Summary of Significant Accounting Policies

3 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

     Alkermes, Inc. (the “Company” or “Alkermes”) is a fully integrated biotechnology company committed to developing innovative medicines to improve patients’ lives. The Company is headquartered in Waltham, Massachusetts and has a research facility in Massachusetts and a commercial manufacturing facility in Ohio. The Company leverages its formulation expertise and proprietary product platforms to develop, both with partners and on its’ own, innovative and competitively advantaged medications that can enhance patient outcomes in major therapeutic areas. The Company’s pipeline includes extended-release injectable and oral products for the treatment of prevalent, chronic diseases, such as central nervous system (“CNS”), disorders, reward disorders, addiction, diabetes and autoimmune disorders.

     On May 9, 2011, the Company and Elan Corporation, plc (“Elan”), a public limited company incorporated in Ireland, announced the signing of a definitive Business Combination Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Alkermes and the global drug delivery technologies business of Elan, known as Elan Drug Technologies (“EDT”) will be combined under Antler Science Two plc, a new holding company incorporated in Ireland that was incorporated as a private limited company and re-registered as a public limited company on July 25, 2011, and which will be renamed Alkermes plc, at or prior to the completion of the business combination (“New Alkermes”). Following the completion of the merger, a wholly owned subsidiary of Elan will own 31.9 million ordinary shares of New Alkermes (approximately 25% of the company), subject to the terms of a shareholder’s agreement to be entered into at the effective time of the merger by and among such Elan subsidiary, New Alkermes, and Elan, and the Company’s former shareholders will own the remaining shares of New Alkermes (approximately 75% of the company). As an additional payment for EDT, Alkermes will also pay Elan $500 million in cash, subject to certain net cash and working capital adjustments. The Company has obtained a commitment from Morgan Stanley & Co. Incorporated, (“Morgan Stanley”), and HSBC Securities (USA) Inc. (“HSBC”) to provide up to $450 million in term loan financing which, in addition to existing cash and investment balances, will comprise the cash consideration to Elan. Under the terms of the shareholder’s agreement and subject to certain conditions, upon the closing of the merger, Elan will have the right to designate one person for election to the New Alkermes board of directors, will agree to vote in a manner consistent with the recommendations of the New Alkermes board of directors, and will be subject to a standstill provision and certain other restrictions on its ability to transfer New Alkermes ordinary shares without the consent of New Alkermes. This transaction, which has been approved by our board of directors and the board of directors of Elan, is subject to customary closing conditions including approval of our shareholders and customary regulatory approvals.

     Basis of Presentation

     The accompanying condensed consolidated financial statements of Alkermes for the three months ended June 30, 2011 and 2010 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, 2011. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”) (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to present fairly the results of operations for the reported periods.

     These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto which are contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011, as amended, filed with the Securities and Exchange Commission (SEC). The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

     Principles of Consolidation — The condensed consolidated financial statements include the accounts of Alkermes, Inc. and its wholly-owned subsidiaries: Alkermes Controlled Therapeutics, Inc. and Alkermes Europe, Ltd. Intercompany accounts and transactions have been eliminated.

     Use of Estimates — The preparation of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates and judgments and methodologies, including those related to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments, 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.

     Segment Information — The Company operates as one business segment, which is the business of developing, manufacturing and commercializing innovative medicines designed to yield better therapeutic outcomes and improve the lives of patients with serious 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.

     New Accounting Pronouncements

     From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

     In January 2010, the Company adopted accounting guidance issued by the FASB related to fair value measurements that requires additional disclosure related to transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, effective for the Company on April 1, 2011, this standard further requires an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, the adoption of this newly issued accounting standard did not impact the Company’s financial position or results of operations.

     On April 1, 2011, the Company prospectively adopted the accounting guidance related to the milestone method of revenue recognition for research and development arrangements. Under the milestone method, contingent consideration received from the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved, which the Company believes is more consistent with the substance of its performance under its various licensing and collaboration agreements. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to the entity. A milestone is substantive if the consideration earned from the achievement of the milestone is consistent with the Company’s performance required to achieve the milestone, or the increase in value to the collaboration resulting from the Company’s performance, relates solely to the Company’s past performance, and is reasonable relative to all of the other deliverables and payments within the arrangement. The Company’s license and collaboration agreements with its partners provide for payments to the Company upon the achievement of development milestones, such as the completion of clinical trials or regulatory approval for drug candidates. As of April 1, 2011, the Company’s agreements with partners included potential future payments for development milestones aggregating $17.0 million from agreements with Amylin Pharmaceuticals, Inc. (“Amylin”), and Cilag GmbH International (“Cilag”). Given the challenges inherent in developing and obtaining approval for pharmaceutical and biologic products, there was substantial uncertainty whether any such milestones would be achieved at the time these licensing and collaboration agreements were entered into. In addition, the Company evaluated whether the development milestones met the remaining criteria to be considered substantive. As a result of the Company’s analysis, the Company considers its development milestones to be substantive and, accordingly, the Company expects to recognize as revenue future payments received from such milestones as it achieves each milestone. The election to adopt the milestone method did not impact the Company’s historical financial position at April 1, 2011. This policy election may result in revenue recognition patterns for future milestones that are materially different from those recognized for milestones received prior to adoption. During the three months ended June 30, 2011, the Company recognized into revenue $3.0 million received from Cilag upon the achievement of a developmental milestone in April 2011.

     Milestone payments received prior to April 1, 2011 from arrangements where the Company has continuing performance obligations have been deferred and are recognized through the application of a proportional performance model where the milestone is recognized over the related performance period or, in full, when there are no remaining performance obligations. The Company makes its best estimate of the period of time for the performance period. The Company will continue to recognize milestones payments received prior to April 1, 2011 in this manner. As of June 30, 2011, the Company has deferred revenue of $5.2 million from milestone payments received prior to April 1, 2011 that will be recognized ratably through 2018.