Alkermes, Inc. (the “Company” or “Alkermes”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. The Company developed, manufacturesis headquartered in Waltham, Massachusetts and commercializes VIVITROL for alcohol dependencehas a research facility in Massachusetts and manufactures RISPERDAL CONSTA for schizophreniaa commercial manufacturing facility in Ohio. The Company leverages its formulation expertise and bipolar I disorder.proprietary product platforms to develop, both with partners and on its’ own, innovative and competitively advantaged medications that can enhance patient outcomes in major therapeutic areas. 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.

     On May 9, 2011, the Company and Elan Corporation, plc (“Elan”), a public limited company incorporated in Ireland, announced the signing of a definitive Business Combination Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Alkermes and the global drug delivery technologies business of Elan, known as Elan Drug Technologies (“EDT”) will be combined under Antler Science Two plc, a new holding company incorporated in Ireland that was incorporated as a private limited company and re-registered as a public limited company on July 25, 2011, and which will be renamed Alkermes plc, at or prior to the completion of the business combination (“New Alkermes”). Following the completion of the merger, a wholly owned subsidiary of Elan will own 31.9 million ordinary shares of New Alkermes (approximately 25% of the company), subject to the terms of a shareholder’s agreement to be entered into at the effective time of the merger by and among such Elan subsidiary, New Alkermes, and Elan, and the Company’s former shareholders will own the remaining shares of New Alkermes (approximately 75% of the company). As an additional payment for EDT, Alkermes will also pay Elan $500 million in cash, subject to certain net cash and working capital adjustments. The Company has obtained a commitment from Morgan Stanley & Co. Incorporated, (“Morgan Stanley”), and HSBC Securities (USA) Inc. (“HSBC”) to provide up to $450 million in term loan financing which, in addition to existing cash and investment balances, will comprise the cash consideration to Elan. Under the terms of the shareholder’s agreement and subject to certain conditions, upon the closing of the merger, Elan will have the right to designate one person for election to the New Alkermes board of directors, will agree to vote in a manner consistent with the recommendations of the New Alkermes board of directors, and will be subject to a standstill provision and certain other restrictions on its ability to transfer New Alkermes ordinary shares without the consent of New Alkermes. This transaction, which has been approved by our board of directors and the board of directors of Elan, is headquartered in Waltham, Massachusettssubject to customary closing conditions including approval of our shareholders and has a research facility in Massachusetts and a commercial manufacturing facility in Ohio.customary regulatory approvals.

     The accompanying condensed consolidated financial statements of Alkermes for the three months ended June 30, 20102011 and 20092010 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, 2010.2011. 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, 2010,2011, as amended, filed with the Securities and Exchange Commission (“SEC”)(SEC).

     Principles of Consolidation— The condensed consolidated financial statements include the accounts of Alkermes, Inc. and its wholly-owned subsidiaries: Alkermes Controlled Therapeutics, Inc.; and 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’sour condensed consolidated financial statements in conformityaccordance with GAAP necessarily requires management to make estimates, judgments, and assumptions that may affect the following: (1) reported amounts of assets, liabilities, revenues and liabilities; (2)expenses, and related disclosure of contingent assets and liabilities atliabilities. On an on-going basis, the dateCompany evaluates its estimates and judgments and methodologies, including those related to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of long-lived assets, share-based compensation, income taxes including the condensed consolidated financial statements;valuation allowance for deferred tax assets, valuation of investments, litigation, and (3)restructuring charges. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the reported amountsresults of revenueswhich form the basis for making judgments about the carrying values of assets and expenses during the reporting period.liabilities. Actual results couldmay differ from these estimates.estimates under different assumptions or conditions.

     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.

     In September 2009, the Emerging Issues Task Force (“EITF”) ofFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) issued accounting guidance related to revenue recognitionor other standard setting bodies that amendsare adopted by 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 estimateCompany as of the selling price for an undelivered item when there is no other means to determinespecified effective date. Unless otherwise discussed, the fair value of that undelivered item. Accounting guidance previously requiredCompany believes 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 standardrecently issued standards that are not yet effective will not have a material impact on its consolidated financial statements. Early adoption is permitted; however, adoptionposition or results 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 ofoperations upon adoption.

     In January 2010, the FASBCompany adopted accounting guidance issued accounting guidanceby the FASB 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 reasonsIn addition, effective for the transfers. In addition,Company on April 1, 2011, this guidancestandard further requires a reportingan entity to present separatelydisaggregated information about purchases, sales issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3. This accounting standard was effective for interim and annual reporting periods beginning after December 31, 2009, other than for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 31, 2010 and for interim periods within those fiscal years. The Company adopted all provisionsmeasurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, the adoption 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, itnewly issued accounting standard did not have an effect uponimpact the Company’s financial position or results of operations. The

     On April 1, 2011, the Company does not expectprospectively adopted the adoption of the remaining provisions of this amendment to have a significant impact on its consolidated financial statements.

     Milestone payments received prior to April 1, 2011 will requirefrom arrangements where the Company to apply this guidance retrospectively effective ashas continuing performance obligations have been deferred and are recognized through the application of April 1, 2010, and will require disclosurea proportional performance model where the milestone is recognized over the related performance period or, in full, when there are no remaining performance obligations. The Company makes its best estimate of the effectperiod of this guidance as applied to all previously reported interim periods intime for the fiscal year of adoption.performance period. The Company planswill continue 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.recognize milestones payments

     Basic loss per common share is calculated based upon net loss available to holders of common shares divided by the weighted average number of shares outstanding. For the three months ended June 30, 2010 and 2009, as the Company was in a net loss position, the diluted loss per share does not assume conversion or exercise of stock options and awards as they would have an anti-dilutive effect on loss per share. Therefore, the weighted average of basic and diluted voting shares of common stock outstanding for the three months ended June 30, 2010 and 2009 were 95,326,137 and 94,883,071, respectively.

     Investments consist of the following:

     The proceeds from the sales and maturities of marketable securities, excluding strategic equity investments, which were primarily reinvested and resulted in realized gains and losses, were as follows:

     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:

     There were no transfers or reclassifications of any securities between Level 1 and Level 2 during the three months ended June 30, 2010.2011. The following table illustrates the rollforward of the fair value of the Company’s investments whose fair value is determined using Level 3 inputs:

     Substantially all of the Company’s corporate debt securities have been classified as Level 2. 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’s Level 3 investment at June 30, 2011 consists of one corporate debt security. 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.this security. The assumptions used in the discounted cash flow model includeincluded 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 7% Notes 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.

     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:

     At June 30, 20102011 and March 31, 2010, $0.62011, $0.5 million and $0.5$0.6 million, respectively, of share-based compensation cost was capitalized and recorded as Inventory in the condensed consolidated balance sheets.

     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 three months ended June 30, 20102011 was as follows:

     At June 30, 20102011 and March 31, 2010,2011, the restructuring liability related to the 2008 Restructuring consists of $0.6$0.7 million classified as current and $3.0$2.3 million and $2.5 million classified as long-term, respectively, in the accompanying

     The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 53 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 for the year ended March 31, 2011, as amended, 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 for the prevention of relapse to opioid dependence following opioid detoxification 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.diabetes. 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 collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our proprietary product platforms. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products.

     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-looking terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue” or other similar words. These statements discuss future expectations; contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward looking information. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding:

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:

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 March 2010, theThe FDA approved a Risk Evaluation and Mitigation Strategy (“REMS”), for VIVITROL that consists of a Medication Guide and other customary REMS assessment requirements.

     In November 2009,July 2011, we announced positive preliminary resultsthe initiation of the VICTORY study (VIVITROL’s Cost and Treatment Outcomes Registry), an observational, open-label, multi-center registry of approximately 500 opioid dependent patients treated with VIVITROL. The study is designed to evaluate and describe characteristics of patients receiving VIVITROL in real-world clinical practice; assess clinical, health economic and health-related quality of life outcomes and provide additional data to inform future research on VIVITROL. Data readouts 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 patientswill be reported 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.

     We are collaborating with Amylin on the development of a once weekly formulation of exenatide, called BYDUREON, for the treatment of type 2 diabetes. BYDUREON is ana long-acting 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.