Alkermes
Annual Report 2015

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Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10‑K(Mark One) ☑☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the fiscal year ended December 31, 2015OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 001‑35299ALKERMES PUBLIC LIMITED COMPANY(Exact name of registrant as specified in its charter)Ireland(State or other jurisdiction ofincorporation or organization)98‑1007018(I.R.S. EmployerIdentification No.)Connaught House1 Burlington RoadDublin 4, Ireland(Address of principal executive offices)(Zip code)+353‑1‑772‑8000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(g) of the Act:Ordinary shares, $0.01 par valueNASDAQ Global Select Stock MarketTitle of each className of each exchange on which registeredSecurities registered pursuant to Section 12(b) of the Act: NoneIndicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files): Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, tothe best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or anyamendment to this Form 10‑K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):Large accelerated filer ☒Accelerated filer ☐Non‑accelerated filer ☐(Do not check if asmaller reporting company)Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒The aggregate market value of the registrant’s ordinary shares held by non‑affiliates of the registrant (without admitting that any person whoseshares are not included in such calculation is an affiliate) computed by reference to the price at which the ordinary shares was last sold as of the lastbusiness day of the registrant’s most recently completed second fiscal quarter was $9,530,707,684.As of February 12, 2016, 150,741,617 ordinary shares were issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive proxy statement for our Annual General Meeting of Shareholders for the fiscal year ended December 31, 2015 areincorporated by reference into Part III of this report. Table of ContentsALKERMES PLC AND SUBSIDIARIESANNUAL REPORT ON FORM 10‑KFOR THE YEAR ENDED DECEMBER 31, 2015INDEXPART I Item 1. Business 5 Item 1A. Risk Factors 31 Item 1B. Unresolved Staff Comments 47 Item 2. Properties 47 Item 3. Legal Proceedings 47 Item 4. Mine Safety Disclosures 48 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 49 Item 6. Selected Financial Data 52 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 73 Item 8. Financial Statements and Supplementary Data 74 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 75 Item 9A. Controls and Procedures 75 Item 9B. Other Information 76 PART III Item 10. Directors, Executive Officers and Corporate Governance 77 Item 11. Executive Compensation 77 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 77 Item 13. Certain Relationships and Related Transactions, and Director Independence 77 Item 14. Principal Accounting Fees and Services 77 PART IV Item 15. Exhibits and Financial Statement Schedules 78 SIGNATURES 79 2 Table of ContentsCAUTIONARY NOTE CONCERNING FORWARD‑LOOKING STATEMENTSThis document contains and incorporates by reference “forward‑looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In somecases, these statements can be identified by the use of forward‑looking terminology such as “may,” “will,” “could,” “should,”“would,” “expect,” “anticipate,” “continue,” “believe,” “plan,” “estimate,” “intend,” or other similar words. These statementsdiscuss future expectations, and contain projections of results of operations or of financial condition, or state trends andknown uncertainties or other forward‑looking information. Forward‑looking statements in this Annual Report on Form 10‑K(“Annual Report”) include, without limitation, statements regarding: ·our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capitalexpenditures and income taxes;·our expectations regarding our products, including the development, regulatory (including expectations aboutregulatory filing, regulatory approval and regulatory timelines), therapeutic and commercial scope and potential ofsuch products and the costs and expenses related thereto;·our expectations regarding the initiation, timing and results of clinical trials of our products;·our expectations regarding the competitive landscape, and changes therein, related to our products, including ourdevelopment programs, and our industry generally;·our expectations regarding the financial impact of currency exchange rate fluctuations and valuations;·our expectations regarding future amortization of intangible assets;·our expectations regarding our collaborations, licensing arrangements and other significant agreements with thirdparties relating to our products, including our development programs;·our expectations regarding the impact of adoption of new accounting pronouncements;·our expectations regarding near‑term changes in the nature of our market risk exposures or in management’sobjectives and strategies with respect to managing such exposures;·our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt serviceobligations;·our expectations regarding future capital requirements and capital expenditures and our ability to finance ouroperations and capital requirements; and·other factors discussed elsewhere in this Annual Report. Actual results might differ materially from those expressed or implied by these forward‑looking statements because theseforward‑looking statements are subject to risks, assumptions and uncertainties. You are cautioned not to place undue relianceon forward‑looking statements, which speak only as of the date of this Annual Report. All subsequent written and oralforward‑looking statements concerning the matters addressed in this Annual Report and attributable to us or any personacting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in thissection. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or reviseany forward‑looking statements, whether as a result of new information, future events or otherwise. In light of these risks,assumptions and uncertainties, the forward‑looking events discussed in this Annual Report might not occur. For moreinformation regarding the risks and uncertainties of our business, see “Item 1A—Risk Factors” in this Annual Report. Unless otherwise indicated, information contained in this Annual Report concerning the disorders targeted by ourproducts and the markets in which we operate is based on information from various sources (including, without limitation,industry publications, medical and clinical journals and studies, surveys and forecasts and our internal research), onassumptions that we have made, which we believe are reasonable, based on those data and other similar sources and on ourknowledge of the markets for our products. Our internal research has not been verified by any independent source, and wehave not independently verified any third‑party information. These projections, assumptions and estimates are necessarilysubject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A—RiskFactors.” These and other factors could cause results to differ materially from those expressed in the estimates included in thisAnnual Report. NOTE REGARDING COMPANY AND PRODUCT REFERENCESUse of the terms such as “us,” “we,” “our,” “Alkermes” or the “Company” in this Annual Report is meant to refer toAlkermes plc and its consolidated subsidiaries, except where the context makes clear that the time period being referenced isprior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. and its consolidated3 Table of Contentssubsidiaries. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in theCommonwealth of Pennsylvania and traded on the NASDAQ Global Select Stock Market (the “NASDAQ”) under the symbol“ALKS.” Except as otherwise suggested by the context, (a) references to “products” or “our products” in this Annual Reportinclude our marketed products, marketed products using our proprietary technologies, our product candidates and productcandidates using our proprietary technologies, (b) references to the “biopharmaceutical industry” are used interchangeablywith references to the “biotechnology and/or pharmaceutical industries” and (c) references to “licensees” are usedinterchangeably with references to “collaborative partners” and “partners.” NOTE REGARDING TRADEMARKSWe are the owner of various U.S. federal trademark registrations (“®”) and other trademarks (“TM”), includingALKERMES, ARISTADA, CODAS, IPDAS, LinkeRx, MXDAS, NanoCrystal, SECA™, SODAS, VERELAN andVIVITROL. The following are trademarks of the respective companies listed: ABILIFY and ABILIFY MAINTENA—OtsukaPharmaceutical Co., Ltd.; AMPYRA, FAMPYRA—Acorda Therapeutics, Inc.; ANTABUSE—Teva Women’s Health, Inc.;AUBAGIO and LEMTRADA—Sanofi Societe Anonyme France; AVONEX, PLEGRIDY, TECFIDERA, and TYSABRI—Biogen MA Inc.; BETASERON—Bayer Pharma AG; BUNAVAIL—BioDelivery Sciences; BYDUREON and BYETTA—Amylin Pharmaceuticals, LLC; CAMPRAL—Merck Sante; COPAXONE—Teva Pharmaceutical Industries Ltd.; FOCALINXR, EXTAVIA, GILENYA and RITALIN LA—Novartis AG; INVEGA SUSTENNA, RISPERDAL CONSTA INVEGATRINZA and XEPLION—Johnson & Johnson (or its affiliates); NOVANTRONE and REBIF—Ares Trading S.A.;SUBOXONE and SUBUTEX—Indivior plc; TRICOR—Fournier Industrie et Sante Corporation; VICTOZA—NovoNordisk A/S LLC; ZOHYDRO™—Zogenix, Inc.; ZUBSOLV—Orexo US, Inc.; and TRULICITY, ZYPREXA andZYPREXA RELPREVV—Eli Lilly and Company. Other trademarks, trade names and service marks appearing in thisAnnual Report are the property of their respective owners. Solely for convenience, the trademarks and trade names in thisAnnual Report are referred to without the and ™ symbols, but such references should not be construed as any indicator thattheir respective owners will not assert, to the fullest extent under applicable law, their rights thereto. NOTE REGARDING FISCAL YEAR On May 21, 2013, our Audit and Risk Committee, with such authority delegated to it by our Board of Directors,approved a change to our fiscal year‑end from March 31 to December 31. This Annual Report reflects our financial results forthe twelve-month period from January 1, 2015 through December 31, 2015. The period ended December 31, 2014 reflects ourfinancial results for the twelve‑month period from January 1, 2014 through December 31, 2014. The period endedDecember 31, 2013 reflects our financial results for the nine‑month period from April 1, 2013 through December 31, 2013.4 ®®®®®®®®®®®®®®®®®®®®®®TM®®®®®®®®®®®®TM®®®®®®®®®®®®® Table of ContentsPART I Item 1.Business The following discussion contains forward‑looking statements. Actual results may differ significantly from thoseexpressed or implied in the forward‑looking statements. See “Cautionary Note Concerning Forward‑Looking Statements” onpages 3 and 4 of this Annual Report. Factors that might cause future results to differ materially from those expressed orimplied in the forward‑looking statements include, but are not limited to, those discussed in “Item 1A—Risk Factors” andelsewhere in this Annual Report. Overview Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietarytechnologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that aredesigned to address unmet medical needs of patients in major therapeutic areas. We have a diversified portfolio of marketeddrug products and a clinical pipeline of products that address central nervous system (“CNS”) disorders such asschizophrenia, depression, addiction and multiple sclerosis. Products Marketed Products The key marketed products discussed below are expected to generate significant revenues for us. They possess longpatent lives and, we believe, are singular or competitively advantaged products in their class. Refer to the “Patents andProprietary Rights” section of this Annual Report for information with respect to the intellectual property protection for thesemarketed products. Summary information about these key marketed products is set forth in the table below: Product Indication(s) Licensee Territory Proprietary Products ARISTADA Schizophrenia None United States (“U.S.”)VIVITROLAlcohol dependence,Opioid dependenceNone Cilag GmbH International(“Cilag”)U.S. Russia and Commonwealthof Independent States(“CIS”)Products Using Our Proprietary Technologies RISPERDAL CONSTA Schizophrenia and BipolarI disorder Janssen Pharmaceutica Inc.("Janssen, Inc.") andJanssen PharmaceuticaInternational, a division ofCilag International AG("Janssen International") WorldwideINVEGA SUSTENNA / XEPLION &INVEGA TRINZASchizophrenia Schizoaffective disorderJanssenPharmaceutica N.V.(together with Janssen, Inc.Janssen International andtheir affiliates "Janssen")U.S. Rest of World (“ROW”)AMPYRA / FAMPYRATreatment to improvewalking in patients withmultiple sclerosis (“MS”),as demonstrated by anincrease in walking speedAcorda Therapeutics, Inc.(“Acorda”) Biogen InternationalGmbH (“Biogen”), undersublicense from AcordaU.S. ROWBYDUREON Type 2 diabetes AstraZeneca plc(“AstraZeneca”) Worldwide 5 Table of ContentsProprietary Products We developed and commercialize in the U.S. products designed to address the unmet needs of patients sufferingfrom addiction and schizophrenia. ARISTADA ARISTADA (aripiprazole lauroxil) is an extended-release injectable suspension for the treatment ofschizophrenia, which was approved by the U.S. Food and Drug Administration (“FDA”), and commercially launchedby us, in October 2015. ARISTADA is the first of our products to utilize our proprietary LinkeRx technology.ARISTADA is a prodrug; once in the body, ARISTADA is likely converted by enzyme-mediated hydrolysis to N-hydroxymethyl aripiprazole, which is then hydrolyzed to aripiprazole. ARISTADA is the first atypical antipsychoticwith once-monthly and six-week dosing options for delivering and maintaining therapeutic levels of medication inthe body through an intramuscular injection. ARISTADA possesses three dosing options (441 mg, 662 mg and 882mg) packaged in a ready-to-use, pre-filled product format. We developed, manufacture and commercializeARISTADA in the U.S. What is schizophrenia? Schizophrenia is a chronic, severe and disabling brain disorder. The disease is marked by positive symptoms(hallucinations and delusions) and negative symptoms (depression, blunted emotions and social withdrawal), aswell as by disorganized thinking. An estimated 2.4 million Americans over the age of 18 have schizophrenia in agiven year, with men and women affected equally. Worldwide, it is estimated that one person in every 100 developsschizophrenia. Studies have demonstrated that as many as 75% of patients with schizophrenia have difficulty takingtheir oral medication on a regular basis, which can lead to worsening of symptoms. VIVITROL VIVITROL (naltrexone for extended-release injectable suspension) is the only once‑monthly, non-addictive,injectable medication approved in the U.S., Russia and certain of the CIS for the treatment of alcohol dependenceand for the prevention of relapse to opioid dependence, following opioid detoxification. VIVITROL uses ourpolymer‑based microsphere injectable extended‑release technology to deliver and maintain therapeutic medicationlevels in the body through one injection every four weeks. We developed, manufacture and commercializeVIVITROL in the U.S., and Cilag commercializes VIVITROL in Russia and certain countries of the CIS. What are opioid dependence and alcohol dependence? Opioid dependence is a serious and chronic brain disease characterized by compulsive, prolonged self-administration of opioid substances that are not used for a medical purpose. According to the 2014 U.S. NationalSurvey on Drug Use and Health, an estimated 2.3 million people aged 18 or older were dependent on pain relieversor heroin in the U.S. Alcohol dependence is a serious and chronic brain disease characterized by cravings for alcohol, loss of controlover drinking, withdrawal symptoms and an increased tolerance for alcohol. Nearly 18 million people aged 18 orolder in the U.S. are dependent on or abuse alcohol. Adherence to medication is particularly challenging with thispatient population. Products Using Our Proprietary Technologies We have granted licenses under our proprietary technologies to enable third parties to develop, commercialize and,in some cases, manufacture products for which we receive royalties and/or manufacturing revenues. Such arrangementsinclude the following: 6 Table of ContentsINVEGA SUSTENNA/XEPLION, INVEGA TRINZA and RISPERDAL CONSTA INVEGA SUSTENNA/XEPLION (paliperidone palmitate) and INVEGA TRINZA (paliperidone palmitate) andRISPERDAL CONSTA (risperidone long‑acting injection) are long-acting atypical antipsychotics that incorporateour proprietary technologies and are owned and commercialized worldwide by Janssen. INVEGA SUSTENNA is approved in the U.S. for the treatment of schizophrenia and for the treatment ofschizoaffective disorder as either a monotherapy or adjunctive therapy. Paliperidone palmitate extended-releaseinjectable suspension is approved in the European Union ("EU") and other countries outside of the U.S. for thetreatment of schizophrenia and is marketed and sold under the trade name XEPLION. INVEGASUSTENNA/XEPLION uses our nanoparticle injectable extended-release technology to increase the rate ofdissolution and enable the formulation of an aqueous suspension for once-monthly intramuscular administration.INVEGA SUSTENNA/XEPLION is manufactured by Janssen. INVEGA TRINZA is an atypical antipsychotic injection for the treatment of schizophrenia used in people whohave been treated with INVEGA SUSTENNA for at least four months. INVEGA TRINZA, the first schizophreniatreatment to be taken once every three months, became commercially available in the U.S. in June 2015. INVEGATRINZA uses our proprietary technology and is manufactured by Janssen. RISPERDAL CONSTA is approved in the U.S. for the treatment of schizophrenia and as both monotherapy andadjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder. RISPERDAL CONSTAis approved in numerous countries outside of the U.S. for the treatment of schizophrenia and the maintenancetreatment of bipolar I disorder. RISPERDAL CONSTA uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injectionevery two weeks. RISPERDAL CONSTA microspheres are exclusively manufactured by us. Revenues from Janssen accounted for approximately 40%, 41% and 44% of our consolidated revenues for thefiscal years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, respectively. See“Collaborative Arrangements” later in Part I of this Annual Report for information about our relationship withJanssen. What is schizophrenia? Schizophrenia is a chronic, severe and disabling brain disorder. The disease is marked by positive symptoms(hallucinations and delusions) and negative symptoms (depression, blunted emotions and social withdrawal), aswell as by disorganized thinking. An estimated 2.4 million Americans over the age of 18 have schizophrenia in agiven year, with men and women affected equally. Worldwide, it is estimated that one person in every 100 developsschizophrenia. Studies have demonstrated that as many as 75% of patients with schizophrenia have difficulty takingtheir oral medication on a regular basis, which can lead to worsening of symptoms. What is bipolar I disorder? Bipolar I disorder is a brain disorder that causes unusual shifts in a person’s mood, energy and ability tofunction. It is often characterized by debilitating mood swings, from extreme highs (mania) to extreme lows(depression). Bipolar I disorder is characterized based on the occurrence of at least one manic episode, with orwithout the occurrence of a major depressive episode. Bipolar disorder is believed to affect approximately5.7 million American adults, or about 2.6% of the U.S. population aged 18 and older in a given year. The medianage of onset for bipolar disorder is 25 years. What is schizoaffective disorder? Schizoaffective disorder is a condition in which a person experiences a combination of schizophreniasymptoms, such as delusions, hallucinations or other symptoms characteristic of schizophrenia, and mood disordersymptoms, such as mania or depression. Schizoaffective disorder is a serious mental illness that affects7 Table of Contentsabout one in 100 people. AMPYRA/FAMPYRA AMPYRA (dalfampridine)/FAMPYRA (fampridine), to our knowledge, is the first treatment approved in theU.S. and in over 50 countries across Europe, Asia and the Americas to improve walking in adults with MS who havewalking disability, as demonstrated by an increase in walking speed. Extended-release dalfampridine tablets aremarketed and sold by Acorda in the U.S. under the trade name AMPYRA and by Biogen outside the U.S. under thetrade name FAMPYRA. In July 2011, the European Medicines Agency ("EMA") conditionally approved FAMPYRAin the EU for the improvement of walking in adults with MS. This authorization was renewed as of August 2015.AMPYRA and FAMPYRA incorporate our oral controlled-release technology. AMPYRA and FAMPYRA aremanufactured by us. What is multiple sclerosis? MS is a chronic, usually progressive, disease in which the immune system attacks and degrades the function ofnerve fibers in the brain and spinal cord. These nerve fibers consist of long, thin fibers, or axons, surrounded by amyelin sheath, which facilitates the transmission of electrical impulses. In MS, the myelin sheath is damaged by thebody’s own immune system, causing areas of myelin sheath loss, also known as demyelination. This damage, whichcan occur at multiple sites in the CNS, blocks or diminishes conduction of electrical impulses. People with MS maysuffer impairments in any number of neurological functions. These impairments vary from individual to individualand over the course of time, depending on which parts of the brain and spinal cord are affected, and often includedifficulty walking. Individuals vary in the severity of the impairments they suffer on a day‑to‑day basis, withimpairments becoming better or worse depending on the activity of the disease on a given day. BYDUREON BYDUREON (exenatide extended-release for injectable suspension) is approved in the U.S. and the EU for thetreatment of type 2 diabetes. From August 2012 until February 2014, Bristol-Myers Squibb Company ("Bristol-Myers") and AstraZeneca co-developed and marketed BYDUREON through their diabetes collaboration. InFebruary 2014, AstraZeneca assumed sole responsibility for the development and commercialization ofBYDUREON. BYDUREON, a once-weekly formulation of exenatide, the active ingredient in BYETTA, uses ourpolymer-based microsphere injectable extended-release technology. BYDUREON is manufactured by AstraZeneca. BYDUREON Pen 2 mg, a pre‑filled, single‑use pen injector that contains the same formulation and dose as theoriginal BYDUREON single‑dose tray, is available in the U.S., certain countries in the EU and Japan. What is type 2 diabetes? Diabetes is a disease in which the body does not produce or properly use insulin. Diabetes can result in serioushealth complications, including cardiovascular, kidney and nerve disease. Diabetes is believed to affect nearly26 million people in the U.S. and an estimated 382 million adults worldwide. Approximately 90‑95% of thoseaffected have type 2 diabetes. An estimated 80% of people with type 2 diabetes are overweight or obese. Dataindicate that weight loss (even a modest amount) supports patients in their efforts to achieve and sustain glycemiccontrol. Key Development Programs Our research and development is focused on leveraging our formulation expertise and proprietary product platforms todevelop novel, competitively advantaged medications designed to enhance patient outcomes in major CNS disorders, suchas schizophrenia, addiction, depression and MS. As part of our ongoing research and development efforts, we have devoted,and will continue to devote, significant resources to conducting clinical studies to advance the development of newpharmaceutical products. The discussion below highlights our key current research and development programs. Drugdevelopment involves a high degree of risk and investment, and the status, timing and scope of our development programsare subject to change. Important factors that could adversely affect our drug development efforts are discussed in “Item 1A—Risk Factors.” Refer to the “Patents and Proprietary Rights” section of this Annual Report for information8 Table of Contentswith respect to the intellectual property protection for our product candidates. Product Candidate Target Indication(s) Status ALKS 5461 Major Depressive Disorder ("MDD") Phase 3 ALKS 3831 Schizophrenia Phase 3 ALKS 8700 MS Phase 3 ALKS 6428 VIVITROL Seven-Day Taper Kit Phase 3 Aripiprazole Lauroxil Two-MonthDose Schizophrenia Completed Phase 1 ALKS 7119 Various CNS diseases Phase 1 RDB 1450 Cancer Immunotherapy Pre-clinical ALKS 5461 ALKS 5461 is a proprietary, oral investigational medicine in development for the treatment of MDD in patients whohave an inadequate response to standard antidepressant therapies. ALKS 5461 is composed of samidorphan incombination with buprenorphine. Samidorphan, formerly referred to as ALKS 33, is a proprietary oral opioid modulatorcharacterized by limited hepatic metabolism and durable pharmacologic activity in modulating brain opioid receptors.ALKS 5461 acts as a balanced neuromodulator in the brain and represents a new approach with a novel mechanism ofaction for treating MDD. In October 2013, the FDA granted Fast Track status for ALKS 5461 for the adjunctive treatmentof MDD in patients with inadequate response to standard antidepressant therapies. In January 2015, we announced topline results from FORWARD-1, one of a series of supportive clinical studies inthe FORWARD phase 3 pivotal program designed to evaluate the safety and tolerability of two titration schedules ofALKS 5461. Data from FORWARD-1 confirmed the safety and tolerability of ALKS 5461 in both titration schedulesevaluated—one-week and two-week dose escalation schedules. These findings were consistent with the safety andtolerability profile seen in the phase 2 study of ALKS 5461 completed in 2013. In addition, the exploratory efficacyanalyses showed that ALKS 5461 reduced depressive symptoms from baseline in patients who received either of the twotitration schedules. These data supported the one-week titration schedule being utilized in the phase 3 efficacy studies inthe FORWARD program. In December 2015, we also announced positive topline results from a human abuse potentialstudy of ALKS 5461. In January 2016, we announced the topline results of FORWARD-3 and FORWARD-4, two phase 3 clinical studiesof ALKS 5461 in MDD. Neither of the two studies met the prespecified primary efficacy endpoint, which comparedALKS 5461 to placebo on the change from baseline on the Montgomery—Åsberg Depression Rating Scale (“MADRS”). FORWARD-4 tested two dose levels of ALKS 5461 (2mg/2mg and 0.5mg/0.5mg) compared to placebo. There was aclear trend toward efficacy with the 2mg/2mg dose of ALKS 5461 on the primary endpoint, and post hoc analysesachieved statistical significance for the entire 2mg/2mg dose group on the MADRS endpoint. Based on these analyses,we believe that FORWARD-4 provides supportive evidence of the efficacy of ALKS 5461 in the treatment of MDD.FORWARD-3 tested ALKS 5461 (2mg/2mg) compared to placebo. Placebo response was greater than that observed inFORWARD-4 and no treatment effect of ALKS 5461 was observed. FORWARD-5, the third pivotal efficacy study in the FORWARD program, is ongoing, testing two dose levels ofALKS 5461 (2mg/2mg and 1mg/1mg). FORWARD-5 shares common design features with FORWARD-4. Knowledgegained from FORWARD-3 and FORWARD-4 will be used to inform FORWARD-5. In the case of a clear positive outcome for FORWARD-5, we will consult with the FDA to determine whether theevidence provided by it and the previously completed successful, randomized, placebo-controlled phase 2 study,together with supportive evidence from FORWARD-4, collectively could provide substantial evidence of efficacy forALKS 5461 for the adjunctive treatment of MDD. ALKS 3831 ALKS 3831 is a novel, proprietary oral investigational medicine designed as a broad-spectrum antipsychotic for thetreatment of schizophrenia. ALKS 3831 is composed of samidorphan in combination with the established antipsychoticdrug olanzapine, which is generally available under the name ZYPREXA. ALKS 3831 is designed to9 Table of Contentsprovide the strong efficacy of olanzapine and a differentiated safety profile with favorable weight and metabolicproperties and to have utility in the treatment of schizophrenia in patients with co-occurring alcohol use disorder. In January 2015, we announced data from the first phase of a randomized, dose ranging, six-month phase 2 study ofALKS 3831 designed to assess the efficacy, safety and tolerability of ALKS 3831 in the treatment of schizophrenia andits attenuation of weight gain, compared to olanzapine. ALKS 3831 met the primary endpoint of the study,demonstrating equivalence to olanzapine in reduction from baseline in Positive and Negative Syndrome Scale(“PANSS”) total scores at week 12. Results showed that ALKS 3831 also met the secondary endpoint of demonstrating alower mean percent weight gain compared to olanzapine at week 12 in the full study population, and a lower meanpercent weight gain compared to olanzapine at week 12 in a pre-specified subset of patients who gained weight duringthe one-week olanzapine lead-in. In April 2015, we announced data from the completed, six-month, randomized, dose-ranging phase 2 study of ALKS3831. Patients who received ALKS 3831 during the first phase of the study, which lasted for three months, continued toreceive the same dose of ALKS 3831, and patients who had received olanzapine during the first phase were switched toALKS 3831. Data from the completed study supported and extended the initial positive results showing ALKS 3831’sfavorable efficacy and mean weight gain profile and demonstrated for the first time that switching patients fromolanzapine to ALKS 3831 resulted in a cessation of mean weight gain. In December 2015, we announced the commencement of ENLIGHTEN-1, the first of two planned phase 3 studiesfrom the ENLIGHTEN pivotal program for ALKS 3831. ENLIGHTEN-1 is a multicenter, randomized, double-blind phase3 study to evaluate the antipsychotic efficacy of ALKS 3831 compared to placebo over four weeks in patientsexperiencing acute exacerbation of schizophrenia. In February 2016, we announced the initiation of ENLIGHTEN-2, aphase 3 study assessing weight gain with ALKS 3831 compared to olanzapine in patients with schizophrenia over a sixmonth period. The ENLIGHTEN pivotal program will also include supportive studies to evaluate the pharmacokineticand metabolic profile of ALKS 3831, as well as long-term safety. We expect to use safety and efficacy data from theENLIGHTEN pivotal program to serve as the basis for a NDA to be submitted to the FDA, pending study results. ALKS 8700 ALKS 8700 is an oral, novel and proprietary monomethyl fumarate ("MMF") molecule in development for thetreatment of MS. ALKS 8700 is designed to rapidly and efficiently convert to MMF in the body and to offerdifferentiated features as compared to the currently marketed dimethyl fumarate, TECFIDERA. In May 2015, wepresented positive results from a phase 1, randomized, double-blind clinical study of ALKS 8700, designed to evaluatethe safety, tolerability and single-dose pharmacokinetics of several oral formulations of ALKS 8700 compared to bothplacebo and active control groups. Data from the study showed that ALKS 8700 provided MMF exposures comparableto TECFIDERA, with less variability and favorable gastrointestinal tolerability. The most common adverse events wereflushing and gastrointestinal-related. Following a meeting with the FDA, we announced in October 2015 our plans to file a 505(b)(2) NDA usingpharmacokinetic bridging data from studies comparing ALKS 8700 and TECFIDERA and a two-year, multicenter, open-label study designed to assess the safety of ALKS 8700, which we initiated in December 2015. Additionally, we plan toinitiate a randomized, head-to-head phase 3 study of the gastrointestinal tolerability of ALKS 8700 compared toTECFIDERA in mid-2016. In October 2015, we also announced data from a randomized, double-blind phase 1 comparative pharmacokineticstudy evaluating plasma MMF levels achieved by the administration of single doses of ALKS 8700 and TECFIDERA.Initial data from this study showed that ALKS 8700 met the pharmacokinetic criteria for bioequivalence to TECFIDERA.The most common adverse events for ALKS 8700 in the study were flushing, dizziness and constipation. Based on theseresults, we have selected the ALKS 8700 dose to be used in the registration program. We will need to conduct additionalpreclinical studies and pharmacokinetic studies to further support pharmacokinetic comparability to TECFIDERA. Weexpect to complete ALKS 8700 registrational studies and file the NDA in 2018. ALKS 642810 Table of Contents ALKS 6428 is an oral formulation of naltrexone designed to help physicians transition patients from physicaldependence on opioids to antagonist therapy. This transition process includes doses of naltrexone in conjunction withbuprenorphine during a seven-day treatment period. Upon successful completion of the transition process, physicianswould then be able to administer VIVITROL. In September 2015, we initiated a phase 3 study evaluating the safety,tolerability and efficacy of ALKS 6428 in patients with opioid dependence. Aripiprazole Lauroxil Two-Month Dose Aripiprazole lauroxil is an injectable atypical antipsychotic, available as ARISTADA with once-monthly and six-week dosing options for the treatment of schizophrenia, in development with a two-month dosing interval. In February2016, we announced positive topline results from a randomized, open-label, pharmacokinetic study evaluating a two-month dosing interval of aripiprazole lauroxil extended-release injectable suspension for the treatment of schizophrenia.Based on these phase 1 results, we plan to submit a supplemental New Drug Application (“NDA”) to the FDA in thesecond half of 2016. ALKS 7119 ALKS 7119 is a novel, proprietary investigational medicine that has a multivalent mechanism of action that acts onkey receptors in the brain involved in several CNS diseases, including agitation in Alzheimer’s disease, MDD and others.In January 2016, we announced the initiation of a phase 1, double-blind, placebo-controlled study designed to evaluatethe safety and tolerability of single ascending doses of ALKS 7119 in healthy subjects. Results from this phase 1 studyare expected in the second half of 2016. RDB 1450 RDB 1450, formerly referred to as RDB 1419, is our selective effector cell activator (“SECA”) that is designed toharness a patient’s immune system to preferentially activate and increase the number of tumor killing immunecells. SECA proteins selectively target immune cells to avoid expansion of immune regulatory cells which interfere withthe anti-tumor response. SECA molecules are engineered using our proprietary fusion protein technology platform tomodulate the natural mechanism of action of a biologic product. Based on feedback from the FDA, we now plan to filean Investigational New Drug application with the FDA in the first quarter of 2016 and begin phase 1 clinical trials in thesecond quarter of 2016. Product Candidates — Using our Proprietary Technologies Acorda In December 2014, Acorda announced the initiation of a phase 3 clinical trial of dalfampridine extended releasetablets for the treatment of post‑stroke walking deficits. It expects this multicenter, double‑blind, randomized trial toenroll approximately 540 participants who have experienced an ischemic stroke at least six months prior to enrollment. Janssen In August 2015, Janssen announced that it submitted an Extension Marketing Authorization Application to theEMA for the three-month formulation of paliperidone palmitate for the treatment of schizophrenia. AstraZeneca AstraZeneca is developing line extensions for BYDUREON for the treatment of type 2 diabetes, including weeklysuspension formulations using our proprietary technology for extended‑release microspheres. Our Research and Development Expenditures Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our researchand development (“R&D”) expenditures for the fiscal years ended December 31, 2015 and 2014 and the nine months endedDecember 31, 2013.11 Table of Contents Collaborative Arrangements We have entered into several collaborative arrangements to develop and commercialize products and, in so doing, toaccess technological, financial, marketing, manufacturing and other resources. Refer to the “Patents and Proprietary Rights”section of this Annual Report for information with respect to the intellectual property protection for these products. Janssen INVEGA SUSTENNA/XEPLION and INVEGA TRINZA Under our license agreement with Janssen Pharmaceutica N.V., we granted Janssen a worldwide exclusive licenseunder our NanoCrystal technology to develop, commercialize and manufacture INVEGA SUSTENNA/XEPLION andINVEGA TRINZA and related products. Under our license agreement, we received milestone payments upon the achievement of certain development goalsfrom Janssen; there are no further milestones to be earned under this agreement. We receive tiered royalty paymentsbetween 5% and 9% of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA net sales in each country where thelicense is in effect, with the exact royalty percentage determined based on worldwide net sales. The tiered royaltypayments consist of a patent royalty and a know‑how royalty, both of which are determined on a county‑by‑countrybasis. The patent royalty, which equals 1.5% of net sales, is payable until the expiration of the last of the patentsclaiming the product in such country. The know‑how royalty is a tiered royalty of 3.5%, 5.5% and 7.5% on aggregateworldwide net sales of below $250 million, between $250 million and $500 million, and greater than $500 million,respectively. The know‑how royalty is payable for the later of 15 years from first commercial sale of a product in eachindividual country or March 31, 2019, subject in each case to the expiry of the license agreement. These royaltypayments may be reduced in any country based on patent litigation or on competing products achieving certainminimum sales thresholds. The license agreement expires upon the later of (i) March 31, 2019 or (ii) the expiration of thelast of the patents subject to the agreement. After expiration, Janssen retains a non‑exclusive, royalty‑free license todevelop, manufacture and commercialize the products. Janssen may terminate the license agreement in whole or in part upon three months’ notice to us. We and Janssenhave the right to terminate the agreement upon a material breach of the other party, which is not cured within a certaintime period, or upon the other party’s bankruptcy or insolvency. RISPERDAL CONSTA Under a product development agreement, we collaborated with Janssen on the development of RISPERDALCONSTA. Under the development agreement, Janssen provided funding to us for the development of RISPERDALCONSTA, and Janssen is responsible for securing all necessary regulatory approvals for the product. Under license agreements, we granted Janssen and an affiliate of Janssen exclusive worldwide licenses to use andsell RISPERDAL CONSTA. Under our license agreements with Janssen, we receive royalty payments equal to 2.5% ofJanssen’s net sales of RISPERDAL CONSTA in each country where the license is in effect based on the quarter when theproduct is sold by Janssen. This royalty may be reduced in any country based on lack of patent coverage and significantcompetition from generic versions of the product. Janssen can terminate the license agreements upon 30 days’ priorwritten notice to us. Either party may terminate the license agreements by written notice following a breach whichcontinues for 90 days after the delivery of written notice thereof or upon the other party’s insolvency. The licensesgranted to Janssen expire on a country‑by‑country basis upon the later of (i) the expiration of the last patent claiming theproduct in such country or (ii) 15 years after the date of the first commercial sale of the product in such country, providedthat in no event will the license granted to Janssen expire later than the twentieth anniversary of the first commercial saleof the product in such country, with the exception of certain countries where the fifteen‑year limitation shall pertainregardless. After expiration, Janssen retains a non‑exclusive, royalty‑free license to manufacture, use and sellRISPERDAL CONSTA. We exclusively manufacture RISPERDAL CONSTA for commercial sale. Under our manufacturing and supplyagreement with Janssen, we record manufacturing revenues when product is shipped to Janssen, based on a12 Table of Contentspercentage of Janssen’s net unit sales price for RISPERDAL CONSTA for the calendar year. This percentage isdetermined based on Janssen’s unit demand for the calendar year and varies based on the volume of units shipped, with aminimum manufacturing fee of 7.5%. The manufacturing and supply agreement terminates on expiration of the licenseagreements. In addition, either party may terminate the manufacturing and supply agreement upon a material breach bythe other party, which is not resolved within 60 days after receipt of a written notice specifying the material breach orupon written notice in the event of the other party’s insolvency or bankruptcy. Janssen may terminate the agreementupon six months’ written notice to us. In the event that Janssen terminates the manufacturing and supply agreementwithout terminating the license agreements, the royalty rate payable to us on Janssen’s net sales of RISPERDALCONSTA would increase from 2.5% to 5.0%. Acorda Under an amended and restated license agreement, we granted Acorda an exclusive worldwide license to use and selland, solely in accordance with our supply agreement, to make or have made, AMPYRA/FAMPYRA. We receive certaincommercial and development milestone payments, license revenues and a royalty of approximately 10% based on net salesof AMPYRA/FAMPYRA by Acorda and its sub‑licensee, Biogen. This royalty payment may be reduced in any country basedon lack of patent coverage, competing products achieving certain minimum sales thresholds, and whether we manufacturethe product. In June 2009, we entered into an amendment of the amended and restated license agreement and the supply agreementwith Acorda and, pursuant to such amendment, consented to the sublicense by Acorda to Biogen of Acorda’s rights to useand sell FAMPYRA in certain territories outside of the U.S. (to the extent that such rights were to be sublicensed to Biogenpursuant to its separate collaboration and license agreement with Acorda). Under this amendment, we agreed to modifycertain terms and conditions of the amended and restated license agreement and the supply agreement with Acorda to reflectthe sublicense by Acorda to Biogen. Acorda has the right to terminate the amended and restated license agreement upon 90 days’ written notice. We have theright to terminate the amended and restated license agreement for countries in which Acorda fails to launch a product withina specified time after obtaining the necessary regulatory approval or fails to file regulatory approvals within a commerciallyreasonable time after completion of, and receipt of positive data from, all preclinical and clinical studies required for filing amarketing authorization application. Either party has the right to terminate the amended and restated license agreement bywritten notice following a material breach of the other party, which is not cured within a certain time period, or upon theother party’s entry into bankruptcy or dissolution proceedings. If we terminate Acorda’s license in any country, we areentitled to a license from Acorda of its patent rights and know‑how relating to the product as well as the related data,information and regulatory files, and to market the product in the applicable country, subject to an initial payment equal toAcorda’s cost of developing such data, information and regulatory files and to ongoing royalty payments to Acorda. Subjectto the termination of the amended and restated license agreement, licenses granted under the license agreement terminate ona country‑by‑country basis on the later of (i) September 26, 2018 or (ii) the expiration of the last to expire of our patents orthe existence of a threshold level of competition in the marketplace. Under our commercial manufacturing supply agreement with Acorda, we manufacture and supply AMPYRA/FAMPYRAfor Acorda (and its sub‑licensee). Under the terms of the agreement, Acorda may obtain up to 25% of its total annualrequirements of product from a second‑source manufacturer. We receive manufacturing royalties equal to 8% of net sellingprice for all product manufactured by us and a compensating payment for product manufactured and supplied by a thirdparty. We may terminate the commercial manufacturing supply agreement upon 12 months’ prior written notice to Acorda,and either party may terminate the commercial manufacturing supply agreement following a material and uncured breach ofthe commercial manufacturing supply agreement or amended and restated license agreement or the entry into bankruptcy ordissolution proceedings by the other party. In addition, subject to early termination of the commercial manufacturing supplyagreement noted above, the commercial manufacturing supply agreement terminates upon the expiry or termination of theamended and restated license agreement. We are entitled to receive the following milestone payments under our amended and restated license agreement withAcorda for each of the third and fourth new indications of the product developed thereunder: ·initiation of a phase 3 clinical trial: $1.0 million;·acceptance of an NDA by the FDA: $1.0 million;·approval of the NDA by the FDA: $1.5 million; and13 Table of Contents·the first commercial sale: $1.5 million. In January 2011, we entered into a development and supplemental agreement to our amended and restated licenseagreement and commercial manufacturing supply agreement with Acorda. Under the terms of this agreement, we grantedAcorda the right, either with us or with a third party, in each case in accordance with certain terms and conditions, to developnew formulations of dalfampridine or other aminopyridines. Under the terms of the agreement, Acorda has the right to selecteither a formulation developed by us or by a third party for commercialization. We are entitled to development fees we incurin developing formulations under the development and supplemental agreement and, if Acorda selects and commercializesany such formulation, to milestone payments (for new indications if not previously paid), license revenues and royalties inaccordance with our amended and restated license agreement for the product, and either manufacturing fees as a percentageof net selling price for product manufactured by us or compensating fees for product manufactured by third parties. If, underthe development and supplemental agreement, Acorda selects a formulation not developed by us, then we will be entitled tovarious compensation payments and have the first option to manufacture such third‑party formulation. The development andsupplemental agreement expires upon the expiry or termination of the amended and restated license agreement and may beearlier terminated by either party following an uncured breach of the agreement by the other party. Acorda’s financial obligations under this development and supplemental agreement continue for a minimum of ten yearsfrom the first commercial sale of such new formulation, and may extend for a longer period of time, depending on theintellectual property rights protecting the formulation, regulatory exclusivity and/or the absence of significant marketcompetition. These financial obligations survive termination of the agreement. AstraZeneca In May 2000, we entered into a development and license agreement with Amylin Pharmaceuticals, LLC (“Amylin”) forthe development of exendin products falling within the scope of our patents, including the once‑weekly formulation ofexenatide marketed as BYDUREON. In August 2012, Bristol‑Myers acquired Amylin. From August 2012 through January2014, Bristol‑Myers and AstraZeneca jointly developed and commercialized Amylin’s exendin products, includingBYDUREON, through their diabetes collaboration. In April 2013, Bristol‑Myers completed its assumption of all globalcommercialization responsibility related to the marketing of BYDUREON from Amylin’s former collaborative partner, EliLilly & Company (“Lilly”). In February 2014, AstraZeneca acquired sole ownership of the intellectual property and globalrights related to BYDUREON and Amylin’s other exendin products, including Amylin’s rights and obligations under ourdevelopment and license agreement. Pursuant to the development and license agreement, AstraZeneca has an exclusive, worldwide license to ourpolymer‑based microsphere technology for the development and commercialization of injectable extended‑releaseformulations of exendins and other related compounds. We receive funding for research and development and will alsoreceive royalty payments based on future product sales. Upon the achievement of certain development andcommercialization goals, we received milestone payments consisting of cash and warrants for Amylin common stock; thereare no further milestones to be earned under the agreement. In October 2005 and in July 2006, we amended the developmentand license agreement. Under the amended development and license agreement (i) we are responsible for formulation and areprincipally responsible for non‑clinical development of any products that may be developed pursuant to the agreement andfor manufacturing these products for use in early‑phase clinical trials, and (ii) we transferred certain of our technology relatedto the manufacture of BYDUREON to Amylin and agreed to the manufacture of BYDUREON by Amylin. Under our amendeddevelopment and license agreement, AstraZeneca is responsible for conducting clinical trials, securing regulatory approvalsand commercializing exenatide products, including BYDUREON, on a worldwide basis. Until December 31, 2021, we will receive royalties equal to 8% of net sales from the first 40 million units ofBYDUREON sold in any particular calendar year and 5.5% of net sales from units sold beyond the first 40 million units forthat calendar year. Thereafter, during the term of the development and license agreement, we will receive royalties equal to5.5% of net sales of products sold. We were entitled to, and received, milestone payments related to the first commercial saleof BYDUREON in the EU and the first commercial sale of BYDUREON in the U.S. The development and license agreement expires on the later of (i) ten years from the first commercial sale of the last ofthe products covered by the development and license agreement, or (ii) the expiration or invalidation of all of our patentscovering such product. Upon expiration, all licenses become non‑exclusive and royalty‑free. AstraZeneca may14 Table of Contentsterminate the development and license agreement for any reason upon 180 days’ written notice to us. In addition, either partymay terminate the development and license agreement upon a material default or breach by the other party that is not curedwithin 60 days after receipt of written notice specifying the default or breach. Alkermes may terminate the development andlicense agreement upon AstraZeneca’s insolvency or bankruptcy. Other Arrangements Civitas Therapeutics, Inc. In December 2010, we entered into an asset purchase and license agreement and equity investment agreement withCivitas Therapeutics, Inc. (“Civitas”). Under the terms of these agreements, we sold, assigned and transferred to Civitasour right, title and interest in our pulmonary patent portfolio and certain of our pulmonary drug delivery equipment,instruments, contracts and technical and regulatory documentation and licensed certain related know‑how in exchangefor 15% of the issued shares of the Series A Preferred Stock of Civitas and a royalty on future sales of any productsdeveloped using this pulmonary drug delivery technology. We also participated in certain subsequent rounds offinancing. In connection with this transaction, Civitas also entered into an agreement to sublease our pulmonarymanufacturing facility located in Chelsea, Massachusetts. We may terminate the asset purchase and license agreement for default in the event Civitas does not meet certainminimum development performance obligations. Either party may terminate the asset purchase and license agreementupon a material default or breach by the other party that is not cured within 45 days after receipt of written noticespecifying the default or breach. Either party may also terminate the asset purchase and license agreement upon writtennotice in the event of the other party’s insolvency or bankruptcy. In October 2014, Civitas was acquired by Acorda for approximately $525.0 million, of which we received $29.6million in exchange for our approximate 6% interest in Civitas. Also, in connection with Acorda’s purchase of Civitas,we sold certain of our pulmonary manufacturing equipment to Acorda in exchange for $30.0 million. In November 2015,we assigned the lease to our pulmonary manufacturing facility located in Chelsea, Massachusetts to Civitas andterminated the sublease with Civitas related to this facility. Recro Pharma, Inc. On April 10, 2015, we completed the sale of our manufacturing facility in Gainesville, GA, the manufacturing androyalty revenue associated with products manufactured at that facility, and global rights to IV/IM and parenteral forms ofMeloxicam (the “Disposition” or “Gainesville Transaction”) to Recro Pharma, Inc., a Pennsylvania corporation listed onNasdaq (“Recro”) and Recro Pharma LLC (the “Acquisition Sub” and together with Recro, the “Purchasers”) pursuant to aPurchase and Sale Agreement (the “Purchase Agreement”) entered into on March 7, 2015 among us, Daravita Limited (anindirect wholly-owned subsidiary of the Company), and the Purchasers. In accordance with the terms of the Purchase Agreement, at the closing of the Disposition, the Purchasers made aninitial cash payment to us of $50 million, a $4 million payment relating to the net working capital, and issued us a seven-year warrant to purchase an aggregate of 350,000 shares of Recro common stock at a per share exercise price equal to $19.46,two times the closing price of Recro’s common stock on the day prior to closing. We are also eligible to receive low doubledigit royalties on net sales of IV/IM and parenteral forms of Meloxicam and up to $120 million in milestone payments uponthe achievement of certain regulatory and sales milestones related to IV/IM and parenteral forms of Meloxicam. Proprietary Product Platforms Our proprietary product platforms, which include technologies owned and exclusively licensed to us, address severalimportant development opportunities. We have used these technologies as platforms to establish drug development, clinicaldevelopment and regulatory expertise. Injectable Extended‑Release Microsphere Technology Our injectable extended‑release microsphere technology allows us to encapsulate small‑molecule pharmaceuticals,peptides and proteins, in microspheres made of common medical polymers. The technology is15 Table of Contentsdesigned to enable novel formulations of pharmaceuticals by providing controlled, extended release of drugs over time.Drug release from the microsphere is controlled by diffusion of the drug through the microsphere and by biodegradationof the polymer. These processes can be modulated through a number of formulation and fabrication variables, includingdrug substance and microsphere particle sizing and choice of polymers and excipients. LinkeRx Technology The long‑acting LinkeRx technology platform is designed to enable the creation of extended‑release injectableversions of antipsychotic therapies and may also be useful in other disease areas in which long action may providetherapeutic benefits. The technology uses proprietary linker‑tail chemistry to create new molecular entities derived fromknown agents. NanoCrystal Technology Our NanoCrystal technology is applicable to poorly water‑soluble compounds and involves formulating andstabilizing drugs into particles that are nanometers in size. A drug in NanoCrystal form can be incorporated into a rangeof common dosage forms and administration routes, including tablets, capsules, inhalation devices and sterile forms forinjection, with the potential for enhanced oral bioavailability, increased therapeutic effectiveness, reduced/eliminatedfed/fasted variability and sustained duration of intravenous/intramuscular release. Oral Controlled Release Technology Our oral controlled release (“OCR”) technologies are used to formulate, develop and manufacture oral dosage formsof pharmaceutical products that control the release characteristics of standard dosage forms. Our OCR platform includestechnologies for tailored pharmacokinetic profiles including SODAS technology, CODAS technology, IPDAStechnology and the MXDAS drug absorption system, each as described below: ·SODAS Technology: SODAS (Spheroidal Oral Drug Absorption System) technology involves producing uniformspherical beads of 1 mm to 2 mm in diameter containing drug plus excipients and coated with product‑specificmodified‑release polymers. Varying the nature and combination of polymers within a selectively permeablemembrane enables varying degrees of modified release depending upon the required product profile. ·CODAS Technology: CODAS (Chronotherapeutic Oral Drug Absorption System) technology enables the delayedonset of drug release incorporating the use of specific polymers, resulting in a drug release profile that moreaccurately complements circadian patterns. ·IPDAS Technology: IPDAS (Intestinal Protective Drug Absorption System) technology conveys gastrointestinalprotection by a wide dispersion of drug candidates in a controlled and gradual manner, through the use of numeroushigh‑density controlled‑release beads compressed into a tablet form. Release characteristics are modified by theapplication of polymers to the micro matrix and subsequent coatings, which form a rate‑limiting semi‑permeablemembrane. ·MXDAS Technology: MXDAS (Matrix Drug Absorption System) technology formulates the drug candidate in ahydrophilic matrix and incorporates one or more hydrophilic matrix‑forming polymers into a solid oral dosage form,which controls the release of drug through a process of diffusion and erosion in the gastrointestinal tract. Manufacturing and Product Supply We own and occupy a R&D and manufacturing facility in Athlone, Ireland and a manufacturing facility in Wilmington,Ohio. We either purchase active drug product from third parties or receive it from our third‑party licensees to formulateproduct using our technologies. The manufacture of our products for clinical trials and commercial use is subject to CurrentGood Manufacturing Practice (“cGMP”) regulations and other regulatory agency regulations. Our manufacturing anddevelopment capabilities include formulation through process development, scale‑up and full‑scale commercialmanufacturing and specialized capabilities for the development and manufacturing of controlled substances. Although some materials for our products are currently available from a single source or a limited number of16 Table of Contentsqualified sources, we attempt to acquire an adequate inventory of such materials, establish alternative sources and/ornegotiate long‑term supply arrangements. We believe we do not have any significant issues in finding suppliers. However,we cannot be certain that we will continue to be able to obtain long‑term supplies of our manufacturing materials. Our third‑party service providers involved in the manufacture of our products are subject to inspection by the FDA orcomparable agencies in other jurisdictions. Any delay, interruption or other issues that arise in the acquisition of activepharmaceutical ingredients (“API”), manufacture, fill‑finish, packaging, or storage of our marketed products or productcandidates, including as a result of a failure of our facilities or the facilities or operations of third parties to pass anyregulatory agency inspection, could significantly impair our ability to sell our products or advance our development efforts,as the case may be. For information about risks relating to the manufacture of our marketed products and product candidates,see “Item 1A—Risk Factors” and specifically those sections entitled “—We rely on third parties to provide services inconnection with the manufacture and distribution of our products” and “—We are subject to risks related to the manufactureof our products.” Proprietary Products and Products using our Proprietary Technologies We manufacture microspheres for RISPERDAL CONSTA and VIVITROL, polymer for BYDUREON, andARISTADA in our Wilmington, Ohio facility. We are currently operating two RISPERDAL CONSTA lines, oneVIVITROL line and one ARISTADA line at commercial scale. Janssen has granted us an option, exercisable upon30 days’ advance written notice, to purchase the most recently constructed and validated RISPERDAL CONSTAmanufacturing line at its then‑current net book value. We source our packaging operations for VIVITROL andARISTADA to a third‑party contractor. Janssen is responsible for packaging operations for RISPERDAL CONSTA. OurWilmington, Ohio facility has been inspected by U.S., European including the Medicines and Healthcare ProductsRegulatory Agency, Chinese, Japanese, Brazilian and Saudi Arabian regulatory authorities for compliance with requiredcGMP standards for continued commercial manufacturing. We manufacture AMPYRA/FAMPYRA and other products in our Athlone, Ireland facility. This facility has beeninspected by U.S., Irish, Brazilian, Turkish, Saudi Arabian, Korean and Belarusian regulatory authorities for compliancewith required cGMP standards for continued commercial manufacturing. For more information about our manufacturing facilities, see “Item 2—Properties.” Clinical Products We have established, and are operating, facilities with the capability to produce clinical supplies of injectableextended‑release products at our Wilmington, Ohio facility and NanoCrystal and OCR technology products at ourAthlone, Ireland facility. We have also contracted with third‑party manufacturers to formulate certain products forclinical use. We require that our contract manufacturers adhere to cGMP in the manufacture of products for clinical use. Research & Development We devote significant resources to R&D programs. We focus our R&D efforts on finding novel therapeutics in areasof high unmet medical need. Our R&D efforts include, but are not limited to, areas such as pharmaceutical formulation,analytical chemistry, process development, engineering, scale‑up and drug optimization/delivery. Please see“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our R&D expendituresfor our years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013. Permits and Regulatory Approvals We hold various licenses in respect of our manufacturing activities conducted in Wilmington, Ohio and Athlone,Ireland. The primary licenses held in this regard are FDA Registrations of Drug Establishment; and Drug EnforcementAdministration of the U.S. Department of Justice (“DEA”). We also hold a Manufacturers Authorization (No. M1067), anInvestigational Medicinal Products Manufacturers Authorization (No. IMP074) and Certificates of Good ManufacturingPractice Compliance of a Manufacturer (Ref. 2014/7828/IMP074 and 2014/7828/M1067) from the Health ProductsRegulatory Authority (“HPRA”) in respect of our Athlone, Ireland facility, and a number of Controlled17 Table of ContentsSubstance Licenses granted by the HPRA. Due to certain U.S. state law requirements, we also hold certain state licenses tocover distribution activities through certain states and not in respect of any manufacturing activities conducted in thosestates. We do not generally act as the product authorization holder for products incorporating our drug delivery technologiesthat have been developed on behalf of a licensee. In such cases, our licensee usually holds the relevant authorization fromthe FDA or other national regulator, and we would support this authorization by furnishing a copy of the Drug Master File, orthe chemistry, manufacturing and controls data to the relevant regulator to prove adequate manufacturing data in respect ofthe product. We would generally update this information annually with the relevant regulator. In other cases where we aredeveloping proprietary products, such as VIVITROL and ARISTADA, we hold the appropriate regulatory documentationourselves. Marketing, Sales and Distribution We are responsible for the marketing of VIVITROL and ARISTADA in the U.S. We focus our sales and marketing effortson specialist physicians in private practice and in public treatment systems. We use customary pharmaceutical companypractices to market our product and to educate physicians, such as sales representatives calling on individual physicians,advertisements, professional symposia, selling initiatives, public relations and other methods. We provide, or contract withthird‑party vendors to provide, customer service and other related programs for our products, such as product‑specificwebsites, insurance research services and order, delivery and fulfillment services. Our sales force for VIVITROL in the U.S. consists of approximately 70 individuals. VIVITROL is sold directly topharmaceutical wholesalers, specialty pharmacies and a specialty distributor. Product sales of VIVITROL during the yearended December 31, 2015 to McKesson Corporation, CVS Caremark Corporation and Cardinal Health representedapproximately 17%, 15% and 10%, respectively, of total VIVITROL sales. Our sales force for ARISTADA in the U.S. consists of approximately 200 individuals. ARISTADA is primarily sold topharmaceutical wholesalers. ICS AmerisourceBergen, a division of AmerisourceBergen Corporation, provides warehousing, shipping andadministrative services for VIVITROL and ARISTADA. Under our license agreements with Janssen, AstraZeneca, Acorda and other licensees and sublicensees, these companiesare responsible for the commercialization of any products developed thereunder if and when regulatory approval is obtained. Competition We face intense competition in the development, manufacture, marketing and commercialization of our products frommany and varied sources, such as academic institutions, government agencies, research institutions and biotechnology andpharmaceutical companies, including other companies with similar technologies. Some of these competitors are also ourlicensees, who control the commercialization of products from which we receive manufacturing and royalty revenues. Thesecompetitors are working to develop and market other systems, products and other methods of preventing or reducing disease,and new small‑molecule and other classes of drugs that can be used with or without a drug delivery system. The biotechnology and pharmaceutical industries are characterized by intensive research, development andcommercialization efforts and rapid and significant technological change. Many of our competitors are larger and havesignificantly greater financial and other resources than we do. We expect our competitors to develop new technologies,products and processes that may be more effective than those we develop. The development of technologically improved ordifferent products or technologies may make our products or product platforms obsolete or noncompetitive before we recoverexpenses incurred in connection with their development or realize any revenues from any marketed product. There are other companies developing extended‑release product platforms. In many cases, there are products on themarket or in development that may be in direct competition with our products. In addition, we know of new chemical entitiesthat are being developed that, if successful, could compete against our products. These chemical entities are being designedto work differently than our products and may turn out to be safer or to be more effective than our18 Table of Contentsproducts. Among the many experimental therapies being tested around the world, there may be some that we do not nowknow of that may compete with our proprietary product platforms or products. Our licensees could choose a competingtechnology to use with their drugs instead of one of our product platforms and could develop products that compete with ourproducts. With respect to our proprietary injectable product platform, we are aware that there are other companies developingextended‑release delivery systems for pharmaceutical products. In the treatment of schizophrenia, ARISTADA, INVEGASUSTENNA/XEPLION and INVEGA TRINZA and RISPERDAL CONSTA compete with each other and a number of otherinjectable products including ZYPREXA RELPREVV ((olanzapine) For Extended Release Injectable Suspension), which ismarketed and sold by Lilly; ABILIFY MAINTENA, (aripiprazole for extended release injectable suspension), a once‑monthlyinjectable formulation of ABILIFY (aripiprazole) developed by Otsuka Pharmaceutical Co., Ltd. (“Otsuka Pharm. Co.”); oralcompounds currently on the market; and generic versions of branded oral and injectable products. In the treatment of bipolardisorder, RISPERDAL CONSTA competes with antipsychotics such as ABILIFY, LATUDA, risperidone, olanzapine,ziprasidone and clozapine. In the treatment of alcohol dependence, VIVITROL competes with CAMPRAL (acamprosate calcium) sold by ForestLaboratories and ANTABUSE sold by Odyssey Pharmaceuticals (“Odyssey”) as well as currently marketed drugs, includinggeneric drugs, also formulated from naltrexone. Other pharmaceutical companies are developing products that have shownsome promise in treating alcohol dependence that, if approved by the FDA, would compete with VIVITROL. In the treatment of opioid dependence, VIVITROL competes with methadone, oral naltrexone, SUBOXONE(buprenorphine HCl/naloxone HCl dehydrate sublingual tablets), SUBOXONE (buprenorphine/naloxone) Sublingual Film,and SUBUTEX (buprenorphine HCl sublingual tablets), each of which is marketed and sold by Indivior plc, and BUNAVAILbuccal film (buprenorphine and naloxone) marketed by BioDelivery Sciences, and ZUBSOLV (buprenorphine and naloxone)marketed by Orexo US, Inc. It also competes with generic versions of SUBUTEX and SUBOXONE sublingual tablets. Otherpharmaceutical companies are developing products that have shown promise in treating opioid dependence that, if approvedby the FDA, would compete with VIVITROL. BYDUREON competes with established diabetes therapies for market share. Such competitive products includesulfonylureas, metformin, insulins, thiazolidinediones, glinides, dipeptidyl peptidase type IV inhibitors, insulin sensitizers,alpha‑glucosidase inhibitors and sodium‑glucose transporter‑2 inhibitors. BYDUREON also competes with otherglucagon‑like peptide‑1 (“GLP‑1”) agonists, including VICTOZA (liraglutide (rDNA origin) injection), which is marketedand sold by Novo Nordisk A/S and TRULICITY ((dulaglutide) injection), which is marketed and sold by Lilly. Otherpharmaceutical companies are developing product candidates for the treatment of type 2 diabetes that, if approved by theFDA, would compete with BYDUREON. While AMPYRA/FAMPYRA is the first product approved as a treatment to improve walking in patients with MS, thereare a number of FDA‑approved therapies for MS disease management that seek to reduce the frequency and severity ofexacerbations or slow the accumulation of physical disability for people with certain types of MS. These products includeAVONEX, TYSABRI, TECFIDERA, and PLEGRIDY from Biogen; BETASERON from Bayer HealthCare Pharmaceuticals;COPAXONE from Teva Pharmaceutical Industries Ltd.; REBIF and NOVANTRONE from EMD Serono, Inc.; GILENYA andEXTAVIA from Novartis AG; AUBAGIO and LEMTRADA from Sanofi‑Aventis and generic products. With respect to our NanoCrystal technology, we are aware that other technology approaches similarly address poorlywater‑soluble drugs. These approaches include nanoparticles, cyclodextrins, lipid‑based self‑emulsifying drug deliverysystems, dendrimers and micelles, among others, any of which could limit the potential success and growth prospects ofproducts incorporating our NanoCrystal technology. In addition, there are many competing technologies to our OCRtechnology, some of which are owned by large pharmaceutical companies with drug delivery divisions and other, smallerdrug‑delivery‑specific companies. Patents and Proprietary Rights Our success will be dependent, in part, on our ability to obtain and maintain patent protection for our products,including those marketed and sold by our licensees, to maintain trade secret protection and to operate without infringingupon the proprietary rights of others. We have a proprietary portfolio of patent rights and exclusive licenses to patents19 Table of Contentsand patent applications. In addition, our licensees may own issued patents that cover certain of our products. We have filednumerous patent applications in the U.S. and in other countries directed to compositions of matter as well as processes ofpreparation and methods of use, including patent applications relating to each of our delivery technologies. As of December31, 2015, we owned more than 200 issued U.S. patents. In the future, we plan to file additional patent applications in the U.S.and in other countries directed to new or improved products and processes, and we intend to vigorously defend our patentpositions. ARISTADA We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related toARISTADA. Our principal U.S. patents and expiration dates are: ·U.S. Patent No. 8,431,576, having claims to a class of compounds that includes aripiprazole lauroxil, expiringin 2030; ·U.S. Patent No. 8,796,276, having claims to methods of treating schizophrenia using a class of compounds thatincludes aripiprazole lauroxil, expiring in 2030;·U.S. Patent No. 9,034,867, having claims to pharmaceutical compositions, expiring in 2032; and·U.S. Patent No. 9,193,685, having claims to pharmaceutical compositions that confer long-term stability,expiring in 2033. In addition to patent protection, in the U.S. ARISTADA is entitled to regulatory exclusivity afforded to new chemicalentities until 2020. VIVITROL, RISPERDAL CONSTA and BYDUREON We have filed patent applications worldwide that cover our microsphere technology and have a significant number ofpatents and certain pending patent applications covering our microsphere technology, which, to some extent, coverVIVITROL, RISPERDAL CONSTA and BYDUREON. The latest of our patents covering VIVITROL, RISPERDAL CONSTAand BYDUREON expire in 2029, 2023 and 2025 in the U.S., respectively, and 2021, 2021 and 2024 in the EU, respectively,and we own 20, 7, and 10 Orange-Book listed U.S. patents covering VIVITROL, RISPERDAL CONSTA and BYDUREON,respectively. INVEGA SUSTENNA/XEPLION and INVEGA TRINZA Our NanoCrystal technology patent portfolio contains a number of patents granted throughout the world, including theU.S. and countries outside of the U.S. We also have a number of pending patent applications covering our NanoCrystaltechnology which, to some extent, cover INVEGA SUSTENNA/XEPLION and INVEGA TRINZA. The latest of the patentscovering INVEGA SUSTENNA/XEPLION expire in May 2019 in the U.S. and 2022 in the EU. The latest of the patentscovering INVEGA TRINZA expire in November 2017 in the U.S. and 2022 in the EU. Additional pending applications mayprovide a longer period of patent coverage, if granted, and in certain countries, such as Australia and South Korea, patentcoverage extends until 2023. AMPYRA/FAMPYRA Our OCR technology is protected by a patent estate including patents and patent applications filed worldwide. SomeOCR patent families are product‑specific (including some which are owned by our licensees), whereas others cover genericdelivery platforms (e.g. different release profiles, taste masking). AMPYRA/FAMPYRA incorporates our OCR technology,and the latest of the patents covering AMPYRA/FAMPYRA expires in May 2027 in the U.S. and April 2025 in the EU. For adiscussion of legal proceedings related to the patents covering AMPYRA, see “Item 3—Legal Proceedings.” ALKS 5461, ALKS 3831 and ALKS 7119 We also have worldwide patent protection for our Key Development Programs. We own U.S. patents that cover a class ofcompounds that includes the opioid modulators in each of ALKS 5461, ALKS 3831 and ALKS 7119 and granted method oftreatment claims that will cover ALKS 5461. Our principal U.S. patents and expiration dates for ALKS 5461, ALKS 3831, andALKS 7119 are:20 Table of Contents U.S. Patent No. Product Candidate(s) Covered Expiration Date7,956,187 ALKS 5461ALKS 3831ALKS 7119 20218,252,929ALKS 5461ALKS 383120217,262,298ALKS 5461ALKS 383120258,680,112 ALKS 5461ALKS 3831 20299,119,848 ALKS 5461ALKS 3831 20319,126,977 ALKS 3831 20318,778,960 ALKS 3831 20329,211,293 ALKS 5461 20328,822,488 ALKS 5461 2032 ALKS 8700 We have U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to ALKS8700. Our U.S. patents and expiration dates for ALKS 8700 are: ·U.S. Patent No. 8,669,281, having claims to a composition of matter that covers ALKS 8700, expiring in 2033;and ·U.S. Patent No. 9,090,558, having claims to methods of treating MS, expiring in 2033. We have exclusive rights through licensing agreements with third parties to issued U.S. patents, pending patentapplications and corresponding patents or patent applications in countries outside the U.S, subject in certain instances to therights of the U.S. government to use the technology covered by such patents and patent applications. Under certain licensingagreements, we are responsible for patent expenses, and we pay annual license fees and/or minimum annual royalties. Inaddition, under these licensing agreements, we are obligated to pay royalties on future sales of products, if any, covered bythe licensed patents. We know of several U.S. patents issued to other parties that may relate to our products. The manufacture, use, offer forsale, sale or import of some of our products might be found to infringe on the claims of these patents. A party might file aninfringement action against us. The cost of defending such an action is likely to be high, and we might not receive afavorable ruling. We also know of patent applications filed by other parties in the U.S. and various other countries that may relate to someof our products if issued in their present form. The patent laws of the U.S. and other countries are distinct, and decisions as topatenting, validity of patents and infringement of patents may be resolved differently in different countries. If patents areissued to any of these applicants, we or our licensees may not be able to manufacture, use, offer for sale, sell or import some ofour products without first getting a license from the patent holder. The patent holder may not grant us a license on reasonableterms, or it may refuse to grant us a license at all. This could delay or prevent us from developing, manufacturing, selling orimporting those of our products that would require the license. We try to protect our proprietary position by filing patent applications in the U.S. and in other countries related to ourproprietary technology, inventions and improvements that are important to the development of our business. Because thepatent position of biotechnology and pharmaceutical companies involves complex legal and factual questions,enforceability of patents cannot be predicted with certainty. The ultimate degree of patent protection that will be afforded toproducts and processes, including ours, in the U.S. and in other important markets, remains uncertain and is dependent uponthe scope of protection decided upon by the patent offices, courts and lawmakers in these countries. Patents, if issued, may bechallenged, invalidated or circumvented. Thus, any patents that we own or license from others may not provide anyprotection against competitors. Our pending patent applications, those we may file in the future, or those we may licensefrom third parties, may not result in patents being issued. If issued, they may not provide us with proprietary protection orcompetitive advantages against competitors with similar technology. Furthermore, others may independently develop similartechnologies or duplicate any technology that we have developed outside the scope of our patents. The laws of certaincountries do not protect our intellectual property rights to the same extent as do the laws of the U.S.21 Table of Contents We also rely on trade secrets, know‑how and technology, which are not protected by patents, to maintain ourcompetitive position. We try to protect this information by entering into confidentiality agreements with parties that haveaccess to it, such as our corporate partners, collaborators, licensees, employees and consultants. Any of these parties maybreach the agreements and disclose our confidential information or our competitors might learn of the information in someother way. If any trade secret, know‑how or other technology not protected by a patent were to be disclosed to, orindependently developed by, a competitor, such event could materially adversely affect our business, results of operations,cash flows and financial condition. For more information, see “Item 1A—Risk Factors.” Our trademarks, including VIVITROL and ARISTADA, are important to us and are generally covered by trademarkapplications or registrations in the U.S. Patent and Trademark Office and the patent or trademark offices of other countries.Products using our proprietary technologies also use trademarks that are owned by our licensees, such as the marks INVEGASUSTENNA, INVEGA TRINZA and RISPERDAL CONSTA, which are registered trademarks of Johnson & Johnson,BYDUREON, which is a registered trademark of Amylin, and AMPYRA and FAMPYRA, which are registered trademarks ofAcorda. Trademark protection varies in accordance with local law, and continues in some countries as long as the mark isused and in other countries as long as the mark is registered. Trademark registrations generally are for fixed but renewableterms. Revenues and Assets by Region For the fiscal years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, our revenue andassets are presented below by geographic area: Nine Year Ended Year Ended Months Ended (In thousands) December 31, 2015 December 31, 2014 December 31, 2013 Revenue by region: U.S. $448,639 $398,189 $269,005 Ireland 3,902 7,691 5,722 Rest of world 175,794 212,909 158,184 Assets by region: Current assets: U.S. $360,154 $385,715 $382,571 Ireland 394,281 490,577 187,023 Rest of world 527 501 544 Long-term assets: U.S.: Intangible assets $— $— $— Goodwill — 3,677 3,677 Other 294,158 226,479 222,818 Ireland: Intangible assets $379,186 $479,412 $537,565 Goodwill 92,873 90,535 89,063 Other 334,565 242,162 151,586 Regulatory Regulation of Pharmaceutical Products United States Our current and contemplated activities, and the products and processes that result from such activities, are subjectto substantial government regulation. Before new pharmaceutical products may be sold in the U.S., pre‑clinical studiesand clinical trials of the products must be conducted and the results submitted to the FDA for approval. Clinical trialprograms must determine an appropriate dose and regimen, establish substantial evidence of effectiveness and define theconditions for safe use. This is a high‑risk process that requires stepwise clinical studies in which the product candidatemust successfully meet pre‑specified endpoints. Pre‑Clinical Testing: Before beginning testing of any compounds with potential therapeutic value in humansubjects in the U.S., stringent government requirements for pre‑clinical data must be satisfied. Pre‑clinical testingincludes both in vitro, or in an artificial environment outside of a living organism, and in vivo, or within a living22 Table of Contentsorganism, laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Investigational New Drug (“IND”) Exemption: Pre‑clinical testing results obtained from in vivo studies in severalanimal species, as well as from in vitro studies, are submitted to the FDA, as part of an IND, and are reviewed by the FDAprior to the commencement of human clinical trials. The pre‑clinical data must provide an adequate basis for evaluatingboth the safety and the scientific rationale for the initial clinical studies in human volunteers. Clinical Trials: Clinical trials involve the administration of the drug to healthy human volunteers or to patientsunder the supervision of a qualified investigator pursuant to an FDA‑reviewed protocol. Human clinical trials aretypically conducted in three sequential phases, although the phases may overlap with one another and, depending uponthe nature of the clinical program, a specific phase or phases may be skipped altogether. Clinical trials must beconducted under protocols that detail the objectives of the study, the parameters to be used to monitor safety, and theefficacy criteria, if any, to be evaluated. Each protocol must be submitted to the FDA as part of the IND. ·Phase 1 clinical trials—test for safety, dose tolerability, absorption, bio‑distribution, metabolism, excretion andclinical pharmacology and, if possible, to gain early evidence regarding efficacy. ·Phase 2 clinical trials—involve a relatively small sample of the actual intended patient population and seek toassess the efficacy of the drug for specific targeted indications, to determine dose‑response and the optimal doserange and to gather additional information relating to safety and potential adverse effects. ·Phase 3 clinical trials—consist of expanded, large‑scale studies of patients with the target disease or disorder toobtain definitive statistical evidence of the efficacy and safety of the proposed product and dosing regimen. In the U.S., the results of the pre‑clinical and clinical testing of a product candidate are then submitted to the FDA inthe form of a Biologics License Application (“BLA”), or an NDA. The NDA or BLA also includes information pertainingto the preparation of the new drug, analytical methods, details of the manufacture of finished products and proposedproduct packaging and labeling. The submission of an application is not a guarantee that the FDA will find theapplication complete and accept it for filing. The FDA may refuse to file the application if it is not consideredsufficiently complete to permit a review and will inform the applicant of the reason for the refusal. The applicant maythen resubmit the application and include the supplemental information. Once an NDA or BLA is accepted for filing, the FDA has 10 months, under its standard review process, within whichto review the application (for some applications, the review process is longer than 10 months). For drugs that, ifapproved, would represent a significant improvement in the safety or effectiveness of the treatment, diagnosis, orprevention of serious conditions when compared to standard applications, the FDA may assign “priority review”designation and review the application within 6 months. The FDA has additional review pathways to expeditedevelopment and review of new drugs that are intended to treat serious or life‑threatening conditions and demonstratethe potential to address unmet medical needs, including: “Fast Track,” “Breakthrough Therapy,” and “AcceleratedApproval.” For example, in October 2013, the FDA granted Fast Track status for ALKS 5461 for the adjunctive treatment ofMDD in patients with inadequate response to standard antidepressant therapies. Fast Track is a process designed toexpedite the review of such products by providing, among other things, more frequent meetings with the FDA to discussthe product’s development plan, more frequent written correspondence from the FDA about trial design, eligibility foraccelerated approval, and rolling review, which allows submission of individually completed sections of a NDA or BLAfor FDA review before the entire filing is completed. Fast Track status does not ensure that a product will be developedmore quickly or receive FDA approval. As part of its review, the FDA may refer the application to an advisory committee for independent advice onquestions related to the development of the drug and a recommendation as to whether the application should beapproved. The FDA is not bound by the recommendation of an advisory committee; however, historically, it hastypically followed such recommendations. The FDA may determine that a Risk Evaluation and Mitigation Strategy(“REMS”) is necessary to ensure that the benefits of a new product outweigh its risks. If required, a REMS may includevarious elements, such as publication of a medication guide, patient package insert, a communication plan to23 Table of Contentseducate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or othermeasures that the FDA deems necessary to assure the safe use of the drug. In reviewing a BLA or NDA, the FDA may grant marketing approval, or issue a complete response letter tocommunicate to the applicant the reasons the application cannot be approved in the current form and provide input onthe changes that must be made before an application can be approved. Even if such additional information and data aresubmitted, the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. The receipt ofregulatory approval often takes a number of years, involves the expenditure of substantial resources and depends on anumber of factors, including the severity of the disease in question, the availability of alternative treatments, potentialsafety signals observed in pre‑clinical or clinical tests, and the risks and benefits demonstrated in clinical trials. It isimpossible to predict with any certainty whether and when the FDA will grant marketing approval. Even if a product isapproved, the approval may be subject to limitations based on the FDA’s interpretation of the data. For example, theFDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging orlabeling, expedited reporting of certain adverse events, pre‑approval of promotional materials or restrictions ondirect‑to‑consumer advertising, any of which could negatively impact the commercial success of a drug. The FDA mayrequire a sponsor to conduct additional post‑marketing studies as a condition of approval to provide data on safety andeffectiveness. In addition, prior to commercialization, controlled substances are subject to review and potentialscheduling by the DEA. The FDA tracks information on side effects and adverse events reported during clinical studies and after marketingapproval. Non‑compliance with safety reporting requirements may result in civil or criminal penalties. Side effects oradverse events that are identified during clinical trials can delay, impede or prevent marketing approval. Based on newsafety information that emerges after approval, the FDA can mandate product labeling changes, impose a new REMS orthe addition of elements to an existing REMS, require new post‑marketing studies (including additional clinical trials),or suspend or withdraw approval of the product. If we seek to make certain types of changes to an approved product, such as adding a new indication, making certainmanufacturing changes, or changing manufacturers or suppliers of certain ingredients or components, the FDA will needto review and approve such changes in advance. In the case of a new indication, we are required to demonstrate withadditional clinical data that the product is safe and effective for the new intended use. Such regulatory reviews can resultin denial or modification of the planned changes, or requirements to conduct additional tests or evaluations that cansubstantially delay or increase the cost of the planned changes. In addition, the FDA regulates all advertising and promotional activities for products under its jurisdiction. Acompany can make only those claims relating to safety and efficacy that are approved by the FDA. However, physiciansmay prescribe legally available drugs for uses that are not described in the drug’s labeling. Such off‑label uses arecommon across certain medical specialties and often reflect a physician’s belief that the off‑label use is the besttreatment for a particular patient. The FDA does not regulate the behavior of physicians in their choice of treatments, butthe FDA regulations do impose stringent restrictions on manufacturers’ communications regarding off‑label uses. Failureto comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by theFDA and the U.S. Department of Justice, corrective advertising and the full range of civil and criminal penaltiesavailable to the FDA and the U.S. Department of Justice. Controlled Substances Act: The DEA regulates pharmaceutical products that are controlled substances. Controlledsubstances are those drugs that appear on one of the five schedules promulgated and administered by the DEA under theControlled Substances Act (the “CSA”). The CSA governs, among other things, the inventory, distribution,recordkeeping, handling, security and disposal of controlled substances. Pharmaceutical products that act on the CNSare often evaluated for abuse potential; a product that is then classified as controlled substance must undergo schedulingby the DEA, which is a separate process that may delay the commercial launch of a pharmaceutical product even afterFDA approval of the NDA. Companies with a scheduled pharmaceutical product are subject to periodic and ongoinginspections by the DEA and similar state drug enforcement authorities to assess ongoing compliance with the DEA’sregulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation,or a denial of renewal, of any DEA registration and injunctions, or civil or criminal penalties. Outside the United States 24 Table of ContentsOur products are commercialized by our licensees in numerous jurisdictions outside the U.S. Most of thesejurisdictions have product approval and post‑approval regulatory processes that are similar in principle to those in theU.S. In Europe, there are several tracks for marketing approval, depending on the type of product for which approval issought. Under the centralized procedure, a company submits a single application to the EMA. The marketing applicationis similar to the NDA in the U.S. and is evaluated by the Committee for Medicinal Products for Human Use (“CHMP”),the expert scientific committee of the EMA. If the CHMP determines that the marketing application fulfills therequirements for quality, safety, and efficacy, it will submit a favorable opinion to the European Commission (“EC”).The CHMP opinion is not binding, but is typically adopted by the EC. A marketing application approved by the EC isvalid in all member states. In addition to the centralized procedure, Europe also has: (i) a nationalized procedure, which requires a separateapplication to, and approval determination by, each country; (ii) a decentralized procedure, whereby applicants submitidentical applications to several countries and receive simultaneous approval; and (iii) a mutual recognition procedure,where applicants submit an application to one country for review and other countries may accept or reject the initialdecision. Regardless of the approval process employed, various parties share responsibilities for the monitoring,detection and evaluation of adverse events post‑approval, including national authorities, the EMA, the EC and themarketing authorization holder. Good Manufacturing Processes The FDA, the EMA, the competent authorities of the EU Member States and other regulatory agencies regulate andinspect equipment, facilities and processes used in the manufacturing of pharmaceutical and biologic products prior toapproving a product. If, after receiving clearance from regulatory agencies, a company makes a material change inmanufacturing equipment, location or process, additional regulatory review and approval may be required. Companiesalso must adhere to cGMP and product‑specific regulations enforced by the FDA following product approval. The FDA,the EMA and other regulatory agencies also conduct regular, periodic visits to re‑inspect equipment, facilities andprocesses following the initial approval of a product. If, as a result of these inspections, it is determined that ourequipment, facilities or processes do not comply with applicable regulations and conditions of product approval,regulatory agencies may seek civil, criminal or administrative sanctions and/or remedies against us, including thesuspension of our manufacturing operations. Good Clinical Practices The FDA, the EMA and other regulatory agencies promulgate regulations and standards, commonly referred to asGood Clinical Practices (“GCP”), for designing, conducting, monitoring, auditing and reporting the results of clinicaltrials to ensure that the data and results are accurate and that the trial participants are adequately protected. The FDA, theEMA and other regulatory agencies enforce GCP through periodic inspections of trial sponsors, principal investigators,trial sites, contract research organizations (“CROs”) and institutional review boards. If our studies fail to comply withapplicable GCP, the clinical data generated in our clinical trials may be deemed unreliable, and relevant regulatoryagencies may require us to perform additional clinical trials before approving our marketing applications.Noncompliance can also result in civil or criminal sanctions. We rely on third parties, including CROs, to carry out manyof our clinical trial‑related activities. Failure of such third parties to comply with GCP can likewise result in rejection ofour clinical trial data or other sanctions. Hatch‑Waxman Act Under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch‑Waxman Act”),Congress created an abbreviated FDA review process for generic versions of pioneer, or brand‑name, drug products. Thelaw also provides incentives by awarding, in certain circumstances, non‑patent related marketing exclusivities to pioneerdrug manufacturers. Newly approved drug products and changes to the conditions of use of approved products maybenefit from periods of non‑patent‑related marketing exclusivity in addition to any patent protection the drug productmay have. The Hatch‑Waxman Act provides five years of new chemical entity (“NCE”) marketing exclusivity to the firstapplicant to gain approval of an NDA for a product that contains an active ingredient, known as the active drug moiety,not found in any other approved product. The FDA is prohibited from accepting any abbreviated NDA (“ANDA”) for ageneric drug or 505(b)(2) application for five years from the date of approval of the NCE, or four years in the case of anANDA or 505(b)(2) application containing a patent challenge. A 505(b)(2) application is an NDA wherein the applicantrelies, in part, on data and the FDA’s findings of safety and efficacy25 Table of Contentsfrom studies not conducted by or for it and for which the applicant has not obtained a right of reference. This exclusivitywill not prevent the submission or approval of a full NDA (e.g., under 505(b)(1)), as opposed to an ANDA or 505(b)(2)application, for any drug, including, for example, a drug with the same active ingredient, dosage form, route ofadministration, strength and conditions of use. The Hatch‑Waxman Act also provides three years of exclusivity for applications containing the results of newclinical investigations, other than bioavailability studies, essential to the FDA’s approval of new uses of approvedproducts, such as new indications, dosage forms, strengths, or conditions of use. However, this exclusivity only protectsagainst the approval of ANDAs and 505(b)(2) applications for the protected use and will not prohibit the FDA fromaccepting or approving ANDAs or 505(b)(2) applications for other products containing the same active ingredient. The Hatch‑Waxman Act requires NDA applicants and NDA holders to provide certain information about patentsrelated to the drug for listing in the FDA’s Approved Drugs Product List, commonly referred to as the Orange Book.ANDA and 505(b)(2) applicants must then certify regarding each of the patents listed with the FDA for the referenceproduct. A certification that a listed patent is invalid or will not be infringed by the marketing of the applicant’s productis called a “Paragraph IV certification.” If the ANDA or 505(b)(2) applicant provides such a notification of patentinvalidity or noninfringement, then the FDA may accept the ANDA or 505(b)(2) application four years after approval ofthe NDA for an NCE. If a Paragraph IV certification is filed and the ANDA or 505(b)(2) application has been accepted asa reviewable filing by the FDA, the ANDA or 505(b)(2) applicant must then, within 20 days, provide notice to the NDAholder and patent owner stating that the application has been submitted and providing the factual and legal basis for theapplicant’s opinion that the patent is invalid or not infringed. The NDA holder or patent owner may file suit against theANDA or 505(b)(2) applicant for patent infringement. If this is done within 45 days of receiving notice of theParagraph IV certification, a one‑time, 30‑month stay of the FDA’s ability to approve the ANDA or 505(b)(2) applicationis triggered. The 30‑month stay begins at the end of the NDA holder’s data exclusivity period, or, if data exclusivity hasexpired, on the date that the patent holder is notified. The FDA may approve the proposed product before the expirationof the 30‑month stay if a court finds the patent invalid or not infringed, or if the court shortens the period because theparties have failed to cooperate in expediting the litigation. Sales and Marketing We are subject to various U.S. federal and state laws pertaining to healthcare fraud and abuse, includinganti‑kickback laws and false claims laws. Anti‑kickback laws make it illegal for a prescription drug manufacturer tosolicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including thepurchase or prescription of a particular drug. Due to the broad scope of the U.S. statutory provisions, the general absenceof guidance in the form of regulations, and few court decisions addressing industry practices, it is possible that ourpractices might be challenged under anti‑kickback or similar laws. False claims laws prohibit anyone from knowinglyand willingly presenting, or causing to be presented, for payment to third‑party payers (including Medicare andMedicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided asclaimed or claims for medically unnecessary items or services. Activities relating to the sale and marketing of ourproducts may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminaland/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federalhealthcare programs (including Medicare and Medicaid). In addition, federal and state authorities are paying increasedattention to enforcement of these laws within the pharmaceutical industry and private individuals have been active inalleging violations of the laws and bringing suits on behalf of the government under the federal civil False Claims Act. Ifwe were subject to allegations concerning, or were convicted of violating, these laws, our business could be harmed. See“Item 1A—Risk Factors” and specifically those sections entitled “—If we fail to comply with the extensive legal andregulatory requirements affecting the healthcare industry, we could face increased costs, penalties and a loss ofbusiness,” “—Revenues generated by sales of our products depend on the availability of reimbursement from third‑partypayers, and a reduction in payment rate or reimbursement or an increase in our financial obligation to governmentalpayers could result in decreased sales of our products and decreased revenues” and “—The commercial use of ourproducts may cause unintended side effects or adverse reactions, or incidents of misuse may occur, which couldadversely affect our business and share price.” Laws and regulations have been enacted by the federal government and various states to regulate the sales and26 Table of Contentsmarketing practices of pharmaceutical manufacturers. The laws and regulations generally limit financial interactionsbetween manufacturers and healthcare providers or require disclosure to the government and public of such interactions.The laws include federal “sunshine” provisions enacted in 2010 as part of the comprehensive federal healthcare reformlegislation; Centers for Medicare and Medicaid Services (“CMS”) issued a final rule with respect to such provisions inFebruary 2013 and manufacturer reporting commenced in March 2014. The sunshine provisions apply to pharmaceuticalmanufacturers with products reimbursed under certain government programs and require those manufacturers to discloseannually to the federal government (for re‑disclosure to the public) certain payments made to, or at the request of, or onbehalf of, physicians or to teaching hospitals. Certain state laws also require disclosure of pharmaceutical pricinginformation and marketing expenditures. Given the ambiguity found in many of these laws and their implementation,our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations. Pricing and Reimbursement United States In the U.S., sales of our products, including those sold by our licensees, and our ability to generate revenues on suchsales are dependent, in significant part, on the availability and level of reimbursement from third‑party payers such asstate and federal governments, including Medicare and Medicaid, managed care providers and private insurance plans.Third‑party payers are increasingly challenging the prices charged for medical products and examining the medicalnecessity and cost‑effectiveness of medical products, in addition to their safety and efficacy. Medicaid is a joint federal and state program that is administered by the states for low‑income and disabledbeneficiaries. Under the Medicaid rebate program, we are required to pay a rebate for each unit of product reimbursed bythe state Medicaid programs. The amount of the rebate for each product is set by law as the greater of 23.1% of averagemanufacturer price (“AMP”) or the difference between AMP and the best price available from us to any commercial ornon‑federal governmental customer. The rebate amount must be adjusted upward where the AMP for a product’s first fullquarter of sales, when adjusted for increases in the Consumer Price Index—Urban, is less than the AMP for the currentquarter, with this difference being the amount by which the rebate is adjusted upwards. The rebate amount is required tobe recomputed each quarter based on our report of current AMP and best price for each of our products to the CMS. Theterms of our participation in the rebate program imposes a requirement for us to report revisions to AMP or best pricewithin a period not to exceed 12 quarters from the quarter in which the data was originally due. Any such revisions couldhave the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of therevision. In addition, if we were found to have knowingly submitted false information to the government, the statuteprovides for civil monetary penalties per item of false information in addition to other penalties available to thegovernment. Medicare is a federal program that is administered by the federal government that covers individuals age 65 andover as well as those with certain disabilities. Medicare Part B pays physicians who administer our products under apayment methodology using average sales price (“ASP”) information. Manufacturers, including us, are required toprovide ASP information to the CMS on a quarterly basis. This information is used to compute Medicare payment rates,with rates for Medicare Part B drugs outside the hospital outpatient setting and in the hospital outpatient settingconsisting of ASP plus a specified percentage. These rates are adjusted periodically. If a manufacturer is found to havemade a misrepresentation in the reporting of ASP, the statute provides for civil monetary penalties for eachmisrepresentation for each day in which the misrepresentation was applied. Medicare Part D provides coverage to enrolled Medicare patients for self‑administered drugs (i.e. drugs that do notneed to be injected or otherwise administered by a physician). Medicare Part D also covers the prescription drug benefitfor dual eligible beneficiaries. Medicare Part D is administered by private prescription drug plans approved by the U.S.government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage andpricing, which the drug plan may modify from time‑to‑time. The prescription drug plans negotiate pricing withmanufacturers and may condition formulary placement on the availability of manufacturer discounts. Except for dualeligible Medicare Part D beneficiaries who qualify for low income subsidies, manufacturers, including us, are required toprovide a 50% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when thosebeneficiaries reach the coverage gap in their drug benefits. The availability of federal funds to pay for our products under the Medicaid Drug Rebate Program and27 Table of ContentsMedicare Part B requires that we extend discounts to certain purchasers under the Public Health Services (“PHS”)pharmaceutical pricing program. Purchasers eligible for discounts include a variety of community health clinics, otherentities that receive health services grants from PHS, and hospitals that serve a disproportionate share of financiallyneedy patients. We also make our products available for purchase by authorized users of the Federal Supply Schedule (“FSS”) of theGeneral Services Administration pursuant to our FSS contract with the Department of Veterans Affairs. Under theVeterans Health Care Act of 1992 (the “VHC Act”), we are required to offer deeply discounted FSS contract pricing tofour federal agencies: the Department of Veterans Affairs; the Department of Defense; the Coast Guard; and the PHS(including the Indian Health Service), in order for federal funding to be made available for reimbursement of any of ourproducts by such federal agencies and certain federal grantees. Coverage under Medicaid, the Medicare Part B programand the PHS pharmaceutical pricing program is also conditioned upon FSS participation. FSS pricing is negotiatedperiodically with the Department of Veterans Affairs. FSS pricing is intended not to exceed the price that we charge ourmost‑favored non‑federal customer for a product. In addition, prices for drugs purchased by the Department of VeteransAffairs, Department of Defense (including drugs purchased by military personnel and dependents through the TriCareretail pharmacy program), Coast Guard and PHS are subject to a cap on pricing equal to 76% of the non‑federal averagemanufacturer price (“non‑FAMP”). An additional discount applies if non‑FAMP increases more than inflation (measuredby the Consumer Price Index—Urban). In addition, if we are found to have knowingly submitted false information to thegovernment, the VHC Act provides for civil monetary penalties per false item of information in addition to otherpenalties available to the government. In addition, on January 21, 2016, CMS released the final Medicaid covered outpatient drug regulation, which willbe effective April 1, 2016. This regulation implements those changes made by the Affordable Care Act to the Medicaiddrug rebate statute in 2010 and addresses a number of other issues with respect to the Medicaid program, including, butnot limited to, the eligibility and calculation methodologies for AMP and best price, and the expansion of Medicaidrebate liability to include Medicaid managed care organizations. The U.S. government regularly considers reforming healthcare coverage and lessening healthcare costs. Suchreforms may include changes to the coverage and reimbursement of our products, which may have a significant impacton our business. In addition, emphasis on managed care in the U.S. has increased and we expect will continue to increasethe pressure on drug pricing. Private insurers regularly seek to manage drug cost and utilization by implementingcoverage and reimbursement limitations through means including, but not limited to, formularies, increasedout‑of‑pocket obligations and various prior authorization requirements. Even if favorable coverage and reimbursementstatus is attained for one or more products for which we have received regulatory approval, less favorable coveragepolicies and reimbursement rates may be implemented in the future. Outside the United States Within the EU, products are paid for by a variety of payers, with governments being the primary source of payment.Governments may determine or influence reimbursement of products. Governments may also set prices or otherwiseregulate pricing. Negotiating prices with governmental authorities can delay commercialization of products.Governments may use a variety of cost‑ containment measures to control the cost of products, including price cuts,mandatory rebates, value‑based pricing and reference pricing (i.e. referencing prices in other countries and using thosereference prices to set a price). Recent budgetary pressures in many EU countries are causing governments to consider orimplement various cost‑containment measures, such as price freezes, increased price cuts and rebates, and expandedgeneric substitution and patient cost‑sharing. If budget pressures continue, governments may implement additionalcost‑containment measures. Other Regulations Foreign Corrupt Practices Act: We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibitsU.S. corporations and their representatives from paying, offering to pay, promising, authorizing, or making payments ofanything of value to any foreign government official, government staff member, political party, or political candidate inan attempt to obtain or retain business or to otherwise influence a person working in an official capacity. In manycountries, the healthcare professionals with whom we regularly interact may meet the FCPA’s definition of a foreigngovernment official. The FCPA also requires public companies to make and keep books and28 Table of Contentsrecords that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internalaccounting controls. UK Bribery Act: We are also subject to the UK Bribery Act, which proscribes giving and receiving bribes in thepublic and private sectors, bribing a foreign public official and failing to have adequate procedures to preventemployees and other agents from giving bribes. Foreign corporations that conduct business in the UK generally will besubject to the UK Bribery Act. Penalties under the UK Bribery Act include potentially unlimited fines for corporationsand criminal sanctions for corporate officers under certain circumstances. Environmental, Health and Safety Laws: Our operations are subject to complex and increasingly stringentenvironmental, health and safety laws and regulations in the countries where we operate and, in particular, where wehave manufacturing facilities, namely the U.S. and Ireland. Environmental and health and safety authorities in therelevant jurisdictions, including the Environmental Protection Agency and the Occupational Safety and HealthAdministration in the U.S. and the Environmental Protection Agency and the Health and Safety Authority in Ireland,administer laws which regulate, among other matters, the emission of pollutants into the air (including the workplace),the discharge of pollutants into bodies of water, the storage, use, handling and disposal of hazardous substances, theexposure of persons to hazardous substances, and the general health, safety and welfare of employees and members of thepublic. In certain cases, these laws and regulations may impose strict liability for pollution of the environment andcontamination resulting from spills, disposals or other releases of hazardous substances or waste and/or any migration ofsuch hazardous substances or waste. Costs, damages and/or fines may result from the presence, investigation andremediation of contamination at properties currently or formerly owned, leased or operated by us and/or off‑sitelocations, including where we have arranged for the disposal of hazardous substances or waste. In addition, we may besubject to third‑party claims, including for natural resource damages, personal injury and property damage, inconnection with such contamination. Other Laws: We are subject to a variety of financial disclosure, securities trading regulations and governmentalregulations as an Irish-incorporated public company in the U.S., including laws relating to the oversight activities of theSecurities and Exchange Commission (“SEC”), the Irish Companies Act 2014, and the regulations of the NASDAQ, onwhich our shares are traded. We are also subject to various laws, regulations and recommendations relating to safeworking conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, importand export and use and disposal of hazardous or potentially hazardous substances used in connection with our researchwork. Employees As of February 12, 2016, we had approximately 1,500 full‑time employees. A significant number of our management andprofessional employees have prior experience with pharmaceutical, biotechnology or medical product companies. Webelieve that we have been successful in attracting skilled and experienced scientific and senior management personnel;however, competition for such personnel is intense. None of our employees is covered by a collective bargaining agreement.We consider our relations with our employees to be good. Available Information We were incorporated in Ireland on May 4, 2011 as a private limited company, under the name Antler Science TwoLimited (registration number 498284). On July 25, 2011, Antler Science Two Limited was re‑registered as a public limitedcompany under the name Antler Science Two plc. On September 16, 2011, the business of Alkermes, Inc. and the drug technologies business (“EDT”) of ElanCorporation, plc (“Elan”) were combined under Alkermes plc (this combination is referred to as the “Business Combination,”the “acquisition of EDT” or the “EDT acquisition”). Our ordinary shares are listed on the NASDAQ Global Select Market,where our trading symbol is “ALKS.” Headquartered in Dublin, Ireland, we have an R&D center in Waltham, Massachusetts;R&D and manufacturing facilities in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio. Our principal executive offices are located at Connaught House, 1 Burlington Road, Dublin 4, Ireland. Our telephonenumber is +353‑1‑772‑8000 and our website address is www.alkermes.com. Information that is contained in, and can beaccessed through, our website is not incorporated into, and does not form a part of, this Annual Report. We29 Table of Contentsmake available free of charge through the Investors section of our website our Annual Reports on Form 10‑K, QuarterlyReports on Form 10‑Q, Current Reports on Form 8‑K and all amendments to those reports as soon as reasonably practicableafter such material is electronically filed with, or furnished to, the SEC. We also make available on our website (i) the chartersfor the committees of our Board of Directors, including the Audit and Risk Committee, Compensation Committee, andNominating and Corporate Governance Committee, and (ii) our Code of Business Conduct and Ethics governing ourdirectors, officers and employees. We intend to disclose on our website any amendments to, or waivers from, our Code ofBusiness Conduct and Ethics that are required to be disclosed pursuant to the rules of the SEC. You may read and copymaterials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You mayobtain information on the operation of the Public Reference Room by calling the SEC at 1‑800‑SEC‑0330. The SECmaintains an internet site that contains reports, proxy and information statements and other information regarding issuers thatfile electronically with the SEC at www.sec.gov.30 Table of ContentsItem 1A. Risk FactorsInvesting in our company involves a high degree of risk. In deciding whether to invest in our ordinary shares, youshould consider carefully the risks described below in addition to the financial and other information contained in thisAnnual Report, including the matters addressed under the caption “Cautionary Note Concerning Forward-LookingStatements” above. If any events described by the following risks actually occur, they could materially adversely affect ourbusiness, financial condition, cash flows or operating results. This could cause the market price of our ordinary shares todecline, and could cause you to lose all or a part of your investment. Except as otherwise suggested by the context,references to “products” or “our products” include our marketed products, marketed products using our proprietarytechnologies, product candidates and product candidates using our proprietary technologies.We rely heavily on our licensees in the commercialization and continued development of products from which we receiverevenue; and if our licensees are not effective, our revenues could be materially adversely affected.Our arrangements with licensees are critical to bringing our products to the market and successfully commercializingthem. We rely on these parties in various respects, including providing funding for development programs and conductingpre-clinical testing and clinical trials with respect to new formulations or other development activities for our products;managing the regulatory approval process; and commercializing our products. The revenues that we receive from manufacturing fees and royalties depend primarily upon the success of our licensees,and particularly Janssen, Acorda, Biogen, and AstraZeneca, in commercializing products from which we receive revenue.Janssen is responsible for the commercialization of RISPERDAL CONSTA, INVEGA SUSTENNA/XEPLION, and INVEGATRINZA, and VIVITROL in Russia and the CIS. Acorda and Biogen are responsible for commercializingAMPYRA/FAMPYRA. AstraZeneca is responsible for commercializing BYDUREON. We have no involvement in thecommercialization efforts for such products. Our revenues may fall below our expectations, the expectations of our partnersor those of investors, which could have a material adverse effect on our results of operations and the price of our ordinaryshares. Such revenues will depend on numerous factors, many of which are outside our control. Our licensees may also choose to use their own or other technology to develop an alternative product and withdraw theirsupport of our product, or to compete with our jointly developed product. In addition, a proprietary product we havedeveloped competes directly with products we developed with our licensees from which we receive revenue. Disputes mayalso arise between us and a licensee and may involve the ownership of technology developed under a license or other issuesarising out of collaborative agreements. Such a dispute could delay the related program or result in expensive arbitration orlitigation, which may not be resolved in our favor. In addition, most of our licensees can terminate their agreements with us without cause, and we cannot guarantee thatany of these relationships will continue. Failure to make or maintain these arrangements or a delay in, or failure of, alicensee’s performance, or factors that may affect a partner’s sales, may materially adversely affect our business, financialcondition, cash flows and results of operations.We receive substantial revenues from certain products.We depend substantially upon continued sales of RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION andINVEGA TRINZA by Janssen, and upon continued sales of AMPYRA/FAMPYRA by Acorda and its sublicensee, Biogen.Any significant negative developments relating to these products, or to our licensee relationships, could have a materialadverse effect on our business, results of operations, cash flows and financial condition.Our revenues may be lower than expected as a result of failure by the marketplace to accept our products or for otherfactors.We cannot be assured that our products will be, or will continue to be, accepted in the U.S. or in any markets outside theU.S. or that sales of our products will not decline or cease in the future. A number of factors may cause revenues from sales ofour products to grow at a slower than expected rate, or even to decrease or cease, including: ·perception of physicians and other members of the healthcare community as to our products’ safety and efficacyrelative to that of competing products;31 Table of Contents·the cost-effectiveness of our products;·patient and physician satisfaction with our products;·the successful manufacture of our products on a timely basis;·the cost and availability of raw materials necessary for the manufacture of our products;·the size of the markets for our products;·reimbursement policies of government and third-party payers;·unfavorable publicity concerning our products, similar classes of drugs or the industry generally;·the introduction, availability and acceptance of competing treatments, including treatments marketed and soldby our licensees;·the reaction of companies that market competitive products;·adverse event information relating to our products or to similar classes of drugs;·changes to the product labels of our products, or of products within the same drug classes, to add significantwarnings or restrictions on use;·our continued ability to access third parties to vial, package and/or distribute our products on acceptable terms;·the unfavorable outcome of litigation, including so-called “Paragraph IV” litigation and other patent litigation,related to any of our products;·regulatory developments related to the manufacture or continued use of our products, including the issuance ofa REMS by the FDA;·the extent and effectiveness of the sales and marketing and distribution support our products receive, includingfrom our licensees;·our licensees’ decisions as to the timing of product launches, pricing and discounting;·disputes with our licensees relating to the marketing and sale of products from which we receive revenue;·exchange rate valuations and fluctuations; and·any other material adverse developments with respect to the commercialization of our products. Our revenues will also fluctuate from quarter to quarter based on a number of other factors, including the acceptance ofour products in the marketplace, our licensees’ orders, the timing of shipments, and our ability to manufacture productssuccessfully, including our yield and our production schedule. The unit costs to manufacture our products may be higherthan anticipated if certain volume levels are not achieved. In addition, we may not be able to supply the products in a timelymanner or at all.We have limited experience in the commercialization of products.VIVITROL is the first commercial product for which we have had sole responsibility for commercialization in the U.S.,including sales, marketing, distribution and reimbursement-related activities. In October 2015, ARISTADA was approved bythe FDA and commercially launched by us. ARISTADA is the second commercial product that we developed, manufacture,and are currently commercializing and is the newest entrant into a highly competitive marketplace for the treatment ofschizophrenia. We have limited commercialization experience. We may not be able to attract and retain qualified personnel to serve inour sales and marketing organization, to develop an effective distribution network, to secure reimbursement for our productsor to otherwise effectively support our commercialization activities. The cost of establishing and maintaining a sales andmarketing organization may exceed its cost-effectiveness. If we fail to develop sales and marketing capabilities, if our salesefforts are not effective or if the costs of developing sales and marketing capabilities exceed their cost-effectiveness, we maynot be able to successfully commercialize VIVITROL and ARISTADA and such events could materially adversely affect ourbusiness, financial condition, cash flows and results of operations. We are subject to risks related to the manufacture of our products.The manufacture of pharmaceutical products is a highly complex process in which a variety of difficulties may arise fromtime to time including, but not limited to, product loss due to material failure, equipment failure, vendor error, operator error,labor shortages, inability to obtain material, equipment or transportation, physical or electronic security breaches, naturaldisasters and many other factors. Problems with manufacturing processes could result in product defects or manufacturingfailures, which could require us to delay shipment of products or recall products previously shipped, or could impair ourability to expand into new markets or supply products in existing markets. We may not be32 Table of Contentsable to resolve any such problems in a timely fashion, if at all. We rely solely on our manufacturing facility in Wilmington, Ohio for the manufacture of RISPERDAL CONSTA,VIVITROL, ARISTADA, polymer for BYDUREON and some of our product candidates. We rely on our manufacturingfacility in Athlone, Ireland for the manufacture of AMPYRA/FAMPYRA and some of our other products using ourNanoCrystal and OCR technologies. Due to regulatory and technical requirements, we have limited ability to shift production among our facilities or tooutsource any part of our manufacturing to third parties. If we cannot produce sufficient commercial quantities of ourproducts to meet demand, there are currently very few, if any, third-party manufacturers capable of manufacturing ourproducts as contract suppliers. We cannot be certain that we could reach agreement on reasonable terms, if at all, with thosemanufacturers. Even if we were to reach agreement, the transition of the manufacturing process to a third party to enablecommercial supplies could take a significant amount of time and money, and may not be successful. Our manufacturing facilities also require specialized personnel and are expensive to operate and maintain. Any delay inthe regulatory approval or market launch of products, or suspension of the sale of our products, manufactured in our facilities,may cause operating losses as we continue to operate these facilities and retain specialized personnel. In addition, anyinterruption in manufacturing could result in delays in meeting contractual obligations and could damage our relationshipswith our licensees, including the loss of manufacturing and supply rights.We rely on third parties to provide services in connection with the manufacture and distribution of our products.We rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulationor packaging services, storage and product distribution services, customer service activities and product returns processing.These third parties must comply with federal, state and local regulations applicable to their business, including FDA and, asapplicable, DEA regulations. Although we actively manage these third-party relationships to ensure continuity, quality andcompliance with regulations, some events beyond our control could result in the complete or partial failure of these goodsand services. Any such failure could materially adversely affect our business, financial condition, cash flows and results ofoperations. The manufacture of products and product components, including the procurement of bulk drug product, packaging,storage and distribution of our products, requires successful coordination among us and multiple third-party providers. Forexample, we are responsible for the entire supply chain for both ARISTADA and VIVITROL, up to the sale of final productand including the sourcing of key raw materials and active pharmaceutical agents from third parties. We have limitedexperience in managing a complex product distribution network. Issues with our third-party providers, including ourinability to coordinate these efforts, lack of capacity available at such third-party providers or any other problems with theoperations of these third-party contractors, could require us to delay shipment of saleable products, recall productspreviously shipped or could impair our ability to supply products at all. This could increase our costs, cause us to loserevenue or market share and damage our reputation and have a material adverse effect on our business, financial condition,cash flows and results of operations. Due to the unique nature of the production of our products, there are several single-source providers of our key rawmaterials. We endeavor to qualify and register new vendors and to develop contingency plans so that production is notimpacted by issues associated with single-source providers. Nonetheless, our business could be materially and adverselyaffected by issues associated with single-source providers. We are also dependent in certain cases on third parties to manufacture products. Where the manufacturing rights to theproducts in which our technologies are applied are granted to, or retained by, our third-party licensee (for example, in thecases of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA and BYDUREON) or approved sub-licensee, we have no controlover the manufacturing, supply or distribution of the product. Supply or manufacturing issues encountered by such licenseesor sublicenses could materially and adversely affect sales of products from which we receive revenue, our business, financialcondition, cash flows and results of operations.If we or our third-party providers fail to meet the stringent requirements of governmental regulation in the manufacture ofour products, we could incur substantial remedial costs and a reduction in sales and/or revenues.We and our third-party providers are generally required to comply with cGMP regulations and other applicable33 Table of Contentsforeign standards in the manufacture of our products. In addition, in the U.S., the DEA and state-level agencies heavilyregulate the manufacturing, holding, processing, security, recordkeeping and distribution of substances, including controlledsubstances. Our products that are scheduled by the DEA as controlled substances make us subject to the DEA’s regulations.We are subject to unannounced inspections by the FDA, the DEA and comparable state and foreign agencies in otherjurisdictions to confirm compliance with all applicable laws. Any changes of suppliers or modifications of methods ofmanufacturing require amending our application to the FDA or other regulatory agencies, and ultimate amendmentacceptance by such agencies, prior to release of product to the applicable marketplace. Our inability or the inability of ourthird-party service providers to demonstrate ongoing cGMP or other regulatory compliance could require us to withdraw orrecall products and interrupt commercial supply of our products. Any delay, interruption or other issues that may arise in themanufacture, formulation, packaging or storage of our products as a result of a failure of our facilities or the facilities oroperations of third parties to pass any regulatory agency inspection could significantly impair our ability to develop andcommercialize our products. This could increase our costs, cause us to lose revenue or market share and damage ourreputation. The FDA and various regulatory agencies outside the U.S. have inspected and approved our commercial manufacturingfacilities. We cannot guarantee that the FDA or any other regulatory agencies will approve any other facility we or oursuppliers may operate or, once approved, that any of these facilities will remain in compliance with cGMP and otherregulations. Any third party we use to manufacture bulk drug product must be licensed by the FDA and, for controlledsubstances, the DEA. Failure to gain or maintain regulatory compliance with the FDA or regulatory agencies could materiallyadversely affect our business, financial condition, cash flows and results of operations.Revenues generated by sales of our products depend on the availability of reimbursement from third-party payers, and areduction in payment rate or reimbursement or an increase in our financial obligation to governmental payers could resultin decreased sales of our products and decreased revenues.In both U.S. and non-U.S. markets, sales of our products depend, in part, on the availability of reimbursement from third-party payers such as state and federal governments, including Medicare and Medicaid in the U.S. and similar programs inother countries, managed care providers and private insurance plans. Deterioration in the timeliness, certainty and amount ofreimbursement for our products, including the existence of barriers to coverage of our products (such as prior authorization,criteria for use or other requirements), limitations by healthcare providers on how much, or under what circumstances, theywill prescribe or administer our products or unwillingness by patients to pay any required co-payments, could reduce the useof, and revenues generated from, our products and could have a material adverse effect on our business, financial condition,cash flows and results of operations. In addition, when a new product is approved, the availability of government and privatereimbursement for that product is uncertain, as is the amount for which that product will be reimbursed. We cannot predictthe availability or amount of reimbursement for our products. In the U.S., federal and state legislatures, health agencies and third-party payers continue to focus on containing the costof healthcare, including by comparing the effectiveness, benefits and costs of similar treatments. Any adverse findings for ourproducts from such comparisons may reduce the extent of reimbursement for our products. Economic pressure on statebudgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage orpayment for drugs. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates andrequiring prior authorization by the state program for use of any drug. Managed care organizations continue to seek pricediscounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduceMedicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result inmanaged care organizations influencing prescription decisions for a larger segment of the population and a correspondingconstraint on prices and reimbursement for our products. The government-sponsored healthcare systems in Europe and many other countries are the primary payers for healthcareexpenditures, including payment for drugs and biologics. We expect that countries may take actions to reduce expenditureon drugs and biologics, including mandatory price reductions, patient access restrictions, suspensions of price increases,increased mandatory discounts or rebates, preference for generic products, reduction in the amount of reimbursement andgreater importation of drugs from lower-cost countries. These cost-control measures likely would reduce our revenues. Inaddition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, theinability to secure adequate prices in a particular country may not only limit the marketing of products within that country,but may also adversely affect the ability to obtain acceptable prices in other markets.34 Table of ContentsPatent protection for our products is important and uncertain.The following factors are important to our success: ·receiving and maintaining patent and/or trademark protection for our products, technologies and developingtechnologies, including those that are the subject of licenses with our licensees;·maintaining our trade secrets;·not infringing the proprietary rights of others; and·preventing others from infringing our proprietary rights. Patent protection only provides rights of exclusivity for the term of the patent. We are able to protect our proprietaryrights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid andenforceable patents or are effectively maintained as trade secrets. In this regard, we try to protect our proprietary position byfiling patent applications in the U.S. and elsewhere related to our proprietary product inventions and improvements that areimportant to the development of our business. Our pending patent applications, together with those we may file in the future,or those we may license from third parties, may not result in patents being issued. Even if issued, such patents may notprovide us with sufficient proprietary protection or competitive advantages against competitors with similar technology. Thedevelopment of new technologies or pharmaceutical products may take a number of years, and there can be no assurance thatany patents which may be granted in respect of such technologies or products will not have expired or be due to expire orwithstand challenge by the time such products are commercialized. Although we believe that we make reasonable efforts to protect our intellectual property rights and to ensure that ourproprietary technology does not infringe the rights of other parties, we cannot ascertain the existence of all potentiallyconflicting claims. Therefore, there is a risk that third parties may make claims of infringement against our products ortechnologies. We know of several patents issued in the U.S. to third parties that may relate to our products. We also know ofpatent applications filed by other parties in the U.S. and various countries outside the U.S. that may relate to some of ourproducts if such patents are issued in their present form. If patents are issued that cover our products, we may not be able tomanufacture, use, offer for sale, sell or import such products without first getting a license from the patent holder. The patentholder may not grant us a license on reasonable terms, or it may refuse to grant us a license at all. This could delay or preventus from developing, manufacturing, selling or importing those of our products that would require the license. Claims ofintellectual property infringement also might require us to redesign affected products, enter into costly settlement or licenseagreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing orselling certain of our products. Even if we have an agreement to indemnify us against such costs, the indemnifying party maybe unable to uphold its contractual obligations. If we cannot or do not license the infringed technology at all, license thetechnology on reasonable terms or substitute similar technology from another source, our revenue and earnings could beadversely impacted. Because the patent positions of biopharmaceutical companies involve complex legal and factual questions,enforceability of patents cannot be predicted with certainty. The ultimate degree of patent protection that will be afforded toproducts and processes, including ours, in the U.S. and in other important markets, remains uncertain and is dependent uponthe scope of protection decided upon by the patent offices, courts and lawmakers in these countries. Patents, if issued, may bechallenged, invalidated or circumvented. As more products are commercialized using our proprietary product platforms, or asany product achieves greater commercial success, our patents become more likely to be subject to challenge by potentialcompetitors. The laws of certain countries may not protect our intellectual property rights to the same extent as do the laws ofthe U.S. Thus, any patents that we own or license from others may not provide any protection against competitors.Furthermore, others may independently develop similar technologies outside the scope of our patent coverage. We also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain ourcompetitive position. We try to protect this information by entering into confidentiality agreements with parties that haveaccess to it, such as our licensees, licensees, employees and consultants. Any of these parties may breach the agreements anddisclose our confidential information, or our competitors might learn of the information in some other way. To the extent thatour employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise asto the rights in related or resulting know-how and inventions. If any trade secret, know-how or other technology notprotected by a patent were to be disclosed to, or independently developed by, a competitor, such event could materiallyadversely affect our business, financial condition, cash flows and results of operations.35 Table of ContentsUncertainty over intellectual property in the pharmaceutical industry has been the source of litigation, which is inherentlycostly and unpredictable.There is considerable uncertainty within the pharmaceutical industry about the validity, scope and enforceability ofmany issued patents in the U.S. and elsewhere in the world. We cannot currently determine the ultimate scope and validity ofpatents which may be granted to third parties in the future or which patents might be asserted to be infringed by themanufacture, use or sale of our products. In part as a result of this uncertainty, there has been, and we expect that there may continue to be, significant litigation inthe pharmaceutical industry regarding patents and other intellectual property rights. A patent holder might file aninfringement action against us claiming that the manufacture, use, offer for sale, sale or import of our products infringed oneor more of its patents. We may have to enforce our intellectual property rights against third parties who infringe our patentsand other intellectual property or challenge our patent or trademark applications (see “—We face claims against ourintellectual property rights and competition from generic drug manufacturers.” for additional information regardinglitigation with generic drug manufacturers). We expect that litigation may be necessary in some instances to determine thevalidity and scope of certain of our proprietary rights. Competitors may sue us as a way of delaying the introduction of ourproducts. Litigation and administrative proceedings concerning patents and other intellectual property rights may be expensive,protracted with no certainty of success, and distracting to management. Ultimately, the outcome of such litigation couldadversely affect our business and the validity and scope of our patent or other proprietary rights or hinder our ability tomanufacture and market our products.Our level of indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in ourbusiness.Pursuant to an amended and restated credit agreement, dated as of September 25, 2012, as amended (the “Term LoanFacility”), we have approximately $375.0 million in original principal term loans, consisting of a $300.0 million, seven-yearterm loan with an interest rate at LIBOR plus 2.75% with a LIBOR floor of 0.75% (“Term Loan B-1”), and a $75.0 million,four-year term loan with an interest rate at LIBOR plus 2.75% with no LIBOR floor (“Term Loan B-2”). Our existing indebtedness is secured by a first priority lien on substantially all of the combined company assets andproperties of Alkermes plc and most of its subsidiaries, which serve as guarantors. The agreements governing the Term LoanFacility include a number of restrictive covenants that, among other things, subject to certain exceptions and baskets, imposeoperating and financial restrictions on us. Our level of indebtedness and the terms of these financing arrangements couldadversely affect our business by, among other things: ·requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,thereby reducing the availability of our cash flow for other purposes, including business development efforts,research and development and capital expenditures;·limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which weoperate, thereby placing us at a competitive disadvantage compared to competitors with less debt;·limiting our ability to take advantage of significant business opportunities, such as potential acquisitionopportunities; and·increasing our vulnerability to adverse economic and industry conditions. Our failure to comply with these restrictions or to make these payments could lead to an event of default that could resultin an acceleration of the indebtedness. Our future operating results may not be sufficient to ensure compliance with thesecovenants or to remedy any such default. In the event of an acceleration of this indebtedness, we may not have, or be able toobtain, sufficient funds to make any accelerated payments.We rely on a limited number of pharmaceutical wholesalers to distribute our product.As is typical in the pharmaceutical industry, we utilize pharmaceutical wholesalers in connection with the distribution ofthe products that we market and sell. A significant amount of our product is sold to end-users through the three largestwholesalers in the U.S. market, Cardinal Health Inc., AmerisourceBergen Corp., and McKesson Corp. If we are unable tomaintain our business relationships with these major pharmaceutical wholesalers on commercially36 Table of Contentsacceptable terms, if the buying patterns of these wholesalers fluctuate due to seasonality or if wholesaler buying decisions orother factors outside of our control change, such events could materially adversely affect our business, financial condition,cash flows and results of operations.Our business may suffer if we are unable to develop new products.Our long-term viability and growth will depend upon the successful development of new products from our research anddevelopment activities and we expect the development of products for our own account to consume substantial resources. Since we fund the development of our proprietary products, there is a risk that we may not be able to continue to fund allsuch development efforts to completion or to provide the support necessary to perform the clinical trials, obtain regulatoryapprovals, obtain a final DEA scheduling designation (to the extent our products are controlled substances) or market anyapproved products on a worldwide basis. If we are able to develop commercial products on our own, the risks associated withthese programs may be greater than those associated with our programs with licensees. If our delivery technologies or product development efforts fail to result in the successful development andcommercialization of products, if our licensees decide not to pursue development and/or commercialization of our productsor if new products do not perform as anticipated, such events could materially adversely affect our business, financialcondition, cash flows and results of operations. For factors that may affect the market acceptance of our products approved forsale (see “—We face claims against our intellectual property rights and competition from generic drug manufacturers.” foradditional information relating to competition from generic drug manufacturers).Clinical trials for our products are expensive, may take several years to complete, and their outcome is uncertain.Before obtaining regulatory approvals for the commercial sale of any products, we or our partners must demonstrate,through preclinical testing and clinical trials, that our products are safe and effective for use in humans. Conducting clinicaltrials is a lengthy, time-consuming and expensive process. We have incurred, and we will continue to incur, substantialexpense for pre-clinical testing and clinical trials. Our pre-clinical and clinical development efforts may not be successfully completed. Completion of clinical trials maytake several years or more. The length of time can vary substantially with the type, complexity, novelty and intended use ofthe product. The commencement and rate of completion of clinical trials may be delayed by many factors, including: ·the potential delay by a collaborative partner in beginning a clinical trial;·the failure of third-party CROs and other third-party service providers and independent clinical investigators tomanage and conduct the trials, to perform their oversight of the trials or to meet expected deadlines;·the inability to recruit clinical trial participants at the expected rate;·the failure of clinical trials to demonstrate a product's safety or efficacy;·the inability to follow patients adequately after treatment;·unforeseen safety issues;·the inability to manufacture or obtain sufficient quantities of materials used for clinical trials; and·unforeseen governmental or regulatory issues, including those by the FDA, DEA and other regulatory agencies. In addition, we are currently conducting and enrolling patients in clinical studies in a number of countries where ourexperience is more limited. For example, the phase 3 extension study of ALKS 5461 is being conducted in many countriesaround the world, including in Eastern Europe and Asia. We depend on independent clinical investigators, CROs and otherthird-party service providers and our collaborators in the conduct of clinical trials for our products and in the accuratereporting of results from such clinical trials. We rely heavily on these parties for successful execution of our clinical trials butdo not control many aspects of their activities. For example, while the investigators are not our employees, we are responsiblefor ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols forthe trial. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance withregulatory requirements or our stated protocols. The outcome of our clinical trials is uncertain. The results from pre-clinical testing and early clinical trials often37 Table of Contentshave not predicted results of later clinical trials. A number of products have shown promising results in early clinical trialsbut subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. If a product candidate fails to demonstrate safety and efficacy in clinical trials, or if third parties fail to conduct clinicaltrials in accordance with their obligations, the development, approval and commercialization of our products may bedelayed or prevented, and such events could materially adversely affect our business, financial condition, cash flows andresults of operations. The FDA or other regulatory agencies may not approve our products or may delay approval. We must obtain government approvals before marketing or selling our products in the U.S. and in jurisdictions outsidethe U.S. The FDA, DEA (to the extent a product is a controlled substance), and comparable regulatory agencies in othercountries, impose substantial and rigorous requirements for the development, production and commercial introduction ofdrug products. These include pre-clinical, laboratory and clinical testing procedures, sampling activities, clinical trials andother costly and time-consuming procedures. Satisfaction of the requirements of the FDA and of other regulatory agenciestypically takes a significant number of years and can vary substantially based upon the type, complexity and novelty of theproduct. In addition, regulation is not static, and regulatory agencies, including the FDA, evolve in their staff, interpretations andpractices and may impose more stringent requirements than currently in effect, which may adversely affect our planned drugdevelopment and/or our commercialization efforts. The approval procedure and the time required to obtain approval alsovaries among countries. Regulatory agencies may have varying interpretations of the same data, and approval by oneregulatory agency does not ensure approval by regulatory agencies in other jurisdictions. In addition, the FDA or regulatoryagencies outside the U.S. may choose not to communicate with or update us during clinical testing and regulatory reviewperiods. The ultimate decision by the FDA or other regulatory agencies regarding drug approval may not be consistent withprior communications. This product approval process can last many years, be very costly and still be unsuccessful. Regulatory approval by theFDA or regulatory agencies outside the U.S. can be delayed, limited or not granted at all for many reasons, including: ·a product may not demonstrate safety and efficacy for each target indication in accordance with regulatoryagency standards;·data from pre-clinical testing and clinical trials may be interpreted by the FDA or other regulatory agencies indifferent ways than we or our partners interpret it;·the FDA or other regulatory agencies might not approve our or our partners’ manufacturing processes orfacilities;·the FDA or other regulatory agencies may not approve accelerated development timelines for our product;·the failure of our clinical investigational sites and the records kept at such sites, including the clinical trial data,to be in compliance with the FDA’s GCP, or EU legislation governing GCP, including the failure to pass FDA,EMA or EU Member State inspections of clinical trials;·the FDA or other regulatory agencies may change their approval policies or adopt new regulations;·adverse medical events during the trials could lead to requirements that trials be repeated or extended, or that aprogram be terminated or placed on clinical hold, even if other studies or trials relating to the program aresuccessful; and·the FDA or other regulatory agencies may not agree with our or our partners’ regulatory approval strategies orcomponents of our or our partners’ filings, such as clinical trial designs. Failure to obtain regulatory approval for products will prevent their commercialization. Any delay in obtainingregulatory approval for products could adversely affect our ability to successfully commercialize such products. In addition,share prices have declined significantly in certain instances where companies have failed to obtain FDA approval of aproduct or where the timing of FDA approval is delayed. If the FDA’s or any other regulatory agency’s response to anyapplication for approval is delayed or not favorable for any of our products, our share price could decline significantly. 38 Table of ContentsThe FDA or other regulatory agencies may impose limitations on any product approval. Even if regulatory approval to market a drug product is granted by the FDA and other regulatory agencies, the approvalmay impose limitations on the indicated use for which the drug product may be marketed and additional post-approvalrequirements with which we would need to comply in order to maintain the approval of such products. Our business could beseriously harmed if we do not complete these post-approval requirements and the FDA, as a result, requires us to changesections of the label for our products. Further, even if the FDA provides regulatory approval, controlled substances will not become commercially availableuntil after the DEA provides its final schedule designation, which may take longer and may be more restrictive than weexpect or change after its initial designation. We currently expect ALKS 5461 and ALKS 3831 to require such DEA finalschedule designation prior to commercialization. Restrictive designation could adversely affect our ability to commercializesuch products and could adversely affect our business and share price. Citizen Petitions and other actions filed with, or litigation against, the FDA or other regulatory agencies or litigationagainst Alkermes may negatively impact the approval of our products and our business. As described under Part I, Item 3—Legal Proceedings in this Annual Report, on July 13, 2015, Otsuka PharmaceuticalDevelopment & Commercialization, Inc. (“Otsuka PD&C”) filed a Citizen Petition with the FDA which requested that theFDA refuse to approve the NDA for ARISTADA or delay approval of such NDA until the exclusivity rights covering long-acting aripiprazole expire in December 2017. The FDA approved ARISTADA on October 5, 2015 and, concurrent with suchapproval, denied Otsuka PD&C’s Citizen Petition. On October 15, 2015, Otsuka Pharm. Co., Otsuka PD&C, and OtsukaAmerica Pharmaceutical, Inc. (collectively, “Otsuka”) filed an action for declaratory and injunctive relief against the FDArequesting, among other things, that the court vacate FDA’s approval of the ARISTADA NDA. We have successfullyintervened in, and received the court’s approval to become a party to, this action. The action is currently pending before thecourt; oral arguments were held on January 7, 2016. If Otsuka’s action is successful, the Court could remand the ARISTADA NDA to the FDA for further action, vacate theFDA’s approval of the ARISTADA NDA, declare that Otsuka’s exclusivity rights preclude FDA from granting approval of theNDA for ARISTADA until December 2017, grant injunctive relief and require that we remove ARISTADA from the market,and/or require that the FDA impose limitations on the approval of the ARISTADA NDA. These outcomes and others couldadversely affect our ability to generate revenues from the commercialization and sale of ARISTADA, and our share price. In addition, in the past, following periods of volatility in the market price of a company's securities, securities classaction litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantialcosts and a diversion of management's attention and resources, which could harm our business. If we fail to comply with the extensive legal and regulatory requirements affecting the healthcare industry, we could faceincreased costs, penalties and a loss of business. Our activities, and the activities of our licensees and third-party providers, are subject to comprehensive governmentregulation. Government regulation by various national, state and local agencies, which includes detailed inspection of, andcontrols over, research and laboratory procedures, clinical investigations, product approvals and manufacturing, marketingand promotion, adverse event reporting, sampling, distribution, recordkeeping, storage, and disposal practices, and achievingcompliance with these regulations, substantially increases the time, difficulty and costs incurred in obtaining andmaintaining the approval to market newly developed and existing products. Government regulatory actions can result indelay in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for theirproduction and sale, and other civil or criminal sanctions, including fines and penalties. Pharmaceutical and biotechnologycompanies also have been the target of government lawsuits and investigations alleging violations of governmentregulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion ofpharmaceutical products, payments intended to influence the referral of healthcare business, submission of false claims forgovernment reimbursement, antitrust violations and violations related to environmental matters. In addition, we may be thesubject of securities law claims and derivative actions. While we have implemented numerous risk mitigation measures, we cannot guarantee that we, our employees, ourlicensees, our consultants or our contractors are, or will be, in compliance with all potentially applicable U.S. federal and39 Table of Contentsstate regulations and/or laws or all potentially applicable regulations and/or laws outside the U.S. and interpretations of theapplicability of these laws to marketing practices. If we or our agents fail to comply with any of those regulations and/orlaws, a range of actions could result, including the termination of clinical trials, the failure to approve a product, restrictionson our products or manufacturing processes, withdrawal of our products from the market, significant fines, exclusion fromgovernment healthcare programs or other sanctions or litigation. Changes in laws affecting the healthcare industry could also adversely affect our revenues and profitability, includingnew laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to patentprotection and enforcement, healthcare availability, and product pricing and marketing. The enactment in the U.S. ofhealthcare reform, the promulgation of regulations, new legislation and legislation on comparative effectiveness research areexamples of previously enacted and possible future changes in laws that could adversely affect our business.We face competition in the biopharmaceutical industry.We face intense competition in the development, manufacture, marketing and commercialization of our products frommany and varied sources, such as academic institutions, government agencies, research institutions, pharmaceutical andbiotechnology companies, including other companies with similar technologies, and manufacturers of generic drugs (see“—We face claims against our intellectual property rights and competition from generic drug manufacturers.” for additionalinformation relating to competition from generic drug manufacturers). Some of these competitors are also our licensees, whocontrol the commercialization of products from which we receive manufacturing and royalty revenues. These competitors areworking to develop and market other systems, products, and other methods of preventing or reducing disease, and new small-molecule and other classes of drugs that can be used with or without a drug delivery system. The pharmaceutical and biotechnology industries are characterized by intensive research, development andcommercialization efforts and rapid and significant technological change. Many of our competitors are larger and havesignificantly greater financial and other resources than we do. We expect our competitors to develop new technologies,products and processes that may be more effective than those we develop. The development of technologically improved ordifferent products or technologies may make our products or product platforms obsolete or noncompetitive before we recoverexpenses incurred in connection with their development or realize any revenues from any marketed product. There are other companies developing extended-release product platforms. In many cases, there are products on themarket or in development that may be in direct competition with our products. In addition, we know of new chemical entitiesthat are being developed that, if successful, could compete against our products. These chemical entities are being designedto work differently than our products and may turn out to be safer or to be more effective than our products. Among the manyexperimental therapies being tested around the world, there may be some that we do not now know of that may compete withour proprietary product platforms or products. Our licensees could choose a competing technology to use with their drugsinstead of one of our product platforms and could develop products that compete with our products.With respect to our proprietary injectable product platform, we are aware that there are other companies developingextended-release delivery systems for pharmaceutical products. In the treatment of schizophrenia, ARISTADA, RISPERDALCONSTA and INVEGA SUSTENNA/XEPLION, and INVEGA TRINZA compete with each other and a number of otherinjectable products including ZYPREXA RELPREVV ((olanzapine) For Extended Release Injectable Suspension), which ismarketed and sold by Lilly; ABILIFY MAINTENA (aripiprazole for extended release injectable suspension), a once-monthlyinjectable formulation of ABILIFY (aripiprazole) developed by Otsuka Pharm. Co.; oral compounds currently on the market;and generic versions of branded oral and injectable products. In the treatment of bipolar disorder, RISPERDAL CONSTAcompetes with antipsychotics such as ABILIFY, LATUDA, risperidone, olanzapine, ziprasidone and clozapine. In the treatment of alcohol dependence, VIVITROL competes with CAMPRAL (acamprosate calcium) sold by ForestLaboratories and ANTABUSE sold by Odyssey as well as currently marketed drugs, including generic drugs, also formulatedfrom naltrexone. Other pharmaceutical companies are developing products that have shown some promise in treating alcoholdependence that, if approved by the FDA, would compete with VIVITROL. In the treatment of opioid dependence, VIVITROL competes with methadone, oral naltrexone, SUBOXONE40 Table of Contents(buprenorphine HCl/naloxone HCl dehydrate sublingual tablets), SUBOXONE (buprenorphine/naloxone) Sublingual Film,and SUBUTEX (buprenorphine HCl sublingual tablets), each of which is marketed and sold by Indivior plc, and BUNAVAILbuccal film (buprenorphine and naloxone) marketed by BioDelivery Sciences, and ZUBSOLV (buprenorphine and naloxone)marketed by Orexo US, Inc. It also competes with generic versions of SUBUTEX and SUBOXONE sublingual tablets. Otherpharmaceutical companies are developing products that have shown promise in treating opioid dependence that, if approvedby the FDA, would compete with VIVITROL. BYDUREON competes with established therapies for market share. Such competitive products include sulfonylureas,metformin, insulins, thiazolidinediones, glinides, dipeptidyl peptidase type IV inhibitors, insulin sensitizers, alpha-glucosidase inhibitors and sodium-glucose transporter-2 inhibitors. BYDUREON also competes with other glucagon-likepeptide-1 (“GLP-1”) agonists, including VICTOZA (liraglutide (rDNA origin) injection), which is marketed and sold byNovo Nordisk A/S. Other pharmaceutical companies are developing product candidates for the treatment of type 2 diabetesthat, if approved by the FDA, would compete with BYDUREON. While AMPYRA/FAMPYRA is the first product approved as a treatment to improve walking in patients with MS, thereare a number of FDA-approved therapies for MS disease management that seek to reduce the frequency and severity ofexacerbations or slow the accumulation of physical disability for people with certain types of MS. These products includeAVONEX, TYSABRI, TECFIDERA, and PLEGRIDY from Biogen; BETASERON from Bayer HealthCare Pharmaceuticals;COPAXONE from Teva Pharmaceutical Industries Ltd.; REBIF and NOVANTRONE from EMD Serono, Inc.; GILENYA andEXTAVIA from Novartis AG; AUBAGIO and LEMTRADA from Sanofi-Aventis, and generic products. With respect to our NanoCrystal technology, we are aware that other technology approaches similarly address poorlywater-soluble drugs. These approaches include nanoparticles, cyclodextrins, lipid-based self-emulsifying drug deliverysystems, dendrimers and micelles, among others, any of which could limit the potential success and growth prospects ofproducts incorporating our NanoCrystal technology. In addition, there are many competing technologies to our OCRtechnology, some of which are owned by large pharmaceutical companies with drug delivery divisions and other, smallerdrug-delivery-specific companies. Our inability to compete successfully in the pharmaceutical and biotechnology industries could materially adverselyaffect our business, results of operations, cash flows and financial condition.We face claims against our intellectual property rights and competition from generic drug manufacturers.In the U.S., generic manufacturers of innovator drug products may file ANDAs and, in doing so, certify that theirproducts do not infringe the innovator's patents and/or that the innovator's patents are invalid. This often results in litigationbetween the innovator and the ANDA applicant. This type of litigation is commonly known as “Paragraph IV” litigation inthe U.S. We have received notices of ANDA filings for AMPYRA asserting that a generic form of AMPYRA would not infringeAMPYRA’s Orange-Book listed patents and/or those patents are invalid. We are currently engaged in Paragraph IV litigationdisputing such claims, which is scheduled to go to trial in September 2016. This litigation may be costly and timeconsuming. For a discussion of legal proceedings related to the patents covering AMPYRA, see “Item 3—LegalProceedings.” Although we intend to vigorously enforce our intellectual property rights, there can be no assurance that we will prevailin our defense of our patent rights. Our existing patents could be invalidated, found unenforceable or found not to covergeneric forms of our products. If an ANDA filer were to receive FDA approval to sell a generic version of our products and/orprevail in any patent litigation, our products would become subject to increased competition and our revenue could beadversely affected.The commercial use of our products may cause unintended side effects or adverse reactions, or incidents of misuse mayoccur, which could adversely affect our business and share price.We cannot predict whether the commercial use of our products will produce undesirable or unintended side effects thathave not been evident in the use of, or in clinical trials conducted for, such products to date. The administration of drugs inhumans carries the inherent risk of product liability claims whether or not the drugs are actually the cause of an41 Table of Contentsinjury. Our products may cause, or may appear to have caused, injury or dangerous drug interactions, and we may not learnabout or understand those effects until the products have been administered to patients for a prolonged period of time.Additionally, incidents of product misuse may occur. These events, among others, could result in product recalls, productliability actions or withdrawals or additional regulatory controls (including additional regulatory scrutiny, REMS programs,and requirements for additional labeling), all of which could have a material adverse effect on our business, financialcondition, cash flows and results of operations. In addition, the reporting of adverse safety events involving our products andpublic rumors about such events could cause our product sales or share price to decline or experience periods of volatility.Our business involves environmental, health and safety risks.Our business involves the controlled use of hazardous materials and chemicals and is subject to numerousenvironmental, health and safety laws and regulations and to periodic inspections for possible violations of these laws andregulations. Under certain of those laws and regulations, we could be liable for any contamination at our current or formerproperties or third-party waste disposal sites. In addition to significant remediation costs, contamination can give rise tothird-party claims for fines, penalties, natural resource damages, personal injury and damage (including property damage).The costs of compliance with environmental, health and safety laws and regulations are significant. Any violations, even ifinadvertent or accidental, of current or future environmental, health or safety laws or regulations, the cost of compliance withany resulting order or fine and any liability imposed in connection with any contamination for which we may be responsiblecould materially adversely affect our business, financial condition, cash flows and results of operations.We may not become profitable on a sustained basis.At December 31, 2015, our accumulated deficit was $739.5 million, which was primarily the result of net losses incurredfrom 1987, the year Alkermes, Inc., was founded, through December 31, 2015 as we invest in our R&D pipeline, partiallyoffset by net income over certain of our recent fiscal periods. There can be no assurance we will achieve sustainedprofitability. A major component of our revenue is dependent on our licensees’ and our ability to commercialize, and our and ourpartners’ ability to manufacture economically, our marketed products. In the fourth quarter of 2015, we completed the two-year restructuring plan of our Athlone, Ireland manufacturing facility, pursuant to which we terminated manufacturingservices for certain products that were no longer expected to be economically practicable to produce. Our ability to achieve sustained profitability in the future depends, in part, on our or our licensees’, as applicable, abilityto: ·successfully commercialize VIVITROL and ARISTADA in the U.S.;·obtain and maintain regulatory approval for products both in the U.S. and in other countries;·efficiently manufacture our products;·support the commercialization of products by our licensees;·enter into agreements to develop and commercialize our products;·develop, have manufactured or expand our capacity to manufacture and market our products;·obtain adequate reimbursement coverage for our products from insurance companies, government programs andother third-party payers;·obtain additional research and development funding for our proprietary products; and·achieve certain product development milestones. In addition, the amount we spend will impact our profitability. Our spending will depend, in part, on: ·the progress of our research and development programs for our products, including clinical trials;·the time and expense that will be required to pursue FDA and/or non-U.S. regulatory approvals for our productsand whether such approvals are obtained;·the time that will be required for the DEA to provide its final scheduling designation for our products that arecontrolled substances;·the time and expense required to prosecute, enforce and/or challenge patent and other intellectual property42 Table of Contentsrights;·the cost of building, operating and maintaining manufacturing and research facilities;·the cost of third-party manufacture;·the number of products we pursue, particularly proprietary products;·how competing technological and market developments affect our products;·the cost of possible acquisitions of technologies, compounds, product rights or companies;·the cost of obtaining licenses to use technology owned by others for proprietary products and otherwise;·the costs of potential litigation; and·the costs associated with recruiting and compensating a highly skilled workforce in an environment wherecompetition for such employees is intense. We may not achieve all or any of these goals and, thus, we cannot provide assurances that we will ever be profitable on asustained basis or achieve significant revenues. Even if we do achieve some or all of these goals, we may not achievesignificant or sustained commercial success.We may require additional funds to execute on our business strategy, and such funding may not be available oncommercially favorable terms or at all, and may cause dilution to our existing shareholders.We may require additional funds in the future to execute on our business strategy, and we may seek funds throughvarious sources, including debt and equity offerings, corporate collaborations, bank borrowings, arrangements relating toassets, sale of royalty streams we receive on our products or other financing methods or structures. The source, timing andavailability of any financings will depend on market conditions, interest rates and other factors. If we issue additional equitysecurities or securities convertible into equity securities to raise funds, our shareholders will suffer dilution of theirinvestment, and it may adversely affect the market price of our ordinary shares. In addition, as a condition to providingadditional funds to us, future investors or lenders may demand, and may be granted, rights superior to those of existingshareholders. If we issue additional debt securities in the future, our existing debt service obligations will increase further. Ifwe are unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments inorder to fund our debt service obligations or to repay our debt, we may be forced to delay or terminate clinical trials or curtailoperations. We cannot be certain, however, that additional financing will be available from any of these sources when neededor, if available, will be on acceptable terms, if at all, particularly if the credit and financial markets are constrained at the timewe require funding. If we fail to obtain additional capital when we need it, we may not be able to execute our businessstrategy successfully and may have to give up rights to our product platforms, products or grant licenses on terms that maynot be favorable to us. Adverse financial market conditions may exacerbate certain risks affecting our business.As a result of adverse financial market conditions, organizations that reimburse for use of our products, such asgovernment health administration authorities and private health insurers, may be unable to satisfy such obligations or maydelay payment. In addition, federal and state health authorities may reduce reimbursements (including Medicare andMedicaid reimbursements in the U.S.) or payments, and private insurers may increase their scrutiny of claims. We are alsodependent on the performance of our licensees, and we sell our products to our licensees through contracts that may not besecured by collateral or other security. Accordingly, we bear the risk if our partners are unable to pay amounts due to usthereunder. Due to volatility in the financial markets, there may be a disruption or delay in the performance of our third-partycontractors, suppliers or licensees. If such third parties are unable to pay amounts owed to us or satisfy their commitments tous, or if there are reductions in the availability or extent of reimbursement available to us, our business, financial condition,cash flows and results of operations would be adversely affected.Currency exchange rates may affect revenues and expenses.We conduct a large portion of our business in international markets. For example, we derive a majority of ourRISPERDAL CONSTA revenues and all of our FAMPYRA and XEPLION revenues from sales in countries other than the U.S.,and these sales are denominated in non-U.S. dollar (“USD”) currencies. We also incur substantial operating costs in Irelandand face exposure to changes in the exchange ratio of the USD and the Euro arising from expenses and payables at our Irishoperations that are settled in Euro. The impact of changes in the exchange ratio of the USD and the Euro on our USD-denominated revenues earned in countries other than the U.S. is partially offset by the opposite impact of changes in theexchange ratio of the USD and the Euro on operating expenses and payables incurred at our Irish operations that are settledin Euro. Refer to “Item 7A. Quantitative and Qualitative Disclosure about Market Risk” for43 Table of Contentsadditional information relating to our foreign currency exchange rate risk.We may not be able to retain our key personnel.Our success depends largely upon the continued service of our management and scientific staff and our ability to attract,retain and motivate highly skilled technical, scientific, manufacturing, management, regulatory compliance and selling andmarketing personnel. The loss of key personnel or our inability to hire and retain personnel who have technical, scientific,manufacturing, management, regulatory compliance or commercial backgrounds could materially adversely affect ourresearch and development efforts and our business.Future transactions may harm our business or the market price of our ordinary shares.We regularly review potential transactions related to technologies, products or product rights and businessescomplementary to our business. These transactions could include: ·mergers;·acquisitions;·strategic alliances;·licensing agreements; and·co-promotion agreements. We may choose to enter into one or more of these transactions at any time, which may cause substantial fluctuations inthe market price of our ordinary shares. Moreover, depending upon the nature of any transaction, we may experience a chargeto earnings, which could also materially adversely affect our results of operations and could harm the market price of ourordinary shares. If we are unable to successfully integrate the companies, businesses or properties that we acquire, such events couldmaterially adversely affect our business, financial condition, cash flows and results of operations. Merger and acquisitiontransactions involve various inherent risks, including: ·uncertainties in assessing the value, strengths and potential profitability of, and identifying the extent of allweaknesses, risks, contingent and other liabilities of, the respective parties;·the potential loss of key customers, management and employees of an acquired business;·the consummation of financing transactions, acquisitions or dispositions and the related effects on our business;·the ability to achieve identified operating and financial synergies from an acquisition in the amounts andwithin the timeframe predicted;·problems that could arise from the integration of the respective businesses, including the application of internalcontrol processes to the acquired business;·difficulties that could be encountered in managing international operations; and·unanticipated changes in business, industry, market or general economic conditions that differ from theassumptions underlying our rationale for pursuing the transaction. Any one or more of these factors could cause us not to realize the benefits anticipated from a transaction. Moreover, anyacquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incuradditional indebtedness, seek equity capital or both. Future acquisitions could also result in our assuming more long-termliabilities relative to the value of the acquired assets than we have assumed in our previous acquisitions.If goodwill or other intangible assets become impaired, we could have to take significant charges against earnings.At December 31, 2015, we have $379.2 million of amortizable intangible assets and $92.9 million of goodwill. Underaccounting principles generally accepted in the U.S. (“GAAP”), we must assess, at least annually and potentially morefrequently, whether the value of goodwill and other indefinite‑ lived intangible assets have been impaired. Amortizingintangible assets will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of thevalue of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affectour results of operations and shareholders’ equity in future periods.44 Table of ContentsOur effective tax rate may increase.As a global biopharmaceutical company, we are subject to taxation in a number of different jurisdictions. As a result, oureffective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing ourfinancial statements, we estimate the amount of tax that will become payable in each of these places. Our effective tax ratemay fluctuate depending on a number of factors, including, but not limited to, the distribution of our profits or lossesbetween the jurisdictions where we operate and differences in interpretation of tax laws. In addition, the tax laws of anyjurisdiction in which we operate may change in the future, which could impact our effective tax rate. Tax authorities in thejurisdictions in which we operate may audit us. If we are unsuccessful in defending any tax positions adopted in oursubmitted tax returns, we may be required to pay taxes for prior periods, interest, fines or penalties, and may be obligated topay increased taxes in the future, any of which could have a material adverse effect on our business, financial condition, cashflows, results of operations and growth prospects.The Business Combination of Alkermes, Inc. and EDT may limit our ability to use our tax attributes to offset taxableincome, if any, generated from such Business Combination.For U.S. federal income tax purposes, a corporation is generally considered tax resident in the place of its incorporation.Because we are incorporated in Ireland, we should be deemed an Irish corporation under these general rules. However,Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”) generally provides that a corporationorganized outside the U.S. that acquires substantially all of the assets of a corporation organized in the U.S. will be treated asa U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes if shareholders of the acquired U.S.corporation own at least 80% (of either the voting power or the value) of the stock of the acquiring foreign corporation afterthe acquisition by reason of holding stock in the domestic corporation, and the “expanded affiliated group” (as defined inSection 7874) that includes the acquiring corporation does not have substantial business activities in the country in which itis organized. In addition, Section 7874 provides that if a corporation organized outside the U.S. acquires substantially all of the assetsof a corporation organized in the U.S., the taxable income of the U.S. corporation during the period beginning on the date thefirst assets are acquired as part of the acquisition, through the date which is ten years after the last date assets are acquired aspart of the acquisition, shall be no less than the income or gain recognized by reason of the transfer during such period or byreason of a license of property by the expatriated entity after such acquisition to a foreign affiliate during such period, whichis referred to as the “inversion gain,” if shareholders of the acquired U.S. corporation own at least 60% (of either the votingpower or the value) of the stock of the acquiring foreign corporation after the acquisition by reason of holding stock in thedomestic corporation, and the “expanded affiliated group” of the acquiring corporation does not have substantial businessactivities in the country in which it is organized. In connection with the Business Combination, Alkermes, Inc. transferredcertain intellectual property to one of our Irish subsidiaries, and Alkermes, Inc. had sufficient net operating loss carryforwardsavailable to substantially offset any taxable income generated from this transfer. If this rule was to apply to the BusinessCombination, among other things, Alkermes, Inc. would not have been able to use any of the approximately $274 million ofU.S. Federal net operating loss (“NOL”) and $38 million of U.S. state NOL carryforwards that it had as of March 31, 2011 tooffset any taxable income generated as part of the Business Combination or as a result of the transfer of intellectual property.We do not believe that either of these limitations should apply as a result of the Business Combination. However, the U.S.Internal Revenue Service (the “IRS”) could assert a contrary position, in which case we could become involved in taxcontroversy with the IRS regarding possible additional U.S. tax liability. If we were to be unsuccessful in resolving any suchtax controversy in our favor, we could be liable for significantly greater U.S. federal and state income tax than we anticipatebeing liable for through the Business Combination, including as a result of the transfer of intellectual property, which wouldplace further demands on our cash needs.Our business could be negatively affected as a result of the actions of activist shareholders.Proxy contests have been waged against many companies in the pharmaceutical and biotechnology industries over thelast few years. If faced with a proxy contest, we may not be able to respond successfully to the contest, which would bedisruptive to our business. Even if we are successful, our business could be adversely affected by a proxy contest involvingus because: ·responding to proxy contests and other actions by activist shareholders can be costly and time-consuming,disrupting operations and diverting the attention of management and employees, and can lead to45 Table of Contentsuncertainty;·perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations orin-licensing opportunities, and may make it more difficult to attract and retain qualified personnel and businesspartners; and·if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability toeffectively implement our strategic plan in a timely manner and create additional value for our shareholders. These actions could cause the market price of our ordinary shares to experience periods of volatility.If any of our licensees undergoes a change in control or in management, this may adversely affect revenues from ourproducts.Any change of control, or change in management, of our licensees may result in a reprioritization of our product withinsuch licensee’s portfolio, or such licensee may fail to maintain the financial or other resources necessary to continue thedevelopment and/or commercialization of such product. If any of our licensees undergoes a change of control and the acquirer either is unable to perform such licensee’sobligations under its agreements with us or has a product that competes with ours that such acquirer does not divest, it couldmaterially adversely affect our business, financial condition, cash flows and results of operations.Security breaches and other disruptions could compromise our information and expose us to liability, which would causeour business and reputation to suffer.In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietarybusiness information and that of our suppliers and partners, as well as personally identifiable information of patients, clinicaltrial participants and employees. Similarly, our partners and third-party providers possess certain of our sensitive data. Thesecure maintenance of this information is critical to our operations and business strategy. Despite our security measures, ourinformation technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error,malfeasance or other disruptions. Certain types of information technology or infrastructure attacks or breaches may goundetected for a prolonged period of time. Any such breach could compromise our networks and the information stored therecould be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information, including ourdata being breached at our partners or third-party providers, could result in legal claims or proceedings and liability underlaws that protect the privacy of personal information, disrupt our operations, and damage our reputation which couldadversely affect our business.If we identify a material weakness in our internal control over financial reporting, our ability to meet our reportingobligations and the trading price of our ordinary shares could be negatively affected.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, suchthat there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detectedon a timely basis. Accordingly, a material weakness increases the risk that the financial information we report containsmaterial errors. We regularly review and update our internal controls, disclosure controls and procedures, and corporate governancepolicies. In addition, we are required under the Sarbanes-Oxley Act of 2002 to report annually on our internal control overfinancial reporting. Any system of internal controls, however well designed and operated, is based in part on certainassumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. If we, or ourindependent registered public accounting firm, determine that our internal controls over financial reporting are not effective,or we discover areas that need improvement in the future, these shortcomings could have an adverse effect on our businessand financial results, and the price of our ordinary shares could be negatively affected. If we cannot conclude that we have effective internal control over our financial reporting, or if our independentregistered public accounting firm is unable to provide an unqualified opinion regarding the effectiveness of our internalcontrol over financial reporting, investors could lose confidence in the reliability of our financial statements, which couldlead to a decline in the trading price of our ordinary shares. Failure to comply with reporting requirements could also subjectus to sanctions and/or investigations by the SEC, the NASDAQ or other regulatory authorities.46 Table of Contents Item 1B. Unresolved Staff CommentsNone. Item 2. Properties We lease approximately 14,600 square feet of corporate office space in Dublin, Ireland, which houses our corporateheadquarters. This lease expires in 2022 and includes a tenant option to terminate in 2017. We lease approximately 175,000square feet of space in Waltham, Massachusetts, which houses corporate offices, administrative areas and laboratories. Thislease expires in 2021 and includes a tenant option to extend the term for up to two five‑year periods. We lease approximately3,800 square feet of office space in Washington, DC. This lease expires in 2020. We own a R&D and manufacturing facility in Athlone, Ireland (approximately 400,000 square feet) and a manufacturingfacility in Wilmington, Ohio (approximately 280,000 square feet). We believe that our current and planned facilities are adequate for our current and near‑term preclinical, clinical andcommercial manufacturing requirements. Item 3. Legal ProceedingsARISTADA On July 13, 2015, Otsuka PD&C filed a Citizen Petition with the FDA which requested that the FDA refuse to approve theNDA for ARISTADA or delay approval of such NDA until the exclusivity rights covering long-acting aripiprazole expire inDecember 2017. The FDA approved ARISTADA on October 5, 2015 and, concurrent with such approval, denied OtsukaPD&C’s Citizen Petition. On October 15, 2015, Otsuka filed an action for declaratory and injunctive relief with the United States District Court forthe District of Columbia (the “Court”) against Sylvia Mathews Burwell, Secretary, U.S. Department of Health and HumanServices; Dr. Stephen Ostroff, Acting Commissioner, FDA; and the FDA, requesting that (a) the Court expedite the legalproceedings; (b) the Court declare that the FDA’s denial of Otsuka’s claimed exclusivity rights and approval of theARISTADA NDA were arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law; (c) the Courtvacate FDA’s approval of the ARISTADA NDA and vacate any FDA decisions or actions underlying or supporting orpredicated upon that approval; (d) the Court declare that Otsuka’s claimed exclusivity rights preclude FDA from grantingapproval of the Alkermes NDA until the expiration of such exclusivity rights in December 2017; and (e) the Court grant anyand all other, further, and additional relief, including all necessary and appropriate protective preliminary, interim, orpermanent relief, as the nature of the cause may require, including all necessary and appropriate declarations of rights andinjunctive relief. We believe Otsuka’s action is without merit and will vigorously defend ARISTADA against such action. Wesuccessfully intervened in, and received the Court’s approval to become a party to, this action. The Court held a hearing onthe case in January 2016. The action is currently pending before the Court. For information about risks relating to this action,see “Item 1A—Risk Factors” of this Annual Report and specifically the section entitled “Citizen Petitions and other actionsfiled with, or litigation against, the FDA or other regulatory agencies or litigation against Alkermes may negatively impactthe approval of our products and our business.” AMPYRA Ampyra ANDA Litigation Ten separate Paragraph IV Certification Notices have been submitted to us and/or our partner Acorda from AccordHealthcare, Inc.; Actavis Laboratories FL, Inc. (“Actavis”); Alkem Laboratories Ltd.; Apotex, Inc.; Aurobindo Pharma Ltd.(“Aurobindo”); Mylan Pharmaceuticals, Inc. (“Mylan”); Par Pharmaceutical, Inc. (“Par”); Roxane Laboratories, Inc.; SunPharmaceutical Industries Limited and Sun Pharmaceuticals Industries Inc. (collectively, “Sun”); and Teva PharmaceuticalsUSA, Inc., advising that each of these companies had submitted an ANDA to the FDA seeking marketing approval for genericversions of Ampyra (dalfampridine) Extended Release Tablets, 10 mg. The ANDA filers have challenged the validity of theOrange Book-listed patents for Ampyra, and they have also asserted that their generic47 Table of Contentsversions do not infringe certain claims of these patents. In response, we and/or Acorda filed lawsuits against the ANDA filersin the U.S. District Court for the District of Delaware (the “Delaware Court”) asserting infringement of U.S. Patent Nos.5,540,938 (which we own), 8,007,826, 8,354,437, 8,440,703, and 8,663,685 (which are owned by Acorda). Requestedjudicial remedies include recovery of litigation costs and injunctive relief. Lawsuits with eight of the ANDA filers have beenconsolidated into a single case. The Delaware Court has scheduled a Markman hearing on March 7, 2016, and has set a five-day bench trial starting on September 19, 2016. Mylan is challenging the jurisdiction of the Delaware Court with respect tothe Delaware action. Due to Mylan’s motion to dismiss, we, together with Acorda, also filed another patent infringement suitagainst Mylan in the U.S. District Court for the Northern District of West Virginia asserting the same U.S. patents andrequesting the same judicial relief as in the Delaware action. On January 4, 2016, the Federal Circuit Court of Appeals heldoral arguments on Mylan’s appeal of the Delaware Court’s jurisdictional decision. All lawsuits were filed within 45 days fromthe date of receipt of each of the Paragraph IV Certification Notices. As a result, a 30-month statutory stay of approval periodapplies to each of the ANDAs under the Hatch-Waxman Act. The 30-month stay starts from January 22, 2015, which is theend of the new chemical entity exclusivity period for Ampyra. This stay restricts the FDA from approving the ANDAs untilJuly 2017 at the earliest, unless a Federal district court issues a decision adverse to all of the asserted Orange Book-listedpatents prior to that date. In the fourth quarter of 2015, we and/or Acorda entered into a settlement agreement with each of Actavis, Aurobindo, Parand Sun (collectively, the “Settling ANDA Filers”) to resolve the patent litigation that we and/or Acorda brought against theSettling ANDA Filers in the Delaware Court as described above. As a result of the settlement agreements, the Settling ANDAFilers will be permitted to market a generic version of Ampyra in the U.S. at a specified date in 2027, or potentially earlierunder certain circumstances. The parties have submitted their respective settlement agreements to the Federal TradeCommission and the Department of Justice, as required by federal law. The settlements with the Settling ANDA Filers do notresolve pending patent litigation that we and Acorda brought against the other ANDA filers, as described in this AnnualReport. We intend to vigorously enforce our intellectual property rights. For information about risks relating to the AmpyraParagraph IV litigations and other proceedings see “Item 1A—Risk Factors” in this Annual Report and specifically thesection entitled “We face claims against our intellectual property rights and competition from generic drug manufacturers.” Ampyra IPR Proceedings A hedge fund (acting with affiliated entities and individuals and proceeding under the name of the Coalition forAffordable Drugs) has filed inter partes review petitions with the U.S. Patent and Trademark Office, challenging U.S. PatentNos. 8,007,826, 8,354,437, 8,440,703, and 8,663,685 (which are owned by Acorda). The challenged patents are four of thefive Ampyra Orange-Book listed patents. The 30-month statutory stay period based on patent infringement suits filed by usand Acorda against ANDA filers is not impacted by these filings, and remains in effect. Item 4. Mine Safety DisclosuresNot Applicable. 48 Table of ContentsPART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market and shareholder information Our ordinary shares are traded on the NASDAQ under the symbol “ALKS.” Set forth below for the indicated periods arethe high and low closing sales prices for our ordinary shares. Year Ended Year Ended December 31, 2015 December 31, 2014 High Low High Low 1st Quarter $73.64 $58.24 $53.82 $40.07 2nd Quarter 67.00 55.37 50.94 41.10 3rd Quarter 72.79 55.08 51.75 41.54 4th Quarter 80.14 57.89 58.88 40.23 There were 170 shareholders of record for our ordinary shares on February 12, 2016. In addition, the last reported saleprice of our ordinary shares as reported on the NASDAQ on February 12, 2016 was $32.45. Dividends No dividends have been paid on the ordinary shares to date, and we do not expect to pay cash dividends thereon in theforeseeable future. We anticipate that we will retain all earnings, if any, to support our operations and our proprietary drugdevelopment programs. Any future determination as to the payment of dividends will be at the sole discretion of our board ofdirectors and will depend on our financial condition, results of operations, capital requirements and other factors our board ofdirectors deems relevant. Securities authorized for issuance under equity compensation plans For information regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12,“Security Ownership of Certain Beneficial Owners and Management,” which incorporates by reference to the ProxyStatement relating to our 2016 Annual General Meeting of Shareholders. Repurchase of equity securities On September 16, 2011, our board of directors authorized the continuation of the Alkermes, Inc. program to repurchaseup to $215.0 million of our ordinary shares at the discretion of management from time to time in the open market or throughprivately negotiated transactions. We did not purchase any shares under this program during the year ended December 31,2015. As of December 31, 2015, we had purchased a total of 8,866,342 shares at a cost of $114.0 million. Our Term LoanFacility includes restrictive covenants that impose certain limitations on our ability to repurchase our ordinary shares. Irish taxes applicable to U.S. holders The following is a general summary of the main Irish tax considerations applicable to the purchase, ownership anddisposition of our ordinary shares by U.S. holders. It is based on existing Irish law and practices in effect on January 31, 2016,and on discussions and correspondence with the Irish Revenue Commissioners. Legislative, administrative or judicialchanges may modify the tax consequences described below. The statements do not constitute tax advice and are intended only as a general guide. Furthermore, this informationapplies only to ordinary shares held as capital assets and does not apply to all categories of shareholders, such as dealers insecurities, trustees, insurance companies, collective investment schemes and shareholders who acquire, or who are deemed toacquire their ordinary shares by virtue of an office or employment. This summary is not exhaustive and shareholders shouldconsult their own tax advisers as to the tax consequences in Ireland, or other relevant jurisdictions where we operate,including the acquisition, ownership and disposition of ordinary shares. 49 Table of ContentsWithholding tax on dividends While we have no current plans to pay dividends, dividends on our ordinary shares would generally be subject to Irishdividend withholding tax (“DWT”) at the standard rate of income tax, which is currently 20%, unless an exemption applies.Dividends on our ordinary shares that are owned by residents of the U.S. and held beneficially through the Depositary TrustCompany (“DTC”) will not be subject to DWT provided that the address of the beneficial owner of the ordinary shares in therecords of the broker is in the U.S. Dividends on our ordinary shares that are owned by residents of the U.S. and held directly (outside of DTC) will not besubject to DWT provided that the shareholder has completed the appropriate Irish DWT form and this form remains valid.Such shareholders must provide the appropriate Irish DWT form to our transfer agent at least seven business days before therecord date for the first dividend payment to which they are entitled. If any shareholder who is resident in the U.S. receives a dividend subject to DWT, he or she should generally be able tomake an application for a refund from the Irish Revenue Commissioners on the prescribed form. Income tax on dividends Irish income tax, if any, may arise in respect of dividends paid by us. However, a shareholder who is neither resident norordinarily resident in Ireland and who is entitled to an exemption from DWT, generally has no liability for Irish income tax orto the universal social charge on a dividend from us unless he or she holds his or her ordinary shares through a branch oragency in Ireland which carries out a trade on his or her behalf. Irish tax on capital gains A shareholder who is neither resident nor ordinarily resident in Ireland and does not hold our ordinary shares inconnection with a trade or business carried on by such shareholder in Ireland through a branch or agency should not bewithin the charge to Irish tax on capital gains on a disposal of our ordinary shares. Capital acquisitions tax Irish capital acquisitions tax (“CAT”) is comprised principally of gift tax and inheritance tax. CAT could apply to a giftor inheritance of our ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. Thisis because our ordinary shares are regarded as property situated in Ireland as our share register must be held in Ireland. Theperson who receives the gift or inheritance has primary liability for CAT. CAT is levied at a rate of 33% above certain tax‑free thresholds. The appropriate tax‑free threshold is dependent upon(i) the relationship between the donor and the recipient, and (ii) the aggregation of the values of previous gifts andinheritances received by the recipient from persons within the same category of relationship for CAT purposes. Gifts andinheritances passing between spouses are exempt from CAT. Our shareholders should consult their own tax advisers as towhether CAT is creditable or deductible in computing any domestic tax liabilities. Stamp duty Irish stamp duty, if any, may become payable in respect of ordinary share transfers. However, a transfer of our ordinaryshares from a seller who holds shares through DTC to a buyer who holds the acquired shares through DTC will not be subjectto Irish stamp duty. A transfer of our ordinary shares (i) by a seller who holds ordinary shares outside of DTC to any buyer, or(ii) by a seller who holds the ordinary shares through DTC to a buyer who holds the acquired ordinary shares outside of DTC,may be subject to Irish stamp duty, which is currently at the rate of 1% of the price paid or the market value of the ordinaryshares acquired, if greater. The person accountable for payment of stamp duty is the buyer or, in the case of a transfer by wayof a gift or for less than market value, all parties to the transfer. A shareholder who holds ordinary shares outside of DTC may transfer those ordinary shares into DTC without giving riseto Irish stamp duty provided that the shareholder would be the beneficial owner of the related book‑entry interest in thoseordinary shares recorded in the systems of DTC, and in exactly the same proportions, as a result of the transfer and at the timeof the transfer into DTC there is no sale of those book‑entry interests to a third party being contemplated by the shareholder.Similarly, a shareholder who holds ordinary shares through DTC may transfer those50 Table of Contentsordinary shares out of DTC without giving rise to Irish stamp duty provided that the shareholder would be the beneficialowner of the ordinary shares, and in exactly the same proportions, as a result of the transfer, and at the time of the transfer outof DTC there is no sale of those ordinary shares to a third party being contemplated by the shareholder. In order for the shareregistrar to be satisfied as to the application of this Irish stamp duty treatment where relevant, the shareholder must confirm tous that the shareholder would be the beneficial owner of the related book‑entry interest in those ordinary shares recorded inthe systems of DTC, and in exactly the same proportions or vice‑versa, as a result of the transfer and there is no agreement forthe sale of the related book‑entry interest or the ordinary shares or an interest in the ordinary shares, as the case may be, bythe shareholder to a third party being contemplated. Stock Performance Graph The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” withthe SEC, and such information shall not be incorporated by reference into any future filing under the Securities Act of 1933,as amended or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that wespecifically incorporate it by reference into such filing. The following graph compares the cumulative total shareholder return on our ordinary shares since March 31, 2011through December 31, 2015 with the NASDAQ Composite Total Return Index and the NASDAQ Biotechnology Index. As aresult of a change in the total return data made available to us through our vendor provider, our performance graphs goingforward will use the NASDAQ Composite Total Return Index in lieu of the NASDAQ US & Foreign Index. Please note thatinformation for the NASDAQ US & Foreign Index is provided only from March 31, 2011 through December 31, 2013, the lastday this data was made available by our third‑party index provider. The NASDAQ Biotechnology Index was not affected bythis change. It is important to note that information set forth in the graph below with respect to the time period prior toSeptember 16, 2011 refers to the common stock performance of Alkermes, Inc., while that information with respect to the timeperiod after September 16, 2011 refers to the ordinary share performance of Alkermes plc. The comparison assumes $100 wasinvested on March 31, 2011 in our common stock and in each of the foregoing indices and further assumes reinvestment ofany dividends. We did not declare or pay any dividends on our common stock or ordinary shares during the comparisonperiod. 51 Table of Contents Nine Months Ended Year Ended March 31, December 31, Year EndedDecember 31, 2011 2012 2013 2013 2014 2015 Alkermes 100 143 183 314 452 613 NASDAQ Composite Total Return 100 112 120 155 178 191 NASDAQ Biotechnology Index 100 123 160 228 305 340 NASDAQ Stock Market (U.S. and Foreign) Index 100 112 120 158 — — Item 6. Selected Financial Data The selected historical financial data set forth below at December 31, 2015 and 2014 and for the years endedDecember 31, 2015 and 2014 and the nine months ended December 31, 2013 are derived from our audited consolidatedfinancial statements, which are included elsewhere in this Annual Report. The selected historical financial data set forthbelow at December 31, 2013, March 31, 2013 and March 31, 2012 and for the years ended March 31, 2013 and 2012 arederived from audited consolidated financial statements, which are not included in this Annual Report. The selected historicalfinancial data for the period prior to September 16, 2011 is that of Alkermes, Inc., while the selected historical financial datafor the period after September 16, 2011 is that of Alkermes plc. The Company has elected not to recast prior period amountsto conform to the change in its fiscal year. The following selected consolidated financial data should be read in conjunction with our consolidated financialstatements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”included elsewhere in this Annual Report. The historical results are not necessarily indicative of the results to be expected forany future period.52 Table of Contents Nine Months Ended Year Ended December 31, December 31, Year Ended March 31, 2015 2014 2013 2013 2012 (In thousands, except per share data) Consolidated Statements of Operations Data: REVENUES: Manufacturing and royalty revenues $475,288 $516,876 $371,039 $510,900 $326,444 Product sales, net 149,028 94,160 57,215 58,107 41,184 Research and development revenue 4,019 7,753 4,657 6,541 22,349 Total revenues 628,335 618,789 432,911 575,548 389,977 EXPENSES: Cost of goods manufactured and sold 138,989 175,832 134,306 170,466 127,578 Research and development 344,404 272,043 128,125 140,013 141,893 Selling, general and administrative 311,558 199,905 116,558 125,758 137,632 Amortization of acquired intangible assets 57,685 58,153 38,428 41,852 25,355 Restructuring — — — 12,300 — Impairment of long-lived assets — — — 3,346 45,800 Total expenses 852,636 705,933 417,417 493,735 478,258 OPERATING (LOSS) INCOME (224,301) (87,144) 15,494 81,813 (88,281) OTHER INCOME (EXPENSE), NET 296 73,115 (10,097) (46,372) (26,111) (LOSS) INCOME BEFORE INCOME TAXES (224,005) (14,029) 5,397 35,441 (114,392) PROVISION (BENEFIT) FOR INCOME TAXES 3,158 16,032 (12,252) 10,458 (714) NET (LOSS) INCOME $(227,163) $(30,061) $17,649 $24,983 $(113,678) (LOSS) EARNINGS PER COMMON SHARE: BASIC $(1.52) $(0.21) $0.13 $0.19 $(0.99) DILUTED $(1.52) $(0.21) $0.12 $0.18 $(0.99) WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING: BASIC 149,206 145,274 135,960 131,713 114,702 DILUTED 149,206 145,274 144,961 137,100 114,702 Consolidated Balance Sheet Data: Cash, cash equivalents and investments $798,849 $801,646 $449,995 $304,179 $246,138 Total assets 1,855,744 1,919,058 1,574,848 1,467,121 1,425,786 Long-term debt 349,944 355,756 361,553 365,837 435,029 Shareholders’ equity 1,314,275 1,396,837 1,065,186 952,374 853,852 (1)On September 16, 2011, the businesses of Alkermes, Inc., and EDT were combined under Alkermes plc. We paidElan $500.0 million in cash and issued Elan 31.9 million ordinary shares of Alkermes plc, which had a fair value ofapproximately $525.1 million on the closing date, for the EDT business. Alkermes, Inc.’s results are included for allperiods being presented, whereas the results of the acquiree, EDT, are included only after the date of acquisition,September 16, 2011, through March 31, 2012.(2)Includes $29.1 million of expenses in the year ended March 31, 2012, related to the acquisition of EDT, whichconsists primarily of banking, legal and accounting expenses.(3)Represents a one‑time charge in connection with the restructuring plan related to our Athlone, Irelandmanufacturing facility recorded in the year ended March 31, 2013. The charge consists of severance payments andother employee‑related expenses.(4)Includes an impairment charge of $3.3 million related to the impairment of certain of our equipment located at ourWilmington, Ohio manufacturing facility in the year ended March 31, 2013, and an impairment charge of$45.8 million related to the impairment of certain of our in‑process R&D (“IPR&D”) in the year ended March 31,2012.(5)Includes $9.6 million Gain on the Gainesville Transaction in the year ended December 31, 2015.(6)In 2015, the Company retrospectively adopted the Financial Accounting Standards Board’s guidance, simplifyingthe presentation of debt issuance costs. As a result, deferred financing costs of $2.2 million, $2.7 million, $3.2million and $9.4 million that were classified within “Other long-term assets” at December 31, 2014, December 31,2013, March 31, 2013 and March 31, 2012, respectively, were reclassified to “Long-term debt” to conform to thecurrent period presentation.53 (1)(2)(3)(4)(5)(6)(6) Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following should be read in conjunction with our consolidated financial statements and related notes beginning onpage F‑1 of this Annual Report. The following discussion contains forward‑looking statements. Actual results may differsignificantly from those projected in the forward‑looking statements. See “Cautionary Note Concerning Forward‑LookingStatements” on pages 3 and 4 of this Annual Report. Factors that might cause future results to differ materially from thoseprojected in the forward‑looking statements also include, but are not limited to, those discussed in “Item 1A—Risk Factors”and elsewhere in this Annual Report. On May 21, 2013, our Audit and Risk Committee, with such authority delegated to it by our board of directors, approveda change to our fiscal year‑end from March 31 to December 31. This Annual Report reflects our financial results for thetwelve month period from January 1, 2015 through December 31, 2015. The period ended December 31, 2014 reflects ourfinancial results for the twelve‑month period from January 1, 2014 through December 31, 2014. The period endedDecember 31, 2013 reflects our financial results for the nine‑month period from April 1, 2013 through December 31, 2013. Overview Alkermes is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietarytechnologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that aredesigned to address unmet medical needs of patients in major therapeutic areas. We have a diversified portfolio ofcommercial drug products and a clinical pipeline of product candidates that address CNS disorders such as schizophrenia,depression, addiction and multiple sclerosis. We earn revenue on net sales of VIVITROL and ARISTADA, which are proprietary products that we manufacture, marketand sell in the U.S and manufacturing and/or royalty revenues on net sales of products commercialized by our partners. Ourkey marketed products are expected to generate significant revenues for us in the near‑ and medium‑term, as they possesslong remaining patent lives and we believe are singular or competitively advantaged products in their classes and aregenerally in the launch phases of their commercial lives. These key marketed products consist of our antipsychotic franchise,INVEGA SUSTENNA/XEPLION and INVEGA TRINZA and RISPERDAL CONSTA; AMPYRA/FAMPYRA; BYDUREON;VIVITROL; and ARISTADA. Revenues from these products accounted for 88% of our total revenues during the year endedDecember 31, 2015, as compared to 74% and 68% during the years ended December 31, 2014 and 2013, respectively. During the year ended December 31, 2015 we incurred an operating loss of $224.3 million which was primarily due tothe significant investments we made in our R&D pipeline and the increase in our commercial operations group inanticipation of the launch of ARISTADA. In addition, in April 2015, we sold our Gainesville, GA manufacturing facility andthe related manufacturing and royalty revenue associated with certain products manufactured at this facility includingRITALIN LA, FOCALIN XR, VERELAN, ZOHYDRO ER, and BIDIL, and the rights to IV/IM and parenteral forms ofMeloxicam. This facility generated revenues of $19.7 million, $73.0 million and $50.2 million and income before incometaxes of $4.5 million, $22.8 million and $16.2 million in the years ended December 31, 2015 and 2014 and the nine monthsended December 31, 2013, respectively. Our revenues in 2015, when compared to 2014, increased by $9.5 million, however, after taking into account the loss ofrevenues from our Gainesville facility, our revenues increased by $62.8 million, with VIVITROL accounting for $50.3million of this increase. R&D expense increased by $72.4 million from 2014, driven by our advancing development pipelineas we continued with the pivotal clinical development programs for ALKS 5461; moved ALKS 3831 into a pivotaldevelopment program in the fourth quarter of 2015 following the positive results from our dose-ranging phase 2 studyannounced in April 2015; and initiated phase 3 studies of ALKS 6428 and ALKS 8700 in September 2015 and December2015, respectively. Our increases in selling, general and administrative (“SG&A”) expense was primarily due to thepreparations for the launch of ARISTADA in October 2015 following approval by the FDA. 54 Table of ContentsResults of Operations Years Ended December 31, 2015, 2014 and 2013 Manufacturing and Royalty Revenues Manufacturing revenues are earned from the sale of products under arrangements with our licensees when product isshipped to them at an agreed upon price. Royalties are generally earned on our licensees’ sales of products that incorporateour technologies and are recognized in the period the products are sold by our licensees. The following table comparesmanufacturing and royalty revenues earned in the years ended December 31, 2015, 2014 and 2013: Change Year Ended December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 - 2014 2014 - 2013 Manufacturing and royalty revenues: Continuing products: INVEGA SUSTENNA/XEPLION & INVEGA TRINZA $149.7 $127.8 $97.7 $21.9 $30.1 AMPYRA/FAMPYRA 104.7 80.9 75.7 23.8 5.2 RISPERDAL CONSTA 100.7 120.6 137.9 (19.9) (17.3) BYDUREON 46.1 36.6 24.8 9.5 11.8 Other 55.3 80.6 114.7 (25.3) (34.1) 456.5 446.5 450.8 10.0 (4.3) Divested products: RITALIN LA & FOCALIN XR 9.3 40.7 41.6 (31.4) (0.9) Other 9.5 29.7 25.6 (20.2) 4.1 18.8 70.4 67.2 (51.6) 3.2 Manufacturing and royalty revenues $475.3 $516.9 $518.0 $(41.6) $(1.1) Our partnered, long‑acting antipsychotic franchise consists of INVEGA SUSTENNA/XEPLION and, upon its launch inJune 2015, INVEGA TRINZA as well as RISPERDAL CONSTA. Under our INVEGA SUSTENNA/XEPLION and INVEGATRINZA agreement with Janssen, we earn royalties on end‑market net sales of INVEGA SUSTENNA/XEPLION and INVEGATRINZA of 5% up to the first $250 million in calendar‑year sales, 7% on calendar‑year sales of between $250 million and$500 million, and 9% on calendar‑year sales exceeding $500 million. The royalty rate resets at the beginning of eachcalendar‑year to 5%. Under our RISPERDAL CONSTA supply and license agreements with Janssen, we earn manufacturingrevenues at 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA and royalty revenues at 2.5% of end‑market sales. The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA royalty revenues in each period was due to anincrease in Janssen’s end‑market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA. Janssen’s end‑market salesof INVEGA SUSTENNA/XEPLION and INVEGA TRINZA were $1,830.0 million, $1,588.0 million and $1,248.0 million,during the years ended December 31, 2015, 2014 and 2013, respectively. Partially offsetting the increase in INVEGASUSTENNA/XEPLION and INVEGA TRINZA end-market sales by Janssen in 2015, as compared to 2014, was an 8%decrease in revenue due to the strengthening of the U.S. dollar in relation to the currencies in which XEPLION was sold. The decrease in RISPERDAL CONSTA revenue in each period was primarily due to a decline in Janssen’s end-marketnet sales of RISPERDAL CONSTA. Janssen’s end‑market sales of RISPERDAL CONSTA were $970.0million, $1,190.0 million and $1,318.0 million, during the years ended December 31, 2015, 2014 and 2013, respectively.The decline in Janssen’s end-market sales led to a decrease in our royalty revenues of 18% in 2015, as compared to 2014 and10% in 2014, as compared to 2013. Contributing to the decrease in RISPERDAL CONSTA end-market sales by Janssen in2015, as compared to 2014, was a 9% decrease in revenue due to the strengthening of the U.S. dollar in relation to thecurrencies in which RISPERDAL CONSTA was sold. The manufacturing revenue we earned on shipments of RISPERDAL CONSTA to Janssen also declined by 16% in 2015,as compared to 2014 and by 13% in 2014, as compared to 2013. The decrease in manufacturing revenue in 2015, ascompared to 2014, was primarily due to a 17% decrease in the number of units shipped to Janssen. The decrease inmanufacturing revenue in 2014, as compared to 2013, was primarily due to a 39% decrease in the number of units shipped toJanssen for resale in U.S., partially offset by an 8% increase in price and a 5% increase in the number of units shipped toJanssen for resale in countries other than the U.S., partially offset by a 4% decrease in price.55 Table of Contents We expect revenues from our long‑acting, atypical antipsychotic franchise to continue to grow as INVEGASUSTENNA/XEPLION and INVEGA TRINZA is launched around the world. A number of companies, including us, areworking to develop products to treat schizophrenia and/or bipolar disorder that may compete with INVEGASUSTENNA/XEPLION and INVEGA TRINZA and RISPERDAL CONSTA. Increased competition may lead to reduced unitsales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA and RISPERDAL CONSTA, as well as increasing pricingpressure. INVEGA SUSTENNA/XEPLION is covered by a patent until 2022 in the EU and 2019 in the U.S.; INVEGATRINZA is covered by a patent until 2022 in the EU and 2017 in the U.S.; and RISPERDAL CONSTA is covered by a patentuntil 2021 in the EU and 2023 in the U.S. and, as such, we do not anticipate any generic versions in the near‑term for either ofthese products. Under our AMPYRA supply and license agreements with Acorda, we earn manufacturing and royalty revenues whenAMPYRA is shipped to Acorda, either by us or a third‑party manufacturer. Under our FAMPYRA supply and licenseagreements with Biogen, we earn manufacturing revenue when FAMPYRA is shipped to Biogen, and we earn royalties uponend‑market sales of FAMPYRA by Biogen. The increase in AMPYRA/FAMPYRA revenues in 2015, as compared to 2014, was due to a 31% increase inmanufacturing revenue and a 28% increase in royalty revenue. The increase in manufacturing revenue was primarily due to a20% increase in product shipped to Acorda and Biogen and an 8% increase in price. The increase in royalty revenue was dueto an increase in the end-market sales of AMPYRA/FAMPYRA as end-market sales of the product were $520.7 million,$446.4 million and $376.5 million in the years ended December 31, 2015, 2014 and 2013, respectively. The increase inAMPYRA/FAMPYRA revenues in 2014, as compared to 2013, was due to a 9% increase in royalty revenues, due primarily tothe increase in end-market sales as previously noted, and a 4% increase in manufacturing revenues. We expect AMPYRA/FAMPYRA sales to continue to grow as Acorda continues to penetrate the U.S. market withAMPYRA and Biogen continues to launch FAMPYRA in the rest of the world. AMPYRA is covered by a patent until 2027 inthe U.S. and FAMPYRA is covered by a patent until 2025 in the EU. A number of companies, including us, are working todevelop products to treat multiple sclerosis that may compete with AMPYRA/FAMPYRA, which may negatively impactfuture sales of the products. For a discussion of legal proceedings related to the patents covering AMPYRA, see “Item 3—Legal Proceedings.” Under our BYDUREON license agreement with AstraZeneca, we earned royalties on end-market sales of BYDUREON of8% in the years ended December 31, 2015, 2014 and 2013. The increase in BYDUREON royalty revenues in each periodpresented was due to an increase in end‑market sales of BYDUREON. AstraZeneca’s end-market sales of BYDUREON was$580.0 million, $457.3 million and $311.5 million in 2015, 2014 and 2013, respectively. BYDUREON is covered by apatent until 2025 in the U.S. and until 2024 in the EU, and as such, we do not anticipate any generic versions of this productin the near‑term. Included in other manufacturing and royalty revenues in 2015, 2014 and 2013 was $9.5 million, $29.7 million and$25.6 million, respectively, of revenue associated with certain products manufactured at our Gainesville facility, includingVERELAN, ZOHYDRO ER, and BIDIL, which were sold in April 2015. RITALIN LA and FOCALIN XR were alsomanufactured at our Gainesville facility. Included in revenue from 2013 was $30.0 million of IP license revenue unrelated tokey development programs. Certain of our manufacturing and royalty revenues are earned in countries outside of the U.S. and are denominated incurrencies in which the product is sold. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” forinformation on currency exchange rate risk related to our revenues. Product Sales, Net Our product sales, net consist of sales of VIVITROL and, following its approval by the FDA in October 2015,ARISTADA, in the U.S. to wholesalers, specialty distributors and specialty pharmacies. The following table presents the56 Table of Contentsadjustments to arrive at product sales, net for sales of VIVITROL and ARISTADA in the U.S. during the years endedDecember 31, 2015, 2014 and 2013: Year Ended December 31, (In millions) 2015 % ofSales 2014 % ofSales 2013(unaudited) % ofSales Product sales, gross $227.0 100.0% $137.1 100.0% $99.4 100.0% Adjustments to product sales, gross: Medicaid rebates (32.2) (14.2)% (11.1) (8.1)% (7.0) (7.0)% Chargebacks (17.8) (7.8)% (9.3) (6.8)% (6.5) (6.5)% Product discounts (13.2) (5.8)% (7.2) (5.3)% (4.5) (4.5)% Co-pay assistance (6.5) (2.9)% (6.1) (4.4)% (4.6) (4.6)% Product returns (2.2) (1.0)% (3.0) (2.2)% (1.1) (1.1)% Other (6.1) (2.7)% (6.2) (4.5)% (3.9) (3.9)% Total adjustments (78.0) (34.4)% (42.9) (31.3)% (27.6) (27.8)% Product sales, net $149.0 65.6% $94.2 68.7% $71.8 72.2% The 66% increase in product sales, gross in 2015, as compared to 2014, was due to a 61% increase in VIVITROL grosssales and the launch of ARISTADA to the market in October 2015. The 61% increase in VIVITROL gross sales was primarilydue to a 46% increase in the number of VIVITROL units sold and an 11% increase in the price of VIVITROL. The increase inproduct sales, gross in 2014, as compared to 2013, was due to a 32% increase in the number of VIVITROL units sold and a5% increase in price. The increase in Medicaid rebates as a percentage of sales in 2015, as compared to 2014, and in 2014, ascompared to 2013, was primarily due to an increase in the amount of VIVITROL sold under the Medicaid Drug RebateProgram. We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the opioid dependencemarket in the U.S., and as ARISTADA sales increase following its approval by the FDA in October 2015. A number of companies, including us, are working to develop products to treat addiction, including alcohol and opioiddependence that may compete with and negatively impact future sales of VIVITROL. Increased competition may lead toreduced unit sales of VIVITROL, as well as increasing pricing pressure. VIVITROL is covered by a patent that will expire inthe U.S. in 2029 and in Europe in 2021 and, as such, we do not anticipate any generic versions of this product in thenear‑term. A number of companies, including us, currently market and/or are working to develop products to treatschizophrenia that may compete with and negatively impact future sales of ARISTADA. Increased competition may lead toreduced unit sales of ARISTADA, as well as increasing pricing pressure. ARISTADA is covered by a patent that will expire inthe U.S. in 2033, and, as such, we do not anticipate any generic versions of this product in the near‑term. Costs and Expenses Cost of Goods Manufactured and Sold Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 - 2014 2014 - 2013 Cost of goods manufactured and sold $139.0 $175.8 $182.3 $36.8 $6.5 The decrease in cost of goods manufactured and sold in 2015, as compared to 2014, was primarily due to the GainesvilleTransaction. During the years ended December 31, 2015 and 2014, the Gainesville facility had cost of goods manufactured of$10.2 million and $37.1 million, respectively. Also, in connection with the restructuring plan related to our Athlone, Irelandmanufacturing facility initiated in April 2013, our cost of goods manufactured at our Athlone facility decreased by $14.3million, with the most significant savings being occupancy and depreciation expense of $9.2 million and employee-relatedexpenses of $4.1 million. These decreases were partially offset by an increase in cost of goods manufactured and sold relatedto our Ohio manufacturing facility of $4.4 million, which was primarily due to the increase in sales of VIVITROL and thelaunch of ARISTADA in October 2015, partially offset by a decrease in cost of goods manufactured for RISPERDALCONSTA due to a decrease in the number of units shipped to Janssen. The decrease in cost of goods manufactured and sold in 2014, as compared to 2013, was primarily due to an $8.5 milliondecrease in cost of goods manufactured for RISPERDAL CONSTA, which was primarily due to a 5% decrease in the numberof units shipped to Janssen. This decrease was partially offset by a $3.2 million increase in the cost of goods sold forVIVITROL due to VIVITROL’s increased sales.57 Table of Contents Research and Development Expenses For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include costsrelated to clinical and non‑clinical activities performed by CROs, consulting fees, laboratory services, purchases of drugproduct materials and third‑party manufacturing development costs. Internal R&D expenses include employee‑relatedexpenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our developmentprograms; however, internal R&D expenses are not tracked by individual program as they benefit multiple programs or ourtechnologies in general. The following table sets forth our external R&D expenses relating to our individual Key Development Programs and allother development programs, and our internal R&D expenses by the nature of such expenses: Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 -2014 2014 - 2013 External R&D Expenses: Key development programs: ALKS 5461 $108.4 $77.1 $8.4 $(31.3) $(68.7) ARISTADA 38.1 30.9 45.1 (7.2) 14.2 ALKS 3831 26.1 28.8 7.6 2.7 (21.2) ALKS 8700 17.9 10.1 2.6 (7.8) (7.5) ALKS 6428 7.0 — — (7.0) — Other development programs 19.5 25.0 18.3 5.5 (6.7) Total external R&D expenses 217.0 171.9 82.0 (45.1) (89.9) Internal R&D expenses: Employee-related 97.5 75.7 57.9 (21.8) (17.8) Occupancy 8.1 6.9 11.1 (1.2) 4.2 Depreciation 6.2 8.2 7.6 2.0 (0.6) Other 15.6 9.3 5.3 (6.3) (4.0) Total internal R&D expenses 127.4 100.1 81.9 (27.3) (18.2) Research and development expenses $344.4 $272.0 $163.9 $(72.4) $(108.1) These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending mosteffectively, we continually evaluate the products under development, based on the performance of such products inpre‑clinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of theircommercial viability, among other factors. The fluctuations in the expenses from period to period in our key development programs are primarily due to the timingand level of study activity. We initiated the pivotal clinical development program for ALKS 5461 in March 2014. Data fromthe first study, FORWARD-1, was announced in December 2015 and data from FORWARD-3 and FORWARD-4 wasannounced in January 2016. There is one additional on-going study, FORWARD-5, from which data is due later in 2016.ARISTADA was approved by the FDA in October 2015 following an NDA filing in August 2014 based on the positive phase3 results announced in April 2014. Also, in December 2014, we initiated a phase 1 clinical study of extended dosingintervals of ARISTADA in patients with schizophrenia. We completed a phase 2 study of ALKS 3831, initiated in 2013, toassess the safety, tolerability and impact of ALKS 3831 on weight gain and other metabolic factors in patients withschizophrenia and announced the results from this study in 2015. In December 2015, we announced that we advanced ALKS3831 into a pivotal development program, referred to as ENLIGHTEN. We initiated a phase 1 study of ALKS 8700 in 2014and announced data from the study in 2015. In December 2015, we announced that we had advanced ALKS 8700 into apivotal development program. In September 2015, we initiated a phase 3 program for ALKS 6428. For additional detail onthe status of our key development programs, refer to “Key Development Programs” within Part 1, Item 1, “Business” in thisAnnual Report. Expenses incurred under the ALKS 7119 and RDB 1450 development programs in 2015, 2014 and 2013were not material. The increase in employee-related expenses was primarily due to an increase in headcount and share-based compensationexpense. Our R&D related headcount increased by 20% and 23% in 2015, as compared to 2014, and in 2014 as compared to2013, respectively. The increase in share-based compensation expense in 2015, as compared to 2014, and in 2014, ascompared to 2013, was primarily due to recent equity grants being awarded with higher grant-date fair values than oldergrants due to the increase in our stock price. 58 Table of ContentsSelling, General and Administrative Expenses Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 -2014 2014 -2013 Selling, general and administrative expense $311.6 $199.9 $151.2 $(111.7) $(48.7) The increase in SG&A expense in 2015, as compared to 2014, was primarily due to the preparation of the launch ofARISTADA in October 2015, which consisted of an $82.9 million increase in employee-related expenses and a $24.3 millionincrease in marketing and professional services expenses. The increase in employee-related expenses was primarily due to a92% increase in SG&A-related headcount and a $26.4 million increase in share-based compensation expense due to theincrease in the amount of equity awards granted, the vesting of performance-based restricted stock units in October 2015 thatwere tied to the approval of ARISTADA and that recent equity grants being awarded with higher grant-date fair values thanolder grants due to the increase in our stock price. The increase in marketing and professional services expenses wereprimarily due to pre-launch activities for ARISTADA. The increase in SG&A expenses in 2014, as compared to 2013, was primarily due to a $23.9 million increase inemployee-related expenses and a $20.9 million increase in marketing and professional services expenses. The increase inemployee-related expenses was primarily due to a 21% increase in SG&A-related headcount and an $11.3 million increase inshare-based compensation expense due to equity grants being awarded with higher grant-date fair values than older grantsdue to the increase in our stock price. The increase in marketing and professional services expenses were primarily due toactivity around a label update for VIVITROL and pre-launch activities for ARISTADA. Amortization of Acquired Intangible Assets Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 -2014 2014 -2013 Amortization of acquired intangible assets $57.7 $58.2 $48.8 $0.5 $(9.4) Our amortizable intangible assets consist of technology and collaborative arrangements acquired as part of theacquisition of EDT in September 2011, which are being amortized over 12 to 13 years. We amortize our amortizableintangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangibleassets are consumed as revenue is generated from the underlying patent or contract. As part of the Gainesville Transaction, we sold certain of the intellectual property we acquired from EDT that had anoriginal cost of $57.8 million. Based on our most recent analysis, amortization of intangible assets included within ourconsolidated balance sheet at December 31, 2015 is expected to be approximately $60.0 million, $60.0 million,$60.0 million, $55.0 million and $50.0 million in the years ending December 31, 2016 through 2020, respectively. Other Income (Expense), Net Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 -2014 2014 -2013 Interest income $3.3 $2.0 $0.9 $1.3 $1.1 Interest expense (13.2) (13.4) (21.9) 0.2 8.5 Gain on the Gainesville Transaction 9.6 — — 9.6 — Decrease in the fair value of contingent consideration (2.3) — — (2.3) — Gain on sale of property, plant and equipment 2.9 41.9 — (39.0) 41.9 Gain on sale of investment in Civitas Therapeutics, Inc. — 29.6 — (29.6) 29.6 Gain on sale of investment in Acceleron Pharma Inc. — 15.3 — (15.3) 15.3 Other income (expense), net — (2.3) (0.2) 2.3 (2.1) Total other income (expense), net $0.3 $73.1 $(21.2) $(72.8) $94.3 The decrease in interest expense in 2014, as compared to 2013, was primarily due to an amendment of our long‑termdebt in February 2013, which resulted in a $7.5 million charge to interest expense during the year ended December 31, 2013. In April 2015, we completed the Gainesville Transaction which included the sale of: our manufacturing facility inGainesville, GA; the related manufacturing and royalty revenue associated with certain products manufactured at this facilityincluding RITALIN LA, FOCALIN XR, VERELAN, ZOHYDRO ER, and BIDIL; and the IV/IM and parenteral59 Table of Contentsformulations of Meloxicam, a nonsteroidal anti-inflammatory drug, which has completed multiple phase 2 trials for themanagement of moderate-to-severe acute pain. We acquired these assets in 2011 as part of our business combination withEDT. The proceeds from the Gainesville Transaction consisted of $54.0 million in cash, $2.1 million in warrants to acquireRecro common stock and $57.6 million in contingent consideration tied to low double digit royalties on net sales of IV/IMand parenteral forms of Meloxicam, and up to $120.0 million in milestone payments upon the achievement of certainregulatory and sales milestones related to IV/IM and parenteral forms of Meloxicam. We determined the fair value of thecontingent consideration through three valuation approaches, which are described in greater detail in Note 3, Divestiture, inthe “Notes to Consolidated Financial Statements” in this Annual Report. We will, at each reporting date, update our assessment of the fair value of this contingent consideration and reflect anychanges to the fair value within the consolidated statements of operations and comprehensive (loss) income until themilestones and/or royalties included in the contingent consideration have been settled. During the year ended December 31,2015, we determined that the fair value of the contingent consideration decreased by $2.3 million, which was primarily dueto a delay in the timing of future clinical events. Gain on the sale of property, plant and equipment in 2014 consists of the following two transactions: in April 2014, wesold certain of our land, buildings and equipment at our Athlone, Ireland facility that had a carrying value of $2.2 million, inexchange for $17.5 million and recorded a gain of $12.3 million, as $3.0 million of the sale proceeds were placed in escrowpending the completion of certain additional services we were obligated to perform, which were completed in December2015. In October 2014, we sold certain of our commercial‑scale pulmonary manufacturing equipment which had a carryingvalue of $0.4 million, to Acorda in exchange for $30.0 million. In October 2014, in connection with the acquisition of Civitas by Acorda, we received $27.2 million and $2.4 millionwas placed in escrow, for our approximate 6% equity interest in Civitas. We received the amounts held in escrow in October2015. During the second quarter of 2014, we sold our investment in Acceleron Pharma Inc., which consisted of equitysecurities, for a gain of $15.3 million. Provision (Benefit) for Income Taxes Year Ended Change December 31, Favorable/(Unfavorable) (In millions) 2015 2014 2013(unaudited) 2015 -2014 2014 -2013 Provision (benefit) for income taxes $3.2 $16.0 $(7.4) $12.8 $(23.4) The income tax provision for the years ended December 31, 2015 and 2014 was primarily due to U.S. federal and statetaxes on income earned in the U.S. The income tax benefit in the year ended December 31, 2013 was primarily due to therelease of the valuation allowance held against U.S. deferred tax assets, partially offset by federal and state taxes on incomeearned in the U.S. No provision for income tax has been provided on undistributed earnings of our foreign subsidiaries because suchearnings may be repatriated to Ireland without incurring any tax liability. Cumulative unremitted earnings of overseassubsidiaries totaled approximately $107.0 million at December 31, 2015. At December 31, 2015, we maintained a valuation allowance of $2.6 million against certain U.S. state deferred tax assetsand $104.2 million against certain Irish deferred tax assets as we determined that it is more‑likely‑than‑not that these netdeferred tax assets will not be realized. If we demonstrate consistent profitability in the future, the evaluation of therecoverability of these deferred tax assets may change and the remaining valuation allowance may be released in part or inwhole. As of December 31, 2015, we had $881.0 million of Irish NOL carryforwards, $5.5 million of U.S. federal NOLcarryforwards and $7.2 million of U.S. state NOL carryforwards, $44.8 million of federal R&D credits, $9.8 million ofalternative minimum tax credits and $5.9 million of U.S. state tax credits which either expire on various dates through 2035or can be carried forward indefinitely. These loss carryforwards and credits are available to reduce certain future Irish and U.S.taxable income and tax, respectively, if any. These loss carryforwards are subject to review and possible adjustment by theappropriate taxing authorities. These loss carryforwards, which may be utilized in any future period, may be subject tolimitations based upon changes in the ownership of our stock. We have performed a review of60 Table of Contentsownership changes in accordance with the Code and have determined that it is more‑likely‑than‑not that, as a result of theBusiness Combination, we experienced a change of ownership. As a consequence, a portion of our U.S. federal NOLcarryforwards and tax credit carryforwards are subject to an annual limitation of $127.0 million. Nine Months Ended December 31, 2013 and 2012 Manufacturing and Royalty Revenues The following table compares manufacturing and royalty revenues earned in the nine months ended December 31, 2013and 2012: Nine Months Ended December 31, Change (In millions) 2013 2012(unaudited) Favorable/(Unfavorable) Manufacturing and royalty revenues: RISPERDAL CONSTA $107.2 $102.9 $4.3 INVEGA SUSTENNA/XEPLION 82.9 48.6 34.3 AMPYRA/FAMPYRA 51.1 40.5 10.6 RITALIN LA & FOCALIN XR 31.1 29.7 1.4 BYDUREON 20.0 11.6 8.4 TRICOR 145 10.6 31.3 (20.7) IP License revenue — 20.0 (20.0) Other 68.1 79.4 (11.3) Manufacturing and royalty revenues $371.0 $364.0 $7.0 The increase in RISPERDAL CONSTA manufacturing and royalty revenues was primarily due to a 9% increase in thenumber of units shipped to Janssen, partially offset by a 7% decrease in royalties. The decrease in royalties was due to adecrease in Janssen’s end‑market sales of RISPERDAL CONSTA from $1,064.0 million during the nine months endedDecember 31, 2012 to $981.0 million during the nine months ended December 31, 2013. The increase in royalty revenuesfrom INVEGA SUSTENNA/XEPLION was due to an increase in Janssen’s end‑market sales of INVEGASUSTENNA/XEPLION from $636.0 million in the nine months ended December 31, 2012 to $966.0 million in the ninemonths ended December 31, 2013. The increase in revenue from AMPYRA/FAMPYRA was primarily due to a 69% increase in the amount of AMPYRAshipped to Acorda and a 22% increase in Biogen’s end‑market sales of FAMPYRA, partially offset by a 26% decrease inroyalties earned from a decrease in third‑party manufacturing of AMPYRA. The increase in BYDUREON royalty revenues was due to an increase in end‑market sales of BYDUREON from$145.7 million during the nine months ended December 31, 2012 to $242.1 million during the nine months endedDecember 31, 2013. The decrease in revenue from TRICOR 145 was due to generic competition. Other manufacturing and royalty revenue inthe nine months ended December 31, 2012 included $20.0 million for the sale of a license to certain of our intellectualproperty that was not used in our key clinical development programs or commercial products. Product Sales, Net In the nine months ended December 31, 2013 and 2012, our product sales, net consist of sales of VIVITROL in the U.S.to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments to arrive atVIVITROL product sales, net for sales of VIVITROL in the U.S. during the nine months ended December 31, 2013 and 2012:61 Table of Contents Nine Months Ended Nine Months Ended December 31, 2012 December 31, 2013 (unaudited) (In millions) Amount % of Sales Amount % of Sales Product sales, gross $79.1 100.0% $58.2 100.0% Adjustments to product sales, gross: Medicaid rebates (5.5) (7.0)% (4.3) (7.4)% Chargebacks (5.2) (6.6)% (4.1) (7.0)% Product discounts (3.7) (4.7)% (2.0) (3.4)% Co-pay assistance (3.7) (4.7)% (2.3) (4.0)% Product returns (0.9) (1.1)% 0.4 0.7% Other (2.9) (3.6)% (2.4) (4.2)% Total adjustments (21.9) (27.7)% (14.7) (25.3)% Product sales, net $57.2 72.3% $43.5 74.7% (1)Prior to August 1, 2012, product returns was a reserve for inventory in the channel; an estimate to defer therecognition of revenue on shipments of VIVITROL to our customers until the product left the distribution channelas we did not have the history to reasonably estimate returns related to these shipments. Beginning on August 1,2012, we changed the method of revenue recognition to recognize revenue upon delivery to our customers andprovide for a reserve for future returns. This change in the method of revenue recognition resulted in a one‑time$1.7 million increase to product sales, net, which was recognized during the three months ended September 30,2012. The increase in product sales, gross was due to a 37% increase in the number of units sold. Costs and ExpensesCost of Goods Manufactured and Sold Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) Cost of goods manufactured and sold $134.3 $122.5 $(11.8) The increase in cost of goods manufactured and sold was primarily due to a $6.2 million increase in cost of goodsmanufactured for RISPERDAL CONSTA and a $4.5 million increase in depreciation at our Athlone, Ireland manufacturingfacility. The increase in RISPERDAL CONSTA cost of goods manufactured was primarily due to the 9% increase in thenumber of units shipped to Janssen. The increase in depreciation expense at our Athlone, Ireland manufacturing facility wasdue to $5.4 million of accelerated depreciation on certain of our manufacturing assets that will have no future use at thecompletion of our restructuring plan in the year ended December 31, 2015. Research and Development Expenses The following table sets forth our external R&D expenses related to our individual Key Development Programs and allother development programs, and our internal R&D expenses by the nature of such expenses: 62 (1) Table of Contents Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) External R&D Expenses: Key development programs: ARISTADA $34.9 $30.1 $(4.8) ALKS 3831 7.6 — (7.6) ALKS 5461 6.1 6.1 — ALKS 8700 2.6 — (2.6) ALKS 7106 2.5 — (2.5) ALKS 37 — 3.5 3.5 Other development programs 11.3 10.8 (0.5) Total external expenses 65.0 50.5 (14.5) Internal R&D expenses: Employee-related 44.1 38.6 (5.5) Occupancy 6.8 3.7 (3.1) Depreciation 6.1 4.3 (1.8) Other 6.1 7.1 1.0 Total internal R&D expenses 63.1 53.7 (9.4) Research and development expenses $128.1 $104.2 $(23.9) The increase in R&D expenses related to the ARISTADA program was primarily due to the timing of patient enrollmentsin our phase 3 studies, which began in December 2011, and the start of an extension study in September 2013 to assess thelong‑term safety and durability of effect of ARISTADA in patients with stable schizophrenia. The increase in expensesrelated to the ALKS 3831 program was due to the timing of studies related to the program. We announced positive toplineresults from a phase 1 study in January 2013, and in July 2013, we announced the initiation of a phase 2 study of ALKS 3831to assess the safety, tolerability and impact of ALKS 3831 on weight gain and other metabolic factors in patients withschizophrenia. The decrease in R&D expenses related to the ALKS 37 program was due to the decision in May 2012 not toadvance ALKS 37 after the results from the phase 2b multicenter, randomized, double‑blind, placebo‑controlled, repeat‑dosestudy did not satisfy our pre‑specified criteria for advancing into phase 3 clinical trials. ALKS 8700 and ALKS 7106 wereadded to our key development program portfolio during the period and filed an IND and initiated phase 1 studies for bothprograms in 2014. The increase in employee‑related expenses is primarily due to an increase in headcount and share‑basedcompensation expense. Expense incurred under the RDB 1419 program was not material in the nine months endedDecember 31, 2013 and 2012. Selling, General and Administrative Expenses Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) Selling, general and administrative $116.6 $91.1 $(25.5) The increase in SG&A expenses was primarily due to an $11.7 million increase in employee‑related expenses, a$5.9 million increase in professional services and a $5.3 million increase in marketing expense. The increase inemployee‑related expenses was primarily due to an increase in share‑based compensation expense as a result of our increasedstock price and an increase in headcount. The increase in professional services was primarily due to activities surroundingthe anticipated launch of ARISTADA in 2015. The increase in marketing expense was primarily due to activity related to alabel update for VIVITROL and ARISTADA launch activity. Amortization of Acquired Intangible Assets Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) Amortization of acquired intangible assets $38.4 $31.5 $(6.9) Our amortizable intangible assets consist of technology and collaborative arrangements acquired as part of theacquisition of EDT in 2011 which are being amortized over 12 to 13 years. We amortize our amortizable intangible assetsusing the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumedas revenue is generated from the underlying patent or contract. 63 Table of ContentsOther Expense, Net Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) Interest income $0.7 $0.6 $0.1 Interest expense (10.4) (37.5) 27.1 Other (expense) income, net (0.4) 1.6 (2.0) Total other expense, net $(10.1) $(35.3) $25.2 The decrease in interest expense was due to a decrease in the principal amount and interest rates associated with ourlong‑term debt. As a result of two refinancing transactions we completed during the year ended March 31, 2013, we reducedour outstanding principal balance from $450.0 million to $375.0 million, and reduced our blended interest rate from 7.6% to3.4%. Included in interest expense in the nine months ended December 31, 2012 was a charge of $12.2 million due to theaccounting for the restructuring of our long‑term debt. (Benefit) Provision for Income Taxes Nine Months Ended December 31, Change 2012 Favorable/ (In millions) 2013 (unaudited) (Unfavorable) (Benefit) provision for income taxes $(12.3) $5.6 $17.9 The income tax benefit in the nine months ended December 31, 2013 was due to the release of a valuation allowanceagainst substantially all of our U.S. federal and state deferred tax assets, partially offset by current tax expense on incomeearned in the U.S. During the last quarter of 2013, we performed an analysis and determined that it was more‑likely‑than‑notthat we would utilize these deferred tax assets in future periods. Income tax expense in the nine months ended December 31,2012 primarily related to U.S. federal and state taxes on income earned in the U.S. Liquidity and Capital Resources Our financial condition is summarized as follows: December 31, 2015 December 31, 2014 (In millions) U.S. Ireland Total U.S. Ireland Total Cash and cash equivalents $70.8 $110.3 $181.1 $69.6 $154.4 $224.0 Investments—short-term 202.4 151.2 353.6 182.7 224.4 407.1 Investments—long-term 129.1 135.0 264.1 68.7 101.8 170.5 Total cash and investments $402.3 $396.5 $798.8 $321.0 $480.6 $801.6 Outstanding borrowings—current and long-term $349.9 $ — $349.9 $355.8 $ — $355.8 At December 31, 2015, our investments consisted of the following: Gross Amortized Unrealized Estimated (In millions) Cost Gains Losses Fair Value Investments—short-term $354.0 $0.1 $(0.4) $353.7 Investments—long-term available-for-sale 261.6 — (1.0) 260.6 Investments—long-term held-to-maturity 3.4 — — 3.4 Total $619.0 $0.1 $(1.4) $617.7 Sources and Uses of Cash We used $40.4 million and generated cash from operations of $11.1 million and $92.2 million during the years endedDecember 31, 2015 and 2014 and the nine months ended December 31, 2013, respectively. We expect that our existing cashand investments will be sufficient to finance our anticipated working capital and other cash requirements, such as capitalexpenditures and principal and interest payments on our long‑term debt for at least the next twelve months. Our investment objectives are, first, to preserve liquidity and conserve capital and, second, to generate investmentincome. We mitigate credit risk in our cash reserves by maintaining a well‑diversified portfolio that limits the amount ofinvestment exposure as to institution, maturity and investment type. Our available‑for‑sale investments consist primarily ofshort‑ and long‑term U.S. government and agency debt securities and corporate debt securities. We classify64 Table of Contentsavailable‑for‑sale investments in an unrealized loss position, which do not mature within 12 months, as long‑terminvestments. We have the intent and ability to hold these investments until recovery, which may be at maturity, and it ismore‑likely‑than‑not that we would not be required to sell these securities before recovery of their amortized cost. AtDecember 31, 2015, we performed an analysis of our investments with unrealized losses for impairment and determined thatthey were temporarily impaired. Information about our cash flows, by category, is presented in the accompanying consolidated statements of cash flows.The following table summarizes our cash flows for the years ended December 31, 2015 and 2014 and the nine months endedDecember 31, 2013: Year Ended Year Ended Nine Months Ended (In millions) December 31, 2015 December 31, 2014 December 31, 2013 Cash and cash equivalents, beginning of period $224.1 $167.6 $97.0 Cash (used in) provided by operating activities (40.4) 11.1 92.2 Cash used in investing activities (43.5) (263.4) (65.4) Cash provided by financing activities 40.9 308.8 43.8 Cash and cash equivalents, end of period $181.1 $224.1 $167.6 Operating Activities The $51.5 million increase in cash used in operating activities in 2015, as compared to 2014, was primarily due to a$53.4 million increase in the amount of cash paid to our employees and a $18.5 million increase in the amount of cash paidto our suppliers, partially offset by a $10.9 million increase in the amount of cash we collected from our customers. Theincrease in the amount of cash paid to our employees is primarily due to the increase in our headcount and the increase in theamount of cash paid to our suppliers is due to the increase in R&D and commercial activity, as previously discussed. The decrease in cash provided by operating activities in 2014, as compared to 2013, was also primarily due to theincreased spending on our R&D pipeline and commercial activities, as previously discussed. Investing Activities Cash used in investing activities decreased by $219.9 million in 2015, as compared to 2014, which was primarily due toa decrease in the net purchases of investments of $260.2 million. The net purchases of investments in 2014 were greater thanthat in 2015 and 2013 due to certain significant transactions occurring in 2014 including: the receipt of $250.0 million ingross proceeds from the sale of 5.9 million of our ordinary shares to the Invesco Funds in January 2014; the receipt of $17.5million from the sale of certain of our land, buildings and equipment located at our Athlone, Ireland facility in April 2014;and the receipt of $57.2 million from Civitas, $30.0 million of which was from the sale of certain commercial‑scalepulmonary manufacturing equipment and $27.2 million for our approximate 6% equity interest in Civitas when they wereacquired by Acorda in October 2015. We used the majority of the proceeds from these transactions to purchase available-for-sale investments. As discussed previously, in 2015 we received $50.0 million in net proceeds from the Gainesville Transaction. Also, in2015, we increased our capital spending when compared to 2014, and in 2014 when compared to 2013, primarily for theconstruction of facilities and equipment at our Wilmington, Ohio and Athlone, Ireland locations for the manufacture ofproducts currently in development and existing proprietary products. We expect to spend approximately $45.0 million during the year ended December 31, 2016 for capital expenditures.Amounts included as construction in progress at December 31, 2015 primarily include capital expenditures at ourmanufacturing facility in Wilmington, Ohio. We continue to evaluate our manufacturing capacity based on expectations ofdemand for our products and will continue to record such amounts within construction in progress until such time as theunderlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longerrequired, at which time we would recognize an impairment charge. We continue to periodically evaluate whether facts andcircumstances indicate that the carrying value of these long‑lived assets to be held and used may not be recoverable. 65 Table of ContentsFinancing Activities The decrease in cash provided by financing activities in 2015, as compared to 2014, was primarily due to the Invescotransaction, as noted above. We also spent $13.1 million more in employee taxes related to the net share settlement of equityawards in 2015, as compared to 2014, but received $3.8 million less in proceeds from the exercise of stock options by ouremployees. The increase in cash provided by financing activities in 2014, as compared to 2013, was primarily due to the Invescotransaction and a $21.0 million increase in excess tax benefit from share-based compensation. Borrowings At December 31, 2015, our borrowings consisted of $353.1 million outstanding under our Term Loan Facility. Pleaserefer to Note 10, Long‑Term Debt, in the accompanying “Notes to Consolidated Financial Statements” for a discussion of ouroutstanding term loans. Contractual Obligations The following table summarizes our obligations to make future payments under our current contracts at December 31,2015: Less Than One to Three to More than One Year Three Years Five Years Five Years Contractual Obligations Total (2016) (2017 - 2018) (2019 - 2020) (After 2020) (In thousands) Term Loan Facility—Principal $353,063 $65,813 $6,000 $281,250 $— Term Loan Facility—Interest 38,881 11,594 19,924 7,363 — Operating lease obligations 26,870 5,708 11,629 8,600 933 Purchase obligations 398,950 398,950 — — — Total contractual cash obligations $817,764 $482,065 $37,553 $297,213 $933 As interest on Term Loan B‑1 is based on three‑month LIBOR, we assumed LIBOR to be 0.75%, which is the LIBOR ratefloor under the terms of Term Loan B‑1. As there is no LIBOR rate floor under Term Loan B‑2, we assumed one‑monthLIBOR to be 0.43%, which was the approximate one‑month LIBOR rate at December 31, 2015. This table excludes anyliabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with therespective taxing authorities. At December 31, 2015, we had $3.8 million of net liabilities associated with uncertain tax positions. We do notanticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next12 months. In September 2006, we entered into a license agreement with the Rensselaer Polytechnic Institute (“RPI”), which grantedus exclusive rights to a family of opioid receptor compounds discovered at RPI. Under the terms of the agreement, RPIgranted us an exclusive worldwide license to certain patents and patent applications relating to its compounds designed tomodulate opioid receptors. We are responsible for the continued research and development of any resulting productcandidates. We are obligated to pay annual fees of up to $0.2 million, and tiered royalty payments of between 1% and 4% ofannual net sales in the event any products developed under the agreement are commercialized. In addition, we are obligatedto make milestone payments in the aggregate of up to $7.0 million upon certain agreed‑upon development events. Allamounts paid to RPI to date under this license agreement have been expensed and are included in R&D expenses. Due to the contingent nature of the payments under the RPI arrangement, we cannot predict the amount or period inwhich royalty, milestone and other payments may be made and accordingly they are not included in the table of contractualobligations. Off‑Balance Sheet Arrangements At December 31, 2015, we were not a party to any off‑balance sheet arrangements that have, or are reasonably likely tohave, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capitalresources.66 Table of Contents Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of ourfinancial statements, we are required to make assumptions and estimates about future events, and apply judgments onhistorical experience, current trends and other factors that management believes to be relevant at the time our consolidatedfinancial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates andjudgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because futureevents and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates,and such differences could be material. Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the “Notesto Consolidated Financial Statements.” We believe that the following accounting estimates are the most critical to aid infully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complexjudgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We havereviewed these critical accounting estimates and related disclosures with the Audit and Risk Committee of our Board ofDirectors. Manufacturing and Royalty Revenue Our manufacturing and royalty revenues are earned under the terms of collaboration agreements with pharmaceuticalcompanies, the most significant of which include Janssen for INVEGA SUSTENNA/XEPLION and INVEGA TRINZA, as wellas RISPERDAL CONSTA, Acorda for AMPYRA/FAMPYRA and AstraZeneca for BYDUREON. Manufacturing revenues arerecognized when persuasive evidence of an arrangement exists, delivery has occurred and title to the product and associatedrisk of loss has passed to the customer, the sales price is fixed or determinable and collectability is reasonably assured. The sales price for certain of our manufacturing revenues is based on the end‑market sales price earned by ourcollaborative partners. As the end‑market sale occurs after we have shipped our product and the risk of loss has passed to ourcollaborative partner, we estimate the sales price for our product based on information supplied to us by our collaborativepartners, our historical transaction experience and other third‑party data. Differences between the actual manufacturingrevenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known,which is generally the following quarter. The difference between actual and estimated manufacturing revenues has not beenmaterial. Royalty revenues are related to the sale of products by our collaborative partners that incorporate our technologies.Royalties, with the exception of AMPYRA, are earned under the terms of a license agreement in the period the products aresold by our collaborative partner, and the royalty earned can be reliably measured and collectability is reasonably assured.Sales information is provided to us by our collaborative partners and may require estimates to be made. Differences betweenactual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they becomeknown, which is generally the following quarter. The difference between actual and estimated royalty revenues has not beenmaterial. Royalties on AMPYRA are earned in the period product is shipped to Acorda. We also earn royalties on shipmentsof AMPYRA to Acorda manufactured by third‑party manufacturers. Product Sales, Net We recognize revenue from product sales of VIVITROL and ARISTADA when persuasive evidence of an arrangementexists, and title to the product and associated risk of loss has passed to the customer, the sales price is fixed or determinableand collectability is reasonably assured. We sell VIVITROL and ARISTADA to pharmaceutical wholesalers, specialtydistributors and specialty pharmacies. Product sales are recorded net of sales reserves and allowances. Sales of many pharmaceutical products in the U.S. aresubject to increased pricing pressure from managed care groups, institutions, government agencies and other groups seekingdiscounts. We and other pharmaceutical and biotechnology companies selling products in the U.S. market are required toprovide statutorily defined rebates and discounts to various U.S. government and state agencies in order to participate in theMedicaid program and other government‑funded programs. The sensitivity of our estimates can vary by program and type ofcustomer. Estimates associated with Medicaid and other U.S. government allowances may become67 Table of Contentssubject to adjustment in a subsequent period. We record product sales net of the following significant categories of productsales allowances: ·Medicaid Rebates—we record accruals for rebates to states under the Medicaid Drug Rebate Program as areduction of sales when the product is shipped into the distribution channel. We rebate individual states for alleligible units purchased under the Medicaid program based on a rebate per unit calculation, which is based on ourAverage Manufacturer Prices. We estimate expected unit sales and rebates per unit under the Medicaid programand adjust our rebate estimates based on actual unit sales and rebates per unit. To date, actual Medicaid rebateshave not differed materially from our estimates; ·Chargebacks—wholesaler and specialty pharmacy chargebacks are discounts that occur when contractedcustomers purchase directly from an intermediary wholesale purchaser. Contracted customers, which consistprimarily of federal government agencies purchasing under the Federal Supply Schedule, generally purchase theproduct at its contracted price, plus a mark‑up from the wholesaler. The wholesaler, in‑turn, charges back to us thedifference between the price initially paid by the wholesaler and the contracted price paid to the wholesaler by thecustomer. The allowance for wholesaler chargebacks is based on actual and expected utilization of these programs.Wholesaler chargebacks could exceed historical experience and our estimates of future participation in theseprograms. To date, actual wholesaler chargebacks have not differed materially from our estimates; ·Product Discounts—cash consideration, including sales incentives, given by us under distribution serviceagreements with a number of wholesaler, distributor and specialty pharmacy customers that provide them with theopportunity to earn discounts in exchange for the performance of certain services. To date, actual productdiscounts have not differed materially from our estimates; ·Co‑pay Assistance— the Company has a program whereby a patient can receive monetary assistance each monthtoward their product co-payment, co-insurance or deductible, provided the patient meets certain eligibility criteria.Reserves are recorded upon the product sale. To date, actual co-pay assistance has not differed materially from theCompany's estimates; and ·Product Returns—we record an estimate for product returns at the time our customer takes title to our product. Weestimate the liability based on our historical return levels and specifically identified anticipated returns due toknown business conditions and product expiry dates. Once product is returned, it is destroyed. At December 31,2015, our product return reserve was estimated to be approximately 1.5% of our product sales. Our provisions for sales and allowances reduced gross product sales as follows: Medicaid Product Co-Pay Product (In millions) Rebates Chargebacks Discounts Assistance Returns Other Total Balance, December 31, 2013 $2.7 $— $0.8 $0.2 $3.8 $— $7.5 Provision: Current period 11.0 9.3 7.4 5.8 3.0 4.7 41.2 Prior period 0.1 — (0.2) 0.3 — 1.5 1.7 Total 11.1 9.3 7.2 6.1 3.0 6.2 42.9 Actual: Current period (7.2) (9.2) (7.0) (6.3) — (3.4) (33.1) Prior period (2.9) — (0.1) — (1.3) (0.9) (5.2) Total (10.1) (9.2) (7.1) (6.3) (1.3) (4.3) (38.3) Balance, December 31, 2014 $3.7 $0.1 $0.9 $— $5.5 $1.9 $12.1 Provision: Current period 31.4 17.8 13.2 7.2 3.3 6.1 79.0 Prior period 0.8 — — (0.7) (1.1) — (1.0) Total 32.2 17.8 13.2 6.5 2.2 6.1 78.0 Actual: Current period (14.2) (17.3) (10.7) (6.7) (0.9) (4.4) (54.2) Prior period (4.5) — (0.5) — (0.1) (0.2) (5.3) Total (18.7) (17.3) (11.2) (6.7) (1.0) (4.6) (59.5) Balance, December 31, 2015 $17.2 0.6 2.9 (0.2) 6.7 3.4 30.6 68 Table of ContentsInvestments We hold investments in U.S. government and agency obligations, debt securities issued by foreign agencies and backedby foreign governments and corporate debt securities. In accordance with the accounting standard for fair valuemeasurements, we have classified our financial assets as Level 1, 2 or 3 within the fair value hierarchy. Fair values determinedby Level 1 inputs utilize quoted prices in active markets for identical assets that we have the ability to access. Fair valuesdetermined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fairvalues determined by Level 3 inputs utilize unobservable data points for the asset. Substantially all of our investments are classified as “available‑for‑sale” and are recorded at their estimated fair value.The valuation of our available‑for‑sale securities for purposes of determining the amount of gains and losses is based on thespecific identification method. Our held‑to‑maturity investments are restricted investments held as collateral under certainletters of credit related to our lease arrangements and are recorded at amortized cost. The earnings on our investment portfolio may be adversely affected by changes in interest rates, credit ratings, collateralvalue, the overall strength of credit markets and other factors that may result in other‑than‑temporary declines in the value ofthe securities. On a quarterly basis, we review the fair market value of our investments in comparison to amortized cost. If thefair market value of a security is less than its carrying value, we perform an analysis to assess whether we intend to sell orwhether we would more‑likely‑than‑not be required to sell the security before the expected recovery of the amortized costbasis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to beother‑than‑temporary, and the full amount of the unrealized loss is recorded within earnings as an impairment loss.Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluatelosses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cashflows sufficient to recover the amortized cost basis of a security. For equity securities, when assessing whether a decline in fair value below our cost basis is other‑than‑temporary, weconsider the fair market value of the security, the duration of the security’s decline and the financial condition of the issuer.We then consider our intent and ability to hold the equity security for a period of time sufficient to recover our carryingvalue. Where we have determined that we lack the intent and ability to hold an equity security to its expected recovery, thesecurity’s decline in fair value is deemed to be other‑than‑temporary and is recorded within earnings as an impairment loss. Share‑Based Compensation We have a share‑based compensation plan, which includes incentive stock options, non‑qualified stock options andrestricted stock units. See Note 2, Summary of Significant Accounting Policies, and Note 14, Share‑Based Compensation, inour “Notes to Consolidated Financial Statements” for a complete discussion of our share‑based compensation plans. The fair value of restricted stock units is equal to the closing price of our shares on the date of grant. The fair value ofstock option awards is determined through the use of a Black‑Scholes option‑pricing model. The Black‑Scholes modelrequires us to estimate certain subjective assumptions. These assumptions include the expected option term, which takes intoaccount both the contractual term of the option and the effect of our employees’ expected exercise and post‑vestingtermination behavior, expected volatility of our ordinary shares over the option’s expected term, which is developed usingboth the historical volatility of our ordinary shares and implied volatility from our publicly traded options, the risk‑freeinterest rate over the option’s expected term and an expected annual dividend yield. Due to the differing exercise andpost‑vesting termination behavior of our employees and non‑employee directors, we establish separate Black‑Scholes inputassumptions for three distinct employee populations: our senior management; our non‑employee directors; and all otheremployees. For the years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, the ranges inweighted‑average assumptions were as follows: Year Ended Year Ended Nine Months Ended December 31, 2015 December 31, 2014 December 31, 2013 Expected option term 5 - 7 years 5 - 7 years 5 - 7 years Expected stock volatility 38 % - 46 % 39 % - 46 % 45 % - 48 % Risk-free interest rate 1.29 % - 2.02 % 1.46 % - 2.24 % 0.75 % - 2.15 % Expected annual dividend yield — — — 69 Table of ContentsIn addition to the above, we apply judgment in developing estimates of award forfeitures. For the year endedDecember 31, 2015, we used an estimated forfeiture rate of zero for our non‑employee directors, 1.75% for members of seniormanagement and 8.25% for all other employees. For all of the assumptions used in valuing stock options and estimating award forfeitures, our historical experience isgenerally the starting point for developing our assumptions, which may be modified to reflect information available at thetime of grant that would indicate that the future is reasonably expected to differ from the past. Amortization and Impairment of Long‑Lived Assets Long‑lived assets, other than goodwill which is separately tested for impairment, are evaluated for impairment wheneverevents or changes in circumstances indicate the carrying value of an asset may not be recoverable. When evaluatinglong‑lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cashflows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of theasset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’sestimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognizean impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize animpairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long‑lived asset, thenew cost basis will be depreciated over the remaining useful life of that asset. When reviewing long‑lived assets for impairment, we group long‑lived assets with other assets and liabilities at thelowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Ourimpairment loss calculations contain uncertainties because they require management to make assumptions and to applyjudgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting thediscount rate that reflects the risk inherent in future cash flows. Our amortizable intangible assets include technology and collaborative arrangements that were acquired as part of theBusiness Combination. These intangible assets are being amortized as revenue is generated from these products, which werefer to as the economic benefit amortization model. This amortization methodology involves calculating a ratio of actualcurrent period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of theintangible asset. In order to determine the pattern in which the economic benefits of our intangible assets are consumed, we estimated thefuture revenues to be earned under our collaboration agreements and our NanoCrystal and OCR technology‑based intangibleassets from the date of acquisition to the end of their respective useful lives. The factors used to estimate such future revenuesincluded: (i) our and our collaborative partners’ projected future sales of the existing commercial products based on theseintangible assets; (ii) our projected future sales of new products based on these intangible assets which we anticipate will belaunched commercially; (iii) the patent lives of the technologies underlying such existing and new products; and (iv) ourexpectations regarding the entry of generic and/or other competing products into the markets for such existing and newproducts. These factors involve known and unknown risks and uncertainties, many of which are beyond our control andcould cause the actual economic benefits of these intangible assets to be materially different from our estimates. Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet atDecember 31, 2015, is expected to be approximately $60.0 million, $60.0 million, $60.0 million, $55.0 million and$50.0 million in the years ending December 31, 2016 through 2020, respectively. Although we believe such availableinformation and assumptions are reasonable, given the inherent risks and uncertainties underlying our expectationsregarding such future revenues, there is the potential for our actual results to vary significantly from such expectations. Ifrevenues are projected to change, the related amortization of the intangible asset will change in proportion to the change inrevenue. If there are any indications that the assumptions underlying our most recent analysis would be different than thoseutilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipatedlifetime revenue of the products associated with our amortizable intangible assets. For example, the occurrence of an adverseevent could substantially increase the amount of amortization expense associated with our acquired intangible assets ascompared to previous periods or our current expectations, which may result in a significant70 Table of Contentsnegative impact on our future results of operations. Goodwill We evaluate goodwill for impairment for our reporting units annually, as of October 31, and whenever events or changesin circumstances indicate its carrying value may not be recoverable. A reporting unit is an operating segment, as defined bythe segment reporting accounting standards, or a component of an operating segment. A component of an operating segmentis a reporting unit if the component constitutes a business for which discrete financial information is available and isreviewed by management. Two or more components of an operating segment may be aggregated and deemed a singlereporting unit for goodwill impairment testing purposes if the components have similar economic characteristics. As ofDecember 31, 2015, we have one operating segment and two reporting units. Our goodwill, which solely relates to BusinessCombination, has been assigned to one reporting unit which consists of the former EDT business. We have the option to first assess qualitative factors to determine whether it is necessary to perform a two-stepimpairment test. If we elect this option and determine, as a result of the qualitative assessment, that it is more likely than notthat the fair value of our reporting unit is less than its carrying amount, the quantitative two step impairment test is required;otherwise, no further testing is required. Among other relevant events and circumstances that affect the fair value of reportingunits, we consider individual factors, such as microeconomic conditions, changes in the industry and the markets in whichwe operate as well as historical and expected future financial performance. Alternatively, we may elect to not first assessqualitative factors and immediately perform the quantitative two step impairment test. The first step of the quantitative two-step goodwill impairment test requires us to compare the fair value of the reportingunit to its respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carryingvalue, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication thatan impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as theexcess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value ofgoodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss. We considered the Gainesville Transaction to be a change in circumstance requiring an analysis as to the recoverabilityof our goodwill. Accordingly, we performed a goodwill assessment when we determined that the Gainesville assets wereconsidered “held-for-sale” and upon closing of the Gainesville Transaction, and we determined that the fair value of thereporting unit was substantially in excess of its carrying value at both dates. For our annual impairment analysis at October31, 2015, we elected to first assess qualitative factors to determine whether it was necessary to perform the two stepimpairment test. Based on the weight of all available evidence, including the significance in which the fair value of ourreporting unit was in excess of its carrying value at the closing of the Gainesville Transaction and the increase in its fairvalue from the date of the Gainesville Transaction to October 31, 2015, we determined that the fair value of the reporting unitmore likely than not exceeded its carrying value. Contingent Consideration We record contingent consideration we receive at fair value on the acquisition date. We estimate the fair value ofcontingent consideration through valuation models that incorporate probability-adjusted assumptions related to theachievement of milestones and thus likelihood of receiving related payments. We revalue our contingent consideration eachreporting period, with changes in the fair value of contingent consideration recognized within the consolidated statements ofoperations and comprehensive (loss) income. Changes in the fair value of contingent consideration can result from changesto one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of cash flows,changes in the assumed achievement or timing of any development or sales-based milestones and changes in the assumedprobability associated with regulatory approval. The period over which we discount contingent consideration is based on the current development stage of the productcandidates, the specific development plan for that product candidate adjusted for the probability of completing thedevelopment step, and the date on which contingent payments would be triggered. In estimating the probability of success,we utilize data regarding similar milestone events from several sources, including industry studies and our own experience.These fair value measurements are based on significant inputs not observable in the market. Significant judgment wasemployed in determining the appropriateness of these assumptions at the acquisition date and for each71 Table of Contentssubsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase ordecrease in the fair value of contingent consideration recorded in any given period. In accordance with the accounting standard for fair value measurements, our contingent consideration has beenclassified as a Level 3 asset as its fair value is based on significant inputs not observable in the market. The contingentconsideration consists of three distinct earn-out scenarios and the fair value was determined as follows: ·We are entitled to receive payments based on the achievement of regulatory milestone events. The fair value of thetwo regulatory milestones were estimated based on applying the likelihood of achieving the regulatory milestoneand applying a discount rate from the expected time the milestone occurs to the balance sheet date. We expect theregulatory milestone events to occur within the next two and three years, respectively, and used a discount rate of4.0% and 5.3%, respectively, for each of these events; ·We are entitled to receive future royalties on net sales of IV/IM and parenteral forms of Meloxicam. To estimate thefair value of the future royalties, we assessed the likelihood of IV/IM and parenteral forms of Meloxicam beingapproved for sale and estimated the expected future sales given approval and IP protection. We then discountedthese expected payments using a discount rate of 17.0%, which we believe captures a market participant’s view ofthe risk associated with the expected payments; ·We are entitled to receive payments upon achieving certain sales milestones on future sales of IV/IM andparenteral forms of Meloxicam. The sales milestones were determined through the use of a real options approach,where net sales are simulated in a risk-neutral world. To employ this methodology, we used a risk-adjustedexpected growth rate based on its assessments of expected growth in net sales of the approved IV/IM and parenteralforms of Meloxicam, adjusted by an appropriate factor capturing their respective correlation with the market. Aresulting expected (probability-weighted) milestone payment was then discounted at a cost of debt plus a riskadjustment, which ranged from 13.2% to 15.4%. Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date andfor each subsequent period. Accordingly, changes in assumptions described above could have a material impact on theincrease or decrease in the fair value of contingent consideration we record in any given period. Valuation of Deferred Tax Assets We evaluate the need for deferred tax asset valuation allowances based on a more‑likely‑than‑not standard. The abilityto realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback orcarryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possiblesources of taxable income when assessing the realization of deferred tax assets: ·future reversals of existing taxable temporary differences;·future taxable income exclusive of reversing temporary differences and carryforwards;·taxable income in prior carryback years; and·tax‑planning strategies. The assessment regarding whether a valuation allowance is required or should be adjusted also considers all availablepositive and negative evidence factors including, but not limited to: ·nature, frequency and severity of recent losses;·duration of statutory carryforward periods;·historical experience with tax attributes expiring unused; and·near‑ and medium‑term financial outlook. It is difficult to conclude a valuation allowance is not required when there is significant objective and verifiablenegative evidence, such as cumulative losses in recent years. We utilize a rolling three years of actual and current yearanticipated results as the primary measure of cumulative losses in recent years. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events thathave been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax72 Table of Contentsconsequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipatedevents or otherwise, could have a material effect on our financial condition and results of operations. Recent Accounting Pronouncements Please refer to Note 2, Summary of Significant Accounting Policies, “New Accounting Pronouncements” in our “Notes toConsolidated Financial Statements” for a discussion of new accounting standards. Item 7A. Quantitative and Qualitative Disclosures about Market RiskWe hold securities in our investment portfolio that are sensitive to market risks. Our securities with fixed interest ratesmay have their market value adversely impacted by a rise in interest rates, while floating rate securities may produce lessincome than expected if interest rates fall. Due in part to these factors, our future investment income may fall short ofexpectation due to a fall in interest rates or we may suffer losses in principal if we are forced to sell securities that decline inmarket value due to changes in interest rates. However, because we classify our investments in debt securities asavailable‑for‑sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior tomaturity or declines in fair value are determined to be other‑than‑temporary. Should interest rates fluctuate by 10%, ourinterest income would change by an immaterial amount over an annual period. We do not believe that we have a materialexposure to interest rate risk as our investment policies specify credit quality standards for our investments and limit theamount of credit exposure from any single issue, issuer or type of investment. We do not believe that inflation and changing prices have had a material impact on our results of operations, and asapproximately 57% of our investments are in debt securities issued by the U.S. government or its agencies, our exposure toliquidity and credit risk is not believed to be significant. At December 31, 2015, our borrowings consisted of $353.1 million outstanding under our Term Loan Facility. TermLoan B‑1 bears interest at three‑month LIBOR plus 2.75% with a LIBOR floor of 0.75%. As the three‑month LIBOR rate was0.61% at December 31, 2015, and the LIBOR floor under Term Loan B‑1 is 0.75%, we do not expect changes in thethree‑month LIBOR to have a material effect on our financial statements through December 31, 2016. Term Loan B‑2 bearsinterest at one‑month LIBOR plus 2.75% with no LIBOR floor. At December 31, 2015, the one‑month LIBOR rate was0.43%. A 10% increase in the one‑month LIBOR rate would have increased our interest expense in the year endedDecember 31, 2015 by an immaterial amount. Currency Exchange Rate Risk Manufacturing and royalty revenues we receive on certain of our products and services are a percentage of the net salesmade by our licensees and a portion of these sales are made in countries outside the U.S. and are denominated in currencies inwhich the product is sold, which is predominantly the Euro. The manufacturing and royalty payments on these non‑U.S. salesare calculated initially in the currency in which the sale is made and are then converted into USD to determine the amountthat our partners pay us for manufacturing and royalty revenues. Fluctuations in the exchange ratio of the USD and thesenon‑U.S. currencies will have the effect of increasing or decreasing our revenues even if there is a constant amount of sales innon‑U.S. currencies. For example, if the USD weakens against a non‑U.S. currency, then our revenues will increase given aconstant amount of sales in such non‑U.S. currency. For the year ended December 31, 2015, an average 10% strengthening ofthe USD relative to the currencies in which these products are sold would have resulted in revenues being reduced byapproximately $17.3 million. We incur significant operating costs in Ireland and face exposure to changes in the exchange ratio of the USD and theEuro arising from expenses and payables at our Irish operations that are settled in Euro. The impact of changes in theexchange ratio of the USD and the Euro on our USD denominated revenues earned in countries other than the U.S. is largelyoffset by the opposite impact of changes in the exchange ratio of the USD and the Euro on operating expenses and payablesincurred at our Irish operations that are settled in Euro. For the year ended December 31, 2015, an average 10% weakening inthe USD relative to the Euro would have resulted in an increase to our expenses denominated in Euro of approximately$6.7 million. 73 Table of ContentsItem 8. Financial Statements and Supplementary DataSelected Quarterly Financial Data (unaudited) First Second Third Fourth (In thousands, except per share data) Quarter Quarter Quarter Quarter Total Year Ended December 31, 2015 REVENUES: Manufacturing and royalty revenues $128,744 $113,162 $114,072 $119,310 $475,288 Product sales, net 31,137 37,172 37,903 42,816 149,028 Research and development revenue 1,333 1,036 678 972 4,019 Total revenues 161,214 151,370 152,653 163,098 628,335 EXPENSES: Cost of goods manufactured and sold 39,974 30,418 33,806 34,791 138,989 Research and development 70,278 87,882 92,558 93,686 344,404 Selling, general and administrative 63,050 71,539 89,497 87,472 311,558 Amortization of acquired intangible assets 15,220 14,052 14,207 14,206 57,685 Total expenses 188,522 203,891 230,068 230,155 852,636 OPERATING LOSS (27,308) (52,521) (77,415) (67,057) (224,301) OTHER (EXPENSE) INCOME, NET (2,839) 9,476 (605) (5,736) 296 LOSS BEFORE INCOME TAXES (30,147) (43,045) (78,020) (72,793) (224,005) INCOME TAX PROVISION (BENEFIT) 510 3,064 2,995 (3,411) 3,158 NET LOSS $(30,657) $(46,109) $(81,015) $(69,382) $(227,163) LOSS PER SHARE—BASIC AND DILUTED $(0.21) $(0.31) $(0.54) $(0.46) $(1.52) First Second Third Fourth Quarter Quarter Quarter Quarter Total Year Ended December 31, 2014 REVENUES: Manufacturing and royalty revenues $111,280 $130,366 $132,028 $143,202 $516,876 Product sales, net 17,079 21,595 25,802 29,684 94,160 Research and development revenue 1,853 1,463 2,162 2,275 7,753 Total revenues 130,212 153,424 159,992 175,161 618,789 EXPENSES: Cost of goods manufactured and sold 38,839 43,290 47,335 46,368 175,832 Research and development 52,140 67,207 78,263 74,433 272,043 Selling, general and administrative 42,550 50,663 51,888 54,804 199,905 Amortization of acquired intangible assets 12,576 15,089 15,244 15,244 58,153 Total expenses 146,105 176,249 192,730 190,849 705,933 OPERATING (LOSS) INCOME (15,893) (22,825) (32,738) (15,688) (87,144) OTHER (EXPENSE) INCOME, NET (4,695) 25,037 (3,695) 56,468 73,115 (LOSS) INCOME BEFORE INCOME TAXES (20,588) 2,212 (36,433) 40,780 (14,029) INCOME TAX PROVISION (BENEFIT) 3,766 (1,523) 3,523 10,266 16,032 NET (LOSS) INCOME $(24,354) $3,735 $(39,956) $30,514 $(30,061) (LOSS) EARNINGS PER SHARE—BASIC $(0.17) $0.03 $(0.27) $0.21 $(0.21) (LOSS) EARNINGS PER SHARE—DILUTED $(0.17) $0.02 $(0.27) $0.20 $(0.21) (1)In April 2015, we entered into the Gainesville Transaction and recorded a Gain on the Gainesville Transaction of$9.9 million in the second quarter of 2015. In the fourth quarter, we reduced the Gain on the GainesvilleTransaction to $9.6 million due to an increase in transaction costs.All financial statements, other than the quarterly financial data as required by Item 302 of Regulation S‑K summarizedabove, required to be filed hereunder, are filed as an exhibit hereto, are listed under Item 15(a) (1) and (2), and areincorporated herein by reference.74 (1) Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable. Item 9A. Controls and Procedures Disclosure Controls and Procedures and Internal Control Over Financial Reporting Controls and Procedures Our management has evaluated, with the participation of our principal executive officer and principal financial officer,the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the ExchangeAct), as of December 31, 2015. Based upon that evaluation, our principal executive officer and principal financial officerconcluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective toprovide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit underthe Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules andforms, and (b) such information is accumulated and communicated to our management, including our principal executiveofficer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designingand evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,and our management necessarily was required to apply its judgment in evaluating the cost‑benefit relationship of possiblecontrols and procedures. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended December 31, 2015 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reportingas defined in Rules 13a‑15(f) and 15d‑15(f). Internal control over financial reporting is defined in Rules 13a‑15(f) and15d‑15(f) under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive andprincipal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors,management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with GAAP and includes those policies andprocedures that: ·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions anddispositions of the assets of the issuer; ·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with GAAP, and that receipts and expenditures of the issuer are being made only inaccordance with authorizations of management and directors of the issuer; and ·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the issuer’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”) in its 2013 Internal Control—Integrated Framework. 75 Table of ContentsBased on this assessment, our management has concluded that, as of December 31, 2015, our internal control overfinancial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is includedherein. Item 9B. Other Information The Company’s policy governing transactions in its securities by its directors, officers and employees permits itsofficers, directors and employees to enter into trading plans in accordance with Rule 10b5‑1 under the Exchange Act. Duringthe quarter ended December 31, 2015, Dr. Elliot W. Ehrich and Messrs. Iain M. Brown, James M. Frates, Michael J. Landine,Richard F. Pops and Mark Stejbach, each an executive officer of the Company, entered into trading plans in accordance withRule 10b5‑1, and the Company’s policy governing transactions in its securities by its directors, officers and employees. TheCompany undertakes no obligation to update or revise the information provided herein, including for revision or terminationof an established trading plan.76 Table of ContentsPART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to the Proxy Statement for our 2016 AnnualGeneral Meeting of Shareholders. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the Proxy Statement for our 2016 AnnualGeneral Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to the Proxy Statement for our 2016 AnnualGeneral Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated herein by reference to the Proxy Statement for our 2016 AnnualGeneral Meeting of Shareholders. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated herein by reference to the Proxy Statement for our 2016 AnnualGeneral Meeting of Shareholders.77 Table of ContentsPART IV Item 15. Exhibits and Financial Statement Schedules(a)(1) Consolidated Financial Statements—The consolidated financial statements of Alkermes plc, required by thisitem, are submitted in a separate section beginning on page F‑1 of this Annual Report.(2) Financial Statement Schedules—All schedules have been omitted because the absence of conditions underwhich they are required or because the required information is included in the consolidated financial statementsor notes thereto.(3) See the Exhibit Index immediately following the signature page of this Annual Report. The exhibits listed onthe Exhibit Index are filed or furnished as part of this Annual Report or are incorporated into this Annual Reportby reference. 78 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALKERMES PLC By:/s/ Richard F. PopsRichard F. PopsChairman and Chief Executive Officer February 25, 2016 POWER OF ATTORNEYPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature appears below in so signing also makes, constitutes and appoints Richard F. Pops andJames M. Frates, and each of them, his true and lawful attorney‑in‑fact, with full power of substitution, for him in any and allcapacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to thisAnnual Report, with exhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all thatsaid attorney‑in‑fact or his substitute or substitutes may do or cause to be done by virtue hereof. Signature Title Date /s/ Richard F. PopsRichard F. Pops Chairman and Chief Executive Officer (PrincipalExecutive Officer) February 25, 2016 /s/ James M. FratesJames M. Frates Senior Vice President and Chief Financial Officer(Principal Financial Officer) February 25, 2016 /s/ Iain M. BrownIain M. Brown Vice President and Chief Accounting Officer(Principal Accounting Officer) February 25, 2016 /s/ David W. AnsticeDavid W. Anstice Director February 25, 2016 /s/ Floyd E. BloomFloyd E. Bloom Director February 25, 2016 /s/ Robert A. BreyerRobert A. Breyer Director February 25, 2016 /s/ Wendy L. DixonWendy L. Dixon Director February 25, 2016 /s/ Paul J. MitchellPaul J. Mitchell Director February 25, 2016 /s/ Nancy J. WysenskiNancy J. Wysenski Director February 25, 201679 Table of ContentsEXHIBIT INDEX Incorporated by reference hereinExhibit No. Description of Exhibit Form Date2.1 * Purchase and Sale Agreement, datedMarch 7, 2015, by and among AlkermesPharma Ireland Limited, DaravitaLimited, Eagle Holdings USA, Inc., RecroPharma, Inc., and Recro Pharma LLC. Exhibit 2.1 of theAlkermes plcCurrent Report onForm 8-K/A (FileNo. 001-35299) April 16, 20153.1 Amended and Restated Memorandumand Articles of Association ofAlkermes plc. Exhibit 3.1 to theAlkermes plcCurrent Report onForm 8-K (File No.001-35299) September 16,201110.1 Lease Agreement between Alkermes, Inc.and PDM Unit 850, LLC, dated as ofApril 22, 2009. Exhibit 10.5 to theAlkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 28, 200910.1.1 First Amendment to Lease Agreementbetween Alkermes, Inc. and PDMUnit 850, LLC, dated as of June 18, 2009. Exhibit 10.2 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) August 6, 200910.1.2 Second Amendment to Lease Agreementbetween Alkermes, Inc. and PDMUnit 850, LLC, dated as of November 12,2013. Exhibit 10.74 ofthe Alkermes plcTransition Reporton Form 10-KT (File No. 001-35299) February 27,201410.1.3 Third Amendment to Lease Agreementbetween Alkermes, Inc. and PDM 850Unit, LLC, dated as of May 15, 2014. Exhibit 10.2 of theAlkermes plcQuarterly Reporton Form 10-Q(File No. 001-35299) July 31, 201410.1.4 Fourth Amendment to Lease Agreementbetween Alkermes, Inc. and Gl TC 850Winter Street, LLC, dated as ofDecember 30, 2014. Exhibit 10.7 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 001-35299) July 30, 201510.2 # License Agreement, dated as ofFebruary 13, 1996, between MedisorbTechnologies International L.P. andJanssen Pharmaceutica Inc. (UnitedStates) (assigned to Alkermes, Inc. inJuly 2006). 10.2.1 * Third Amendment To DevelopmentAgreement, Second Amendment ToManufacturing and Supply Agreementand First Amendment To LicenseAgreements by and between JanssenPharmaceutica International Inc. andAlkermes Controlled Therapeutics Inc. II,dated April 1, 2000 (assigned toAlkermes, Inc. in July 2006). Exhibit 10.5 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) February 8, 200580 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.2.2 * Second Amendment, dated as of August16, 2012, to the License Agreement,dated as of February 13, 1996, asamended, by and between Alkermes, Inc.(“Alkermes”) and Janssen Pharmaceutica,Inc. (“Janssen US”) and the LicenseAgreement, dated as of February 21,1996, as amended, by and betweenAlkermes and JPI PharmaceuticaInternational, a division of Cilag GmbHInternational (“JPI”) (Janssen US and JPItogether, “Janssen”), and the FifthAmendment, dated as of August 16,2012, to the Manufacturing and SupplyAgreement, dated as of August 6, 1997,as amended, by and between Alkermesand Janssen. Exhibit 10.3 of theAlkermes plcQuarterly Reporton Form 10-Q(File No. 001-35299) November 1,201210.3 # License Agreement, dated as ofFebruary 21, 1996, between MedisorbTechnologies International L.P. andJanssen Pharmaceutica International(worldwide except United States)(assigned to Alkermes, Inc. in July 2006). 10.4 # Manufacturing and Supply Agreement,dated August 6, 1997, by and among JPIPharmaceutica International, JanssenPharmaceutica, Inc. and AlkermesControlled Therapeutics Inc. II (assignedto Alkermes, Inc. in July 2006). 10.4.1 * Fourth Amendment To DevelopmentAgreement and First Amendment ToManufacturing and Supply Agreement byand between Janssen PharmaceuticaInternational Inc. and AlkermesControlled Therapeutics Inc. II, datedDecember 20, 2000 (assigned toAlkermes, Inc. in July 2006). Exhibit 10.4 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) February 8, 200510.4.2 # Addendum to the Manufacturing andSupply Agreement by and among JPIPharmaceutica International, JanssenPharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II, datedAugust 1, 2001. 10.4.3 # Letter Agreement and Exhibits toManufacturing and Supply Agreement,dated February 1, 2002, by and amongamong JPI Pharmaceutica International,Janssen Pharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II (assignedto Alkermes, Inc. in July 2006). 10.4.4 * Amendment to Manufacturing andSupply Agreement by and between JPIPharmaceutica International, JanssenPharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II, datedDecember 22, 2003 (assigned toAlkermes, Inc. in July 2006). Exhibit 10.6 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 011-35299) July 30, 201581 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.4.5 *Fourth Amendment To Manufacturingand Supply Agreement by and betweenJPI Pharmaceutica International, JanssenPharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II, datedJanuary 10, 2005 (assigned toAlkermes, Inc. in July 2006).Exhibit 10.9 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131)February 8, 200510.5 * Development and License Agreement,dated as of May 15, 2000, by andbetween Alkermes ControlledTherapeutics Inc. II and AmylinPharmaceuticals, Inc., as amended onOctober 24, 2005 and July 17, 2006(assigned, as amended, to Alkermes, Inc.in July 2006). Exhibit 10.28 tothe Alkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 20, 201110.6 * Agreement by and between JPIPharmaceutica International, JanssenPharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II, datedDecember 21, 2002 (assigned toAlkermes, Inc. in July 2006). Exhibit 10.6 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) February 8, 200510.6.1 * Amendment to Agreement by andbetween JPI Pharmaceutica International,Janssen Pharmaceutica Inc. and AlkermesControlled Therapeutics Inc. II, datedDecember 16, 2003 (assigned toAlkermes, Inc. in July 2006). Exhibit 10.7 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) February 8, 200510.7 Amended and Restated LicenseAgreement, dated September 26, 2003,by and between Acorda Therapeutics,Inc. and Elan Corporation, plc. Exhibit 10.14 ofthe AcordaTherapeutics, Inc.Quarterly Reporton Form 10-Q/A(File No.000-50513; film No.11821367) July 20, 201110.7.1 * Supply Agreement, dated September 26,2003, by and between AcordaTherapeutics, Inc. and ElanCorporation, plc. Exhibit 10.22 ofthe Alkermes plcAnnual Report onForm 10-K (FileNo. 001-35299) May 23, 201310.7.2 Amendment No. 1 to the Amended andRestated License Agreement, to theSupply Agreement and the SublicenseConsent Between Elan PharmaInternational Limited, AcordaTherapeutics, Inc. and Biogen IdecInternational GmbH dated June 30,2009. Exhibit 10.56 toAcordaTherapeutics,Inc.’s QuarterlyReport on Form10-Q (File No.000-50513; film No.09999376) August 10, 200910.7.3 Amendment No. 2, dated as of March 29,2012, to the Amended and RestatedLicense Agreement, dated September 26,2003, as amended and the SupplyAgreement, dated September 26, 2003, asamended. Exhibit 10.46 ofthe AcordaTherapeutics, Inc.Annual Report onForm 10-K (FileNo.000-50513;film no.13653677) February 28,201382 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.7.4 Amendment No. 3, dated as of February14, 2013, to the Amended and RestatedLicense Agreement, dated September 26,2003, as amended and the SupplyAgreement, dated September 26, 2003, asamended. Exhibit 10.1 of theAcordaTherapeutics, Inc.Quarterly Reporton Form 10-Q(File No. 000-50513; film No.13831684) May 10, 201310.7.5* Development and SupplementalAgreement between Elan PharmaInternational Limited and AcordaTherapeutics, Inc. dated January 14,2011. Exhibit 10.21 ofthe Alkermes plcAnnual Report onForm 10-K (FileNo. 001-35299) May 23, 201310.8 * License Agreement by and among ElanPharmaceutical Research Corp., d/b/aNanosystems and Elan PharmaInternational Limited and JanssenPharmaceutica N.V. dated as of March 31,1999. Exhibit 10.23 ofthe Alkermes plcAnnual Report onForm 10-(FileNo. 001-35299) May 23, 201310.8.1 First Amendment, dated as of July 31,2003, to the License Agreement by andamong Elan Drug Delivery, Inc. (formerlyElan Pharmaceutical Research Corp.) andElan Pharma International Limited andJanssen Pharmaceutica NV dated March31, 1999. Exhibit 10.24 ofthe Alkermes plcAnnual Report onForm 10-K (FileNo. 001-35299) May 23, 201310.8.2 * Agreement Amendment No. 2, dated as ofJuly 31, 2009, to the License Agreementby and among Elan PharmaceuticalResearch Corp., d/b/a Nanosystems andElan Pharma International Limited andJanssen Pharmaceutica N.V. dated as ofMarch 31, 1999, as amended by the FirstAmendment, dated as of July 31, 2003. Exhibit 10.25 ofthe Alkermes plcAnnual Report onForm 10-K (FileNo. 001-35299) May 23, 201310.9 Amendment to First Lien CreditAgreement, dated September 25, 2012,among Alkermes, Inc., Alkermes plc, theguarantors party thereto, the lenders partythereto, Morgan Stanley Senior Funding,Inc. as Administrative Agent andCollateral Agent and the arrangers andagents party thereto. Exhibit 10.1 of theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 25,201210.9.1 Amendment No. 2, dated as of February14, 2013, to Amended and RestatedCredit Agreement, dated as of September16, 2011, as amended and restated onSeptember 25, 2012, among Alkermes,Inc., Alkermes plc, the guarantors partythereto, the lenders party thereto, MorganStanley Senior Funding, Inc. asAdministrative Agent and CollateralAgent and the arrangers and agents partythereto. Exhibit 10.1 of theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) February 19,201310.9.2 Amendment No. 3 and Waiver toAmended and Restated CreditAgreement, dated as of May 22, 2013,among Alkermes, Inc., Alkermes plc,Alkermes Pharma Ireland Limited,Alkermes US Holdings, Inc., MorganStanley Senior Funding, Inc. asAdministrative Agent and CollateralAgent and the lenders party thereto. Exhibit 10.52 ofthe Alkermes plcAnnual Report onForm 10-K (FileNo. 011-35299) May 23, 201383 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.10 † Employment agreement, dated as ofDecember 12, 2007, by and betweenRichard F. Pops and Alkermes, Inc. Exhibit 10.1 to theAlkermes, Inc.Quarterly Reporton Form 10-Q (FileNo. 001-14131) February 11,200810.10.1 † Amendment to Employment Agreement,dated as of October 7, 2008, by andbetween Alkermes, Inc. and Richard F.Pops. Exhibit 10.5 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) October 7, 200810.10.2 † Amendment No. 2 to EmploymentAgreement by and betweenAlkermes, Inc. and Richard F. Pops, datedSeptember 10, 2009. Exhibit 10.2 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) September 11,200910.11 † Form of Employment Agreement, datedas of December 12, 2007, by and betweenAlkermes, Inc. and each of Kathryn L.Biberstein, Elliot W. Ehrich, M.D.,James M. Frates, Michael J. Landine,Gordon G. Pugh. Exhibit 10.3 to theAlkermes, Inc.Quarterly Reporton Form 10-Q (FileNo. 001-14131) February 11,200810.11.1 † Form of Amendment to EmploymentAgreement by and betweenAlkermes, Inc. and each of each ofKathryn L. Biberstein, Elliot W.Ehrich, M.D., James M. Frates, Michael J.Landine, Gordon G. Pugh. Exhibit 10.7 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) October 7, 200810.12 † Form of Covenant Not to Compete, ofvarious dates, by and betweenAlkermes, Inc. and each of Kathryn L.Biberstein and James M. Frates. Exhibit 10.15 tothe Alkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 30, 200810.13 † Form of Covenant Not to Compete, ofvarious dates, by and betweenAlkermes, Inc. and each of Elliot W.Ehrich, M.D., Michael J. Landine, andGordon G. Pugh. Exhibit 10.15(a) tothe Alkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 30, 200810.14 † Shane Cooke Offer Letter, dated as ofSeptember 15, 2011. Exhibit 10.5 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.14.1 † Employment Agreement by and betweenAlkermes Pharma Ireland Limited andShane Cooke, dated as of September 16,2011. Exhibit 10.6 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.15 † Offer Letter between Alkermes, Inc. andMark P. Stejbach, effective as of February15, 2012. Exhibit 10.2 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) March 5, 201210.15.1 † Employment Agreement by and betweenAlkermes, Inc. and Mark P. Stejbach,dated as of February 29, 2012. Exhibit 10.1 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) March 5, 201210.15.2 † Amendment to Employment Agreement,dated as of July 21, 2015, by andbetween Mark P. Stejbach and Alkermes,Inc. Exhibit 10.2 to theAlkermes plcQuarterly Reporton Form 10-Q (FileNo. 011-35299) July 30, 201584 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.16 † Employment agreement, dated as of July30, 2012, by and between Rebecca J.Peterson and Alkermes, Inc. Exhibit 10.1 of theAlkermes plcQuarterly Reporton Form 10-Q(File No. 011-35299) November 1,201210.16.1 † Amendment to Employment Agreement,dated as of July 22, 2015, by andbetween Rebecca J. Peterson andAlkermes, Inc. Exhibit 10.8 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 011-35299) July 30, 201510.16.2 †# Separation Agreement, dated as ofOctober 21, 2015, by and betweenRebecca J. Peterson and Alkermes, Inc. 10.17 † Employment Agreement, dated as ofSeptember 30, 2008, by and between IainM. Brown and Alkermes, Inc. Exhibit 10.1 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 011-35299) July 30, 201510.17.1 † Amendment to Employment Agreement,dated as of July 28, 2015, by andbetween Iain M. Brown and Alkermes,Inc. Exhibit 10.9 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 011-35299) July 30, 201510.18 † James L. Botkin Offer Letter, dated as ofSeptember 15, 2011 Exhibit 10.7 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.18.1 † Employment Agreement by and betweenAlkermes Gainesville LLC and James L.Botkin, dated as of September 16, 2011. Exhibit 10.8 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.19 † Form of Indemnification Agreement byand between Alkermes, Inc. and each ofits directors and executive officers. Exhibit 10.1 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) March 25, 201010.20 † Form of Deed of Indemnification forAlkermes plc Officers. Exhibit 10.1 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.21 † Form of Deed of Indemnification forAlkermes plc Directors/Secretary. Exhibit 10.2 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.22 † Form of Deed of Indemnification forAlkermes, Inc. and SubsidiariesDirectors/Secretary. Exhibit 10.3 to theAlkermes plcCurrent Report onForm 8-K (File No.011-35299) September 20,201110.23 † Alkermes, Inc. Amended and Restated1999 Stock Option Plan. Appendix A to theAlkermes, Inc.Definitive ProxyStatement onForm DEF 14/A(File No. 001-14131) July 27, 200785 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.23.1 † Form of Incentive Stock OptionCertificate pursuant to the 1999 StockOption Plan, as amended. Exhibit 10.35 tothe Alkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) June 14, 200610.23.2 † Form of Non-Qualified Stock OptionCertificate pursuant to the 1999 StockOption Plan, as amended. Exhibit 10.36 tothe Alkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) June 14, 200610.24 † 2006 Stock Option Plan for Non-Employee Directors. Exhibit 10.4 to theAlkermes, Inc.Quarterly Reporton Form 10-Q(File No. 001-14131) November 9,200610.24.1 † Amendment to 2006 Stock Option Planfor Non-Employee Directors. Appendix C to theAlkermes, Inc.Definitive ProxyStatement onForm DEF 14/A(File No. 001-14131) July 27, 200710.25† Alkermes plc Amended and Restated2008 Stock Option and Incentive Plan, asamended. (Incorporated by reference toExhibit 10.1 to the Alkermes plcQuarterly Report on Form 10-Q for thequarter ended March 31, 2015.) Exhibit 10.1 to theAlkermes plcQuarterly Reporton Form 10-Q forthe quarter endedMarch 31, 2015(File No. 001-35299) April 30, 2015 10.25.1 † Alkermes, Inc. 2008 Stock Option andIncentive Plan, Stock Option AwardCertificate (Incentive Stock Option), asamended. Exhibit 10.27(a)to theAlkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 21, 201010.25.2 † Alkermes, Inc. 2008 Stock Option andIncentive Plan, Stock Option AwardCertificate (Non-Qualified Option), asamended. Exhibit 10.27(b)to theAlkermes, Inc.Annual Report onForm 10-K (FileNo. 001-14131) May 21, 201010.25.3 † Alkermes, Inc. 2008 Stock Option andIncentive Plan, Stock Option AwardCertificate (Non-Employee Director). Exhibit 10.4 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) October 7, 200810.25.4 † Alkermes, Inc. 2008 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Time Vesting Only). Exhibit 10.1 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) May 22, 200910.25.5 † Alkermes, Inc. 2008 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Performance VestingOnly). Exhibit 10.2 to theAlkermes, Inc.Current Report onForm 8-K (FileNo. 001-14131) May 22, 200910.26 † Alkermes plc 2011 Stock Option andIncentive Plan, as amended. Exhibit 10.2 to theAlkermes plcQuarterly Reporton Form 10-Q(File No. 001-35299) April 30, 201586 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date10.26.1 #† Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Incentive Stock Option –U.S.), as amended. 10.26.2 #† Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Time Vesting Non-QualifiedOption – U.S.), as amended. 10.26.3 #† Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Performance Vesting Non-Qualified Option – U.S.). 10.26.4 † Alkermes plc 2011 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Time Vesting Only –U.S.), as amended. Exhibit 10.75 ofthe Alkermes plcTransition Reporton Form 10-KT(File No. 011-35299) February 27,201410.26.5 #† Alkermes plc 2011 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Performance VestingOnly – U.S.), as amended. 10.26.6 † Alkermes plc 2011 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Time Vesting Only -Irish), as amended. Exhibit 10.77 ofthe Alkermes plcTransition Reporton Form 10-KT(File No. 011-35299) February 27,201410.26.7 #† Alkermes plc 2011 Stock Option andIncentive Plan, Restricted Stock UnitAward Certificate (Performance VestingOnly - Irish). 10.26.8 † Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Non-Employee Director). Exhibit 10.79 ofthe Alkermes plcTransition Reporton Form 10-KT(File No. 011-35299) February 27,201410.26.9 #† Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Time Vesting Non-QualifiedOption – Irish). 10.26.10 #† Alkermes plc 2011 Stock Option andIncentive Plan, Stock Option AwardCertificate (Performance Vesting Non-Qualified Option – Irish). 21.1 # List of subsidiaries 23.1 # Consent of PricewaterhouseCoopers LLP,an independent registered publicaccounting firm 24.1 # Power of Attorney (included on thesignature pages hereto) 31.1 # Certification Pursuant to Rule 13a-14(a)or Rule 15d-14(a) of the SecuritiesExchange Act of 1934 31.2 # Certification Pursuant to Rule 13a-14(a)or Rule 15d-14(a) of the SecuritiesExchange Act of 1934 32.1 ‡ Certification Pursuant to 18 U.S.C.Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of2002 101.INS +# XBRL Instance Document 87 Table of Contents Incorporated by reference hereinExhibit No. Description of Exhibit Form Date101.SCH +# XBRL Taxonomy Extension SchemaDocument 101.CAL +# XBRL Taxonomy Extension CalculationLinkbase Document 101.DEF +# XBRL Taxonomy Extension DefinitionLinkbase Document 101.LAB +# XBRL Taxonomy Extension LabelLinkbase Document 101.PRE +# XBRL Taxonomy Extension PresentationLinkbase Document † Indicates a management contract or any compensatory plan, contract or arrangement.+ XBRL (Extensible Business Reporting Language).# Filed herewith.‡ Furnished herewith.* Confidential treatment has been granted or requested for certain portions of this exhibit. Suchportions have been filed separately with the SEC pursuant to a confidential treatment request. 88 Table of Contents Report of Independent Registered Public Accounting Firm To Board of Directors and Shareholders of Alkermes plc In our opinion, the accompanying consolidated balance sheets as of December 31, 2015 and 2014 and the relatedconsolidated statements of operations and comprehensive (loss) income, of shareholders’ equity and of cash flows for theyears ended December 31, 2015 and 2014 and for the nine months ended December 31, 2013 present fairly, in all materialrespects, the financial position of Alkermes plc and its subsidiaries at December 31, 2015 and 2014, and the results of theiroperations and their cash flows for the years ended December 31, 2015 and 2014, and for the nine months ended December31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015,based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management is responsible for these financialstatements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in Management’s Annual Report on Internal Control over FinancialReporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on theCompany’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordancewith the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we planand perform the audits to obtain reasonable assurance about whether the financial statements are free of materialmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Ouraudits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions. As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which itclassifies deferred taxes and debt issuance costs in 2015. A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes those policiesand procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ PricewaterhouseCoopers LLPBoston, MassachusettsFebruary 25, 2016 F-1 Table of ContentsALKERMES PLC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2015 and 2014 December 31, 2015 December 31, 2014 (In thousands, except share and per share amounts) ASSETS CURRENT ASSETS: Cash and cash equivalents $181,109 $224,064 Investments — short-term 353,669 407,102 Receivables, net 155,487 151,551 Inventory 38,411 51,357 Prepaid expenses and other current assets 26,286 29,289 Deferred tax assets — current — 13,430 Total current assets 754,962 876,793 PROPERTY, PLANT AND EQUIPMENT, NET 254,819 265,740 INTANGIBLE ASSETS—NET 379,186 479,412 INVESTMENTS—LONG-TERM 264,071 170,480 GOODWILL 92,873 94,212 CONTINGENT CONSIDERATION 55,300 — DEFERRED TAX ASSETS — LONG TERM 40,856 8,294 OTHER ASSETS 13,677 24,127 TOTAL ASSETS $1,855,744 $1,919,058 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $168,735 $121,258 Long-term debt—short-term 65,737 6,750 Deferred revenue—short-term 1,735 2,574 Total current liabilities 236,207 130,582 LONG-TERM DEBT 284,207 349,006 OTHER LONG-TERM LIABILITIES 12,610 11,914 DEFERRED REVENUE—LONG-TERM 7,975 11,801 DEFERRED TAX LIABILITIES — LONG-TERM 470 18,918 Total liabilities 541,469 522,221 COMMITMENTS AND CONTINGENCIES (Note 17) SHAREHOLDERS’ EQUITY: Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; zeroissued and outstanding at December 31, 2015 and December 31, 2014,respectively — — Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized;152,128,941 and 148,545,150 shares issued; 150,700,989 and 147,538,519shares outstanding at December 31, 2015, and December 31, 2014, respectively 1,518 1,482 Treasury shares, at cost (1,427,952 and 1,006,631 shares at December 31, 2015and December 31, 2014, respectively) (58,661) (32,052) Additional paid-in capital 2,114,711 1,942,878 Accumulated other comprehensive loss (3,795) (3,136) Accumulated deficit (739,498) (512,335) Total shareholders’ equity 1,314,275 1,396,837 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,855,744 $1,919,058 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of ContentsALKERMES PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOMEYears Ended December 31, 2015 and 2014 and Nine Months Ended December 31, 2013 Nine Year Ended Year Ended Months Ended December 31, December 31, December 31, 2015 2014 2013 (In thousands, except per share amounts) REVENUES: Manufacturing and royalty revenues $475,288 $516,876 $371,039 Product sales, net 149,028 94,160 57,215 Research and development revenue 4,019 7,753 4,657 Total revenues 628,335 618,789 432,911 EXPENSES: Cost of goods manufactured and sold (exclusive of amortization ofacquired intangible assets shown below) 138,989 175,832 134,306 Research and development 344,404 272,043 128,125 Selling, general and administrative 311,558 199,905 116,558 Amortization of acquired intangible assets 57,685 58,153 38,428 Total expenses 852,636 705,933 417,417 OPERATING (LOSS) INCOME (224,301) (87,144) 15,494 OTHER INCOME (EXPENSE), NET: Interest income 3,330 1,972 711 Interest expense (13,247) (13,430) (10,379) Gain on the Gainesville Transaction 9,636 — — Decrease in the fair value of contingent consideration (2,300) — — Gain on sale of property, plant and equipment 2,862 41,933 — Gain on sale of investment in Civitas Therapeutics, Inc. — 29,564 — Gain on sale of investment in Acceleron Pharma Inc. — 15,296 — Other income (expense), net 15 (2,220) (429) Total other income (expense), net 296 73,115 (10,097) (LOSS) INCOME BEFORE INCOME TAXES (224,005) (14,029) 5,397 PROVISION (BENEFIT) FOR INCOME TAXES 3,158 16,032 (12,252) NET (LOSS) INCOME $(227,163) $(30,061) $17,649 (LOSS) INCOME PER COMMON SHARE: Basic $(1.52) $(0.21) $0.13 Diluted $(1.52) $(0.21) $0.12 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 149,206 145,274 135,960 Diluted 149,206 145,274 144,961 COMPREHENSIVE (LOSS) INCOME: Net (loss) income $(227,163) $(30,061) $17,649 Holding gains, net of tax of $(292), $7,739 and $8,217, respectively (661) 1,586 13,092 Less: Reclassification adjustment for gains included in net (loss) income — (15,296) — COMPREHENSIVE (LOSS) INCOME $(227,824) $(43,771) $30,741 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of ContentsALKERMES PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYYears Ended December 31, 2015 and 2014 and Nine Months Ended December 31, 2013 Accumulated Additional Other Ordinary Shares Paid-In Comprehensive Accumulated Treasury Stock Shares Amount Capital (Loss) Income Deficit Shares Amount Total (In thousands, except share data) BALANCE — March 31, 2013 134,065,107 $1,338 $1,458,857 $(2,518) $(499,923) (313,497) $(5,380) $952,374 Issuance of ordinary shares underemployee stock plans 4,417,464 44 49,033 — — — — 49,077 Receipt of Alkermes' shares for thepurchase of stock options or tosatisfy minimum tax withholdingobligations related to share basedawards — — 788 — — (376,448) (12,453) (11,665) Share-based compensation expense — — 33,265 — — — — 33,265 Excess tax benefit from share-basedcompensation — — 11,394 — — — — 11,394 Unrealized gains on marketablesecurities, net of tax of $8,217 — — — 13,092 — — — 13,092 Net income — — — — 17,649 — — 17,649 BALANCE — December 31, 2013 138,482,571 $1,382 $1,553,337 $10,574 $(482,274) (689,945) $(17,833) $1,065,186 Issuance of ordinary shares, net 5,917,160 59 248,347 — — — — 248,406 Issuance of ordinary shares underemployee stock plans 4,145,419 41 47,536 — — — — 47,577 Receipt of Alkermes' shares for thepurchase of stock options or tosatisfy minimum tax withholdingobligations related to share basedawards — — 1,379 — — (316,686) (14,219) (12,840) Share-based compensation expense — — 59,912 — — — — 59,912 Excess tax benefit from share-basedcompensation — — 32,367 — — — — 32,367 Unrealized gains on marketablesecurities, net of tax of $7,739 — — — (13,710) — — — (13,710) Net loss — — — — (30,061) — — (30,061) BALANCE — December 31, 2014 148,545,150 $1,482 $1,942,878 $(3,136) $(512,335) (1,006,631) $(32,052) $1,396,837 Issuance of ordinary shares underemployee stock plans 3,538,308 35 44,934 — — — — 44,969 Receipt of Alkermes' shares for thepurchase of stock options or tosatisfy minimum tax withholdingobligations related to share basedawards 45,483 1 704 — — (421,321) (26,609) (25,904) Share-based compensation expense — — 97,619 — — — — 97,619 Excess tax benefit from share-basedcompensation — — 28,576 — — — — 28,576 Unrealized gains on marketablesecurities, net of tax of $292 — — — (659) — — — (659) Net loss — — — — (227,163) — — (227,163) BALANCE — December 31, 2015 152,128,941 $1,518 $2,114,711 $(3,795) $(739,498) (1,427,952) $(58,661) $1,314,275 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents ALKERMES PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended December 31, 2015 and 2014 and Nine Months Ended December 31, 2013 Nine Year Ended Year Ended Months Ended December 31, 2015 December 31, 2014 December 31, 2013 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(227,163) $(30,061) $17,649Adjustments to reconcile net loss to cash flows fromoperating activities: Depreciation and amortization 85,596 98,087 70,765Share-based compensation expense 97,341 59,579 33,409Deferred income taxes (37,580) (19,192) (15,393)Excess tax benefit from share-based compensation (28,576) (32,367) (11,394)Gain on sale of investment in Civitas Therapeutics, Inc. — (29,564) —Gain on the Gainesville Transaction (9,636) — —Decrease in the fair value of contingent consideration 2,300 — —(Gain) loss on sale of property, plant and equipment (3,272) (40,099) 129Gain on sale of investment of Acceleron Pharma Inc. — (15,296) —Other non-cash charges (1,351) 9,192 (5,860)Changes in assets and liabilities, net of divestiture: Receivables (16,455) (17,397) (9,534)Inventory, prepaid expenses and other assets 19,618 (31,237) (6,345)Accounts payable and accrued expenses 76,155 56,896 16,126Deferred revenue (629) (996) 4,051Other long-term liabilities 3,292 3,594 (1,382)Cash flows (used in) provided by operating activities (40,360) 11,139 92,221CASH FLOWS FROM INVESTING ACTIVITIES: Additions of property, plant and equipment (52,877) (33,651) (19,054)Proceeds from the sale of equipment 535 44,365 52Net proceeds from the Gainesville Transaction 49,966 — —Investment in Civitas Therapeutics, Inc. — 27,190 (1,191)Purchases of investments (508,683) (642,455) (135,643)Sales and maturities of investments 467,573 341,154 90,470Cash flows used in investing activities (43,486) (263,397) (65,366)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of ordinary shares, net — 248,406 —Proceeds from the issuance of ordinary shares under share-based compensation arrangements 44,969 47,577 49,077Excess tax benefit from share-based compensation 28,576 32,367 11,394Employee taxes paid related to net share settlement ofequity awards (25,904) (12,840) (11,665)Principal payments of long-term debt (6,750) (6,750) (5,060)Cash flows provided by financing activities 40,891 308,760 43,746NET (DECREASE) INCREASE IN CASH AND CASHEQUIVALENTS (42,955) 56,502 70,601CASH AND CASH EQUIVALENTS—Beginning of period 224,064 167,562 96,961CASH AND CASH EQUIVALENTS—End of period $181,109 $224,064 $167,562SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $12,323 $12,489 $9,596Cash paid for taxes $705 $2,799 $704Non-cash investing and financing activities: Purchased capital expenditures included in accountspayable and accrued expenses $6,054 $3,483 $1,969Fair value of warrants received as part of the GainesvilleTransaction $2,123 $ — $ —Fair value of contingent consideration received as part ofthe Gainesville Transaction $57,600 $ — $ — The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Alkermes plc (the “Company”) is a fully integrated, global biopharmaceutical company that applies its scientificexpertise and proprietary technologies to research, develop and commercialize, both with partners and on its own,pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. TheCompany has a diversified portfolio of commercial drug products and a clinical pipeline of product candidates that addresscentral nervous system (“CNS”) disorders such as schizophrenia, depression, addiction, and multiple sclerosis. Headquarteredin Dublin, Ireland, the Company has a research and development (“R&D”) center in Waltham, Massachusetts; R&D andmanufacturing facilities in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio. Change in Fiscal Year On May 21, 2013, the Company's Audit and Risk Committee, with such authority delegated to it by the Company'sboard of directors, approved a change to its fiscal year-end from March 31 to December 31. This Annual Report reflects theCompany’s financial results for the twelve-month period from January 1, 2015 through December 31, 2015. The periodended December 31, 2014 reflects the Company’s financial results for the twelve‑month period from January 1, 2014 throughDecember 31, 2014. The period ended December 31, 2013 reflects the Company’s financial results for the nine‑month periodfrom April 1, 2013 through December 31, 2013. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries:Alkermes Ireland Holdings Limited; Daravita Pharma Ireland Limited; Daravita Limited; Alkermes Science Four Limited;Alkermes Science Five Limited; Alkermes Science Six Limited; Alkermes Pharma Ireland Limited; Alkermes U.S. Holdings,Inc.; Alkermes, Inc.; Eagle Holdings USA, Inc.; Alkermes Controlled Therapeutics, Inc.; Alkermes Europe, Ltd.; AlkermesFinance Ireland Limited; Alkermes Finance Ireland (No. 2) Limited; Alkermes Finance Ireland (No. 3) Limited; and AlkermesFinance S.à r.l. Intercompany accounts and transactions have been eliminated. On March 7, 2015, the Company entered into a definitive agreement to sell its Gainesville, GA manufacturing facility,the related manufacturing and royalty revenue associated with certain products manufactured at the facility, and the rights toIV/IM and parenteral forms of Meloxicam (the “Gainesville Transaction”) to Recro Pharma, Inc. (“Recro”) and Recro PharmaLLC (together with Recro, the “Purchasers”). The consolidated financial statements include the accounts AlkermesGainesville LLC, which represent the entities sold, for the period from January 1, 2015 through April 10, 2015; the yearended December 31, 2014; and the nine-month period from April 1, 2013 through December 31, 2013. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with accounting principles generallyaccepted in the United States (“U.S.”) (“GAAP”) requires management to make estimates, judgments and assumptions thatmay affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. On an on‑going basis, the Company evaluates its estimates and judgments and methodologies, including thoserelated to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation ofinventory, impairment and amortization of intangibles and long‑lived assets, share‑based compensation, income taxesincluding the valuation allowance for deferred tax assets, valuation of investments, contingent consideration and litigation.The Company bases its estimates on historical experience and on various other assumptions that are believed to bereasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.Actual results may differ from these estimates under different assumptions or conditions. Cash and Cash Equivalents The Company values its cash and cash equivalents at cost plus accrued interest, which the Company believesapproximates their market value. The Company considers only those investments which are highly liquid, readilyconvertible into cash and so near their maturity, generally three months from the date of purchase, that they presentF-6 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)insignificant risk of change in value because of interest rate changes to be cash equivalents. Accounts Receivable Included in accounts receivable at December 31, 2015 and 2014, are unbilled receivables of $19.3 million and $26.3million, respectively. The Company’s allowance for doubtful accounts was $0.1 million and zero at December 31, 2015 and2014, respectively. Investments The Company has investments in various types of securities, consisting primarily of U.S. government and agencyobligations, corporate debt securities and debt securities issued by foreign agencies and backed by foreign governments. TheCompany generally holds its interest bearing investments with major financial institutions and in accordance withdocumented investment policies. The Company limits the amount of credit exposure to any one financial institution orcorporate issuer. At December 31, 2015, substantially all these investments were classified as available for sale and wererecorded at fair value. Holding gains and losses on available for sale investments are considered “unrealized” and are reported within“Accumulated other comprehensive (loss) income,” a component of shareholders’ equity. The Company uses the specificidentification method for reclassifying unrealized gains and losses into earnings when investments are sold. The Companyconducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with themeaning of other than temporary impairment and its application to certain investments, as required by GAAP. An unrealizedloss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses onavailable for sale securities that are determined to be temporary, and not related to credit loss, are recorded in “Accumulatedother comprehensive (loss) income.” For securities with unrealized losses, the Company performs an analysis to assess whether it intends to sell or whether itwould more likely than not be required to sell the security before the expected recovery of its amortized cost basis. If theCompany intends to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other thantemporary and the full amount of the unrealized loss is recorded within earnings as an impairment loss. Regardless of theCompany’s intent to sell a security, the Company performs additional analysis on all securities with unrealized losses toevaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does notexpect to receive cash flows sufficient to recover the amortized cost basis of a security. The Company's held-to-maturity investments are restricted investments held as collateral under letters of credit related tocertain of the Company's agreements and are included in “Investments—long-term,” in the accompanying consolidatedbalance sheets. Fair Value of Financial Instruments The Company’s financial assets and liabilities are recorded at fair value and are classified as Level 1, 2 or 3 within thefair value hierarchy, as described in the accounting standards for fair value measurement. The Company’s financial assets andliabilities consist of cash equivalents, investments, contingent consideration and warrants to purchase the common stock of apublicly traded company are classified within the fair value hierarchy as follows: ·Level 1–these valuations are based on a market approach using quoted prices in active markets for identical assets.Valuations of these products do not require a significant degree of judgment. Assets utilizing Level 1 inputs atDecember 31, 2015 included U.S. treasury securities and a fixed term deposit account and at December 31, 2014included U.S. treasury securities; ·Level 2–these valuations are based on a market approach using quoted prices obtained from brokers or dealers forsimilar securities or for securities for which the Company has limited visibility into their trading volumes.Valuations of these financial instruments do not require a significant degree of judgment. Assets and liabilitiesutilizing Level 2 inputs at December 31, 2015 included U.S. government agency debt securities, debt securitiesissued by foreign agencies and backed by foreign governments and investments in corporate debt securities thatare trading in the credit markets; andF-7 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ·Level 3–these valuations are based on an income approach using certain inputs that are unobservable and aresignificant to the overall fair value measurement. Valuations of these products require a significant degree ofjudgment. At December 31, 2015, assets utilizing Level 3 inputs included contingent consideration and warrantsto purchase the common stock of Recro. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable,other current assets, accounts payable and accrued expenses approximate fair value due to their short‑term nature. Inventory Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method.Included in inventory are raw materials used in production of pre-clinical and clinical products, which have alternative futureuse and are charged to R&D expense when consumed. The cost elements included within inventory include three primarycategories for commercial products: cost of raw materials; direct labor; and overhead. Overhead is based on the normalcapacity of the Company’s production facilities and does not include costs from abnormally low production or idle capacity,which are expensed directly to the consolidated statement of operations. Property, Plant and Equipment Property, plant and equipment are recorded at cost, subject to review for impairment whenever events or changes incircumstances indicate that the carrying amount of the assets may not be recoverable. Expenditures for repairs andmaintenance are charged to expense as incurred and major renewals and improvements are capitalized. Depreciation iscalculated using the straight‑line method over the following estimated useful lives of the assets: Asset group Term Buildings and improvements 15 - 40 years Furniture, fixtures and equipment 3 - 10 years Leasehold improvements Shorter of useful life or lease term Contingent Consideration The Company records contingent consideration it receives at fair value on the acquisition date. The Company estimatesthe fair value of contingent consideration through valuation models that incorporate probability-adjusted assumptionsrelated to the achievement of milestones and thus likelihood of receiving related payments. The Company revalues itscontingent consideration each reporting period, with changes in the fair value of contingent consideration recognized withinthe consolidated statements of operations and comprehensive (loss) income. Changes in the fair value of contingentconsideration can result from changes to one or multiple inputs, including adjustments to discount rates, changes in theamount or timing of cash flows, changes in the assumed achievement or timing of any development or sales-based milestonesand changes in the assumed probability associated with regulatory approval. The period over which the Company discounts its contingent consideration is based on the current development stage ofthe product candidate, the specific development plan for that product candidate, adjusted for the probability of completingthe development steps, and when contingent payments would be triggered. In estimating the probability of success, theCompany utilizes data regarding similar milestone events from several sources, including industry studies and theCompany’s own experience. These fair value measurements are based on significant inputs not observable in the market.Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and foreach subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increaseor decrease in the fair value of contingent consideration recorded in any given period. Goodwill and Intangible Assets Goodwill represents the excess cost of the Company's investment in the net assets of acquired companies over the fairvalue of the underlying identifiable net assets at the date of acquisition. The Company’s goodwill consists solely of goodwillcreated as a result of the Company’s acquisition of Elan Drug Technologies (“EDT”) from Elan Corporation, plc inSeptember 2011 and has been assigned to one reporting unit. A reporting unit is an operating segment or sub-F-8 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)segment to which goodwill is assigned when initially recorded. Goodwill is not amortized but is reviewed for impairment on an annual basis, as of October 31, and whenever events orchanges in circumstances indicate that the carrying value of the goodwill might not be recoverable. The Company has theoption to first assess qualitative factors to determine whether it is necessary to perform the two-step impairment test. If theCompany elects this option and believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fairvalue of its reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, nofurther testing is required. Alternatively, the Company may elect to not first assess qualitative factors and immediatelyperform the quantitative two-step impairment test. In the first step, the Company compares the fair value of its reporting unitto its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of its reportingunit, then the second step of the impairment test is performed in order to determine the implied fair value of the Company’sreporting unit’s goodwill. If the carrying value of the Company’s reporting unit’s goodwill exceeds its implied fair value,then the Company would record an impairment loss equal to the difference. The Company performed its annual goodwill impairment test as of October 31, 2015. The Company elected to assessqualitative factors to determine whether it was necessary to perform the two-step impairment test. Based on the weight of allavailable evidence, including the significance in which the fair value of our reporting unit was in excess of its carrying valueat the closing of the Gainesville Transaction and the increase in its fair value from the date of the Gainesville Transaction toOctober 31, 2015, we determined that the fair value of the reporting unit more‑likely‑than‑not exceeded its carrying value. The Company's finite-lived intangible assets, consisting of core developed technology and collaboration agreementsacquired as part of the acquisition of EDT, were recorded at fair value at the time of their acquisition and are stated within theCompany’s consolidated balance sheets net of accumulated amortization and impairments. The finite-lived intangible assetsare amortized over their estimated useful lives using the economic use method, which reflects the pattern that the economicbenefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. The useful livesof the Company's intangible assets are primarily based on the legal or contractual life of the underlying patent or contract,which does not include additional years for the potential extension or renewal of the contract or patent. Impairment of Long‑Lived Assets The Company reviews long‑lived assets to be held and used for impairment whenever events or changes incircumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate animpairment assessment include a significant decline in the observable market value of an asset, a significant change in theextent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of anasset or group of assets is not recoverable. Determination of recoverability is based on an estimate of undiscounted futurecash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expectedto be sufficient to recover the carrying amount of the assets, the assets are written‑down to their estimated fair values.Long‑lived assets to be disposed of are carried at fair value less costs to sell them. Revenue Recognition Collaborative Arrangements The Company has entered into collaboration agreements with pharmaceutical companies including Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG ("Janssen") forINVEGA SUSTENNA/XEPLION and INVEGA TRINZA as well as RISPERDAL CONSTA, Acorda Therapeutics, Inc.("Acorda") for AMPYRA/FAMPYRA and AstraZeneca for BYDUREON. Substantially all of the products developed underthe Company’s collaborative arrangements are currently being marketed as approved products. The Company receivespayments for manufacturing services and/or royalties on product sales. Manufacturing revenues—The Company recognizes manufacturing revenues from the sale of products it manufacturesfor resale by its collaborative partners. Manufacturing revenues are recognized when persuasive evidence of an arrangementexists, delivery has occurred and title to the product and associated risk of loss has passed to the customer, the sales price isfixed or determinable and collectability is reasonably assured. The sales price for certain ofF-9 ®®®®®®®®® Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)the Company’s manufacturing revenues is based on the end-market sales price earned by its collaborative partners. As theend-market sale occurs after the Company has shipped its product and the risk of loss has passed to its collaborative partner,the Company estimates the sales price for such products based on information supplied to it by the Company’s collaborativepartners, its historical transaction experience and other third-party data. Differences between actual manufacturing revenuesand estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which isgenerally the following quarter. The difference between actual and estimated manufacturing revenues has not been material. Royalty revenues—The Company recognizes royalty revenues related to the sale of products by its collaborativepartners that incorporates the Company's technologies. Royalties, with the exception of those from AMPYRA, are earnedunder the terms of a license agreement in the period the products are sold by the Company's collaborative partner andcollectability is reasonably assured. Royalties on AMPYRA are earned in the period the product is shipped to Acorda.Certain of the Company's royalty revenues are recognized by the Company based on information supplied to the Companyby its collaborative partners and require estimates to be made. Differences between actual royalty revenues and estimatedroyalty revenues are reconciled and adjusted for in the period in which they become known, which is generally the followingquarter. The difference between actual and estimated royalty revenues has not been material. Research and development revenue—R&D revenue consists of funding that compensates the Company for formulation,pre‑clinical and clinical testing under R&D arrangements with its collaborative partners. The Company generally bills itscollaborative partners under R&D arrangements using a full‑time equivalent (“FTE”) or hourly rate, plus direct external costs,if any. Certain of the Company’s collaboration agreements entitle it to additional payments upon the achievement ofperformance‑based milestones. Milestones that involve substantial effort on the Company’s part and the achievement ofwhich are not considered probable at the inception of the collaboration are considered “substantive milestones,” and arerecognized in their entirety in the period in which the milestone is achieved. Consideration received from the achievement ofmilestones that are not considered to be “substantive milestones” are included with other collaboration consideration, suchas upfront payments and research funding, and are recognized under the proportional performance method whereby revenueis limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned. Product Sales, Net The Company’s product sales consist of sales of VIVITROL, and upon its approval by the U.S. Federal DrugAdministration (“FDA”) in October 2015, ARISTADA, in the U.S. to wholesalers, specialty distributors and specialtypharmacies. Product sales are recognized when persuasive evidence of an arrangement exists, title to the product andassociated risk of loss has passed to the customer, which is considered to occur when the product has been received by thecustomer, the sales price is fixed or determinable and collectability is reasonably assured. The Company records its product sales net of the following significant categories of sales discounts and allowances as areduction of product sales at the time of shipment: ·Medicaid rebates—relates to the Company’s estimated obligations to states under established reimbursementarrangements. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in areduction of product revenue and the establishment of a liability which is included in other current liabilities. TheCompany’s liability for Medicaid rebates consists of estimates for claims that a state will make for the currentquarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoicesreceived for claims from the prior quarters that have not been paid, and an estimate of potential claims that will bemade for inventory that exists in the distribution channel at period end; ·Chargebacks—wholesaler and specialty pharmacy chargebacks are discounts that occur when contractedcustomers purchase directly from an intermediary wholesale purchaser. Contracted customers, which consistprimarily of federal government agencies purchasing under the federal supply schedule, generally purchase theproduct at its contracted price, plus a mark‑up from the wholesaler. The wholesaler, in‑turn, charges back to theCompany the difference between the price initially paid by the wholesaler and the contracted price paid to thewholesaler by the customer. The allowance for chargebacks is based on actual and expected utilization of theseprograms. Chargebacks could exceed historical experience and the Company’s estimates of future participationF-10 ®® Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)in these programs. To date, actual chargebacks have not differed materially from the Company’s estimates; ·Product Discounts—cash consideration, including sales incentives, given by us under distribution serviceagreements with a number of wholesaler, distributor and specialty pharmacy customers that provide them with theopportunity to earn discounts in exchange for the performance of certain services. To date, actual productdiscounts have not differed materially from the Company’s estimates; ·Co‑pay Assistance—the Company has a program whereby a patient can receive monetary assistance each monthtoward their product co‑payment, co‑ insurance or deductible, provided the patient meets certain eligibilitycriteria. Reserves are recorded upon the product sale. To date, actual co‑pay assistance has not differed materiallyfrom the Company’s estimates; and ·Product Returns—the Company records a reserve for future product returns on gross product sales. This estimate isbased on historical return rates as well as specifically identified anticipated returns due to known businessconditions and product expiry dates. Return amounts are recorded as a deduction to arrive at product sales, net.Once product is returned, it is destroyed. At December 31, 2015, the product return reserve was estimated to beapproximately 1.5% of product sales and amounted to $6.7 million. Other The Company recognizes revenues from the license and the sale of intellectual property, deemed to have standalonevalue, when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable andcollectibility is reasonably assured. The Company considers delivery to have occurred when the buyer has use of, and is ableto benefit from, the intellectual property and the Company has no remaining obligations under the arrangement. Foreign Currency The Company's functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at theexchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S.dollars at exchange rates prevailing on the subsequent balance sheet date. Gains and losses as a result of translationadjustments are recorded within "Other income (expense), net" in the accompanying consolidated statements of operationsand comprehensive (loss) income. During the years ended December 31, 2015 and 2014 and the nine months endedDecember 31, 2013, the Company recorded a gain on foreign currency translation of $1.4 million $0.6 million and$0.2 million, respectively. Concentrations Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable andmarketable securities. Billings to large pharmaceutical companies account for the majority of the Company's accountsreceivable, and collateral is generally not required from these customers. To mitigate credit risk, the Company monitors thefinancial performance and credit worthiness of its customers. The following represents revenue and receivables from theCompany's customers exceeding 10% of the total in each category as of December 31, 2015, 2014 and 2013 and for the yearsended December 31, 2015 and 2014 and the nine months ended December 31, 2013: Year Ended Year Ended Nine Months Ended December 31, 2015 December 31, 2014 December 31, 2013 Customer Receivables Revenue Receivables Revenue Receivables Revenue Janssen 44% 40% 44% 41% 46% 44% Acorda —% 17% 17% 13% 12% 12% The Company holds its interest‑bearing investments with major financial institutions and, in accordance withdocumented investment policies, the Company limits the amount of credit exposure to any one financial institution orcorporate issuer. The Company’s investment objectives are, first, to assure liquidity and conservation of capital and, second,to obtain investment income. F-11 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Geographic Information Company revenues by geographic location, as determined by the location of the customer, and the location of its assets,are as follows: Year Ended Year Ended Nine Months Ended (In thousands) December 31, 2015 December 31, 2014 December 31, 2013 Revenue by region: U.S. $448,639 $398,189 $269,005 Ireland 3,902 7,691 5,722 Rest of world 175,794 212,909 158,184 Assets by region: Current assets: U.S. $360,154 $385,715 $382,571 Ireland 394,281 490,577 187,023 Rest of world 527 501 544 Long-term assets: U.S.: Intangible assets $— $— $— Goodwill — 3,677 3,677 Other 294,158 226,479 222,818 Ireland: Intangible assets $379,186 $479,412 $537,565 Goodwill 92,873 90,535 89,063 Other 334,565 242,162 151,586 Research and Development Expenses For each of its R&D programs, the Company incurs both external and internal expenses. External R&D expenses includecosts related to clinical and non‑clinical activities performed by contract research organizations, consulting fees, laboratoryservices, purchases of drug product materials and third‑party manufacturing development costs. Internal R&D expensesinclude employee‑related expenses, occupancy costs, depreciation and general overhead. The Company tracks external R&Dexpenses for each of its development programs, however, internal R&D expenses are not tracked by individual program asthey benefit multiple programs or its technologies in general. Selling, General and Administrative Expenses Selling, general and administrative expenses are primarily comprised of employee-related expenses associated with salesand marketing, finance, human resources, legal, information technology and other administrative personnel, outsidemarketing, advertising and legal expenses and other general and administrative costs. Advertising costs are expensed as incurred. During the years ended December 31, 2015 and 2014 and the nine monthsended December 31, 2013, advertising costs totaled $10.6 million, $8.6 million and $5.3 million, respectively. Share‑Based Compensation The Company’s share‑based compensation programs grant awards which include stock options and restricted stock units(“RSUs”), which vest with the passage of time and, to a limited extent, vest based on the achievement of certain performancecriteria. The Company issues new shares upon stock option exercise or the vesting of RSUs. Certain of the Company’semployees are retirement eligible under the terms of the Company’s stock option plans (the “Plans”), and stock optionawards to these employees generally vest in full upon retirement. Since there are no effective future service requirements forthese employees, the fair value of these awards is expensed in full on the grant date or upon meeting the retirement eligibilitycriteria, whichever is later. Stock Options Stock option grants to employees expire ten years from the grant date and generally vest one‑fourth per year over fouryears from the anniversary of the date of grant, provided the employee remains continuously employed with the Company,except as otherwise provided in the plan. Stock option grants to directors are for ten‑year terms and generallyF-12 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)vest over a one‑year period provided the director continues to serve on the Company’s board of directors through the vestingdate, except as otherwise provided in the plan. The estimated fair value of options is recognized over the requisite serviceperiod, which is generally the vesting period. Share‑based compensation expense is based on awards ultimately expected tovest. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actualforfeitures differ from those estimates. The fair value of stock option grants is based on estimates as of the date of grant using a Black‑Scholes option valuationmodel. The Company uses historical data as the basis for estimating option terms and forfeitures. Separate groups ofemployees that have similar historical stock option exercise and forfeiture behavior are considered separately for valuationpurposes. The ranges of expected terms disclosed below reflect different expected behavior among certain groups ofemployees. Expected stock volatility factors are based on a weighted average of implied volatilities from traded options onthe Company’s ordinary shares and historical share price volatility of the Company’s ordinary shares, which is determinedbased on a review of the weighted average of historical daily price changes of the Company’s ordinary shares. The risk‑freeinterest rate for periods commensurate with the expected term of the share option is based on the U.S. treasury yield curve ineffect at the time of grant. The dividend yield on the Company’s ordinary shares is estimated to be zero as the Company hasnot paid and does not expect to pay dividends. The exercise price of options granted is equal to the closing price of theCompany’s ordinary shares traded on the NASDAQ Global Select Stock Market on the date of grant. The fair value of each stock option grant was estimated on the grant date with the following weighted‑averageassumptions: Year Ended Year Ended Nine Months Ended December 31, 2015 December 31, 2014 December 31, 2013 Expected option term 5 - 7 years 5 - 7 years 5 - 7 years Expected stock volatility 38 % - 46 % 39 % - 46 % 45 % - 48 % Risk-free interest rate 1.29 % - 2.02 % 1.46 % - 2.24 % 0.75 % - 2.15 % Expected annual dividend yield — — — Time‑Vested Restricted Stock Units Time‑vested RSUs awarded to employees generally vest one‑fourth per year over four years from the anniversary of thedate of grant, provided the employee remains continuously employed with the Company. Shares of the Company’s ordinaryshares are delivered to the employee upon vesting, subject to payment of applicable withholding taxes. The fair value oftime‑vested RSUs is equal to the closing price of the Company’s ordinary shares traded on the NASDAQ Global Select StockMarket on the date of grant. Compensation expense, including the effect of forfeitures, is recognized over the applicableservice period. Performance-Based Restricted Stock Units Performance-based RSUs awarded to employees vest upon the achievement of certain performance criteria. Theestimated fair value of these RSUs is based on the market value of the Company’s stock on the date of grant. Compensationexpense for performance-based RSUs is recognized from the moment the Company determines the performance criteria willbe met to the date the Company deems the event is likely to occur. Cumulative adjustments are recorded quarterly to reflectsubsequent changes in the estimate outcome of performance-related conditions until the date results are determined. Income Taxes The Company recognizes income taxes under the asset and liability method. Deferred income taxes are recognized fordifferences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for theyears in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized inincome in the period that includes the enactment date. In evaluating the Company’s ability to recover its deferred tax assets,the Company considers all available positive and negative evidence including its past operating results, the existence ofcumulative income in the most recent fiscal years, changes in the business in which the Company operates and its forecast offuture taxable income. In determining future taxable income, the Company is responsible for assumptions utilized includingthe amount of Irish, U.S. and other foreign pre‑tax operating income, the reversal of temporary differences and theimplementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about theforecasts of future taxable income and are consistent with the plansF-13 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)and estimates that the Company is using to manage the underlying businesses. The Company accounts for uncertain tax positions using a more‑likely‑than‑not threshold for recognizing and resolvinguncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes intax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matterssubject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluatesits tax position on a quarterly basis. The Company also accrues for potential interest and penalties related to unrecognizedtax benefits in income tax expense. Comprehensive (Loss) Income Comprehensive (loss) income consists of net (loss) income and other comprehensive (loss) income. Other comprehensive(loss) income includes changes in equity that are excluded from net (loss) income, such as unrealized holding gains andlosses on available‑for‑sale marketable securities. (Loss) Earnings Per Share Basic (loss) earnings per share is calculated based upon net (loss) income available to holders of ordinary shares dividedby the weighted average number of ordinary shares outstanding. For the calculation of diluted earnings per share, theCompany uses the weighted average number of ordinary shares outstanding, as adjusted for the effect of potential dilutivesecurities, including stock options and RSUs. Segment Information The Company operates as one business segment, which is the business of developing, manufacturing andcommercializing medicines designed to yield better therapeutic outcomes and improve the lives of patients with seriousdiseases. The Company’s chief decision maker, the Chairman and Chief Executive Officer, reviews the Company’s operatingresults on an aggregate basis and manages the Company’s operations as a single operating unit. Employee Benefit Plans 401(K) Plan The Company maintains a 401(k) retirement savings plan (the “401(k) Plan”), which covers substantially all of itsU.S.‑based employees. Eligible employees may contribute up to 100% of their eligible compensation, subject to certainInternal Revenue Service (“IRS”) limitations. The Company matches 100% of employee contributions up to the first 5% ofemployee pay, up to IRS limits. Employee and Company contributions are fully vested when made. During the years endedDecember 31, 2015 and 2014 and the nine months ended December 31, 2013, the Company contributed $6.6 million, $4.7million and $3.1 million, respectively, to match employee deferrals under the 401(k) Plan. Defined Contribution Plan The Company maintains a defined contribution plan for its Ireland‑based employees (the “Defined Contribution Plan”).The Defined Contribution Plan provides for eligible employees to contribute up to the maximum of 40%, depending upontheir age, of their total taxable earnings subject to an earnings cap of €115,000. The Company provides a match of up to 18%of taxable earnings depending upon an individual’s contribution level. During the years ended December 31, 2015 and 2014and the nine months ended December 31, 2013, the Company contributed $3.0 million, $3.7 million and $2.9 million,respectively, in contributions to the Defined Contribution Plan. New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”)or other standard‑setting bodies that are adopted by the Company as of the specified effective date. Unless otherwisediscussed, the Company believes that the impact of recently issued standards that are not yet effective will not have amaterial impact on its financial position or results of operations upon adoption. In April 2014, the FASB adopted guidance that amends the requirements for reporting discontinued operations.F-14 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Under the amendment, only those disposals of components of an entity that represent a strategic shift that has (or will have) amajor effect on an entity's operations and financial results will be reported as discontinued operations in the financialstatements. Currently, many disposals, some of which may be routine in nature and not a change in an entity's strategy, arereported in discontinued operations. The Company adopted this guidance on January 1, 2015. In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting forrevenue arising from contracts with customers and supersedes most current revenue recognition guidance, includingindustry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict thetransfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount,timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments andchanges in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either afull retrospective or a modified retrospective approach for the adoption of the new standard. The guidance becomes effectivefor the Company in its year ending December 31, 2018, and the Company could early adopt the standard for its year endingDecember 31, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financialstatements. In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments when the terms of anaward provide that a performance target could be achieved after the requisite service period. Existing GAAP does not containexplicit guidance on how to account for these share-based payments. The new guidance requires that a performance targetthat affects vesting and that could be achieved after the requisite service period be treated as a performance condition.Entities have the option of prospectively applying the guidance to awards granted or modified after the effective date orretrospectively applying the guidance to all awards with performance targets that are outstanding as of the beginning of theearliest annual period presented in the financial statements. The guidance becomes effective for the Company in its yearending December 31, 2016, and early adoption is permitted. The Company retrospectively adopted this guidance for its yearended December 31, 2015 and it did not have an impact on its consolidated financial statements. In January 2015, the FASB issued guidance that simplifies income statement presentation by eliminating the concept ofextraordinary items. The guidance becomes effective for the Company in its year ending December 31, 2016 and is notexpected to have an impact on the Company’s consolidated financial statements. In April 2015, the FASB issued guidance simplifying the presentation of debt issuance costs. To simplify presentation ofdebt issuance costs, the amendments require that debt issuance costs related to a recognized debt liability be presented in thebalance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Theguidance becomes effective for the Company in its year ending December 31, 2016, and early adoption is permitted. TheCompany retrospectively adopted the guidance for its year ended December 31, 2015 and as a result, reclassifiedapproximately $1.7 million in deferred financing costs that would have appeared as “Other long-term assets” to “Long-termdebt” in its accompanying consolidated balance sheet. Also, deferred financing costs of $2.2 million that were classifiedwithin “Other long-term assets” at December 31, 2014 were reclassified to “Long-term debt” to conform to the current periodpresentation. In July 2015, the FASB issued guidance simplifying the measurement of inventory. To simplify measurement ofinventory, the amendments require that entities measuring inventory utilizing methods other than last-in, first-out(“LIFO”), should record inventory at the lower of cost and net realizable value. Net realizable value is defined as theestimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal andtransportation. The guidance becomes effective for the Company in its year ending December 31, 2016, and early adoption ispermitted. The Company retrospectively adopted the guidance for its year ended December 31, 2015 and the guidance didnot have an impact on its consolidated financial statements. In November 2015, the FASB issued guidance simplifying the presentation of deferred income taxes. To simplifythe presentation of deferred income taxes, the amendments require that deferred tax liabilities and assets be classified asnoncurrent in a classified statement of financial position. The guidance becomes effective for the Company in its year endingDecember 31, 2017, and early adoption is permitted. The Company prospectively adopted this guidance for its year endedDecember 31, 2015. F-15 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3. DIVESTITURE On March 7, 2015, the Company entered into a definitive agreement with Recro to sell its Gainesville, GAmanufacturing facility, the related manufacturing and royalty revenue associated with certain products manufactured at thefacility, and the rights to IV/IM and parenteral forms of Meloxicam to the Purchasers. The sale was completed on April 10,2015 and, under the terms of the agreement, Recro paid the Company $54.0 million in cash and issued warrants to purchasean aggregate of 350,000 shares of Recro common stock at a per share exercise price of $19.46, which was two times theclosing price of Recro’s common stock on the day prior to closing. The Company is also eligible to receive low double-digitroyalties on net sales of IV/IM and parenteral forms of Meloxicam and up to $120.0 million in milestone payments upon theachievement of certain regulatory and sales milestones related to IV/IM and parenteral forms of Meloxicam. The gain on the Gainesville Transaction was determined as follows: April 10, 2015 (In thousands) Sales Proceeds: Cash $54,010 Fair value of warrants 2,123 Fair value of contingent consideration 57,600 Total consideration received $113,733 Less net assets sold (101,373) Less transaction costs (2,724) Gain on the Gainesville Transaction $9,636 The Company recorded the gain on the Gainesville Transaction within the accompanying consolidated statement ofoperations and comprehensive (loss) income. The Company determined that the sale of assets in connection with theGainesville Transaction did not constitute a strategic shift and that it did not and will not have a major effect on itsoperations and financial results. Accordingly, the operations from the Gainesville Transaction are not reported indiscontinued operations. Geraldine Henwood, President and Chief Executive Officer of Recro, was a member of the Company’s board of directors.On March 7, 2015, Ms. Henwood notified the board of the Company that she was resigning as a member of the board ofdirectors effective immediately. Ms. Henwood’s decision was not the result of any disagreement between the Company andherself on any matter, including with respect to the Company’s operations, policies or practices. During the year ended December 31, 2015, the Gainesville, GA facility and associated intellectual property (“IP”)generated income before income taxes of $4.5 million and during the year ended December 31, 2014, generated incomebefore income taxes of $22.8 million. The Company determined the value of the Gainesville Transaction’s contingent consideration using the followingvaluation approaches: ·The fair value of the two regulatory milestones were estimated based on applying the likelihood of achieving theregulatory milestones and applying a discount rate from the expected time each milestone occurs to the balancesheet date. The Company expects the regulatory milestone events to occur within the next two and three years,respectively, and used a discount rate of 4.0% and 5.3%, respectively, for each of these events; ·To estimate the fair value of future royalties on net sales of IV/IM and parenteral forms of Meloxicam, theCompany assessed the likelihood of IV/IM and parenteral forms of Meloxicam being approved for sale andestimated the expected future sales given approval and IP protection. The Company then discounted theseexpected payments using a discount rate of 17.0%, which the Company believes captures a market participant’sview of the risk associated with the expected payments; and ·The sales milestones were determined through the use of a real options approach, where net sales are simulated in arisk-neutral world. To employ this methodology, the Company used a risk-adjusted expected growth rate based onits assessments of expected growth in net sales of the approved IV/IM and parenteral forms of Meloxicam, adjustedby an appropriate factor capturing their respective correlation with the market. A resultingF-16 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)expected (probability-weighted) milestone payment was then discounted at a cost of debt plus a risk adjustment,which ranged from 13.2% to 15.4%. At December 31, 2015, the Company determined that the value of the Gainesville Transaction’s contingentconsideration was $55.3 million. This represents a decrease of $2.3 million from its original value, and has been recorded inthe accompanying consolidated statements of operations and comprehensive (loss) income. The warrants the Company received to purchase 350,000 shares of Recro common stock were determined to have a fairvalue of $2.1 million on the closing date of the transaction. At December 31, 2015, the Company determined that the valueof these warrants had decreased to $1.8 million and are being recorded within “Other long-term assets” in the accompanyingconsolidated balance sheets. The company used a Black-Scholes model with the following assumptions to determine the fairvalue of these warrants at December 31, 2015: Closing stock price at December 31, 2015 $9.00 Warrant strike price $19.46 Expected term (years) 6.27 Risk-free rate 2.09%Volatility 80.0% The decrease in the fair value of the warrants of $0.3 million during the year ended December 31, 2015 was recordedwithin “Other income (expense), net” in the accompanying consolidated statements of operations and comprehensive (loss)income. F-17 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. INVESTMENTS Investments consist of the following: Gross Unrealized Losses Amortized Less than Greater than Estimated Cost Gains One Year One Year Fair Value (In thousands) December 31, 2015 Short-term investments: Available-for-sale securities: Corporate debt securities $175,098 $20 $(179) $ — $174,939 U.S. government and agency debt securities 141,789 51 (104) — 141,736 International government agency debt securities 37,070 — (76) — 36,994 Total short-term investments 353,957 71 (359) — 353,669 Long-term investments: Available-for-sale securities: U.S. government and agency debt securities 211,216 — (764) — 210,452 Corporate debt securities 38,381 — (111) — 38,270 International government agency debt securities 12,039 — (71) — 11,968 261,636 — (946) — 260,690 Held-to-maturity securities: Fixed term deposit account 1,666 — — — 1,666 Certificates of deposit 1,715 — — — 1,715 Total long-term investments 265,017 — (946) — 264,071 Total investments $618,974 $71 $(1,305) $ — $617,740 December 31, 2014 Short-term investments: Available-for-sale securities: U.S. government and agency debt securities $226,387 $88 $(15) $ — $226,460 Corporate debt securities 140,900 26 (66) — 140,860 International government agency debt securities 39,774 13 (5) — 39,782 Total short-term investments 407,061 127 (86) — 407,102 Long-term investments: Available-for-sale securities: U.S. government and agency debt securities 100,429 — (196) (40) 100,193 Corporate debt securities 61,187 — (84) — 61,103 International government agency debt securities 7,568 — (2) (1) 7,565 169,184 — (282) (41) 168,861 Held-to-maturity securities: Certificates of deposit 1,619 — — — 1,619 Total long-term investments 170,803 — (282) (41) 170,480 Total investments $577,864 $127 $(368) $(41) $577,582 The proceeds from the sales and maturities of marketable securities, which were primarily reinvested and resulted inrealized gains and losses, were as follows: Nine Year Ended Months Ended December 31, December 31, (In thousands) 2015 2014 2013 Proceeds from the sales and maturities of marketable securities $467,573 $341,154 $90,470 Realized gains $111 $15,364 $16 Realized losses $3 $31 $ — The Company’s available‑for‑sale and held‑to‑maturity securities at December 31, 2015 had contractual maturities in thefollowing periods: Available-for-sale Held-to-maturity Amortized Estimated Amortized Estimated (In thousands) Cost Fair Value Cost Fair Value Within 1 year $327,936 $327,621 $1,715 $1,715 After 1 year through 5 years 287,657 286,738 1,666 1,666 Total $615,593 $614,359 $3,381 $3,381 The investments with unrealized losses consisted primarily of corporate debt securities and U.S. Government andF-18 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)agency debt securities. In making the determination that the decline in fair value of these securities was temporary, theCompany considered various factors, including but not limited to: the length of time each security was in an unrealized lossposition; the extent to which fair value was less than cost; financial condition and near‑term prospects of the issuers; theCompany’s intent not to sell these securities, and the assessment that it is more‑likely‑than‑not that the Company would notbe required to sell these securities before the recovery of their amortized cost basis. In May 2014, the Company entered into an agreement whereby it is committed to provide up to €7.4 million to apartnership, Fountain Healthcare Partners II, L.P. of Ireland (“Fountain”), which was created to carry on the business ofinvesting exclusively in companies and businesses engaged in the healthcare, pharmaceutical and life sciences sectors. TheCompany’s commitment represents approximately 7% of the partnership’s total funding, and the Company is accounting forits investment in Fountain under the equity method. At December 31, 2015, the Company had made payments of, and itsinvestment is equal to, $1.6 million (€1.3 million), which is included within “Other assets” in the accompanyingconsolidated balance sheets. During the years ended December 31, 2015 and 2014, the Company recorded a reduction in itsinvestment in Fountain of $0.2 million and $0.1 million, respectively, which represented the Company’s proportionate shareof Fountain’s net loss for this period. The Company’s investment in Civitas Therapeutics, Inc. (“Civitas”) was zero and $2.0 million at December 31, 2015 and2014, respectively, which was recorded within “Other assets” in the accompanying consolidated balance sheets. In October2014, Civitas was acquired by Acorda for $525.0 million. As a result of this transaction, the Company received $27.2 millionin 2014 and $2.4 million in 2015 after release of amounts held in escrow, for its approximate 6% equity interest in Civitas.Prior to its acquisition by Acorda, the Company’s investment in Civitas consisted of various issues of preferred stock, certainof which were accounted for under the cost method or equity method, depending upon if the preferred stock was consideredto be “in-substance” common stock and the Company’s belief that it may have been able to exercise significant influenceover the operating and financial policies of Civitas. During the years ended December 31, 2015 and 2014 and the ninemonths ended December 31, 2013, the Company recorded a reduction in its investment in Civitas of zero, $6.8 million and$1.2 million, respectively, which represented the Company’s proportionate share of Civitas’ net losses for these periods. During the year ended December 31, 2014, the Company sold its investment in Acceleron Pharma Inc. (“Acceleron”),which consisted of common stock and warrants to purchase the common stock of Acceleron. The Company received netproceeds of $24.0 million and realized a gain of $15.3 million from the sale of this investment. As a result, the Companyreclassified the gain from accumulated other comprehensive (loss) income to gain on sale of investment in Acceleron in itsconsolidated statements of operations and comprehensive (loss) income. 5. FAIR VALUE The following table presents information about the Company’s assets and liabilities that are measured at fair value on arecurring basis and indicates the fair value hierarchy and the valuation techniques the Company utilized to determine suchfair value: December 31, (In thousands) 2015 Level 1 Level 2 Level 3Assets: Cash equivalents $1,666 $1,666 $ — $ —U.S. government and agency debt securities 352,188 214,456 137,732 —Corporate debt securities 213,209 — 213,209 —International government agency debt securities 48,962 — 48,962 —Contingent consideration 55,300 — — 55,300Common stock warrants 1,821 — — 1,821Total $673,146 $216,122 $399,903 $57,121 December 31, 2014 Level 1 Level 2 Level 3Assets: U.S. government and agency debt securities $326,653 $189,030 $137,623 $ —Corporate debt securities 201,963 — 201,963 —International government agency debt securities 47,347 — 47,347 —Total $575,963 $189,030 $386,933 $ — F-19 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fairvalue hierarchies at the end of each reporting period. There were no transfers of any securities from Level 1 to Level 2 or from Level 2 to Level 1 during the year endedDecember 31, 2015. The following table is a rollforward of the fair value of the Company’s investments whose fair value wasdetermined using Level 3 inputs at December 31, 2015: (In thousands) Fair ValueBalance, January 1, 2015 $ —Acquisition of contingent consideration 57,600Acquisition of common stock warrants 2,123Decrease in fair value of contingent consideration (2,300)Decrease in fair value of warrants (302)Balance, December 31, 2015 $57,121 The Company’s investments in U.S. government and agency debt securities, international government agency debtsecurities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at thetransaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spotrates and other industry and economic events. The Company validated the prices developed using the market-observabledata by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming thatthe relevant markets are active. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable,other current assets, accounts payable and accrued expenses approximate fair value due to their short‑term nature. The fairvalue of the remaining financial instruments not currently recognized at fair value on the Company’s consolidated balancesheets consisted of the $300.0 million, seven-year term loan bearing interest at LIBOR plus 2.75% with a LIBOR floor of0.75% (“Term Loan B‑1”) and the $75.0 million, four-year term loan bearing interest at LIBOR plus 2.75%, with no LIBORfloor (“Term Loan B‑2” and together with Term Loan B‑1, the “Term Loan Facility”). The estimated fair value of these termloans, which was based on quoted market price indications (Level 2 in the fair value hierarchy) and may not be representativeof actual values that could have been or will be realized in the future, was as follows at December 31, 2015: Carrying Estimated (In thousands) Value Fair Value Term Loan B-1 $287,207 $288,314 Term Loan B-2 $62,737 $62,184 6. INVENTORY Inventory consists of the following: December 31, December 31, (In thousands) 2015 2014Raw materials $16,445 $21,101Work in process 12,423 14,824Finished goods 9,543 15,432Total inventory $38,411 $51,357(1)At December 31, 2015 and 2014, the Company had $3.0 million and $4.4 million, respectively, of finishedgoods inventory located at its third‑party warehouse and shipping service provider. F-20 (1) Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, December 31, (In thousands) 2015 2014Land $5,913 $8,163Building and improvements 136,797 149,158Furniture, fixture and equipment 218,718 225,834Leasehold improvements 16,597 12,971Construction in progress 51,542 39,774Subtotal 429,567 435,900Less: accumulated depreciation (174,748) (170,160)Total property, plant and equipment, net $254,819 $265,740 In April 2015, as part of the Gainesville Transaction, the Company sold certain of its land, buildings and equipment thathad a carrying value of $38.3 million. In April 2014, the Company sold certain of its land, buildings and equipment at itsAthlone, Ireland facility that had a carrying value of $2.2 million, in exchange for $17.5 million. $3.0 million of the saleproceeds was placed in escrow pending the completion of certain additional services the Company was obligated to perform,which were completed in December 2015. The deferred sales proceeds were earned as “Gain on sale of property, plant andequipment” as the services were provided. In October 2014, the Company sold certain commercial-scale pulmonarymanufacturing equipment located at its Chelsea, Massachusetts manufacturing facility, which had a carrying value of $0.4million in exchange for $30.0 million. The gain of $29.6 million resulting from this transaction is included in “Gain on saleof property, plant and equipment” in the accompanying statements of operations and comprehensive (loss) income. Depreciation expense was $27.9 million, $39.9 million and $32.3 million for the years ended December 31, 2015 and2014 and the nine months ended December 31, 2013, respectively. Also, during the years ended December 31, 2015 and2014 and the nine months ended December 31, 2013, the Company wrote off furniture, fixtures and equipment that had acarrying value of $0.1 million, $1.4 million and less than $0.1 million, respectively, at the time of disposition. Amounts included as construction in progress in the consolidated balance sheets primarily include capital expendituresat the Company’s manufacturing facility in Wilmington, Ohio. The Company continues to evaluate its manufacturingcapacity based on expectations of demand for its products and will continue to record such amounts within construction inprogress until such time as the underlying assets are placed into service. The Company continues to periodically evaluatewhether facts and circumstances indicate that the carrying value of its long‑lived assets to be held and used may not berecoverable. 8. GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets consist of the following: Year Ended Year Ended December 31, 2015 December 31, 2014 (In thousands) WeightedAmortizableLife (Years) GrossCarrying Amount AccumulatedAmortization NetCarrying Amount GrossCarrying Amount AccumulatedAmortization NetCarrying Amount Goodwill $92,873 $ — $92,873 $94,212 $ — $94,212 Finite-lived intangible assets: Collaboration agreements 12 $465,590 $(168,218) $297,372 $499,700 $(127,393) $372,307 NanoCrystal technology 13 74,600 (18,294) 56,306 74,600 (13,243) 61,357 OCR technologies 12 42,560 (17,052) 25,508 66,300 (20,552) 45,748 Total $582,750 $(203,564) $379,186 640,600 (161,188) 479,412 The Company’s finite‑lived intangible assets consist of collaborative agreements and the NanoCrystal and OCRtechnologies acquired as part of the EDT acquisition. In April 2015, as part of the Gainesville Transaction, the Companyreduced the value of its goodwill by $1.3 million and sold and/or licensed certain of its collaboration agreements with third-party pharmaceutical companies and Oral Controlled Release (“OCR”) technology, which had a gross carrying amount of$34.1 million and $23.7 million, respectively. F-21 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The Company recorded $57.7 million, $58.2 million and $38.4 million of amortization expense related to its finite‑livedintangible assets during the years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013,respectively. Based on the Company’s most recent analysis, amortization of intangible assets included within itsconsolidated balance sheets at December 31, 2015 is expected to be approximately $60.0 million, $60.0 million,$60.0 million, $55.0 million and $50.0 million in the years ending December 31, 2016 through 2020, respectively. Althoughthe Company believes such available information and assumptions are reasonable, given the inherent risks and uncertaintiesunderlying its expectations regarding such future revenues, there is the potential for the Company’s actual results to varysignificantly from such expectations. If revenues are projected to change, the related amortization of the intangible assetswill change in proportion to the change in revenues. On January 21, 2016, following the Company’s press release regarding its ALKS 5461 development program, theCompany’s stock price declined by 44% from the previous day’s closing price, which the Company considered to be animpairment triggering event. To determine if its goodwill was impaired, the Company assessed qualitative factors todetermine whether it was necessary to perform the two-step impairment test. Based on the weight of all available evidence,the Company determined that the fair value of its reporting unit more-likely-than-not exceeded its carrying value.9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: December 31, December 31, (In thousands) 2015 2014 Accounts payable $37,401 $32,335 Accrued compensation 40,371 36,854 Accrued sales discounts, allowances and reserves 28,449 12,607 Accrued other 62,514 39,462 Total accounts payable and accrued expenses $168,735 $121,258 10. LONG‑TERM DEBT Long‑term debt consists of the following: December 31, December 31, (In thousands) 2015 2014 Term Loan B-1, due September 25, 2019 $287,207 $289,376 Term Loan B-2, due September 25, 2016 62,737 66,380 Total 349,944 355,756 Less: current portion (65,737) (6,750) Long-term debt $284,207 $349,006 Term Loans Term Loan B‑1 was issued with a principal balance of $300.0 million, interest payable of LIBOR plus 2.75% with aLIBOR floor of 0.75%, and an original issue discount of $3.0 million. Term Loan B‑1 amortizes in equal quarterly amountsof 0.25% of the original principal amount of the loan, with the balance payable at maturity, which is September 25, 2019.Term Loan B‑2 was issued with a principal balance of $75.0 million, interest payable of LIBOR plus 2.75% with no LIBORfloor, and an original issue discount of $0.4 million. Term Loan B‑2 amortizes in equal quarterly amounts of 1.25% of theoriginal principal amount of the loan, with the balance payable at maturity, which is September 25, 2016. The Term LoanFacility is guaranteed by certain subsidiaries of the Company (the “Guarantors”) and is secured by a first priority lien onsubstantially all of the assets and properties of the Company and the Guarantors (subject to certain exceptions andlimitations). F-22 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Scheduled maturities with respect to the Term Loan Facility are as follows (in thousands): Year Ended December 31: 2016 $65,813 2017 3,000 2018 3,000 2019 281,250 2020 — Total $353,063 Required quarterly principal payments of $0.8 million on Term Loan B‑1 and $0.9 million on Term Loan B‑2 began onDecember 31, 2012. Beginning on January 1, 2014, the Company became subject to mandatory prepayments of principal ifcertain excess cash flow thresholds, as defined in the Term Loan Facility, were met. During the year ended December 31,2015, the Company was not subject to mandatory prepayments of principal. The Company may make prepayments ofprincipal without premium or penalty. The Term Loan Facility has an incremental facility capacity in an amount of $140.0 million, plus additional amounts aslong as the Company meets certain conditions, including a specified leverage ratio. The Term Loan Facility includes anumber of restrictive covenants that, among other things and subject to certain exceptions and baskets, impose operating andfinancial restrictions on the Company and certain of its subsidiaries. The Term Loan Facility also contains customaryaffirmative covenants and events of default. The Company was in compliance with its debt covenants at December 31, 2015. At December 31, 2015, the Company’s balance of unamortized deferred financing costs and unamortized original issuediscount costs were $1.7 million and $1.4 million, respectively. These costs are being amortized to interest expense over theestimated repayment period of the Term Loan Facility using the effective interest method. During the years ended December31, 2015 and 2014 and the nine months ended December 31, 2013, the Company had amortization expense of $0.9 million,$1.0 million and $0.8 million, respectively, related to deferred financing costs and original issue discount. 11. (LOSS) EARNINGS PER SHARE Basic (loss) earnings per ordinary share is calculated based upon net (loss) income available to holders of ordinary sharesdivided by the weighted average number of shares outstanding. For the calculation of diluted (loss) earnings per ordinaryshare, the Company uses the weighted average number of ordinary shares outstanding, as adjusted for the effect of potentialoutstanding shares, including stock options and restricted stock units. Nine Year Ended Year Ended Months Ended (In thousands) December 31, 2015 December 31, 2014 December 31, 2013 Numerator: Net loss $(227,163) $(30,061) $17,649 Denominator: Weighted average number of ordinary sharesoutstanding 149,206 145,274 135,960 Effect of dilutive securities: Stock options — — 7,653 Restricted stock units — — 1,348 Dilutive ordinary share equivalents — — 9,001 Shares used in calculating diluted loss per share 149,206 145,274 144,961 The following potential ordinary equivalent shares have not been included in the net (loss) income per ordinary sharecalculations because the effect would have been anti‑dilutive: Nine Year Ended Year Ended Months Ended (In thousands) December 31, 2015 December 31, 2014 December 31, 2013 Stock options 9,179 9,260 1,404 Restricted stock units 1,351 1,834 — Total 10,530 11,094 1,404 F-23 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. SHAREHOLDERS’ EQUITY Share Repurchase Program On September 16, 2011, the board of directors authorized the continuation of the Alkermes, Inc. share repurchaseprogram to repurchase up to $215.0 million of the Company’s ordinary shares at the discretion of management from time totime in the open market or through privately negotiated transactions. At December 31, 2015, approximately $101.0 millionwas available to repurchase ordinary shares pursuant to the repurchase program. All shares repurchased are recorded astreasury stock. The repurchase program has no set expiration date and may be suspended or discontinued at any time. Duringthe years ended December 31, 2015 and 2014, the Company did not acquire any ordinary shares under the repurchaseprogram. 13. SHARE‑BASED COMPENSATION Share‑based Compensation Expense The following table presents share‑based compensation expense included in the Company’s consolidated statements ofoperations and comprehensive (loss) income: Nine Year Ended Year Ended Months Ended (In thousands) December 31, 2015 December 31, 2014 December 31, 2013 Cost of goods manufactured and sold $8,880 $6,940 $3,308 Research and development 24,201 14,422 7,799 Selling, general and administrative 64,260 38,217 22,302 Total share-based compensation expense $97,341 $59,579 $33,409 During the years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, $1.1 million,$0.8 million and $0.4 million, respectively, of share‑based compensation expense was capitalized and recorded as“Inventory” in the accompanying consolidated balance sheets. Share‑based Compensation Plans The Company has two compensation plans pursuant to which awards are currently being made: (i) the 2011 StockOption and Incentive Plan (the “2011 Plan”); and (ii) the 2008 Stock Option and Incentive Plan (the “2008 Plan”). TheCompany has two share‑based compensation plans pursuant to which outstanding awards have been made, but from whichno further awards can or will be made: (i) the 1999 Stock Option Plan (the "1999 Plan"); and (ii) the 2006 Stock Option Planfor Non-Employee Directors (the "2006 Plan"). The 2011 Plan and the 2008 Plan provide for the issuance of non-qualifiedand incentive stock options, restricted stock, restricted stock units, cash-based awards and performance shares to employees,officers and directors of, and consultants to, the Company in such amounts and with such terms and conditions as may bedetermined by the compensation committee of the Company's board of directors, subject to provisions of the 2011 Plan andthe 2008 Plan. At December 31, 2015, there were 6.9 million shares of ordinary shares authorized for issuance under the Company’sstock plans. The 2011 Plan provides that awards other than stock options will be counted against the total number of sharesavailable under the plan in a 1.8-to‑1 ratio and the 2008 Plan provides that awards other than stock options will be countedagainst the total number of shares available under the plan in a 2‑to‑1 ratio. F-24 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Stock Options A summary of stock option activity is presented in the following table: Number of WeightedAverage Shares Exercise Price Outstanding, January 1, 2015 13,172,626 $22.32 Granted 2,697,610 $67.88 Exercised (2,550,665) $17.91 Forfeited (340,765) $52.94 Outstanding, December 31, 2015 12,978,806 $31.86 Exercisable, December 31, 2015 8,065,860 $19.34 The weighted average grant date fair value of stock options granted during the years ended December 31, 2015 and 2014and the nine months ended December 31, 2013 was $28.88, $21.44 and $16.27, respectively. The aggregate intrinsic valueof stock options exercised during the years ended December 31, 2015 and 2014 and the nine months ended December 31,2013 was $127.7 million, $114.5 million and $65.6 million, respectively. At December 31, 2015, there were 4.7 million stock options expected to vest with a weighted average exercise price of$51.94 per share, a weighted average contractual remaining life of 8.4 years and an aggregate intrinsic value of$128.8 million. At December 31, 2015, the aggregate intrinsic value of stock options exercisable was $484.3 million with aweighted average remaining contractual term of 5.0 years. The number of stock options expected to vest is determined byapplying the pre‑vesting forfeiture rate to the total outstanding options. The intrinsic value of a stock option is the amountby which the market value of the underlying stock exceeds the exercise price of the stock option. At December 31, 2015, there was $61.3 million of unrecognized compensation cost related to unvested stock options,which is expected to be recognized over a weighted average period of 2.1 years. Cash received from option exercises underthe Company’s award plans during the years ended December 31, 2015 and 2014 and the nine months ended December 31,2013 was $45.0 million, $47.6 million and $49.1 million, respectively, related to these awards. Time‑Vested Restricted Stock Units A summary of time‑vested RSU activity is presented in the following table: Number of Weighted Average Shares Grant DateFair Value Unvested, January 1, 2015 1,760,914 $32.96 Granted 684,915 $71.16 Vested (733,343) $29.05 Forfeited (166,854) $45.52 Unvested, December 31, 2015 1,545,632 $50.38 The weighted average grant date fair value of time‑vested RSUs granted during the years ended December 31, 2015 and2014 and the nine months ended December 31, 2013 $71.16, $47.16 and $33.72, respectively. The total fair value oftime‑vested RSUs that vested during the years ended December 31, 2015 and 2014 and the nine months ended December 31,2013, was $21.3 million, $15.4 million and $12.5 million, respectively. At December 31, 2015, there was $35.7 million of total unrecognized compensation cost related to unvested time‑vestedRSUs, which will be recognized over a weighted average remaining contractual term of 1.9 years. Performance-Vesting Restricted Stock Units In March 2014, the board of directors awarded RSUs to all employees of the Company as of the date of the award, fiftypercent of which vest upon the occurrence of the earlier of: (i) FDA approval for ARISTADA; or (ii) the achievement of thepre-specified primary endpoint in two phase 3 clinical studies of ALKS 5461; provided that, if such vesting event occursduring the first year after grant, the vesting of the initial 50% of the performance-based restricted stock unit award will notoccur until the one-year anniversary of the grant date. The remaining fifty percent of the award will vest on the one-yearanniversary of the vesting date of the initial portion. In September 2015, the Company determined that it was probable thatthese awards would vest and began to recognize expense from these awards. The initial portion of these awards vested inOctober 2015 upon the approval of ARISTADA by the FDA. In the year endedF-25 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)December 31, 2015, the Company recognized $2.5 million, $3.1 million and $8.3 million in cost of goods manufactured andsold; R&D expense; and SG&A expense, respectively. A summary of performance-vesting RSU activity is presented in the following table: Number of Weighted Average Shares Grant Date Fair Value Unvested, January 1, 2015 656,725 $47.17 Granted — $ — Vested (299,783) $47.17 Forfeited (76,277) $47.15 Unvested, December 31, 2015 280,665 $47.17 The grant date fair value of the performance-vesting RSUs was equal to the market value of the Company’s stock on thedate of grant. At December 31, 2015, there was $10.1 million of unrecognized compensation cost related to theseperformance-vesting RSUs, which will be recognized through October 5, 2016. 14. COLLABORATIVE ARRANGEMENTS The Company’s business strategy includes forming collaborations to develop and commercialize its products, and toaccess technological, financial, marketing, manufacturing and other resources. The following table is the aggregate for all ofthe Company’s collaborative arrangements: Nine Year Ended Year Ended Months Ended December 31, 2015 December 31, 2014 December 31, 2013 (In thousands) MANUFACTURING AND ROYALTY REVENUE: Significant collaborative arrangements $401,236 $365,904 $261,192 All other collaborative arrangements 74,052 150,972 109,847 Total manufacturing and royalty revenue $475,288 $516,876 $371,039 RESEARCH AND DEVELOPMENT REVENUE: Significant collaborative arrangements $582 $501 $921 All other collaborative arrangements 3,437 7,252 3,736 Total research and development revenue $4,019 $7,753 $4,657 COST OF GOODS MANUFACTURED: Significant collaborative arrangements $33,097 $34,148 $33,454 All other collaborative arrangements 93,908 127,028 92,534 Total cost of goods manufactured $127,005 $161,176 $125,988 (1)Includes only cost of goods manufactured under collaborative arrangements. The Company’s significant collaborative arrangements are described below: Janssen INVEGA SUSTENNA/XEPLION and INVEGA TRINZA Under its license agreement with Janssen Pharmaceutica N.V., the Company granted Janssen a worldwide exclusivelicense under its NanoCrystal technology to develop, commercialize and manufacture INVEGA SUSTENNA/XEPLION andINVEGA TRINZA and related products. Under its license agreement, the Company received milestone payments upon the achievement of certain developmentgoals from Janssen; there are no further milestones to be earned under this agreement. The Company receives tiered royaltypayments between 5% and 9% of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA net sales in each country where thelicense is in effect, with the exact royalty percentage determined based on worldwide net sales. The tiered royalty paymentsconsist of a patent royalty and a know‑how royalty, both of which are determined on a county‑by‑country basis. The patentroyalty, which equals 1.5% of net sales, is payable until the expiration of the last of the patents claiming the product in suchcountry. The know‑how royalty is a tiered royalty of 3.5%, 5.5% and 7.5% onF-26 (1) Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)aggregate worldwide net sales of below $250 million, between $250 million and $500 million, and greater than$500 million, respectively. The know‑how royalty is payable for the later of 15 years from first commercial sale of a productin each individual country or March 31, 2019, subject in each case to the expiry of the license agreement. These royaltypayments may be reduced in any country based on patent litigation or on competing products achieving certain minimumsales thresholds. The license agreement expires upon the later of (i) March 31, 2019 or (ii) the expiration of the last of thepatents subject to the agreement. After expiration, Janssen retains a non‑exclusive, royalty‑free license to develop,manufacture and commercialize the products. Janssen may terminate the license agreement in whole or in part upon three months’ notice to the Company. TheCompany and Janssen have the right to terminate the agreement upon a material breach of the other party, which is not curedwithin a certain time period, or upon the other party’s bankruptcy or insolvency. Under its agreements with Janssen, the Company recognized royalty revenues from the sale of INVEGASUSTENNA/XEPLION and INVEGA TRINZA of $149.7 million, $127.8 million and $82.9 million during the years endedDecember 31, 2015 and 2014 and the nine months ended December 31, 2013, respectively. RISPERDAL CONSTA Under a product development agreement, the Company collaborated with Janssen on the development of RISPERDALCONSTA. Under the development agreement, Janssen provided funding to the Company for the development ofRISPERDAL CONSTA and Janssen is responsible for securing all necessary regulatory approvals for the product. Under license agreements, the Company granted Janssen and an affiliate of Janssen exclusive worldwide licenses to useand sell RISPERDAL CONSTA. Under its license agreements with Janssen, the Company receives royalty payments equal to2.5% of Janssen’s net sales of RISPERDAL CONSTA in each country where the license is in effect based on the quarter whenthe product is sold by Janssen. This royalty may be reduced in any country based on lack of patent coverage and significantcompetition from generic versions of the product. Janssen can terminate the license agreements upon 30 days’ prior writtennotice to the Company. Either party may terminate the license agreements by written notice following a breach whichcontinues for 90 days after the delivery of written notice thereof or the other party’s insolvency. The licenses granted toJanssen expire on a country‑by‑country basis upon the later of: (i) the expiration of the last patent claiming the product insuch country; or (ii) 15 years after the date of the first commercial sale of the product in such country, provided that in noevent will the license granted to Janssen expire later than the twentieth anniversary of the first commercial sale of the productin such country, with the exception of certain countries where the fifteen‑year limitation shall pertain regardless. Afterexpiration, Janssen retains a non‑exclusive, royalty‑free license to manufacture, use and sell RISPERDAL CONSTA. TheCompany exclusively manufactures RISPERDAL CONSTA for commercial sale. Under its manufacturing and supplyagreement with Janssen, the Company records manufacturing revenues when product is shipped to Janssen, based on 7.5% ofJanssen’s net unit sales price for RISPERDAL CONSTA for the calendar year. The manufacturing and supply agreement terminates on expiration of the license agreements. In addition, either partymay terminate the manufacturing and supply agreement upon a material breach by the other party, which is not resolvedwithin 60 days after receipt of a written notice specifying the material breach or upon written notice in the event of the otherparty’s insolvency or bankruptcy. Janssen may terminate the agreement upon six months’ written notice to the Company. Inthe event that Janssen terminates the manufacturing and supply agreement without terminating the license agreements, theroyalty rate payable to the Company on Janssen’s net sales of RISPERDAL CONSTA would increase from 2.5% to 5.0%. Under its agreements with Janssen, the Company recognized manufacturing revenues related to RISPERDAL CONSTAof $76.5 million, $91.0 million and $82.5 million during the years ended December 31, 2015 and 2014 and the nine monthsended December 31, 2013, respectively. Under its agreements with Janssen, the Company recognized royalty revenuesrelated to RISPERDAL CONSTA of $24.2 million, $29.6 million and $24.7 million during the years ended December 31,2015 and 2014 and the nine months ended December 31, 2013, respectively. F-27 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Acorda Under an amended and restated license agreement, the Company granted Acorda an exclusive worldwide license to useand sell and, solely in accordance with its supply agreement, to make or have made AMPYRA/FAMPYRA. Under its licenseagreement with Acorda, the Company receives certain commercial and development milestone payments, license revenuesand a royalty of approximately 10% based on net sales of AMPYRA/FAMPYRA by Acorda or its sub‑licensee, Biogen. Thisroyalty payment may be reduced in any country based on lack of patent coverage, competing products achieving certainminimum sales thresholds and whether Alkermes manufactures the product. In June 2009, the Company entered into an amendment of the amended and restated license agreement and the supplyagreement with Acorda and, pursuant to such amendment, consented to the sublicense by Acorda to Biogen of Acorda’srights to use and sell FAMPYRA in certain territories outside of the U.S. (to the extent that such rights were to be sublicensedto Biogen) pursuant to its separate collaboration and license agreement with Acorda. Under this amendment, the Companyagreed to modify certain terms and conditions of the amended and restated license agreement and the supply agreement withAcorda to reflect the sublicense by Acorda to Biogen. Acorda has the right to terminate the amended and restated license agreement upon 90 days’ written notice. TheCompany has the right to terminate the amended and restated license agreement for countries in which Acorda fails to launcha product within a specified time after obtaining the necessary regulatory approval or fails to file regulatory approvals withina commercially reasonable time after completion of and receipt of positive data from all preclinical and clinical studiesrequired for filing a marketing authorization application. Either party has the right to terminate the amended and restatedlicense agreement by written notice following a breach of the other party, which is not cured within a certain time-period, orupon the other party’s entry into bankruptcy or dissolution proceedings. If the Company terminates Acorda's license in anycountry, the Company is entitled to a license from Acorda of its patent rights and know-how relating to the product as well asthe related data, information and regulatory files, and to market the product in the applicable country, subject to an initialpayment equal to Acorda's cost of developing such data, information and regulatory files and to ongoing royalty payments toAcorda. Subject to the termination of the amended and restated license agreement, licenses granted under the amended andrestated license agreement terminate on a country-by-country basis on the later of: (i) September 2018; or (ii) the expirationof the last to expire of our patents or the existence of a threshold level of competition in the marketplace. Under its commercial manufacturing supply agreement with Acorda, the Company manufactures and suppliesAMPYRA/FAMPYRA for Acorda (and its sub‑licensees). Under the terms of the agreement, Acorda may obtain up to 25% ofits total annual requirements of product from a second‑source manufacturer. The Company receives royalties equal to 8% ofnet selling price for all product manufactured by it and a compensating payment for product manufactured and supplied by athird party. The Company may terminate the commercial manufacturing supply agreement upon 12 months’ prior writtennotice to Acorda and either party may terminate the commercial manufacturing supply agreement following a material anduncured breach of the commercial manufacturing supply or license agreement or the entry into bankruptcy or dissolutionproceedings by the other party. In addition, subject to early termination of the commercial manufacturing supply agreementnoted above, the commercial manufacturing supply agreement terminates upon the expiry or termination of the licenseagreement. The Company is entitled to receive the following milestone payments under its amended and restated license agreementwith Acorda for each of the third and fourth new indications of the product developed thereunder upon the: ·initiation of a phase 3 clinical trial: $1.0 million;·acceptance of an New Drug Application (“NDA”) by the FDA: $1.0 million;·approval of the NDA by the FDA: $1.5 million; and·the first commercial sale: $1.5 million. In January 2011, the Company entered into a development and supplemental agreement to its amended and restatedlicense agreement and commercial manufacturing supply agreement with Acorda. Under the terms of this agreement, theCompany granted Acorda the right, either with the Company or with a third party, in each case in accordance with certainterms and conditions, to develop new formulations of dalfampridine or other aminopyridines. Under the terms of theagreement, Acorda has the right to select either a formulation developed by the Company or by a third party forcommercialization.F-28 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company is entitled to development fees it incurs in developing formulations under the development andsupplemental agreement and, if Acorda selects and commercializes any such formulation, to milestone payments (for newindications if not previously paid), license revenues and royalties in accordance with its amended and restated licenseagreement for the product, and either manufacturing fees as a percentage of net selling price for product manufactured by theCompany or compensating fees for product manufactured by third parties. If, under the development and supplemental agreement, Acorda selects a formulation not developed by the Company,then the Company will be entitled to various compensation payments and has the first option to manufacture such third‑partyformulation. The development and supplemental agreement expires upon the expiry or termination of the amended andrestated license agreement and may be earlier terminated by either party following an uncured breach of the agreement by theother party. Acorda’s financial obligations under this development and supplemental agreement continue for a minimum of ten yearsfrom the first commercial sale of such new formulation, and may extend for a longer period of time, depending on theintellectual property rights protecting the formulation, regulatory exclusivity and/or the absence of significant marketcompetition. These financial obligations survive termination. During the years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, the Companyrecognized $104.7 million, $81.3 million and $51.6 million, respectively, of revenues from its arrangements with Acorda. AstraZeneca In May 2000, the Company entered into a development and license agreement with Amylin for the development ofexendin products falling within the scope of its patents, including the once-weekly formulation of exenatide marketed asBYDUREON. In August 2012, Bristol-Myers Squibb Company (“Bristol-Myers”) acquired Amylin. From August 2012through January 2014, Bristol-Myers and AstraZeneca jointly developed and commercialized Amylin’s exendin products,including BYDUREON, through their diabetes collaboration. In April 2013, Bristol-Myers completed its assumption of allglobal commercialization responsibility related to the marketing of BYDUREON from Amylin’s former collaborative partner,Eli Lilly & Company. In February 2014, AstraZeneca acquired sole ownership of the intellectual property and global rightsrelated to BYDUREON and Amylin’s other exendin products, including Amylin’s rights and obligations under theCompany’s development and license agreement. Pursuant to the development and license agreement, AstraZeneca has an exclusive, worldwide license to the Company’spolymer-based microsphere technology for the development and commercialization of injectable extended-releaseformulations of exendins and other related compounds. The Company receives funding for research and development andwill also receive royalty payments based on future product sales. Upon the achievement of certain development andcommercialization goals, the Company received milestone payments consisting of cash and warrants for Amylin commonstock and there are no further milestones to be earned under the agreement. In October 2005 and in July 2006, the Companyamended the development and license agreement. Under the amended agreement: (i) the Company is responsible forformulation and is principally responsible for non-clinical development of any products that may be developed pursuant tothe agreement and for manufacturing these products for use in early-phase clinical trials; and (ii) the Company transferredcertain of its technology related to the manufacture of BYDUREON to Amylin and agreed to the manufacture of BYDUREONby Amylin. Under the Company’s amended agreement, AstraZeneca is responsible for conducting clinical trials, securing regulatoryapprovals, and commercializing exenatide products including BYDUREON on a worldwide basis. Until December 31, 2021, the Company will receive royalties equal to 8% of net sales from the first 40 million units ofBYDUREON sold in any particular calendar year and 5.5% of net sales from units sold beyond the first 40 million units forthat calendar year. Thereafter, during the term of the development and license agreement, the Company will receive royaltiesequal to 5.5% of net sales of products sold. The Company was entitled to, and received $7.0 million milestone paymentsrelated to the first commercial sale of BYDUREON in the EU and $7.0 million the first commercial sale of BYDUREON in theU.S. F-29 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The development and license agreement expires on the later of: (i) 10 years from the first commercial sale of the last ofthe products covered by the development and license agreement; or (ii) the expiration or invalidation of all of theCompany’s patents covering such product. Upon expiration, all licenses become non‑exclusive and royalty‑free. AstraZenecamay terminate the development and license agreement for any reason upon 180 days’ written notice to the Company. Inaddition, either party may terminate the development and license agreement upon a material default or breach by the otherparty that is not cured within 60 days after receipt of written notice specifying the default or breach. Alkermes may terminatethe development and license agreement upon AstraZeneca’s insolvency or bankruptcy. During the years ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, the Companyrecognized $46.1 million, $36.6 million and $20.0 million, respectively, of revenues from its arrangements with respect toBYDUREON. 15. INCOME TAXES The Company’s provision (benefit) for income taxes is comprised of the following: Nine Year Ended Year Ended Months Ended(In thousands) December 31, 2015 December 31, 2014 December 31, 2013Current income tax provision: U.S. federal $29,959 $35,147 $9,224U.S. state 1,615 880 2,119Ireland 77 820 20Rest of world 94 95 69Deferred income tax (benefit): U.S. federal (18,336) (2,654) (18,317)Ireland (9,647) (17,691) (3,426)U.S. state (604) (565) (1,941)Total tax provision (benefit) $3,158 $16,032 $(12,252) The current income tax provision for the years ended December 31, 2015 and 2014 and the nine months endedDecember 31, 2013 was primarily due to U.S. federal and state taxes on income earned by the Company in the U.S. A $28.6 million, $32.4 million and an $11.4 million benefit were recorded to additional paid‑in capital in the years endedDecember 31, 2015 and 2014 and the nine months ended December 31, 2013, respectively, primarily due to the utilization ofcurrent year tax benefits and NOL carryforwards derived from the exercise of employee stock options and vesting of restrictedstock units. The deferred income tax benefit for the years ended December 31, 2015 and 2014 was primarily due to current yeartemporary differences in the U.S. and the creation of a deferred tax asset in Ireland for current year operating losses. Thedeferred income tax benefit in the nine months ended December 31, 2013 was primarily due to the reversal of a valuationallowance on certain of the Company’s U.S. federal and state deferred tax assets. No provision for income tax has been provided on undistributed earnings of the Company's foreign subsidiaries becausesuch earnings may be repatriated to Ireland without incurring any tax liability. Cumulative unremitted earnings of overseassubsidiaries totaled approximately $107.0 million at December 31, 2015. The distribution of the Company’s (loss) income before the provision for income taxes by geographical area consisted ofthe following: Nine Year Ended Year Ended Months Ended(In thousands) December 31, 2015 December 31, 2014 December 31, 2013Ireland $(289,105) $(159,538) $(63,975)U.S. 38,398 118,754 49,338Rest of world 26,702 26,755 20,034(Loss) income before provision (benefit) for income taxes $(224,005) $(14,029) $5,397 F-30 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The components of the Company’s net deferred tax assets (liabilities) were as follows: December 31, December 31, (In thousands) 2015 2014Deferred tax assets: Irish NOL carryforwards $128,635 $83,278Share-based compensation 42,519 30,655Bonus accrual 7,704 6,835Other 12,187 10,771Less: valuation allowance (106,746) (71,796)Total deferred tax assets 84,299 59,743Deferred tax liabilities: Intangible assets (26,935) (31,169)Property, plant and equipment (15,217) (21,919)Other (1,761) (3,849)Total deferred tax liabilities (43,913) (56,937)Net deferred tax assets $40,386 $2,806 The activity in the valuation allowance associated with deferred taxes consisted of the following: (In thousands) Balance atBeginning ofPeriod Additions Deductions Balance at Endof Period Deferred tax asset valuation for the nine months endedDecember 31, 2013 $(86,714) $(11,833) $28,888 $(69,659) Deferred tax asset valuation for the year ended December31, 2014 $(69,659) $(12,867) $10,730 $(71,796) Deferred tax asset valuation for the year ended December31, 2015 $(71,796) $(34,950) $ — $(106,746) (1)The additions in each of the periods presented relate primarily to Irish NOL’s.(2)The reductions in the year ended December 31, 2014 and the nine months ended December 31, 2013 relateprimarily to the release of valuation allowances held against U.S. deferred tax assets. $9.1 million of the decrease tothe valuation allowance in the year ended December 31, 2014 was credited against additional paid-in capital. In addition to deferred tax assets and liabilities, the Company recorded deferred charges related to certain intercompanyasset transfers. The deferred charges will either be amortized as income tax expense over the economic life of the assets orrecorded to expense when the assets are sold to a third party. Deferred charges are included in the following accounts: December 31, December 31, (In thousands) 2015 2014 Prepaid expenses and other current assets $188 $1,296 Other assets - long-term 1,050 8,836 Total deferred charges $1,238 $10,132 At December 31, 2015 and 2014, the Company maintained a valuation allowance of $2.6 million and $1.7 million,respectively, against certain U.S. state deferred tax assets and $104.2 million and $70.1 million, respectively, against certainIrish deferred tax assets as the Company has determined that it is more-likely-than-not that these net deferred tax assets willnot be realized. If the Company demonstrates consistent profitability in the future, the evaluation of the recoverability ofthese deferred tax assets could change and the remaining valuation allowances could be released in part or in whole. Subsequent to the adoption of ASC 718 on April 1, 2006, an additional $58.1 million of tax benefits from stock optionexercises and the vesting of restricted stock units, in the form of NOL carryforwards and tax credit carryforwards, have notbeen recognized in the financial statements and will be accounted for as a credit to additional paid‑in capital rather than areduction of income tax expense once they are realized. As of December 31, 2015, the Company had $881.0 million of Irish NOL carryforwards, $5.5 million of U.S. federal NOLcarryforwards, $7.2 million of state NOL carryforwards, $44.8 million of federal R&D credits, $9.8 millionF-31 (1)(2) Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)of alternative minimum tax (“AMT”) credits and $5.9 million of state tax credits which will either expire on various datesthrough 2035 or can be carried forward indefinitely. These loss carryforwards and credits are available to reduce certainfuture Irish and foreign taxable income and tax, respectively, if any. These loss carryforwards and credits are subject to reviewand possible adjustment by the appropriate taxing authorities. These loss carryforwards and credits, which may be utilized inany future period, may be subject to limitations based upon changes in the ownership of the company's stock. The Companyhas performed a review of ownership changes in accordance with the U.S. Internal Revenue Code and the Company hasdetermined that it is more-likely-than-not that, as a result of the Business Combination, the Company experienced a changeof ownership. As a consequence, the Company's U.S. federal NOL carryforwards and tax credit carryforwards are subject to anannual limitation of $127.0 million. A reconciliation of the Company’s statutory tax rate to its effective tax rate is as follows: Nine Year Ended Year Ended Months Ended December 31, 2015 December 31, 2014 December 31, 2013 (In thousands, except percentage amounts) Statutory tax rate 12.5% 12.5% 12.5% Income tax provision at statutory rate $(28,001) $(1,754) $675 Change in valuation allowance 37,312 11,150 (17,347) Foreign rate differential 13,951 28,600 11,280 Share-based compensation 738 1,801 735 Uncertain tax positions 1,213 1,440 (3,168) U.S. state income taxes, net of U.S. federal benefit 557 727 2,202 Intercompany amounts (3,649) (7,459) (1,619) Irish rate differential (7,318) (4,775) (4,396) R&D credit (12,193) (14,013) (1,596) State tax law change - - 686 Other permanent items 548 315 296 Income tax provision (benefit) $3,158 $16,032 $(12,252) Effective tax rate (1.4)% (114.2)% (227.0)% (1)Represents income or losses of non-Irish subsidiaries, including U.S. subsidiaries, subject to tax at a rate other thanthe Irish statutory rate.(2)Relates to uncertain tax positions adopted by the Company. In June 2013, the Company filed a change inaccounting method with the Internal Revenue Service relating to accrued compensation. The method change wasautomatic and removed the uncertainty around the timing of the deduction for accrued compensation. The effectivedate of the method change was April 1, 2012. As a result, the Company released the uncertain tax position andaccounted for the application of the method change in the fiscal year ended March 31, 2013.(3)Intercompany amounts include cross-territory eliminations, the pre-tax effect of which has been eliminated inarriving at the Company's consolidated (loss) income before taxes.(4)Represents income or losses of Irish companies subject to tax at a rate other than the Irish statutory rate.(5)Other permanent items include, but are not limited to, non-deductible meals and entertainment expenses, non-deductible lobbying expenses and non-deductible compensation of senior officers of the Company. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Unrecognized(In thousands) Tax BenefitsBalance, March 31, 2013 $7,258Additions based on tax positions related to prior periods 881Additions based on tax positions related to the current period 244Decreases due to lapse of statute of limitations and settlement of prior period uncertain tax positions (7,258)Balance, December 31, 2013 $1,125Additions based on tax positions related to prior periods 363Additions based on tax positions related to the current period 1,077Balance, December 31, 2014 $2,565Additions based on tax positions related to the current period 1,213Balance, December 31, 2015 $3,778 F-32 (1)(2)(3)(4)(5) Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The unrecognized tax benefits at December 31, 2015, if recognized, would affect the Company's effective tax rate. TheCompany does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decreasewithin the next 12 months. The Company has elected to include interest and penalties related to uncertain tax positions as acomponent of its provision for taxes. For the years ended December 31, 2015 and 2014 and the nine months ended December31, 2013, the Company's accrued interest and penalties related to uncertain tax positions were not material. The Company’s major taxing jurisdictions include Ireland and the U.S. (federal and state). These jurisdictions havevarying statutes of limitations. In the U.S., the 2013 through 2015 fiscal years remain subject to examination by therespective tax authorities. In Ireland, the years 2011 to 2015 remain subject to examination by the Irish tax authorities.Additionally, because of the Company’s Irish and U.S. loss carryforwards and credit carryforwards, certain tax returns fromfiscal years 1999 onward may also be examined. These years generally remain open for three to four years after the losscarryforwards and credit carryforwards have been utilized. 16. TRANSITION PERIOD COMPARATIVE DATA The unaudited information for the year ended December 31, 2013 (which reflects the Company’s combined results forthe unaudited quarter ended March 31, 2013 and the audited nine-month transition period from April 1, 2013 throughDecember 31, 2013) is presented below for comparative purposes: Year Ended December 31, 2015 2014 2013(unaudited) (In thousands, except per share amounts) Statement of Operations Data: Revenues $628,335 $618,789 $596,333 Operating expenses 852,636 705,933 561,855 Operating (loss) income (224,301) (87,144) 34,478 Other income (expense) (net) 296 73,115 (21,215) (Loss) income before income taxes (224,005) (14,029) 13,263 Income tax provision (benefit) 3,158 16,032 (7,385) Net (loss) income $(227,163) $(30,061) $20,648 (Loss) earnings per ordinary share - basic $(1.52) $(0.21) $0.15 (Loss) earnings per ordinary share - diluted $(1.52) $(0.21) $0.14 Weighted average ordinary shares outstanding - basic 149,206 145,274 135,297 Weighted average ordinary shares outstanding - diluted 149,206 145,274 144,012 Statement of Cash Flows Data: Cash flows (used in) provided by operations $(40,360) $11,139 $147,525 Cash flows used in investing activities (43,486) (263,397) (177,194) Cash flows provided by financing activities 40,891 308,760 61,339 (Decrease) increase in cash and cash equivalents $(42,955) $56,502 $31,670 17. COMMITMENTS AND CONTINGENCIES Lease Commitments The Company leases certain of its offices, research laboratories and manufacturing facilities under operating leases thatexpire through the year 2022. Certain of the leases contain provisions for extensions of up to ten years. These leasecommitments are primarily related to the Company’s corporate headquarters in Ireland and its corporate office and R&Dfacility in Massachusetts. As of December 31, 2015, the total future annual minimum lease payments under the Company’snon‑cancelable operating leases are as follows:F-33 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Payment(In thousands) AmountYear Ended: 2016 $5,7082017 5,8972018 5,7322019 5,4062020 3,194Thereafter 933 $26,870 Rent expense related to operating leases charged to operations was $7.2 million, $5.9 million and $3.7 million for theyears ended December 31, 2015 and 2014 and the nine months ended December 31, 2013, respectively. Each of theseamounts was net of sublease income of $0.7 million. In addition to its lease commitments, the Company had open purchaseorders totaling $399.0 million at December 31, 2015. In December 2015, the Company entered into an agreement pertaining to its leased manufacturing facility located inChelsea, Massachusetts, assigning its right, title and interest in the lease to Civitas. The Company had recognized an assetretirement obligation in connection with this leased property and upon entering into the agreement with Civitas, reversedthis liability. As a result, in the year ended December 31, 2015, the Company recorded a $2.4 million gain within operating(loss) income in the accompanying consolidated statements of operations and comprehensive (loss) income. Litigation From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. On aquarterly basis, the Company reviews the status of each significant matter and assess its potential financial exposure. If thepotential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can bereasonably estimated, the Company would accrue a liability for the estimated loss. Because of uncertainties related to claimsand litigation, accruals are based on the Company’s best estimates based on available information. On a periodic basis, asadditional information becomes available, or based on specific events such as the outcome of litigation or settlement ofclaims, the Company may reassess the potential liability related to these matters and may revise these estimates, which couldresult in material adverse adjustments to the Company’s operating results. At December 31, 2015, there are no potentiallosses from claims, asserted or unasserted, or legal proceedings the Company feels are probable of occurring. ARISTADA On July 13, 2015, Otsuka Pharmaceutical Development & Commercialization, Inc. (“Otsuka PD&C”) filed a CitizenPetition with the FDA which requested that the FDA refuse to approve the NDA for ARISTADA or delay approval of suchNDA until the exclusivity rights covering long-acting aripiprazole expire in December 2017. The FDA approved ARISTADAon October 5, 2015 and, concurrent with such approval, denied Otsuka PD&C’s Citizen Petition. On October 15, 2015, Otsuka Pharm. Co., Otsuka PD&C, and Otsuka America Pharmaceutical, Inc. (collectively,“Otsuka”) filed an action for declaratory and injunctive relief with the United States District Court for the District ofColumbia (the “Court”) against Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services; Dr.Stephen Ostroff, Acting Commissioner, FDA; and the FDA, requesting that (a) the Court expedite the legal proceedings; (b)the Court declare that the FDA’s denial of Otsuka’s claimed exclusivity rights and approval of the ARISTADA NDA werearbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law; (c) the Court vacate FDA’s approval ofthe ARISTADA NDA and vacate any FDA decisions or actions underlying or supporting or predicated upon that approval;(d) the Court declare that Otsuka’s claimed exclusivity rights preclude FDA from granting approval of the Alkermes NDAuntil the expiration of such exclusivity rights in December 2017; and (e) the Court grant any and all other, further, andadditional relief, including all necessary and appropriate protective preliminary, interim, or permanent relief, as the nature ofthe cause may require, including all necessary and appropriate declarations of rights and injunctive relief. The Companybelieves Otsuka’s action is without merit and will vigorously defend ARISTADA against such action. The Companysuccessfully intervened in, and received the Court’s approval to become a party to, this action. The Court held a hearing onthe case in January 2016. The action is currently pending before the Court. For information about risks relating to this action,see “Item 1A—Risk Factors” of this Annual ReportF-34 Table of ContentsALKERMES PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)and specifically the section entitled “Citizen Petitions and other actions filed with, or litigation against, the FDA or otherregulatory agencies or litigation against Alkermes may negatively impact the approval of our products and our business.” AMPYRA Ampyra ANDA Litigation Ten separate Paragraph IV Certification Notices have been submitted to us and/or the Company’s partner Acorda fromAccord Healthcare, Inc.; Actavis Laboratories FL, Inc. (“Actavis”); Alkem Laboratories Ltd.; Apotex, Inc.; Aurobindo PharmaLtd. (“Aurobindo”); Mylan Pharmaceuticals, Inc. (“Mylan”); Par Pharmaceutical, Inc. (“Par”); Roxane Laboratories, Inc.; SunPharmaceutical Industries Limited and Sun Pharmaceuticals Industries Inc. (collectively, “Sun”); and Teva PharmaceuticalsUSA, Inc., advising that each of these companies had submitted an Abbreviated New Drug Application (“ANDA”) to the FDAseeking marketing approval for generic versions of Ampyra (dalfampridine) Extended Release Tablets, 10 mg. The ANDAfilers have challenged the validity of the Orange Book-listed patents for Ampyra, and they have also asserted that theirgeneric versions do not infringe certain claims of these patents. In response, the Company and/or Acorda filed lawsuitsagainst the ANDA filers in the U.S. District Court for the District of Delaware (the “Delaware Court”) asserting infringementof U.S. Patent Nos. 5,540,938 (which the Company owns), 8,007,826, 8,354,437, 8,440,703, and 8,663,685 (which are ownedby Acorda). Requested judicial remedies include recovery of litigation costs and injunctive relief. Lawsuits with eight of theANDA filers have been consolidated into a single case. The Delaware Court has scheduled a Markman hearing on March 7,2016, and has set a five-day bench trial starting on September 19, 2016. Mylan is challenging the jurisdiction of theDelaware Court with respect to the Delaware action. Due to Mylan’s motion to dismiss, the Company, together with Acorda,also filed another patent infringement suit against Mylan in the U.S. District Court for the Northern District of West Virginiaasserting the same U.S. patents and requesting the same judicial relief as in the Delaware action. On January 4, 2016, theFederal Circuit Court of Appeals held oral arguments on Mylan’s appeal of the Delaware Court’s jurisdictional decision. Alllawsuits were filed within 45 days from the date of receipt of each of the Paragraph IV Certification Notices. As a result, a 30-month statutory stay of approval period applies to each of the ANDAs under the Hatch-Waxman Act. The 30-month staystarts from January 22, 2015, which is the end of the new chemical entity exclusivity period for Ampyra. This stay restrictsthe FDA from approving the ANDAs until July 2017 at the earliest, unless a Federal district court issues a decision adverse toall of the asserted Orange Book-listed patents prior to that date. In the fourth quarter of 2015, the Company and/or Acorda entered into a settlement agreement with each of Actavis,Aurobindo, Par and Sun (collectively, the “Settling ANDA Filers”) to resolve the patent litigation that the Company and/orAcorda brought against the Settling ANDA Filers in the Delaware Court as described above. As a result of the settlementagreements, the Settling ANDA Filers will be permitted to market a generic version of Ampyra in the U.S. at a specified datein 2027, or potentially earlier under certain circumstances. The parties have submitted their respective settlement agreementsto the Federal Trade Commission and the Department of Justice, as required by federal law. The settlements with the SettlingANDA Filers do not resolve pending patent litigation that the Company and Acorda brought against the other ANDA filers,as described in this Annual Report. The Company intends to vigorously enforce its intellectual property rights. For information about risks relating to theAmpyra Paragraph IV litigations and other proceedings see “Item 1A—Risk Factors” in this Annual Report and specificallythe section entitled “We face claims against our intellectual property rights and competition from generic drugmanufacturers.” Ampyra IPR Proceedings A hedge fund (acting with affiliated entities and individuals and proceeding under the name of the Coalition forAffordable Drugs) has filed inter partes review petitions with the U.S. Patent and Trademark Office, challenging U.S. PatentNos. 8,007,826, 8,354,437, 8,440,703, and 8,663,685 (which are owned by Acorda). The challenged patents are four of thefive Ampyra Orange-Book listed patents. The 30-month statutory stay period based on patent infringement suits filed by usand Acorda against ANDA filers is not impacted by these filings, and remains in effect. F-35 Exhibit 10.16.2SEPARATION AGREEMENT This Separation Agreement (the “Separation Agreement”) is made between Rebecca J.Peterson (“Executive”) and Alkermes, Inc. (the “Company,” together with Executive, the“Parties”). WHEREAS, Executive has served as the Company’s Senior Vice President,Corporate Communications since July 2012; WHEREAS, the Parties entered into an Employee Agreement with respect toInventions and Proprietary Information dated November 30, 2000 (“ConfidentialityAgreement”), and an employment agreement dated July 30, 2012 and an amendment to thatagreement as of July 22, 2015 (together, “Employee Agreement”). The ConfidentialityAgreement and Employee Agreement as amended are hereinafter collectively referred to as the“Employment Documents”; WHEREAS, Executive entered into a Deed of Indemnification with Alkermes plcdated July 30, 2012 (“Deed”); WHEREAS, Executive holds restricted shares of the Alkermes plc ordinary stock andoptions to purchase shares of the Company’s ordinary stock (all of which are unvested) that aregoverned by the Alkermes plc 2011 Stock Option and Incentive Plan, and associated stockoption certificates and restricted stock certificates (collectively “Equity Documents”); WHEREAS, the Company and the Executive have mutually agreed that the Executivewill resign from her employment with the Company; WHEREAS, the Parties agree that Executive is not entitled to severance or separationbenefits under the Employment Documents and that this Agreement shall supersede andreplace the Employment Documents, including with respect to compensation, benefits, andseverance, except to the extent that certain non-economic provisions and obligations of theEmployment Documents are expressly preserved and incorporated by reference into thisSeparation Agreement; and WHEREAS, the Company has agreed to provide Executive with, and wishes to setforth clearly the terms and conditions of, certain separation benefits (the “Separation Benefits”)provided that, among other things, the Executive enters into and complies with this SeparationAgreement which includes a general release of claims in favor of the Company and relatedpersons and entities; NOW, THEREFORE, for good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the Parties agree as follows: 1.Employment Separation. Executive shall resign and Executive’s employment with theCompany shall end on October 21, 2015 (“Separation Date”). In connection with the ending of Executive’s employment, the Company shall pay Executive her base salaryaccrued to Executive through the Separation Date and pay Executive for all accrued butunused vacation time due to Executive through the Separation Date. Executive acknowledgesthat as of the Separation Date, Executive’s accrued but unused vacation time totaled 564 hours. 2.Business Expense Reimbursement. The Company shall reimburse Executive for anyoutstanding, reasonable business expenses that Executive has incurred on the Company’sbehalf through the Separation Date, provided the Company receives appropriatedocumentation pursuant to the Company’s business expense reimbursement policy on orbefore October 30, 2015. 3.Separation Benefits. The Parties agree that Executive’s resignation from employmentwith the Company is not for “Good Reason” as defined in the EmployeeAgreement. Accordingly, the Parties agree that Executive is not entitled to the“Compensation Upon Termination” described in section 5(b) of the EmployeeAgreement. Nevertheless, in exchange for, among other things, her signing, delivering andnot revoking a General Release of Claims in the form of Exhibit A hereto (the “Release”),the Company agrees to provide Executive with the following Separation Benefits: (a) Severance Amount. The Company shall pay Executive $375,000 whichrepresents an amount equal to one times the sum of the Executive’s current Base Salary(“Severance Amount”). (b) Bonus Amount. The Company shall pay Executive a bonus of $140,623 (“Bonus Amount”). Executive acknowledges and agrees that she is not entitled to any otherbonus or incentive compensation. Provided Executive enters into and complies with this Separation Agreement and the Release,the Severance Amount and Bonus Amount shall be paid in a lump sum to the Executive withinthirty (30) days of the date of signature of the Release. If Executive dies before the payment ofthe Severance Amount and Bonus Amount, the Severance Amount and Bonus Amount shallbe paid to Executive’s spouse; if he is not alive at the time, to Executive’s estate. (c) Unemployment. The Company agrees not to contest any claim that Executivehas filed or may file asserting that Executive became eligible for unemployment insurancebenefits from the Department of Unemployment Assistance of the Commonwealth ofMassachusetts (the “DUA”) as a result of the separation of Executive’s employment with theCompany. Executive acknowledges that any unemployment insurance eligibilitydetermination shall be made by the DUA. (d) Outplacement. The Company shall pay up to $25,000 of the cost ofprofessional outplacement services utilized by Executive and provided by a legitimateoutplacement services firm selected by Executive; provided that Executive begins utilizing such services no later than three months after the Separation Date. The Company willpay the outplacement service firm directly. (e) COBRA Benefits. Provided that the Executive is eligible for and timely electscontinued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, asamended (“COBRA”), under the Company’s group health and dental insurance plansfollowing the Separation Date, then the Company shall pay the applicable insurance premiums,employer and employee share, necessary to continue the health and dental insurance coveragein effect for Executive, until the earliest of: (i) Executive’s eligibility for group medical carecoverage through other employment; or (iii) the end of Executive’s eligibility under COBRAfor continuation coverage for medical care (18 months). The Company will also pay anyadministrative fee. (f) Treatment of Executive’s Stock Options. The stock options held by Executiveimmediately prior to the Separation Date are set forth on Exhibit B hereto (all of such options,the “Stock Options”). All Stock Options are exercisable until the earlier of 3 months followingthe Separation Date or the stated expiration date of such Stock Option. Subject to Executiveentering into and complying with this Separation Agreement and the Release and the approvalof the Compensation Committee of the Board of Directors of Alkermes plc (the“Compensation Committee”), the following Stock Options are hereby amended such that suchoptions shall be fully vested as of the Separation Date: (A) The remaining 2,120 shares of an Incentive StockOption granted on March 3, 2014 at an exercise price of $47.16 per share; (B) The remaining 44,005 shares of a Non-Qualified StockOption granted on March 3, 2014 at an exercise price of $47.16 per share; (C) The remaining 2,965 shares of an Incentive StockOption granted on May 28, 2013 at an exercise price of $33.72 per share; (D) The remaining 37,035 shares of a Non-Qualified StockOption granted on May 28, 2013 at an exercise price of $33.72 per share; (E) The remaining 6,042 shares of an Incentive StockOption granted on May 21, 2012 at an exercise price of $16.55 per share; and (F) The remaining 12,708 shares of a Non-Qualified StockOption granted on May 21, 2012 at an exercise price of $16.55 per share. The Parties acknowledge and agree that due to Executive’s separation from employment withthe Company, the following Incentive Stock Options shall remain unvested and terminate onthe Separation Date: (i) the 1,403 shares of an Incentive Stock Option granted on February 26,2015 at an exercise price of $71.23 per share; and (ii) the 52,597 shares of a Non-QualifiedStock Option granted on February 26, 2015 at an exercise price of $71.23 per share. (g) Treatment of Executive’s Restricted Stock Awards. The restricted stockawards granted to Executive prior to the Separation Date are set forth in Exhibit Bhereto. Subject to Executive entering into and complying with this Separation Agreement andthe Release and the approval of the Compensation Committee, the following restricted stockawards are hereby amended such that such restricted stock awards shall be fully vested as ofthe Separation Date: (A) The remaining 13,000 shares of the Company’sCommon Stock pursuant to a Restricted Stock Award granted on February 26,2015; (B) The remaining 10,500 shares of the Company’sCommon Stock pursuant to a Restricted Stock Award granted on March 3,2014; (C) The remaining 7,500 shares of the Company’sCommon Stock pursuant to a Restricted Stock Award granted on May 28,2013; and (D) The remaining 2,500 shares of the Company’sCommon Stock pursuant to a Restricted Stock Award granted on May 21,2012. (h) Treatment of Executive’s Performance Stock Units. The performance stock unit award granted to Executive prior to the Separation Date is set forth in Exhibit Bhereto. Subject to Executive entering into and complying with this Separation Agreement andthe Release and the approval of the Compensation Committee, the remaining time-vestedportion of such performance stock unit award, consisting of 5,000 units, is hereby amendedsuch that such performance stock unit award shall be fully vested as of the Separation Date. 4.Termination of Employee Benefits. Except as specifically set forth in this Agreement,Executive shall cease to be eligible for coverage and benefits under the Company’semployee benefit plans, programs and policies as of the Separation Date, or by the terms ofsuch plans, programs, and policies. 5.Section 409A. Anything in this Agreement to the contrary notwithstanding, if anypayment or benefit that Executive becomes entitled to under this Agreement is considereddeferred compensation subject to interest, penalties and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section409A(a)(2)(B)(i) of the Code, then no such payment shall be payable or benefit shall beprovided prior to the date that is the earlier of (A) six months after Executive’s separation fromservice, or (B) Executive’s death, and the initial payment shall include a catch-up amountcovering amounts that would otherwise have been paid during the first six-month period but forthe applications of this Section 5. The Parties intend that this Agreement will be administeredin accordance with Section 409A of the Code and is either exempt from or in compliance withSection 409A of the Code. The Parties agree that this Agreement may be amended, asreasonably requested by either Party, and as may be necessary to fully comply with Section409A of the Code and all related rules and regulations in order to preserve the payments andbenefits provided hereunder without additional cost to either Party. 6.Confidential Information, Non-solicitation and Cooperation. Executive herebyacknowledges the continuing nature of her obligations set forth in Sections 1-3 and 6 of theConfidentiality Agreement and Section 7 (a), (b), (d) and (e) of the Employee Agreement(the “Continuing Obligations”), the terms of which are incorporated by reference herein asmaterial terms of this Separation Agreement, and she hereby reaffirms those obligations,and agrees that the consideration provided by the Company under the terms of thisAgreement is additional consideration for those obligations. The Parties agree thatExecutive will not violate Section 7(b) of the Employee Agreement or Section 2 of theConfidentiality Agreement if she is required to share Confidential Information by alawfully issued subpoena or a duly issued court order, provided that she provides theCompany with advance written notice and a reasonable opportunity to contest suchsubpoena or court order. 7.Confidentiality of this Agreement. This Section 7 is a material term of the Agreementand the Company has relied upon Executive’s representations in this provision whenagreeing to enter into the Agreement. The payment of the Separation Benefits will cease ifExecutive violates the terms of this Section and Executive shall nonetheless remain boundby Executive’s obligations in this Agreement. Unless as required by a lawfully issuedsubpoena or a duly issued court order, Executive agrees that she shall not disclose, divulgeor publish, directly or indirectly, any information regarding the substance, terms orexistence of this Agreement and/or any discussion or negotiations relating to thisAgreement, to any person or organization, including employees of the Company, otherthan Executive’s immediate family and accountants/financial advisor, tax advisors, orattorneys when such disclosure is necessary for the accountants, financial advisor, taxadvisor or attorneys to render professional services or for Executive to exercise any legalrights. Prior to any such disclosure that Executive may make, Executive shall secure fromher attorney or accountant their agreement to maintain the confidentiality of such matters.Company agrees that it shall not disclose, divulge or publish, directly or indirectly, anyinformation regarding the substance, terms or existence of this Agreement and/or anydiscussion or negotiations relating to this Agreement, to any third party or organization,other than as required under applicable laws, regulations and requirements or in response tolegal proceedings. Both parties may also share this Agreement with any state or federaltaxing authorities or the DUA. For purposes of clarity, by complying with this paragraph, Executive will not be violating anysections of the Employment Documents. 8.Return of Property. Executive agrees to return immediately to the Company allCompany property, including, without limitation, computer equipment or electronicdevices (without deletions), software, keys and access cards, credit cards, files and anydocuments (electronic or otherwise) containing information concerning the Company, itsbusiness or its business relationships (in the latter two cases, actual or prospective). Afterreturning all Company property, Executive commits to deleting and finally purging anyduplicates of files or documents that may contain Company information from any non-Company computer device that remains Executive’s property after the Separation Date. 9.Advice of Counsel. This Separation Agreement is a legally binding document andExecutive’s signature will commit Executive to its terms. Executive acknowledges that shehas been advised to discuss all aspects of this Separation Agreement with her attorney, thatshe has carefully read and fully understands all of the provisions of this SeparationAgreement and that Executive is knowingly and voluntarily entering into this SeparationAgreement. 10.Termination of Separation Benefits. Executive’s right to the Separation Benefits isconditional on her compliance with her obligations under this Separation Agreement,including her obligations set out in Section 6 herein. In the event that Executive fails tomaterially comply with her obligations set out in Section 6 herein, in addition to any otherlegal or equitable remedies it may have for such breach, the Company shall have the rightto terminate the Separation Benefits payable hereunder. Such termination of thosepayments and benefits in the event of such material breach by Executive shall not affectExecutive’s ongoing obligations, and shall be in addition to and not in lieu of theCompany’s rights to injunctive relief and other legal and equitable remedies that theCompany may have. 11.Enforceability. Executive acknowledges that, if any portion or provision of thisSeparation Agreement or any of the Continuing Obligations shall to any extent be declaredillegal or unenforceable by a court of competent jurisdiction, then the remainder other thanthose as to which it is so declared illegal or unenforceable, shall not be affected thereby,and each portion and provision shall be valid and enforceable to the fullest extent permittedby law. 12.Entire Agreement. This Separation Agreement, including the Release, along with theEquity Documents, as modified herein, contain the entire understanding of the Partiesrelating to the subject matter contained herein and supersede all prior agreements orunderstanding between the Parties including the Employment Documents, except to theextent that certain provisions and obligations of the Employment Documents are expresslypreserved and incorporated by reference into this Agreement, provided that the Deed isexpressly not superseded by this Agreement. Executive acknowledges and agrees that sheis not entitled to any payments or benefits under the Employment Documents or any othercontract, employment agreement or plan or arrangement with the Company. 13.Waiver and Successors and Assigns. No waiver of any provision of this SeparationAgreement shall be effective unless made in writing and signed by the waiving party. Thefailure of either Party to require the performance of any term or obligation of thisSeparation Agreement, or the waiver by either Party of any breach of this SeparationAgreement, shall not prevent any subsequent enforcement of such term or obligation or bedeemed a waiver of any subsequent breach. This Separation Agreement shall inure to thebenefit of and be binding on the Company and its successors and assigns. 14.Taxes. The Company shall undertake to make deductions, withholdings and tax reportswith respect to payments and benefits under this Separation Agreement and in connectionwith other compensation matters to the extent that it reasonably and in good faithdetermines that it is required to make such deductions, withholdings and taxreports. Payments under this Separation Agreement shall be in amounts net of any suchdeductions or withholdings. Nothing in this Separation Agreement shall be construed torequire the Company to make any payments to compensate Executive for any adverse taxeffect associated with any payments or benefits made to Executive in connection withExecutive’s employment with the Company. 15.Governing Law; Interpretation. This Separation Agreement shall be interpreted andenforced under the laws of the Commonwealth of Massachusetts without regard to conflictof law principles. In the event of any dispute, this Separation Agreement is intended by theParties to be construed as a whole, to be interpreted in accordance with its fair meaning,and not to be construed strictly for or against either Party or the “drafter” of all or anyportion of this Separation Agreement. 16.Counterparts. This Separation Agreement may be executed in any number ofcounterparts, each of which when so executed and delivered shall be taken to be anoriginal, but all of which together shall constitute one and the same document. Facsimileand pdf signatures shall be deemed to be of equal force and effect as originals. IN WITNESS WHEREOF, the Parties, intending to be legally bound, have executedthis Separation Agreement on the date(s) indicated below. ALKERMES, INC. Chairman and Chief Executive Officer(Principal Executive Officer)/s/ Madeline CoffinMadeline CoffinVice President, Human Resources October 21, 2015Date /s/ Rebecca J. PetersonRebecca J. Peterson October 21, 2015Date EXHIBIT A General Release of Claims. I, Rebecca J. Peterson, in consideration for, among other terms, the Separation Benefits,to which I acknowledge I would otherwise not be entitled, voluntarily release and foreverdischarge the Company, its affiliated and related entities, its and their respective predecessors,successors and assigns, its and their respective employee benefit plans and fiduciaries of suchplans, and the current and former officers, directors, shareholders, employees, attorneys,accountants and agents of each of the foregoing in their official and personal capacities(collectively referred to as the “Releasees”) generally from all claims, demands, debts, damagesand liabilities of every name and nature, known or unknown (“Claims”) that, as of the datewhen I sign this Agreement, I have, ever had, now claim to have or ever claimed to have hadagainst any or all of the Releasees. This release includes, without limitation, all Claims: ·relating to my employment by and separation of employment from the Company; ·of wrongful discharge or violation of public policy; ·of breach of contract; ·of defamation or other torts; ·of retaliation or discrimination under federal, state or local law (including, withoutlimitation, Claims of discrimination or retaliation under the Age Discrimination inEmployment Act, the Americans with Disabilities Act, and Title VII of the Civil RightsAct of 1964); ·under any other federal or state statute (including, without limitation, Claims under theWorker Adjustment and Retraining Notification Act or the Fair Labor Standards Act);·for wages, bonuses, incentive compensation, commissions, stock, stock options, vacationpay or any other compensation or benefits, either under the Massachusetts Wage Act,M.G.L. c. 149, §§148-150C, or otherwise; and·for damages or other remedies of any sort, including, without limitation, compensatorydamages, punitive damages, injunctive relief and attorney’s fees; provided, however, that this release shall not affect my vested rights under the Company’sSection 401(k) plan, my rights under the Separation Agreement and the Equity Documentsreferenced in the Separation Agreement and my rights to indemnification and defense, if any,including but not limited to my rights as set forth in the Deed. I agree that I shall not accept damages of any nature, other equitable or legal remediesfor my own benefit, attorney’s fees, or costs from any of the Releasees with respect to anyClaim released hereby. As a material inducement to the Company to provide the SeparationBenefits, I represent that I have not assigned to any third party any Claim released hereby. I have had the opportunity to consider this Release for twenty-one (21) days beforesigning it. If I have signed this Release within less than twenty-one (21) days of the date of itsdelivery to me, I acknowledge by signing this Release that such decision was entirely voluntaryand that I had the opportunity to consider this Release for the entire twenty-one (21) dayperiod. For the period of seven (7) days from the date when I sign this Release, I have the rightto revoke this Release by written notice to Kathryn L. Biberstein, Chief Legal Officer,Alkermes, Inc., 852 Winter St., Waltham, MA 02451. For such a revocation to be effective, itmust be delivered so that it is received by the Company at or before the expiration of the seven (7) day revocation period. This Release shallnot become effective or enforceable during the revocation period. This Release shall becomeeffective on the first business day following the expiration of the revocation period.I understand that this Release is a legally binding document and my signature willcommit me to its terms. I acknowledge that I have been advised by the Company to discuss allaspects of this Release with my attorney, that I have carefully read and fully understand all ofthe provisions of this Release and that I am knowingly and voluntarily signing this Release. In signing this Release, I am not relying upon any promises or representations made byanyone at or on behalf of the Company, other than the promises set forth in the SeparationAgreement. ___________________________________Rebecca J. Peterson Dated: ______________________________ EXHIBIT B Rebecca Peterson Equity Statement Stock OptionsGrant DatePlanTotal SharesVestedTotal SharesUnvestedPrice2/26/20152011/ISO01,403$71.232/26/20152011/NQ052,597$71.233/3/20142011/ISO02,120$47.163/3/20142011/NQ044,005$47.165/28/20132011/ISO02,965$33.725/28/20132011/NQ037,035$33.725/21/20122011/ISO06,042$16.555/21/20122011/NQ012,708$16.55 Restricted Stock UnitsGrant DatePlanTotal Shares Unvested2/26/2015201113,0003/3/2014201110,5005/28/201320117,5005/21/201220112,500 Performance Stock UnitsGrant DatePlanTotal Shares Unvested3/3/201420115,000 Exhibit 10.2 LICENSE AGREEMENT This Agreement is made as of the 13 day February of 1996, between MEDISORB TECHNOLOGIESINTERNATIONAL L.P., a Delaware limited partnership (hereinafter "Medisorb") and JANSSEN PHARMACEUTICA INC., aNew Jersey corporation ("Janssen US"). WHEREAS, Medisorb and Janssen Pharmaceutica International, an affiliate of Janssen US, have entered into acertain Development Agreement, dated December 23, 1993 (the "Development Agreement"), for the development ofa Product (as described below); and WHEREAS, Janssen Pharmaceutica International has an option under the Development Agreement to enter into thisLicense Agreement for the Medisorb technology required to make, use and sell the Product, which optionJanssen Pharmaceutica International has assigned to Janssen US with the consent of Medisorb and which option Janssen UShas elected to exercise; and WHEREAS, the parties believe that it is in their mutual best interest for Medisorb to license to Janssen US on anexclusive basis in the Territory, Medisorb Patents and Technical Information within the Field, upon the terms and conditionsset forth herein; NOW, IT IS HEREBY AGREED AS FOLLOWS: (1) Definitions: The following terms shall have the meanings ascribed to them herein, unless the contextotherwise requires: (a) "Affiliate" shall mean any company controlling, controlled by, or under common control with a partyby ownership, directly or indirectly, of fifty percent (50%) or more of the total ownership or by the power to control thepolicies and actions of such company. (b) "Development Program" shall mean the development activities conducted by the parties pursuant tothe Development Agreement. (c) "Field" shall mean the treatment of psychosis in humans. In this regard, psychosis shall include, butnot be limited to, schizophrenia and related disorders, manic-depressive disorders, behavioral disturbances in dementiaincluding for the avoidance doubt behavioral disturbances related to Alzheimer’s disease. (d) "Improvements" shall mean any improvements or developments to or of the Patents and TechnicalInformation in the Field which Medisorb may acquire, discover, invent, originate, make, conceive or have a right to, in wholeor in part, during the term of this Agreement, whether or not such improvement or development is patentable. (e) "Medisorb Polymers" shall mean bioresorbable aliphatic polyesters based on glycolide, lactide,caprolactone and combinations of such polymers, which are manufactured by Medisorb and utilized in Product(s)licensed under this Agreement. Janssen US-MedisorbPage 2License Agreement (f) "NDA" shall mean a New Drug Application and all supplements filed pursuant to the requirements ofthe United States Food and Drug Administration, including all documents, data and other information concerning Productwhich are necessary for, or included in, FDA approval to market a Product as more fully defined in 21 C.F.R. 314.5 et seq. orany other similar application for marketing authorization filed with the appropriate regulatory authorities in other countriesof the Territory (as defined hereinafter). (g) "Net Sales" shall mean the gross amounts received from sales of Products during a calendar quarter tothird parties by Janssen US, its Sublicensees or any Affiliate of either, less any: (i) applicable sales taxes; (ii) cash trade orquantity discounts; (iii) amounts repaid or credited by reason of rejections or return of goods; or (iv) freight, postage andduties paid for. No deduction from the gross sales price shall be made for any item of cost incurred by the seller in its ownoperations incident to the manufacture, sale or shipment of the product sold. For purposes hereof, Net Sales shall not includesales of a Product from Janssen US or an Affiliate of Janssen US to any Affiliate or Sublicensee of either; it being intendedthat Net Sales shall only include sales to unrelated third-parties. (h) "Patents" shall mean (i) any and all existing issued patents and patent applications or parts thereofwhich describe and claim a depot formulation of Risperidone, or any chemical analogues of Risperidone withsimilar physiological activity, based on polymers of lactic and glycolic acids and the production and use thereof; (ii) anyother patents and patent applications filed by or on behalf of Medisorb, or under which Medisorb has the rights togrant licenses, which are needed to practice the inventions; and (iii) any reissues, extensions, substitutions, confirmations,registrations, revalidations, additions, continuations, continuations-in-part, or divisions of or to any of the foregoing whichare granted hereafter or any additional protection certificate granted with respect thereto. (i) "Product(s)" shall mean any and all depot formulations of Risperidone (R 64766), or any chemicalanalogues of Risperidone with similar physiological activity, based on polymers of lactic and glycolic acids which aredesigned to deliver Risperidone (R 64766), or any of its chemical analogues, over an extended period. (j) "Sublicensees" shall mean any company or companies, other than Janssen US's Affiliates, sublicensedby Janssen US. (k) "Technical Information" shall mean all unpatented information, know-how, practical experience,procedures, methodology, specifications, formulae and data whether or not the same shall be patentable which havebeen heretofore developed or acquired by Medisorb prior to the date of this Agreement and which are necessary in order touse, manufacture or sell Products in the Field. (l) "Territory" shall mean the United States, its Territories, Protectorates, Commonwealths, and all otherpolitical subdivisions of the United States. Janssen US-MedisorbPage 3License Agreement (2) License Grant (a) Medisorb hereby grants to Janssen US in the Territory an exclusive license under the Patents andTechnical Information existing prior to the effective date of this Agreement, with the right to grant sublicenses thereunder,for all purposes within the Field to practice and use the Patents and Technical Information, including the rights tomanufacture and have manufactured, to use and have used, and to sell and have sold Products. Medisorb exclusively retainsall rights under the Patents and Technical Information outside the Field and for use other than in Products. The right togrant sublicenses granted hereunder is exclusive to Janssen US and shall not extend to Janssen US Affiliates or Sublicensees. (b) Medisorb shall offer to Janssen US for incorporation into this License Agreement on reasonable termsand conditions, Medisorb Improvements in the Field which, if incorporated into Janssen US's then currentcommercial Product(s), would: (i) result in significant changes in either the specifications for such Product(s) or the processesfor producing such Product(s), and (ii) would reasonably be expected to result in enhanced market value and/or profitabilityof such Product(s). Examples of such Improvements would include: (i) the development by Medisorb of a non-aqueousinjection vehicle which offers significant advantages with respect to ease of administration and (ii) the development byMedisorb of technology enabling significantly extended (e.g. 2-4 weeks) duration of delivery of the active agent from asingle administration. It is the parties' understanding that the effect of any such license amendment would, in general, beeither an extension of the term of this Agreement for a mutually agreed period or a marginal increase in the then currentroyalty rate. All other Medisorb Improvements shall be made available to Janssen US for its use without furtheragreement. Proprietary rights to Improvements jointly developed by Medisorb and Janssen US or any of its Affiliates shall begoverned by the terms of Section 5(c) of this Agreement. (c) In the event that at any time during the term of this Agreement Medisorb is unable for any reasonwhatsoever to supply the Medisorb Polymers required by Janssen U.S. for use in Products, then the license granted underparagraph 2(a) above shall be expanded to include the Medisorb Technology required to make and use the MedisorbPolymers. (3) Royalties: (a) Janssen US shall pay or cause to be paid to Medisorb a running royalty with respect to all Productssold to customers in the Territory by Janssen US, its Affiliates and Sublicensees, payable quarter-annually in arrearswithin sixty (60) days following the end of Janssen US's regular fiscal quarters in any year during the term hereof, asfollows: (i) 2.5% of the Net Sales of each unit of Product sold during the preceding calendar quarter during the term hereof, ifsuch unit of Product was manufactured by Medisorb pursuant to a written contract for the supply of Product; or (ii) 5.0% ofthe Net Sales of each unit of Product sold during the preceding calendar quarter during the term hereof, if such unit ofProduct was not manufactured Janssen US-MedisorbPage 4License Agreement by Medisorb pursuant to a written contract for the supply of Product. Any withholding or other tax that Janssen US or any ofits Affiliates or Sublicensees are required by statute to withhold and pay on behalf of Medisorb with respect to the royaltiespayable to Medisorb under this Agreement shall be deducted from said royalties and paid contemporaneously with theremittance to Medisorb; provided, however, that in regard to any tax so deducted Janssen US shall furnish Medisorb withproper evidence of the taxes paid on its behalf. (b) In the event that Product is not claimed in a valid Patent effective in the Territory and a similarproduct obtains a market share greater than 20% of the total market revenues for Products and similar products in suchcountry, the parties agree to meet and negotiate in good faith an appropriate reduction in the royalty rate then in effect. In noevent shall a reduction in royalty rates pursuant to this section result in royalty rates less than fifty-percent (50%) of the ratesspecified under Section 3(a)(i) and 3(a)(ii) of this Agreement. For the purposes of this section, "similar product" shall mean ageneric version of the Product(s) where: (i) the active agent is risperidone, or a chemical analogue thereof and (ii) theexcipient is comprised of lactic and/or glycolic acids. In the event that patent protection in the Territory for Product(s)becomes available subsequent to a royalty reduction pursuant to this section, the parties agree to (i) reinstitute the royaltyotherwise applicable, and (ii) in the event that any recovery is obtained for prior infringement of the subsequently issuedpatent, the parties will first apply such recoveries to reimbursing Medisorb for royalties it would otherwise have received. (c) Janssen US shall keep complete and adequate records with respect to the proceeds of Products onwhich it has to pay royalties payable hereunder for at least two (2) years after expiry of the year they concern. Medisorb shallhave the right to have such records of Janssen US inspected and examined, at Medisorb's expense, for the purpose ofdetermining the correctness of royalty payments made hereunder. Such inspection shall be made by an independent, certified public accountant to whom Janssen US shall have no reasonableobjection. Such accountant shall not disclose to Medisorb any information other than that necessary to verify the accuracyof the reports and payments made pursuant to this Agreement. It is understood that such examination with respect to anyquarterly accounting period shall take place not later than two (2) years following the expiration of said period. Not morethan one examination per year shall take place. Based upon the verification of such reports and whenever there is reasonable doubt about the accuracy of the sales of Productrealized by an Affiliate or sublicensee, Medisorb may reasonably request Janssen US to audit the books of such Affiliate orsuch sublicensee in accordance with any applicable contractual provision, in order to confirm the accuracy of such reports. (4) Production of Product/Technology Transfer: (a) Janssen US shall use its reasonable efforts consistent with its overall business practices and strategiesto commercialize and market Product, or to have the same commercialized and marketed in the Territory. Janssen US-MedisorbPage 5License Agreement (b) In the event that Janssen US determines to manufacture Product itself or through an Affiliate or haveProduct manufactured by a third party, Medisorb shall transfer to Janssen US and/or Affiliate all relevantTechnical Information, and provide such technical assistance, upon mutually agreed terms and conditions, as is required byJanssen US in order to enable the manufacture of Product by Janssen US, its Affiliate or its designated thirdparty manufacturer. However, with respect to such third party manufacturers, except as limited by a written Productmanufacturing agreement between Janssen US and Medisorb, Medisorb will have a right of first refusal as to the manufactureand supply to Janssen US of all Product(s), and component bioabsorbable polymers utilized in such Product(s). Medisorb willhave a period of thirty (30) days following written notice from Janssen US of terms it is offering to, or prepared to acceptfrom, a third party manufacturer to notify Janssen US of its intention to exercise its right of first refusal to supply Productand/or component bioabsorbable polymers thereof to Janssen US, its Affiliates and Licensees on terms no less favorable toJanssen US than those offered by such third party manufacturer. Such third party manufacturer cannot be an in-kindcompetitor to Medisorb and must be reasonably acceptable to Medisorb with respect to confidential protection of Medisorb'sTechnical Information. In the event that at any time during the term of this Agreement Medisorb is unable for anyreason whatsoever to supply the Medisorb Polymers required by Janssen U.S. for use in Products, then the right of first refusalunder this paragraph respecting the supply of the component bioabsorbable polymers shall be eliminated. For the purposesof this section, an "in-kind" competitor shall mean any organization which regularly engages in the contract developmentand/or contract manufacture of injectable controlled release drug delivery systems comprising a polymeric excipient basedon lactic and/or glycolic acids and/or other closely related monomers. This Section 4(b) specifically supersedes Section 7(B)of the Development Agreement, which Section 7(B) shall be of no further force or effect. (5) Proprietary Rights (a) Medisorb will retain title to and ownership of all technology (including, without limitation, allpatents, inventions, and data relating thereto) relating to absorbable polymers, controlled release of active agents, and/ormanufacturing methods or processes relating to such polymers and the controlled delivery systems for active agents based onsuch polymers previously owned by Medisorb or developed by Medisorb as a result of the Development Program orotherwise. Medisorb will pay its own costs and expenses in connection with the protection of any such technology,including all patent application and maintenance costs and Janssen US agrees to provide Medisorb with any necessary utilityinformation. Medisorb shall inform Janssen US of any patent application it wishes to file to protect proprietary rights defined inArticle 5, resulting from either the Development Program or the preliminary Development Program and shall forward a copyof any such patent application to Janssen US at least one month prior to filing. Janssen US-MedisorbPage 6License Agreement Medisorb shall consider any suggestions made by Janssen US for amplifying such application and shall accordinglyamend the application where in Medisorb's opinion it is appropriate. Medisorb shall not abandon part or whole of any of the patents or patent applications without having first consultedJanssen US, which shall have the right to further pursue any patents or patent applications which Medisorbwishes to abandon, or parts thereof, in its own name and at its own expense. (b) Janssen US and/or its Affiliate will retain title to and ownership of all technology (including, withoutlimitation, all patents, inventions, and data relating thereto) relating to Risperidone or any chemical analogues ofRisperidone with similar physiological activity previously owned by Janssen US and/or its Affiliate or developed by JanssenUS and/or affiliate as a result of this Agreement or otherwise. Janssen US and/or its Affiliate will pay its own costs andexpenses in connection with the protection of any such technology, including all patent application and maintenance costsand Medisorb agrees to provide Janssen US with any necessary utility information. (c) Any inventions, other than those falling under either section 5(a) or 5(b) hereof, having aninventorship jointly between at least one employee of Janssen US or an Affiliate of Janssen US and one employeeof Medisorb or an Affiliate of Medisorb shall be jointly-owned by Janssen US or Janssen US Affiliate as the case may be andMedisorb. Each party will cooperate fully in the filing and prosecution of such patent applications. Janssen US and Medisorb shall agree on which of both shall be responsible for the filing, prosecution andmaintenance of any such joint patent applications and patents (hereinafter referred to as the "Responsible Party") inTerritory. In principle, the party having contributed the most to the invention to be protected shall be the responsible party,unless agreed upon differently. Upon mutual consent, the responsible party may select an agent for drafting, filing andprosecuting a joint application. However, both parties shall agree who shall be the agent and to what extent this agent shallbe used. The Responsible Party shall consult the other party when drafting any new jointly owned patent application. Thefinal draft shall be forwarded to the other party at least one month prior to filing to give the opportunity to make finalcomments. The Responsible Party shall not abandon part or whole of any of the patents or patent applications without havingfirst consulted the other party, which shall have the right to further pursue any patents or patent applications which theresponsible party wishes to abandon, or parts thereof, in its own name and at its own expense. All out-of-pocket costs made in relation to joint patent applications and patents in the Territory shall be sharedequally by Janssen US and Medisorb. A statement of costs shall be made up on a quarterly basis and invoiced to the otherparty. Janssen US-MedisorbPage 7License Agreement Medisorb shall grant to Janssen US an exclusive fully-paid up royalty free license with the right to sublicense tomake, have made, use and sell under any such patents or patent applications for the duration of the patents,any continuations, continuations in part, divisions, patents of addition, reissues, renewals or extensions thereof or anysupplementary protection certificates granted with respect thereto, in respect of any claims concerning the application ofRisperidone or any chemical analogues of Risperidone with similar physiological activity. However, nothing contained inthis paragraph shall obviate Janssen US's obligation to pay royalties under Section 3 hereof with respect to any Productsdeveloped hereunder. Janssen US shall grant to Medisorb an exclusive fully paid-up royalty free license with the right to sublicense tomake, have made, use and sell under any such patents or patent applications for the duration of the patents,any continuations, continuations in part, divisions, patents of addition, reissues, renewals or extensions thereof or anysupplementary protection certificates granted with respect thereto, in respect of any claims concerning the application ofbioabsorbable polymers in the field of human and/or veterinary medicine. (d) In addition, each party will retain exclusive title to its respective confidential information inaccordance with the provisions of Article 9 below. (6) Patent Infringement (a) In the event that either party becomes aware that any third party is infringing in the Territory anypatents included within the Patents, the party becoming aware of such infringement shall promptly give notice ofsuch infringement to the other party. Any possible action against such alleged infringement of the Patents will be carried outby either or both of the parties in accordance with the provisions specified hereinafter in paragraphs (b), (c), (d) and (e). (b) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Medisorb retains full title and ownership pursuant to Article 5 a), Medisorb shall use all reasonable efforts to takeaction against such infringement in its own name, at its own expense and on its own behalf. If Medisorb fails to take action against such infringement, or if Medisorb does not use reasonable efforts in carryingout such action after commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or afterhaving become aware of such infringement, Janssen US shall be entitled at its own discretion and at its own expense, totake immediate action against such infringement in its own name, at its own expense and on its own behalf. Medisorb willgive all reasonable assistance to Janssen in taking such action in accordance with Article 6(e), including giving Janssen theauthority to file and prosecute such suit and, if necessary, being named a party in such action. If Janssen US commences orassumes such action, Janssen US may credit up to fifty percent (50%) of any royalty otherwise due to Medisorb for sales insuch country or countries against the amount of the expenses and costs of such action, including without limitation, attorneyfees actually incurred by Janssen US. The amount of Janssen US-MedisorbPage 8License Agreement expenses so deducted shall be paid to Medisorb out of the recoveries, if any, received by Janssen US as a result of suchaction. Except for such repayment of royalties deducted, Janssen US shall be entitled to retain all recoveries therefrom. In no event shall Medisorb settle with such infringing third party in the Field without the prior written consent ofJanssen US. (c) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Janssen US or any of its Affiliates retains full title and ownership pursuant to Article 5 B), Janssen US shall have theright but not the obligation to take action against such infringement in its own name, at its own cost and on its own behalf. IfJanssen US fails to take action against such infringement, or if Janssen US does not use reasonable efforts in carrying out suchaction after commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or after havingbecome aware of such infringement, Medisorb shall be entitled at its own discretion and at its own expense, to take actionagainst such infringement. Medisorb shall be entitled to retain all recoveries, if any, therefrom. (d) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Janssen US or any of its Affiliates and Medisorb jointly retain full title and ownership pursuant to Article 5 (c), andwhenever in such case the infringing product would be a drug product falling within the definition of the Field, Janssen USshall have the right but not the obligation to take action against such infringement in its own name, at its own cost and on itsown behalf. If Janssen US fails to take action against such infringement, or if Janssen US does not use reasonable effortsin carrying out such action after commencement thereof, within thirty (30) days after the notice referred to in paragraph (a)above or after having become aware of such infringement, Medisorb shall be entitled at its own discretion and at its ownexpense, to take action against such infringement, it being understood that Janssen US will have a continuing right to takeover any such action at its own expense and shall pay to Medisorb from any recoveries Janssen US receives (i) Medisorb'sexpenses and (ii) from any sums remaining after deduction of Medisorb's and Janssen US's expenses, an amount proportionateto Medisorb's expenses in relation to Janssen US's expenses. Whenever it would concern a patent or patent application falling within the definition of Patents and of whichJanssen US or any of its Affiliates and Medisorb jointly retain full title and ownership pursuant to Article 5 (c), and wheneverin such case the infringing product would be a drug product falling outside the definition of the Field, Medisorb shall havethe right but not the obligation to take action against such infringement in its own name, at its own cost and on its ownbehalf. If Medisorb fails to take action against such infringement, or if Medisorb does not use reasonable efforts in carryingout such action after commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or afterhaving become aware of such infringement, Janssen US shall be entitled at its own discretion and at its own expense, to takeaction against such infringement, it being understood that Medisorb will have a continuing right to take over any suchaction at its own expense. If Janssen US commences or assumes such action, Janssen US may credit up to fifty percent (50%)of any royalty otherwise payable to Janssen US-MedisorbPage 9License Agreement Medisorb payable hereunder against the amount of the expenses and costs of such action, including without limitation,attorney fees actually incurred by Janssen US. The amount of expenses so deducted shall be paid to Medisorb out ofthe recoveries, if any, received by Janssen US as a result of such action. Except for such repayment of royalties deducted,Janssen US shall be entitled to retain all recoveries therefrom. (e) Each party agrees to cooperate reasonably with the other party in such litigation, including makingavailable to the other party records, information, and evidence relevant to the infringement of the Patent. (7) Third Party Intellectual Property Rights (a) Medisorb warrants that to the best of its current knowledge and belief the Products to be developedhereunder will not infringe the patent rights of any third party. (b) In the event that the manufacture, use or sale of the Product would constitute an infringement of therights of a third party in the Territory because of the use of the Patents or Medisorb's know how, each party shall, as soon as itbecomes aware of the same, notify the other thereof in writing, giving in the same notice full details known to it of the rightsof such third party and the extent of any alleged infringement. The parties shall after receipt of such notice meet to discussthe situation, and, to the extent necessary attempt to agree on a course of action in order to permit Janssen US to practice thelicense granted hereunder. Such course of action may include: (a) modifying the Product or its manufacture so as to benoninfringing; (b) obtaining an appropriate license from such third party; or (c) fight the claim or suit. In the event thatwithin a short period of time, the parties fail to agree on an appropriate course of action Janssen US may decide upon thecourse of action in the interest of the further development, manufacturing or commercialization of the Product. (c) In the event that the parties cannot agree on modifying the Product or in the case that suchmodification would not be economically viable or regulatory feasible, Janssen US, whenever it relates to know how,whether patented or not, owned by Janssen US in accordance with the provisions of Article 5 (b) and (c), or Medisorb,whenever it relates to know how, whether patented or not, owned by Medisorb in accordance with the provisions of Article 5(a), will have the right to negotiate with such third party for such license. Both parties hereto will in any event in good faithconsult with each other with respect to such negotiations and the party negotiating such license as indicated above, willmake every effort to minimize the amount of license fees and royalties payable thereunder. In no event shall either party as aresult of such settlement, grant a sublicense or cross license to the third party to settle the suit, without the prior writtenapproval of the other party. In the event that such negotiations result in a consummated agreement, any license fee and/orroyalties to be paid thereunder shall be paid by the party responsible for the negotiations as indicated above, fifty percent(50%) of any license fees or royalties paid by Janssen US under such license will be creditable against royalties due toMedisorb hereunder. Janssen US-MedisorbPage 10License Agreement (d) In the event that either or both parties would further to such notification under Paragraph 7 (b) decideto defend such suit or claim in which a third party alleges that the manufacture, use or selling of the Product in the Territoryinfringes said third party's patent in, Janssen US shall have the right to apply up to fifty percent (50%) of the royalties due toMedisorb on the sales of the allegedly infringing Product against its litigation expenses. (8) Term: (a) Except as otherwise provided herein, this Agreement and the term of the license granted to JanssenUS hereunder shall commence on the date first written above and shall expire (i) upon expiration of the last to expire Patentor (ii) fifteen (15) years after the date of the first commercial sale of Product in the Territory, whichever is later; provided, thatin no event shall the license granted hereunder expire later than the twentieth anniversary of the first commercial sale ofProduct. After expiration of the license granted to Janssen US hereunder, Janssen US shall retain a fully paid-up non-exclusive license to manufacture, use and sell Products in the Field in the Territory. (b) Medisorb may convert the exclusive license granted under this Agreement to non-exclusive ifJanssen US does not maintain the following minimum annual royalty payments to Medisorb. With respect to the entireTerritory, the minimum royalty obligation will first apply to the twelve month period following the anniversary of the end ofthe month in which the Product was launched. During the first twelve month period and each subsequent twelve monthperiod that such minimum royalty obligation is applicable, the minimum royalty amount to be paid by Janssen US will becalculated by multiplying the applicable royalty rate by five percent of the actual aggregate net sales of other risperidoneproducts in the Territory during such twelve month period. Janssen US shall have the right to make up any shortfall in minimum royalty payments from Product sales in the Territoryprovided, such make-up payment is made at the same time and in the same manner as required for the underlying minimumroyalty obligation. (c) In the event that either party shall enter or be put into voluntary or compulsory liquidation or have areceiver appointed or default in the observance or performance of its obligations under this Agreement and shall fail toremedy such default within ninety (90) days after the delivery of written notice from the other party, the other party shall beentitled upon giving written notice to terminate this Agreement. (d) Janssen US may terminate this Agreement without cause upon 30 days prior written notice.Thereafter, Janssen US shall have no further rights or privileges with respect to the use of Medisorb Technology in Productsand Medisorb shall be under no further obligation of non-competition or exclusive dealing. (e) Any early termination of the Agreement shall be without prejudice to the rights of either party againstthe other accrued under this Agreement prior to termination. Janssen US-MedisorbPage 11License Agreement (f) Upon any termination of this Agreement, any remaining inventory of Product may be sold, providedall royalties otherwise due hereunder are paid with respect to such sales. (g) All rights and licenses granted under or pursuant to this Agreement by Medisorb to Janssen U.S. are,and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy Code"), licensesto "intellectual property" as defined under section 101(60) of the Bankruptcy Code. The parties agree that Janssen, as alicensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under theBankruptcy Code. (9) Confidentiality: (a) Each party agrees to keep confidential and to not use for any purpose other than as set forth herein alltechnical information and materials supplied by the other hereunder and any information a party may acquire about the otheror its activities as a result of entering into this Agreement, provided that such obligation shall not apply to technicalinformation or material which: (i) was in the receiving party's possession without restriction prior to receipt from the otherparty or its Affiliates; (ii) was in the public domain at the time of receipt; (iii) becomes part of the public domain through nofault of the receiving party; (iv) shall be lawfully received from a third party with a right of further disclosure; (v) shall berequired to be disclosed by law, by regulation or by the rules of any securities exchange. (b) Except as may be otherwise provided herein, the confidentiality obligations as set out in this Sectionshall continue so long as this Agreement remains in force and thereafter for a period of seven (7) years. (c) Janssen US shall cause its Affiliates and Sublicensees to abide by the obligations of confidentialitywith respect to unpublished information within the Patents and Technical Information. (d) Any confidential information relating to the subject matter of this Agreement imparted to the otherparty prior to the execution of this Agreement shall be considered to fall under the terms of this Agreement. (10) Disclaimer of Warranty: Medisorb makes no representations or warranties, express or implied, with respectto the Medisorb Patents and Technical Information licensed to Janssen US hereunder, including without limitation anywarranties of merchantability or fitness for a particular purpose. (11) Liability Janssen US-MedisorbPage 12License Agreement (a) Janssen US agrees to indemnify, defend and hold harmless Medisorb from and against any liability,loss, damages and expenses (including reasonable attorney fees) Medisorb may suffer as the result of claims, demands, costsor judgments which may be made or instituted against Medisorb by reason of personal injury or damage to property arisingout or caused by Janssen US's promotion, use and sale of the Product, except where such liabilities claims, demands, costs orjudgments are caused by Medisorb's failure to provide Janssen US with any information as specified in Section 12 (c) andArticle 13. Medisorb will notify Janssen US as soon as it becomes aware of any such claim or action and agrees to givereasonable assistance in the investigation and defense of such claim or action it being understood that it shall allow JanssenUS to control the disposition of the same. (b) Medisorb agrees to indemnify, defend and hold harmless Janssen US from and against any liability,loss, damages and expenses (including reasonable attorney fees) Janssen US may suffer as the result of claims, demands, costsor judgments which may be made or instituted against Janssen US by reason of personal injury or damage to property arisingout or caused by Medisorb's failure to provide Janssen US with any information as specified in Section 12 (c) and Article 13. (c) In no event shall either party be liable for loss of profits, loss of goodwill or any consequential orincidental damages of any kind of the other party. (12) Product Information and Adverse Drug Events (a) As Janssen US has superior knowledge of the end-use applications to which Products licensedhereunder will be put, Janssen US is responsible for providing third parties with adequate information as to the medicalprofile of such Products. Janssen US will provide Medisorb with copies of the product information document which is part ofthe NDA for the Product. (b) Medisorb does not claim the expertise to judge whether Product(s) will perform acceptably in JanssenUS's application(s). Janssen US is the sole judge as to whether Product(s) will perform acceptably in JanssenUS's application(s). Janssen US represents and warrants on an on-going basis during the term of this agreement that it has thecapability to assess the suitability of Product(s) in Janssen US's application(s) and agrees to conduct adequate testing toconfirm the safety and efficacy of Products prior to commercialization. (c) Medisorb will provide to Janssen US promptly after its discovery by Medisorb, any information in itspossession which indicates adverse effects in humans associated with the Products, including the bioabsorbablepolymeric components thereof, licensed hereunder. For the purpose of this Agreement "adverse event" shall mean anexperience which is noxious and unintended and which occurs at doses normally used in man for the prophylaxis, diagnosisor therapy of a disease or for the modification of a physiological function and any report of an overdose. Janssen US-MedisorbPage 13License Agreement (13) Government Approvals Janssen US shall be responsible for conducting all necessary testing as well as determining what, if any, governmentapprovals are required for the use and sale of Product licensed hereunder and shall comply with all such requirements prior toand following the sale or distribution of such Products. Medisorb shall cooperate fully with Janssen US in obtaining regulatory approvals for Product licensed hereunderand shall, at Janssen US's request, provide appropriate regulatory authorities with any and all information concerningMedisorb's technology, Medisorb polymers and Medisorb's manufacturing process for such Product. In this respect Medisorb undertakes that it has submitted or will as soon as possible submit a type IV Drug MasterFile to the FDA identifying Medisorb's method of manufacture, release specifications and testing methods used in themanufacture of Medisorb Polymers and a type I Drug Master File of Medisorb's manufacturing facilities where Product maybe manufactured. Medisorb will authorize Janssen U.S. at its request to cross-reference any Drug Master Files relating to theMedisorb Polymers. (14) Force Majeure: Neither party shall be liable for its failure to perform any of its obligations hereunder ifsuch failure is occasioned by a contingency beyond its reasonable control including, but not limited to, occurrences such asstrikes or other labor disturbances, lock out, riot, war, default by a common carrier, fire, flood, storm, earthquake, other acts ofGod, inability to obtain raw materials, failure of plant facilities or government regulation, act or failure to act. Each partyshall notify the other immediately upon occurrence or cessation of any such contingencies. If such contingency continuesunabated for at least 180 consecutive days, either party shall have the right to terminate this Agreement without furtherobligation beyond those actually incurred prior to such termination. (15) Press Communications: Neither party shall originate any publicity, news release or public announcement,written or oral relating to this Agreement, including its existence, without the prior written approval of the other party. (16) Notices: Any legal notice required or permitted hereunder shall be considered properly given if in writingand sent by first class mail, certified mail or by telefacsimile to the party being notified at the respective address of such partyas follows: If to Medisorb: Medisorb Technologies International L.P.6954 Cornell RoadCincinnati, OH 45242 Facsimile: 513-489-2348 Janssen US-MedisorbPage 14License Agreement If to Janssen US: Janssen U.S.1125 Trenton-Harbourton RoadP.O. Box 200Titusville, New Jersey 08560-0200 Facsimile: 609-630-2616 with a copy to Janssen Pharmaceutica InternationalKollerstrasse 386300 Zug 6SwitzerlandFacsimile: 00-41-42449565 Such notice shall be effective upon receipt or upon refusal to accept such notice. In any case, notice shall be presumedeffective no later than five (5) days after such notice is sent. Neither party shall originate any publicity, news release or public announcement, written or oral, relating to thisAgreement, including its existence, without the written approval of the other party. (17) Assignment: This Agreement shall not be assigned by either party without the prior written consent of theother party; provided, however, that assignment shall be permitted without such consent to any party, not less than 50% ofthe total interest of which owns, is owned by, or is under common control with the assigning party. In the event of any suchpermitted assignment the assignee shall be subject to and shall agree in writing to be bound by the terms and conditions ofthis Agreement. (18) Dispute Resolution: The parties shall amicably discuss and negotiate any matters which arise under thisAgreement and are not specifically set forth hereunder. If any disputes arise under this Agreement, the parties shall use theirreasonable efforts to meet and resolve such disputes. In the event that the parties are unable to resolve any such disputes,then both parties hereby agree to submit said disputes to the jurisdiction of the competent courts of the State of New Jerseyand agree that any litigation in any way related to this Agreement shall be submitted to such courts and that same shall besubject to the laws of the State of New Jersey without regard to its rules respecting choice of law. (19) Severability: In the event any one or more of the provisions of this Agreement should for any reason beheld by any court or authority having jurisdiction over this Agreement or any of the parties hereto to be invalid, illegal orunenforceable such provision or provisions shall be validly reformed to as nearly approximate the intent of the parties aspossible Janssen US-MedisorbPage 15License Agreement and, if unreformable; shall be divisible and deleted in such jurisdiction, elsewhere this Agreement shall not be affected. (20) Captions: The captions of this Agreement are for convenience only, and shall not be deemed of any forceor effect whatsoever in construing this Agreement. (21) Waiver: The failure on the party of a party to exercise or enforce any right conferred upon it hereundershall not be deemed to be a waiver of any such right, nor operate to bar the exercise or enforcement thereof at any timethereafter. (22) Survival: The following Articles of this Agreement shall survive the termination or expiration of thisAgreement: 5, 9, 10, 11, 15, 17, and 18. (23) Miscellaneous: This Agreement may be executed by the parties hereto in counterparts, each of whichwhen so executed and delivered shall be considered to be an original, but all such counterparts shall together constitute butone and the same instrument. This Agreement is the complete agreement of the parties and supersedes all previousunderstandings and agreements relating to the subject matter hereof. Neither this Agreement nor any of the terms hereof maybe terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by theparty against whom enforcement of the termination, amendment, supplement, waiver or modification is sought. IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto have executed this Agreement asof the day and year first above written. JANSSEN PHARMACEUTICA INC. By:/s/ Paula F. Costa Name:Paula F. Costa Title:President Date:February 13, 1996 {Second Janssen Signatory} By:/s/ Bruce D. Given Name:Bruce D. Given Title:Group Vice President Date:February 16, 1996 MEDISORB TECHNOLOGIES INTERNATIONAL L.P. by:Medisorb Technologies International, Inc., its General Partner Janssen US-MedisorbPage 16License Agreement By:/s/ David R. Lohr Name:David R. Lohr Title:President Date:January 31, 1996 Exhibit 10.26.12011 Plan – US certificateChairman and Chief Executive Officer(Principal Executive Officer)Stock Option Award Certificate(INCENTIVE STOCK OPTION)(Time Vested) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective «GRANT_DATE», you have been granted an Incentive Stock Option to buy «SHARES_GRANTED» shares ofAlkermes plc. (the “Company”) common stock at «OPTION_PRICE» per share. Vesting details are available via your Bank of America Merrill Lynch Benefits Online account. The Incentive StockOption shall expire on the earlier to occur of: the 10th anniversary of the date of grant or three months after terminationof your service relationship with the Company (unless otherwise provided below). In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the Incentive Stock Option shall vest andbe exercisable in full on such termination of employment and the period during which the Incentive Stock Option (tothe extent that it is exercisable on the date of termination of employment) may be exercised shall be three (3) yearsfollowing the date of termination of employment by reason of death or permanent disability, but not beyond the originalterm of the Incentive Stock Option. For the purpose of the terms of this Incentive Stock Option, you will be deemed tobe employed by the Company so long as you remain employed by a company which continues to be a subsidiary of theCompany. The foregoing Incentive Stock Option has been granted under and is governed by the terms and conditions of this StockOption Award Certificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). ____________________________________________Alkermes plc______________________Date Exhibit 10.26.102011 Plan – Irish certificateChairman and Chief Executive Officer(Principal Executive Officer)Stock Option Award Certificate(NON-QUALIFIED STOCK OPTION)(Performance-Based Award) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective «GRANT_DATE», you have been granted a Non-Qualified Stock Option to buy «SHARES_GRANTED»shares of Alkermes plc. (the “Company”) common stock at «OPTION_PRICE» per share. The right to acquire the shares subject to the Non-Qualified Stock Option will become fully vested as described below.The Non-Qualified Stock Option shall expire on the earlier to occur of: the 10th anniversary of the date of grant or threemonths after termination of your service relationship with the Company (unless otherwise provided below). . ***ADD PERFORMANCE CRITERIA ****** ADD VESTING SCHEDULE*** In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the Non-Qualified Stock Option shall vestand be exercisable in full on such termination of employment and the period during which the Non-Qualified StockOption (to the extent that it is exercisable on the date of termination of employment) may be exercised shall be three (3)years following the date of termination of employment by reason of death or permanent disability, but not beyond theoriginal term of the Option. For the purpose of the terms of this Non-Qualified Stock Option, you will be deemed to beemployed by the Company so long as you remain employed by a company which continues to be a subsidiary of theCompany. The grant of this Option (as defined in the Plan) does not infer any right to or expectation of the grant of any Options onthe same basis, or at all, in any future year. Participation in the Plan shall in no way give rise to any right on your part tocompensation for any claim for loss in relation to the Plan, including: (a)any loss or reduction of any rights or expectations under the Plan in any circumstances or for anyreason (including lawful or unlawful termination of employment or the employment relationship);(b)any exercise of a discretion or a decision taken in relation to an Option or to the Plan, or any failure toexercise a discretion or take a decision; or(c)the operation, suspension, termination or amendment of the Plan. By participating in the Plan, you consent to the collection, processing, transmission and storage by the Company and/orits subsidiaries, in any form whatsoever, of any data of a professional or personal nature which is necessary for thepurposes of introducing and administering the Plan. The Company may share such information with any subsidiary oraffiliate, any trustee, registrars, brokers, other third party administrator or other person who obtains or is to obtaincontrol of the Company or acquires the Company, or undertaking or part-undertaking which employs you, whetherwithin or outside of the European Economic Area. The foregoing Non-Qualified Stock Option has been granted under and is governed by the terms and conditions of thisStock Option Award Certificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). ____________________________________________Alkermes plc______________________Date Exhibit 10.26.22011 Plan – US certificateChairman and Chief Executive Officer(Principal Executive Officer)Stock Option Award Certificate(NON-QUALIFIED STOCK OPTION)(Time Vested) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective «GRANT_DATE», you have been granted a Non-Qualified Stock Option to buy «SHARES_GRANTED»shares of Alkermes plc. (the “Company”) common stock at «OPTION_PRICE» per share. Vesting details are available via your Bank of America Merrill Lynch Benefits Online account. The Non-Qualified StockOption shall expire on the earlier to occur of: the 10th anniversary of the date of grant or three months after terminationof your service relationship with the Company (unless otherwise provided below). In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the Non-Qualified Stock Option shall vestand be exercisable in full on such termination of employment and the period during which the Non-Qualified StockOption (to the extent that it is exercisable on the date of termination of employment) may be exercised shall be three (3)years following the date of termination of employment by reason of death or permanent disability, but not beyond theoriginal term of the Non-Qualified Stock Option. For the purpose of the terms of this Non-Qualified Stock Option, youwill be deemed to be employed by the Company so long as you remain employed by a company which continues to be asubsidiary of the Company. The foregoing Non-Qualified Stock Option has been granted under and is governed by the terms and conditions of thisStock Option Award Certificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). ____________________________________________Alkermes plc______________________Date Exhibit 10.26.32011 Plan – US certificateChairman and Chief Executive Officer(Principal Executive Officer)Stock Option Award Certificate(NON-QUALIFIED STOCK OPTION)(Performance-Based Award) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective «GRANT_DATE», you have been granted a Non-Qualified Stock Option to buy «SHARES_GRANTED»shares of Alkermes plc. (the “Company”) common stock at «OPTION_PRICE» per share. The right to acquire the shares subject to the Non-Qualified Stock Option will become fully vested as described below.The Non-Qualified Stock Option shall expire on the earlier to occur of: the 10th anniversary of the date of grant or threemonths after termination of your service relationship with the Company (unless otherwise provided below). ***ADD PERFORMANCE CRITERIA *** *** ADD VESTING SCHEDULE*** In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the Non-Qualified Stock Option shall vestand be exercisable in full on such termination of employment and the period during which the Non-Qualified StockOption (to the extent that it is exercisable on the date of termination of employment) may be exercised shall be three (3)years following the date of termination of employment by reason of death or permanent disability, but not beyond theoriginal term of the Option. For the purpose of the terms of this Non-Qualified Stock Option, you will be deemed to beemployed by the Company so long as you remain employed by a company which continues to be a subsidiary of theCompany. The foregoing Non-Qualified Stock Option has been granted under and is governed by the terms and conditions of thisCertificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended. ____________________________________________Alkermes plc______________________Date Exhibit 10.26.52011 Plan – US certificateChairman and Chief Executive Officer(Principal Executive Officer)Restricted Stock Unit Award Certificate(Performance-based award) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective on «GRANT_DATE», you have been granted a Restricted Stock Unit (“RSU”) award. The RSU award is for atotal of «SHARES_GRANTED» shares of Alkermes plc (the “Company”) ordinary shares. The RSU award is granted under and is governed by the terms and conditions of this Restricted Stock Unit AwardCertificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). Unless otherwisedefined in this Award Certificate, all capitalized terms shall be as defined in the Plan. The right to acquire the shares subject to the RSU award is based upon: ***ADD PERFORMANCE CRITERIA AND ANY RELEVANT FORFEITURE LANGUAGE*** *** ADD VESTING SCHEDULE*** You must be employed by the Company on a vesting date in order to receive the RSU award shares that vest on thatdate. For the purpose of the terms of this RSU award, you will be deemed to be employed by the Company so long asyou remain employed by a company which continues to be a subsidiary of the Company. In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the RSU award shall vest in full on suchtermination of employment. ____________________________________________Alkermes plc______________________Date Exhibit 10.26.72011 Plan – Irish certificateChairman and Chief Executive Officer(Principal Executive Officer)Restricted Stock Unit Award Certificate(Performance-based award) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective on «GRANT_DATE», you have been granted a Restricted Stock Unit (“RSU”) award. The RSU award is for atotal of «SHARES_GRANTED» shares of Alkermes plc (the “Company”) ordinary shares. The RSU award is granted under and is governed by the terms and conditions of this Restricted Stock Unit AwardCertificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). Unless otherwisedefined in this Award Certificate, all capitalized terms shall be as defined in the Plan. The right to acquire the shares subject to the RSU award is based upon: ***ADD PERFORMANCE CRITERIA AND ANY RELEVANT FORFEITURE LANGUAGE*** *** ADD VESTING SCHEDULE*** You must be employed by the Company on a vesting date in order to receive the RSU award shares that vest on thatdate. For the purpose of the terms of this RSU award, you will be deemed to be employed by the Company so long asyou remain employed by a company which continues to be a subsidiary of the Company. In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the RSU award shall vest in full on suchtermination of employment. The grant of this RSU award does not infer any right to or expectation of the grant of any RSU awards on the same basis,or at all, in any future year. Participation in the Plan shall in no way give rise to any right on your part to compensationfor any claim for loss in relation to the Plan, including: (a)any loss or reduction of any rights or expectations under the Plan in any circumstances or for anyreason (including lawful or unlawful termination of employment or the employment relationship);(b)any exercise of a discretion or a decision taken in relation to the RSU award or to the Plan, or anyfailure to exercise a discretion or take a decision; or(c)the operation, suspension, termination or amendment of the Plan. By participating in the Plan, you consent to the collection, processing, transmission and storage by the Company and/orits subsidiaries, in any form whatsoever, of any data of a professional or personal nature which is necessary for thepurposes of introducing and administering the Plan. The Company may share such information with any subsidiary oraffiliate, any trustee, registrars, brokers, other third party administrator or other person who obtains or is to obtaincontrol of the Company or acquires the Company, or undertaking or part-undertaking which employs you, whetherwithin or outside of the European Economic Area. ____________________________________________Alkermes plc______________________Date Exhibit 10.26.92011 Plan – Irish certificateChairman and Chief Executive Officer(Principal Executive Officer)Stock Options Award Certificate(NON-QUALIFIED STOCK OPTION)(Time Vested) ID: XXXXXXXXConnaught House1 Burlington Rd.Dublin 4, Ireland Chairman and Chief Executive Officer(Principal Executive Officer)«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»«ADDRESS_LINE_1»«ADDRESS_LINE_2»«ADDRESS_LINE_3»«CITY», «STATE» «ZIP_CODE»Option Number:Plan: ID: Effective «GRANT_DATE», you have been granted a Non-Qualified Stock Option to buy «SHARES_GRANTED»shares of Alkermes plc. (the “Company”) common stock at «OPTION_PRICE» per share. Vesting details are available via your Bank of America Merrill Lynch Benefits Online account. The Non-Qualified StockOption shall expire on the earlier to occur of: the 10th anniversary of the date of grant or three months after terminationof your service relationship with the Company (unless otherwise provided below). In the event of the termination of your employment with the Company (but not the termination of a non-employmentrelationship with the Company) by reason of death or permanent disability, the Non-Qualified Stock Option shall vestand be exercisable in full on such termination of employment and the period during which the Non-Qualified StockOption (to the extent that it is exercisable on the date of termination of employment) may be exercised shall be three (3)years following the date of termination of employment by reason of death or permanent disability, but not beyond theoriginal term of the Non-Qualified Stock Option. For the purpose of the terms of this Non-Qualified Stock Option, youwill be deemed to be employed by the Company so long as you remain employed by a company which continues to be asubsidiary of the Company. The grant of this Option (as defined in the Plan) does not infer any right to or expectation of the grant of any Options onthe same basis, or at all, in any future year. Participation in the Plan shall in no way give rise to any right on your part tocompensation for any claim for loss in relation to the Plan, including: (a)any loss or reduction of any rights or expectations under the Plan in any circumstances or for anyreason (including lawful or unlawful termination of employment or the employment relationship);(b)any exercise of a discretion or a decision taken in relation to an Option or to the Plan, or any failure toexercise a discretion or take a decision; or(c)the operation, suspension, termination or amendment of the Plan. By participating in the Plan, you consent to the collection, processing, transmission and storage by the Company and/orits subsidiaries, in any form whatsoever, of any data of a professional or personal nature which is necessary for thepurposes of introducing and administering the Plan. The Company may share such information with any subsidiary oraffiliate, any trustee, registrars, brokers, other third party administrator or other person who obtains or is to obtaincontrol of the Company or acquires the Company, or undertaking or part-undertaking which employs you, whetherwithin or outside of the European Economic Area. The foregoing Non-Qualified Stock Option has been granted under and is governed by the terms and conditions of thisStock Option Award Certificate and the Alkermes plc 2011 Stock Option and Incentive Plan, as amended (the “Plan”). ____________________________________________Alkermes plc______________________Date Exhibit 10.3 LICENSE AGREEMENT This Agreement is made as of the 21 day February of 1996, between MEDISORB TECHNOLOGIESINTERNATIONAL L.P., a Delaware limited partnership (hereinafter "Medisorb") and JANSSEN PHARMACEUTICAINTERNATIONAL, a division of Cilag International AG, a Swiss business corporation ("Janssen"). WHEREAS, the parties have entered into a certain Development Agreement, dated December 23, 1993 (the"Development Agreement"), for the development of a Product (as described below); and WHEREAS, Janssen has an option under the Development Agreement to enter into this License Agreement for theMedisorb technology required to make, use and sell the Product, which option Janssen has elected to exercise; and WHEREAS, the parties believe that it is in their mutual best interest for Medisorb to license to Janssen on anexclusive basis in the Territory, Medisorb Patents and Technical Information within the Field, upon the terms and conditionsset forth herein; NOW, IT IS HEREBY AGREED AS FOLLOWS: (1) Definitions: The following terms shall have the meanings ascribed to them herein, unless the contextotherwise requires: (a) "Affiliate" shall mean any company controlling, controlled by, or under common control with a partyby ownership, directly or indirectly, of fifty percent (50%) or more of the total ownership or by the power to control thepolicies and actions of such company. (b) "Development Program" shall mean the development activities conducted by the parties pursuant tothe Development Agreement. (c) "Field" shall mean the treatment of psychosis in humans. In this regard, psychosis shall include, butnot be limited to, schizophrenia and related disorders, manic-depressive disorders, behavioral disturbances in dementiaincluding for the avoidance doubt behavioral disturbances related to Alzheimer’s disease. (d) "Improvements" shall mean any improvements or developments to or of the Patents and TechnicalInformation in the Field which Medisorb may acquire, discover, invent, originate, make, conceive or have a right to, in wholeor in part, during the term of this Agreement, whether or not such improvement or development is patentable. (e) "International Registration Dossier" ("IRF") shall mean the Product registration file compiled byJanssen Pharmaceutica N.V., Beerse, Belgium on behalf of Janssen, the contents and format being such that it canbe submitted as such to national health authorities or be used as a basis for a national application for marketing authorizationfor the Products in the specific format required by such national health authorities. Janssen-MedisorbPage 2License Agreement (f) "Medisorb Polymers" shall mean bioresorbable aliphatic polyesters based on glycolide, lactide,caprolactone and combinations of such polymers, which are manufactured by Medisorb and utilized in Product(s)licensed under this Agreement. (g) "Net Sales" shall mean the gross amounts received from sales of Products during a calendar quarter tothird parties by Janssen, its Sublicensees or any Affiliate of either, less any: (i) applicable sales taxes; (ii) cash trade orquantity discounts; (iii) amounts repaid or credited by reason of rejections or return of goods; or (iv) freight, postage andduties paid for. No deduction from the gross sales price shall be made for any item of cost incurred by the seller in its ownoperations incident to the manufacture, sale or shipment of the product sold. For purposes hereof, Net Sales shall not includesales of a Product from Janssen or an Affiliate of Janssen to any Affiliate or Sublicensee of either; it being intended that NetSales shall only include sales to unrelated third-parties. (h) "Patents" shall mean (i) any and all existing issued patents and patent applications or parts thereofwhich describe and claim a depot formulation of Risperidone, or any chemical analogues of Risperidone with similarphysiological activity, based on polymers of lactic and glycolic acids and the production and use thereof; (ii) any otherpatents and patent applications filed by or on behalf of Medisorb, or under which Medisorb has the rights to grantlicenses, which are needed to practice the inventions; and (iii) any reissues, extensions, substitutions, confirmations,registrations, revalidations, additions, continuations, continuations-in-part, or divisions of or to any of the foregoing whichare granted hereafter or any additional protection certificate granted with respect thereto. (i) "Product(s)" shall mean any and all depot formulations of Risperidone (R 64766), or any chemicalanalogues of Risperidone with similar physiological activity, based on polymers of lactic and glycolic acids which aredesigned to deliver Risperidone (R 64766), or any of its chemical analogues, over an extended period. (j) "Sublicensees" shall mean any company or companies, other than Janssen's Affiliates, sublicensed byJanssen. (k) "Technical Information" shall mean all unpatented information, know-how, practical experience,procedures, methodology, specifications, formulae and data whether or not the same shall be patentable which havebeen heretofore developed or acquired by Medisorb prior to the date of this Agreement and which are necessary in order touse, manufacture or sell Products in the Field. (l) "Territory" shall mean worldwide with the exception of the United States, its Territories, Protectorates,Commonwealths, and all other political subdivisions of the United States. Janssen-MedisorbPage 3License Agreement (2) License Grant (a) Medisorb hereby grants to Janssen in the Territory an exclusive license under the Patents andTechnical Information existing prior to the effective date of this Agreement, with the right to grant sublicenses thereunder,for all purposes within the Field to practice and use the Patents and Technical Information, including the rights tomanufacture and have manufactured, to use and have used, and to sell and have sold Products. Medisorb exclusively retainsall rights under the Patents and Technical Information outside the Field and for use other than in Products. The right togrant sublicenses granted hereunder is exclusive to Janssen and shall not extend to Janssen Affiliates or Sublicensees. (b) Medisorb shall offer to Janssen for incorporation into this License Agreement on reasonable terms andconditions, Medisorb Improvements in the Field which, if incorporated into Janssen's then current commercial Product(s),would: (i) result in significant changes in either the specifications for such Product(s) or the processes for producingsuch Product(s), and (ii) would reasonably be expected to result in enhanced market value and/or profitability of suchProduct(s). Examples of such Improvements would include: (i) the development by Medisorb of a non-aqueousinjection vehicle which offers significant advantages with respect to ease of administration and (ii) the development byMedisorb of technology enabling significantly extended (e.g. 2-4 weeks) duration of delivery of the active agent from asingle administration. It is the parties' understanding that the effect of any such license amendment would, in general, beeither an extension of the term of this Agreement for a mutually agreed period or a marginal increase in the then currentroyalty rate. All other Medisorb Improvements shall be made available to Janssen for its use without furtheragreement. Proprietary rights to Improvements jointly developed by Medisorb and Janssen shall be governed by the terms ofSection 5(c) of this Agreement. (c) In the event that at any time during the term of this Agreement Medisorb is unable for any reasonwhatsoever to supply the Medisorb Polymers required by Janssen for use in Products, then the license grantedunder paragraph 2(a) above shall be expanded to include the Medisorb Technology required to make and use the MedisorbPolymers. (3) Royalties: (a) Janssen shall pay or cause to be paid to Medisorb a running royalty with respect to all Products sold tocustomers by Janssen, its Affiliates and Sublicensees, payable quarter-annually in arrears within sixty (60) days following theend of each three (3) month period ending on March 31, June 30, September 30 or December 31 in any year during the termhereof, as follows: (i) 2.5% of the Net Sales of each unit of Product sold during the preceding calendar quarter during theterm hereof, if such unit of Product was manufactured by Medisorb pursuant to a written contract for the supply of Product; or(ii) 5.0% of the Net Sales of each unit of Product sold during the preceding calendar quarter during the term hereof, if suchunit of Product was not manufactured by Medisorb pursuant to a written contract for the supply of Product. Any Janssen-MedisorbPage 4License Agreement withholding or other tax that Janssen or any of its Affiliates are required by statute to withhold and pay on behalf ofMedisorb with respect to the royalties payable to Medisorb under this Agreement shall be deducted from said royalties andpaid contemporaneously with the remittance to Medisorb; provided, however, that in regard to any tax so deducted Janssenshall furnish Medisorb with proper evidence of the taxes paid on its behalf. (b) In the event that, in a country where Product is not claimed in a valid Patent, a similar product obtainsa market share greater than 20% of the total market revenues for Products and similar products in such country, the partiesagree to meet and negotiate in good faith an appropriate reduction in the royalty rate then in effect. In no event shall areduction in royalty rates pursuant to this section result in royalty rates less than fifty-percent (50%) of the ratesspecified under Section 3(a)(i) and 3(a)(ii) of this Agreement. For the purposes of this section, "similar product" shall mean ageneric version of the Product(s) where: (i) the active agent is risperidone, or a chemical analogue thereof and (ii)the excipient is comprised of lactic and/or glycolic acids. In the event that patent protection for Product(s) becomes availablesubsequent to a royalty reduction pursuant to this section, the parties agree to (i) reinstitute the royalty otherwise applicable,and (ii) in the event that any recovery is obtained for prior infringement of the subsequently issued patent, the parties willfirst apply such recoveries to reimbursing Medisorb for royalties it would otherwise have received. (c) Janssen shall keep complete and adequate records with respect to the proceeds of Products on which ithas to pay royalties payable hereunder for at least two (2) years after expiry of the year they concern. Medisorb shall have theright to have such records of Janssen inspected and examined, at Medisorb's expense, for the purpose of determining thecorrectness of royalty payments made hereunder. Such inspection shall be made by an independent, certified public accountant to whom Janssen shall have no reasonableobjection. Such accountant shall not disclose to Medisorb any information other than that necessary to verify the accuracyof the reports and payments made pursuant to this Agreement. It is understood that such examination with respect to anyquarterly accounting period shall take place not later than two (2) years following the expiration of said period. Not morethan one examination per year shall take place. Based upon the verification of such reports and whenever there is reasonable doubt about the accuracy of the sales of Productrealized by an Affiliate or sublicensee, Medisorb may reasonably request Janssen to audit the books of such Affiliate or suchsublicensee in accordance with any applicable contractual provision, in order to confirm the accuracy of such reports. (4) Production of Product/Technology Transfer: (a) Janssen shall use its reasonable efforts to commercialize and market Product, or to have the samecommercialized and marketed. Janssen-MedisorbPage 5License Agreement (b) In the event that Janssen determines to manufacture Product itself or have Product manufactured by athird party, Medisorb shall transfer to Janssen all relevant Technical Information, and provide such technical assistance, uponmutually agreed terms and conditions, as is required by Janssen in order to enable the manufacture of Product by Janssen orits designated third party manufacturer. However, with respect to such third party manufacturers, except as limited by awritten Product manufacturing agreement between Janssen and Medisorb, Medisorb will have a right of first refusal as to themanufacture and supply to Janssen of all Product(s), and component bioabsorbable polymers utilized in such Product(s).Medisorb will have a period of thirty (30) days following written notice from Janssen of terms it is offering to, or preparedto accept from, a third party manufacturer to notify Janssen of its intention to exercise its right of first refusal to supplyProduct and/or component bioabsorbable polymers thereof to Janssen, its Affiliates and Licensees on terms no less favorableto Janssen than those offered by such third party manufacturer. Such third party manufacturer cannot be an in-kindcompetitor to Medisorb and must be reasonably acceptable to Medisorb with respect to confidential protection of Medisorb'sTechnical Information. In the event that at any time during the term of this Agreement Medisorb is unable for anyreason whatsoever to supply the Medisorb Polymers required by Janssen for use in Products, then the right of first refusalunder this paragraph respecting the supply of the component bioabsorbable polymers shall be eliminated. For the purposesof this section, an "in-kind" competitor shall mean any organization which regularly engages in the contract developmentand/or contract manufacture of injectable controlled release drug delivery systems comprising a polymeric excipient basedon lactic and/or glycolic acids and/or other closely related monomers. This Section 4(b) specifically supercedes Section 7(B)of the Development Agreement, which Section 7(B) shall be of no further force or effect. (c) The right of first refusal granted to Medisorb pursuant to Section 4(b) above shall be contingent upon:(i) Medisorb and Janssen reaching an agreement concerning the financing, scheduling and construction in Europe of aMedisorb manufacturing facility within twelve (12) months of the date first above written or the initiation of Phase III humanclinical trials, whichever is later, and (ii) prior to the qualification of Medisorb's European manufacturing facility, Medisorbusing reasonable efforts to supply from its United States manufacturing facilities all of Janssen's commercial requirements forProduct pursuant to the Product Supply Agreement anticipated by Section 7(A) of theDevelopment Agreement. (5) Proprietary Rights (a) Medisorb will retain title to and ownership of all technology (including, without limitation, allpatents, inventions, and data relating thereto) relating to absorbable polymers, controlled release of active agents, and/ormanufacturing methods or processes relating to such polymers and the controlled delivery systems for active agents based onsuch polymers previously owned by Medisorb or developed by Medisorb as a result of the Development Program orotherwise. Medisorb will pay its own costs and expenses in connection with the protection of any such technology,including all patent application and maintenance costs and Janssen agrees to provide Medisorb with any necessary utilityinformation. Janssen-MedisorbPage 6License Agreement Medisorb shall inform Janssen of any patent application it wishes to file to protect proprietary rights defined inArticle 5, resulting from either the Development Program or the preliminary Development Program and shall forward a copyof any such patent application to Janssen at least one month prior to filing. Medisorb shall consider any suggestions made by Janssen for amplifying such application and shall accordinglyamend the application where in Medisorb's opinion it is appropriate. Nine months after the first filing, Medisorb shall propose a list of countries in which it intends to file foreignequivalents. Janssen shall be given the opportunity to propose further countries to be added to the list. In case the adding ofsome or all of these further countries is unacceptable to Medisorb, Janssen shall have the right to file patent applications inthose countries, in Medisorb's name and at Janssen expense. Medisorb shall assist in the transfer of rights for the latter patentapplications and shall provide all information necessary to file and prosecute such patent applications. Medisorb shall not abandon part or whole of any of the patents or patent applications without having first consultedJanssen, which shall have the right to further pursue any patents or patent applications which Medisorb wishes to abandon, orparts thereof, in its own name and at its own expense. (b) Janssen and/or its Affiliate will retain title to and ownership of all technology (including, withoutlimitation, all patents, inventions, and data relating thereto) relating to Risperidone or any chemical analogues ofRisperidone with similar physiological activity previously owned by Janssen and/or its Affiliate or developed by Janssen asa result of this Agreement or otherwise. Janssen and/or its Affiliate will pay its own costs and expenses in connection with theprotection of any such technology, including all patent application and maintenance costs and Medisorb agrees to provideJanssen with any necessary utility information. (c) Any inventions, other than those falling under either section 5(a) or 5(b) hereof, having aninventorship jointly between at least one employee of Janssen or an Affiliate of Janssen and one employee of Medisorb or anAffiliate of Medisorb shall be jointly-owned by Janssen and Medisorb. Each party will cooperate fully in the filing andprosecution of such patent applications. Janssen and Medisorb shall agree on which of both shall be responsible for the filing, prosecution and maintenanceof any such joint patent applications and patents (hereinafter referred to as the "Responsible Party"). In principle, the partyhaving contributed the most to the invention to be protected shall be the responsible party, unless agreed upon differently.Upon mutual consent, the responsible party may select an agent for drafting, filing and prosecuting a joint application.However, both parties shall agree who shall be the agent and to what extent this agent shall be used. Janssen-MedisorbPage 7License Agreement The Responsible Party shall consult the other party when drafting any new jointly owned patent application. Thefinal draft shall be forwarded to the other party at least one month prior to filing to give the opportunity to make finalcomments. The Responsible Party shall propose a list of countries in which it intends to file such patent applications. The otherparty shall be given the opportunity to propose further countries to be added to the list. In case the adding of some or all ofthese further countries is unacceptable to the Responsible Party, the other party shall have the right to file patent applicationsin those countries, in its own name and at its own expense. The Responsible Party shall assist in the transfer of rights for thelatter patent applications and shall provide all information necessary to file and prosecute such patent applications. The Responsible Party shall not abandon part or whole of any of the patents or patent applications without havingfirst consulted the other party, which shall have the right to further pursue any patents or patent applications which theresponsible party wishes to abandon, or parts thereof, in its own name and at its own expense. All out-of-pocket costs made in relation to joint patent applications and patents shall be shared equally by Janssenand Medisorb. A statement of costs shall be made up on a quarterly basis and invoiced to the other party. Medisorb shall grant to Janssen an exclusive fully-paid up royalty free license with the right to sublicense to make,have made, use and sell under any such patents or patent applications for the duration of the patents, any continuations,continuations in part, divisions, patents of addition, reissues, renewals or extensions thereof or any supplementaryprotection certificates granted with respect thereto, in respect of any claims concerning the application of Risperidone or anychemical analogues of Risperidone with similar physiological activity. However, nothing contained in this paragraph shallobviate Janssen's obligation to pay royalties under Section 3 hereof with respect to any Products developed hereunder. Janssen shall grant to Medisorb an exclusive fully paid-up royalty free license with the right to sublicense to make,have made, use and sell under any such patents or patent applications for the duration of the patents, any continuations,continuations in part, divisions, patents of addition, reissues, renewals or extensions thereof or any supplementary protectioncertificates granted with respect thereto, in respect of any claims concerning the application of bioabsorbable polymers in thefield of human and/or veterinary medicine. (d) In addition, each party will retain exclusive title to its respective confidential information inaccordance with the provisions of Article 9 below. (6) Patent Infringement (a) In the event that either party becomes aware that any third party is infringing any patents includedwithin the Patents in any country or countries, the party becoming Janssen-MedisorbPage 8License Agreement aware of such infringement shall promptly give notice of such infringement to the other party. Any possible action againstsuch alleged infringement of the Patents will be carried out by either or both of the parties in accordance with the provisionsspecified hereinafter in paragraphs (b), (c), (d) and (e). (b) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Medisorb retains full title and ownership pursuant to Article 5 a), Medisorb shall use all reasonable efforts to takeaction against such infringement in its own name, at its own expense and on its own behalf. If Medisorb fails to take action against such infringement, or if Medisorb does not use reasonable efforts in carryingout such action after commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or afterhaving become aware of such infringement, Janssen shall be entitled at its own discretion and at its own expense, totake immediate action against such infringement in its own name, at its own expense and on its own behalf. If Janssencommences or assumes such action, Janssen may credit up to fifty percent (50%) of any royalty otherwise due to Medisorb forsales in such country or countries against the amount of the expenses and costs of such action, including without limitation,attorney fees actually incurred by Janssen. The amount of expenses so deducted shall be paid to Medisorb out of therecoveries, if any, received by Janssen as a result of such action. Except for such repayment of royalties deducted, Janssenshall be entitled to retain all recoveries therefrom. In no event shall Medisorb settle with such infringing third party in the Field without the prior written consent ofJanssen. (c) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Janssen retains full title and ownership pursuant to Article 5 B), Janssen shall have the right but not the obligationto take action against such infringement in its own name, at its own cost and on its own behalf. If Janssen fails to take actionagainst such infringement, or if Janssen does not use reasonable efforts in carrying out such action after commencementthereof, within thirty (30) days after the notice referred to in paragraph (a) above or after having become aware ofsuch infringement, Medisorb shall be entitled at its own discretion and at its own expense, to take action against suchinfringement. Medisorb shall be entitled to retain all recoveries, if any, therefrom. (d) Whenever it would concern a patent or patent application falling within the definition of Patents andof which Janssen and Medisorb jointly retain full title and ownership pursuant to Article 5 (c), and whenever in such case theinfringing product would be a drug product falling within the definition of the Field, Janssen shall have the right but not theobligation to take action against such infringement in its own name, at its own cost and on its own behalf. If Janssen fails totake action against such infringement, or if Janssen does not use reasonable efforts in carrying out such actionafter commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or after having becomeaware of such infringement, Medisorb shall be entitled at its own discretion and at its own expense, to take action againstsuch Janssen-MedisorbPage 9License Agreement infringement, it being understood that Janssen will have a continuing right to take over any such action at its own expenseand shall pay to Medisorb from any recoveries Janssen receives (i) Medisorb's expenses and (ii) from any sums remainingafter deduction of Medisorb's and Janssen's expenses, an amount proportionate to Medisorb's expenses in relation to Janssen'sexpenses. Whenever it would concern a patent or patent application falling within the definition of Patents and of whichJanssen and Medisorb jointly retain full title and ownership pursuant to Article 5 (c), and whenever in such case theinfringing product would be a drug product falling outside the definition of the Field, Medisorb shall have the right but notthe obligation to take action against such infringement in its own name, at its own cost and on its own behalf. If Medisorbfails to take action against such infringement, or if Medisorb does not use reasonable efforts in carrying out such actionafter commencement thereof, within thirty (30) days after the notice referred to in paragraph (a) above or after having becomeaware of such infringement, Janssen shall be entitled at its own discretion and at its own expense, to take action against suchinfringement, it being understood that Medisorb will have a continuing right to take over any such action at its ownexpense. If Janssen commences or assumes such action, Janssen may credit up to fifty percent (50%) of any royalty otherwisepayable to Medisorb payable hereunder against the amount of the expenses and costs of such action, including withoutlimitation, attorney fees actually incurred by Janssen. The amount of expenses so deducted shall be paid to Medisorb out ofthe recoveries, if any, received by Janssen as a result of such action. Except for such repayment of royaltiesdeducted, Janssen shall be entitled to retain all recoveries therefrom. (e) Each party agrees to cooperate reasonably with the other party in such litigation, including makingavailable to the other party records, information, and evidence relevant to the infringement of the Patent. (7) Third Party Intellectual Property Rights (a) Medisorb warrants that to the best of its current knowledge and belief the Products to be developedhereunder will not infringe the patent rights of any third party. (b) In the event that the manufacture, use or sale of the Product would constitute an infringement of therights of a third party in a country because of the use of the Patents or Medisorb's know how, each party shall, as soon as itbecomes aware of the same, notify the other thereof in writing, giving in the same notice full details known to it of the rightsof such third party and the extent of any alleged infringement. The parties shall after receipt of such notice meet to discussthe situation, and, to the extent necessary attempt to agree on a course of action in order to permit Janssen to practice thelicense granted hereunder. Such course of action may include: (a) modifying the Product or its manufacture so as to benoninfringing; (b) obtaining an appropriate license from such third party; or (c) fight the claimor suit. In the event thatwithin a short period of time, the parties fail to agree on an appropriate course of action Janssen may decide upon the courseof action in the interest of the further development, manufacturing or commercialization of the Product. Janssen-MedisorbPage 10License Agreement (c) In the event that the parties cannot agree on modifying the Product or in the case that suchmodification would not be economically viable or regulatorily feasible, Janssen, whenever it relates to know how,whether patented or not, owned by Janssen in accordance with the provisions of Article 5 (b) and (c), or Medisorb, wheneverit relates to know how, whether patented or not, owned by Medisorb in accordance with the provisions of Article 5 (a),will have the right to negotiate with such third party for such license. Both parties hereto will in any event in good faithconsult with each other with respect to such negotiations and the party negotiating such license as indicated above, willmake every effort to minimize the amount of license fees and royalties payable thereunder. In no event shall either party as aresult of such settlement, grant a sublicense or cross license to the third party to settle the suit, without the prior writtenapproval of the other party. In the event that such negotiations result in a consummated agreement, any license fee and/orroyalties to be paid thereunder shall be paid by the party responsible for the negotiations as indicated above, fifty percent(50%) of any license fees or royalties paid by Janssen under such license will be creditable against royalties due to Medisorbwith respect to such country or countries. (d) In the event that either or both parties would further to such notification under Paragraph 7 (b) decideto defend such suit or claim in which a third party alleges that the manufacture, use or selling of the Product infringes saidthird party's patent in a country, Janssen shall have the right to apply up to fifty percent (50%) of the royalties due toMedisorb on the sales of the allegedly infringing Product against its litigation expenses. (8) Term: (a) Except as otherwise provided herein, this Agreement and the term of the license granted to Janssenhereunder shall commence on the date first written above and shall expire (i) upon expiration of the last to expire Patent insuch country or (ii) fifteen (15) years after the date of the first commercial sale of Product in such country, whichever is later;provided, that in no event shall the license granted hereunder expire later than the twentieth anniversary of the firstcommercial sale of Product in any country with the exception of the following countries where the fifteen (15) year minimumshall pertain regardless: Canada, France, Germany, Italy, Japan, Spain and the United Kingdom. After expiration of thelicense granted to Janssen hereunder, Janssen shall retain a fully paid-up non-exclusive license to manufacture, use andsell Products in the Field in the Territory. (b) Medisorb may convert the exclusive license granted under this Agreement to non-exclusive if Janssendoes not maintain the following minimum annual royalty payments to Medisorb: (i) With respect to the entire Territory, excluding Japan, the minimum royalty obligation willfirst apply to the twelve month period following the anniversary of the end of the ;month in which the Product was launchedin the third major country. For the purpose of this Article only, major country shall mean France, Germany, United Kingdomor Italy. Janssen-MedisorbPage 11License Agreement During the first twelve month period that such minimum royalty obligation is applicable, the minimum royalty amount to bepaid by Janssen will be calculated by multiplying the applicable royalty rate by five percent of the actual aggregate net salesof other risperidone products during such twelve month period in the three major countries referred to above. As from the subsequent twelve month period the minimum annual royalty amount to be paid by Janssen will be calculated bymultiplying the applicable royalty rate by 5% of the aggregate net sales of other risperidone products during such period inall countries where Product has been launched and marketed for a period of minimally twelve months prior to the actualreference twelve month period; and (ii) In Japan the minimum royalty obligation will be first applied to the twelve month periodfollowing the anniversary of the end of the month in which the Product was launched. The minimum annual royalty amountto be paid by Janssen will be calculated by multiplying the applicable royalty rate by an amount representing 2% of theaggregate net sales of other risperidone products in Japan during such period. Janssen shall have the right to make up any shortfall in minimum royalty payments from Product sales, both in Japan and inthe rest of the Territory provided, such make-up payment is made at the same time and in the same manner as required for theunderlying minimum royalty obligation. Janssen may elect to have its exclusive rights converted into non-exclusive rights on a country by country basis. As aconsequence thereof, such country's other risperidone products sales will no longer be taken into account for calculating theabove minimum royalty obligation. (c) In the event that either party shall enter or be put into voluntary or compulsory liquidation or have areceiver appointed or default in the observance or performance of its obligations under this Agreement and shall fail toremedy such default within ninety (90) days after the delivery of written notice from the other party, the other party shall beentitled upon giving written notice to terminate this Agreement. (d) Janssen may terminate this Agreement without cause upon 30 days prior written notice. Thereafter,Janssen shall have no further rights or privileges with respect to the use of Medisorb Technology in Products and Medisorbshall be under no further obligation of non-competition or exclusive dealing. (e) Any early termination of the Agreement shall be without prejudice to the rights of either party againstthe other accrued under this Agreement prior to termination. (f) Upon any termination of this Agreement, any remaining inventory of Product may be sold, providedall royalties otherwise due hereunder are paid with respect to such sales. Janssen-MedisorbPage 12License Agreement (9) Confidentiality: (a) Each party agrees to keep confidential and to not use for any purpose other than as set forth herein alltechnical information and materials supplied by the other hereunder and any information a party may acquire about the otheror its activities as a result of entering into this Agreement, provided that such obligation shall not apply to technicalinformation or material which: (i) was in the receiving party's possession without restriction prior to receipt from the otherparty or its Affiliates; (ii) was in the public domain at the time of receipt; (iii) becomes part of the public domain through nofault of the receiving party; (iv) shall be lawfully received from a third party with a right of further disclosure; (v) shall berequired to be disclosed by law, by regulation or by the rules of any securities exchange. (b) Except as may be otherwise provided herein, the confidentiality obligations as set out in this Sectionshall continue so long as this Agreement remains in force and thereafter for a period of seven (7) years. (c) Janssen shall cause its Affiliates and Sublicensees to abide by the obligations of confidentiality withrespect to unpublished information within the Patents and Technical Information. (d) Any confidential information relating to the subject matter of this Agreement imparted to the otherparty prior to the execution of this Agreement shall be considered to fall under the terms of this Agreement. (10) Disclaimer of Warranty: Medisorb makes no representations or warranties, express or implied, with respectto the Medisorb Patents and Technical Information licensed to Janssen hereunder, including without limitation anywarranties of merchantability or fitness for a particular purpose. (11) Liability (a) Janssen agrees to indemnify, defend and hold harmless Medisorb from and against any liability, loss,damages and expenses (including reasonable attorney fees) Medisorb may suffer as the result of claims, demands, costsor judgments which may be made or instituted against Medisorb by reason of personal injury or damage to property arisingout or caused by Janssen's promotion, use and sale of the Product, except where such liabilities claims, demands, costsor judgments are caused by Medisorb's failure to provide Janssen with any information as specified in Section 12 (c) andArticle 13. Medisorb will notify Janssen as soon as it becomes aware of any such claim or action and agrees to givereasonable assistance in the investigation and defense of such claim or action it being understood that it shall allow Janssento control the disposition of the same. (b) Medisorb agrees to indemnify, defend and hold harmless Janssen from and against any liability, loss,damages and expenses (including reasonable attorney fees) Janssen Janssen-MedisorbPage 13License Agreement may suffer as the result of claims, demands, costs or judgments which may be made or instituted against Janssen by reason ofpersonal injury or damage to property arising out or caused by Medisorb's failure to provide Janssen with any information asspecified in Section 12 (c) and Article 13. (c) In no event shall either party be liable for loss of profits, loss of goodwill or any consequential orincidental damages of any kind of the other party. (12) Product Information and Adverse Drug Events (a) As Janssen has superior knowledge of the end-use applications to which Products licensed hereunderwill be put, Janssen is responsible for providing third parties with adequate information as to the medical profile of suchProducts. Janssen will provide Medisorb with copies of the IPID (International Product Information Document) and the IPPI(International Patient Package Insert), which are all part of the IRF for the Product. For the purpose of this Agreement IPIDrefers to the document that summarizes all medically relevant features of the Product, including the instructions for use meantto inform the medical profession, whereas the IPPI is a patient-oriented document, based upon the IPID that summarizes allrelevant information on the Product in lay language. Janssen will keep Medisorb informed of any revisions or amendments inthe IPID and IPPI of the Product. (b) Medisorb does not claim the expertise to judge whether Product(s) will perform acceptably inJanssen's application(s). Janssen is the sole judge as to whether Product(s) will perform acceptably in Janssen'sapplication(s). Janssen represents and warrants on an on-going basis during the term of this agreement that it hasthe capability to assess the suitability of Product(s) in Janssen's application(s) and agrees to conduct adequate testing toconfirm the safety and efficacy of Products prior to commercialization. (c) Medisorb will provide to Janssen promptly after its discovery by Medisorb, any information in itspossession which indicates adverse effects in humans associated with the Products, including the bioabsorbablepolymeric components thereof, licensed hereunder. For the purpose of this Agreement "adverse event" shall mean anexperience which is noxious and unintended and which occurs at doses normally used in man for the prophylaxis, diagnosisor therapy of a disease or for the modification of a physiological function and any report of an overdose. (13) Government Approvals Janssen shall be responsible for conducting all necessary testing as well as determining what, if any, governmentapprovals are required for the use and sale of Product licensed hereunder and shall comply with all such requirements prior toand following the sale or distribution of such Products. Janssen-MedisorbPage 14License Agreement Medisorb shall cooperate fully with Janssen in obtaining regulatory approvals for Product licensed hereunder andshall, at Janssen's request, provide appropriate regulatory authorities with any and all information concerning Medisorb'stechnology, Medisorb polymers and Medisorb's manufacturing process for such Product. In this respect Medisorb undertakes that it has submitted or will as soon as possible submit a type IV Drug MasterFile to the FDA identifying Medisorb's method of manufacture, release specifications and testing methods used in themanufacture of its bioabsorbable polymers and a type I Drug Master File of Medisorb's manufacturing facilities whereProduct may be manufactured. Medisorb will authorize Janssen at its request to cross-reference any Medisorb Drug MasterFiles relating to the Medisorb Polymers. (14) Force Majeure: Neither party shall be liable for its failure to perform any of its obligations hereunder ifsuch failure is occasioned by a contingency beyond its reasonable control including, but not limited to, occurrences such asstrikes or other labor disturbances, lock out, riot, war, default by a common carrier, fire, flood, storm, earthquake, other acts ofGod, inability to obtain raw materials, failure of plant facilities or government regulation, act or failure to act. Each partyshall notify the other immediately upon occurrence or cessation of any such contingencies. If such contingency continuesunabated for at least 180 consecutive days, either party shall have the right to terminate this Agreement without furtherobligation beyond those actually incurred prior to such termination. (15) Press Communications: Neither party shall originate any publicity, news release or public announcement,written or oral relating to this Agreement, including its existence, without the prior written approval of the other party. (16) Notices: Any legal notice required or permitted hereunder shall be considered properly given if in writingand sent by first class mail, certified mail or by telefacsimile to the party being notified at the respective address of such partyas follows: If to Medisorb: Medisorb Technologies International L.P.6954 Cornell RoadCincinnati, OH 45242USAFacsimile: 513-489-2348 If to Janssen: Janssen PharmaceuticaKollerstrasse 386300 Zug 6SwitzerlandFacsimile: 00-41-42449565 Janssen-MedisorbPage 15License Agreement Such notice shall be effective upon receipt or upon refusal to accept such notice. In any case, notice shall be presumedeffective no later than five (5) days after such notice is sent. Neither party shall originate any publicity, news release or public announcement, written or oral, relating to thisAgreement, including its existence, without the written approval of the other party. (17) Assignment: This Agreement shall not be assigned by either party without the prior written consent of theother party; provided, however, that assignment shall be permitted without such consent to any party, not less than 50% ofthe total interest of which owns, is owned by, or is under common control with the assigning party. In the event of any suchpermitted assignment the assignee shall be subject to and shall agree in writing to be bound by the terms and conditions ofthis Agreement. (18) Dispute Resolution: The parties shall amicably discuss and negotiate any matters which arise under thisAgreement and are not specifically set forth hereunder. If any disputes arise under this Agreement, the parties shall use theirbest efforts to meet and resolve such disputes. In the event that the parties are unable to resolve any such disputes, then bothparties hereby agree to submit said disputes to the jurisdiction of the competent Courts of Zurich, Switzerland, and agree thatany litigation in any way related to this Agreement shall be submitted to such Courts and that same shall be subject to Swisslaw. (19) Severability: In the event any one or more of the provisions of this Agreement should for any reason beheld by any court or authority having jurisdiction over this Agreement or any of the parties hereto to be invalid, illegal orunenforceable such provision or provisions shall be validly reformed to as nearly approximate the intent of the parties aspossible and, if unreformable; shall be divisible and deleted in such jurisdiction, elsewhere this Agreement shall not beaffected. (20) Captions: The captions of this Agreement are for convenience only, and shall not be deemed of any forceor effect whatsoever in construing this Agreement. (21) Waiver: The failure on the party of a party to exercise or enforce any right conferred upon it hereundershall not be deemed to be a waiver of any such right, nor operate to bar the exercise or enforcement thereof at any timethereafter. (22) Survival: The following Articles of this Agreement shall survive the termination or expiration of thisAgreement: 5, 9, 10, 11, 15, 17, and 18. (23) Miscellaneous: This Agreement may be executed by the parties hereto in counterparts, each of whichwhen so executed and delivered shall be considered to be an original, but all such counterparts shall together constitute butone and the same instrument. This Janssen-MedisorbPage 16License Agreement Agreement is the complete agreement of the parties and supersedes all previous understandings and agreements relating tothe subject matter hereof. Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented,waived or modified orally, but only by an instrument in writing signed by the party against whom enforcement of thetermination, amendment, supplement, waiver or modification is sought. IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto have executed this Agreement asof the day and year first above written. JANSSEN PHARMACEUTICA INTERNATIONAL A division of Cilag International AG By:/s/ Erik Rombouts Name:Erik Rombouts Title:Operations Director Date:February 21, 1996 {Second Janssen Signatory} By:/s/ Heinz Schmid Name:Heinz Schmid Title:General Manager Date:February 21, 1996 MEDISORB TECHNOLOGIES INTERNATIONAL L.P. by:Medisorb Technologies International, Inc., its General Partner By:/s/ David R. Lohr Name:David R. Lohr Title:President Date:January 31, 1996 Exhibit 10.4 MANUFACTURING AND SUPPLY AGREEMENT Entered into this 6th day of August 1997 (hereinafter "Effective Date") by and between JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG International Zug, a company duly organized andexisting under the laws of Switzerland, having its principal office in CH-6300 Zug, Kollerstrasse 38, Switzerland(hereinafter referred to as "JPI") and JANSSEN PHARMACEUTICA Inc., 1125 Trenton-Harbourton Road, Titusville, NJ 08560, USA (hereinafter referred toas "JANSSEN US") (JPI and JANSSEN US collectively referred to herein as "JANSSEN") and Alkermes Controlled Therapeutics Inc. II, a company organized and existing under the laws of the Commonwealth ofPennsylvania, having its principal office at 64 Sidney Street, Cambridge, MA 02139-4136, U.S.A. ( hereinafter referredto as "ACT II"). WITNESSETH WHEREAS, JPI and ACT II (as assignee of Medisorb Technologies International LP ("MTI")) have entered into an agreementdated December 23, 1993 for the development of a Risperidone depot formulation incorporating ACT II's proprietarytechnology concerning bioabsorbable polymer technologies as duly amended by the Second Amendment of March 8, 1997(hereinafter "Development Agreement"); and WHEREAS, JANSSEN and ACT II (an assignee of MTI) have entered into two License agreements dated February 21, 1996granting JANSSEN certain exclusive rights with respect to the use of ACT II's proprietary technology in thedevelopment, manufacturing, promotion and sale of Risperidone depot formulations (hereinafter "License Agreements"); and WHEREAS, further to the provisions of Article 4 (b) of the License Agreements, ACT II has a right of first refusal with respectto the manufacture of such Risperidone depot formulations and JANSSEN has further to such provision agreed to entrust themanufacturing of Products (as hereinafter defined) to ACT II under the terms and conditions set forth hereinafter. ARTICLE 1 : DEFINITIONS The following terms shall, for the purpose of this Agreement, have the following meaning unless the context clearly requiresotherwise and the singular shall include the plural and vice versa: 1.1"Affiliate" shall mean any company controlling, controlled by, or under common control with a party byownership, directly or indirectly, of fifty percent (50%) or more of the total ownership or by the power to control thepolicies and actions of such company. 1.2"Compound" shall mean the active ingredient risperidone. 1.3"Final Product" shall mean the final presentation form of the Product approved and marketed by Janssen, theirAffiliates and licensees, ready for sale to the final customer. 1.4"Janssen GMP Manual" shall mean the Janssen Pharmaceutica GMP Policies Manual, a numbered copy of whichhas been provided to ACT II and which Manual, together with any possible amendment and/or addition is deemedto constitute an integral part of this Agreement. 1.5"Licensed Net Selling Price" shall mean the weighted average price offered by JANSSEN, their Affiliates orlicensees in a given calendar year to independent third parties for the Final Product for sale in the Territory, lessdeductions for (i) transportation charges, including insurance; (ii) sales and excise taxes paid by JANSSEN, theirAffiliates or licensees and any other governmental charges imposed upon the production, importation, use or sale ofthe Final Product; (iii) trade, cash and ordinary business discounts allowed and (iv) allowances or credits- 2 - to customers on account of rejection or return of Final Product (v) and managed care rebates or allowances andmandatory price allowances imposed by governments. If JANSSEN, its Affiliates or licensees sell Final Product in a country in such a manner that the net sales value of thesame is not readily identifiable then the net sales determination for that country shall be whichever is the higher of(i) the fair market value of such Final Product or (ii) the proportion of the bundled price attributed to the FinalProduct by JANSSEN, its Affiliates or licensees whenever the Final Product is sold as part of a package of productsor services. For the purpose hereof "fair market value" shall mean, without limitation, the value of Final Products sold to similarthird parties in similar quantities. If the fair market value can not be determined in any given country, the fair marketvalue will be determined by the value of the Final Product sold to similar customers in countries with similar pricingand reimbursement structures and for similar quantities. 1.6"Manufacture, Manufacturing" shall mean all steps and operations involved in the production of Product, startingfrom Compound, including supply of the polymers or other critical excipients, pharmaceuticalformation, packaging, in process and quality control and storage of Compound and Product, until delivery forshipment of the Product to JANSSEN US, JPI or their designee. 1.7"Manufacturing Fee" shall mean the fee to be paid by JPI and JANSSEN US to ACT II in consideration for theManufacture of Products supplied to each of them in accordance with the terms hereof and which fee willbe calculated as a percentage of the Licensed Net Selling Price per unit of Product in accordance with themechanism set forth in Article 6. 1.8"Manufacturing Process" shall mean the process and environment required to Manufacture Product as described inregulatory filings. 1.9"Materials" shall mean all or any of the materials, except for Compound, required for the Manufacture of Product(including but not limited to inactive ingredients, diluents, excipients, vials, containers). 1.10"Product" shall mean a depot formulation of Risperidone, based on ACT II technologies utilizing polymers oflactic and glycolic acids which are designed to - 3 - deliver Compound over an extended period, in appropriately labelled siliconized vials or any other immediatecontainer agreed by both parties and as set forth in the Specifications. 1.11"Specifications" shall mean the agreed specifications of the Product, to be attached hereto as Exhibit A, includingquality control tests to be performed by JANSSEN and a list of the methodologies to be used in performing thosetests. 1.12"Territory" shall mean worldwide. ARTICLE 2: PROGRAM OF COMMERCIAL MANUFACTURE AND SUPPLY OF PRODUCTS 2.1Subject to the terms and conditions of this Agreement, JANSSEN hereby appoints ACT II as their exclusivesupplier of Product for their entire requirements in the Territory and ACT II agrees to Manufacture Product in its ownpremises for the exclusive purpose to supply Product to JANSSEN or their designee. 2.2ACT II will provide at its own cost and expense, all equipment and machinery for the Manufacture of the Product,except for those capital items owned by JANSSEN US and identified in Exhibit B attached hereto. ACT II willonly use such equipment and machinery which complies with the Manufacturing Process and any otherrequirements, such as the DMF, agreed with JANSSEN. ACT II shall maintain such equipment and machinery ingood condition and properly validated. 2.3In order to assist ACT II in its production planning, both parties will discuss and agree at the latest uponfinalisation of the Phase III Clinical Trials in accordance with the Development Agreement on a rolling ordering andforecast mechanism (12-24 months) duly considering amongst others the required leadtimes to Manufacture theProduct and to acquire the primary container or any other Material. In principle the first period of such rollingforecast will be considered a firm commitment, the other periods being indicative and non binding. Such forecastwill be periodically updated at the moment of sending the orders for the next period. - 4 - To the extent required such a forecast mechanism may include a buffer mechanism providing for an upper and lowervariation limit of the eventual orders against the latest forecast and a reasonable buffer mechanism in connectionwith required delivery dates and ordered quantities of Product. The eventually agreed forecast mechanism ("hereinafter Forecast Mechanism") will be attached hereto as Exhibit Eand will be used both by JPI and by JANSSEN US, it being understood that JANSSEN US and JPI may use a slightlydifferent Forecast Mechanism format reflecting potential differences in the flow of goods. 2.4JPI and JANSSEN US will each, in accordance with the Forecast Mechanism, send firm orders to ACT II indicatingthe requirements for Products, together with the required delivery dates and destination, and shall at the same timeadvise ACT II of the estimated requirements for the following periods in accordance with the Forecast Mechanism.JPI and/or JANSSEN US will ship Compound to ACT II in quantities sufficient and with sufficient lead time toenable ACT II to Manufacture the ordered Products. Together with the batch(es) of Compound, JPI and/or JANSSENUS will send all required documents and certificates. The Compound shipped to ACT II will comply with agreedspecifications to be attached hereto as Exhibit F. In order to insure an adequate supply of Compound, ACT IIwill provide inventory data for each batch of Product shipped to JANSSEN as well as quarterly summaries ofinventory transactions. 2.5Upon receipt of the Compound, ACT II will inspect the batch(es) in accordance with to be agreed test procedures.Within thirty (30) business days following receipt of a shipment of Compound, ACT II shall inform JPI or JANSSENUS, depending on who was responsible for the shipment, in writing of any qualitative and/or quantitativeshortcomings of the supplied Compound. In the event of a justifiable claim, JPI or JANSSEN US as the case may beshall replace or cause to have replaced such quantities of Compound in the shortest possible time and dispose ofany defective batch(es) at its own expense. Upon receipt (with sufficient lead time) and control of the Compound, ACT II will proceed with the Manufacture ofthe Products in accordance with the time schedule required to meet the requested delivery dates. 2.6All Product Manufactured by ACT II under this Agreement shall be manufactured and packed strictly in accordancewith the Specifications and Manufacturing - 5 - Process and in accordance with the provisions of any applicable Drug Master File to which JANSSEN is grantedaccess in accordance with the provisions of Article 5.3. ACT II shall be responsible for obtaining Materials in such quantities as are necessary for the Manufacturing of theamounts of Product ordered by JANSSEN. ACT II shall be responsible for the quality, purity, identity and potency of the Materials used and shall only buy anduse such Materials in the Manufacturing of the Product, which strictly comply with the applicable qualityrequirements and Specifications. ACT II shall not change the validated Manufacturing Process of the Product or use any different material in theprocessing thereof that may have an impact on any regulatory approval in connection with the Product withoutJANSSEN US' (in connection with the United States) and/or JPI's (in connection with the rest of the Territory)explicit prior written approval and shall give the assistance reasonably required by JANSSEN US or JPI in preparingthe supplement to any regulatory approval in connection with any change previously approved by JANSSEN US orJPI. 2.7ACT II shall Manufacture Product in batches as specified in the Specifications and Manufacturing Process andwithin an agreed upon yield. To this end the initial percentage of average loss of Compound in the Manufacture ofProduct will be agreed upon separately by both parties upon finalization of the validation of the full scaleManufacturing Process of Product and will be attached as Exhibit G to this Agreement. JANSSEN and ACT II shallon a yearly basis review the average production-loss percentages with a view to making whatever adjustment whichmay, from time to time, be required. For any loss of Compound that ACT II may incur in the Manufacturing ofProduct exceeding the then applicable yield variance calculated on a yearly basis, ACT II shall pay JANSSEN acompensation of $10,000 USD per kilogram of Compound. For the purpose of such loss computations materialsused in the Manufacture of control and retain samples, which are to be retained by ACT II, shall be excluded. 2.8To minimize the likelihood of a supply deficiency with respect to Products, by the end of Phase III clinical trials inthe development of the Product in accordance with the Development Agreement, both parties shall discuss andagree on a Disaster Recovery and Back-Up plan to be prepared by ACT II. Such plan shall consider the possibilityof (re)building (including validation and approval) a plant- 6 - within an acceptable period of time (such period to be determined in common agreement) in case ACT II's currentpremises would be destroyed as well as transferring the Manufacture to a manufacturing facility of JANSSEN or anyof their Affiliates or the facilities of a third party. Such third party will be an industry recognized reputablemanufacturer having experience in making injectable pharmaceutical products. 2.9The parties hereto will at regular instances review the long term capacity of ACT II's plant taking into account themost current forecast of the Final Product with a view to determine the need to have additional manufacturingcapacity, either at the existing facility of ACT II or in any other manufacturing facility and either with ACT II or anyof its Affiliates or with JANSSEN or any of their Affiliates. 2.10The parties hereto acknowledge that after ACT II has supplied the Product for Phase III clinical trial and prior tothe start of the commercial Manufacturing of the Product, ACT II's manufacturing facility for the Product should bekept in a manufacturing ready condition so as to minimize the risk of supply deficiencies at the moment of start upof the commercial Manufacturing. In order to do so ACT II will commit such resources and undertake suchmaintenance activities and training programs as agreed by both parties in a Manufacturing Readiness Plan.Such Manufacturing Readiness Plan will be attached to this Agreement as Exhibit H. In consideration of suchmanufacturing readiness activities, JANSSEN will pay a monthly fee to ACT II of $80,000 USD. ACT II will sendmonthly invoices to JPI or JANSSEN US in connection with such fees in accordance with timely providedinstructions and JPI and/or JANSSEN US will pay such invoices within thirty days of invoice. The parties hereto will use good faith efforts to investigate the possibility to utilize ACT II's manufacturing facilityfor other manufacturing requirements of JANSSEN or any of their Affiliates during such interim period. To theextent any such project would be identified and agreed by the parties, the parties will in good faith negotiatean appropriate reduction of the monthly $80,000 USD fee payable by JANSSEN. 2.11The parties hereto agree that during the term of this Agreement, JANSSEN will order and purchase a minimumnumber of Product during any given calendar year starting on the first commercial launch of the Final Product (theyear of first commercial launch to be calculated on a pro rata basis). Such minimum numbers - 7 - are expressed in kilograms of bulk Product (excluding for this purpose the vials) and are set forth in Exhibit Cattached hereto. In the event that JANSSEN does not achieve the applicable minimum quantity of the Product to beManufactured during a given calendar year, the parties hereto will in good faith renegotiate an adjustedManufacturing Fee, duly considering the effect of the shortfall. In the event the parties can not agree an adjustedManufacturing Fee, ACT II will be entitled to terminate this Agreement upon giving a one year prior notice. ACT IIshall provide such commercially reasonable assistance and other information in order for JANSSEN to manufactureor have manufactured the Product after such one year notice period. ARTICLE 3: QUALITY ASSURANCE - GMP COMPLIANCE 3.1ACT II will Manufacture the Product in accordance with them current Good Manufacturing Practices ("GMP")standards, including, but not limited to the requirements set forth in Janssen's GMP Manual, therequirements imposed by the Food and Drug Administration of the United States ("FDA"), the Japanese healthauthorities and EU GMP guidelines. 3.2ACT II shall perform in process and final quality control on Product. For each batch of Product, ACT II shall take asample or samples as specified in the JANSSEN GMP Manual. Such sample(s) and records shall be retained inaccordance with the provisions of the Janssen GMP Manual.In addition ACT II will on an annual basis submit revalidation data to JANSSEN or their designee in compliancewith the provisions of the Sterilization Policy in the Janssen GMP Manual. 3.3JANSSEN shall have the right, upon reasonable advance notice and during regular business hours, to send itsquality control inspectors to inspect and audit the processes, facilities and equipment being used by ACT II in theManufacturing of the Product and the polymers used in Product to assure compliance with Articles 2 and 3 of thisAgreement as well as any applicable laws, rules and regulations, provided that such quality control inspectors shallbe subject to the confidentiality provisions provided for in Article 7. Such inspection and audit shall beconducted at JPI's or JANSSEN US' (as the case may be) sole cost and expense and in a - 8 - manner so as to minimize disruption of ACT II’s business operations. The above audit right shall also extend to ACTII’s supplier of the siliconized vials. ACT II shall or shall cause its suppliers of the siliconized vials or any other primary container to remedy, within thetimelimits provided for in the GMP audit report or determined in accordance with the Janssen GMP Manual anydeficiencies reported by such auditor in the audit report issued following any such audit and which deficienciesrelate to GMP, Specifications, Manufacturing Process, applicable laws, rules and regulations including JANSSEN’scurrent quality control procedures, provided that, with respect to the latter, ACT II received an updated version priorto any such audit. ACT II and JANSSEN will reasonably collaborate with each other in order to insure that themanufacturer of the siliconized vials or any other primary container complies with applicable GMP rules (includingthe JANSSEN GMP Manual) and Specifications and Manufacturing Process. Such collaboration includesthe possibility to organise joint audits or to have such GMP audit performed by JANSSEN. During such period, ACTII shall continuously use commercially reasonable efforts to remedy such deficiencies as promptly as possible. In theevent that ACT II does not remedy any of such deficiencies within the above-referred timelimits, then JANSSENshall be entitled to cover by Manufacturing themselves or to have a third party manufacture the Products. ACT IIshall provide such commercially reasonable assistance and other information as shall be necessary in order forJANSSEN to manufacture itself or have a third party manufacture the related Products. In the event that JANSSENuses a third party manufacturer for the Product pursuant to this Article, JANSSEN shall require such third party to bebound by the same confidentiality provisions as are contained in this Agreement. 3.4In the event ACT II receives a deficiency notice from the FDA or any other regulatory agency regarding itscompliance with any applicable laws, rules and regulations regarding its Manufacture of the Product, ACT II shallpromptly notify JPI and JANSSEN US. ACT II shall use commercially reasonable effects to remedy such deficiencies as promptly as possible and in anyevent within the time period requested by the agency. In the event that ACT II does not remedy any of suchdeficiencies within the period provided for in the notice of the regulatory agency, then JANSSEN shall be entitled tomanufacture or have manufactured the Products in accordance with the provisions of Article 3.3. - 9 - 3.5Upon reasonable request of JANSSEN US, JPI or any of their Affiliates, ACT II will enter into a separate QualityAssurance Agreement with JANSSEN US, JPI or any such Affiliate, which Quality Assurance Agreement will confirmthe quality assurance provisions set forth in this Agreement and will clearly identify the respective responsibilitiesof the parties in the Manufacturing of the Product. ARTICLE 4: SHIPMENT - RISK AND TITLE 4.1By the required delivery date, ACT II will ship the Products to JANSSEN or their designee in accordance with theordering instructions as set forth in Article 2 hereof. Together with such shipment ACT II will send shippingdocuments and Certificates of Analysis of the batches shipped.Products shall be shipped using a carrier appointed by JANSSEN on the basis of FOB, port of shipment. The term“FOB” shall be interpreted in accordance with the latest INCOTERMS. 4.2Upon receipt of a batch of Product JPI, JANSSEN US or their designee shall perform or have performed aninspection of the batch documents and perform such test on the Product in accordance with procedures to be agreedupon. Should a batch of Product or the Manufacturing Process thereof fail to meet the established standards ofquality as set forth in Article 3 or should the Product or the Manufacturing thereof not comply with theSpecifications or Manufacturing Process, JPI or JANSSEN US, as the case may be, shall inform ACT II in writing ofthe alleged shortcomings within fifteen (15) business days after receiving such defect, specifying the nature of thedefect and the batch number. ACT II shall, at JPI’s or JANSSEN US’ option, depending who ordered the batch (i) re-process or replace inaccordance with the Specifications and the Manufacture Process, at its own cost (which cost excludes the cost of theCompound), the whole or part of the deficient batch of Product so rejected, or, if the related Manufacturing Fee dueby JPI or JANSSEN US in accordance with Article 6 was already paid, provide either (ii) a refund of theManufacturing Fee paid in relation to the rejected batch(es) or (iii) issue a credit note for future orders for thefull amount of the Manufacturing Fee paid in relation to the rejected batch(es) and shall destroy upon JPI’s orJANSSEN US’ instructions the rejected batch of Product which can not be corrected or improved. Furthermore, ACTII compensate or credit JPI or JANSSEN US $10,000 USD per kilogram of - 10 - Compound for JPI’s or JANSSEN US’ cost for the Compound used in such deficient batch of Product. If JANSSENUS or JPI request the receipt of such $10,000 USD payment, such payment will be made within forty five (45) daysdate of invoice. Both parties will make good faith efforts to resolve disagreements in connection with any such allegedshortcomings. In the event the in-house experts of the parties are unable to agree on any alleged shortcoming of theProduct or the Manufacturing process thereof, then the parties will appoint an independent expert skilled in the artwho will analyse samples of the alleged deficient batch and all process deviations. Both parties will supply suchexpert with copies of specifications, documents, test results etc., that the expert may reasonably require inconnection with such analysis. The expert’s decision as to whether such batch has met the specifications shall befinal and binding to the parties. The expenses of such expert shall be borne by the party whose contentionis rejected by the expert. 4.3Title in the Compound and Product shall at any time remain with JPI or JANSSEN US, depending on whichcompany ordered the Product, whereas title to the Material shall remain with ACT II until incorporation inthe Product. Risk of loss and damage in relation to the Compound and the Product shall pass to ACT II upondelivery of the Compound at the ACT II premises and shall again pass to JPI and/or JANSSEN US upon deliveryof the Product to the common carrier. ACT II shall provide adequate and safe storage for the Compound andProducts while at its premises and shall have sufficient insurance coverage in connection with the above risk. 4.4ACT II represents and warrants that at the time of Manufacture all Product supplied hereunder shall bemanufactured and supplied by ACT II in accordance with the Specifications and Manufacturing Process and incompliance with (i) this Agreement and (ii) any applicable law, rule or regulations. EXCEPT FOR THE ABOVE WARRANTY, THERE ARE NO WARRANTIES OF MERCHANTIBILITY ORFITNESS FOR A PARTICULAR PURPOSE. - 11 - ARTICLE 5: REGULATORY PROVISIONS 5.1JANSSEN and its Affiliates will be responsible for filing any regulatory approval application in connection withthe Product and the Final Product, in their own name and at their own cost, all in accordance with the provisions ofthe Development Agreement and the License Agreement. 5.2ACT II will give reasonable regulatory support in connection with regulatory approvals filed by JANSSEN inrelation to the Product and/or the Final Product and will do so free of charge. Amongst others, ACT II will prepareand maintain all the necessary supporting documentation requested by JANSSEN such as certificates or otheradministrative documents required for reference in any regulatory filing, in a format requested by JANSSEN.Notwithstanding the above, it is agreed that if any such request from JANSSEN or the health authorities in a givencountry entails extraordinary costs beyond the normal and ordinary regulatory support efforts in connection withthe filing and maintenance of the regulatory approvals directed to the Product or Final Product, the parties will ingood faith discuss and agree on a sharing mechanism with respect to such extraordinary costs related to such supportactivities in such country or countries. 5.3ACT II shall be responsible for obtaining and maintaining all necessary permits and approvals to Manufacture theProducts and in general to perform its responsibilities as set forth in this Agreement. Amongst others ACT II shall submit a Drug Master File (“DMF”) with the health authorities identifying ACT II’smethod of manufacture, release specifications and testing methods used in the manufacture of the polymers andshall cause the supplier of the siliconized vials or any other primary container to do the same in relation to suchvials or such other primary container. Similarly ACT II shall prepare and file an appropriate facility DMF withrespect to the facilities where ACT II Manufactures the Product and the polymers. ACT II shall cause the supplier ofthe siliconized vials (or any other primary container) or any other Material used in the Manufacture of Product to dothe same. Upon request by JPI or JANSSEN US, ACT II agrees to provide JPI, JANSSEN US or their Affiliates or licensees witha Letter of Authorisation permitting the Health Authorities to refer to ACT II’s DMF in its review of JANSSEN’s ortheir Affiliates’ applications for Product manufactured by ACT II. ACT II shall cause - 12 - the supplier of the siliconized vials (or any other primary container) or any other Material used in the Manufactureof Product to do the same. A representative of JANSSEN will be entitled to review at ACT II’s facilities those parts of the polymer DMF and theappropriate facility DMF pertaining to the Manufacture of Product. ACT II shall maintain its Manufacturing facilities, Manufacturing records and its DMF’s in such a manner asrequired to live up to the above obligation during the entire term of this Agreement. JANSSEN shall not file with FDA or any other regulatory agency any changes with respect to the ManufacturingProcess or Specifications without ACT II’s prior consent. ACT II shall keep JANSSEN updated of any changes in the DMF related to the polymers and/or the appropriatefacility DMF requested by the FDA or any other regulatory agency and Parties will discuss the same before anychanges are implemented. 5.4JANSSEN shall inform ACT II promptly (and whenever possible within 24 hours of receipt by JPI and/or JANSSENUS) of any information or request for information received from the FDA or any other regulatory agency relating tothe NDA and/or registration of Product whenever such information or communication is related to ACT IItechnology. Parties shall promptly discuss such information and in the event that a reply is required to such formalquestion from the FDA or any other regulatory agency or any communication has to be made with respect to Productand related to ACT II technology, Parties will agree on the content of any communication before it is made. 5.5ACT II shall inform JANSSEN promptly (and whenever possible within 24 hours of receipt by ACT II) of anyinformation or request for information received from the FDA or any other regulatory agency relating to ACTII technology whenever such information or communication is relevant to Product. It being understood that ACT IIshall not disclose to JANSSEN any third party confidential information or trade secrets. Parties shall promptlydiscuss such information and in the event that a reply is required to such formal question from the FDA or any otherregulatory agency or any communication has to be made that involves Product, Parties will agree on the content ofsuch communication before it is made. - 13 - ARTICLE 6: MANUFACTURING FEE 6.1In consideration of the manufacturing activities to be performed by ACT II hereunder, JPI and JANSSEN US willpay the Manufacturing Fee for the Products supplied to each of them. The Manufacturing Fee will be calculated as acertain percentage of the Licensed Net Selling Price. The actual percentage that shall apply with respect to a givencalendar year will be determined in a function of the total volume of Products Manufactured by ACT II and invoicedto JANSSEN during such calendar year and will be calculated in accordance with the brackets set forth in ExhibitD attached hereto. The actual Manufacturing Fee due during any given calendar year will be calculated as follows; 6.1.1The Manufacturing Fee for the initial batches of Product Manufactured and invoiced by ACT II prior tothe expiration of the first calendar year following the first commercial launch of the Final Product shall becalculated as a percentage of the estimated weighted average price offered by JANSSEN, its Affiliatesor licensees to independent unrelated third parties for the Final Product. Such weighted average price willbe calculated by multiplying the forecasted net selling price of the Final Product (expressed in USD at theexchange rates then applied by JANSSEN in accordance with its normal accounting procedures) in eachcountry of Territory where JANSSEN intends to launch the Final Product in the calendar year following thecalendar year of the first commercial launch of the Final Product times the total number of units of the FinalProduct JANSSEN forecasts to sell in those countries during such period. The actual percentage to be paidas Manufacturing Fee in such period will be calculated on the basis of the total number of units of theProduct ACT II is required to Manufacture and ship to JANSSEN during such period based on the forecastprovided by JANSSEN in accordance with Article 2.3. Within ten (10) business days following the end of every calendar quarter either party may request arecalculation of the then applicable Manufacturing Fee whenever there is a deviation of more than twentyfive - 14 - Percent (25%) in the total number of Products actually Manufactured and shipped by ACT II to JANSSENduring such quarter and the number of units forecasted by JANSSEN. The parties will at such momentrecalculate and adjust the Manufacturing Fee based on (i) the revised supply forecast and (ii) the thencurrent Licensed Net Selling Price. In the month of January following such first full calendar year adjustment shall be made if there isdeviation between (i) the estimated weighted average price and the actual Licensed Net Selling Price of theFinal Product (expressed in USD at the exchange rates then applied by JANSSEN in accordance withits normal accounting procedures) and /or (ii) the total volume of units of Product actuallyManufactured and invoiced by ACT II during such period. Any corrective payment to be made resulting from such reconciliation will be paid by the party owing sucha payment within forty five (45) days after such reconciliation and in accordance with the provisions ofArticle 6.4. 6.1.2The Manufacturing Fee for any calendar year following the initial period as specified under Article 6.1.1above will be calculated on the basis of the forecasted (i) Licensed Net Selling Price (expressed in USD atthe exchange rates then applied by JANSSEN in accordance with its normal accounting procedures) and (ii)the amount of Product expressed in units to be Manufactured and shipped by ACT II for such calendar year. Within ten (10) business days following the end of every calendar quarter either party may request arecalculation of the then applicable Manufacturing Fee whenever there is a deviation of more than twentyfive percent (25%) in the total number of Products actually Manufactured and shipped by ACT II duringsuch quarter and the number of units forecasted by JANSSEN. The parties will at such moment recalculateand adjust the Manufacturing Fee for the remainder of the calendar year based on (i) the revised supplyforecast and (ii) the then current Licensed Net Selling Price. In the month of January following any calendar year adjustment shall be made if there is deviation between(i) the estimated weighted average price and the actual Licensed Net Selling Price of the Final Product(expressed in USD at the exchange rates then applied by JANSSEN in accordance with - 15 - its normal accounting procedures) and/or (ii) the total volume of units of Product actually Manufacturedand invoiced by ACT II during such calendar year. Any corrective payment to be made resulting fromsuch reconciliation will be paid by the party owing such a payment within forty five (45) days after suchreconciliation and in accordance with the provisions of Article 6.4. 6.2JANSSEN will keep accurate records of the Licensed Net Selling Price with a view to determine the accuracy of theManufacturing Fee calculation for a period of at least two (2) years after expiry of the year they concern. ACT IIshall have the right to nominate an independent certified public accountant acceptable to and approved byJANSSEN US or JPI as the case may be who shall have access, on reasonable notice, to JPI's or JANSSEN US'records during reasonable business hours for the purpose of verifying the calculation of the Licensed Net SellingPrice. This right may not be exercised more than once in any calendar year, and once a calendar year is audited itmay not be reaudited, and said accountant shall disclose to ACT II information relating solely to the accuracy of theLicensed Net Selling Price calculation. 6.3ACT II shall invoice JPI or JANSSEN US for the Manufacturing Fee due with respect to each batch of Productsupplied to each of them or their respective designee when shipped pursuant to Article 4. JPI and JANSSEN US shallbe pay such invoice within forty-five (45) days after the date of the invoice. 6.4All payments required to be paid hereunder shall be made in United States Dollars by wire transfer of immediatelyavailable funds to the financial institution, account number, account party's name and wire transfer informationdesignated in writing by ACT II to JPI and JANSSEN US as the place of payment. 6.5No party shall have the right to reduce, by set off, counterclaim, adjustment or otherwise, any amount owed by it tothe other party pursuant to this Agreement, unless explicitly provided for otherwise. ARTICLE 7: CONFIDENTIALITY The parties refer to Article to the confidentiality provisions of Article 9 of the License Agreements which provisions areincorporated by reference herein. - 16 - ARTICLE 8: RECALL In the event of a Product recall ("Recall"), JPI or JANSSEN US, as the case may be, shall be responsible for the coordination ofRecall activities. Where the Recall is caused by ACT II's negligence or willful misconduct or breach of this Agreement andwithout prejudice to the provisions of Article 10, ACT II agrees to pay the following costs and expenses of any Recall: (i)costs of retrieving the Product previously delivered to JPI's or JANSSEN US' agents or customers, (ii) costs and expenses thatJPI and/or JANSSEN US is required to pay for reasonable notification, shipping and handling charges, provided JPI and/orJANSSEN US provides ACT II with supporting documentation of all such reimbursable costs and expenses, and (iii) cost ofreplacing Products that are unsalable as a result of the Recall. If the Recall is not primarily caused by ACT II's negligence,willful misconduct or breach, JPI and/or JANSSEN US shall pay all of the costs and expenses described above for suchRecall. ARTICLE 9: INDEMNIFICATIONS 9.1JANSSEN shall indemnify, defend and hold ACT II and its Affiliates, and each of their officers, directors,employees, agents and consultants (each an "ACT II Indemnitee") harmless from, against and in respect of any damages,claims made by third parties, losses, liabilities, charges, actions, suits, proceedings, penalties and reasonable costs andexpenses (including without limitation reasonable attorneys' fees) (collectively, the "Losses"), arising out of or resulting fromthe use by or administration to any person of Product or Final Product of JPI, its Affiliates or licensees, except to the extentsuch Losses arose or resulted primarily from the failure of ACT II or its Affiliates to Manufacture Products in accordance withGMP, the Specifications and Manufacturing Process for such Product(s) or from ACT II's failure to comply withits obligations or covenants contained herein, so long as (i) the ACT II Indemnitee allows JANSSEN to participate in or, atJANSSEN's sole option but without any obligation, to conduct at JPI's expense the defense of a claim or action for whichindemnification is sought under this Article 9.1. (provided that the ACT II Indemnitee may participate in such defense at itsown expense), and (ii) - 17 - neither party may compromise or settle such claim or action without the other party's prior written consent, which shall not beunreasonably withheld ; provided, however, that a ACT II Indemnitee shall not be indemnified under this Article 9.1 to theextent that actions taken or failed to have been taken by JANSSEN under the direction of, or at request of, the ACT IIIndemnitee were the primary cause of the events giving rise to the ACT II Indemnitee's claim for indemnification. 9.2ACT II shall indemnify, defend and hold JANSSEN, their Affiliates and Licensees and each of their officers,directors, employees, agents and consultants (each a "JANSSEN Indemnitee") harmless from and against all Lossesto the extent such losses arise out of or result from the failure of ACT II or its Affiliates to Manufacture the Product(s)in accordance with the Specifications and Manufacturing Process, or, its failure to comply with its obligations orcovenants contained herein, unless such failure was the result of actions taken or failed to have been taken by theACT II under the direction of, or at the request of JANSSEN. The JANSSEN Indemnitee shall allow ACT II toparticipate in, or, at ACT II's sole option, to conduct at ACT II's expense the defense of a claim or action for whichindemnification is sought under this Article 9.2. (provided that the JANSSEN Indemnitee may participate insuch defense at its own expense), and neither party shall compromise or settle such claim or action without the otherparty's prior written consent, which shall not be unreasonably withheld. 9.3In no event shall either party be liable for any consequential or indirect damages of the other party, including butnot limited to lost profits. 9.4Both parties shall obtain, and shall maintain at all times during the term of this Agreement, an insurance policy orpolicies providing coverage against product liability claims related to the above indemnification. ARTICLE 10: TERM AND TERMINATION 10.1The term of this Agreement shall be commensurate with the term of the License Agreements, unless soonerterminated as provided hereinafter. - 18 - 10.2This Agreement may be terminated: 10.2.1by mutual agreement of JANSSEN and ACT II in a writing signed by the parties; 10.2.2by written notice of JANSSEN or ACT II in the event of a material breach by the other party in theperformance of any of its obligations hereunder, if the party not in default shall have given the defaultingparty written notice specifying such default within 45 days after the occurrence of such breach and thedefaulting party has not made substantial and diligent progress in remedying or correcting the defaultwithin 60 days after such notice is given, with such termination becoming effective at the end of such60 days; 10.2.3by written notice of JANSSEN or ACT II in the event that the other party makes an assignment for thebenefit of its creditors, files a petition under bankruptcy or insolvency laws, a receiver or custodian isappointed for such party's business, proceedings are instituted against such party under bankruptcy orinsolvency laws that have not been stayed within 90 days, all or substantially all or such party's business orassets become subject to attachment, garnishment or other process, or such a party becomes unable to payits obligations as they become due; 10.2.4by JANSSEN prior to any commercial Manufacturing upon giving thirty days prior written notice andfollowing the commencement of the commercial manufacturing upon giving a six month priorwritten notice, provided that with respect to the latter the Agreement shall not be terminated by JANSSENwithout cause during the first two calendar years following the commencement of thecommercial Manufacturing, unless JANSSEN decides also to terminate the License Agreements; - 19 - 102.5by ACT II in accordance with the provisions of Articles 2.11 10.3Upon termination of this Agreement for any reason whatsoever ACT II will cease the Manufacturing of theProducts. Termination of this Agreement shall not affect the rights and obligations of the parties accruedprior to the termination hereof. Notwithstanding the termination of this Agreement, the confidentialityprovisions of Article 3.3, the obligations set forth in Articles 7, 8, 9, and 12.9 shall continue and survivethe termination hereof. ARTICLE: 11 FORCE MAJEURE Each party shall be relieved of its obligations to the extent that fulfillment of such obligations shall be prevented by actsbeyond the reasonable control of such party affected, including, without limitation, acts of God, fire, explosion, flood,drought, war, riot, sabotage, embargo, strikes or other labor trouble, prohibitions against imports or exports of Products,impossibility of obtaining or shortages in supply of raw materials, or compliance with any order or regulation of anygovernment entity acting under color of right. If such cause continues unabated for a period of thirty (30) days, both partieswill promptly meet to discuss the possibilities to overcome such case of Force Majeure and the potential implications on thefurther performance under this Agreement. ARTICLE: 12 MISCELLANEOUS 12.1Status. Neither JANSSEN or ACT II shall make any representation or incur any obligation in the name of or inbehalf of the other party, except as explicitly authorized hereunder. Nothing in this Agreement shall be deemed toestablish a relationship of principal and agent between ACT II and JPI or JANSSEN US, nor any of their agents oremployees for any purpose whatsoever. Nothing in this Agreement shall be deemed to constitute the parties as apartnership, association or other relationship. - 20 - 12.2Public Announcements. No public announcement with respect to the Product or the existence of this Agreementmay be made by JANSSEN or ACT II without the prior written approval of the other party. 12.3Modifications. Any amendment or supplement to this Agreement shall be effective only if contained in a writingsigned by each of the parties hereto. 12.4Assignments. Except as otherwise provided herein, this Agreement shall not be assignable by any party, withoutthe other party's written consent, such consent not to be unreasonably withheld, except that such consent is notrequired in connection with the assignment of any parties’ obligations to an affiliate of such party; provided, however, that any such assignment shall not relieve the parties hereto from any obligations under this Agreement. 12.5Prior Agreements. The parties hereto acknowledge that this Agreement contains the entire agreement between theparties pertaining to the Manufacturing and supply of Product in Territory and terminates and supersedes all prioragreements, understandings, letters or other instruments whatsoever, whether written or oral, between the partiesor any of their affiliates with respect to such matters. 12.6Waiver. No waiver by JANSSEN or ACT II of any breach of this Agreement will constitute a waiver of anysubsequent breach, and no exercise by either JANSSEN or ACT II of any right of termination will constitute a waiverof any right for recovery of any monies then due it hereunder or any other right or remedy such a party may have atlaw, in equity or otherwise. 12.7Representations. Each party represents and warrants that it has the right to enter into this Agreement and that it isunder no obligation to any third party, express or implied, conflicting with the terms and conditions of thisAgreement. - 21 - 12.8Separability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall,as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalidor unenforceable the remaining terms and provisions of this agreement where affecting the validity or enforceabilityof any of the terms or provisions of this Agreement in any other jurisdiction. 12.9Governing Law; Dispute Resolution. 12.9.1In the event a dispute ("Dispute") arises between the parties arising out of or relating to this Agreement,the parties shall use all reasonable efforts to resolve the Dispute through direct discussions for a period ofsixty (60) days, unless and to the extent this Agreement provides for other and shorter periods. The seniormanagement of each party commits itself to respond to any such Dispute. Subsequent to such sixty (60) dayperiod either party may, but shall not be required to resort to the binding arbitration procedures set outhereinafter in this Article 12.9. 12.9.2If the parties are unable after exerting all reasonable efforts to resolve a Dispute between the parties, theDispute shall be resolved through binding arbitration pursuant to the Commercial Arbitration Rules of theAmerican Arbitration Association in accordance with the following provisions: (a)If a Dispute arises between the parties, the place of arbitration shall be New York, New York. (b)To the extent the parties can not immediately agree on a single arbitrator, the arbitration shall beconducted by a panel of three neutral arbitrators ("Arbitrators"). One member shall be appointed byeach party and the third member shall be appointed by the two arbitrators appointed by the parties.The parties will select an - 22 - arbitrator within fifteen (15) business days following the demand for arbitration. The twoarbitrators selected by the parties will appoint the third member within ten (10) days followingtheir appointment. (c)The language to be used in the arbitration shall be English. (d)Any arbitrator selected by the parties may be of any nationality, and need not be a lawyer or holdany other professional status or membership but will be selected on the basis of his or herqualifications and expertise with respect to the matter under dispute. (e)The Arbitrators shall resolve the Dispute on the basis of a written record consisting of an initialand rebuttal submission by each party (together with documentary evidence (including affidavits)supporting the positions taken in such submissions); provided that the Arbitrators shall have theright to require the parties to make or participate in such other written or oralsubmissions, presentations, or examinations as the Arbitrators shall deem necessary for the properresolution of such Dispute, all of which shall be made or submitted directly to the Arbitrators andshall become part of the record in the proceeding. (f)The specific pleading schedule for each proceeding shall be determined by the parties inconsultation with the Arbitrators within fifteen business days after the date on which theArbitration panel is constituted, but it shall in each case provide that the parties' respectiveinitial submissions shall be filed simultaneously with the Arbitrators, as shall the parties'respective reply submissions. (g)Unless the parties otherwise agree at the time a particular Dispute is submitted for arbitration, theArbitrators shall be required as a - 23 - condition to their engagement to agree to render a decision within 30 days of the date on whichthe record in the proceeding is completed, but in no case more than 90 days after the date of thelast hearing on the substantive issues. (h)The parties shall use reasonable efforts to schedule and make their submissions, and to take allother necessary actions in connection with the proceeding, at a time and in a manner which willpermit the Arbitrators to render its decision in accordance with the schedule set forth herein. (i)All communications with the Arbitrators during the pendency of the proceeding shall be made inwriting, with a copy thereof delivered simultaneously to the other party to the proceeding, or ifmade orally, made only in the presence of the other party to the proceeding or itsrepresentative. The existence of the Dispute and the related proceedings shall be kept confidentialin accordance with the provisions of Article 7. (j)All decisions by the Arbitrators shall be done by majority vote. The arbitration award shall berendered in writing and shall state the reasons for the award, and shall be final and binding uponthe parties. In rendering their decision, the Arbitrators shall apply the substantive law of the stateof New York, without regard to its conflict of law provisions, provided that the Arbitrators shallbase their decision on the express terms and conditions of this Agreement. (k)The Arbitrators are empowered to award any remedy allowed by law, including money damagesand to grant final or interlocutory relief. Notwithstanding the foregoing punitive or multipledamages may not - 24 - be awarded and the express terms of this Agreement may not be altered. (l)Each party shall bear its own expenses and attorneys' fees in connection with the arbitration. 12.10Notices. Any notice required or permitted to be given under this Agreement shall be mailed by registered orcertified air mail, postage prepaid, addressed to the party to be notified at its address stated below, or at such otheraddress as may hereafter be furnished in writing to the notifying party or by telefax to the numbers set forth below orto such changed telefax numbers as may thereafter be furnished.If to ACT II: Alkermes Controlled Therapeutics Inc. II64 Sidney StreetCambridgeMA 02139-4136U.S.A.Telefax: +1-617-494-9263attention: Chief Financial Officer If to JANSSEN: Janssen Pharmaceutica International, a division of Cilag AGInternational,CH-6300 Zug, Chollerstrasse 38,SwitzerlandTelefax: 041 748 3667 and Janssen Pharmaceutica Inc.1125 Trenton-Harbourton RoadTitusvilleNJ 08560U.S.A.Telefax: +1-609-730-2323 Any such notice shall be deemed to have been received when it has been delivered in the ordinary course of post or receivedby telefax. - 25 - IN WITNESS WHEREOF, JPI, JANSSEN US AND ACT II have caused this instrument to be executed by their respective dulyauthorized officers, the date of execution to relate back to the day and year last below written. Alkermes Controlled Therapeutics, Inc. II This 8th day of August 1997 /s/ J. Duncan Higgons By/s/ Michael Landine(title)Vice President (title)Vice President JANSSEN PHARMACEUTICA INTERNATIONAL represented by CILAG AG INTERNATIONAL. This 27th day of August 1997 /s/ illegible signature By/s/ illegible signature(title) (title) Janssen Pharmaceutica Inc. This 3rd day of September 1997 By/s/ illegible signature(title) (title)President - 26 - Exhibit A Specifications- 27 - Exhibit B Equipment : capital items- 28 - Exhibit C Minimum Quantities 1 Calendar year60 kg of bulk Product (microspheres -excluding vials)(on a pro rata basis taking into accountactual date of the first commercial launch ofthe Final Product)2 Calendar year100 kg of bulk Product3 Calendar year and any subsequent calendaryear160 kg of bulk Product - 29 - stndrd Exhibit D Manufacturing Fee Amount purchased(vials) % of Licensed Amount purchased(vials) % of Licensed From To Net SellingPrice From To Net SellingPrice 263,000 399,999 24.5 % 2,100,000 2,199,999 8.8 %400,000 499,999 19.5 % 2,200,000 2,299,999 8.6 %500,000 599,999 16.5 % 2,300,000 2,399,999 8.5 %600,000 699,999 14.0 % 2,400,000 2,499,999 8.3 %700,000 799,999 12.3 % 2,500,000 2,599,999 8.2 %800,000 899,999 12.0 % 2,600,000 2,699,999 8.1 %900,000 999,999 11.7 % 2,700,000 2,799,999 8.0 %1,000,000 1,099,999 11.4 % 2,800,000 2,899,999 7.9 %1,100,000 1,199,999 11.0 % 2,900,000 2,999,999 7.8 %1,200,000 1,299,999 10.7 % 3,000,000 3,099,999 7.8 %1,300,000 1,399,999 10.4 % 3,100,000 3,199,999 7.7 %1,400,000 1,499,999 10.1 % 3,200,000 3,299,999 7.7 %1,500,000 1,599,999 9.8 % 3,300,000 3,399,999 7.6 %1,600,000 1,699,999 9.7 % 3,400,000 3,499,999 7.6 %1,700,000 1,799,999 9.5 % 3,500,000 3,599,999 7.5 %1,800,000 1,899,999 9.3 % 3,600,000 3,699,999 7.5 %1,900,000 1,999,999 9.2 % 3,700,000 3,799,999 7.5 %2,000,000 2,099,999 9.0 % 3,800,000 3,899,999 7.5 % 3,900,000 4,000,000 7.5 % - 30 - Exhibit E The Forecast Mechanism- 31 - Exhibit F Specification of Compound- 32 - Exhibit G Average Loss of Compounds further to Article 2.7- 33 - Exhibit H Manufacturing Readiness Plan - 34 - Exhibit 10.4.2 ADDENDUM TO MANUFACTURING AND SUPPLY AGREEMENT This Addendum to Manufacturing and Supply Agreement (this “Addendum”), dated as of the 1 day of August, 2001(the “Effective Date”) is by and between JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG InternationalZug, a company duly organized and existing under the laws of Switzerland, having its principal office in CH- 6300 Zug,Kollerstrasse 38, Switzerland (“JPI”) and JANSSEN PHARMACEUTICA Inc., 1125 Trenton-Harbourton Road, Titusville, NJ08560, USA (“Janssen US” and, together with JPI, “Janssen”) on the one hand and Alkermes Controlled Therapeutics Inc. II, acompany organized and existing under the laws of the Commonwealth of Pennsylvania, having its principal office at 64Sidney Street, Cambridge MA 02139-4136, USA (“ACTII”) on the other hand. WHEREAS, Janssen and ACTII have been collaborating for the development of a Risperidone depot formulationincorporating ACTII’s proprietary technology concerning bioabsorbable polymer technologies and have entered into aDevelopment Agreement and two License Agreements related thereto; and WHEREAS, Janssen and ACTII entered into that certain Manufacturing and Supply Agreement, dated August 6,1997 (the “Supply Agreement”), with-respect to the commercial manufacture and supply of such Risperidone depotformulation to Janssen; and WHEREAS, Janssen and ACTII desire to enter into this Addendum regarding the expansion of ACTII’smanufacturing facilities, and the financial responsibilities of each of the parties in connection with such expansion, in orderto support the increased sales forecasts for such Risperidone depot formulation; and WHEREAS, Janssen and ACTII further desire to enter into this Addendum to formally provide for a collaborativeeffort to develop the manufacturing facility and commercial supply of Product. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth below, and intending to belegally bound hereby, the parties agree as follows: ARTICLE 1 - DEFINITIONS Section 1.1. Unless provided otherwise, any capitalized terms used in this Addendum and not defined herein orbelow, shall have the meaning set forth in the Supply Agreement. 1.1.1. “Regulatory Approval” shall mean either (i) the approval of a New Drug Application, or acomparable application, for the Product by the United States Food and Drug Administration (“FDA”), or (ii) regulatoryapproval in two (2) of the Major EU Member States (for the purpose hereof, “Major EU Member States” means Germany, UK,France, Spain and Italy), together in each case with satisfaction of any related regulatory and notification requirements of theFDA or such other regulatory authority. 1 ARTICLE 2 - EXPANSION PROJECT Section 2.1. The Project. ACTII will retain the services of an engineering firm to develop plans to expandACTII’s manufacturing facility located in Wilmington, Ohio (the “Project”), including detailed timelines for completion ofthe Project. The Project shall include the following elements: 2.1.1. The expansion to the current facility will be a detached addition on the same campus as theoriginal facility in Wilmington, Ohio (such detached addition, including the equipment to be fitted therein, are referred toherein as the “Expansion”); 2.1.2. The Expansion will include the utilities for a second and third wet process line and a second fillingline; 2.1.3. Only the equipment for the second wet process line will be installed as part of the Project; and 2.1.4. The Project is expected to be completed by early August 2003 and cost approximately twelvemillion dollars ($12,000,000), all according to the preliminary budget and timetable set forth on Schedule A attached hereto. 2.1.5. The underlying assumption of the terms agreed in this Addendum is that the Expansion will bededicated to the manufacturing of the Product. Notwithstanding the above, ACTII shall have the right to manufacture otherproducts in the Expansion, provided that ACTII shall notify Janssen at least ninety (90) days before any such other productis manufactured in the Expansion and shall discuss such intended manufacturing activities with the Global Supply Team.Any such notification and discussion shall be subject to ACTII’s obligations of confidentiality (if any) to its collaborativepartner for the product(s) to be manufactured in the Expansion. ACTII shall be entitled to proceed with suchintended manufacturing activities, provided that the Global Supply Team is satisfied, in its reasonable judgment, that suchactivities will not affect the quality (including GMP guidelines), the supply chain or capacity requirements for the Product.In the event that ACTII proceeds with its intended manufacturing activities, ACTII and Janssen will negotiate in good faiththe impact (if any) of such activities on the Minimum Revenues and/or the Guarantee provided in this Addendum andmodify it accordingly. Section 2.2. The Project Plan. Upon completion of the work by the engineering firm, which is expected to becompleted prior to July 31, 2001, Janssen and ACTII shall meet to review the plans, budget and timetable for completion ofthe Project, determine the actions to be taken by each of the parties and to finalize the plans, budget and timetable for theProject (the “Project Plan”). The Project Plan, including the budget, must be amended by mutual agreement of the parties(after consultation with the Global Supply Team (defined in Section 5.2)) if the change impacts the timeline, capacity orbudget with respect to the Product. At any time the parties amend the budget included in the Project Plan, a correspondingamendment to the Guarantee Cap (defined in Section 3.2) shall also be made. Section 2.3. Contractors and Construction. Upon approval by both parties of the Project Plan, ACTII shallengage the services of any contractors necessary to begin and complete 2 actual construction of the Project and shall oversee such construction. ACTII shall cause the timetable for completion of theProject that is part of the Project Plan to be incorporated into all contracts and agreements with such contractors. ARTICLE 3- FINANCIAL RESPONSIBILITY FOR THE PROJECT Section 3.1. ACTII’s Responsibility. ACTII shall be responsible for payment of all costs and expenses related toconstruction of the Project, including the design of and engineering services related to the Project, subject to the Guaranteeand Minimum Revenues (each as defined in Sections 3.2 and 3.4, respectively). Section 3.2. The Guarantee. In the event that Janssen terminates development of the Product prior tocommercial launch or Janssen terminates the Project, Janssen will reimburse ACTII for all cumulative out-of-pocket expensesmade or actually and irrevocably committed by ACTII for the Project through the date of ACTII’s receipt of written notice ofsuch termination (such reimbursement payment referred to herein as the “Guarantee”). The Guarantee shall not exceed twelvemillion dollars ($12,000,000) (the “Guarantee Cap”), unless the parties have mutually agreed to amend the budget and theGuarantee Cap pursuant to Section 2.2. Section 3.3. Refund of the Guarantee. If Janssen pays to ACTII the Guarantee due to Janssen’s termination of theProject and if the Expansion is utilized by ACTII for another· product with another corporate partner within three (3) years ofJanssen’s termination of the Project, then ACTII shall refund that portion of the Guarantee that is proportional to theactual utilization of the Expansion during the 3-year period which shall be paid to Janssen in installments over the monthsremaining in the 3-year period and so long as the utilization continues. Section 3.4. Minimum Revenues. For a period often (10) calendar years, Janssen shall guarantee a certainminimum amount of revenues to ACTII from Janssen from the purchase of Product under the Supply Agreement (the“Minimum Revenues”), unless Janssen realizes the cumulative Minimum Revenues prior to the expansion of such 10-yearperiod, all in accordance with this Section 3.4 and the subsections below. 3.4.1. Upon completion of the work by the engineering firm, which is expected to be completed prior toJuly 31, 2001, Janssen and ACTII shall meet to review the Project cost. If the aggregate Project cost is ten million dollars($10,000,000) or more, but less than twelve million dollars ($12,000,000), the Minimum Revenues shall be: Scenario 1 : Detached Plant without filling lineCalendar Year Capital Cost: $ 12.0 millionof Minimum Minimum Revenue for AlkermesRevenues $ millionYear 1 $11.0 mYear 2 $14.25 mYear 3-10 $15.75 m 3 3.4.2. If the aggregate Project cost is less than ten million dollars ($10,000,000) or greater than twelvemillion dollars ($12,000,000), then Janssen and ACTII shall re-calculate the Minimum Revenue amounts based on theProject cost and assumptions and preliminary Minimum Revenue amounts set forth below. (a) The Minimum Revenues are intended to derive a minimum revenue that drives a net presentvalue of zero (0) using a twelve and one-half percent (12.5%) discount rate for ACTII’s manufacturing facility investment. (b) For the purpose of calculating the Minimum Revenues under this Section 3.4, the Projectcost shall not exceed twelve million dollars ($12,000,000), unless the parties have mutually agreed to amend the budgetpursuant to Section 2.2. (c) The Minimum Revenues under this Section 3.4.2 shall be calculated in substantially thesame way as the Minimum Revenues under Section 3 .4.1 were calculated as shown on Schedule C. 3.4.3. First Calendar Year. The first calendar year in which Minimum Revenues shall be guaranteed, shallbegin on the earlier of (a) the January 1 immediately following Regulatory Approval or (b) January 1, 2004, unless the partiesagree otherwise. 3.4.4. Excess. If the aggregate amount of Product purchased by Janssen under the Supply Agreement inany one calendar year (an “Actual Purchase Amount”) exceeds the Minimum Revenue amount for such calendar year, thensuch excess (the “Excess Credit”) shall be credited against any future calendar year in which Janssen’s Actual PurchaseAmount is less than the Minimum Revenue amount for such calendar year. 3.4.5. Shortfall. If an Actual Purchase Amount is less than the Minimum Revenue amount for the relevantcalendar year, then any available Excess Credit shall be added to the Actual Purchase Amount for such calendar year. If thesum of Actual Purchase Amount plus any such Excess Credit are less than the Minimum Revenue amount for such calendaryear, then Janssen shall pay to ACTII the difference between the Minimum Revenue and the sum of the Actual PurchaseAmount plus such Excess Credit (if any). A portion of an Excess Credit may be used if only a portion is necessary to bring thesum of the Actual Purchase Amount plus the Excess Credit up to the Minimum Revenue amount for the relevant calendaryear, in which case the balance of the Excess Credit can be used for another future calendar year; provided, however, that theaggregate amount of Excess Credit may only be added to an Actual Purchase Amount once. 3.4.6. Reporting. Within seventy-five (75) days of the end of each calendar year after RegulatoryApproval, ACTII shall prepare and deliver to Janssen a report showing (a) the Actual Purchase Amount and the MinimumRevenue amount for such calendar year, (b) any Excess Credit added to the Actual Purchase Amount, (c) any Excess Creditfrom a prior or the current calendar year available but not added to the Actual Purchase Amount, and (d) any amount due toACTII under Section 3.4.5. 3.4.7. Prepayment. If (i) sales of Product are such that Janssen determines that the expanded facility willnot be utilized or (ii) Janssen ceases to sell Product or terminates the 4 Supply Agreement after Regulatory Approval but before all Minimum Revenues have been achieved, then Janssen may, inits discretion, (a) prepay the Minimum Revenues in a lump sum that is the then net present value of the Minimum Revenuesnot yet achieved or (b) continue to pay any shortfall under Minimum Revenues over time as provided in this Section 3.4. IfJanssen prepays the Minimum Revenues in a lump sum under this Section 3.4.7 and if the Expansion is utilized by ACTII foranother product incorporating its bioabsorbable polymer technology with another corporate partner within three (3) years ofsuch prepayment, then ACTII shall refund that portion of the lump sum payment that is proportional to the actual utilizationof the Expansion during the 3-year period which shall be paid to Janssen in installments over the months remaining in the 3-year period and so long as the utilization continues. ARTICLE 4- SECOND FILLING LINE AND FUTURE EXPANSIONS Section 4.1. Second Filling Line. The parties may mutually determine that a second filling line needs to beadded to the manufacturing facility. If such a determination is made, it is anticipated that the cost of adding a second fillingline will be approximately eleven million dollars ($11,000,000). Janssen and ACTII shall amend the Guarantee Cap and theMinimum Revenues to take into account such additional cost, taking into consideration the assumptions set forth in Section3.4 (including the subsections) and the subsections below. 4.1.1. Upon completion of the work by the engineering firm with regard to the Project, including thesecond filling line, Janssen and ACTII shall meet to review the Project cost. If the aggregate Project cost is twenty-onemillion dollars ($21,000,000) or more, but less than twenty-three million dollars ($23,000,000), the Minimum Revenues, if asecond filling line is included, shall be: Scenario 2: Detached Plant filling lineCalendar Year Capital Cost: $ 22 millionof Minimum Minimum Revenue for AlkermesRevenues $ millionYear 1 $12.0 mYear 2 $18.0 mYear 3-10 $19.0 m 4.1.2. If the aggregate Project cost, including a second filling line, is less than twenty-one million dollars($21,000,000), or greater than twenty-three million dollars ($23,000,000), then Janssen and ACTII shall re-calculate theMinimum Revenue amounts based on the Project cost, including the second filling line, and assumptions and preliminaryMinimum Revenue amounts set forth below. (a) The Minimum Revenues are intended to derive a minimum revenue that drives a net presentvalue of zero (0) using a twelve and one-half percent (12.5%) discount rate for ACTII’s manufacturing facility investment. 5 (b) For the purpose of calculating the Minimum Revenues under this Section 4.1.2, the Projectcost shall not exceed twenty-three million dollars ($23,000,000), unless the parties have mutually agreed to amend thebudget pursuant to Section 2.2. (c) The Minimum Revenues under this Section 4.1.2 shall be calculated in substantially thesame way as the Minimum Revenues under Section 4.1.1 were calculated as shown on Schedule C. Section 4.2. Reimbursement of Incremental Capital Cost. In the event that the parties determine to include asecond filling line (the “2 Line”) in the Project, Janssen shall reimburse ACTII for the financial cost of theincremental capital associated with the 2 Line. To that end, Janssen shall pay to ACTII, on a quarterly basis, an amountequal to the Prime Rate times the capital expenses associated with the 2 Line in excess of the capital expenses associatedwith the Project excluding the 2 Line. For purposes hereof, “Prime Rate” shall be the prime rate as reported in the easternedition of The Wall Street Journal on the first day of the relevant calendar quarter on which The Wall Street Journal ispublished. Janssen’s obligation under this Section 4.2 shall terminate upon the occurrence of both of the following twoconditions: (a) Product delivered by ACTII to Janssen under the Supply Agreement meets or exceeds five million (5,000,000)vials in any twelve (12)-month period and (b) Janssen’s twenty-four (24)-month supply forecast for Product to be deliveredby ACTII under the Supply Agreement exceeds the vial filling capacity of the existing filling line in any twelve (12)-monthperiod in such twenty-four (24)-month forecast. Section 4.3. Future Expansions. If the Global Supply Team determines that an additional process line isrequired, then such additional line will be included in the Project under conditions to be negotiated by Janssen and ACTII atthe time of such determination. ARTICLE 5 - MANAGEMENT OF PROJECT AND COMMERCIAL SUPPLY Section 5.1. Collaborative Efforts. Both parties acknowledge and agree that the management of the commercialsupply chain of Product is of critical importance, as is (i) the timely expansion of the capacity for the manufacturing of thebulk Product and the vial filling, (ii) the transition of the current activities to a continuous commercial manufacturing andsupply process and (iii) the eventual commercial supply and logistics chain. Therefore, the parties shall actively collaboratewith each other, including a free exchange of expertise and knowledge, with the following goals: (a) the timelines ofexpansion and supply are respected, (b) a robust manufacturing and supply process is developed, (c) Product will complywith all relevant quality and regulatory requirements and (d) a continued supply of Product in accordance with currentforecasts is achieved. Section 5.2. Global Supply Team. ACTII shall be responsible for the operation and management of the Projectand the manufacture and supply of Product. Notwithstanding the foregoing, a Global Supply Team shall be established underthis Section 5.2 whose goal will be to enhance and facilitate the collaborative effort described in Section 5.1. 5.2.1. Formation and Make-Up. Within thirty (30) days after the Effective Date, the parties shall formthe Global Supply Team. The Global Supply Team shall consist of an 6 ndndndnd equal number of representatives of each party. The Global Supply Team may delegate its responsibilities and authority toone or more Sub-Teams. The members of the Global Supply Team and any Sub-Teams shall have expertise in the functionaldisciplines that either party believes should be represented at the team or sub-team. The representatives of a party may bechanged from time to time at the discretion of that party upon written notification by the party making such change to theother. 5.2.2. Oversight of the Project and Commercial Supply. The Global Supply Team shall be responsible forrecommending actions to ACTII and Alkermes management following periodic reviews of the Project and the commercialsupply process. Within fifteen (15) days after the receipt of the Project Plan, or any amendment or supplement to the ProjectPlan, the Global Supply Team or the appropriate Sub-Team shall meet to evaluate the Project Plan, amendmentor supplement and recommend actions. The Global Supply Team or the appropriate Sub-Team shall periodically review theProject Plan and the progress of the activities called for under the plan. ACTII and Alkermes management shall keep theGlobal Supply Team and any Sub-Teams informed on a periodic basis of issues and decisions affecting the commercialsupply chain and the construction of the Project and shall consult with it on such issues before making decisions wheneverpossible. 5.2.3. Meetings. The Global Supply Team and any Sub-Teams shall meet from time to time as determinedby the team members. It is expected that the teams shall meet in person at least once in each calendar quarter. The location ofteam meetings shall alternate between ACTII’s and Janssen’s offices unless otherwise agreed by the parties, with the firstmeeting being held at ACTII’s Ohio office. Consultants and non-member employees of the parties may attend team meetingsas required to further the team’s goals. Minutes of all meetings setting forth decisions of the Global Supply Team or Sub-Team will be prepared and circulated by the party hosting the meeting within thirty (30) days of such meeting. Such minuteswill become official when agreed to by all team members. Each party will bear all expenses associated with attendance ofits employees and consultants at such meetings. If the team members all agree, a meeting may be held by means of telephoneconference or similar communications equipment by means of which all persons participating in the meeting can hear eachother. 5.2.4. Decisions. Recommendations of the Global Supply Team or Sub-Teams shall be made byunanimous vote, with the representatives of each party having one collective vote. If the Global Supply Team or a Sub-Teamis unable to reach a unanimous vote on any issue, then the issue shall be referred to the President of Alkermes (or successorposition) and the Senior Vice President of Manufacturing of Janssen (or successor position) for further discussion andresolution. These individuals shall, as soon as practicable, attempt in good faith to resolve the dispute and, thereby, makethe recommendation on behalf of the Global Supply Team or Sub-Team. These individuals may obtain the advice of otheremployees as they deem necessary or advisable in order to make the recommendation. If such issue (a) is not resolved withinthirty (30) days after it has been referred to such persons for resolution, (b) would cause a serious interruption of themanufacturing and supply chain and (c) is related to the Logistic Systems, Quality System, Control of Change, Validation,timelines of the Project Plan or commercialization ramp-up, the issue shall be resolved in accordance with the views of theSenior Vice President of Manufacturing of Janssen. Any issue related to the budget for the 7 Project shall be discussed in good faith to determine the appropriate modification or outcome and shall be agreed to bythe parties in good faith. Also, in the event ACTII is reasonably of the opinion that Janssen’s standpoint on any of the aboveissues could adversely affect its obligations under the Supply Agreement, it will raise such issue and the parties will dulyconsider it and its ramifications in resolving the issue at hand. In the event Janssen nevertheless decides to proceed inaccordance with its standpoint, the parties will in good faith discuss the modifications that may be warranted in relation tothe other obligations with respect to which ACTII had raised concerns. Section 5.3. Janssen Representative at the Project. In order to implement the collaborative effort set forth underSection 5.1, Janssen will have the right to have one or more Janssen representatives visit the Project and/or the entiremanufacturing facility in Wilmington, Ohio for short or extended periods of time. Any such visits shall be at Janssen’sexpense; provided that ACTII shall provide some accommodation at the site upon reasonable request and provided that thereis no disruption to the course of business at the site. In the event that there is any dispute under this Section 5.3 or eitherparty has a concern related to the Janssen representative(s) at the manufacturing facility, the Global Supply Team shallattempt to resolve such dispute or address such concern. Section 5.4. Janssen Support. At ACTII’s request, Janssen shall reasonably assist ACTII in its contacts withmanufacturing and supply contractors and shall support ACTII in connection with its vendor relations. ARTICLE 6 - MISCELLANEOUS Section 6.1. Change in Control of Alkermes, Inc. or ACTII. For purposes of this Section 6.1, “Change inControl” shall mean the acquisition, directly or indirectly, by any person, entity or “group” (within the meaning of Section13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (excluding Alkermes, Inc., itssubsidiaries, and any employee benefit plan of Alkermes, Inc. or its subsidiaries which acquires beneficial ownership ofvoting securities of Alkermes, Inc.) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under theExchange Act) of more than 40% of the combined voting power of Alkermes, Inc.’s or ACTII’s then outstanding votingsecurities entitled to vote generally in the election of directors. In the event of a Change in Control of Alkermes, Inc. orACTII, Alkermes, Inc. and ACTII will use reasonable efforts to notify Janssen as soon as possible, legally and in accordancewith any confidentiality obligations related to the Change in Control transaction, in advance of any Change of Control, andupon the announcement thereof. As soon as possible after giving such notice, ACTII (or any successor) and Janssen will meetto discuss what effect, if any, the Change in Control will have on ACTII’s (or any successor’s) performance under the SupplyAgreement, including this Addendum. The parties shall then determine what, if any, actions need be taken in light of theeffects of the Change in Control. ACTII and/or Alkermes shall use reasonable efforts to (a) cooperate with Janssen to providecontinuity of supply of Product, (b) cause the assignment of all of the obligations of ACTII under the Supply Agreement toany successor entity upon consummation of such Change in Control and, (c) ensure the confidentiality of the proprietarytechnology of Janssen vis- á-vis the controlling entity of ACTII upon consummation of such Change in Control, includingthe use of “fire walls”, if appropriate or reasonably requested by Janssen. Promptly following the consummation of the 8 Change of Control, Act II (or any successor) shall provide to Janssen a written confirmation that AGTII (or any successor)shall comply with all obligations under the Supply Agreement, including this Addendum. Section 6.2. Bankruptcy provisions. In the event ACTII or Alkermes, Inc. files a petition in bankruptcy,insolvency or reorganization for the benefit of its creditors or if a receiver or trustee is appointed as provided for in Section10.2.3 of the Supply Agreement, ACTII shall, unless and until the Supply Agreement would be rejected by the bankruptcytrustee in accordance with the relevant bankruptcy codes, continue to perform all its obligations under the SupplyAgreement, including this Addendum, unless and until Janssen elects to terminate the Supply Agreement in accordance withSection 10.2.3 of the Supply Agreement. By October 31, 2001, ACTII shall submit to a neutral escrow agent mutuallyagreeable to the parties, such as DSI Technology Escrow Services, Inc. (the “Escrow Agent”), to hold in escrow all of thestandard operating procedures and batch records, which shall contain detailed descriptions of all steps and operationsinvolved in the approved Manufacturing Process (the “Escrow Documents”). ACTII shall update the Escrow Documentsannually. In the event that Janssen terminates the Agreement under Section 10.2.3 of the Supply Agreement, Janssen shall befree to access the Escrow Documents. Janssen, ACTII and the Escrow Agent shall execute an escrow agreement which willcontrol the deposit, possession and release of the Escrow Documents and any conflict between this Addendum and suchescrow agreement shall be controlled by the escrow agreement. Janssen, as a licensee of intellectual property rights grantedunder the License Agreement dated February 13, 1996, by and between Janssen US and ACT II and the License datedFebruary 21, 1996, by and between JPI and ACT II, shall in addition to any rights or remedies expressly provided herein,retain any and all of its rights under the bankruptcy code to resort to other remedies as may now or hereafter exist at law or inequity in such event. Section 6.3. Amendments to the Supply Agreement. To the extent that the provisions of this Addendum are inconflict with Sections 2.2 and 2.9 of the Supply Agreement, Sections 2.2 and 2.9 shall be deemed to be amended bythis Addendum. The provision regarding Minimum Revenues in this Addendum shall supersede the provisions for minimumnumber of Product to be purchased by Janssen pursuant to Section 2.11 of the Supply Agreement for the ten (10) calendaryears following Regulatory Approval of Product. Except as provided in the foregoing two sentences, all of the provisions ofthe Supply Agreement shall remain in full force and effect. Section 6.4. Prior Agreements. The parties hereto acknowledge that this Addendum and the Supply Agreementcontain the entire agreement between the parties pertaining to the manufacture and supply of Product in Territoryand terminates and supersedes all prior agreements, understandings, letters or other instruments whatsoever, whether writtenor oral, between the parties or any of their affiliates with respect to such matters. 9 IN WITNESS WHEREOF, JPI, Janssen US and ACTII have caused this Addendum to Manufacturing and Supply Agreementto be executed by their respective duly authorized officers on the date first set forth above. JANSSEN PHARMACEUTICA INTERNATIONAL represented by CILAG AG INTERNATIONAL By:/s/ Erik Rombouts Name: Erik Rombouts Title: Vice President JANSSEN PHARMACEUTICA INC. By:/s/ David Y. Norton Name: David Y. Norton Title: President ALKERMES CONTROLLED THERAPEUTICS INC. II By:/s/ Robert A. Breyer Name: Robert A. Breyer Title: 10 Schedule APreliminary Timetable and Budget Plant expansionWith 2nd wet process train Plant expansion with 2process train and 2ndfilling line Capital Capital Quarter Key event Expenditures Cumulative Expenditures Cumulative 4Q/00 $0.1 m $0.1 m $0.1 m $0.1 m 1Q/01 Phase 3 topline results $0.6 m $0.7 m $1.0 m $1.1 m 2Q/01 Tox results $1.2m $1.9m $2.1 m $3.2m 3Q/01 NDA ready $2.4 m $4.3 m $5.3 m $8.5 m 4Q/01 $2.4 m $6.7 m $4.1 m $12.6 m 1Q/02 $1.2m $7.8m $2.4m $15.0 m 2Q/02 $1.2 m $9.0 m $2.3 m $17.3 m 3Q/02 Regulatory Approval $0.6m $9.6m $1.2m $18.4m 4Q/02 $1.2 m $10.8 m $2.3 m $20.7 m 1Q/03 $1.2 m $12.0 m $2.3 m $23.0 m $12.0 m $23.0 m 11 nd Schedule BSales Forecasts as of the Effective DateAs of June 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sales of Microspheres $33.6 $336.5 $665.8 $879.7 $1,028.6 $1,173.8 $1,249.2 $1,214.1 $1,180.1 $1,118.2 $1,023.7 ( US$ millions ) Sales Forecast Vials-000's 25.0mg 213 1,639 3,204 4,463 5,308 6,149 6,554 6,255 5,973 5,600 5,262 June 19 ApprovedForecast 37.5mg 119 1,168 2,305 3,223 3,798 4,335 4,611 4,501 4,393 4,163 3,954 50.0mg 192 1,748 3,418 5,007 6,117 7,123 7,683 7,634 7,571 7,117 6,704 Total 524 4,554 8,927 12,693 15,223 17,607 18,849 18,390 17,937 16,881 15,920 Purchase Forecast Vials-000's 25.0mg 555 1,965 3,466 4,639 5,483 6,233 6,492 6,196 5,895 5,530 4,165 37.5mg 362 1,405 2,496 3,343 3,910 4,392 4,588 4,479 4,345 4,120 3,130 Inventory Level 50.0mg 556 2,096 3,749 5,238 6,327 7,240 7,673 7,621 7,476 7,031 5,307 2.5months Total 1,473 5,465 9,711 13,220 15,720 17,866 18,753 18,296 17,717 16,681 12,603 12 Schedule CCalculation of Minimum Revenues AlkermesCapitalExpenditures: Current Plant: $9,000 New Plant +2nd ProcessLine: $12,000 Total CapitalExpenditures: $21,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 MinimumRevenues: $0 $11,000 $14,500 $15,750 $15,750 $15,750 $15,750 $15,750 $15,746 $15,750 NPVCalculation: Manufactureby Alkermes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (+) Mfg Profit $-6,189 $3,845 $4,178 $5,014 $5,014 $5,014 $5,014 $5,014 $5,010 $4,898 (-) Capital $15,600 $4,200 $1,200 $0 (-) Tax 30 % $-1,857 $1,154 $1,253 $1,504 $1,504 $1,504 $1,504 $1,504 $1,503 $1,469 (+) Deprec $900 $900 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 Cash Flow $-15,600 $-7,633 $2,392 $5,325 $5,910 $5,910 $5,910 $5,910 $5,910 $5,907 $0 Disc Rate NPV=12.5% $63 13 AlkermesCapitalExpenditures: Current Plant: $9,000 New Plant +2nd $22,000 Process Line +2nd Fill Line: Total Capital $31,000 Expenditures: 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 MinimumRevenues: $0 $11,000 $14,500 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 NPVCalculation: Manufactureby 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Alkermes (+) Mfg Profit $-6,189 $3,845 $2,928 $6,564 $6,564 $6,564 $6,564 $6,564 $6,564 $6,452 (-) Capital $21,100 $7,700 $2,200 $0 (-) Tax 30 % $-1,857 $1,154 $878 $1,969 $1,969 $1,969 $1,969 $1,969 $1,969 $1,935 (+) Deprec $900 $900 $3,650 $3,650 $3,650 $3,650 $3,650 $3,650 $3,650 $3,650 Cash Flow $-21,100 $-11,133 $1,392 $5,700 $8,245 $8,245 $8,245 $8,245 $8,245 $8,245 $8,166 Disc Rate NPV=12.5% $85 14 Exhibit 10.4.3 Alkermes Controlled Therapeutics Inc. II64 Sidney StreetCambridge, MA 02139 USA February 1, 2002 JPI Pharmaceutica International,a division of Cilag AG International ZugCH-6300 ZugKollerstrasse 38Switzerland Janssen Pharmaceutica Inc.11125 Trenton-Harbourton RoadTitusville, NJ 08560 USA Re: Exhibits to Manufacturing and Supply Agreement, dated August 6, 1997 Gentlemen: Pursuant to that certain Manufacturing and Supply Agreement (the “Agreement”), dated August 6, 1997, amongAlkermes Controlled Therapeutics Inc. II (“ACT II”), JPI Pharmaceutica International, a division of Cilag AG InternationalZug, a company organized under the laws of Switzerland (“JPI”), and Janssen Pharmaceutica Inc. (“Janssen US”) (JPI andJanssen US collectively referred to herein as “Janssen”), as supplemented by that certain Addendum to Manufacturing andSupply Agreement (the “Addendum”), dated August 1, 2001, among ACT II, JPI and Janssen, certain exhibits referred to inthe Agreement would be agreed to by the parties in the future. Those exhibits are Exhibits A, B, E, F, G and H. This letter setsforth the agreement by the parties as to such Exhibits. 1.Exhibit A (Specifications) shall be in the form attached hereto as Exhibit A. 2.Exhibit B (Equipment: Capital Items) is, at the current time, intentionally left blank because there are nocapital items owned by Janssen. 3.Exhibit E (Forecast mechanism) shall be in the form attached hereto as Exhibit E. 4.Exhibit F (Specification of Compound) shall be in the form attached hereto as Exhibit F. 5.Exhibit G (Average Loss of Compound further to Article 2.7) shall be in the form attached hereto as ExhibitG. 6.Exhibit H (Manufacturing Readiness Plan) shall cease to apply from December 1, 2001 in view of thecommencement of the commercial manufacture of Product. To the extent that the provisions of Exhibit E are in conflict with Sections 2.3, 2.4, 2.11 or 4.1 of the Agreement,such Sections shall be deemed to be amended by Exhibit E. To the extent that the provisions of Exhibit G are in conflict withSections 2.7 or 4.2 of the Agreement, such Sections shall be deemed to be amended by Exhibit G. If you are in agreement with the foregoing, please have this letter agreement executed by a duly authorized officerand return one fully executed copy to me. Sincerely, ALKERMES CONTROLLED THERAPEUTICS INC. II By:/s/ Michael Landine Name:Michael Landine Title:Vice President Agreed to: JPI PHARMACEUTICA INTERNATIONAL, A DIVISION OF CILAG AG INTERNATIONAL ZUG By:/s/ Erik Rombouts /s/ Heinz SchmidName:Erik Rombouts Heinz SchmidTitle:Vice President Alliance Management General Manager JANSSEN PHARMACEUTICA INC. By:/s/ Alex Gorsky Name:Alex Gorsky Title:President Exhibit ASpecifications The specifications for “RISPERDAL CONSTA(tm)” as found in NDA # 21-346 submitted by Janssen on August 31,2001, all applicable MAA filings, all applicable supplements to the filings and all subsequent revisions to thesespecifications. A- Exhibit EForecast Mechanism 1.Effective Time of this Exhibit. This Exhibit E (Forecast Mechanism) shall only be ineffect until December 31, 2002at which time the parties shall review and modify (if needed) the forecast mechanism, which shall then be in effectfor the remainder of the term of the Agreement, unless the parties agree otherwise. 2.Definitions. For purposes of this Exhibit E, the following terms shall have the following meanings. Any capitalizedterm not defined below shall have the meaning set forth in the Manufacturing and Supply Agreement to which thisExhibit is appended (the "Agreement"). (a)“Batch” shall mean the quantity produced from one operation of the emulsion phase of themanufacturing process. (b)“Dose” shall mean the amount of active ingredient included in each Vial of Product. Thereshall only be three Dose sizes: 25 mg, 37.5 mg and 50 mg. (c)For purposes of this Exhibit E only, “Janssen” shall include any designee of Janssen. (d)“Region” shall mean the geographic region in which certain Vials are to be distributed andsold. There shall only be two Regions: (i) the United States and (ii) the rest of the world. (e)“Vial” shall mean the primary container filled with finished Product in a single dosage form.Vials will be the final Product to be shipped by ACT II to Janssen for final packaging into akit before distribution and sale. 3.Full Batches. ACT II shall Manufacture Product and prepare Vials for shipment only in Batches and not in less thana full Batch size. 4.Forecasts. On or before the 25 calendar day of each month, Janssen will provide to ACT II a rolling forecast ofProduct for the eighteen (18) months following the month in which such forecast is submitted. Each forecast shallinclude the quantity of Vials forecasted in Batch quantity amounts based on the estimated Vials per Batch set forthbelow. The forecast shall also state the quantities of Vials by Dose and Region and the estimated Batch quantities(by Dose and Region) needed to produce such Vials based on the estimated Vials per Batch set forth below. Dose Size:25 mg37.5 mg50 mgEstimated Yield of Vials per Batch136,00092,00069,000 E- th 5.Binding Forecasts; Semi-Firm Forecasts. Months one through and including four (the “Firm Months”) of eachforecast shall be binding on Janssen and shall constitute a firm order. Months five through and including nine (the“Semi-Firm Months”) of each forecast shall not be binding, but shall be semi-firm, meaning that in any subsequentforecast, Janssen may only increase the Batches forecasted in the Semi-Firm Months within the limits set forthbelow, provided, however, that ACT II shall use commercially reasonable efforts to meet Janssen's requirements forProduct. For the avoidance of doubt, Janssen shall be entitled to decrease its forecast for the Semi-Firm Months in anunlimited fashion. Months ten through eighteen of each forecast shall be neither binding nor semi-firm, but shall begood faith estimates of Janssen's anticipated requirements for Product. PreviouslyForecasted Batch QuantityAllowable MonthlyIncreaseAllowable MonthlyForecasted Batch Quantity022112213314404 6.Purchase Orders. JPI and Janssen US may issue to ACT II formal purchase orders for the Regions they areresponsible for; provided that the aggregate of purchase orders submitted by JPI and Janssen US shall not exceedthe amount forecasted for the applicable period, unless specifically allowed hereunder or agreed by the parties.Even in the absence of one or more purchase orders, ACT II may Manufacture and prepare for shipment the quantityof Vials, in Doses and for the Regions, called for in the forecast for any Firm Month. 7.Monthly Forecast Maximum; Manufacturing Shut-Downs. No forecast may require the Manufacture of more thanone (1) Batch per week. ACT II will be allowed up to two (2) manufacturing shut-downs each year and eachmanufacturing shut-down shall last not longer than two (2) weeks. ACT II shall provide to Janssen the schedule formanufacturing shut-downs at the beginning of each calendar year. The parties will work together to scheduledelivery of Product in accordance with both the forecasts and scheduled shut-downs. 8.Diligence to Meet Forecast. ACT II will use commercially reasonable efforts to Manufacture and prepare forshipment Product in the Vial quantities, in the Doses, for the Regions and in the time periods forecasted by Janssen. 9.Shortfalls. There shall be a shortfall at any time that the cumulative amount of Vials for any Dose or Regionactually prepared for shipment in any six (6) month period falls below eighty percent (80%) of the amount of Vialsforecasted by Janssen for such Dose or Region for such six (6) month period (the difference between the amount ofsuch Vials prepared for shipment and eighty percent (80%) of the forecasted amount of such VialsE- shall be the “Shortfall”). Notwithstanding the foregoing, there shall not be a Shortfall if Janssen submits a forecast inwhich the amount of Vials for a Firm Month are greater than what was forecasted in the same Firm Month in aprevious forecast or the amount of Vials for a Firm Month or a Semi-Firm Month are greater than the allowableincrease over what was forecasted in the same Semi-Firm Month in a previous forecast. In the event of a Shortfall,Janssen shall notify ACT II that a Shortfall has occurred, stating in what Dose or Region the Shortfall occurred andrequesting that ACT II cure such Shortfall. Upon receipt of such notice from Janssen, ACT II will use commerciallyreasonable efforts to Manufacture and prepare for shipment an amount of Vials in the particular Dose or Region inorder to cure such Shortfall in the month following receipt of such notice. 10.No Breach. ACT II shall not be considered to be in breach of its obligations to supply the requested quantities ofProduct under the Agreement (including the provisions in this Exhibit E) if: (a)there is any Shortfall during the initial five (5) months of commercial Manufacture of Productunder the Agreement; (b)there is a Shortfall after the initial five (5) months of commercial Manufacture of Productunder the Agreement, Janssen requests that ACT II cure such Shortfall and ACT II uses or isusing Commercially Reasonable Efforts to cure such Shortfall, all in accordance with Section9 hereof; or (c)a delay in the Manufacture of Product, preparation for shipment or actual delivery of Vials iscaused by Janssen (for example, due to a failure or delay in the supply of bulk Compound,testing of Product by Janssen, validation by Janssen of shipping containers, receipt of testresults, protocols, reports or approvals from Janssen required under the Quality Agreement forManufacture or shipment of Product, receipt of delivery instructions from Janssen, release ofProduct by Janssen, etc.); provided that, in each case, ACT II is using commercially reasonable efforts to Manufacture and preparefor shipment Vials in accordance with the forecast. 11.Inventory; Shelf Life of Product Delivered. ACT II may, at its option, Manufacture and hold Product in inventory.All Product, including any Product that may have been held in inventory, delivered by ACT II to Janssen inaccordance with Section 4.1 of the Agreement shall have a remaining shelf life of at least eighteen (18) months atthe time it is so delivered by ACT II, unless otherwise agreed on an ad hoc basis. Notwithstanding the foregoing,ACT II shall not be held responsible for, and Janssen shall be obligated to purchase (if otherwise meetingSpecifications), Product whose remaining shelf-life is less than eighteen (18) months at the time of such delivery, ifthe delivery of Product has been delayed by more than 4 months from the time that the Product was filled into Vialsif such delay is caused by Janssen (for example, due to a failure or delay in the testing ofE- Product by Janssen, validation by Janssen of shipping containers, receipt of test results, protocols, reports or approvals fromJanssen required under the Quality Agreement for shipment of Product, receipt of delivery instructions from Janssen, releaseof Product by Janssen, etc.). This Section 11 shall be reviewed and modified (if needed) by the parties at the end of calendaryear 2002.E- E- Exhibit FSpecification of Compound The specifications for “Risperidone Drug Substance” as found in NDA # 21-346 submitted by Janssen on August 31,2001, all applicable MAA filings, all applicable supplements to the filings and all subsequent revisions to thesespecifications. E- Exhibit GAverage Loss of Compound 1.Effective Time of this Exhibit. This Exhibit G (Average Loss of Compound) shall only be in effect until December31, 2002 at which time the parties shall review and modify (if needed) the assumptions or calculations set forthherein. Thereafter, this Exhibit G will be reviewed and modified (if needed) to reflect actual performance on anannual basis. 2.Timing of Penalty/Yield Calculation and Payment, if any. On or before January 31of each calendar year, ACT IIshall calculate whether any penalty is due pursuant to the yield calculation set forth in this Exhibit G and, if due,shall pay such penalty to Janssen. In any event, ACT II shall submit to Janssen its yield calculation, either with anysuch penalty payment or without payment if no penalty is due. 3.Calculation of a Penalty, if any, for Unacceptable Yield. The calculation of how much penalty is due, if any, forunacceptable yield shall be as follows: Penalty = $10,000 X [Input — Output](No payment by either party if a negative answer) where Output = A + B + 10.125 +C and Input = [D X 8.1] + [E X 4.05] where A = [(F X G) / 1,000,000] + [(H X I) / 1,000,000] + [(J X K) / 1,000,000], where F equals the number of vials of dosesize 25 mg that were actually shipped by ACT II in the previous calendar year; G equals the Compound Usage perVial (mg) for the 25 mg dose size pursuant to the chart under Section 4(a)(i) of this Exhibit G; H equals the numberof vials of dose size 37.5 mg that were actually shipped by ACT II in the previous calendar year; I equals theCompound Usage per Vial (mg) for the 37.5 mg dose size pursuant to the chart under Section 4(a)(i) of this ExhibitG; J equals the number of vials of dose size 50 mg that were actually shipped by ACT II in the previous calendaryear; and K equals the Compound Usage per Vial (mg) for the 50 mg dose size pursuant to the chart under Section4(a)(i) of this Exhibit G. B = 10%XA C = the documented loss in kilograms due to filling if more than 1 dose size was filled from a singe batch. D = the total number of batches actually shipped by ACT II in the previous calendar year. E- E = the total number of actual failed batches in the previous calendar year. Certain factors in the calculation set forth above shall be reviewed and modified, if necessary, on an annual basis, allas set forth below in Section 4 of this Exhibit G. 4.Explanation of Calculation of Penalty. (a) Explanation of Output Calculation. (i) The following chart shows the current standard number of vials from each batch of Product for eachdose size (the “Standard Batch Vial Yield”). Based on such number of vials per dose size and theamount of Compound (bulk active drug product) used for each batch, the Compound usage foreach vial (the “Compound Usage/Vial”) is calculated and then also shown in the chart. The“Standard Batch Vial Yield” and corresponding “Compound Usage/Vial” will be re-calculated onan annual basis based on the performance of the prior calendar year. The corresponding numbersin this chart will then be adjusted (on an annual basis). The “Compound Usage/Batch” shall notchange unless the Specifications, including the Manufacturing processes, change. Dose Size25 37.5 50 Standard Batch Vial Yield (000's)136 92 69 Compound Usage / Batch (kg)8.1 8.1 8.1 Compound Usage / Vial (mg)59.6 88.0 117.4 (ii) Certain “Buffers” are added to the Output calculation. (1)There is expected to be a successful batch yield variability of 10% of the Compound thatwill be used in Manufacturing. (2)The parties have agreed to share in the anticipated batch failures based on the previouscalendar year performance. The number of failed batches to be shared will be adjusted onan annual basis. For the initial fifteen month period, the failed batch sharing allotmentshall be 10.125 kg of Compound, which is based on 2.5 failed batches times the 4.05 kgallotment of Compound per failed batch. (3)The parties acknowledge that there will be losses of Product during the filling process inthe event that ACT II must fill more than one dose size in a single batch. Therefore, suchloss can be added toE- the Output calculation provided that ACT II can document the actual loss resulting fromthe filling process. (b)Explanation of Input calculation. The total number of batches actually shipped by ACT II in a calendaryear shall not include work in process or batches that were Manufactured but held in inventory (and notshipped) by ACT II. (c)Example. The following example of a calculation under this Exhibit G is provided for clarificationpurposes only. (i) Assumption of Facts: 20 batches manufactured by Alkermes19 batches shipped to Janssen (1 failed batch)1 batch split into 2 dose sizes (documented loss is 1 kg) (ii) Output. (1)Calculation of A. Sum total vials per dose size actually shipped (19 batches):- 25 mg dose: 748,000 vials- 37.5 mg dose: 506,000 vials- 50 mg dose: 552,000 vials Multiply vials per dose by the Compound Usage per Vial: - 25 mg dose:[748,000 vials X 59.6 mg/vial] / 1,000,000 = 44.58 kg- 37.5 mg dose:[506,000 vials X 88.0 mg/vial] / 1,000,000 = 44.53 kg- 50 mg dose:[552,000 vials X 117.4 mg/vial] / 1,000,000 = 64.81 kg Total: 44.58 + 44.53 + 64.81 = 153.92 kg (2)Calculation of B (Successful batch variability). 10% X 153.92 = 15.39 kg (3)Calculation of.C (Documented Filling Loss) = 1.00 kg (4)Output = 153.92 + 15.39 + 10.125 + 1.00 = 180.435 kg (iii)Input = [19 X 8.1] + [1 X 4.05] = 157.95 kg (iv)Penalty = $10,000 X [157.95 — 180.435] = -$224,850NO penalty since the result is a negative number E- Exhibit HManufacturing Readiness Plan E- EXHIBIT 21.1SUBSIDIARIESName Jurisdiction Alkermes Ireland Holdings Limited Ireland Alkermes Pharma Ireland Limited Ireland Alkermes Finance Ireland Limited Ireland Daravita Pharma Ireland Limited Ireland Alkermes Finance Ireland (No. 3) Limited Ireland Alkermes Science Four Limited Ireland Alkermes Science Five Limited Ireland Alkermes Science Six Limited Bermuda Daravita Limited Ireland Alkermes Finance S.à r.l. Luxembourg Alkermes Finance Ireland (No. 2) Limited Ireland Alkermes U.S. Holdings, Inc. Delaware Alkermes, Inc. Pennsylvania Eagle Holdings USA, Inc. Delaware Alkermes Controlled Therapeutics, Inc. Pennsylvania Alkermes Europe, Ltd. United Kingdom EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S‑3 (No. 333‑192256) and Form S‑8 (Nos. 333‑179545, 333‑184621 and 333‑200777) of Alkermes plc of our report dated February 25, 2016relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in thisForm 10‑K./s/ PricewaterhouseCoopersBoston, MassachusettsFebruary 25, 2016 EXHIBIT 31.1CERTIFICATIONSI, Richard F. Pops, certify that:1.I have reviewed this annual report on Form 10‑K of Alkermes plc;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting./s/ Richard F. PopsRichard F. PopsChairman and Chief Executive Officer(Principal Executive Officer) February 25, 2016 EXHIBIT 31.2 CERTIFICATIONSI, James M. Frates, certify that:1.I have reviewed this annual report on Form 10‑K of Alkermes plc;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting. Senior Vice President and Chief Financial Officer(Principal Financial Officer)/s/ James M. FratesJames M. FratesSenior Vice President and Chief Financial Officer(Principal Financial Officer) February 25, 2016 EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with the Annual Report of Alkermes plc (the “Company”) on Form 10‑K for the period endedDecember 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Richard F.Pops, Chairman and Chief Executive Officer of the Company, and James M. Frates, Senior Vice President and Chief FinancialOfficer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes‑Oxley Act of 2002, to our knowledge that:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Actof 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company. Chairman and Chief Executive Officer(Principal Executive Officer)/s/ Richard F. PopsRichard F. PopsChairman and Chief Executive Officer(Principal Executive Officer) /s/ James M. FratesJames M. FratesSenior Vice President and Chief Financial Officer(Principal Financial Officer) February 25, 2016

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