10-Q 1 b40082aie10-q.txt ALKERMES, INC. 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] 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 0-19267 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.) 64 Sidney Street, Cambridge, MA 02139-4136 ------------------------------------------ ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (617) 494-0171 --------------------------- Not Applicable ------------------------------------------------------------------------------ (Former name, former address, and former fiscal year, if changed since last report) 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 ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Shares Outstanding as of Class August 6, 2001 ----- ------------------------ Common Stock, par value $.01 63,327,036 Non-Voting Common Stock, par value $.01 382,632

2 ALKERMES, INC. AND SUBSIDIARIES INDEX

Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3 - June 30, 2001 and March 31, 2001 Consolidated Statements of Operations 4 - Three months ended June 30, 2001 and 2000 Consolidated Statements of Cash Flows 5 - Three months ended June 30, 2001 and 2000 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 9 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16

(2) 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: ALKERMES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)

June 30, March 31, 2001 2001 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 10,674,486 $ 5,923,282 Short-term investments 269,550,512 249,004,850 Receivables from collaborative arrangements 17,084,017 10,951,763 Prepaid expenses and other current assets 4,715,215 5,726,610 ------------- ------------- Total current assets 302,024,230 271,606,505 ------------- ------------- Property, Plant and Equipment: Land 235,000 235,000 Building 5,002,783 4,888,469 Furniture, fixtures and equipment 45,012,040 43,432,360 Leasehold improvements 14,595,457 14,401,828 Construction in progress 1,117,360 562,331 ------------- ------------- 65,962,640 63,519,988 Less accumulated depreciation and amortization (29,313,894) (27,200,590) ------------- ------------- 36,648,746 36,319,398 ------------- ------------- Investments 34,676,793 73,416,252 ------------- ------------- Other Assets 11,203,364 9,955,060 ------------- ------------- Total Assets $ 384,553,133 $ 391,297,215 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 9,363,530 $ 9,414,327 Accrued interest 4,166,891 2,158,087 Deferred revenue 7,943,854 8,523,326 Long-term obligations - current portion 10,716,626 10,966,626 ------------- ------------- Total current liabilities 32,190,901 31,062,366 ------------- ------------- Long-Term Obligations 10,725,000 11,825,000 ------------- ------------- Convertible Subordinated Notes 200,000,000 200,000,000 ------------- ------------- Shareholders' Equity: Capital stock, par value $.01 per share: authorized, 4,550,000 shares; none issued Common stock, par value $.01 per share: authorized, 160,000,000 shares; issued, 63,327,036 and 63,124,248 shares at June 30, 2001 and March 31, 2001, respectively 633,270 631,243 Non-voting common stock, par value $.01 per share: authorized, 450,000 shares; issued, 382,632 at June 30, 2001 and March 31, 2001 3,826 3,826 Additional paid-in capital 428,638,948 427,129,226 Deferred compensation (964,730) (1,024,303) Accumulated other comprehensive income 4,178,545 4,179,938 Accumulated deficit (290,852,627) (282,510,081) ------------- ------------- Total shareholders' equity 141,637,232 148,409,849 ------------- ------------- Total Liabilities and Shareholders' Equity $ 384,553,133 $ 391,297,215 ============= =============

See notes to consolidated financial statements. (3) 4 ALKERMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Three Months Ended Ended June 30, June 30, 2001 2000 ------------ ------------ Revenues: Research and development revenue under collaborative arrangements $15,526,675 $28,966,945 ------------ ------------ Expenses: Research and development 20,710,031 14,439,893 General and administrative 5,374,278 4,816,957 Noncash compensation expense - attributed to research and development -- 3,149,334 ------------ ------------ Total expenses 26,084,309 22,406,184 ------------ ------------ Net operating (loss) income (10,557,634) 6,560,761 ------------ ------------ Other income (expense): Interest income 4,525,015 5,598,966 Interest expense (2,309,927) (2,395,180) ------------ ------------ 2,215,088 3,203,786 ------------ ------------ Net (loss) income (8,342,546) 9,764,547 Preferred stock dividends -- 1,867,877 ------------ ------------ Net (loss) income attributable to common shareholders ($8,342,546) $7,896,670 ============ ============ (Loss) earnings per common share: Basic ($0.13) $0.15 ============ ============ Diluted ($0.13) $0.13 ============ ============ Weighted average common shares used to compute (loss) earnings per common share: Basic 63,236,893 53,957,017 ============ ============ Diluted 63,236,893 59,856,383 ============ ============

See notes to consolidated financial statements. (4) 5 ALKERMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Three Months Ended Ended June 30, June 30, 2001 2000 ------------ ------------ Cash flows from operating activities: Net (loss) income ($ 8,342,546) $ 9,764,547 Adjustments to reconcile net (loss) income to net cash used by operating activities: Depreciation and amortization 2,313,341 1,630,930 Noncash interest expense 138,730 116,116 Compensation relating to issuance of common stock and grant of stock options and awards made -- 3,149,334 Adjustments to other assets 250,447 261,646 Changes in assets and liabilities: Receivables from collaborative arrangements (6,132,254) (27,417,230) Prepaid expenses and other current assets 1,011,462 (1,578,488) Accounts payable and accrued expenses 1,818,670 3,078,272 Deferred revenue (579,472) (200,035) Other long-term liabilities -- (19,898) ------------ ------------ Net cash used by operating activities (9,521,622) (11,214,806) ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment (2,441,554) (1,311,452) Purchases of available-for-sale short-term investments (69,221,396) -- Sales of available-for-sale short-term investments 66,764,763 -- (Purchases) maturities of held-to-maturity short-term investments, net (19,309,847) 9,348,594 Maturities of long-term investments, net 38,739,459 5,970,206 Increase in other assets (300,000) (186,456) ------------ ------------ Net cash provided by investing activities 14,231,425 13,820,892 ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock 1,402,349 107,453 Payment of long-term obligations (1,350,000) (1,425,000) Payment of preferred stock dividends -- (1,867,877) ------------ ------------ Net cash provided by (used by) financing activities 52,349 (3,185,424) ------------ ------------ Effect of exchange rate changes on cash (10,948) (31,251) ------------ ------------ Net increase (decrease) in cash and cash equivalents 4,751,204 (610,589) Cash and cash equivalents, beginning of period 5,923,282 6,100,643 ------------ ------------ Cash and cash equivalents, end of period $ 10,674,486 $ 5,490,054 ============ ============ Supplementary information: Cash paid for interest $ 301,123 $ 408,416 ============ ============

See notes to consolidated financial statements. (5) 6 ALKERMES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements of Alkermes, Inc. (the "Company") for the three months ended June 30, 2001 and 2000 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2001, which includes consolidated financial statements and notes thereto for the years ended March 31, 2001, 2000 and 1999. In addition, the financial statements include the accounts of Alkermes Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, Advanced Inhalation Research, Inc. ("AIR"), Alkermes Investments, Inc., Alkermes Europe, Ltd. and Alkermes Development Corporation II ("ADC II"), wholly owned subsidiaries of the Company. 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. The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. COMPREHENSIVE INCOME (LOSS) Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes certain changes in the equity of the Company that are excluded from net income (loss). Specifically, other comprehensive income includes unrealized holding gains and losses on the Company's "available-for-sale" securities and changes in cumulative foreign currency translation adjustments. Comprehensive income (loss) for the three months ended June 30, 2001 and 2000 is as follows:

Three Months Three Months Ended Ended June 30, 2001 June 30, 2000 ------------- ------------- Net (loss) income ($8,342,546) $9,764,547 Cumulative foreign currency translation adjustments (10,575) (27,108) Unrealized gain on marketable securities 9,182 145,250 ----------- ----------- Comprehensive (loss) income ($8,343,939) $9,882,689 =========== ===========

(6) 7 The accumulated other comprehensive income is as follows: Balance, March 31, 2001 $4,179,938 Change for the three months ended June 30, 2001 (1,393) ----------- Balance, June 30, 2001 $4,178,545 =========== 3. NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities" on April 1, 2001. The adoption did not have any impact on the financial position and results of operations. In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 will be effective for any business combinations initiated after June 30, 2001. SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The adoption of SFAS No. 141 is not expected to have an effect on the Company's financial position or results of operations as it does not currently have any goodwill on its consolidated balance sheet. The adoption of SFAS No. 142 is not expected to have a significant impact on the Company's financial position or results of operations. 4. EARNINGS PER SHARE Basic net (loss) income per share is based on the weighted average number of common shares outstanding. For the three months ended June 30, 2001, diluted net loss per common share was the same as basic net loss per common share as the inclusion of the weighted average number of shares of common stock issuable upon the exercise of stock options, which total 9,455,725 shares, and 2,952,030 shares of common stock issuable upon conversion of the 3-3/4% Convertible Subordinated Notes due 2007 (the "3-3/4% Notes") would have been antidilutive. For the three months ended June 30, 2000, the difference between basic and diluted shares used in the computation of earnings per common share was 5,899,366 common equivalent shares. These securities include options to purchase 5,516,734 shares of common stock and 382,632 shares of common stock issuable upon conversion of non-voting common stock. Certain securities have been excluded from the computation of diluted earnings per common share for the three months ended June 30, 2000 because they would have an antidilutive effect on earnings per common share. These securities include 7,760,251 shares of common stock issuable upon conversion of the then outstanding convertible exchangeable preferred stock and 2,952,030 shares of common stock for issuance upon conversion of the 3-3/4% Notes. (7) 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Alkermes, Inc. (together with our subsidiaries, "we" or "us") is a leader in the development of products based on sophisticated drug delivery technologies. We have several areas of focus, including: (i) controlled, sustained-release of injectable drugs lasting several days to several weeks, utilizing our ProLease(R) and Medisorb(R) technologies and (ii) the development of pharmaceutical products based on our proprietary Advanced Inhalation Research, Inc. ("AIR(TM)") pulmonary technology. Our first product, Nutropin Depot(TM), was launched in the United States by our partner, Genentech, Inc. ("Genentech"), in June 2000. Nutropin Depot is a long-acting form of Genentech's recombinant human growth hormone using our ProLease technology. Since our inception in 1987, we have devoted substantially all of our resources to research and development programs. We expect to incur substantial additional operating losses over the next few years. At June 30, 2001, we had an accumulated deficit of $290.9 million. We have funded our operations primarily through public offerings and private placements of debt and equity securities, bank loans and payments under research and development agreements with collaborators. We historically have developed our product candidates in collaboration with others on whom we relied for funding, development and/or marketing. While we continue to develop product candidates in collaboration with others, we have begun to expand the development of our proprietary product candidates which we fund on our own. FORWARD-LOOKING STATEMENTS Any statements herein or otherwise made in writing or orally by us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words like "believe," "expect," "may," "will," "should," "seek," or "anticipate," and similar expressions. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, our business is subject to significant risks and there can be no assurance that actual results of our development and manufacturing activities and our results of operations will not differ materially from our expectations. Factors which could cause actual results to differ from expectations include, among others: (i) we may be unable to continue to manufacture our first product, Nutropin Depot, or to manufacture future products on a commercial scale or economically; (ii) Nutropin Depot may not produce significant revenues and, in commercial use, may have unintended side effects, adverse reactions or incidents of misuse; (iii) our collaborators could elect to terminate or delay programs at any time; (iv) even if clinical trials are completed and the data is submitted to the United States Food and Drug Administration ("FDA") as a New Drug Application ("NDA") for marketing approval and to other health authorities as a marketing authorization application, the NDA or marketing authorization application could fail to be accepted, or could fail to receive approval on a timely basis, if at all; (v) 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; (vi) our (8) 9 product candidates could be ineffective or unsafe during clinical trials; (vii) disputes with collaborators or failure to negotiate acceptable new collaborative arrangements for our technologies could occur; (viii) 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; (ix) technological change in the biotechnology or pharmaceutical industries could render our product candidates obsolete or noncompetitive; (x) difficulties or set-backs in obtaining and enforcing our patents and difficulties with the patent rights of others could occur; (xi) we could incur difficulties or set-backs in obtaining the substantial additional funding required to continue research and development programs and clinical trials; and (xii) disputes with Alkermes Clinical Partners, L.P. ("Clinical Partners") over rights to Cereport(R) and related technology could occur. RESULTS OF OPERATIONS Our research and development revenue under collaborative arrangements for the three months ended June 30, 2001 was $15.5 million as compared to $29.0 million for the corresponding period of the prior year. The decrease in such revenue was the result of non-recurring milestone revenues earned in the three months ended June 30, 2000. Despite the decrease from the prior period, there was an increase in funding earned and a milestone payment earned under other collaborative agreements. Total operating expenses were $26.1 million for the three months ended June 30, 2001 as compared to $22.4 million for the three months ended June 30, 2000. The increase for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000 was primarily related to an increase in research and development expenses which is discussed below. Research and development expenses for the three months ended June 30, 2001 were $20.7 million as compared to $14.4 million for the corresponding period of the prior year. The increase in research and development expenses for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000 was mainly the result of increases in headcount, external research expenses and lab supplies as we advance our proprietary product candidates and our collaborators' product candidates through development, clinical trials and commercialization. There was also an increase in occupancy costs and depreciation expense as we continue to expand our facilities in both Massachusetts and Ohio. We expect an increase in research and development expenses during fiscal 2002 resulting from the development of our proprietary product candidates and collaborative product candidates. General and administrative expenses for the three months ended June 30, 2001 were $5.4 million as compared to $4.8 million for the corresponding period of the prior year. The increase in the three months ended June 30, 2001 as compared to the three months ended June 30, 2000 was primarily a result of an increase in personnel as well as increased professional fees and consulting costs. There was a significant decrease in noncash compensation expense for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000. The decrease was a result of a (9) 10 significant number of shares of common stock and stock options vesting during the three months ended March 31, 2001, resulting in a nominal amount of noncash compensation expense during the quarter ended June 30, 2001. Noncash compensation charges primarily relate to common stock issued and stock options granted to certain employees, consultants and other individuals associated with our wholly owned subsidiary, Advanced Inhalation Research (AIR(TM)), prior to our acquisition in February 1999. Interest income for the three months ended June 30, 2001 was $4.5 million as compared to $5.6 million for the corresponding period of the prior year. The decrease in such income for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000 was primarily the result of a decreased average cash and investment balance as compared to the prior year. Interest income also decreased as a result of a decrease in interest rates as compared to the same prior year period. Interest expense for the three months ended June 30, 2001 was $2.3 million as compared to $2.4 million for the corresponding period of the prior year. The decrease in interest expense for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000 was primarily the result of a decrease in the outstanding debt balance as compared to the prior year. We do not believe that inflation and changing prices have had a material impact on our results of operations. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents and short-term investments were approximately $280.2 million at June 30, 2001 as compared to $254.9 million at March 31, 2001. The increase in cash and cash equivalents and short-term investments was primarily the result of investments classified as long-term at March 31, 2001 now having a maturity period of less than 12 months which as a result are classified as short-term investments at June 30, 2001. There was also an increase in cash and short-term investments due to the receipt of the net proceeds from the exercise of stock options and a milestone payment received from a collaborator. The increase in cash and short-term investments was partially offset by cash used to fund our operations, to make interest and principal payments on our indebtedness and to acquire fixed assets. We invest in cash equivalents, U.S. Government obligations, high-grade corporate notes and commercial paper. Our investment objectives for all of our investments taken as a whole are, first, to assure conservation of capital and liquidity, and second, to obtain investment income. Investments classified as "held-to-maturity" include $28.3 million principal amount of high-grade corporate notes and U.S. Government obligations with maturities ranging from 14 to 17 months. We have funded our operations primarily through public offerings and private placements of debt and equity securities, bank loans and payments under research and development agreements with collaborators. We expect to incur significant additional research and development and other costs in connection with collaborative arrangements and as we expand the development of our proprietary product candidates, including costs related to preclinical studies, clinical trials and facilities expansion. Therefore, we expect that our costs, including research and development costs for our product candidates, will exceed revenues significantly for the next few years, which will result in continuing losses from operations. (10) 11 Capital expenditures were approximately $2.4 million for the three months ended June 30, 2001, principally reflecting equipment purchases and building improvements. We expect our capital expenditures to increase significantly during fiscal year 2002 as we expand our facilities in both Massachusetts and Ohio. Our capital expenditures for equipment, facilities and building improvements have been financed to date primarily with proceeds from bank loans and the sales of debt and equity securities. Under the provisions of the existing loans, Fleet National Bank has a security interest in certain of our assets which secure the outstanding obligations under the loans. We will continue to pursue opportunities to obtain additional financing in the future. Such financing may be sought through various sources, including debt and equity offerings, corporate collaborations, bank borrowings, lease arrangements relating to fixed assets or other financing methods. The source, timing and availability of any financings will depend on market conditions, interest rates and other factors. Our future capital requirements will also depend on many factors, including continued scientific progress in our research and development programs (including our proprietary product candidates), the magnitude of these programs, progress with preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the establishment of additional collaborative arrangements, the cost of manufacturing facilities and of commercialization activities and arrangements and the cost of product in-licensing and any possible acquisitions. We may need to raise substantial additional funds for longer-term product development, including development of our proprietary product candidates, regulatory approvals and manufacturing or marketing activities that we might undertake in the future. There can be no assurance that additional funds will be available on favorable terms, if at all. If adequate funds are not available, we may be required to curtail significantly one or more of our research and development programs and/or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or future products. ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities" on April 1, 2001. The adoption did not have any impact on the financial position and results of operations. In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 will be effective for any business combinations initiated after June 30, 2001. SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The adoption of SFAS No. 141 is not expected to have an effect on our financial position or results of operations as we do not currently have any goodwill on our consolidated balance sheet. The adoption of SFAS No. 142 is not expected to have a significant impact on our financial position or results of operations. (11) 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As part of our investment portfolio we own financial instruments that are sensitive to market risks. The investment portfolio is used to preserve our capital until it is required to fund operations, including our research and development activities. Our short-term investments and investments consist of U.S. Government obligations, high-grade corporate notes and commercial paper. The amount of the short-term investment portfolio that is "held-to-maturity" is comprised of investments that mature within one year, are not callable by the issuer and have fixed interest rates. Our investments are subject to interest rate risk, and could decline in value if interest rates increase. Due to the conservative nature of our short-term investments and investments we do not believe that we have a material exposure to interest rate risk. Although our investments are subject to credit risk, our investment policies specify credit quality standards for our investments and limit the amount of credit exposure from any single issue, issuer or type of investment. Our "available-for-sale" marketable securities are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase of the financial instrument. A 10% decrease in year-end market interest rates would result in no material impact on the net fair value of such interest-sensitive financial instruments. The interest rates on our 3-3/4% Notes are fixed and, therefore, are not subject to interest rate risk. (12) 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders of the Company held on July 26, 2001, the holders of Common Stock approved an amendment to the 1999 Stock Option Plan to increase to 9,900,000 the number of shares issuable upon exercise of options granted thereunder, an increase of 2,500,000 shares. There were 38,693,493 votes for, and 16,308,906 votes against, the amendment of the plan, no broker non-votes and 68,354 abstentions. Also at the Annual Meeting of Shareholders, the holders of Common Stock elected the following as directors for terms of one year expiring on the date of the 2002 Annual Meeting or until their respective successors are duly elected and shall qualify:

Votes Authority Nominee For Withheld ------- --- -------- Floyd E. Bloom 52,939,223 2,131,530 Robert A. Breyer 54,040,052 1,030,701 John K. Clarke 54,269,708 801,045 Richard F. Pops 49,410,812 5,659,941 Alexander Rich 52,940,163 2,130,590 Paul Schimmel 52,927,195 2,143,558 Michael A. Wall 52,959,320 2,111,433

(13) 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:

Number Exhibit ------ ------- 3.1 Third Amended and Restated Articles of Incorporation as filed with the Pennsylvania Secretary of State on June 7, 2001. (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended March 31, 2001). 3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of February 11, 2001. (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 10-K for the fiscal year ended March 31, 2001). 4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-1, as amended (File No. 33-40250)). 4.2 Specimen of Non-Voting Common Stock Certificate of Alkermes, Inc. (Incorporated by reference to Exhibit 4.4 to the Company's Report on Form 10-K for the fiscal year ended March 31, 1999). 4.3 Indenture, dated as of February 18, 2000, between Alkermes, Inc. and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-3, as amended (File No. 333-31354)).

(b) During the quarter ended June 30, 2001, the Company filed no Reports on Form 8-K. (14) 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALKERMES, INC. (Registrant) Date: August 14, 2001 By: /s/ Richard F. Pops ------------------------ Richard F. Pops Chief Executive Officer and Director (Principal Executive Officer) Date: August 14, 2001 By: /s/ James M. Frates ------------------------- James M. Frates Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) (15) 16 EXHIBIT INDEX

Exhibit Number Description ------ ----------- 3.1 Third Amended and Restated Articles of Incorporation as filed with the Pennsylvania Secretary of State on June 7, 2001. (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended March 31, 2001). 3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of February 11, 2001. (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 10-K for the fiscal year ended March 31, 2001). 4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-1, as amended (File No. 33-40250)). 4.2 Specimen of Non-Voting Common Stock Certificate of Alkermes, Inc. (Incorporated by reference to Exhibit 4.4 to the Company's Report on Form 10-K for the fiscal year ended March 31, 1999). 4.3 Indenture, dated as of February 18, 2000, between Alkermes, Inc. and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-3, as amended (File No. 333-31354)).

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