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 ~~September~~June 30, ~~2009~~2010


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

For the transition period from to

Commission file number 1-14131

ALKERMES, INC.

(Exact name of registrant as specified in its charter)


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

~~88 Sidney~~852 Winter Street, ~~Cambridge,~~Waltham, MA ~~02139-4234~~02451
~~(617) 494-0171~~(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. Yes þ No o

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): Yes oþ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See ~~definition~~the definitions of ~~“accelerated filer and~~” 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.): Yes o No þ

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


	As of ~~November 2,~~August 3,
Class	~~2009~~2010
Common Stock, $.01 par value		~~94,382,663~~95,106,462
Non-Voting Common Stock, $.01 par value		382,632

ALKERMES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

INDEX


		Page No.
*PART I —- FINANCIAL INFORMATION*

Item 1.	Condensed Consolidated Financial Statements:	3
	Condensed Consolidated Balance Sheets — ~~September~~June 30, ~~2009~~2010 and March 31, ~~2009~~2010	3
	Condensed Consolidated Statements of Operations — For the Three ~~and Six~~ Months Ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009	4
	Condensed Consolidated Statements of Cash Flows — For the ~~Six~~Three Months Ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1714
Item 3.	Quantitative and Qualitative ~~Discloures~~Disclosures about Market Risk	2826
Item 4.	Controls and Procedures	2826

*PART II —- OTHER INFORMATION*

Item 1.	Legal Proceedings	3027
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3027
Item 5.	Other Information	27
Item 6.	Exhibits	3027
Signatures		3128
Exhibit Index		32
EX-31.1 ~~Section 302 Certification of CEO~~
EX-31.2 ~~Section 302 Certification of CFO~~
EX-32.1 ~~Section 906 Certification of CEO & CFO~~
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

PART I.1. FINANCIAL INFORMATION

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

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30,			March 31,				June 30,				March 31,
	2009			2009				2010				2010
	(In thousands, except share and per share amounts)							(In thousands, except share and per
								share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	52,992		$	86,893		$		89,994		$		79,324
Investments — short-term		242,098			236,768				202,197				202,053
Receivables		33,699			24,588				24,266				25,316
Inventory		18,524			20,297				20,472				20,653
Prepaid expenses and other current assets		7,856			7,500				10,501				10,936

Total current assets		355,169			376,046				347,430				338,282

PROPERTY, PLANT AND EQUIPMENT, NET		94,467			106,461				97,896				96,905
INVESTMENTS — LONG-TERM		74,435			80,821				36,332				68,816
OTHER ASSETS		3,206			3,158				10,083				11,597

TOTAL ASSETS	$	527,277		$	566,486		$		491,741		$		515,600


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	28,272		$	36,483		$		29,311		$		37,881
Deferred revenue — current		1,880			6,840				1,862				2,220
Non-recourse RISPERDAL^® CONSTA^® secured 7% Notes — current		25,667			25,667
Non-Recourse RISPERDAL^® CONSTA^® Secured 7% Notes — Current									44,750				51,043

Total current liabilities		55,819			68,990				75,923				91,144

NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES — LONG-TERM		37,862			50,221
DEFERRED REVENUE — LONG-TERM		5,115			5,238				5,054				5,105
OTHER LONG-TERM LIABILITIES		6,450			7,149				7,214				6,735

Total liabilities		105,246			131,598				88,191				102,984


COMMITMENTS AND CONTINGENCIES (Note 12)

SHAREHOLDERS’ EQUITY:
Capital stock, par value, $0.01 per share; 4,550,000 shares authorized (includes 3,000,000 shares of preferred stock); none issued		—			—
Common stock, par value, $0.01 per share; 160,000,000 shares authorized; 104,304,607 and 104,044,663 shares issued; 94,384,663 and 94,536,212 shares outstanding at September 30, 2009 and March 31, 2009, respectively		1,042			1,040
Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized; 382,632 shares issued and outstanding at September 30, 2009 and March 31, 2009		4			4
Treasury stock, at cost (9,919,944 and 9,508,451 shares at September 30, 2009 and March 31, 2009, respectively)		(129,431	)		(126,025	)
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	)
Additional paid-in capital		900,076			892,415				915,270				910,326
Accumulated other comprehensive loss		(4,724	)		(6,484	)			(2,898	)			(3,392	)
Accumulated deficit		(344,936	)		(326,062	)			(379,097	)			(365,688	)

Total shareholders’ equity		422,031			434,888				403,550				412,616

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	527,277		$	566,486		$		491,741		$		515,600

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


														Three Months Ended
	Three Months Ended						Six Months Ended							June 30,
	September 30,						September 30,							2010				2009
	2009			2008			2009			2008				(In thousands, except per share
	(In thousands, except per share amounts)													amounts)
REVENUES:
Manufacturing revenues	$	32,835		$	33,039		$	61,639		$	71,649		$		26,891		$		28,804
Royalty revenues		8,818			8,439			17,519			17,020				8,917				8,701
Product sales, net		4,643			—			8,869			—				6,204				4,226
Research and development revenue under collaborative arrangements		1,174			5,252			2,624			36,702				268				1,450
Net collaborative profit		687			581			5,002			1,932				-				4,315

Total revenues		48,157			47,311			95,653			127,303				42,280				47,496

EXPENSES:
Cost of goods manufactured and sold		15,092			12,071			27,758			26,385				12,665				12,666
Research and development		20,664			19,710			46,250			41,971				22,977				25,586
Selling, general and administrative		20,625			11,679			39,893			23,605				19,726				19,268

Total expenses		56,381			43,460			113,901			91,961				55,368				57,520

OPERATING (LOSS) INCOME		(8,224	)		3,851			(18,248	)		35,342
OPERATING LOSS															(13,088	)			(10,024	)

OTHER EXPENSE, NET:
Interest income		1,088			2,693			2,649			6,309				852				1,561
Interest expense		(1,566	)		(4,243	)		(3,275	)		(8,469	)			(1,130	)			(1,709	)
Other expense, net		(67	)		(666	)		(130	)		(830	)			(101	)			(63	)

Total other expense, net		(545	)		(2,216	)		(756	)		(2,990	)			(379	)			(211	)

(LOSS) INCOME BEFORE INCOME TAXES		(8,769	)		1,635			(19,004	)		32,352
(BENEFIT) PROVISION FOR INCOME TAXES		(60	)		(63	)		(130	)		967
LOSS BEFORE INCOME TAXES															(13,467	)			(10,235	)
INCOME TAX BENEFIT															(58	)			(70	)

NET (LOSS) INCOME	$	(8,709	)	$	1,698		$	(18,874	)	$	31,385
NET LOSS													$		(13,409	)	$		(10,165	)


(LOSS) EARNINGS PER COMMON SHARE:
Basic	$	(0.09	)	$	0.02		$	(0.20	)	$	0.33

Diluted	$	(0.09	)	$	0.02		$	(0.20	)	$	0.32
LOSS PER COMMON SHARE:
Basic and diluted													$		(0.14	)	$		(0.11	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic		94,886			95,637			94,830			95,211
Basic and diluted															95,326				94,883

Diluted		94,886			97,356			94,830			96,729

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ALKERMES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended							Three Months Ended
	September 30,							June 30,
	2009			2008				2010				2009
	(In thousands)							(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(18,874	)	$	31,385
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Net loss							$		(13,409	)	$		(10,165	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation		15,482			4,901				2,105				9,948
Share-based compensation expense		7,438			8,309				4,456				3,230
Other non-cash charges		2,093			2,564				146				481
Loss on the purchase of non-recourse RISPERDAL CONSTA secured 7% notes		—			1,989
Changes in assets and liabilities:
Receivables		(9,111	)		2,251				1,050				(3,311	)
Inventory, prepaid expenses and other assets		10			890				2,051				1,167
Accounts payable and accrued expenses		(8,702	)		(10,785	)			(8,202	)			(11,882	)
Unearned milestone revenue		—			(3,039	)
Deferred revenue		(5,083	)		2,092				(409	)			(4,192	)
Other long-term liabilities		(920	)		(1,363	)			4				(427	)
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount		(1,009	)		(4,590	)			(650	)			(485	)

Cash flows (used in) provided by operating activities		(18,676	)		34,604
Cash flows used in operating activities									(12,858	)			(15,636	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(3,885	)		(3,567	)			(4,336	)			(2,099	)
Sales of property, plant and equipment		169			7,717				30				23
Purchases of investments		(295,318	)		(462,412	)			(102,790	)			(203,655	)
Sales and maturities of investments		298,134			463,959				135,917				187,712

Cash flows (used in) provided by investing activities		(900	)		5,697
Cash flows provided by (used in) investing activities									28,821				(18,019	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock for share-based compensation arrangements		183			7,221				474				107
Excess tax benefit from share-based compensation		—			74
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal		(11,824	)		—				(5,767	)			(5,932	)
Purchase of non-recourse RISPERDAL CONSTA secured 7% notes		—			(67,185	)
Payment of capital leases		—			(47	)
Purchase of common stock for treasury		(2,684	)		(13,080	)			-				(2,513	)

Cash flows used in financing activities		(14,325	)		(73,017	)			(5,293	)			(8,338	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(33,901	)		(32,716	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS									10,670				(41,993	)
CASH AND CASH EQUIVALENTS — Beginning of period		86,893			101,241				79,324				86,893

CASH AND CASH EQUIVALENTS — End of period	$	52,992		$	68,525		$		89,994		$		44,900

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest	$	2,784		$	6,662		$		898		$		1,348
Cash paid for taxes	$	53		$	435		$		31		$		-
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses	$	1,967		$	678		$		1,635		$		713
Receipt of Alkermes shares for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards	$	722		$	568

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 manufactures RISPERDAL CONSTA for schizophrenia and bipolar I disorder. The Company’s pipeline includes extended-release injectable and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”), disorders, reward disorders, addiction, diabetes and autoimmune disorders. The Company is headquartered in Waltham, Massachusetts and has a research facility in Massachusetts and a commercial manufacturing facility in Ohio.

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

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

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

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

~~Reclassifications~~— $4.6 million that was previously classified as “Purchase of non-recourse RISPERDAL CONSTA 7% notes” for the six months ended September 30, 2008, was reclassified to “Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount” in the accompanying condensed consolidated statements of cash flows to conform to current period presentation.

~~New Accounting Pronouncements~~

On April 1, 2009, the Company adopted new guidance issued by the Financial Accounting Standards Board (“FASB”) on the accounting for collaborative arrangements. The guidance defined collaborative arrangements and established reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

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

On April 1, 2009, the Company adopted new accounting guidance issued by the FASB on fair value measurements for its nonfinancial assets and liabilities that are subject to measurement at fair value on a non-recurring basis. The adoption of this standard did not impact the Company’s financial position or results of operations; however, this standard may impact the Company in subsequent periods and require additional disclosures. Also, effective April 1, 2009, the Company adopted new accounting guidance issued by the FASB on fair value measurements in determining whether a market is active or inactive and whether third-party transactions with similar assets and liabilities are distressed in determining the fair value of its assets and liabilities measured at fair value on a recurring basis. The adoption of this standard did not impact the Company’s financial position or results of operations.

In June 2009, the FASB issued accounting guidance regarding the accounting for transfers of financial assets that will improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of such a transfer on its financial position, financial performance and cash flows, and provide information as to a transferor’s continuing involvement, if any, in transferred financial assets. The guidance is effective for the Company’s fiscal year beginning April 1, 2010, and the Company does not expect the adoption of this standard to have a significant impact on its financial position or results of operations.

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

In September 2009, the Emerging Issues Task Force (“EITF”) of the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued accounting guidance related to revenue recognition that amends the previous guidance on arrangements with multiple deliverables. ~~This~~The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the ~~arrangements~~arrangement should be separated, and ~~how~~ the ~~consideration should~~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 ~~allocated. It also clarifies~~ the ~~method~~price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to ~~allocate~~determine when the product was not individually sold because of its unique features. Under the previous guidance, if the fair value of all of the elements in the arrangement was not determinable, then revenue ~~in an arrangement using~~was deferred until all of the ~~estimated selling price.~~items were delivered or fair value was determined. This guidance is effective prospectively for revenue arrangements entered into or materially modified in the Company’s fiscal year beginning April 1, 2011, and the Company is currently evaluating the potential impact of this standard on its consolidated financial statements. Early adoption is permitted; however, adoption of this guidance as of a date other than April 1, 2011 will require the Company to apply this guidance retrospectively effective as of April 1, 2010, and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption.

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 separately 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 provisions of this pronouncement, except for those related to the disclosure of disaggregated Level 3 activity, on January 1, 2010, and as this guidance only amends required disclosures in the Company’s condensed consolidated financial statements, it did not have an effect upon the Company’s financial position or results of operations. The Company does not expect the adoption of the remaining provisions of this amendment to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued accounting guidance related to the milestone method of revenue recognition for research and development arrangements. Under this guidance, the Company may recognize revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive. This guidance is effective on a prospective basis for research and development milestones achieved in the Company’s fiscal year beginning April 1, 2011. Early adoption is permitted; however, adoption of this guidance as of a date other than April 1, 2011 will require the Company to apply this guidance retrospectively effective as of April 1, 2010, and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. The Company plans to implement this guidance prospectively and the effect of this guidance will be limited to future transactions. The Company does not expect adoption of this standard to have a ~~significant~~material impact on its financial position or results of operations.

~~2. COMPREHENSIVE (LOSS) INCOME~~

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

Three Months Ended Six Months Ended
September 30 September 30
(In thousands) 2009 2008 2009 2008
Net (loss) income $ (8,709 ) $ 1,698 $ (18,874 ) $ 31,385
Unrealized (losses) gains on available-for-sale securities:
Holding (losses) gains (1) (228 ) (61 ) 1,760 (266 )
Reclassification of unrealized losses to realized losses on available-for-sale securities — 559 — 607

Unrealized (losses) gains on available-for-sale securities (228 ) 498 1,760 341

Comprehensive (loss) income $ (8,937 ) $ 2,196 $ (17,114 ) $ 31,726


~~(1)~~		During the three months ended September 30, 2009, the Company recorded an out of period adjustment of $1.9 million for unrealized losses on available-for-sale securities. This adjustment had no impact on reported net loss.

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

2.COMPREHENSIVE LOSS

Comprehensive loss is as follows:


		Three Months Ended
		June 30,
(In thousands)		2010				2009

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

Comprehensive loss	$		(12,915	)	$		(8,177	)

3. ~~EARNINGS~~LOSS PER SHARE

Basic ~~(loss) earnings~~loss per common share is calculated based upon net ~~(loss) income~~loss available to holders of common shares divided by the weighted average number of shares outstanding. For the ~~calculation of diluted earnings per common share,~~three months ended June 30, 2010 and 2009, as the Company ~~uses~~was in a net loss position, the diluted loss per share does not assume conversion or exercise of stock options and awards as they would have an anti-dilutive effect on loss per share. Therefore, the weighted average ~~number~~of basic and diluted voting shares of common ~~shares~~stock outstanding ~~as adjusted~~ for the ~~effect of potential outstanding shares, including stock options~~three months ended June 30, 2010 and ~~stock awards.~~

~~Basic~~2009 were 95,326,137 and ~~diluted (loss) earnings per common share are calculated as follows:~~

Three Months Ended Six Months Ended
September 30 September 30
(In thousands) 2009 2008 2009 2008
Numerator:
Net (loss) income $ (8,709 ) $ 1,698 $ (18,874 ) $ 31,385

Denominator:
Weighted average number of common shares outstanding 94,886 95,637 94,830 95,211
Effect of dilutive securities:
Stock options — 1,479 — 1,329
Restricted stock units — 240 — 189

Dilutive common share equivalents — 1,719 — 1,518

Shares used in calculating diluted (loss) earnings per share 94,886 97,356 94,830 96,729

94,883,071, respectively.

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


	Three Months Ended				Six Months Ended				Three Months Ended
	September 30				September 30				June 30,
(In thousands)	2009		2008		2009		2008		2010		2009

Stock options		17,821		13,384		17,920		13,858		13,768		17,444
Restricted stock units		407		67		308		—		795		254

Total		18,228		13,451		18,228		13,858		14,563		17,698

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

4.INVESTMENTS

Investments consist of the following:


	Amortized		Gross Unrealized					Estimated						Gross Unrealized
	Cost		Gains		Losses			Fair Value									Losses
			(In thousands)								Amortized						Less than				Greater than				Estimated
September 30, 2009
											Cost			Gains			One Year				One Year				Fair Value
											(In thousands)
June 30, 2010

Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	209,896	$	389	$	—		$	210,285	$		173,578	$		413	$		-		$		-		$		173,991
International government agency debt securities		28,692		148		—			28,840			18,090			172			-				-				18,262
Other debt securities		3,267		—		(294	)		2,973
Corporate debt securities												8,192			63			-				-				8,255
Asset backed debt securities												492			-			-				(4	)			488

												200,352			648			-				(4	)			200,996

Money market funds												1,201			-			-				-				1,201

Total short-term investments		241,855		537		(294	)		242,098			201,553			648			-				(4	)			202,197

Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		17,994		—		(17	)		17,977
Corporate debt securities		43,162		—		(3,162	)		40,000			26,108			-			-				(1,038	)			25,070
Other debt securities		11,510		—		(1,788	)		9,722
Strategic investments		738		142		—			880
Auction rate securities												5,000			-			-				(711	)			4,289
Strategic equity investments												644			472			-				-				1,116

		73,404		142		(4,967	)		68,579			31,752			472			-				(1,749	)			30,475

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

												5,857			-			-				-				5,857

Total long-term investments		79,260		142		(4,967	)		74,435			37,609			472			-				(1,749	)			36,332

Total investments	$	321,115	$	679	$	(5,261	)	$	316,533	$		239,162	$		1,120	$		-		$		(1,753	)	$		238,529


March 31, 2009
March 31, 2010

Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	225,490	$	2,635	$	(6	)	$	228,119	$		160,876	$		204	$		-		$		-		$		161,080
International government agency debt securities												23,441			136			-				(1	)			23,576
Corporate debt securities		8,160		9		—			8,169			15,225			14			-				(2	)			15,237
Other debt securities		500		—		(20	)		480
Asset backed debt securities												983			-			-				(24	)			959

												200,525			354			-				(27	)			200,852

Money market funds												1,201			-			-				-				1,201

Total short-term investments		234,150		2,644		(26	)		236,768			201,726			354			-				(27	)			202,053

Long-term investments:
Available-for-sale securities:
Corporate debt securities												26,109			-			-				(942	)			25,167
U.S. government and agency debt securities		10,149		—		(3	)		10,146			24,727			-			(39	)			-				24,688
Corporate debt securities		57,887		—		(6,326	)		51,561
Other debt securities		16,350		—		(2,683	)		13,667
Strategic investments		738		53		—			791
Auction rate securities												10,000			-			-				(1,454	)			8,546
International government agency debt securities												3,225			-			(2	)			-				3,223
Strategic equity investments												644			691			-				-				1,335

		85,124		53		(9,012	)		76,165			64,705			691			(41	)			(2,396	)			62,959

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

												5,857			-			-				-				5,857

Total long-term investments		89,780		53		(9,012	)		80,821			70,562			691			(41	)			(2,396	)			68,816

Total investments	$	323,930	$	2,697	$	(9,038	)	$	317,589	$		272,288	$		1,045	$		(41	)	$		(2,423	)	$		270,869

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

issuers; and the Company’s intent not to sell these securities and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.

The estimated fair value of these FRN’s could change significantly based on future financial market conditions. These FRN’s held by the Company did not trade either because they were nearing their scheduled call dates or due to abnormally high credit spreads on the debt of the issuers, or both. Similar securitiesCompany’s strategic equity investments include common stock in public companies with which the Company has ~~held have been called~~or had a collaborative arrangement with. The Company also has an $8.0 million investment in a collaborative partner, Acceleron Pharma, Inc. (“Acceleron”), which is recorded within “Other assets” in the accompanying condensed consolidated balance sheets at ~~par by issuers prior to maturity.~~June 30, 2010 and March 31, 2010. 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, market prices of comparable public companies and general market conditions.

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,
(In thousands)		2010			Level 1			Level 2			Level 3

Cash equivalents and money market funds	$		1,301	$		1,301	$		-	$		-
U.S. government and agency debt securities			173,991			173,991			-			-
International government agency debt securities			18,262			18,262			-			-
Corporate debt securities			33,325			-			31,589			1,736
Auction rate securities			4,289			-			-			4,289
Asset backed debt securities			488			-			-			488
Strategic equity investments			1,116			1,116			-			-

Total	$		232,772	$		194,670	$		31,589	$		6,513


		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

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

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


		Fair
(In thousands)		Value

Balance, March 31, 2010	$		11,241
Total unrealized gains included in comprehensive loss			764
Sales and redemptions, at par value			(5,492	)

Balance, June 30, 2010	$		6,513

Substantially all of the Company’s corporate debt securities ~~could decline further resulting~~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 ~~an other-than-temporary impairment charge.~~certain instances and confirming that the relevant markets are active.

The Company’s two investments in auction rate securities consist of taxable student loan revenue bonds issued by the Colorado Student Obligation Bond Authority (“Colorado”), with a cost of $5.0 million, and Brazos Higher Education Service Corporation (“Brazos”), with a cost of $5.0 million, which service student loans under the Federal Family Education Loan Program (“FFELP”). The bonds are collateralized by student loans purchased by the authorities, which are guaranteed by state sponsored agencies and reinsured by the U.S. Department of Education. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals. The Colorado and Brazos securities were rated Aaa and Baa3 by Moody’s, respectively, at September 30, 2009. Due to repeated failed auctions since January 2008, the Company no longer considers these securities to be liquid and has classified them as long-term investments in the condensed consolidated balance sheets. The securities continue to pay interest during the periods in which the auctions have failed.

~~Since the security auctions have failed and fair value cannot be derived from quoted prices, the~~ Company used a discounted cash flow model to determine the estimated fair value of ~~the securities~~its Level 3 investments. The Company’s most significant Level 3 investment at ~~September~~June 30, ~~2009.~~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, ~~that~~which the Company believes to be the most critical assumptions utilized within the analysis. The valuation analysis considers, among other items, assumptions that market participants would use in their estimates of fair value, such as the collateral underlying the security, the creditworthiness of the issuer and any associated guarantees, the timing of expected future cash flows, the timing of, and the likelihood that the security will have a successful auction or when callability features may be exercised by the issuer. ~~These~~The securities were also compared, where possible, to other observable market data with similar characteristics to the securities held by the Company. ~~The Company estimated the fair value of the auction rate securities to be $8.5 million at September 30, 2009.~~

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

At September 30, 2009, the Company’s investments in asset backed debt securities consist of medium term floating rate notes (“MTN”) of Aleutian Investments, LLC (“Aleutian”) and Meridian Funding Company, LLC (“Meridian”), which are qualified special purpose entities (“QSPE’s”) of Ambac Financial Group, Inc. (“Ambac”) and MBIA, Inc. (“MBIA”), respectively. Ambac and MBIA are guarantors of financial obligations and are referred to as monoline financial guarantee insurance companies. The QSPE’s, which purchase pools of assets or securities and fund the purchase through the issuance of MTN’s, have been established to provide a vehicle to access the capital markets for asset backed debt securities and corporate borrowers. The MTN’s include sinking fund redemption features which match-fund the terms of redemptions to the maturity dates of the underlying pools of assets or securities in order to mitigate potential liquidity risk to the QSPE’s. At September 30, 2009, $5.1 million of the Company’s initial $9.9 million investment in MTN’s had been redeemed through scheduled sinking fund redemptions at par value.

The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of monoline financial guarantee insurance companies, including Ambac and MBIA. At September 30, 2009, Ambac had ratings of Caa2 and CC by Moody’s

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

and S&P, respectively, and MBIA had ratings of Ba3 and BB+ by Moody’s and S&P, respectively. Because the MTN’s are not actively trading in the credit markets and fair value cannot be derived from quoted prices, the Company used a discounted cash flow model to determine the estimated fair value of the securities at September 30, 2009. The Company’s valuation analyses consider, among other items, assumptions that market participants would use in their estimates of fair value such as the collateral underlying the security, the creditworthiness of the issuer and the associated guarantees by Ambac and MBIA, the timing of expected future cash flows, including whether the callability features of these investments may be exercised by the issuer. These securities were also compared, where possible, to securities with observable market data with similar characteristics to the securities held by the Company. The Company believes there are several significant assumptions that are utilized in its valuation analyses, the most critical of which is the discount rate, which includes a provision for default and liquidity risk. The Company estimated the fair value of the asset backed securities to be $4.2 million at September 30, 2009.

The Company may not be able to liquidate its investment in these securities before the scheduled redemptions or until trading in the securities resumes in the credit markets, which may not occur. At September 30, 2009, the Company determined that the securities had been temporarily impaired due to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; the financial condition and near term prospects of the issuers; current redemptions made by the issuers; and the intent not to sell these securities and assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.

The Company’s strategic investments include common stock in companies with which it has or did have a collaborative agreement. For the six months ended September 30, 2009 and 2008, the Company recognized none and $0.6 million, respectively, in charges for other-than-temporary losses on its strategic investments due to declines in their fair value.

~~5. FAIR VALUE MEASUREMENTS~~

September 30,
(In thousands) 2009 Level 1 Level 2 Level 3
Cash equivalents $ 187 $ 187 $ — $ —
U.S. government and agency debt securities 228,262 228,262 — —
International government agency debt securities 28,840 28,840 —
Corporate debt securities 40,000 — 27,824 12,176
Other debt securities 12,695 — — 12,695
Strategic equity investments 880 880 — —

Total $ 310,864 $ 258,169 $ 27,824 $ 24,871

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

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

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

~~The following table 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, 2009 $ 73,877
Total unrealized gains included in comprehensive loss 3,687
Sales and redemptions, at par value (18,773 )
Transfers out of Level 3 (33,920 )

Balance, September 30, 2009 $ 24,871

The fair values of the Company’s investments in certain of its corporate debt securities and other debt securities, including auction rate securities and asset backed debt securities, are determined using certain inputs that are unobservable and considered significant to the overall fair value measurement. During the six months ended September 30, 2009, certain of the corporate debt securities and asset backed debt securities held by the Company had minimal or no trades and the security auctions for the Company’s auction rate securities had failed. The Company is unable to derive a fair value for these investments using quoted market prices and used discounted cash flow models as described in Note 4, Investments.

During the three months ended September 30, 2009, trading resumed for certain of the Company’s investments in corporate debt securities. At September 30, 2009, the Company derived a fair value for these investments using market observable inputs instead of through the use of a discounted cash flow model. Accordingly, the Company transferred these investments from a Level 3 classification to a Level 2 classification.

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 ~~$63.5~~$44.7 million and ~~$75.9~~$51.0 million and a fair value of ~~$60.4~~$44.9 million and ~~$74.7~~$48.7 million at ~~September~~June 30, ~~2009~~2010 and March 31, ~~2009,~~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.

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:


	September 30,		March 31,			June 30,			March 31,
(In thousands)	2009		2009			2010			2010

Raw materials	$	5,174	$	5,916	$		4,049	$		4,130
Work in process		5,738		5,397			6,232			7,788
Finished goods (1)		7,430		7,015			9,980			8,501
Consigned-out inventory (2)		182		1,969			211			234

Inventory	$	18,524	$	20,297
Total inventory					$		20,472	$		20,653

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

condensed consolidated balance sheets. As of ~~September~~June 30, ~~2009,~~2010, the Company ~~has~~had paid in cash, written off, recovered and made restructuring charge adjustments that totaled approximately ~~less than $0.1~~$0.3 million in facility closure costs, $2.9 million in employee separation costs and ~~$0.1~~$0.2 million in other contract termination costs in connection with the 2008 Restructuring. The ~~$3.9~~$3.6 million remaining in the restructuring accrual at ~~September~~June 30, ~~2009~~2010 is expected to be paid out through fiscal ~~year~~ 2016 and relates primarily to future lease costs associated with an exited facility.

11.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 ~~September~~June 30, ~~2009,~~2010, the Company determined that it is more likely than not that the deferred tax assets may not be realized and a full valuation allowance continues to be recorded.

The Company recorded an income tax benefit of $0.1 million for the three ~~and six~~ months ended ~~September~~June 30, ~~2009, which represents~~2010, primarily related to the ~~amount~~Company’s recognition of $0.3 million of income tax expense recorded as a discrete item within other comprehensive loss associated with the ~~Company estimates~~increase in the value of certain securities that it will benefit from the Housing and Economic Recovery Act of 2008. This legislation allows for certain taxpayers to forego bonus depreciation in lieu of a refundable cash credit based on certain qualified asset purchases.carried at fair market value. The income tax benefit of $0.1 million ~~and provision of $1.0 million~~ for the three ~~and six~~ months ended ~~September~~June 30, ~~2008, respectively, is related to~~2009 represented the ~~U.S. alternative minimum tax (“AMT”). The utilization~~amount the Company estimated it would benefit from theHousing and Economic Recovery Act of tax loss carryforwards is limited in the calculation of AMT and, as a result, a federal tax benefit and charge were recorded in the three and six months ended September 30, 2008, respectively. The AMT liability is available as a credit against future tax obligations upon the full utilization or expiration of the Company’s net operating loss carryforward and research and development credits.2008.

12.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 is not aware of any such proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.

In April 2009, the Company entered into a lease agreement in connection with the move of its corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, which is scheduled to occur in early calendar year 2010. The initial lease term, which begins upon the Company’s move into the new facility, is for 10 years with provisions for the Company to extend the lease term up to an additional 10 years. In June 2009, the Company executed an amendment to the lease agreement which increased the square footage leased by the Company by approximately 15%. The total rent expense related to the new headquarters will be approximately $3.1 million annually during the initial lease term.

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

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 ~~pulmonary~~ and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”) disorders, reward disorders, addiction, diabetes and ~~diabetes.~~autoimmune disorders. We are headquartered in Waltham, Massachusetts and have a research ~~facilities~~facility in Massachusetts and a commercial manufacturing facility in Ohio.

We ~~are relocating~~leverage our ~~corporate headquarters from Cambridge, Massachusetts,~~formulation expertise and proprietary product platforms to ~~Waltham, Massachusetts~~develop, both with partners and on our own, innovative and competitively advantaged medications that can enhance patient outcomes in ~~early calendar year 2010.~~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.

Forward-Looking Statements

~~Any statements herein or otherwise made in writing or orally~~This document contains and incorporates by ~~us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements~~reference “forward-looking statements” within the meaning of Section 27A of the ~~Private~~ Securities ~~Litigation Reform~~ Act of ~~1995, including, but not limited to,~~1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, these statements concerning future operating results, the achievement of certain business and operating goals, manufacturing revenues, product sales and royalty revenues, plans for clinical trials, regulatory approvals, manufacture and commercialization of products and product candidates, spending relating to research and development, manufacturing, and selling and marketing 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 maycan be identified by ~~words like “believe,” “expect,” “designed,”~~the use of forward-looking terminology such as “may,” “will,” “could,” “should,” ~~“seek,~~“would,” or“expect,” “anticipate,” “continue” or other similar words. These statements discuss future expectations; contain projections of results of operations or of financial condition, or state trends and ~~similar expressions.~~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 BYDUREON^TM (exenatide for extended-release injectable suspension) and, if approved, the commercialization of BYDUREON by Amylin Pharmaceuticals, Inc. (“Amylin”), and Eli Lilly & Co. (“Lilly”);
	•		our 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 development, regulatory review and commercial potential of such product candidates and the costs and expenses related thereto;
	•		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

			foreign currency exchange rate fluctuations and valuations;
	•		the impact of new accounting pronouncements;
	•		our expectations concerning the status, intended use and financial impact of our properties, including manufacturing facilities; and
	•		our future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

~~Although we believe~~You are cautioned that ~~our expectations~~forward-looking statements are based on ~~reasonable assumptions within~~current expectations and are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the ~~bounds~~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 VIVITROL for opioid dependence and, even if approved, such products may not be successfully commercialized;
	•		we rely on our collaborative partners to determine the regulatory and marketing strategies for RISPERDAL CONSTA 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

			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.

The forward-looking statements contained and incorporated herein represent our judgment as of ~~our knowledge~~the date of ~~our business~~this Quarterly Report, and ~~operations,~~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 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:as a result of new information, future events or otherwise.

Unless otherwise indicated, information contained in this Quarterly Report concerning the achievement of certain business and operating milestones and future operating results and profitability; continued growth of RISPERDAL CONSTA sales; the commercialization of VIVITROL in the United States (“U.S.”)disorders targeted by us and in Russia and the Commonwealth of Independent States (“CIS”) by Cilag GmbH International (“Cilag”), a subsidiary of Johnson & Johnson; recognition of milestone payments from Cilag related to the future sales of VIVITROL in Russia and the CIS; the successful continuation of development activities for our programs, including exenatide once weekly, VIVITROL for opioid dependence, ALKS 29, ALKS 33, ALKS 36 and ALKS 37; the expectation and timeline for regulatory approval of the New Drug Application (“NDA”) submission for exenatide once weekly; and the successful manufacture of our products and product candidates ~~including RISPERDAL CONSTA, VIVITROL and polymer for exenatide once weekly, by us at a commercial scale,~~ and the ~~successful manufacture~~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 ~~exenatide once weekly~~the markets for our products and development programs. Our internal research has not been verified by ~~Amylin Pharmaceuticals, Inc. (“Amylin”). Factors which~~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 ~~actual~~ results to differ materially from ~~our expectations set forth~~those expressed in ~~our forward-looking statements include, among others: (i)~~the estimates included in this prospectus.

Financial Highlights

Net loss for the three months ended June 30, 2010 was $13.4 million, or $0.14 per common share – basic and diluted, as compared to a net loss of $10.2 million, or $0.11 per common share — basic and diluted for the three months ended June 30, 2009. Revenues for the three months ended June 30, 2010 was driven by strong manufacturing and royalty revenues from RISPERDAL ~~CONSTA may not continue to grow, particularly because we rely on our partner, Janssen Pharmaceutica, Inc., a division~~CONSTA. Worldwide sales 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 VIVITROL and polymer for exenatide once weekly, in sufficient quantities and with sufficient yields to meet our or our partners’ requirements or to add additional production capacity for RISPERDAL CONSTA and VIVITROL, or unexpected events could interrupt manufacturing operations at our RISPERDAL CONSTA and VIVITROL manufacturing facility, which is the sole sourceby Janssen were $355.7 million, an increase of supply for these products; (iii) we may be unable to develop the commercial capabilities, and/or infrastructure, necessary to successfully commercialize VIVITROL; (iv) Cilag may be unable to receive approval for VIVITROL for the treatment of opioid dependence in Russia and for the treatment of alcohol and opioid dependence in the other countries in the CIS; (v) Cilag may be unable to successfully commercialize VIVITROL in Russia and the CIS; (vi) third party payors may not cover or reimburse us for purchases of our products; (vii) if approved, Eli Lilly and Company (“Lilly”) and Amylin may be unable to successfully commercialize exenatide once weekly; (viii) we may be unable to scale-up and manufacture our product candidates commercially or economically; (ix) we may not be able to source raw materials for our production processes from third parties; (x) Amylin may not be able to successfully operate the manufacturing facility for exenatide once weekly and the U.S. Food and Drug Administration (“FDA”) may not find the product produced in the Amylin facility comparable to the product used in

the pivotal clinical study which was manufactured in our facility; (xi) our product candidates, if approved for marketing, may not be launched successfully in one or all indications for which marketing is approved and, if launched, may not produce significant revenues; (xii) we rely on our partners to determine the regulatory and marketing strategies for RISPERDAL CONSTA and our other partnered, non-proprietary programs; (xiii) RISPERDAL CONSTA, VIVITROL and 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 products2.3% from the market; (xiv) our collaborators could elect to terminate or delay programs at any time and disputes with collaborators or failure to negotiate acceptable new collaborative arrangements for our technologies could occur; (xv) clinical trials may take more time or consume more resources than initially envisioned; (xvi) results of earlier clinical trials may not necessarily be predictive of the safety and efficacy results in larger clinical trials; (xvii) our product candidates could be ineffective or unsafe during preclinical studies and clinical trials, and we and our collaborators may not be permitted by regulatory authorities to undertake new or additional clinical trials for product candidates incorporating our technologies, or clinical trials could be delayed or terminated; (xviii) after the completion of clinical trials for our product candidates, including exenatide once weekly, or after the submission for marketing approval of such product candidates, the FDA or other health authorities could refuse to accept such filings, could request additional preclinical or clinical studies be conducted or request a safety monitoring program, any of which could result in significant delays or the failure of such products to receive marketing approval; (xix) even if our product candidates appear promising at an early stage of development, product candidates could fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical, fail to achieve market acceptance, be precluded from commercialization by proprietary rights of third parties or experience substantial competition in the marketplace; (xx) technological change in the biotechnology or pharmaceutical industries could render our products and/or product candidates obsolete or non-competitive; (xxi) difficulties or set-backs in obtaining and enforcing our patents and difficulties with the patent rights of others could occur; (xxii) we may incur losses in the future; (xxiii) we may need to raise substantial additional funding to continue research and development programs and clinical trials and other operations and could incur difficulties or setbacks in raising such funds, which may be further impacted by current economic conditions and the lack of available credit sources; (xxiv) our methodology for determining the fair value of our investments may change; and (xxv) we may not be able to liquidate or otherwise recoup our investments in corporate debt securities, asset backed debt securities and auction rate securities.

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.

~~Our Strategy~~

We leverage our formulation expertise and drug development technologies to develop, both with partners and on our own, innovative and competitively advantaged drug products that can enhance patient outcomes in major therapeutic areas. We enter into select collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our technologies. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products. Each of these approaches is discussed in more detail in “Products and Development Programs.”three months ended June 30, 2009.

Products and Development Programs

RISPERDAL CONSTA

RISPERDAL CONSTA is a long-acting formulation of risperidone, a product of Janssen, and is the first and only long-acting, atypical antipsychotic approved by the ~~FDA~~United States (“U.S.”) Food and Drug Administration (“FDA”), for ~~both~~ the treatment of ~~both~~ schizophrenia and for the treatment of bipolar I disorder. The medication uses our proprietary Medisorb^® injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injection every two weeks. RISPERDAL CONSTA is marketed by Janssen and is exclusively manufactured by us. RISPERDAL CONSTA was first approved for the treatment of schizophrenia by regulatory authorities in the United Kingdom and Germany in August 2002 and by the FDA in October 2003. The Pharmaceuticals and Medical Devices Agency in Japan approved RISPERDAL CONSTA for the treatment of schizophrenia in April 2009. RISPERDAL CONSTA is the first long-acting atypical antipsychotic to be available in Japan. RISPERDAL CONSTA is approved for the treatment of schizophrenia in approximately 85 countries and marketed in approximately 6070 countries, and Janssen continues to launch the product around the world. ~~In the U.S., RISPERDAL CONSTA is also approved for the treatment of bipolar I disorder.~~

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 ~~has~~have shown that RISPERDAL CONSTA significantly delayed the time to relapse compared to placebo treatment in patients with bipolar I disorder.

In August 2009, we received notification from Johnson & Johnson Pharmaceutical Research and Development, L.L.C. (“J&JPRD”) that based on a portfolio review it has decided not to pursue further development of the four-week long-acting injectable formulation of risperidone.

VIVITROL

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

We are also developing VIVITROL for the treatment of opioid dependence, a serious and chronic brain disease characterized by compulsive, ~~prolonged-self administration~~prolonged self-administration of 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 ~~June 2008,~~November 2009, we ~~initiated~~announced positive preliminary results from a ~~randomized, multi-center registration study~~phase 3 clinical trial of VIVITROL ~~in Russia~~ for the treatment of opioid dependence. The six-month phase 3 study ~~is designed~~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 ~~assess~~placebo). VIVITROL was generally well tolerated in the ~~efficacy~~study and ~~safety~~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 ~~VIVITROL in more than 250~~ opioid ~~dependent patients. The clinical data~~dependence as a priority review, which accelerates the FDA’s target review timeline from ~~this study may form~~ten months to six months and issued a Prescription Drug User Fee Act (“PDUFA”) action date for the ~~basis~~sNDA of October 12, 2010.

In June 2010, the FDA notified us of the tentative scheduling of a ~~Supplemental NDA to the FDA~~Psychopharmacologic Drugs Advisory Committee meeting on September 16, 2010 for review of our sNDA for VIVITROL for the treatment of opioid dependence. ~~In April 2009, we completed enrollment for this registration study. We expect data from the study to be available in late calendar year 2009.~~

~~Exenatide Once Weekly~~BYDUREON

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

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

In May 2009, Amylin submitted ana 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 ~~July 2009,~~April 2010, Lilly announced that the EMA had accepted the Marketing Authorization Application filing for BYDUREON for the treatment of type 2 diabetes.

In June 2010, Amylin, Lilly and we announced ~~positive~~ results from DURATION-4, the ~~DURATION-3 study~~fourth in a series of studies designed to ~~compare exenatide once weekly~~test the superiority of BYDUREON as compared to ~~LANTUS~~^® ~~(insulin glargine) in 467 patients with~~other type 2 diabetes ~~taking stable~~

~~doses~~medications. This 26-week clinical study compared BYDUREON monotherapy to JANUVIA^®, ACTOS^® (pioglitazone HCI) and metformin, three oral type 2 diabetes medications commonly prescribed early in the treatment of ~~metformin alone or in combination with a sulfonylurea. Patients randomized to exenatide once weekly experienced a statistically superior reduction in~~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,~~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, ~~compared~~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 ~~1.3~~1.6 percentage ~~points for LANTUS after completing 26 weeks of treatment. At the end of the study, patients treated with exenatide once weekly~~points. Patients receiving BYDUREON, ACTOS and metformin treatment achieved ~~a mean~~an average A1C of ~~6.8~~less than 7 percent ~~compared with a mean A1C of 7.0 percent in those treated with LANTUS.~~by study end. Treatment with ~~exenatide once weekly also~~BYDUREON produced ~~a statistically significant difference in weight, with a mean~~an average weight loss of ~~5.8~~4.5 pounds, ~~at 26 weeks, compared~~which was statistically significantly greater than the average 1.7 pounds patients lost with ~~a mean~~JANUVIA and the average 3.3 pounds patients gained with ACTOS. Patients receiving metformin experienced an average weight ~~gain~~loss of 3.1 pounds for LANTUS, a difference of 8.9 pounds between the treatments. In addition, although patients treated with exenatide once weekly experienced a greater reduction in blood glucose than those treated with LANTUS, those patients also reported significantly fewer episodes of confirmed hypoglycemia. Additional studies designed to demonstrate the superiority of exenatide once weekly are ongoing.4.4 pounds.

ALKS 33

ALKS 33 is an oral opioid modulator that we are developing for the potential treatment of addiction and other ~~central nervous system~~CNS disorders. In ~~October~~November 2009, we announced positive topline data from two clinical trials of ALKS 33. Data from the studies, ALK33-003 and ALK33-004, showed that ALKS 33 was generally well tolerated and successfully blocked the effects of an opioid with a duration of action that supports once daily dosing. ALK33-003 wasinitiated a phase ~~1 randomized, double-blind, placebo-controlled, multi-dose~~2 clinical study ~~designed~~ to assess the ~~steady-state pharmacokinetics,~~ safety and ~~tolerability~~efficacy of multiple doses of ALKS 33 in ~~30 healthy subjects. ALK33-004 was a phase 1, randomized, single-blind, placebo-controlled, single-dose study designed~~patients with alcohol dependence and to ~~test~~further define the ~~ability~~clinical profile of ALKS ~~33 to block~~33.

In April 2010, we announced plans for the subjective and objective effects of a potent opioid agonist, remifentanil (a commercially available analgesic) in twenty-four healthy, non-dependent, opioid-experienced subjects. Based on these results, we expect to initiate a phase 2 studydevelopment of ALKS 33 ~~by the end of calendar year 2009.~~

~~ALKS 29~~

~~We are developing ALKS 29, an oral combination therapy~~ for the treatment of ~~alcohol dependence. ALKS 29 is~~binge-eating disorder and as a co-formulation of ALKS 33, a proprietary opioid modulator, and baclofen, an FDA-approved muscle relaxant and antispasmodic therapeutic. Research suggests that baclofen may attenuate the compulsive component of alcohol dependence. As a co-formulation of ALKS 33 and baclofen, ALKS 29 is designed to address both the compulsive and impulsive components of alcohol dependence.

~~ALKS 27~~

~~Using our AIR~~^® ~~pulmonary technology, we are developing an inhaled trospium product~~combination therapy with buprenorphine for the treatment of ~~chronic obstructive pulmonary disease (“COPD”). COPD~~addiction and mood disorders. Binge-eating disorder is ~~a serious, chronic disease~~ characterized by recurrent binge eating episodes during which a ~~gradual~~person feels a loss of ~~lung function.~~

~~In August 2009, we announced positive data~~control over his or her eating. Unlike bulimia, binge eating episodes are not followed by purging, excessive exercise or fasting. As a result, people with binge-eating disorder often are overweight or obese. It is estimated that approximately 1% to 2% of Americans suffer from a phase 2a study of ALKS 27. The double-blind, cross-over, placebo-controlled study was designed to assess the safety, tolerability, pharmacokinetics and efficacy of ALKS 27 in 24 patients with moderate to severe COPD. The study also explored a combination dose of ALKS 27 and formoterol fumarate, a long-acting beta agonist already approved for the treatment of COPD. In the study, ALKS 27 was generally well tolerated, had a rapid onset of action and led to statistically significant improvements in lung function compared to a placebo. The combination of ALKS 27 and formoterol fumarate showed an additive effect on lung function improvement. We do not plan to pursue further development of ALKS 27 without a partner.binge-eating disorder.

ALKS 37

We are developing ALKS 37, an ~~investigational oral,~~orally active, peripherally-restricted opioid antagonist for the treatment of opioid-induced ~~constipation. Research indicates~~constipation (“OIC”). According to IMS Health, over 243 million prescriptions were written for

opioids in 2009 in the U.S. Many studies indicate that a high percentage of patients receiving opioids are likely to experience side effects affecting gastrointestinal motility. There are currently no available oral treatments for this condition, which has severe quality of life implications. In October 2009, we initiated a phase 1 study of ALKS 37 in approximately 40 healthy volunteers. The randomized, double-blind, placebo-controlled study will assess the safety, tolerability, pharmacokinetic and pharmacologic effects of a single oral administration of five doses of ALKS 37. We expect to report topline results from the study in the first half of calendar 2010. ALKS 37 is a component of ALKS ~~36.~~36, which is discussed below.

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

ALKS 36

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

~~Executive Summary~~ALKS 9070

~~Net loss~~ALKS 9070 is a once-monthly, injectable, sustained-release version of aripiprazole for the ~~three months ended September 30, 2009 was $8.7 million, or $0.09 per common share — basic and diluted, as compared~~treatment of schizophrenia. ALKS 9070 is our first candidate to ~~net income of $1.7 million, or $0.02 per common share — basic and diluted,~~leverage our proprietary LinkeRx^TM product platform. Aripiprazole is commercially available under the name ABILIFY^® for the ~~three months ended September 30, 2008. Net loss~~treatment of a number of CNS disorders. Based on encouraging preclinical results, ALKS 9070 is expected to enter the clinic in the second half of calendar 2010.

ALKS 6931

ALKS 6931 is a long-acting form of a TNF receptor-FC fusion protein for the ~~six months ended September 30, 2009 was $18.9 million, or $0.20 per common share — basic~~treatment of rheumatoid arthritis and ~~diluted, as compared~~related autoimmune diseases. ALKS 6931 is our first candidate being developed using the Medifusion^TM technology licensed from Acceleron Pharma, Inc. ALKS 6931 is structurally similar to ~~net income~~etanercept, commercially available under the name ENBREL^®.

ALKS 7921

ALKS 7921, the second candidate from the LinkeRx platform, is a once-monthly, injectable, extended-release version of ~~$31.4 million, or $0.33 per common share — basic and $0.32 per common share — diluted,~~olanzapine for the ~~six months ended September 30, 2008. Net loss~~treatment 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 ~~the three~~patients and six months ended September 30, 2009 includes $4.1 million and $12.3 million, respectively, in charges associated with the planned relocation of our corporate headquarters from Cambridge, Massachusettsphysicians to ~~Waltham, Massachusetts.~~manage schizophrenia.

Results of Operations

Manufacturing Revenues


	Three Months Ended				Change			Six Months Ended				Change				Three Months Ended						Change
	September 30				Favorable/			September 30				Favorable/				June 30,						Favorable/
(In millions)	2009		2008		(Unfavorable)			2009		2008		(Unfavorable)				2010			2009			(Unfavorable)
Manufacturing revenues:
RISPERDAL CONSTA	$	31.9	$	30.7	$	1.2		$	59.8	$	66.6	$	(6.8	)	$		26.3	$		27.9	$		(1.6	)
Polymer		0.4		—		0.4			1.4		—		1.4				0.6			0.9			(0.3	)
VIVITROL		0.5		2.3		(1.8	)		0.4		5.0		(4.6	)

Manufacturing revenues	$	32.8	$	33.0	$	(0.2	)	$	61.6	$	71.6	$	(10.0	)	$		26.9	$		28.8	$		(1.9	)

The ~~increase~~decrease in RISPERDAL CONSTA manufacturing revenues for the three months ended ~~September~~June 30, ~~2009,~~2010, as compared to the three months ended ~~September~~June 30, ~~2008,~~2009, was primarily due to a ~~10%~~6% decrease in the unit net sales price, partially offset by an increase in the number of units shipped to Janssen partially offset by a decrease in the net unit sales price. The decrease in RISPERDAL CONSTA manufacturing revenues for the six months ended September 30, 2009, as compared to the six months ended September 30, 2008, was primarily due to a 2% decrease in the number of ~~units shipped to Janssen and a decrease in the net unit sales price.~~less than 1%. The decrease in the net unit sales price ~~in the three and six months ended September 30, 2009~~ is primarily due to increased costs incurred by Janssen as a ~~stronger~~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, as compared to the three and six months ended September 30, 2008. The number of RISPERDAL CONSTA units shipped for sale in foreign countries comprised 74% and 84% of the total units shipped during the three months ended September 30, 2009 and 2008, respectively, and 75% and 82% of the total units shipped during the six months ended September 30, 2009 and 2008, respectively.sold. See Part I, Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for information on foreign currency exchange rate risk related to RISPERDAL CONSTA revenues.

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

The decrease in polymer 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 35% decrease in the amount of polymer shipped to Amylin. We record manufacturing revenues under our arrangement with Amylin for polymer sales at an agreed upon


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

~~Net sales of VIVITROL by Cephalon during the three and six months ended September 30, 2008 were $4.1 million and $8.2 million, respectively.~~

Research and Development Revenue Under Collaborative Arrangements

Three Months Ended Change Six Months Ended Change
September 30 Favorable/ September 30 Favorable/
(In millions) 2009 2008 (Unfavorable) 2009 2008 (Unfavorable)
Research and development programs:
Four-week RISPERDAL CONSTA $ 0.9 $ 1.0 $ (0.1 ) $ 1.9 $ 1.9 $ —
Exenatide once weekly 0.1 2.9 (2.8 ) 0.4 7.8 (7.4 )
AIR Insulin — 1.1 (1.1 ) — 26.6 (26.6 )
Other 0.2 0.3 (0.1 ) 0.3 0.4 (0.1 )

Research and development revenue under collaborative arrangements $ 1.2 $ 5.3 $ (4.1 ) $ 2.6 $ 36.7 $ (34.1 )


		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	)

~~In August~~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, ~~we announced that~~was primarily due to the decision made by our collaborative partner, Johnson & Johnson Pharmaceutical Research and Development, L.L.C. (“J~~&JPRD, decided~~&JPRD”) in August 2009 not to pursue further development of ~~the four-week~~a four week formulation of RISPERDAL CONSTA. The four week RISPERDAL CONSTA ~~for the treatment~~program contributed $1.1 million of ~~schizophrenia. Accordingly, we do not expect to recognize~~ revenue ~~from this development program in the future. The NDA for exenatide once weekly was filed with the FDA in May 2009 and as a result, revenues under the program decreased in~~during the three ~~and six~~ months ended ~~September~~June 30, 2009, as compared to the three and six months ended September 30, 2008. The decrease in revenue from the AIR Insulin program in the three and six months ended September 30, 2009, as compared to the three and six months ended September 30, 2008, was due to the termination of the AIR Insulin development program in March 2008.2009.

Net Collaborative Profit

Three Months Ended Change Six Months Ended Change
September 30 Favorable/ September 30 Favorable/
(In millions) 2009 2008 (Unfavorable) 2009 2008 (Unfavorable)
Net collabortive profit:
Milestone revenue — license $ — $ 1.3 $ (1.3 ) $ — $ 2.6 $ (2.6 )
Net payments to Cephalon — (0.7 ) 0.7 — (0.7 ) 0.7
VIVITROL losses funded by Cephalon, post termination 0.7 — 0.7 5.0 — 5.0

Net collaborative profit $ 0.7 $ 0.6 $ 0.1 $ 5.0 $ 1.9 $ 3.1


		Three Months Ended						Change
		June 30,						Favorable/
(In millions)		2010			2009			(Unfavorable)
Net collaborative profit	$		-	$		4.3	$		(4.3	)

Net collaborative profit for the three ~~and six~~ months ended ~~September~~June 30, 2009 consisted of revenue earned as a result of the $11.0 million payment we received from Cephalon to fund ~~its~~their share of estimated VIVITROL losses during the one-year period following the ~~Termination Date.~~termination of the VIVITROL collaboration in December 2008. We recorded the $11.0 million ~~payment~~ as deferred revenue and recognized it as revenue through the application of a proportional performance model based on VIVITROL losses. The ~~deferred~~$11.0 million payment was fully recognized as revenue ~~was recognized in full~~ during the ~~three months ended September 30, 2009, and we do not expect to recognize any further net collaborative profit. Net collaborative profit during the three and~~ six months ended September 30, 2008 consisted of milestone revenue from the license provided to Cephalon to commercialize VIVITROL, which we recognized on a straight-line basis over a 10 year amortization schedule, and net payments we received from Cephalon under the product loss sharing terms of the collaborative arrangement.2009.

Research and Development Expense


		Three Months Ended						Change
		June 30,						Favorable/
(In millions)		2010			2009			(Unfavorable)
Research and development	$		23.0	$		25.6	$		2.6

The decrease in research and development (“R&D”) expenses in the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, was primarily due to savings as a result of the ~~decision to move~~relocation of our corporate headquarters from Cambridge, Massachusetts, to Waltham, Massachusetts. ~~As a result~~The move was completed during the fourth quarter of fiscal year 2010. Due to the ~~planned move,~~relocation, we ~~recorded~~incurred approximately ~~$4.1 million and $12.1~~$8.0 million of expense in the three ~~and six~~ months ended ~~September~~June 30, 2009 ~~respectively,~~ due ~~primarily~~ to the acceleration of depreciation on laboratory related leasehold improvements ~~located at our current headquarters, which will have no benefit or use to us once we exit the Cambridge facility,~~ and the write-down of laboratory equipment ~~that is no longer~~located at our Cambridge facility. This decrease in ~~use~~expense was partially offset by a $3.3 million increase in internal clinical and ~~will be disposed of. In addition, R&D expenses increased~~preclinical study expense and a $1.5 million increase in reimbursements to our collaborative partners during the three ~~and six~~ months ended ~~September~~June 30, 2009, as compared to the three and six months ended September 30, 2008, due to an increase in the number of pre-clinical and toxicology studies we conducted. Partially offsetting these increases in R&D expenses was a decrease in labor and benefits due to a reduction in R&D headcount and a decrease in overhead and support costs allocated to R&D at our Ohio manufacturing facility, as discussed above.2010.

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

Liquidity and Capital Resources

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

Our financial condition is summarized as follows:

September 30 March 31,
(In millions) 2009 2009
Cash and cash equivalents $ 53.0 $ 86.9
Investments — short-term 242.1 236.8
Investments — long-term 74.4 80.8

Total cash, cash equivalents and investments $ 369.5 $ 404.5

Working capital $ 299.4 $ 307.1
Outstanding borrowings — current and long-term $ 63.5 $ 75.9

~~Cash and Cash Equivalents~~


		June 30,			March 31,
(In millions)		2010			2010
Cash and cash equivalents	$		90.0	$		79.3
Investments — short-term			202.2			202.1
Investments — long-term			36.3			68.8

Total cash, cash equivalents and investments	$		328.5	$		350.2

Working capital	$		271.5	$		247.1
Outstanding borrowings — current and long-term	$		44.8	$		51.0

Our cash flows for the three months ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009 were as follows:

Six Months Ended
September 30
(In millions) 2009 2008
Cash and cash equivalents, beginning of period $ 86.9 $ 101.2
Cash (used in) provided by operating activities (18.7 ) 34.6
Cash (used in) provided by investing activities (0.9 ) 5.7
Cash used in financing activities (14.3 ) (73.0 )

Cash and cash equivalents, end of period $ 53.0 $ 68.5

~~Operating Activities~~


		Three Months Ended
		June 30,
(In millions)		2010				2009
Cash and cash equivalents, beginning of period	$		79.3		$		86.9
Cash (used in) operating activities			(13.0	)			(15.6	)
Cash provided by (used in) investing activities			29.0				(18.0	)
Cash (used in) financing activities			(5.3	)			(8.4	)

Cash and cash equivalents, end of period	$		90.0		$		44.9

Our primary sources of liquidity are cash provided by operating activities, payments received under R&D arrangements and other arrangements with collaborators, private placements of debt securities and equipment financing arrangements. The ~~change~~decrease in cash used in operating activities induring the ~~six~~three months ended ~~September~~June 30, ~~2009,~~2010, as compared to the three 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 ~~operating~~investing activities induring the ~~six~~three months ended ~~September~~June 30, ~~2008,~~2010, as compared to the three months ended June 30, 2009, is primarily due to the ~~$40.0~~net conversion of $33.1 million ~~payment we received from Lilly related~~of our investments to ~~the termination of the AIR Insulin development program in June 2008. In addition, we used more~~ cash ~~for working capital~~ during the ~~six~~three months ended ~~September~~June 30, ~~2009, partially offset by~~2010, as compared to a net investment of $15.9 million of our cash during the three months ended June 30, 2009. The decrease in cash ~~used for the purchase of our non-recourse 7% Notes, in which the portion attributable to the original issue discount was charged to operating activities.~~

~~Investing Activities~~

The change in cash used in investing activities in the six months ended September 30, 2009, as compared to the cash provided by investing activities in the six months ended September 30, 2008, is primarily due to a decrease in cash provided from sales of property, plant and equipment.

Our investments at June 30, 2010 consist of the ~~six months ended September 30, 2009, we purchased $10.4 million less common stock for treasury~~following:


		Amortized			Gross Unrealized							Estimated
(in millions)		Cost			Gains			Losses				Fair Value
Investments — short-term	$		201.6	$		0.6	$		-		$		202.2
Investments — long-term available-for-sale			31.7			0.5			(1.8	)			30.4
Investments — long-term held-to-maturity			5.9			-			-				5.9

Total	$		239.2	$		1.1	$		(1.8	)	$		238.5

Our investment objectives are, first, to preserve liquidity and ~~we received $7.0 million less in cash from the exercise of employee stock options, partially offset by the scheduled quarterly principal payments we made on our non-recourse 7% Notes in April~~conserve capital and, ~~July, 2009.~~

~~Investments~~

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

~~As explained~~We classify available-for-sale investments in ~~Note 4, Investments~~an unrealized loss position, which do not mature within 12 months, as long-term investments. We have the intent and ~~Note 5, Fair Value Measurements, in the “Notes~~ability to ~~Condensed Consolidated Financial Statements,” 8%~~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, 2010, we performed an analysis of our investments ~~which~~with unrealized losses for impairment and determined that they are ~~reported at fair value on a recurring basis,~~temporarily impaired.

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

student loan backed auction rate security. During the three months ended ~~September~~June 30, ~~2009, trading resumed for certain~~2010, $5.5 million of our investments in corporate debt securities. At September 30, 2009, we derived a fair value for these investments using market observable inputs instead of through the use of a discounted cash flow model. Accordingly, we transferred these investments from a Level 3 ~~classification to a Level 2 classification.~~investments were redeemed at par by the issuers.

Borrowings

At ~~September~~June 30, ~~2009,~~2010, our borrowings consisted of ~~$64.2~~$44.9 million principal amount of ~~our~~the non-recourse 7% Notes, which ~~have~~had a carrying value of ~~$63.5~~$44.7 million. ~~Principal and interest payments on~~On July 1, 2010, in addition to a scheduled principal payment of $6.4 million, we redeemed the non-recourse 7% Notes ~~are due quarterly, and the non-recourse 7% Notes are scheduled to be paid~~ 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. We expect to save $3.2 million in interest and accretion expense through the scheduled maturity date as a result of redeeming these notes on ~~January~~July 1, ~~2012.~~2010.

Contractual Obligations

~~In April 2009, we entered into a lease agreement in connection with the move~~Refer to Part II, Item 7 of our corporate headquarters from Cambridge, Massachusetts to Waltham, Massachusetts, which is scheduled to occur in early calendar year 2010. The initial lease term, which begins upon our move into the new facility, is for 10 years with provisions for us to extend the lease term up to an additional 10 years. In June 2009, we executed an amendment to the lease agreement which increased the square footage leased by us by approximately 15%. Operating expenses and rent will commence for the additional space 9 months and 18 months, respectively, after we move into the facility, and the lease amendment has the same termination date as the original lease. The total rent expense related to the new headquarters will be approximately $3.1 million annually during the initial lease term. There are no other material changes to the contractual cash obligations as disclosed in our Annual Report on Form 10-K for the year ended March 31, ~~2009.~~2010 in the “Contractual Obligations” section for a discussion of our contractual obligations. Our contractual obligations as of June 30, 2010 were not materially changed from the date of that report. As noted in the “Borrowings” section above, we redeemed the non-recourse 7% Notes in full on July 1, 2010.

States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March 31, ~~2009~~2010 in the “Critical Accounting Estimates” section for a discussion of our critical accounting estimates.

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

New Accounting Standards

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

Item 3.Quantitative and Qualitative Disclosures about Market Risk

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

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

Item 4.Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

~~We have carried out an evaluation, under the supervision and~~Our management, with the participation of our ~~management, including our principal executive officer~~Chief Executive Officer and ~~principal financial officer, of~~Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, ~~or the Securities Exchange Act)~~(the “Exchange Act”) at ~~September~~June 30, ~~2009.~~2010. Based ~~upon~~on that evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer concluded that ~~at September 30, 2009,~~ our disclosure controls and procedures ~~are~~were effective ~~in providing~~as of June 30, 2010 to provide reasonable assurance that ~~(a)~~ the information required to be disclosed by us in the reports that we file ~~or submit~~ under the ~~Securities~~ Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~SEC~~Securities and Exchange Commission’s (“SEC”) rules and forms and ~~(b)~~that such information is accumulated and

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not aware of 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

~~A summary~~On November 21, 2007, our board of directors authorized a program to repurchase up to $175.0 million of our common stock ~~repurchase activity for~~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, 2010. As of June 30, 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 ~~September~~June 30, ~~2009 is as follows:~~

Total Approximate Dollar
Number of Shares Value of Shares that
Total Number Average Purchased as May Yet be Purchased
of Shares Price Paid Part of a Publicly Under the Program
Period Purchased (a) per Share Announced Program (a) (In millions)
July 1 through July 31 — $ — — $ 101.1
August 1 through August 31 — $ — — $ 101.1
September 1 through September 30 18,900 $ 9.04 18,900 $ 101.0

Total 18,900 $ 9.04 18,900


~~(a)~~		On November 21, 2007, we publicly announced that our board of directors authorized a program to repurchase up to $175.0 million of our common stock to be repurchased at the discretion of management from time to time in the open market or through privately negotiated transactions. On June 16, 2008, we publicly announced that our board of directors authorized the expansion of this repurchase program by an additional $40.0 million, bringing the total authorization under this program to $215.0 million. The repurchase program has no set expiration date and may be suspended or discontinued at any time. At September 30, 2009, we have purchased a total of 8,866,342 shares under this program at a cost of $114.0 million.

~~In addition to the stock repurchases above, during the three months ended September 30, 2009~~2010, we acquired, by means of net share settlements, ~~1,199~~96,448 shares of Alkermes common stock at an average price of ~~$10.84~~$11.38 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, 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, each an executive officer of the Company, entered into trading plans 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.Exhibits

(a) List of Exhibits:


Exhibit
No.
~~10.1~~		Separation Agreement by and between Alkermes, Inc. and David A. Broecker, dated September 10, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2009).

~~10.2~~		Amendment No. 2 to Employment Agreement by and between Alkermes, Inc. and Richard F. Pops, dated September 10, 2009 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 11, 2009).

31.1		Rule 13a-14(a)/15d-14(a) Certification ~~(furnished~~(filed herewith).

31.2		Rule 13a-14(a)/15d-14(a) Certification ~~(furnished~~(filed 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, 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).

3027


	September 30,			March 31,
(In thousands)	2009			2009
Land	$	301		$	301
Building and improvements		36,325			36,325
Furniture, fixture and equipment		66,295			67,165
Leasehold improvements		33,980			33,996
Construction in progress		43,918			41,908

Subtotal		180,819			179,695
Less: accumulated depreciation		(86,352	)		(73,234	)

Total property, plant and equipment, net	$	94,467		$	106,461


		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


	September 30,		March 31,			June 30,			March 31,
(In thousands)	2009		2009			2010			2010

Accounts payable	$	5,457	$	8,046	$		8,352	$		8,197
Accrued compensation		10,072		13,817			7,580			15,276
Accrued interest		1,123		1,549
Amounts due to Cephalon		—		1,169
Accrued other		11,620		11,902			13,379			14,408

Total accounts payable and accrued expenses	$	28,272	$	36,483	$		29,311	$		37,881


	(in thousands)
Accrued restructuring, March 31, 2009	$	4,193
Payments for facility closure costs		(416	)
Other adjustments		106

Accrued restructuring, September 30, 2009	$	3,883


(In thousands)		Balance

Accrued restructuring, March 31, 2010	$		3,596
Payments for facility closure costs			(239	)
Other adjustments			281

Accrued Restructuring, June 30, 2010	$		3,638


	Available-for-Sale				Held-to-Maturity					Available-for-Sale						Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated			Amortized			Estimated			Amortized			Estimated
(in thousands)	Cost		Fair Value		Cost		Fair Value			Cost			Fair Value			Cost			Fair Value

Within 1 year	$	124,069	$	124,061	$	416	$	416	$		69,512	$		69,557	$		5,857	$		5,857
After 1 year through 5 years (1)		131,784		131,700		—		—			127,270			127,662			-			-
After 5 years through 10 years (1)		48,668		45,578		—		—			29,678			28,847			-			-
After 10 years		10,000		8,458		—		—			5,000			4,289			-			-

Total	$	314,521	$	309,797	$	416	$	416	$		231,460	$		230,355	$		5,857	$		5,857


(1)		Investments in available-for-sale securities within these categories, with an amortized cost of ~~$151.4~~$58.9 million and an estimated fair value of ~~$148.2~~$58.3 million, have issuer call dates prior to May 2011.


(1)		At ~~September~~June 30, ~~2009~~2010 and March 31, ~~2009,~~2010, the Company had ~~$1.5~~$0.7 million ~~and none, respectively,~~ of finished goods inventory located at its ~~third-party~~third party warehouse and shipping service provider.

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


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

	•		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.


					Total		Approximate Dollar
					Number of Shares		Value of Shares that
	Total Number		Average		Purchased as		May Yet be Purchased
	of Shares		Price Paid		Part of a Publicly		Under the Program
Period	Purchased (a)		per Share		Announced Program (a)		(In millions)
July 1 through July 31		—	$	—		—	$	101.1
August 1 through August 31		—	$	—		—	$	101.1
September 1 through September 30		18,900	$	9.04		18,900	$	101.0

Total		18,900	$	9.04		18,900


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


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


Exhibit
~~No.~~No
~~10.1~~		Separation Agreement by and between Alkermes, Inc. and David A. Broecker, dated September 10, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2009).

~~10.2~~		Amendment No. 2 to Employment Agreement by and between Alkermes, Inc. and Richard F. Pops, dated September 10, 2009 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 11, 2009).

31.1		Rule 13a-14(a)/15d-14(a) Certification ~~(furnished~~(filed herewith).

31.2		Rule 13a-14(a)/15d-14(a) Certification ~~(furnished~~(filed 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, 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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