2.2.0.25falsefalse0202 - Disclosure - Summary of Significant Accounting Policiestruefalsefalse1falsefalseUSDfalsefalse4/1/2010 - 3/31/2011
USD ($)
USD ($) / shares
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<td>
<b><font style="font-family: 'Times New Roman', Times">2.  </font></b>
</td>
<td>
<b><font style="font-family: 'Times New Roman', Times">SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES</font></b>
</td>
</tr>
</table>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Principles
of Consolidation</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The consolidated financial statements include the accounts of
Alkermes, Inc. and its wholly-owned subsidiaries: Alkermes
Controlled Therapeutics, Inc. (“ACT I”); Alkermes
Europe, Ltd. and RC Royalty Sub LLC (“Royalty Sub”).
The assets of Royalty Sub are not available to satisfy
obligations of Alkermes and its subsidiaries, other than the
obligations of Royalty Sub, and the assets of Alkermes are not
available to satisfy obligations of Royalty Sub. Intercompany
accounts and transactions have been eliminated.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Use of
Estimates</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The preparation of the Company’s consolidated financial
statements in conformity with accounting principles generally
accepted in the United States (“U.S.”)
(“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosure of
contingent assets and liabilities. On an ongoing 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 long-lived assets, share-based compensation,
income taxes including the valuation allowance for deferred tax
assets, valuation of investments, contingencies, 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.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Cash
and Cash Equivalents</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company values its cash and cash equivalents at cost plus
accrued interest, which the Company believes approximates their
market value. The Company considers only those investments which
are highly liquid, readily convertible into cash and that mature
within three months from the date of purchase to be cash
equivalents.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Investments</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company has investments in various types of securities
including U.S. government and agency obligations, debt
securities issued by foreign agencies and backed by foreign
governments and corporate debt securities. The Company also has
strategic equity investments which includes the common stock of
a public company with which the Company has a collaborative
arrangement. The Company generally holds its interest-bearing
investments with major financial institutions and in accordance
with documented investment policies, the Company limits the
amount of credit exposure to any one financial institution or
corporate issuer. At
March 31, 2011, substantially all these investments are
classified as
<font style="white-space: nowrap">available-for-sale</font>
and are recorded at fair value. Holding gains and losses on
these investments are considered “unrealized” and are
reported within “Accumulated other comprehensive (loss)
income,” a component of shareholders’ equity. The
Company uses the specific identification method for
reclassifying unrealized gains and losses into earnings when
investments are sold. Certain of the Company’s money market
funds and
<font style="white-space: nowrap">held-to-maturity</font>
investments are restricted investments held as collateral under
letters of credit related to certain of the Company’s
service provider agreements and lease agreements, respectively,
and are included in “Investments —
short-term” and “Investments —
long-term”, respectively, in the consolidated balance
sheets.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company conducts periodic reviews to identify and evaluate
each investment that has an unrealized loss, in accordance with
the meaning of
<font style="white-space: nowrap">other-than-temporary</font>
impairment and its application to certain investments, as
required by GAAP. An unrealized loss exists when the current
fair value of an individual security is less than its amortized
cost basis. Unrealized losses on
<font style="white-space: nowrap">available-for-sale</font>
securities that are determined to be temporary, and not related
to credit loss, are recorded in accumulated other comprehensive
(loss) income.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
For
<font style="white-space: nowrap">available-for-sale</font>
debt securities with unrealized losses, the Company performs an
analysis to assess whether it intends to sell or whether it
would more likely than not be required to sell the security
before the expected recovery of the amortized cost basis. If the
Company intends to sell a security, or may be required to do so,
the security’s decline in fair value is deemed to be
<font style="white-space: nowrap">other-than-temporary</font>
and the full amount of the unrealized loss is recorded within
earnings as an impairment loss. Regardless of the Company’s
intent to sell a security, the Company performs additional
analysis on all securities with unrealized losses to evaluate
losses associated with the creditworthiness of the security.
Credit losses are identified where the Company does not expect
to receive cash flows sufficient to recover the amortized cost
basis of a security.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
For equity securities, when assessing whether a decline in fair
value below the cost basis is
<font style="white-space: nowrap">other-than-temporary,</font>
the Company considers the fair market value of the security, the
duration of the security’s decline, and the financial
condition of the issuer. The Company then considers its intent
and ability to hold the equity security for a period of time
sufficient to recover its carrying value. Where the Company has
determined that it lacks the intent and ability to hold an
equity security to its expected recovery, the security’s
decline in fair value is deemed to be
<font style="white-space: nowrap">other-than-temporary</font>
and is recorded within operations as an impairment loss.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Fair
Value of Financial Instruments</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company’s financial assets and liabilities are recorded
at fair value and are classified as Level 1, 2 or 3 within
the fair value hierarchy, as described in the accounting
standards for fair value measurement. The Company’s
financial assets and liabilities consist of cash equivalents and
investments and are classified within the fair value hierarchy
as follows:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Level 1</i> — these valuations are based on a
market approach using quoted prices in active markets for
identical assets. Valuations of these products do not require a
significant degree of judgment. Assets utilizing Level 1
inputs include investments in money market funds,
U.S. government and agency debt securities, debt securities
issued and backed by foreign governments, and strategic equity
investments;
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Level 2</i> — these valuations are based on a
market approach using quoted prices obtained from brokers or
dealers for similar securities or for securities for which the
Company has limited visibility into their trading volumes.
Valuations of these financial instruments do not require a
significant degree of judgment. Assets utilizing Level 2
inputs include investments in corporate debt securities that are
trading in the credit markets;
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Level 3</i> — these valuations are based on an
income approach using certain inputs that are unobservable and
are significant to the overall fair value measurement.
Valuations of these products require a significant
degree of judgment. Assets utilizing Level 3 inputs
primarily consist of investments in certain corporate debt
securities, auction rate securities and asset backed securities
that are not trading in the credit markets.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The carrying amounts reflected in the 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.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Inventory</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Inventory is stated at the lower of cost or market value. Cost
is determined using the
<font style="white-space: nowrap">first-in,</font>
first-out method. Included in inventory are raw materials used
in production of pre-clinical and clinical products, which have
alternative future use and are charged to research and
development (“R&D”) expense when consumed.
VIVITROL inventory that is in the distribution channel is
classified as “consigned-out inventory.”
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Property,
Plant and Equipment</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Property, plant and equipment are recorded at cost, subject to
review for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets
may not be recoverable. Expenditures for repairs and maintenance
are charged to expense as incurred and major renewals and
improvements are capitalized. Depreciation is calculated using
the straight-line method over the following estimated useful
lives of the assets:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
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<td width="24%"> </td><!-- colindex=02 type=maindata -->
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<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="left" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Asset group</b>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Term</b>
</td>
</tr>
<tr style="line-height: 3pt; font-size: 1pt">
<td> 
</td>
</tr>
<!-- TableOutputBody -->
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="top">
<div style="text-indent: -10pt; margin-left: 10pt">
Buildings and improvements
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom">
25 years
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="top">
<div style="text-indent: -10pt; margin-left: 10pt">
Furniture, fixtures and equipment
</div>
</td>
<td>
 
</td>
<td align="center" valign="bottom">
3 - 7 years
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap" align="left" valign="top">
<div style="text-indent: -10pt; margin-left: 10pt">
Leasehold improvements
</div>
</td>
<td>
 
</td>
<td align="center" valign="bottom">
Shorter of useful life or <br />
lease term (1 - 10 years)
</td>
</tr>
</table>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Impairment
of Long-Lived Assets</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company reviews long-lived assets to be held and used,
including property, plant and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Conditions that
would necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is
used, or a significant adverse change that would indicate that
the carrying amount of an asset or group of assets is not
recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that
such cash flows are not expected to be sufficient to recover the
carrying amount of the assets, the assets are written-down to
their estimated fair values. Long-lived assets to be disposed of
are carried at fair value less costs to sell them.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Asset
Retirement Obligations</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company recognized an asset retirement obligation for an
obligation to remove leasehold improvements and other related
activities at the conclusion of the Company’s lease for its
AIR<sup style="font-size: 85%; vertical-align: text-top">®</sup>
manufacturing facility located in Chelsea, Massachusetts. The
carrying amount of the asset retirement obligation at
March 31, 2011 and 2010, was $1.7 million and
$1.5 million, respectively, and is included within
“Other Long-Term
Liabilities” in the accompanying consolidated balance
sheets. The following table shows changes in the carrying amount
of the Company’s asset retirement obligation for the years
ended March 31, 2011 and 2010:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<table border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent; text-align: left">
<!-- Table Width Row BEGIN -->
<tr style="font-size: 1pt" valign="bottom">
<td width="87%"> </td><!-- colindex=01 type=maindata -->
<td width="2%"> </td><!-- colindex=02 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=02 type=lead -->
<td width="9%" align="right"> </td><!-- colindex=02 type=body -->
<td width="1%" align="left"> </td><!-- colindex=02 type=hang1 -->
</tr>
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<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom">
<b>Carrying<br />
</b>
</td>
<td>
 
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Amount</b>
</td>
<td>
 
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom">
<b>(In thousands)</b>
</td>
<td>
 
</td>
</tr>
<tr style="line-height: 3pt; font-size: 1pt">
<td> 
</td>
</tr>
<!-- TableOutputBody -->
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Balance, April 1, 2009
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
1,397
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Accretion expense
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
140
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td>
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Balance, March 31, 2010
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
1,537
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Accretion expense
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
155
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td style="border-top: 1px solid #000000">
 
</td>
<td>
 
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Balance, March 31, 2011
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
$
</td>
<td nowrap="nowrap" align="right" valign="bottom">
1,692
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
</tr>
<tr valign="bottom" style="font-size: 1pt">
<td>
 
</td>
<td>
 
</td>
<td style="border-top: 3px double #000000">
 
</td>
<td style="border-top: 3px double #000000">
 
</td>
<td>
 
</td>
</tr>
</table>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Revenue
Recognition</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Manufacturing revenues</i> — The Company recognizes
manufacturing revenues from the sale of RISPERDAL CONSTA to
Janssen Pharmaceutica, Inc., a division of Ortho-McNeil-Janssen
Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a
division of Cilag International (together, “Janssen”),
from the sale of polymer to Amylin Pharmaceuticals, Inc.,
(“Amylin”) for use in
BYDUREON<sup style="font-size: 85%; vertical-align: top"><font style="font-variant: small-caps">tm</font></sup>,
from the sale of VIVITROL to Cilag GmbH International
(“Cilag”), an affiliate of Janssen, for sale in Russia
and other countries in the Commonwealth of Independent States
(“CIS”), and from the sale of VIVITROL to Cephalon,
Inc. (“Cephalon”) prior to the termination of the
VIVITROL collaboration on December 1, 2008.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Manufacturing revenues are recognized when persuasive evidence
of an arrangement exists, delivery has occurred and title to the
product and associated risk of loss has passed to the customer,
the sales price is fixed or determinable and collectability is
reasonably assured. Manufacturing revenues recognized by the
Company for RISPERDAL CONSTA are based on information supplied
to the Company by Janssen and require estimates to be made.
Differences between the actual manufacturing revenues and
estimated manufacturing revenues are reconciled and adjusted for
in the period in which they become known. The Company records
manufacturing revenues under its agreements with Amylin and
Cilag at an agreed upon price upon shipment of the product.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Prior to December 1, 2008, the Company manufactured and
sold VIVITROL exclusively to Cephalon for sale of the product in
the U.S. under certain manufacturing and supply
arrangements. The Company recorded manufacturing revenues upon
shipment of the product to Cephalon at cost plus a manufacturing
profit of 10%.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Royalty revenue </i>— The Company receives
royalties related to the sale of RISPERDAL CONSTA under certain
license arrangements with Janssen. The Company also receives
royalties related to the sale of VIVITROL in Russia under a
license arrangement with Cilag. Royalty revenues are earned in
the period the products are sold by Janssen and Cilag.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Product sales, net </i>— The Company’s product
sales consist of sales of VIVITROL in the U.S. to
wholesalers, specialty distributors and specialty pharmacies.
The Company started to record product sales, net, upon the
termination of the VIVITROL collaboration with Cephalon in
December 2008. Product sales are recognized from the sale of
VIVITROL when persuasive evidence of an arrangement exists,
title to the product and associated risk of loss has passed to
the customer, which is considered to occur when the product has
been received by the customer, the sales price is fixed or
determinable, and collectability is reasonably assured. The
Company defers the recognition of product sales on shipments of
VIVITROL to its customers until the product has left the
distribution channel, as it does not yet have sufficient sales
history to reasonably estimate returns related to these
shipments. The Company estimates product shipments out of the
distribution channel through data provided by external sources,
including information on inventory levels provided by its
customers in the distribution channel, as well as prescription
information. In order to match the cost of goods
sold related to products shipped to customers with the
associated revenue, the Company defers the recognition of the
cost of goods sold to the period in which the associated revenue
is recognized.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company records its product sales net of the following
significant categories of sales discounts and allowances as a
reduction of product sales at the time VIVITROL is shipped into
the distribution channel and are adjusted for inventory in the
distribution channel.:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="text-align: left">
<tr>
<td width="4%"></td>
<td width="2%"></td>
<td width="94%"></td>
</tr>
<tr valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<td> </td>
<td> • 
</td>
<td align="left">
<i>Medicaid Rebates </i> — The Company records
accruals for rebates to states under the Medicaid Drug Rebate
Program as a reduction of sales when the product is shipped into
the distribution channel. The Company rebates individual states
for all eligible units purchased under the Medicaid program
based on a rebate per unit calculation, which is based on its
Average Manufacturer Price (“AMP”). The Company
estimates expected unit sales and rebates per unit under the
Medicaid program and adjusts its rebate estimates based on
actual unit sales and rebates per unit.
</td>
</tr>
<tr style="line-height: 6pt; font-size: 1pt">
<td> </td>
</tr>
<tr valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<td> </td>
<td> • 
</td>
<td align="left">
<i>Chargebacks </i>— wholesaler and specialty pharmacy
chargebacks are discounts that occur when contracted customers
purchase directly from an intermediary wholesale purchaser.
Contracted customers, which primarily consist of federal
government agencies purchasing under the federal supply
schedule, generally purchase the product at its contracted
price, plus a
<font style="white-space: nowrap">mark-up</font> from
the wholesaler. The wholesaler, in-turn, charges back to the
Company the difference between the price initially paid by the
wholesaler and the contracted price paid to the wholesaler by
the customer. The allowance for wholesaler chargebacks is based
on actual and expected utilization of these programs. Wholesaler
chargebacks could exceed historical experience and the
Company’s estimates of future participation in these
programs. To date, actual wholesaler chargebacks have not
differed materially from the Company’s estimates.
</td>
</tr>
<tr style="line-height: 6pt; font-size: 1pt">
<td> </td>
</tr>
<tr valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<td> </td>
<td> • 
</td>
<td align="left">
<i>Wholesaler Fees </i>— cash consideration, including
sales incentives, given by the Company under distribution
service agreements with a number of wholesaler, distributor and
specialty pharmacy customers that provide them with the
opportunity to earn discounts in exchange for the performance of
certain services.
</td>
</tr>
</table>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Research and development revenue under collaborative
arrangements </i>— R&D revenue under
collaborative arrangements consists of nonrefundable R&D
funding under collaborative arrangements with collaborative
partners. R&D funding generally compensates the Company for
formulation, preclinical and clinical testing related to the
collaborative research programs. The Company generally bills its
partners under collaborative arrangements using a single
full-time equivalent (“FTE”) or hourly rate. This rate
is established by the Company based on its annual budget of
employee compensation, employee benefits and billable
non-project-specific costs, and is generally increased annually
based on increases in the consumer price index. Each
collaborative partner is billed using a FTE or hourly rate for
the hours worked by the Company’s employees on a particular
project, plus direct external costs, if any.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company recognizes R&D revenue under collaborative
arrangements over the term of the applicable agreements through
the application of a proportional performance model where
revenue is recognized equal to the lesser of the amount due
under the agreements or the amount based on the proportional
performance to date. The Company recognizes nonrefundable
payments and fees for the licensing of technology or
intellectual property rights over the related performance period
or, in full, when there are no remaining performance
obligations. Nonrefundable payments and fees are recorded as
deferred revenue upon receipt and may require deferral of
revenue recognition to future periods.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
<i>Net collaborative profit </i>— Net collaborative
profit relates to the Company’s revenue recognition in
connection with the License and Collaboration Agreement and
Supply Agreement (together, the “Agreements”) entered
into with Cephalon in June 2005, later amended in October 2006
(the “Amendments”), for sale of VIVITROL in the
U.S. For purposes of revenue recognition, the deliverables
under these Agreements
were separated into three units of accounting: (i) net
losses on the products; (ii) manufacturing of the products;
and (iii) the product license.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
As discussed in Note 13, “Collaborative
Arrangements,” the Company and Cephalon agreed to end the
VIVITROL collaboration, effective December 1, 2008 (the
“Termination Date”). In connection with the
termination of the collaboration, the Company recognized
$120.7 million of net collaborative profit, consisting of
$113.9 million of unearned milestone revenue and
$6.8 million of deferred revenue remaining at the
Termination Date. The Company received $11.0 million from
Cephalon as payment to fund its share of estimated VIVITROL
product losses during the one-year period following the
Termination Date, and the Company recognized this payment as net
collaborative profit through the application of a proportional
performance model based on VIVITROL product losses.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Concentrations</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable and
marketable securities. Billings to large pharmaceutical
companies account for the majority of the Company’s
accounts receivable and collateral is generally not required
from these customers. To mitigate credit risk, the Company
monitors the financial performance and credit worthiness of its
customers. The following represents revenue and receivables from
the Company’s customers exceeding 10% of the total in each
category as of, and for the year ended, March 31:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<table border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent; text-align: left">
<!-- Table Width Row BEGIN -->
<tr style="font-size: 1pt" valign="bottom">
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<td width="2%"> </td><!-- colindex=02 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=02 type=lead -->
<td width="7%" align="right"> </td><!-- colindex=02 type=body -->
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<td width="3%"> </td><!-- colindex=03 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=03 type=lead -->
<td width="5%" align="right"> </td><!-- colindex=03 type=body -->
<td width="1%" align="left"> </td><!-- colindex=03 type=hang1 -->
<td width="3%"> </td><!-- colindex=04 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=04 type=lead -->
<td width="7%" align="right"> </td><!-- colindex=04 type=body -->
<td width="1%" align="left"> </td><!-- colindex=04 type=hang1 -->
<td width="3%"> </td><!-- colindex=05 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=05 type=lead -->
<td width="5%" align="right"> </td><!-- colindex=05 type=body -->
<td width="1%" align="left"> </td><!-- colindex=05 type=hang1 -->
<td width="3%"> </td><!-- colindex=06 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=06 type=lead -->
<td width="7%" align="right"> </td><!-- colindex=06 type=body -->
<td width="1%" align="left"> </td><!-- colindex=06 type=hang1 -->
<td width="3%"> </td><!-- colindex=07 type=gutter -->
<td width="1%" align="right"> </td><!-- colindex=07 type=lead -->
<td width="5%" align="right"> </td><!-- colindex=07 type=body -->
<td width="1%" align="left"> </td><!-- colindex=07 type=hang1 -->
</tr>
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<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="6" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2011</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="6" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2010</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="6" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2009</b>
</td>
<td>
 
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="left" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Customer</b>
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Receivables</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Revenue</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Receivables</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Revenue</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Receivables</b>
</td>
<td>
 
</td>
<td>
 
</td>
<td colspan="2" nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Revenue</b>
</td>
<td>
 
</td>
</tr>
<tr style="line-height: 3pt; font-size: 1pt">
<td> 
</td>
</tr>
<!-- TableOutputBody -->
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Janssen
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
75
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
83
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
86
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
83
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
84
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
46
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap" align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Cephalon
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
—
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
—
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
—
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
3
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
15
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
<td>
 
</td>
<td nowrap="nowrap" align="left" valign="bottom">
 
</td>
<td nowrap="nowrap" align="right" valign="bottom">
41
</td>
<td nowrap="nowrap" align="left" valign="bottom">
%
</td>
</tr>
</table>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company generally holds its interest-bearing investments
with major financial institutions and in accordance with
documented investment policies, the Company limits the amount of
credit exposure to any one financial institution or corporate
issuer. The Company’s investment objectives are, first, to
assure liquidity and conservation of capital and, second, to
obtain investment income.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Research
and Development Expenses</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company’s R&D expenses include internally and
externally generated costs incurred in conjunction with the
development of the Company’s technologies, proprietary
product candidates, collaborators’ product candidates and
in-licensing arrangements. Internally generated costs include
employee compensation, laboratory supplies, temporary help
costs, external research costs, consulting costs, occupancy
costs, depreciation expense and other allocable costs directly
related to the Company’s R&D activities. External
research costs relate to toxicology and pharmacokinetic studies
and clinical trials that are performed for the Company under
contract by external companies, hospitals or medical centers as
well as upfront fees and milestones paid to collaborators.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
A significant portion of the Company’s internally generated
R&D expenses (including laboratory supplies, travel, dues
and subscriptions, recruiting costs, temporary help costs,
consulting costs and allocable costs such as occupancy and
depreciation) are not tracked by project as they benefit
multiple projects or the Company’s technologies in general.
Externally generated R&D expenses are tracked by project
and certain of these expenses are reimbursed to the Company by
its partners. The Company accounts for its R&D expenses on
a departmental and functional basis in accordance with its
budget and management practices. All such costs are expensed as
incurred.
</div>
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<b>
<font style="font-family: 'Times New Roman', Times">
</font>
</b>
</div>
<div style="margin-top: 0pt; font-size: 1pt">
</div>
<div align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b>
<font style="font-family: 'Times New Roman', Times">
</font>
</b>
</div>
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<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Share-Based
Compensation</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company’s share-based compensation programs grant
awards which include stock options and restricted stock units
(“RSU”), which vest with the passage of time and, to a
limited extent, vest based on the achievement of certain
performance or market criteria. Certain of the Company’s
employees are retirement eligible under the terms of the
Company’s stock option plans (the “Plans”) and
stock option awards to these employees generally vest in full
upon retirement. Since there are no effective future service
requirements for these employees, the fair value of these awards
is expensed in full on the grant date.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<i><font style="font-family: 'Times New Roman', Times">Stock
Options</font></i>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Stock option grants to employees generally expire ten years from
the grant date and generally vest one-fourth per year over four
years from the anniversary of the date of grant, provided the
employee remains continuously employed with the Company, except
as otherwise provided in the plan. Stock option grants to
directors are for ten-year terms and generally vest over a six
month period provided the director continues to serve on the
Company’s board of directors through the vesting date,
except as otherwise provided in the plan. The estimated fair
value of options is recognized over the requisite service
period, which is generally the vesting period. Share-based
compensation expense is based on awards ultimately expected to
vest. Forfeitures are estimated based on historical experience
at the time of grant and revised in subsequent periods if actual
forfeitures differ from those estimates.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The fair value of stock option grants is based on estimates as
of the date of grant using a Black-Scholes option valuation
model. The Company used historical data as the basis for
estimating option terms and forfeitures. Separate groups of
employees that have similar historical stock option exercise and
forfeiture behavior are considered separately for valuation
purposes. The ranges of expected terms disclosed below reflect
different expected behavior among certain groups of employees.
Expected stock volatility factors are based on a weighted
average of implied volatilities from traded options on the
Company’s common stock and historical stock price
volatility of the Company’s common stock, which is
determined based on a review of the weighted average of
historical daily price changes of the Company’s common
stock. The risk-free interest rate for periods commensurate with
the expected term of the share option is based on the
U.S. treasury yield curve in effect at the time of grants.
The dividend yield on the Company’s common stock is
estimated to be zero as the Company has not paid and does not
expect to pay dividends. The exercise price of options granted
prior to October 7, 2008 equals the average of the high and
low of the Company’s common stock traded on the NASDAQ
Select Stock Global Market on the date of grant. Beginning with
the adoption of the Alkermes, Inc. 2008 Stock Option and
Incentive Plan (the “2008 Plan”), the exercise price
of option grants made after October 7, 2008 is equal to the
closing price of the Company’s common stock traded on the
NASDAQ Select Stock Global Market on the date of grant.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The fair value of each stock option grant was estimated on the
grant date with the following weighted-average assumptions:
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<table border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent; text-align: left">
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<td width="14%"> </td><!-- colindex=02 type=maindata -->
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<td width="14%"> </td><!-- colindex=03 type=maindata -->
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<td width="14%"> </td><!-- colindex=04 type=maindata -->
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<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td colspan="5" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>Year Ended March 31,</b>
</td>
</tr>
<tr style="font-size: 8pt" valign="bottom" align="center">
<td nowrap="nowrap" align="center" valign="bottom">
 
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2011</b>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2010</b>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
<b>2009</b>
</td>
</tr>
<tr style="line-height: 3pt; font-size: 1pt">
<td> 
</td>
</tr>
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<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Expected option term
</div>
</td>
<td>
 
</td>
<td align="center" valign="bottom">
5 - 7 years
</td>
<td>
 
</td>
<td align="center" valign="bottom">
5 - 7 years
</td>
<td>
 
</td>
<td align="center" valign="bottom">
5 - 7 years
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Expected stock volatility
</div>
</td>
<td>
 
</td>
<td align="center" valign="bottom">
46% - 51%
</td>
<td>
 
</td>
<td align="center" valign="bottom">
38% - 49%
</td>
<td>
 
</td>
<td align="center" valign="bottom">
36% - 46%
</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Risk-free interest rate
</div>
</td>
<td>
 
</td>
<td align="center" valign="bottom">
1.11% - 3.42%
</td>
<td>
 
</td>
<td align="center" valign="bottom">
1.83% - 3.05%
</td>
<td>
 
</td>
<td align="center" valign="bottom">
1.66% - 3.52%
</td>
</tr>
<tr valign="bottom">
<td align="left" valign="bottom">
<div style="text-indent: -10pt; margin-left: 10pt">
Expected annual dividend yield
</div>
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom">
—
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom">
—
</td>
<td>
 
</td>
<td nowrap="nowrap" align="center" valign="bottom">
—
</td>
</tr>
</table>
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</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<i><font style="font-family: 'Times New Roman', Times">Time-Vested
Restricted Stock Units</font></i>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Time-vested RSU’s awarded to employees generally vest
one-fourth per year over four years from the anniversary of the
date of grant, provided the employee remains continuously
employed with the Company.
Shares of the Company’s common stock are delivered to the
employee upon vesting, subject to payment of applicable
withholding taxes. The fair value of time-vested RSU’s is
based on the market value of the Company’s stock on the
date of grant. Compensation expense, including the effect of
forfeitures, is recognized over the applicable service period.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<i><font style="font-family: 'Times New Roman', Times">Performance-Based
Restricted Stock Units</font></i>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company has RSU’s that vest upon the achievement of
certain performance criteria and RSU’s that vest upon the
achievement of a market condition. Shares of the Company’s
common stock are delivered to the employee upon vesting, subject
to payment of applicable withholding taxes. The estimated fair
value of the RSU’s that vest upon the achievement of
certain performance criteria is based on the market value of the
Company’s stock on the date of grant. The estimated fair
value of the RSU’s that vest upon the achievement of a
market condition was determined through the use of a Monte Carlo
simulation model, which utilizes input variables that determine
the probability of satisfying the market condition stipulated in
the award and calculates the fair market value for the
performance award.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Compensation expense for RSU’s that vest upon the
achievement of performance criteria is recognized from the
moment the Company determines the performance criteria will be
met to the date the Company deems the event is likely to occur.
Cumulative adjustments are recorded quarterly to reflect
subsequent changes in the estimated outcome of
performance-related conditions until the date results are
determined. Compensation expense for RSU’s that vest upon
the achievement of a market condition is recognized over a
derived service period as determined by the Monte Carlo
simulation model. The vesting of these awards is subject to the
respective employees’ continued employment.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Income
Taxes</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company recognizes income taxes under the asset and
liability method. Deferred income taxes are recognized for
differences between the financial reporting and tax bases of
assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date. The Company accounts for uncertain tax positions using a
“more-likely-than-not” threshold for recognizing and
resolving uncertain tax positions. The evaluation of uncertain
tax positions is based on factors including, but not limited to,
changes in tax law, the measurement of tax positions taken or
expected to be taken in tax returns, the effective settlement of
matters subject to audit, new audit activity and changes in
facts or circumstances related to a tax position. The Company
evaluates this tax position on a quarterly basis. The Company
also accrues for potential interest and penalties related to
unrecognized tax benefits in income tax expense.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Comprehensive
(Loss) Income</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Comprehensive (loss) income consists of net (loss) income and
other comprehensive (loss) income. Other comprehensive (loss)
income includes changes in equity that are excluded from net
(loss) income, such as unrealized holding gains and losses on
<font style="white-space: nowrap">available-for-sale</font>
marketable securities.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">(Loss)
Earnings per Share</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
Basic (loss) earnings per share is calculated based upon net
(loss) income available to holders of common shares divided by
the weighted average number of shares outstanding. For the
calculation of diluted (loss) earnings per share, the Company
uses the weighted average number of shares outstanding, as
adjusted for the effect of potential dilutive securities,
including stock options and restricted stock units.
</div>
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<b>
<font style="font-family: 'Times New Roman', Times">
</font>
</b>
</div>
<div style="margin-top: 0pt; font-size: 1pt">
</div>
<div align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b>
<font style="font-family: 'Times New Roman', Times">
</font>
</b>
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</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Segment
Information</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company operates as one segment, which is the business of
developing, manufacturing and commercializing innovative
medicines for the treatment of prevalent, chronic diseases. The
Company’s chief decision maker, the Chairman, President 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.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">Employee
Benefit Plans</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
The Company maintains a 401(k) retirement savings plan (the
“401(k) Plan”), which covers substantially all of its
employees. Eligible employees may contribute up to 100% of their
eligible compensation, subject to certain Internal Revenue
Service limitations. The Company matches 50% of the first 6% of
employee pay, and employee and Company contributions are fully
vested when made. During the years ended March 31, 2011,
2010 and 2009, the Company contributed $2.0 million,
$1.8 million and $1.7 million, respectively, to match
employee deferrals under the 401(k) Plan.
</div>
<div style="margin-top: 12pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: transparent">
<b><i><font style="font-family: 'Times New Roman', Times">New
Accounting Pronouncements</font></i></b>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
In September 2009, the Emerging Issues Task Force
(“EITF”) of the Financial Accounting Standards Board
(“FASB”) issued accounting guidance related to revenue
recognition that amends the previous guidance on arrangements
with multiple deliverables. The new guidance provides accounting
principles and application guidance on whether multiple
deliverables exist, how the arrangement should be separated, and
provides for separate revenue recognition based upon
management’s estimate of the selling price for an
undelivered item when there is no other means to determine the
fair value of that undelivered item. Accounting guidance
previously required that the fair value of the undelivered item
be the price of the item either sold in a separate transaction
between unrelated third parties or the price charged for each
item when the item is sold separately by the vendor. This was
difficult to determine when the product was not individually
sold because of its unique features. Under the previous
guidance, if the fair value of all of the elements in the
arrangement was not determinable, then revenue was deferred
until all of the items were delivered or fair value was
determined. This guidance is effective prospectively for revenue
arrangements entered into or materially modified in the
Company’s fiscal year beginning April 1, 2011, and the
Company determined that this standard will not have a
significant impact on its historical consolidated financial
statements.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
In January 2010, the FASB issued accounting guidance 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. The guidance also requires additional
disclosure for activity within Level 3 of the fair value
hierarchy. The guidance requires a reporting entity to disclose
separately the amounts of significant transfers in and out of
Level 1 and Level 2 and describe the reasons for the
transfers. In addition, this guidance requires a reporting
entity to present information separately about purchases, sales
issuances and settlements in the reconciliation for fair value
measurements using significant unobservable inputs, or
Level 3 inputs. This accounting standard was effective for
interim and annual reporting periods beginning after
December 31, 2009, other than for disclosures about
purchases, sales, issuances and settlements in the rollforward
of activity in Level 3 fair value measurements. Those
disclosures are effective for the Company’s fiscal year
beginning April 1, 2011. The Company adopted all provisions
of this pronouncement, except for those related to the
disclosure of disaggregated Level 3 activity, on
January 1, 2010, and as this guidance only amends required
disclosures in the Company’s condensed consolidated
financial statements, it did not have an effect upon the
Company’s financial position or results of operations. The
Company determined that the adoption of the remaining provisions
of this amendment will not have a significant impact on its
consolidated financial statements.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
In April 2010, the FASB issued accounting guidance related to
the milestone method of revenue recognition for R&D
arrangements. Under this guidance, the Company may recognize
revenue contingent upon the achievement of a milestone in its
entirety, in the period in which the milestone is achieved, only
if
the milestone meets all the criteria within the guidance to be
considered substantive. This guidance is effective on a
prospective basis for R&D milestones achieved in the
Company’s fiscal year beginning April 1, 2011. The
Company will implement this guidance prospectively, and the
effect of this guidance will be limited to future transactions.
The Company determined that the adoption of this standard will
not have a material impact on its historical financial position
or results of operations.
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent">
In December 2010, the FASB issued accounting guidance related to
how pharmaceutical manufacturers should recognize and classify
in their income statements fees mandated by the Patient
Protection and Affordable Care Act as amended by the Health Care
and Education Reconciliation Act of 2010 (together the
“Acts”). The Acts impose an annual fee on the
pharmaceutical manufacturing industry for each calendar year
beginning on or after January 1, 2011. Under the guidance,
a liability for this fee should be estimated and recorded in
full upon the first qualifying sale with a corresponding
deferred cost that is amortized to expense using a straight-line
method of allocation unless another method better allocates the
fee over the calendar year that it is payable. The Company
adopted the provisions of this pronouncement on January 1,
2011, and the adoption did not have a material effect upon the
Company’s financial position or results of operations for
the fiscal year ending March 31, 2011 and the Company does
not expect the adoption of this pronouncement to have a material
effect on it in the near future.
</div>
</div>
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<!-- Begin Block Tagged NotefalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringThis element may be used to describe all significant accounting policies of the reporting entity.Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 22
-Paragraph 8
falsefalse12Summary of Significant Accounting PoliciesUnKnownUnKnownUnKnownUnKnownfalsetrue