UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to § Rule 14a-12

ALKERMES, INC.

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
						NOT APPLICABLE
		(2)		Aggregate number of securities to which transaction applies:
						NOT APPLICABLE
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
						NOT APPLICABLE
		(4)		Proposed maximum aggregate value of transaction:
						NOT APPLICABLE
		(5)		Total fee paid:
						NOT APPLICABLE
o		Fee paid previously with preliminary materials:
						NOT APPLICABLE
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
						NOT APPLICABLE
		(2)		Form, Schedule or Registration Statement No.:
						NOT APPLICABLE
		(3)		Filing Party:
						NOT APPLICABLE
		(4)		Date Filed:
						NOT APPLICABLE

Cambridge, Massachusetts

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To be held October 9, 2007

 

 

To the Shareholders:

 

The annual meeting of shareholders of Alkermes, Inc. (the “Company”) will be held at the offices of the Company, 88 Sidney Street, Cambridge, Massachusetts 02139, on October 9, 2007, at 9:00 a.m. for the following purposes:

 

 

The Board of Directors has fixed July 16, 2007 as the record date for determining the holders of Common Stock entitled to notice of and to vote at the meeting. Consequently, only holders of Common Stock of record on the transfer books of the Company at the close of business on July 16, 2007 will be entitled to notice of and to vote at the meeting.

 

All stockholders are cordially invited to attend the meeting. However, to ensure your representation as a shareholder of record, you may vote over the Internet, by telephone, by mailing the enclosed proxy card in the postage-prepaid envelope provided or by attending the meeting and voting in person.

 

Kathryn L. Biberstein

Secretary

 

July 27, 2007

 

 

 

 

 

ALKERMES, INC.
PROXY STATEMENT

 

INTRODUCTION

 

The accompanying proxy is solicited by the Board of Directors of Alkermes, Inc., a Pennsylvania corporation (“Alkermes” or the “Company”), in connection with its 2007 annual meeting of shareholders to be held at the offices of the Company, 88 Sidney Street, Cambridge, Massachusetts 02139, at 9:00 a.m., on October 9, 2007 (the “Meeting”). Copies of this Proxy Statement and the accompanying proxy were made available on or after July 27, 2007 to the holders of record of Common Stock on July 16, 2007 (the “Record Date”).

 

Unless specific instructions are given to the contrary, the persons named in the accompanying proxy will vote:

 

 

With respect to all other matters, the persons named in the accompanying proxy will vote as stated herein. See “Other Business.”

 

Holders of Common Stock of record at the close of business on the Record Date will be entitled to cast one vote per share so held of record on such date on all items of business properly presented at the Meeting, except that the holders have cumulative voting rights in the election of directors. Therefore, each shareholder is entitled to cast as many votes in the election of directors as shall be equal to the number of shares of Common Stock held by such shareholder on the Record Date, multiplied by the number of directors to be elected. A shareholder may cast all such votes for a single nominee or may distribute votes among nominees as the shareholder sees fit. If you choose to cumulate your votes, you will need to make an explicit statement of your intent to cumulate your votes, either by so indicating in writing on your proxy card or on your ballot when voting at the Meeting. Unless contrary instructions are given, the persons named in the proxy will have discretionary authority to accumulate votes in the same manner.

 

The Company had 101,409,899 shares of Common Stock outstanding on the Record Date. The presence at the Meeting, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter will constitute a quorum for the purposes of consideration and action on such matter.

 

HOW TO VOTE

 

If you are a shareholder of record and your shares are registered directly in your name, you may vote:

 

http://www.computershare.com/expressvote, using the voter control number that we have printed on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your Internet vote cannot be completed and you will receive an error message. The cutoff time for voting by Internet is 11:59 pm EDT on October 8, 2007.

 

 

 

If your shares of Common Stock are held in “street name” (held for your account by a broker or other nominee):

 

 

How to Revoke Your Proxy

 

You may revoke your proxy at any time before it is exercised at the Meeting by taking any of the following actions:

 

 

Please note that if your shares are held of record by a broker or other nominee and you wish to vote at the Meeting, you must bring to the Meeting a copy of your brokerage account statement or a letter from such broker or other nominee confirming your beneficial ownership of the shares as of the Record Date.

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

The Board of Directors currently consists of ten members: Floyd E. Bloom, David A. Broecker, Robert A. Breyer, Geraldine Henwood, Paul J. Mitchell, Richard F. Pops, Alexander Rich, Paul Schimmel, Mark B. Skaletsky and Michael A. Wall. Paul Schimmel will not be standing for re-election to the Board of Directors. Nine directors are to be elected at the Meeting to serve one-year terms until the 2008 annual meeting of shareholders and until their respective successors are elected and shall qualify. The persons named in the accompanying proxy intend to vote for the election of Floyd E. Bloom, David A. Broecker, Robert A. Breyer, Geraldine Henwood, Paul J. Mitchell, Richard F. Pops, Alexander Rich, Mark B. Skaletsky, and Michael A. Wall unless authority to vote for one or more of such nominees is specifically withheld in the proxy. The persons named in the proxy will have the right to vote cumulatively and to distribute their votes among such nominees as they consider advisable. The Board of Directors is informed that all the nominees are willing to serve as directors, but if any of them should decline to serve or become unavailable for election at the Meeting, an event which the Board of Directors does not anticipate, the persons named in the proxy will vote for such nominee or nominees as may be designated by the Board of Directors, unless the Board of Directors reduces the number of directors accordingly.

 

The nine nominees for directors receiving the highest number of votes cast by shareholders entitled to vote thereon will be elected to serve on the Board of Directors. Abstentions will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal, but will not be counted as votes cast. Broker non-votes (shares held by a broker or nominee as to which the broker or nominee does not have the authority to vote on a particular matter) will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal but will not be voted. Accordingly, while abstentions and broker non-votes will count towards establishing a quorum, neither abstentions nor broker non-votes will effect the outcome of the vote on this proposal.

 

The Board of Directors recommends that you vote FOR the election of the nominees named herein to the Company’s Board of Directors.

Directors and Executive Officers

 

The following table sets forth the directors, director nominees approved by the Board upon the recommendation of the Nominating and Corporate Governance Committee to be elected at the Meeting and the executive officers of the Company, their ages, and the position currently held by each such person within the Company as of July 16, 2007.

 

 

 

 

Biographical Information

 

Mr. Broecker has served as President of Alkermes since January 2002 and Chief Executive Officer since April 2007. From February 2001 until April 2007, Mr. Broecker served as Chief Operating Officer of Alkermes. From August 1985 to January 2001, he was employed at Eli Lilly and Company, a pharmaceutical company. During his tenure at Eli Lilly, Mr. Broecker managed Eli Lilly’s largest pharmaceutical manufacturing facility outside of the U.S., located in Kinsale, Ireland, as General Manager. He also worked as a General Manager in Eli Lilly’s packaging and distribution operations in Germany, and Director of Marketing for Advanced Cardiovascular Systems, now a part of Guidant Corporation, a subsidiary of Boston Scientific.

 

Ms. Biberstein is Senior Vice President and General Counsel of Alkermes. From March 2003 to April 2007, Ms. Biberstein served as Vice President and General Counsel of Alkermes. She has served as Secretary of Alkermes since June 2004. She is the Chief Compliance Officer of Alkermes. She was Of Counsel at Crowell & Moring LLC from February 2002 to February 2003 and performed legal consulting services for various clients from March 2000 to February 2002. She was also employed by Serono S.A. as General Counsel from 1993 to March 2000, where she was a member of the Executive Committee.

 

Mr. Frates has been Senior Vice President, Chief Financial Officer and Treasurer of Alkermes since April 2007. From June 1998 to April 2007, Mr. Frates served as Vice President, Chief Financial Officer and Treasurer of Alkermes. From June 1996 to June 1998, he was employed at Robertson, Stephens & Company, most recently as a Vice President in Investment Banking. Prior to that time he was employed at Morgan Stanley & Co. Mr. Frates currently serves on the Board of Directors of GPC Biotech AG, a biotechnology

company, is a national chairperson of the Association of Bioscience Financial Officers and serves on the Nasdaq Issuer Affair’s Sarbanes-Oxley Committee.

 

Mr. Landine is Senior Vice President, Corporate Development of Alkermes. From March 1999 until May 2007, Mr. Landine served as Vice President, Corporate Development of Alkermes. From March 1988 until June 1998, he was Chief Financial Officer and Treasurer of Alkermes. Mr. Landine is a member of the Board of Directors of Kopin Corporation, a developer and manufacturer of compound semiconductor components and miniature flat panel displays for use in wireless and consumer electronic products, and GTC Biotherapeutics, Inc., a biotechnology company. Mr. Landine received a B.S. in accounting from Bentley College and is a Certified Public Accountant.

 

Dr. Ehrich serves as Senior Vice President of Research and Development and Chief Medical Officer at Alkermes. Prior to assuming this position in May 2007, Dr. Ehrich served as Vice President, Science Development and Chief Medical Officer. Dr. Ehrich leads the Discovery, Delivery Science, Research and Development, Project Management, and Medical Affairs functions at Alkermes. Prior to joining Alkermes in 2000, Dr. Ehrich spent seven years at Merck & Co., Inc., overseeing the successful clinical development and registration of novel pharmaceuticals. Dr. Ehrich is a Fellow of the American College of Rheumatology and has had numerous publications in peer-reviewed journals. He was a Phi Beta Kappa graduate of Princeton University where he received a B.A. in Biochemistry. Dr. Ehrich worked as research associate at the European Molecular Biology Laboratory (EMBL) in Heidelberg, Germany and later attended Columbia University, College of Physicians and Surgeons where he received an M.D. At Stanford University, Dr. Ehrich completed a residency in internal medicine and a clinical fellowship in the Department of Immunology and Rheumatology. He was subsequently a postdoctoral research fellow at the Howard Hughes Medical Institute at Stanford University School of Medicine, in the Department of Microbiology and Immunology.

 

Mr. Pugh serves as Senior Vice President and Chief Operating Officer at Alkermes. Prior to assuming these positions in May 2007, Mr. Pugh served as Vice President of Operations at Alkermes. In his current role, he is responsible for the overall leadership of the Operations departments at Alkermes. Additionally, he oversees site management in Cambridge and Chelsea, Massachusetts, and Wilmington, Ohio. Mr. Pugh has over 25 years of operations and manufacturing experience, the last eight prior to joining Alkermes with Lonza Biologics, Inc. as the Vice President of manufacturing operations in the U.S. and Europe. Mr. Pugh received his B.S. in Microbiology from Cornell University, and his M.B.A. from Northeastern University.

 

Mr. Pops has been a director of Alkermes since February 1991 and has been chairman of the board of directors of Alkermes since April 2007. Mr. Pops served as Chief Executive Officer of Alkermes from February 1991 to April 2007. Mr. Pops currently serves on the Board of Directors of Neurocrine Biosciences, Inc., CombinatoRx, Inc., Sirtris Pharmaceuticals, Inc., the Biotechnology Industry Organization (BIO), the Pharmaceutical Research and Manufacturers of America (PhRMA), and the New England Healthcare Institute. He is an advisory board member of Polaris Venture Partners. He is also a member of the Harvard Medical School Board of Fellows and the Fessenden School Board of Trustees.

 

Dr. Bloom is a founder of Alkermes and has been a director of Alkermes since 1987. Since its founding in 2000, Dr. Bloom has served as the Chief Executive Officer of Neurome, Inc., a biotechnology company. Dr. Bloom has been active in neuropharmacology for more than 35 years, holding positions at Yale University, the National Institute of Mental Health and The Salk Institute. Since 1983, he has been at The Scripps Research Institute where he was Chairman of the Department of Neuropharmacology until February 2005 and where he is currently a Professor Emeritus. Dr. Bloom served as Editor-in-Chief of Science from 1995 to May 2000. He is a member of the National Academy of Science, the Institute of Medicine, the Royal Swedish Academy of Science, and the Board of Trustees of Washington University, as Chairman of National Council for the School of Medicine. He also serves on the Veterans Administration’s Gulf War Veterans Illness Research Advisory Committee and on the President’s Council on Bioethics. Dr. Bloom also serves on the Scientific Advisory Boards of Advancis, Inc. and RxGen, Inc. In July 2007, Dr. Bloom was appointed to the Board of Directors of Elan Corporation, a neuroscience-based biotechnology company.

 

Mr. Breyer has been a director of Alkermes since July 1994. He served as the President of Alkermes from July 1994 until his retirement in December 2001 and Chief Operating Officer from July 1994 to

February 2001. From August 1991 to December 1993, Mr. Breyer was President and General Manager of Eli Lilly Italy, a subsidiary of Eli Lilly and Company, a pharmaceutical company. From September 1987 to August 1991, he was Senior Vice President, Marketing and Sales, of IVAC Corporation, a medical device company and a subsidiary of Eli Lilly and Company. Mr. Breyer is also a member of the Board of Directors of Lentigen, Inc.

 

Ms. Henwood has been a director of Alkermes since April 2003. From 1999 to July 2006, she was the President and Chief Executive Officer of Auxilium Pharmaceuticals, a pharmaceutical company co-founded by Ms. Henwood and specializing in urologic and male health. Prior to founding Auxilium, Ms. Henwood founded, in 1985, a contract research organization (CRO), IBAH, Inc., that became a public company and was eventually sold to a large healthcare company. Prior to founding IBAH, Ms. Henwood was employed by SmithKline Beecham, a pharmaceutical company, in various capacities including senior commercial, medical and regulatory positions. Ms. Henwood served on the Board of Directors of Auxilium Pharmaceuticals, Inc. until July 2006.

 

Mr. Mitchell has been a director of Alkermes since April 2003. He has served as the Chief Financial Officer and Treasurer since April 2002 of Kenet, Inc., a company engaged in the development and manufacture of analog and mixed signal integrated circuits. Prior to joining Kenet, Mr. Mitchell was the Chief Financial Officer and Treasurer of Kopin Corporation from April 1985 through September 1998. From September 1998 through June 2001, Mr. Mitchell served in a consulting role at Kopin as Director of Strategic Planning. Prior to joining Kopin, Mr. Mitchell worked for the international accounting firm of Touche Ross & Co. from 1975 to 1984. Mr. Mitchell is also President of Mitchell Financial Group, an investment and consulting firm with activities in the technology, healthcare and financial services industries. He is a Certified Public Accountant.

 

Dr. Rich is a founder of Alkermes and has been a director of Alkermes since 1987. Dr. Rich has been a professor at the Massachusetts Institute of Technology since 1958, and is the William Thompson Sedgwick Professor of Biophysics and Biochemistry. He is a member of the National Academy of Sciences, the American Academy of Arts and Sciences and the Institute of Medicine. Dr. Rich is Co-Chairman of the Board of Directors of Repligen Corporation, a biopharmaceutical company. He is a member of the Scientific Advisory Board of Roseta Genomics. He also serves on the editorial board of Genomics and the Journal of Bimolecular Structure and Dynamics.

 

Dr. Schimmel is a founder of Alkermes and has been a director of Alkermes since 1987. Dr. Schimmel is the Ernest and Jean Hahn Professor of Molecular Biology and Chemistry and a member of the Skaggs Institute for Chemical Biology at The Scripps Research Institute. Dr. Schimmel was the John D. and Catherine T. MacArthur Professor of Biophysics and Biochemistry at the Massachusetts Institute of Technology, where he was employed from 1967 through 1997. He is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. Dr. Schimmel is Co-Chairman of the Board of Directors of Repligen Corporation, Inc., a biopharmaceutical company. He is a director and scientific advisory board member of Alnylam Pharmaceuticals, Inc. and a director of Avicena Group.

 

Mr. Skaletsky has been a director of Alkermes since June 2004. He has been the President, Chief Executive Officer, and Chairman of Trine Pharmaceuticals, Inc., (formerly Essential Therapeutics, Inc.), a drug development company, since the company was formed by the merger of The Althexis Company and Microcide Pharmaceuticals, Inc. in 2001. From 2000 to 2001, Mr. Skaletsky was the Chairman and Chief Executive Officer of The Althexis Company, a drug development company. From 1993 to 2000, he was the President and CEO of GelTex Pharmaceuticals, Inc. until its acquisition by Genzyme, Inc. Mr. Skaletsky serves on the Board of Directors for three biotechnology companies: Immunogen, Inc., Targacept, Inc. and Advanced Magnetics, Inc. He is also a member of the Board of Trustees of Bentley College and is a member of the Board of Directors and a former Chairman of the Biotechnology Industry Organization (BIO).

 

Mr. Wall is a founder of Alkermes and was Chairman of the Board of Alkermes from 1987 to 2007. He is currently Chairman Emeritus of Alkermes, as well as a part-time employee. From April 1992 until June 1993, he was a director and Chairman of the Executive Committee of Centocor, Inc., a biopharmaceutical company. From November 1987 to June 1993, he was Chairman Emeritus of Centocor. Mr. Wall was a director of Kopin Corporation until May 2006.

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Independence of Members of the Board of Directors

 

The Company defines an “independent” director in accordance with the applicable provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the rules promulgated thereunder and the applicable rules of the Nasdaq Stock Market LLC (“Nasdaq”). Because it is not possible to anticipate or explicitly provide for all potential situations that may affect independence, the Board periodically reviews each director’s status as an independent director and whether any independent director has any other relationship with the Company that, in the judgment of the Board, would interfere with the director’s exercise of independent judgment in carrying out such director’s responsibilities as a director. The Board will make an annual determination whether each director is “independent” under the applicable provisions of the Exchange Act, the rules promulgated thereunder and the applicable rules of Nasdaq.

 

The Board of Directors has determined that each of Floyd E. Bloom, Geraldine Henwood, Paul J. Mitchell, Alexander Rich, Paul Schimmel and Mark B. Skaletsky are independent within the meaning of the Company’s director independence standards and the director independence standards of the Exchange Act and Nasdaq. Furthermore, the Board of Directors has determined that each member of each of the committees of the Board of Directors is independent within the meaning of the Company’s, the Exchange Act and Nasdaq’s director independence standards.

 

Executive Sessions of Independent Directors

 

The Board’s policy is to hold meetings of the independent directors following each regularly scheduled in-person Board Meeting (other than in connection with the annual meeting of shareholders). Independent director sessions do not include any employee directors of the Company, and a majority of the independent directors will determine who will assume the responsibility of chairing such sessions. Since February 2005, Mr. Skaletsky has been the presiding director of the executive sessions of the independent directors.

 

Policies Governing Director Nominations

 

Director Qualifications

 

The Nominating and Corporate Governance Committee is responsible for reviewing with the Board, from time to time, the appropriate qualities, skills and characteristics desired of Board members in the context of the current make-up of the Board. This assessment includes consideration of the following minimum qualifications that the Nominating and Corporate Governance Committee believes must be met by all directors:

 

 

The Nominating and Corporate Governance Committee also considers numerous other qualities, skills and characteristics when evaluating director nominees, such as:

 

 

 

These factors and others are considered useful by the Board, and are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time.

 

Board members are expected to prepare for, attend, and participate in all Board meetings, meetings of Committees on which they serve and the Company’s annual meeting of shareholders. In addition, directors should stay abreast of the Company’s business and markets. The General Counsel and the Chief Financial Officer will be responsible for assuring the orientation of new directors, and for periodically providing materials or briefing sessions for all directors on subjects that would assist them in discharging their duties. Periodically, the Company will provide opportunities for directors to visit Company facilities in order to provide greater understanding of the Company’s business and operations. The Board will perform an annual self-evaluation. The Board, in coordination with each Committee, will perform an annual performance evaluation of each such Committee. The Board, following review by the Nominating and Corporate Governance Committee, will determine whether other educational measures are appropriate as part of the annual Board evaluation.

 

Each Board member is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as an outstanding director. Board members should not hold more than six directorships (including such member’s seat on the Company’s Board of Directors), but, excluding for this purpose, not-for-profit organizations, trade organizations and related organizations or unless otherwise agreed to by the Nominating and Corporate Governance Committee. These other commitments will be considered by the Nominating and Corporate Governance Committee and the Board when reviewing Board candidates. Directors are expected to report changes in their primary business or professional association, including retirement, to the Chairperson of the Board and the Chairperson of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee, in consultation with the Chairperson of the Board, will consider any effects these changes may have on the effectiveness of the director’s contribution to the work of the Board.

 

Process for Identifying and Evaluating Director Nominees

 

The Board is responsible for selecting its own members. The Board delegates the selection and nomination process to the Nominating and Corporate Governance Committee, with the expectation that other members of the Board and management will be requested to take part in the process as appropriate.

 

Once candidates have been identified, the Nominating and Corporate Governance Committee confirms that the candidates meet all of the minimum qualifications for director nominees established by the Nominating and Corporate Governance Committee. Based on the results of the evaluation process, the Nominating and Corporate Governance Committee recommends candidates for the Board’s approval as director nominees for election to the Board. The Nominating and Corporate Governance Committee also recommends candidates for the Board’s appointment to the committees of the Board.

 

Procedure for Recommendation of Director Nominees by Shareholders

 

The Nominating and Corporate Governance Committee will consider director candidates who are recommended by shareholders of the Company. Shareholders, in submitting recommendations to the Nominating and Corporate Governance Committee for director candidates, shall follow the following procedures:

 

The Nominating and Corporate Governance Committee must receive any such recommendation for nomination not later than the close of business on the 90th day nor earlier than the close of business on the 150th day prior to the first anniversary of the date of the proxy statement delivered to shareholders in connection with the preceding year’s annual meeting.

Such recommendation for nomination must be in writing and include the following:

 

 

Nominations must be sent to the attention of the Secretary of the Company by one of the two methods listed below:

 

By U.S. Mail (including courier or expedited delivery service):

 

Alkermes, Inc.
88 Sidney Street
Cambridge, MA 02139
Attn: Secretary of Alkermes, Inc.

 

By facsimile to:

 

(617) 621-7856
Attn: Secretary of Alkermes, Inc.

 

The Secretary of the Company will promptly forward any such nominations to the Nominating and Corporate Governance Committee. Once the Nominating and Corporate Governance Committee receives the nomination of a candidate, the candidate will be evaluated and a recommendation with respect to such candidate will be delivered to the Board. Nominations not made in accordance with the foregoing policy shall be disregarded by the Nominating and Corporate Governance Committee and votes cast for such nominee shall not be counted.

 

Composition and Responsibilities of the Board of Directors

 

Size of the Board

 

The Board size is currently set at ten members. Upon retirement of Dr. Schimmel at the Meeting, the Board size is being reduced to nine members. The Board periodically reviews the appropriate size of the Board and, in accordance with the Company’s By-laws, this number may be adjusted from time to time.

 

Board Compensation

 

It is the general policy of the Board that Board compensation should be a mix of cash and equity based compensation. Full-time employee directors will not be paid for Board membership in addition to their regular employee compensation. Independent directors may not receive consulting, advisory or other compensatory fees from the Company if the receipt of such fees would result in disqualifying the director as an

“independent” director in accordance with the applicable provisions of the Exchange Act, the rules promulgated thereunder and the applicable rules of Nasdaq. To the extent practicable or required by applicable rule or regulation, independent directors who are affiliated with the Company’s service providers or partners or collaborators will undertake to ensure that their compensation from such providers or partners or collaborators does not include amounts connected to payments by the Company. The Compensation Committee periodically reviews director compensation.

 

Operation of Board of Directors

 

The Company’s business, property and affairs are managed under the direction of the Board of Directors. Members of the Board are kept informed of the Company’s business through discussions with the Chief Executive Officer and other officers of the Company, by reviewing materials provided to them, by visiting the Company’s offices and by participating in meetings of the Board and its committees and the annual meeting of shareholders.

 

Chief Executive Officer Succession Plan

 

The Chief Executive Officer reviews succession planning and management development with the Board of Directors on an annual basis.

 

Scheduling and Selection of Agenda Items for Board Meetings

 

In-person Board meetings are scheduled in advance at least four times a year. Furthermore, additional Board meetings may be called upon appropriate notice at any time to address specific needs of the Company. Each director may propose the inclusion of items on the agenda, request the presence of or a report by any member of the Company’s management, or at any Board meeting raise subjects that are not on the agenda for that meeting. The Board may also take action from time to time by unanimous written consent.

 

Typically, the meetings of the Board are held at the Company’s headquarters in Cambridge, Massachusetts, but occasionally meetings may be held at other locations at the discretion of the Board.

 

The annual cycle of agenda items for Board meetings is expected to change on a periodic basis to reflect Board requests, changing business and legal issues and the work done by the Board Committees.

 

Board Committees

 

The Company currently has three standing Committees: Audit, Compensation, and the Nominating and Corporate Governance Committees. There will, from time to time, be occasions on which the Board may form a new committee or disband a current committee depending upon the circumstances. The Audit, Compensation and Nominating and Corporate Governance Committees shall be composed entirely of independent directors.

 

Each Committee has a written charter, approved by the Board, which describes the Committee’s general authority and responsibilities. Each Committee will undertake an annual review of its charter, and will work with the Board to make such revisions as are considered appropriate.

 

Each Committee has the authority to engage outside experts, advisors and counsel to the extent it considers appropriate to assist the Committee in its work.

 

Each Committee will regularly report to the Board concerning the Committee’s activities.

 

Assignment of Committee Members

 

The Board is responsible for the appointment of Committee members.

 

Frequency and Length of Committee Meetings and Committee Agenda

 

The Committee Chairperson, in consultation with the Chairman of the Board and appropriate members of management, will determine the frequency and length of the Committee meetings and develop the

Committee’s agenda. The agendas and meeting minutes of the Committees will be shared with the full Board, and other Board members are welcome to attend Committee meetings, except that non-independent directors are not permitted to attend the executive sessions of any Committee.

 

Policies Governing Security Holder Communications with the Board of Directors

 

The Board provides to every security holder the ability to communicate with the Board, as a whole, and with individual directors on the Board through an established process for security holder communication (as that term is defined by the rules of the Securities and Exchange Commission) as follows:

 

For communications directed to the Board as a whole, security holders may send such communication to the attention of the Chairperson of the Board via one of the two methods listed below:

 

By U.S. Mail (including courier or expedited delivery service):

 

Alkermes, Inc.
88 Sidney Street
Cambridge, MA 02139
Attn: Chairperson of the Board of Directors

 

By facsimile at:

 

(617) 621-7856
Attn: Chairperson of the Board of Directors

 

For security holder communications directed to an individual director in his or her capacity as a member of the Board, security holders may send such communications to the attention of the individual director via one of the two methods listed below:

 

By U.S. Mail (including courier or expedited delivery service):

 

Alkermes, Inc.
88 Sidney Street
Cambridge, MA 02139
Attn: [Name of Individual Director]

 

By facsimile at:

 

(617) 621-7856
Attn: [Name of Individual Director]

 

The Company will forward any such security holder communication to the Chairperson of the Board, as a representative of the Board, and/or to the director to whom the communication is addressed on a periodic basis. The Company will forward such communication by certified U.S. Mail to an address specified by each director and the Chairperson of the Board for such purposes or by secure electronic transmission.

 

Policy Governing Director Attendance at Annual Meetings of Shareholders

 

In April of 2004, the Board adopted a policy that all directors and all nominees for election as directors attend the Company’s annual meeting of shareholders in person. All directors and director nominees (except for Paul Schimmel) attended the 2006 annual meeting of shareholders.

 

Code of Ethics

 

The Company has adopted a “code of ethics” (as defined by the regulations promulgated under the Securities Act of 1933, as amended, and the Exchange Act) that applies to all of the Company’s directors and employees, including principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Company’s Code of Business Conduct and Ethics also meets the requirements of a “code of conduct” (as defined by the rules of Nasdaq) and is applicable to all of the Company’s officers, directors and employees. A current copy of the Code of Business Conduct and Ethics

is available on the Corporate Governance page of the Investor Relations section of the Company’s website, available at http://investor.alkermes.com. A copy of the Code of Business Conduct and Ethics may also be obtained, free of charge, from the Company upon request directed to: Alkermes, Inc., Attention: Investor Relations, 88 Sidney Street, Cambridge, Massachusetts 02139.

 

Members of the Board of Directors shall act at all times in accordance with the requirements of the Company’s Code of Business Conduct and Ethics, which shall be applicable to each director in connection with his or her activities relating to the Company. This obligation shall at all times include, without limitation, adherence to the Company’s policies with respect to conflicts of interest, confidentiality, protection of the Company’s assets, ethical conduct in business dealings and respect for and compliance with applicable law. Any waiver of the requirements of the Code of Business Conduct with respect to any individual director or any executive officer shall be reported to, and be subject to the approval of, the Board of Directors.

 

For more corporate governance information, you are invited to access the Corporate Governance page of the Investor Relations section of the Company’s website, available at: http://investor.alkermes.com.

 

THE BOARD OF DIRECTORS AND ITS COMMITTEES

 

The Board of Directors held ten meetings during the last fiscal year and otherwise acted by unanimous consent. Each of the Company’s directors attended at least 75% of the aggregate of all meetings held during the year of the Board of Directors and of all committees of which the director was a member. The standing committees of the Board are the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee.

 

The Audit Committee consists of Floyd E. Bloom, Paul J. Mitchell and Mark Skaletsky. Mr. Mitchell serves as chair of the Audit Committee. In compliance with the Sarbanes-Oxley Act of 2002, the entire Board determined, based on all available facts and circumstances, that Mr. Mitchell and Mr. Skaletsky are both “audit committee financial experts” as defined by the Securities and Exchange Commission. The Audit Committee met fourteen times during the last fiscal year. The Audit Committee operates under a written charter adopted by the Board of Directors, a current copy of which can be found on the Corporate Governance page of the Investor Relations section of the Company’s website, available at: http://investor.alkermes.com. Each member of the Audit Committee is independent as such term is defined in Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards.

 

Under the terms of its current Charter, the Audit Committee is responsible for (1) appointing, compensating and retaining the Company’s independent public accountants, (2) overseeing the work performed by any independent public accountants, (3) assisting the Board of Directors in fulfilling its responsibilities by: (i) reviewing the financial reports provided by the Company to the Securities and Exchange Commission, the Company’s shareholders or to the general public (ii) reviewing the Company’s internal financial and accounting controls, and (iii) reviewing and approving all related party transactions, (4) recommending, establishing and monitoring procedures designed to improve the quality and reliability of the disclosure of the Company’s financial condition and results of operations, and (5) establishing procedures designed to facilitate: (i) the receipt, retention and treatment of complaints relating to accounting, internal accounting controls or auditing matters and (ii) the receipt of confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The committee will engage advisors as necessary, distribute relevant funding provided by the Company, and serve as the Qualified Legal Compliance Committee (the “QLCC”) in accordance with Section 307 of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the Securities and Exchange Commission thereunder.

 

The Nominating and Corporate Governance Committee consists of Floyd E. Bloom, Geraldine Henwood and Mark Skaletsky. Mr. Skaletsky serves as chair of the Nominating and Corporate Governance Committee. Under the terms of its current Charter, the Nominating and Corporate Governance Committee is responsible for (1) identifying individuals qualified to become members of the Board and recommending that the Board select the director nominees for election, (2) periodically reviewing the Company’s Code of Business Conduct and Ethics applicable to all directors, officers and employees, and (3) monitoring compliance with and

periodically reviewing the Code of Business Conduct and Ethics. Each of the members of the Nominating and Corporate Governance Committee is independent as such term is defined in Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards. During the last fiscal year, the Nominating and Corporate Governance Committee met five times.

 

The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, a current copy of which is available on the Corporate Governance page of the Investor Relations section of the Company’s website, available at http://investor.alkermes.com.

 

The Compensation Committee, consisting of Paul J. Mitchell, Alexander Rich, and Paul Schimmel met twelve times during the last fiscal year and otherwise acted by unanimous written consent. Mr. Schimmel serves as chair of the Compensation Committee. Under the terms of its current Charter, the Compensation Committee is responsible for (1) discharging the Board’s responsibilities relating to the compensation of the Corporation’s executives, (2) administering the Company’s incentive compensation and equity plans, and (3) producing an annual report on executive compensation for inclusion in the Company’s proxy statement in accordance with applicable rules and regulations. Each of the members of the Compensation Committee is independent as such term is defined in Rule 4200(a)(14) of the National Association of Securities Dealers’ listing standards.

 

The Compensation Committee operates under a written charter adopted by the Board of Directors, a current copy of which is available on the Corporate Governance page of the Investor Relations section of the Company’s website, available at: http://investor.alkermes.com.

 

The Limited Compensation Sub-Committee, consisting of Paul J. Mitchell, acted by unanimous written consent during the fiscal year 2007. The Limited Compensation Sub-Committee has the authority to make individual grants of options under certain of the Company’s stock option plans to purchase shares of Common Stock to employees of the Company who are not subject to the reporting requirements of the Exchange Act. The Limited Compensation Sub-Committee has generally approved new hire employee stock option grants of up to the limit of its authority. Until July 2006, such authority was limited to 5,000 shares per individual grant. The Limited Compensation Sub-Committee may issue up to 25,000 shares per individual grant to employees who are not subject to the reporting requirements of the Exchange Act and who are below the level of Vice President of the Company.

 

The Compensation Committee has established procedures for the grant of options to new employees. The Limited Compensation Sub-Committee will grant options to new hires, within the limits of its authority, on the first Wednesday following the first Monday of each month (or the first business day thereafter if such day is a holiday) (the “New Hire Grant Date”) for all new hires beginning their employment the prior month. New hire grants that exceed the authority of the Limited Compensation Sub-Committee will be granted on the New Hire Grant Date by the Compensation Committee as a whole.

 

The Compensation Committee has also established procedures for regular grants of stock options to Company employees. The Compensation Committee will consider the grant of stock options twice a year at meetings held in conjunction with Board meetings regularly scheduled around May and November; however, no grant of options will be made in November until forty-eight hours after the announcement of the Company’s second quarter financial results and in May until forty-eight hours after the announcement of the Company’s fiscal year end results.

 

PROPOSAL 2

 

APPROVAL OF AMENDED AND RESTATED 1999 STOCK OPTION PLAN

 

The Company’s 1999 Stock Option Plan currently authorizes the grant of options to officers, employees and directors of, and consultants to, the Company or any of its subsidiaries to purchase up to 20,900,000 shares of Common Stock. As of July 16, 2007, options to purchase 1,959,709 shares remained available for grant under the 1999 Stock Option Plan. The Board of Directors, subject to shareholder approval, plans to amend and restate the 1999 Stock Option Plan:

 

(a) To increase the aggregate number of shares authorized for issuance upon exercise of options granted under the 1999 Stock Option Plan to 21,400,000, an increase of 500,000 shares. This share increase is designed to enhance the flexibility of the Compensation Committee of the Board of Directors in granting stock options to the Company’s officers, employees, directors and consultants and to ensure that the Company can continue to grant stock options to such persons at levels determined to be appropriate by the Compensation Committee and the Limited Compensation Sub-Committee based on comparable company and other market data.

 

(b) To provide that, subject to adjustment as provided for under the 1999 Stock Option Plan, no Participant may be granted Options during any one fiscal year to purchase more than 4,000,000 shares of Common Stock.

 

The Company believes that stock options are a critical part of the compensation package offered to new, existing and key employees and an important tool in the Company’s ability to attract and retain talented personnel. The amended and restated 1999 Stock Option Plan is attached as Appendix A to this Proxy Statement and is incorporated herein by reference.

 

The affirmative vote of a majority of the votes cast by all holders of Common Stock entitled to vote will be required to approve the proposed amended and restated 1999 Stock Option Plan. Abstentions will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal, but will not be counted as votes cast. Broker non-votes (shares held by a broker or nominee as to which the broker or nominee does not have the authority to vote on a particular matter) will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal, but will not be voted. Accordingly, while abstentions and broker non-votes will count towards establishing a quorum, neither abstentions nor broker non-votes will effect the outcome of the vote on this proposal.

 

The Board of Directors recommends that you vote FOR the approval of the amended and restated 1999 Stock Option Plan.

 

Principal Features of the amended and restated 1999 Stock Option Plan (the “1999 Plan”)

 

The purpose of the 1999 Plan is to enable the Company to offer to certain officers, employees and directors of, and consultants to, the Company or any of its subsidiaries options to acquire equity interests in the Company, thereby helping to attract, retain and reward such persons and strengthen the mutuality of interests between such persons and the Company’s shareholders. This summary of the 1999 Plan does not describe all of the features of the 1999 Plan and it is qualified in its entirety by the actual terms of the 1999 Plan, attached as Appendix A.

 

Administration

 

The 1999 Plan is administered by the Compensation Committee by delegation from the Board of Directors. The Compensation Committee has delegated to the Limited Compensation Sub-Committee the authority to make individual grants of options to purchase no more than 25,000 shares of Common Stock to employees who are not persons subject to the reporting requirements of Section 16(a) of the Exchange Act and below the level of Vice President of the Company. The total number of options to be granted in any year under the 1999 Plan to participants, the selection and number of participants to receive options, the type and number of options granted to each participant and the other terms and provisions of such options are wholly

within the discretion of the Compensation Committee and the Limited Compensation Sub-Committee, subject to the limitations set forth in the 1999 Plan. Therefore, the benefits and amounts that will be received by participants under the 1999 Plan are not currently determinable.

 

New Plan Benefits

 

The benefits or amounts to be received by or allocated to the Company’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executives, all executives as a group, non-executive directors as a group, and non-executive officer employees as a group are granted on a discretionary basis and, as such, are not determinable as awards under the 1999 Plan. The benefits or amounts received by the Company’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executives under the 1999 Plan for the last complete fiscal year are described in the Grants of Plan-Based Awards Table.

 

Amendment and Repricings

 

The 1999 Plan may not be amended without the approval of the Company’s shareholders if (a) such amendment would materially increase the benefits to participants under the 1999 Plan or (b) shareholder approval is necessary to comply with the Internal Revenue Code of 1986, as amended (the “Code”), Federal or state securities laws, the rules and regulations of any stock exchange or stock market on which the Common Stock is listed or traded or any other applicable rules or regulations. Additionally, no option previously granted under the plan may be “repriced,” except for an adjustment to the exercise prices as a result of a merger, reorganization, consolidation, recapitalization, dividend, stock split or other change in corporate structure affecting the Common Stock.

 

Eligible Participants

 

The Company’s, and any of its subsidiaries’, officers, employees, directors and consultants are eligible to be granted options, although only non-incentive options may be granted to non-employee directors and consultants, under the 1999 Plan. The Company estimates that there are currently approximately 820 officers, employees and directors who are eligible to receive options under the 1999 Plan. The proposed 1999 Plan provides that no participant may be granted options to purchase more than 4,000,000 shares during any one fiscal year. The largest annual grant made to a single individual since the inception of the 1999 Plan has been 500,000 shares.

 

Number of Shares Subject to the 1999 Plan

 

Up to 20,900,000 shares of Common Stock may be issued under the 1999 Plan. As of March 31, 2007, 2,256,213 shares were available for grant under the 1999 Plan. The proposed 1999 plan, which has been recommended by the Compensation Committee and adopted by the Board of Directors, increases the number of shares that may be issued upon exercise of options which may be granted under the 1999 Plan to 21,400,000 an increase of 500,000 shares. The market value of the additional shares proposed to be added to the 1999 Plan as of July 16, 2007 is $7,405,000 (based on the average of the high and low price of our common stock on the Record Date as reported by Nasdaq). Such options may either be “incentive stock options” as defined in Section 422 of the Code, or may be non-qualified stock options. Shares issued under the 1999 Plan may be authorized and unissued shares or authorized and issued shares that have been reacquired by the Company.

 

Adjustments for Certain Events

 

In the event of a merger, reorganization, consolidation or similar event affecting shares of the Company’s Common Stock, the Board of Directors will make appropriate adjustments to the limits specified in the 1999 Plan and to outstanding awards.

Change in Control Provisions

 

The 1999 Plan provides that in the event of a “change of control” (as defined in the 1999 Plan), all stock options will automatically become fully exercisable. In addition, in the event that the Company is succeeded by another company in a reorganization, merger, acquisition or similar event, the successor company will assume all of the outstanding options under the 1999 Plan or shall substitute substantially similar new options for shares of the successor company for such outstanding options.

 

Effective Date of 1999 Stock Option Plan

 

The Board of Directors of the Company originally adopted the 1999 Stock Option Plan in 1999. The proposed amended and restated 1999 Stock Option Plan will terminate and no options may be granted under it after June 2, 2009, unless it is sooner terminated by the Board of Directors.

 

Stock Options

 

Under the terms of the 1999 Plan, the option exercise price may not be less than 100% (or, with respect to incentive stock options, 110% if the optionee owns more than 10% of the total combined voting power of all classes of stock of the Company) of the fair market value of the underlying stock at the time the option is granted. Options granted under the 1999 Plan are generally nontransferable, and expire upon the earlier of an expiration date fixed by the Compensation Committee and set forth in each individual option award certificate, ten years (or with respect to incentive stock options, five years, if the optionee owns more than 10% of the total combined voting power of all classes of stock of the Company) from the date of grant, and either three months after the date the optionee ceases to be an officer, employee or director of, or consultant to, the Company or its subsidiaries or one year after the optionee dies or becomes disabled. Options which have expired or which have been cancelled unexercised will be available for future grant under the 1999 Plan.

 

Under the 1999 Plan, the price payable upon exercise of options may be paid in cash, by check payable to the Company, or in shares of stock of the Company duly owned by the participant or, in the case of non-incentive stock options, by reduction in the number of shares of Common Stock issuable upon such exercise, based, in each case, on the fair market value of the Common Stock on the date of exercise. Stock Options may also be exercised by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price.

 

Options Outstanding, Exercisable and Available for Future Grant

 

As of July 16, 2007, options to purchase 16,862,745 shares were outstanding under the 1999 Stock Option Plan, of which 10,910,601 were exercisable. The exercise prices for the outstanding options ranged from $4.05 to $46.09 per share, with an average exercise price of $16.78. On July 16, 2007, the average of the high and low sales prices of a share of Common Stock as reported on Nasdaq was $14.81. As of July 16, 2007, of all options outstanding under the 1999 Stock Option Plan, options to purchase 6,262,268 shares had an exercise price of $14.81 or below, of which 4,473,028 were exercisable. As of July 16, 2007, options to purchase 1,959,709 shares (plus any options that expire unexercised or are cancelled in the future) were available for future grant, exclusive of the additional shares covered by the proposed amended and restated 1999 Stock Option Plan.

 

Tax Aspects Under the U.S. Internal Revenue Code

 

The following is a summary of the principal federal income tax consequences of transactions under the 1999 Plan. It does not describe all federal tax consequences under the 1999 Plan, nor does it describe state or local tax consequences.

Incentive Options

 

No taxable income is generally realized by the optionee upon the grant or exercise of an incentive option. If shares issued to an optionee pursuant to the exercise of an incentive option are sold or transferred after two years from the date of grant and after one year from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) there will be no deduction for the Company for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax preference that may result in alternative minimum tax liability for the optionee. An optionee will not have any additional FICA (Social Security and Medicare) taxes upon exercise of an incentive option.

 

If shares acquired upon the exercise of an incentive option are disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized on a sale of such shares) over the option price thereof, and (ii) the Company will be entitled to deduct such amount. Special rules will apply where all or a portion of the exercise price of the incentive option is paid by tendering shares.

 

If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described above, the option is treated as a non-qualified option. Generally, an incentive option will not be eligible for the tax treatment described above if it is exercised more than three months following termination of employment (or one year in the case of termination of employment by reason of disability). In the case of termination of employment by reason of death, the three-month rule does not apply.

 

Non-Qualified Options

 

With respect to non-qualified options under the 1999 Plan, no income is realized by the optionee at the time the option is granted. Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise, and the Company receives a tax deduction for the same amount, and (ii) at disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the shares have been held. Special rules will apply where all or a portion of the exercise price of the non-qualified option is paid by tendering shares. Upon exercise, the optionee will also be subject to FICA taxes on the excess of the fair market value over the exercise price of the option.

 

Parachute Payments

 

The vesting of any portion of an option or other award that is accelerated due to the occurrence of a change in control may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

 

PROPOSAL 3

 

APPROVAL OF AMENDMENT TO 2002 RESTRICTED STOCK AWARD PLAN

 

The Company’s 2002 Restricted Stock Award Plan (the “2002 Plan”) currently authorizes the grant of awards representing the right to receive a specified number of shares of Common Stock subject to forfeiture provisions and/or satisfaction of performance goals to officers, employees and directors of, and consultants to, the Company or any of its subsidiaries to purchase up to 800,000 shares of Common Stock. As of July 16, 2007, 236,649 shares remained available for grant under the 2002 Plan. The Board of Directors plans to amend the 2002 Plan, subject to shareholder approval, to increase the aggregate number of shares authorized for issuance under the 2002 Plan to 1,500,000, an increase of 700,000 shares. This amendment was designed to enhance the flexibility of the Compensation Committee of the Board of Directors in granting restricted

stock awards to the Company’s officers, employees, directors and consultants and to ensure that the Company can continue to grant restricted stock awards to such persons at levels determined to be appropriate by the Compensation Committee based on comparable company and other market data. The Company believes that restricted stock awards are a critical part of the compensation package offered to key employees and is an important tool in the Company’s ability to attract and retain talented personnel. The resolution to be presented to the shareholders approving the proposed amendment to the 2002 Plan is attached as Appendix B to this Proxy Statement and is incorporated herein by reference.

 

The affirmative vote of a majority of the votes cast by all holders of Common Stock entitled to vote will be required to approve the proposed amendment to the 2002 Plan. Abstentions will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal, but will not be counted as votes cast. Broker non-votes (shares held by a broker or nominee as to which the broker or nominee does not have the authority to vote on a particular matter) will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal but will not be voted. Accordingly, while abstentions and broker non-votes will count towards establishing a quorum, neither abstentions nor broker non-votes will effect the outcome of the vote on this proposal.

 

The Board of Directors recommends that you vote FOR the approval of the amendment to the 2002 Plan.

 

Principal Features of the 2002 Plan

 

The purpose of the 2002 Plan is to enable the Company to reward certain officers, employees and directors of, and consultants to, the Company or any of its subsidiaries for past services to the Company or to provide an incentive to such persons for continued service to the Company thereby strengthening the mutuality of interests between such persons and the Company’s shareholders, by awarding such persons awards for shares of restricted stock. This summary of the 2002 Plan does not describe all of the features of the 2002 Plan and it is qualified in its entirety by the actual terms of the 2002 Plan.

 

Administration

 

The 2002 Plan is administered by the Compensation Committee by delegation from the Board of Directors. The total number of restricted stock awards to be granted in any year under the 2002 Plan to participants, the selection and number of participants to receive restricted stock awards and the other terms and provisions of such awards are wholly within the discretion of the Compensation Committee, subject to the limitations set forth in the 2002 Plan. Therefore, the benefits and amounts that will be received by participants under the 2002 Plan are not currently determinable.

 

New Plan Benefits

 

The benefits or amounts to be received by or allocated to the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated executives, all executives as a group, non-executive directors as a group, and non-executive officer employees as a group are granted on a discretionary basis and, as such, are not determinable as awards under the 2002 Plan. The benefits or amounts received by the Company’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executives under the 2002 Plan for the last complete fiscal year are described in the Grants of Plan-Based Awards Table.

 

Amendments

 

The 2002 Plan may not be amended without the approval of the Company’s shareholders if (a) such amendment would materially increase the benefits to participants under the 2002 Plan or (b) shareholder approval is necessary to comply with the Code, Federal or state securities laws, the rules and regulations of any stock exchange or stock market on which the Common Stock is listed or traded or any other applicable rules or regulations.

Eligible Participants

 

The Company’s, and any of its subsidiaries’, officers, employees, directors and consultants are eligible to be granted restricted stock awards. The Company estimates that there are currently approximately 820 officers, employees and directors who are eligible to receive awards under the 2002 Plan. No participant may be granted a restricted stock award of more than 100,000 shares during any one calendar year. The largest annual grant made to a single individual since the inception of the 2002 Plan has been 75,000 shares.

 

Number of Shares Subject to the 2002 Plan

 

Up to 800,000 shares of Common Stock may be issued under the 2002 Plan. As of March 31, 2007, 359,649 shares are available for grant under 2002 Plan. The proposed amendment, which has been recommended by the Compensation Committee and adopted by the Board of Directors, increases the number of shares that may be granted under the 2002 Plan to 1,500,000, an increase of 700,000 shares. The market value of the additional shares proposed to be added to the 2002 Plan as of July 16, 2007 is $10,367,000. Shares issued under the 2002 Plan may be authorized and unissued shares or authorized and issued shares that have been reacquired by the Company.

 

Adjustments for Certain Events

 

In the event of a merger, reorganization, consolidation or similar event affecting shares of the Company’s Common Stock, the Board of Directors will make appropriate adjustments in the limits specified in the 2002 Plan and to outstanding awards.

 

Change in Control Provisions

 

The 2002 Plan provides that upon a “change of control” (as defined in the 2002 Plan), the Board of Directors or Compensation Committee may in its discretion (i) cause the immediate lapse or satisfaction of any forfeiture provisions or performance goals so that shares of Common Stock will be issued to the award recipients; (ii) provide for a payment to be made to award recipients equal to the value of the Common Stock that would have been issued in connection with such awards; (iii) adjust the terms of the awards to reflect the change in control; (iv) cause the awards to be assumed or substituted by the successor entity; or (v) take such other action as it deems appropriate. In addition, in the event the Company is succeeded by another company in a reorganization, merger, acquisition or similar event, the successor company will assume all of the outstanding awards under the 2002 Plan so that the holders thereof will receive consideration equivalent to Common Stock once the forfeiture provisions lapse or performance goals are satisfied.

 

Effective Date of 2002 Plan

 

The Board of Directors of the Company originally adopted the 2002 Plan in 2002 and approved the proposed amendment to the 2002 Plan in July 2007. The 2002 Plan will terminate on June 12, 2012, unless the 2002 Plan is sooner terminated by the Board of Directors.

 

Restricted Stock Awards

 

Under the terms of the 2002 Plan, the Company may make awards that represent the right to receive shares of Common Stock subject to forfeiture provisions and/or the satisfaction of performance goals. The forfeiture provisions and performance goals are determined by the Compensation Committee and performance goals may be based on the following: sales, costs, earnings, shareholder return, market price of Common Stock, completion of specific goals such as acquisitions, new collaborations or product development milestones or approvals, any of which may be measured against specific targets or in relation to an industry peer group.

Once the applicable forfeiture provisions lapse or performance goals are met, the number of shares of Common Stock specified in the award will be issued to the recipient.

 

Awards Outstanding and Available for Future Grant

 

As of July 16, 2007, restricted stock awards of 298,250 shares were outstanding under the 2002 Plan.

 

Tax Aspects Under the U.S. Internal Revenue Code

 

The following is a summary of the principal federal income tax consequences of transactions under the 2002 Plan. It does not describe all federal tax consequences under the 2002 Plan, nor does it describe state or local tax consequences.

 

The Federal income tax discussion set forth below is intended for general information only and does not address the rates of taxation applicable to specific categories of taxpayers or classes of income or the tax consequences to persons who would be subject to liability under Section 16(b) of the Exchange Act with respect to a sale of shares of the Company’s Common Stock. State and local income tax consequences are not discussed and may vary from locality to locality.

 

Participants in the 2002 Plan will not recognize taxable income at the time an award is made but will recognize income taxable at ordinary rates on the date the shares of stock subject to an award are issued to them, in the amount of the fair market value of such shares. In the case of a participant who is an employee, withholding and employment taxes will be imposed on the amount of ordinary income recognized. The Company will generally be able to receive a deduction for a corresponding amount.

 

A participant’s holding period in stock awarded under the 2002 Plan will generally begin on the date the shares are issued to such participant. The participant’s tax basis for the stock will be equal to its fair market value on that date. Any difference in the value of the stock between the date of issue and the date of disposition will constitute a short- or long-term capital gain or loss, depending on individual circumstances.

 

The vesting of any portion of an award that is accelerated due to the occurrence of a change in control may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non- deductible to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

 

PROPOSAL 4

 

APPROVAL OF AMENDMENT TO 2006 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

 

The 2006 Stock Option Plan for Non-Employee Directors (the “2006 Plan”), adopted by the Board of Directors and approved by shareholders in connection with last year’s annual meeting, provides for the issuance of options to non-employee directors to acquire up to 240,000 shares of Common Stock of the Company. The purpose of the 2006 Plan is to enable the Company to attract and retain independent directors and to strengthen the mutuality of interests between such directors and the Company’s shareholders, through the automatic grant of stock options to such directors. As of July 16, 2007, options to purchase 120,000 shares remained available for grant under the 2006 Plan. The Board of Directors, subject to shareholder approval, plans to amend the 2006 Plan to increase the aggregate number of shares authorized for issuance upon exercise of options granted under the 2006 Plan to 480,000, an increase of 240,000 shares. This amendment is designed to increase the number of shares available under the plan for stock options to be granted to the Company’s non-employee directors and to enable the Company to attract and retain independent directors and to strengthen the mutuality of interests between such directors and the Company’s shareholders, through the automatic grant of stock options to such directors. On April 26, 2007, Mr. Breyer resigned as a part-time employee of the Company and became a non-employee director eligible to receive grants of stock options under the 2006 Plan. The Company believes that stock options are a critical part of the compensation package offered to non-employee directors and an important tool in the Company’s ability to attract and retain

independent directors. The resolution to be presented to the shareholders approving the proposed amendment to the 2006 Plan is attached as Appendix C to this Proxy Statement and is incorporated herein by reference.

 

The affirmative vote of a majority of the votes cast by all holders of Common Stock entitled to vote will be required to approve the proposed amendment to the 2006 Plan. Abstentions will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal, but will not be counted as votes cast. Broker non-votes (shares held by a broker or nominee as to which the broker or nominee does not have the authority to vote on a particular matter) will be counted as present for purposes of determining the presence of a quorum for purposes of this proposal but will not be voted. Accordingly, while abstentions and broker non-votes will count towards establishing a quorum, neither abstentions nor broker non-votes will effect the outcome of the vote on this proposal.

 

The Board of Directors recommends that you vote FOR the approval of the amendment to the 2006 Plan.

 

Principal Features of the 2006 Plan

 

The purpose of the 2006 Plan is to enable the Company to attract and retain independent directors and to strengthen the mutuality of interests between such directors and the Company’s shareholders by providing for the automatic grant of stock options to acquire equity interests in the Company. This summary of the principal features of the 2006 Plan does not describe all of the features of the 2006 Plan and it is qualified in its entirety by the actual terms of the 2006 Plan.

 

Administration

 

The 2006 Plan is administered by either the Board of Directors or an appropriate committee thereof, by delegation from the Board of Directors.

 

Plan Benefits

 

The number of options that will be automatically granted to non-employee directors under the 2006 Plan is as follows:

 

 

 

 

Amendment and Repricings

 

The 2006 Plan may not be amended without the approval of the Company’s shareholders if such amendment would (a) materially increase the number of shares that may be issued under the plan (b) materially modify the requirements for eligibility under the plan or (c) materially increase the benefits to participants under the 2006 Plan. There are additional limits on amendments to certain provisions of the 2006 Plan, as described in the plan.

 

Eligible Participants

 

Members of the Board of Directors of the Company who are not officers, consultants or employees of the Company or any of its subsidiaries are eligible to participate in the 2006 Plan. There are currently six directors eligible to participate in the 2006 Plan.

Number of Shares Subject to the 2006 Plan

 

Up to 240,000 shares of Common Stock may be issued under the 2006 Plan. As of March 31, 2007, 120,000 shares are available for grant under 2006 Plan. The proposed amendment, which has been recommended by the Compensation Committee and adopted by the Board of Directors, increases the number of shares that may be granted under the 2006 Plan to 480,000, an increase of 240,000 shares. The market value of the additional shares proposed to be added to the 2006 Plan as of July 16, 2007 is $3,554,400. Shares issued under the 2006 Plan may be authorized and unissued shares or authorized and issued shares that have been reacquired by the Company.

 

Adjustments for Certain Events

 

In the event of a merger, reorganization, consolidation or similar event affecting shares of the Company’s Common Stock, the Board of Directors will make appropriate adjustments to the number of shares for which Stock Options are automatically granted under the 2006 Plan, to the other limits specified in the 2006 Plan and to outstanding awards.

 

Change in Control Provisions

 

The 2006 Plan provides that in the event of a “change in control” (as defined in the 2006 Plan), all stock options will either be assumed or substituted by the successor entity or will be terminated. In the event of termination, holders of outstanding options will be given an opportunity to exercise such options prior to termination. In addition, the Company may provide for any stock options to be “cashed out” in exchange for a payment equal to the excess of the per share consideration paid in connection with the change in control over the exercise price of each stock option.

 

Effective Date of 2006 Plan

 

The Board of Directors of the Company approved the 2006 Plan in July 2006 and shareholders approved the 2006 Plan in connection with last year’s annual meeting. The 2006 Plan will terminate and no options may be granted under the 2006 Plan after July 11, 2016, unless the 2006 Plan is sooner terminated by the Board of Directors.

 

Stock Options

 

Under the terms of the 2006 Plan, the option exercise price will be equal to the fair market value of the underlying stock at the time the option is granted. Stock options granted under the 2006 Plan become exercisable in full six months after the date of grant. Options granted under the 2006 Plan are nontransferable, and expire upon the earlier of ten years from the date of grant, and one year after the optionee ceases to be a member of the Board for any reason.

 

Under the 2006 Plan, the price payable upon exercise of options may be paid in cash, by check payable to the Company, or in shares of stock of the Company duly owned by the participant or by reduction in the number of shares of Common Stock issuable upon such exercise, based, in each case, on the fair market value of the Common Stock on the date of exercise. Stock options may also be exercised pursuant to a broker-assisted or automated system, subject to the approval of the Board.

 

Options Available for Future Grant

 

As of July 16, 2007, options to purchase 120,000 shares were outstanding under the 2006 Plan, of which 120,000 were exercisable. The exercise prices for the outstanding options ranged from $14.04 to $14.04 per share, with an average exercise price of $14.04. On July 16, 2007, the average of the high and low sales prices of a share of Common Stock as reported on Nasdaq was $14.81. As of July 16, 2007, of all options outstanding under the 2006 Plan, options to purchase 120,000 shares had an exercise price of $14.81 or below, of which 120,000 were exercisable. As of July 16, 2007, options to purchase 120,000 shares (plus any options

that expire unexercised or are cancelled in the future) were available for future grant, exclusive of the additional shares covered by the proposed amendment.

 

Tax Aspects Under the U.S. Internal Revenue Code

 

The following is a summary of the principal federal income tax consequences of transactions under the 2006 Plan. It does not describe all federal tax consequences under the 2006 Plan, nor does it describe state or local tax consequences.

 

All options under the 2006 Plan are non-qualified options. For non-qualified options, no income is realized by the optionee at the time the option is granted. Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise, and the Company receives a tax deduction for the same amount, and (ii) at disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the shares have been held. Special rules will apply where all or a portion of the exercise price of the non-qualified option is paid by tendering shares. Upon exercise, the optionee will also be subject to FICA taxes on the excess of the fair market value over the exercise price of the option.

 

The vesting of any portion of a stock option that is accelerated due to the occurrence of a change in control may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

 

PROPOSAL 5

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

 

The Audit Committee of the Board of Directors has retained the firm of PricewaterhouseCoopers LLP, independent registered public accountants, to serve as independent registered public accountants for the fiscal year ending March 31, 2008. Deloitte & Touche LLP had served as the Company’s independent registered public accounting firm for the fiscal year ended March 31, 2007. The Audit Committee reviewed and discussed the performance of Deloitte & Touche LLP and the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants for fiscal year ending March 31, 2008. As a matter of good corporate governance, the Audit Committee has determined to submit its selection to stockholders for ratification. If the selection of registered public accountants is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

 

The Board of Directors recommends that you vote FOR the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants for fiscal year ending March 31, 2008.

 

REPORT OF THE AUDIT COMMITTEE

 

This report is submitted by the Audit Committee of the Board of Directors. The Audit Committee currently consists of Messrs. Bloom, Mitchell and Skaletsky. The Board of Directors has determined that each member of the Audit Committee meets the independence requirements promulgated by Nasdaq and the Securities and Exchange Commission including Rule 10A-3(b)(1) under the Exchange Act and that Messrs. Mitchell and Skaletsky qualify as “audit committee financial experts” under the rules of the Securities and Exchange Commission. In December 2005, the Audit Committee reviewed the adequacy of, and amended, its charter. The Audit Committee has the responsibility and authority described in the Audit Committee Charter which has been approved by the Board of Directors. A copy of the Audit Committee Charter is available on the Corporate Governance page of the Investor Relations section of the Company’s website, available at: http://investor.alkermes.com.

 

In accordance with law, the Audit Committee has ultimate authority and responsibility to select, compensate, evaluate and, when appropriate, replace the Company’s independent auditors. The Audit Committee has the authority to engage its own outside advisors, including experts in particular areas of accounting, as it determines appropriate, apart from counsel or advisors hired by management.

 

During the fiscal year ended March 31, 2007, the Company’s independent registered public accountants were Deloitte & Touche, LLP (“D&T”). D&T is responsible for performing an independent audit of the consolidated financial statements, and an independent audit of the effectiveness of the Company’s internal control over financial reporting, as well as attesting to management’s assessment of the effectiveness of the Company’s internal control over financial reporting, each in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”). D&T also performed audit-related services, tax services and other permissible non-audit services for the Company during the fiscal year ended March 31, 2007, as described more fully below.

 

The Audit Committee oversees the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the Company’s systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited consolidated financial statements in the Annual Report with management, and discussed with management the quality, not just the acceptability, of the accounting principles, the reasonableness of significant estimates and judgments, critical accounting policies, accounting estimates resulting from the application of these policies, the substance and clarity of disclosures in the financial statements, and reviewed the Company’s disclosure control process and internal control over financial reporting. In addition, the Audit Committee reviewed the rules under the Sarbanes-Oxley Act that pertain to the Audit Committee and the roles and responsibilities of Audit Committee members. The Audit Committee reviewed with D&T, who are responsible for expressing an opinion on the conformity of the Company’s audited financial statements with accounting principles generally acceptable in the United States, the overall scope and plans for their audit, and D&T’s judgments as to the quality, not just the acceptability, of the Company’s accounting principles, the reasonableness of significant estimates and judgments, critical accounting policies and accounting estimates resulting from the application of these policies, and the substance and clarity of disclosures in the financial statements, and reviewed with D&T the Company’s disclosure control process and internal control over financial reporting. The Committee met with D&T, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting.

 

The Audit Committee has reviewed the audited consolidated financial statements of the Company at March 31, 2007 and 2006 and for each of the quarters in the three-year period ended March 31, 2007, and has discussed them with both management and D&T. In connection with the Company’s Form 10-K for the year ended March 31, 2007, the Audit Committee discussed with management the results of the Company’s certification process relating to the certification of financial statements under Sections 302 and 906 of the Sarbanes-Oxley Act. The Audit Committee has also discussed with D&T the matters required to be discussed by Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90

(Communications with Audit Committees), other standards of the PCAOB, the rules of the Securities and Exchange Commission and other applicable regulations, as currently in effect. This discussion included, among other things, a review with management of the quality of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosure in the Company’s financial statements, including the disclosures related to critical accounting policies and practices used by the Company. The Audit Committee has received the written disclosures and the letter from D&T required by Independent Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and has discussed with D&T the firm’s independence from management and the Company, including the matters in the written disclosures required by the Independence Standards Board, and considered the compatibility of non-audit services with the auditors’ independence. Based on its review of the financial statements and these discussions, the Audit Committee concluded that it would be reasonable to recommend, and on that basis did recommend, to the Board of Directors that the audited consolidated financial statements and management’s assessment of the Company’s control over financial reporting be included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 and the Board of Directors approved such inclusion.

 

In connection with an inquiry into the Company’s stock option granting practices, the Audit Committee undertook an investigation into the Company’s option practices for the period 1999 to 2002. The review was conducted with the assistance of outside legal counsel and outside accounting consultants. The Audit Committee completed its investigation and concluded that nothing came to its attention that would cause it to believe that there are any instances where management of the Company or the compensation committee of the Company retroactively selected a date for the grant of stock options during the 1999 through 2002 period. Also, subsequent to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006 and Fiscal Year 2007 Proxy Statement, management reviewed its option grant practices for the period from 1999 through the first quarter of fiscal 2007 and identified errors with respect to the measurement date for one stock option grant in each of 2000 and 2005. The errors were a result of changes that were or may have been made to option grants for a limited number of non-executive employees subsequent to the grant date, which resulted in different measurement dates for accounting purposes. In both instances, the aggregate amount of options granted decreased after the grant date. No options from either the 2000 or 2005 grants had been exercised. On August 14, 2006, the Company filed an amended Annual Report on Form 10-K/A to restate its financial statements to reflect the effects of the items discussed above.

 

The Audit Committee also reviewed the Company’s quarterly financial statements during the fiscal year ended March 31, 2007 and discussed them with both the management of the Company and D&T prior to including such interim financial statements in the Company’s quarterly reports on Form 10-Q. In connection with the Company’s quarterly reports on Form 10-Q for its first, second and third fiscal quarters of 2007, the Audit Committee discussed with management and D&T the results of the Company’s certification process relating to the certification of financial statements under Sections 302 and 906 of the Sarbanes-Oxley Act.

 

During the course of the fiscal year ended March 31, 2007, management completed the documentation, testing and evaluation of the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act and related regulations. At the conclusion of the process, management provided the Committee with and the Committee reviewed a report on the effectiveness of the Company’s internal control over financial reporting. The Committee also reviewed the report of management contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 filed with the Securities and Exchange Commission, as well as D&T’s Reports of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K related to its audit of (i) the consolidated financial statements and financial statement schedule, (ii) management’s assessment of the effectiveness of internal control over financial reporting and (iii) the effectiveness of internal control over financial reporting. The Committee continues to oversee the Company’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in the fiscal year ending March 31, 2008.

 

In connection with the option grant inquiry discussed above, the Company reassessed its evaluation of its internal controls over financial reporting as of March 31, 2006 and concluded that a material weakness existed

in its internal controls over financial reporting relating to its application of accounting principles generally accepted in the United States to measurement dates for stock options. The Company’s amended Annual Report on Form 10-K/A filed on August 14, 2006 discusses this conclusion. The Company has adopted new stock option granting procedures to correct this deficiency and, after consultation with outside legal counsel, believes that such procedures have corrected this weakness.

 

The Audit Committee monitors the activity and performance of D&T. All services to be provided by D&T are pre-approved by the Audit Committee. The Audit Committee’s evaluation of the performance of D&T included, among other things, the amount of fees paid to D&T for audit and permissible non-audit services in fiscal year ended March 31, 2007. Information about D&T’s fees for the fiscal years ended March 31, 2007 and March 31, 2006 is discussed below in this Proxy Statement under “Audit Fees.” The Audit Committee has retained PricewaterhouseCoopers LLP to serve as the Company’s auditors for the fiscal year ending March 31, 2008.

 

No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act or the Exchange Act.

 

Respectfully submitted by the Audit Committee,

 

Floyd E. Bloom
Paul J. Mitchell
Mark Skaletsky

 

For more information about our Audit Committee and its charter, you are invited to access the Corporate Governance page of the Investor Relations section of the Company’s website, available at:

http://investor.alkermes.com.

 

INDEPENDENT REGISTERED AUDITOR

 

On July 10, 2007, the Company engaged PricewaterhouseCoopers LLP as its new independent registered public accounting firm beginning with the review of the financial statements to be included in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2007.

 

Prior to the engagement of PricewaterhouseCoopers, neither the Company nor anyone on behalf of the Company consulted with PricewaterhouseCoopers during the Company’s two most recent fiscal years and through July 10, 2007 in any manner regarding either: (A) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (B) any matter that was the subject of either a disagreement or a reportable event (as defined in Item 304 (a)(1)(iv) and (v), respectively, of Regulation S-K).

 

On July 10, 2007, the Company dismissed D&T as the Company’s independent registered public accounting firm. The decision to dismiss D&T was approved by the Audit Committee.

 

The reports of D&T on the financial statements of the Company included in the Company’s annual report on Form 10-K/A for the fiscal year ended March 31, 2006 and included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2007 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle, except that D&T’s report on the financial statements included in the Company’s annual report on Form 10-K/A for the fiscal year ended March 31, 2006 included explanatory paragraphs related to the restatement of the financial statements for the correction of an error and the adoption of the provisions of Derivatives Implementation Group Issue B-39, and D&T’s report on the financial statements included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2007 included an explanatory paragraph related to the adoption of Statement of Financial Accounting Standards No. 123(R) effective April 1, 2006.

 

During the fiscal years ended March 31, 2007 and 2006, and through July 10, 2007, there have been no disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of D&T, would have caused D&T to make reference thereto in its reports on the financial statements of the Company for such fiscal years.

 

During the fiscal years ended March 31, 2007 and 2006, and through July 10, 2007, there have been no reportable events (as defined in Item 304 (a)(1)(v) of Regulation S-K), except as described below.

 

As previously reported in the Company’s Annual Report on Form 10-K/A for the fiscal year ended March 31, 2006 filed on August 14, 2006, the Company concluded that errors that led to the restatement of its financial statements for the fiscal years ended March 31, 2006, 2005, 2004, 2003, 2002 and 2001 resulted from inadequate internal control over the accounting for its stock option programs. The Company identified a material weakness in its internal control over financial reporting related to stock option granting practices and the related accounting in periods ending prior to August 2006. Because of the effect of the material weakness, D&T issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of March 31, 2006.

 

The foregoing disclosures were previously reported in a Form 8-K that the Company filed with the SEC on July 13, 2007. The Company has furnished a copy of the above disclosures to D&T and has requested that D&T furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above disclosures. A copy of the letter, dated July 13, 2007, furnished by D&T in response to that request was filed as Exhibit 16.1 to the Form 8-K.

 

AUDIT FEES

 

Aggregate fees for fiscal 2007 and fiscal 2006

 

This table shows the aggregate fees billed to the Company by D&T for the fiscal years ended March 31, 2007 and 2006.

 

(a) Audit fees

 

 

(b) Audit-related fees

 

 

(c) Tax fees

 

 

(d) All Other Fees:

 

There were no other fees paid to D&T for the fiscal years ended March 31, 2007 and 2006.

 

 

 

OWNERSHIP OF THE COMPANY’S COMMON STOCK

 

The following table and notes provide information about the beneficial ownership of our outstanding, common stock as of July 16, 2007 by:

 

 

According to Securities and Exchange Commission rules, the Company has included in the column “Number of Issued Shares” all shares over which the person has sole or shared voting or investment power, and the Company has included in the column “Number of Shares Issuable” all shares that the person has the right to acquire within 60 days after July 16, 2007 through the exercise of any stock option, vesting of any stock award or other right. All shares that a person has a right to acquire within 60 days of July 16, 2007 are deemed outstanding for the purpose of computing the percentage beneficially owned by the person, but are not deemed outstanding for the purpose of computing the percentage beneficially owned by any other person.

 

Unless otherwise indicated, each person has the sole power (except to the extent authority is shared by spouses under applicable law) to invest and vote the shares listed opposite the person’s name. The Company’s inclusion of shares in this table as beneficially owned is not an admission of beneficial ownership of those shares by the person listed in the table.

 

Ownership by Directors and Executive Officers

 

 

 

 

 

 

Ownership By Principal Stockholders

 

The following table and notes provides information about the beneficial ownership of our common stock as of July 16, 2007 by each stockholder known to us to be the beneficial owner of more than 5% of our common stock.

 

 

 

 

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who beneficially own more than ten percent of the Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock.

 

Executive officers, directors and greater than ten percent shareholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company for the fiscal year ended March 31, 2007, all reports were timely filed except that, due to administrative error, Dr. Elliot W. Ehrich and Mr. Gordon G. Pugh were late in filing their initial statements of beneficial ownership of securities of the Company, Dr. Elliot W. Ehrich incorrectly reported the total number of shares he held at the time he became an officer, and Dr. Elliot W. Ehrich incorrectly reported the total number of shares granted to him pursuant to a recent option grant. Upon discovery, these matters were promptly reported.

 

EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction and Corporate Governance

 

Our Compensation Committee reviews, oversees and administers our executive compensation programs. The Committee’s complete roles and responsibilities are set forth in the written charter adopted by the Board of Directors, which is available on the Corporate Governance page of the Investor Relations section of the Company’s website, available at: http://investor.alkermes.com. The Board of Directors selected the following individuals to serve on the Committee for fiscal year 2007: Dr. Paul Schimmel (Chair), Paul J. Mitchell and Dr. Alexander Rich. Each of these individuals satisfies the independence requirements of Nasdaq.

 

Executive Compensation Philosophy and Objectives

 

Our executive compensation program seeks to attract, retain and motivate experienced and well-qualified executive officers who will promote the Company’s research and product development, manufacturing, commercialization and operational efforts. We strive to structure our executive officer compensation packages based on level of job responsibility, individual performance and overall Company performance. The Committee bases its executive compensation programs on the same objectives that guide the Company in establishing all its compensation programs:

 

 

Our compensation program rewards strategic, operational and financial performance.

 

Compensation Program Elements

 

The compensation program for executive officers consists of the following elements:

 

 

 

The Committee utilizes these elements of compensation to structure compensation packages for executive officers that can reward both short and long-term performance of the individual and the Company.

 

Base Salary

 

Base salaries are used to provide a fixed amount of compensation for the executive’s regular work. The Committee establishes base salaries that are competitive with comparable companies for each position and level of responsibility to the extent such comparable companies and positions exist. The salaries of the executive officers are reviewed on an annual basis, at the time of the mid-fiscal year performance review established by the Company. The Committee may consider factors such as the individual’s performance, level

of pay compared to comparable companies for each position and level of responsibility, cost of living indices, and general progress towards achieving the corporate objectives, in determining increases, if any, to base salary. Any base salary increase for an executive officer must be established by the Committee.

 

Cash Incentive Bonus

 

Cash incentive bonuses motivate executive officers to achieve short-term operational and strategic goals that are aligned with and supportive of long-term Company value. Cash incentive bonuses are awarded by the Committee after the fiscal year-end based on an evaluation of Company performance and each individual’s contribution to this performance. Performance objectives are established and evaluated by the Committee.

 

In May 2006, the Committee approved the Alkermes Fiscal 2007 Named Executive Bonus Plan, and established the Company’s fiscal year 2007 corporate objectives and bonus ranges that may be earned for the period April 1, 2006 to March 31, 2007 by the Company’s Chief Executive Officer; President and Chief Operating Officer; Vice President and Chief Financial Officer; Vice President, Corporate Development; and the Vice President, General Counsel and Secretary. The fiscal year 2007 corporate objectives were: drive robust supply of RISPERDAL CONSTA sales; launch and successfully commercialize VIVITROL; achieve key development program milestones; and achieve financial performance against budget. Target bonus ranges determined by the Committee were 25% to 100% of base salary for each named executive, with the exception of Mr. Pops, as described below. In September 2006, the Vice President, Science and Development and Chief Medical Officer; and the Vice President, Operations became eligible to participate under the plan as well. Target bonus ranges for these two executive officers were 15% to 50% of base salary. Target bonus ranges were determined by reference to market data and historical bonus ranges for executives in the Company at comparable levels. Bonuses under the executive bonus plan are awarded after the close of the fiscal year based upon the Committee’s review of the performance of the Company against its fiscal year objectives, and the individual performance of each executive in achieving such goals. Individual performance of the participants is determined by the Committee in its sole discretion.

 

For Richard Pops, the Company’s CEO during fiscal year 2007, the Committee determined the potential cash incentive bonus to range from between 25% and 100% of base salary during the performance period, with a target bonus of 50% of base salary. In order for the CEO to receive: (i) a cash bonus, at least 25% of the corporate objectives of the Company must have been met; (ii) a target bonus, at least 50% of such objectives must have been met; and (iii) the maximum bonus, the substantial achievement of a majority of the corporate objectives must have occurred.

 

Equity Incentives — Performance Based Restricted Stock Awards, Stock Options and Restricted Stock Awards

 

Grants of stock options and awards of restricted common stock under the Company’s equity compensation plans are designed to promote long-term retention and stock ownership, and align the interests of executives with those of stockholders, providing our executives with the opportunity to share in the future value they are responsible for creating. Generally, stock options vest in equal annual installments over a four-year period. The Committee may, in its discretion, award equity incentives with a different vesting schedule. If any employee, including a named executive officer, retires after having met the retirement eligibility criteria reflected in our stock option grants, then the stock option will vest and become exercisable in full for a prescribed period of time after retirement, not to exceed the full term of the grant. If the retirement criteria have not been met, vested exercisable stock options remain exercisable for up to three months from the recipient’s date of termination from service and unvested stock options are forfeited.

 

The number of options and awards granted to each executive officer is generally determined by the Committee based on the performance of the executives and their contributions to overall Company performance; information with regard to stock option grants and restricted common stock awards at comparable companies, and generally within the biotechnology industry, based upon data provided by the independent compensation consultant; consideration of previous equity awards made to such person; and personal knowledge of the Committee members regarding executive stock options and restricted common stock awards

at comparable companies. Consideration is also given to the impact of stock option and restricted common stock awards on the Company’s results of operations.

 

The Committee determined to schedule two equity grants for employee performance in fiscal year 2007. The first in December, coinciding with a regularly scheduled meeting of the Board, and the second in May, after the window to trade in Company securities reopened following the announcement of the Company’s year-end financial results. The grant in December was designed to coincide with the mid-fiscal year performance review established by the Company and the Company mid-year financial results. The grant in May (which took place on June 1, 2007 due to scheduling issues) is designed to reward performance during the prior full fiscal year. The Committee makes such grants after the close of our fiscal year so that it may fully evaluate the performance of the Company during the prior fiscal year against its fiscal year performance objectives. In this context, Footnote 5 of the Summary Compensation Table below shows equity incentive awards provided to Mr. Pops based on fiscal year performance.

 

For fiscal year 2007, the Committee specifically established the range of equity compensation for the CEO to be between 0 and 500,000 shares, with such shares to include a time vesting component. In order for the CEO to receive an equity award, at least 25% of the corporate objectives of the Company must be met. A maximum equity award to the CEO requires the Committee to determine that substantial achievement of a majority of such objectives has occurred.

 

The Committee has recently determined that it is appropriate to alter the composition of equity incentives from primarily stock options to a combination of stock options and restricted stock awards.

 

Compensation Committee Calendar

 

For fiscal year 2007, the Committee determined the following compensation calendar: in November 2006, approximately mid-way through the Company’s fiscal year, the Committee determined the annual percentage adjustment to base salaries for executives. In December 2006, the Committee considered the first of two scheduled equity grants for executives and qualified employees. In May 2007, after the close of the Company’s fiscal year, the Committee determined (i) the size of the Company bonus pool, (ii) executive bonuses and (iii) the second of two scheduled equity grants for executive and qualified employees (equity to be granted after the window to trade reopens after announcement of the Company’s fiscal year end financial results). Cash bonuses and total equity compensation determinations were based on an analysis of the Company’s performance versus corporate objectives for the completed fiscal year and individual performance.

 

Subsequent to the close of the Company’s fiscal year ended March 31, 2007, the Committee determined to modify the compensation calendar in the future to provide that the initial equity grant be made in November after the announcement of the Company’s second fiscal quarter financial results and after the window to trade reopens.

 

Compensation Determinations

 

Factors Considered in Determining Compensation

 

The Committee may consider a number of factors to assist it in determining compensation for the Company’s executive officers.

 

Company Performance.  As discussed previously, the Committee, with the agreement of the Board of Directors, set four corporate objectives for performance during the fiscal year ended March 31, 2007: drive robust supply of RISPERDAL CONSTA sales; launch and successfully commercialize VIVITROL, achieve key development program milestones and financial performance against budget. The Committee does not apply a formula or assign these performance objectives relative weights. Instead, it makes a subjective determination after considering such measures collectively. These corporate objectives are specifically utilized as performance objectives for determination of cash incentive bonus under the Alkermes Fiscal 2007 Named Executive Bonus Plan.

The specific accomplishments of the Company during fiscal year 2007 were as follows:

 

 

 

Individual Performance.  In establishing compensation levels, the Committee also evaluates each executive’s individual performance using certain subjective criteria, including an evaluation of each executive’s contribution to achievement of the corporate objectives and to overall corporate performance and managerial ability. In making its evaluations, the Committee consults on an informal basis with other members of the Board of Directors. In establishing compensation for executive officers other than Mr. Pops, who served as CEO of the Company during fiscal year 2007, and Mr. Broecker, who served as President and Chief Operating Officer of the Company during fiscal year 2007, the Committee reviewed in detail the recommendations of Mr. Pops and Mr. Broecker. With respect to Mr. Broecker, the Committee reviews the recommendation of Mr. Pops. With respect to Mr. Pops, the Committee meets at the end of the fiscal year to evaluate his achievement of the corporate objectives and other leadership accomplishments.

 

Benchmarking.  Another consideration which affects the Committee’s decisions regarding executive compensation is the high demand for well-qualified personnel. Given such demand, the Committee strives to maintain compensation levels which are competitive with the compensation of other executives in the industry. To that end, the Committee, through the Company’s Director of Compensation and Benefits, retained the services of an independent compensation consultant, Pearl Meyer and Partners, to review market data and various incentive programs and to provide assistance in establishing the Company’s cash and equity based compensation targets and awards based, in large part, upon a peer group identification and assessment that it was retained to conduct. Pearl Meyer and Partners reported its findings to our Director of Compensation and Benefits, who then communicated these findings directly to the Compensation Committee.

 

The companies that comprised the Company’s pharmaceutical peer group in 2006 consisted of Amylin Pharmaceuticals, Inc.; Human Genome Sciences, Inc.; ICOS Corp.; Medicines Company; MGI Pharmaceuticals Inc.; Millennium Pharma Inc.; Nektar Therapeutics; Neurocrine Biosciences Inc.; OSI Pharmaceuticals Inc.; PDL BioPharma, Inc.; and United Therapeutics Corp. These eleven publicly-traded US-headquartered firms compete in similar product, service and labor markets as Alkermes and are within similar revenue, market capitalization, and research and development expenses as a percentage of revenue levels.

 

Pearl Meyer also developed an aspirational peer group to be used for informational purposes. Data for the aspirational peer group was not used to develop any pay recommendations. The aspirational peer group reflects firms that are similar in industry, but are substantially larger in size (revenue of approximately $1 billion and market cap of approximately $6.5 billion) as compared to Alkermes. The aspirational peer group consists of Celgene Corp.; Cephalon Inc.; Endo Pharma Holdings Inc.; Imclone Systems Inc.; MedImmune Inc.; Sepracor Inc.; and Valeant Pharmaceuticals International.

 

The Committee compares the Company’s executive compensation programs as a whole and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful. The Committee uses the peer group data primarily to ensure the executive compensation program as a whole is competitive, meaning generally between the median and 65^th percentile of our peers in terms of value when the Company achieves the targeted performance levels. The individuals’ relative position is driven by individual and company performance. The Committee, in its sole authority, has the right to hire or fire outside compensation consultants.

 

Executive Officer Compensation Determination

 

Base Salary.  The Committee reviewed base salaries for executives of the Company coinciding with the mid-fiscal year performance review established by the Company. The Committee considered a number of factors, such as cost of living indices, market data for comparable companies and general progress towards

achieving the corporate objectives in determining base salary adjustments for fiscal year 2007. The Committee determined to increase each named executive’s salary by approximately 4.5% for fiscal year 2007.

 

Cash Incentive Bonus.  Based upon a determination by the Committee that substantial achievement of a majority of the corporate objectives had occurred, the Committee granted Mr. Pops a cash bonus in May 2007 of $408,000 as recognition for the substantial progress the Company made on the predetermined corporate objectives set by Company management for the period April 1, 2006 through March 31, 2007. This represented 70% of his fiscal year 2007 base salary. Also, in May 2007, based upon the achievement of the Company’s corporate objectives and the individual performance recommendations of management, the Committee determined and awarded cash bonuses for fiscal year 2007 to the other named executive officers, as detailed in the Summary Compensation Table below.

 

Equity Incentives — Stock Options and Restricted Stock Awards.  In considering the grant of equity to executives in December 2006, the Committee generally considered the overall performance of the Company in achieving the corporate objectives to date as well as information with regard to stock option grants and restricted common stock awards at comparable companies, and generally within the biotechnology industry, based upon data provided by the independent compensation consultant. The number of stock options granted was a percentage of the prior fiscal year’s grant, which the Committee agreed would be “trued up” in May after the close of the Company’s fiscal year based on individual and Company overall performance as described below. In that regard, Mr. Pops received an option to purchase 120,000 shares of Common Stock of the Company. The other named executive officers received the following option grants: Mr. Broecker, 80,000 shares; Mr. Frates, 40,000 shares; Mr Landine, 30,000 shares; and Ms. Biberstein, 30,000 shares. Each of these options vest in one quarter increments over the subsequent four years, subject to early vesting in certain instances such as death or permanent disability and other instances as described below in “Potential Payments upon Termination or Change in Control.”

 

In considering the grant of equity to executives in May 2007, the Committee considered market data, the overall performance of the Company versus the corporate objectives and individual performance. Based upon these factors and upon a determination by the Committee that substantial achievement of a majority of the Company performance objectives had occurred, in recognition of Mr. Pops’ accomplishments during the fiscal year, and in furtherance of the Committee’s belief that a significant portion of Mr. Pops’ total compensation should be dependent on the long-term appreciation of the Company’s stock price, the Committee granted Mr. Pops options to purchase an additional 100,000 shares of Common Stock and an award of 25,000 shares of restricted stock. Based on the above factors considered by the Committee, and after discussing the individual performance of Mr. Broecker with Mr. Pops, the Committed granted Mr. Broecker options to purchase an additional 60,000 shares of Common Stock and an award of 15,000 shares of restricted stock. Also based upon the above factors, and on the individual performance recommendations made by Mr. Pops and Mr. Broecker to the Committee, the other named executive officers received the following grants: Mr. Frates, 30,000 option shares and 7,500 shares of restricted stock; Mr Landine, 20,000 option shares and 6,000 shares of restricted stock; and Ms. Biberstein, 20,000 option shares and 6,000 shares of restricted stock. Each of these options and restricted stock awards vest in one quarter increments over the subsequent four years, subject to early vesting in certain instances such as death or permanent disability and other instances as described below in “Potential Payments upon Termination or Change in Control.”

 

Equity Incentives — Performance Based Restricted Stock.  In addition to the above noted equity grants, certain employees of the Company, including the executive officers, received a special restricted stock award upon the launch of the Company’s first proprietary product, VIVITROL, in the U.S. This award had been contemplated by the Committee at the conclusion of the prior fiscal year, when the Committee determined that it would not grant Mr. Pops or other senior executives restricted stock awards for performance during the 2006 fiscal year, but would consider such a grant after the commercial launch of VIVITROL had been achieved.

 

The restricted stock awards were as follows: Mr. Pops, 75,000 shares; Mr. Broecker, 45,000 shares; Mr. Frates, 22,500 shares; Mr. Landine, 18,000 shares; and Ms. Biberstein, 18,000 shares. One quarter of these restricted stock awards vested immediately upon grant, and one quarter on each of the subsequent three anniversaries of the date of grant. These grants were made by the Committee to various employees in

recognition of their contribution to the launch of VIVITROL. Mr. Pops and Mr. Broecker provided recommendations of grant amounts to the Committee for all executive officers other than themselves. With respect to Mr. Broecker, the Committee reviewed the recommendation of Mr. Pops. With respect to Mr. Pops, the Committee evaluated his leadership accomplishments and individual contributions to the successful launch of VIVITROL.

 

Perquisites

 

The Company did not provide executive officers with any perquisites in fiscal year 2007.

 

Retirement benefits

 

The terms of the Company’s 401(k) Savings Plan (“401k Plan”), provide for executive officer and broad-based employee participation. Under the 401k Plan, all Company employees are eligible to receive matching contributions from the Company. The Company’s matching contribution for the 401k Plan for fiscal year 2007 was $0.50 for each dollar on the first 6% of each participant’s pretax contributions, and was calculated on a payroll-by-payroll basis subject to applicable Federal limits.

 

Other benefits

 

Executive officers are eligible to participate in the Company’s employee benefit plans on the same terms as all other employees. These plans include medical, dental and life insurance. The Company may also provide relocation expense reimbursement and related tax gross-up benefits which are negotiated on an individual basis with executive officers. In addition, executive officers are eligible to receive severance benefits in connection with a termination or a change in control as set forth in each of their employment contracts and described more fully below.

 

During fiscal year 2006, the Company forgave approximately one-fifth of a loan made to Mr. Broecker on June 13, 2001, including taxes related to the loan forgiveness, pursuant to the employment agreement with Mr. Broecker. Although this loan terminated in February 2006 and no balance remained outstanding as of March 31, 2006, it was credited through the Company’s payroll system during our 2007 fiscal year.

 

Post Termination Compensation and Benefits

 

We have a program in place under which our executive officers receive severance benefits if they are terminated without cause (and in Mr. Pops’ case, if he terminates for good reason). Additionally, named executive officers receive severance benefits if, following a corporate transaction or a change in control, they are terminated without cause or they terminate for good reason. The terms of these arrangements and the amounts payable under them are described in more detail below under “Potential Payments Upon Termination or Change in Control.” We provide these arrangements because we believe that some severance arrangements are necessary in a competitive market for talent to attract and retain high quality executives. In addition, the change in control benefit allows the executives to maintain their focus on Company business during a period when they otherwise might be distracted.

 

Tax Deductibility of Compensation

 

In general, under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Company cannot deduct, for federal income tax purposes, compensation in excess of $1,000,000 paid to its named executive officers. This deduction limitation does not apply, however, to certain “performance-based compensation” within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder.

 

Fiscal 2008 Compensation Decisions

 

In February 2007, the Board of Directors of the Company approved its succession plan for senior management that became effective at the beginning of the Company’s new fiscal year, April 1, 2007. David A. Broecker, Alkermes’ President and Chief Operating Officer for the past six years, became President

and Chief Executive Officer. He succeeded Richard F. Pops, the Company’s Chief Executive Officer since 1991, who became Chairman of Alkermes’ Board of Directors. Michael A. Wall, an Alkermes founder, stepped down as Chairman of the Board, but remained a director and serves as Chairman Emeritus and part-time employee of the Company. Richard Pops remains a full-time employee of the Company focusing on corporate strategy and other initiatives.

 

On February 27, 2007, the Company and Mr. Pops entered into an Employment Agreement related to Mr. Pops’ employment as Chairman of the Company’s Board of Directors. The term of Mr. Pops’ Employment Agreement is three years beginning April 1, 2007. Pursuant to the Employment Agreement, Mr. Pops will serve as the Company’s Chairman of the Board of Directors and will be responsible for overseeing strategic issues affecting the Company and maintaining key relationships with the Company’s business partners. During the initial year of the agreement, Mr. Pops will dedicate the time and resources necessary to assist in the transition of Mr. Broecker to the role of Chief Executive Officer. Mr. Pops will continue to receive the same salary (adjusted for inflation), and be entitled to the same benefits, as under his previous employment agreement with the company. Under the terms of the Employment Agreement, during the first year of the employment term, Mr. Pops will be eligible to receive a bonus at the same target rate of his base salary as under his previous employment agreement, and will be eligible to receive equity compensation only in the form of restricted stock awards under our 2002 Restricted Stock Award Plan and commensurate with recent equity awards based on performance criteria to be determined by the Company’s Compensation Committee. After the first year, any bonus and/or equity award will be based on criteria to be established by the Compensation Committee.

 

In April 2007, the Compensation Committee of the Board agreed to increase Mr. Broecker’s annual base salary to $458,848, retroactive to April 1, 2007, in recognition of his appointment as CEO of the Company. No amendment has been made to the existing part-time employment agreement of Mr. Wall or the current employment agreement of Mr. Broecker.

 

Compensation Committee Report

 

The Compensation Committee furnishes the following report:

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with Alkermes management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Submitted by,

 

Paul J. Mitchell
Alexander Rich
Paul Schimmel

 

Summary Compensation Table

 

The following table presents and summarizes the compensation paid to or earned by the named executive officers of the Company for the fiscal year ended March 31, 2007.

 

 

 

Notes to Summary Compensation

 

 

 

Grants of Plan-Based Awards — for Fiscal Year Ended March 31, 2007

 

The following table presents information on all grants of plan-based awards to our named executive officers for the fiscal year ended March 31, 2007. There can be no assurance of the intrinsic value realized, if any, on stock options and stock awards. The vested portion of the fair value of the stock options and stock awards granted during the fiscal year ended March 31, 2007 were expensed in the fiscal year and are included in columns (e) and (f) in the Summary Compensation Table.

 

 

 

Notes to Grants of Plan-Based Awards

 

Outstanding Equity Awards at 2007 Fiscal Year-End

 

The following table presents the equity awards we have made to each of the named executive officers that were outstanding as of March 31, 2007.