed during the fourth quarter of fiscal year 2010. DueIn the three and nine months ended December 31, 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 relocation, we incurred approximately $8.0 million of expense in the three and nine months ended June 30, 2009 due to the acceleration of depreciation on laboratory related leasehold improvements and the write-down of laboratory equipment located at our Cambridge facility. This decrease in expense was partially offset by a $3.3 millionDecember 31, 2009. The increase in internal clinical and preclinical study, expenselaboratory and a $1.5 millionlicense and collaboration expenses is due to an increase in reimbursementsthe number of ongoing studies and clinical trials. The increase in employee related expense is primarily due to our collaborative partners duringan 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 three months ended June 30, 2010.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 approval of VIVITROL for opioid dependence.
     A significant portion of our research and developmentR&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 developmentR&D activities are tracked by project and may be reimbursed to us by our partners. We account for our research and developmentR&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                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Selling, general and administrative  $ 19.7   $ 19.3   $ (0.4) $20.5 $17.7 $(2.8) $58.7 $57.6 $(1.1)
                   
     Selling,The increase in selling, general and administrative (“SG&A”) costsexpense for the three and nine months ended June 30,December 31, 2010, increased slightlyas compared to the three and nine months ended June 30,December 31, 2009, was primarily due primarily to a $1.0 million increase in labor and benefit costs, an increase in occupancy costs allocated to SG&Ashare-based compensation of $0.5 million. These increases were partially$1.7 million and $2.1 million, respectively, and marketing expenses of $1.2 million and $2.0 million, respectively, offset by a decreasereduction in the use of professional services of $1.2$1.0 million whichand $4.4 million, respectively. The increase in share-based compensation is primarily 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 marketing expenses is primarily due to costs incurred leading up to the launch of VIVITROL for opioid dependence, and the decrease in professional services is primarily due to start-up costs related to the commercialization of VIVITROL during the three months ended June 30, 2009,in fiscal year 2010 that were not incurred during the three months ended June 30, 2010.fiscal year 2011.
Other Expense,Income (Expense), Net
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Interest income  $ 0.8   $ 1.6   $ (0.8) $0.7 $1.0 $(0.3) $2.2 $3.7 $(1.5)
Interest expense  (1.1)  (1.7) 0.6  —  (1.4) 1.4  (3.3)  (4.7) 1.4 
Other expense, net  (0.1)  (0.1) -     (0.1)  (0.2) 0.1  (0.3)  (0.3) — 
                   
Total other expense, net  $ (0.4)  $ (0.2)  $ (0.2)
Total other income (expense), net $0.6 $(0.6) $1.2 $(1.4) $(1.3) $(0.1)
                   
     The decrease in interest income for the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was due to a lower average balance of cash and investments as well as lower interest rates earned.investments. The decrease in interest expense forin the three and nine months ended June 30,December 31, 2010, as compared to the three and nine months ended June 30,December 31, 2009, was due to the resultearly redemption of a lower outstanding principal balance on our non-recourse 7% Notes as we began making scheduled quarterly principal payments on April 1, 2009. On July 1, 2010, we redeemed the non-recourse 7% Notes in full and, as2010. As a result of this transaction, we will incur approximatelyrecorded charges of $1.4 million relating to the write-off of the unamortized portion of deferred financing costs and $0.8 million in additional interest expense in the three months ended September 30, 2010 primarily related to the premium paid on the redemption of the non-recourse 7% Notes. We expect to save $3.2 million in interest and accretion expense through the previously scheduled maturity date of January 1, 2012 as a result of redeeming the non-recourse 7% Notes on July 1, 2010.

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expense related to the non-recourse 7% Notes during the remainder of fiscal year 2011.
Income Tax BenefitTaxes
        
 Three Months Ended Change                        
 June 30, Favorable/ Three Months Ended December 31, Nine Months Ended December 31, 
(In millions) 2010 2009 (Unfavorable) 2010 2009 Change 2010 2009 Change 
Income tax benefit  $ (0.1)  $ (0.1)  $ -   
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, 2010, respectively. 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 our 2010 alternative minimum tax (“AMT”) net operating loss (“NOL”) carryback and will allow us to recover AMT paid in the carryback period. The tax benefit was recorded as 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 June 30, 2010, primarily related to our recognition of $0.3 million of income tax expense recorded as a discrete item within other comprehensive loss associated with the increase in the value of certain securities that we carried at fair market value. The income tax benefit of $0.1 million for the three months ended June 30,December 31, 2009, respectively, represented the amount we estimated we would benefit from theHousing and Economic Recovery Act of 2008.2008.
Liquidity and Capital Resources
     Our financial condition is summarized as follows:
                
 June 30, March 31, December 31, March 31, 
(In millions) 2010 2010 2010 2010 
Cash and cash equivalents  $ 90.0   $ 79.3  $38.9 $79.3 
Investments — short-term 202.2 202.1  138.5 202.1 
Investments — long-term 36.3 68.8  107.6 68.8 
         
Total cash, cash equivalents and investments  $ 328.5   $ 350.2  $285.0 $350.2 
         
Working capital  $ 271.5   $ 247.1  $194.2 $247.1 
Outstanding borrowings — current and long-term  $ 44.8   $ 51.0  $— $51.0 
     Our cash flows for the threenine months ended June 30,December 31, 2010 and 2009 were as follows:
                
 Three Months Ended Nine Months Ended 
 June 30, December 31, 
(In millions) 2010 2009 2010 2009 
Cash and cash equivalents, beginning of period  $ 79.3   $ 86.9  $79.3 $86.9 
Cash (used in) operating activities  (13.0)  (15.6)  (14.2)  (12.3)
Cash provided by (used in) investing activities 29.0  (18.0)
Cash provided by investing activities 17.2 19.5 
Cash (used in) financing activities  (5.3)  (8.4)  (43.4)  (20.2)
         
Cash and cash equivalents, end of period  $ 90.0   $ 44.9  $38.9 $73.9 
         
     Our primary sourcessource of liquidity areis cash provided by operating activities, payments received under R&D arrangementsour cash and other arrangements with collaborators, private placementsinvestment portfolio of debt securities and equipment financing arrangements.$285.0 million at December 31, 2010. The decreaseincrease in cash used in operating activities during the threenine months ended June 30,December 31, 2010, as compared to the threenine months ended June 30, 2009, is primarily due to $2.4 million more in cash collected from our customers during the three months ended June 30, 2010. The increase in cash flows provided by investing activities during the three months ended June 30, 2010, as compared to the three months ended June 30,December 31, 2009, is primarily due to the net conversionredemption of $33.1our non-recourse 7% Notes on July 1, 2010. On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, we 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 our investments to cashthe principal payments made during the threenine months ended June 30,December 31, 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 a net investment of $15.9 million of our cash during the threenine months ended June 30,December 31, 2009.

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     The decrease in cash provided by our investing activities in the nine months ended December 31, 2010, as compared to the nine months ended December 31, 2009, is primarily due to a decrease in the net sales of investments of $11.0 million, partially offset by a decrease in amounts invested in Acceleron.
     The increase in cash flows used in financing activities during the threenine months ended June 30,December 31, 2010, as compared to the threenine months ended June 30,December 31, 2009, is primarily due to the redemption of our non-recourse 7% Notes on July 1, 2010, partially offset by the purchase of $2.5$2.7 million of treasury stock during the threenine months ended June 30,December 31, 2009. During the threenine months ended June 30,December 31, 2010, we did not make any purchases of treasury stock.

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     Our investments at June 30,December 31, 2010 consist of the following:
                                
 Amortized Gross Unrealized Estimated Amortized Gross Unrealized Estimated 
(in millions) Cost Gains Losses Fair Value
(In millions) Cost Gains Losses Fair Value 
Investments — short-term  $ 201.6   $ 0.6   $ -     $ 202.2  $138.1 $0.4 $— $138.5 
Investments — long-term available-for-sale 31.7 0.5  (1.8) 30.4  102.9 0.2  (1.3) 101.8 
Investments — long-term held-to-maturity 5.9 -   -   5.9  5.9 — — 5.9 
                 
Total  $ 239.2   $ 1.1   $ (1.8)  $ 238.5  $246.9 $0.6 $(1.3) $246.2 
                 
     Our investment objectives are, first, to preserve liquidity and conserve capital and, second, to generate investment income. We mitigate credit risk into our cash reservesinvestments by maintaining a well diversifiedwell-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. However, the value of these securitiesour 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, andwhich are backed by foreign governments, and corporate debt securities. Our held-to-maturity investments consist of investmentssecurities that are restricted and held as collateral under certain letters of credit related to certain of our lease agreements.
     We classify our available-for-sale investments that are in an unrealized loss position which do not mature within 12 months as long-term investments. We have the intent and ability to 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 June 30,December 31, 2010, we performed an analysis of our investments with unrealized losses for impairment and determined that they are temporarily impaired.
     At June 30,December 31, 2010 and March 31, 2010, 3%1% and 4%, respectively, of our investments are valued using unobservable, or Level 3, inputs to determine fair value as they are not actively trading and fair values could not be derived from quoted market prices. These investments consist primarily of a student loan backed auction rate security. During the threenine months ended June 30,December 31, 2010, $5.5$11.0 million of our Level 3 investments were redeemed at par by the issuers.
Borrowings
     At June 30, 2010, ourWe did not have any outstanding borrowings consisted of $44.9 million principal amount of the non-recourse 7% Notes, which had a carrying value of $44.7 million.at December 31, 2010. On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, we redeemed the balance of our non-recourse 7% Notes in full in exchange for $39.2 million, which wasrepresenting 101.75% of the outstanding principal balance in accordance with the provisionsterms of the purchase and sales agreement.Indenture for the non-recourse 7% Notes. We expect to save $3.2 million in interest and accretion expense through the previously scheduled maturity date of January 1, 2012 as a result of redeeming these notes on July 1, 2010.
Contractual Obligations
     Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2010 in the “Contractual Obligations” section for a discussion of our contractual obligations. Our contractual obligations as of June 30,December 31, 2010 were not materially changed from the date of that report. Asreport with the exception of the non-recourse 7% Notes which, as noted in the “Borrowings” section above, wewere redeemed the non-recourse 7% Notes in full on July 1, 2010.

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

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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, 2010 in the “Critical Accounting Estimates” section for a discussion of our critical accounting estimates.
New Accounting Standards
     Refer to New Accounting Pronouncements included in Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Condensed Consolidated Financial Statements for a discussion of new accounting standards.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
     Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2010. We regularly review our marketable securities holdings and shift our investment holdings to those that best meet our investment objectives, which are, first, to 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 threenine months of fiscal year 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, 2010. There has been no material change in our assessment of our sensitivity to foreign currency exchange rate risk during the first threenine months of fiscal year 2011.
Item 4.Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
     Our management, with the participation of our Chief Executive Officer and 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, (the “Exchange Act”)) at June 30,December 31, 2010. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30,December 31, 2010 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”)SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and 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

25

management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
b) Change in Internal Control over Financial Reporting
     During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.II — OTHER INFORMATION
Item 1.Legal Proceedings
     From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We do not believe that we are not aware ofcurrently party to any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations and financial condition.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
     On November 21, 2007, our board of directors authorized a program to repurchase up to $175.0 million of our common stock to be repurchased at the discretion of management from time to time in the open market or through privately negotiated transactions. On June 16, 2008, the board of directors authorized the expansion of this program to $215.0 million. We did not purchase any shares under this program during the quarter ended June 30,December 31, 2010. As of June 30,December 31, 2010, we have purchased a total of 8,866,342 shares under this program at a cost of $114.0 million.
     During the three months ended June 30,December 31, 2010, we acquired, by means of net share settlements, 96,44825,022 shares of Alkermes common stock at an average price of $11.38$11.41 per share related to the vesting of employee stock awards to satisfy employee withholding tax obligations.
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 quarter ended June 30,December 31, 2010, Mr. Richard F. Pops, a director and executive officer of the Company, and Ms. Kathryn L. Biberstein, Dr. Elliot Ehrich, and Mr. Michael J. Landine, eachJames M. Frates, an executive officer of the Company, entered into a trading plansplan in accordance with Rule 10b5-1, and the Company’s policy governing transactions in its securities by its directors, officers and employees. The Company undertakes no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.
Item 6. ExhibitsExhibits
    (a) List of Exhibits:
   
Exhibit  
No.  
31.1 Rule 13a-14(a)/15d-14(a) Certification (filed(furnished herewith).
31.2 Rule 13a-14(a)/15d-14(a) Certification (filed(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 June 30,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).

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
 ALKERMES, 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  
  Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 		 
 
Date: August 6, 2010February 3, 2011

28

EXHIBIT INDEX
Exhibit
No
31.1Rule 13a-14(a)/15d-14(a) Certification (filed herewith).
31.2Rule 13a-14(a)/15d-14(a) Certification (filed herewith).
32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101The following materials from Alkermes, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text (furnished herewith).