Alkermes Announces Second Quarter Fiscal 2009 Results

Alkermes, Inc. (NASDAQ: ALKS) today announced financial results for its second quarter of fiscal 2009. Financial highlights for the quarter ended September 30, 2008 include:

• A profitable quarter on a GAAP basis, with net income of $1.7 million.
• Quarterly revenues of $47.3 million. Worldwide sales of RISPERDAL^® CONSTA^® by Janssen, Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen–Cilag (Janssen) were approximately $338 million, an increase of 15% compared to the same period in 2007. Sales of RISPERDAL CONSTA were $681 million for the first six months of fiscal 2009.
• A strong financial position, with cash and total investments of $425.8 million.
• The repurchase of a principal amount of $60 million of its non-recourse RISPERDAL CONSTA secured 7% notes for $57.7 million.
• The business generated $10.7 million in cash and investments, excluding debt and share repurchases.

"Our solid financial performance and our ability to generate cash from operations demonstrate the success of our business. With two commercial products and more than $425 million in cash and investments, Alkermes is in a unique position among its biotechnology peers," stated James Frates, chief financial officer of Alkermes. "Alkermes is focused on being profitable and cash flow positive on an operating basis for the fiscal year."

Key operating results for the quarter ended September 30, 2008 include the following:

• Net income was $1.7 million or a basic and diluted earnings per share of $0.02, including $3.8 million in share-based compensation expense, compared to a net income of $7.7 million or a basic earnings per share of $0.08 and a diluted earnings per share of $0.07, which included $4.5 million in share-based compensation expense, for the same period in 2007.
• Pro forma net income was $5.5 million or a basic and diluted earnings per share of $0.06, compared to a net income of $11.0 million or a basic and diluted earnings per share of $0.11 for the same period in 2007.

Alkermes is providing pro forma results as a complement to GAAP results. The pro forma net income excludes certain noncash or nonrecurring items, and Alkermes' management believes these pro forma measures help to indicate underlying trends in the company's ongoing operations. The reconciliation between pro forma and reported diluted earnings per share for the second quarters of fiscal 2009 and 2008 is provided in the following table:

Amounts may not sum due to rounding.

The following financial results are reported on a GAAP basis and include share-based compensation expense:

Revenues

• Total revenues for the quarter ended September 30, 2008 were $47.3 million, compared to $58.6 million for the same period in 2007.
• Manufacturing revenues for the quarter ended September 30, 2008 were $33.0 million compared to $24.1 million for the same period in 2007, an increase of 37% year over year. Manufacturing revenues for the quarter ended September 30, 2008 consisted of $30.7 million for RISPERDAL CONSTA and $2.3 million for VIVITROL^®, compared to $22.9 million for RISPERDAL CONSTA and $1.2 million for VIVITROL for the same period in 2007.
• Royalty revenues for the quarter ended September 30, 2008 were $8.4 million compared to $7.3 million for the same period in 2007, an increase of 15% year over year. Royalty revenues for the quarter ended September 30, 2008 were based on RISPERDAL CONSTA sales of $337.5 million compared to RISPERDAL CONSTA sales of $293.6 million for the same period in 2007.
• Research and development (R&D) revenue under collaborative arrangements for the quarter ended September 30, 2008 was $5.3 million, compared to $21.2 million for the same period in 2007.
• Net collaborative profit for the quarter ended September 30, 2008 was $0.6 million, compared to $5.9 million for the same period in 2007. Gross sales of VIVITROL by Cephalon, Inc. (Cephalon) during the quarter were $4.7 million, compared to $4.7 million for the same period in 2007.

Costs and Expenses

• Cost of goods manufactured for the quarter ended September 30, 2008 was $12.1 million, of which $8.1 million related to RISPERDAL CONSTA and $4.0 million related to VIVITROL, compared to $9.2 million for the same period in 2007, of which $8.1 million related to RISPERDAL CONSTA and $1.1 million related to VIVITROL.
• R&D expenses for the quarter ended September 30, 2008 were $19.7 million, compared to $28.3 million for the same period in 2007.
• SG&A expenses for the quarter ended September 30, 2008 were $11.7 million, compared to $14.5 million for the same period in 2007.
• Share-based compensation expense (included in the expenses above) for the quarter ended September 30, 2008 was $3.8 million, of which $0.4 million related to cost of goods manufactured, $1.3 million related to R&D expenses and $2.1 million related to SG&A expenses. Share-based compensation expense for the quarter ended September 30, 2007 was $4.5 million, of which $0.3 million related to cost of goods manufactured, $1.8 million related to R&D expenses and $2.4 million related to SG&A expenses.
• Interest income for the quarter ended September 30, 2008 was $2.7 million, compared to $4.2 million for the same period in 2007. Interest expense for the quarter ended September 30, 2008 was $4.2 million, compared to $4.1 million for the same period in 2007.
• Income tax benefit for the quarter ended September 30, 2008 was $0.1 million, compared to an income tax expense of $0.2 million for the same period in 2007.

At September 30, 2008, Alkermes had cash and total investments of $425.8 million, compared to $473.3 million at June 30, 2008. During the quarter, Alkermes purchased $60 million principal of its non-recourse RISPERDAL CONSTA secured 7% notes for $57.7 million. Under its ongoing share repurchase program, Alkermes repurchased 38,700 shares of its common stock for $0.5 million. Excluding these transactions, Alkermes generated $10.7 million of cash during the quarter.

Financial Expectations

The following outlines Alkermes' financial expectations for the fiscal year ending March 31, 2009. These financial expectations include the impact of share-based compensation expense. Certain statements set forth below constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For information with respect to factors that could cause Alkermes' actual results to differ materially from its expectations, please see the risk factors provided at the end of this press release and in Alkermes’ Form 10-K for the fiscal year ended March 31, 2008, as filed with the Securities & Exchange Commission.

Alkermes today maintained its financial expectations for net income for fiscal 2009. The company updated its financial expectations for certain operating expenses and net collaborative profit due to a change in expectation for end-market VIVITROL sales.

• Manufacturing Revenues: The company expects manufacturing revenues to remain in the range of $116 to $129 million. The company expects manufacturing revenues related to RISPERDAL CONSTA to remain in the range of $109 to $118 million and expects manufacturing revenues related to VIVITROL to remain in the range of $7 to $11 million.
• Royalty Revenues: The company expects royalty revenues from RISPERDAL CONSTA to remain in the range of $34 to $36 million.
• R&D Revenues: The company expects R&D revenues to remain in the range of $45 to $50 million.
• Net Collaborative Profit: The company is adjusting its expectation for net collaborative profit to a range of $5 to $10 million, revised from an expectation of $10 to $15 million. The company is adjusting its expectation of end-market gross sales by Cephalon to a range of $19 to $24 million, revised from an expectation of $25 to $35 million.
• Total Revenues: The company is adjusting its expectation for total revenues for fiscal 2009 to a range of $200 to $225 million, revised from an expectation of $205 to $230 million.
• Cost of Goods Manufactured: The company expects cost of goods manufactured to remain in the range of $40 to $50 million.
• R&D Expenses: The company is adjusting its expectation for R&D expenses to a range of $92 to $97 million, revised from an expectation of $95 to $100 million.
• SG&A Expenses: The company is adjusting its expectation for SG&A expenses to a range of $48 to $53 million, revised from an expectation of $50 to $55 million.
• Operating Income: The company expects operating income to remain in the range of $20 to $25 million.
• Net Interest Income/Expense: The company expects net interest income/expense to remain unchanged at $0.
• Income Taxes: The company expects income taxes of $1 million.
• GAAP Net Income: The company expects GAAP net income to remain in the range of $19 to $24 million, or a basic earnings per share in the range of $0.20 to $0.25. These per share calculations are based on the current share count of 95 million shares outstanding.
• Cash Flow from Operations: The company expects cash flow from operations to remain in the range of $50 to $55 million.
• SFAS 123R: The company expects share-based compensation expense to remain in the range of $15 to $20 million.

Conference Call

Alkermes will host a conference call at 4:30 p.m. EST on Thursday, November 6, 2008 to discuss these financial results and provide an update on the company. The conference call may be accessed by dialing 1-866-256-9239 for domestic callers and 1-703-639-1213 for international callers. The conference call ID number is 1298438. In addition, a replay of the conference call will be available from 7:30 p.m. EST on Thursday, November 6, 2008 through 5:00 p.m. EST on Thursday, November 13, 2008, and may be accessed by visiting Alkermes' website or by dialing 1-888-266-2081 for domestic callers and 1-703-925-2533 for international callers. The replay access code is 1298438. Alkermes is also providing a podcast MP3 file available for download on the Alkermes website, which will be available shortly following the conference call and will be available until Thursday, November 13, 2008.

About Alkermes

Alkermes, Inc., a biotechnology company committed to developing innovative medicines to improve patients' lives, manufactures RISPERDAL^® CONSTA^® for schizophrenia and developed and manufactures VIVITROL^® for alcohol dependence. Alkermes' robust pipeline includes extended-release injectable, pulmonary and oral products for the treatment of prevalent, chronic diseases, such as central nervous system disorders, addiction and diabetes. Headquartered in Cambridge, Massachusetts, Alkermes has research and manufacturing facilities in Massachusetts and Ohio.

Certain statements set forth above may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to: statements concerning future business and operating results and profitability; the therapeutic value of the company's product candidates to patients; and the successful continuation of development activities for proprietary and partnered programs. Although the company believes that such statements are based on reasonable assumptions within the bounds of its knowledge of its business and operations, the forward-looking statements are neither promises nor guarantees and the company's business is subject to significant risk and uncertainties and there can be no assurance that its actual results will not differ materially from its expectations. These risks and uncertainties include, among others: actions or decisions by the company’s partners with regard to development and regulatory strategy, timing and funding of the company's proprietary and partnered product candidates, which are out of the company’s control, and the outcome of clinical and preclinical work the company is pursuing, both on its own and with partners; decisions by the FDA or foreign regulatory authorities regarding the company's product candidates; potential changes in cost, scope and duration of clinical trials; and the occurrence of unintended side effects, adverse reactions or incidents of misuse related to the company’s products and product candidates that could cause the FDA or other foreign regulatory authorities to require post approval studies, new labeling, or removal of such products from the market. For further information with respect to factors that could cause the company's actual results to differ materially from expectations, reference is made to the reports the company filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. The forward-looking statements made in this release are made only as of the date hereof and the company disclaims any intention or responsibility for updating predictions or financial expectations contained in this release.

VIVITROL^® is a registered trademark of Cephalon, Inc.; RISPERDAL^® CONSTA^® is a registered trademark of Janssen-Cilag group of companies.