<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------
 
                                   FORM 10-Q
 
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
 
                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
 
           OR THE TRANSITION PERIOD FROM             TO
 
                         COMMISSION FILE NUMBER 0-18443
 
                       MEDICIS PHARMACEUTICAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                      52-1574808
       (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
       INCORPORATION OR ORGANIZATION)
</TABLE>
 
                      4343 EAST CAMELBACK ROAD, SUITE 250
                          PHOENIX, ARIZONA 85018-2700
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                                 (602) 808-8800
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                           YES [X]            NO [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
 
<TABLE>
<CAPTION>
                        CLASS                     OUTSTANDING AT JANUARY 9, 1998
        -------------------------------------  -------------------------------------
        <S>                                    <C>
        Class A Common Stock $.014 Par Value                14,104,105
        Class B Common Stock $.014 Par Value                  281,974
</TABLE>
 
================================================================================
<PAGE>   2
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>        <C>       <C>                                                                  <C>
PART I.    FINANCIAL INFORMATION
           Item 1 -- Financial Statements
                     Condensed Consolidated Balance Sheets as of December 31, 1997 and
                       June 30, 1997....................................................    2
                     Condensed Consolidated Statements of Operations for the Three
                       Months and Six Months Ended December 31, 1997 and 1996...........    4
                     Condensed Consolidated Statements of Cash Flows for the Six Months
                       Ended December 31, 1997 and 1996.................................    5
                     Notes to the Condensed Consolidated Financial Statements...........    6
           Item 2 -- Management's Discussion and Analysis of Financial Condition and
                       Results of Operations............................................   10
PART II.   OTHER INFORMATION
           Item 1 -- Legal Proceedings..................................................   18
           Item 4 -- Submission of Matters to a Vote of Security Holders................   18
           Item 6 -- Exhibits and Reports on Form 8-K...................................   19
SIGNATURES..............................................................................   20
</TABLE>
 
                                        1
<PAGE>   3
 
PART I.  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,       JUNE 30,
                                                                      1997             1997
                                                                  ------------     ------------
<S>                                                               <C>              <C>
                                            ASSETS
ASSETS
  Current assets:
     Cash and cash equivalents..................................  $ 11,149,915     $ 33,623,397
     Short-term investments.....................................    22,467,105       51,508,611
     Accounts receivable, net...................................    10,836,148        6,352,840
     Inventories, net...........................................     6,479,288        2,981,877
     Deferred tax assets........................................    12,831,973        6,257,000
     Other current assets.......................................     3,748,636        2,818,505
                                                                  ------------     ------------
          Total current assets..................................    67,513,065      103,542,230
                                                                  ------------     ------------
  Property and equipment:
     Furniture and equipment....................................       973,202          755,905
     Leasehold improvements.....................................       222,352          170,000
     Less accumulated depreciation..............................       303,538          213,764
                                                                  ------------     ------------
          Net property and equipment............................       892,016          712,141
                                                                  ------------     ------------
  Intangible assets:
     Intangible assets related to acquisitions..................    72,748,887       36,999,644
     Other intangible assets....................................     1,636,514        1,608,762
     Less accumulated amortization..............................     4,323,867        3,325,621
                                                                  ------------     ------------
          Net intangible assets.................................    70,061,534       35,282,785
                                                                  ------------     ------------
  Other non-current assets......................................     1,102,907        1,000,000
                                                                  ------------     ------------
                                                                  $139,569,522     $140,537,156
                                                                  ============     ============
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                        2
<PAGE>   4
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,       JUNE 30,
                                                                      1997             1997
                                                                  ------------     ------------
<S>                                                               <C>              <C>
                             LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Current liabilities:
     Accounts payable...........................................  $  5,821,322     $  4,128,370
     Notes payable..............................................        11,007            5,245
     Accrued incentives.........................................     1,286,824        1,671,103
     Accrued royalties..........................................     1,338,785          712,432
     Accrued contract costs.....................................            --          600,000
     Other accrued liabilities..................................     7,692,296        1,622,093
                                                                  ------------     ------------
          Total current liabilities.............................    16,150,234        8,739,243
                                                                  ------------     ------------
  Long-term liabilities:
     Notes payable..............................................       100,328          111,335
     Other non-current liabilities..............................       122,530          121,761
     Deferred tax liabilities...................................    12,246,000               --
 
COMMITMENTS AND CONTINGENCIES
 
STOCKHOLDERS' EQUITY:
  Preferred stock, $0.01 par value, 5,000,000 shares authorized;
     no shares issued...........................................            --               --
  Class A common stock, $0.014 par value, shares authorized:
     50,000,000; 14,103,623 and 13,978,714 issued and
     outstanding at December 31, 1997 and at June 30, 1997,
     respectively...............................................       197,451          195,702
  Class B common stock, $0.014 par value, 1,000,000 shares
     authorized; 281,974 issued and outstanding at December 31,
     1997 and at June 30, 1997..................................         3,948            3,948
  Additional paid-in capital....................................   145,555,494      138,973,208
  Accumulated deficit...........................................   (34,806,463)      (7,608,041)
                                                                  ------------     ------------
          Total stockholders' equity............................   110,950,430      131,564,817
                                                                  ------------     ------------
                                                                  $139,569,522     $140,537,156
                                                                  ============     ============
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                        3
<PAGE>   5
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED                SIX MONTHS ENDED
                                              DECEMBER 31,                     DECEMBER 31,
                                      ----------------------------     ----------------------------
                                          1997            1996             1997            1996
                                      ------------     -----------     ------------     -----------
<S>                                   <C>              <C>             <C>              <C>
Net sales...........................  $ 16,927,572     $ 8,507,804     $ 30,838,903     $15,776,031
                                      ------------     -----------     ------------     -----------
Operating costs and expenses:
  Cost of product revenue...........     3,003,499       2,252,865        5,549,238       4,207,473
  Selling, general and
     administrative.................     6,205,934       3,352,961       11,581,544       6,763,350
  Research and development..........       903,563         453,068        1,447,684         612,832
  In-process research and
     development....................    35,400,000              --       35,400,000              --
  Depreciation and amortization.....       608,149         149,931        1,091,706         298,228
                                      ------------     -----------     ------------     -----------
     Operating costs and expenses...    46,121,145       6,208,825       55,070,172      11,881,883
                                      ------------     -----------     ------------     -----------
Operating income (loss).............   (29,193,573)      2,298,979      (24,231,269)      3,894,148
Interest income.....................       930,323       1,313,276        2,126,965       1,434,900
Interest expense....................        (6,563)         (7,137)         (14,889)        (16,468)
Income tax benefit (expense), net...    (2,780,773)       (353,622)      (5,180,491)      1,542,602
                                      ------------     -----------     ------------     -----------
Net income (loss)...................  $(31,050,586)    $ 3,251,496     $(27,299,684)    $ 6,855,182
                                      ============     ===========     ============     ===========
Basic net income (loss) per common
  share.............................  $      (2.16)    $      0.24     $      (1.90)    $      0.56
                                      ============     ===========     ============     ===========
Diluted net income (loss) per common
  share.............................  $      (2.06)    $      0.22     $      (1.81)    $      0.53
                                      ============     ===========     ============     ===========
Shares used in computing basic net
  income (loss) per share...........    14,367,123      13,818,024       14,340,235      12,199,340
                                      ============     ===========     ============     ===========
Shares used in computing diluted net
  income (loss) per share...........    15,087,331      14,702,753       15,042,216      13,045,399
                                      ============     ===========     ============     ===========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                        4
<PAGE>   6
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                        SIX MONTHS ENDED
                                                                          DECEMBER 31,
                                                                  -----------------------------
                                                                      1997             1996
                                                                  ------------     ------------
<S>                                                               <C>              <C>
Net income (loss)...............................................  $(27,299,684)    $  6,855,182
Adjustments to reconcile net income (loss) to net cash provided
  by operating activities:
  In-process research and development...........................    35,400,000               --
  Depreciation and amortization.................................     1,091,706          298,228
  Provision for doubtful accounts...............................       138,000               --
  Deferred income tax expense (benefit).........................     3,915,000       (2,000,000)
  Other non-cash expenses.......................................        14,000           43,500
  Accretion of discount of investments..........................       (72,359)              --
  Change in operating assets and liabilities (net of those
     acquired):
     Inventories................................................    (1,734,264)         658,930
     Accounts receivable........................................    (2,867,088)         413,223
     Accounts payable...........................................       360,371       (1,418,368)
     Accrued salaries and wages.................................            --         (204,750)
     Accrued incentives.........................................      (384,279)        (481,416)
     Accrued interest...........................................       261,703               --
     Other current liabilities..................................    (1,399,451)         735,985
     Other current assets.......................................      (563,036)         (45,358)
                                                                  ------------     ------------
          Net cash provided by operating activities.............     6,860,619        4,855,156
                                                                  ------------     ------------
Cash flows from investing activities:
  Purchase of property and equipment............................      (222,565)         (38,055)
  Purchase of common stock of GenDerm, net of cash acquired.....   (58,382,620)              --
  Payment of license agreement..................................      (627,750)        (616,667)
  Purchase of available-for-sale investments....................   (32,002,249)     (39,320,852)
  Sale of available-for-sale investments........................    40,714,373               --
  Maturity of available-for-sale investments....................    20,500,000               --
                                                                  ------------     ------------
          Net cash used in investing activities.................   (30,020,811)     (39,975,574)
                                                                  ------------     ------------
Cash flows from financing activities:
  Proceeds from the exercise of stock options...................       715,194        2,119,263
  Payments of notes payable.....................................        (5,245)          (5,245)
  Payment of other non-current liabilities......................       (23,239)         (15,489)
  Proceeds from common stock sale...............................            --       90,147,063
                                                                  ------------     ------------
          Net cash provided by financing activities.............       686,710       92,245,592
                                                                  ------------     ------------
Net increase (decrease) in cash and cash equivalents............   (22,473,482)      57,125,174
Cash and cash equivalents at beginning of period................    33,623,397        7,956,050
                                                                  ------------     ------------
Cash and cash equivalents at end of period......................  $ 11,149,915     $ 65,081,224
                                                                  ============     ============
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
     Interest...................................................  $     11,138     $     16,468
     Taxes......................................................  $  1,154,557     $    365,948
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                        5
<PAGE>   7
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
1.  ORGANIZATION AND BASIS OF PRESENTATION
 
     Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is the
leading independent pharmaceutical company in the United States focusing
exclusively on the treatment of dermatological conditions. The Company offers
prescription, over-the-counter ("OTC"), and cosmetic dermatology products
emphasizing the clinical effectiveness, quality, affordability and cosmetic
elegance of its products. Medicis has achieved a leading position in branded
products for the treatment of acne, acne-related conditions, psoriatic
conditions, and anti-puritic conditions, while also offering the leading OTC
fade cream product line in the United States. The Company has built its business
through successfully introducing prescription pharmaceuticals such as DYNACIN(R)
and TRIAZ(R) products for the treatment of acne, as well as marketing OTC
products such as the ESOTERICA(R) fade cream product line. In addition, Medicis
has acquired the rights to LIDEX(R) and SYNALAR(R) corticosteroid product lines
in the United States and Canada from Syntex USA, Inc. and the entire product
line from GenDerm Corporation ("GenDerm"), including ZOSTRIX(R) topical
analgesics and NOVACET(R) acne rosacea treatments. Medicis has also formed a new
business unit, TxSYSTEMS by Medicis(TM), to market non-prescription cosmetic
dermatology products for sale to dermatologists for administration and
dispensing to patients in the United States.
 
     The financial information is unaudited but reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of the
Company's management, necessary to a fair statement of the results for the
interim periods presented. Interim results are not necessarily indicative of
results for a full year. The financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations relating thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997, and the Company's Current Report on
Form 8-K, and amendment thereto, relating to the Company's acquisition of the
outstanding stock of GenDerm on December 3, 1997 (the "Form 8-K/A"). Certain
immaterial amounts on the face of the balance sheet have been reclassified to
conform with the current period's presentation.
 
2.  EARNINGS PER SHARE
 
     In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share," ("SFAS 128"). SFAS 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS 128 requirements
and have been computed by using the weighted average number of shares. The
impact of SFAS 128 on the calculation of earnings per share for previously
reported quarters is not expected to be material.
 
                                        6
<PAGE>   8
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
    NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table sets forth the computation of basic and diluted
earnings per share:
 
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED      SIX MONTHS ENDED
                                                           DECEMBER 31,           DECEMBER 31,
                                                        ------------------     ------------------
                                                          1997      1996         1997      1996
                                                        --------   -------     --------   -------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>        <C>         <C>        <C>
Numerator:
  Net income (loss)...................................  $(31,051)  $ 3,251     $(27,300)  $ 6,855
                                                        ---------  -------     ---------  -------
Denominator for basic earnings per common share.......    14,367    13,818       14,340    12,199
Effect of dilutive securities:
  Stock options.......................................       720       885          702       846
                                                        ---------  -------     ---------  -------
Denominator for diluted earnings per share............    15,087    14,703       15,042    13,045
                                                        =========  =======     =========  =======
Basic earnings (loss) per share.......................  $  (2.16)  $  0.24     $  (1.90)  $  0.56
                                                        =========  =======     =========  =======
Diluted earnings (loss) per common share..............  $  (2.06)  $  0.22     $  (1.81)  $  0.53
                                                        =========  =======     =========  =======
</TABLE>
 
     Options to purchase 27,400 and 112,850 shares of Common Stock at prices
ranging from $49.94 to $54.00 and $45.88 to $54.00 per share were outstanding
for the three and six months ended December 31, 1997, respectively. These were
not included in the computation of diluted earnings per share because the option
exercise price was greater than the average market price of the Company's Common
Stock and, therefore, the effect would be anti-dilutive.
 
3.  ACQUISITION OF GENDERM CORPORATION
 
     On December 3, 1997, the Company acquired 100% of the common stock of
GenDerm. The Company, using cash reserves, paid approximately $60.0 million; and
the Company could pay an additional sum not to exceed $20.0 million if sales of
GenDerm products (as defined in the acquisition agreement) are in excess of
$31.0 million during calendar 1999 and certain other conditions are met. The
acquisition included, among other things, intangible assets of approximately
$31.4 million which the Company expects to amortize over a 25 year period.
Additionally, the Company recorded a $35.4 million charge to operations as
in-process research and development. Such amounts were determined by an
independent valuation. Products acquired in the transaction include, among
others, prescription brands NOVACET(R), a topical acne rosacea treatment, and
ZONALON(R), a topical anti-itch medication, as well as the OTC brands
ZOSTRIX(R), a topical analgesic; OCCLUSAL-HP, a topical wart treatment,
PENTRAX(R) dandruff shampoo and SALAC(R) acne wash.
 
     The pro forma unaudited results of operations for the six months ended
December 31, 1997 and December 31, 1996, assuming consummation of the purchase
as of July 1, 1997 and July 1, 1996, respectively, are included in the table
below. The combined operating results set forth below include the historical
results of the Company and GenDerm. The adjustments made to the combined
historical results consist principally of additional amortization of intangible
assets associated with the acquisition, reduced interest income with respect to
the amounts paid for GenDerm's common stock and the 1996 pro forma effect of the
charge for in-process research and development.
 
                                        7
<PAGE>   9
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
    NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                                         DECEMBER 31,
                                                                     ---------------------
                                                                       1997         1996
                                                                     --------     --------
                                                                     (IN THOUSANDS, EXCEPT
                                                                        PER SHARE DATA)
    <S>                                                              <C>          <C>
    Net sales......................................................  $ 42,882     $ 33,351
    Net loss.......................................................  $(28,067)    $(30,750)
    Net loss per share:
      Basic........................................................  $  (1.96)    $  (2.52)
      Diluted......................................................  $  (1.87)    $  (2.36)
</TABLE>
 
     The historical net sales of GenDerm, prior to its acquisition by Medicis,
for the six month periods noted above are based upon GenDerm's sales practices
which the Company believes may have included discounts and sales incentives to
increase GenDerm's sales above historic consumption levels. Due to these selling
practices, there can be no assurance that the Company will be able to attain
similar sales levels of the GenDerm products incorporated in the pro forma
results. The Company intends to fully integrate the acquired GenDerm products
into its existing sales and marketing infrastructure and philosophy. Subsequent
to the acquisition, the Company eliminated a substantial portion of the sales,
marketing and general and administrative functions previously performed by
GenDerm which represent a material portion of GenDerm's business. Such expenses
have not been eliminated from the pro forma results presented herein. The
Company believes that GenDerm's historical expenses do not represent the
expected level of incremental expenses that will be incurred by the Company.
 
4.  CONTINGENCIES
 
     The Company and certain of its subsidiaries, from time to time, are parties
to certain actions and proceedings incidental to their business. Liability in
the event of final adverse determinations in any of these matters is either
covered by insurance and/or established reserves or, in the opinion of
management, after consultation with counsel, should not in the aggregate have a
material adverse effect on the consolidated financial position or results of
operations of the Company and its subsidiaries.
 
5.  INVENTORIES
 
     Although the Company utilizes third parties to manufacture and package
inventories held for sale, the Company takes title to certain inventories and
records the associated liability once inventories are manufactured. Inventories
are valued at the lower of cost or market as determined by net realizable value
using the first-in-first-out method. Inventories, net of reserves, at December
31, 1997, and June 30, 1997, consist of the following:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,      JUNE 30,
                                                                 1997            1997
                                                             ------------     ----------
        <S>                                                  <C>              <C>
        Raw materials......................................   $  845,870      $  557,520
        Finished goods.....................................    5,633,418       2,424,357
                                                              ----------      ----------
             Total inventories.............................   $6,479,288      $2,981,877
                                                              ==========      ==========
</TABLE>
 
6.  INCOME TAXES
 
     Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The provision for income taxes (recorded at an effective rate of 39% for
the quarter and six month periods ended December 31, 1997 excluding in-process
research and development which has no tax benefit) reflects management's
estimation of the effective tax rate
 
                                        8
<PAGE>   10
 
                       MEDICIS PHARMACEUTICAL CORPORATION
 
    NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
expected to be applicable for the full fiscal year. This estimate is reevaluated
by management each quarter based on estimated tax expenses for the year.
 
     The income tax benefit recorded in the first quarter of fiscal 1997 is a
result of management's reduction of the valuation allowance to an amount the
Company believes appropriate. Accordingly, a credit to income tax benefit was
reflected in the quarter ended September 30, 1996.
 
     At September 30, 1997, the Company took advantage of additional tax
deductions available relating to the exercise of non-qualified stock options and
disqualified dispositions of incentive stock options. Accordingly, the Company
recorded a $5.9 million increase to stockholders' equity with a corresponding
$0.7 million reduction to taxes payable and a $5.2 million increase to deferred
tax assets. Quarterly adjustments for the exercise of non-qualified stock
options and disqualified dispositions of incentive stock options may vary as
they relate to the intentions of the option holder. During the quarter ended
December 31, 1997, the tax benefit associated with the exercise of such options
was not significant.
 
                                        9
<PAGE>   11
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
     The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto contained herein, the
Company's audited financial statements, notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
relating thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, and with the Company's Current Report on Form
8-K, and amendment thereto, relating to the Company's acquisition of the
outstanding stock of GenDerm on December 3, 1997 (the "Form 8-K/A").
 
     The Company's Form 10-Q contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. In
addition, from time to time, the Company or its representatives have made or may
make forward looking statements, orally or in writing. Such forward looking
statements involve known and unknown risks and uncertainties. The Company's
actual actions or results could differ materially from those anticipated and
these forward looking statements as a result of certain factors including, but
not limited to, those factors discussed in the documents filed by the Company
with the Securities and Exchange Commission from time to time, including the
Company's Registration Statement on Form S-3 and the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997. The Company undertakes no
obligation to update any forward looking statements.
 
OVERVIEW
 
     Medicis was founded in 1987 to develop and market prescription and OTC
products to treat dermatological conditions. Innovative Therapeutics, Inc. (the
predecessor of the Company) was incorporated under the laws of the District of
Columbia on July 1, 1987, subsequently changed its name to Medicis Corporation
and was merged with and into Medicis Corporation, which was incorporated in July
29, 1988 under the laws of Delaware, pursuant to an Agreement of Merger dated
July 29, 1988. Medicis Corporation subsequently changed its name to Medicis
Pharmaceutical Corporation.
 
     Medicis is the leading independent pharmaceutical company in the United
States focusing exclusively on the treatment of dermatological conditions. The
Company offers prescription, OTC, and cosmetic dermatology products, emphasizing
the clinical effectiveness, quality, affordability and cosmetic elegance of its
products. Medicis has achieved a leading position in branded products for the
treatment of acne, acne-related conditions, psoriatic conditions, and
anti-pruritic conditions, while also offering the leading OTC fade cream product
line in the United States. The Company has built its business through
successfully introducing prescription pharmaceuticals such as DYNACIN(R) and
TRIAZ(R) products for the treatment of acne, as well as marketing OTC products
such as the ESOTERICA(R) fade cream product line. In addition, Medicis has
acquired the rights to LIDEX(R) and SYNALAR(R) corticosteroid product lines in
the United States and Canada from Syntex and the entire product line from
GenDerm, including ZOSTRIX(R)topical analgesics and NOVACET(R) acne rosacea
treatments. Medicis has also formed a new business unit, TxSYSTEMS by
Medicis(TM), to market non-prescription cosmetic dermatology products for sale
directly to dermatologists in the United States for administration and
dispensing to patients.
 
     Prescription pharmaceuticals accounted for 86.5%, 83.2% and 70.6% of net
sales in the fiscal years ending June 30, 1997 ("fiscal 1997"), fiscal 1996 and
1995, respectively and for 80.5% and 83.8% in the fiscal quarter and six months
ended December 31, 1997. Although DYNACIN(R) products accounted for a majority
of the Company's total sales in fiscal 1997, 1996 and 1995, the Company believes
it will no longer derive the majority of its net sales from DYNACIN(R) in the
future. The Company believes that as a result of the GenDerm acquisition OTC
products will account for a greater percentage of the Company's total sales in
future quarters with minimal impact on the Company's gross profit margins.
 
     The Company derives a majority of its revenue from sales of DYNACIN(R),
TRIAZ(R) and LIDEX(R) products and expects the newly acquired line of ZOSTRIX(R)
products to also be a significant contributor to revenues (the "Key Products").
The Company believes that sales of the Key Products will constitute the majority
of net sales for the foreseeable future. Accordingly, any factor adversely
affecting the sale of the Key Products individually or collectively would have a
material adverse effect on the Company's business, financial condition and
results of operations. Each of the Key Products could be rendered obsolete or
uneconomical by regulatory or competitive changes. The sale of Key Products
could also be adversely affected by other factors,
 
                                       10
<PAGE>   12
 
including manufacturing or supply interruptions, the development of new
competitive pharmaceuticals to treat the conditions addressed by the Key
Products, technological advances, factors affecting the cost of production,
marketing or pricing actions by one or more of the Company's competitors,
changes in the prescribing practices of dermatologists, changes in the
reimbursement policies of third-party payors, product liability claims or other
factors.
 
     The Company's results of operations may vary from period to period due to a
variety of factors, including expenditures incurred to acquire, license and
promote pharmaceuticals, expenditures and timing relating to acquisition and
integration of businesses, changes in the prescribing practices of
dermatologists, the introduction of new products by the Company or its
competitors, cost increases from third-party manufacturers, manufacturing or
supply interruptions, the availability and cost of raw materials, the mix of
products sold by the Company, changes in marketing and sales expenditures,
market acceptance of the Company's products, competitive pricing pressures, and
general economic and industry conditions that affect customer demand, and the
Company's level of research and development activities. In addition, the
Company's business has historically been subject to seasonal fluctuations, with
lower sales generally being experienced in the first quarter of each fiscal
year. As a result of customer buying patterns, a substantial portion of the
Company's revenues has been in the last month of each quarter. The Company
schedules its inventory purchases to meet anticipated customer demand. As a
result, relatively small delays in the receipt of manufactured products by the
Company could result in revenues being deferred or lost. The Company's operating
expenses are based on anticipated sales levels, and a high percentage of the
Company's operating expenses are relatively fixed in the short term.
Consequently, variations in the timing of recognition of revenue could cause
significant fluctuations in operating results from period to period and may
result in unanticipated earnings shortfalls or losses. There can be no assurance
that the Company will maintain or increase revenues or profitability or avoid
losses in any future period.
 
     The Company's strategy for growth is substantially dependent upon its
continued ability to acquire products targeted at the dermatology market. The
Company engages in limited proprietary research and development of new products
and must rely upon the willingness of other companies to sell or license product
lines. Other companies, including those with substantially greater financial,
marketing and sales resources, compete with the Company to acquire such
products. There can be no assurance that the Company will be able to acquire
rights to additional products on acceptable terms, or at all. The failure of the
Company to acquire additional products or successfully introduce new products
could have a material adverse effect on the Company's business, financial
condition and results of operations. Further, any new internally developed or
acquired products may have different distribution channels and may face
different pricing pressures and levels of competition than the Company's current
products. Consequently, there can be no assurance that the Company will be able
to compete favorably and attain market acceptance in any new product category or
successfully integrate any acquired products or businesses. In addition, any
such products may require the Company to significantly increase its sales force
and incur commensurate expenses in anticipation of a new product introduction.
Failure of the Company to successfully introduce and market new products,
whether internally developed or acquired from third parties, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company has recently experienced a period of significant expansion of
its operations that has placed a significant strain upon its management system
and resources. The Company's ability to compete effectively and to manage future
growth, if any, will require the Company to continue to improve its financial
and management controls, reporting systems and procedures on a timely basis and
expand, train and manage an increasing number of employees. The Company's
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's business strategy
includes potential acquisitions of products and businesses and introductions of
new products. The Company anticipates that the integration of additional new
businesses or potential products, if any, would require significant expense and
management time and attention. Failure to manage growth effectively would have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
                                       11
<PAGE>   13
 
     The Company recognizes revenues from sales upon shipment to its customers.
At the time of sale, the Company records reserves for returns based on estimates
using historical experience. Sales are reported net of actual and estimated
product returns and net of pricing adjustments and/or discounts. The Company
applies royalty obligations to the cost of sales in the period the corresponding
sales are recognized.
 
     Medicis' customers include the nation's leading wholesale pharmaceutical
distributors, such as McKesson Drug Company ("McKesson"), Bergen Brunswig Drug
Company ("Bergen Brunswig"), Cardinal Health, Inc. ("Cardinal"), Bindley Western
Drug Company and major drug chains. In fiscal 1997, McKesson, Cardinal and
Bergen Brunswig accounted for 20.6%, 16.3% and 10.9%, respectively, of the
Company's sales. In fiscal 1996, McKesson, Bergen Brunswig and Cardinal
accounted for 15.5%, 12.2% and 11.8%, respectively, of the Company's sales. The
loss of, or deterioration in, any of these customer accounts would have a
material adverse effect on the Company's business, financial condition and
results and operations.
 
     To enable Medicis to focus on its core marketing and sales activities, the
Company selectively out-sources certain non-sales and non-marketing functions,
such as laboratory research, manufacturing and warehousing. As the Company
expands its activities in these areas, additional financial resources are
expected to be utilized. The Company typically does not enter into long-term
manufacturing contracts with third-party manufacturers. Whether or not such
contracts exist, there can be no assurance that the Company will be able to
obtain adequate supplies of its products in a timely fashion, on acceptable
terms, or at all.
 
     The Company may increase total expenditures for research and development
and expects that research and development expenditures as a percentage of net
sales will fluctuate from period to period. Actual expenditures will depend on a
variety of factors, including the Company's financial condition, as well as the
results of clinical testing, delays or changes in government-required testing
and approval procedures, technological and competitive developments and
strategic marketing decisions. There can be no assurance that any product or
technology under development will result in the successful introduction of any
new product.
 
RECENT EVENTS
 
     In December 1997, the Company acquired 100% of the common stock of GenDerm
for approximately $60.0 million and the Company could pay an additional sum not
to exceed $20.0 million if sales of GenDerm products, as defined in the
acquisition agreement, are in excess of $31.0 million during calendar 1999 and
certain other conditions are met ("GenDerm Earnout Amount"). Products acquired
in the transaction include, among others, the prescription brands NOVACET(R) and
ZONALON(R), as well as the OTC brands ZOSTRIX(R), OCCLUSAL-HP, PENTRAX(R), and
SALAC(R). Prior to the acquisition, the Company did not market any products in
the topical acne rosacea treatment, anti-itch medication, analgesic or wart
treatment markets, and the Company has no experience marketing such products.
Successful integration of these products by the Company is important to
maintaining growth of sales of these products. The historical net sales of
GenDerm, prior to its acquisition by Medicis, are based upon GenDerm's sales
practices which the Company believes may have included discounts and sales
incentives to increase GenDerm's sales above historic consumption levels. Due to
these selling practices, there can be no assurance that the Company can attain
similar sales levels of the GenDerm products. There can be no assurance that the
Company will be able to successfully integrate, market and sell the products
acquired from GenDerm, or that such products will be accepted by the market at
levels previously achieved by GenDerm, or sufficient to maintain growth. The
failure of the Company to successfully integrate, market and sell these products
would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the integration of the
operations, functional and financial controls, and reporting systems of GenDerm
with and into the operations of the Company has not yet been completed, and
there can be no assurance that such integration will be accomplished
successfully or without significant expense, delay or diversion of management
resources.
 
     The acquisition involves a number of risks that could adversely affect the
Company's operating results, including the assumption of liabilities and
obligations of GenDerm, including the liabilities and obligations which may not
have been adequately disclosed to the Company, the diversion of management's
attention, the assimilation of the acquired operations into the Company's
business and the valuation of acquired intangible
 
                                       12
<PAGE>   14
 
assets. The agreement governing the terms of the acquisition limits the
Company's remedies for any losses incurred by the Company in connection with the
acquisition to the indemnification rights specifically provided to the Company
under the agreement governing the acquisition. The indemnification rights are
limited to a maximum of $11.0 million, subject to certain adjustments, together
with the GenDerm Earnout Amount (and any interest thereon). Any claims for
indemnification must be made prior to August 1, 2000 in accordance with the
terms of the agreement governing the acquisition. There can be no assurance that
the acquisition of GenDerm by the Company will not materially and adversely
affect the Company or that such acquisition will enhance the Company's business.
 
RESULTS OF OPERATIONS
 
     The following discussion and analysis should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997
the Company's Quarterly Report on Form 10-Q for the six months ended December
31, 1997 and the Company's Form 8-K/A. The following table sets forth certain
data as a percentage of net sales for the periods indicated.
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS         SIX MONTHS
                                                                  ENDED                ENDED
                                                               DECEMBER 31,        DECEMBER 31,
                                                             ----------------     ---------------
                                                              1997      1996      1997      1996
                                                             ------     -----     -----     -----
<S>                                                          <C>        <C>       <C>       <C>
Net sales..................................................   100.0%    100.0%    100.0%    100.0%
Gross profit...............................................    82.3      73.5      82.0      73.3
In-process research and development........................   209.1        --     114.8        --
Operating expenses(1)......................................    45.6      46.5      45.8      48.6
Operating income (loss)....................................  (172.4)     27.0     (78.6)     24.7
Net interest income........................................     5.4      15.4       6.9       9.0
Income tax benefit (expense)...............................   (16.4)     (4.2)    (16.8)      9.8
                                                              -----     -----     -----     -----
Net income (loss)..........................................  (183.4)%    38.2%    (88.5)%    43.5%
                                                              =====     =====     =====     =====
</TABLE>
 
(1) Excludes in-process research and development.
 
     Quarterly results may vary from period to period due to a variety of
factors, including expenditures incurred to acquire, license and promote
pharmaceuticals, expenditures and timing relating to acquisition and integration
of businesses, changes in the prescribing practices of dermatologists, the
introduction of new products by the Company or its competitors, cost increases
from third-party manufacturers, manufacturing or supply interruptions, the
availability and cost of raw materials, the mix of products sold by the Company,
changes in marketing and sales expenditures, market acceptance of the Company's
products, competitive pricing pressures, general economic and industry
conditions that affect customer demand, and the Company's level of research and
development activities. In addition, the Company's business has historically
been subject to seasonal fluctuations, with lower sales generally being
experienced in the first quarter of each fiscal year. As a result of customer
buying patterns, a substantial portion of the Company's revenues has been in the
last month of each quarter. The Company schedules its inventory purchases to
meet anticipated customer demand. As a result, relatively small delays in the
receipt of manufactured products by the Company could result in revenues being
deferred or lost. The Company's operating expenses are based on anticipated
sales levels, and a high percentage of the Company's operating expenses are
relatively fixed in the short term. Consequently, variations in the timing of
recognition of revenue could cause significant fluctuations in operating results
from period to period and may result in unanticipated earnings shortfalls or
losses. There can be no assurance that the Company will maintain or increase
revenues or profitability or avoid losses in any future period.
 
                                       13
<PAGE>   15
 
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1996
 
  Net Sales
 
     Net sales for the three months ended December 31, 1997 (the "second quarter
of fiscal 1998") increased 99.0%, or $8.4 million, to $16.9 million from $8.5
million for the three months ended December 31, 1996 (the "second quarter of
fiscal 1997"). The Company's net sales increased in the second quarter of fiscal
1998 primarily as a result of both unit and dollar sales growth of the Company's
prescription products. The second quarter of fiscal 1998 included product sales
from acquisitions in February 1997 of the LIDEX(R) and SYNALAR(R) brands and in
December 1997 of the GenDerm brands (the "Acquired Brands"). The second quarter
of fiscal 1997 did not include sales of the Acquired Brands. The Company's
prescription products accounted for 80.5% of net sales in the second quarter of
fiscal 1998 and 84.7% in the second quarter of fiscal 1997. The OTC and cosmetic
products accounted for 19.5% of net sales in the second quarter of fiscal 1998
as compared to 15.3% of net sales in the second quarter of fiscal 1997. The
Company believes that as a result of the GenDerm acquisition, OTC products will
account for a greater percentage of the Company's total sales in future quarters
with minimal impact on current gross profit margins.
 
  Gross Profit
 
     Gross profit in the second quarter of fiscal 1998 increased 122.6%, or $7.6
million, to $13.9 million from $6.3 million in the second quarter of fiscal
1997. As a percentage of net sales, gross profit increased 8.8 percentage points
to 82.3% in the second quarter of fiscal 1998 from 73.5% in the second quarter
of fiscal 1997, primarily attributable to sales associated with the Company's
higher margin products, LIDEX(R), SYNALAR(R) and TRIAZ(R). The Company believes
the incremental impact of the GenDerm products on the Company's gross profit
margins as a percentage of net sales to be minimal.
 
  Selling, General and Administrative Expenses
 
     Selling, general and administrative expenses in the second quarter of
fiscal 1998 increased 85.1%, or $2.8 million, to $6.2 million from $3.4 million
in the second quarter of fiscal 1997, primarily due to the expenses associated
with the promotion and administration of the Acquired Brands, the introduction
of two new products through the Company's TxSYSTEMS by Medicis(TM) business
unit, BETA-LIFTx(TM) and AFIRM(TM), in March 1997, and the sampling and
advertising of the Company's existing products.
 
     Additionally, selling, general and administrative expenses increased due to
an increase in variable compensation commensurate with increased sales volume,
personnel costs attributable to the hiring of additional full-time equivalent
employees, primarily in sales functions, and cost-of-living salary adjustments.
Selling, general and administrative costs, as a percentage of sales, decreased
2.7 percentage points in the second quarter of fiscal 1998 relative to the
second quarter of fiscal 1997.
 
  Research and Development Expenses
 
     Research and development expenses in the second quarter of fiscal 1998
increased 99.4%, or approximately $451,000, to approximately $904,000 from
approximately $453,000 in the second quarter of fiscal 1997, primarily due to
expansion of research and development activities of new projects and an increase
in expenses associated with the clinical support of the Company's existing
products.
 
  In-Process Research and Development
 
     The Company recorded a $35.4 million charge to operations as in-process
research and development during the second quarter of fiscal 1998 as part of the
allocated purchase price of GenDerm. The amount allocated to in-process research
and development was based on an independent appraisal. No such amount was
recorded in the second quarter of fiscal 1997.
 
                                       14
<PAGE>   16
 
  Depreciation and Amortization Expenses
 
     Depreciation and amortization expenses in the second quarter of fiscal 1998
increased 305.6%, or $458,000, to $608,000 from $150,000 in the second quarter
of fiscal 1997. The increase is primarily due to amortization of the purchase
price of the LIDEX(R) and SYNALAR(R) products acquired in February 1997, as well
as amortization of the intangible assets associated with the Company's
acquisition of GenDerm in December 1997.
 
  Operating Income
 
     Operating income in the second quarter of fiscal 1998 decreased 1,369.8%,
or $31.5 million, to a net operating loss of $29.2 million from a net operating
income of $2.3 million in the second quarter of fiscal 1997. This decrease is
the result of the charge for in-process research and development to operating
expenses relating to the Company's purchase of GenDerm in December 1997. Absent
this special charge, operating income in the second quarter of fiscal 1998
increased 170.0%, or $3.9 million, to $6.2 million from $2.3 million in the
second quarter of fiscal 1997 as a result of higher sales volume, coupled with
an 8.8 percentage point increase in the Company's gross profit as a percentage
of net sales and a decrease in selling, general and administrative expenses as a
percentage of net sales.
 
  Interest
 
     Interest income in the second quarter of fiscal 1998 decreased to
approximately $0.9 million from approximately $1.3 million in the second quarter
of fiscal 1997, primarily due to lower cash equivalent and short-term investment
balances in the second quarter of fiscal 1998 as a result of the Company's
purchase of GenDerm Corporation in December 1997.
 
  Net Income
 
     Net income in the second quarter of fiscal 1998 decreased approximately
1,055.0%, or $34.3 million, to a net loss of $31.1 million from a net income of
$3.2 million in the second quarter of fiscal 1997. This decrease is the result
of the charge for in-process research and development to operating expenses
relating to the Company's purchase of GenDerm in December 1997. Absent this
special charge, net income in the second quarter of fiscal 1998 increased 33.8%,
or $1.1 million, to $4.3 million from $3.2 million in the second quarter of
fiscal 1997 as a result of an increase in sales volume, an increase in gross
profit as a percentage of net sales, and a decrease in selling, general and
administrative costs as a percentage of sales. Net income during the second
quarter of fiscal 1998 was offset by $2.8 million related to income taxes
compared to $0.4 in the second quarter of fiscal 1997.
 
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1996
 
  Net Sales
 
     Net sales for the six months ended December 31, 1997 (the "1998 six
months") increased 95.5% or $15.0 million, to $30.8 million from $15.8 million
for the six months ended December 31, 1996 (the "1997 six months") primarily as
a result of an increase in unit and dollar sales of the Company's prescription
products. The 1998 six months included product sales from acquisitions in
February 1997 of the LIDEX(R) and SYNALAR(R) brands and in December 1997 of the
GenDerm brands (the "Acquired Brands"). The 1997 six months did not include
sales of the Acquired Brands. The Company's prescription products accounted for
83.8% of net sales in the 1998 six months as compared to 85.0% of net sales in
the 1997 six months. The OTC and cosmetic products accounted for 16.2% of net
sales in the 1998 six months as compared to 15.0% of net sales for the 1997 six
months. The Company believes that as a result of the GenDerm acquisition, OTC
products will account for a greater percentage of the Company's total sales in
future quarters with minimal impact on current gross profit margins. The Company
has in the past and anticipates it will in the future continue to invest a
majority of its marketing funds in the Company's prescription products.
 
                                       15
<PAGE>   17
 
  Gross Profit
 
     Gross profit in the 1998 six months increased 118.6%, or $13.7 million, to
$25.3 million from $11.6 million in the 1997 six months. As a percentage of net
sales, gross profit increased 8.7 percentage points to 82.0% in the 1998 six
months from 73.3% in the 1997 six months, primarily attributable to sales
associated with the Company's higher margin products, LIDEX(R), SYNALAR(R) and
TRIAZ(R). The Company believes the incremental impact of the GenDerm products on
the Company's gross profit margins as a percentage of net sales to be minimal.
 
  Selling, General and Administrative Expenses
 
     Selling, general and administrative expenses in the 1998 six months
increased 71.2%, or $4.8 million, to $11.6 million from $6.8 million in the 1997
six months. The increase is primarily due to an increase in selling, general and
administrative expenses associated with promotion and administration of the
Acquired Brands, the introduction of two new products through the Company's
TxSYSTEMS(TM) by Medicis business unit, BETA-LIFTX(TM) and AFIRM(TM), launched
in March 1997, and the sampling and advertising of the Company's existing
products.
 
     Additionally, selling, general and administrative expenses increased due to
variable compensation commensurate with increased sales volume, personnel costs
attributable to an increase in full-time equivalent employees, and
cost-of-living salary adjustments. Selling, general and administrative costs, as
a percentage of net sales, have decreased 5.3 percentage points in the 1998 six
months compared to the 1997 six months.
 
  Research and Development Expenses
 
     Research and development expenses in the 1998 six months increased 136.2%
or $0.8 million to approximately $1.4 million, from $0.6 million in the 1997 six
months primarily due to expansion of new product research and development
activities and an increase in costs associated with the expanded clinical
support of the Company's existing products.
 
  In-Process Research and Development
 
     The Company recorded a $35.4 million charge to operations as in-process
research and development during the 1998 six months as part of the allocated
purchase price of GenDerm. The amount allocated to in-process research and
development was based on an independent appraisal. No such amount was recorded
in the 1997 six months.
 
  Operating Income
 
     Operating income in the 1998 six months decreased 722.2%, or $28.1 million
to a net operating loss of $24.2 million from net operating income of $3.9
million in the 1997 six months primarily as a result of the charge for
in-process research and development to operating expenses relating to the
Company's purchase of GenDerm in December 1997. Absent this special charge,
operating income in the 1998 six months increased 186.8%, or $7.3 million, to
$11.2 million from $3.9 million in the 1997 six months as a result of higher
sales volume, coupled with an 8.7 percentage point increase in the Company's
gross profit as a percentage of net sales and a decrease in selling, general and
administrative expenses as a percentage of net sales.
 
  Interest
 
     Interest income in the 1998 six months increased 48.9%, or $0.7 million to
$2.1 million from approximately $1.4 million in the 1997 six months, primarily
due to higher cash and short-term investment balance in the 1998 six months
generated from cash flow from operations and the public offering completed by
the Company in October 1996, raising $95.7 million before related expenses or
$90.1 million net of related expenses.
 
                                       16
<PAGE>   18
 
  Income Tax
 
     Income tax expense in the 1998 six months increased 435.8%, or $6.7 million
to an expense of $5.2 million from a benefit of $1.5 million in the 1997 six
months. The provision for income taxes recorded for the first quarter of fiscal
1998 reflects management's estimate of the effective tax rate expected to be
applicable for the full fiscal year. This estimate is reevaluated by management
each quarter based on forecasts of income before taxes for the year. The
Company's tax provision is recorded at an effective tax rate of 39% for the 1998
six months. No income tax benefit is associated with the charge for in-process
research and development. The income tax benefit recorded in the first quarter
of fiscal 1997 ending September 30, 1996 is a result of management reducing the
valuation allowance to an amount the Company believes appropriate. Accordingly,
a credit to income tax benefit of $2.0 million was reflected in the first
quarter of fiscal 1997.
 
  Net Income
 
     Net income in the 1998 six months decreased approximately 498.2%, or $34.2
million to a net loss of $27.3 million from a net income of $6.9 million in the
1997 six months. This decrease is the result of the charge for in-process
research and development to operating expenses relating to the Company's
purchase of GenDerm in December 1997. Absent this special charge, net income in
the 1998 six months increased 18.2%, or $1.2 million, to $8.1 million from $6.9
million in the 1997 six months as a result of an increase in sales volume, an
increase in gross profit as a percentage of net sales, a decrease in selling,
general and administrative costs as a percentage of sales, offset by the
recording of income taxes in the 1998 six months.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1997 and June 30, 1997, the Company had cash equivalents
and short-term investments of approximately $33.6 million and $85.1 million,
respectively. The Company's working capital was $51.4 million and $94.8 million
at December 31, 1997 and June 30, 1997, respectively. The decrease in working
capital is primarily attributable to a decrease in cash equivalents and
short-term investments used to purchase 100% of the outstanding common stock of
GenDerm in December 1997.
 
     At December 31, 1997 and June 30, 1997, the Company had inventories of $6.5
million and $3.0 million, respectively. The increase in the Company's inventory
balances is primarily related to the inventories acquired in the GenDerm
acquisition. Historically, GenDerm held a greater level of inventory balances
than the Company traditionally maintains.
 
     At December 31, 1997 and June 30, 1997, the Company had current liability
balances of $16.2 million and $8.7 million, respectively. The increase is due
primarily to the assumption of the GenDerm liabilities.
 
     In the 1998 six months, the Company decreased its cash position primarily
through the acquisition of GenDerm for which the Company paid approximately
$60.0 million in cash, offset by $6.9 million cash provided by operations. In
fiscal 1997, the Company increased its cash position through a public offering
of its common stock yielding $95.7 million before related expenses, through
$13.8 million in cash generated by operations and $3.5 million generated from
the exercise of stock options. In fiscal 1997, the Company paid $28.0 million
for the purchase of the LIDEX(R) and SYNALAR(R) products.
 
     In November 1996, the Company increased its credit facility obtained in May
1996 with Norwest Bank Arizona, N.A. ("Norwest") from $5.0 million to $25.0
million (the "Credit Facility"). Due to the timing of the Credit Facility
increase, $5.0 of the Credit Facility expires in February 1998 and $20.0 million
of the Credit Facility expires in November 1998. The Credit Facility is secured
by principal assets of the Company. The Company is required to comply with
certain covenants and restrictions, including covenants relating to the
Company's financial condition and results of operations. Although the Company
has yet to draw down on the Credit Facility, the lack of availability of loans,
the requirement to make early repayment of loans or the inability of the Company
to renew the Credit Facility could have a material adverse effect on the
Company, depending on its liquidity and working capital at such time.
 
     In February 1997, the Company acquired the intellectual property rights,
know-how, and all finished goods inventory specifically associated with Syntex's
topical corticosteroid dermatology products ("the
 
                                       17
<PAGE>   19
 
Purchased Products") in the United States and Canada from Syntex and its parent
company, F. Hoffman-La Roche, Ltd. The Company, using cash reserves, paid $28.0
million, and will pay an additional $3.0 million in $1.0 million installments on
the anniversary of the purchase for each over the next three years if certain
market conditions are met. Medicis acquired The Purchased Products include the
prescription topical steroid brands LIDEX(R) and SYNALAR(R). Prior to the
acquisition, the Company did not market any products in this category of
dermatological care.
 
     In June 1997, the Company entered into a product development and
distribution agreement with an unrelated third party whereby the Company will
pay certain costs with respect to certain product approvals estimated to be
approximately $1.0 million.
 
     The Company may need to raise additional funds to acquire or license
additional formulations, technologies, products or businesses, to expand its
sales force, to support the marketing and sales of additional products, and
possibly to expand its facilities to accommodate an expanded sales force or to
expand manufacturing capabilities and capacity. The Company may seek additional
funding through public and private financings, including equity financings.
Adequate funds for these purposes, whether through the financial markets or from
other sources, may not be available when needed or on terms acceptable to the
Company. Insufficient funds may cause the Company to delay, scale back, or
abandon some or all of its acquisition and licensing programs or marketing and
manufacturing opportunities.
 
     In accordance with various manufacturing agreements, the Company is
required to provide manufacturers with pro forma estimated production
requirements by product and in accordance with minimum production runs. From
time to time, the Company may not take possession of all merchandise which has
been produced by the manufacturer. However, the Company records its obligation
to the manufacturer at the time production is completed.
 
     Inflation did not have a significant impact upon the results of the Company
during the 1998 six months,
fiscal 1997, 1996 or 1995.
 
PART II.  OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS.
 
     The Company and certain of its subsidiaries are parties to actions and
proceedings incident to their business, including certain litigation assumed in
connection with the GenDerm acquisition. The Company believes liability in the
event of final adverse determinations in any of these matters is either covered
by the indemnification provided to the Company under the GenDerm acquisition
agreement, insurance and/or established reserves, or will not, in the aggregate,
have a material adverse effect on the business, financial position or results of
operations of the Company. There can be no assurance that an adverse
determination on any action or proceeding will not have a material adverse
effect on the business, financial condition and results of operations of the
Company.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     On November 21, 1997, the Company held its 1997 Annual Meeting of
Stockholders (the "Annual Meeting"). The holders of 12,845,276 shares of Class A
Common Stock and 252,677 shares Class B Common
 
                                       18
<PAGE>   20
 
Stock were present in person or represented by proxy at the meeting. At the
Annual Meeting the Company's stockholders approved the following:
 
     (1) Election of Directors
 
          The stockholders elected the following persons to serve as directors
     of the Company for terms of three years, or until their successors are duly
     elected and qualified. Votes were cast as follows:
 
<TABLE>
<CAPTION>
                                                                         NUMBER OF
                                                                      VOTES FOR WHICH
                                                        NUMBER OF     PROXY WITHHELD
                                                        VOTES FOR        AUTHORITY
                                                       -----------    ---------------
            <S>                                        <C>            <C>
            Arthur G. Altschul, Jr. .................   15,365,035         7,011
            Philip S. Schein, M.D. ..................   15,365,035         7,011
</TABLE>
 
     (2) Appointment of Auditors
 
          The stockholders approved the appointment of Ernst & Young LLP as
     independent auditors for the fiscal year ending June 30, 1998. Votes were
     cast as follows:
 
<TABLE>
<CAPTION>
NUMBER OF        NUMBER OF          NUMBER OF
VOTES FOR      VOTES AGAINST     VOTES ABSTAINING
----------     -------------     ----------------
<S>            <C>               <C>
12,497,172      317,657            2,557,217
</TABLE>
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
(a) Exhibits
 
     (See Note 7 to the Notes to the Condensed Consolidated Financial Statements
     incorporated herein for computation of Per Common Share Results.)
 
(b) Reports on Form 8-K
 
     During the second quarter of fiscal 1998, the Company filed the following
report on Form 8-K:
 
     Current report on Form 8-K dated December 15, 1997 reporting the Company's
     acquisition of 100% of the common stock of GenDerm Corporation of
     Lincolnshire, Illinois.
 
                                       19
<PAGE>   21
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
                                          MEDICIS PHARMACEUTICAL CORPORATION
 
<TABLE>
<S>                 <C>
Date: 1/11/98       By: /s/ JONAH SHACKNAI
                        -------------------------------------------
                        Jonah Shacknai
                        Chairman and Chief Executive Officer
 
Date: 1/11/98       By: /s/ MARK A. PRYGOCKI SR.
                        -------------------------------------------
                        Mark A. Prygocki, Sr.
                        Chief Financial Officer,
                        Secretary and Treasurer
</TABLE>
 
                                       20