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

     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:

 

     The accompanying condensed consolidated financial statements of Alkermes, Inc. (the “Company” or “Alkermes”)the Company for the three and sixnine months ended September 30,December 31, 2008 and 2007 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, 2008. 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, 2008, as 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 “7% Notes”). Intercompany accounts and transactions have been eliminated.

     Use of Estimates—

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

     In November 2007, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a final consensus on EITF Issue No. 07-1,“Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”(“EITF No. 07-1”). EITF No. 07-1 is effective for the Company’s fiscal year beginning April 1, 2009. Adoption is on a retrospective basis to all prior periods presented for all collaborative arrangements existing as of the effective date. The Company is currently evaluating the impact of the adoption of EITF No. 07-1 on its consolidated financial statements.

     In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”)SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities”(“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for the Company’s fiscal year beginning April 1, 2009, and the Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

     The Company’s available-for-sale investments are carried at fair value in the Company’s condensed consolidated balance sheets and include U.S. government and agency debt securities, investment grade corporate debt securities, including asset backed debt securities and student loan backed auction rate securities, and strategic equity investments, which are investments in certain publicly traded companies. The Company’s held-to-maturity securities are carried at amortized cost and include U.S. government debt securities and corporate debt securities that are restricted and held as collateral under certain letters of credit related to certain of the Company’s lease agreements.

     At September 30,December 31, 2008, the Company had gross unrealized gains of $2.3$4.0 million and gross unrealized losses of $3.5$5.8 million on its available-for-sale investments. The Company believes that the gross unrealized losses on these investments are temporary, and the Company has the intent and ability to hold these securities to recovery, which may be at maturity. For the sixnine months ended September 30,December 31, 2008, the Company recognized $0.6$1.2 million in charges for other-than-temporary losses on its strategic equity investments.

     At September 30,December 31, 2008, the Company had $10.0 million in investments in auction rate securities with an unrealized loss of $0.7$1.1 million. The securities represent the Company’s investment in taxable student loan revenue bonds issued by state higher education authorities which service student loans under the Federal Family Education Loan Program. The bonds were triple A rated at the date of purchase and are collateralized by student loans purchased by the authorities, which are guaranteed by state sponsored agencies and reinsured by the U.S. Department of Education. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals. Each of these securities had been subject to auction processes for which there had been insufficient bidders on the scheduled auction dates and the auctions subsequently failed. The Company is not able to liquidate its investments in auction rate securities until future auctions are successful, a buyer is found outside of the auction process or the bonds are redeemed by the issuer. The securities continue to pay interest at predetermined interest rates during the periods in which the auctions have failed. At September 30,December 31, 2008, the Company determined that the securities were temporarily impaired due to the length of time each security was in an unrealized loss position, the extent to which fair value was less than cost, the financial condition and near term prospects of the issuers and the guarantee agencies, and the Company’s intent and ability to hold each security for a period of time sufficient to allow for any anticipated recovery in fair value.

     At September 30,December 31, 2008, the Company had $8.2$7.5 million in investments in asset backed debt securities with an unrealized loss of $0.9 million. The securities represent the Company’s investment in investment grade medium term floating rate notes (“MTN”) of Aleutian Investments, LLC (“Aleutian”) and Meridian Funding Company, LLC (“Meridian”), which are qualified special purpose entities (“QSPE’s”) of Ambac Financial Group, Inc. (“Ambac”) and MBIA, Inc. (“MBIA”), respectively. Ambac and MBIA are guarantors of financial obligations and are referred to as monoline financial guarantee insurance companies. The QSPE’s, which purchase pools of assets or securities and fund the purchase through the issuance of MTN’s, have been established to provide a vehicle to access the capital markets for asset backed debt securities and corporate borrowers. The MTN’s include sinking fund redemption features which match-fund the terms of redemptions to the maturity dates of the underlying pools of assets or securities in order to mitigate potential liquidity risk to the QSPE’s. At September 30,December 31, 2008, a substantial portion of the Company’s initial investment in the Meridian MTN’s had been redeemed by MBIA thoughthrough scheduled sinking fund redemptions at par value, and the first sinking fund redemption on the Aleutian MTN is scheduled for June 2009.

     The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets, and the exposure of these securities to the financial condition of monoline financial guarantee insurance companies, including Ambac and MBIA. In June 2008, Ambac had its triple A rating reduced to Aa3 by Moody’s and double A byin November, Moody’s further downgraded Ambac’s rating to Baa1 with a developing outlook. Standard and Poor’s (“S&P”), reduced Ambac’s rating to double A in June 2008 and in August 2008, affirmed its double A rating with a negative outlook. In June 2008, MBIA was downgraded from triple A to A2 by Moody’s and in September Moody’s placed MBIA on review for possible downgrade. S&P reduced MBIA’s rating to double A by S&P. Bothin June 2008 and in August 2008, affirmed its double A rating with a negative outlook. All downgrades were due to Ambac’s and MBIA’s inability to maintain triple A capital levels. In August 2008, S&P affirmed its double A ratings of Ambac and MBIA with negative outlook. In September 2008, Moody’s placed Ambac and MBIA on review for possible downgrade. In November 2008, Moody’s announced that it had downgraded Ambac’s rating to Baa1 with a developing outlook.

     The Company may not be able to liquidate its investment in these securities before the scheduled redemptions or until trading in the securities resumes in the credit markets, which may not occur. At September 30,December 31, 2008, the Company determined that the securities had been temporarily impaired due to the length of time each security was in an unrealized loss position, the extent to which fair value was less than cost, the financial condition and near term prospects of the issuers, current redemptions made by one of the issuers and the Company’s intent and ability to hold each security for a period of time sufficient to allow for any anticipated recovery in fair value or until scheduled redemption.

     Effective April 1, 2008, the Company implemented SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position and results of operations. In accordance with the provisions of FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), the Company has elected to defer implementation of SFAS No. 157 as it relates to non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until April 1, 2009. The Company is evaluating the impact, if any, this standard will have on its non-financial assets and liabilities.

     SFAS No. 157 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, SFAS No. 157 permits the use of various valuation approaches, including market, income and cost approaches. SFAS No. 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. In October 2008, the FASB issued FASB Staff Position FAS 157-3“Determining the Fair Value of a Financial Asset When the Market for that Asset is not Active”(“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 iswas effective for the Company’s condensed consolidated financial statements for the three and six monthsquarter ended September 30, 2008. The adoption of this standard did not have a material impact on the consolidated financial statements.

     The fair value hierarchy is broken down into three levels based on the reliability of inputs. The Company has categorized its cash, cash equivalents and investments within the hierarchy as follows:

     The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30,December 31, 2008, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

     The fair values of the Company’s investments in asset backed debt securities and auction rate securities are determined using certain inputs that are unobservable and significant to the overall fair value measurement. Typically, auction rate securities trade at their par value due to the short interest rate reset period and the availability of buyers or sellers of the securities at recurring auctions. However, since the security auctions have failed and fair value cannot be derived from quoted prices, the Company used a discounted cash flow model to determine the estimated fair value of its investments in auction rate securities at September 30,December 31, 2008. The Company also used a discounted cash flow model to determine the estimated fair value of its investments in asset backed debt securities at September 30,December 31, 2008, as the asset backed debt securities are not actively trading. The assumptions used in the discounted cash flow models used to determine the estimated fair value of these securities include estimates for interest rates, timing of cash flows, expected holding periods and risk adjusted discount rates, which include a provision for default and liquidity risk. The Company’s valuation analyses consider, among other items, assumptions that market participants would use in their estimates of fair value, such as the collateral underlying the security, the inability to sell the investment in an active market, the creditworthiness of the issuer and any associated guarantees, the timing of expected future cash flows, and the expectation of the next time the security will have a successful auction or when callability features may be exercised by the issuer. These securities were also compared, where possible, to other observable market data with similar characteristics.

     The following table is a rollforward of the fair value of the Company’s investments in asset backed debt securities and auction rate securities whose fair value is determined using Level 3 inputs:

     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:

     Share-based compensation expense for the three and sixnine months ended September 30,December 31, 2008 and 2007 is as follows:

     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 disease. The Company’s chief decision maker, the Chief Executive Officer, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.

     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^® for alcohol dependence and manufacture RISPERDAL^® CONSTA^® for schizophrenia and developed and manufacture VIVITROL^® for alcohol dependence.schizophrenia. Our robust pipeline includes extended-release injectable, pulmonary and oral products for the treatment of prevalent, chronic diseases, such as central nervous system disorders, addiction and diabetes. Headquartered in Cambridge, Massachusetts, we have research and manufacturing facilities in Massachusetts and a commercial manufacturing facility in Ohio.

     Any statements herein or otherwise made in writing or orally by us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements concerning future operating results, the achievement of certain business and operating goals, manufacturing revenues, researchproduct sales and development spending,royalty revenues, plans for clinical trials, and regulatory approvals and manufacture and commercialization of products and product candidates, spending relating to research and development, manufacturing, and selling and marketing and clinical development activities, financial goals and projections of capital expenditures, recognition of revenues, and future financings. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words like “believe,” “expect,” “designed,” “may,” “will,” “should,” “seek,” or “anticipate,” and similar expressions.

     Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, the forward-looking statements contained in this document are neither promises nor guarantees, and our business is subject to significant risk and uncertainties and there can be no assurance that our actual results will not differ materially from our expectations. These forward looking statements include, but are not limited to, statements concerning: the achievement of certain business and operating milestones and future operating results and profitability; continued revenue growth fromof RISPERDAL CONSTA;CONSTA sales; the commercialization of VIVITROL in the United States (“U.S.”) by Cephalonus and in Russia and countries in the Commonwealth of Independent States (“CIS”) by Cilag GmbH International (“Cilag”), a subsidiary of Johnson & Johnson; recognition of milestone payments from our partnersCilag related to the future sales of VIVITROL; the successful continuation of development activities for our programs, including exenatide once weekly, a four-week formulation of RISPERDAL CONSTA, VIVITROL for opiate dependence, ALKS 27, ALKS 29 and ALKS 33; the timeline for the NDA submission for exenatide once weekly; the successful manufacture of our products and product candidates, including RISPERDAL CONSTA and VIVITROL, by us at a commercial scale, and the successful manufacture of exenatide once weekly by Amylin Pharmaceuticals, Inc. (“Amylin”); and theour building of a selling and marketingsuccessful commercial infrastructure for VIVITROL. Factors which could cause actual results to differ materially from our expectations set forth in our forward-looking statements include, among others: (i) manufacturing and royalty revenues from RISPERDAL CONSTA may not continue to grow, particularly because we rely on our partner, Janssen Pharmaceutica, Inc., a division of Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International (together, “Janssen”), to forecast and market this product; (ii) we may be unable to manufacture RISPERDAL CONSTA and VIVITROL in sufficient quantities and with sufficient yields to meet our partners’ requirements or to add additional production capacity for RISPERDAL CONSTA and VIVITROL, or unexpected events could interrupt manufacturing operations at our RISPERDAL CONSTA and VIVITROL manufacturing facility, which is the sole source of supply for these products; (iii) we may be unable to develop the selling and marketingcommercial capabilities, and/or infrastructure, necessary to successfully commercialize VIVITROL; (iv) Cilag may be unable to receive approval for VIVITROL for the treatment of opioid dependence in Russia and for the treatment of alcohol and opioid dependence in the other countries in the CIS; (v) Cilag may be unable to successfully commercialize VIVITROL; (vi) third party payors may not cover or reimburse VIVITROL; (vii) we may be unable to scale-up and manufacture our product candidates commercially or

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; (xvii) after the completion of clinical trials for our product candidates, andincluding exenatide once weekly, or after the submission for marketing approval of such product candidate, the FDA or other health authorities could refuse to accept such filings, or could request additional preclinical or clinical studies be conducted eachor request a safety monitoring program, any of which could result in significant delays or the failure of such product to receive marketing approval; (xviii) even if our product candidates appear promising at an early stage of development, product candidates could fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical, fail to achieve market acceptance, be precluded from commercialization by proprietary rights of third parties or experience substantial competition in the marketplace; (xix) technological change in the biotechnology or pharmaceutical industries could render our products and/or product candidates obsolete or non-competitive; (xx) difficulties or set-backs in obtaining and enforcing our patents and difficulties with the patent rights of others could occur; (xxi) we may incur losses in the future; (xxvi) we may need to raise substantial additional funding to continue research and development programs and clinical trials and other operations and could incur difficulties or setbacks in raising such funds;funds, which may be further impacted by current economic conditions and the lack of available credit sources; (xxii) we may not be able to liquidate or otherwise recoup our investments in our asset backed debt securities and auction rate securities.

     The forward-looking statements made in this document are made only as of the date hereof and we do not intend to update any of these factors or to publicly announce the results of any revisions to any of our forward-looking statements other than as required under the federal securities laws.

     We leverage our unique formulation expertise and drug development technologies to develop, both with partners and on our own, innovative and competitively advantaged drug products that enhance patient outcomes in major therapeutic areas. We develop our own proprietary therapeutics by applying our innovative formulation expertise and drug development capabilities to create new pharmaceutical products. In addition, we enter into select collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our technologies. In addition, we develop our own proprietary therapeutics by applying our innovative formulation expertise and drug development capabilities to create new pharmaceutical products. Each of these approaches is discussed in more detail below.

     In July 2008, we announced that our partner J&JPRD submitted a sNDA for RISPERDAL CONSTA to the FDA for approval as monotherapy in the maintenance treatment of bipolar I disorder to delay the time to occurrence of mood episodes in adults. Bipolar disorder is a brain disorder that causes unusual shifts in a person’s mood, energy and ability to function. Characterized by debilitating mood swings, from extreme highs (mania) to extreme lows (depression), bipolar I disorder affects an estimated 5.7 million, or 2.6 percent, of the American adult population in any given year.

     In October 2008, the FDA approved the deltoid muscle of the arm as a new injection site for RISPERDAL CONSTA. RISPERDAL CONSTA was previously approved as a gluteal injection only.

     We developed VIVITROL, an extended-release Medisorb formulation of naltrexone, for the treatment of alcohol dependence in patients who are able to abstain from drinking in an outpatient setting and are not actively drinking prior to treatment initiation. Alcohol dependence is a serious and chronic brain disease characterized by cravings for alcohol, loss of control over drinking, withdrawal symptoms and an increased tolerance for alcohol. Adherence to medication is particularly challenging with this patient population. In clinical trials, when used in combination with psychosocial support, VIVITROL was shown to reduce the number of drinking days and heavy drinking days and to prolong abstinence in patients who abstained from alcohol the week prior to starting treatment. Each injection of VIVITROL provides medication for one month and alleviates the need for patients to make daily medication dosing decisions. VIVITROL was approved by the FDA in April 2006 and was launched in June 2006. Cephalon is primarily responsible for marketing VIVITROL in the U.S. We are the exclusive manufacturer of VIVITROL.

     We are collaborating with Amylin on the development of exenatide once weekly for the treatment of type 2 diabetes. Exenatide once weekly is an injectable formulation of Amylin’s BYETTA^® (exenatide) which is an injection administered twice daily. Diabetes is a disease in which the body does not produce or properly use insulin. Diabetes can result in serious health complications, including cardiovascular, kidney and nerve disease. BYETTA was approved by the FDA in April 2005 as adjunctive therapy to improve blood sugar control in patients with type 2 diabetes who have not achieved adequate control on metformin and/or sulfonylurea; two 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 thiazolidinedione, a class of diabetes medications. Amylin has an agreement with Eli Lilly and Company (“Lilly”) for the development and commercialization of exenatide, including exenatide once weekly. Exenatide once weekly is being developed with the goal of providing patients with an effective and more patient-friendly treatment option.

     In June 2008, we, Amylin and Lilly announced positive results from a 52-week, open-label clinical study (“DURATION-1 study”) that showed the durable efficacy of exenatide once weekly. At 52 weeks, patients taking exenatide once weekly showed an average A1C improvement of 2 percent and an average weight loss of 9.5 pounds. The study also showed that patients who switched from BYETTA injection after 30 weeks to exenatide once weekly experienced additional improvements in A1C and fasting plasma glucose. Seventy-four74 percent of all patients in the study achieved an endpoint of A1C of 7 percent or less at 52 weeks. Exenatide once weekly was well tolerated, with no major hypoglycemia events regardless of background therapy and nausea was predominantly mild and transient.

     In November 2008, we announced that Amylin had received feedback from the FDA that the data it submitted from itsin vitro in vivocorrelation studies to demonstrate comparability between exenatide once weekly manufactured by Alkermesus in our facility, and used in previous clinical studies, and exenatide once weekly manufactured on a commercial scale in Amylin’s Ohio facility did not meet FDA requirements. Amylin is in active discussions withIn December 2008, the FDA regarding optionsindicated that the ongoing extension of the DURATION-1 study is appropriate to enable a New Drug Application, oruse as the basis for demonstrating comparability between intermediate-scale clinical trial material made in our manufacturing facility and the commercial-scale drug product made at Amylin’s manufacturing facility. The DURATION-1 study is ongoing and results are expected in early calendar 2009. The collaboration is planning to submit an NDA submissionto the FDA by the end of the first half of calendar 2009. If Amylin is requiredAdditional studies designed to initiate a new clinical study,demonstrate the timingsuperiority of the NDA submission would depend on the parameters of the new study, and the submission could be delayed beyond the previously stated filing timeline of by the end of the first half of 2009.exenatide once weekly are ongoing.

     We are developing ALKS 29, an oral compound for the treatment of alcohol dependence. In July 2007, we announced positive preliminary results from a phase 1/2 multi-center, randomized, double-blind, placebo- controlled,placebo-controlled, eight-week study that was designed to assess the efficacy and safety of ALKS 29 in approximately 150 alcohol dependent patients. In the study, ALKS 29 was generally well tolerated and led to both a statistically significant increase in the percent of days abstinent and a decrease in drinking compared to placebo when combined with psychosocial therapy. The study endpoints included the percent of day’s abstinent, percent of heavy drinking days and number of drinks per day. Heavy drinking was defined as five or more drinks per day for men and four or

ethanol drinking behavior model in rodents, a well-characterized model for evaluating the effects of potential therapeutics targeting opioid receptors. Results showed that single, oral doses of our novel molecules significantly reduced the ethanol drinking behavior in rodents, with an average reduction from baseline ranging from 35 percent to 50 percent for the proprietary molecules compared to 10 percent for the activenaltrexone control arm (P less than 0.05). Details from an evaluation of thein vivopharmacology, pharmacokinetics andin vitrometabolism were also presented. Data showed that the molecules have improved metabolic stability compared to the activenaltrexone control arm when cultured with human hepatocytes (liver cells), suggesting that they are not readily metabolized by the liver.liver, a unique advantage over existing oral therapies for addiction. Pharmacokinetic results showed that the oral bioavailability of ALKS 33 was significantly greater than that of the active control. We are on track to file our Investigational New Drug Application (“IND”) and begin

     In December 2008, we initiated a phase 1 randomized, double-blind, placebo-controlled study for ALKS 33 in approximately 16 healthy volunteers. The study is designed to assess the pharmacokinetics, safety and tolerability of ALKS 33 following single oral administration at escalating dose levels. Initiation of this trial is based on recent data from preclinical studies that showed ALKS 33 demonstrated statistically superior oral efficacy compared to naltrexone. We expect to report top-line results from the study in healthy volunteers by the endfirst half of calendar 2008.2009.

     The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.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 the 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. ReferExcept as noted in this section, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2008 in the “Critical Accounting Policies” section for a discussion of our critical accounting policies.policies and estimates.

pharmaceutical wholesalers, specialty pharmacies and distributors. We defer the recognition of revenue on shipments of VIVITROL costto our customers until the product has left the distribution channel. We estimate product shipments out of goods manufacturedthe distribution channel through data provided by external sources, including information on inventory levels provided by our wholesalers, distributors and draws down from unearned milestone revenue from Cephalon.specialty pharmacies as well as prescription information.

     Royalty revenues for the three and sixnine months ended September 30,December 31, 2008 and 2007 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. Royalty revenues for the three and sixnine months ended September 30,December 31, 2008 were based on RISPERDAL CONSTA sales of $337.5$318.8 million and $680.7$999.5 million, respectively. Royalty revenues for the three and sixnine months ended September 30,December 31, 2007 were based on RISPERDAL CONSTA sales of $293.6$295.1 million and $572.3$867.4 million, respectively. TheFor the three months ended December 31, 2008, the increase in sales was partially offset by an overall strengthening of RISPERDAL CONSTA for the three and sixU.S. dollar in relation to the foreign currencies of the countries in which the product was sold. For the nine months ended September 30,December 31, 2008, as compared to the three and six months ended September 30, 2007,increase sales was due in part to fluctuations in the exchange ratioan overall weakening of the U.S. dollar andin relation to the foreign currencies of the countries 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.

     WePrior to the termination of the VIVITROL collaboration, Cephalon had paid us an aggregate of $274.6 million in non-refundable milestone payments and we were responsible to fund the first $124.6 million of cumulative net losses incurred on VIVITROL (the “cumulative net loss cap”). VIVITROL reached the cumulative net loss cap in April 2007, at which time Cephalon became responsible to fund all net losses incurred on VIVITROL through December 31, 2007. Beginning January 1, 2008, all net profits or losses earnedincurred on VIVITROL within the collaboration arewere divided between us and Cephalon in approximately equal shares. The net profits earned or losses incurred on VIVITROL are dependent upon end-market sales and on the level of expenditures by both us and Cephalon in developing, manufacturing and commercializing VIVITROL, all of which is subject to change. Gross sales of VIVITROL by Cephalon were $4.7 million and $9.5 million for the three and six months ended September 30, 2008, respectively, and $4.7 million and $8.8 million for the three and six months ended September 30, 2007, respectively. Through September 30, 2008, the cumulative net losses on VIVITROL were $190.7 million, of which $75.9 million was incurred by us on behalf of the collaboration and $114.8 million was incurred by Cephalon on behalf of the collaboration.

     DuringUpon the termination of the VIVITROL collaboration with Cephalon, we received $11.0 million from Cephalon to fund their share of VIVITROL product losses during the one-year period following the Termination Date. We recorded the $11.0 million as deferred revenue and are recognizing it as revenue though the application of a proportional performance model based on VIVITROL net product losses. In the three and six months ended September 30,December 31, 2008, we maderecognized $1.2 million of revenue under proportional performance. In addition, we recognized $120.7 million of net paymentscollaborative profit, consisting of $0.7$113.9 million of unearned milestone revenue that existed at the Termination Date and $6.8 million of deferred revenue. At the Termination Date, we had $22.8 million of deferred revenue related to the original sale of the two partially completed VIVITROL manufacturing lines to Cephalon. We paid Cephalon $16.0 million to Cephalon underacquire the product loss sharing termstitle to these manufacturing lines and accounted for the payment as a reduction to deferred revenue. The remaining $6.8 million of deferred revenue and the arrangement. During$113.9 million of unearned milestone revenue were recognized in the three and six months ended September 30, 2007,December 31, 2008, as we receivedhad no remaining performance obligations to Cephalon and the amounts were nonrefundable. We do not expect to recognize any further net paymentscollaborative profit after the $11.0 million payment has been fully recognized as revenue, which we expect to occur in fiscal year 2010.

     RISPERDAL CONSTA cost of goods manufacturedsold for the three months ended September 30,December 31, 2008 anddecreased, as compared to the three months ended December 31, 2007, was comparable in amount due to a 25% increase in the number of units shipped to Janssen offset by a decrease in the unit cost of RISPERDAL CONSTA shipped, partially offset by an increase in the number of units shipped. The increase in RISPERDAL CONSTA cost of goods manufacturedsold for the sixnine months ended September 30,December 31, 2008, as compared to the sixnine months ended September 30,December 31, 2007, was due to a 16%an increase in units of RISPERDAL CONSTA shipped to Janssen, partially offset by a decrease in the unit cost of RISPERDAL CONSTA shipped.

     VIVITROL cost of goods manufacturedsold for the three months ended September 30,December 31, 2008 consisted of $2.6$1.0 million of expense related to the restart of the VIVITROL manufacturing line following a planned manufacturing shutdown, of the line, $1.1$0.2 million of cost for failed product batches, and $0.3 million for shipmentsoffset by a reduction in cost of goods sold due to the reversal of prior sales of VIVITROL to Janssen-Cilag to supportCephalon of $0.7 million in connection with the commercializationtermination of the VIVITROL in Russia.collaboration with Cephalon. Cost of goods manufacturedsold for VIVITROL for the three months ended September 30,December 31, 2007 consisted of $1.1 million for shipments of VIVITROL to Cephalon and $0.5 million for idle capacity costs, which consisted of current period manufacturing costs related to underutilized VIVITROL manufacturing capacity.

     VIVITROL cost of goods manufacturedsold for the sixnine months ended September 30,December 31, 2008 consisted of $2.6$3.6 million of expense related to the restart of the VIVITROL manufacturing line following a planned shutdown, of the line, $3.3$3.4 million of cost for failed batches, $1.3 million for shipments of VIVITROL to Cephalon, and $0.3 million of shipments to Janssen-Cilag to support the commercialization of VIVITROL in Russia. These costs were partially offset by the reversal of prior sales of VIVITROL to Cephalon of $0.7 million. Cost of goods manufacturedsold for VIVITROL for the sixnine months ended September 30,December 31, 2007 consisted entirely of $1.1 million for shipments of VIVITROL to Cephalon and $2.8 million for idle capacity costs, which consisted of current period manufacturing costs related to underutilized VIVITROL manufacturing capacity.

     The decrease in research and development expenses for the three and six months ended September 30,December 31, 2008, as compared to the three and six months ended September 30,December 31, 2007, was primarily due to the termination of the AIR Insulin development program and the closure of our AIR commercial manufacturing facility in March 2008, (the “2008 Restructuring”). Asand reductions in costs on the exenatide once weekly development program as the program nears the anticipated date of submission of the NDA to the FDA. These reductions were partially offset by increased costs on the ALKS 29 and ALKS 33 programs, which began phase 1 clinical trials in the three months ended December 31, 2008, costs related to the four-week RISPERDAL CONSTA development program, which began phase 1 clinical trials in January 2009, and the VIVITROL opioid dependence development program, in which a result, our personnel-related costs, including share-based compensation expense,multi-center registration study was initiated in June 2008.

     The decrease in research and our facility related costs, including occupancy and depreciation, decreaseddevelopment expenses for the nine months ended December 31, 2008, as compared to the three and sixnine months ended September 30, 2007. In addition,December 31, 2007, was primarily due to the use of raw materials and third party packaging of the clinical drug product used during the developmenttermination of the AIR Insulin development program decreased in March 2008, the three and six months ended September 30, 2008, as compared to the three and six months ended September 30, 2007. Also, no expenses were incurred in fiscal 2009 ontermination of the AIR PTH development program which was terminated duringin the three monthsquarter ended September 30, 2007.2007 and reductions in costs on the exenatide once weekly development program. These reductions were partially offset by increased costs on the ALKS 29, ALKS 33, four-week RISPERDAL CONSTA and the VIVITROL opioid dependence development programs.

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