<PAGE> 1
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 September 30, 1999
[ ] 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.
CLASS SHARES OUTSTANDING AS OF NOVEMBER 10, 1999
----- ------------------------------------------
Common Stock, par value $.01 25,383,895
<PAGE> 2
ALKERMES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- September 30, 1999 and March 31, 1999
Consolidated Statements of Operations 4
- Three months ended September 30, 1999 and 1998
- Six months ended September 30, 1999 and 1998
Consolidated Statement of Shareholders' Equity 5
- Six months ended September 30, 1999
Consolidated Statements of Cash Flows 6
- Six months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
(2)
<PAGE> 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,061,783 $ 9,115,432
Short-term investments 160,177,791 154,303,220
Prepaid expenses and other current assets 6,655,126 5,745,047
------------- -------------
Total current assets 173,894,700 169,163,699
------------- -------------
Property, Plant and Equipment:
Land 235,000 235,000
Building 3,486,087 3,483,862
Furniture, fixtures and equipment 33,555,924 31,302,274
Leasehold improvements 13,340,882 12,635,756
------------- -------------
50,617,893 47,656,892
Less accumulated depreciation and amortization (17,737,825) (14,292,146)
------------- -------------
32,880,068 33,364,746
------------- -------------
Investments 14,436,468 8,436,067
------------- -------------
Other Assets 2,093,758 2,487,757
------------- -------------
$ 223,304,994 $ 213,452,269
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,876,661 $ 6,642,005
Accrued interest 1,803,427 1,570,201
Deferred revenue 6,706,771 9,587,933
Long-term obligations-current portion 9,950,000 10,700,000
------------- -------------
Total current liabilities 25,336,859 28,500,139
------------- -------------
Long-Term Obligations 25,566,625 28,416,625
------------- -------------
Other Long-Term Liabilities 521,389 329,614
------------- -------------
Shareholders' Equity:
Capital stock, par value $.01 per share:
authorized, 2,696,500 shares; none issued
$3.25 Convertible exchangeable preferred stock, par value $.01 per share:
authorized and issued, 2,300,000 shares at September 30, 1999 and
March 31, 1999 (liquidation preference of $115,000,000) 23,000 23,000
1999 Convertible exchangeable preferred stock, par value $.01 per share:
authorized and issued, 3,500 and zero shares at September 30, 1999
and March 31, 1999 (liquidation preference of $35,000,000) 35 --
Common stock, par value $.01 per share: authorized, 80,000,000 shares;
issued, 25,367,508 and 24,982,459 shares; outstanding, 25,327,517
and 24,982,459 shares at September 30, 1999 and March 31, 1999 253,275 249,825
Additional paid-in capital 385,797,737 346,849,432
Deferred compensation (6,124,742) (9,932,199)
Accumulated other comprehensive income (loss) 21,260 (46,873)
Accumulated deficit (208,090,444) (180,937,294)
------------- -------------
Total shareholders' equity 171,880,121 156,205,891
------------- -------------
$ 223,304,994 $ 213,452,269
============= =============
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE> 4
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue under
collaborative arrangements $ 4,360,987 $ 9,822,380 $ 10,123,508 $ 17,602,514
Interest income 2,481,496 2,631,978 4,941,485 5,223,525
------------ ------------ ------------ ------------
6,842,483 12,454,358 15,064,993 22,826,039
------------ ------------ ------------ ------------
Expenses:
Research and development 13,568,731 12,349,088 25,838,737 21,880,832
General and administrative 3,347,138 3,601,357 6,783,130 6,450,576
Noncash compensation expense 3,635,377 4,981,734 3,697,574 8,284,957
Interest expense 719,640 447,143 1,462,794 889,125
Acquisition of in-process research and development -- -- -- 3,221,253
------------ ------------ ------------ ------------
21,270,886 21,379,322 37,782,235 40,726,743
------------ ------------ ------------ ------------
Net loss (14,428,403) (8,924,964) (22,717,242) (17,900,704)
Preferred stock dividends (2,337,194) (1,868,750) (4,435,908) (3,716,800)
------------ ------------ ------------ ------------
Net loss attributable to common shareholders $(16,765,597) $(10,793,714) $(27,153,150) $(21,617,504)
============ ============ ============ ============
Basic and diluted loss per common share $( 0.67) $( 0.44) $( 1.08) $( 0.88)
============ ============ ============ ============
Weighted average number of common shares
outstanding 25,206,867 24,641,850 25,123,704 24,518,552
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE> 5
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
$3.25 Convertible 1999 Convertible
Exchangeable Exchangeable Additional
Preferred Stock Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1999 2,300,000 $ 23,000 -- $-- 24,982,459 $249,825 $346,849,432
Issuance of common stock -- -- -- -- 104,378 1,043 653,660
Issuance of 1999 convertible
exchangeable preferred stock -- -- 3,500 35 -- -- 34,999,965
Noncash compensation -- -- -- -- -- -- (2,562,055)
Amortization of noncash compensation -- -- -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- -- -- --
Net loss for period -- -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- -- --
------------------------------------------------------------------------------
Balance, June 30, 1999 2,300,000 23,000 3,500 35 25,086,837 250,868 379,941,002
Issuance of common stock, net -- -- -- -- 240,680 2,407 3,404,563
Compensation relating to options and
restricted stock awards canceled -- -- -- -- -- -- (754,849)
Noncash compensation -- -- -- -- -- -- 3,207,021
Amortization of noncash compensation -- -- -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- -- -- --
Net loss for period -- -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- -- --
------------------------------------------------------------------------------
Balance, September 30, 1999 2,300,000 $ 23,000 3,500 $35 25,327,517 $253,275 $385,797,737
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Other Comprehensive Income (Loss)
Foreign Currency Unrealized Gain
Deferred Translation on Marketable Accumulated
Compensation Adjustments Securities Deficit Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1999 $(9,932,199) $(46,873) $ -- $(180,937,294) $156,205,891
Issuance of common stock -- -- -- -- 654,703
Issuance of 1999 convertible
exchangeable preferred stock -- -- -- -- 35,000,000
Noncash compensation 2,562,055 -- -- -- --
Amortization of noncash compensation 62,197 -- -- -- 62,197
Unrealized gain on marketable securities -- -- 100,500 -- 100,500
Cumulative foreign currency translation
adjustments -- (15,174) -- -- (15,174)
Net loss for period -- -- -- (8,288,839) (8,288,839)
Preferred stock dividends -- -- -- (2,098,714) (2,098,714)
------------------------------------------------------------------------------------
Balance, June 30, 1999 (7,307,947) (62,047) 100,500 (191,324,847) 181,620,564
Issuance of common stock, net -- -- -- -- 3,406,970
Compensation relating to options and
restricted stock awards canceled 754,849 -- -- -- --
Noncash compensation (3,207,021) -- -- -- --
Amortization of noncash compensation 3,635,377 -- -- -- 3,635,377
Unrealized loss on marketable securities -- -- (43,500) -- (43,500)
Cumulative foreign currency translation
adjustments -- 26,307 -- -- 26,307
Net loss for period -- -- -- (14,428,403) (14,428,403)
Preferred stock dividends -- -- -- (2,337,194) (2,337,194)
------------------------------------------------------------------------------------
Balance, September 30, 1999 $(6,124,742) $(35,740) $ 57,000 $(208,090,444) $171,880,121
====================================================================================
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE> 6
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(22,717,242) $(17,900,704)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 3,543,217 2,329,008
Amortization of compensation relating to issuance of common stock
and grant of stock options and awards made 3,697,574 8,348,739
Adjustments to other assets 518,501 --
Changes in assets and liabilities:
Prepaid expenses and other current assets (912,028) (4,187,000)
Accounts payable and accrued expenses 474,211 (96,982)
Deferred revenue (2,881,161) (23,689)
Other long-term liabilities 191,775 306,269
------------ ------------
Net cash used by operating activities (18,085,153) (11,224,359)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (2,977,263) (18,746,438)
(Purchases) maturities of short-term investments, net (5,874,571) 25,121,878
Purchases of long-term investments, net (6,000,401) (8,045,459)
Increase in other assets (155,000) (581,382)
------------ ------------
Net cash used by investing activities (15,007,235) (2,251,401)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of 1999 convertible exchangeable preferred stock 35,000,000 --
Proceeds from issuance of common stock, net 4,061,674 3,803,132
Proceeds from issuance of long-term debt -- 15,146,390
Payment of preferred stock dividends (4,435,908) (3,716,800)
Payment of long-term obligations (3,600,000) (2,104,426)
------------ ------------
Net cash provided by financing activities 31,025,766 13,128,296
------------ ------------
Effect of exchange rate changes on cash 12,973 14,792
------------ ------------
Net decrease in cash and cash equivalents (2,053,649) (332,672)
Cash and cash equivalents, beginning of period 9,115,432 3,699,950
------------ ------------
Cash and cash equivalents, end of period $ 7,061,783 $ 3,367,278
============ ============
Supplementary information:
Interest paid $ 998,002 $ 521,743
============ ============
</TABLE>
See notes to consolidated financial statements.
(6)
<PAGE> 7
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and six month periods ended
September 30, 1999 and 1998 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, 1999,
which includes consolidated financial statements and notes thereto for the years
ended March 31, 1999, 1998 and 1997. 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 consolidated financial statements give retroactive effect to the acquisition
of AIR on February 1, 1999 (see Note 3 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1999), which has been accounted for as a pooling of interests.
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
generally accepted accounting principles necessarily 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)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires companies to display comprehensive income and
its components as part of the Company's full set of consolidated financial
statements. Comprehensive income is comprised of net income and other
comprehensive income. The measurement and presentation of net loss will not
change. Other comprehensive income includes certain changes in equity of the
Company that are excluded from the net loss. Specifically, SFAS No. 130 requires
unrealized holding gains and losses on the Company's available-for-sale
securities and cumulative foreign currency translation adjustments, which are
currently reported in shareholders' equity, to be included in other
comprehensive income (loss).
(7)
<PAGE> 8
Comprehensive income (loss) for the three and six months ended September 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net loss $(14,428,403) $( 8,924,964)
Cumulative foreign currency translation adjustments 26,307 12,912
Unrealized loss on marketable securities (43,500) (84,300)
------------ ------------
Comprehensive loss $(14,445,596) $( 8,996,352)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net loss $(22,717,242) $(17,900,704)
Cumulative foreign currency translation adjustments 11,133 14,820
Unrealized gain (loss) on marketable securities 57,000 (65,550)
------------ ------------
Comprehensive loss $(22,649,109) $(17,951,434)
============ ============
</TABLE>
The accumulated other comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance March 31, 1999 $(46,873)
Change for the three months ended June 30, 1999 85,326
--------
Balance June 30, 1999 38,453
Change for the three months ended September 30, 1999 (17,193)
--------
Balance September 30, 1999 $21,260
========
</TABLE>
3. GENENTECH, INC. AGREEMENT, 1999 PREFERRED STOCK
In April 1999, the Company amended its license agreement with Genentech, Inc.
("Genentech") to expand their collaboration for Nutropin Depot(TM), an
injectable sustained release formulation of Genentech's human growth hormone
based on Alkermes' ProLease(R) drug delivery system. Under the agreement, the
companies will conduct expanded development activities, including clinical
trials in an additional indication, process and formulation development and
manufacturing. The agreement includes potential milestone payments to the
Company of approximately $40 million.
The terms of the collaboration included the purchase by Genentech of $35 million
(3,500 shares) of newly issued redeemable convertible exchangeable preferred
stock of the Company (the "1999 Preferred Stock"). The 1999 Preferred Stock is
convertible at Genentech's option into shares of common stock and non-voting
common stock of the Company during any period after September 1, 1999 that the
closing price of the Company's common stock is above $45 per share for at least
(8)
<PAGE> 9
10 consecutive trading days. The Company has the option to redeem the 1999
Preferred Stock, in whole or in part, at any time at the redemption price of
$10,000 per share plus accrued and unpaid dividends (the "1999 Redemption
Price"). There will be a mandatory redemption of any outstanding shares of the
1999 Preferred Stock on January 1, 2009 at the 1999 Redemption Price. The
Company has the option to pay the 1999 Redemption Price in cash, common stock or
non-voting common stock. Any non-voting common stock to be issued upon
conversion or redemption of the 1999 Preferred Stock is convertible into common
stock under certain circumstances.
The 1999 Preferred Stock is junior to the Company's outstanding $3.25
convertible exchangeable preferred stock issued in March 1998 for a purchase
price of $115 million. The 1999 Preferred Stock has a liquidation preference of
$10,000 per share, plus accrued and unpaid dividends. Dividends on the 1999
Preferred Stock are payable quarterly at a floating three-month LIBOR rate.
(9)
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Alkermes is developing innovative pharmaceutical products based on sophisticated
drug delivery systems. The Company has several areas of focus: (i) controlled,
sustained release of injectable drugs lasting several days to several weeks,
utilizing its ProLease(R) and Medisorb(R) technologies; (ii) the delivery of
drugs into the brain pAst the blood-brain barrier utilizing the Cereport(R)
technology; (iii) oral delivery of drugs using its RingCap(TM) and dose sipping
technologies ("DST"); and (iv) the development of pharmaceutical products based
on proprietary pulmonary drug delivery technologies utilizing its Advanced
Inhalation Research, Inc. ("AIR(TM)") technology. Since its inception in 1987,
the Company has devoted substantially all of its resources to its research and
development programs. Alkermes has not received any revenue from the sale of
products. The Company has been unprofitable since inception and expects to incur
substantial additional operating losses over the next few years. At September
30, 1999, the Company had an accumulated deficit of approximately $208.1
million.
The consolidated financial statements give retroactive effect to the acquisition
of AIR on February 1, 1999 (see Note 3 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1999), which has been accounted for as a pooling of interests.
The Company has funded its operations primarily through public offerings and
private placements of equity securities, bank loans and payments under research
and development agreements with collaborators, including Alkermes Clinical
Partners, L.P. ("Clinical Partners"), a research and development limited
partnership whose operations commenced in April 1992. The Company generally
develops its product candidates in collaboration with others on whom the Company
will rely for funding, development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally by the
Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations, the Company's
business is subject to significant risks and there can be no assurance that
actual results of the Company's development activities and its results of
operations will not differ materially from its expectations. Factors which could
cause actual results to differ from expectations include, among others: (i) the
Company and its collaborators could not be permitted by regulatory authorities
to undertake clinical trials for RingCap or DST or to undertake additional
clinical trials for ProLease, Cereport, Medisorb or AIR product candidates or
clinical trials could be delayed; (ii) even if clinical trials are completed and
the data is submitted to the 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
(10)
<PAGE> 11
or marketing authorization application could fail to be accepted, or upon
acceptance, could fail to receive approval on a timely basis, if at all; (iii)
product candidates could be ineffective or unsafe during clinical trials; (iv)
the Company's collaborators could elect to terminate or delay development
programs; (v) even if 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; (vi) the Company could incur difficulties or set-backs in obtaining
the substantial additional funding required to continue research and development
programs and clinical trials; (vii) technological change in the biotechnology or
pharmaceutical industries could render the Company's product candidates obsolete
or noncompetitive; (viii) disputes with collaborators, termination of
collaborations or failure to negotiate acceptable new collaborative arrangements
for ProLease, Medisorb, AIR, RingCap or DST technologies, which are not
generally developed independently, or for Cereport, could occur; (ix) disputes
with Clinical Partners over rights to Cereport and related technology could
occur; and (x) difficulties or set-backs in obtaining and enforcing Alkermes'
patents and difficulties with the patent rights of others could occur.
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative arrangements
for the three and six months ended September 30, 1999 was $4,360,987 and
$10,123,508 compared to $9,822,380 and $17,602,514 for the corresponding periods
of the prior year. The decrease in such revenue for the three and six months
ended September 30, 1999 as compared to the corresponding periods of the prior
year was mainly a result of the decreased funding earned under collaborative
agreements related to the Company's ProLease and Medisorb technologies. As
discussed in Note 3 to the consolidated financial statements included in this
report, Genentech, Inc. ("Genentech") purchased 3,500 shares of newly issued
convertible exchangeable preferred stock (the "1999 Preferred Stock") of
Alkermes in April 1999 at a purchase price of $35,000,000. The Company is using
the proceeds from the issuance of the 1999 Preferred Stock to conduct expanded
development activities for Nutropin Depot(TM), an injectable sustained release
formulation of Genentech's human growth hormone based on Alkermes' ProLease drug
delivery system.
Interest income for the three and six months ended September 30, 1999 was
$2,481,496 and $4,941,485 compared to $2,631,978 and $5,223,525 for the
corresponding periods of the prior year. The decrease in such income for the
three and six months ended September 30, 1999 as compared to the corresponding
periods of the prior year was primarily a result of a decrease in interest rates
and a decrease in average cash and investment balances as compared to the same
periods of the prior year.
The Company's total operating expenses were $21,270,886 and $37,782,235 for the
three and six months ended September 30, 1999 as compared to $21,379,322 and
$37,505,490 for the three and six months ended September 30, 1998. The Company
separately recorded a $3,221,253 nonrecurring charge in the three months ended
June 30, 1998 for DST and RingCap technologies licensed from ALZA Corporation
("ALZA") which are not yet commercially viable.
Research and development expenses for the three and six months ended September
30, 1999 were $13,568,731 and $25,838,737 as compared to $12,349,088 and
$21,880,832 for the corresponding periods of the prior year. The increase in
research and development expenses for
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<PAGE> 12
the three and six months ended September 30, 1999 as compared to the three and
six months ended September 30, 1998 was mainly the result of an increase in
salary and related benefits and other costs associated with an increase in
personnel as the Company advances its product candidates through development and
clinical trials and prepares for commercial scale manufacturing. In addition,
the Company had an increase in occupancy costs and depreciation and amortization
expense related to its expanded Medisorb manufacturing facility in Wilmington,
Ohio and its new ProLease manufacturing facility in Cambridge, Massachusetts.
The increase in research and development expenses was partially offset by a
decrease in clinical trial costs as the Company completed the Phase III clinical
trial for Nutropin Depot during the prior fiscal year and discontinued the Phase
III clinical trial of Cereport in April 1999.
General and administrative expenses for the three and six months ended September
30, 1999 were $3,347,138 and $6,783,130 compared to $3,601,357 and $6,450,576
for the corresponding periods of the prior year. The decrease in the three
months ended September 30, 1999 as compared to September 30, 1998 was primarily
the result of decreased legal and consulting costs partially offset by increased
salary and benefits relating to an increase in personnel. The increase in the
six months ended September 30, 1999 as compared to the six months ended
September 30, 1998 was mainly the result of an increase in salary and
benefits and other costs relating primarily to an increase in personnel, as well
as an increase in professional fees.
Noncash compensation expense for the three and six months ended September 30,
1999 were $3,635,377 and $3,697,574 as compared to $4,981,734 and $8,284,957 for
the corresponding periods of the prior year. Noncash compensation charges
primarily relate to equity transactions in the Company's subsidiary, AIR, with
respect to common stock issued and stock options granted to certain employees,
consultants and others.
Interest expense for the three and six months ended September 30, 1999 was
$719,640 and $1,462,794 as compared to $447,143 and $889,125 for the
corresponding periods from the prior year. The increase in the three and six
months ended September 30, 1999 as compared to the three and six months ended
September 30, 1998 was primarily the result of an increase in interest costs
related to an increase in indebtedness.
The Company does not believe that inflation and changing prices have had a
material impact on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were approximately $167.2
million at September 30, 1999 as compared to $163.4 million at March 31, 1999.
During the six months ended September 30, 1999, the increase in cash and
investments was primarily from the proceeds from the purchase by Genentech of
the 1999 Preferred Stock (see below) as well as the receipt of approximately
$4.1 million relating to the exercise of stock options and warrants. During the
six months ended September 30, 1999, the primary uses of cash and investments
were to finance the Company's operations, the payment of long-term obligations
and the payment of the dividends on the Company's $3.25 Preferred Stock and the
1999 Preferred Stock. In addition, noncurrent Investments include $14.4 million
principal amount of high grade corporate notes with maturities ranging from 13
to 16 months. The Company invests in cash equivalents, U.S. Government
obligations, high grade corporate notes and commercial paper. The Company's
investment
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<PAGE> 13
objectives taken as a whole are, first, to assure conservation of capital and
liquidity, and second, to obtain investment income.
In April 1999, the Company amended its license agreement with Genentech to
expand their collaboration for Nutropin Depot, an injectable sustained release
formulation of Genentech's human growth hormone based on Alkermes' ProLease drug
delivery system. The expanded agreement includes potential milestone payments to
the Company of approximately $40 million. The terms of the collaboration
included the purchase by Genentech of the 1999 Preferred Stock for a purchase
price of $35 million. The 1999 Preferred Stock is convertible at Genentech's
option into shares of common stock and non-voting common stock during any period
after September 1, 1999 that the closing price of the Company's common stock is
above $45 per share for at least 10 consecutive trading days. The 1999 Preferred
Stock may be redeemed at any time by the Company at a redemption price of
$10,000 per share, plus accrued and unpaid dividends, in cash, common stock or
non-voting common stock, at the Company's option. Dividends on the 1999
Preferred Stock are payable quarterly at a floating three-month LIBOR rate.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and payments under research and
development collaborative arrangements. The Company expects to incur significant
additional research and development and other costs, including costs related to
preclinical studies, clinical trials and facilities expansion. Therefore, the
Company expects that its costs, including research and development costs for all
of its product candidates, will exceed revenues significantly for the next few
years, which will result in continuing losses from operations.
Since the research and development revenue from Clinical Partners ended during
the quarter ended June 30, 1996, Alkermes has been using its own resources to
continue to develop Cereport. The Company is required to fund the development of
Cereport to maintain its option to purchase the limited partnership interests in
Clinical Partners. Effective September 30, 1997, the Company entered into an
agreement with ALZA relating to the development and commercialization of
Cereport. ALZA made a $10.0 million upfront payment to Alkermes to fund clinical
development of Cereport, of which $5.4 million has been recorded as deferred
revenue at September 30, 1999. In return, ALZA will have the option to acquire
exclusive worldwide commercialization rights to Cereport. If ALZA exercises its
option, ALZA will make additional payments to cover costs associated with
advanced clinical development. If Cereport is commercialized successfully by
ALZA, ALZA will pay the Company certain milestone payments. Alkermes would be
responsible for the manufacturing of Cereport, and the two companies would share
approximately equally in any profits from product sales.
Capital expenditures were approximately $3.0 million for the six months ended
September 30, 1999, principally reflecting equipment purchases. The Company's
capital expenditures for equipment, facilities and building improvements have
been financed to date primarily with proceeds from bank loans and the sales of
equity securities.
The Company will continue to pursue opportunities to obtain additional financing
in the future. Such financing may be sought through various sources, including
equity offerings, 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.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, progress with
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<PAGE> 14
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.
The Company may need to raise substantial additional funds for longer-term
product development, regulatory approvals and manufacturing or marketing
activities that it 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, the Company may be required to curtail significantly
one or more of its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
future products.
YEAR 2000 READINESS DISCLOSURE
THIS YEAR 2000 READINESS DISCLOSURE STATEMENT CONTAINS INFORMATION CONCERNING
THIRD PARTIES AND THEIR PRODUCTS AND SERVICES, WHICH HAS NOT BEEN INDEPENDENTLY
VERIFIED BY ALKERMES.
The Year 2000 problem concerns the application of computer systems written using
six (e.g., 12/31/99) versus eight (e.g., 12/31/1999) digits to define the
applicable date. This could result, among other things, in computer systems
recognizing "00" as the year 1900 rather than the year 2000. Computer hardware,
software and embedded chip equipment are potentially affected, and, if such
systems and components are not remediated satisfactorily, could lead to
operational interruptions and business misinformation.
The Company's Year 2000 Compliance Plan provides for a four-phase process:
inventory; assessment; remediation and testing; and preparation of contingency
plans. Alkermes has identified its mission critical and medium priority internal
systems which will require remediation to provide for its continuing business
operations after January 1, 2000. The remaining systems are considered to be of
low priority because they are judged to have no direct impact on safety or the
Company's business.
The inventory phase is completed for Alkermes. The assessment phase is
substantially completed, except for information not yet received from certain
external suppliers, vendors and manufacturers over which Alkermes does not have
control. The Company is undergoing planned remediation of stand-alone computers
and minor upgrades. Alkermes has requested each supplier, vendor and
manufacturer of mission critical equipment owned or leased by the Company
containing embedded chip technology to provide Alkermes with its Year 2000
testing methodology and results and in certain instances the Company has
performed in-house testing on such equipment. As of November 12, 1999,
substantially all planned testing of equipment, hardware and software has been
completed, with the exception of a few systems that are scheduled to be tested
and remediated by the end of 1999. As of November 12, 1999, there has been an
overall 87% response rate to the Company's requests for information sent to
suppliers, vendors and manufacturers of equipment, hardware and software
purchased or leased by the Company. Based on the responses received as of
November 12, 1999, the Company has a 93% response rate for mission critical
items and a 91% response rate for medium priority items. According to the
supplier, vendor and manufacturer responses received as of November 12,
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<PAGE> 15
1999, all mission critical items are compliant and approximately 90% of all
medium priority items are compliant. However, the Company has not independently
verified the accuracy of the supplier, vendor and manufacturer responses
received. The Company has determined what is required to remediate these medium
priority items identified to it as non-compliant and is in the process of final
remediation. All remaining items for which responses have not been received as
of November 12, 1999 are being addressed in contingency plans.
Alkermes believes, based in part upon supplier, vendor and manufacturer
responses received as of November 12, 1999, that its mission critical and medium
priority internal computer systems will be Year 2000 compliant in a timely
manner. However, the Company's computer systems are complex, interdependent and
there are a number of risks associated with the complexity and integration of
the systems. For example, an incorrect classification of the importance of a
system or systems, or the cumulative effect of a number of low priority systems
that have not been remediated, could result in an unpredicted failure or
shutdown in one or more of the Company's business, processing or manufacturing
systems, which could have a material adverse effect on production or cost of
operations. The Company's current belief is that this is unlikely to occur. To
minimize these risks, Alkermes is utilizing both skilled and knowledgeable
internal resources as well as contract personnel to assist in its contingency
planning processes and to perform integrated systems testing.
Alkermes continues to request and assess compliance information from all of its
suppliers, vendors, manufacturers, collaborative partners and other
organizations with which the Company does business (each a "Third Party").
Certain of these Third Parties may refuse to respond to a readiness survey or
other request for information. It is possible that such Third Parties may, in
fact, be prepared to address Year 2000 concerns, but simply refuse to respond.
Conversely, various Third Parties may respond that they are Year 2000 ready,
when, in fact, they are not ready. As of November 12, 1999, approximately 72%
of all Third Parties had responded to the Company's survey. Approximately 70%
of all Third Parties have responded that they are or will be Year 2000
compliant on a timely basis. Alkermes will continue to request Year 2000
readiness disclosures from Third Parties through the end of 1999 and will focus
primarily on obtaining responses from the remaining key suppliers and partners.
If the Year 2000 problem causes key Third Parties to fail to deliver essential
materials and services, disruptions in the Company's operations, computer
infrastructure or telecommunications systems could result. Because of the
inherent uncertainties associated with the Year 2000 problem, including
understanding the Year 2000 readiness of the Third Parties, it is not possible
to quantify the potential impact. However, failure of key Third Parties or
Alkermes to address on a proper and timely basis the Year 2000 problem could
have a material adverse effect on the Company's financial condition, results of
operations or liquidity. Furthermore, there can be no guarantee that any
contingency plans developed by the Company will prevent such failures from
having a material adverse effect. Alkermes believes that there is a low
probability that these disruptions will occur.
Contingency plans have been formulated by each of the Company's various
departments. The plans are currently undergoing management review as well as an
internal audit of critical business areas and may be updated or revised
accordingly during the remainder of 1999. Alkermes currently expects total
external expenditures to become Year 2000 compliant to be less than $800,000. To
date, Alkermes has incurred external expenditures of approximately $735,000. In
addition, the Company has dedicated significant internal resources, including
staff
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<PAGE> 16
and equipment, to Year 2000 projects, but does not track such costs and
therefore cannot provide an estimate of the amount of such internal costs.
Alkermes will fund Year 2000 expenditures from its cash and expects that total
remediation costs, including the reallocation of internal resources, will not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity.
The foregoing information reflects management's best estimates. These estimates
are based upon many assumptions, including: assumptions about cost, availability
and ability of resources to identify and classify systems properly; locating,
remediating and modifying affected systems; and making various assessments of
Year 2000 readiness of key Third Parties. Based upon its activities to date, the
Company does not believe that these factors will cause its current cost and
timetable projections to differ significantly from those estimated. However, the
Company cannot reasonably estimate the potential impact on its financial
condition, results of operations or liquidity if critical Third Parties,
including suppliers and governments, do not become Year 2000 compliant on a
timely basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's Investments consist of U.S. Treasuries and other government
securities, commercial paper and high grade corporate notes. Substantially all
Investments mature within one year, are not callable by the issuer and have
fixed interest rates. A 10% decline in the average yield of the investments
would not have a material effect on the Company's results of operations or cash
flows. The Company's debt instruments approximate fair value and generally have
fixed interest rates. See "Liquidity and Capital Resources."
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<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting was held on August 6, 1999. Required
information has been supplied on the Registrant's Form 10-Q for the quarter
ended June 30, 1999.
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<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
3.1(a) Second Amended and Restated Articles of Incorporation of
Alkermes, Inc., effective July 23, 1991. (Incorporated by reference
to Exhibit 4.1(a) to the Company's Report on Form 10-Q for the
quarter ended June 30, 1991).
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Company's Report on Form 10-Q for the quarter
ended June 30, 1991).
3.1(c) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
November 1, 1991. (Incorporated by reference to Exhibit 4.1(c) to
the Company's Report on Form 10-Q for the quarter ended
September 30, 1991).
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Company's Report on Form 10-Q
for the quarter ended December 31, 1992).
3.1(e)(I) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
February 26, 1998 (designating 3,000,000 shares of Capital Stock
as Preferred Stock).
3.1(e)(II) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
February 27, 1998 ($3.25 Convertible Preferred Stock Terms).
(Incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-3, as amended (File No.333-
50157)).
3.1(f) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
April 12, 1999 (1999 Preferred Stock Terms). (Incorporated by
reference to Exhibit 3.1(f) to the Company's Report on Form 10-K
for the year ended March 31, 1999).
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
<S> <C>
3.1(g) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
April 12, 1999 (Non-Voting Common Stock Terms).
(Incorporated by reference to Exhibit 3.1(g) to the Company's
Report on Form 10-K for the year ended March 31, 1999).
3.1(h) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
September 20, 1999 (increasing authorized Common Stock to 80,000,000
shares).
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of
June 2, 1999. (Incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-K for the year ended March 31,
1999).
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 $3.25 Convertible Preferred Stock Certificate of
Alkermes, Inc. (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3, as amended (File
No. 333-50157)).
4.3 Specimen of 1999 Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.3 to the Company's Report
on Form 10-K for the fiscal year ended March 31, 1999).
4.4 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).
4.5 Form of 1995 Warrant to purchase 300 shares of the Company's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Company's Report on Form 10-K for the fiscal year ended March
31, 1992).
4.6 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.7 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.8 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by reference to Exhibit 4.8 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
</TABLE>
(19)
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C>
4.9 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.10 Warrant Agreement, dated as of November 18, 1994, by and
between the Company and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Company's
Report on Form 10-Q for the quarter ended December 31, 1994).
4.11 Indenture, dated as of March 1, 1998, between Alkermes, Inc. and
State Street Bank and Trust Company, as Trustee. (Incorporated
by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-3, as amended (File No. 333-50157)).
27 Financial Data Schedule.
</TABLE>
(b) During the quarter ended September 30, 1999, the Registrant filed no
Reports on Form 8-K.
(20)
<PAGE> 21
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: November 15, 1999 By: /s/ Richard F. Pops
------------------------------
Richard F. Pops
Chief Executive Officer and
Director
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ James M. Frates
------------------------------
James M. Frates
Vice President, Chief
Financial Officer and
Treasurer
(Principal Financial and
Accounting Officer)
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<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1(a) Second Amended and Restated Articles of Incorporation of Alkermes, Inc.,
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(a) to the Company's Report on Form 10-Q for the quarter
ended June 30, 1991).
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Company's Report on Form 10-Q for the quarter
ended June 30, 1991).
3.1(c) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
November 1, 1991. (Incorporated by reference to Exhibit 4.1(c) to
the Company's Report on Form 10-Q for the quarter ended
September 30, 1991).
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Company's Report on Form 10-Q
for the quarter ended December 31, 1992).
3.1(e)(I) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
February 26, 1998 (designating 3,000,000 shares of Capital Stock
as Preferred Stock).
3.1(e)(II) Amendment to the Second and Restated Articles of
Incorporation, as filed with the Pennsylvania
Secretary of State on February 27, 1998 ($3.25
Convertible Preferred Stock Terms). (Incorporated
by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-3, as amended
(File No. 333- 50157)).
3.1(f) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
April 12, 1999 (1999 Preferred Stock Terms). (Incorporated by
reference to Exhibit 3.1(f) to the Company's Report on Form 10-K
for the year ended March 31, 1999).
</TABLE>
(22)
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C>
3.1(g) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
April 12, 1999 (Non-Voting Common Stock Terms).
(Incorporated by reference to Exhibit 3.1(g) to the Company's
Report on Form 10-K for the year ended March 31, 1999).
3.1(h) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State on
September 20, 1999 (increasing authorized Common Stock to
80,000,000 shares).
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of
June 2, 1999. (Incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-K for the year ended March 31,
1999).
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 $3.25 Convertible Preferred Stock Certificate of
Alkermes, Inc. (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3, as amended (File
No. 333-50157)).
4.3 Specimen of 1999 Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.3 to the Company's Report
on Form 10-K for the fiscal year ended March 31, 1999).
4.4 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).
4.5 Form of 1995 Warrant to purchase 300 shares of the Company's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Company's Report on Form 10-K for the fiscal year ended March
31, 1992).
4.6 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.7 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
</TABLE>
(23)
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
4.8 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by reference to Exhibit 4.8 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.9 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.10 Warrant Agreement, dated as of November 18, 1994, by and
between the Company and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Company's
Report on Form 10-Q for the quarter ended December 31, 1994).
4.11 Indenture, dated as of March 1, 1998, between Alkermes, Inc. and
State Street Bank and Trust Company, as Trustee. (Incorporated
by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-3, as amended (File No. 333-50157)).
27 Financial Data Schedule.
</TABLE>
(24)
<PAGE> 1
Exhibit 3.1(e)(I)
Microfilm Number 9815-1227 Filed with the Department of State on Feb 26 1998
------------ -----------
Entity Number 968281 /s/ Yvette Kane
--------------- ----------------------------------------
SECRETARY OF THE COMMONWEALTH
STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION
DSCB:15-1522 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. ss. 1522(b) (relating to
statement with respect to shares), the undersigned corporation, desiring to
state the designation and voting rights, preferences, limitations, and special
rights, if any, of a class or series of its shares, hereby states that:
1. The NAME of the corporation is: Alkermes, Inc.
-------------------------------------------
2. (CHECK AND COMPLETE ONE OF THE FOLLOWING):
The resolution amending the Articles under 15 Pa.C.S. ss. 1522(b) (relating
___ to divisions and determinations by the board), set forth in full, is as
follows:
___________________________________________________________________________
___________________________________________________________________________
X The resolution amending the Articles under 15 Pa.C.S.ss.1522(b) is set
--- forth in full in Exhibit A attached hereto and made a part hereof.
3. The aggregate number of shares of such class or series established and
designated by (a) such resolution, (b) all prior statements, if any, filed
under 15 Pa.C.S. ss. 1522 or corresponding provisions of prior law with
respect thereto, and (c) any other provision of the Articles is 3,000,000
shares.
4. The resolution was adopted by the Board of Directors or an authorized
committee thereof on: February 18, 1998
-----------------------
5. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
X The resolution shall be effective upon the filing of this statement with
--- respect to shares in the Department of State.
___ The resolution shall be effective on: _______________ at __________________
Date Hour
IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement
to be signed by a duly authorized officer thereof this 26TH day of FEBRUARY,
1998.
Alkermes, Inc.
-------------------------------------
(Name of Corporation)
BY: /s/ Morris Cheston, Jr.
---------------------------------
(Signature)
TITLE: Secretary
------------------------------
<PAGE> 2
EXHIBIT A
TO
STATEMENT WITH RESPECT TO SHARES
OF
ALKERMES, INC.
CREATION OF THE CLASS OF PREFERRED STOCK
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board of Directors of the Company by the provisions of the Second Amended and
Restated Articles of Incorporation, as amended, of the Company, there is hereby
established a class of preferred stock, par value $.01 per share, which shall
consist of 3,000,000 of the 5,000,000 shares of undesignated and unissued
capital stock of the Company. The Board of Directors shall have the full
authority from time to time to make determinations of the designation and the
number of shares of any series of such class of preferred stock and to make
determinations of the voting rights, preferences, limitations and special
rights, if any, of the shares of such class or series.
<PAGE> 1
Exhibit 3.1(h)
<TABLE>
<CAPTION>
<S> <C>
Microfilm Number 91451090 Filed with the Department of State on September 20, 1999
---------- ------------------
</TABLE>
Entity Number 968281 /s/ Kim Pizzingrilli
-------------- ----------------------------------
SECRETARY OF THE COMMONWEALTH
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The NAME of the corporation is: Alkermes, Inc.
-------------------------------------------
2. The (a) ADDRESS of this corporation's current registered office in this
Commonwealth or (b) NAME of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a)___________________________________________________________________________
Number and Street City State Zip County
(b)c/o: CT Corporation System Philadelphia
-----------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
<TABLE>
<CAPTION>
<S> <C>
Business Corporation Law (Act of May 5, 1933,
3. The STATUTE by or under which it was incorporated is: P.L. 364, as amended)
----------------------------------------------
</TABLE>
4. The DATE of its incorporation is: July 13, 1987
------------------------------------------
5. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
X The amendment shall be effective upon filing these Articles of Amendment
--- in the Department of State.
___ The amendment shall be effective on: __________________ at ________________
Date Hour
6. (CHECK ONE OF THE FOLLOWING):
X The amendment was adopted by the shareholders (or members) pursuant to 15
--- Pa.C.S. ss. 1914(a) and (b).
___ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
ss. 1914(c).
7. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
___ The amendment adopted by the corporation, set forth in full, is as follows:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
X The amendment adopted by the corporation is set forth in full in Exhibit
--- A attached hereto and made a part hereof.
<PAGE> 2
8. (CHECK IF THE AMENDMENT RESTATES THE ARTICLES):
___ The restated Articles of Incorporation supersede the original Articles and
all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 6TH day of
August, 1999.
Alkermes, Inc.
-------------------------------------------------
(Name of Corporation)
BY: /s/ James M. Frates
---------------------------------------------
(Signature)
TITLE: Vice President and Chief Financial Officer
------------------------------------------
<PAGE> 3
ALKERMES, INC.
ARTICLES OF AMENDMENT
EXHIBIT A
RESPONSE TO ITEM 7:
RESOLVED, that the first paragraph of Article Fourth of the Second
Amended and Restated Articles of Incorporation, as amended, of Alkermes,
Inc. be amended to read in full as follows:
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is 85,000,000 shares, par value $.01 per share,
of which 80,000,000 shares are designated as Common Stock (hereinafter
referred to as "Common Stock").
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,062
<SECURITIES> 160,178
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 173,895
<PP&E> 50,618
<DEPRECIATION> (17,738)
<TOTAL-ASSETS> 223,305
<CURRENT-LIABILITIES> 25,337
<BONDS> 25,567
0
23
<COMMON> 253
<OTHER-SE> 171,604
<TOTAL-LIABILITY-AND-EQUITY> 223,305
<SALES> 0
<TOTAL-REVENUES> 15,065
<CGS> 0
<TOTAL-COSTS> 25,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,463
<INCOME-PRETAX> (22,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,717)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
