UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 1-14131

ALKERMES, INC.

(Exact name of registrant as specified in its charter)

(617) 494-0171

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Series A Junior Participating Preferred Stock Purchase Rights

(Title of Class)

     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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      As of September 30, 2004 (the last business day of the second fiscal quarter) the aggregate market value of the 87,835,891 outstanding shares of voting and non-voting common equity held by non-affiliates of the registrant was $1,013,626,182. Such aggregate value was computed by reference to the closing price of the common stock reported on the NASDAQ National Market on September 30, 2004.

      As of May 31, 2005, 90,021,880 shares of the Registrant’s common stock were issued and outstanding, and 382,632 shares of the Registrant’s non-voting common stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Definitive Proxy Statement to be filed within 120 days after March 31, 2005 for the Registrant’s Annual Shareholders’ Meeting are incorporated by reference into Part III of this Report on Form 10-K.

PART I

      The following Business section contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements.”

General

      Alkermes, Inc. (together with its subsidiaries, referred to as “we”, “us”, “our” or the “Registrant”), a Pennsylvania corporation organized in 1987, is a pharmaceutical company that develops products based on sophisticated drug delivery technologies to enhance therapeutic outcomes in major diseases. Our lead commercial product, Risperdal Consta®[(risperidone) long-acting injection], is the first and only long-acting atypical antipsychotic medication approved for use in schizophrenia, and is marketed worldwide by Janssen-Cilag (“Janssen”), a division of Johnson & Johnson. Our lead proprietary product candidate, Vivitrex® (naltrexone long-acting injection) is being developed as a once-monthly injection for the treatment of alcohol dependence. We have a pipeline of extended-release injectable products and pulmonary drug products based on our proprietary technologies and expertise. Our product development strategy is twofold: we partner our proprietary technology systems and drug delivery expertise with some of the world’s finest pharmaceutical companies and we also develop novel proprietary drug candidates for our own account. Our headquarters is in Cambridge, Massachusetts, and we operate research and manufacturing facilities in Massachusetts and Ohio.

Our Strategy

      We are leveraging our unique drug delivery capabilities and technologies as the means to develop, both with partners and on our own, novel drug products that may enhance therapeutic outcomes. The key elements of our strategy are as follows:

      Collaborate with pharmaceutical and biotechnology companies to develop and finance product candidates. We have entered into multiple collaborations with pharmaceutical and biotechnology companies to develop product candidates incorporating our technologies, to provide us with funding for product development independent of capital markets, to share development risk and, in some cases, to provide access to patented drug candidates.

      Apply drug delivery systems to both approved drugs and drugs in development. We are applying our drug delivery technologies to novel applications and formulations of pharmaceutical products that have already been approved by the U.S. Food and Drug Administration (the “FDA”) or other regulatory authorities. In such cases, we and any partners we are working with may develop a novel dosage form or application with the knowledge of a drug’s safety and efficacy profile, and a body of clinical experience from which to draw information for the design of clinical trials, and for regulatory submissions. We also apply our technologies to drugs in development that could benefit from our delivery systems.

      Establish independent product development capabilities and infrastructure. Based upon our own knowledge and the best practices we have adopted from our collaborators, our experienced scientists have built an in-house product development organization that enables us to develop product candidates for our collaborators and for ourselves. Our product development experience and infrastructure give us flexibility in structuring development programs and the ability to conduct both feasibility studies and clinical development programs for our collaborators and for ourselves.

      Expand our pipeline with additional product candidates for our own account. We develop our own proprietary product candidates by applying our drug delivery technologies to certain off-patent pharmaceuticals. For example, we have completed a Phase III clinical trial for Vivitrex for the treatment of alcohol dependence and submitted a New Drug Application (“NDA”) to the FDA for marketing

approval of Vivitrex. We are also developing inhaled epinephrine based on our AIR® pulmonary drug delivery system for the treatment of anaphylaxis. In addition, we may in-license or acquire certain compounds to develop on our own.

      Establish our own specialized sales and marketing capabilities. We are in the process of establishing an organization for the sales and marketing of Vivitrex. We are also in discussions with potential marketing partners regarding the commercialization of Vivitrex. We may seek to expand our commercial capabilities through the development, or acquisition, of additional products.

Products and Product Candidates in Development

      The following table summarizes the primary indications, development stage and collaborative partner, if any, for our products and product candidates. This table is qualified in its entirety by reference to the more detailed descriptions appearing elsewhere in this Form 10-K. The results from preclinical testing and early clinical trials may not be predictive of results obtained in subsequent clinical trials and there can be no assurance that our, or our collaborators’, clinical trials will demonstrate the safety and efficacy of any product candidates necessary to obtain regulatory approval.

Products and Development Programs

      Risperdal Consta. We have developed a long-acting formulation of Janssen’s antipsychotic drug Risperdal, called Risperdal Consta, using our Medisorb® technology for the treatment of schizophrenia, a brain disorder the symptoms of which include disorganized thinking, delusions and hallucinations. Risperdal Consta is marketed in more than 45 countries around the world including the U.S., U.K., Spain, France and Germany. The product has been approved in more than 75 countries, and Janssen continues to launch the product around the world. Risperdal is the most commonly prescribed drug for the treatment of schizophrenia and had sales of over $3.1 billion worldwide in 2004 for the relief of symptoms associated with schizophrenia and bipolar disorder. In January 2005, Janssen announced the initiation of a Phase III clinical trial with Risperdal Consta, with the goal of expanding the label to include maintenance therapy for bipolar disorder. Risperdal Consta is administered via injection every two weeks, as opposed to Risperdal tablets, which must be taken daily.

      We are the exclusive manufacturer of Risperdal Consta for Janssen, and we earn both manufacturing fees and royalties from Janssen. Under our manufacturing and supply agreement with Janssen, we record manufacturing revenues upon shipment of product by us to Janssen based on a percentage of Janssen’s net selling price. These percentages are based on the volume of units shipped to Janssen in any given calendar year, with a minimum manufacturing fee of 7.5%. In fiscal 2005, our manufacturing revenues were based

on an average of 8.1% of Janssen’s net sales price for Risperdal Consta compared to 9.8% in fiscal 2004 and 12.3% in fiscal 2003. Under our license agreements with Janssen, we also record royalty revenues equal to 2.5% of Janssen’s net sales of Risperdal Consta in the quarter when the product is sold by Janssen. In January 2005, we announced that we would be expanding the capacity of our plant in Wilmington, Ohio to produce Risperdal Consta, with funding support from Janssen.

      Under our manufacture and supply agreement, Janssen is required to pay us certain minimum amounts of manufacturing revenues relating to our sales of Risperdal Consta to Janssen. The actual amount of the minimum manufacturing revenues is determined by a formula and is currently estimated to aggregate approximately $184.5 million. This amount was increased from $150.0 million in the fourth quarter of fiscal 2005, as a result of additional investment by us in the Risperdal Consta manufacturing infrastructure. As of March 31, 2005, we had recognized approximately $78.5 million of cumulative manufacturing revenues against the estimated $184.5 million minimum. Janssen’s minimum revenue obligation will be satisfied when Alkermes reaches approximately $184.5 million in cumulative manufacturing revenues earned from sales of Risperdal Consta to Janssen. While the manufacture and supply agreement with Janssen specifies annual minimum revenues expected to be paid to us over a ten year period beginning in calendar 2003, we expect our annual manufacturing revenues to exceed those annual minimums. In December 2002, Janssen prepaid the first two years of minimum manufacturing revenues to us, totaling $23.9 million and these amounts were recorded as deferred revenue in our consolidated balance sheets. As of March 31, 2005, we have recognized the $23.9 million as revenue in our consolidated statement of operations and comprehensive loss.

      Vivitrex. Vivitrex, our most advanced proprietary product candidate, is an injectable, extended-release Medisorb formulation of naltrexone. Naltrexone is an FDA-approved drug indicated for the treatment of alcohol dependence and for the blockade of effects of exogenously administered opioids, and is currently available in daily oral dosage form. It is estimated that in the U.S., 2.3 million individuals seek treatment for alcoholism each year. We believe there is a significant need for a product that will offer a new treatment option and may help improve day-to-day compliance in this patient population. Vivitrex is designed to provide once-monthly dosing and provides the option to alcohol dependent patients of a once-monthly injection rather than the once-daily oral dosing regimen of naltrexone. In March 2005, we submitted an NDA to the FDA for marketing approval of Vivitrex. In May 2005, we were informed by the FDA that the NDA has been filed for review and has been granted a priority review designation. The submission of the NDA does not guarantee approval for marketing.

      In April 2005, the Journal of the American Medical Association (JAMA) published the results of our Phase III study of Vivitrex in alcohol dependent patients. The multi-center, double-blind, placebo-controlled study of 624 patients showed that a once-monthly dose of Vivitrex, in combination with counseling, significantly reduced the rate of heavy drinking in alcohol dependent patients over the six-month treatment period.

      If approved, we will manufacture Vivitrex for commercial sales. We plan to commercialize Vivitrex using a specialty sales force to call on addiction specialists and substance abuse centers, however, we are also in discussions with potential partners regarding the commercialization of Vivitrex in the U.S. and around the world.

      AIR insulin. We are collaborating with Eli Lilly and Company (“Lilly”) to develop inhaled formulations of insulin and other potential products for the treatment of diabetes based on our AIR pulmonary drug delivery technology. Multiple early stage clinical trials have been completed for a formulation, which is currently in Phase II clinical development. Lilly is responsible for conducting such clinical trials. We will manufacture AIR insulin for clinical trials. Under our current agreement we and Lilly will manufacture such products for commercial sales, if any.

      In August 2004, Lilly made a positive product decision to proceed with significant investment for the further development of AIR insulin. The decision followed the successful execution of several critical steps: the completion and analysis of data from a Phase II study; the attainment of certain manufacturing capabilities as decided by Lilly; and the development and testing of the commercial AIR insulin inhaler

system. The Phase II trial was a multi-center, cross-over design study with 120 patients with type 1 diabetes receiving an inhaled formulation of insulin using AIR technology for a three-month period.

      In December 2002, we expanded our collaboration with Lilly following the achievement of development milestones relating to clinical progress and manufacturing activities for our AIR insulin dry powder aerosol and inhaler. In connection with the expansion, Lilly purchased $30.0 million of our convertible preferred stock. We used a significant portion of the proceeds from the sale of the preferred stock to fund the joint development program, including certain clinical trials, during calendar year 2003 and 2004. In addition, under this agreement, the royalty rate payable to us based on revenues of potential AIR insulin products has been increased. Lilly has the right to exchange the preferred shares for a reduction in the royalty rate payable to us. The preferred stock is convertible into our common stock at market price, under certain conditions at our option, and automatically upon filing of an NDA with the FDA for an AIR insulin product. In December 2003, Lilly made additional payments to us totaling approximately $7.0 million to fund an increase in the scope of our AIR insulin and AIR hGH development programs with them. As of March 31, 2005, this funding has been recorded as revenue in the consolidated statement of operations and comprehensive loss. Ongoing development work is being funded by Lilly.

      Exenatide LAR. We are developing a long-acting release (LAR) Medisorb formulation of Amylin Pharmaceutical, Inc.’s (“Amylin”) exenatide. Exenatide injection (trade name BYETTA^tm) was recently approved by the FDA as adjunctive therapy to improve blood sugar control in patients with type 2 diabetes who have not achieved adequate control on metformin and/or a sulfonylurea, two commonly used oral diabetes medications. BYETTA is a twice daily injection. Amylin has entered into a collaboration agreement with Lilly for the development and commercialization of exenatide, including exenatide LAR.

      In January 2005, Alkermes, Amylin and Lilly initiated a Phase II randomized, placebo-controlled, multi-dose study of exenatide LAR in patients with type 2 diabetes using a once-a-week dosing regimen. The multiple-dose study includes approximately 45 subjects with type 2 diabetes who were failing to achieve adequate glucose control using diet and exercise with or without metformin.

      We are initially responsible for developing and testing several formulations, manufacturing for clinical trials, and for initial commercial manufacturing of any products that may be developed pursuant to the agreement on terms and conditions to be determined. Amylin is responsible for conducting clinical trials, securing regulatory approvals and marketing any products resulting from the collaboration on a worldwide basis.

      AIR hGH. We are collaborating with Lilly to develop an inhaled formulation of human growth hormone (“hGH”) based on our AIR pulmonary drug delivery technology. In January 2002, we announced the decision to proceed with multi-dose Phase I clinical studies for inhaled hGH following the successful completion of a single-dose Phase I trial. In connection with the December 2002 preferred stock transaction, we agreed to use a portion of the proceeds to fund the AIR hGH development program, including certain clinical trials, during calendar year 2003 and into 2004. Lilly is conducting clinical trials for AIR hGH. We will manufacture the AIR hGH formulation for both clinical trials and commercial manufacturing, if any. In December 2003, Lilly made additional payments to us totaling approximately $7.0 million to fund an increase in the scope of our AIR insulin and AIR hGH development programs with them. As of March 31, 2005, this funding has been recorded as revenue in the consolidated statement of operations and comprehensive loss. Ongoing development work is being funded by Lilly.

      AIR Epinephrine. We are developing an inhaled formulation of epinephrine for the treatment of anaphylaxis, which is a sudden, often severe, systemic allergic reaction. Inhaled epinephrine is our proprietary product based on our AIR pulmonary delivery technology. Currently, patients self-administer epinephrine by intramuscular injection. We believe that an inhaled dosage form of epinephrine may offer patients significant advantages over injections, such as ease of use and direct topical treatment of airway obstruction. We have completed our third Phase I study of inhaled epinephrine and met with the FDA to review the clinical requirements for approval. We are currently formulating our clinical plans in response to

discussions with the FDA and will be reviewing our plans with the FDA prior to the initiation of additional clinical trials.

Collaborative Arrangements

      Our business strategy includes forming collaborations to access technological, financial, marketing, manufacturing and other resources. We have entered into several corporate collaborations, as described below.

Janssen

      Pursuant to a development agreement, we collaborated with Janssen on the development of Risperdal Consta. Under the development agreement, Janssen provided development funding to us for the development of Risperdal Consta and is responsible for securing all necessary regulatory approvals. Risperdal Consta has been approved in more than 75 countries, including the U.S. Risperdal Consta has been launched in more than 45 countries, including the U.S. and major European markets. We exclusively manufacture Risperdal Consta for commercial sale and receive manufacturing revenues when product is shipped to Janssen and royalty revenues upon the final sale of product.

      Under related license agreements, Janssen and an affiliate have exclusive worldwide licenses from us to use and sell Risperdal Consta. Under the license agreements, Janssen is required to pay us certain royalties with respect to all Risperdal Consta sold to customers. Janssen can terminate the license agreements upon 30 days’ prior written notice.

      Pursuant to a manufacture and supply agreement, Janssen has appointed us as the exclusive supplier of Risperdal Consta for commercial sales. The agreement terminates on expiration of the license agreements. In addition, either party may terminate the agreement upon a material breach by the other party which is not resolved within 60 days’ written notice or upon written notice in the event of the other party’s insolvency or bankruptcy. Janssen may terminate the agreement upon six months’ written notice after such event. Janssen also has certain minimum revenue obligations to us which are described in the “Products and Development Programs” section in this Form 10-K.

Lilly

      We entered into a development and license agreement with Lilly in April 2001 for the development of inhaled formulations of insulin and other compounds potentially useful for the treatment of diabetes, based on our AIR pulmonary drug delivery technology. Pursuant to the agreement, we are responsible for formulation and preclinical testing as well as the development of a device to use in connection with any products developed. Lilly has paid or will pay to us certain initial fees, research funding and milestones payable upon achieving certain development and commercialization goals. Lilly has exclusive worldwide rights to make, use and sell pulmonary formulations of such compounds. Lilly will be responsible for clinical trials, obtaining all regulatory approvals and marketing any AIR insulin products. We will manufacture such product candidates for clinical trials and both we and Lilly will manufacture such products for commercial sales, if any. We will receive certain royalties and commercial manufacturing fees based upon such product sales, if any.

      Lilly has the right to terminate the agreement upon 90 days’ written notice at any time prior to the first commercial launch of a product or upon 180 days’ written notice at any time after such first commercial launch. In addition, either party may terminate the agreement upon a material breach or default by the other party which is not cured within 90 days of written notice of material breach or default.

      We entered into an agreement with Lilly in February 2002 that provided for an investment by them in our production facility for inhaled pharmaceutical products based on our AIR pulmonary drug delivery technology. This facility, located in Chelsea, Massachusetts, is designed to accommodate the

manufacturing of multiple products. Lilly’s investment was used to fund a portion of AIR insulin production and packaging capabilities. This funding is secured by Lilly’s ownership of specific equipment located and used in the facility. We have the right to purchase the equipment from Lilly, at any time, at the then-current net book value.

      In December 2002, we expanded our collaboration with Lilly following the achievement of development milestones relating to clinical progress and manufacturing activities for our insulin dry powder aerosols and inhalers. In connection with the expansion, Lilly purchased $30.0 million of our convertible preferred stock. We used a significant portion of the proceeds from the sale of the preferred stock to fund the joint development program for inhaled insulin during calendar year 2003 and used the remaining proceeds in calendar year 2004. In addition, the royalty rate payable to us based on revenues of potential AIR insulin products has been increased. Lilly has the right to exchange the preferred shares for a reduction in the royalty rate payable to us. The preferred stock is convertible into our common stock at market price, under certain conditions at our option, and automatically upon filing of an NDA with the FDA for an AIR insulin product. In December 2003, Lilly made additional payments to us totaling approximately $7.0 million to fund an increase in the scope of our AIR insulin and AIR hGH development programs with them. As of March 31, 2005, this funding has been recorded as revenue in the consolidated statement of operations and comprehensive loss.

      We entered into a development and license agreement with Lilly in February 2000 for the development of an inhaled formulation of human growth hormone based on our AIR pulmonary drug delivery technology. Pursuant to the agreement, we are responsible for formulation and preclinical testing as well as the development of a device to use in connection with any products developed. Lilly has paid or will pay to us certain initial fees, research funding and milestones payable upon achieving certain development and commercialization goals. In connection with the December 2002 preferred stock transaction, we agreed to use a portion of the proceeds to fund the AIR hGH development program during calendar year 2003 and into 2004. In December 2003, Lilly made additional payments to us totaling approximately $7.0 million to fund an increase in the scope of our AIR insulin and AIR hGH development programs with them. As of March 31, 2005, this funding has been recorded as revenue in the consolidated statement of operations and comprehensive loss. Lilly has exclusive worldwide rights to make, use and sell products resulting from such development. Lilly will be responsible for clinical trials, obtaining all regulatory approvals and marketing any products. We will manufacture any such products for clinical trials and commercial sales and receive manufacturing revenues and royalties on product sales, if any.

      Lilly has the right to terminate the agreement upon 90 days’ written notice at any time prior to the first commercial launch of a product or upon 180 days’ written notice at any time after such first commercial launch. In addition, either party may terminate the agreement upon a material breach or default by the other party which is not cured within 90 days of written notice of material breach or default.

Amylin

      We entered into a development and license agreement with Amylin in May 2000 for the development of a long-acting Medisorb formulation of exenatide LAR for the treatment of type 2 diabetes.

      Pursuant to the development and license agreement, Amylin has an exclusive, worldwide license to the Medisorb technology for the development and commercialization of injectable extended-release formulations of exendins and other related compounds that Amylin may develop. Amylin has entered into a collaboration agreement with Lilly for the development and commercialization of exenatide, including exenatide LAR. We receive funding for research and development and milestone payments comprised of cash and warrants for Amylin common stock upon achieving certain development and commercialization goals and will also receive a combination of royalty payments and manufacturing fees based on future product sales, if any. We are initially responsible for developing and testing several formulations,

manufacturing for clinical trials, and for initial commercial manufacturing of any products that may be developed pursuant to the agreement on terms and conditions to be determined. Amylin is responsible for conducting clinical trials, securing regulatory approvals and marketing any products resulting from the collaboration on a worldwide basis.

      Amylin may terminate the development agreement for any reason upon 90 days’ written notice if such termination occurs before filing an NDA with the FDA or 180 days’ written notice after such event. In addition, either party may terminate the development agreement upon a material default or breach by the other party that is not cured within 60 days’ written notice.

Serono

      In October 2004, Alkermes and Serono discontinued the development of a sustained-release version of recombinant human follicle stimulating hormone (“r-hFSH”) for the treatment of infertility.

Genentech

      On June 1, 2004, Alkermes and Genentech, Inc. (“Genentech”) announced the decision to stop commercialization of Nutropin Depot®, an injectable long-acting formulation of Genentech’s recombinant growth hormone for pediatric use based on our ProLease® drug delivery system. The decision was based on the significant resources required by both companies to continue manufacturing and commercializing the product. In connection with this decision, we ceased commercial manufacturing of Nutropin Depot and recorded net restructuring charges of approximately $11.5 million in our consolidated statement of operations and comprehensive loss in fiscal 2005. The restructuring charges consisted of approximately $0.1 million in employee separation costs, including severance and related benefits, and approximately $11.4 million in facility closure costs, including fixed asset write-offs and estimates of future lease costs relating to our ability to sublease the exited facility through the end of the lease term in August 2008. In addition to the restructuring charges, we also recorded a one-time write-off of Nutropin Depot inventory of approximately $1.3 million in fiscal 2005, which was recorded under the caption “Cost of goods manufactured” in our consolidated statement of operations and comprehensive loss.

Drug Delivery Technology

      Our current focus is on the development of products that improve clinical outcomes based on our broadly applicable, proprietary drug delivery technologies addressing several important drug delivery opportunities, including injectable extended-release of proteins, peptides and small molecule pharmaceutical compounds and the pulmonary delivery of small molecules, proteins and peptides. We partner our proprietary technology systems and drug delivery expertise with leading pharmaceutical and biotechnology companies and develop novel, proprietary drug candidates for our own account.

Medisorb: injectable extended-release of traditional small molecule pharmaceuticals

      Medisorb is our proprietary technology for encapsulating traditional small molecule pharmaceuticals in microspheres made of common medical polymers. Medisorb is designed to enable novel formulations of pharmaceuticals by providing controlled, extended-release over time. We believe Medisorb is suitable for encapsulating stable, small molecule pharmaceuticals and certain peptides at a large scale, and also that Medisorb formulations may have superior features of safety, efficacy, compliance and ease of use for drugs currently administered by frequent injection or administered orally. Drug release from the microsphere is controlled by diffusion of the pharmaceutical through the microsphere and by biodegradation of the polymer. These processes can be modulated through a number of formulation and fabrication variables, including drug substance and microsphere particle sizing and choice of polymers and excipients.

      The Medisorb drug delivery system utilizes a manufacturing process that consists of three basic steps. First, the drug is combined with a polymer solution. Second, the drug/polymer solution is mixed with an external or aqueous phase to form liquid microspheres which solidify as the polymer solvent diffuses out the microspheres. Third, the microspheres are collected and dried to produce a finished product. The

microspheres are suspended in a small volume of liquid prior to use and are administered to a patient by injection under the skin or into a muscle. We believe drug release from the Medisorb system can be controlled to last from a few days to several months.

ProLease: injectable extended-release of fragile proteins and peptides

      ProLease is our proprietary technology for the stabilization and encapsulation of fragile proteins and peptides in microspheres made of common medical polymers. Our proprietary expertise in this field lies in our ability to preserve the biological activity of fragile drugs over an extended period and to manufacture these formulations using components and processes believed to be suitable for human pharmaceutical use. ProLease is designed to enable novel formulations of proteins and peptides by replacing frequent injections with controlled, extended-release over time. We believe ProLease formulations have the potential to improve patient compliance and ease of use by reducing the need for frequent self-injection, to lower costs by reducing the need for frequent office visits and to improve safety and efficacy by reducing both the variability in drug levels inherent in frequent injections and the aggregate amount of drug given over the course of therapy. In addition, ProLease may provide access to important new markets currently inaccessible to drugs that require frequent injections or are administered orally.

      The ProLease formulation process has been designed to assure stability of fragile compounds during the manufacturing process, during storage and throughout the release phase in the body. The formulation and manufacturing process consists of two basic steps. First, the drug is formulated with stabilizing agents and dried to create a fine powder. Second, the powder is microencapsulated in the polymer at very low temperatures. Incorporation of the drug substance as a stabilized solid under very low temperatures is critical to protecting fragile molecules from degradation during the manufacturing process and is a key element of the ProLease technology. The microspheres are suspended in a small volume of liquid prior to administration to a patient by injection under the skin or into a muscle. We believe drug release from the ProLease drug delivery system can be controlled to last from a few days to several months.

      Drug release from the microsphere is controlled by diffusion of the drug through the microsphere and by biodegradation of the polymer. These processes can be modulated through a number of formulation and fabrication variables, including drug substance and microsphere particle sizing and choice of polymers and excipients.

      Our experience with the application of ProLease to a wide range of proteins and peptides has shown that high incorporation efficiencies and high drug loads can be achieved. Proteins and peptides incorporated into ProLease microspheres have maintained their integrity, stability and biological activity when tested for up to 30 days in in vitro experiments conducted on formulations manufactured at the preclinical, clinical and commercial scale.

AIR: pulmonary drug delivery

      The AIR technology is our proprietary pulmonary delivery system that enables the delivery of both small molecules and macromolecules to the lungs. Our proprietary technology allows us to formulate drugs into dry powders made up of highly porous particles with low mass density. These particles can be efficiently delivered to the deep lung by a small, simple inhaler. The AIR technology is useful for small molecules, proteins or peptides and allows for both local delivery to the lungs and systemic delivery via the lungs.

      AIR particles can be aerosolized and inhaled efficiently with simple inhaler devices because low forces of cohesion allow the particles to disaggregate easily. We are developing a family of relatively inexpensive, compact, easy to use inhalers. The AIR devices are breath activated and made from injection molded plastic. The powders are designed to quickly discharge from the device over a range of inhalation flow rates, which may lead to low patient-to-patient variability and high lung deposition of the inhaled dose. By varying the ratio and type of excipients used in the formulation, we believe we can deliver a range of drugs from the device that may provide both immediate and extended release.

Manufacturing

      We currently have clinical and commercial manufacturing facilities in Massachusetts and Ohio that are responsible for making product from our three product technologies, Medisorb, Prolease and AIR. We either purchase active drug product from third parties or receive it from our third party collaborators to formulate using our product technologies. The manufacture of our product candidates for clinical trials and commercial purposes is subject to current good manufacturing practices (cGMP) and other regulatory agency regulations. We have been producing commercial products since 1999 and have limited experience operating FDA-approved commercial manufacturing sites. Delays in obtaining regulatory agency approvals may result in delays in commercial launch. Such delays could materially adversely affect our competitive position and our business, financial condition and results of operations.

Medisorb

      The Medisorb manufacturing process is based on a method of encapsulating small molecule drugs in polymers using a large-scale emulsification. The Medisorb manufacturing process consists of three basic steps. First, the drug is combined with a polymer solution. Second, the drug/polymer solution is mixed with an external or aqueous phase to form liquid microspheres which solidify as the polymer solvent diffuses out the microspheres. Third, the microspheres are collected and dried to produce finished product.

      We own and occupy approximately 100,000 square feet of manufacturing, office and laboratory space in Wilmington, Ohio. We manufacture Risperdal Consta for Janssen at this facility. The facility has been inspected by U.S. and European regulatory authorities and they have concluded that the facility meets required cGMP standards for continued commercial manufacturing. In January 2005, we announced that we will expand bulk production capacity for Risperdal Consta. The expansion of this facility is designed to meet anticipated future demand for Risperdal Consta. Our partner, Janssen, will help fund the building of a new bulk manufacturing line.

ProLease

      ProLease manufacturing involves microencapsulation of drug substances provided to us by our collaborators in small polymeric microspheres using extremely cold processing conditions suitable for fragile molecules. The ProLease manufacturing process consists of two basic steps. First, the drug is formulated with stabilizing agents and dried to create a fine powder. Second, the powder is microencapsulated in polymer at very low temperatures.

      We lease a 32,000 square foot commercial scale manufacturing facility in Cambridge, Massachusetts that we are not currently utilizing. We exited this facility in connection with the restructuring of operations in June 2004 and have marketed it for sublet. The lease expires in August 2008.

      We have a cGMP clinical production facility, within our headquarters facility, in Cambridge, Massachusetts. The facility is used to manufacture product candidates using our ProLease extended-release delivery system for use in clinical trials.

AIR

      The AIR manufacturing process uses spray drying technology to produce highly porous particles for drug delivery to the lung. We combine drugs provided by our partners or purchased from generic manufacturers with certain excipients commonly used in other aerosol formulations and spray dry the solution in commercial spray dryers. During the manufacturing process, solutions of drugs and excipients are spray dried to form a free flowing powder and the powder is filled and packaged into final dosage units. We have a clinical manufacturing facility in Cambridge, Massachusetts where powders and final dosage units are prepared under cGMP for use in clinical trials.

      In February 2002, we entered into an agreement with Lilly that provided for an investment by Lilly in our production facility for inhaled pharmaceutical products based on our AIR pulmonary drug delivery technology. This 90,000 square foot facility located in Chelsea, Massachusetts is designed to accommodate

manufacturing of multiple products and contains a 40,000 square foot facility used for clinical production. AIR’s inhalation devices are produced under cGMP at a contract manufacturer in the U.S.

Marketing

      Under our collaboration agreements with Janssen, Lilly and Amylin, these companies have the right and the obligation to market the products developed thereunder if, and when, regulatory approval is obtained. If approved, we plan to commercialize Vivitrex using a specialty sales force to call on addiction specialists and substance abuse centers. We are also in discussions with potential partners to assist us in marketing Vivitrex in the U.S. and around the world. We currently have no internal sales and marketing capabilities, or an infrastructure to support such activities, and have limited experience in the commercialization of pharmaceutical products. Therefore, the successful commercial launch of Vivitrex and our future profitability may depend on our ability to develop a capable specialty sales force and suitable marketing capabilities for Vivitrex and/or entering into a partnering arrangement for Vivitrex.

      We currently have no experience in marketing or selling pharmaceutical products. In order to achieve commercial success for any product candidate approved by the FDA or other regulatory authorities, we must either develop a marketing and sales capability or enter into arrangements with third parties to market and sell our products. There can be no assurance that we will successfully develop such experience or that we will be able to enter into marketing and sales agreements with others on acceptable terms, if at all. If we develop our own marketing and sales capability, we will compete with other companies that currently have experience and well-funded marketing and sales operations. To the extent we enter into co-promotion or other sales and marketing arrangements with other companies, any revenues received by us will be dependent on the efforts of others, and there can be no assurance that such efforts will be successful.

Competition

      The biotechnology and pharmaceutical industries are subject to rapid and substantial technological change. We face, and will continue to face, intense competition in the development, manufacturing, marketing and commercialization of our products and product candidates from academic institutions, government agencies, research institutions, biotechnology and pharmaceutical companies, including our collaborators, and other drug delivery companies. There can be no assurance that developments by others will not render our products, product candidates or our technologies obsolete or noncompetitive, or that our collaborators will not choose to use competing drug delivery methods. Presently, we have no sales force or marketing experience and we have only limited commercial manufacturing experience. In addition, many of our competitors and potential competitors have substantially more capital resources, manufacturing and marketing experience, research and development resources and production facilities than we do. Many of these competitors also have significantly more experience than we do in undertaking preclinical testing and clinical trials of new pharmaceutical products and obtaining FDA and other regulatory approvals.

      With respect to Medisorb and ProLease, we are aware that there are other companies developing extended-release delivery systems for pharmaceutical products. For example, a number of products are being developed which may compete with Risperdal Consta, including a number of new oral compounds for the treatment of schizophrenia, and paliperidone palmitate, an injectable, four week long-acting product being developed by Johnson & Johnson. With respect to AIR, we are aware that there are other companies marketing or developing pulmonary delivery systems for pharmaceutical products, including a collaboration between Pfizer Inc. (“Pfizer”) and Nektar Therapeutics for pulmonary insulin. Pfizer and Sanofi-Aventis filed applications for marketing authorization in the U.S. and Europe for pulmonary insulin. In many cases, there are products on the market or in development that may be in direct competition with our product candidates. In addition, other companies are developing new chemical entities or improved formulations of existing products which, if developed successfully, could compete against our formulations of any products we develop or those of our collaborators. These chemical entities are being designed to have different mechanisms of action or improved safety and efficacy. In addition, our collaborators may develop, either alone or with others, products that compete with the development and marketing of our

product candidates. Because there is rapid technological change in the industry and because other companies have more resources than we do, other companies may: (i) develop their products more rapidly than we can; (ii) complete any applicable regulatory approval process sooner than we can; or (iii) offer their newly developed products at prices lower than our prices. There can be no assurance that we will be able to compete successfully with such companies. The existence of competitive products developed by our competitors, or products or treatments that may be developed in the future, may adversely affect the marketability of products developed by us.

Patents and Proprietary Rights

      Our success will be dependent, in part, on our ability to obtain patent protection for our product candidates and those of our collaborators, maintaining trade secret protection and operating without infringing upon the proprietary rights of others.

      We have a proprietary portfolio of patent rights and exclusive licenses to patents and patent applications. We have filed numerous U.S and international patent applications directed to compositions of matter as well as processes of preparation and methods of use, including applications relating to each of our delivery technologies. We own approximately 112 issued U.S. patents. No U.S. patent issued to us that is currently material to our business will expire prior to 2013. In the future, we plan to file further U.S. and foreign patent applications directed to new or improved products and processes. We intend to file additional patent applications when appropriate and defend our patent position aggressively.

      We have exclusive rights through licensing agreements with third parties to approximately 38 issued U.S. patents, a number of U.S. patent applications and corresponding foreign patents and patent applications in many countries, subject in certain instances to the rights of the U.S. government to use the technology covered by such patents and patent applications. No issued U.S. patent to which we have licensed rights and which is currently material to our business will expire prior to 2016. Under certain licensing agreements, we currently pay annual license fees and/or minimum annual royalties. During the fiscal year ended March 31, 2005, these fees totaled approximately $0.3 million. In addition, under these licensing agreements, we are obligated to pay royalties on future sales of products, if any, covered by the licensed patents.

      We know of several U.S. patents issued to other parties that may relate to our products and product candidates. One party has asked us to compare our Medisorb technology to that party’s patented technology. Another party has asked a collaborative partner to substantiate how our ProLease microspheres are different from that party’s patented technology. The manufacture, use, offer for sale, sale or import of some of our product candidates might be found to infringe on the claims of these patents. A party might file an infringement action against us. Our cost of defending such an action is likely to be high and we might not receive a favorable ruling.

      We also know of patent applications filed by other parties in the U.S. and various foreign countries that may relate to some of our product candidates if issued in their present form. If patents are issued to any of these applicants, we or our collaborators may not be able to manufacture, use, offer for sale, or sell some of our product candidates without first getting a license from the patent holder. The patent holder may not grant us a license on reasonable terms or it may refuse to grant us a license at all. This could delay or prevent us from developing, manufacturing or selling those of our product candidates that would require the license.

      We try to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. Because the patent position of biopharmaceutical companies involves complex legal and factual questions, enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. If issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar

technology. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed outside the scope of our patents. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the U.S.

      We also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality agreements with parties that have access to it, such as our corporate partners, collaborators, employees and consultants. Any of these parties may breach the agreements and disclose our confidential information or our competitors might learn of the information in some other way. If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business, results of operations and financial condition could be adversely affected.

Government Regulation

      Prior to marketing, any products we or our collaborators develop must undergo an extensive regulatory approval process, which includes preclinical testing and clinical trials of such product candidates to demonstrate safety and efficacy. The manufacture and marketing of pharmaceutical products in the U.S. requires the approval of the FDA under the Federal Food, Drug and Cosmetic Act. The FDA has established mandatory procedures and safety standards which apply to the preclinical testing and clinical trials, manufacture and marketing of pharmaceutical products. Similar standards are established by non-U.S. regulatory bodies for marketing approval of pharmaceutical products and medical devices. Pharmaceutical manufacturing is also regulated by state, local and other authorities. The regulatory approval process in the U.S. is described in brief below.

      As an initial step in the FDA regulatory approval process, preclinical studies are typically conducted in animal models to assess the drug’s efficacy, identify potential safety problems and evaluate potential for harm to humans. The results of these studies must be submitted to the FDA as part of an Investigational New Drug application (“IND”), which must be reviewed by the FDA within 30 days of submission and before proposed clinical (human) testing can begin. If the FDA is not convinced of the safety, it has the authority to place the program on hold and request additional animal data or changes to the study design. Studies supporting approval of products in the U.S. are typically accomplished under an IND.

      Typically, clinical testing involves a three-phase process: Phase I trials are conducted with a small number of healthy subjects and are designed to provide information about both product safety and the expected dose of the drug; Phase II trials are conducted on patients and designed to provide additional information on dosing and preliminary evidence of product efficacy; Phase III trials are large-scale studies designed to provide statistical evidence of efficacy and safety in patients. The results of the preclinical testing and clinical trials of a pharmaceutical product, as well as the information on the manufacturing of the product and proposed labeling, are then submitted to the FDA in the form of a New Drug Application or NDA, or for a biological product in the form of a Product License Application (“PLA”), for approval to commence commercial sales. Preparing such applications involves considerable data collection, verification, analysis and expense. In responding to an NDA or PLA, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not satisfy its regulatory approval criteria. Submission of the NDA does not guarantee approval. At the same time, an FDA request for additional information does not mean the product may not be approved or will significantly delay approval. It is also possible that the labeling may be more limited than what was originally projected. Each NDA application is unique and should be considered as such.

      This regulatory process can span many years and require the expenditure of substantial resources. Data obtained from preclinical testing and clinical trials are subject to varying interpretations, which can delay, limit or prevent FDA approval. In addition, changes in FDA approval policies or requirements may occur, or new regulations may be promulgated, which may result in delay or failure to receive FDA approval. Similar delays or failures may be encountered in foreign countries. Delays, increased costs and failures in obtaining regulatory approvals could have a material adverse effect on our business, financial condition and results of operations.

      Among the conditions for NDA or PLA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform with cGMP on an ongoing basis. Before approval of an NDA or PLA, the FDA may perform a pre-approval inspection of a facility to determine its compliance with cGMP and other rules and regulations. In complying with cGMP, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full technical compliance. After a facility is licensed, it is subject to periodic inspections by the FDA. Facilities are also subjected to the requirements of other government bodies, such as the U.S. Occupational Safety & Health Administration and Environmental Protection Agency.

      Similarly, NDA or PLA approval may be delayed or denied due to cGMP non-compliance or other issues at contract sites or suppliers included in the NDA or PLA, and the correction of these shortcomings may be beyond our control.

      The requirements which we must satisfy to obtain regulatory approval by governmental agencies in other countries prior to commercialization of our product candidates in such countries can be as rigorous and costly as those described above.

      We are also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, experimental use of animals and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research. Compliance with laws and regulations relating to the protection of the environment has not had a material effect on capital expenditures, earnings or our competitive position. However, the extent of government regulation which might result from any legislative or administrative action cannot be accurately predicted.

Employees

      As of May 31, 2005, we had approximately 528 full-time employees. A significant number of our management and professional employees have prior experience with pharmaceutical, biotechnology or medical product companies. We believe that we have been successful in attracting skilled and experienced scientific and senior management personnel; however, competition for such personnel is intense. None of our employees are covered by a collective bargaining agreement. We consider our relations with employees to be good.

Available Information

      Our internet address is www.alkermes.com, at which you can find, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q and all other reports filed with the SEC. All such filings are available on the website as soon as reasonably practicable after filing.

RISK FACTORS

      If any of the following risks actually occur, they could materially adversely affect our business, financial condition or operating results. In that case, the trading price of our common stock could decline.

      Even if a product candidate receives regulatory approval for commercial sale, the revenues received or to be received from the sale of the product may not be significant and will depend on numerous factors many of which are outside of our control, including our collaborators’ decisions on the timing of product launches, pricing and discounting; the timing and nature of third party and government reimbursement for the product; the market size for the product; the reaction of companies that market competitive products; our reliance on third party marketing partners; and general market conditions. In addition, the costs to manufacture our products may be higher than anticipated.

      In December 2003, Janssen launched Risperdal Consta in the U.S. for the treatment of schizophrenia. The success of the launch in the U.S. and other countries throughout the world is uncertain and the revenues received from the sale of Risperdal Consta may not meet our partner’s expectations, each for reasons outside of our control, including those outlined above. Our revenues also depend heavily on manufacturing fees we receive from our partner for Risperdal Consta. Our revenues will fluctuate from quarter to quarter based on a number of factors, including our partner’s orders, the timing of shipments, our ability to manufacture successfully, our yield and our production schedule. In order to meet our financial plans, we will need to bring additional manufacturing capacity on-line in a timeframe adequate to meet demand and prevent shortfalls in supply. In addition, the costs to manufacture Risperdal Consta may be higher than anticipated if certain volume levels are not achieved and we may not be able to supply the product in a timely manner. If Risperdal Consta does not produce significant revenues, if manufacturing costs are higher than anticipated or if we are unable to supply our partner’s requirements, our business, results of operations and financial condition would be materially adversely affected.

      In December 2003, we announced results of a Phase III clinical trial in alcohol dependent patients testing the safety and efficacy of repeat doses of Vivitrex, an injectable extended-release formulation of naltrexone. On March 31, 2005, we submitted an NDA to the FDA for Vivitrex and on May 27, 2005, we announced that the application had been accepted by the FDA. However, there can be no assurance that the FDA will interpret the data contained within the NDA in the same manner as we do or that the NDA will be approved. We are relying in part on the efficacy data from the original approval of oral naltrexone under Section 505(b)(2) of the U.S. Food, Drug and Cosmetic Act. While we believe only one Phase III efficacy study will be required for approval, the FDA may not agree. There can be no assurance that the Phase III clinical trial results and other clinical and pre-clinical data will be sufficient to obtain regulatory approvals elsewhere in the world. Even if regulatory approvals are received in other countries, we will have to market Vivitrex ourselves or enter into co-promotion or sales and marketing arrangements with other companies. We currently have no sales force or any marketing experience and arrangements with other companies may result in dependence on such other companies for revenues. In either event, a market for Vivitrex may not develop as expected. In addition, we may not be able to manufacture Vivitrex successfully at a commercial scale.

      We currently manufacture Risperdal Consta and all of our product candidates. The manufacture of drugs for clinical trials and for commercial sale is subject to regulation by the FDA under cGMP regulations and by other regulators under other laws and regulations. We have manufactured product candidates for use in clinical trials but have limited experience in manufacturing products for commercial

sale. We cannot assure you that we can successfully manufacture our products under cGMP regulations or other laws and regulations in sufficient quantities for commercial sale, or in a timely or economical manner.

      Our manufacturing facilities in Massachusetts and Ohio require specialized personnel and are expensive to operate and maintain. Any delay in the regulatory approval or market launch of product candidates to be manufactured in these facilities will require us to continue to operate these expensive facilities and retain specialized personnel, which may increase our losses.

      We have two manufacturing plants; one in Ohio and one in Massachusetts. Our plant in Ohio includes one cGMP validated production line for Risperdal Consta and two additional commercial manufacturing lines under development; one for Risperdal Consta and the other for Vivitrex. Construction of these two additional production lines in Ohio is complete and validation is underway. Our plant in Massachusetts includes manufacturing capabilities for our AIR pulmonary drug delivery candidates. Construction of a portion of this facility was recently completed and validation is underway. Validation is an ongoing process that must be maintained to allow us to manufacture under cGMP guidelines.

      The FDA and a European regulatory authority have inspected and approved our existing manufacturing facility for Risperdal Consta. We cannot guarantee that the FDA or any foreign regulatory agencies will approve our other facilities or, once approved, that any of our facilities will remain in compliance with cGMP regulations.

      The manufacture of pharmaceutical products is a highly complex process in which a variety of difficulties may arise from time to time. We may not be able to resolve any such difficulties in a timely fashion, if at all. We are currently the sole manufacturer of Risperdal Consta and are planning higher production volume for Risperdal Consta in the coming year. If we were not able to add such additional capacity or if anything were to interfere with our continuing manufacturing operations in any of our facilities, it could materially adversely affect our business and financial condition.

      If more of our product candidate progress to mid- to late-stage development, we may incur significant expenses in the expansion and/or construction of manufacturing facilities and increases in personnel in order to manufacture product candidates. For example, we do not currently have commercial manufacturing capacity for our partnered product exenatide LAR. The development of a commercial-scale manufacturing process is complex and expensive. We cannot assure you that we have the necessary funds or that we will be able to develop this manufacturing infrastructure in a timely or economical manner, or at all.

      Currently, many of our product candidates, including Vivitrex, are manufactured in small quantities for use in clinical trials. We cannot assure you that we will be able to successfully manufacture each of our product candidates at a commercial scale in a timely or economical manner, or at all. If any of these product candidates are approved by the FDA or other drug regulatory authorities for commercial sale, we will need to manufacture them in larger quantities. If we are unable to successfully increase our manufacturing scale or capacity, the regulatory approval or commercial launch of such product candidate may be delayed, there may be a shortage in supply of such product candidate or our margins may become uneconomical. In addition, we are responsible for the entire supply chain for Vivitrex, including the sourcing of raw materials and active pharmaceutical agents from third parties. We have no previous experience in managing a complex, cGMP supply chain and issues with our supply sources may have a materially adverse effect on our business and financial condition.

      If we fail to develop manufacturing capacity and experience, fail to continue to contract for manufacturing on acceptable terms, or fail to manufacture our product candidates economically on a commercial scale or in commercial volumes, or in accordance with cGMP regulations, our development programs and commercialization of any approved products will be materially adversely affected. This may result in delays in receiving FDA or foreign regulatory approval for one or more of our product candidates or delays in the commercial production of a product that has already been approved. Any such delays could materially adversely affect our business and financial condition.

      Our arrangements with collaborative partners are critical to our success in bringing our products and product candidates to the market and promoting such marketed products profitably. We rely on these parties in various respects, including to conduct preclinical testing and clinical trials, to provide funding for product candidate development programs, raw materials, product forecasts, and sales and marketing services, or to participate actively in or to manage the regulatory approval process. Most of our collaborative partners can terminate their agreements with us for no reason and on limited notice. We cannot guarantee that any of these relationships will continue. Failure to make or maintain these arrangements or a delay in a collaborative partner’s performance may materially adversely affect our business and financial condition.

      We cannot control our collaborative partners’ performance or the resources they devote to our programs. Consequently, programs may be delayed or terminated or we may have to use funds, personnel, laboratories and other resources that we have not budgeted. A program delay or termination or unbudgeted use of our resources may materially adversely affect our business and financial condition.

      Disputes may arise between us and a collaborative partner and may involve the issue of which of us owns the technology that is developed during a collaboration or other issues arising out of the collaborative agreements. Such a dispute could delay the program on which the collaborative partner or we are working. It could also result in expensive arbitration or litigation, which may not be resolved in our favor.

      A collaborative partner may choose to use its own or other technology to develop a way to deliver its drug and withdraw its support of our product candidate.

      Our collaborative partners could merge with or be acquired by another company or experience financial or other setbacks unrelated to our collaboration that could, nevertheless, adversely affect us.

      None of our drug delivery systems can be commercialized as stand-alone products but must be combined with a drug. To develop any new proprietary product candidate using one of these drug delivery systems, we must obtain the drug substance from another party. We cannot assure you that we will be able to obtain any such drug substance on reasonable terms, if at all.

      We currently have no sales, marketing or distribution experience and capabilities. Therefore, in order to commercialize our product candidates, we must either develop our own sales, marketing and distribution capabilities or collaborate with a third party to perform these functions. We may, in some instances, rely significantly on sales, marketing and distribution arrangements with our collaborative partners and other third parties. For example, we rely on Janssen to market and distribute Risperdal Consta. In these instances, our future revenues will be materially dependent upon the success of the efforts of these third parties.

      If approved, we plan to commercialize Vivitrex using a specialty sales force to call on addiction specialists and substance abuse centers. We are also in discussions with potential partners to assist us in marketing Vivitrex in the U.S. and around the world. We currently have no internal sales and marketing capabilities, or an infrastructure to support such activities, and have limited experience in the commercialization of pharmaceutical products. Therefore, the successful commercial launch of Vivitrex and our future profitability may depend on our ability to develop a capable specialty sales force and suitable marketing capabilities for Vivitrex and/or entering into a partnering arrangement for Vivitrex. The development of our own sales force and marketing capabilities will result in us incurring significant costs before the time that we may generate significant revenues. We may not be able to attract and retain qualified marketing or sales personnel, or be able to establish an effective specialty sales force for Vivitrex. The cost of establishing and maintaining a sales force may exceed its cost effectiveness.

      Many of our product candidates require significant additional research and development, as well as regulatory approval. To be profitable, we must develop, manufacture and market our products, either alone or by collaborating with others. It can take several years for a product candidate to be approved and we may not be successful in bringing additional product candidates to the market. A product candidate may appear promising at an early stage of development or after clinical trials and never reach the market, or it may reach the market and not sell, for a variety of reasons. The product candidate may: