<PAGE>   1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY   , 1998
                                                     REGISTRATION NO. 333-
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-3
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                       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
          INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NUMBER)
</TABLE>
 
                      4343 EAST CAMELBACK ROAD, SUITE 250,
                          PHOENIX, ARIZONA 85018-2700
                                 (602) 808-8800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                    REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
 
                            ------------------------
 
                                 JONAH SHACKNAI
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                       MEDICIS PHARMACEUTICAL CORPORATION
                      4343 EAST CAMELBACK ROAD, SUITE 250
                          PHOENIX, ARIZONA 85018-2700
                                 (602) 808-8800
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                            ------------------------
 
                                   COPIES TO:
 
<TABLE>
<S>                                                <C>
            JOSEPH P. RICHARDSON, ESQ.                           ALAN C. MENDELSON, ESQ.
                 JIN SUN KIM, ESQ.                                 COOLEY GODWARD LLP
                  BRYAN CAVE LLP                                  FIVE PALO ALTO SQUARE
                    SUITE 2100                                     3000 EL CAMINO REAL
             2800 NORTH CENTRAL AVENUE                         PALO ALTO, CALIFORNIA 94306
              PHOENIX, ARIZONA 85004
</TABLE>
 
                            ------------------------
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.
 
    If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
 
    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
 
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
===========================================================================================================
 TITLE OF EACH CLASS OF SECURITIES                   PROPOSED MAXIMUM   PROPOSED MAXIMUM      AMOUNT OF
                                     AMOUNT TO BE   OFFERING PRICE PER AGGREGATE OFFERING   REGISTRATION
         TO BE REGISTERED            REGISTERED(1)       SHARE(2)           PRICE(2)           FEE(2)
-----------------------------------------------------------------------------------------------------------
<S>                                 <C>             <C>                <C>                <C>
Class A Common Stock, $0.14 par
  value per share..................    3,450,000          $43.91          $151,489,500         $44,690
===========================================================================================================
</TABLE>
 
(1) Includes 450,000 shares of Class A Common Stock that Underwriters have the
    option to purchase to cover overallotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
    fee in accordance with Rule 457(c) under the Securities Act of 1933.
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>   2
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
                  SUBJECT TO COMPLETION, DATED JANUARY   , 1998
 
                                3,000,000 SHARES
 
                              CLASS A COMMON STOCK
 
     All of the 3,000,000 shares of the Class A Common Stock (unless the context
otherwise requires, "Common Stock") offered hereby are being issued and sold by
Medicis Pharmaceutical Corporation ("Medicis" or the "Company"). On January 9,
1998, the last sale price of the Company's Common Stock, as reported on the
Nasdaq National Market, was $44.63 per share. See "Price Range of Common Stock."
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "MDRX."
                            ------------------------
 
        THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 5.
                            ------------------------
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
  ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
     PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
===============================================================================================
                                                              UNDERWRITING
                                              PRICE TO       DISCOUNTS AND      PROCEEDS TO
                                               PUBLIC         COMMISSIONS        COMPANY(1)
-----------------------------------------------------------------------------------------------
<S>                                      <C>               <C>               <C>
Per Share................................         $                $                 $
-----------------------------------------------------------------------------------------------
Total(2).................................         $                $                 $
===============================================================================================
</TABLE>
 
(1) Before deducting expenses payable by the Company estimated at $350,000.
 
(2) The Company has granted the Underwriters a 30-day option to purchase up to
    an additional 450,000 shares of Common Stock solely to cover
    over-allotments, if any. See "Underwriting." If such option is exercised in
    full, the total Price to Public, Underwriting Discounts and Commissions and
    Proceeds to Company will be $          , $          and $
    respectively. See "Underwriting."
                            ------------------------
 
     The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part. It is expected that delivery of such shares will be made through the
offices of BancAmerica Robertson Stephens, San Francisco, California, on or
about           , 1998.
 
BANCAMERICA ROBERTSON STEPHENS
                               HAMBRECHT & QUIST
                                                            SALOMON SMITH BARNEY
 
                The date of this Prospectus is           , 1998
<PAGE>   3
 
                            ------------------------
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATED COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
                            ------------------------
 
     IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 103 OF REGULATION M UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>   4
 
     NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
                            ------------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Summary...............................................................................     2
Risk Factors..........................................................................     5
Use of Proceeds.......................................................................    18
Dividend Policy.......................................................................    18
Price Range of Common Stock...........................................................    19
Capitalization........................................................................    20
Dilution..............................................................................    21
Selected Consolidated Financial Data..................................................    22
Management's Discussion and Analysis of Financial Condition and Results of
  Operations..........................................................................    23
Business..............................................................................    33
Management............................................................................    52
Principal Stockholders................................................................    56
Description of Capital Stock..........................................................    58
Underwriting..........................................................................    60
Legal Matters.........................................................................    61
Experts...............................................................................    61
Available Information.................................................................    62
Incorporation of Certain Documents by Reference.......................................    62
</TABLE>
 
     As used herein, the term "Medicis" or the "Company" includes the Company
and its wholly-owned subsidiaries.
 
     MEDICIS(R), MEDICIS THE DERMATOLOGY COMPANY(R), THERAMYCIN Z(TM), TRIAZ(R),
BENZASHAVE(R), DYNACIN(R), LIDEX(R), LIDEX-E(R), SYNALAR(R), ZOSTRIX(R),
NOVACET(R), OCCLUSAL(R), GENDERM(R), ZONALON(R), SALAC(R), PENTRAX(R),
ESOTERICA(R), THERAPLEX(R), HYDROLOTION(R), THERAPLEX CLEARLOTION(R), TxSYSTEMS
by Medicis(TM), AFIRM(TM), b-LIFTx(TM) ("BETA-LIFTx") and PRE-CLEANSE(TM) are
trademarks or servicemarks used in this Prospectus which are owned by the
Company. All other trademarks and registered trademarks used in this Prospectus
are the property of their respective owners.
<PAGE>   5
 
                                    SUMMARY
 
     This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
 
     The following summary is qualified in its entirety by the more detailed
information and financial data, including "Risk Factors," appearing elsewhere in
this Prospectus.
 
                                  THE COMPANY
 
     Medicis Pharmaceutical Corporation 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-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 and TRIAZ
products for the treatment of acne, as well as marketing OTC products such as
the ESOTERICA fade cream product line. In addition, Medicis has acquired the
rights to LIDEX and SYNALAR corticosteroid product lines in the United States
and Canada from Syntex USA, Inc., ("Syntex"), and the entire product line of
GenDerm Corporation ("GenDerm") including ZOSTRIX topical analgesics and NOVACET
acne rosacea treatments. Medicis has also formed a new business unit, TxSYSTEMS
by MEDICIS, to market non-prescription cosmetic dermatology products for sale
directly to dermatologists in the United States for administration and
dispensing to patients.
 
     The Company believes that the dermatology market offers a unique
opportunity in the pharmaceutical industry because it is highly fragmented.
Although the prescription and non-prescription dermatology market in the United
States was estimated to have annual sales of approximately $5 billion in 1996,
most dermatological products have total annual domestic sales of less than $50
million each. Several factors, including industry consolidation, pricing
pressure and the high cost of new pharmaceuticals, have caused major
pharmaceutical companies to shift their focus away from fragmented markets into
markets that offer the potential for billion dollar annual sales for single
products or product lines. Since most dermatological products do not have the
level of sales potential sought by these major manufacturers, specialized
pharmaceutical companies such as Medicis can identify and pursue niche market
opportunities. In addition, only approximately 3,200 dermatologists, of the
approximately 6,600 office-based dermatologists and approximately 1,500
university-based or hospital-based dermatologists in the United States, are
responsible for 80% of all prescriptions written by dermatologists.
 
     Since inception, Medicis has focused on increasing its penetration into the
dermatology market by providing the highest-quality customer service to
dermatologists, and by offering products with clinically proven therapeutic or
cosmetic advantages. The Company intends to leverage its focused marketing and
sales force by continuing to strategically acquire, in-license or enter into
co-development agreements for products that address significant opportunities in
the dermatology market. In addition, the Company intends to leverage its
resources through selectively out-licensing non-sales and non-marketing
functions, such as laboratory research, manufacturing and warehousing.
 
     Medicis has focused its prescription pharmaceutical efforts primarily on
products that treat acne, acne-related conditions and inflammatory skin
conditions through its leading products, DYNACIN, LIDEX and TRIAZ. DYNACIN,
introduced in November 1992, is one of the leading branded oral antibiotics for
the treatment of acne in the United States. DYNACIN has achieved its current
position as the leading branded minocycline product in the United States due to
its convenient once or twice
 
                                        2
<PAGE>   6
 
daily dosing, reduced gastric irritation and virtual absence of bacterial
resistance. The TRIAZ product line, introduced in October 1995, is used for the
topical treatment of acne. The Company believes TRIAZ products offer several
advantages over competing products including improved stability, greater
convenience, reduced costs and fewer side effects. The Company believes LIDEX,
acquired in 1997, is one of the most widely accepted, efficacious and safe
topical steroid treatments available. LIDEX alleviates inflammations of the skin
by reducing swelling and pain, relieving itching and constricting blood vessels
in the skin.
 
     The Company's leading OTC products include the ESOTERICA line of topical
creams, the leading line of OTC fade creams in the United States, used to
correct minor skin discoloration problems such as age spots, dark patches and
freckles, and ZOSTRIX, the leading line of capsaicin-based topical analgesic
creams to treat arthritic pain in the United States. The Company's TxSYSTEMS by
MEDICIS products include AFIRM, used to exfoliate skin and restore and enhance
the natural cell renewal process and reduce the appearance of fine lines,
superficial scars and skin discoloration, and BETA-LIFTx, used to simulate cell
turnover and renewal.
 
     Medicis has achieved significant increases in sales and net income since
its inception through acquisitions of product lines and businesses and through
internal growth of the Company's products. For the fiscal years ended June 30,
sales have increased to $41.2 million in 1997 from $11.1 million in 1993. The
Company's net income has increased to $17.3 million in fiscal 1997 from $656,000
in fiscal 1994, the Company's first year of profitability.
 
     The Company's principal offices are located at 4343 East Camelback Road,
Suite 250, Phoenix, Arizona 85018-2700, and its telephone number is (602)
808-8800.
 
                                  RISK FACTORS
 
     An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information presented or referenced herein, the
discussion of risk factors on pages 5 to 17 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include the following factors: Dependence on
Sale of Key Products; Uncertainty of Future Financial Results, Fluctuations in
Operating Results; Dependence on Acquisition Strategy and New Product
Introductions; Risks Associated with GenDerm Acquisition; Intense Competition,
Uncertainty of Technological Change; Uncertainty of Managing Growth; Reliance on
Third-Party Manufacturers and Sole-Source Suppliers; Uncertainty of Product
Development; Uncertainty of Government Regulation; Uncertainty of Enforceability
of Trademarks, Patents and Proprietary Rights; Customer Concentration,
Consolidation of Distribution Network; Uncertainties Relating to Pharmaceutical
Pricing, Third-Party Reimbursement and Health Care Reform; Potential Product
Liability, Limited Insurance Coverage; Dependence on Licenses from Others; Risk
of Product Recall and Product Returns; Management Discretion Over Application of
Proceeds; Dependence on Key Personnel; Uncertainty of Access to Capital;
Volatility of Common Stock Price; Control by Directors and Officers; Market Risk
of Shares Eligible For Future Sales; Dilution; Anti-Takeover Effect of Charter
Provisions, Rights Plan, Stock Option Vesting, Employment Agreement and Delaware
Law; and Lack of Cash Dividends. For a discussion of the risks of investing in
the Common Stock, see "Risk Factors."
 
                                        3
<PAGE>   7
 
                                  THE OFFERING
 
<TABLE>
<S>                                              <C>
Common Stock Offered by the Company............  3,000,000 shares
Common Stock Outstanding After the Offering....  17,385,597 shares(1)
Use of Proceeds................................  The licensing or acquisition of formulations,
                                                 technologies, products or businesses, marketing
                                                 expenses associated with new product introductions,
                                                 expansion of marketing and sales capabilities,
                                                 research and development and general corporate
                                                 purposes. See "Use of Proceeds."
Nasdaq National Market Symbol..................  MDRX
</TABLE>
 
---------------
(1) Based on shares outstanding as of December 31, 1997. Includes 281,974 shares
    of Class B Common Stock, $0.014 par value ("Class B Common Stock"), each
    share of which is convertible into one share of Class A Common Stock.
    Excludes 1,673,761 shares of Class A Common Stock issuable upon the exercise
    of outstanding stock options at a weighted average exercise price of $22.48
    per share. See "Description of Capital Stock."
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
                     (in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                                                          SIX MONTHS ENDED
                                                                 YEAR ENDED JUNE 30,                        DECEMBER 31,
                                                 ----------------------------------------------------    -------------------
                                                 1993(1)     1994(1)     1995       1996       1997       1996      1997(3)
                                                 --------    -------    -------    -------    -------    -------    --------
<S>                                              <C>         <C>        <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................  $ 11,088    $17,059    $19,132    $25,310    $41,159    $15,776    $ 30,839
Gross profit...................................     7,215     11,239     13,282     18,354     31,797     11,569      25,290
Operating expenses.............................    18,694     11,011     11,622     12,379     18,933      7,675      49,521
                                                 ---------   ---------                                              ----------
                                                                        ---------  ---------  ---------  ---------
                                                                              -          -          -          -
Operating income (loss)........................   (11,479)       228                                                 (24,231)
                                                                          1,660      5,975     12,864      3,894
Net income (loss)..............................  $(11,654)   $   656                                                $(27,300)
                                                                        $ 1,613    $ 7,880    $17,345    $ 6,855
                                                 =========   =========                                              ==========
                                                                        ========== ========== ========== ==========
Basic net income (loss) per share(2)...........  $  (1.41)   $  0.07                                                $  (1.90)
                                                                        $  0.16    $  0.77    $  1.31    $  0.56
                                                 =========   =========                                              ==========
                                                                        ========== ========== ========== ==========
Diluted net income (loss) per share(2).........  $  (1.41)   $  0.07                                                $  (1.81)
                                                                        $  0.16    $  0.72    $  1.24    $  0.53
                                                 =========   =========                                              ==========
                                                                        ========== ========== ========== ==========
Number of shares used in computing basic net
  income (loss) per share(2)...................     8,261      9,455                                                  14,340
                                                                          9,890     10,255     13,191     12,199
Number of shares used in computing diluted net
  income (loss) per share(2)...................     8,261      9,455                                                  15,042
                                                                          9,890     10,891     14,039     13,045
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                              DECEMBER 31, 1997
                                                                                         ---------------------------
                                                                                          ACTUAL      AS ADJUSTED(4)
                                                                                         --------     --------------
<S>                                                                                      <C>          <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......................................  $ 33,617        $160,128
Working capital........................................................................    51,363         177,874
Total assets...........................................................................   139,570         266,081
Total stockholders' equity.............................................................   110,950         237,461
</TABLE>
 
---------------
(1) The fiscal year ended June 30, 1994 ("fiscal 1994") and the fiscal year
    ended June 30, 1993 ("fiscal 1993") include the operations of Dyad
    Pharmaceutical Corporation ("Dyad"), which were divested by the Company in
    the fiscal year ended June 30, 1995 ("fiscal 1995").
 
(2) In 1997, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS128").
    SFAS128 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 SFAS128 requirements.
 
(3) The six months ended December 31, 1997 includes a $35.4 million charge for
    in-process research and development relating to the GenDerm acquisition.
    Absent this special charge, net income would have been $8.1 million and
    basic and diluted net income per share would have been $0.56 and $0.54,
    respectively.
 
(4) Adjusted to reflect the sale of 3,000,000 shares of Common Stock by the
    Company at the assumed public offering price of $44.63 per share and the
    receipt of the estimated net proceeds therefrom.
 
     Except as otherwise specified herein, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
 
                                        4
<PAGE>   8
 
                                  RISK FACTORS
 
     This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
 
     In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
 
DEPENDENCE ON SALES OF KEY PRODUCTS
 
     The Company derives a majority of its revenue from sales of DYNACIN, TRIAZ
and LIDEX products and expects the newly acquired line of ZOSTRIX 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, 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. See "Business -- Products in
Development," "-- Manufacturing," "-- Certain License and Royalty Agreements,"
"-- Competition" and "-- Government Regulation."
 
UNCERTAINTY OF FUTURE FINANCIAL RESULTS; FLUCTUATIONS IN OPERATING RESULTS
 
     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,
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
 
DEPENDENCE ON ACQUISITION STRATEGY AND NEW PRODUCT INTRODUCTIONS
 
     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
 
                                        5
<PAGE>   9
 
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. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
 
RISKS ASSOCIATED WITH GENDERM ACQUISITION
 
     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 (the "GenDerm Earnout Amount"). Products
acquired in the transaction include, among others, the prescription brands
NOVACET and ZONALON, as well as the OTC brands ZOSTRIX, OCCLUSAL-HP, PENTRAX,
and SALAC. 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, and the assimilation of the acquired operations into the Company's
business, and the valuation of acquired intangible 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
 
                                        6
<PAGE>   10
 
enhance the Company's business. See "Management Discussion and Analysis of
Financial Condition and Results of Operations."
 
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
 
     The pharmaceutical industry is characterized by intense competition, rapid
product development and technological change. Most of the Company's competitors
are large, well-established pharmaceutical, chemical, cosmetic or health care
companies with considerably greater financial, marketing, sales, development and
technical resources than those available to the Company. Additionally, many of
the Company's present and potential competitors have research and development
capabilities that may allow such competitors to develop new or improved products
that may compete with the Company's product lines. The Company's products could
be rendered obsolete or made uneconomical by the development of new or improved
products to treat the conditions addressed by the Company's products,
technological advances affecting the cost of production, or marketing or pricing
actions by one or more of the Company's competitors. The Company's business,
financial condition and results of operations could be materially adversely
affected by any one or more of such developments.
 
     DYNACIN competes with Minocin, a branded minocycline product marketed by
American Home Products Corporation ("AHP"); Vectrin, marketed by Warner-Chilcott
Laboratories, Inc. ("Warner-Chilcott") and generic minocycline products marketed
by Schein Pharmaceuticals, Inc. ("Schein"), BioCraft Laboratories, Inc.
("BioCraft") and Barr Laboratories, Inc. ("Barr Labs"). Other oral antibiotics
utilized for the treatment of acne include erythromycin, doxycycline and
tetracycline marketed in branded and generic form by a variety of companies.
LIDEX competes with a number of corticosteroid brands in the super-, high-,
mid-, and low-potency categories for the treatment of inflammatory and
hyperproliferative skin conditions. Competing brands include Halog, marketed by
Westwood-Squibb Pharmaceuticals, Inc.; Elocon, Diprolene, Diprosone and
Valisone, marketed by Schering-Plough Corporation.; Cyclocort, marketed by
Fujisawa Pharmaceuticals Co., Ltd.; Temovate and Cutivate, marketed by Glaxo
Wellcome plc; Psorcon, marketed by Rhone-Poulenc Rorer Pharmaceutical, Inc.
("Rhone"); and Aristocort, marketed by AHP. The Company believes that TRIAZ
competes with Benzamycin, marketed by a subsidiary of Rhone; Benzac, marketed by
Galderma, Inc., a subsidiary of L'Oreal ("Galderma"); and Cleocin-T and a
generic topical clindamycin, marketed by Pharmacia & Upjohn Co, Inc. ZOSTRIX
primarily competes with other topical analgesics, including Capzasin, Aspercreme
and Sportscreme marketed by Thompson Medical Company, Inc.; Icy Hot and Flexall,
marketed by Chattem Inc.; Bengay, marketed by Pfizer Inc. and other private
label capsaicins and hot/cold rubs. In addition, the Company's other products,
including the OTC and cosmetic dermatology products, also compete with various
brands and private-label products, as well as with compounds which some
dermatologists formulate themselves in small quantities for their patients.
 
     Several of the Company's products, including DYNACIN and LIDEX, compete
with generic (non-branded) pharmaceuticals which claim to offer equivalent
therapeutic benefits at a lower cost. In some cases, insurers and other
third-party payors seek to encourage the use of generic products by making
branded products less attractive, from a cost perspective, to buyers. In
addition, certain of the Company's OTC products, including ZOSTRIX, compete with
private label products. The aggressive pricing activities of the Company's
generic and private label competitors and the payment and reimbursement policies
of third-party payors could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Competition."
 
UNCERTAINTY OF MANAGING GROWTH
 
     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
 
                                        7
<PAGE>   11
 
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy" and "-- Products in
Development."
 
RELIANCE ON THIRD-PARTY MANUFACTURERS AND SOLE-SOURCE SUPPLIERS
 
     The Company currently contracts for all of its manufacturing needs and is
required by the United States Food and Drug Administration ("FDA") to contract
only with manufacturers that comply with the FDA's current Good Manufacturing
Practices ("cGMP") regulations and other applicable laws and regulations. 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's DYNACIN products are manufactured solely by Schein in
compliance with the Company's specifications and quality standards pursuant to a
supply agreement. Under the agreement, Schein manufactures minocycline for sale
in the branded market exclusively for the Company, but may manufacture and sell
minocycline for itself or others as a generic product. Schein currently
manufactures minocycline for the generic market under its own label. The supply
agreement expires in December 1999, but is subject to automatic renewal for
successive two-year periods if neither party gives timely notice of termination.
It may also be terminated by either party without cause upon 12-months notice.
Schein may terminate the exclusivity portion of the agreement if its profit
margin on sales of DYNACIN products falls below a specified level. The agreement
also provides that the Company will purchase all of its requirements for
minocycline from Schein but may purchase some of its requirements from another
manufacturer if Schein fails to meet certain cost standards or fails to provide
the Company with all of its requirements for two of four consecutive quarters.
Either party may terminate the agreement in the event that the other party
cannot perform under the agreement for a period of three months or longer for
certain reasons beyond its control. The inability of Schein to fulfill the
Company's supply requirements for DYNACIN, one of the Company's largest-selling
products, in a timely fashion would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The majority of the Company's LIDEX products are manufactured by Patheon
Inc. ("Patheon") in accordance with a manufacturing and supply agreement. Under
the terms of the agreement, F. Hoffman La-Roche, Ltd. ("Roche") supplies, at
cost, active ingredients necessary for manufacturing the LIDEX products. The
Patheon manufacture and supply agreement expires in January 1999, but is subject
to one-year automatic renewals if neither party gives timely notice of
termination. The inability of Patheon to fulfill the Company's supply
requirements for LIDEX in a timely fashion would have a material adverse effect
on the Company's business, financial condition and results of operations.
 
     The Company's ZOSTRIX products, among others, are manufactured for
distribution in the United States primarily by DPT Laboratories, Inc. ("DPT") in
accordance with a manufacturing and supply agreement and in Canada by Patheon on
a purchase order basis. Under the DPT agreement assumed by the Company in
connection with the acquisition of GenDerm, the Company is required to purchase
at least 90% of its annual sales requirements from DPT. The DPT manufacturing
agreement expires in December 2003. Either party may terminate the agreement
upon two years notice by the Company and three years notice by DPT. The notice
period is reduced to 60 days if either party fails to perform, without cure, its
obligations under the DPT manufacturing agreement.
 
                                        8
<PAGE>   12
 
     The Company has entered into manufacturing and supply agreements with third
parties for certain of its other products. Certain of the Company's products,
including TRIAZ products, are produced on a purchase order basis only from
various manufacturers.
 
     There can be no assurance that the manufacturers of the Company's products
will continue to meet the FDA's regulations or the Company's product
specifications and standards for the indicated products or that they can
continue to meet product demand on a consistent and timely basis. Certain of the
Company's products, including the DYNACIN products, are manufactured by a sole
manufacturer. Because of the FDA requirement for cGMP validation of
manufacturing facilities for particular products, validation of a new facility
to serve as a replacement source of manufacturing requires a substantial period
of time. Any loss of a manufacturer or any difficulty relating to the
manufacturing of the Company's products, especially the Key Products, could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company faces the risk that, upon
expiration of the term of any third-party manufacturing agreement, it may not be
able to renew or extend the agreement with the third-party manufacturer, to
obtain an alternative manufacturing source from other third parties or to
develop internal manufacturing capabilities on commercially viable terms, if at
all. The Company has obtained business interruption insurance against the loss
of income for up to 12 months due to the interruption of manufacturing of the
Company's Key Products due to certain causes. There can be no assurance that the
policy will cover all manufacturing interruptions or that the amount of such
insurance will be adequate to fully protect the Company for losses associated
with such interruptions. Any loss in excess of coverage limits could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company's third-party manufacturers rely on certain suppliers of key
raw materials. Certain of those materials are purchased from single sources and
others may be purchased from single sources in the future. Any disruption in
supplies, including delays due to the inability of the Company or its
manufacturers to procure raw materials, could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
     To manage its resources effectively, the Company attempts to maintain
inventory levels that are no greater than necessary to meet the currently
projected needs of its customers. Any interruptions in the supply of any of the
Company's products due to shortage in raw materials, changes in manufacturing
sources, regulatory changes or other causes could delay or eliminate the
Company's ability to distribute such products. There can be no assurance that
the Company will not suffer supply insufficiencies or interruptions or that it
will be able to obtain adequate supplies of its products in a timely fashion, or
at all. The loss of a manufacturer, the failure to obtain or validate a
replacement manufacturer on a timely basis, other manufacturing problems or any
interruption of supply could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
 
UNCERTAINTY OF PRODUCT DEVELOPMENT
 
     The Company has developed and obtained rights to certain pharmaceutical
agents in various stages of development. The Company has a variety of products
under development, ranging from existing product line extensions to new products
or reformulations of existing products. All products and technologies under
development will require significant commitment of personnel and financial
resources. Several products will require extensive clinical evaluation and
premarketing clearance by the FDA and comparable agencies in other countries
prior to commercial sale. There can be no assurance that any of these products
under development will be successfully introduced. Certain of the products and
technologies under development have been licensed from third parties. The
failure of the Company to meet its obligations under one or more of these
agreements could result in the termination of the Company's rights under such
agreements. In addition, the Company regularly reevaluates its product
development efforts. On the basis of these reevaluations, the Company has in the
past, and may in the future, abandon development efforts for particular
products. There can be no assurance that any product or technology under
development will result in the successful introduction
 
                                        9
<PAGE>   13
 
of any new product. The failure to introduce new products into the market on a
timely basis could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products in
Development" and "-- Government Regulation."
 
     The Company has in the past supplemented, and may in the future supplement,
its research and development efforts by entering into research and development
agreements with other pharmaceutical companies in order to defray the cost of
product development. There can be no assurance that the Company will be able to
enter into additional research and development agreements acceptable to the
Company, or at all. See "Business -- Products in Development" and "-- Certain
Licenses and Royalty Agreements."
 
UNCERTAINTY OF GOVERNMENT REGULATION
 
     The manufacture and sale of cosmetics and drugs is subject to regulation
principally by the FDA and state and local authorities in the United States, and
by comparable agencies in certain foreign countries. The Federal Trade
Commission ("FTC") and state and local authorities regulate the advertising of
OTC drugs and cosmetics. The Federal Food, Drug, and Cosmetic Act, as amended
(the "Food and Drug Act"), and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
testing, manufacture, safety, effectiveness, labeling, storage, record keeping,
approval, advertising and promotion of the Company's products. In general,
products falling within the FDA's definition of "new drugs" require premarketing
clearance by the FDA. Products falling within the FDA's definition of
"cosmetics" or of "drugs" that are not "new drugs" and that are generally
recognized as "safe and effective" do not require premarketing clearance.
 
     In general, FDA approval is required before a new drug product may be
marketed in the United States. However, most OTC drugs are exempt from the FDA's
premarketing approval requirements. The FDA issues monographs that set forth the
specific active ingredients, dosages, indications and labeling statements for
OTC drug ingredients that the FDA will consider generally recognized as safe and
effective and, therefore, not subject to pre-market approval. OTC drug
ingredients are classified by the FDA in one of three categories: Category I
ingredients, which are deemed "safe and effective for OTC use," Category II
ingredients, which are deemed "not generally recognized as safe and effective
for OTC use," and Category III ingredients, which are deemed "possibly safe and
effective with studies ongoing." OTC drug manufacturing facilities are subject
to FDA inspection, and failure to comply with applicable regulatory requirements
may lead to administrative or judiciallyimposed penalties.
 
     The active ingredient in many of the Company's products are subject to
regulation. The active ingredient in DYNACIN products, minocycline, and the
active ingredient in LIDEX, fluocinonide, have been approved by the FDA under a
New Drug Application. The active ingredient in ZOSTRIX, capsaicin, is classified
currently by the FDA as a Category I ingredient. The active ingredient in TRIAZ
products has been classified as a Category III ingredient under a tentative
final FDA monograph for OTC use in treatment of labeled conditions. The FDA has
requested, and a task force of the Non-Prescription Drug Manufacturers
Association, a trade association of OTC drug manufactures, has undertaken
further studies to confirm that benzoyl peroxide, an active ingredient in TRIAZ
products, is not a tumor promoter when tested in conjunction with UV light
exposure. TRIAZ products, which the Company sells on a prescription basis, have
the same ingredients at the same dosage levels as the OTC products. In addition,
there can be no assurance as to the results of these studies or any FDA action
to reclassify benzoyl peroxide or that benzoyl peroxide will continue to be
classified as a Category I product. In addition, there can be no assurance that
adverse test results would not result in withdrawal of TRIAZ from marketing. An
adverse decision by the FDA with respect to the safety of benzoyl peroxide could
result in the assertion of product liability claims against the Company and
could otherwise have a material adverse effect on the Company's business,
financial condition and results of operations.
 
                                       10
<PAGE>   14
 
     The Company believes that certain of its products, as they are promoted and
intended by the Company for use, are exempt from registration based on the date
of introduction of their active ingredients and therefore do not require
premarketing clearance. There can be no assurance that the FDA will not take a
contrary position. The Company believes that such products are subject to
regulations governing product safety, use of ingredients, labeling and
promotion, methods of manufacture.
 
     Clinical trials and the marketing and manufacturing of pharmaceutical
products are subject to the rigorous testing and approval processes of the FDA
and foreign regulatory authorities. The process of obtaining FDA and other
required regulatory approvals is lengthy and expensive. There can be no
assurance that the Company will be able to obtain the necessary approvals to
conduct clinical trials or to manufacture and market such products, that all
necessary clearances will be granted to the Company or its licensors for future
products on a timely basis, or at all, or that FDA review or other actions will
not cause delays adversely affecting the marketing and sale of the Company's
products. In addition, the testing and approval process with respect to certain
new products which the Company may develop or seek to introduce is likely to
take a substantial number of years and involve the expenditure of substantial
resources. There can be no assurance that pharmaceutical products currently in
development, or those products acquired or licensed by the Company, will be
cleared for marketing by the FDA. Failure to obtain any necessary approvals or
failure to comply with applicable regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, future government regulation could prevent or delay
regulatory approval of the Company's products.
 
     There can be no assurance that any approval will be granted on a timely
basis, or at all; that the FDA will not require post-marketing testing and
surveillance to monitor the product and continued compliance with regulatory
requirements; that the FDA will not require the submission of any lot of any
product for inspection and will not restrict the release of any lot that does
not comply with FDA standards; that the FDA will not otherwise order the
suspension of manufacturing, recall or seizure of products; or that the FDA will
not withdraw its marketing clearance of any product if compliance with
regulatory standards is not maintained or if problems concerning safety or
efficacy of the product are discovered following approval.
 
     From time to time, the FDA has issued correspondence to pharmaceutical
companies, including the Company, alleging that their advertising or promotional
practices are false, misleading or deceptive. There can be no assurance that the
Company will not receive such correspondence from the FDA in the future, or
that, if such notices are received, they will not result in substantial cost or
disruption, including fines and penalties, material changes to the manner in
which the Company promotes its products, loss of sales of the Company's products
or other material adverse effects on the Company's business, financial condition
and results of operations.
 
     For both currently marketed and future products, failure to comply with the
applicable regulatory requirements could, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions,
criminal prosecution, relabeling costs, delays in product distribution,
marketing and sales, or seizure or cessation of manufacture of the products and
the imposition of civil or criminal sanctions. There can be no assurance that
the FDA will not change its position with regard to the safety or effectiveness
of the Company's current or future products or that the FDA will agree with the
Company's position regarding the regulatory status of its products. In the event
that the FDA takes a contrary position regarding any of the Company's current or
future products, the Company may be required to change its labeling or
formulation or cease manufacture and marketing such products. In addition, even
prior to any formal regulatory action, the Company could decide voluntarily to
cease distribution and sale or to recall any of its products if concern about
the safety or efficacy of any of its products were to develop. Any such action
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
                                       11
<PAGE>   15
 
     The Company also will be subject to foreign regulatory authorities
governing clinical trials and pharmaceutical sales if it seeks to market its
products outside the United States. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained prior to the commencement of marketing of the
product in those countries. The approval process varies from country to country
and the time required may be longer or shorter than that required for FDA
approval. There can be no assurance that any foreign regulatory agency will
approve any product submitted for review by the Company. See
"Business -- Government Regulation."
 
UNCERTAINTY OF ENFORCEABILITY OF TRADEMARKS, PATENTS AND PROPRIETARY RIGHTS
 
     The Company believes that trademark and service mark protection is an
important factor in establishing product recognition. There can be no assurance
that any such trademarks or service mark registrations will afford the Company
adequate protection, or that the Company will have the financial resources to
enforce its rights under any such trademarks or service mark registrations. The
inability of the Company to protect its trademarks or service marks from
infringement could result in impairment to any goodwill which may be developed
in such trademarks and service marks. Moreover, the Company's inability to use
one or more of its trademarks or service marks because of successful third-party
claims could have a material adverse effect on the Company's business, financial
condition and results of operations. From time to time, the Company receives
communications from parties who allege that their interests may be damaged
either by the Company's use of a particular trademark or service mark or its
registration of such trademark or service mark. There can be no assurance that
such oppositions will not be filed or that, if filed, they will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
 
     The Company is pursuing several United States patent applications. There
can be no assurance that patents will issue with respect to any of these
applications. The Company has acquired rights under certain patents and patent
applications from third-party licensors. The Company has also acquired from
certain of its consultants and principals an assignment of their rights to
certain United States patents or patent applications. Certain of such patents
and patent applications may be subject to claims of rights by third parties, by
reason of existing relationships with the party who filed such patents or patent
applications. There can be no assurance that the Company will be able to obtain
any rights under such patents or patent applications as a result of any such
conflicting claims, or that any rights which the Company may obtain will be
sufficient for the Company to market products that may be the subject of such
patents or patent applications.
 
     The Company believes that its success will depend in part on its ability to
obtain and maintain patent protection for its own inventions, and to obtain and
maintain licenses for the use of patents, licensed or sublicensed by third
parties. There can be no assurance that any patent issued to, or licensed by,
the Company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. There can be no assurance that challenges will be not be instituted
against the validity or enforceability of any patent owned by or licensed to the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement of patents can be
substantial and such litigation can require a substantial commitment of
management's time. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate the technology owned by
or licensed to the Company or design around the patented aspects of such
technology. The Company only conducts complete searches to determine whether its
products infringe upon any existing patents as it deems appropriate. There can
be no assurance that the products and technologies the Company currently
markets, or may seek to market in the future, will not infringe patents or other
rights owned by others. In the event of an adverse outcome of any dispute with
respect to patents or other rights, the Company may be required to license such
disputed rights or to cease using such disputed rights. There can be no
assurance that a license would be available on terms acceptable to the Company,
or at all.
 
                                       12
<PAGE>   16
 
     The Company relies and expects to continue to rely upon unpatented
proprietary know-how and continuing technological innovation in the development
and manufacture of many of its principal products. The Company's policy is to
require all its employees, consultants, and advisors to enter into
confidentiality agreements with the Company. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's trade
secrets or proprietary know-how in the event of any unauthorized use or
disclosure of such know-how. In addition, there can be no assurance that others
will not obtain access to or independently develop similar or equivalent trade
secrets or know-how. See "Business -- Certain License and Royalty Agreements,"
" -- Trademarks," " -- Patents and Proprietary Rights" and "Management -- Key
Consultants."
 
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK
 
     The distribution network for pharmaceutical products has in recent years
been subject to increasing consolidation. As a result, a few very large
wholesale distributors control a significant share of the market. In addition,
the number of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to the Company,
cause a reduction in the inventory levels of distributors or retailers, or
otherwise reduce purchases of the Company's products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     Medicis' customers include the leading wholesale pharmaceutical
distributors in the United States, such as McKesson Drug Company ("McKesson"),
Bergen Brunswig Drug Company ("Bergen Brunswig"), Cardinal Health, Inc.
("Cardinal"), Bindley Westen Drug Company ("Bindley") and major drug chains. In
fiscal 1997, McKesson, Cardinal and Bergen Brunswig accounted for approximately
20.6%, 16.3% and 10.9%, respectively, of the Company's sales. In fiscal 1996,
McKesson, Bergen Brunswig and Cardinal accounted for approximately 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 of operations. See
"Business -- Customers."
 
UNCERTAINTIES RELATING TO PHARMACEUTICAL PRICING, THIRD-PARTY REIMBURSEMENT AND
HEALTH CARE REFORM
 
     The operating results of the Company will depend in part on the
availability of adequate reimbursement for the Company's products from
third-party payors, such as government entities, private health insurers and
managed care organizations. Third-party payors are increasingly seeking to
negotiate the pricing of medical services and products and to promote the use of
generic, non-branded pharmaceuticals through payor-based reimbursement policies
designed to encourage their use. In some cases, third-party payors will pay or
reimburse a user or supplier of a prescription drug product for only a portion
of the purchase price of the product. In the case of the Company's prescription
products, payment or reimbursement by third-party payors of only a portion of
the cost of such products could make such products less attractive, from a cost
perspective, to users, suppliers and prescribing physicians. There can be no
assurance that reimbursement, if available, will be adequate. Moreover, certain
of the Company's products are not of a type generally eligible for third-party
reimbursement. If adequate reimbursement levels are not provided by government
entities or other third-party payors for the Company's products, or if those
reimbursement policies increasingly favor the use of generic products, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, managed care initiatives to control
costs have influenced primary care physicians to refer fewer patients to
dermatologists, resulting in a declining target market for the Company. Further
reductions in referrals to dermatologists would have a material adverse effect
upon the Company's business, financial condition and results of operation. In
addition, a number of legislative and regulatory proposals aimed at changing the
United States health care system have been proposed in recent years. While the
Company cannot predict whether any such proposals
 
                                       13
<PAGE>   17
 
will be adopted, or the effect that any such proposal may have on its business,
such proposals, if enacted, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."
 
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
 
     The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or that otherwise have
received regulatory approval for commercial sale. There can be no assurance that
the Company will not be subject to significant product liability claims. The
Company currently has product liability insurance in the amount of $5.0 million
per claim and $5.0 million in the aggregate on a claims-made basis. Many of the
Company's customers require the Company to maintain product liability insurance
as a condition to their conducting business with the Company. There can be no
assurance that insurance coverage will be available in the future on
commercially reasonable terms, or at all, that such insurance will be adequate
to cover potential product liability claims, or that a loss of insurance
coverage or the assertion of a product liability claim or claims would not
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Government Regulation" and "-- Product
Liability Insurance."
 
DEPENDENCE ON LICENSES FROM OTHERS
 
     The Company has acquired rights to manufacture, use or market certain of
its products, including certain of its Key Products, as well as many of its
other proposed products and technologies, pursuant to license agreements with
third parties. Such agreements contain provisions requiring the Company to use
its best efforts or otherwise exercise diligence in pursuing market development
for such products in order to maintain the rights granted under the agreements
and may be canceled upon the Company's failure to perform its payment or other
obligations. There can be no assurance that the Company will fulfill its
obligations under one or more of such agreements due to insufficient resources,
lack of successful product development, lack of product acceptance or other
reasons. The failure to satisfy the requirements of any such agreements may
result in the loss of the Company's rights under that agreement or under related
agreements. The inability of the Company to continue to license these products
or to license other necessary products for use with its products or substantial
increases in royalty payments under third party licenses could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the effective implementation of the Company's strategy
depends on the successful integration of these licensed products with the
Company's products, and therefore any flaws or limitations of such licensed
products may impair the Company's ability to market and sell its products, delay
new product introductions, and/or adversely affect the Company's reputation.
Such problems could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's license agreement
with Dr. Joel Bernstein for the exclusive rights to market the ZOSTRIX product
line will terminate in June 2003 with the expiration of the related patent. The
license agreement for certain of the Company's other products will also
terminate upon the expiration of any such underlying patents. See
"Business -- Manufacturing," "-- Certain License and Royalty Agreements,"
"-- Trademarks" and "-- Patents and Proprietary Rights."
 
RISK OF PRODUCT RECALL AND PRODUCT RETURNS
 
     Product recalls may be issued at the discretion of the Company, the FDA or
other government agencies having regulatory authority for product sales and may
occur due to disputed labeling claims, manufacturing issues, quality defects or
other reasons. There can be no assurance that product recalls will not occur in
the future. Any product recall, especially one of the Company's Key Products,
could materially adversely affect the Company's business, financial condition
and results of operations. The Company's policy is to accept for return only
damaged or out of date products. However, the Company's customers have in the
past sought, and may in the future seek, exceptions to that policy. There can be
no assurance that the Company will not grant such exceptions in the future. The
 
                                       14
<PAGE>   18
 
Company maintains financial reserves for the anticipated amount of product
returns based upon historical experience. There can be no assurance that future
recalls or returns would not exceed reserves or otherwise have a material
adverse effect upon the Company's business, financial condition and results of
operations.
 
MANAGEMENT DISCRETION OVER APPLICATION OF PROCEEDS
 
     Management of the Company has broad discretion to determine the application
of the net proceeds of this offering in order to address circumstances and
opportunities. As a result, the success of the Company will be affected by the
discretion and judgment of the management of the Company with respect to the
application and allocation of the net proceeds from this offering. See "Use of
Proceeds."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company is dependent on certain management personnel for the operation
and development of its business. The Company has entered into an Employment
Agreement providing for full-time services with Mr. Jonah Shacknai, the founder,
Chairman of the Board and Chief Executive Officer of the Company. The current
term of the Employment Agreement expires on June 30, 2001, subject to automatic
renewal for periods of five years unless either party gives timely notice of an
intention not to renew the Employment Agreement. Mr. Shacknai may also terminate
the Employment Agreement prior to the end of the term. Subject to the control
and oversight of the Company's Board of Directors, Mr. Shacknai exercises
control over substantially all policy making functions of the Company. In
addition, the Company is dependent upon its scientific consultants, particularly
with respect to the commercial development of discoveries and technologies as to
which they have special expertise. Certain of such consultants are employed on a
full-time basis by employers other than the Company, and some have consulting or
other advisory arrangements with other entities which may conflict with their
obligations to the Company. The loss of any key person, or a reduction in the
amount of time Mr. Shacknai devotes to the Company, could have an adverse effect
on the Company's business, financial condition and results of operations. See
"Management -- Employment Agreements."
 
UNCERTAINTY OF ACCESS TO CAPITAL
 
     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 opportunities, marketing,
research and product development programs and manufacturing opportunities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
 
VOLATILITY OF COMMON STOCK PRICE
 
     The market price for the stocks of many publicly traded pharmaceutical
companies and marketers of dermatological products, including the Company, is
highly volatile. A variety of events, both concerning and unrelated to the
Company and the markets in which it participates, may have a significant
negative impact on the market price of the Common Stock. These factors include
regulatory developments in the health care field generally, the performance of
and product announcements by other pharmaceutical companies, manufacturing or
supply disruptions, product recalls, the loss of key personnel, and other
matters affecting the Company's products, acquisitions and financial
performance. Although the Company's Common Stock trades on the Nasdaq National
Market, trading volume, size of institutional holdings and the number of
marketmakers have fluctuated and, in the past, have been quite low. Both the
price and volume of trading have been sensitive to the number of analysts
 
                                       15
<PAGE>   19
 
reporting on the Company and such analysts' comments concerning the Company and
the industry in which it participates. See "Price Range of Common Stock."
 
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
 
     As of December 31, 1997, the Company's directors and executive officers
beneficially owned 761,148 shares of Class A Common Stock, which have one vote
per share, and 252,677 shares of Class B Common Stock, which have 10 votes per
share, representing approximately 6.87% of the Company's outstanding capital
stock and 18.97% of the total voting power. Accordingly, such individuals, if
they vote together, are able to exercise substantial power in the election of
directors and thereby influence the policies of the Company. See "Principal
Stockholders" and "Description of Capital Stock."
 
MARKET RISK OF SHARES ELIGIBLE FOR FUTURE SALES
 
     Subject to certain specified exceptions relating to charitable gifts,
estate planning transfers and sales relating to the exercise of expiring
options, directors, executive officers and senior staff officers of the Company,
holding in the aggregate, as of December 31, 1997, 1,097,342 shares of Common
Stock representing approximately 7.39% of the outstanding shares to be
outstanding upon completion of the offering, have agreed with the Underwriters
not to sell or otherwise dispose of any shares of Common Stock for a period of
90 days from the effective date of this Prospectus without the written consent
of BancAmerica Robertson Stephens. Sales by such officers and directors are
generally subject to the provisions of Rule 144 under the Securities Act. See
"Underwriting."
 
     The sale of a significant number of restricted securities, the exercise of
a significant number of options, or the offer or sale of a significant number of
shares of Common Stock acquired upon exercise of options at any one time could
materially adversely affect the market price of the Company's Common Stock.
 
DILUTION
 
     The market price of the Common Stock offered hereby significantly exceeds
the current tangible book value per share of the Common Stock. As a result,
purchasers of shares of Common Stock in this offering will experience immediate
and substantial dilution between the offering price and the resulting net
tangible book value per share. The book value of the Company's assets includes a
significant value attributable to intangible assets, substantially all of which
is attributable to acquisitions of ESOTERICA, LIDEX, the GenDerm products, and
related assets. These intangible assets are subject to amortization and will be
charged against earnings in future years. In the event that proceeds from the
offering are utilized in the acquisition of one or more additional product lines
it is likely that such proceeds will be used to acquire trademarks and other
intangible assets which will result in increased dilution to the tangible net
worth of such purchasers and increase the amount of amortization that will be
charged against earnings. See "Dilution."
 
ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS, RIGHTS PLAN, STOCK OPTION VESTING,
EMPLOYMENT AGREEMENT AND DELAWARE LAW
 
     The Company's Certificate of Incorporation and Bylaws authorize the Board
of Directors to designate and issue, without stockholder approval, Preferred
Stock with voting, conversion and other rights and preferences that could
differentially and adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited acquisition
proposal. Moreover, the Company has granted a dividend of one Preference Stock
Purchase Right ("Right") on each outstanding share of Class A Common Stock and
Class B Common Stock. Under certain circumstances, after a person has acquired
beneficial ownership of a certain percentage of the Common Stock, each Right
will entitle the holder to purchase, at the Right's then-current exercise price,
stock of the Company or its successor at a discount. In addition, certain
provisions of Delaware law applicable to the Company and certain
 
                                       16
<PAGE>   20
 
provisions of the Company's Certificate of Incorporation and Bylaws could also
delay or make more difficult a merger, tender offer or proxy contest involving
the Company, including Section 203 of the Delaware Business Corporation Law,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. All of the Company's stock option plans provide for the
acceleration of vesting in the event of a change in control in the Company, and
Mr. Shacknai's Employment Agreement provides for certain payments upon a change
in control, as well as an acceleration of vesting of options previously granted
to him. The possible issuance of Preferred Stock, the rights granted to
stockholders under the Company's rights plan, Delaware law, provisions of the
Certificate of Incorporation and Bylaws and the Company's stock option plans and
Mr. Shacknai's Employment Agreement could each have the effect of delaying,
deferring or preventing a change in control of the Company including, without
limitation, discouraging a proxy contest, making more difficult the acquisition
of a substantial block of the Company's Common Stock or limiting the price that
investors might in the future be willing to pay for shares of the Common Stock.
Under certain circumstances, Mr. Shacknai's Employment Agreement requires the
Company to make payments that would constitute excess parachute payments under
the Internal Revenue Code of 1986, as amended. In the event that the Company was
required to make payments constituting excess parachute payments, payments to
Mr. Shacknai would not be deductible by the Company, and Mr. Shacknai would be
required to pay an excise tax. See "Description of Capital Stock," and
"Management -- Employment Agreements."
 
LACK OF CASH DIVIDENDS
 
     The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate that any cash dividends will be declared or paid
in the foreseeable future. See "Dividend Policy."
 
                                       17
<PAGE>   21
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $126.5 million
($145.5 million if the Underwriters' over-allotment option is exercised in full)
at the assumed public offering price of $44.63 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
 
     The Company intends to use some of the proceeds of this offering for the
licensing and acquisition of formulations, technologies, products or businesses
that would complement or expand the Company's business and for marketing
expenses associated with new product introductions. The Company intends to use
the balance of the net proceeds of this offering for the expansion of its
marketing and sales capabilities, to continue research and development of its
pharmaceutical products and for other general corporate purposes. The Company
can give no assurance that its research and development will provide
technologies or products that will be patentable, commercially feasible or
acceptable to government agencies whose approval is necessary. In the normal
course of business, the Company evaluates the licensing or acquisition of
formulations, technologies, products or businesses that could complement or
expand the Company's business operations, and the Company has in place several
license agreements pertaining to potential new products currently under
evaluation and development. Other than these existing license agreements, as of
the date of this Prospectus, the Company has no present agreements to acquire
formulations, technologies, products or businesses. There can be no assurance
that any future licensing or acquisition of formulations, technologies, products
or businesses will be completed or, if completed, that the Company will realize
the same level of historical sales achieved by a licensor or a seller or that
such transaction will prove successful for the Company.
 
     While the Company presently intends to use the proceeds of this offering as
described in this section, the management of the Company has broad discretion to
determine the application and allocation of the net proceeds of this offering in
order to address circumstances and opportunities. As a result, the success of
the Company will be affected by the discretion and judgment of the management of
the Company with respect to the application and allocation of the net proceeds
of this offering. Pending use of such proceeds, the net proceeds of this
offering will be invested by the Company in short-term, interest-bearing,
investment-grade marketable securities.
 
                                DIVIDEND POLICY
 
     The Company has never declared or paid a cash dividend. The Company intends
to retain any earnings to fund the future growth and operation of its business
and, therefore, does not anticipate declaring or paying any cash dividends in
the foreseeable future.
 
                                       18
<PAGE>   22
 
                          PRICE RANGE OF COMMON STOCK
 
     The Company's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "MDRX." The following table sets forth for the fiscal periods
indicated, the range of high and low sales prices for the Class A Common Stock
of the Company on the Nasdaq National Market, as adjusted to reflect (i) the
1-for-14 reverse stock split of the Company's Common Stock effected on October
23, 1995, (ii) the 3-for-2 stock split in the form of a 50% stock dividend paid
on August 2, 1996 and (iii) the 3-for-2 stock split in the form of a 50% stock
dividend paid on March 28, 1997.
 
<TABLE>
<CAPTION>
                                                                     HIGH     LOW
                                                                     ---      ----
        <S>                                                          <C>      <C>
        FISCAL YEAR ENDED JUNE 30, 1996
          First Quarter.............................................. $3 1/2  $ 1 1/2
          Second Quarter.............................................  7 1/16   3
          Third Quarter.............................................. 14 1/16   6 1/16
          Fourth Quarter............................................. 21       10 1/3
        FISCAL YEAR ENDED JUNE 30, 1997
          First Quarter.............................................. 33 1/2   16 1/2
          Second Quarter............................................. 40 3/16  26 2/3
          Third Quarter.............................................. 47 1/3   28
          Fourth Quarter............................................. 51       23 1/4
        FISCAL YEAR ENDING JUNE 30, 1998
          First Quarter.............................................. 55 1/2   37 1/2
          Second Quarter............................................. 56       40
          Third Quarter (through January 9, 1998).................... 51 1/8   42 3/4
</TABLE>
 
     On January 9, 1998, the last reported sale price on the Nasdaq National
Market for the Company's Common Stock was $44.63 per share. As of December 31,
1997, there were approximately 347 holders of record of the Common Stock.
 
                                       19
<PAGE>   23
 
                                 CAPITALIZATION
 
     The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted to reflect the receipt of the estimated net
proceeds from the sale of the 3,000,000 shares of Common Stock offered hereby at
the assumed public offering price of $44.63 per share and the application of the
estimated net proceeds therefrom:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31, 1997
                                                                      --------------------------
                                                                       ACTUAL        AS ADJUSTED
                                                                      --------       -----------
                                                                            (in thousands)
<S>                                                                   <C>            <C>
Long-term debt (including current portion)(1).......................  $    100        $     100
                                                                      --------         --------
Stockholders' equity................................................
  Preferred Stock, $0.01 par value, 5,000,000 shares authorized: no
     shares issued and outstanding, actual and as adjusted..........        --               --
  Class A Common Stock, $0.014 par value; 50,000,000 shares
     authorized: 14,103,623 shares outstanding, actual, and
     17,103,623 shares outstanding, as adjusted(2)..................       197              239
  Class B Common Stock, $0.014 par value, 1,000,000 shares
     authorized: 281,974 shares outstanding, actual and as
     adjusted(3)....................................................         4                4
  Additional paid-in capital........................................   145,555          272,024
  Accumulated deficit...............................................   (34,806)         (34,806)
                                                                      --------         --------
          Total stockholders' equity................................   110,950          237,461
                                                                      --------         --------
          Total capitalization......................................  $111,050        $ 237,561
                                                                      ========         ========
</TABLE>
 
---------------
(1) The Company's only long-term debt outstanding is a loan from the Commerce
    and Economic Development Commission of Arizona associated with the Company's
    relocation to Arizona in May 1995.
 
(2) Does not include options outstanding as of December 31, 1997 to purchase an
    aggregate of 1,673,761 shares of Class A Common Stock at a weighted average
    exercise price of $22.48 per share. See "Description of Capital Stock."
 
(3) Each share of Class B Common Stock is convertible into one share of Class A
    Common Stock.
 
                                       20
<PAGE>   24
 
                                    DILUTION
 
     The net tangible book value of the Company at December 31, 1997 was $40.9
million, or $2.84 per share of Common Stock. After giving effect to the sale by
the Company of 3,000,000 shares of Common Stock in this offering at the assumed
public offering price of $44.63 per share, the net tangible book value of the
Company at December 31, 1997 would have been $167.4 million (calculated after
deduction of underwriting discount and commissions and estimated expenses
associated with the offering to be paid by the Company) or $9.63 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $6.79 per share to existing stockholders and an immediate dilution in net
tangible book value of $35.00 per share to new investors purchasing shares in
this offering. The following table illustrates the calculation of the per share
dilution described above:
 
<TABLE>
<S>                                                                         <C>         <C>
Public offering price(1)..................................................              $44.63
  Net tangible book value before offering(2)(3)...........................  $2.84
  Increase attributable to new investors..................................   6.79
                                                                            -----
Net tangible book value after offering(2)(3)..............................                9.63
                                                                                        ------
Dilution to new investors.................................................              $35.00
                                                                                        ======
</TABLE>
 
---------------
(1) Before deduction of underwriting discounts and commissions and estimated
    offering expenses associated with the offering to be paid by the Company.
 
(2) Net tangible book value per share represents the amount of total tangible
    assets less total liabilities of the Company, divided by the number of
    shares of Common Stock outstanding.
 
(3) Based on shares outstanding as of December 31, 1997. Includes 281,974 shares
    of Class B Common Stock, each share of which is convertible into one share
    of Common Stock. Excludes 1,673,761 shares of Common Stock issuable upon the
    exercise of outstanding stock options at a weighted average exercise price
    of $22.48 per share.
 
                                       21
<PAGE>   25
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The statements of operations data set forth below for the fiscal years
ended June 30, 1997, 1996, and 1995 and the balance sheet data at June 30, 1997
and 1996, are derived from the consolidated financial statements of the Company
that have been audited by Ernst & Young LLP which are incorporated by reference
into this Prospectus. The statements of operations data for the fiscal years
ended June 30, 1994 and 1993 and the balance sheet data at June 30, 1995, 1994
and 1993 are derived from other audited consolidated financial statements of the
Company not incorporated by reference into this Prospectus which have been
audited by Ernst & Young LLP. The statements of operations data for the six
months ended December 31, 1997 and 1996 and the balance sheet data at December
31, 1997 are unaudited but reflect all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of the Company's management,
necessary for a fair statement of the results for the interim periods presented.
Interim results are not necessarily indicative of results for a full year. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this
Prospectus or incorporated herein by reference.
 
<TABLE>
<CAPTION>
                                                                                                          SIX MONTHS ENDED
                                                             YEAR ENDED JUNE 30,                            DECEMBER 31,
                                           --------------------------------------------------------     --------------------
                                           1993(1)      1994(1)      1995        1996        1997        1996       1997(3)
                                           --------     -------     -------     -------     -------     -------     --------
                                           (in thousands, except per share data)
<S>                                        <C>          <C>         <C>         <C>         <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................  $ 11,088     $17,059     $19,132     $25,310     $41,159     $15,776     $ 30,839
Gross profit.............................     7,215      11,239      13,282      18,354      31,797      11,569       25,290
Operating expenses:
  Selling, general and administrative....    14,237       8,786      10,330      10,868      16,484       6,764       11,581
  Research and development expenses......     3,841       1,572         770         952       1,450         613        1,448
  In-process research and development....        --          --          --          --          --          --       35,400
  Depreciation and amortization..........       616         653         522         559         999         298        1,092
                                           --------     -------     -------     -------     -------     -------     --------
Total operating expenses.................    18,694      11,011      11,622      12,379      18,933       7,675       49,521
                                           --------     -------     -------     -------     -------     -------     --------
Operating income (loss)..................   (11,479)        228       1,660       5,975      12,864       3,894      (24,231)
Other:
  Minority share of losses of Dyad.......        --         677          --          --          --          --           --
  Gains on disposition of Dyad...........        --          --         107          --          --          --           --
  Net interest income (expense)..........      (175)       (249)        (94)         79       3,787       1,418        2,112
  Income tax benefit (expense)...........        --          --         (60)      1,826         694       1,543       (5,181)
                                           --------     -------     -------     -------     -------     -------     --------
Net income (loss)(2).....................  $(11,654)    $   656     $ 1,613     $ 7,880     $17,345     $ 6,855     $(27,300)
                                           ========     =======     =======     =======     =======     =======     ========
Basic net income (loss) per share(2).....  $  (1.41)    $  0.07     $  0.16     $  0.77     $  1.31     $  0.56     $  (1.90)
                                           ========     =======     =======     =======     =======     =======     ========
Diluted net income (loss) per share(2)...  $  (1.41)    $  0.07     $  0.16     $  0.72     $  1.24     $  0.53     $  (1.81)
                                           ========     =======     =======     =======     =======     =======     ========
Number of shares used in computing basic
  net income (loss) per share(2).........     8,261       9,455       9,890      10,255      13,191      12,199       14,340
Number of shares used in computing
  diluted net income (loss) per
  share(2)...............................     8,261       9,455       9,890      10,891      14,039      13,045       15,042
</TABLE>
 
<TABLE>
<CAPTION>
                                                                             JUNE 30,
                                                         -------------------------------------------------   DECEMBER 31,
                                                         1993(1)    1994(1)    1995      1996       1997         1997
                                                         --------   -------   -------   -------   --------   ------------
                                                         (in thousands)
<S>                                                      <C>        <C>       <C>       <C>       <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short term investments...  $    233   $   775   $   953   $ 7,956   $ 85,132     $ 33,617
Working capital (deficiency)...........................    (4,541)   (1,978)      619    12,401     94,803       51,363
Total assets...........................................    11,993    12,726    13,850    26,313    140,537      139,570
Long-term debt.........................................     1,264       899       694       117        111          100
Stockholders' equity...................................     2,937     5,263     7,387    19,460    131,565      110,950
</TABLE>
 
---------------
 
(1) Fiscal 1993 and fiscal 1994 include the operations of Dyad, which were
    divested in fiscal 1995.
 
(2) In 1997, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS128").
    SFAS128 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 SFAS128 requirements.
 
(3) The six months ended December 31, 1997 includes a $35.4 million charge for
    in-process research and development relating to the GenDerm acquisition.
    Absent this special charge, net income would have been $8.1 million and
    basic and diluted net income per share would have been $0.56 and $0.54,
    respectively.
 
                                       22
<PAGE>   26
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve risk
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
 
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
in the United States. The Company has built its business through successfully
introducing prescription pharmaceuticals such as DYNACIN and TRIAZ products for
the treatment of acne, as well as marketing OTC products such as the ESOTERICA
fade cream product line. In addition, Medicis has acquired the LIDEX and SYNALAR
corticosteriod product lines from Syntex and the entire product line from
GenDerm including ZOSTRIX topical analgesics and NOVACET acne rosacea
treatments. Medicis has also formed a new business unit, TxSYSTEMS by MEDICIS,
to market non-prescription cosmetic dermatology treatments 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 in the six
months ended December 31, 1997. Although DYNACIN 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 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, TRIAZ
and LIDEX products and expects the newly acquired line of ZOSTRIX products to
also be a significant contributor to revenues. 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, 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.
 
                                       23
<PAGE>   27
 
     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 and
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 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.
 
     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.
 
RECENT ACQUISITIONS
 
     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 Purchased Products") in the
United States and Canada from Syntex and its parent company, Roche. 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. The Purchased
Products include the prescription topical steroid brands LIDEX and SYNALAR.
Prior to the acquisition, the Company did not market any products in this
category of dermatological care.
 
     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 (the "GenDerm Earnout Amount"). Products
acquired in the transaction include, among others, the prescription brands
NOVACET and ZONALON, as well as the OTC brands ZOSTRIX, OCCLUSAL-HP, PENTRAX,
and SALAC. 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
 
                                       24
<PAGE>   28
 
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
assurances 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 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>
                                                                                     SIX MONTHS
                                                                                        ENDED
                                                        YEAR ENDED JUNE 30,         DECEMBER 31,
                                                     -------------------------     ---------------
                                                     1995      1996      1997      1996      1997
                                                     -----     -----     -----     -----     -----
<S>                                                  <C>       <C>       <C>       <C>       <C>
Net sales..........................................  100.0%    100.0%    100.0%    100.0%    100.0%
Gross profit.......................................   69.4      72.5      77.3      73.3      82.0
In-process research and development................     --        --        --        --     114.8
Operating expenses(1)..............................   60.8      48.9      46.0      48.6      45.8
Operating income (loss)............................    8.6      23.6      31.3      24.7     (78.6)
Net interest income (expense)......................   (0.5)      0.3       9.2       9.0       6.9
Gains on disposition of Dyad.......................    0.6        --        --        --        --
Income tax benefit (expense).......................   (0.3)      7.2       1.6       9.8     (16.8)
                                                     -----     -----     -----     -----     -----
Net income (loss)..................................    8.4%     31.1%     42.1%     43.5%    (88.5)%
                                                     =====     =====     =====     =====     =====
</TABLE>
 
---------------
(1) Excludes in-process research and development.
 
     The following table reflects certain selected unaudited quarterly operating
results of the Company for each of the six quarters through the quarter ended
December 31, 1997. The Company believes that all necessary adjustments have been
included to present fairly the quarterly information when read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997
 
                                       25
<PAGE>   29
 
and the Company's Form 8-K/A. The operating results for any quarter are not
necessarily indicative of the results for any future period.
 
<TABLE>
<CAPTION>
                                                 FISCAL 1997                         FISCAL 1998
                                 -------------------------------------------    ---------------------
                                 SEPTEMBER    DECEMBER     MARCH      JUNE      SEPTEMBER    DECEMBER
                                 ---------    --------    -------    -------    ---------    --------
                                                (in thousands, except per share data)
<S>                              <C>          <C>         <C>        <C>        <C>          <C>
Net sales......................   $ 7,268     $ 8,508     $10,976    $14,407     $13,911     $ 16,928
Gross profit...................     5,313       6,255       8,499     11,730      11,365       13,924
Operating expenses.............     3,718       3,956       5,045      6,214       6,403       43,118
Operating income (loss)........     1,595       2,299       3,454      5,516       4,962      (29,194)
Net income (loss)..............     3,604       3,251       4,337      6,153       3,751      (31,051)
Net income (loss) per common
  share:
  Basic........................   $  0.34     $  0.24     $  0.31    $  0.43     $  0.26     $  (2.16)
  Diluted......................   $  0.32     $  0.22     $  0.29    $  0.41     $  0.25     $  (2.06)
Shares used in computing net
  income (loss) per common
  share:
  Basic........................    10,581      13,818      14,159     14,239      14,313       14,367
  Diluted......................    11,389      14,703      14,944     14,932      15,022       15,087
</TABLE>
 
     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, 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. There
can be no assurance that the Company will maintain or increase revenues or
profitability or avoid losses in any future period.
 
  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 and SYNALAR 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. The Company has in the past and anticipates
it will in the future continue to allocate a majority of its marketing funds to
the Company's prescription products.
 
     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 due to increased
 
                                       26
<PAGE>   30
 
sales in the Company's higher margin products, LIDEX, SYNALAR and TRIAZ. 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 costs also increased due to the expenses associated with
promotion and administration of the Acquired Brands, the introduction of two new
products through the Company's TxSYSTEMS by MEDICIS business unit, BETA-LIFTx
and AFIRM, 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 balances 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.
 
     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
 
                                       27
<PAGE>   31
 
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 special charge for the
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.
 
  Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
 
     Net Sales
 
     Net sales for fiscal 1997 increased 62.6%, or $15.9 million, to $41.2
million from $25.3 million for fiscal 1996. The Company's net sales increased in
fiscal 1997 primarily as a result of both unit and dollar sales growth
associated with an increase in market share of the existing prescription and OTC
products and the acquisition of the LIDEX and SYNALAR products in February 1997.
The Company's prescription products accounted for 86.5% of net sales in fiscal
1997 and 83.2% in fiscal 1996. Net sales of the Company's prescription products
grew 68.9%, or $14.5 million, to $35.6 million in 1997 from $21.1 million in
fiscal 1996, primarily due to the Company's acquisition of the LIDEX and SYNALAR
products in February 1997 and the continued growth in units and dollars of the
Company's DYNACIN and TRIAZ products. The Company's OTC products and cosmetic
division TxSYSTEMS by MEDICIS accounted for 13.5% of net sales for fiscal 1997
and 16.8% in fiscal 1996. OTC sales increased approximately 27.7%, primarily due
to an increase in units and dollars of the Company's ESOTERICA products. The
Company launched the TxSYSTEMS by MEDICIS division in March 1997. The Company
continues to allocate a majority of its marketing funds to the Company's
prescription products.
 
     Gross Profit
 
     Gross profit during fiscal 1997 increased 73.2%, or $13.4 million, to $31.8
million from $18.4 million in fiscal 1996. As a percentage of net sales, gross
margin grew to 77.3% in fiscal 1997 from 72.5% in fiscal 1996 primarily as a
result of the acquisition of the LIDEX and SYNALAR products, which enjoy higher
margins than the Company's other products, the increase in sales of TRIAZ
products, which also enjoy margins in excess of the Company's other products,
manufacturing cost reductions for DYNACIN products and a change in sales mix
toward the Company's prescription products, which have higher gross margins.
 
     Selling, General and Administrative Expenses
 
     Selling, general and administrative expenses in fiscal 1997 increased
51.7%, or $5.6 million, to $16.5 million from $10.9 million in fiscal 1996. This
increase was primarily attributable to an increase in promotional costs
attributable to the sampling and advertising of the Company's products, variable
costs commensurate with increase sales volumes, and an increase in personnel
costs attributable to an increase in the number of employees to 85 in fiscal
1997 from 58 in fiscal 1996 and yearly salary escalations for existing
employees. Selling, general and administrative expenses as a percentage of net
sales in fiscal 1997 decreased 2.8% to 40.1% from 42.9% in fiscal 1996.
 
                                       28
<PAGE>   32
 
     Research and Development Expenses
 
     Research and development expenses in fiscal 1997 increased 52.3%, or $0.5
million, to $1.5 million from $1.0 million in fiscal 1996, primarily due to
development efforts relating to new products and expenses associated with the
clinical support of the Company's existing products.
 
     Depreciation and Amortization Expenses
 
     Depreciation and amortization expenses in fiscal 1997 increased 78.8%, or
$0.4 million, to $1.0 million from $0.6 million in fiscal 1996. This increase is
primarily attributable to the amortization of the purchase price of the LIDEX
and SYNALAR products purchased by the Company in February 1997. The Company is
amortizing this purchase price over a 25-year period.
 
     Operating Income
 
     Operating income during fiscal 1997 increased 115.3%, or $6.9 million, to
$12.9 million from $6.0 million in fiscal 1996 and increased as a percentage of
net sales to 31.3% from 23.6% in fiscal 1996. This increase was primarily as a
result of higher sales volume, coupled with an increase in the Company's gross
profit margin and the reduction in operating expenses as a percentage of net
sales.
 
     Interest
 
     Interest income (expense) in fiscal 1997 increased $3.6 million, to $3.8
million from $0.2 million in fiscal 1996, primarily due to higher cash, and
short-term investment balances during fiscal 1997, attributable to 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. Interest expense in
fiscal 1997 decreased 63.8%, or $48,000, to $27,000, from $76,000 in fiscal
1996.
 
     Income Tax
 
     Income tax, net, during fiscal 1997 decreased $1.1 million to a benefit of
$0.7 million from a benefit of $1.8 million in fiscal 1996. During the fourth
quarter of fiscal 1996 and the first quarter of fiscal 1997, the Company
reevaluated the estimated amount of valuation allowance required to reduced
deferred tax assets in accordance with Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109") to an amount
the Company believed appropriate. Accordingly, a credit to deferred income tax
benefit of $1.9 million in fiscal 1996 and $2.0 million in fiscal 1997 was
reflected in the consolidated income statement. The amount of net deferred tax
assets estimated to be recoverable was based upon the Company's assessment of
the likelihood of near term operating income coupled with uncertainties with
respect to the impact of future competitive and market conditions.
 
     Net Income
 
     Net income during fiscal 1997 increased approximately 120.1%, or $9.4
million, to $17.3 million from $7.9 million in fiscal 1996. The increase was
primarily attributable to an increase in sales volume, an increase in gross
margin as a percentage of net sales, and a reduction of operating expenses as a
percentage of net sales.
 
  Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
 
     Net Sales
 
     Net sales for fiscal 1996 increased 32.3%, or $6.2 million, to $25.3
million from $19.1 million for fiscal 1995. The Company's net sales increased in
fiscal 1996 primarily as a result of both unit and dollar sales growth
associated with an increase in market share of the existing prescription
products and the launch of a new prescription product. The Company's
prescription products accounted for 83.2% of net sales in fiscal 1996 and 70.6%
in fiscal 1995. Net sales of the Company's prescription products grew
 
                                       29
<PAGE>   33
 
56.0%, or $7.6 million, to $21.1 million in 1996 from $13.5 million in fiscal
1995, primarily due to the Company's launch of TRIAZ products in October 1995,
coupled with an increase in market penetration of DYNACIN products. The increase
in sales of prescription products in fiscal 1996 was partially offset by a
decrease in unit sales of OTC products, primarily the ESOTERICA product line.
OTC products accounted for 16.8% of net sales in fiscal 1996 and 28.2% in fiscal
1995. The Company continues to invest a majority of its marketing funds in the
Company's prescription products.
 
     Gross Profit
 
     Gross profit during fiscal 1996 increased 38.2%, or $5.1 million, to $18.4
million from $13.3 million in fiscal 1995. As a percentage of net sales, gross
margin grew to 72.5% in fiscal 1996 from 69.4% in fiscal 1995 primarily as a
result of manufacturing cost reductions for DYNACIN products and a change in
sales mix toward the Company's prescription products, which have higher gross
margins.
 
     Selling, General and Administrative Expenses
 
     Selling, general and administrative expenses in fiscal 1996 increased 5.2%,
or $0.5 million, to $10.9 million from $10.3 million in fiscal 1995, primarily
due to a 22.2%, or $1.4 million, increase in selling expenses in fiscal 1996.
This increase was primarily attributable to an increase in personnel costs
commensurate with increased sales volume, yearly salary escalations and an
increase in promotional costs attributable to the launch of TRIAZ products.
Selling, general and administrative expenses in fiscal 1995 included $0.6
million in nonrecurring expenses associated with the Company's headquarters
relocation to Phoenix, Arizona in fiscal 1995.
 
     Research and Development Expenses
 
     Research and development expenses in fiscal 1996 increased 23.7%, or $0.2
million, to $1.0 million from $0.8 million in fiscal 1995, primarily due to
development efforts relating to the introduction in October 1995 of the
Company's TRIAZ products.
 
     Depreciation and Amortization Expenses
 
     Depreciation and amortization expenses remained materially unchanged, at
$0.6 million in fiscal 1996 and $0.5 million in fiscal 1995.
 
     Operating Income
 
     Operating income during fiscal 1996 increased 260.0%, or $4.3 million, to
$6.0 million from $1.7 million in fiscal 1995 and increased as a percentage of
net sales to 23.6% from 8.6% in fiscal 1995. This increase was primarily a
result of higher sales volume, coupled with an increase in the Company's gross
profit margin and the absence of nonrecurring relocation expenses which were
incurred in fiscal 1995.
 
     Interest
 
     Interest income in fiscal 1996 increased 167.7%, or $96,000, to $154,000
from $58,000 in fiscal 1995, primarily due to higher cash and short term
investment balances in 1996. Interest expense in fiscal 1996 decreased 49.9%, or
$75,000, to $76,000, from $151,000 in fiscal 1995, primarily due to the
repayment of a substantial portion of the Company's debt.
 
     Income Tax
 
     Income tax benefit (expense) during fiscal 1996 increased $1.9 million to a
benefit of $1.8 million from an expense of $0.1 million in fiscal 1995. During
the fourth quarter of fiscal 1996, the Company reevaluated the estimated amount
of valuation allowance required to reduce deferred tax assets in accordance with
SFAS No. 109 to an amount the Company believed appropriate. Accordingly, a
credit
 
                                       30
<PAGE>   34
 
to income tax benefit of $1.9 million was reflected in the consolidated income
statement. The amount of net deferred tax assets estimated to be recoverable was
based upon the Company's assessment of the likelihood of near term operating
income coupled with uncertainties with respect to the impact of future
competitive and market conditions. No such income tax benefit was recorded in
fiscal 1995.
 
     Net Income
 
     Net income during fiscal 1996 increased approximately 388.5%, or $6.3
million, to $7.9 million from $1.6 million in fiscal 1995. The increase was
primarily attributable to an increase in sales volume, an increase in gross
margin as a percentage of net sales and the recording of the income tax benefit
in fiscal 1996.
 
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
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 yielding
$95.7 million before related expenses, through $13.8 million cash provided 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 and
SYNALAR 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.
 
     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.
 
     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 merchan-
 
                                       31
<PAGE>   35
 
dise which has been produced by the manufacturer. However, the Company records
its obligation to the manufacturer at the time production is completed. The
Company can give no assurance that the research and development projects will
provide technologies or products that will be patentable, commercially feasible
or acceptable to government agencies whose approval may be necessary.
 
     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.
 
     Inflation did not have a significant impact upon the results of the Company
during the 1998 six months, fiscal 1997, 1996 or 1995.
 
                                       32
<PAGE>   36
 
                                    BUSINESS
 
     The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
 
THE COMPANY
 
     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, the Company has achieved a leading position in branded products for
the treatment of acne, acne-related, and anti-pruritic conditions and psoriatic
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 and TRIAZ products for
the treatment of acne, as well as the acquisition of the ESOTERICA fade cream
product line. In addition, the Company has acquired OTC products such as the
LIDEX and SYNALAR corticosteroid product lines from Syntex, and the entire
product line of GenDerm including ZOSTRIX topical analgesics and NOVACET acne
rosacea treatments. Medicis has also formed a new business unit, TxSYSTEMS by
MEDICIS, to market non-prescription cosmetic dermatology products for sale
directly to dermatologists in the United States for administration and
dispensing to patients.
 
INDUSTRY BACKGROUND
 
  The United States Pharmaceutical Market
 
     The annual domestic retail market for pharmaceuticals was estimated to be
in excess of $89 billion in 1997. While this market is dominated by large,
multinational pharmaceutical companies that conduct substantial research and
development activities, it is estimated that approximately 35% of all
pharmaceutical sales are derived from several hundred individual products and
product lines, most of which are believed to generate less than $50 million of
revenues annually. Meanwhile, industry consolidation and pricing pressures from
health care cost containment initiatives have raised the threshold level of
sales necessary for any individual product to justify active domestic marketing
and promotion from a major pharmaceutical company. In addition, major
pharmaceutical companies commonly focus their marketing efforts on new
pharmaceuticals in order to accelerate recovery of their development costs.
Consequently, the marketing of many established pharmaceuticals has been
de-emphasized, and the major pharmaceutical companies have increasingly sought
to divest smaller product lines as a more immediate and effective means of
deriving revenue from products that are deemed strategically less important.
These prevailing influences on major pharmaceutical companies allow specialized
companies like Medicis to identify and pursue niche market opportunities.
 
  The United States Dermatological Market
 
     The dermatology market is subject to many of the same influences that
affect the pharmaceutical market generally. Although the prescription and
non-prescription dermatology market accounted for an estimated $5 billion in
annual sales in 1996 in the United States, most dermatological products have
total annual domestic sales of less than $50 million each. Consequently, the
Company believes that most individual dermatological products do not generate
sales that would typically interest most major pharmaceutical companies. The
annual growth rate of the dermatology market is estimated to be in excess of
10%.
 
     The ability of niche companies to compete effectively in the dermatology
market is further enhanced by the relatively small number of physicians
responsible for the majority of dermatological prescription activity and by the
nature of dermatological diseases. Of the approximately 6,600 office-
 
                                       33
<PAGE>   37
 
based dermatologists and approximately 1,500 university-based or hospital-based
dermatologists in the United States, approximately 3,200 dermatologists are
responsible for 80% of all prescriptions written by dermatologists. Most
dermatological diseases are chronic or of long duration and are typically
treated with drugs over a period of years, resulting in long-term demand for
drugs proven to be clinically effective. In addition, although they are rarely
debilitating or life threatening, the readily apparent and sometimes disfiguring
nature of dermatological conditions often causes patients to be highly motivated
to seek and comply with drug therapy. As many dermatological products are
applied to the skin and are readily visible, the cosmetic elegance and physical
characteristics of the product are among the important determinants of product
success.
 
     With more than 80 million Americans turning 50 between 1997 and 2010, the
Company believes the demand for cosmetic procedures and products will continue
to grow. Cosmetic dermatology has gained increasing importance as new therapies
and procedures have become available to significantly improve the appearance of
skin and hair. Numerous non-prescription treatments are available today,
including glycolic acid in the form of creams and lotions to treat the
appearance of fine lines and improve skin texture, as well as various chemical
peels designed to rejuvenate the skin and correct scarring, discoloration and
textural irregularities. Furthermore, because cosmetic treatment is
discretionary and not covered by medical insurance, this market segment is not
subject to the impact of managed care seen in other areas of dermatology. Thus,
the dispensing business for cosmetic dermatology procedures and products is an
important area for the continued growth and success of the Company.
 
BUSINESS STRATEGY
 
     In pursuit of its goal to become the leading provider of products for the
treatment of dermatological conditions in the United States, the Company seeks
to:
 
     Increase Penetration in the Dermatology Market.  The Company builds strong
relationships and brand loyalty with many high-profile dermatologists and
medical opinion leaders through its highly responsive customer service approach
and by consistently expanding its product offerings. By offering what the
Company believes are superior and cosmetically elegant products supported by
favorable results in clinical trials, the Company is able to differentiate its
products from those of its competitors. The Company also plans to increase its
presence among dermatologists by serving as a leading sponsor of continuing
medical education programs designed for the needs of practicing dermatologists.
 
     License or Acquire Leading Dermatologic Products.  The Company intends to
seek further strategic licensing and acquisition of proven products consistent
with the Company's standards for efficacy, quality, cosmetic elegance, cost and
gross profit margins. For example, the Company acquired Syntex's corticosteroid
products in February 1997, and GenDerm's entire product line, including topical
analgesics, anti-pruritic treatments, an acne rosacea treatment and an acne
wash, in December 1997.
 
     Capitalize Upon the Company's Focused Marketing and Sales Force.  To
maximize the effectiveness of its selling efforts, the Company's sales force
focuses on the approximately 3,200 dermatologists who are responsible for 80% of
all prescriptions written by dermatologists. The Company's sales force has
forged close relationships with these dermatologists and maintains a dedicated
responsiveness to their needs. The Company intends to enhance its existing
marketing and sales capabilities in order to expand and increase the penetration
of its existing products as well as market new products.
 
     Formulate Innovative Products That Offer Therapeutic or Cosmetic
Advantages.  Through recommendations from dermatologists and its scientific
advisors and general marketing research, the Company seeks to develop innovative
products from existing pharmaceutical agents with proven applicability to
dermatological diseases. The Company then utilizes its formulation expertise to
optimize the delivery of such agents. For example, the Company introduced
DYNACIN and TRIAZ in fiscal 1993 and 1996, respectively.
 
                                       34
<PAGE>   38
 
     Enter Into Collaborative Development Ventures.  The Company intends to
continue expanding its relationships with other pharmaceutical companies through
collaborative development agreements. Medicis looks to such partners to develop
and manufacture innovative products that the Company will then market and
distribute to dermatologists in the United States. The Company recently entered
into an agreement with Abbott Laboratories, Inc. ("Abbott") for the development,
manufacturing and marketing of a branded dermatological product.
 
     Minimize Overhead Costs Through Selectively Utilizing Third-Party
Resources.  To avoid the high cost of laboratory facilities and related staffing
expenses, the Company has established relationships with several third-party
research organizations that conduct formulation work and clinical testing on its
behalf. In addition, to avoid the high capital cost of manufacturing facilities
and to maximize production flexibility, the Company has entered into third-party
manufacturing contracts on a product-by-product basis.
 
PRINCIPAL PRODUCTS AND PRODUCT LINES
 
     The Company currently offers products in the following areas of
dermatology: acne, acne rosacea, pruritis, inflammatory and hyperproliferative
skin conditions, dry skin, dandruff, warts, hyperpigmentation and cosmetic
dermatology. The Company addresses these areas with a range of prescription
products, OTC products and cosmetic dermatology products.
 
  Prescription Products
 
     The Company currently focuses its prescription pharmaceutical efforts
primarily on treating acne, acne-related conditions and inflammatory and
hyperproliferative skin diseases, including eczema, psoriasis and topical
dermatitis. The Company's principal branded pharmaceuticals are as follows:
 
     DYNACIN is an oral, systemic antibiotic prescribed for the treatment of
moderate to severe acne vulgaris, the most common form of acne. Acne related
conditions resulted in over 10 million visits to dermatologists in the United
States in 1995. The most commonly prescribed systemic acne treatments are
tetracycline and its derivatives, doxycycline and minocycline. Minocycline, the
active ingredient in DYNACIN products, is widely prescribed for the treatment of
acne for several reasons. It has a more convenient schedule of one or two doses
per day as compared to other forms of tetracycline, which can require up to four
doses per day. Other forms of tetracycline require ingestion on an empty stomach
and often increase patient sensitivity to sunlight, creating a greater risk of
sunburn. Moreover, the other forms of tetracycline, including doxycycline, often
cause gastric irritation. In addition, resistance to several commonly used
antibiotics, including erythromycin, clindamycin, doxycycline and tetracycline,
by the primary bacterial organism responsible for acne has been documented.
Studies suggest that bacterial resistance to erythromycin exceeds 60%, and
resistance to doxycycline and tetracycline exceeds 40%, while the bacteria
showed virtually no resistance to minocycline. Thus, although more expensive
than other forms of branded tetracycline and many times more expensive than
generic tetracycline, minocycline is documented to have clinical performance
that is superior to other forms of tetracycline, while avoiding many of its
disadvantages. The Company believes the retail price of DYNACIN is approximately
30% lower than the average reported retail price of another branded minocycline
product, Minocin, while selling at approximately 25% to 30% higher than the
average reported retail price of generic minocycline. DYNACIN is at least
comparable in performance to Minocin and is believed by the Company to enjoy
certain performance characteristics that favorably distinguish it from generic
minocycline. DYNACIN was launched in the second quarter of fiscal 1993. At June
30, 1997, DYNACIN held approximately 56% of total branded minocycline market
sales and was the leading branded minocycline in the United States. There can be
no assurance that DYNACIN will not lose significant market share in the future,
that it will remain a competitive product, or that the Company will be able to
compete successfully in the acne treatment market through the sale of DYNACIN or
any other product. The Company has entered into a manufacturing and supply
agreement with Schein for the supply of DYNACIN products. See "Risk
Factors -- Dependence on Sale of Key Products," "-- Manufacturing,"
"-- Trademarks" and "-- Patents and Proprietary Rights."
 
                                       35
<PAGE>   39
 
     TRIAZ is a patented topical therapy prescribed for the treatment of all
forms and varying degrees of acne, and is available as a gel or cleanser in two
concentrations. The combined sales of topically-applied prescription acne
products were in excess of $500 million in the United States in 1996. The most
frequently prescribed topical acne treatments include Cleocin-T, generic topical
clindamycin, and Benzamycin. While these therapies are generally effective,
TRIAZ offers advantages over each product, including improved stability, greater
convenience of use, reduced cost and fewer side effects. Benzamycin requires
refrigeration and mixing by a pharmacist and has a relatively short shelf life
of three months. In contrast, TRIAZ comes in a ready-mixed gel that does not
require refrigeration and has a two-year shelf life. In addition, TRIAZ is
aesthetically pleasing and minimizes the extreme drying and scaling of skin
often caused by competing brands. The Company believes the average reported
retail price of TRIAZ is less than that of either Cleocin-T or Benzamycin. TRIAZ
products are manufactured using the active ingredient benzoyl peroxide in a
vehicle containing glycolic acid and zinc lactate. Studies conducted by third
parties have shown that benzoyl peroxide is the most efficacious agent available
for eradicating the bacteria that cause acne. Glycolic acid is believed by the
Company to enhance the effectiveness of benzoyl peroxide by exfoliating the
outer layer of the skin, thereby providing direct access to the bacteria, and
zinc lactate is believed by the Company to act to reduce the appearance of
inflammation and irritation often associated with acne. TRIAZ was developed by
the Company and introduced in the second quarter of fiscal 1996. As of December
1997, TRIAZ cleanser was the leading prescription acne wash and TRIAZ 6% Gel was
the leading low potency benzoyl peroxide acne product. There can be no assurance
that TRIAZ will not lose significant market share in the future, that it will
remain a competitive product or that the Company will be able to compete
successfully in the acne treatment market through the sale of TRIAZ or any other
product. The Company has patents and certain licensed patent rights covering
varying aspects of TRIAZ. TRIAZ products are manufactured to the Company's
specifications on a purchase order basis by Paco Laboratories, Inc. and Accupac,
Inc. See "Risk Factors -- Dependence on Sale of Key Products," and
"-- Manufacturing," "-- Trademarks" and "-- Patents and Proprietary Rights."
 
     LIDEX is a high-potency topical corticosteroid brand prescribed for the
treatment of inflammatory and hyperproliferative skin diseases such as eczema,
psoriasis, atopic dermatitis, poison ivy, and other inflammatory skin
conditions. Competing steroid brands in the high potency category include Halog,
Elocon, and Cyclocort. LIDEX also competes with steroid brands in the
super-potency category such as Temovate, Diprolene and Psorcon. LIDEX was
introduced more than 20 years ago and the Company believes it is among the most
widely-accepted, efficacious and safe topical steroid treatments available.
Topical corticosteroid treatments represented sales of approximately $480
million in 1996 in the United States. The active ingredient in LIDEX,
fluocinonide, works to alleviate inflammations of the skin by reducing swelling
and pain, relieving itching and constricting blood vessels in the skin. In a
controlled clinical study sponsored by Syntex, LIDEX was shown to be
therapeutically superior to a generic preparation containing the same active
ingredients. In addition, in a controlled clinical study sponsored by the
Company in 1997, LIDEX was shown to be more chemically stable than a generic
preparation containing the same active ingredients. The LIDEX product line
consists of various strengths and cosmetically elegant formulations, including
gels, ointments, creams, solutions and emollient creams. This broad product line
allows dermatologists to prescribe the most appropriate product based on the
severity and location of a patient's condition, as well as the thickness of a
patient's skin. The various forms of LIDEX are preservative-free, and the active
ingredient is fully dissolved in the vehicle of the medication, with the
exception of the LIDEX-E Cream, resulting in better absorption of the medication
into the skin. In addition, certain competing products have a time limitation on
their usage, whereas there are no restrictions on the length of treatment with
LIDEX. The Company believes LIDEX is priced comparably to other branded
corticosteroid products, but significantly higher than the average reported
retail price of generics containing fluocinonide. The Company acquired the
rights to LIDEX in the United States and Canada from Syntex in the third quarter
of fiscal 1997. There can be no assurance that the Company will be able to
successfully market the LIDEX product line, that LIDEX will not lose significant
market share in the future, that it will remain a competitive product or that
the Company will be able to compete successfully in the topical
 
                                       36
<PAGE>   40
 
corticosteroid market through the sale of LIDEX or any other product. The
Company has a manufacturing and supply agreement with Patheon for the production
of LIDEX. See "Risk Factors -- Dependence on Sale of Key Products," and
"-- Manufacturing," "-- Trademarks" and "-- Patents and Proprietary Rights."
 
     NOVACET is a topical vanishing cream prescribed for the treatment of acne
rosacea, a chronic inflammatory skin disorder resembling acne, and seborrheic
dermatitis. The active ingredients in NOVACET are sodium sulfacetamide and
sulfur. Sales of products to treat acne rosacea in the United States in 1996
were approximately $50.0 million. NOVACET was introduced in 1993 and competes
with other topical acne rosacea treatments such as Sulfacet-R, MetroGel,
MetroCream and generic treatments, as well as various forms of erythromycin,
clindamycin and oral metronidazole, which also are used from time to time to
treat acne rosacea. In a controlled clinical study sponsored by GenDerm, NOVACET
was shown to reduce the severity of redness and inflammation resulting from acne
rosacea by 83% over an eight week period and 98% of the patients in the study
showed significant improvements in their condition by week eight. The Company
believes NOVACET is priced comparably to the competing brands. The Company
acquired NOVACET in December 1997 from GenDerm and assumed the marketing of this
brand in the United States and Canada. There can be no assurance that the
Company will be able to successfully market the NOVACET product line or that the
NOVACET product line will achieve or maintain market acceptance. The Company has
a manufacturing and supply agreement with DPT for the production of NOVACET. See
"-- Manufacturing," "-- Trademarks" and "-- Patents and Proprietary Rights."
 
     The Company's other prescription products include, among others, SYNALAR, a
mid- to low-potency topical corticosteroid brand prescribed for the treatment of
less severe forms of inflammatory and hyperproliferative skin diseases; ZONALON,
a topical anti-pruritic cream; THERAMYCIN Z, a topical antibiotic therapy for
the treatment of acne; and BENZASHAVE, a topical therapy for the treatment of
pseudofolliculitis barbae and acne associated with shaving.
 
  Non-Prescription Products
 
     The Company's non-prescription products consist of OTC pharmaceutical
products and cosmetic dermatology products.
 
     Over-The-Counter Products
 
     The Company markets a variety of OTC skin care products to treat
hyperpigmentation, warts, dandruff, acne, dry skin and certain inflammatory skin
conditions, as well as a topical analgesic to treat arthritic pain. The
Company's principal OTC products are as follows:
 
     ESOTERICA is a line of topical creams used to treat minor skin
discoloration problems such as age spots, uneven skin tones, dark patches,
blotches and freckles. ESOTERICA is the leading line of fade creams in the
United States. ESOTERICA is available in five formulations, consisting of four
creams containing various concentrations of the active ingredient hydroquinone,
and a body lotion. Hydroquinone is the only agent proven to reduce
hyperpigmentation and the only product legally sold in the United States for
this purpose. Competing OTC products used to treat minor skin discoloration
include Porcelana and AMBI, which are sold in a variety of creams, gels and
lotions. There can be no assurance that the Company will be able to successfully
market the ESOTERICA product line, that it will not lose significant market
share in the future, that it will remain a competitive product or that the
Company will be able to compete successfully in the OTC fade cream market
through the sale of ESOTERICA or any other product. The Company has a
manufacturing agreement for the ESOTERICA products with Contract Pharmaceuticals
Limited on a purchase order basis. See "-- Manufacturing."
 
     ZOSTRIX is a line of topical analgesic creams for the treatment of
arthritic pain. The active ingredient in ZOSTRIX is capsaicin, a chemical
derived from chili peppers, which is believed to work by decreasing the presence
of a neurotransmitter in the body called substance P, which can cause pain and
inflammation. ZOSTRIX is the leading line of topical capsaicin creams in the
United States, comprising approximately 56% of the capsaicin market. ZOSTRIX
primarily competes with other topical analgesics including Capzasin, Aspercreme,
Sportscreme, Icy Hot, Flexall, Bengay and other
 
                                       37
<PAGE>   41
 
private label capsaicins and hot/cold rubs. The Company acquired ZOSTRIX in
December 1997 from GenDerm and assumed the marketing of this brand in the United
States and Canada. There can be no assurance that the Company will be able to
successfully market the ZOSTRIX product line, that ZOSTRIX will not lose
significant market share in the future, that it will remain a competitive
product or that the Company will be able to compete successfully in the topical
analgesics market through the sale of ZOSTRIX or any other product. The Company
has a manufacturing and supply agreement with DPT for the production of ZOSTRIX.
See "-- Manufacturing" and "-- Certain License and Royalty Agreements."
 
     The Company's other OTC products include, among others: THERAPLEX, a line
of moisturizers used for the treatment of dry skin or certain inflammatory skin
conditions; OCCLUSAL-HP, a topical wart therapy; PENTRAX, a shampoo containing
the active ingredient fractar, an extract of coal tar, used for the treatment of
dandruff, seborrheic dermatitis and psoriasis of the scalp; and SALAC, a
cleanser used for the topical treatment of acne vulgaris.
 
     Cosmetic Dermatology Products
 
     In February 1997, the Company formed a new business unit, TxSYSTEMS by
MEDICIS, to market non-prescription cosmetic dermatology products for sale
directly to dermatologists nationwide for administration and dispensing to
patients. There can be no assurance that the Company will be able to
successfully market non-prescription dermatology treatments or that any such
product line will achieve or retain market acceptance. The principal products
introduced by the TxSYSTEMS by MEDICIS business unit are as follows:
 
     AFIRM is a line of topical creams containing the active ingredient retinol,
a vitamin-A derivative, to improve the texture and appearance of skin. AFIRM is
used to exfoliate skin and restore and enhance the natural cell renewal process.
AFIRM reduces the appearance of fine lines, superficial scars, and skin
discoloration, helps to repair sun damaged skin, and makes skin look and feel
smoother and firmer. The cosmetically elegant formulation of the creams makes
AFIRM greaseless, non-comedogenic, and safe for daily use. The product
incorporates microsponge technology developed by APS to maintain stability of
the retinol molecule and provide continuous delivery of retinol to the skin,
simultaneously providing improved bioavailability by absorption and reduced skin
irritation. AFIRM is available in three strengths of retinol for varying skin
types. The Company has a license and supply agreement with APS and is limited to
promoting AFIRM exclusively to dermatologists in the United States. See
"-- Manufacturing" and "-- Certain License and Royalty Agreements."
 
     BETA-LIFTx is a five-minute peel procedure that stimulates cell turnover
and renewal through the application of salicylic acid in the form of
microcrystals using APS' microsponge technology. BETA-LIFTx reduces the
appearance of fine lines, skin discoloration, superficial scars, and other signs
of photodamaged skin. Unlike glycolic acid or other chemical peels, the
BETA-LIFTx product is self limiting, automatically shuts off after approximately
five minutes, and does not damage the integrity of the skin's function as a
protective barrier, making the procedure easier and safer to perform than
similar in-office treatments. BETA-LIFTx is sold to dermatologists in the form
of a kit containing PRE-CLEANSE pads, one application of the salicylic acid, and
a one-ounce bottle of THERAPLEX HYDROLOTION as an after-care moisturizer. The
Company has a license and supply agreement with APS and is limited to promoting
BETA-LIFTx, exclusively to dermatologists in the United States. See
"-- Manufacturing" and "-- Certain License and Royalty Agreements."
 
PRODUCTS IN DEVELOPMENT
 
     The Company has developed and obtained rights to certain pharmaceutical
agents in various stages of development. The Company has a variety of products
under development, ranging from existing product line extensions to new products
or reformulations of existing products. Medicis' strategy involves the rapid
evaluation and formulation of new therapeutics by obtaining preclinical safety
and efficacy data, when possible, followed by rapid safety and efficacy testing
in humans. While
 
                                       38
<PAGE>   42
 
development periods may vary, the Company generally selects products for
development with the objective of proceeding from formulation to product launch
within a two-year period.
 
     The Company directs the efforts of contract laboratory research facilities
to perform formulation and research work on active ingredients as well as to
conduct preclinical studies and clinical trials. All products and technologies
under development will require significant commitments of personnel and
financial resources. Several products will require extensive clinical evaluation
and premarketing clearance by the FDA and comparable agencies in other countries
prior to commercial sale. Certain of the products and technologies under
development have been licensed from third parties. The failure of the Company to
meet its obligations under one or more of these agreements could result in the
termination of the Company's rights under such agreements. In addition, the
Company regularly reevaluates its product development efforts. On the basis of
these reevaluations, the Company has in the past, and may in the future, abandon
development efforts for particular products. There can be no assurance that any
product or technology under development will result in the successful
introduction of any new product. Failure of the Company to introduce and market
new products, whether internally developed or acquired from third parties, could
have a material adverse effect on the Company's business, financial condition or
results of operation. See "-- Government Regulation."
 
     The Company's research and development costs for Company-sponsored and
unreimbursed co-sponsored pharmaceutical projects for fiscal 1997, fiscal 1996
and fiscal 1995 were $1,450,000, $952,000 and $770,000, respectively. The
Company's research and development costs for Company-sponsored and unreimbursed
co-sponsored pharmaceutical projects for the six months ended December 31, 1997
was $1,448,000. The Company has in the past supplemented, and may in the future
supplement, its research and development efforts by entering into research and
development agreements with other pharmaceutical companies in order to defray
the cost of product development. There can be no assurance that the Company will
be able to enter into research and development agreements acceptable to the
Company, or at all.
 
     In June 1997, the Company entered into an agreement with Abbott for the
development, manufacture and marketing of a branded dermatologic product. Abbott
will be responsible for the development and eventual manufacture of the product,
which the Company will market exclusively to dermatologists. The Company has
agreed to pay certain development expenses estimated to be approximately
$1,000,000. There can be no assurance that this collaboration will result in the
successful introduction of any new product or technology.
 
     In October 1997, the Company signed a letter of intent with Miravant
Medical Technologies, Inc. ("Miravant") for the development and
commercialization of Miravant's PhotoPoint technology for dermatology
applications. PhotoPoint technology is a proprietary procedure that uses
light-activated drugs to destroy targeted cells. The Company and Miravant will
collaborate on the development of photo sensitizers, subsequent clinical trials
and future marketing activities. Among the planned co-development project areas
is the treatment of psoriasis and certain skin cancers. Under the preliminary
agreement, Miravant will bear the costs associated with product development and
the Company shall be responsible for all marketing, sales and distribution
expenses following regulatory approval. The Company expects to enter into an
agreement incorporating these terms in the near future. There can be no
assurance that the Company will enter into a final agreement incorporating these
terms or that this collaboration, if agreed upon, will result in the successful
introduction of any new product or technology.
 
     In December 1997, the Company acquired 100% of the common stock of GenDerm.
In assuming all related assets of GenDerm, the Company acquired several
in-process research and development projects. Although the Company intends to
continue such development projects, there can be no assurance that any product
or technology previously under development by GenDerm will result in the
successful introduction of any new product or that the Company will continue the
development of any such projects in the future. See "Risks Associated with
GenDerm Acquisition" and "-- Acquisition of GenDerm" and "-- Uncertainty of
Product Development."
 
                                       39
<PAGE>   43
 
MARKETING AND SALES
 
     The Company believes that its prescription pharmaceutical marketing and
sales organization is one of the most productive in the dermatology sector. The
marketing effort is focused on assessing and meeting the needs of
dermatologists. The Company's prescription sales team, consisting of 35 members
at December 31, 1997, regularly calls on dermatologists, focusing on the
approximately 3,200 dermatologists who are responsible for 80% of all
prescriptions written by dermatologists. The Company has created an incentive
program based on aggressive goals in market share growth and believes its
highest performing sales representatives to be well compensated. The Company
focuses on cultivating a relationship of trust and confidence with
dermatologists themselves. In addition, the Company also uses a variety of
marketing techniques to promote its products, including sampling, journal
advertising, promotional material, specialty publications, rebate coupons,
product guarantees, a leadership position in educational conferences and
exposure to its products on the Internet.
 
     The Company's OTC products are promoted to retailers and wholesalers by
manufacturers' representatives who also support a substantial number of products
of other manufacturers. The Company also markets its OTC products through trade
promotions, radio and print advertising, couponing and consumer awareness.
 
     The Company has a dedicated cosmetic dermatology sales force of 13 field
representatives as of December 31, 1997, as part of the new TxSYSTEMS by MEDICIS
business unit to market non-prescription cosmetic dermatology products for sale
directly to dermatologists in the United States. TxSYSTEMS by MEDICIS
representatives call on high-volume dermatologists who are actively engaged in
dispensing cosmetic products directly to patients and who perform cosmetic
procedures in their offices. TxSYSTEMS by MEDICIS representatives conduct
in-depth product demonstrations and training, assist physicians and their office
staffs with merchandising, and provide consulting services to dermatologists
beginning in the dispensing business. The Company also uses a variety of
marketing techniques to support the field sales force, including promotional and
display materials, direct mail programs, journal advertising, public relations
efforts to obtain editorial coverage of the product, and attendance at
educational conferences and seminars.
 
WAREHOUSING AND DISTRIBUTION
 
     The Company utilizes an independent national warehousing corporation to
store and distribute its products from three central warehousing locations in
California, Georgia and Maryland. Upon the receipt of a purchase order through
electronic data input ("EDI"), phone, mail or facsimile, the order is processed
into the Company's inventory systems, at which time an inventory picking sheet
is automatically placed via EDI to the most efficient warehouse location for
shipment, usually within 24 hours, to the customer placing the order. Upon
shipment, the warehouse sends back to the Company via EDI the necessary
information to automatically process the invoice in a timely manner.
 
CUSTOMERS
 
     The Company's customers include the nation's leading wholesale
pharmaceutical distributors, such as McKesson, Bergen Brunswig, Cardinal,
Bindley and major drug chains. In fiscal 1997, McKesson, Cardinal and Bergen
Brunswig accounted for approximately 20.6%, 16.3% and 10.9%, respectively, of
the Company's sales. In fiscal 1996, McKesson, Bergen Brunswig and Cardinal
accounted for approximately 15.5%, 12.2% and 11.8%, respectively, of the
Company's sales. The distribution network for pharmaceutical products has, in
recent years, been subject to increasing consolidation. As a result, a few large
wholesale distributors control a significant share of the market. In addition,
the number of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to the Company,
cause a reduction in the inventory levels of distributors and retailers, or
otherwise result in reductions in purchases of the Company's products, any of
which could have a
 
                                       40
<PAGE>   44
 
material adverse impact upon the Company's business, financial condition and
results of operations. 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 of operations. See "Risk Factors -- Customer
Concentration; Consolidation of Distribution Network."
 
MANUFACTURING
 
     The Company currently contracts for all of its manufacturing needs and is
required by the FDA to contract only with manufacturers that comply with cGMP
regulations and other applicable laws and regulations. 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's DYNACIN products are manufactured by Schein in compliance
with the Company's specifications and quality standards pursuant to a supply
agreement. Under the agreement, Schein manufactures minocycline for sale in the
branded market exclusively for the Company, but may manufacture and sell
minocycline for itself or others as a generic product. Schein currently
manufactures minocycline for the generic market under its own label. The supply
agreement expires in December 1999, but subject to automatic renewal for
successive two-year periods if neither party gives timely notice of termination.
It may also be terminated by either party without cause upon 12-months' notice.
Schein may also terminate the exclusivity portion of the agreement if its profit
margin on sales of DYNACIN products falls below a specified level. The agreement
also provides that the Company will purchase all of its requirements for
minocycline from Schein but may purchase some of its requirements from another
manufacturer if Schein fails to meet certain cost standards or fails to provide
the Company with all of its requirements for two of four consecutive quarters.
In addition, the Company may use alternative sources if Schein terminates the
Company's exclusive rights to purchase branded minocycline based upon the
Company's failure to meet the specified profit margins, as defined. Either party
may terminate the agreement in the event that one party cannot perform under the
agreement for a period of three months or longer for certain reasons beyond its
control. The Company believes that it has alternative sources of supply and that
it would be able to use these alternative sources to preserve an adequate supply
of DYNACIN. However, the inability of Schein to fulfill the Company's supply
requirements for DYNACIN, one of the Company's largest-selling product, in a
timely fashion, would have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     The majority of the Company's LIDEX products are manufactured primarily by
Patheon in accordance with a manufacturing and supply agreement assumed by the
Company in connection with the acquisition of the LIDEX and SYNALAR products.
Under the terms of an agreement with the Company, Roche supplies, at cost,
active ingredients necessary for manufacturing the LIDEX and SYNALAR products.
The Patheon manufacture and supply agreement expires in January 1999, but is
subject to one-year automatic renewals if neither party gives timely notice of
termination. The inability of Patheon to fulfill the Company's supply
requirements for LIDEX and SYNALAR in a timely fashion could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     The Company's ZOSTRIX, OCCLUSAL, PENTRAX, SALAC, NOVACET and ZONALON
products, among others, are manufactured for distribution in the United States
primarily by DPT and in Canada by Patheon in accordance with manufacturing and
supply agreements assumed by the Company concurrent with the acquisition of
GenDerm. The Company is currently seeking other sources to manufacture these
products. Under the agreement, the Company is required to purchase at least 90%
of its annual sales requirements from DPT. The DPT manufacturing agreement
expires on December 2003. Either party may terminate the agreement upon
two-years' notice by the Company and three years notice by DPT. Such termination
period becomes 60 days if either party fails to perform, without cure, its
obligations under the DPT manufacturing agreement.
 
                                       41
<PAGE>   45
 
     The Company's AFIRM and BETA-LIFTx products are manufactured by APS
pursuant to a license and supply agreement that expires on the later of the
expiration date of the last-to-expire patent relating to the AFIRM and
BETA-LIFTx products, or in October 2006, the tenth anniversary of the effective
date. Under the terms of the agreement, the Company is limited to promoting the
products exclusively to dermatologists in the United States. In the event that
APS fails to supply the Company's requirements for either product, the Company
is permitted to purchase its requirements from third parties.
 
     The Company purchases THERAMYCIN Z and BENZASHAVE products exclusively from
IVAX, pursuant to a manufacturing agreement expiring in July 2000. If IVAX is
unable to supply the Company's requirements of either product, the Company is
permitted to purchase the unsatisfied requirements from third parties.
 
     The remainder of the Company's products are produced on a purchase order
basis only, including its ESOTERICA products, manufactured by Contract
Pharmaceuticals Limited; THERAPLEX EMOLLIENT products, manufactured by ViFor;
THERAPLEX CLEARLOTION products, manufactured by Accupac, Inc.; THERAPLEX
HYDROLOTION products, manufactured by BeautiControl Cosmetics, Inc.; and TRIAZ
products, manufactured by Paco and Accupac, Inc. and one LIDEX product
manufactured by Paco.
 
     There can be no assurance that the manufacturers of the Company's products
will continue to meet the FDA's regulations or the Company's product
specifications and standards for the indicated products or that they can
continue to meet product demand on a consistent and timely basis. Schein, IVAX,
ViFor and DPT are currently the sole manufacturers of DYNACIN products,
THERAMYCIN Z products, THERAPLEX EMOLLIENT products and ZONALON products,
respectively. Because of the FDA requirement for cGMP validation of
manufacturing facilities for particular products, validation of a new facility
to serve as a replacement source of manufacturing requires a substantial period
of time. The Company believes that alternative sources of manufacturing are
available for all of its products. However, any loss of a manufacturer or other
difficulty relating to the manufacturing of the Company's products, especially
the Key Products, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company faces the risk that, upon expiration of the term of any third-party
manufacturing agreement, it may not be able to renew or extend the agreement
with the third-party manufacturer, to obtain an alternative manufacturing source
from other third parties or to develop internal manufacturing capabilities on
commercially viable terms, if at all. The Company has obtained business
interruption insurance to insure against the loss of income for up to 12 months
due to the interruption of manufacturing of the Company's Key Products due to
certain causes. While the Company believes that the policy provides substantial
protection against the covered events, there can be no assurance that the policy
will cover all manufacturing interruptions or that the amount of such insurance
will be adequate to fully protect the Company for losses associated with such
interruptions. Any loss in excess of coverage limits could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     The Company's third-party manufacturers rely on certain suppliers of key
raw materials. Certain of those materials are purchased from single sources and
others may be purchased from single sources in the future. Any disruption in
supplies, including delays due to the inability of the Company or its
manufacturers to procure raw materials, could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
     To manage its resources effectively, the Company attempts to retain
inventory levels that are no greater than necessary to meet the currently
projected needs of its customers. Any interruptions in the supply of any of the
Company's products due to shortages in raw materials, changes in manufacturing
sources, regulatory changes or other causes could delay or eliminate the
Company's ability to supply such products. There can be no assurance that the
Company will not suffer future supply insufficiencies or interruptions or that
it will be able to obtain adequate supplies of its products in a timely fashion,
or at all. While the Company believes that its inventory levels are generally
adequate, the loss
 
                                       42
<PAGE>   46
 
of a manufacturer, the failure to obtain or validate a replacement manufacturer
on a timely basis, other manufacturing problems or any interruption of supply
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Reliance on Third
Party Manufacturers and Sole-Source Suppliers."
 
CERTAIN LICENSE AND ROYALTY AGREEMENTS
 
     The Company has acquired rights to manufacture, use or market certain of
its products, including certain of its Key Products, as well as many of its
other proposed products and technologies, pursuant to license agreements with
third parties. Such agreements contain provisions requiring the Company to use
its best efforts or otherwise exercise diligence in pursuing market development
for such products in order to maintain the rights granted under the agreements
and may be canceled upon the Company's failure to perform its payment or other
obligations.
 
     In October 1996, the Company entered into a license and supply agreement
with APS under which the Company has exclusive rights to market to
dermatologists APS' proprietary retinol product, which the Company markets as
AFIRM, and APS' salicylic acid product, which the Company markets as BETA-LIFTx.
APS also manufactures these licensed products for the Company pursuant to the
APS license and supply agreement. The agreement expires on the later of the
expiration date of the last to expire patent relating to the AFIRM and
BETA-LIFTx products, or in October 2006.
 
     In December 1997, in connection with the GenDerm acquisition, in addition
to various license agreements relating to GenDerm's products the Company
acquired an exclusive worldwide license agreement, on a country-by-country
basis, to market the ZOSTRIX product line from Dr. Joel E. Bernstein. The term
of the license is for the life of the patents, the last of which expires in June
2003, with royalties paid until 2002.
 
     The Company's licensing agreement for the exclusive rights to market the
THERAPLEX line of products will terminate in October 1999 with the expiration of
the related patent.
 
     There can be no assurance that the Company will fulfill its obligations
under its license agreements due to insufficient resources, lack of successful
product development, lack of product acceptance or other reasons. The failure to
satisfy the requirements of any such agreements may result in the loss of the
Company's rights under that agreement or under related agreements. The inability
of the Company to continue to license these products or to license other
necessary products for use with its products or substantial increases in royalty
payments under third party licenses could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the effective implementation of the Company's strategy depends on the successful
integration of these licensed products with the Company's products, and
therefore any flaws or limitations of such licensed products may prevent or
impair the Company's ability to market and sell the Company's products, delay
new product introductions, and/or adversely affect the Company's reputation.
Such problems could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Licenses From Others."
 
TRADEMARKS
 
     The Company believes that trademark protection is significant in
establishing product recognition. The Company owns more than 100 federally
registered trademarks and trademark applications. United States federal
registrations for trademarks remain in force for 10 years and may be renewed
every 10 years after issuance provided the mark is still being used in commerce.
There can be no assurance that any such trademark or service mark registrations
will afford the Company adequate protection, or that the Company will have the
financial resources to enforce its rights under any such trademark and service
mark registrations. The inability of the Company to protect its trademarks or
service marks from infringement could result in the impairment of any goodwill
which may be developed in such trademarks or service marks. Moreover, the
Company's inability to use one or more of its trademarks
 
                                       43
<PAGE>   47
 
or service marks because of successful third-party claims to such marks could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
     From time to time, the Company receives communications from parties who
allege that their trademark or service mark interests may be damaged either by
the Company's use of a particular trademark or service mark or its registration
of such trademark or service mark. In general, the Company seeks to resolve such
conflicts before an actual opposition to registration or suit for infringement
is filed. There can, however, be no assurance that such actions will not be
filed or that, if filed, they will not have a material adverse effect upon the
Company's business, financial condition or results of operations. See "Risk
Factors -- Uncertainty of Enforceability of Trademarks, Patents and Proprietary
Rights."
 
PATENTS AND PROPRIETARY RIGHTS
 
     The Company is pursuing several United States patent applications. There
can be no assurance that patents will be issued with respect to any of these
applications. The Company has acquired rights under certain patents and patent
applications from third-party licensors. The Company has licensed rights to
products covered by certain United States patents directed to aspects of the
ZOSTRIX, THERAPLEX, BENZASHAVE, AFIRM and BETA-LIFTx compounds or formulations.
The Company has obtained patents directed to aspects of several other compounds,
including a United States patent expiring in October 2015 covering various
formulations of its TRIAZ product line, a United States patent and foreign
patents covering its ZONALON product line, and a United States patent and
foreign patents covering its OCCLUSAL product line. The Company is currently
undergoing a reexamination procedure with the United States Patent and Trademark
Office relating to ZOSTRIX. The Company has also acquired from certain of its
consultants and principals an assignment of their rights to certain United
States patents or patent applications. Certain of such patents and patent
applications may be subject to claims of rights by third parties by reason of
existing relationships with the party who filed such patents or patent
applications. There can be no assurance that the Company will be able to obtain
any rights under such patents or patent applications as a result of such
conflicting claims, or that any rights which the Company may obtain will be
sufficient for the Company to market products which may be the subject of such
patents or patent applications. The Company may be required to obtain licenses
and/or pay royalties to obtain the rights it acquires under such patents or
patent applications, and there can be no assurance that the Company will be able
to obtain rights under such patents or patent applications on terms acceptable
to the Company, or at all.
 
     The Company believes that its success will depend in part on its ability to
obtain and maintain patent protection for its own inventions, and to obtain and
maintain licenses for the use of patents licensed or sublicensed by third
parties. There can be no assurance that any patent issued to, or licensed by,
the Company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. There can be no assurance that challenges will be not be instituted
against the validity or enforceability of any patent owned by or licensed to the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement of patents can be
substantial and require a significant commitment of management's time.
Furthermore, there can be no assurance that others will not independently
develop similar technologies or duplicate the technology owned by or licensed to
the Company or design around the patented aspects of such technology. The
Company only conducts complete searches to determine whether its products
infringe upon any existing patents as it deems appropriate. There can be no
assurance that the products and technologies the Company currently markets, or
may seek to market in the future, will not infringe patents or other rights
owned by others.
 
     The Company believes that obtaining foreign patents may be more difficult
than obtaining domestic patents because of differences in patent laws, and
recognizes that its patent position, therefore, may be stronger in the United
States than in Europe. In addition, the protection provided by foreign patents
once they are obtained may be weaker than that provided by domestic patents.
 
                                       44
<PAGE>   48
 
     The Company relies and expects to continue to rely upon unpatented
proprietary know-how and continuing technological innovation in the development
and manufacture of many of its principal products. The Company's policy is to
require all its employees, consultants and advisors to enter into
confidentiality agreements with the Company. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's trade
secrets or proprietary know-how in the event of any unauthorized use or
disclosure of such know-how. In addition, there can be no assurance that others
will not obtain access to or independently develop similar or equivalent trade
secrets or know-how. See "Risk Factors -- Uncertainty of Enforceability of
Trademarks, Patents and Proprietary Rights" and "-- Risks Associated with
GenDerm Acquisition."
 
COMPETITION
 
     The pharmaceutical industry is characterized by intense competition, rapid
product development and technological change. Competition is intense among
manufacturers of prescription pharmaceuticals, such as the DYNACIN, LIDEX,
SYNALAR, TRIAZ, NOVACET, ZONALON, THERAMYCIN Z and BENZASHAVE products for the
treatment of dermatological diseases, in the OTC market for products such as the
ESOTERICA, ZOSTRIX, OCCLUSAL-HP, PENTRAX, SALAC and THERAPLEX product lines, and
in the cosmetic dermatology market for products such as AFIRM and BETA-LIFTx, as
well as other products which the Company may develop and market in the future.
Most of the Company's competitors are large, well-established pharmaceutical,
chemical, cosmetic or health care companies with considerably greater financial,
marketing, sales and technical resources than available to the Company.
Additionally, many of the Company's present and potential competitors have
research and development capabilities that may allow such competitors to develop
new or improved products that may compete with the Company's product lines. The
Company's products could be rendered obsolete or made uneconomical by the
development of new products to treat the conditions addressed by the Company's
products, technological advances affecting the cost of production, or marketing
or pricing actions by one or more of the Company's competitors. The Company's
business, financial condition and results of operations could be materially
adversely affected by any one or more of such developments. Each of the
Company's products competes for a share of the existing market with numerous
products which have become standard treatments recommended or prescribed by
dermatologists. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competition
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     DYNACIN competes with Minocin, a branded minocycline product marketed by
AHP, Vectrin, marketed by Warner-Chilcott and generic minocycline products
marketed by Schein, BioCraft and Barr Labs. Other oral antibiotics utilized for
the treatment of acne include erythromycin, doxycycline and tetracycline
marketed in branded and generic form by a variety of companies. LIDEX and
SYNALAR compete with a number of corticosteroid brands in the super-, high-,
mid-, and low-potency categories for the treatment of inflammatory and
hyperproliferative skin conditions. Competing brands include Halog and
Ultravate, marketed by Westwood-Squibb Pharmaceuticals, Inc.; Elocon, Diprolene,
Diprosone and Valisone, marketed by Schering-Plough Corporation; Cyclocort,
marketed by Fujisawa Pharmaceuticals Co., Ltd.; Temovate and Cutivate, marketed
by Glaxo Wellcome plc; Psorcon, marketed by Rhone; and Aristocort, marketed by
AHP. The Company believes that TRIAZ competes with Benzamycin, marketed by a
subsidiary of Rhone; Cleocin-T and a generic topical clindamycin, marketed by
Pharmacia & Upjohn Co, Inc.; and Benzac, marketed by Galderma. ESOTERICA
primarily competes with Porcelana, marketed by Dep Corp. and AMBI, marketed by
Kiwi Brands, a division of Sara Lee Brands Corporation. ZOSTRIX primarily
competes with other topical analgesics including Capzacin, Aspercream and
Sportscream, marketed by Thomson Medical Co.; Icy Hot and Flexall, marketed by
Chattem, Inc.; Bengay, marketed by Pfizer Inc., and other private label
capsaicins and hot/cold rubs. In the category of cosmetic dermatology products,
AFIRM and BETA-LIFTx compete with various brands and private-label products, as
well as compounds which some dermatologists formulate themselves in small
quantities for their patients. Examples of competing brands include the Glytone
line, marketed by C & M Pharmacal; the M.D. Formulations, M.D. Forte and Aqua
 
                                       45
<PAGE>   49
 
Glycolic lines, marketed by Allergan Inc.; as well as various product lines
marketed by NeoStrata Company, the Gly Derm division of ICN Pharmaceuticals,
Inc., the Nova Skin Care Division of Glaxo Wellcome plc and Cellex-C
Distribution Company.
 
     Several of the Company's products, including DYNACIN and LIDEX, compete
with generic (non-branded) pharmaceuticals which claim to offer equivalent
therapeutic benefits at a lower cost. In some cases, insurers and other
third-party payors seek to encourage the use of generic products making branded
products less attractive, from a cost perspective, to buyers. In addition,
certain of the Company's OTC products, including ZOSTRIX, compete with private
label products. The aggressive pricing activities of the Company's generic and
private label competitors and the payment and reimbursement policies of
third-party payors could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Intense Competition; Uncertainty of Technological Change."
 
GOVERNMENT REGULATION
 
  Drug and Cosmetic Regulation
 
     The manufacture and sale of cosmetics and drugs are subject to regulation
principally by the FDA and state and local authorities in the United States, and
by comparable agencies in certain foreign countries. The FTC and state and local
authorities regulate the advertising of OTC drugs and cosmetics. The Food and
Drug Act and the regulations promulgated thereunder, and other federal and state
statutes and regulations, govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, recordkeeping, approval, advertising
and promotion of the Company's products. In general, products falling within the
FDA's definition of "new drugs" require premarketing clearance by the FDA.
Products falling within the FDA's definition of "cosmetics" or of "drugs" that
are not "new drugs" and that are generally recognized as "safe and effective" do
not require premarketing clearance.
 
     The steps required before a "new drug" may be marketed in the United States
include (i) preclinical laboratory and animal testing, (ii) submission to the
FDA of an Investigational New Drug ("IND") application, which must become
effective before clinical trials may commence, (iii) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
drug, (iv) submission to the FDA of a New Drug Application ("NDA") and (v) FDA
approval of the NDA prior to any commercial sale or shipment of the drug. In
addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Drug product manufacturing establishments located in California also must be
licensed by the State of California in compliance with separate regulatory
requirements.
 
     Preclinical testing is generally conducted in laboratory animals to
evaluate the potential safety and the efficacy of a drug. The results of these
studies are submitted to the FDA as a part of an IND, which must be approved
before clinical trials in humans can begin. Typically, clinical evaluation
involves a time consuming and costly three-phase process. In Phase I, clinical
trials are conducted with a small number of subjects to determine the early
safety profile, the pattern of drug distribution and metabolism. In Phase II,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large-scale, multi-center, comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The FDA
closely monitors the progress of each of the three phases of clinical trials and
may, at its discretion, re-evaluate, alter, suspend or terminate the testing
based upon the data which have been accumulated to that point and its assessment
of the risk/benefit ratio to the patient.
 
     In general, FDA approval is required before a new drug product may be
marketed in the United States. However, most OTC drugs are exempt from the FDA's
premarketing approval requirements. In 1972, the FDA instituted the ongoing OTC
Drug Review to evaluate the safety and effectiveness of OTC drug ingredient then
in the market. Through this process, the FDA issues monographs that set
 
                                       46
<PAGE>   50
 
forth the specific active ingredients, dosages, indications and labeling
statements for OTC drug ingredient that the FDA will consider generally
recognized as safe and effective and therefore not subject to premarket
approval. OTC drug ingredients are classified by the FDA in one of three
categories: Category I ingredients, which are deemed "safe and effective for OTC
use," Category II ingredients, which are deemed "not generally recognized as
safe and effective for OTC use," and Category III ingredients, which are deemed
"possibly safe and effective with studies ongoing." For certain categories of
OTC drugs not yet subject to a final monograph, the FDA usually permits such
drugs to continue to be marketed until a final monograph becomes effective
unless the drug will pose a potential health hazard to consumers. Drugs subject
to final monographs, as well as drugs that are subject only to proposed
monographs are subject to various FDA regulations concerning, for example, cGMP,
general and specific OTC labeling requirements, prohibitions against promotion
for conditions other than those stated in the labeling, and requirement that OTC
drugs contain only suitable inactive ingredients. OTC drug manufacturing
facilities are subject to FDA inspection, and failure to comply with applicable
regulatory requirements may lead to administrative or judicially imposed
penalties.
 
     The active ingredients in many of the Company's products are subject to
regulation. The active ingredient in DYNACIN products, minocycline, and the
active ingredients in LIDEX and SYNALAR, fluocinonide and fluocinolone
acetonide, respectively, have been approved by the FDA under a NDA. The active
ingredient in ZOSTRIX, capsaicin, is classified currently by the FDA as a
category I ingredient. The active ingredient in TRIAZ and BENZASHAVE products
has been classified as a Category III ingredient under a tentative final FDA
monograph for OTC use in treatment of labeled conditions. The FDA has requested,
and a task force of the Non-Prescription Drug Manufacturers Association, a trade
association of OTC drug manufacturers, has undertaken further studies to confirm
that benzoyl peroxide, an active ingredient in TRIAZ and BENZASHAVE products, is
not a tumor promoter when tested in conjunction with UV light exposure. TRIAZ
and BENZASHAVE products, which the Company sells on a prescription basis, have
the same ingredients at the same dosage levels as the OTC products. In addition,
there can be no assurance as to the results of these studies or any FDA action
to reclassify benzoyl peroxide or that benzoyl peroxide will continue to be
classified as a category I product. In addition, there can be no assurance that
adverse test results would not result in withdrawal of TRIAZ from marketing. An
adverse decision by the FDA with respect to the safety of benzoyl peroxide could
result in the assertion of product liability claims against the Company and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     Certain ESOTERICA products contain the active ingredient hydroquinone,
currently a Category I ingredient. Independent expert dermatologists have
formally expressed the view that hydroquinone at a 2% concentration is generally
recognized as safe and effective for its intended use. However, in 1992, with
the concurrence of the FDA, the industry initiated dermatological metabolism and
toxicity studies to fully support hydroquinone's continued Category I status.
Notwithstanding the pendency or results of these tests, which may take up to
three years to complete, the FDA may elect to classify hydroquinone as a
Category III ingredient. The Company, in conjunction with the Non-Prescription
Drug Manufacturers Association and other manufacturers, is responsible for 50%
of the costs associated with these studies. An adverse decision by the FDA on
the safety of hydroquinone could result in the assertions of product liability
claims against the Company. Moreover, if hydroquinone is not maintained as a
Category I or Category III ingredients, the Company would be required to cease
marketing ESOTERICA products containing hydroquinone. An adverse decision by the
FDA on the safety of hydroquinone could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Potential Product Liability; Limited Insurance Coverage."
 
     The ESOTERICA, TRIAZ and BENZASHAVE products must meet the composition and
labeling requirements established by the FDA for products containing their
respective basic ingredients. The Company believes that compliance with those
established standards avoids the requirement for
 
                                       47
<PAGE>   51
 
premarketing clearance of these products. There can be no assurance that the FDA
will not take a contrary position.
 
     The active ingredient in ZOSTRIX, capsaicin, is classified currently by the
FDA as a Category I ingredient. The active ingredient in OCCLUSAL and SALAC,
salicylic acid, is classified currently by the FDA as a Category I ingredient.
The active ingredient in PENTRAX, an extract of coal tar called Fractar, also is
classified currently by the FDA as a Category I ingredient. NOVACET, containing
the active ingredients sodium sulfacetamide and sulfur, is marketed under the
FDA compliance policy entitled "Prescription Drugs Marketed Without ANDA."
ZONALON, containing the active ingredient doxepin hydrochloride, has been
approved by the FDA under an NDA with labeling limited to adult use.
 
     The Company believes its three THERAPLEX moisturizers and the AFIRM and
BETA-LIFTx products, as they are promoted and intended by the Company for use,
fall within the FDA's definition of "cosmetics" and therefore do not require
premarketing clearance. There can be no assurance that the FDA will not take a
contrary position in the future or that an adverse determination by the FDA
would not result in withdrawal of the THERAPLEX moisturizers or the AFIRM and
BETA-LIFTx products from the market. The Company believes that such products are
subject to regulations governing product safety, use of ingredients, labeling
and promotion, and methods of manufacture. See "Risk Factors -- Uncertainty of
Government Regulation."
 
  Certain Factors Affecting the Company's Products
 
     The Company believes that certain of its products, as they are promoted and
intended by the Company for use, are exempt from registration based on the date
of introduction of their active ingredients and therefore do not require
premarketing clearance. There can be no assurance that the FDA will not take a
contrary position. The Company believes that such products are subject to
regulations governing product safety, use of ingredients, labeling and promotion
and methods of manufacture.
 
     Clinical trials and the marketing and manufacturing of pharmaceutical
products are subject to the rigorous testing and approval processes of the FDA
and foreign regulatory authorities. The process of obtaining FDA and other
required regulatory approvals is lengthy and expensive. There can be no
assurance that the Company will be able to obtain the necessary approvals to
conduct clinical trials or to manufacture and market such products, that all
necessary clearances will be granted to the Company or its licensors for future
products on a timely basis, or at all, or that FDA review or other actions will
not cause delays adversely affecting the marketing and sale of the Company's
products. In addition, the testing and approval process with respect to certain
new products which the Company may develop or seek to introduce is likely to
take a substantial number of years and involve the expenditure of substantial
resources. There can be no assurance that pharmaceutical products currently in
development, or those products acquired or licensed by the Company, will be
cleared for marketing by the FDA. Failure to obtain any necessary approvals or
failure to comply with applicable regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, future government regulation could prevent or delay
regulatory approval of the Company's products.
 
     There can be no assurance that any approval will be granted on a timely
basis, or at all; that the FDA will not require post-marketing testing and
surveillance to monitor the product and continued compliance with regulatory
requirements; that the FDA will not require the submission of any lot of any
product for inspection and will not restrict the release of any lot that does
not comply with FDA standards; that the FDA will not otherwise order the
suspension of manufacturing, recall or seizure of products; or that the FDA will
not withdraw its marketing clearance of any product if compliance with
regulatory standards is not maintained or if problems concerning safety or
efficacy of the product are discovered following approval.
 
                                       48
<PAGE>   52
 
     From time to time, the FDA has issued correspondence to pharmaceutical
companies, including the Company, alleging that their advertising or promotional
practices are false, misleading or deceptive. The Company has resolved all such
complaints without any further adverse findings by the FDA and without incurring
substantial expense. However, there can be no assurance that the Company will
not receive such correspondence from the FDA in the future, or that, if such
notices are received, they will not result in substantial cost or disruption,
including fines and penalties, in material changes to the manner in which the
Company promotes its products, in loss of sales of the Company's products or
other material adverse effects on the Company's business, financial condition
and results of operations.
 
     For both currently marketed and future products, failure to comply with the
applicable regulatory requirements could, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions,
criminal prosecution, relabeling costs, delays in product distribution,
marketing and sales, or seizure or cessation of manufacture of the products and
the imposition of civil or criminal sanctions. There can be no assurance that
the FDA will not change its position with regard to the safety or effectiveness
of the Company's current or future products or that the FDA will agree with the
Company's position regarding the regulatory status of its products. In the event
that the FDA takes a contrary position regarding any of the Company's current or
future products, the Company may be required to change its labeling or
formulation or possibly cease manufacturing and marketing such products. In
addition, even prior to any formal regulatory action, the Company could decide
voluntarily to cease distribution and sale or to recall any of its products if
concern about the safety or efficacy of any of its products were to develop. Any
such action could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     The Company also will be subject to foreign regulatory authorities
governing clinical trials and pharmaceutical sales if it seeks to market its
products outside the United States. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained prior to the commencement of marketing of the
product in those countries. The approval process varies from country to country
and the time required may be longer or shorter than that required for FDA
approval. There can be no assurance that any foreign regulatory agency will
approve any product submitted for review by the Company. See "Risk
Factors -- Uncertainty of Government Regulation."
 
THIRD-PARTY REIMBURSEMENT
 
     The operating results of the Company will depend in part on the
availability of adequate reimbursement for the Company's products from
third-party payors, such as government entities, private health insurers and
managed care organizations. Third-party payors increasingly are seeking to
negotiate the pricing of medical services and products and to promote the use of
generic, non-branded pharmaceuticals through payor-based reimbursement policies
designed to encourage their use. In some cases, third-party payors will pay or
reimburse a user or supplier of a prescription drug product only a portion of
the purchase price of the product. In the case of the Company's prescription
products, payment or reimbursement by third-party payors of only a portion of
the cost of such products could make such products less attractive, from a cost
perspective, to users, suppliers and prescribing physicians. There can be no
assurance that reimbursement, if available, will be adequate. Moreover, certain
of the Company's products are not of a type generally eligible for third-party
reimbursement. If adequate reimbursement levels are not provided by government
entities or other third-party payors for the Company's products, or if those
reimbursement policies increasingly favor the use of generic products, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, managed care initiatives to control
costs have influenced primary care physicians to refer fewer patients to
dermatologists, resulting in a declining target market for the Company. Further
reductions in referrals to dermatologists could have a material adverse impact
upon the Company's business, financial condition and results of operations.
 
                                       49
<PAGE>   53
 
     A number of legislative and regulatory proposals aimed at changing the
United States' health care system have been proposed in recent years. While the
Company cannot predict whether any such proposals will be adopted, or the effect
that any such proposal may have on its business, such proposals, if enacted,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Uncertainties Relating
to Pharmaceutical Pricing, Third-Party Reimbursement and Health Care Reform."
 
PRODUCT LIABILITY INSURANCE
 
     The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or that otherwise received
regulatory approval for commercial sale. There can be no assurance that the
Company will not be subject to significant product liability claims. The Company
currently has product liability insurance in the amount of $5.0 million per
claim and $5.0 million in the aggregate on a claims-made basis. Many of the
Company's customers require the Company to maintain product liability insurance
coverage as a condition to their conducting business with the Company. As the
loss of such insurance coverage could result in a loss of such customers, the
Company intends to take all reasonable steps necessary to maintain such
insurance coverage. There can be no assurance that insurance coverage will be
available in the future on commercially reasonable terms, or at all, or that
such insurance will be adequate to cover potential product liability claims, or
that the loss of insurance coverage or the assertion of a product liability
claim or claims would not materially adversely affect the Company's business,
financial condition and results of operations. See "Risk Factors -- Potential
Product Liability; Limited Insurance Coverage."
 
EMPLOYEES
 
     As of December 31, 1997, the Company had 100 full-time employees. The
Company believes its relationship with its employees is good. The Company
intends to hire personnel as needed during the next 12 months.
 
FACILITIES
 
     The Company presently leases approximately 19,000 square feet of office
space for its headquarters in Phoenix, Arizona, under a lease agreement which
expires in May 2005. The Company believes that these facilities will be adequate
to meet its needs for the foreseeable future.
 
     GenDerm, presently leases approximately 61,000 square feet of office and
warehouse space in Lincolnshire, Illinois, under a lease agreement which expires
in June 1998 (the "Lincolnshire Lease"). GenDerm also presently leases
approximately 8,600 square feet of office and warehouse space in Buffalo Grove,
Illinois, under two lease agreements which expire in September 1998 (the
"Buffalo Grove Leases"). Due to the integration of the operations of GenDerm
into the operations of the Company, the Company presently does not intend to
renew the Lincolnshire Lease or the Buffalo Grove Leases.
 
     GenDerm Canada, Inc., a wholly-owned subsidiary of GenDerm, presently
leases approximately 7,500 square feet of office and warehouse space in
St-Laurent, Quebec, Canada, under lease agreement which expires on April 30,
1998.
 
CERTAIN LEGAL MATTERS
 
     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
 
                                       50
<PAGE>   54
 
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. See "Risk Factors -- Risks Associated With GenDerm Acquisition."
 
                                       51
<PAGE>   55
 
                                   MANAGEMENT
 
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR STAFF OFFICERS
 
     The following table sets forth certain information as of December 31, 1997
with respect to the current directors, executive officers and other senior staff
officers of the Company.
 
<TABLE>
<CAPTION>
NAME                                   AGE                       POSITION
-------------------------------------  ---   -------------------------------------------------
<S>                                    <C>   <C>
Jonah Shacknai(1)....................  41    Chairman of the Board, Chief Executive Officer
Mark A. Prygocki, Sr. ...............  31    Chief Financial Officer, Treasurer and Secretary
Ralph T. Bohrer......................  37    Senior Vice President, Sales
Joseph P. Cooper.....................  39    Senior Vice President, Manufacturing and
                                             Distribution
Pamela J. Doyle......................  45    Senior Vice President, Marketing and New Product
                                             Development
Ronald S. Gibb.......................  35    Senior Vice President, Corporate Development and
                                             Strategic Planning
Mitchell Wortzman, M.D. .............  47    Senior Vice President, Research and Development
Arthur G. Altschul, Jr.(2)...........  33    Director
Richard L. Dobson, M.D.(2)...........  69    Director
Peter Knight Esq.(3).................  46    Director
Michael A. Pietrangelo(1)(3).........  55    Director
Philip S. Schein, M.D.(2)............  58    Director
Lottie H. Shackelford(2).............  56    Director
</TABLE>
 
---------------
(1) Member of the Executive Committee.
 
(2) Member of the Audit Committee.
 
(3) Member of the Stock Option Committee and Compensation Committee.
 
     Jonah Shacknai is a founder of the Company and has served as Chairman and
Chief Executive Officer since July 1988. From 1982 to June 1988, Mr. Shacknai
was a member of the Washington, D.C., law firm of Royer, Shacknai & Mehle,
specializing in business, regulatory, and legislative matters relating to
pharmaceutical, cosmetic, and food products. From January 1981 to October 1982,
Mr. Shacknai served as counsel to the United States House of Representatives
Committee on Science and Technology. From 1977 to 1981, Mr. Shacknai served as
chief of staff of the Chairman of the Subcommittee on Consumer Protection and
Finance of the House Energy and Commerce Committee. Mr. Shacknai served as a
founding director of IVAX Corporation from 1986 to 1988. In addition, Mr.
Shacknai served as a member of the Commission on the Federal Drug Approval
Process. He presently serves as a trustee of the National Public Radio
Foundation, a member of the National Arthritis and Musculoskeletal and Skin
Diseases Advisory Council of the National Institutes of Health, and a member of
the Joint High Level Advisory Panel of the United States-Israel Science and
Technology Commission. Mr. Shacknai currently serves as Vice Chairman of the
Board of Directors of the Delta Society, a not-for-profit organization aiding in
the physical assistance and psychological therapy of disabled people with the
use of animals, and as a director of Miravant Medical Technologies, a publicly
held corporation specializing in PhotoPoint drugs and devices and Healthcare
Incorporated, a publicly held Corporation specializing in healthcare advertising
and communication.
 
     Mark A. Prygocki, Sr., has served as Chief Financial Officer, Treasurer and
Secretary since May 1995 and served as Controller of the Company from October
1992 until May 1995. From July 1990 through October 1992, Mr. Prygocki was
employed by Salomon Brothers Inc., an investment banking firm, as an Accountant
in the Regulatory Reporting Division.
 
                                       52
<PAGE>   56
 
     Ralph T. Bohrer has been Senior Vice President, Sales, of the Company since
July 1994, prior to which he served as a regional healthcare advertising and
communication sales manager for the Company from 1990 to 1994. Mr. Bohrer
previously worked in various sales positions at Schering Plough Corporation, a
pharmaceutical company.
 
     Joseph P. Cooper has been Senior Vice President, Manufacturing and
Distribution, of the Company since February 1996. Mr. Cooper previously was
Director of Materials Management with Schein Pharmaceutical-Steris Laboratories,
a subsidiary of Schein Pharmaceuticals, Inc., from August 1989 to February 1996.
 
     Pamela J. Doyle has been Senior Vice President, Marketing, of the Company
since June 1995. Prior to joining the Company, Ms. Doyle was a senior marketing
executive in the pharmaceutical industry, first with the Ortho Pharmaceutical
division of Johnson & Johnson from 1977 to 1992 and then with the NeoStrata
Corporation, a dermatology product supplier, from 1993 to 1995.
 
     Ronald S. Gibb has been Senior Vice President, Strategic Planning and
Corporate Development, of the Company since November 1997. Previously, Mr. Gibb
was Vice President and Division Manager of Norwest Business Credit since 1995
and previously held various positions in the business credit, derivative
products and national accounts units at Norwest since 1985.
 
     Mitchell S. Wortzman, Ph.D., has been Senior Vice President, Research and
Development, of the Company since August 1997. From 1980 to 1997, Dr. Wortzman
was employed at Neutrogena Corporation, most recently serving as President of
the Dermatologics Division since 1989.
 
     Arthur G. Altschul, Jr., has been a director of the Company since December
1992. Since 1996, Mr. Altschul is a founder and co-Chairman of Diaz & Altschul
Group, LLC, a merchant banking organization. Between 1985 and 1991, Mr. Altschul
worked in the Equity and Fixed-Income trading departments at Goldman, Sachs &
Co., was a founding limited partner of The Maximus Fund, LP, and worked in the
Equity Research department at Morgan Stanley & Co. From 1992 to 1996, Mr.
Altschul worked at SUGEN, Inc., a NASDAQ-traded biopharmaceutical company
focused on cancer research and drug development, most recently as Senior
Director of Corporate Affairs. Mr. Altschul serves on the Board of Directors of
General American Investors, Inc., a NYSE-traded closed-end investment company;
Delta Opportunity Fund, Ltd., an offshore investment fund which invests
primarily in private placements of publicly-traded technology companies;
Catamount Brewery Corporation, and Prototek II, Inc. Mr. Altschul holds a B.Sc.
from Columbia University in Computer Science.
 
     Richard L. Dobson, M.D., has been a director of the Company since September
1991. He has been a Professor of Dermatology at the Medical University of South
Carolina since January 1980. He is a past President of the American Board of
Dermatology and a past President of the American Academy of Dermatology. Dr.
Dobson also serves as the Editor-in-Chief of the Journal of the American Academy
of Dermatology.
 
     Peter S. Knight, Esq., has been a director of the Company since June 1997.
Mr. Knight has been a partner of the law firm of Wunder, Knight, Levine, Thelen
& Forscey since 1991, where he specializes in pharmaceutical, environmental, and
communication matters. In 1996, at the request of President Clinton, Mr. Knight
served as the National Campaign Manager for Clinton/Gore '96. Mr. Knight served
as the General Counsel and Secretary of the Company from 1989 to 1991. Mr.
Knight served as Chief of Staff to Senator Al Gore (D-TN) from 1977 to 1989, and
served as the Campaign Director for the Gore for President Committee in 1988.
Mr. Knight currently serves on the Boards of COMSAT, Whitman Education Group,
the Center for National Policy, and the Schroder Series Trust. Mr. Knight serves
as the Chairman of the Vice President's Residence Foundation and is the Founding
Director of Builders for Peace.
 
     Michael A. Pietrangelo has been a director of the Company since October
1990. He has served as the President of Johnson Products Company, a division of
IVAX Corporation, a pharmaceutical corporation, since July 1994. From June 1990
to March 1994, Mr. Pietrangelo was the President and
 
                                       53
<PAGE>   57
 
Chief Executive Officer of CLEO, Inc., a Memphis-based subsidiary of Gibson
Greetings, Inc., a manufacturer of specialized paper products.
 
     Philip S. Schein, M.D., has been a director of the Company since October
1990. Dr. Schein has been the Chairman and Chief Executive Officer of U.S.
Bioscience, Inc., a publicly held pharmaceutical company involved in the
development and marketing of chemotherapeutic agents, since April 1987. He has
served as President of the American Society of Clinical Oncology and has chaired
the Food and Drug Administration Oncology Drugs Advisory Committee. Dr. Schein
presently serves as Adjunct Professor of Medicine and Pharmacology at the
University of Pennsylvania School of Medicine, and as a director of Oncor, Inc.,
a cancer-focused molecular biology company.
 
     Lottie H. Shackelford has been a director of the Company since July 1993.
Ms. Shackelford has been Executive Vice President of Global USA, Inc., a
government relations firm, since April 1994 and has been Vice Chair of the
Democratic National Committee since February 1989. Ms. Shackelford was Executive
Vice President of U.S. Strategies, Inc., a government relations firm, from April
1993 to April 1994. She was also Co-Director of Intergovernmental Affairs for
the Clinton/Gore presidential transition team between November 1992 and March
1993, Deputy Campaign Manager of Clinton for President from February 1992 to
November 1992, and Executive Director, Arkansas Regional Minority Purchasing
Council from February 1982 to January 1992. In addition, Ms. Shackelford has
served in various local government positions, including Mayor of Little Rock,
Arkansas. She also is a director of Philander Smith College, the Chapman Funds
in Baltimore, Maryland, and the Overseas Private Investment Corporation.
 
KEY CONSULTANT
 
     Dr. Eugene Gans, Ph.D., has been Chairman of the Company's Central Research
Committee since 1988. Dr. Gans has been appointed to several industry task
groups and advisory committees and is a member of numerous professional
societies. He has 19 United States patents either issued to him or pending.
 
     Dr. Gans serves as a consultant to the Company pursuant to an agreement
between the Company, Dr. Gans and Hastings Associates, a company owned by Dr.
Gans. That agreement has an indefinite term and may be terminated at any time by
either the Company or Dr. Gans upon specified notice. Under the Company's
agreement with Dr. Gans, the Company sponsors and funds the development of
specified projects selected by the Company, as to which the Company owns all
intellectual property rights. Dr. Gans has rights to perform consulting work for
other companies that may result in the development of certain products,
including certain dermatology products specified in the agreement, which the
Company elects not to develop.
 
     In December 1988, the Company entered into a royalty agreement with Lincoln
Ventures, Inc., a company owned by Dr. Gans, to compensate Dr. Gans for
development and formulation work he performed before he joined the Company on
certain products which the Company currently now uses and markets. Royalties
paid to Lincoln Ventures, Inc. are based on sales of such products, including
the THERAPLEX line of products. Lincoln Ventures, Inc. does not have the power
to prohibit the Company's marketing of such products upon termination of this
agreement.
 
EMPLOYMENT AGREEMENTS
 
     In July 1996, the Company entered into an employment agreement (the
"Employment Agreement") with Mr. Shacknai, effective July 1, 1996, to continue
to serve as Chairman of the Board and Chief Executive Officer of the Company.
The Employment Agreement expires on June 30, 2001, and automatically renews for
successive periods of five years, unless either party gives timely notice of an
intention not to renew. Mr. Shacknai also may terminate the Employment Agreement
prior to the end of the term. Under the Employment Agreement, Mr. Shacknai
agreed that, during his employment by the Company and for a period of one year
following termination for reasons other than a change in ownership or control of
the Company, he will not engage in, consult with or be employed by any
 
                                       54
<PAGE>   58
 
Competing Business, as defined in the Employment Agreement. The Employment
Agreement contains customary non-solicitation provisions and provides for the
transfer to the Company of any intellectual property relating to the business of
the Company.
 
     Under the Employment Agreement, Mr. Shacknai receives an annual base salary
of $400,000, effective July 1996, plus certain benefits and an annual grant of
options to purchase shares of Common Stock representing a minimum specified
percentage of the fully diluted capitalization of the Company. Mr. Shacknai is
also eligible for annual cash bonuses and increases in his base compensation.
 
     The Employment Agreement provides that, if Mr. Shacknai's employment is
terminated as a result of a change in control of the Company, the Company is
obligated to pay Mr. Shacknai a lump sum amount equal to four times the sum of
(i) his base salary at the highest rate in effect during the proceeding 12
months and (ii) the average annual bonus, if any, paid during the proceeding
three years. If Mr. Shacknai's employment is terminated without cause or by his
Resignation for Good Reason, as defined in the Employment Agreement, the Company
is obligated to pay him a lump sum equal to the sum of (i) the amount he would
have collected in salary for the unexpired term of the Employment Agreement,
were he paid at the highest salary rate in effect for the 12 months preceding
his termination and (ii) his average annual bonus for the preceding three years
multiplied by the number of years remaining in the Employment Agreement. In no
event, however, will Mr. Shacknai's severance payment for termination without
cause be less than twice the sum of (i) his highest effective salary and (ii)
the average annual bonus for the preceding three years, plus 1/24 of such lump
sum for each full year of Mr. Shacknai's service with the Company. If Mr.
Shacknai's employment is terminated by his death, the Employment Agreement
provides that the Company will continue to pay his salary, at the then-current
rate, to his estate for 12 months. If Mr. Shacknai is terminated pursuant to his
Disability, as defined in the Employment Agreements, the Employment Agreement
provides that the Company will pay him 100% of his base salary for twelve
months, and 50% of that base salary for the remainder of the term of the
Employment Agreement, but in no event for less than an additional 12 months of
his base salary. Finally, the Employment Agreement provides that, if it is not
renewed by the Company for at least three years after its initial expiration,
the Company must pay Mr. Shacknai a lump sum equal to twice the sum of (i) his
annual base salary at the highest rate in effect during his last 12 months of
employment with the Company and (ii) the annual average of bonus payments made
to him over the preceding three years, plus 1/24 of such lump sum for each full
year of Mr. Shacknai's service with the Company.
 
     Upon the termination of Mr. Shacknai's employment, all options previously
granted to him will automatically vest, and will remain exercisable for the full
terms thereof. After termination, Mr. Shacknai will also receive the employee
benefits he was eligible to participate in for four years unless the Employment
Agreement is not renewed, in which event Mr. Shacknai will receive such employee
benefits for two years. Under certain circumstances, the Employment Agreement
may require the Company to make payments that would constitute excess parachute
payments under the Internal Revenue Code of 1986, as amended. In the event that
the Company were required to make payments constituting excess parachute
payments, payments to Mr. Shacknai would not be deductible by the Company for
tax purposes, and Mr. Shacknai would be required to pay an excise tax.
 
     The Company currently has no employment agreements with other employees.
 
                                       55
<PAGE>   59
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information concerning the
beneficial ownership of the Company's equity securities at December 31, 1997,
and as adjusted to reflect the sale of the shares offered hereby, by (i) all
persons known by the Company to own beneficially 5% or more of the outstanding
shares of the Company's equity securities; (ii) each current executive officer
of the Company; (iii) each current director of the Company; and (iv) all current
executive officers and directors of the Company as a group.
 
<TABLE>
<CAPTION>
                                                                                   PERCENT OF
                                                                              CLASS A COMMON STOCK
                                            SHARES BENEFICIALLY OWNED            OUTSTANDING(3)
                                          -----------------------------     -------------------------
     NAME AND ADDRESS OF BENEFICIAL       COMMON STOCK     COMMON STOCK     PRIOR TO         AFTER
    OWNER OR IDENTITY OF GROUP(1)(2)        CLASS A          CLASS B        OFFERING      OFFERING(4)
----------------------------------------  ------------     ------------     --------      -----------
<S>                                       <C>              <C>              <C>           <C>
Pilgrim Baxter & Associates, Ltd.(5)....    1,511,069               --        10.50%          8.70%
  1255 Drummers Lane Suite 300 Wayne, PA
  19087
Putnam Investments, Inc.(6).............    1,445,094               --        10.05%          8.31%
  One Post Office Square Boston, MA
  02109
Morgan Stanley, Dean Witter,
  Discover & Co.(7).....................    1,418,602               --         9.86%          8.16%
  1585 Broadway New York, NY 10036
American Century Companies(8)...........    1,017,100               --         7.10%          5.90%
  4500 Main Street Kansas City, MO
  64111-1800
Jonah Shacknai(9).......................      632,337          252,677         6.03%          5.01%
Mark A. Prygocki, Sr.(10)...............       17,245               --            *              *
Michael A. Pietrangelo(11)..............       40,798               --            *              *
Arthur G. Altschul, Jr.(12).............       12,673               --            *              *
Richard L. Dobson, M.D.(13).............       26,914               --            *              *
Lottie H. Shackelford(14)...............       17,673               --            *              *
Philip S. Schein, M.D.(15)..............        4,821               --            *              *
Peter S. Knight.........................        8,687
All executive officers and directors of
  the Company as a group (8
  persons)(16)..........................      761,148          252,677         6.87%          5.71%
                                              -------          -------       ------         ------
</TABLE>
 
---------------
  *  Represents beneficial ownership of less than 1%.
 
 (1) Unless otherwise indicated, the address of the beneficial owner is c/o
     Medicis Pharmaceutical Corporation, 4343 East Camelback Road, Suite 250,
     Phoenix, Arizona 85018-2700.
 
 (2) Beneficial ownership is determined with the rules of the Securities and
     Exchange Commission and generally includes voting or investment power with
     respect to securities. Shares of Class A Common Stock subject to stock
     options and warrants currently exercisable or exercisable within 60 days
     are deemed to be outstanding for computing the percentage ownership of the
     person holding such options and the percentage ownership of any group of
     which the holder is a member, but are not deemed outstanding for computing
     the percentage of any other person. Except as indicated by footnote, and
     subject to community property laws where applicable, the persons named in
     the table have sole voting and investment power with respect to all shares
     of capital stock shown beneficially owned by them.
 
 (3) Assumes that each share of Class B Common Stock has been converted into one
     share of Class A Common Stock.
 
                                       56
<PAGE>   60
 
 (4) Includes the sale of 3,000,000 shares of Class A Common Stock offered
     hereby by the Company. Assumes no exercise of the Underwriters'
     over-allotment option.
 
 (5) Based on a Schedule 13G filed with the SEC.
 
 (6) Based on a Schedule 13G filed with the SEC. Includes 1,079,468 shares of
     Class A Common Stock Putnam Investment Management, Inc. ("PIM") and 355,626
     shares of Class A Common Stock held by the Putnam Advisory Company, Inc.
     ("PAC"). PIM and PAC are wholly-owned subsidiaries and investment advisors
     to Putnam Investments, Inc. ("PI"). PI is a wholly-owned subsidiary of
     Marsh & McLennan Companies, Inc.
 
 (7) Based on a Schedule 13G filed with the SEC. Includes 926,340 shares of
     Class A Common Stock held by Dean Witter InterCapital Inc., a wholly-owned
     subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
 
 (8) Based on data from CDA/Spectrum-Prism for Research.
 
 (9) Includes 284,435 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(10) Includes 16,945 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(11) Includes 17,673 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(12) Includes 12,673 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(13) Includes 22,899 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(14) Includes 17,673 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(15) Includes 4,821 shares of Class A Common Stock issuable upon exercise of
     stock options within 60 days.
 
(16) Includes an aggregate of 382,369 shares of Class A Common Stock issuable
     upon exercise of stock options within 60 days held by eight executive
     officers and directors.
 
                                       57
<PAGE>   61
 
                          DESCRIPTION OF CAPITAL STOCK
 
COMMON STOCK
 
     The Company has two classes of authorized common stock: Class A Common
Stock, par value $0.014 per share, of which the Company is authorized to issue
50,000,000 shares, and Class B Common Stock, par value $0.014 per share, of
which the Company is authorized to issue 1,000,000 shares. As of the close of
business on December 31, 1997, 14,103,623 shares of Class A Common Stock were
issued and outstanding and held by approximately 347 holders of record. As of
December 31, 1997, 281,974 shares of Class B Common Stock were issued and
outstanding and held by two holders. As of such date, an additional 1,673,761
shares of Class A Common Stock were subject to outstanding options.
 
     Except as noted below, the designations, preferences, limitations and
relative rights of the Class A Common Stock and Class B Common Stock are
substantially identical. Holders of Class A Common Stock are entitled to one
vote per share while holders of Class B Common Stock are entitled to ten votes
per share. Except as required by law, holders of Class A Common Stock and Class
B Common Stock vote together as a class on all matters with respect to which
stockholders of the Company are entitled to vote.
 
     Holders of Class A Common Stock and Class B Common Stock have equal rights
to receive dividends and other distributions, if any, as such may be declared
from time to time by the Board of Directors; provided, that any dividend of
shares to be declared and paid to holders of Class A Common Stock must be
accompanied by an equivalent dividend to holders of Class B Common Stock. If the
Company shall in any manner subdivide, combine or reclassify the outstanding
shares of Class A Common Stock or Class B Common Stock, the outstanding shares
of the other such class shall be subdivided, combined or reclassified
proportionately in the same manner and on the same basis as the outstanding
shares of Class A Common Stock or Class B Common Stock, as the case may be, have
been subdivided, combined or reclassified.
 
     Holders of Class A Common Stock and Class B Common Stock are not entitled
to preemptive or similar rights. The Class B Common Stock may be converted into
Class A Common Stock on a share-for-share basis at any time at the election of
the holder and will automatically convert into Class A Common Stock upon sale or
transfer other than to another holder of Class B Common Stock.
 
PREFERRED STOCK
 
     The Company currently has authorized 5,000,000 shares of Preferred Stock,
par value $0.01 per share, of which no shares are issued or outstanding. See
"-- Preference Stock Purchase Rights."
 
     Upon liquidation, dissolution or winding up of the Company, any holders of
Preferred Stock shall be paid in full the amounts to which they may be entitled
prior to such time as the holders of preferred stock are entitled to share in
the assets of the Company on a pro-rata basis.
 
PREFERENCE STOCK PURCHASE RIGHTS
 
     On August 17, 1995, the Board of Directors adopted a stockholder rights
plan (the "Rights Plan") by which it declared a dividend of one Preference Stock
Purchase Right (the "Rights") on each outstanding share of Class A Common Stock
and Class B Common Stock. The description and terms of the Rights are set forth
in a Rights Agreement, dated as of August 17, 1995, as amended (the "Rights
Amendment"), between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent. The rights are exercisable only if a person or group acquires beneficial
ownership of 15% or more of the Class A Common Stock or announces a tender offer
the consummation of which would result in beneficial ownership by a person or
group of 15% or more of the Class A Common Stock. Each Right entitles the holder
to buy one one-hundredth of a share of a new Series A Junior Participating
Preference Stock at an exercise price of $185.00 per share, subject to
adjustment.
 
                                       58
<PAGE>   62
 
     If the Company is acquired in a merger or other business combination
transaction after a person has acquired beneficial ownership of 15% or more of
the Class A Common Stock, each Right will entitle the holder to purchase, at the
Right's then-current exercise price, a number of shares of the acquiring
company's common stock having a market value of twice such price. In addition,
if a person or group acquires 50% or more of the outstanding Class A Common
Stock, each Right will entitle the holder, other than such person or members of
such group, to purchase, at the Right's then-current exercise price, a number of
shares of Class A Common Stock of such other person or group, including the
Company as successor to the acquiring company or as the surviving corporation,
having a market value of twice such price.
 
     Following the acquisition by a person or group of beneficial ownership of
15% or more of the Class A Common Stock and prior to an acquisition of 50% or
more of the Class A Common Stock, the Board of Directors may exchange the
Rights, other than Rights owned by such person or group, in whole or in part, at
an exchange ratio of one share of Class A Common Stock or one one-hundredth of a
share of the Series A Preference Stock, or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges, per Right. Prior to the acquisition by a person or group of
beneficial ownership at 15% or more of the Company's Class A Common Stock, the
Rights are redeemable for $0.001 per Right at the option of the Board of
Directors.
 
DELAWARE ANTI-TAKEOVER LAW
 
     The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Common Stock is Norwest Shareowner
Services.
 
                                       59
<PAGE>   63
 
                                  UNDERWRITING
 
     The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, Hambrecht & Quist LLC and Salomon Smith Barney
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all such shares,
if any are purchased.
 
<TABLE>
<CAPTION>
        UNDERWRITER                                                    NUMBER OF SHARES
        -------------------------------------------------------------  ----------------
        <S>                                                            <C>
        BancAmerica Robertson Stephens...............................
        Hambrecht & Quist LLC........................................
        Salomon Smith Barney.........................................
                                                                           ---------
                  Total..............................................      3,000,000
                                                                           =========
</TABLE>
 
     The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the price to the public set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not more than $          per share, of which $          may
be reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
 
     The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 450,000 shares of Common Stock at the same price per share as the
Company will receive for the 3,000,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above tables represents as a percentage of
the 3,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the Underwriters on the same terms as those on which the 3,000,000
shares are being sold.
 
     The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
 
     Subject to certain exceptions relating to charitable gifts, estate planning
transfers and sales relating to the exercise of expiring options, each director,
executive officer, and other senior staff officer of the Company has agreed with
the Representatives for a period of 90 days from the effective date of this
Prospectus (the "Lock-Up Period") not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of Common Stock, any option or warrants to purchase any shares of Common
Stock, or any securities convertible into or exchangeable for shares of Common
Stock owned as of the date of this prospectus or hereafter acquired directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of BancAmerica Robertson Stephens. However,
BancAmerica Robertson Stephens may, in its sole discretion at any time or from
time to time, without notice, release all or any portion of the securities
subject to the Lock-up Agreements. Approximately 1,097,342 shares of the
Company's Common Stock are subject to lock-up agreements. In addition, the
Company has agreed that, during the Lock-Up Period, it will not, without the
prior written consent of BancAmerica Robertson Stephens, issue, sell, contract
to sell or otherwise dispose of any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
issuance of Common Stock upon the exercise of outstanding options and the
Company's grant of options under existing employee stock option plans. See "Risk
Factors -- Market Risk of Shares Eligible for Future Sales."
 
                                       60
<PAGE>   64
 
     The offering price for the Common Stock has been determined by negotiations
among the Company and the Representative of the Underwriters, based largely upon
the market price for the Common Stock as reported on the Nasdaq National Market.
 
     The rules of the Securities Exchange Commission prohibit the Underwriters
and other members of the selling group from making a market in the Company's
Common Stock during the period immediately preceding the commencement of sales.
The Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
Underwriter or other member of the selling group to continue to make a market in
the Company's Common Stock subject to the conditions, among others, that its bid
not exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Company's Common
Stock during such period.
 
     The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
 
     The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions and the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
 
                                 LEGAL MATTERS
 
     The validity of the issuance of the Common Stock being offered hereby will
be passed upon for the Company by Bryan Cave LLP, Phoenix, Arizona. Certain
legal matters related to the offering will be passed upon for the Underwriters
by Cooley Godward LLP, Palo Alto, California.
 
                                    EXPERTS
 
     The consolidated financial statements of the Company at June 30, 1997 and
1996 and for each of the three years in the period ended June 30, 1997,
appearing in the Company's Annual Report on Form 10-K for the year ended June
30, 1997 and incorporated by reference into this Prospectus and Registration
Statement have been audited by Ernst & Young, LLP, independent auditors, as set
forth in their report thereon incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
 
     The consolidated financial statements of GenDerm Corporation and
Subsidiaries as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996 incorporated by reference in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said report.
 
                                       61
<PAGE>   65
 
                             AVAILABLE INFORMATION
 
     The Company is subject to the information reporting requirements of the
Exchange Act, as amended, and, in accordance therewith, files periodic reports
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Room of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional offices located at Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission at its Washington address at prescribed rates. The Common Stock is
traded on the Nasdaq National Market and such reports, proxy statements and
other information can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information filed electronically with
the Commission. The address of the Commission's World Wide Web site is
http://www.sec.gov.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus.
 
     1. Annual Report on Form 10-K of the Company for the fiscal year ended June
        30, 1997.
 
     2. The definitive Proxy Statement of the Company filed pursuant to Section
        14 of the Exchange Act in connection with the 1997 Annual Meeting of
        Stockholders of the Company.
 
     3. Quarterly Report on Form 10-Q of the Company for the quarter ended
        September 30, 1997.
 
     4. Current Report on Form 8-K of the Company filed on December 15, 1997, as
        amended on Form 8-K/A and filed on January 9, 1998.
 
     5. Quarterly Report on Form 10-Q of the Company for the fiscal quarter
        ended December 31, 1997.
 
     All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated by reference or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that the statement is
modified or superseded by any other subsequently filed document which is
incorporated or is deemed to be incorporated by reference herein. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
 
     This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide without
charge to each person, including any beneficial owner, to whom this Prospectus
has been delivered, on the written or oral request of such person, a copy of any
or all of the documents referred to above which have been or may be incorporated
into this Prospectus and deemed to be part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. These documents are available upon request from the Director of
Corporate Communications, Medicis Pharmaceutical Corporation, 4343 East
Camelback Road, Suite 250, Phoenix, Arizona 85018-2700, (602) 808-8800.
 
                                       62
<PAGE>   66
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee and the NASD filing fee.
 
<TABLE>
        <S>                                                                 <C>
        SEC Registration fee..............................................  $ 44,690
        Nasdaq Listing fee................................................    17,500
        NASD filing fee...................................................    15,649
        Blue Sky fees and expenses........................................     5,000
        Printing and engraving expenses...................................    90,000
        Legal fees and expenses...........................................   100,000
        Accounting fees and expenses......................................    30,000
        Transfer Agent and Registrar fees.................................     3,000
        Miscellaneous expenses............................................    44,161
                                                                            --------
                  Total...................................................  $350,000
                                                                            ========
</TABLE>
 
ITEM 15.  INDEMNIFICATION OF OFFICERS AND DIRECTORS.
 
     Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
any such threatened, pending or completed action or suit if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and provided further that (unless a court of
competent jurisdiction otherwise provides) such person shall not have been
adjudged liable to the corporation. Any such indemnification may be made only as
authorized in each specific case upon a determination by the stockholders or
disinterested directors or by independent legal counsel in a written opinion
that indemnification is proper because the indemnitee has met the applicable
standard of conduct.
 
     Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at
 
                                      II-1
<PAGE>   67
 
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would otherwise have the power to indemnify him
under Section 145. The Company maintains policies insuring its and its
subsidiaries' officers and directors against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
 
     Article VI of the Certificate of Incorporation of the Company, as amended,
and Article VII of the Bylaws of the Company provides for indemnification of the
directors of the Company to the full extent permitted by law, as now in effect
or later amended. Article VII of the Bylaws also permits the indemnification to
the same extent of officers, employees or agents of the Company if, and to the
extent, authorized by the Board of Directors. In addition, the Bylaws provide
for indemnification against expenses incurred by a director to be paid by the
Company at reasonable intervals in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall be ultimately determined
that he is not entitled to be indemnified by the Company. The Bylaws further
provide for a contractual cause of action on the part of directors of the
Company for indemnification claims that have not been paid by the Company.
 
     The Company also has provided liability insurance for each director and
officer for certain losses arising from claims or charges made against them
while acting in their capacities as directors or officers of the Company.
 
     Article VI of the Company's Certificate of Incorporation, as amended,
limits under certain circumstances the liability of the Company's directors for
a breach of their fiduciary duty as directors. These provisions do not eliminate
the liability of a director (i) for a breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL (relating to the declaration of dividends and
purchase or redemption of shares in violation of the DGCL) or (iv) for any
transaction from which the director derived an improper personal benefit.
 
ITEM 16.  EXHIBITS.
 
     Exhibits.
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C>         <S>
   1.1      Form of Underwriting Agreement.
   5.1      Opinion of Bryan Cave LLP with respect to the Common Stock being registered.
  23.1      Consent of Bryan Cave LLP (contained in their opinion filed as Exhibit 5.1).
  23.2      Consent of Ernst & Young LLP.
  23.3      Consent of Arthur Andersen LLP.
  24.1      Power of Attorney (included on Signature Page).
</TABLE>
 
ITEM 17.  UNDERTAKINGS.
 
     The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-2
<PAGE>   68
 
     The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance upon Rule 430A and contained in
     a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     Registration Statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-3
<PAGE>   69
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this to the Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Phoenix, State of Arizona, on January 11, 1998.
 
                                          MEDICIS PHARMACEUTICAL CORPORATION
 
                                          By:      /s/ JONAH SHACKNAI
 
                                            ------------------------------------
                                                       Jonah Shacknai
                                             Chairman of the Board of Directors
                                                             and
                                                  Chief Executive Officer
 
                               POWER OF ATTORNEY
 
     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jonah Shacknai and Mark A. Prygocki, Sr., or
either of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement related to this Registration Statement and filed pursuant to Rule 462
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and dates indicated.
 
<TABLE>
<CAPTION>
             SIGNATURE                                 TITLE                         DATE
-----------------------------------    -------------------------------------   -----------------
<C>                                    <S>                                     <C>
        /s/ JONAH SHACKNAI             Chairman of the Board of Directors      January 11, 1998
-----------------------------------    and Chief Executive Officer
          Jonah Shacknai               (Principal Executive Officer)
 
     /s/ MARK A. PRYGOCKI, SR.         Chief Financial Officer (Principal      January 11, 1998
-----------------------------------    Financial and Accounting Officer)
       Mark A. Prygocki, Sr.
 
     /s/ PETER S. KNIGHT ESQ.          Director                                January 11, 1998
-----------------------------------
       Peter S. Knight Esq.
 
    /s/ RICHARD L. DOBSON, M.D.        Director                                January 11, 1998
-----------------------------------
      Richard L. Dobson, M.D.
 
    /s/ MICHAEL A. PIETRANGELO         Director                                January 11, 1998
-----------------------------------
      Michael A. Pietrangelo
</TABLE>
 
                                      II-4
<PAGE>   70
 
<TABLE>
<CAPTION>
             SIGNATURE                                 TITLE                         DATE
-----------------------------------    -------------------------------------   -----------------
 
<C>                                    <S>                                     <C>
 
    /s/ PHILIP S. SCHEIN, M.D.         Director                                January 11, 1998
-----------------------------------
      Philip S. Schein, M.D.
 
    /s/ ARTHUR G. ALTSCHUL, JR.        Director                                January 11, 1998
-----------------------------------
      Arthur G. Altschul Jr.
 
      /s/ LOTTIE SHACKELFORD           Director                                January 11, 1998
-----------------------------------
        Lottie Shackelford
</TABLE>
 
                                      II-5
<PAGE>   71
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
EXHIBIT                                                                                NUMBERED
  NO.                                    DESCRIPTION                                     PAGE
-------     ---------------------------------------------------------------------    ------------
<C>         <S>                                                                      <C>
   1.1      Form of Underwriting Agreement.......................................
   5.1      Opinion of Bryan Cave LLP with respect to the Common Stock being
            registered...........................................................
  23.1      Consent of Bryan Cave LLP (contained in their opinion filed as
            Exhibit 5.1).........................................................
  23.2      Consent of Ernst & Young LLP.........................................
  23.3      Consent of Arthur Andersen LLP.......................................
  24.1      Power of Attorney (included on Signature Page).......................
</TABLE>