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. )

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o Preliminary Proxy Statement
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o Soliciting Material Pursuant to § Rule 14a-12

ALKERMES, INC.

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

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Cambridge, Massachusetts

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To be held October 7, 2008

 

 

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 7, 2008, at 9:00 a.m. for the following purposes:

 

 

The Board of Directors has fixed July 14, 2008 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 14, 2008 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 28, 2008

 

(1)	Use the toll-free telephone number on your proxy card to vote by phone;
(2)	Visit the web site noted on your proxy card to vote via the Internet;
(3)	Sign, date and return your proxy card in the enclosed envelope to vote by mail; or
(4)	Vote in person at the annual meeting of shareholders. You may obtain directions to the offices of the Company by visiting http://www.alkermes.com/about/locations.html.

 

 

 

ALKERMES, INC.
PROXY STATEMENT

 

INTRODUCTION

 

The accompanying proxy is solicited by the Board of Directors (the “Board”) of Alkermes, Inc., a Pennsylvania corporation (“Alkermes” or the “Company”), in connection with its 2008 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 7, 2008 (the “Meeting”). Copies of this Proxy Statement and the accompanying proxy were made available on or after July 28, 2008 to the holders of record of Common Stock on July 14, 2008 (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 94,430,074 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.envisionreports.com/ALKS, 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 6, 2008.

 

 

 

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.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on October 7, 2008.

 

The proxy statement and annual report to Shareholders are available at www.edocumentview.com/ALKS.

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

In July 2008, our Board of Directors increased its size to ten members in connection with its approval of the nomination of David W. Anstice to the Board of Directors. Our Board of Directors currently consists of nine members: 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. David W. Anstice was recommended by our Nominating and Corporate Governance Committee and his nomination was unanimously approved by our Board of Directors. Mr. Anstice, if elected to our Board of Directors, will occupy the existing vacancy. Ten directors are to be elected at the Meeting to serve one-year terms until the 2009 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 David W. Anstice, 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 ten 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 14, 2008.

 

 

 

 

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. Mr. Broecker is also a member of the George Washington University Public Policy Advisory Board.

 

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, GTC Biotherapeutics, Inc., a biotechnology company and ECI Biotech. Mr. Landine 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 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. Dr. Ehrich worked as research associate at the European Molecular Biology Laboratory (EMBL) in Heidelberg, Germany before attending medical school.

 

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, 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. 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., Acceleron Pharma, 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.

 

Mr. Anstice is a director nominee for Alkermes board of directors. Since 2006, he has served as Executive Vice President of Merck & Co., Inc. with responsibility for enterprise strategy and implementation; Mr. Anstice will continue in this position until his retirement in August 2008. During two separate parts of this period he was acting President, Global Human Health and President of Merck’s business in Japan. From 2003 to 2006, Mr. Anstice served as President of Merck, with responsibility for Merck’s Asia Pacific businesses. In his 34 years with Merck, he has held a variety of positions with their worldwide ventures, including President, U.S. Human Health; President Human Health, the Americas; and President, Human Health, Europe and reported to the CEO of Merck from 1994 through August 2008. Mr. Anstice serves as Chairman and President of the Board of the University of Sydney USA Foundation; Member, Corporate Advisory Council, the National Alliance for Hispanic Health, Washington, DC; Member, Directors’ Guild, Morris Arboretum, Philadelphia, PA; and Member, Advisory Council, American Australian Association, New York.

 

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 Middlebrook Pharmaceuticals (formerly Advancis, Inc.), Rivervest, Safemed, Inc., Psylin and RxGen, Inc. Dr. Bloom is also a member of 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. She is currently the CEO of Recro Pharma Inc. (a private company) and President of Malvern Consulting Group. 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 serves on the Board of Directors of MAP Pharmaceuticals, Inc.

 

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 Chairman of the Board of Directors of Repligen Corporation, a biopharmaceutical company and a member of the Board of Directors of Profectus Biosciences, Inc. He is a member of the Scientific Advisory Board of Rosetta Genomics. He also serves on the editorial board of Genomics and the Journal of Bimolecular Structure and Dynamics.

 

Mr. Skaletsky has been a director of Alkermes since June 2004. He is currently CEO and President of Fenway Pharmaceuticals. Mr. Skaletsky was the President, Chief Executive Officer, and Chairman of Trine Pharmaceuticals, Inc. (formerly Essential Therapeutics, Inc.), a drug development company, from 2001 to 2007. 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 AMAG Pharmaceuticals, Inc., 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.

 

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. To assist in making its annual determination, the Board solicits information from each of the Company’s directors regarding whether such director, or any family member of his immediate family, had a direct or indirect material interest in any transactions involving the Company, was involved in a debt relationship with the Company or received personal benefits outside the scope of such person’s normal compensation.

 

The Board of Directors has determined that each of Floyd E. Bloom, Geraldine Henwood, Paul J. Mitchell, Alexander Rich, Mark B. Skaletsky, and David W. Anstice 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), excluding for this purpose, not-for-profit organizations, trade organizations and related organizations, 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 to stand for election. 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

 

In July 2008, our Board of Directors increased its size to ten members in connection with its unanimous approval of the nomination of David W. Anstice to the Board of Directors. The Board of Directors currently consists of nine members. David W. Anstice was recommended by our Nominating and Corporate Governance Committee and his nomination was unanimously approved by our Board of Directors. Mr. Anstice, if elected to our Board of Directors, will occupy the existing vacancy. 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.

 

Succession Plan

 

The Chairman of the Board 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 each 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 (except for Geraldine Henwood) attended the 2007 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 seven 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 ten times during the last fiscal year. The Audit Committee operates under a written charter adopted by the Board of Directors, which was amended in December 2007, 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 currently consists of Floyd E. Bloom, Geraldine Henwood and Alexander Rich. Ms. Henwood was appointed as chair of the Nominating and Corporate Governance Committee in October 2007. Prior to October 2007, the committee consisted of Floyd E. Bloom, Geraldine Henwood and Mark Skaletsky. Mr. Skaletsky formerly served as the chair. 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 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, which was amended in December 2007, 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, currently consisting of Paul J. Mitchell, Alexander Rich and Mark Skaletsky met eight times during the last fiscal year and otherwise acted by unanimous written consent. Mr. Skaletsky was appointed as chair of the Compensation Committee in October 2007. Prior to October 2007, the committee consisted of Paul J. Mitchell, Paul Schimmel and Mark Skaletsky. Mr. Schimmel formerly served as the chair. 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, (3) reviewing and discussing with the Company’s management the Company’s executive compensation disclosure (including the Company’s disclosure under “Compensation Discussion and Analysis”) included in reports and registration statements filed with the Securities and Exchange Commission. The primary objective of the Compensation Committee is to develop and implement compensation policies and plans that are appropriate for the Company and which provide incentives that further the Company’s long-term strategic plan and are consistent with the culture of the Company and the overall goal of enhancing the Company’s performance. 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, which was amended in December 2007, 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 Mark Skaletsky, acted by unanimous written consent during fiscal year 2008. The Limited Compensation Sub-Committee has the authority to make individual grants of stock options, up to the limit of its authority, to purchase shares of Common Stock to employees of the Company 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 Limited Compensation Sub-Committee has generally approved new hire employee stock option grants of up to 15,000 shares per individual grant to such eligible employees.

 

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 or, if not possible, as soon as practicable thereafter, by the Compensation Committee as a whole.

 

PROPOSAL 2

 

APPROVAL OF ALKERMES, INC. 2008 STOCK OPTION AND INCENTIVE PLAN

 

On July 15, 2008, our Board of Directors adopted the Alkermes, Inc. 2008 Stock Option and Incentive Plan (the “2008 Plan”), subject to the approval of our shareholders. The 2008 Plan will become effective if approved by our shareholders and will replace our amended and restated 1999 Stock Option Plan, which expires on June 2, 2009 (the “1999 Plan”), our 2002 Restricted Stock Award Plan (the “2002 Plan”) and our 2006 Stock Option Plan for Non-Employee Directors (the “2006 Plan”). We will not grant any further awards under the 1999 Plan, 2002 Plan, and 2006 Plan after the 2008 Plan becomes effective.

 

The maximum number of shares of our Common Stock reserved for issuance under the 2008 Plan is equal to the sum of (i) 6,400,000 shares, plus (ii) the number of shares of our Common Stock available for grant, as of the date the 2008 Plan is approved by shareholders, under our 1999 Plan, 2002 Plan, and 2006 Plan, plus (iii) the number of shares of our Common Stock underlying any grants pursuant to our 1999 Plan, 2002 Plan, and 2006 Plan that are forfeited, cancelled, repurchased or are terminated (other than by exercise) from and after the date the 2008 Plan is approved by shareholders. We expect that this number of shares will be used for equity awards over a period of more than one year. As of the close of our fiscal year, March 31, 2008, there was an aggregate of 3,581,827 shares of our Common Stock available for grant under our 1999 Plan, 2002 Plan, and 2006 Plan. As of July 14, 2008, 2,443,628 shares of our Common Stock were available for grant under these plans. For the avoidance of doubt, all shares of our Common Stock reserved for issuance under our 2008 Plan are subject to the method outlined in the 2008 Plan to determine the number of shares of our Common Stock available for issuance under the 2008 Plan — specifically, (a) the grant of any full value award (i.e., an award other than a stock option) is deemed as an award of two shares of our Common Stock for each such share of our Common Stock actually subject to the award and shall be treated similarly if returned to reserve status when forfeited or canceled under the 2008 Plan, and (b) the grant of a stock option is deemed as an award for one share of our Common Stock for each such share of our Common Stock actually subject to the award.

 

The purpose of the 2008 Plan is to enable the Company to attract, retain and reward certain officers, employees and directors of, and consultants to, the Company and strengthen the mutuality of interests between such persons and the Company’s shareholders through the issuance of equity and cash awards. The Company firmly believes that such awards 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 2008 Plan is attached as Appendix A to this Proxy Statement and is incorporated herein by reference.

 

Vote Required

 

The affirmative vote of a majority of the votes cast by all holders of Common Stock entitled to vote at a meeting in which a quorum is present will be required to approve the 2008 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.

 

Recommendation

 

The Board of Directors recommends that you vote FOR the approval of the 2008 Plan.

Principal Features of the 2008 Plan

 

The material features of the 2008 Plan are:

 

 

Based solely on the closing price of our Common Stock as reported on the Nasdaq on July 14, 2008, the aggregate market value of the 6,400,000 shares, representing a portion of the maximum number of shares to be issued under the 2008 Plan, is $87,872,000. This amount does not include the value of those other shares that may be issued under our 2008 Plan — specifically, those shares of our Common Stock available for grant, as of the date the 2008 Plan is approved by shareholders, under our 1999 Plan, 2002 Plan, and 2006 Plan and those shares, if any, underlying any grants pursuant to our 1999 Plan, 2002 Plan, and 2006 Plan that are forfeited, cancelled, repurchased or are terminated (other than by exercise) from and after the date the 2008 Plan is approved by shareholders, which are included as shares available for issuance under the 2008 Plan. Shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding are not available for future issuance under the 2008 Plan. The shares issued by us under the 2008 Plan will be authorized but unissued shares.

 

To ensure that certain awards granted under the 2008 Plan to a “Covered Employee” (as defined in the Code) qualify as “performance-based compensation” under Section 162(m) of the Code, the 2008 Plan provides that the Administrator may require that the vesting or grant of such awards be conditioned on the satisfaction of performance criteria that may include any or all of the following: (1) earnings before interest, taxes, depreciation and amortization, (2) net income (loss) (either before or after interest, taxes, depreciation and/or amortization), (3) changes in the market price of the Stock, (4) economic value-added, (5) initiation or

completion of clinical trials, (6) results of clinical trials, (7) drug development or commercialization milestones, (8) collaboration milestones, (9) operational measures including production capacity and capability, (10) hiring and retention of key managers, (11) expense management, (12) capital raising transactions, (13) sales or revenue, (14) acquisitions or strategic transactions, (15) operating income (loss), (16) cash flow (including, but not limited to, operating cash flow and free cash flow), (17) return on capital, assets, equity, or investment, (18) stockholder returns, (19) gross or net profit levels, (20) operating margins, (21) earnings (loss) per share of Stock and (22) sales or market shares, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Administrator will select, within 90 days following the commencement of a performance cycle, the particular performance criteria for such award and the performance goals with respect to each performance criterion. Each such award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. Subject to adjustments for stock splits and similar events, the maximum award granted to any one individual that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code will not exceed 4,000,000 shares of Common Stock for any performance cycle. If a performance-based award is payable in cash to any executive, it cannot exceed $25 million for any performance cycle.

 

Summary of the 2008 Plan

 

The following description of certain features of the 2008 Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2008 Plan that is attached hereto as Appendix A.

 

Plan Administration.  The Administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2008 Plan. The Administrator may delegate to a subcommittee comprised of one or more members of the Board all or part of the Administrator’s authority and duties with respect to the granting of Options to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act. Any such delegation by the Administrator shall include a limitation as to the amount of Options that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria.

 

Eligibility and Limitations on Grants.  Persons eligible to participate in the 2008 Plan will be those officers, employees, non-employee directors and other key persons (including consultants and prospective employees) of the Company and its subsidiaries as selected from time to time by the Administrator. The intention in making awards to eligible persons under the 2008 Plan will be to align the compensation for these individuals over a multi-year period directly with the interests of our shareholders and serve as a tool in the recruiting and retention of these individuals.

 

The maximum award of stock options granted to any one individual will not exceed 4,000,000 shares (subject to adjustment for stock splits and similar events) for any calendar year period. The maximum number of shares that can be awarded in the form of incentive stock options will not exceed 6,400,000 (subject to adjustment for stock splits and similar events).

 

Stock Options granted to employees and key persons.  The 2008 Plan permits the granting of (1) stock options intended to qualify as incentive stock options under Section 422 of the Code and (2) stock options that do not so qualify. Options granted under the 2008 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and key persons. The option exercise price of each option will be determined by the Administrator but may not be less than 100% of the fair market value of our Common Stock on the date of grant.

 

The term of each option will be fixed by the Administrator and may not exceed ten years from the date of grant. The Administrator will determine at what time or times each option may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the Administrator.

Options may be exercised in whole or in part with written or electronic notice to the Company’s delegate. Upon exercise of non-qualified stock options, unless otherwise determined by the Administrator, the purchase price must be paid through a net reduction in the number of shares of Common Stock issuable upon such exercise, based on the fair market value of the Common Stock on the date of exercise. Upon exercise of incentive stock options and those non-qualified options for which the Administrator elects not to utilize the above payment method, the option exercise price may be paid in full either in cash, by certified or bank check or other instrument acceptable to the Administrator or by delivery (or attestation to the ownership) of shares that are beneficially owned by the optionee based on the fair market value of the Common Stock on the date of exercise or, subject to applicable law, by delivery to the Company of an exercise notice together with irrevocable instructions to a broker to promptly deliver cash or a check payable to the Company for the purchase price.

 

To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year.

 

Stock Options granted to non-employee directors.  The 2008 Plan provides that (a) upon becoming a member of the Board, each non-employee director who is not then a consultant to us shall be granted on such day a non-qualified stock option to acquire 20,000 shares of our Common Stock, plus an additional stock option to acquire a number of shares of our Common Stock equal to the product of 20,000 multiplied by a fraction, the numerator of which equals the number of months remaining until the next annual meeting of shareholders of the Company and the denominator of which equals 12, and (b) each non-employee director who is serving as a director of the Company on each annual meeting of shareholders, beginning with the 2008 annual meeting, shall automatically be granted on such day a non-qualified stock option to acquire 20,000 shares of our Common Stock; provided, however, that no grant shall be made to an individual who ceases to be a member of the Board on such day. The Administrator may grant additional non-qualified stock options to our non-employee directors and such grants may vary among individual non-employee directors. The option exercise price of each option will be determined by the Administrator but may not be less than 100% of the fair market value of our Common Stock on the date of grant.

 

Unless otherwise determined by the Administrator, a stock option granted to our non-employee directors will be exercisable in full six months from the date of grant. The term of each option may not exceed ten years from the date of grant. Options may be exercised only by notice to the Company or the Company’s delegate specifying the number of shares to be purchased.

 

Upon exercise of options, the option exercise price will be paid in the same manner as described above under “Stock Options granted to employees and key persons.”

 

Restricted Stock Unit Awards.  The Administrator may award stock units as restricted stock unit awards to participants. Restricted stock unit awards are ultimately payable in the form of shares of Common Stock and may be subject to such conditions and restrictions as the Administrator may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified vesting period. However, in the event these awards granted to employees have a performance-based goal, the restriction period will be at least one year, and in the event these awards granted to employees have a time-based restriction, the restriction period will be at least three years, but vesting can occur incrementally over the three-year period. The Administrator may waive the foregoing restriction in the case of a grantee’s death, disability or retirement or upon a sale event (as defined in the 2008 Plan). To the extent a Restricted Stock Unit Award is subject to Section 409A of the Code, it may contain such additional terms and conditions as the Administrator shall determine in order for such Award to comply with the requirements of Section 409A.

 

The Administrator, in its sole discretion, may permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of a Restricted Stock Unit Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed

number of phantom stock units (which may be fully vested) based on the fair market value of our Common Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein.

 

Restricted Stock.  The Administrator may award shares to participants subject to such conditions and restrictions as the Administrator may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified restricted period. However, in the event these awards granted to employees have a performance-based restriction, the restriction period will be at least one year, and in the event these awards granted to employees have a time-based restriction, the restriction will be at least three years, but vesting can occur incrementally over the three-year period. The Administrator may waive the foregoing restriction in the case of a grantee’s death, disability or retirement or upon a sale event (as defined in the 2008 Plan).

 

Cash-based Awards.  Each cash-based award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a cash-based award may be made in cash or in shares of stock, as the Administrator determines.

 

Performance Share Awards.  The Administrator may grant performance share awards independent of, or in connection with, the granting of other awards under the 2008 Plan. The Administrator, in its sole discretion, determines whether and to whom performance share awards will be granted, the performance goals subject to the award, the period during which performance is to be measured, which may not be less than one year, and such other conditions as the Administrator shall determine. Upon the attainment of the performance goal, the grantee is entitled to receive shares of our Common Stock.

 

Tax Withholding.  Participants in the 2008 Plan are responsible for the payment of any federal, state or local taxes that we are required by law to withhold upon any option exercise or vesting of other awards. The Company has the right to deduct any such taxes from any payment otherwise due grantee, including the right to reduce the number of shares of Common Stock otherwise required to be issued to a grantee in an amount that, on the date of issuance, would have a fair market value equal to all such taxes required to be withheld by the Company.

 

Change in Control Provisions.  Under the 2008 Plan, in the case of and subject to the consummation of a sale event (as defined in the 2008 Plan), except as the Administrator may otherwise specify with respect to a particular award in the relevant award documentation, all stock options that are not exercisable immediately prior to the effective time of the sale event shall become fully exercisable as of the effective time of the sale event, all other awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the sale event and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a sale event in the Administrator’s discretion. In addition, in the event of a sale event in which the Company’s stockholders will receive cash consideration, the Company may make or provide for a cash payment to participants holding stock options equal to the difference between the per share cash consideration and the exercise price of such options.

 

Amendments and Termination.  Our Board of Directors may at any time amend or discontinue the 2008 Plan and the Administrator may at any time amend or cancel any outstanding award for the purpose of satisfying changes in the law or for any other lawful purpose. However, no such action may adversely affect any rights under any outstanding award without the holder’s consent. Any amendments that materially change the terms of the 2008 Plan, including any amendments that increase the number of shares reserved for issuance under the 2008 Plan, expand the types of awards available, materially expand the eligibility to participate in, or materially extend the term of, the 2008 Plan, or materially change the method of determining the fair market value of our Common Stock, will be subject to approval by our stockholders. Amendments shall also be subject to approval by our stockholders if and to the extent determined by the Administrator to be required by the Code to preserve the qualified status of incentive options or to ensure that compensation earned under the 2008 Plan qualifies as performance-based compensation under Section 162(m) of the Code. In addition, except in connection with a reorganization or other similar change in the capital stock of the Company or a merger or other transaction, without prior shareholder approval the Administrator may not reduce the exercise

price of an outstanding stock option or effect re-pricing of an outstanding stock option through cancellation or re-grants.

 

Effective Date of 2008 Plan

 

The Board adopted the 2008 Plan on July 15, 2008, and the 2008 Plan will become effective when and if approved by shareholders. Awards of incentive options may be granted under the 2008 Plan until ten years after Board approval. No other awards may be granted under the 2008 Plan after the date that is ten years from the date of shareholder approval. We will not grant any further awards under the 1999 Plan, the 2002 Plan and the 2006 Plan after the 2008 Plan becomes effective. If the 2008 Plan is not approved by shareholders, each of the 1999 Plan, the 2002 Plan and the 2006 Plan will continue in effect until they expire, and awards may be granted thereunder, in accordance with their terms.

 

New Plan Benefits

 

No grants have been issued with respect to the shares to be reserved for issuance under the 2008 Plan. Except as set forth below for our non-employee directors, the benefits or amounts that may 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 2008 Plan.

 

The number of options that will be automatically granted to each non-employee director under the 2008 Plan, if approved, is as follows:

 

 

 

 

Tax Aspects Under the Code

 

The following is a summary of the principal federal income tax consequences of certain transactions under the 2008 Plan. It does not describe all federal tax consequences under the 2008 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 (1) 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 (2) we will not be entitled to any deduction 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 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.

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, generally (1) 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 (2) we 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.

 

Non-Qualified Options.  No taxable income is generally realized by the optionee upon the grant of a non-qualified option. Generally (1) 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 we receive a tax deduction for the same amount, and (2) 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 Social Security 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 us, 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).

 

Limitation on the Company’s Deductions

 

As a result of Section 162(m) of the Code, our deduction for certain awards under the 2008 Plan may be limited to the extent that the Chief Executive Officer or other executive officer (other than our Chief Financial Officer) whose compensation is required to be reported in the summary compensation table receives compensation in excess of $1 million a year (other than performance-based compensation that otherwise meets the requirements of Section 162(m) of the Code). The 2008 Plan is structured to allow certain grants to qualify as performance-based compensation.

 

A copy of the 2008 Plan is attached as Appendix A.

 

PROPOSAL 3

 

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, 2009. The Audit Committee reviewed and discussed the performance 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, 2009.

 

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 October 2007, 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, 2008, the Company’s independent registered public accountants were PricewaterhouseCoopers LLP (“PWC”). PWC 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 in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”). PWC also performed audit-related services, tax services and other permissible non-audit services for the Company during the fiscal year ended March 31, 2008, 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 PWC, 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 PWC’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 PWC the Company’s disclosure control process and internal control over financial reporting. The Committee met with PWC, 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, 2008 and 2007 and for each of the quarters in the three-year period ended March 31, 2008, and has discussed them with both management and PWC. In connection with the Company’s Form 10-K for the year ended March 31, 2008, 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 PWC 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 PWC required by Independent Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and has discussed with PWC 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 internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008 and the Board of Directors approved such inclusion.

 

The Audit Committee also reviewed the Company’s quarterly financial statements during the fiscal year ended March 31, 2008 and discussed them with both the management of the Company and PWC 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 2008, the Audit Committee discussed with management and PWC 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, 2008, management completed the 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, 2008 filed with the Securities and Exchange Commission, as well as PWC’s Report 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 (ii) 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, 2009.

 

The Audit Committee monitors the activity and performance of PWC. All services to be provided by PWC are pre-approved by the Audit Committee. The Audit Committee’s evaluation of the performance of PWC included, among other things, the amount of fees paid to PWC for audit and permissible non-audit services in fiscal year ended March 31, 2008. Information about PWC fees for the fiscal year ended March 31, 2008 and Deloitte & Touche LLP (“D&T”), the Company’s independent registered public accounting firm for the fiscal year ended March 31, 2007, fees for the period ended March 31, 2007 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, 2009.

 

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,

 

Paul J. Mitchell, Chair
Floyd E. Bloom
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 PUBLIC ACCOUNTING FIRM

 

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 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 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 year ended March 31, 2007, 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 year ended March 31, 2007, and through July 10, 2007, there have been no reportable events (as defined in Item 304 (a)(1)(v) of Regulation S-K).

 

Disclosures relating to the dismissal of D&T and the appointment of PWC were previously reported in a Form 8-K that the Company filed with the SEC on July 13, 2007. The Company had furnished a copy of such disclosures to D&T and requested that D&T furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with such 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 2008 and fiscal 2007

 

This table shows the aggregate fees billed to us by PricewaterhouseCoopers LLP for the fiscal year ended March 31, 2008, and by Deloitte and Touche LLP for the fiscal year ended March 31, 2007.

 

(a) Audit fees

 

 

(b) Audit-related fees

 

 

(c) Tax fees

 

 

(d) All Other Fees:

 

 

 

 

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 14, 2008 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 14, 2008 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 14, 2008 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 sets forth certain information regarding beneficial ownership of the Company’s Common Stock by each person who is known by Alkermes to beneficially own more than 5% of the outstanding shares of 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, 2008, all reports were timely filed except that, due to administrative error, Dr. Elliot W. Ehrich and Mr. Gordon G. Pugh incorrectly reported their acquisition of shares due to the vesting of a restricted stock award, and Dr. Elliot W. Ehrich was late in reporting the acquisition of shares due to the exercise of an option award.

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 was amended in October 2007, and 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 as of October 9, 2007: Mark B. Skaletsky (Chair), Paul J. Mitchell and Dr. Alexander Rich. Between April 1, 2007 and October 9, 2007, the following directors served on the committee: 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 is designed 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 structure our executive officer compensation packages based on level of job responsibility, peer comparisons, 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, which are:

 

 

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 and foster executive retention.

 

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, the magnitude of other annual salary increases at the Company, 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 April 2007, the Committee approved the Alkermes Fiscal 2008 Named-Executive Bonus Plan, and established the Company’s fiscal year 2008 corporate objectives and bonus ranges that may be earned for the period April 1, 2007 to March 31, 2008 by the Company’s executive officers. The fiscal year 2008 corporate objectives under the plan were: drive robust supply of RISPERDAL^® CONSTA^® sales; successfully commercialize VIVITROL^®; achieve key development program milestones; and achieve financial performance against budget. Bonus ranges determined by the Committee were 0% to 100% of base salary for each executive named in the bonus plan. Such 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.

 

Under the terms of his employment agreement, Mr. Pops, who transitioned from Company CEO to Chairman of the Board at the beginning of fiscal year 2008, was eligible to receive a target bonus for fiscal year 2008 at the same target rate of his base salary as under his previous employment agreement. In April 2007, the Committee set performance objectives for fiscal year 2008 for Mr. Pops to be those corporate objectives listed above plus the facilitation of an orderly transition of his duties as CEO. After considering Mr. Pops’ employment agreement and comparable market data, the Committee set a target bonus for Mr. Pops of 50% of base salary, and determined that, in order for Mr. Pops to receive: (i) a cash bonus, at least 20% of his objectives must have been met; (ii) a target bonus, at least 40% of such objectives must have been met; and (iii) the maximum bonus, the substantial achievement of a majority of such objectives must have occurred.

 

Also in April 2007, the Committee set performance objectives for fiscal year 2008 for David Broecker, who transitioned from Company President and Chief Operating Officer to President and CEO at the beginning of fiscal year 2008 to be those corporate objectives listed above. After considering comparable market data, the Committee set a target bonus for Mr. Broecker of 50% of base salary and determined that, in order for Mr. Broecker to receive: (i) a cash bonus, at least 25% of his objectives 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 such objectives must have occurred.

 

The Committee did not establish a target bonus amount for those named executive officers other than Mr. Pops and Mr. Broecker.

 

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. Currently, there are no special retirement provisions associated with restricted stock awards.

 

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.

 

For fiscal year 2008, the Committee decided to alter the historical composition of equity incentives at the Company from primarily stock options to a combination of stock options and restricted stock awards, while at the same time more selectively utilizing different types of equity compensation within the Company to focus on senior executives and those other key employees, as identified by our CEO in consultation with our human resources department, who are more likely to be motivated by such equity compensation. The Committee believes this philosophy will reward and retain key employees, while motivating executives to increase shareholder value. In this context, the Committee determined that the mix of stock options and restricted stock awards should be re-balanced within the company so that senior executives receive a greater proportion of stock options than restricted stock awards, vice presidents receive a more balanced mixture of the two, and the Company more aggressively utilize restricted stock awards for other key employees of the Company.

 

The Committee determined to schedule two equity grants based upon employee performance in fiscal year 2008. The first in November, after the window to trade in Company securities reopened following the announcement of the Company’s mid-year financial results, 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 November was designed to coincide with the mid-fiscal year performance review established by the Company and the Company’s mid-year financial results. The grant in May was designed to reward performance during the prior full fiscal year. The Committee makes the May equity 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.

 

Under the terms of Mr. Pop’s employment agreement, Mr. Pops was eligible to receive equity compensation for performance during fiscal year 2008 only in the form of restricted stock awards. The Committee initially limited the equity granted to Mr. Pops under his employment agreement to restricted stock awards because such awards do not benefit from accelerated vesting due to the satisfaction of certain retirement criteria, which was afforded to stock options issued under our 1999 Plan, and therefore had greater retentive value. However, the Committee subsequently determined that it wanted to have the flexibility to consider the potential impact of certain tax code provisions, including Section 162(m), on the form of equity paid to Mr. Pops and greater flexibility in utilizing the available pool of restricted stock awards than was afforded to it by limiting Mr. Pops’ equity compensation to restricted stock awards. In November 2007, the Committee, with Mr. Pops’ consent, amended his employment agreement to allow for the issuance of equity compensation in the form of restricted stock awards and/or stock options. The Committee then determined that any stock option granted to Mr. Pops under his employment agreement would not receive the benefit of a certain Company retirement provision which would have provided Mr. Pops with accelerated vesting and greater time to exercise given his satisfaction of the required age and seniority requirements.

 

Under the terms of Mr. Pop’s employment agreement, Mr. Pops was eligible to receive equity compensation for performance during fiscal year 2008, based on performance objectives determined by the Committee, commensurate with his recent equity awards. For fiscal year 2008, the Committee established the range of equity compensation for Mr. Pops to be between 0 and 500,000 shares and determined that in order for Mr. Pops to receive an equity award, at least 20% of his performance objectives — consisting of the corporate objectives set

forth above in our Alkermes Fiscal 2008 Named-Executive Bonus Plan plus the facilitation of an orderly transition of his duties as CEO to Mr. Broecker — must be met. A maximum equity award to Mr. Pops required the Committee to determine that substantial achievement of a majority of such objectives has occurred.

 

For fiscal year 2008, the Committee specifically established the range of equity compensation for Mr. Broecker 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 required the Committee to determine that substantial achievement of a majority of such objectives has occurred.

 

Compensation Committee Calendar

 

At the beginning of fiscal year 2008, the Committee determined the following compensation calendar. In November 2007, approximately mid-way through the Company’s fiscal year, the Committee (i) determined the annual percentage adjustment to base salaries for executives and (ii) considered the first of two scheduled equity grants for executives and qualified employees. In May 2008, 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 executives and qualified employees (in each case, equity to be granted after the window to trade reopens after announcement of the Company’s mid-year and fiscal year-end financial results).

 

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, 2008. Company’s performance against these objectives were as follows:

 

 

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.

 

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 Chairman of the Company during fiscal year 2008, and Mr. Broecker, who served as President and CEO of the Company during fiscal year 2008, 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 any additional individual objectives, and other accomplishments related to his oversight of strategic issues affecting the Company.

 

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 for fiscal year 2008 consisted of Amylin Pharmaceuticals, Inc.; BioMarin Pharmaceuticals Inc.; Cubist Pharmaceuticals Inc.; ImClone Systems Inc.; The Medicines Company; MGI Pharmaceuticals Inc.; Millennium Pharmaceuticals Inc.; Nektar Therapeutics; OSI Pharmaceuticals Inc.; PDL BioPharma, Inc.; United Therapeutics Corp.; Vertex Pharmaceuticals Inc; and Viropharma Inc. These thirteen publicly-traded US-headquartered firms compete in similar product, service and labor markets as Alkermes and have generally similar revenue.

 

Pearl Meyer also reviewed data from a survey group of companies, which reflects a broader group of biopharmaceutical/biotechnology companies employing the appropriate revenue, industry and executive role perspectives. Data is collected from survey sources of similar size and industry as Alkermes. Surveys used in this analysis were: 2006 Presidio Pay Advisor Executive Compensation in Biopharmaceutical Industry, 2006 Mercer Executive Compensation Survey and two survey sources maintained as confidential by Pearl Meyer.

 

Based on its assessments, Pearl Meyer found that the average base salary and base salary plus target cash bonus of our executive officers were at the 40^th and 45^th percentile, respectively, of the market composite of survey and industry peer group data, and the average long term incentives of our executive officers was at the 50^th percentile of the market composite of survey and industry peer group data.

 

The peer group analyses enable the Committee to compare the Company’s executive compensation program as a whole and also the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful. The Committee seeks to ensure that our executive compensation program 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; however, as mentioned elsewhere in our compensation discussion and analysis, this comparative data provided by our compensation consultant is only one of many factors that the Committee takes into consideration in determining executive and individual compensation programs. The Committee, in its sole authority, has the right to hire or fire outside compensation consultants.

 

Executive Officer Compensation Determination

 

Base Salary.  The Company and Richard Pops entered into an employment agreement pursuant to which, effective April 1, 2007 and for a period of three years, Mr. Pops serves as the Company’s Chairman of the Board of Directors and is responsible for overseeing strategic issues affecting the Company and maintaining key relationships with the Company’s business partners. During fiscal year 2008, Mr. Pops was also specifically responsible for dedicating the time and resources necessary to assist in the transition of Mr. Broecker to the role of Chief Executive Officer. Under the agreement, Mr. Pops continues to receive the same salary (adjusted for inflation), and be entitled to the same benefits, as under his previous employment agreement with the company.

 

Effective April 1, 2007, David Broecker became the President and CEO, and a director, of the Company. As a result of this appointment, the Committee, in April 2007, reviewed the base salary for Mr. Broecker. The Committee decided to increase Mr. Broecker’s salary by $50,000 (approximately 12%) to $458,848 effective April 1, 2007 to reflect his new position and responsibilities and to review his salary again based on comparable data during the base salary review of all executives held mid-fiscal year. In May 2007, Mr. Pugh and Dr. Ehrich were promoted to the positions of Sr. Vice President and Chief Operating Officer and Sr. Vice President, Research and Development, and Chief Medical Officer, respectively. In June 2007, the Committee determined that each of Mr. Pugh’s and Dr. Ehrich’s base salaries should be adjusted to $350,000 effective May 23, 2007 to reflect their new job responsibilities based on an analysis of comparable data (an increase of approximately 8% for Mr. Pugh and 4% for Dr. Ehrich).

 

The Committee reviewed base salaries for all 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 2008. The Committee determined to increase the salary of Messrs. Pops and Frates and Dr. Ehrich by approximately 5% effective November 5, 2007. Based on the recommendation of Mr. Broecker, and a review of data for Chief Operating Officers at

other comparable companies, the Committee determined to increase the salary of Mr. Pugh by approximately 6% effective November 5, 2007.

 

The Committee solicited the input of Mr. Pops, the Chairman of the Board, in determining any salary adjustments for Mr. Broecker. Based upon Mr. Pops’ recommendation, data regarding CEO base salaries at comparable companies and an assessment of Mr. Broecker’s performance, the Committee determined to increase Mr. Broecker’s salary by approximately 9% effective November 5, 2007; this increase was in addition to that effected upon Mr. Broecker’s appointment to the position of CEO.

 

Cash Incentive Bonus.  In May 2008, the Committee reviewed the performance of Mr. Broecker against the Alkermes corporate objectives. The Committee determined that the cash incentive bonus for Mr. Broecker for fiscal year 2008 was $170,000 (approximately 34% of his base salary at the time). While the Committee determined that Mr. Broecker’s performance against his predetermined corporate objectives supported the payment of a larger bonus, the Committee determined that Mr. Broecker should receive a smaller bonus due to the decline in shareholder return for fiscal year 2008.

 

In May 2008, the Committee reviewed the performance of Mr. Pops against his performance objectives. The Committee determined that the cash incentive bonus for Mr. Pops for fiscal year 2008 was $306,000 (approximately 50% of his base salary at the time). While the Committee determined that Mr. Pops’ performance against his predetermined corporate objectives supported the payment of a larger bonus, the Committee determined that Mr. Pops should receive a smaller bonus due to the decline in shareholder return for fiscal year 2008.

 

Also, in May 2008, Mr. Broecker presented to the Committee a performance evaluation of each of the other named executive officers and his recommendations for cash incentive bonus amounts based on such evaluation. Based upon the achievement of the Company’s corporate objectives and the individual performance recommendations of Mr. Broecker, as well as the bonus ranges set by the Committee, the Committee determined and awarded cash bonuses for fiscal year 2008 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 at its mid-fiscal year 2008 grant in November 2007, 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. In that regard, Mr. Pops received an option to purchase 50,000 shares of Common Stock and 6,000 shares of restricted stock of the Company and Mr. Broecker received an option to purchase 30,000 shares of Common Stock and 4,000 shares of restricted stock of the Company. The other named executive officers received the following grants: Mr. Frates 15,000 option shares and 2,000 shares of restricted stock; and Mr. Pugh and Dr. Ehrich, 15,000 option shares and 2,000 shares of restricted stock each. 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.”

In May 2008, after the close of fiscal year 2008, the Committee awarded additional equity grants for fiscal year 2008 performance. In determining the grant of equity to Messrs. Pops and Broecker, the Committee took into consideration comparable company data provided by the independent compensation consultant, historic awards, the amount and nature of the mid-fiscal year 2008 equity grants, the overall fiscal year 2008 shareholder return, and the performance of Mr. Pops and Mr. Broecker against the corporate objectives and their respective individual objectives. The Committee also considered the potential beneficial impact on shareholder return offered by the long-term incentive nature of time-vesting equity grants. Based upon these factors, the Committee granted Mr. Pops 19,000 shares of restricted stock and 170,000 option shares and Mr. Broecker 16,000 shares of restricted stock and 110,000 option shares. As previously discussed, our November and May equity grants, taken together, were based on performance by our named executive officers for our fiscal year 2008. In this context, the following table sets forth equity incentive awards earned by Mr. Broecker and Mr. Pops based on their performance and the performance of the Company during fiscal years 2007 and 2008:

 

 

For reporting officers other than Mr. Pops and Mr. Broecker, the Committee considered the comparable company data provided by the independent compensation consultant, historic awards, the amount and nature of the mid-fiscal year 2008 equity grants, and the recommendations of Mr. Broecker, which are based on an assessment of the individual’s performance against corporate objectives and his or her individual objectives. The Committee granted the other named executive officers the following grants in May 2008: Mr. Frates, 50,000 option shares and 6,500 shares of restricted stock; Mr. Pugh, 45,000 option shares and 6,000 shares of restricted stock; and Dr. Ehrich, 45,000 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.”

 

Perquisites

 

The Company did not provide executive officers with any perquisites in fiscal year 2008.

 

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 2008 was $0.50 for each dollar on the first 6% of each participant’s pretax salary, subject to a cap, 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.

 

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 or if they terminate their employment for “good reason” (e.g., a material diminution in his or her responsibilities, authority, powers, functions, duties or compensation or a material change in the geographic location at which he or she must perform his or her employment), and thereafter sign a general release of claims. Additionally, named executive officers receive severance benefits if, for a period of time 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.

 

During fiscal year 2008, the Board of the Company determined that the compensation attributable to certain grants of non-qualified stock options made to certain of its executive officers in the past may not be deductible by the Company as a result of the limitations imposed by Section 162(m) of the Internal Revenue Code (“Section 162(m)”) because such stock options were granted pursuant to a stock option plan that did not contain one of the provisions necessary in order to maintain such deductibility under Section 162(m). As a result, the Board requested that stockholders of the Company approve an Amended and Restated 1999 Stock Option Plan to add the necessary provision so that compensation attributable to stock options granted under such plan could be deductible by the Company when exercised. The Company’s stockholders approved such Amended and Restated 1999 Stock Option Plan on October 9, 2007. Accordingly, on November 15, 2007, and again on March 31, 2008, the Board, with the consent of the grantee, decided to cancel certain of the affected stock options provided that the Committee re-grant the same stock options under the Company’s Amended and Restated 1999 Stock Option Plan. On November 15, 2007 and again on March 31, 2008, the Committee re-granted such stock options under the Company’s Amended and Restated 1999 Stock Option Plan. The re-granted stock options contain the same terms as the canceled stock options, including vesting schedule, number of shares, and the original exercise price which, in all cases, is higher than the fair market value of the Company’s common stock on the date of grant. The sole purpose of the cancellation and re-grant was to preserve the Company’s tax deduction in the future with respect to such stock options. No additional benefit was extended to the officers as a result of the cancellation and re-grant and the Company does not expect to incur any additional accounting charge as a result of such cancellation and re-grant.

 

In fiscal year 2008, the Board canceled and the Committee re-granted options to our named executive officers, as follows: Richard Pops, eleven option grants, representing the right to purchase approximately 2,325,995 shares; James Frates, ten option grants, representing the right to purchase approximately 490,369 shares; Elliot Ehrich, fifteen option grants, representing the right to purchase approximately 447,000 shares; David Broecker, nine option

grants, representing the right to purchase approximately 1,149,120 shares; Gordon Pugh, nine option grants, representing the right to purchase approximately 407,099 shares.

 

Fiscal 2009 Compensation Decisions

 

Subsequent to the close of the Company’s fiscal year ended March 31, 2008 and commencing in fiscal year 2009, the Committee determined to modify the compensation calendar to provide for a single grant of equity for fiscal year performance to be made after the window to trade in Company securities reopens following the announcement of the Company’s year-end financial results.

 

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,

 

Mark Skaletsky, Chair
Paul J. Mitchell
Alexander Rich

 

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 years ended March 31, 2008 and March 31, 2007.

 

 

 

Notes to Summary Compensation

 

 

Grants of Plan-Based Awards — for Fiscal Year Ended March 31, 2008

 

The following table presents information on all grants of plan-based awards to our named executive officers for the fiscal year ended March 31, 2008. 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, 2008 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 2008 Fiscal Year-End

 

The following table presents equity awards for each named executive officer outstanding as of March 31, 2008.