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corresp

December 28, 2005

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street N.E.

Washington, D.C. 20549

Attention:     Jim B. Rosenberg, Senior Assistant Chief Accountant

    Re:

    Alkermes, Inc.

Form 10-K for the Fiscal Year Ended March 31, 2005

Form 10-Q for the Quarterly Period Ended June 30, 2005

File No. 001-14131

Dear Mr. Rosenberg:

This letter is being furnished pursuant to the commitment the Company made to you during our
conference call with members of your staff on Thursday, December 8, 2005. This letter confirms the
Company’s proposed, prospective disclosure changes related to item 1. of your comment letter dated
November 30, 2005. Additionally, the Company is providing its response to item 2., which was
presented to members of your staff during the conference call, including a summary of the
discussions we had regarding item 2c., which you requested the Company include in its response. The
responses and supplementary information set forth below are organized in the same manner in which
the Commission’s comments and headings were organized in the comment letter.

Form 10-K for the Fiscal Year Ended March 31, 2005

Consolidated Financial Statements, page F-1

Consolidated Statements of Operations and Comprehensive Loss, page F-3

Comment 1

    1.

    Regarding your response to prior comment two, please further clarify why it is sufficient
to separately disclose your manufacturing and royalty revenues only in MD&A, as Rule
5-03(b)(1) of Regulation S-X does distinguish between “net sales of tangible products” and
“other revenues”. In so doing, please address how royalty revenues represent “net sales of
tangible products” as opposed to “other revenues”, especially as your response indicates
that (a) manufacturing revenue is

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December 28, 2005

Page 2

    recognized upon shipment while royalty revenues are recognized when the product is sold by
your customer and (b) there are no costs associated with royalty revenues. In addition,
please tell us how your statements of operations illustrate the relationship between “net
sales of tangible products” and the “cost of tangible goods sold”, as apparently
contemplated by Rule 5-03(b)(1) and (2).

Response 1

While the Company believes its historical presentation was appropriate, we propose to prospectively
present manufacturing and royalty revenues, and related costs if any, related to its agreements
with Janssen for Risperdal® Consta® separately on the face of the income
statements beginning the quarter ended December 31, 2005. The Company will also follow a similar
presentation for any similar agreements containing such elements into which the Company may enter
in the future.

Notes to Consolidated Financial Statements, page F-6

9. Convertible Preferred Stock, page F-18

Comment 2

2. We have the following comments about your response to our prior comment five:

a. Please propose revisions to your balance sheets to clarify that the
convertible preferred stock is mezzanine equity, as it could now appear to be a
liability.

b. Please tell us the “elements that were considered for allocation of
proceeds” and how they were either “scoped out of separate recognition” or “have
no value”.

c. As the fourth paragraph under “Measurement” in EITF D-98 appears to
contemplate that adjustments to the carrying amount could result in decreases to
the carrying amount and increases in income applicable to common stockholders in
calculating EPS, please tell us what language in EITF D-98 supports your
assertions that:

i.         the “redemption amount” should be the greater of the initial carrying
amount or the fair value of consideration that you would transfer upon redemption;

ii.         “the spirit of EITF D-98 appears to require” that the carrying amount
“equal not just the fair value of assets that must be transferred, but the fair
value of future economic benefits that would be forgone upon redemption”;

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December 28, 2005

Page 3

iii.        adjusting the stock “below its initial carrying amount...would imply
that the holders...would make an uneconomic decision” and,

iv.        it is not appropriate to increase EPS on “the assumption that
investors will make an uneconomic decision to redeem the preferred stock..., unless and
until such redemption occurred.”

In addition, please explain why you appear to believe that the excess of the
initial carrying amount over fair value should not have been included in
equity. Finally, please tell us why you appear to believe that EPS should not
have been increased when the fair value was less than the initial carrying
amount.

Response 2

Regarding item 2a., the Company presented its consolidated balance sheets for the quarter ended
September 30, 2005 in a manner intended to clearly indicate its conclusion that the convertible
preferred stock is considered mezzanine equity. A new caption “total liabilities” was added and the
caption “convertible preferred stock” was further separated from the caption “shareholders equity”.
Additionally, beginning with our periodic report on form 10-Q for the quarter ended December 31,
2005, the Company proposes to revise the caption “TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY” to
“TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY”.

Regarding item 2b., there are two embedded features in the preferred stock which were considered
for possible separation. Those features are the holder’s option to redeem the security in exchange
for a reduction in the royalty to be paid to the Company by the holder for sales of product
containing the Company’s licensed technology (the “Redemption Feature”), and the Company’s option
to convert the preferred stock to common stock (the “Conversion Feature”). For purposes of the
discussion that follows on evaluating these features, the preferred stock is considered to be a
debt host due to the redemption rights present in the security.

With respect to the Redemption Feature, the Company concluded that this feature required evaluation
under SFAS 133. In general, the Company’s conclusion is as follows, applying the provisions of
paragraph 12 of SFAS 133:

1. The Redemption Feature would not appear to be clearly and closely related to the
purpose of a debt host, applying the guidance contained in DIG Issue B16, as the payoff is
indexed to a variable other than interest rates or credit risk;

2. The preferred stock is not required to be carried at fair market value by any other
provision of generally accepted accounting principles in the United States (“GAAP”);

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December 28, 2005

Page 4

3.
The Redemption Feature does not meet the provisions of paragraph
12(c) as the Redemption Feature would be outside the scope of SFAS
133 on a stand alone basis.

The
Company’s conclusion that the Redemption Feature was specifically excluded from the scope of SFAS
133 is based on the guidance contained in paragraph 10e(3) of SFAS 133, which states in part:

“Contracts that are not exchange-traded are not subject to the requirements of this
Statement if the underlying on which the settlement is based is one of the following: ....
(3) specified volumes of sales or service revenues of one of the parties to the contract.”

Since the ultimate value of the Redemption Feature is tied to the volume of sales generated by the
holder and the feature is not exchange traded, the Redemption Feature meets this exception and is
not within the scope of SFAS 133. Accordingly, separate recognition of this feature is neither
required nor allowed under GAAP.

The Conversion Feature allows the Company to convert the preferred into common at a price
determined based upon the average market value of the common stock for a 10-day window immediately
prior to conversion. Again, applying the guidance contained in paragraph 12 of SFAS 133:

1. Since the preferred stock is considered a debt host, a conversion feature is not
clearly and closely related to the purpose of the host instrument;

2. The preferred stock is not required to be carried at fair market value by any other
provision of GAAP;

3. While paragraph 11(a) of SFAS 133 indicates that contracts which are indexed to a
Company’s own common stock are outside the scope of SFAS 133, an analysis of the
Conversion Feature under EITF 00-19 indicates that this feature may not meet the
requirements of this scope exemption. The EITF 00-19 issues are discussed in the next
paragraph.

The Conversion Feature can only be settled in shares. However, because the price of the Company’s
common stock will vary, the Conversion Feature does not satisfy the criteria in EITF 00-19 for
classification as equity, as the number of shares issuable on exercise could conceivably exceed the
number of shares currently available for issuance. Specifically, the Conversion Feature fails the
requirements of paragraph 19 of EITF 00-19. As a result, the option should be bifurcated from the
host and accounted for separately as a liability. However, since conversion is always at a price
that approximates market, the fair value of this feature will always
be essentially zero and the Company has
not accounted for this feature separately due to immateriality.

Regarding item 2c., as previously disclosed to you, the Company has classified the convertible
preferred stock as mezzanine equity due to the existence of the Redemption Feature. Following the
analysis described above, the entire proceeds of the issuance of the convertible preferred stock
were allocated to the stock and, accordingly, the initial

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December 28, 2005

Page 5

carrying value of the security in the mezzanine was the cash received, $30 million. The Redemption
Feature is considered to be within the scope of EITF D-98, although the only cash actually
transferable amounts to $30.00. The Company believes that the right to receive future royalties
represents an asset transferable to the holder on exercise and, accordingly, represents the
majority of the anticipated redemption proceeds.

At the time the parties entered into this arrangement, the purpose of the funding round was
specifically to provide cash for development of the products covered by the royalty arrangements
subject to the Redemption Feature. The clear intent of the parties at the time was to fund the
pulmonary insulin project. The agreements contain explicit language indicating
that the funds had to be spent on those projects, and in the event that the entire balance was not
expended on the pulmonary insulin project, the holder had the right to direct the Company as to
where such funds could be spent, although under no circumstances would the Company be required to
return the funds to the holder. Accordingly, at the time of issuance, it appeared to the Company
that the initial carrying value of $30 million represented the estimated fair value of the right to
royalties that would be foregone in the event of redemption of the preferred shares.

While the Company
acknowledges that the fair value of the Redemption Feature presented in the
convertible preferred stock could have decreased (as evidenced by the fact that the counterparty
has not exercised the Redemption Feature in response to the Company’s recent exercise of a portion
of the Conversion Feature), the Company does not believe that it is appropriate to record such changes
until such time as the security is either redeemed or converted. Specifically, the Company is
uncomfortable with the notion of recording that reduction in redemption price as an adjustment
(increase) to income available to common shareholders, even though a strict reading of EITF Topic
D-98 would appear to require that the Company do so.

The Company’s concern is that recording decreases in redemption price as a reduction of the
temporary equity balance, with an offsetting increase in retained earnings (and income available to
common shareholders) would give the impression that common shareholders are currently benefiting
from the arrangement. In reality, if the market opportunity for the product covered by the
arrangement does not come to fruition, and the counterparty does not redeem, the Company’s common
shareholders’ interests will be substantially diluted as the preferred shares are converted into
common shares. It seems inappropriate to record a benefit to the common shareholders’ in periods
leading up to substantial dilution. The Company believes that leaving the temporary equity balance at its initial carrying
value of $30 million until such time as (a) the redemption
price increases above $30 million, or (b)
shares convert into common, captures the economics of the scenario
– either common investors
will be forfeiting royalties as a result of redemption, or the $30 million will be converted
into common equity. The Company believes this is appropriate in this circumstance because
redemption is not mandatory (but is rather at the option of the holder), and
redemption seems less likely to occur as the value of the consideration to be
received upon redemption declines.

In addition, it is noted for the Staff that the Company recently converted $15 million worth of the
convertible preferred stock to $15 million of common stock.

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December 28, 2005

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If the value of the consideration to be
received by the holder were greater than $15 million, the holder would have redeemed the preferred
stock instead of accepting conversion. This would indicate that the value of the reduction in
royalties at the time of conversion was less than $15 million. If the Company had recognized the
decrease in redemption value as increases in income available to common shareholders, it would have
recognized a transfer of value from the preferred shareholders to the common shareholders that did
not actually happen, as the preferred shareholders in fact received $15 million worth of common
shares for that amount of preferred stock.

* * * *

Securities and Exchange Commission

December 28, 2005

Page 7

The Company acknowledges that:

    •

    the Company is responsible for the adequacy and accuracy of disclosures
in its filings;

    •

    Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Commission from taking any action with respect to the Company’s
filings; and

    •

    the Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of the
United States.

         If you have any questions with regard to the Company’s responses, need further supplemental
information or would like to discuss any of the matters covered in this letter, please contact the
undersigned at (617) 583-6127.

Sincerely,

    /s/ James M. Frates

James M. Frates

Chief Financial Officer