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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-50680
 BARRIER THERAPEUTICS, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    22-3828030(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 600 College Road East, Suite 3200
Princeton, New Jersey 08540  (Address of Principal Executive Offices) (Zip Code)
 (609) 945-1200  (Registrants telephone number, including area code)
  Common Stock, par value $.0001 per share
 o þ
 o þ
 þ o
 o
 o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE.




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TABLE OF CONTENTS
 PageCautionary Note Regarding Forward-Looking Statements
    
    3PART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    25Item 1B.
    
    Unresolved Staff Comments
    
    
    43Item 2.
    
    Properties
    
    
    43Item 3.
    
    Legal Proceedings
    
    
    44Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    44PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    45Item 6.
    
    Selected Financial Data
    
    
    46Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    47Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    55Item 8.
    
    Financial Statements and Supplementary Data
    
    
    55Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    55Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    58PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    58Item 11.
    
    Executive Compensation
    
    
    58Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    59Item 13.
    
    Certain Relationships and Related Transactions
    
    
    59Item 14.
    
    Principal Accountant Fees and Services
    
    
    59PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    60Signatures
    
    
    63LIST OF SUBSIDIARIESCONSENT OF ERNST & YOUNG LLPCERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(A)CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A)SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERSECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    the increasing trend of operating losses and the reasons for those losses;
    
    our spending on the clinical development of our product candidates;
    
    our plans regarding the development or regulatory path for any of our product
candidates, particularly with respect to our Liarozole and
Hyphanox product candidates;
    
    the timing of the initiation or completion of any clinical trials, particularly with
respect to our Liarozole, Hyphanox, Rambazole and Azoline product
candidates;
    
    the timing of filing for regulatory approvals with governmental agencies;
    
    the commercialization of our products, particularly our Vusion and Solagé® products;
    
    the timing of the commercial launch of any of our product candidates, if approved;
    
    the commercialization of any of our product candidates, if approved; and
    
    other statements regarding matters that are not historical facts or statements of current condition.
  
    
    obtain substantial additional funds;
    
    obtain and maintain all necessary patents or licenses;
    
    market our Vusion and Solagé products and product candidates, if approved, and generate revenues;
    
    demonstrate the safety and efficacy of product candidates at each stage of development;
    
    meet applicable regulatory standards in the United States to commence or continue
clinical trials, particularly with respect to our Liarozole, Hyphanox, Azoline and
Rambazole product candidates;
    
    meet applicable regulatory standards and file for or receive required regulatory
approvals, particularly with respect to our Sebazole product
candidate;
    
    produce our drug products in commercial quantities at reasonable costs and compete
successfully against other products and companies; and
    
    meet our obligations and required milestones under our license and other agreements,
including our agreements with the Johnson & Johnson family of companies.
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PART I
 
 ITEM 1.
 Overview
  ® ® 
 Recent Developments
  Our Marketed Products
   Vusion Candida
  Solagé
  VANIQA
 Our Product Pipeline
   Our History
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Dermatology Overview
   
    
    the epidermis is a protective layer and contains melanin, which is the pigment that gives
skin its color and protects it against the harmful effects of the sun;
    
    the dermis contains nerves, blood vessels, hair follicles and many of the functional
glands of the skin, including sweat glands and oil producing glands, known as sebaceous
glands; and
    
    the subcutaneous tissue is a layer of fat that helps insulate the body from heat and
cold.
   Business Strategy
  Commercialize our products directly through our own sales organization in the United States
and Canada and through collaborations with third parties outside the United States and Canada.
 Aggressively pursue the development and regulatory approval of our product candidates.
 Maintain a diverse portfolio of product candidates.
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Expand our product portfolio through a combination of internal development efforts and, if
appropriate, selective acquisitions of compounds, marketed products and businesses.
 Marketed Products and Development Pipeline
  Marketed Products
 Method ofProduct
    
    Active Ingredients
    
    Administration
    
    Indications
    
    CountriesVusion
    
    miconazole nitrate
zinc oxide
white petrolatum
    
    Topical
    
    diaper dermatitis complicated
by candidiasis
    
    United States
Belgium
The NetherlandsSolagé®
    
    mequinol
tretinoin
    
    Topical
    
    solar lentigines
    
    United States
CanadaVANIQA®
    
    eflornithine HCI
    
    Topical
    
    slowing the growth of unwanted facial
hair in women
    
    Canada
 Development Pipeline
 Active Ingredients or
    
    Method of
    
    
    
    Stage ofProduct
    
    Class of Molecule
    
    Administration
    
    Indications
    
    DevelopmentSebazole
    
    ketoconazole
    
    Topical
    
    seborrheic dermatitis
    
    NDA filedHyphanox
    
    itraconazole
    
    Oral
    
    onychomycosis
    
    Phase 3Azoline
    
    pramiconazole
    
    Oral
    
    tinea versicolor
    
    Phase 2bLiarozole
    
    RAMBA class
    
    Oral
    
    congenital ichthyosis (lamellar)
    
    Phase 2/3Rambazole
    
    RAMBA class
    
    Oral
    
    psoriasis (moderate to severe)
nodular acne
    
    Phase 2b
Phase 2aRambazole
    
    RAMBA class
    
    Topical
    
    acne (mild to moderate)
    
    Phase 2aHivenyl
    
    vapitadine
hydrochloride
    
    Oral
    
    skin allergies
    
    Phase 2a
 Our Marketed Products
 Vusion. Candida Candida
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Candida
 Candida
  Candida
 ®
  Solagé.
   7




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VANIQA.
 Our Development Pipeline
   Sebazole. P. ovale
 Product Background.
 Clinical Development.
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Percentage of Patients Effectively Treated at Day 28(14 Days after the End of Treatment)Study (location)
    
    Sebazole
    
    Vehicle
    
    p-valuePivotal (United States)
    
    
    25
    %
    
    
    14
    %
    
    
    0.001Supportive (United States)
    
    
    28
    %
    
    
    7
    %
    
    
    <0.001Supportive (Europe)
    
    
    37
    %
    
    
    22
    %
    
    
    0.021
  Regulatory Strategy.
  Proprietary Rights.
 Oral Antifungals: Hyphanox.
  Product Background.
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Clinical Development.
 Regulatory Strategy.
 Proprietary Rights.
 Oral Antifungals: Azoline.
  Clinical Development
  Regulatory Strategy
 Proprietary Rights
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RAMBAs: Liarozole.
   Product Background.
   Clinical Development.
  Regulatory Strategy.
 Proprietary Rights.
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RAMBAs: Oral Rambazole.
  Product Background. in vitro
 Clinical Development.
  Regulatory Strategy.
 Proprietary Rights
 Earlier Stage Clinical Candidates
 Topical Rambazole . in vitro
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Hivenyl.
 Other Product Candidates and Preclinical Development
   Sales and Marketing
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Johnson & Johnson License Agreements
   License Terms for Our Product Candidates
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Royalties.
 Territories and Exclusivity.
 
    
    Vusion in Argentina, Australia, Belgium, Denmark, Germany, Indonesia, Luxembourg, Mexico,
New Zealand, Peru and Venezuela; and
    
    Ketanserin in South America.
  Commercialization and Manufacturing Rights.
 
    
    If we intend to commercialize any product through a third party, other than a
contract sales organization, in a particular territory, we must provide notice of this
intention in accordance with the provisions of the license agreements. Johnson & Johnson
has 90 days after the provision of this notice to advise us if it desires to enter into a
commercialization agreement for that product in that territory.
    
    If, prior to the expiration of the 90-day offer period we do not receive that
notice, we may enter into a commercialization agreement with a third party for that
product without further restrictions or obligations under these rights of first
negotiation.
    
    If, prior to the expiration of the 90-day offer period we do receive that notice,
we must negotiate exclusively for 90 days to execute a commercialization agreement.
    
    If we do not agree on a definitive agreement within the 90-day negotiation period,
we may, at any time within a specified period of time after the end of the 90-day
negotiation period, enter into a commercialization agreement for that product with a
third party so long as the terms are not, taken as a whole, materially less favorable to
us than those proposed by the Johnson & Johnson affiliate with which we were negotiating.
    
    If within the specified negotiation period, we intend to enter into a
commercialization agreement with a third party with terms materially less favorable to us
than those proposed by the Johnson & Johnson affiliate or, if after the specified
negotiation period, we intend to enter into a commercialization agreement with a third
party on any terms, then Johnson & Johnson, through any of its affiliates, is entitled to
an additional 45-day offer period to express an interest in commercializing that product.
If, prior to the termination of the additional 45-day offer period, Johnson & Johnson
notifies us of its interest in commercializing the product, we must negotiate exclusively
for 60 days to execute a commercialization agreement.
    
    If we enter into a commercialization agreement with an affiliate of Johnson &
Johnson, it will have the right to negotiate a manufacturing agreement with us relating
to that particular product in the territory covered by the commercialization agreement.
The terms of the right of first negotiation for a manufacturing agreement are the same as
the terms of the right of first negotiation for a commercialization agreement.
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Term and Termination.
 Abbott Development and Supply Agreement
  Grupo Ferrer Distribution and License Agreement
   Patent Protection and Intellectual Property; Orphan Drug; Hatch-Waxman Act; Pediatric Treatment Exclusivity
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Patents and Intellectual Property Protection
      Orphan Drug Designation
  17




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The Hatch-Waxman Act
    Pediatric Treatment Exclusivity
  Manufacturing
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Country Where
    
    
    
    Country WhereProduct
    
    Product is Sold
    
    Manufacturer/Supplier
    
    Product is Made
    
    Contract ExpirationVusion
    
    United States
Europe
    
    DSM Pharmaceuticals, Inc.
Janssen Pharmaceutica, NV
    
    United States
Belgium
    
    Dec. 31, 2009

June 30, 2008Solagé
    
    United States 
and
Canada
    
    Contract Pharmaceuticals
Limited Niagra
    
    United States
    
    Dec. 6, 2007VANIQA
    
    Canada
    
    Shire Pharmaceutical
Limited
    
    United States
    
    June 20, 2010Sebazole
    
    United States
    
    DPT Laboratories, Ltd.
    
    United States
    
    5 years from first
commercial sale
   Government Regulation
  
    
    the research, development, and testing;
    
    manufacture and distribution;
    
    labeling, promotion, advertising, sampling, and marketing; and
    
    import and export.
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United States Government Regulation
   
    
    preclinical laboratory tests, animal studies and formulation studies under the FDAs good
laboratory practices regulations;
    
    submission to the FDA of an investigational new drug application, or IND, which must
become effective before human clinical trials may begin;
    
    execution of adequate and well-controlled clinical trials to establish the safety and
efficacy of the product for each indication for which approval is sought;
    
    submission to the FDA of an NDA;
    
    satisfactory completion of an FDA inspection of the manufacturing facility or facilities
at which the product is produced to assess compliance with current good manufacturing
practice, or cGMP; and
    
    FDA review and approval of the NDA.
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Phase 1
    
    Refers typically to closely monitored clinical trials and
includes the initial introduction of an investigational new
drug into human patients or healthy volunteer subjects. Phase
1 clinical trials are designed to determine the safety,
metabolism and pharmacologic actions of a drug in humans, the
potential side effects associated with increasing doses of the
product candidate and, if possible, to gain early evidence of
the product candidates effectiveness. Phase 1 trials also
include the study of structure-activity relationships, drug
metabolism and mechanism of action in humans, as well as
studies in which investigational drugs are used as research
tools to explore biological phenomena or disease processes.
During Phase 1 clinical trials, sufficient information about a
drugs pharmacokinetics and pharmacological effects should be
obtained to permit the design of well-controlled,
scientifically valid Phase 2 studies. The total number of
subjects and patients included in Phase 1 clinical trials
varies, but are generally in the range of 20 to 80 people.Phase 2
    
    Refers to controlled clinical trials conducted to evaluate
appropriate dosage and the effectiveness of a drug for a
particular indication or indications in patients with a
disease or condition under study and to determine the common
short-term side effects and risks associated with the drug.
These clinical trials are typically well controlled, closely
monitored and conducted in a relatively small number of
patients, usually involving no more than several hundred
subjects. Although the FDA regulations do not do so, it is
common practice in the pharmaceutical industry to sometimes
distinguish Phase 2 clinical trials as Phase 2a and Phase 2b.
In general, we believe that the common understanding in the
industry of Phase 2a and Phase 2b is as follows:
 
    
    Phase 2a refers to a clinical trial in a targeted patient
population to evaluate preliminary efficacy and/or further
safety of a drug candidate. One or more of the following
properties may be evaluated: dose response, duration of effect
and kinetic/dynamic relationship.
    
    Phase 2b refers to a controlled dose ranging clinical trial
to evaluate further the efficacy and safety of a candidate
drug in a targeted patient population and to attempt to define
an appropriate dosing regimen.
 Phase 3
    
    Refers to expanded controlled and uncontrolled clinical
trials. These clinical trials are performed after preliminary
evidence suggesting effectiveness of a drug has been obtained.
Phase 3 clinicals are intended to gather additional
information about the effectiveness and safety that is needed
to evaluate the overall benefit-risk relationship of the drug
and to provide an adequate basis for physician labeling. Phase
3 trials usually include from several hundred to several
thousand subjects.
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Foreign Regulation
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Competition
     
    
    For Sebazole, in the treatment of seborrheic dermatitis, Nizoral from Janssen, Desowen
from Galderma S.A., Loprox from Medicis Pharmaceutical Corporation and the generic
equivalents of each.
    
    For Hyphanox, in the treatment of onychomycosis, Sporanox from Janssen and generic
manufactures, Lamisil from Novartis AG, and Penlac from Dermik Laboratories.
    
    For Liarozole, in the treatment of congenital ichthyosis, Soriatane from Hoffmann-La
Roche Inc. and Connetics Corporation and over-the-counter topical moisturizers and
emollients.
    
    For oral Rambazole, in the treatment of acne, Accutane from Hoffman-La Roche and generic
manufacturers. For oral Rambazole, in the treatment of psoriasis, Soriatane from Hoffman-La
Roche and Connetics, biologic agents such as Amevive from Biogen Idec Inc. and Raptiva from
Genentech, Inc., methotrexate from generic manufacturers.
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Third-Party Reimbursement and Pricing Controls
   Employees
  Trademarks
 ® ®       ®
 Available Information
 www.barriertherapeutics.com
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ITEM 1A. RISK FACTORS
 Risks Related to Our Business
 Risks Related to Our Financial Results and Need for Additional Financing
 We have incurred losses since inception and anticipate that we will continue to incur losses
for the foreseeable future.
  
    
    conduct additional clinical trials;
    
    conduct research and development on existing and new product candidates;
    
    seek regulatory approvals for our product candidates;
    
    commercialize our products and product candidates, if approved;
    
    hire additional clinical, scientific, sales and marketing and management personnel;
    
    add operational, financial and management information systems; and
    
    identify and in-license or acquire additional compounds, marketed products or businesses.
  We will need substantial additional funding and may be unable to raise capital when needed, which
would force us to delay, reduce or eliminate our product development programs or commercialization
efforts.
  
    
    the success of our commercialization of our marketed products;
    
    the costs of commercialization activities, including product marketing, sales and
distribution and related working capital needs;
    
    the success of our development of our product candidates;
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
    
    the scope and results of our clinical trials;
    
    advancement of other product candidates into clinical development;
    
    the timing of, and the costs involved in, obtaining regulatory approvals;
    
    the costs of manufacturing activities;
    
    the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims and other intellectual property-related costs, including any possible litigation
costs;
    
    our ability to establish and maintain collaborative and other strategic arrangements; and
    
    potential acquisition or in-licensing of other technologies, products or businesses.
   Our revenues, operating results and cash flows may fluctuate in future periods and we may fail
to meet investor expectations, which may cause the price of our common stock to decline
  Risks Related to Development of Product Candidates
 We will not be able to commercialize our product candidates if our preclinical studies do not
produce successful results or if our clinical trials do not demonstrate safety and efficacy in
humans.
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
    
    we may discover that a product candidate does not exhibit the expected therapeutic
results in humans, may cause harmful side effects or have other unexpected characteristics
that may delay or preclude regulatory approval or limit commercial use if approved;
    
    the results from early clinical trials may not be statistically significant or predictive
of results that will be obtained from expanded, advanced clinical trials;
    
    institutional review boards or regulators, including the FDA, may hold, suspend or
terminate our clinical research or the clinical trials of our product candidates for various
reasons, including noncompliance with regulatory requirements or if, in their opinion, the
participating subjects are being exposed to unacceptable health risks;
    
    subjects may drop out of our clinical trials;
    
    our preclinical studies or clinical trials may produce negative, inconsistent or
inconclusive results, and we may decide, or regulators may require us, to conduct additional
preclinical studies or clinical trials; and
    
    the cost of our clinical trials may be greater than we currently anticipate.
    If our clinical trials for our product candidates are delayed, we would be unable to commercialize
our product candidates on a timely basis, which would materially harm our business.
  
    
    obtaining an effective investigational new drug application, or IND, or regulatory
approval to commence a clinical trial;
    
    negotiating acceptable clinical trial agreement terms with prospective trial sites;
    
    obtaining institutional review board approval to conduct a clinical trial at a prospective site;
    
    recruiting qualified subjects to participate in clinical trials;
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
    
    competition in recruiting clinical investigators;
    
    shortage or lack of availability of supplies of drugs for clinical trials;
    
    the need to repeat clinical trials as a result of inconclusive results or poorly executed testing;
    
    the placement of a clinical hold on a study;
    
    the failure of third parties conducting and overseeing the operations of our clinical
trials to perform their contractual or regulatory obligations in a timely fashion; and
    
    exposure of clinical trial subjects to unexpected and unacceptable health risks or
noncompliance with regulatory requirements, which may result in suspension of the trial.
   If we are wrong in our assessment of the stages of clinical development of our initial product
candidates, we may need to perform preclinical studies or clinical trials that we did not
anticipate, which would result in additional product development costs for us and delays in filing
for regulatory approval for our product candidates.
  Risks Related to Regulatory Approval of Our Product Candidates
 We may not receive regulatory approvals for our product candidates or approvals may be delayed,
either of which could materially harm our business.
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
    
    delays in our ability to submit an NDA;
    
    the refusal by the FDA to file any NDA we may submit;
    
    delays of an approval; or
    
    the rejection of an application.
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If we fail to comply with regulatory requirements, regulatory agencies may take action against us,
which could significantly harm our business.
    
    
    restrictions on our products or manufacturing processes;
    
    warning letters;
    
    withdrawal of the products from the market;
    
    voluntary or mandatory recall;
    
    fines;
    
    suspension or withdrawal of regulatory approvals;
    
    suspension or termination of any of our ongoing clinical trials;
    
    refusal to permit the import or export of our products;
    
    refusal to approve pending applications or supplements to approved applications that we submit;
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
    
    product seizure; and
    
    injunctions or the imposition of civil or criminal penalties.
 Some of our product candidates are based on new technologies that have not been extensively tested in humans, which may affect our ability or the time we require to obtain necessary regulatory approvals.
   If we fail to obtain regulatory approval in foreign jurisdictions, we would not be able to market
our products abroad, and the growth of our revenues, if any, would be limited.
   Risks Related to Commercialization
 If our products and product candidates for which we receive regulatory approval do not achieve
broad market acceptance, the revenues that we generate from their sales will be limited.
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If we are unable to expand our domestic sales and marketing infrastructure or enter into
agreements with third parties to perform these functions in territories outside the United States
and Canada, we will not be able to commercialize our product candidates.
   If we fail to comply with the laws governing the marketing and sale of our products regulatory
agencies may take action against us, which could significantly harm our business.
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We rely on third parties to perform many necessary commercial services for our products,
including services related to the distribution, storage, and transportation of our products
  We depend on three wholesalers for the vast majority of our product revenues in the United
States, and the loss of any of these wholesalers would decrease our revenues.
  We may acquire additional products, product candidates and businesses in the future and any
difficulties from integrating such acquisitions could damage our ability to attain profitability.
   Risks Related to Our Dependence on Third Parties for Manufacturing, Research and Development and Marketing and Distribution Activities
 Because we have no manufacturing capabilities, we will contract with third-party contract
manufacturers whose performance may be substandard or not in compliance with regulatory
requirements, which could increase the risk that we will not have adequate supplies of our product
candidates and harm our ability to commercialize our product candidates.
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
    
    Contract manufacturers may encounter difficulties in achieving volume production, quality
control and quality assurance and also may experience shortages in qualified personnel. As a
result, our contract manufacturers might not be able to meet our clinical development
schedules or adequately manufacture our products in commercial quantities when required.
    
    Changing manufacturers may be difficult because the number of potential manufacturers for
some of our product candidates may be limited and, in one case, there is only a single
source of supply. Specifically, the intermediate for our product candidate Hyphanox is
manufactured using a process that is proprietary to our contract manufacturer. We do not
have a license to the technology used by our contract manufacturer to make the intermediate
needed for the Hyphanox tablets. If this manufacturer cannot provide adequate supplies of
the intermediate for Hyphanox, we cannot sublicense this technology to a third party to act
as our supplier. As a result, it may be difficult or impossible for us to find a qualified
replacement manufacturer quickly or on terms acceptable to us, the FDA and corresponding
foreign regulatory agencies, or at all.
    
    Each or our marketed products and, with the exception of Hyphanox, each of our later
stage product candidates, could be produced by multiple manufacturers. However, if we need
to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve
these manufacturers in advance. This would involve testing and pre-approval inspections to
ensure compliance with FDA and foreign regulations and standards.
    
    Our contract manufacturers are subject to ongoing periodic, unannounced inspection by the
FDA and corresponding state and foreign agencies or their designees to ensure strict
compliance with current Good Manufacturing Practices, or cGMPs, and other governmental
regulations and corresponding foreign standards. Other than through contract, we do not have
control over compliance by our contract manufacturers with these regulations and standards.
Our present or future contract manufacturers may not be able to comply with cGMPs and other
FDA requirements or similar regulatory requirements outside the United States. Failure of
our contract manufacturers or us to comply with applicable regulations could result in
sanctions being imposed on us, including fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approval of our product candidates, delays,
suspension or withdrawal of approvals, seizures or recalls of product candidates, operating
restrictions and criminal prosecutions, any of which could significantly and adversely
affect our business.
    
    Our contract manufacturers may breach our manufacturing agreements because of factors
beyond our control or may terminate or fail to renew a manufacturing agreement based on
their own business priorities at a time that is costly or inconvenient for us.
  We rely on a single source supplier for the manufacture of our marketed products and the active
ingredients contained in those products and the loss of these suppliers could disrupt our
business.
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If third parties on whom we rely do not perform as contractually required or expected, we may not
be able to obtain regulatory approval for or commercialize our products and product candidates.
   
    
    the failure of these investigators and research organizations to comply with good
clinical practice or to meet their contractual duties;
    
    the failure of our independent investigators to devote sufficient resources to the
development of our product candidates or to perform their responsibilities at a sufficiently
high level;
    
    our need to replace these third parties for any reason, including for performance reasons
or if these third parties go out of business; or
    
    the existence of problems in the quality or accuracy of the data they obtain due to the
failure to adhere to clinical protocols or regulatory requirements or for other reasons.
   We are dependent upon distribution arrangements and marketing alliances to commercialize our
product candidates outside the United States and Canada. These distribution arrangements and
marketing alliances place the marketing and sale of our product candidates in these regions
outside our control.
  
    
    we may not be able to control the amount and timing of resources that our distributors
may devote to the commercialization of our product candidates;
    
    our distributors may experience financial difficulties;
    
    our distributors may determine not to launch our product candidates in countries where
the distributor determines that commercialization of a particular product candidate is not
feasible or is economically unreasonable due to government pricing controls or other market
conditions existing in a particular country;
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
    
    business combinations or significant changes in a distributors business strategy may
also adversely affect a distributors willingness or ability to complete its obligations
under any arrangement; and
    
    these arrangements are often terminated or allowed to expire, which could interrupt the
marketing and sales of a product and decrease our revenue.
  Risks Related to Intellectual Property
 There are limitations on our patent rights relating to our products and product candidates that
may affect our ability to exclude third parties from competing against us.
  
    
    We do not hold composition of matter patents covering the active pharmaceutical
ingredients of Vusion, Solagé, or our Sebazole and Hyphonox product candidates. Composition
of matter patents on active pharmaceutical ingredients are the strongest form of
intellectual property protection for pharmaceutical products as they apply without regard to
any method of use or other type of limitation. The active ingredients for Solagé, Vusion,
Sebazole and Hyphanox are off patent. As a result, competitors who obtain the requisite
regulatory approval can offer products with the same active ingredients as our products so
long as the competitors do not infringe any method of use or formulation patents that we may
hold. The United States patent covering the active ingredient in Liarozole expires in 2006.
    
    We do not hold composition of matter patents covering the formulations of some of our
later stage product candidates. Composition of matter patents on formulations can provide
protection for pharmaceutical products to the extent that the specifically covered
formulations are important. For our product candidates for which we do not hold composition
of matter patents covering the formulation, competitors who obtain the requisite regulatory
approval can offer products with the same formulations as our products so long as the
competitors do not infringe any active pharmaceutical ingredient or method of use patents
that we may hold. The United States patent covering the formulation of miconazole nitrate
and zinc oxide in Vusion expires in 2007. The United States patent covering the composition
of Solagé expires in 2013.
    
    For some of our product candidates, the principal patent protection that covers, or that
we expect will cover, our product candidate is a method of use patent. This type of patent
only protects the product when used or sold for the specified method. However, this type of
patent does not limit a competitor from making and marketing a product that is identical to
our product for an indication that is outside of the patented method. Moreover, physicians
may prescribe such a competitive identical product for off-label indications that are
covered by the applicable patents. Although such off-label prescriptions may infringe or
contribute to the infringement of method of use patents, the practice is common and such
infringement is difficult to prevent or prosecute.
    
    Our patent licenses from Janssen Pharmaceutica Products, L.P., Johnson & Johnson Consumer
Companies, Inc. and Ortho-McNeil Pharmaceutical, Inc. are limited to the field of
dermatology. As a result, with some exceptions, Johnson & Johnson, its affiliates or its
licensees could manufacture and market products similar to our products outside of this
field. This also could result in off-label use of these competitive products for
dermatological indications.
 36




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If we fail to comply with our obligations in the agreements under which we license development or
commercialization rights to products or technology from third parties, we could lose license
rights that are important to our business.
   Various aspects of our Johnson & Johnson license agreements may adversely affect our business.
    
    
    Vusion in Argentina, Australia, Belgium, Denmark, Germany, Indonesia, Luxembourg, Mexico,
New Zealand, Peru and Venezuela; and
    
    Ketanserin in South America.
  37




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If we are unable to obtain and maintain patent protection for our intellectual property, our
competitors could develop and market products similar or identical to ours, which may reduce demand
for our product candidates.
      If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology may be adversely affected.
  38




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If the development of our product candidates infringes the intellectual property of our
competitors or other third parties, we may be required to pay license fees or cease our
development activities and pay damages, which could significantly harm our business.
    Risks Related to Employees and Growth
 If we are not able to retain our current senior management team or attract and retain qualified
scientific, technical and business personnel, our business will suffer.
   We will need to hire additional employees as we grow. Any inability to manage future growth could
harm our ability to commercialize our product candidates, increase our costs and adversely impact
our ability to compete effectively.
   39




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##### Table of Contents



Risk Related to Our Industry
 If third-party payors do not reimburse customers for any of our products candidates, they might
not be used or purchased, and our revenues and profits will not develop or grow.
  
    
    safe, effective and medically necessary;
    
    appropriate for the specific patient;
    
    cost-effective; and
    
    neither experimental nor investigational.
  New federal legislation will increase the pressure to reduce the price of pharmaceutical products
paid for by Medicare, which will adversely affect our revenues.
  Foreign governments tend to impose strict price controls, which may adversely affect our revenues.
   40




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We face potential product liability exposure, and, if successful claims are brought against us, we
may incur substantial liability for a product and may have to limit its commercialization.
  If our competitors develop and market products faster than we do or if the products of our
competitors are considered more desirable than ours, revenues for any of our products and product
candidates that are approved for marketing will not develop or grow.
   
    
    capital resources;
    
    research and development resources, including personnel and technology;
    
    regulatory experience;
    
    preclinical study and clinical trial experience; and
    
    manufacturing, distribution and sales and marketing experience.
     41




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
    
    For Sebazole, in the treatment of seborrheic dermatitis, Nizoral from Janssen,
ketoconazole creams from generic manufacturers, Desowen from Galderma S.A. and Loprox from
Medicis Pharmaceutical Corporation and the generic equivalents of each.
    
    For Hyphanox, in the treatment of onychomycosis, Sporanox from Janssen and generic
manufacturers, Lamisil from Novartis AG and Penlac from Dermik Laboratories.
    
    For Liarozole, in the treatment of congenital ichthyosis, Soriatane from Hoffmann-La
Roche Inc. and Connetics and over-the-counter topical moisturizers and emollients.
    
    For oral Rambazole, in the treatment of acne, Accutane from Hoffman-La Roche and generic
manufacturers. For oral Rambazole, in the treatment of psoriasis, Soriatane from Hoffman-La
Roche and Connetics, biologic agents such as Amevive from Biogen Idec Inc. and Raptiva from
Genentech, Inc. and methotrexate from generic manufacturers.
  Risks Related to Our Common Stock
 Our stock price is volatile, and the market price of our common stock may drop below the price you
pay.
  
    
    results of our clinical trials or those of our competitors;
    
    the regulatory status of our product candidates;
    
    failure of any of our product to achieve commercial success;
    
    developments concerning our competitors and their products;
    
    success of competitive products and technologies;
    
    regulatory developments in the United States and foreign countries;
    
    developments or disputes concerning our patents or other proprietary rights;
    
    our ability to manufacture any products to commercial standards;
    
    public concern over our drugs;
    
    litigation involving our company or our general industry or both;
    
    future sales of our common stock;
    
    changes in the structure of health care payment systems, including developments in price control legislation;
    
    departure of key personnel;
    
    period-to-period fluctuations in our financial results or those of companies that are perceived to be similar to us;
    
    changes in estimates of our financial results or recommendations by securities analysts;
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
    
    investors general perception of us; and
    
    general economic, industry and market conditions.
  Provisions in our certificate of incorporation and bylaws and under Delaware law may prevent or
frustrate a change in control or a change in management that stockholders believe is desirable.
  
    
    a classified board of directors;
    
    limitations on the removal of directors;
    
    advance notice requirements for stockholder proposals and nominations;
    
    the inability of stockholders to act by written consent or to call special meetings; and
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock without stockholder approval, which could be used to institute a rights
plan, or a poison pill, that would work to dilute the stock ownership of a potential hostile
acquirer, effectively preventing acquisitions that have not been approved by our board of
directors.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  43




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  OUR EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionGeert Cauwenbergh, Ph.D
    
    
    52
    
    
    Chairman of the Board, Chief Executive Officer and DirectorAlfred Altomari
    
    
    47
    
    
    Chief Operating OfficerAlbert C. Bristow
    
    
    36
    
    
    General Counsel and SecretaryCharles T. Nomides
    
    
    49
    
    
    Chief Research and Development OfficerAnne M. VanLent
    
    
    57
    
    
    Executive Vice President, Chief Financial Officer and
Treasurer
 Geert Cauwenbergh, Ph.D.
 Alfred Altomari
 Albert C. Bristow
 Charles T. Nomides
 44




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Anne M. VanLent
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  High
    
    Low2005First Quarter
    
    $
    22.40
    
    
    $
    13.45Second Quarter
    
    $
    19.22
    
    
    $
    7.85Third Quarter
    
    $
    10.12
    
    
    $
    7.50Fourth Quarter
    
    $
    8.70
    
    
    $
    6.662004Second Quarter (commencing April 29, 2004)
    
    $
    15.75
    
    
    $
    10.86Third Quarter
    
    $
    15.00
    
    
    $
    8.50Fourth Quarter
    
    $
    18.11
    
    
    $
    11.70
   45




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ITEM 6. SELECTED FINANCIAL DATA
    Period FromSeptember 17,2001(inception) toYear Ended December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands, except share and per share data)Consolidated Statement of Operations Data:Revenues:Net product revenue
    
    $
    792
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other revenue
    
    
    1,748
    
    
    
    897
    
    
    
    367
    
    
    
    
    
    
    
    Total revenues
    
    
    2,540
    
    
    
    897
    
    
    
    367
    
    
    
    
    
    
    
    Operating expenses:Cost of product revenues
    
    
    544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development
    
    
    30,369
    
    
    
    30,904
    
    
    
    17,485
    
    
    
    3,542
    
    
    
    Selling, general and administrative
    
    
    20,280
    
    
    
    11,475
    
    
    
    3,730
    
    
    
    1,532
    
    
    
    20In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    Total operating expenses
    
    
    51,193
    
    
    
    42,379
    
    
    
    21,215
    
    
    
    30,074
    
    
    
    20Loss from operations
    
    
    (48,653
    )
    
    
    (41,482
    )
    
    
    (20,848
    )
    
    
    (30,074
    )
    
    
    (20
    )Interest income
    
    
    2,929
    
    
    
    1,408
    
    
    
    419
    
    
    
    275
    
    
    
    Interest expense
    
    
    (53
    )
    
    
    (36
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (1
    )Loss before income tax benefit
    
    
    (45,777
    )
    
    
    (40,110
    )
    
    
    (20,432
    )
    
    
    (29,804
    )
    
    
    (21
    )Income tax benefit
    
    
    536
    
    
    
    367
    
    
    
    217
    
    
    
    
    
    
    
    Net loss
    
    
    (45,241
    )
    
    
    (39,743
    )
    
    
    (20,215
    )
    
    
    (29,804
    )
    
    
    (21
    )Preferred stock accretion
    
    
    
    
    
    
    (4,592
    )
    
    
    (8,432
    )
    
    
    (3,392
    )
    
    
    Net loss attributable to common stockholders
    
    $
    (45,241
    )
    
    $
    (44,335
    )
    
    $
    (28,647
    )
    
    $
    (33,196
    )
    
    $
    (21
    )Basic and diluted net loss per share
    
    $
    (1.91
    )
    
    $
    (3.02
    )
    
    $
    (83.95
    )
    
    $
    (240.75
    )
    
    
    Weighted average shares used in computing
basic and diluted net loss per share
    
    
    23,656,306
    
    
    
    14,677,710
    
    
    
    341,256
    
    
    
    137,889
    
    
    
    
 December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(in thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities
    
    $
    78,120
    
    
    $
    89,081
    
    
    $
    53,776
    
    
    $
    18,144
    
    
    $
    89Working capital
    
    
    72,785
    
    
    
    82,846
    
    
    
    51,682
    
    
    
    17,475
    
    
    
    62Total assets
    
    
    84,961
    
    
    
    92,784
    
    
    
    56,971
    
    
    
    19,296
    
    
    
    107Long-term notes payable
    
    
    405
    
    
    
    443
    
    
    
    193
    
    
    
    
    
    
    
    Accumulated deficit
    
    
    (151,441
    )
    
    
    (106,200
    )
    
    
    (61,865
    )
    
    
    (33,217
    )
    
    
    (21
    )Total stockholders equity (deficit)
    
    
    76,266
    
    
    
    83,570
    
    
    
    (61,534
    )
    
    
    (33,198
    )
    
    
    (20
    )
 46




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis of our financial condition and results
of operations together with our consolidated financial statements and the related notes appearing
at the end of this Form 10-K . Some of the information contained in this discussion and analysis or
set forth elsewhere in this Form 10-K , including information with respect to our plans and strategy
for our business and related financing, includes forward-looking statements that involve risks and
uncertainties. You should review the Risk Factors in Item 1A of Part I of this Form 10-K for a
discussion of important factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in the following
discussion and analysis.
 Overview
       
    
    cost incurred for the conduct of our clinical trials,
    
    cost incurred in screening and pre-clinical testing of our product candidates,
    
    manufacturing development costs related to our clinical product candidates,
    
    personnel and related costs related to our research and product development activities, and
    
    outside professional fees related to clinical development and regulatory matters.
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
    
    the timing and extent of recognition of product and other revenue;
    
    the timing of any contract, license fee or royalty payments that we may receive or be required to make;
    
    the timing and outcome of our applications for regulatory approvals;
    
    the timing and extent of marketing and selling expenses;
    
    the timing and extent of our research and development efforts;
    
    the timing and extent of our adding new employees and infrastructure; and
    
    the timing and extent of employee stock grants and stock option grants.
 Recent Developments
  Results of Operations
 Years ended December 31, 2005, 2004 and 2003
 Net Revenue
 Year endedDecember 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003Net product revenueUS
    
    $
    684
    
    
    $
    
    
    
    $
    International
    
    
    108
    
    
    
    
    
    
    
    Total net product revenue
    
    $
    792
    
    
    $
    
    
    
    $
    Grant revenue
    
    
    1,059
    
    
    
    797
    
    
    
    367Contract revenue
    
    
    689
    
    
    
    100
    
    
    
    Total net revenue
    
    $
    2,540
    
    
    $
    897
    
    
    $
    367
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Net Product Revenues.
 Other Revenues.
 Cost of Product Revenues.
 Research and Development Expenses.
   Year endedDecember 31% of
    
    
    
    % of
    
    
    
    % of(in thousands)
    
    2005
    


    Total
    
    2004

    
    
    Total
    
    2003

    
    
    TotalSebazole
    
    $
    3,888
    
    
    
    13
    %
    
    $
    5,750
    
    
    
    18
    %
    
    $
    5,016
    
    
    
    29
    %Hyphanox
    
    
    4,992
    
    
    
    16
    %
    
    
    8,391
    
    
    
    27
    %
    
    
    4,864
    
    
    
    28
    %Vusion
    
    
    2,268
    
    
    
    7
    %
    
    
    1,778
    
    
    
    6
    %
    
    
    1,774
    
    
    
    10
    %Liarozole
    
    
    1,275
    
    
    
    4
    %
    
    
    1,249
    
    
    
    4
    %
    
    
    334
    
    
    
    2
    %Other clinical stage products
    
    
    6,826
    
    
    
    23
    %
    
    
    3,589
    
    
    
    12
    %
    
    
    671
    
    
    
    4
    %Research and preclinical stage products costs
    
    
    1,388
    
    
    
    5
    %
    
    
    1,896
    
    
    
    6
    %
    
    
    713
    
    
    
    4
    %Internal costs
    
    
    9,732
    
    
    
    32
    %
    
    
    8,251
    
    
    
    27
    %
    
    
    4,113
    
    
    
    23
    %Total research and development expenses
    
    $
    30,369
    
    
    
    100
    %
    
    $
    30,904
    
    
    
    100
    %
    
    $
    17,485
    
    
    
    100
    %
  
 
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
 
 
 
 
  Selling general and administrative expense.
  50




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Interest income, net of interest expense.
  Income taxes
 Liquidity and Capital Resources
 Sources of Liquidity.
   Cash Flows.
   51




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
    
    the success of our development and commercialization of our product candidates;
    
    the scope and results of our clinical trials;
    
    advancement of other product candidates into clinical development;
    
    potential acquisition or in-licensing of other products or technologies;
    
    the timing of, and the costs involved in, obtaining regulatory approvals;
    
    the costs of manufacturing activities; and
    
    the costs of commercialization activities, including product marketing, sales and distribution and related
working capital needs.
  One to
    
    
    Three toLess than one
    
    
    Three
    
    
    Five
    
    
    After FiveContractual Obligation
    
    Total
    
    
    year
    
    
    Years
    
    
    Years
    
    
    YearsNotes payable
    
    $
    784,000
    
    
    $
    379,000
    
    
    $
    405,000
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    3,026,000
    
    
    
    666,000
    
    
    
    1,887,000
    
    
    
    473,000
    
    
    
    Other contractual obligations (a)
    
    
    20,573,000
    
    
    
    8,799,000
    
    
    
    8,024,000
    
    
    
    3,750,000
    
    
    
    Total
    
    $
    24,383,000
    
    
    $
    9,844,000
    
    
    $
    10,316,000
    
    
    $
    4,223,000
    
    
    $
    
 
  Critical Accounting Policies and Significant Judgments and Estimates
   52




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Revenue Recognition
  Net Product Revenue.
    Product returns
  Discounts and rebates
 53




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International Distribution Partners.
 Other Revenue .
   Stock-based Compensation
     54




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Recent Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows requires
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  .
 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  55




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ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  
    
    Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets;
    
    Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of our management and directors; and
    
    Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
   By:
    
    GEERT CAUWENBERGH
    
    By:
    
    ANNE M. VANLENTGeert Cauwenbergh, Ph.D.
    
    
    
    Anne M. VanLentChairman And Chief Executive Officer
    
    
    
    Executive Vice President, Chief Financial Officer
& TreasurerDated March 9, 2006
    
    
    
    Dated March 9, 2006
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Attestation Report of Independent Registered Public Accounting Firm
 Report of Independent Registered Public Accounting Firm
         /s/
 
 57




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Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Directors
  Our Executive Officers
  Audit Committee Financial Expert
  Identification of the Audit Committee
  Compliance with Section 16(a) of the Exchange Act
  Code of Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION
  58




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ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Item 1B. DOCUMENTS FILED AS PART OF THIS REPORT
  1.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTAL DATAReport of Independent Registered Public Accounting Firm.Consolidated Balance Sheets as of December 31, 2005 and 2004.Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and
2003.Consolidated Statements of Stockholders Equity (Deficiency) for the years ended
December 31, 2005, 2004 and 2003.Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and
2003.Notes to Consolidated Financial Statements.2.
    
    FINANCIAL STATEMENT SCHEDULES
  Exhibits
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Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, filed as Exhibit 3.2 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)3.2
    
    Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.4 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)4.1
    
    Specimen copy of stock certificate for shares of Common Stock of the Registrant, filed as
Exhibit 4.1 to the Companys Registration Statement on Form S-1 (File No. 333-112539)4.2
    
    Amended and Restated Investors Rights Agreement, dated as of April 20, 2004, by and among the
Registrant and the Investors listed therein, filed as Exhibit 4.2 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.1
    
    2002 Equity Compensation Plan, filed as Exhibit 10.1 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.2(1)
    
    Intellectual Property Transfer and License Agreement, dated as of May 6, 2002, by and between
the Registrant and Johnson & Johnson Consumer Companies, Inc., filed as Exhibit 10.2 to the
Companys Registration Statement on Form S-1 (File No. 333-112539)10.3
    
    Amendment No. 1 to the Intellectual Property Transfer and License Agreement dated as of
September 7, 2004, by and between Barrier Therapeutics, Inc. and Johnson & Johnson Consumer
Companies, Inc., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
September 10, 200410.4(1)
    
    Intellectual Property Transfer and License Agreement, dated as of May 6, 2002, by and among the
Registrant and Janssen Pharmaceutica Products, L.P. and Ortho-McNeil Pharmaceutical, Inc., filed
as Exhibit 10.3 to the Companys Registration Statement on Form S-1 (File No. 333-112539)10.5
    
    Amendment No. 1 to the Intellectual Property Transfer and License Agreement, dated as of
September 7, 2004, by and between Barrier Therapeutics, Inc. and Janssen Pharmaceutica Products,
L.P. , filed as Exhibit 10.2 to the Companys Current Report on Form 8-K filed on September 10,
200410.6
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Geert
Cauwenbergh, Ph.D., filed as Exhibit 10.4 to the Companys Registration Statement on Form S-1
(File No. 333-112539)10.7
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Charles
Nomides, filed as Exhibit 10.5 to the Companys Registration Statement on Form S-1 (File No.
333-112539)10.8
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Anne M.
VanLent, filed as Exhibit 10.6 to the Companys Registration Statement on Form S-1 (File No.
333-112539)10.9
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Alfred
Altomari10.10
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Albert
Bristow10.11
    
    Restricted Stock Purchase Agreement, dated as of October 31, 2001, by and between the Registrant
and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.7 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)
 60




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##### Table of Contents



Exhibit No.
    
    Description10.12
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated as of May 7, 2002, by and between
the Registrant and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.8 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.13
    
    Amendment No. 2 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.18 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)10.14
    
    Restricted Stock Purchase Agreement, dated as of February 20, 2002, by and between the
Registrant and Charles Nomides, filed as Exhibit 10.9 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.15
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated May 7, 2002, by and between the
Registrant and Charles Nomides, filed as Exhibit 10.10 to the Companys Registration Statement
on Form S-1 (File No. 333-112539)10.16
    
    Amendment No. 2 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Charles Nomides, filed as Exhibit 10.19 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.17
    
    Restricted Stock Purchase Agreement, dated as of August 1, 2002, by and between the Registrant
and Anne M. VanLent, filed as Exhibit 10.11 to the Companys Registration Statement on Form S-1
(File No. 333-112539)10.18
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Anne M. VanLent, filed as Exhibit 10.20 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.19
    
    Lease Agreement, dated May 28, 2003, between the Registrant and Peregrine Investment Partners-I
relating to property located at 600 College Road East, Princeton Forrestal Center, New Jersey,
filed as Exhibit 10.12 to the Companys Registration Statement on Form S-1 (File No. 333-112539)10.20
    
    Amendment No. 1 dated November 6, 2003, to Lease Agreement, dated May 28, 2003, between the
Registrant and Peregrine Investment Partners-I relating to property located at 600 College Road
East, Princeton Forrestal Center, New Jersey, filed as Exhibit 10.13 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)10.21
    
    Master Security Agreement, dated as of August 21, 2003 and Amendment, dated as of September 3,
2003, between the Registrant and General Electric Capital Corporation, filed as Exhibit 10.14 to
the Companys Registration Statement on Form S-1 (File No. 333-112539)10.22(1)
    
    Development and Supply Agreement, dated as of May 16, 2002, between the Registrant and Abbott
GmbH & Co. KG, filed as Exhibit 10.15 to the Companys Registration Statement on Form S-1 (File
No. 333-112539)10.23
    
    2004 Stock Incentive Plan, filed as Exhibit 10.16 to the Companys Registration Statement on Form
S-1 (File No. 333-112539)10.24
    
    Employee Stock Purchase Plan, filed as Exhibit 10.17 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.25
    
    Amendment No. 2 dated May 13, 2004, to Lease Agreement, dated May 28, 2003, between the
Registrant and Peregrine Investment Partners-I relating to property located at 600 College Road
East, Princeton Forrestal Center, New Jersey, filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed on August 11, 2004.
 61




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##### Table of Contents



Exhibit No.
    
    Description10.26(1)
    
    Distribution and License Agreement dated November 4, 2004 between the Registrant and Grupo
Ferrer Internacional, S.A., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on November 9, 2004.10.27
    
    Finished Product Supply Agreement dated July 14, 2004 between the Registrant and Janssen
Pharmaceutica, NV, filed as Exhibit 10.25 to the Companys Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-122261).10.28
    
    Product Acquisition Agreement dated February 5, 2005 between the Registrant and Moreland
Enterprises Limited, filed as Exhibit 10.26 to the Companys Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-122261).10.29
    
    Amendment No. 2 to the Intellectual Property Transfer and License Agreement, dated as of May 12,
2005, by and between the Registrant and Janssen Pharmaceutica Products, L.P., filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q filed on August 11, 2005.10.30
    
    Scientific Advisory Board Consulting Agreement dated as of August 1, 2005 by and between the
Registrant and Carl W. Ehmann, M.D., filed as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q filed on August 11, 2005.10.31
    
    Amendment dated as of August 26, 2005 to the Finished Product Supply Agreement by and between
the Registrant and Janssen Pharmaceutica, NV, filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed on November 14, 2005.*21
    
    List of Subsidiaries*23.1
    
    Consent of Ernst & Young LLP*23.2
    
    Power of Attorney (included on signature page)*31.1
    
    Certification of principal executive officer required by Rule 13a-14(a)*31.2
    
    Certification of principal financial officer required by Rule 13a-14(a)¤32.1
    
    Section 1350 Certification of principal executive officer¤32.2
    
    Section 1350 Certification of principal financial officer
 
 *
    
    Filed herewith.¤
    
    Furnished herewith
    
    Compensation plans and arrangements for executives and others.(1)
    
    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
granted by the Securities and Exchange Commission. 62




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##### Table of Contents



SIGNATURES
  March 14, 2006
    BARRIER THERAPEUTICS, INC.(Registrant)By:
    GEERT CAUWENBERGHGeert Cauwenbergh, Ph.D.Chairman And Chief Executive
Officer

(Principal Executive Officer) By:
    ANNE M. VANLENTAnne M. VanLentExecutive Vice President, Chief Financial Officer &
Treasurer

(Principal Financial and Accounting Officer) 63




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##### Table of Contents



POWER OF ATTORNEY
  Signature
    
    Title
    
    DateGEERT CAUWENBERGH

Geert Cauwenbergh, Ph.D.
    
        Chairman and Chief Executive Officer
(Principal Executive Officer)
    
        March 14, 2006ANNE M. VANLENT

Anne M. VanLent
    
    Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
    
        March 14, 2006SRINIVAS AKKARAJU

Srinivas Akkaraju, M.D., Ph.D.
    
    Director
    
        March 14, 2006ROBERT CAMPBELL
Robert Campbell
    
    Director
    
        March 14, 2006EDWARD L. ERICKSON

Edward L. Erickson
    
    Director
    
        March 14, 2006CARL EHMANN

Carl Ehmann, M.D.
    
    Director
    
    March 14, 2006PETER ERNSTER
Peter Ernster
    
    Director
    
    March 14, 2006CHARLES F. JACEY, JR.

Charles F. Jacey, Jr.
    
    Director
    
    March 14, 2006CAROL RAPHAEL
Carol Raphael
    
    Director
    
    March 14, 2006Nicholas Simon
    
    Director
    
    March 14, 2006
 64




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    F-3Consolidated Statements of Operations for each of the three years in
the period ended December 31, 2005
    
    
    F-4Consolidated Statements of Stockholders Equity (Deficiency) for the
Period from December 31, 2002 to December 31, 2005
    
    
    F-5Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2005
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 F-2




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 Year Ended December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    16,891
    
    
    $
    11,908Marketable securities
    
    
    61,229
    
    
    
    77,173Interest receivable
    
    
    755
    
    
    
    926Receivables, net of allowances of $14
    
    
    593
    
    
    
    Inventories
    
    
    380
    
    
    
    Prepaid expenses and other current assets
    
    
    1,227
    
    
    
    1,610Total current assets
    
    
    81,075
    
    
    
    91,617Property and equipment, net
    
    
    1,055
    
    
    
    1,125Product rights, net
    
    
    2,780
    
    
    
    Other assets
    
    
    51
    
    
    
    42Total assets
    
    $
    84,961
    
    
    $
    92,784Liabilities and stockholders equityCurrent liabilities:Notes payable, current portion
    
    $
    379
    
    
    $
    261Accounts payable
    
    
    3,110
    
    
    
    3,148Accrued expenses
    
    
    4,146
    
    
    
    4,687Deferred revenue
    
    
    637
    
    
    
    650Other current liabilities
    
    
    18
    
    
    
    25Total current liabilities
    
    
    8,290
    
    
    
    8,771Notes payable, long-term portion
    
    
    405
    
    
    
    443Stockholders equity:Common stock, $.0001 par value;
80,000,000 authorized, 24,095,875
issued and outstanding at December 31,
2005; and 21,894,830 issued and
outstanding at December 31, 2004
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    228,490
    
    
    
    191,568Accumulated deficit
    
    
    (151,441
    )
    
    
    (106,200
    )Deferred compensation
    
    
    (532
    )
    
    
    (1,510
    )Accumulated other comprehensive loss
    
    
    (253
    )
    
    
    (290
    )Total stockholders equity
    
    
    76,266
    
    
    
    83,570Total liabilities and stockholders equity
    
    $
    84,961
    
    
    $
    92,784
 See accompanying Notes to Consolidated Financial Statements
 F-3




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In Thousands, except share and per-share amounts)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenues:Net product revenue
    
    $
    792
    
    
    $
    
    
    
    $
    Other revenue
    
    
    1,748
    
    
    
    897
    
    
    
    367Total net revenue
    
    
    2,540
    
    
    
    897
    
    
    
    367Costs and Expenses:Cost of product revenues
    
    
    544
    
    
    
    
    
    
    
    Research and development
    
    
    30,369
    
    
    
    30,904
    
    
    
    17,485Selling, general and administrative
    
    
    20,280
    
    
    
    11,475
    
    
    
    3,730Total operating expenses
    
    
    51,193
    
    
    
    42,379
    
    
    
    21,215Loss from operations
    
    
    (48,653
    )
    
    
    (41,482
    )
    
    
    (20,848
    )Interest income
    
    
    2,929
    
    
    
    1,408
    
    
    
    419Interest expense
    
    
    (53
    )
    
    
    (36
    )
    
    
    (3
    )Loss before income tax benefit
    
    
    (45,777
    )
    
    
    (40,110
    )
    
    
    (20,432
    )Income tax benefit
    
    
    536
    
    
    
    367
    
    
    
    217Net loss
    
    
    (45,241
    )
    
    
    (39,743
    )
    
    
    (20,215
    )Preferred stock accretion
    
    
    
    
    
    
    (4,592
    )
    
    
    (8,432
    )Net loss attributable to common stockholders
    
    $
    (45,241
    )
    
    $
    (44,335
    )
    
    $
    (28,647
    )Basic and diluted net loss attributable to common
stockholders per share
    
    $
    (1.91
    )
    
    $
    (3.02
    )
    
    $
    (83.95
    )Weighted-average shares outstandingbasic and diluted
    
    
    23,656,306
    
    
    
    14,677,710
    
    
    
    341,256
 See accompanying Notes to Consolidated Financial Statements
 F-4




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)
 (In Thousands, except share amounts)
 Notes
    
    
    
    
    
    
    Accumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    Receivable
    
    
    
    
    
    
    Other
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    From
    
    
    Deferred
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Officer
    
    
    Compensation
    
    
    Loss
    
    
    (Deficiency)Balance at December 31, 2002
    
    
    822,500
    
    
    $
    
    
    
    $
    40
    
    
    $
    (33,218
    )
    
    $
    (60
    )
    
    $
    
    
    
    $
    40
    
    
    $
    (33,198
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,215
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,215
    )Unrealized loss on available for
sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )Foreign currency translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,284
    )Compensation expense related to
options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Restricted stock no longer
subject to repurchase
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Deferred compensation relating to
stock options
    
    
    
    
    
    
    
    
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    198Repayment of notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Preferred stock accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,432
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,432
    )Balance at December 31, 2003
    
    
    822,500
    
    
    
    
    
    
    
    887
    
    
    
    (61,865
    )
    
    
    
    
    
    
    (527
    )
    
    
    (29
    )
    
    
    (61,534
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,743
    )Unrealized loss on available for
sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    (179
    )Foreign currency translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (82
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,004
    )Conversion of preferred stock to
common stock
    
    
    15,960,898
    
    
    
    2
    
    
    
    118,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,837Issuance of common stock
    
    
    5,000,000
    
    
    
    
    
    
    
    67,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,941Stock issued upon exercise of
stock options
    
    
    107,382
    
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117Stock issued under employee
stock purchase plan
    
    
    4,050
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Compensation expense related to
options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756Restricted stock no longer
subject to repurchase
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Deferred compensation relating
to stock options
    
    
    
    
    
    
    
    
    
    
    2,995
    
    
    
    
    
    
    
    
    
    
    
    (2,995
    )
    
    
    
    
    
    
    Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,001
    
    
    
    
    
    
    
    2,001Reversal of deferred
compensation due to employee
terminations
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    Preferred stock accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,592
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,592
    )Balance at December 31, 2004
    
    
    21,894,830
    
    
    
    2
    
    
    
    191,568
    
    
    
    (106,200
    )
    
    
    
    
    
    
    (1,510
    )
    
    
    (290
    )
    
    
    83,570Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,241
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,241
    )Unrealized gain on available for
sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    64Foreign currency translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,204
    )Issuance of common stock
    
    
    2,000,000
    
    
    
    
    
    
    
    36,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,043Stock issued upon exercise of
stock options
    
    
    183,521
    
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    430Stock issued under employee
stock purchase plan
    
    
    17,524
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Compensation expense related to
options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378Restricted stock no longer
subject to repurchase
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    889
    
    
    
    
    
    
    
    889Reversal of deferred
compensation due to employee
terminations
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    24,095,875
    
    
    $
    2
    
    
    $
    228,490
    
    
    $
    (151,441
    )
    
    $
    
    
    
    $
    (532
    )
    
    $
    (253
    )
    
    $
    76,266
 See accompanying Notes to Consolidated Financial Statements
 F-5




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 December 31,2005
    
    
    2004
    
    
    2003Operating activitiesNet loss
    
    $
    (45,241
    )
    
    $
    (39,743
    )
    
    $
    (20,215
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    428
    
    
    
    381
    
    
    
    144Amortization of deferred compensation
    
    
    889
    
    
    
    2,001
    
    
    
    198Amortization of product rights
    
    
    320
    
    
    
    
    
    
    
    Non-cash compensation expense related to the issuance of
options to non-employees
    
    
    378
    
    
    
    756
    
    
    
    107Changes in operating assets and liabilities:Prepaid expenses and other current assets
    
    
    383
    
    
    
    (371
    )
    
    
    (384
    )Accounts receivable
    
    
    (593
    )
    
    
    
    
    
    
    Inventory
    
    
    (380
    )
    
    
    
    
    
    
    Interest receivable
    
    
    171
    
    
    
    (209
    )
    
    
    (472
    )Accounts payable and accrued expenses
    
    
    (579
    )
    
    
    4,879
    
    
    
    1,420Deferred revenue
    
    
    (13
    )
    
    
    197
    
    
    
    453Other, net
    
    
    (1
    )
    
    
    (79
    )
    
    
    (30
    )Net cash used in operating activities
    
    
    (44,238
    )
    
    
    (32,188
    )
    
    
    (18,779
    )Investing activitiesPurchase of fixed assets
    
    
    (358
    )
    
    
    (660
    )
    
    
    (751
    )Purchase of product rights
    
    
    (3,100
    )
    
    
    
    
    
    
    Security deposits
    
    
    
    
    
    
    (4
    )
    
    
    (39
    )Purchase of marketable securities
    
    
    (94,057
    )
    
    
    (104,324
    )
    
    
    (52,593
    )Maturities of marketable securities
    
    
    110,065
    
    
    
    69,276
    
    
    
    22,355Net cash provided by (used in) investing activities
    
    
    12,550
    
    
    
    (35,712
    )
    
    
    (31,028
    )Financing activitiesRepayment of loan by officer
    
    
    
    
    
    
    
    
    
    
    60Borrowings under notes payable
    
    
    341
    
    
    
    555
    
    
    
    268Repayment of notes payable
    
    
    (261
    )
    
    
    (298
    )
    
    
    (7
    )Proceeds from issuance of preferred stock
    
    
    
    
    
    
    (16
    )
    
    
    54,919Proceeds from issuance of common stock, net
    
    
    36,043
    
    
    
    67,941
    
    
    
    Proceeds from exercise of stock options and other benefit plans
    
    
    580
    
    
    
    153
    
    
    
    Net cash provided by financing activities
    
    
    36,703
    
    
    
    68,335
    
    
    
    55,240Effect of exchange rate on cash and cash equivalents
    
    
    (32
    )
    
    
    1
    
    
    
    4Net increase in cash and cash equivalents
    
    
    4,983
    
    
    
    436
    
    
    
    5,437Cash and cash equivalents, beginning of period
    
    
    11,908
    
    
    
    11,472
    
    
    
    6,035Cash and cash equivalents, end of period
    
    $
    16,891
    
    
    $
    11,908
    
    
    $
    11,472Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    53
    
    
    $
    36
    
    
    $
    3Non-cash investing and financing activitiesRelease of formerly restricted stock
    
    $
    10
    
    
    $
    12
    
    
    $
    15Issuance of note payable in exchange for prepaid insurance
    
    $
    
    
    
    $
    
    
    
    $
    186Conversion of preferred stock
    
    $
    
    
    
    $
    118,837
    
    
    $
    Initial public offering expenses reclassified to Additional
Paid-in Capital
    
    $
    
    
    
    $
    1,809
    
    
    $
    
 See accompanying Notes to Consolidated Financial Statements
 F-6




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##### Table of Contents



BARRIER THERAPEUTICS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2005
 1. Summary of Significant Accounting Policies
 Organization, Description of Business and Basis of Presentation
   Public Offerings
   Consolidation
  F-7




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##### Table of Contents



Use of Estimates
  Cash and Cash Equivalents
  Marketable Securities
 The Meaning of Other-Than-Temporary
 Fair Value of Financial Instruments
  Inventory
   Fixed Assets
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets,
 F-8




---



##### Table of Contents



Intangible Assets
  Revenue Recognition
 Revenue
Recognition in Financial Statements, Revenue
Arrangements with Multiple Deliverables Revenue Recognition When Right of Return Exists
 Net Product Revenue.
   F-9




---



##### Table of Contents



Product returns
  Discounts and rebates
   International Distribution Partners.
 Other Revenue .
  F-10




---



##### Table of Contents



Cost of Product Revenues.
  Research and Development Costs
  Advertising Fees
  Concentration of Credit Risk
    Income Taxes
  Foreign Currency Translation
  F-11




---



##### Table of Contents



Comprehensive Loss
 Reporting Comprehensive Income
 Stock-Based Compensation
    Year Ended December 31,2005
    
    
    2004
    
    
    2003Net loss attributable to common stockholders
    
    $
    (45,241
    )
    
    $
    (44,335
    )
    
    $
    (28,647
    )Add non-cash employee compensation as reported
    
    
    889
    
    
    
    2,001
    
    
    
    198Deduct total stock-based employee compensation
expense determined under fair value based method
for all awards
    
    
    (5,095
    )
    
    
    (3,871
    )
    
    
    (273
    )SFAS 123 pro forma net loss
    
    $
    (49,447
    )
    
    $
    (46,205
    )
    
    $
    (28,722
    )Basic and diluted loss attributable per common share
    
    $
    (1.91
    )
    
    $
    (3.02
    )
    
    $
    (83.95
    )Basic and diluted loss attributable to common
stockholders per share, SFAS 123 pro forma
    
    $
    (2.09
    )
    
    $
    (3.15
    )
    
    $
    (84.17
    )
  Year Ended December 31,2005
    
    2004
    
    2003Risk-free interest rate
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    2.8-3
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected life
    
    6.0
    years
    8.5
    years
    9.0
    yearsVolatility
    
    
    75
    %
    
    
    75
    %
    
    
    75
    %
  Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in
 F-12




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##### Table of Contents



Conjunction with Selling Goods or Services
 Deferred Stock Compensation
  Net Loss Per Common Share
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Net loss attributable to common stockholders
    
    $
    (45,241
    )
    
    $
    (44,335
    )
    
    $
    (28,647
    )Basic and diluted:Weighted-average shares of common stock outstanding
    
    
    23,798,922
    
    
    
    14,988,799
    
    
    
    822,500Less: weighted-average shares subject to repurchase
    
    
    (142,616
    )
    
    
    (311,089
    )
    
    
    (481,244
    )Shares used in computing basic and diluted net loss per
common share
    
    
    23,656,306
    
    
    
    14,677,710
    
    
    
    341,256Basic and diluted net loss per common share
    
    $
    (1.91
    )
    
    $
    (3.02
    )
    
    $
    (83.95
    )
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Preferred stock
    
    
    
    
    
    
    
    
    
    
    31,921,809Options
    
    
    1,819,587
    
    
    
    1,438,937
    
    
    
    878,583
 F-13




---



##### Table of Contents



Recently Issued Accounting Pronouncements
 Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows requires
  2. Available for Sale Investments
   Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2005Maturities within one year:Corporate notes
    
    $
    36,273
    
    
    $
    
    
    
    $
    (73
    )
    
    $
    36,200Federal agency notes
    
    
    11,397
    
    
    
    
    
    
    
    (16
    )
    
    
    11,381Asset-backed securities
    
    
    13,686
    
    
    
    
    
    
    
    (38
    )
    
    
    13,648Total
    
    $
    61,356
    
    
    $
    
    
    
    $
    (127
    )
    
    $
    61,229December 31, 2004Maturities within one year:Corporate notes
    
    $
    56,245
    
    
    $
    
    
    
    $
    (173
    )
    
    $
    56,072Federal agency notes
    
    
    16,431
    
    
    
    
    
    
    
    (12
    )
    
    
    16,419Asset-backed securities
    
    
    4,688
    
    
    
    
    
    
    
    (6
    )
    
    
    4,682Total
    
    $
    77,364
    
    
    $
    
    
    
    $
    (191
    )
    
    $
    77,173
   F-14




---



##### Table of Contents



3. Property and Equipment
  December 31,Estimated Life
    
    
    2005
    
    
    2004Furniture and fixtures
    
    5 years
    
    $
    592
    
    
    $
    471Computer, laboratory and office equipment
    
    3 years
    
    
    770
    
    
    
    703Computer software
    
    3 years
    
    
    468
    
    
    
    468Leasehold improvements
    
    
    (a)
    
    
    
    215
    
    
    
    452,045
    
    
    
    1,687Less accumulated depreciation
    
    
    
    
    
    
    (990
    )
    
    
    (562
    )$
    1,055
    
    
    $
    1,125
 
 (a)
    
    Leasehold improvements are depreciated over the estimated useful lives of the assets or related
initial lease terms, whichever is shorter.  4. Intangible Assets
    (In Thousands)
 Gross Carrying Amount
    
    
    Accumulated AmortizationProduct Rights
    
    
    $ 3,100
    
    
    
    $ 320
  F-15




---



##### Table of Contents



5. Balance Sheet Detail
  (In Thousands)
 December 31,2005
    
    
    2004Accrued product costs
    
    $
    566
    
    
    $
    2,316Accrued compensation and benefits
    
    
    2,027
    
    
    
    1,698Accrued other
    
    
    1,553
    
    
    
    673$
    4,146
    
    
    $
    4,687
 6. Notes Payable
    2006
    
    $
    3792007
    
    
    2792008
    
    
    126$
    784
 7. Income Taxes
   F-16




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##### Table of Contents



Year Ended December 31,(In Thousands)
    
    2005
    
    
    2004
    
    
    2003Federal income taxes:Current expense
    
    $
    
    
    
    $
    
    
    
    $
    Deferred expense
    
    
    
    
    
    
    
    
    
    
    State income taxes:Current benefit
    
    
    536
    
    
    
    367
    
    
    
    217Deferred expense
    
    
    
    
    
    
    
    
    
    
    Foreign income taxes:Current expense
    
    
    
    
    
    
    
    
    
    
    Deferred expense
    
    
    
    
    
    
    
    
    
    
    Income tax benefit
    
    $
    536
    
    
    $
    367
    
    
    $
    217
   Year Ended December 31,(In Thousands)
    
    2005
    
    
    2004Deferred tax assets:Net operating loss carry-forwards
    
    $
    40,398
    
    
    $
    22,760Stock-based compensation
    
    
    358
    
    
    
    1,232Research tax credits
    
    
    5,895
    
    
    
    3,242Deferred revenue
    
    
    247
    
    
    
    260Other
    
    
    526
    
    
    
    407Total deferred tax asset
    
    
    47,424
    
    
    
    27,901Deferred tax liabilities:Depreciation
    
    
    (93
    )
    
    
    (102
    )Total gross deferred tax liabilities
    
    
    (93
    )
    
    
    (102
    )Less valuation allowance
    
    
    (47,331
    )
    
    
    (27,799
    )Net deferred tax asset
    
    $
    
    
    
    $
    
 F-17




---



##### Table of Contents



Year Ended December 31,2005
    
    2004Statutory rate
    
    
    (34
    )%
    
    
    (34
    )%State income tax
    
    
    (7
    )%
    
    
    (7
    )%Research tax credits
    
    
    (2
    )%
    
    
    (5
    )%Change in valuation allowance
    
    
    42
    %
    
    
    45
    %Benefit for income tax
    
    
    (1
    )%
    
    
    (1
    )%
 8. Stockholders Equity and Capital Structure
 Preferred Stock
  Common Stock
   Employee Stock Purchase Plan
   F-18




---



##### Table of Contents



Stock Options
    F-19




---



##### Table of Contents



Options OutstandingShares
    
    
    
    
    
    
    Option
    
    
    Weighted-Available
    
    
    Number
    
    
    Price
    
    
    Averagefor
    
    
    of
    
    
    Per Share
    
    
    ExerciseGrant
    
    
    Shares
    
    
    Range
    
    
    PriceBalance at December 31, 2002
    
    
    570,000
    
    
    
    357,500
    
    
    
    0.60
    
    
    
    0.60Shares authorized
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (521,083
    )
    
    
    521,083
    
    
    
    0.80-3.00
    
    
    
    0.88Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    548,917
    
    
    
    878,583
    
    
    
    0.60-3.00
    
    
    
    0.88Shares authorized
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (691,050
    )
    
    
    691,050
    
    
    
    3.50-17.70
    
    
    
    8.50Options exercised
    
    
    
    
    
    
    (107,382
    )
    
    
    0.60-4.00
    
    
    
    1.09Options forfeited
    
    
    23,314
    
    
    
    (23,314
    )
    
    
    0.60-3.50
    
    
    
    0.94Balance at December 31, 2004
    
    
    381,181
    
    
    
    1,438,937
    
    
    
    0.60-17.70
    
    
    
    4.52Shares authorized
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (713,800
    )
    
    
    713,800
    
    
    
    7.05-19.98
    
    
    
    14.12Options exercised
    
    
    
    
    
    
    (183,521
    )
    
    
    0.60-14.74
    
    
    
    2.35Options forfeited
    
    
    149,629
    
    
    
    (149,629
    )
    
    
    0.60-18.56
    
    
    
    6.70Balance at December 31, 2005
    
    
    817,010
    
    
    
    1,819,587
    
    
    $
    0.60-19.98
    
    
    $
    8.32
  December 31,2005
    
    2004
    
    2003Vested stock options
    
    
    696,010
    
    
    
    383,586
    
    
    
    159,404Weighted-average exercise price
    
    $
    4.68
    
    
    $
    1.09
    
    
    $
    0.68
  Weighted-AverageOptions
    
    Options
    
    RemainingExercise Price
    
    Outstanding
    
    Vested
    
    Contractual Life$0.60  $1.50
    
    
    539,846
    
    
    
    377,324
    
    
    
    7.13.00  4.00
    
    
    154,391
    
    
    
    84,879
    
    
    
    8.04.01  8.00
    
    
    231,200
    
    
    
    95,427
    
    
    
    8.48.01  10.00
    
    
    153,200
    
    
    
    2,500
    
    
    
    9.710.01  14.00
    
    
    278,000
    
    
    
    64,084
    
    
    
    8.514.01  20.00
    
    
    462,950
    
    
    
    71,796
    
    
    
    9.01,819,587
    
    
    
    696,010
    
    
    
    8.3
   F-20




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##### Table of Contents



9. Commitments and Contingencies
 Johnson & Johnson
      10. Geographic Segments
   December 31, 2005United States
    
    International
    
    TotalTotal assets
    
    $
    83,212
    
    
    $
    1,749
    
    
    $
    84,961Property and equipment, net
    
    
    831
    
    
    
    224
    
    
    
    1,055Product revenues
    
    
    684
    
    
    
    108
    
    
    
    792Grant revenues
    
    
    
    
    
    
    1,059
    
    
    
    1,059Contract revenues
    
    
    660
    
    
    
    29
    
    
    
    689
 December 31, 2004United States
    
    International
    
    TotalTotal assets
    
    $
    91,679
    
    
    $
    1,105
    
    
    $
    92,784Property and equipment, net
    
    
    780
    
    
    
    345
    
    
    
    1,125Product revenues
    
    
    
    
    
    
    
    
    
    
    Grant revenues
    
    
    
    
    
    
    797
    
    
    
    797Contract revenues
    
    
    100
    
    
    
    
    
    
    
    100
 F-21




---



##### Table of Contents



December 31, 2003United States
    
    International
    
    TotalTotal assets
    
    $
    56,415
    
    
    $
    556
    
    
    $
    56,971Property and equipment, net
    
    
    600
    
    
    
    245
    
    
    
    845Product revenues
    
    
    
    
    
    
    
    
    
    
    Grant revenues
    
    
    
    
    
    
    367
    
    
    
    367Contract revenues
    
    
    
    
    
    
    
    
    
    
    
 11. Related Party Transactions
 
  12. Leases
  2006
    
    $
    666,0002007
    
    
    632,0002008
    
    
    624,0002009
    
    
    631,0002010
    
    
    473,000Thereafter
    
    
    $
    3,026,000
  13. Benefit Plan
  F-22




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##### Table of Contents



14. Selected Quarterly Financial Data (Unaudited)
 (In Thousands except per share amounts)
 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005Net revenue
    
    $
    653
    
    
    $
    472
    
    
    $
    626
    
    
    $
    789Cost of product revenues
    
    
    (82
    )
    
    
    (103
    )
    
    
    (163
    )
    
    
    (195
    )Total operating expenses
    
    
    (13,403
    )
    
    
    (12,026
    )
    
    
    (13,437
    )
    
    
    (12,328
    )Net loss
    
    
    (12,158
    )
    
    
    (10,809
    )
    
    
    (12,050
    )
    
    
    (10,225
    )Net loss attributable to common stockholders
    
    
    (12,158
    )
    
    
    (10,809
    )
    
    
    (12,050
    )
    
    
    (10,225
    )Basic and diluted net loss per common share(1)
    
    $
    (0.53
    )
    
    $
    (0.45
    )
    
    $
    (0.50
    )
    
    $
    (0.43
    )2004Net revenue
    
    $
    181
    
    
    $
    179
    
    
    $
    223
    
    
    $
    315Cost of product revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    (7,870
    )
    
    
    (9,247
    )
    
    
    (10,806
    )
    
    
    (14,456
    )Net loss
    
    
    (7,524
    )
    
    
    (8,756
    )
    
    
    (10,150
    )
    
    
    (13,313
    )Net loss attributable to common stockholders
    
    
    (10,942
    )
    
    
    (9,930
    )
    
    
    (10,150
    )
    
    
    (13,313
    )Basic and diluted net loss per common
share(1) (2)
    
    $
    (22.62
    )
    
    $
    (0.66
    )
    
    $
    (0.47
    )
    
    $
    (0.62
    )
 
 (1)
    
    Per common share amounts for the quarters and full years have been calculated separately.
Accordingly, quarterly amounts do not add to the annual amount because of differences in the
weighted-average common shares outstanding during each period principally due to the effect of
the Companys issuing shares of its common stock during the year.(2)
    
    The March 31, 2004 basic and diluted net loss per common share was prior to the Companys
initial public offering.   15. Legal Matters
  F-23




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##### Table of Contents



16. Subsequent Events (Unaudited)
  F-24




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##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, filed as Exhibit 3.2 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)3.2
    
    Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.4 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)4.1
    
    Specimen copy of stock certificate for shares of Common Stock of the Registrant, filed as
Exhibit 4.1 to the Companys Registration Statement on Form S-1 (File No. 333-112539)4.2
    
    Amended and Restated Investors Rights Agreement, dated as of April 20, 2004, by and among the
Registrant and the Investors listed therein, filed as Exhibit 4.2 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.1
    
    2002 Equity Compensation Plan, filed as Exhibit 10.1 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.2(1)
    
    Intellectual Property Transfer and License Agreement, dated as of May 6, 2002, by and between
the Registrant and Johnson & Johnson Consumer Companies, Inc., filed as Exhibit 10.2 to the
Companys Registration Statement on Form S-1 (File No. 333-112539)10.3
    
    Amendment No. 1 to the Intellectual Property Transfer and License Agreement dated as of
September 7, 2004, by and between Barrier Therapeutics, Inc. and Johnson & Johnson Consumer
Companies, Inc., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
September 10, 200410.4(1)
    
    Intellectual Property Transfer and License Agreement, dated as of May 6, 2002, by and among the
Registrant and Janssen Pharmaceutica Products, L.P. and Ortho-McNeil Pharmaceutical, Inc., filed
as Exhibit 10.3 to the Companys Registration Statement on Form S-1 (File No. 333-112539)10.5
    
    Amendment No. 1 to the Intellectual Property Transfer and License Agreement, dated as of
September 7, 2004, by and between Barrier Therapeutics, Inc. and Janssen Pharmaceutica Products,
L.P. , filed as Exhibit 10.2 to the Companys Current Report on Form 8-K filed on September 10,
200410.6
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Geert
Cauwenbergh, Ph.D., filed as Exhibit 10.4 to the Companys Registration Statement on Form S-1
(File No. 333-112539)10.7
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Charles
Nomides, filed as Exhibit 10.5 to the Companys Registration Statement on Form S-1 (File No.
333-112539)10.8
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Anne M.
VanLent, filed as Exhibit 10.6 to the Companys Registration Statement on Form S-1 (File No.
333-112539)10.9
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Alfred
Altomari10.10
    
    Employment Agreement, effective as of April 1, 2004, by and between the Registrant and Albert
Bristow
    Table of Contents  Exhibit No.
    
    Description10.11
    
    Restricted Stock Purchase Agreement, dated as of October 31, 2001, by and between the Registrant
and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.7 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.12
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated as of May 7, 2002, by and between
the Registrant and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.8 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.13
    
    Amendment No. 2 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Geert Cauwenbergh, Ph.D., filed as Exhibit 10.18 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)10.14
    
    Restricted Stock Purchase Agreement, dated as of February 20, 2002, by and between the
Registrant and Charles Nomides, filed as Exhibit 10.9 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)10.15
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated May 7, 2002, by and between the
Registrant and Charles Nomides, filed as Exhibit 10.10 to the Companys Registration Statement
on Form S-1 (File No. 333-112539)10.16
    
    Amendment No. 2 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Charles Nomides, filed as Exhibit 10.19 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.17
    
    Restricted Stock Purchase Agreement, dated as of August 1, 2002, by and between the Registrant
and Anne M. VanLent, filed as Exhibit 10.11 to the Companys Registration Statement on Form S-1
(File No. 333-112539)10.18
    
    Amendment No. 1 to Restricted Stock Purchase Agreement, dated as of April 1, 2004, by and
between the Registrant and Anne M. VanLent, filed as Exhibit 10.20 to the Companys Registration
Statement on Form S-1 (File No. 333-112539)10.19
    
    Lease Agreement, dated May 28, 2003, between the Registrant and Peregrine Investment Partners-I
relating to property located at 600 College Road East, Princeton Forrestal Center, New Jersey,
filed as Exhibit 10.12 to the Companys Registration Statement on Form S-1 (File No. 333-112539)10.20
    
    Amendment No. 1 dated November 6, 2003, to Lease Agreement, dated May 28, 2003, between the
Registrant and Peregrine Investment Partners-I relating to property located at 600 College Road
East, Princeton Forrestal Center, New Jersey, filed as Exhibit 10.13 to the Companys
Registration Statement on Form S-1 (File No. 333-112539)10.21
    
    Master Security Agreement, dated as of August 21, 2003 and Amendment, dated as of September 3,
2003, between the Registrant and General Electric Capital Corporation, filed as Exhibit 10.14 to
the Companys Registration Statement on Form S-1 (File No. 333-112539)10.22(1)
    
    Development and Supply Agreement, dated as of May 16, 2002, between the Registrant and Abbott
GmbH & Co. KG, filed as Exhibit 10.15 to the Companys Registration Statement on Form S-1 (File
No. 333-112539)10.23
    
    2004 Stock Incentive Plan, filed as Exhibit 10.16 to the Companys Registration Statement on Form
S-1 (File No. 333-112539)10.24
    
    Employee Stock Purchase Plan, filed as Exhibit 10.17 to the Companys Registration Statement on
Form S-1 (File No. 333-112539)
    Table of Contents  Exhibit No.
    
    Description10.25
    
    Amendment No. 2 dated May 13, 2004, to Lease Agreement, dated May 28, 2003, between the
Registrant and Peregrine Investment Partners-I relating to property located at 600 College Road
East, Princeton Forrestal Center, New Jersey, filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed on August 11, 2004.10.26(1)
    
    Distribution and License Agreement dated November 4, 2004 between the Registrant and Grupo
Ferrer Internacional, S.A., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on November 9, 2004.10.27
    
    Finished Product Supply Agreement dated July 14, 2004 between the Registrant and Janssen
Pharmaceutica, NV, filed as Exhibit 10.25 to the Companys Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-122261).10.28
    
    Product Acquisition Agreement dated February 5, 2005 between the Registrant and Moreland
Enterprises Limited, filed as Exhibit 10.26 to the Companys Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-122261).10.29
    
    Amendment No. 2 to the Intellectual Property Transfer and License Agreement, dated as of May 12,
2005, by and between the Registrant and Janssen Pharmaceutica Products, L.P., filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q filed on August 11, 2005.10.30
    
    Scientific Advisory Board Consulting Agreement dated as of August 1, 2005 by and between the
Registrant and Carl W. Ehmann, M.D., filed as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q filed on August 11, 2005.10.31
    
    Amendment dated as of August 26, 2005 to the Finished Product Supply Agreement by and between
the Registrant and Janssen Pharmaceutica, NV, filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed on November 14, 2005.*21
    
    List of Subsidiaries*23.1
    
    Consent of Ernst & Young LLP*23.2
    
    Power of Attorney (included on signature page)*31.1
    
    Certification of principal executive officer required by Rule 13a-14(a)*31.2
    
    Certification of principal financial officer required by Rule 13a-14(a)¤32.1
    
    Section 1350 Certification of principal executive officer¤32.2
    
    Section 1350 Certification of principal financial officer
 
 *
    
    Filed herewith.¤
    
    Furnished herewith
    
    Compensation plans and arrangements for executives and others.(1)
    
    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
granted by the Securities and Exchange Commission.