Edgar Filing: Alkermes plc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2011

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

Commission File Number 001-35299

ALKERMES PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

Ireland		98-1007018
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Treasury Building, Lower Grand Canal Street
Dublin 2, Ireland

(Address of principal executive offices)

+ 353-1-772-8000

(Registrant’s telephone number, including area code)

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 x 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of January 30, 2012, was 129,736,507 shares.

Table of Contents

ALKERMES PLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2011

				Page No.
*PART I - FINANCIAL INFORMATION*
Item 1.		Condensed Consolidated Financial Statements:		3
			Condensed Consolidated Balance Sheets — December 31, 2011 and March 31, 2011	3
			Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three and Nine Months Ended December 31, 2011 and 2010	4
			Condensed Consolidated Statement of Shareholders’ Equity For the Nine Months Ended December 31, 2011	5
			Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended December 31, 2011 and 2010	6
			Notes to Condensed Consolidated Financial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.		Quantitative and Qualitative Discloures about Market Risk		35
Item 4.		Controls and Procedures		36

*PART II - OTHER INFORMATION*

Item 1.		Legal Proceedings		37
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 5.		Other Information		37
Item 6.		Exhibits		37
Signatures				38
Exhibit Index
	Ex-31.1 Section 302 Certification of Chief Executive Officer
	Ex-31.2 Section 302 Certification of Chief Financial Officer
	Ex-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
	Ex-101 Instance Document
	Ex-101 Schema Document
	Ex-101 Calculation Linkbase Document
	Ex-101 Labels Linkbase Document
	Ex-101 Definition Linkbase Document
	Ex-101 Presentation Linkbase Document

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

	December 31, 2011			March 31, 2011
	(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	85,331		$	38,394
Investments — short-term	128,096			162,928
Receivables	104,684			22,969
Inventory	46,109			20,425
Prepaid expenses and other current assets	10,916			8,244
Total current assets	375,136			252,960
PROPERTY, PLANT AND EQUIPMENT, NET	302,612			95,020
INTANGIBLE ASSETS, NET	675,287			—
GOODWILL	105,700			—
INVESTMENTS — LONG-TERM	20,525			93,408
OTHER ASSETS	26,567			11,060
TOTAL ASSETS	$	1,505,827		$	452,448

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	88,976		$	44,934
Deferred revenue — current	5,120			3,123
Long-term debt— current	3,100			—
Total current liabilities	97,196			48,057
LONG-TERM DEBT	441,668			—
DEFERRED REVENUE — LONG-TERM	4,697			4,837
DEFERRED TAX LIABILITIES — LONG-TERM	48,969			—
OTHER LONG-TERM LIABILITIES	8,444			7,536
Total liabilities	600,974			60,430

COMMITMENTS AND CONTINGENCIES (Note 15)

SHAREHOLDERS’ EQUITY:
Preferred stock, par value, $0.01 per share; 50,000,000 and zero shares authorized; none issued and outstanding at December 31, 2011 and March 31, 2011, respectively	—			—
Common stock, par value, $0.01 per share; 450,000,000 and 160,000,000 shares authorized; 129,774,455 and 105,771,507 shares issued; 129,747,422 and 95,702,299 shares outstanding at December 31, 2011 and March 31, 2011, respectively	1,296			1,055
Non-voting common stock, par value, $0.01 per share; none and 450,000 shares authorized; none and 382,632 shares issued and outstanding at December 31, 2011 and March 31, 2011, respectively	—			4
Treasury stock, at cost (27,033 and 10,069,208 shares at December 31, 2011 and March 31, 2011, respectively)	(417		)	(131,095		)
Additional paid-in capital	1,368,444			936,295
Accumulated other comprehensive loss	(2,921		)	(3,013		)
Accumulated deficit	(461,549		)	(411,228		)
Total shareholders’ equity	904,853			392,018
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,505,827		$	452,448

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

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ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2011			2010			2011			2010
	(In thousands, except per share amounts)
REVENUES:
Manufacturing and royalty revenues	$	112,780		$	35,932		$	215,759		$	114,363
Product sales, net	10,597			7,729			30,170			20,402
Research and development revenue	2,266			314			13,575			737
Total revenues	125,643			43,975			259,504			135,502
EXPENSES:
Cost of goods manufactured and sold	42,752			12,860			76,501			39,436
Research and development	40,493			22,503			96,703			69,412
Selling, general and administrative	35,469			20,521			103,200			58,683
Amortization of acquired intangible assets	11,896			—			13,713			—
Total expenses	130,610			55,884			290,117			167,531
OPERATING LOSS	(4,967		)	(11,909		)	(30,613		)	(32,029		)
OTHER (EXPENSE) INCOME, NET:
Interest income	350			650			1,235			2,175
Interest expense	(10,458		)	—			(18,019		)	(3,298		)
Other income (expense), net	345			(83		)	770			(266		)
Total other (expense) income, net	(9,763		)	567			(16,014		)	(1,389		)
LOSS BEFORE INCOME TAXES	(14,730		)	(11,342		)	(46,627		)	(33,418		)
INCOME TAX PROVISION (BENEFIT)	98			41			3,694			(960		)
NET LOSS	$	(14,828	)	$	(11,383	)	$	(50,321	)	$	(32,458	)

LOSS PER COMMON SHARE:
Basic and diluted	$	(0.11	)	$	(0.12	)	$	(0.46	)	$	(0.34	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted	129,670			95,667			109,645			95,502

COMPREHENSIVE LOSS:
Net loss	$	(14,828	)	$	(11,383	)	$	(50,321	)	$	(32,458	)
Unrealized gains (losses) on marketable securities:
Holding gains (losses), net of tax	27			(516		)	368			431
Unrealized gains (losses) on marketable securities	27			(516		)	368			431
Unrealized losses on derivative contracts	(33		)	—			(276		)	—
COMPREHENSIVE LOSS	$	(14,834	)	$	(11,899	)	$	(50,229	)	$	(32,027	)

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

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ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

														Accumulated
											Additional			Other
	Common Stock					Non-voting Common Stock					Paid-In			Comprehensive			Accumulated			Treasury Stock
	Shares		Amount			Shares		Amount			Capital			(Loss) Income			Deficit			Shares		Amount			Total
	(In thousands, except share data)
BALANCE — March 31, 2010	104,815,328		$	1,047		382,632		$	4		$	910,326		$	(3,392	)	$	(365,688	)	(9,945,265	)	$	(129,681	)	$	412,616
Issuance of common stock under employee stock plans	580,313		4			—		—			594			—			—			—		—			598
Receipt of Alkermes’ stock for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards	—		—			—		—			1,384			—			—			(121,550	)	(1,384		)	—
Share-based compensation expense	—		—			—		—			15,131			—			—			—		—			15,131
Unrealized gains on marketable securities, net of tax of $255	—		—			—		—			—			431			—			—		—			431
Net loss	—		—			—		—			—			—			(32,458		)	—		—			(32,458		)
BALANCE —December 31, 2010	105,395,641		$	1,051		382,632		$	4		$	927,435		$	(2,961	)	$	(398,146	)	(10,066,815	)	$	(131,065	)	$	396,318

BALANCE —March 31, 2011	105,771,507		$	1,055		382,632		$	4		$	936,295		$	(3,013	)	$	(411,228	)	(10,069,208	)	$	(131,095	)	$	392,018
Issuance of common stock to Elan Corporation, plc in connection with the purchase of Elan Drug Technologies	31,900,000		319			—		—			524,755			—			—			—		—			525,074
Issuance of common stock under employee stock plans	1,960,347		20			—		—			13,031			—			—			—		—			13,051
Receipt of Alkermes’ stock for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards	—		—			—		—			3,522			—			—			(197,856	)	(3,522		)	—
Share-based compensation expense	—		—			—		—			21,812			—			—			—		—			21,812
Excess tax benefit from share-based compensation	—		—			—		—			3,127			—			—			—		—			3,127
Conversion of non-voting common stock to common stock	382,632		4			(382,632	)	(4		)	—			—			—			—		—			—
Cancellation of treasury stock	(10,240,031	)	(102		)	—		—			(134,098		)	—			—			10,240,031		134,200			—
Unrealized gains on marketable securities, net of tax of $199	—		—			—		—			—			368			—			—		—			368
Unrealized loss on cash flow hedge, net of tax of $145	—		—			—		—			—			(276		)	—			—		—			(276		)
Net loss	—		—			—		—			—			—			(50,321		)	—		—			(50,321		)
BALANCE — December 31, 2011	129,774,455		$	1,296		—		$	—		$	1,368,444		$	(2,921	)	$	(461,549	)	(27,033	)	$	(417	)	$	904,853

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

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ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	December 31,
	2011			2010
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(50,321	)	$	(32,458	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization	27,251			6,210
Share-based compensation expense	21,743			15,196
Deferred income taxes	(11,239		)	—
Other non-cash charges	2,664			2,273
Changes in assets and liabilities, excluding the effect of acquisitions:
Receivables	(22,050		)	1,147
Inventory, prepaid expenses and other assets	(8,052		)	4,059
Accounts payable and accrued expenses	20,844			(4,928		)
Deferred revenue	1,398			1,007
Other long-term liabilities	—			(75		)
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount	—			(6,611		)
Cash flows used in operating activities	(17,762		)	(14,180		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(8,859		)	(8,029		)
Sales of property, plant and equipment	3			260
Acquisition of Elan Drug Technologies, net of cash acquired	(494,774		)	—
Investment in Acceleron Pharmaceuticals, Inc.	(231		)	(501		)
Purchases of investments	(159,322		)	(324,143		)
Sales and maturities of investments	267,604			349,546
Cash flows (used in) provided by investing activities	(395,579		)	17,133
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock for share-based compensation arrangements	13,051			1,982
Excess tax benefit from share-based compensation	3,127			—
Proceeds from the issuance of long-term debt	444,100			—
Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal	—			(45,397		)
Cash flows provided by (used in) financing activities	460,278			(43,415		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	46,937			(40,462		)
CASH AND CASH EQUIVALENTS — Beginning of period	38,394			79,324
CASH AND CASH EQUIVALENTS — End of period	$	85,331		$	38,862
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses	$	2,139		$	550
Investment in Civitas Therapeutics, Inc.	$	1,547		$	1,320

See Note 3 for supplemental disclosure of non-cash investing activities.

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

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (UNAUDITED)

1. THE COMPANY

Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. The Company has a diversified portfolio of more than 20 commercial drug products and a substantial clinical pipeline of product candidates that address central nervous system (“CNS”) disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes has a research and development center and corporate offices in Waltham, Massachusetts and manufacturing facilities in Athlone, Ireland; Gainesville, Georgia; and Wilmington, Ohio.

On September 16, 2011, the business of Alkermes, Inc. and the drug technologies business (“EDT”) of Elan Corporation, plc (“Elan”) were combined (this combination is referred to as the “Business Combination”, the “acquisition of EDT” or the” EDT acquisition”) in a transaction accounted for as a reverse acquisition with Alkermes, Inc. treated as the accounting acquirer. As a result, the historical financial statements of Alkermes, Inc. are included in the comparative prior periods. As part of the Business Combination, Antler Acquisition Corp., a wholly owned subsidiary of the Company, merged with and into Alkermes, Inc. (the “Merger”), with Alkermes, Inc. surviving as a wholly owned subsidiary of the Company. Prior to the Merger, EDT was carved-out of Elan and reorganized under the Company. At the effective time of the Merger, (i) each share of Alkermes, Inc. common stock then issued and outstanding and all associated rights were canceled and automatically converted into the right to receive one ordinary share of the Company; (ii) all then issued and outstanding options to purchase Alkermes, Inc. common stock granted under any stock option plan were converted into options to purchase, on substantially the same terms and conditions, the same number of ordinary shares of the Company at the same exercise price; and (iii) all then issued and outstanding awards of Alkermes, Inc. common stock were converted into awards of the same number, on substantially the same terms and conditions, of ordinary shares of the Company. As a result, upon consummation of the Merger and the issuance of the ordinary shares of the Company in exchange for the canceled shares of Alkermes, Inc. common stock, the former shareholders of Alkermes, Inc. owned approximately 75% of the Company, with the remaining approximately 25% of the Company owned by a subsidiary of Elan pursuant to the terms of a shareholder’s agreement.

Use of the terms such as “us,” “we,” “our,” “Alkermes” or the “Company” in this Quarterly Report on Form 10-Q is meant to refer to Alkermes plc and its subsidiaries, except when the context makes clear that the time period being referenced is prior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in the Commonwealth of Pennsylvania and traded on the NASDAQ Global Select Stock Market under the symbol “ALKS.”

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of Alkermes for the three and nine months ended December 31, 2011 and 2010 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, 2011. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”) (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to present fairly the results of operations for the reported periods. These financial statements should be read in conjunction with the financial statements and notes thereto of Alkermes, Inc. which are contained, or incorporated by reference, in Alkermes, Inc.’s Annual Report on Form 10-K for the year ended March 31, 2011, as amended, and the audited financial statements and notes thereto, which has been filed with the U.S. Securities and Exchange Commission (“SEC”) and Alkermes’ Registration Statement on Form S-4, as amended (Registration No. 333-175078), which was declared effective by the SEC on August 4, 2011. 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 plc and its wholly-owned subsidiaries: Alkermes Ireland Holdings Limited, Alkermes Pharma Ireland Limited, Alkermes U.S. Holdings, Inc., Alkermes, Inc., Eagle Holdings USA, Inc., Alkermes Gainesville LLC, Alkermes Controlled Therapeutics, Inc., Alkermes Europe, Ltd., Alkermes Finance Ireland Limited, Alkermes Finance S.A R.L. and Alkermes Finance Ireland (No. 2) Limited. Intercompany accounts and transactions have been eliminated.

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates and judgments and methodologies, including those related to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments and derivative instruments, litigation and restructuring charges. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Risk-management Instruments

On September 16, 2011, the Company entered into a $310.0 million first lien term loan facility (the “First Lien Term Loan”) and a $140.0 million second lien term loan facility (the “Second Lien Term Loan” and, together with the First Lien Term Loan, the “Term Loans”). Interest on the Term Loans is at a rate equal to an applicable margin plus three-month LIBOR. The Company addressed its risk to exposure to fluctuations in interest rates by entering into certain derivative financial instruments, the objective of which is to limit the impact of fluctuations in interest rates on earnings. The Company’s derivative activities are initiated within the guidelines of documented corporate risk management policies and do not create additional risk because gains and losses on derivative contracts offset losses and gains on the liabilities being hedged.

During the nine months ended December 31, 2011, the Company entered into an interest rate swap contract that was designated and qualified as a cash flow hedge. The Company reviews the effectiveness of its derivatives on a quarterly basis. The effective portion of gains or losses on the Company’s cash flow hedge is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period the hedged transaction affects earnings. Hedge ineffectiveness is immediately recognized in earnings.

During the nine months ended December 31, 2011, the Company entered into two interest rate cap contracts that were not designated as hedging instruments. The interest rate caps are recorded at fair value with associated gains or losses recognized in other income/(expense) during the period of change.

Segment Information

The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines designed to yield better therapeutic outcomes and improve the lives of patients with serious diseases. The Company’s chief decision maker, the Chairman 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.

Business Acquisitions

The Company’s condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired in-process research and development (“IPR&D”) be recorded on the balance sheet. Also, transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings.

Goodwill and Intangible Assets

Goodwill represents the excess cost of the Company’s investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the date of acquisition. The Company’s goodwill balance solely relates to the EDT acquisition in the fiscal year ended March 31, 2012, as described in Note 3, Acquisitions. Goodwill is not amortized but is tested for impairment annually or when events or circumstances indicate the fair value of a reporting unit may be below its carrying value. A reporting unit is an operating segment or sub-segment to which goodwill is assigned when initially recorded.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued guidance related to testing goodwill for impairment. This accounting standard allows an entity to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. An entity can choose to perform the qualitative assessment on none, some or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then resume performing the qualitative assessment in any subsequent period. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt the standard if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The Company chose to early adopt the provisions of this standard as it had not yet performed its annual impairment test, which the Company performs as of October 31 each year. The adoption of this standard did not impact the Company’s financial position or results of operations. As a result of the qualitative assessment performed as of October 31, 2011, the Company determined that it was not more-likely-than-not that the fair value of the reporting unit was less than its carrying amount, and an impairment of the Company’s goodwill was not recorded.

The Company’s finite-lived intangible assets consist of core developed technology and collaboration agreements and are recorded at fair value at the time of their acquisition and are stated within its condensed consolidated balance sheets net of accumulated amortization and impairments. The finite-lived intangible assets are amortized over their estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. The useful lives of the Company’s intangible assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the potential extension or renewal of the contract or patent. IPR&D represents the fair value assigned to research and development assets that were acquired prior to its completion. IPR&D is considered an indefinite-lived asset and is not amortized but is tested for impairment annually or when events or circumstances indicate the fair value may be below its carrying value. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. The Company’s intangible assets were all acquired as part of the EDT acquisition in the fiscal year ended March 31, 2012, as described in Note 3, Acquisitions.

Foreign Currency

The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the subsequent balance sheet date. Gains and losses as a result of translation adjustments are recorded within “Other income (expense)” in the accompanying condensed consolidated statement of operations and comprehensive loss.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In January 2010, the Company adopted accounting guidance issued by the FASB related to fair value measurements that requires additional disclosure related to transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, effective for the Company beginning on April 1, 2011, this standard further requires an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, the adoption of this newly issued accounting standard did not impact the Company’s financial position or results of operations.

On April 1, 2011, the Company prospectively adopted the accounting guidance related to the milestone method of revenue recognition for research and development arrangements. Under the milestone method, contingent consideration received from the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved, which the Company believes is more consistent with the substance of its performance under its various licensing and collaboration agreements. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to the entity. A milestone is substantive if the consideration earned from the achievement of the milestone is consistent with the Company’s performance required to achieve the milestone, or the increase in value to the collaboration resulting from the Company’s performance, relates solely to the Company’s past performance, and is reasonable relative to all of the other deliverables and payments within the arrangement. The Company’s license and collaboration agreements with its partners provide for payments to the Company upon the achievement of development milestones, such as the completion of clinical trials or regulatory approval for drug candidates. As of April 1, 2011, the Company’s agreements with partners included potential future payments for development milestones aggregating $17.0 million. Given the challenges inherent in developing and obtaining approval for pharmaceutical

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and biologic products, there was substantial uncertainty as to whether any such milestones would be achieved at the time these licensing and collaboration agreements were entered into. In addition, the Company evaluated whether the development milestones met the remaining criteria to be considered substantive. As a result of the Company’s analysis, the Company considers its development milestones to be substantive and, accordingly, the Company expects to recognize as revenue future payments received from such milestones as it achieves each milestone. The election to adopt the milestone method did not impact the Company’s historical financial position at April 1, 2011. This policy election may result in revenue recognition patterns for future milestones that are materially different from those recognized for milestones received prior to adoption. During the nine months ended December 31, 2011, the Company recognized into revenue $3.0 million upon the achievement of developmental milestones during this period. During the nine months ended December 31, 2011, the Company recognized into revenue an aggregate of $8.0 million upon the achievement of milestones where there were no remaining performance obligations under the associated agreements.

Milestone payments received prior to April 1, 2011 from arrangements where the Company has continuing performance obligations have been deferred and are recognized through the application of a proportional performance model where the milestone payment is recognized over the related performance period or, in full, when there are no remaining performance obligations. The Company makes its best estimate of the period of time for the performance period. The Company will continue to recognize milestone payments received prior to April 1, 2011 in this manner. As of December 31, 2011, the Company has deferred revenue of $5.0 million from milestone payments received prior to April 1, 2011 that will be recognized ratably through 2018.

In June 2011, the FASB issued guidance related to the presentation of comprehensive income. This accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this accounting standard do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This standard is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Company’s financial position or results of operations.

3. ACQUISITIONS

On September 16, 2011, the Company acquired EDT from Elan in a transaction accounted for under the acquisition method of accounting for business combinations, in exchange for $500.0 million in cash and 31.9 million ordinary shares of Alkermes, valued at $525.1 million based on a stock price of $16.46 per share on the acquisition date. Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded as of the acquisition date, at their respective fair values. The reported consolidated financial condition and results of operations after completion of the acquisition reflect these fair values. EDT’s results of operations are included in the consolidated financial statements from the date of acquisition.

Prior to the acquisition, EDT, which was a division of Elan, developed and manufactured pharmaceutical products that deliver clinical benefits to patients using EDT’s experience and proprietary drug technologies in collaboration with other pharmaceutical companies worldwide. EDT’s two principal drug technology platforms are the oral controlled release platform (“OCR”) and the bioavailability enhancement platform, including EDT’s NanoCrystal® technology. The Company acquired EDT to diversify its commercialized product portfolio and pipeline candidates, enhance its financial resources in order to invest in its proprietary drug candidates, pursue additional growth opportunities and reduce its cost of capital.

During the nine months ended December 31, 2011, the Company incurred approximately $26.7 million in expenses related to the EDT acquisition, which primarily consist of banking, legal, accounting and valuation-related expenses. These expenses have been recorded within “Selling, general and administrative expense” in the accompanying condensed consolidated statement of operations and comprehensive loss. During the three and nine months ended December 31, 2011, the Company’s results of operations included revenues of $74.4 million and $83.4 million and net income of $14.2 million and $14.9 million from the acquired EDT business.

The purchase price of the EDT business was as follows (in thousands):

Upfront payment in accordance with the merger agreement	$	500,000
Equity consideration in accordance with the merger agreement	525,074
Total purchase price	$	1,025,074

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The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the acquisition date based upon their respective fair values summarized below (in thousands):

Cash	$	5,225
Receivables	59,398
Inventory	29,669
Prepaid expenses and other current assets	1,806
Property plant and equipment	210,558
Acquired identifiable intangible assets	689,000
Goodwill	105,700
Other assets	4,360
Accounts payable and accrued expenses	(19,851		)
Deferred tax liabilities	(60,207		)
Other long-term liabilities	(584		)
Total	$	1,025,074

Asset categories acquired in the EDT acquisition included working capital, long-term assets and liabilities, fixed assets and identifiable intangible assets, including IPR&D. The allocation of the purchase price for the acquisition has been prepared on a preliminary basis and changes to that allocation may occur as additional information becomes available. During the three months ended December 31, 2011, the Company recorded an increase to goodwill of $0.7 million as a result of changes to the acquisition-date fair value of working capital, property, plant and equipment and acquired identifiable intangible asset accounts.

The intangible assets acquired include the following (in thousands):

Collaboration agreements	$	499,700
NanoCrystal technology	74,600
OCR technology	66,300
In-process research and development	45,800
Trademark	2,600
Total	$	689,000

Intangible assets associated with collaboration agreements relate to the several collaboration agreements EDT has in place with third-party pharmaceutical companies related to the development and commercialization of products or an improvement to existing products based on EDT’s experience with drug delivery systems and their technology platforms. Intangible assets associated with IPR&D relate to various preclinical EDT product candidates. The estimated fair value for the collaboration agreements and IPR&D was determined using the excess earnings approach. The excess earnings approach includes projecting revenue and costs attributable to the associated collaboration agreement or product candidate and then subtracting the required return related to other contributory assets used in the business to determine any residual excess earnings attributable to the collaboration agreement or product candidate. The after-tax excess earnings are then discounted to present value using an appropriate discount rate. The estimated useful life of the collaboration agreements is 12 years.

The NanoCrystal and OCR technologies are platform technologies that are used in both currently marketed products and potential future products currently under development. The estimated fair value of these technologies was determined using the relief from royalty method, an approach under which fair value is estimated to be the present value of royalties saved because the Company owns the intangible assets and therefore does not have to pay a royalty for its use. The estimated useful lives of the NanoCrystal and OCR technologies are 13 and 12 years, respectively.

The estimated fair value of the EDT trademark was determined using the relief from royalty method. The Company does not expect to use the EDT trademark beyond March 31, 2012 and, as a result, the Company will amortize the full value of the trademark over the remainder of the fiscal year.

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition of EDT has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. The factors that contributed to the recognition of goodwill included the synergies that are specific to the Company’s business and not available to market participants, including the Company’s unique ability to leverage

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its knowledge in the areas of drug delivery and development of innovative medicines to improve patients’ lives, the acquisition of a talented workforce that brings translational medicine expertise to the Company’s preclinical compounds and the Company’s ability to utilize its research capacity to develop additional compounds using the acquired technologies.

Pro forma financial information (unaudited)

The following unaudited pro forma information presents the combined results of operations for the three months ended December 31, 2010 and nine months ended December 31, 2011 and 2010 as if the acquisition of EDT had been completed on April 1, 2010. The unaudited pro forma results do not reflect any material adjustments, operating efficiencies or potential cost savings which may result from the consolidation of operations but do reflect certain adjustments expected to have a continuing impact on the combined results.

	Three Months
	Ended			Nine Months Ended
	December 31,			December 31,
(In thousands, except per share data)	2010			2011			2010

Revenues	$	122,507		$	368,570		$	333,194
Net loss	$	(7,683	)	$	(21,705	)	$	(31,631	)
Basic and diluted loss per common share	$	(0.06	)	$	(0.17	)	$	(0.25	)

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4. INVESTMENTS

Investments consist of the following:

			Gross Unrealized
					Losses
	Amortized				Less than			Greater than			Estimated
	Cost		Gains		One Year			One Year			Fair Value
	(In thousands)
December 31, 2011
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	90,420	$	103	$	(1	)	$	—		$	90,522
International government agency debt securities	20,580		47		(14		)	—			20,613
Corporate debt securities	11,065		41		—			—			11,106
	122,065		191		(15		)	—			122,241
Held-to-maturity securities:
Certificates of deposit	4,236		—		—			—			4,236
U.S. government obligations	417		—		—			—			417
	4,653		—		—			—			4,653
Money market funds	1,202		—		—			—			1,202
Total short-term investments	127,920		191		(15		)	—			128,096
Long-term investments:
Available-for-sale securities:
International government agency debt securities	11,095		—		(31		)	—			11,064
Corporate debt securities	8,010		—		—			(424		)	7,586
Strategic investments	644		31		—			—			675
	19,749		31		(31		)	(424		)	19,325
Held-to-maturity securities:
Certificates of deposit	1,200		—		—			—			1,200
	1,200		—		—			—			1,200
Total long-term investments	20,949		31		(31		)	(424		)	20,525
Total investments	$	148,869	$	222	$	(46	)	$	(424	)	$	148,621

March 31, 2011
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	$	117,298	$	129	$	(1	)	$	—		$	117,426
Corporate debt securities	20,973		48		—			(4		)	21,017
International government agency debt securities	23,048		236		—			—			23,284
	161,319		413		(1		)	(4		)	161,727
Money market funds	1,201		—		—			—			1,201
Total short-term investments	162,520		413		(1		)	(4		)	162,928
Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities	57,709		—		(804		)	—			56,905
International government agency debt securities	15,281		—		(93		)	—			15,188
Corporate debt securities	15,140		—		(29		)	(328		)	14,783
Strategic investments	644		31		—			—			675
	88,774		31		(926		)	(328		)	87,551
Held-to-maturity securities:
Certificates of deposit	5,440		—		—			—			5,440
U.S. government obligations	417		—		—			—			417
	5,857		—		—			—			5,857
Total long-term investments	94,631		31		(926		)	(328		)	93,408
Total investments	$	257,151	$	444	$	(927	)	$	(332	)	$	256,336

The Company’s strategic investments include common stock in public companies with which the Company has or had a collaborative arrangement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Nine Months Ended
	December 31,
(In thousands)	2011			2010
Proceeds from the sales and maturities of marketable securities	$	267,604		$	349,546
Realized gains	$	37		$	70
Realized losses	$	(11	)	$	(31	)

The Company’s available-for-sale and held-to-maturity securities at December 31, 2011 have contractual maturities in the following periods:

	Available-for-sale				Held-to-maturity
	Amortized		Estimated		Amortized		Estimated
(In thousands)	Cost		Fair Value		Cost		Fair Value
Within 1 year	$	70,038	$	70,107	$	5,853	$	5,853
After 1 year through 5 years	71,132		70,784		—		—
Total	$	141,170	$	140,891	$	5,853	$	5,853

At December 31, 2011, the Company believes that the unrealized losses on its available-for-sale investments are temporary. The investments with unrealized losses consist primarily of corporate debt securities. In making the determination that the decline in fair value of these 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 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 Company’s investment in Acceleron Pharma, Inc. (“Acceleron”) was $8.7 million and $8.5 million at December 31, 2011 and March 31, 2011, respectively, which is recorded within “Other assets” in the accompanying condensed consolidated balance sheets. 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.

The Company’s investment in Civitas Therapeutics, Inc. (“Civitas”) was $2.3 million and $1.3 million at December 31, 2011 and March 31, 2011, respectively, which is recorded within “Other assets” in the accompanying condensed consolidated balance sheets. The Company accounts for its investment in Civitas under the equity method as the Company has an approximately 11% ownership position in Civitas, has a seat on the board of directors and believes it may be able to exercise significant influence over the operating and financial policies of Civitas.

During the three months ended December 31, 2011, Civitas issued 14.3 million shares of Series A preferred stock in exchange for $12.5 million. The Company did not participate in the financing, however, it received 12.4% of these Series A preferred shares in accordance with the terms of its arrangement with Civitas and recorded an increase to its investment in Civitas of $1.5 million. The Company has deferred the recognition of the gain on its investment in Civitas and will recognize it into “other income”, ratably over a period of approximately four years, in the Company’s consolidated statement of operations. In addition, during the nine months ended December 31, 2011, the Company recorded a reduction in its investment in Civitas by $0.6 million, which represented the Company’s proportionate share of Civitas’ net losses for this period.

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5. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s assets and liabilities 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:

	December 31,
(In thousands)	2011			Level 1		Level 2			Level 3
Assets:
Cash equivalents	$	1,201		$	1,201	$	—		$	—
U.S. government and agency debt securities	90,522			90,522		—			—
International government agency debt securities	31,677			26,682		—			4,995
Corporate debt securities	18,692			—		11,106			7,586
Strategic equity investments	675			675		—			—
Interest rate cap contracts	111			—		111			—
Total	$	142,878		$	119,080	$	11,217		$	12,581

Liabilities:
Interest rate swap contract	$	(421	)	$	—	$	(421	)	$	—
Total	$	(421	)	$	—	$	(421	)	$	—

	March 31,
	2011		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	1,303	$	1,303	$	—	$	—
U.S. government and agency debt securities	174,331		174,331		—		—
Corporate debt securities	35,801		—		34,754		1,047
International government agency debt securities	38,471		38,471		—		—
Strategic equity investments	675		675		—		—
Total	$	250,581	$	214,780	$	34,754	$	1,047

There were no transfers or reclassifications of any securities between Level 1 and Level 2 during the nine months ended December 31, 2011. The following table illustrates the rollforward of the fair value of the Company’s investments whose fair value is determined using Level 3 inputs:

	Fair
(In thousands)	Value
Balance, April 1, 2011	$	1,047
Investments transferred into Level 3	11,603
Total unrealized losses included in comprehensive loss	(69		)
Balance, December 31, 2011	$	12,581

During the nine months ended December 31, 2011, there were two investments in corporate debt securities transferred into Level 3 from Level 2 as trading in these securities ceased during the period. Also, during the nine months ended December 31, 2011, there was one investment in an international government agency debt security transferred into Level 3 from Level 1 as trading in this security ceased during the period.

In September and December 2011, the Company entered into interest rate cap agreements, and in September 2011, the Company entered into an interest rate swap agreement. These agreements are described in greater detail in Note 11, Derivative Instruments. The fair value of the Company’s interest rate cap and interest rate swap agreements were based on an income approach, which excludes accrued interest, and takes into consideration then-current interest rates and then-current creditworthiness of the Company or the counterparty, as applicable.

Substantially all of the Company’s corporate debt securities have been classified as Level 2. These securities were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market observable data. The market observable data includes reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices developed using the market observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.

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The Company used a discounted cash flow model to determine the estimated fair value of its Level 3 securities. The assumptions used in the discounted cash flow model included estimates for interest rates, timing of cash flows, expected holding periods and risk-adjusted discount rates, which include provisions for default and liquidity risk, which the Company believes to be the most critical assumptions utilized within the analysis.

The 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 fair value of the remaining financial instruments not currently recognized at fair value on the Company’s condensed consolidated balance sheets consist of the Term Loans. The estimated fair value of the Term Loans, which was based on quoted market price indications, is as follows:

	Carrying		Estimated
(In thousands)	Value		Fair Value
First Lien Term Loan	$	307,314	$	308,838
Second Lien Term Loan	$	137,454	$	138,600

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:

	December 31,		March 31,
(In thousands)	2011		2011
Raw materials	$	14,259	$	3,100
Work in process	12,141		5,843
Finished goods (1)	19,209		11,127
Consigned-out inventory (2)	500		355
Total inventory	$	46,109	$	20,425

(1)		At December 31, 2011 and March 31, 2011, the Company had $1.2 million and $2.0 million, respectively, of finished goods inventory located at its third-party warehouse and shipping service provider.

(2)		At December 31, 2011 and March 31, 2011, consigned-out inventory relates to VIVITROL® inventory in the distribution channel for which the Company has not recognized revenue.

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	December 31,			March 31,
(In thousands)	2011			2011
Land	$	7,681		$	301
Building and improvements	140,488			36,792
Furniture, fixture and equipment	176,415			62,660
Leasehold improvements	45,762			44,779
Construction in progress	37,271			42,194
Subtotal	407,617			186,726
Less: accumulated depreciation	(105,005		)	(91,706		)
Total property, plant and equipment, net	$	302,612		$	95,020

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

		December 31, 2011
	Weighted	Gross		Accumulated			Net
(In thousands)	Amortizable Life	Carrying Amount		Amortization			Carrying Amount
Finite-lived intangible assets:
Collaboration agreements	12	$	499,700	$	(9,591	)	$	490,109
NanoCrystal technology	13	74,600		(995		)	73,605
OCR technology	12	66,300		(1,721		)	64,579
Trademark	—	2,600		(1,406		)	1,194
Total finite-lived intangible assets		643,200		(13,713		)	629,487
Indefinite-lived intangible assets:
IPR&D	—	45,800		—			45,800
Total		$	689,000	$	(13,713	)	$	675,287

The Company recorded goodwill of $105.7 million in September 2011 in connection with the acquisition of EDT. There were no changes to the initial carrying amount of the Company’s goodwill during the nine months ended December 31, 2011. The Company recorded $13.7 million of amortization expense related to its intangible assets during the nine months ended December 31, 2011. Based upon the Company’s most recent analysis, amortization of intangible assets included within its consolidated balance sheet as of December 31, 2011 is expected to be in the range of approximately $42.0 million to $76.0 million annually through fiscal year 2017.

As a result of the qualitative assessment performed as of October 31, 2011, the Company determined that it was not more-likely-than-not that the fair value of the reporting unit was less than its carrying amount, and an impairment of the Company’s goodwill was not recorded.

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	December 31,		March 31,
(In thousands)	2011		2011
Accounts payable	$	23,142	$	9,269
Accrued compensation	22,652		17,481
Accrued other	43,182		18,184
Total accounts payable and accrued expenses	$	88,976	$	44,934

10. LONG-TERM DEBT

Long-term debt consists of the following:

	December 31,			March 31,
(In thousands)	2011			2011
First Lien Term Loan, due September 16, 2017	$	307,314		$	—
Second Lien Term Loan, due September 16, 2018	137,454			—
Total	444,768			—
Less: current portion	(3,100		)	—
Long-term debt	$	441,668		$	—

On September 16, 2011, the Company and certain of its subsidiaries, as guarantors, entered into the Term Loans with Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent and as collateral agent, MSSF and HSBC Securities (USA) Inc., as co-syndication agents, joint lead arrangers and joint bookrunners, and various other financial institutions, as lenders. The First Lien Term Loan was issued with an original issue discount of $3.1 million, has a term of six years and is secured by a first priority lien on substantially all of the assets and properties of the Company and the guarantors. The Second Lien Term Loan was issued with an original issue discount of $2.8 million, has a term of seven years and is secured by a second priority lien on substantially all of the assets and properties of the Company and the guarantors.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Scheduled maturities with respect to the Term Loans are as follows (in thousands):

Fiscal Year:
2012	$	775
2013	3,100
2014	3,100
2015	3,100
2016	3,100
Thereafter	436,825
Total	$	450,000

The initial applicable margin for borrowings under the First Lien Term Loan is three-month LIBOR plus 5.25% with respect to LIBOR borrowings and 4.25% with respect to base rate borrowings. The initial applicable margin for borrowings under the Second Lien Term Loan is three-month LIBOR plus 8.00% with respect to LIBOR borrowings and 7.00% with respect to base rate borrowings. Under each of the Term Loans, LIBOR is subject to an interest rate floor of 1.50% and the base rate is subject to an interest rate floor of 2.50%. Commencing upon the completion of the Company’s first fiscal quarter ending after the Business Combination, the applicable margin under the First Lien Term Loan is subject to adjustment each fiscal quarter, based upon meeting a certain consolidated leverage ratio during the preceding quarter. The applicable margin under the Second Lien Term Loan is not subject to adjustment.

Required quarterly principal payments of $0.8 million on the First Lien Term Loan begin on March 31, 2012. In addition, beginning in fiscal year 2013, the Company is required to make principal payments on the First Lien Term Loan for amounts up to 50% of excess cash flows as defined in the First Lien Term Loan credit agreement. The principal amount of the Second Lien Term Loan is due and payable in full on the maturity date. The Company may make prepayments of principal without penalty; however, no principal payments may be made on the Second Lien Term Loan until the First Lien Term Loan has been repaid in full. If prepayments are made prior to September 16, 2012, the Company may be subject to prepayment premium of 1% of the amount of the term loans being repaid if the prepayment is made in connection with a refinancing transaction or 1% of the amount of the outstanding term loans if the prepayment is made in connection with an amendment to the agreement resulting in a refinancing transaction.

Each of the Term Loans has incremental capacity in an amount of $50.0 million, plus additional amounts so long as Alkermes meets certain conditions, including a specified leverage ratio. The agreements governing the Term Loans include a number of restrictive covenants that, among other things, and subject to certain exceptions and baskets, impose operating and financial restrictions on Alkermes, Inc., the Company and the restricted subsidiaries. These financing agreements also contain customary affirmative covenants and events of default. The Company was in compliance with its debt covenants at December 31, 2011.

As part of the Term Loans, the Company is required to enter into and thereafter maintain hedge agreements to the extent necessary to provide that at least 50% of the aggregate principal amount of the Term Loans is subject to either a fixed interest rate or interest rate protection for a period of not less than three years. Pursuant to this term, the Company entered into an interest rate swap agreement and interest rate cap agreements, which are discussed in greater detail in Note 11, Derivative Instruments.

The Company incurred $11.8 million of offering costs associated with the issuance of the Term Loans which were recorded under the caption “Other assets” in the accompanying condensed consolidated balance sheets. The offering costs and original issue discount related to the Term Loans are being amortized to interest expense over the estimated repayment terms using the effective interest method. During the nine months ended December 31, 2011, the Company had amortization expense of $2.1 million related to the offering costs and original issue discount.

11. DERIVATIVE INSTRUMENTS

In December 2011, the Company entered into an interest rate cap agreement with Morgan Stanley Capital Services LLC (“MSCS”) at a cost of $0.1 million to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Company’s Term Loans bear interest. The interest rate cap agreement expires in December 2013, has a notional value of $160.0 million and is not designated as a hedging instrument. The Company recorded an immaterial amount of gain as other income in the accompanying condensed consolidated statements of operations and comprehensive loss due to the increase in value of this contract during the three months ended December 31, 2011.

In July 2011, the Company entered into an interest rate cap agreement with HSBC Bank USA at a cost of less than $0.1 million to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Company’s Term Loans bear interest. The interest rate cap agreement became effective upon the issuance of the Term Loans, expires in December 2012, has a notional value of $65.0 million and is not designated as a hedging instrument. The Company recorded an immaterial amount of loss as other expense in the accompanying condensed consolidated statements of

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operations and comprehensive loss due to the decline in value of this contract during the three and nine months ended December 31, 2011.

In July 2011, the Company entered into an interest rate swap agreement with MSCS to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Company’s Term Loans bear interest. The interest rate swap agreement becomes effective in December 2012, expires in December 2014 and has a notional value of $65.0 million. This contract has been designated as a cash flow hedge and accordingly, to the extent effective, any unrealized gains or losses on this interest rate swap contract is reported in accumulated other comprehensive loss. To the extent the hedge is ineffective, hedge transaction gains and losses are reported in other income (expense), net when the interest payment on the related debt is recognized.

The following table summarizes the fair value and presentation in the consolidated balance sheets for derivatives designated and not designated as hedging instruments:

		Fair Value at
(In thousands)	Balance Sheet Location	December 31, 2011
Interest rate swap
Liability derivative designated as a cash flow hedge	Other long-term liabilities	$	(421	)

Interest rate caps
Asset derivatives not designated as a hedging instruments	Other long-term assets	$	111

The following table summarizes the effect of derivatives designated as hedging instruments on the condensed consolidated statements of operations and comprehensive loss:

				Amount
	Amount			Reclassified from
	Recognized in			Accumulated Other
	Accumulated Other			Comprehensive Loss		Amount of
	Comprehensive Loss			into Earnings		Loss Recorded
(In thousands)	(Effective Portion)			(Effective Portion)		(Ineffective Portion)
December 31, 2011	$	(421	)	$	—	$	—

The cash flow hedge was deemed to be effective at December 31, 2011. Accordingly, the Company included the loss incurred during the three and nine months ended December 31, 2011 within accumulated other comprehensive loss. The Company expects that when this contract matures, any amounts in accumulated other comprehensive loss is to be reported as an adjustment to interest expense. The Company considers the impact of its and MSCS’ credit risk on the fair value of the contract as well as the ability of each party to execute its obligations under the contract. As of December 31, 2011, credit risk did not materially change the fair value of the Company’s interest rate swap contract.

12. SHARE-BASED COMPENSATION

Share-based compensation expense consists of the following:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(In thousands)	2011		2010		2011		2010
Cost of goods manufactured and sold	$	801	$	385	$	1,886	$	1,271
Research and development	2,470		1,573		6,714		4,726
Selling, general and administrative	5,760		3,834		13,143		9,199
Total share-based compensation expense	$	9,031	$	5,792	$	21,743	$	15,196

At December 31, 2011 and March 31, 2011, $0.7 million and $0.6 million, respectively, of share-based compensation cost was capitalized and recorded as Inventory in the condensed consolidated balance sheets.

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. LOSS PER SHARE

Basic loss per common share is calculated based upon net loss available to holders of common shares divided by the weighted average number of shares outstanding. Diluted loss per common share is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method) and the vesting of unvested restricted stock units. Common equivalent shares have not been included in the net loss per common share calculations because the effect would have been anti-dilutive.

The potential common equivalent shares consisted of the following:

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
(In thousands)	2011	2010	2011	2010
Stock options	9,033	14,499	8,323	13,614
Restricted stock units	1,164	934	1,477	878
Total	10,197	15,433	9,800	14,492

14. INCOME TAXES

The Company recorded an income tax provision of $0.1 million and $3.7 million for the three and nine months ended December 31, 2011, respectively, and an income tax provision of less than $0.1 million and an income tax benefit of $1.0 million for the three and nine months ended December 31, 2010, respectively. During the nine months ended December 31, 2011, the Company recorded a $13.2 million current tax expense for the taxable transfer of the BYDUREONTM intellectual property from the U.S. to Ireland and a deferred tax benefit of $10.2 million in connection with the Business Combination, as the Company recorded a U.S. deferred tax liability in purchase accounting allowing for the partial release of an existing valuation allowance.

The Company records a deferred tax asset or liability based on the difference between the financial statement and tax basis of its assets and liabilities, as measured by enacted jurisdictional tax rates assumed to be in effect when these differences reverse. At December 31, 2011, the Company determined that it is more likely than not that its U.S. and Irish deferred tax assets may not be realized and a full valuation allowance has been recorded.

15. COMMITMENTS AND CONTINGENCIES

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. For example, we are currently involved in various sets of Paragraph IV litigations in the U.S. and similar suits in Canada and France in respect of certain of our products. 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, cash flows and financial condition.

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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 3 of this Quarterly Report on Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in (i) our Registration Statement on Form S-4, as amended (Registration No. 333-175078), which was declared effective by the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on August 4, 2011, (the “Registration Statement “) and (ii) the Alkermes, Inc. Annual Report on Form 10-K for the year ended March 31, 2011, as amended (the “Annual Report”), which has been filed with the SEC.

Alkermes plc develops medicines that address the unmet needs and challenges of people living with chronic disease. A fully integrated global biopharmaceutical company, Alkermes applies proven scientific expertise, proprietary technologies and global development capabilities to the creation of innovative treatments for major clinical conditions with a focus on central nervous system (CNS) disorders, such as schizophrenia, addiction and depression.

We create new, proprietary pharmaceutical products for our own account, and we collaborate with other pharmaceutical and biotechnology companies. We are increasingly focused on maintaining rights to commercialize our leading product candidates in certain markets. Each of these approaches is discussed in more detail in “Products and Development Programs.”

Our headquarters are located in Dublin, Ireland, and we operate R&D and GMP manufacturing facilities in Ireland and the U.S. Alkermes’ technologies are incorporated in over 20 commercial-stage products sold in over 90 countries.

Use of the terms such as “us,” “we,” “our” or the “Company” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to Alkermes plc and its subsidiaries, except when the context makes clear that the time period being referenced is prior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in the Commonwealth of Pennsylvania and traded on the NASDAQ under the symbol “ALKS.”

Forward-Looking Statements

This document contains and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, trend analyses and other information contained herein about the markets for the services and products and trends in revenue, as well as other statements identified by the use of forward-looking terminology, including “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue,” or the negative of these terms or other similar expressions, constitute forward-looking statements. These forward-looking statements are based on estimates reflecting the best judgment of senior management. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth herein. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include the following:

·		our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;

·		our expectations regarding the commercialization of our products, including the sales and marketing efforts of our partners and, for VIVITROL® (naltrexone for extended-release injectable suspension), our ability to establish and maintain successful sales and marketing, reimbursement and distribution arrangements;

·		our efforts and ability to evaluate and license product candidates and build our pipeline;

·		our expectations regarding our products, including the development, regulatory review (including expectations about regulatory approval and regulatory timelines) and therapeutic and commercial potential of such products and the costs and expenses related thereto;

·		our expectations regarding the initiation, timing and results of clinical trials of our products;

·		our expectations regarding the successful manufacture of our products, by us or our partners for commercial sale;

·		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 health care reform legislation and foreign currency exchange rate fluctuations and valuations;

·		the impact of new accounting pronouncements;

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·		our beliefs regarding Adjusted EBITDA;

·		our ability to protect our intellectual property rights and the impact of patent reform legislation;

·		our expectations regarding near-term changes in the nature of our market risk exposures or in management’s objectives and strategies with respect to managing such exposures;

·		our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt service obligations;

·		our expectations concerning the status, intended use, and financial impact of, and arrangements involving, our properties, including manufacturing facilities;

·		our future capital requirements and capital expenditures and our ability to finance our operations and capital requirements; and

·		other risk factors included herein and under “Risk Factors” in our Registration Statement and Quarterly Report on Form 10-Q for the period ended September 30, 2011.

Actual results might differ materially from those expressed or implied by these forward-looking statements because these forward-looking statements are subject to assumptions and uncertainties. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning the matters addressed in this document and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.

Executive Summary

For a more detailed discussion of the Business Combination, please refer to the notes to our condensed consolidated financial statements, including Note 1, The Company, and Note 3, Acquisitions, in the accompanying Notes to Condensed Consolidated Financial Statements.

The Business Combination is being accounted for using the acquisition method of accounting for business combinations with Alkermes, Inc. being treated as the accounting acquirer under accounting principles generally accepted in the U.S. (“GAAP”), which means that the operating results of Alkermes, Inc. are included for all periods being presented, whereas the operating results of the acquiree, EDT, are included only after the date of acquisition through the end of the period. Accordingly, our financial results for the nine months ended December 31, 2011 reflect the full nine months of operations of Alkermes, Inc., and the operations of the former EDT business from September 17, 2011 through December 31, 2011, together with the consolidated balance sheet as of December 31, 2011.

Net loss for the three months ended December 31, 2011, was $14.8 million, or $0.11 per common share — basic and diluted, as compared to a net loss of $11.4 million, or $0.12 per common share — basic and diluted, for the three months ended December 31, 2010. Net loss for the nine months ended December 31, 2011, was $50.3 million, or $0.46 per common share — basic and diluted, as compared to a net loss of $32.5 million, or $0.34 per common share — basic and diluted, for the nine months ended December 31, 2010.

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As a complement to GAAP results, we are also providing a non-GAAP measure of adjusted EBITDA (“Adjusted EBITDA”), which we believe better indicates underlying trends in ongoing operations. Adjusted EBITDA excludes from GAAP results the following: interest expense, taxes, depreciation and amortization, share-based compensation expense and certain noncash or nonrecurring items. For the three and nine months ended December 31, 2011, we had Adjusted EBITDA of $29.7 million and $45.9 million, respectively as compared to Adjusted EBITDA of $(4.0) million and $(8.7) million for the three and nine months ended December 31, 2010, respectively. Refer to the reconciliation of net loss as calculated under GAAP to Adjusted EBITDA under the caption “Non-GAAP Financial Measures.”

KEY COMMERCIAL PRODUCTS

We have five principal commercial products with long patent protection which either currently, or in the future, are expected to, contribute meaningfully to our revenues.

RISPERDAL® CONSTA®

RISPERDAL CONSTA (risperidone long-acting injection) is a product of Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen”), and is the first and only long-acting, atypical antipsychotic approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of schizophrenia and bipolar I disorder. The medication uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through one injection every two weeks. RISPERDAL CONSTA is marketed by Janssen and is sold in more than 90 countries, and is exclusively manufactured by us. We earn manufacturing revenues and royalties on worldwide sales of RISPERDAL CONSTA.

INVEGA® SUSTENNA®/XEPLION®

INVEGA SUSTENNA (paliperidone palmitate) extended-release injectable suspension is a product of Janssen and was approved in July 2009 in the U.S. for the acute and maintenance treatment of schizophrenia in adults. It is the first once-monthly, long-acting, injectable atypical antipsychotic approved for this use in the U.S. The medication uses our nanoparticle injectable extended-release technology to increase the rate of dissolution and enable the formulation of an aqueous suspension for once-monthly intramuscular administration. INVEGA SUSTENNA is manufactured and commercialized by Janssen. Paliperidone palmitate extended-release for injectable suspension is also approved in the European Union (“EU”) and other countries worldwide, and is commercialized in the EU under the trade name XEPLION. We earn royalties on worldwide sales of INVEGA SUSTENNA and XEPLION.

AMPYRA®/FAMPYRA®

Dalfampridine, marketed and sold in the U.S. under the trade name AMPYRA and outside the U.S. under the trade name FAMPYRA, was approved by the FDA in January 2010 as a treatment to improve walking in patients with multiple sclerosis (“MS”). It is the first and currently only product to be approved for this indication. A product of Acorda Therapeutics, Inc. (“Acorda”), it incorporates our OCR technology. AMPYRA and FAMPYRA are manufactured by us and are marketed in the U.S. by Acorda and outside the U.S. by Biogen Idec, Inc. FAMPYRA received conditional marketing approval in the EU in July 2011 and is currently being sold in select European countries, as well as Australia. We earn manufacturing revenues and royalties on worldwide sales of AMPYRA/FAMPYRA.

VIVITROL

We developed, manufacture and commercialize VIVITROL as the first and only once-monthly injectable medication for the treatment of alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. VIVITROL was approved by the FDA in April 2006 for the treatment of alcohol dependence and was launched in the U.S. in June 2006. VIVITROL was approved for the prevention of relapse to opioid dependence following opioid detoxification in October 2010. We exclusively licensed the rights to commercialize VIVITROL in Russia and the Commonwealth of Independent States (“CIS”) to Cilag GmbH International in December 2007, and VIVITROL has been available in Russia for the treatment of alcohol dependence since March 2009 and for the prevention of relapse to opioid dependence following opioid detoxification, since April 2011.

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In November 2011, we announced positive results from a one-year, open-label extension of our six-month pivotal study of VIVITROL. This study showed sustained efficacy of VIVITROL, as measured by the number of opioid-free urine screens, in patients who received VIVITROL, in combination with psychosocial treatment, for a total of 18 months of treatment. Additionally, all safety events observed during the open-label extension were consistent with those set forth in the approved product labeling. During the total observation period of 18 months, improvements during the six-month pivotal trial observed in patients treated with VIVITROL were maintained for the duration of the subsequent one-year, open-label extension study. Approximately half of the patients (49%) who entered the one-year extension study, after receiving six months of VIVITROL in the pivotal study, were completely abstinent for the duration of the extension study, based on opioid-free urine screens.

BYDUREONTM

We collaborated with Amylin Pharmaceuticals, Inc. (“Amylin”) on the development of a once-weekly formulation of exenatide, called BYDUREON, for the treatment of type 2 diabetes. BYDUREON, an injectable formulation of Amylin's BYETTA® (exenatide), uses our polymer-based microsphere injectable extended-release technology. Amylin is responsible for commercializing exenatide products, including BYDUREON, in the U.S. Eli Lilly and Company (“Lilly”) has exclusive rights to commercialize exenatide products outside of the U.S. until December 31, 2013, or such earlier date as agreed upon between Lilly and Amylin pursuant to the terms of their transition agreement.

In June 2011, the European Commission granted marketing authorization for BYDUREON for the treatment of type 2 diabetes in adult patients in combination with metformin, a sulfonylurea, a thiazolidinedione, metformin plus a sulfonylurea or metformin plus a thiazolidinedione. In July 2011, Lilly launched BYDUREON in the United Kingdom, and in September 2011, BYDUREON was launched in Germany. We received a $7.0 million milestone payment upon first commercial sale of BYDUREON in the EU, which was recognized during the three months ended September 30, 2011.

In January 2012, the FDA approved BYDUREON as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes. We will receive an additional $7.0 million milestone payment upon first commercial sale of BYDUREON in the U.S. BYDUREON is expected to be launched in February 2012.

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OTHER COMMERCIAL PRODUCTS

We expect revenues from our other commercial products, set forth in the table below, to decrease in the future due to existing and expected competition from generic manufacturers. For a more detailed discussion of current and expected future revenue contribution of such products, please refer to the “Results of Operations” section in this Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Marketer	Product	Indication	Technology	Territory	Revenue Source
Abbott Laboratories	TriCor® Lipanthyl® Lipidil Supralip	Cholesterol lowering	NanoCrystal	Worldwide	Royalty

Acorda Therapeutics, Inc.	Zanaflex® Capsules ZANAFLEX TABLETS	Muscle spasticity	OCR (SODAS)	United States	Manufacturing and Royalty

Pfizer Inc.	Avinza®	Chronic pain	OCR (SODAS)	United States	Manufacturing and Royalty