UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

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

Commission File Number 001-35299

ALKERMES PLC

(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)

011-353-1-709-4000
(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 o No þ

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 þ 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 þ		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 þ

The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of November 1, 2011, was 129,585,141 shares.

 

 

ALKERMES PLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):			3
Condensed Consolidated Balance Sheets — September 30, 2011 and March 31, 2011			3
Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three and Six Months Ended September 30, 2011 and 2010			4
Condensed Consolidated Statement of Shareholders’ Equity For the Six Months Ended September 30, 2011			5
Condensed Consolidated Statements of Cash Flows — For the Six Months Ended September 30, 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 Disclosures about Market Risk			32
Item 4. Controls and Procedures			33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 5. Other Information			34
Item 6. Exhibits			34
Signatures			35
Exhibit Index
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

		September 30,				March 31,
		2011				2011
		(In thousands, except share and per
		share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	89,237			$	38,394
Investments — short-term			126,327				162,928
Receivables			79,644				22,969
Inventory			47,118				20,425
Prepaid expenses and other current assets			13,382				8,244
Total current assets			355,708				252,960
PROPERTY, PLANT AND EQUIPMENT NET			304,611				95,020
INTANGIBLE ASSETS NET			687,983				—
GOODWILL			104,989				—
INVESTMENTS — LONG-TERM			24,990				93,408
OTHER ASSETS			25,822				11,060
TOTAL ASSETS		$	1,504,103			$	452,448
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	83,750			$	44,934
Deferred revenue — current			4,249				3,123
Long-term debt— current			2,325				—
Total current liabilities			90,324				48,057
LONG-TERM DEBT			441,859				—
DEFERRED REVENUE — LONG-TERM			4,359				4,837
DEFERRED TAX LIABILITIES — LONG-TERM			49,829				—
OTHER LONG-TERM LIABILITIES			8,052				7,536
Total liabilities			594,423				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 September 30, 2011 and March 31, 2011, respectively			—				—
Common stock, par value, $0.01 per share; 450,000,000 and 160,000,000 shares authorized; 129,584,585 and 105,771,507 shares issued; 129,584,585 and 95,702,299 shares outstanding at September 30, 2011 and March 31, 2011, respectively			1,294				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 September 30, 2011 and March 31, 2011, respectively			—				4
Treasury stock, at cost (none and 10,069,208 shares at September 30, 2011 and March 31, 2011, respectively)			—				(131,095	)
Additional paid-in capital			1,358,023				936,295
Accumulated other comprehensive loss			(2,916	)			(3,013	)
Accumulated deficit			(446,721	)			(411,228	)
Total shareholders’ equity			909,680				392,018
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,504,103			$	452,448

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

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(In thousands, except per share amounts)
REVENUES:
Manufacturing and royalty revenues		$	54,039			$	42,623			$	102,979			$	78,431
Product sales, net			9,887				6,469				19,573				12,673
Research and development revenue			8,052				155				11,309				423
Total revenues			71,978				49,247				133,861				91,527
EXPENSES:
Cost of goods manufactured and sold			17,530				13,911				33,749				26,576
Research and development			28,160				23,932				56,210				46,909
Selling, general and administrative			36,234				18,436				67,731				38,162
Amortization of acquired intangible assets			1,817				—				1,817				—
Total expenses			83,741				56,279				159,507				111,647
OPERATING LOSS			(11,763	)			(7,032	)			(25,646	)			(20,120	)
OTHER (EXPENSE), NET:
Interest income			383				673				885				1,525
Interest expense			(7,561	)			(2,168	)			(7,561	)			(3,298	)
Other income (expense), net			336				(82	)			425				(183	)
Total other (expense), net			(6,842	)			(1,577	)			(6,251	)			(1,956	)
LOSS BEFORE INCOME TAXES			(18,605	)			(8,609	)			(31,897	)			(22,076	)
INCOME TAX PROVISION (BENEFIT)			3,650				(943	)			3,596				(1,001	)
NET LOSS		$	(22,255	)		$	(7,666	)		$	(35,493	)		$	(21,075	)
LOSS PER COMMON SHARE:
Basic and diluted		$	(0.22	)		$	(0.08	)		$	(0.36	)		$	(0.22	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted			102,474				95,511				99,578				95,419
COMPREHENSIVE LOSS:
Net loss		$	(22,255	)		$	(7,666	)		$	(35,493	)		$	(21,075	)
Unrealized (losses) gains on marketable securities:
Holding (losses) gains, net of tax			(188	)			453				341				947
Unrealized (losses) gains on marketable securities			(188	)			453				341				947
Unrealized losses on derivative contracts, net of tax			(244	)			—				(244	)			—
COMPREHENSIVE LOSS		$	(22,687	)		$	(7,213	)		$	(35,396	)		$	(20,128	)

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

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			433,436				3				—				—				1,351				—				—				—				—				1,354
Receipt of Alkermes’ stock for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards			—				—				—				—				—				—				—				(96,528	)			(1,098	)			(1,098	)
Share-based compensation expense			—				—				—				—				9,347				—				—				—				—				9,347
Unrealized gains on marketable securities, net of tax of $559			—				—				—				—				—				947				—				—				—				947
Net loss			—				—				—				—				—				—				(21,075	)			—				—				(21,075	)
BALANCE — September 30, 2010			105,248,764			$	1,050				382,632			$	4			$	921,024			$	(2,445	)		$	(386,763	)			(10,041,793	)		$	(130,779	)		$	402,091
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, refer to Note 1 “The Company”			31,900,000				319				—				—				524,755				—				—				—				—				525,074
Issuance of common stock under employee stock plans			1,770,477				18				—				—				12,203				—				—				—				—				12,221
Receipt of Alkermes’ stock for the purchase of stock options or to satisfy minimum tax withholding obligations related to stock based awards			—				—				—				—				3,105				—				—				(170,823	)			(3,105	)			—
Share-based compensation expense			—				—				—				—				12,636				—				—				—				—				12,636
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 $202			—				—				—				—				—				341				—				—				—				341
Unrealized loss on cash flow hedge, net of tax of $145			—				—				—				—				—				(244	)			—				—				—				(244	)
Net loss			—				—				—				—				—				—				(35,493	)			—				—				(35,493	)
BALANCE — September 30, 2011			129,584,585			$	1,294				—			$	—			$	1,358,023			$	(2,916	)		$	(446,721	)			—			$	—			$	909,680

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

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Six Months Ended
		September 30,
		2011				2010
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(35,493	)		$	(21,075	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization			6,377				4,062
Share-based compensation expense			12,712				9,404
Deferred income taxes			(9,664	)			—
Other non-cash charges			719				1,899
Changes in assets and liabilities, excluding the effect of acquisitions:
Receivables			733				(10,454	)
Inventory, prepaid expenses and other assets			(11,921	)			1,791
Accounts payable and accrued expenses			20,794				(7,710	)
Deferred revenue			189				1,692
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			(15,554	)			(27,077	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(3,654	)			(6,719	)
Sales of property, plant and equipment			3				206
Acquisition of Elan Drug Technologies, net of cash acquired			(494,962	)			—
Investment in Acceleron Pharmaceuticals, Inc.			—				(501	)
Purchases of investments			(134,801	)			(240,371	)
Sales and maturities of investments			240,363				276,437
Cash flows (used in) provided by investing activities			(393,051	)			29,052
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock for share-based compensation arrangements			12,221				1,354
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			459,448				(44,043	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			50,843				(42,068	)
CASH AND CASH EQUIVALENTS — Beginning of period			38,394				79,324
CASH AND CASH EQUIVALENTS — End of period		$	89,237			$	37,256
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses		$	131			$	578

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

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

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

1. THE COMPANY

          Alkermes plc (“Alkermes” or the “Company”) 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 (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.

          Except where specifically noted or the context otherwise requires, the use of the terms such as “Alkermes” and “Company” and “we” and “our” and “us” in these Notes to Condensed Consolidated Financial Statements refers to Alkermes and Alkermes, Inc., interchangeably.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation

          The accompanying condensed consolidated financial statements of Alkermes for the three and six months ended September 30, 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 (the “Annual Report”), and the audited financial statements and notes thereto, which has been filed with the U.S. Securities and Exchange Commission (“SEC”). The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

     Principles of Consolidation

          The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries: Alkermes Ireland Holdings Limited, Alkermes Pharma Ireland Limited, Alkermes US Holdings, Inc., Alkermes, Inc., Eagle Holdings USA, Inc., Alkermes Gainesville LLC, Alkermes Controlled Therapeutics, Inc., and Alkermes Europe, Ltd. Intercompany accounts and transactions have been eliminated.

     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.

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

     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 assets, liabilities, and transactions being hedged.

          During the three months ended September 30, 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 and 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 three months ended September 30, 2011, the Company entered into an interest rate cap contract that was not designated as a hedging instrument. The interest rate cap is recorded at fair value with associated gains or losses recognized in current earnings 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 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 30, 2011. The adoption of this standard did not impact the Company’s financial position or results of operations.

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

          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 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 from agreements with Amylin Pharmaceuticals, Inc. (“Amylin”), and Cilag GmbH International (“Cilag”). Given the challenges inherent in developing and obtaining approval for pharmaceutical and biologic products, there was substantial uncertainty whether any

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

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 six months ended September 30, 2011, the Company recognized into revenue $3.0 million received from Cilag upon the achievement of developmental milestones during this period. During the six months ended September 30, 2011, the Company recognized a $7.0 million milestone payment it received from Amylin as there were no remaining performance obligations under this agreement.

          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 September 30, 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 six months ended September 30, 2011, the Company incurred approximately $22.3 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 six months ended September 30, 2011, the Company’s results of operations included revenues of $9.1 million and net income of $0.7 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          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		$	5,038
Receivables			57,408
Inventory			29,670
Prepaid expenses and other current assets			2,134
Property plant and equipment			210,800
Acquired identifiable intangible assets			689,800
Goodwill			104,989
Other assets			4,360
Accounts payable and accrued expenses			(19,048	)
Deferred tax liabilities			(59,493	)
Other long-term liabilities			(584	)
Total		$	1,025,074

          Asset categories acquired in the EDT acquisition included working capital, 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.

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

Collaboration agreements		$	500,300
NanoCrystal technology			74,600
OCR technology			66,300
In-process research and development			46,000
Trademark			2,600
Total		$	689,800

          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 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.

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

          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 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 and six months ended September 30, 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								Six Months Ended
		September 30,								September 30,
(In thousands, except per share data)		2011				2010				2011				2010
Revenues		$	121,090			$	112,359			$	244,049			$	210,688
Net loss		$	(4,881	)		$	(10,008	)		$	(7,817	)		$	(23,733	)
Basic and diluted loss per common share		$	(0.04	)		$	(0.08	)		$	(0.06	)		$	(0.19	)

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

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)
September 30, 2011
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		$	78,030			$	91			$	—			$	—			$	78,121
International government agency debt securities			31,727				115				(2	)			—				31,840
Corporate debt securities			15,119				46				—				—				15,165
			124,876				252				(2	)			—				125,126
Money market funds			1,201				—				—				—				1,201
Total short-term investments			126,077				252				(2	)			—				126,327
Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities			11,000				—				(1	)			—				10,999
Corporate debt securities			8,011				—				—				(425	)			7,586
Strategic investments			644				—				(96	)			—				548
			19,655				—				(97	)			(425	)			19,133
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			25,512				—				(97	)			(425	)			24,990
Total investments		$	151,589			$	252			$	(99	)		$	(425	)		$	151,317
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.

          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:

		Six Months Ended
		September 30,
(In thousands)		2011				2010
Proceeds from the sales and maturities of marketable securities		$	240,363			$	276,437
Realized gains		$	37			$	63
Realized losses		$	11			$	20

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

          The Company’s available-for-sale and held-to-maturity securities at September 30, 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		$	72,733			$	72,897			$	5,857			$	5,857
After 1 year through 5 years			71,154				70,814				—				—
Total		$	143,887			$	143,711			$	5,857			$	5,857

          At September 30, 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 has an $8.5 million investment in a collaborative partner, Acceleron Pharma, Inc. (“Acceleron”), which is recorded within “Other assets” in the accompanying condensed consolidated balance sheets at September 30, 2011 and March 31, 2011. 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 $0.9 million and $1.3 million at September 30, 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 six months ended September 30, 2011, the Company reduced its investment in Civitas by $0.4 million, which represented the Company’s proportionate share of Civitas’ net losses for this period.

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

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:

		September 30,
(In thousands)		2011				Level 1				Level 2				Level 3
Assets:
Cash equivalents		$	1,201			$	1,201			$	—			$	—
U.S. government and agency debt securities			89,120				89,120				—				—
International government agency debt securities			31,840				31,840				—				—
Corporate debt securities			22,751				—				21,045				1,706
Strategic equity investments			548				548				—				—
Interest rate cap contract			12				—				12				—
Total		$	145,472			$	122,709			$	21,057			$	1,706
Liabilities:
Interest rate swap contract		$	388				—				388				—
Total		$	388			$	—			$	388			$	—
		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 six months ended September 30, 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			728
Total unrealized losses included in comprehensive loss			(69	)
Balance, September 30, 2011		$	1,706

     During the six months ended September 30, 2011, there was one investment in corporate debt securities transferred into Level 3 from Level 2 as trading in this security ceased during the period.

     In September 2011, the Company entered into an interest rate cap and an interest rate swap agreement, which 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.

     The Company’s Level 3 investments at September 30, 2011 consist of two investments in corporate debt securities. The Company used a discounted cash flow model to determine the estimated fair value of these securities. The assumptions used in the discounted

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

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		$	306,951			$	302,250
Second Lien Term Loan		$	137,233			$	137,200

6. INVENTORY

     Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consists of the following:

		September 30,				March 31,
(In thousands)		2011				2011
Raw materials		$	13,886			$	3,100
Work in process			12,131				5,843
Finished goods (1)			20,719				11,127
Consigned-out inventory (2)			382				355
Total inventory		$	47,118			$	20,425

7. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following:

		September 30,				March 31,
(In thousands)		2011				2011
Land		$	4,572			$	301
Building and improvements			144,606				36,792
Furniture, fixture and equipment			168,771				62,660
Leasehold improvements			45,179				44,779
Construction in progress			37,749				42,194
Subtotal			400,877				186,726
Less: accumulated depreciation			(96,266	)			(91,706	)
Total property, plant and equipment		$	304,611			$	95,020

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

8. GOODWILL AND INTANGIBLE ASSETS

     Intangible assets consist of the following:

						September 30, 2011
		Weighted				Gross				Accumulated				Net
(In thousands)		Amortizable Life				Carrying Amount				Amortization				Carrying Amount
Finite-lived intangible assets:
Collaboration agreements			12			$	500,300			$	(1,273	)		$	499,027
NanoCrystal technology			13				74,600				(131	)			74,469
OCR technology			12				66,300				(227	)			66,073
Trademark			1				2,600				(186	)			2,414
Total finite-lived intangible assets							643,800				(1,817	)			641,983
Indefinite-lived intangible assets:
IPR&D			—				46,000				—				46,000
Total						$	689,800			$	(1,817	)		$	687,983

     The Company recorded goodwill of $105.0 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 three months ended September 30, 2011. The Company recorded $1.8 million of amortization expense related to its intangible assets during the six months ended September 30, 2011. Based upon the Company’s most recent analysis, amortization of intangible assets included within its consolidated balance sheet as of September 30, 2011, is expected to be in the range of approximately $42.0 million to $76.0 million annually through fiscal year 2017.

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following:

		September 30,				March 31,
(In thousands)		2011				2011
Accounts payable		$	15,396			$	9,269
Accrued compensation			17,421				17,481
Accrued other			50,933				18,184
Total accounts payable and accrued expenses		$	83,750			$	44,934

10. LONG-TERM DEBT

     Long-term debt consists of the following:

		September 30,				March 31,
(In thousands)		2011				2011
First Lien Term Loan, due September 16, 2017		$	306,951			$	—
Second Lien Term Loan, due September 16, 2018			137,233				—
Total			444,184				—
Less: current portion			(2,325	)			—
Long-term debt		$	441,859			$	—

     On September 16, 2011, the Company entered into the Term Loans with certain of its subsidiaries, as guarantors, Morgan Stanley Senior Funding, Inc., (“MSSF”) as administrative agent and as collateral agent, MSSF and HSBC Securities (USA) Inc., (“HSBC”) 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.

ALKERMES PLC AND SUBSIDIARIES
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 will be 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 will be 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 with completion of the Company’s first fiscal quarter ending after the Merger, 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. 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 September 30, 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 cap and an interest rate swap agreement, 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 six months ended September 30, 2011, the Company had amortization expense of $0.3 million related to the offering costs and original issue discount.

11. DERIVATIVE INSTRUMENTS

     During the three months ended September 30, 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 operations and comprehensive loss due to the decline in value of this contract during the three and six months ended September 30, 2011.

     During the three months ended September 30, 2011, the Company entered into an interest rate swap agreement with Morgan Stanley Capital Services LLC (“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

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

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				March 31, 2011
Interest rate swap
Liability derivative designated as a cash flow hedge		Other long-term liabilities				$	388
Interest rate cap
Asset derivative not designated as a hedging instrument		Other long-term assets				$	11

     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)

September 30, 2011

$

(245

)

$

—

$

—

     The cash flow hedge was deemed to be perfectly effective at September 30, 2011. Accordingly, the Company included the loss incurred during the three and six months ended September 30, 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 September 30, 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								Six Months Ended
		September 30,								September 30,
(In thousands)		2011				2010				2011				2010
Cost of goods manufactured and sold		$	529			$	525			$	1,085			$	886
Research and development			2,309				1,637				4,244				3,152
Selling, general and administrative			4,214				2,786				7,383				5,366
Total share-based compensation expense		$	7,052			$	4,948			$	12,712			$	9,404

     At September 30, 2011 and March 31, 2011, $0.5 million and $0.6 million, respectively, of share-based compensation cost was capitalized and recorded as Inventory in the condensed consolidated balance sheets.

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.

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

     The potential common equivalent shares consisted of the following:

		Three Months Ended								Six Months Ended
		September 30,								September 30,
(In thousands)		2011				2010				2011				2010
Stock options			8,084				13,898				8,076				13,736
Restricted stock units			1,457				909				1,555				850
Total			9,541				14,807				9,631				14,586

14. INCOME TAXES

     The Company recorded an income tax provision of $3.7 million and $3.6 million for the three and six months ended September 30, 2011, respectively, and an income tax benefit of $0.9 million and $1.0 million for the three and six months ended September 30, 2010, respectively. During the three months ended September 30, 2011, the Company recorded a $13.2 million current tax expense for the taxable transfer of the BYDUREON^® intellectual property from the U.S. to Ireland and a deferred tax benefit of $9.5 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 September 30, 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

     The Company and/or the Company’s product partners are involved in various so-called “Paragraph IV” litigation proceedings in the U.S. In the U.S., putative generics of innovator drug products (including products in which the innovation comprises a new drug delivery method for an existing product, such as the drug delivery market occupied by the Company) may file Abbreviated New Drug Applications (“ANDAs”) and, in doing so, they are not required to include preclinical and clinical data to establish safety and effectiveness of their drug. Instead, they would rely on such data provided by the New Drug Application (“NDA”) held with respect to the innovator drug. However, to benefit from this less costly abbreviated procedure, the ANDA applicant must demonstrate that its drug is “generic” or “bioequivalent” to the innovator drug, and, to the extent that patents protecting the innovator drug are listed in the “Orange Book”, the ANDA applicant must write to the holder of the NDA for the innovator drug and the patent holder (to the extent that the Orange Book-listed patents are not owned by the holder of the NDA for the innovator drug) certifying that their product either does not infringe the innovator’s and patent holder’s patents and/or that the relevant patents are invalid. The innovator and the patent holder may sue the ANDA applicant within 45 days of receiving the certification and, if they do so, the U.S. Food and Drug Administration may not approve the ANDA for 30 months from the date of certification unless, at some point before the expiry of those 30 months, a court makes a final decision in the ANDA applicant’s favor.

     The Company is involved in various sets of Paragraph IV litigations in the U.S. and similar suits in Canada and France in respect of five different products: TriCor, Focalin XR, Avinza, Luvox CR, and Megace ES either as plaintiff or as an interested party (where the suit is being brought in the name of one of our collaborators).