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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2008.
 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 0-18443
 MEDICIS PHARMACEUTICAL CORPORATION
 
 Delaware
    
    52-1574808(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)7720 N. Dobson Road, Scottsdale, Arizona
    
    85256-2740(Address of principal executive office)
    
    (Zip Code)Registrants telephone number, including area code: (602) 808-8800Securities registered pursuant to Section 12(b) of the Act: Class A common stock, $0.014 par valueNew York Stock Exchange
    
    Preference Share Purchase Rights(Name of each exchange on which 
registered)
    
    (Title of each Class)
  þ o
 o þ
 þ o
 o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    41Item 2.
    
    Properties
    
    
    41Item 3.
    
    Legal Proceedings
    
    
    42Item 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
    
    
    44Item 6.
    
    Selected Financial Data
    
    
    46Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    51Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    81Item 8.
    
    Financial Statements and Supplementary Data
    
    
    82Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
    
    
    82Item 9A.
    
    Controls and Procedures
    
    
    82Item 9B.
    
    Other Information
    
    
    85PART IIIItem 10.
    
    Directors and Executive Officers and Corporate Governance
    
    
    85Item 11.
    
    Executive Compensation
    
    
    85Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
    
    
    86Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    86Item 14.
    
    Principal Accountant Fees and Services
    
    
    86PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    87EX-10.61EX-10.62EX-12EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
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PART I
 
  The Company
    ® ® ® ® ® ®
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Our Products
  Brand
    
    Treatment
    
    U.S. Market ImpactPERLANE®
    
    Injectable gel for implantation into the
deep dermis to superficial subcutis for
the correction of moderate to severe
facial folds and wrinkles, such as
nasolabial folds
    
    Launched in May 2007 following U.S. Food and
Drug Administration (FDA) approval on
May 2, 2007RESTYLANE®
    
    Injectable gel for treatment of moderate
to severe facial wrinkles and folds,
such as nasolabial folds
    
    The leading worldwide injectable dermal filler,
launched in January 2004 following FDA approval
on December 12, 2003SOLODYN®
    
    Once daily dosage in the treatment of
inflammatory lesions of non-nodular
moderate to severe acne vulgaris in
patients 12 and older
    
    Launched in July 2006 following FDA approval
on May 8, 2006.TRIAZ®
    
    Topical patented gel and cleanser and
patent-pending pad treatments for acne
    
    A leading branded prescription benzoyl
peroxide product, launched during fiscal 1996VANOS®
    
    Super-high potency topical corticosteroid
indicated for the relief of the inflammatory
and pruritic manifestations of corticosteroid
responsive dermatoses in patients 12 years
of age or older
    
    Launched in April 2005 following FDA
approval on February 11, 2005ZIANA®
    
    Once daily topical gel treatment for acne
vulgaris in patients 12 and older
    
    Approved by the FDA on November 7, 2006. First
commercial sales to wholesalers in December 2006
and launched in January 2007
 Dermal Restorative Products
  RESTYLANE ® , PERLANE ® , RESTYLANE FINE LINES TM RESTYLANE
SUBQ TM ® ® ® TM TM
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Prescription Pharmaceuticals
  SOLODYN ® ® ® ® ® ® ® ®
 TRIAZ ® ® ® ® ®
 VANOS ® ® ® ® ® ®
 ZIANA ® ® ® ® ® ® ®
 Research and Development
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® ®
 ® ®
 ® ®
   ®
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Sales and Marketing
    Warehousing and Distribution
  Customers
  2008
    
    2007
    
    2006McKesson
    
    
    45.8
    %
    
    
    52.2
    %
    
    
    56.8
    %Cardinal
    
    
    21.2
    %
    
    
    16.9
    %
    
    
    19.3
    %
 ® ®
 Third-Party Reimbursement
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Seasonality
  Manufacturing
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##### Table of Contents



® ® ®
 ® ®
 ® ®
 Raw Materials
  License and Royalty Agreements
  Trademarks, Patents and Proprietary Rights
  ® ® ® ® ® ® ® ®
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®
  Competition
    ® ® ® ® ® ® ® ® ®
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® ®
 Government Regulation
  ® ® ® ® ® ® ® ®
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® ® ® ®
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® ®
 ® ®
   Our History
  Change in Fiscal Year
  Employees
  Available Information
 www.Medicis.com
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##### Table of Contents



Risks Related To Our Business
 Certain of our primary products could lose patent protection in the near future and become subject
to competition from generic forms of such products. If that were to occur, sales of those products
would decline significantly and such decline could have a material adverse effect on our results of
operations.
  ® ® ® ® ®
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®
 ® ® ® ® ® ® ® ® ® ® ®
 ®
 ® Submission of Patent Information for Certain Old Antibiotics ®
 ®
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® ®
 ®
 ® ®
 ® ®
 ® ® ®
 If we are unable to secure and protect our intellectual property and proprietary rights, or if our
intellectual property rights are found to infringe upon the intellectual property rights of other
parties, our business could suffer.
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® ® ® ®
  ® ®
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We depend on licenses from others, and any loss of such licenses could harm our business, market
share and profitability.
    Obtaining FDA and other regulatory approvals is time consuming, expensive and uncertain.
  
    
    determination by the FDA that the product is not safe and effective;
    
    a different interpretation of preclinical and clinical data by FDA;
    
    failure to obtain approval of the manufacturing process or facilities;
    
    results of post-marketing studies;
    
    changes in FDA policy or regulations related to product approvals; and
    
    failure to comply with applicable regulatory requirements.
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
    
    testing and surveillance to monitor the product and its continued compliance with
regulatory requirements, including cGMPs for drug and biologic products and the QSRs
for medical device products;
    
    submitting products, facilities and records for inspection and, if any inspection
reveals that the product is not in compliance, prohibiting the sale of all products
from the same lot;
    
    suspending manufacturing;
    
    switching status from prescription to over-the-counter drug;
    
    completion of post-marketing studies;
    
    changes to approved product labeling;
    
    advertising or marketing restrictions, including direct-to-consumer advertising;
    
    Risk Evaluation and Mitigation Strategies (REMS);
    
    recalling products; and
    
    withdrawing marketing clearance.
  
    
    incurring substantial expenses, including fines, penalties, legal fees and costs to
comply with the FDAs requirements;
    
    changes in the methods of marketing and selling products;
    
    taking FDA-mandated corrective action, which may include placing advertisements or
sending letters to physicians rescinding previous advertisements or promotion; and
    
    disruption in the distribution of products and loss of sales until compliance with
the FDAs position is obtained.
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If we market products in a manner that violates health care fraud and abuse laws, we may be subject
to civil or criminal penalties.
   ® ®
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® ®
 Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable U.S. federal and state regulations and all potentially applicable foreign regulations.
  We depend on a limited number of customers, and if we lose any of them, our business could be
harmed.
 ® ®
 The consolidation of drug wholesalers could increase competition and pricing pressures throughout
the pharmaceutical industry.
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We derive a majority of our sales revenue from our primary products, and any factor adversely
affecting sales of these products would harm our business, financial condition and results of
operations.
 ® ® ® ® ®
 ® ® ® ® ® ® ® ® ® ®
 ® ® ® ® ®
 ®
 ® ® ® ® ®
 
    
    manufacturing or supply interruptions;
    
    the development of new competitive pharmaceuticals and technological advances to
treat the conditions addressed by our primary products, including the introduction of
new products into the marketplace;
    
    generic competition;
    
    marketing or pricing actions by one or more of our competitors;
    
    regulatory action by the FDA and other government regulatory agencies;
    
    importation of other dermal fillers;
    
    changes in the prescribing or procedural practices of dermatologists, plastic
surgeons and/or podiatrists;
    
    changes in the reimbursement or substitution policies of third-party payors or
retail pharmacies;
    
    product liability claims;
    
    the outcome of disputes relating to trademarks, patents, license agreements and
other rights;
    
    changes in state and federal law that adversely affect our ability to market our
products to dermatologists, plastic surgeons and/or podiatrists; and
    
    restrictions on travel affecting the ability of our sales force to market to
prescribing physicians and plastic surgeons in person.
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Our continued growth depends upon our ability to develop new products.
 ®
 We may not be able to identify and acquire products, technologies and businesses on acceptable
terms, if at all, which may constrain our growth.
    Our products may not gain market acceptance.
  Our operating results and financial condition may fluctuate.
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
    
    development and launch of new competitive products, including OTC or generic
competitor products;
    
    the timing and receipt of FDA approvals or lack of approvals;
    
    changes in the amount we spend to develop, acquire or license new products,
technologies or businesses;
    
    costs related to business development transactions;
    
    untimely contingent research and development payments under our third-party product
development agreements;
    
    changes in the amount we spend to promote our products;
    
    delays between our expenditures to acquire new products, technologies or businesses
and the generation of revenues from those acquired products, technologies or
businesses;
    
    changes in treatment practices of physicians that currently prescribe our products;
    
    changes in reimbursement policies of health plans and other similar health insurers,
including changes that affect newly developed or newly acquired products;
    
    increases in the cost of raw materials used to manufacture our products;
    
    manufacturing and supply interruptions, including failure to comply with
manufacturing specifications;
    
    changes in prescription levels and the effect of economic changes in hurricane and
other natural disaster-affected areas;
    
    the impact on our employees, customers, patients, manufacturers, suppliers, vendors,
and other companies we do business with and the resulting impact on the results of
operations associated with the possible mutation of the avian form of influenza from
birds or other animal species to humans, current human morbidity, and mortality levels
persist following such potential mutation;
    
    the mix of products that we sell during any time period;
    
    lower than expected demand for our products;
    
    our responses to price competition;
    
    expenditures as a result of legal actions, including the defense of our patents and
other intellectual property;
    
    market acceptance of our products;
    
    the impairment and write-down of goodwill or other intangible assets;
    
    implementation of new or revised accounting or tax rules or policies;
    
    disposition of primary products, technologies and other rights;
    
    termination or expiration of, or the outcome of disputes relating to, trademarks,
patents, license agreements and other rights;
    
    increases in insurance rates for existing products and the cost of insurance for new
products;
    
    general economic and industry conditions, including changes in interest rates
affecting returns on cash balances and investments that affect customer demand, and our
ability to recover quickly from such economic and industry conditions;
    
    seasonality of demand for our products;
    
    our level of research and development activities;
    
    new accounting standards and/or changes to existing accounting standards that would
have a material effect on our consolidated financial position, results of operations or
cash flows;
    
    costs and outcomes of any tax audits or any litigation involving intellectual
property, customers or other issues;
    
    failure by us or our contractors to comply with all applicable FDA and other
regulatory requirements;
    
    the imposition of a REMS program requirement on any of our products;
    
    adverse decisions by FDA advisory committees related to any of our products; and
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
    
    timing of payments and/or revenue recognition related to licensing agreements and/or
strategic collaborations.
  We face significant competition within our industry.
  
    
    developing and bringing new products to market before others;
    
    developing new technologies to improve existing products;
    
    developing new products to provide the same benefits as existing products at less
cost; and
    
    developing new products to provide benefits superior to those of existing products.
     ® ®
 Our investments in other companies and our collaborations with companies could adversely affect our
results of operations and financial condition.
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Our profitability is impacted by our continued participation in governmental pharmaceutical pricing
programs.
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Our profitability may be impacted by our ongoing review of our prior reports under certain Federal
pharmaceutical pricing programs.
     We will be unable to meet our anticipated development and commercialization timelines if clinical
trials for our products are unsuccessful, delayed, or additional information is required by the
FDA.
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
    
    lack of efficacy during the clinical trials;
    
    unforeseen safety issues;
    
    severe or harmful side effects;
    
    failure to obtain necessary proprietary rights;
    
    shortage or lack of supply sufficient to complete studies;
    
    the decision to modify the product;
    
    lack of economical pathway to manufacture and commercialize product;
    
    cost-effectiveness of continued product development;
    
    slower than expected patient recruitment;
    
    failure of Medicis, investigators, or other contractors to strictly adhere to
federal regulations governing the conduct and data collection procedures involved in
clinical trials;
    
    development of issues that might delay or impede performance by a contractor;
    
    errors in clinical documentation or at the clinical locations;
    
    non-acceptance by the FDA of our NDAs, ANDAs or BLAs;
    
    government or regulatory delays. For example, on January 7, 2009, Ipsen announced
that the FDA provided notification to Ipsen that the PDUFA action date for the BLA for
RELOXIN®, in aesthetics has been extended to April 13, 2009; and
    
    unanticipated requests from the FDA for new or additional information.
  Downturns in general economic conditions may adversely affect our financial condition, results of
operations and cash flows.
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The current condition of the credit markets may not allow us to secure financing for potential
future activities on satisfactory terms, or at all.
  Negative conditions in the credit markets may impair the liquidity of a portion of our short-term
and long-term investments.
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If Q-Med is unable to protect its intellectual property and proprietary rights with respect to our
dermal filler products, our business could suffer.
 ® ® TM TM
 We may not be able to collect all scheduled license payments from BioMarin.
  We depend upon our key personnel and our ability to attract, train, and retain employees.
  We may acquire technologies, products and companies in the future and these acquisitions could
disrupt our business and harm our financial condition and results of operations. In addition, we
may not obtain the benefits that the acquisitions were intended to create.
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We may not be able to successfully integrate the operations of LipoSonix.
  
    
    conforming standards, controls, procedures and policies, business cultures and
compensation structures between the companies;
    
    conforming information technology and accounting systems;
    
    consolidating corporate and administrative infrastructures;
    
    consolidating sales and marketing operations;
    
    retaining existing customers and attracting new customers;
    
    retaining key employees;
    
    identifying and eliminating redundant and underperforming operations and assets;
    
    minimizing the diversion of managements attention from ongoing business concerns;
    
    coordinating geographically dispersed organizations;
    
    managing tax costs or inefficiencies associated with integrating the operations of
the combined company; and
    
    making any necessary modifications to operating control standards to comply with the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.
  We may not realize all of the anticipated benefits of our acquisition of LipoSonix.
  
    
    our ability to attain regulatory approvals of LipoSonixs product both in the United
States and worldwide, and the timing of such approvals;
    
    the efficacy of LipoSonixs technology;
    
    market acceptance of LipoSonixs technology;
    
    increases or decreases in the expected costs to be incurred in connection with the
research and development, clinical trials, regulatory approvals, commercialization and
marketing of the LipoSonix technology;
    
    the anticipated size of the markets and demand of the LipoSonix technology;
    
    our ability to integrate the operations of LipoSonix with our operations;
    
    our ability to retain key personnel of LipoSonix; and
    
    our ability to effectively compete in the liposuction marketplace.
 We rely on third parties to conduct business operations outside of the U.S., and we may be
adversely affected if they act in violation of the U.S. Foreign Corrupt Practices Act or other
anti-bribery laws.
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Our success depends on our ability to manage our growth.
  We rely on others to manufacture our products.
  
    
    delays, warning letters, and fines;
    
    product recalls or seizures;
    
    injunctions on sales;
    
    refusal of FDA to review pending applications;
    
    total or partial suspension of production;
    
    withdrawal of prior marketing approvals or clearances; and
    
    civil penalties and criminal prosecutions.
   ® ®
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We and our third-party manufacturers rely on a limited number of suppliers of the raw materials of
our products. A disruption in supply of raw material would be disruptive to our inventory supply.
  We could experience difficulties in obtaining supplies of
RESTYLANE®
, PERLANE®, RESTYLANE FINE
LINESTM and RESTYLANE
SUBQTM.
 ® ® TM TM ® ® TM TM
 ® ® TM TM ® ® ® TM TM
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Supply interruptions may disrupt our inventory levels and the availability of our products.
  
    
    timing, scheduling and prioritization of production by our contract manufacturers;
    
    labor interruptions;
    
    changes in our sources for manufacturing;
    
    the timing and delivery of domestic and international shipments;
    
    our failure to locate and obtain replacement manufacturers as needed on a timely
basis;
    
    conditions affecting the cost and availability of raw materials; and
    
    hurricanes and other natural disasters.
     Fluctuations in demand for our products create inventory maintenance uncertainties.
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We selectively outsource certain non-sales and non-marketing services, and cannot assure you that
we will be able to obtain adequate supplies of such services on acceptable terms.
  Importation of products from Canada and other countries into the United States may lower the prices
we receive for our products.
    If we become subject to product liability claims, our earnings and financial condition could
suffer.
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If we suffer negative publicity concerning the safety of our products, our sales may be harmed and
we may be forced to withdraw products.
  Rising insurance costs could negatively impact profitability.
  RESTYLANE® and
PERLANE® are consumer products and as such,
are susceptible to changes in popular trends and applicable laws, which could adversely affect sales or product
margins of RESTYLANE® and
PERLANE®.
 ® ® ® ® ® ®
 ® ® ® ®
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The restatement of our consolidated financial statements has subjected us to a number of additional
risks and uncertainties, including increased costs for accounting and legal fees and the increased
possibility of legal proceedings.
 Revenue Recognition When Right of Return Exists
 
    
    We incurred substantial unanticipated costs for accounting and legal fees in
connection with the restatement. Although the restatement is complete, we expect to
continue to incur accounting and legal costs as noted below.
    
    As a result of the restatement, we have been named in a number of lawsuits as
discussed in Item 3 of Part I of this report, Legal Proceedings and Note 14,
Commitments and Contingencies. The plaintiffs in these lawsuits may make additional
claims, expand existing claims and/or expand the time periods covered by the
complaints. Other plaintiffs may bring additional actions with other claims, based on
the restatement. If such events occur, we may incur substantial defense costs
regardless of the outcome of these actions and insurance and indemnification may not be
sufficient to cover the losses we may incur. Likewise, such events might cause a
diversion of our managements time and attention. If we do not prevail in one or more
of these actions, we could be required to pay substantial damages or settlement costs,
which could adversely affect our business, financial condition, results of operations
and liquidity.
    
    On January 21, 2009, we received a letter from a stockholder demanding that our
Board of Directors take certain actions, including potentially legal action, in
connection with the restatement of our consolidated financial statements in 2008, and
threatening to pursue a derivative claim if our Board of Directors does not comply with
the stockholders demands. We may receive similar letters from other stockholders.
Our Board of Directors is reviewing the letter and has established a special committee
of the Board, comprised of directors who are independent and disinterested with respect
to the letter, (i) to assess whether there is any merit to the allegations contained in
the letter, (ii) if the special committee does conclude that there may be merit to any
of the allegations contained in the letter, to further assess whether it is in our best
interest to pursue litigation or other action against any or all of the persons named
in the letter or any other persons not named in the letter, and (iii) to recommend to
the Board any other appropriate action to be taken. The ultimate outcome of these
potential actions could have a material adverse effect on our business, financial
condition, results of operations, cash flows and the trading price for our securities.
 In 2008, management identified a material weakness in our internal control over financial reporting
with respect to our accounting for sales return reserves. Although as of December 31, 2008
management determined that the material weakness identified in 2008 had been remediated, management
may identify material weaknesses in the future that could adversely affect investor confidence,
impair the value of our common stock and increase our cost of raising capital.
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We may not be able to repurchase the Old Notes when required.
   Unanticipated changes in our tax rates or exposure to additional income tax liabilities could
affect our profitability.
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Risks Related to Our Industry
 The growth of managed care organizations, other third-party reimbursement policies, state
regulatory agencies and retailer fulfillment policies may harm our pricing, which may reduce our
market share and margins.
      We are subject to extensive governmental regulation.
  
    
    fines;
    
    changes to advertising;
    
    suspensions of regulatory approvals of products;
    
    product withdrawals and recalls;
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
    
    delays in product distribution, marketing and sale; and
    
    civil or criminal sanctions.
 ® ®
    
   
  Contingent
Convertible Senior Notes and Other Long-Term Commitments
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® ® ®
 ® ® ® ®
 ®
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PART II
 
  Description of Registrants Securities, Price Range of Common Stock and Dividends Declared
  DIVIDENDSHIGH
    
    LOW
    
    DECLAREDFISCAL YEAR ENDED DECEMBER 31, 2008First Quarter
    
    $
    27.02
    
    
    $
    18.51
    
    
    $
    0.04Second Quarter
    
    
    24.49
    
    
    
    18.84
    
    
    
    0.04Third Quarter
    
    
    22.10
    
    
    
    13.60
    
    
    
    0.04Fourth Quarter
    
    
    15.19
    
    
    
    9.66
    
    
    
    0.04FISCAL YEAR ENDED DECEMBER 31, 2007First Quarter
    
    $
    39.94
    
    
    $
    30.11
    
    
    $
    0.03Second Quarter
    
    
    34.35
    
    
    
    29.70
    
    
    
    0.03Third Quarter
    
    
    31.48
    
    
    
    26.65
    
    
    
    0.03Fourth Quarter
    
    
    32.18
    
    
    
    25.37
    
    
    
    0.03
  Dividend Policy
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Recent Sales of Unregistered Securities
  Equity Compensation Plan Information
  Number of securitiesremaining available forNumber of Securities
    
    
    Weighted-average
    
    
    future issuance underto be issued upon
    
    
    exercise
    
    
    equity compensationexercise of
    
    
    price of outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants and
    
    
    securities reflected inwarrants and rights
    
    
    rights
    
    
    column a)Plan Category
    
    Date
    
    
    (a)
    
    
    (b)
    
    
    (c)Plans approved by
stockholders(1)
    
    
    12/31/2008
    
    
    
    8,189,458
    
    
    $
    27.40
    
    
    
    2,380,544Plans not approved by
stockholders(2)
    
    
    12/31/2008
    
    
    
    3,722,750
    
    
    $
    29.07
    
    
    
    0Total
    
    
    
    
    
    
    11,912,208
    
    
    $
    27.98
    
    
    
    2,380,544
 
 (1)
    
    Represents options outstanding and shares available for future issuance under the
2006 Incentive Plan. Also includes options outstanding under the 2004, 1998, 1996, 1995 and
1992 Stock Option Plans, which have been terminated as to future grants.(2)
    
    Represents the 2002 Stock Option Plan, which was implemented by our board in
November 2002. The 2002 Plan was terminated on May 23, 2006 as part of the stockholders
approval of the 2006 Incentive Plan, and no options can be granted from the 2002 Plan after
May 23, 2006. Options previously granted from this plan remain outstanding and continue to be
governed by the rules of the plan. The 2002 Plan was a non-stockholder approved plan under
which non-qualified incentive options have been granted to our employees and key consultants
who are neither our executive officers nor our directors at the time of grant. The board
authorized 6,000,000 shares of common stock for issuance under the 2002 Plan. The option
price of the options is the fair market value, defined as the closing quoted selling price of
the common stock on the date of the grant. No option granted under the 2002 Plan has a term
in excess of ten years, and each will be subject to earlier termination within a specified
period following the optionees cessation of service with us. As of December 31, 2008, the
weighted average term to expiration of these options is 4.6 years. Each granted option vests
in one or more installments over a period of five years. However, the options will vest on an
accelerated basis in the event we experience a change of control (as defined in the 2002
Plan).  45




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##### Table of Contents



Repurchases of Common Stock
  
   Year
    
    
    Year
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDec. 31, 2008
    
    
    Dec. 31, 2007
    
    
    Dec. 31, 2006
    
    
    Dec. 31, 2005(unaudited)(in thousands, except per share amounts)Statements of Operations Data:Net product revenues
    
    $
    500,977
    
    
    $
    441,868
    
    
    $
    377,548
    
    
    $
    306,735Net contract revenues
    
    
    16,773
    
    
    
    15,526
    
    
    
    15,617
    
    
    
    46,002Net revenues
    
    
    517,750
    
    
    
    457,394
    
    
    
    393,165
    
    
    
    352,737Gross profit (a)
    
    
    479,036
    
    
    
    401,284
    
    
    
    347,059
    
    
    
    297,000Operating expenses:Selling, general and administrative
    
    
    279,768
    (b)
    
    
    242,633
    (f)
    
    
    202,457
    (h)
    
    
    146,158
    (j)Impairment of intangible assets
    
    
    
    
    
    
    4,067
    
    
    
    52,586
    
    
    
    9,171Research and development
    
    
    99,916
    (c)
    
    
    39,428
    (g)
    
    
    161,837
    (i)
    
    
    42,903
    (k)In-process research and development
    
    
    30,500
    (d)
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    27,698
    
    
    
    24,548
    
    
    
    23,048
    
    
    
    24,548Total operating expenses
    
    
    437,882
    
    
    
    310,676
    
    
    
    439,928
    
    
    
    222,780Operating income (loss)
    
    
    41,154
    
    
    
    90,608
    
    
    
    (92,869
    )
    
    
    74,220Other:Other (expense) income, net
    
    
    (15,470
    )(e)
    
    
    
    
    
    
    
    
    
    
    59,801
    (l)Interest and investment income (expense), net
    
    
    16,722
    
    
    
    28,372
    
    
    
    20,147
    
    
    
    5,804Income tax (expense) benefit
    
    
    (32,130
    )
    
    
    (48,544
    )
    
    
    24,570
    
    
    
    (49,551
    )Net income (loss)
    
    $
    10,276
    
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    90,274Basic net income (loss) per share
    
    $
    0.18
    
    
    $
    1.26
    
    
    $
    (0.88
    )
    
    $
    1.66Diluted net income (loss) per share
    
    $
    0.18
    
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    1.39
    (m)Cash dividend declared per common share
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.12Basic common shares outstanding
    
    
    56,567
    
    
    
    55,988
    
    
    
    54,688
    
    
    
    54,290Diluted common shares outstanding
    
    
    57,323
    
    
    
    71,246
    
    
    
    54,688
    
    
    
    69,558
    (m)
 
 (a)
    
    Amounts exclude $21.5 million, $21.6 million, $20.0 million and $21.6 million of amortization
expense related to acquired intangible assets for the year ended December 31, 2008, 2007, 2006
and 2005, respectively. 46




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##### Table of Contents



(b)
    
    Includes approximately $16.3 million of compensation expense related to stock options and
restricted stock and $4.8 million of lease exit costs related to our previous headquarters
facility.(c)
    
    Includes $40.0 million paid to IMPAX related to a development agreement and $25.0 million
paid to Ipsen upon the FDAs acceptance of Ipsens BLA for RELOXIN®and
approximately $0.3 million of compensation expense related to stock options and restricted
stock.(d)
    
    In-process research and development expense of $30.5 million is related to our acquisition of
LipoSonix.(e)
    
    Represents a $9.1 million reduction in the carrying value of our investment in Revance as a
result of a reduction in the net realizable value of the investment using the hypothetical
liquidation at book value approach as of December 31, 2008, and a $6.4 million
other-than-temporary impairment loss recognized related to our auction-rate securities
investments.(f)
    
    Includes approximately $21.0 million of compensation expense related to stock options and
restricted stock, $2.2 million of professional fees related to a strategic collaboration with
Hyperion Therapeutics, Inc. and $1.3 million of professional fees related to a strategic
collaboration agreement with Revance.(g)
    
    Includes approximately $8.0 million related to our option to acquire Revance or to license
Revances product currently under development and approximately $0.1 million of compensation
expense related to stock options and restricted stock.(h)
    
    Includes approximately $24.5 million of compensation expense related to stock options and
restricted stock, $10.2 million related to a loss contingency for a legal matter and $1.8
million related to a settlement of a dispute related to our merger with Ascent.(i)
    
    Includes approximately $125.2 million paid to Ipsen related to the RELOXIN®
development and distribution agreement and approximately $1.6 million of compensation expense
related to stock options and restricted stock.(j)
    
    Includes approximately $13.9 million of compensation expense related to stock options and
restricted stock recognized during the Transition Period and approximately $6.0 million of
integration planning costs incurred related to the proposed Inamed transaction during the
three months ended June 30, 2005 and three months ended September 30, 2005.(k)
    
    Includes approximately $8.3 million paid to AAIPharma related to a research and development
collaboration, $11.9 million related to a research and development collaboration with Dow and
approximately $1.0 million of compensation expense related to stock options and restricted
stock.(l)
    
    Represents a termination fee of $90.5 million received from Inamed upon the termination of
the proposed merger with Inamed, net of a termination fee paid to an investment banker and the
expensing of accumulated transactions costs of $27.0 million, and integration costs incurred
during the three months ended December 31, 2005 of $3.7 million.(m)
    
    Diluted net income per common share for the unaudited year ended December 31, 2005 was
calculated by using the average of the periodic diluted common shares outstanding during the
year. For the period from January 1, 2005 to June 30, 2005, diluted common shares outstanding
was calculated using APB Opinion No. 25, while for the period from July 1, 2005 to December
31, 2005, diluted common shares outstanding was calculated using SFAS 123R. The Company
adopted SFAS No. 123R effective July 1, 2005. 47




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##### Table of Contents



December 31,2008
    
    2007
    
    2006
    
    2005(in thousands)Balance Sheet Data:Cash, cash equivalents and short-term
investments
    
    $
    343,885
    (a)
    
    $
    794,680
    
    
    $
    554,261
    (b)
    
    $
    742,532Working capital
    
    
    307,635
    
    
    
    422,971
    
    
    
    323,070
    
    
    
    630,951Long-term investments
    
    
    55,333
    
    
    
    17,072
    
    
    
    130,290
    
    
    
    Total assets
    
    
    973,434
    
    
    
    1,213,411
    
    
    
    1,122,720
    
    
    
    1,196,354Current portion of long-term debt
    
    
    
    
    
    
    283,910
    
    
    
    169,155
    
    
    
    Long-term debt
    
    
    169,326
    
    
    
    169,145
    
    
    
    283,910
    
    
    
    453,065Stockholders equity
    
    
    603,694
    
    
    
    583,301
    
    
    
    475,520
    
    
    
    481,751
 Year EndedDec. 31, 2008
    
    Dec. 31, 2007
    
    Dec. 31, 2006
    
    Dec. 31, 2005(unaudited)(in thousands)Cash Flow Data:Net cash provided by (used in)
operating activities
    
    $
    45,770
    (c)
    
    $
    158,944
    (d)
    
    $
    (40,963
    )(e)
    
    $
    232,506
    (f)Net cash (used in) provided by
investing activities
    
    
    220,091
    (g)
    
    
    (269,486
    )(h)
    
    
    (216,915
    )
    
    
    187,994Net cash provided by (used in) by
financing activities
    
    
    (287,314
    )(i)
    
    
    14,470
    
    
    
    14,278
    
    
    
    (5,137
    )
 
 (a)
    
    Decrease in cash, cash equivalents and short-term investments from December 31, 2007 to
December 31, 2008 primarily due to the repurchase of $283.7 million of our 1.5% Contingent
Convertible Senior Notes, our $150.0 million acquisition of LipoSonix, $40.0 million paid
to IMPAX related to a development agreement, $25.0 million paid to Ipsen upon the FDAs
acceptance of Ipsens BLA for RELOXIN®, and payments totaling $87.8 million for
income taxes during 2008.(b)
    
    Decrease in cash, cash equivalents and short-term investments from December 31, 2005 to
December 31, 2006 primarily due to payments totaling $125.2 million made to Ipsen related
to a development and distribution agreement for the development of RELOXIN®,
payment of the $27.4 million contingent payment related to the merger with Ascent, and
payments totaling $35.7 million for income taxes during 2006. In addition, approximately
$130.3 million of our available-for-sale investments have been treated as long-term assets
as of December 31, 2006, based on their expected maturities.(c)
    
    Net cash provided by operating activities for the year ended December 31, 2008 included
$40.0 million paid to IMPAX related to a development agreement and $25.0 million paid to
Ipsen upon the FDAs acceptance of Ipsens BLA for RELOXIN®.(d)
    
    Net cash provided by operating activities for the year ended December 31, 2007 is net
of $8.0 million of the $20.0 million payment to Revance, representing the residual value of
the option to acquire Revance or to license Revances product currently under development,
included in research and development expense.(e)
    
    Net cash used in operating activities for the year ended December 31, 2006 included
payments totaling $125.2 million made to Ipsen related to a development and distribution
agreement for the development of RELOXIN®.(f)
    
    Net cash provided by operating activities for the year ended December 31, 2005 included
a $90.5 million termination received from Inamed related to the termination of a proposed
merger.(g)
    
    Net cash provided by investing activities for the year ended December 31, 2008 is net
of $150.0 million of cash used for our acquisition of LipoSonix. 48




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##### Table of Contents



(h)
    
    Net cash used in investing activities for the year ended December 31, 2007 includes a
$12.0 million investment in Revance, representing the fair value of the investment in
Revance at the time of the investment.(i)
    
    Net cash used in financing activities for the year ended December 31, 2008 includes the
repurchase of $283.7 million of our 1.5% Contingent Convertible Senior Notes.  Transition
    
    
    Six Months
    
    
    Fiscal Year EndedPeriod Ended
    
    
    Ended
    
    
    June 30,Dec. 31, 2005
    
    
    Dec. 31, 2004
    
    
    2005
    
    
    2004(unaudited)(in thousands, except per share amounts)Statements of Operations Data:Net product revenues
    
    $
    156,963
    
    
    $
    144,116
    
    
    $
    293,888
    
    
    $
    303,056Net contract revenues
    
    
    8,385
    
    
    
    34,168
    
    
    
    71,785
    
    
    
    12,115Net revenues
    
    
    165,348
    
    
    
    178,284
    
    
    
    365,673
    
    
    
    315,171Gross profit (a)
    
    
    139,583
    
    
    
    148,859
    
    
    
    307,548
    
    
    
    263,994Operating expenses:Selling, general and administrative
    
    
    78,535
    (b)
    
    
    63,305
    (e)
    
    
    130,927
    (g)
    
    
    114,231Impairment of intangible assets
    
    
    9,171
    
    
    
    
    
    
    
    
    
    
    
    Research and development
    
    
    22,367
    (c)
    
    
    45,140
    (f)
    
    
    65,676
    (h)
    
    
    16,494
    (i)Depreciation and amortization
    
    
    12,420
    
    
    
    10,222
    
    
    
    22,350
    
    
    
    16,794Total operating expenses
    
    
    122,493
    
    
    
    118,667
    
    
    
    218,953
    
    
    
    147,519Operating income
    
    
    17,090
    
    
    
    30,192
    
    
    
    88,595
    
    
    
    116,475Other:Other income, net
    
    
    59,801
    (d)
    
    
    
    
    
    
    
    
    
    
    Interest and investment income (expense), net
    
    
    4,726
    
    
    
    (248
    )
    
    
    830
    
    
    
    (758
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,660
    )Income tax expense
    
    
    (29,811
    )
    
    
    (10,377
    )
    
    
    (30,996
    )
    
    
    (21,877
    )Net income
    
    $
    51,806
    
    
    $
    19,567
    
    
    $
    58,429
    
    
    $
    35,180Basic net income per share
    
    $
    0.95
    
    
    $
    0.35
    
    
    $
    1.06
    
    
    $
    0.63Diluted net income per share
    
    $
    0.79
    
    
    $
    0.32
    
    
    $
    0.92
    
    
    $
    0.58Cash dividend declared per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.10Basic common shares outstanding
    
    
    54,323
    
    
    
    55,972
    
    
    
    55,196
    
    
    
    55,618Diluted common shares outstanding
    
    
    69,772
    
    
    
    72,160
    
    
    
    70,909
    
    
    
    72,481
 
 (a)
    
    Amounts exclude $10.9 million, $8.9 million, $19.6 million and $14.9 million for amortization
expense related to acquired intangible assets in the Transition Period, the six months ended
December 31, 2004, fiscal 2005 and 2004, respectively.(b)
    
    Includes approximately $13.9 million of compensation expense related to stock options and
restricted stock recognized during the Transition Period and approximately $0.7 million of
integration planning costs incurred related to the proposed Inamed transaction during the
three months ended September 30, 2005.(c)
    
    Includes approximately $11.9 million related to a research and development collaboration with
Dow and approximately $1.0 million of compensation expense related to stock options and
restricted stock. 49




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##### Table of Contents



(d)
    
    Represents a termination fee of $90.5 million received from Inamed upon the termination of
the proposed merger with Inamed, net of a termination fee paid to an investment banker and the
expensing of accumulated transactions costs of $27.0 million, and integration costs incurred
during the three months ended December 31, 2005 of $3.7 million.(e)
    
    Includes approximately $1.3 million of professional fees related to research and development
collaborations with Ansata and Q-Med.(f)
    
    Includes $5.0 million paid to Ansata related to an exclusive development and license
agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the
development of RESTYLANE SUBQTM.(g)
    
    Includes approximately $5.3 million of business integration planning costs related to the
proposed merger with Inamed, and approximately $1.3 million of professional fees related to
research and development collaborations with AAIPharma, Ansata and Q-Med.(h)
    
    Includes approximately $8.3 million paid to AAIPharma related to a research and development
collaboration, $5.0 million paid to Ansata related to an exclusive development and license
agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the
development of RESTYLANE SUBQTM.(i)
    
    Includes approximately $2.4 million paid to Dow for a research and development collaboration.  June 30,2005
    
    2004(in thousands)Balance Sheet Data:Cash, cash equivalents, restricted cash
and short-term investments
    
    $
    603,568
    
    
    $
    634,040Working capital
    
    
    530,850
    
    
    
    604,564Total assets
    
    
    1,095,087
    
    
    
    1,116,396Long-term debt
    
    
    453,065
    
    
    
    453,067Stockholders equity
    
    
    416,891
    
    
    
    492,892
 Six MonthsTransition
    
    
    Ended
    
    
    Fiscal Year Ended June 30,Period
    
    
    Dec. 31, 2004
    
    
    2005
    
    
    2004(unaudited)(in thousands)Cash Flow Data:Net cash provided by operating activities
    
    $
    147,990
    (a)
    
    $
    45,465
    
    
    $
    129,981
    
    
    $
    127,964Net cash provided by (used in) investing
activities
    
    
    123,665
    
    
    
    76,158
    
    
    
    140,487
    
    
    
    (166,341
    )Net cash (used in) provided by financing
activities
    
    
    (2,792
    )
    
    
    (137,447
    )
    
    
    (139,793
    )
    
    
    40,621
 
 (a)
    
    Net cash provided by operating activities for the Transition Period included a $90.5 million
termination fee received from Inamed related to the termination of a proposed merger. 50




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##### Table of Contents



Restatement
  Revenue Recognition When Right of Return Exists
  51




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##### Table of Contents



Executive Summary
  ® ® ® ® ® ® ® ® ® ® ®
 Financial Information About Segments
  Key Aspects of Our Business
 ® ® ® ® ® ®
   52




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53




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##### Table of Contents




    
    Reduction in the carrying value of our investment in Revance;
    
    Acceptance of RELOXIN® BLA by the FDA;
    
    Repurchase of our 1.5% Contingent Convertible Senior Notes Due 2033;
    
    Acquisition of LipoSonix;
    
    Lease exit costs related to our previous headquarters facility;
    
    Strategic collaboration with IMPAX; and
    
    Other-than-temporary impairment of auction rate securities investments.
 Reduction in the carrying value of our investment in Revance
    Acceptance of RELOXIN ® BLA by the FDA
 ® ®
 ®
 54




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##### Table of Contents



Repurchase of our 1.5% Contingent Convertible Senior Notes Due 2033
  Acquisition of LipoSonix
  Lease exit costs related to our previous headquarters facility
 Accounting for Costs Associated with Exit or Disposal
Activities,
 Strategic collaboration with IMPAX
 ®
 55




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##### Table of Contents



® ® ® ® ® ®
 Other-than-temporary impairment of auction rate securities investments
  Global economic conditions
  56




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Year
    
    Year
    
    YearEnded
    
    Ended
    
    EndedDec. 31,
    
    Dec. 31,
    
    Dec. 31,2008(a)
    
    2007(b)
    
    2006(c)Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit (d)
    
    
    92.5
    
    
    
    87.7
    
    
    
    88.3Operating expenses
    
    
    84.6
    
    
    
    67.9
    
    
    
    111.9Operating income (loss)
    
    
    7.9
    
    
    
    19.8
    
    
    
    (23.6
    )Other expense
    
    
    (3.0
    )
    
    
    
    
    
    
    Interest and investment income (expense), net
    
    
    3.3
    
    
    
    6.2
    
    
    
    5.1Income (loss) before income tax (expense)
benefit
    
    
    8.2
    
    
    
    26.0
    
    
    
    (18.5
    )Income tax (expense) benefit
    
    
    (6.2
    )
    
    
    (10.6
    )
    
    
    6.3Net income (loss)
    
    
    2.0
    %
    
    
    15.4
    %
    
    
    (12.2
    )%
 
 (a)
    
    Included in operating expenses is $40.0 million (7.8% of net revenues) paid to IMPAX related
to a development agreement, $30.5 million (5.9% of net revenues) of acquired in-process
research and development expense related to our acquisition of LipoSonix, $25.0 million (4.9%
of net revenues) paid to Ipsen upon the FDAs acceptance of Ipsens BLA for
RELOXIN®, $16.6 million (3.2% of net revenues) of compensation expense related to
stock options and restricted stock and $4.8 million (0.9% of net revenues) of lease exit costs
related to our previous headquarters facility.(b)
    
    Included in operating expense is $21.1 million (4.6% of net revenues) of share-based
compensation expense, $9.3 million (2.0% of net revenues) related to our option to acquire
Revance or to license Revances product currently under development (including $1.3 million of
professional fees incurred related to the agreement), $4.1 million (0.9% of net revenues) for
the write-down of an intangible asset related to OMNICEF® and $2.2 million (0.5% of
net revenues) of professional fees related to a strategic collaboration with Hyperion.(c)
    
    Included in operating expenses is $125.2 million (31.8% of net revenues) related to our
development and distribution agreement with Ipsen for the development of RELOXIN®,
$52.6 million (13.4% of net revenues) for the write-down of intangible assets, $26.1 million
(6.6% of net revenues) of share-based compensation expense, $10.2 million (2.6% of net
revenues) related to a loss contingency for a legal matter and $1.8 million (0.5% of net
revenues) related to a settlement of a dispute related to our merger with Ascent.(d)
    
    Gross profit does not include amortization of the related intangibles as such expense is
included in operating expenses. 57




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Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
 Net Revenues
  2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeNet product revenues
    
    $
    501.0
    
    
    $
    441.9
    
    
    $
    59.1
    
    
    
    13.4
    %Net contract revenues
    
    
    16.8
    
    
    
    15.5
    
    
    
    1.3
    
    
    
    8.0
    %Total net revenues
    
    $
    517.8
    
    
    $
    457.4
    
    
    $
    60.4
    
    
    
    13.2
    %
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeAcne and acne-related
dermatological products
    
    $
    325.0
    
    
    $
    243.4
    
    
    $
    81.6
    
    
    
    33.5
    %Non-acne dermatological
products
    
    
    148.0
    
    
    
    172.9
    
    
    
    (24.9
    )
    
    
    (14.4
    )%Non-dermatological products
(including contract revenues)
    
    
    44.8
    
    
    
    41.1
    
    
    
    3.7
    
    
    
    9.0
    %Total net revenues
    
    $
    517.8
    
    
    $
    457.4
    
    
    $
    60.4
    
    
    
    13.2
    %
 PercentagePoint2008
    
    2007
    
    ChangeAcne and acne-related
dermatological products
    
    
    62.8
    %
    
    
    53.2
    %
    
    
    9.6Non-acne dermatological
products
    
    
    28.6
    %
    
    
    37.8
    %
    
    
    (9.2
    )Non-dermatological products
(including contract revenues)
    
    
    8.6
    %
    
    
    9.0
    %
    
    
    (0.4
    )Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
 ® ® ® ®
 58




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##### Table of Contents



Gross Profit
   2008
    
    2007
    
    $ Change
    
    % ChangeGross profit
    
    $
    479.0
    
    
    $
    401.3
    
    
    $
    77.7
    
    
    
    19.4
    %% of net revenues
    
    
    92.5
    %
    
    
    87.7
    %
 ®
 Selling, General and Administrative Expenses
  2008
    
    2007
    
    $ Change
    
    % ChangeSelling, general and administrative
    
    $
    279.8
    
    
    $
    242.6
    
    
    $
    37.2
    
    
    
    15.3
    %% of net revenues
    
    
    54.0
    %
    
    
    53.0
    %Share-based compensation expense
included in selling, general and
administrative
    
    $
    16.3
    
    
    $
    21.0
    
    
    $
    (4.7
    )
    
    
    (22.7
    )%
 ®
 Impairment of Intangible Assets
 ®
 59




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##### Table of Contents



® ®
 Research and Development Expenses
  2008
    
    2007
    
    $ Change
    
    % ChangeResearch and development
    
    $
    99.9
    
    
    $
    39.4
    
    
    $
    60.5
    
    
    
    153.4
    %Charges included in research
and development
    
    $
    65.0
    
    
    $
    8.0
    
    
    $
    57.0
    
    
    
    708.1
    %Share-based compensation
expense included in
research and development
    
    $
    0.3
    
    
    $
    0.1
    
    
    $
    0.2
    
    
    
    196.6
    %
 ® ®
 In-Process Research and Development Expense
  Depreciation and Amortization Expenses
 ®
 Other Expense
  60




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##### Table of Contents



Interest and Investment Income
  Interest Expense
  Income Tax Expense
  2008
    
    2007
    
    $ Change
    
    % ChangeIncome tax expense
    
    $
    32.1
    
    
    $
    48.5
    
    
    $
    (16.4
    )
    
    
    (33.8
    )%Effective tax rate
    
    
    75.8
    %
    
    
    40.8
    %
  61




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##### Table of Contents



Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
 Net Revenues
  2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNet product revenues
    
    $
    441.9
    
    
    $
    377.6
    
    
    $
    64.3
    
    
    
    17.0
    %Net contract revenues
    
    
    15.5
    
    
    
    15.6
    
    
    
    (0.1
    )
    
    
    (0.6
    )%Total net revenues
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    64.2
    
    
    
    16.3
    %
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeAcne and acne-related
dermatological products
    
    $
    243.4
    
    
    $
    159.8
    
    
    $
    83.6
    
    
    
    52.3
    %Non-acne dermatological
products
    
    
    172.9
    
    
    
    199.6
    
    
    
    (26.7
    )
    
    
    (13.4
    )%Non-dermatological products
(including contract revenues)
    
    
    41.1
    
    
    
    33.8
    
    
    
    7.3
    
    
    
    21.6
    %Total net revenues
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    64.2
    
    
    
    16.3
    %
 PercentagePoint2007
    
    2006
    
    ChangeAcne and acne-related
dermatological products
    
    
    53.2
    %
    
    
    40.6
    %
    
    
    12.6Non-acne dermatological
products
    
    
    37.8
    %
    
    
    50.8
    %
    
    
    (13.0
    )Non-dermatological products
(including contract revenues)
    
    
    9.0
    %
    
    
    8.6
    %
    
    
    0.4Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
 ® ® ® ® ® ® ® ® ® ®
 Gross Profit
  62




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##### Table of Contents



2007
    
    2006
    
    $ Change
    
    % ChangeGross profit
    
    $
    401.3
    
    
    $
    347.1
    
    
    $
    54.2
    
    
    
    15.6
    %% of net revenues
    
    
    87.7
    %
    
    
    88.3
    %
 ®
 Selling, General and Administrative Expenses
  2007
    
    2006
    
    $ Change
    
    % ChangeSelling, general and administrative
    
    $
    242.6
    
    
    $
    202.5
    
    
    $
    40.1
    
    
    
    19.8
    %% of net revenues
    
    
    53.0
    %
    
    
    51.5
    %Share-based compensation expense
included in selling, general and
administrative
    
    $
    21.0
    
    
    $
    24.5
    
    
    $
    (3.5
    )
    
    
    (14.0
    )%
 ® ® ® ® ® ®
 Impairment of Intangible Assets
 ®
 63




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##### Table of Contents



®
  Intangible asset related to LOPROX® products
    
    $
    49,163Intangible asset related to ESOTERICA® products
    
    
    3,267Other intangible asset
    
    
    156$
    52,586
 ® ® ® ® ®
 Research and Development Expenses
  2007
    
    2006
    
    $ Change
    
    % ChangeResearch and development
    
    $
    39.4
    
    
    $
    161.8
    
    
    $
    (122.4
    )
    
    
    (75.6
    )%Charges included in research
and development
    
    $
    8.0
    
    
    $
    125.2
    
    
    $
    (117.2
    )
    
    
    (93.6
    )%Share-based compensation
expense included in
research and development
    
    $
    0.1
    
    
    $
    1.6
    
    
    $
    (1.5
    )
    
    
    (93.1
    )%
 ® ® ®
 64




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##### Table of Contents



Depreciation and Amortization Expenses
 ®
 Interest and Investment Income
  Interest Expense
  Income Tax Expense
  2007
    
    2006
    
    $ Change
    
    % ChangeIncome tax (benefit) expense
    
    $
    48.5
    
    
    $
    (24.6
    )
    
    $
    73.1
    
    
    
    297.2
    %Effective tax rate
    
    
    40.8
    %
    
    
    (33.8
    )%
  65




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##### Table of Contents



Overview
  2008
    
    2007
    
    $ Change
    
    % ChangeCash provided by (used in):Operating activities
    
    $
    45.8
    
    
    $
    158.9
    
    
    $
    (113.1
    )
    
    
    (71.2
    )%Investing activities
    
    
    220.1
    
    
    
    (269.5
    )
    
    
    489.6
    
    
    
    181.7
    %Financing activities
    
    
    (287.3
    )
    
    
    14.5
    
    
    
    (301.8
    )
    
    
    (2,085.6
    )%
 Dec. 31, 2008
    
    Dec. 31, 2007
    
    $ Change
    
    % ChangeCash, cash equivalents and
short-term investments
    
    $
    343.9
    
    
    $
    794.7
    
    
    $
    (450.8
    )
    
    
    (56.7
    )%Working capital
    
    
    307.6
    
    
    
    423.0
    
    
    
    (115.4
    )
    
    
    (27.3
    )%Long-term investments
    
    
    55.3
    
    
    
    17.1
    
    
    
    38.2
    
    
    
    224.1
    %2.5% contingent convertible senior
notes due 2032
    
    
    169.2
    
    
    
    169.2
    
    
    
    
    
    
    
    1.5% contingent convertible senior
notes due 2033
    
    
    0.2
    
    
    
    283.9
    
    
    
    (283.7
    )
    
    
    (99.9
    )%
 Working Capital
  Dec. 31, 2008
    
    
    Dec. 31, 2007
    
    
    $Change
    
    
    % ChangeCash, cash equivalents and
short-term investments
    
    $
    343.9
    
    
    $
    794.7
    
    
    $
    (450.8
    )
    
    
    (56.7
    )%Accounts receivable, net
    
    
    52.6
    
    
    
    22.2
    
    
    
    30.4
    
    
    
    136.9
    %Inventories, net
    
    
    24.2
    
    
    
    30.0
    
    
    
    (5.8
    )
    
    
    (19.3
    )%Deferred tax assets, net
    
    
    53.2
    
    
    
    9.2
    
    
    
    44.0
    
    
    
    478.3
    %Other current assets
    
    
    19.6
    
    
    
    18.0
    
    
    
    1.6
    
    
    
    8.9
    %Total current assets
    
    
    493.5
    
    
    
    874.1
    
    
    
    (380.6
    )
    
    
    (43.5
    )%Accounts payable
    
    
    39.0
    
    
    
    34.9
    
    
    
    4.1
    
    
    
    11.7
    %Current portion of long-term debt
    
    
    
    
    
    
    283.9
    
    
    
    (283.9
    )
    
    
    (100.0
    )%Reserve for sales returns
    
    
    59.6
    
    
    
    68.8
    
    
    
    (9.2
    )
    
    
    (13.4
    )%Income taxes payable
    
    
    
    
    
    
    7.7
    
    
    
    (7.7
    )
    
    
    (100.0
    )%Other current liabilities
    
    
    87.3
    
    
    
    55.8
    
    
    
    31.5
    
    
    
    56.5
    %Total current liabilities
    
    
    185.9
    
    
    
    451.1
    
    
    
    (265.2
    )
    
    
    (58.8
    )%Working capital
    
    $
    307.6
    
    
    $
    423.0
    
    
    $
    (115.4
    )
    
    
    (27.3
    )%
   66




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##### Table of Contents



®
   Contingent Convertible Senior Notes and Other Long-Term
Commitments
  67




---



##### Table of Contents



Operating Activities
  2008
    
    
    2007Payment made to IMPAX related to development agreement
    
    $
    (40.0
    )
    
    $
    Payments made to Ipsen related to development of RELOXIN®
    
    
    (25.0
    )
    
    
    (29.1
    )Payment made to Revance related to our option to acquire
Revance or to license Revances product currently
under development
    
    
    
    
    
    
    (8.0
    )Income taxes paid
    
    
    (87.8
    )
    
    
    (35.4
    )Payment received from Hyperion related to strategic collaboration
    
    
    
    
    
    
    10.0Other cash provided by operating activities
    
    
    198.6
    
    
    
    221.4Cash provided by operating activities
    
    $
    45.8
    
    
    $
    158.9
 Investing Activities
 ®
 Financing Activities
  Contingent Convertible Senior Notes and Other Long-Term Commitments
   68




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##### Table of Contents



Liability as of
    
    Amounts Charged
    
    Cash Payments
    
    Cash Received
    
    Liability as ofDec. 31, 2007
    
    to Expense
    
    Made
    
    from Sublease
    
    Dec. 31, 2008Lease exit costs
liability
    
    $
    
    
    
    $
    4,812,928
    
    
    $
    (816,826
    )
    
    $
    
    
    
    $
    3,996,102
 69




---



##### Table of Contents



Repurchases of Common Stock
  Dividends
  Fair Value Measurements
   The Fair Value Option for Financial Assets and Financial Liabilities
 70




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due By PeriodMore Than
    
    
    More Than1 Year and
    
    
    3 Years andLess Than
    
    
    Less Than
    
    
    Less Than
    
    
    More ThanTotal
    
    
    1 Year
    
    
    3 Years
    
    
    5 Years
    
    
    5 YearsLong-term debt
    
    $
    169,326
    
    
    $
    
    
    
    $
    
    
    
    $
    169,326
    
    
    $
    Interest on long-term debt
    
    
    99,439
    
    
    
    4,231
    
    
    
    8,463
    
    
    
    8,463
    
    
    
    78,282Operating leases
    
    
    53,417
    
    
    
    4,906
    
    
    
    10,337
    
    
    
    8,582
    
    
    
    29,592Other purchase obligations
and commitments
    
    
    867
    
    
    
    173
    
    
    
    347
    
    
    
    347
    
    
    
    Total contractual obligations
    
    $
    323,049
    
    
    $
    9,310
    
    
    $
    19,147
    
    
    $
    186,718
    
    
    $
    107,874
      71




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition
 Revenue Recognition in Financial Statements
   Items Deducted From Gross Revenue
 72




---



##### Table of Contents



Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
   73




---



##### Table of Contents



Managed
    
    ConsumerCare &
    
    RebateReserve
    
    
    
    
    
    Sales
    
    
    
    
    
    Medicaid
    
    andfor Sales
    
    Deferred
    
    Discounts
    
    Chargebacks
    
    Rebates
    
    LoyaltyReturns
    
    Revenue
    
    Reserve
    
    Reserve
    
    Reserve
    
    Programs
    
    TotalBalance at December
31, 2006
    
    $
    87,412
    
    
    $
    
    
    
    $
    1,701
    
    
    $
    447
    
    
    $
    6,111
    
    
    $
    5,398
    
    
    $
    101,069Actual
    
    
    (57,216
    )
    
    
    
    
    
    
    (11,270
    )
    
    
    (1,432
    )
    
    
    (9,814
    )
    
    
    (15,942
    )
    
    
    (95,674
    )Provision
    
    
    38,591
    
    
    
    1,907
    
    
    
    10,080
    
    
    
    1,305
    
    
    
    8,584
    
    
    
    25,289
    
    
    
    85,756Balance at December
31, 2007
    
    $
    68,787
    
    
    $
    1,907
    
    
    $
    511
    
    
    $
    320
    
    
    $
    4,881
    
    
    $
    14,745
    
    
    $
    91,151Actual
    
    
    (50,042
    )
    
    
    (2,387
    )
    
    
    (12,268
    )
    
    
    (2,001
    )
    
    
    (17,230
    )
    
    
    (49,462
    )
    
    
    (133,390
    )Provision
    
    
    40,866
    
    
    
    1,194
    
    
    
    13,005
    
    
    
    2,152
    
    
    
    29,305
    
    
    
    63,165
    
    
    
    149,687Balance at December
31, 2008
    
    $
    59,611
    
    
    $
    714
    
    
    $
    1,248
    
    
    $
    471
    
    
    $
    16,956
    
    
    $
    28,448
    
    
    $
    107,448
 Reserve for Sales Returns
    74




---



##### Table of Contents



Sales Discounts
   Contract Chargebacks
  75




---



##### Table of Contents



Managed Care and Medicaid Rebates
  ® ®
 Consumer Rebates and Loyalty Programs
 ,
 ® ® ®
  Use of Information from External Sources
  76




---



##### Table of Contents



Use of Estimates in Reserves
  Share-Based Compensation
     77




---



##### Table of Contents



Inventory
  Long-lived Assets
    Income Taxes
 Accounting for Uncertainty in Income
Taxes
 78




---



##### Table of Contents



Research and Development Costs and Accounting for Strategic Collaborations
   Legal Contingencies
  79




---



##### Table of Contents



Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Accounting for Collaborative
Agreements Reporting Revenue Gross as a Principal versus Net as an Agent
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 80




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##### Table of Contents



Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock.
 , Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active. Fair Value Measurements
 
     81




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##### Table of Contents



Interest Rate Sensitivity
Principal Amount by Expected Maturity as of December 31, 2008
 Financial instruments mature during year ended December 31,2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterAvailable-for-sale and
trading securities
    
    $
    224,189
    
    
    $
    50,354
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    38,225Weighted-average yield rate
    
    
    3.6
    %
    
    
    3.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    %Contingent convertible
senior notes due 2032
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    169,145Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    %Contingent convertible
senior notes due 2033
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    181Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    %
   
   
   
   82




---



##### Table of Contents



Managements Report on Internal Control over Financial Reporting
     83




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Stockholders of Medicis Pharmaceutical Corporation
       /s/ Ernst & Young LLP 
 84




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  
    
    conducted a full review of our accounting methodology for sales return reserves;
    
    assessed the technical accounting capabilities of the accounting and finance
departments to ensure the proper knowledge, skills, and training; and
    
    finance and accounting personnel attended training sessions, covering relevant
topics, which included revenue recognition and related accounting concepts.
  
   
 PART III
 
      
   85




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##### Table of Contents



86




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##### Table of Contents



PART IV
 
  Page(a) Documents filed as a part of this Report(1) Financial Statements:Index to consolidated financial statements
    
    
    F-1Report of Independent Registered Public
Accounting Firm
    
    
    F-2Consolidated balance sheets as of December 31, 2008
and 2007
    
    
    F-3Consolidated statements of operations for the years ended December
31, 2008, 2007 and 2006
    
    
    F-5Consolidated statements of stockholders equity for the years ended
December 31, 2008, 2007 and 2006
    
    
    F-6Consolidated statements of cash flows for the years ended
December 31, 2008, 2007 and 2006
    
    
    F-8Notes to consolidated financial statements
    
    
    F-9(2) Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    S-1This financial statement schedule should be read in conjunction with
the consolidated financial statements. Financial statement schedules
not included in this Annual Report on Form 10-K have been omitted
because they are not applicable or the required information is shown
in the financial statements or notes thereto.(3) Exhibits filed as part of this Report:
 Exhibit No.
    
    
    
    Description2.1
    
    
    
    Agreement of Merger by and between the Company, Medicis Acquisition Corporation and GenDerm
Corporation, dated November 28, 1997 (11)2.2
    
    
    
    Agreement of Plan of Merger, dated as of October 1, 2001, by and among the Company, MPC
Merger Corp. and Ascent Pediatrics, Inc. (17)2.3
    
    
    
    Agreement and Plan of Merger by and among the Company, Donatello, Inc., and LipoSonix, Inc.
dated June 16, 2008(49)3.1
    
    
    
    Certificate of Incorporation of the Company, as amended (23)3.2
    
    
    
    Amended and Restated By-Laws of the Company (43)4.1
    
    
    
    Amended and Restated Rights Agreement, dated as of August 17, 2005, between the Company and
Wells Fargo Bank, N.A., as Rights Agent(26)4.2
    
    
    
    Indenture, dated as of August 19, 2003, by and between the Company, as issuer, and Deutsche
Bank Trust Company Americas, as trustee (23)4.3
    
    
    
    Indenture, dated as of June 4, 2002, by and between the Company, as issuer, and Deutsche Bank
Trust Company Americas, as trustee.(19)4.4
    
    
    
    Supplemental Indenture dated as of February 1, 2005 to Indenture dated as of August 19, 2003
between the Company and Deutsche Bank Trust Company Americas as Trustee (25)4.5
    
    
    
    Registration Rights Agreement, dated as of June 4, 2002, by and between the Company and
Deutsche Bank Securities Inc. (19)4.6
    
    
    
    Form of specimen certificate representing Class A common stock (1)10.1
    
    
    
    Asset Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin Pharmaceutical
Inc., and BioMarin Pediatrics Inc., dated April 20, 2004 (23)10.2
    
    
    
    Merger Termination Agreement, dated as of December 13, 2005, by and among the Company,
Masterpiece Acquisition Corp., and Inamed Corporation(31)10.3
    
    
    
    Securities Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin
Pharmaceutical Inc. and BioMarin Pediatrics Inc., dated May 18, 2004 (23)10.4
    
    
    
    Termination Agreement dated October 19, 2005 between the Company and Michael A.
Pietrangelo(28)10.5
    
    
    
    License Agreement among the Company, Ascent Pediatrics, Inc. and BioMarin Pediatrics Inc.,
dated May 18, 2004 (23)
 87




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##### Table of Contents



Exhibit No.
    
    
    
    Description10.6
    
    
    
    Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by
reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders previously filed with the SEC, File No. 0-18443)10.7(a)
    
    
    
    Employment Agreement between the Company and Jonah Shacknai, dated
July 24, 1996 (8)10.7(b)
    
    
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated April 1, 1999 (15)10.7(c)
    
    
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated February 21, 2001 (15)10.7(d)
    
    
    
    Third Amendment, dated December 30, 2005, to Employment Agreement between the Company and
Jonah Shacknai(32)10.8
    
    
    
    Medicis Pharmaceutical Corporation 2001 Senior Executive Restricted Stock Plan(30)10.9(a)
    
    
    
    Medicis Pharmaceutical Corporation 2002 Stock Option Plan (20)10.9(b)
    
    
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 2002 Stock Option Plan, dated
August 1, 2005(29)10.10(a)
    
    
    
    Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(27)10.10(b)
    
    
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 2004 Stock Option Plan, dated
August 1, 2005(29)10.11(a)
    
    
    
    Medicis Pharmaceutical Corporation 1998 Stock Option Plan(33)10.11(b)
    
    
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated
August 1, 2005(29)10.11(c)
    
    
    
    Amendment No. 2 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated
September 30, 2005(29)10.12(a)
    
    
    
    Medicis Pharmaceutical Corporation 1996 Stock Option Plan(34)10.12(b)
    
    
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 1996 Stock Option Plan, dated
August 1, 2005(29)10.13
    
    
    
    Waiver Letter dated March 18, 2005 between the Company and Q-Med AB(27)10.14
    
    
    
    Supply Agreement, dated October 21, 1992, between Schein Pharmaceutical and the Company
(2)10.15
    
    
    
    Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between
Schein Pharmaceutical and the Company (3)10.16(a)
    
    
    
    Credit and Security Agreement, dated August 3, 1995, between the Company and
Norwest Business Credit, Inc. (5)10.16(b)
    
    
    
    First Amendment to Credit and Security Agreement, dated May 29, 1996,
between the Company and Norwest Bank Arizona, N.A. (8)10.16(c)
    
    
    
    Second Amendment to Credit and Security Agreement, dated November 22, 1996,
by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest
to Norwest Business Credit, Inc. (10)10.16(d)
    
    
    
    Third Amendment to Credit and Security Agreement, dated November 22, 1998, by
and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest
to Norwest Business Credit, Inc. (12)10.16(e)
    
    
    
    Fourth Amendment to Credit and Security Agreement, dated November 22, 2000,
by and between the Company and Wells Fargo Bank Arizona, N.A., formerly
known as Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business
Credit, Inc.(16)10.16(f)
    
    
    
    Fifth Amendment to Credit and Security Agreement, dated November 22, 2002, by and between the
Company and Wells Fargo Bank Arizona, N.A., formerly known as Norwest Bank Arizona, N.A., as
successor-in-interest to Norwest Business Credit, Inc. (23)10.17(a)
    
    
    
    Patent Collateral Assignment and Security Agreement, dated August 3, 1995, by
the Company to Norwest Business Credit, Inc. (6)10.17(b)
    
    
    
    First Amendment to Patent Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)10.17(c)
    
    
    
    Amended and Restated Patent Collateral Assignment and Security Agreement, dated
November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (12)10.18(a)
    
    
    
    Trademark Collateral Assignment and Security Agreement, dated August 3, 1995,
by the Company to Norwest Business Credit, Inc. (7)10.18(b)
    
    
    
    First Amendment to Trademark Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)
 88




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##### Table of Contents



Exhibit No.
    
    
    
    Description10.18(c)
    
    
    
    Amended and Restated Trademark, Tradename, and Service Mark Collateral
Assignment and Security Agreement, dated November 22, 1998, by the Company
to Norwest Bank Arizona, N.A. (12)10.19
    
    
    
    Assignment and Assumption of Loan Documents, dated May 29, 1996, from
Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (8)10.20
    
    
    
    Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank
Arizona, N.A. (8)10.21
    
    
    
    Asset Purchase Agreement dated November 15, 1998, by and among the Company and
Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and
Hoechst Marion Roussel, S.A. (12)10.22
    
    
    
    License and Option Agreement dated November 15, 1998, by and among the Company
and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and
Hoechst Marion Roussel, S.A. (12)10.23
    
    
    
    Loprox Lotion Supply Agreement dated November 15, 1998, by and between the
Company and Hoechst Marion Roussel, Inc. (12)10.24
    
    
    
    Supply Agreement dated November 15, 1998, by and between the Company and
Hoechst Marion Roussel Deutschland GMBH (12)10.25
    
    
    
    Asset Purchase Agreement effective January 31, 1999, between the Company and
Bioglan Pharma Plc (14)10.26
    
    
    
    Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and
Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated
April 19, 1999 (14)10.27
    
    
    
    Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc,
dated June 29, 1999 (14)10.28
    
    
    
    Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan
Pharma Plc, the Company and IMX Pharmaceuticals, Inc., dated June 29, 1999 (16)10.29
    
    
    
    Medicis Pharmaceutical Corporation Executive Retention Plan (14)10.30
    
    
    
    Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated
September 14, 1999(14)10.31(a)
    
    
    
    Share Purchase Agreement between Q-Med International B.V. and Startskottet 21914
AB (under proposed change of name to Medicis Sweden Holdings AB), dated
February 10, 2003(21)10.31(b)
    
    
    
    Amendment No. 1 to Share Purchase Agreement between Q-Med International
B.V. and Startskottet 21914 AB (under proposed change of name to Medicis Sweden
Holdings AB), dated March 7, 2003(21)10.32
    
    
    
    Supply Agreement between Q-Med AB and the Company,
dated March 7, 2003(21)10.33
    
    
    
    Amended and Restated Intellectual Property Agreement between Q-Med AB and HA
North American Sales AB, dated March 7, 2003(21)10.34
    
    
    
    Supply Agreement between Medicis Aesthetics Holdings Inc., a wholly owned subsidiary of the
Company, and Q-Med AB, dated July 15, 2004 (23) Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.10.35
    
    
    
    Intellectual Property License Agreement between Q-Med AB and Medicis Aesthetics Holdings
Inc., dated July 15, 2004 (23) Portions of this exhibit (indicated by asterisks)
have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.10.36
    
    
    
    Note Agreement, dated as of October 1, 2001, by and among Ascent Pediatrics, Inc., the
Company, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent Investments LLC,
FS Parallel Fund L.P., BancBoston Ventures Inc. and Flynn Partners (17)10.37
    
    
    
    Voting Agreement, dated as of October 1, 2001, by and among the Company, MPC Merger Corp., FS
Private Investments LLC, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent
Investments LLC and FS Parallel Fund L.P. (17)10.38
    
    
    
    Exclusive Remedy Agreement, dated as of October 1, 2001, by and among the Company, Ascent
Pediatrics, Inc., FS Private Investments LLC, Furman Selz Investors II L.P., FS Employee
Investors LLC, FS Ascent Investments LLC and FS Parallel Fund L.P., BancBoston Ventures Inc.,
Flynn Partners, Raymond F. Baddour, Sc.D., Robert E. Baldini, Medical Science Partners L.P.
and Emmett Clemente, Ph.D. (17)
 89




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##### Table of Contents



Exhibit No.
    
    
    
    Description10.39
    
    
    
    Medicis Pharmaceutical Corporation 1992 Stock Option Plan(35)10.40
    
    
    
    Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2004 Stock Incentive
Plan(36)10.41
    
    
    
    Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2004 Stock
Incentive Plan(36)10.42
    
    
    
    Letter Agreement dated as of March 13, 2006 among Medicis Pharmaceutical Corporation,
Aesthetica Ltd., Medicis Aesthetics Holdings Inc., Ipsen S.A. and Ipsen Ltd.(37)10.43
    
    *
    
    Development and Distribution Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.44
    
    *
    
    Trademark License Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.45
    
    *
    
    Trademark Assignment Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.46(a)
    
    
    
    Medicis 2006 Incentive Award Plan(39)10.46(b)
    
    
    
    Amendment to the Medicis 2006 Incentive Award Plan, dated July 10, 2006(41)10.46(c)
    
    
    
    Amendment No. 2 to the Medicis 2006 Incentive Award Plan, dated April 11, 2007(46)10.46(d)
    
    
    
    Amendment No. 3 to the Medicis 2006 Incentive Award Plan, dated April 16, 2007(45)10.46(e)
    
    
    
    Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2006 Incentive Award
Plan(48)10.46(f)
    
    
    
    Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2006 Incentive
Award Plan(48)10.47
    
    
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Mark A. Prygocki, Sr.(40)10.48
    
    
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Mitchell S. Wortzman, Ph.D.(40)10.49
    
    
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Richard J. Havens(40)10.50
    
    
    
    Employment Agreement, dated July 27, 2006, between Medicis Pharmaceutical Corporation and
Jason D. Hanson(40)10.51
    
    *
    
    Office Sublease by and between Apex 7720 North Dobson, L.L.C., an Arizona limited liability
company, and Medicis Pharmaceutical Corporation, dated as of July 26, 2006(42)10.52
    
    
    
    Corporate Integrity Agreement between the Office of Inspector General of the department of
Health and Human Services and Medicis Pharmaceutical Corporation(44)10.53
    
    *
    
    Collaboration Agreement, dated as of August 23, 2007, by and between Ucyclyd Pharma, Inc. and
Hyperion Therapuetics, Inc.(47)10.54
    
    
    
    Employment Agreement, dated December 23, 2008, by and between the Company and Joseph P.
Cooper (50)10.55
    
    
    
    Amended and Restated Employment Agreement, dated December 23, 2008, by and between the
Company and Jason D. Hanson(50)10.56
    
    
    
    Employment Agreement, dated December 23, 2008, by and between the Company and Vincent P.
Ippolito (50)10.57
    
    
    
    Employment Agreement, dated December 23, 2008, by and between the Company and Richard D.
Peterson (50)10.58
    
    
    
    Amended and Restated Employment Agreement, dated December 23, 2008, by and between the
Company and Mark A. Prygocki (50)10.59
    
    
    
    Amended and Restated Employment Agreement, dated December 23, 2008, by and between the
Company and Mitchell S. Wortzman, Ph.D. (50)10.60
    
    
    
    Fourth Amendment to Employment Agreement, dated December 23, 2008, by and between the Company
and Jonah Shacknai (50)10.61
    
    +*
    
    Joint Development Agreement, dated as of November 26, 2008, between the Company and Impax
Laboratories, Inc.10.62
    
    +*
    
    License and Settlement Agreement, dated as of November 26, 2008, between the Company and
Impax Laboratories, Inc.12
    
    +
    
    Computation of Ratios of Earnings to Fixed Charges21.1
    
    +
    
    Subsidiaries23.1
    
    +
    
    Consent of Independent Registered Public Accounting Firm24.1
    
    
    
    Power of Attorney See signature page31.1
    
    +
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended31.2
    
    +
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended
 90




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##### Table of Contents



Exhibit No.
    
    
    
    Description32.1
    
    +
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    +
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 +
    
    Filed herewith*
    
    Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request
for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.(1)
    
    Incorporated by reference to the Registration Statement on Form S-1 of the Registrant,
File No. 33-32918, filed with the SEC on January 16, 1990(2)
    
    Incorporated by reference to the Registration Statement on Form S-1 of the Company, File
No. 33-54276, filed with the SEC on June 11, 1993(3)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, File No. 0-18443, filed with the SEC on October 13, 1993(4)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, File No. 0-18443, previously filed with the SEC (the 1994 Form 10-K)(5)
    
    Incorporated by reference to the Companys 1995 Form 10-K(6)
    
    Incorporated by reference to the Companys 1995 Form 10-K(7)
    
    Incorporated by reference to the Companys 1995 Form 10-K(8)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1996, File No. 0-18443, previously filed with the SEC(9)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, File No. 0-18443, previously filed with the SEC(10)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, File No. 0-18443, previously filed with the SEC(11)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on December 15, 1997(12)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998, File No. 0-18443, previously filed with the SEC(13)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on July 13, 2006(14)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1999, File No. 0-18443, previously filed with the SEC(15)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001, File No. 0-18443, previously filed with the SEC(16)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, File No. 0-18443, previously filed with the SEC(17)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on October 2, 2001(18)
    
    Incorporated by reference to the Companys registration statement on Form 8-A12B/A filed
with the SEC on June 4, 2002(19)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on June 6, 2002(20)
    
    Incorporated by reference to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2002, File No. 0-18443, previously filed with the
SEC(21)
    
    Incorporated by reference to the Companys Current Report on Form
8-K filed with the SEC on March 10, 2003(22)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended December 31, 2003, File No. 0-18443, previously filed with
the SEC(23)
    
    Incorporated by reference to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2004, File No. 0-18443, previously filed with the
SEC(24)
    
    Incorporated by reference to the Companys Current Report on Form
8-K filed with the SEC on March 21, 2005(25)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File No. 0-18443, previously filed with the
SEC 91




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##### Table of Contents



(26)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on August 18, 2005(27)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2005, File No. 0-18443, previously filed with
the SEC(28)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on October 20, 2005(29)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K/A for the fiscal year ended June 30, 2005, File No. 0-18443, previously filed with
the SEC on October 28, 2005(30)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005, File No. 0-18443, previously filed with
the SEC(31)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on December 13, 2005(32)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on January 3, 2006(33)
    
    Incorporated by reference to Appendix 1 to the Companys definitive Proxy Statement for
the 1998 Annual Meeting of Stockholders filed with the SEC on December 2, 1998(34)
    
    Incorporated by reference to Appendix 2 to the Companys definitive Proxy Statement for
the 1996 Annual Meeting of Stockholders filed with the SEC on October 23, 1996(35)
    
    Incorporated by reference to Exhibit B to the Companys definitive Proxy Statement for
the 1992 Annual Meeting of Stockholders previously filed with the SEC(36)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K/T for the six month
transition period ended December 31, 2005, File No. 0-18443, previously filed with the SEC on March 16, 2006(37)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on March 16, 2006(38)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006, File No. 0-18443, previously filed with the
SEC(39)
    
    Incorporated by reference to Appendix A to the Companys Definitive Proxy Statement for
the 2006 Annual Meeting of Stockholders filed with the SEC on April 13, 2006(40)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on July 31, 2006(41)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006, File No. 0-18443, previously filed with
the SEC(42)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, File No. 0-18443, previously filed
with the SEC(43)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on February 18, 2009(44)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on April 30, 2007(45)
    
    Incorporated by reference to Appendix A to the Companys Definitive Proxy Statement on
Schedule 14A filed with the SEC on April 16, 2007(46)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 dated
September 3, 2007(47)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, File No. 0-18443, previously filed with the SEC(48)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K for the year ended December 31, 2007, File No. 0-18443, previously filed with the SEC(49)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008, File No. 001-14471, previously filed with the SEC.(50)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on December 30, 2008 (b)
    
    The exhibits to this Form 10-K follow the Companys Financial Statement Schedule included in
this Form 10-K.(c)
    
    The Financial Statement Schedule to this Form 10-K appears on page S-1 of this Form 10-K.
 92




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##### Table of Contents



SIGNATURES
   MEDICIS PHARMACEUTICAL CORPORATIONBy:
    /s/ JONAH SHACKNAIJonah ShacknaiChairman of the Board and Chief Executive Officer POWER OF ATTORNEY
   SIGNATURE
    
    TITLE
    
    DATE/s/ JONAH SHACKNAI

Jonah Shacknai
    
    Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
    
    March 2, 2009/s/ RICHARD D. PETERSON

Richard D. Peterson
    
    Executive Vice President, Chief Financial Officer,
and Treasurer
(Principal Financial and Accounting Officer)
    
    March 2, 2009/s/ ARTHUR G. ALTSCHUL, JR.

Arthur G. Altschul, Jr.
    
    Director
    
    March 2, 2009/s/ SPENCER DAVIDSON

Spencer Davidson
    
    Director
    
    March 2, 2009/s/ STUART DIAMOND

Stuart Diamond
    
    Director
    
    March 2, 2009/s/ PETER S. KNIGHT, ESQ.

Peter S. Knight, Esq.
    
    Director
    
    March 2, 2009/s/ MICHAEL A. PIETRANGELO

Michael A. Pietrangelo
    
    Director
    
    March 2, 2009/s/ PHILIP S. SCHEIN, M.D.

Philip S. Schein, M.D.
    
    Director
    
    March 2, 2009/s/ LOTTIE SHACKELFORD

Lottie Shackelford
    
    Director
    
    March 2, 2009
 93




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2008
and 2007
    
    F-3Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006
    
    F-5Consolidated Statements of Stockholders Equity for the
years ended December 31, 2008, 2007 and 2006
    
    F-6Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006
    
    F-8Notes to Consolidated Financial Statements
    
    F-9
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Stockholders of Medicis Pharmaceutical Corporation
       
 F-2




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 DECEMBER 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    86,450
    
    
    $
    108,046Short-term investments
    
    
    257,435
    
    
    
    686,634Accounts receivable, less allowances:December 31, 2008 and 2007: $1,719
and $830, respectively
    
    
    52,588
    
    
    
    22,205Inventories, net
    
    
    24,226
    
    
    
    29,973Deferred tax assets, net
    
    
    53,161
    
    
    
    9,190Other current assets
    
    
    19,676
    
    
    
    18,049Total current assets
    
    
    493,536
    
    
    
    874,097Property and equipment, net
    
    
    26,300
    
    
    
    13,850Intangible assets:Intangible assets related to product line
acquisitions and business combinations
    
    
    267,624
    
    
    
    258,873Other intangible assets
    
    
    7,752
    
    
    
    6,695275,376
    
    
    
    265,568Less: accumulated amortization
    
    
    113,947
    
    
    
    92,482Net intangible assets
    
    
    161,429
    
    
    
    173,086Goodwill
    
    
    156,762
    
    
    
    63,107Deferred tax assets, net
    
    
    77,149
    
    
    
    59,577Long-term investments
    
    
    55,333
    
    
    
    17,072Other assets
    
    
    2,925
    
    
    
    12,622$
    973,434
    
    
    $
    1,213,411
  F-3




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS, Continued
(in thousands, except share amounts)
 DECEMBER 31,2008
    
    
    2007LiabilitiesCurrent liabilities:Accounts payable
    
    $
    39,032
    
    
    $
    34,891Current portion of contingent convertible senior notes
    
    
    
    
    
    
    283,910Reserve for sales returns
    
    
    59,611
    
    
    
    68,787Income taxes payable
    
    
    
    
    
    
    7,731Other current liabilities
    
    
    87,258
    
    
    
    55,807Total current liabilities
    
    
    185,901
    
    
    
    451,126Long-term liabilities:Contingent convertible senior notes
    
    
    169,326
    
    
    
    169,145Deferred revenue
    
    
    4,167
    
    
    
    6,667Other liabilities
    
    
    10,346
    
    
    
    3,172Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value; shares authorized: 5,000,000;
no shares issued
    
    
    
    
    
    
    Class A common stock, $0.014 par value; shares authorized:
150,000,000; issued and outstanding: 69,396,394, and 69,005,019 at
December 31, 2008 and 2007, respectively
    
    
    969
    
    
    
    965Class B common stock, $0.014 par value; shares authorized:
1,000,000; issued and outstanding: none
    
    
    
    
    
    
    Additional paid-in capital
    
    
    661,703
    
    
    
    641,907Accumulated other comprehensive income
    
    
    2,106
    
    
    
    2,221Accumulated earnings
    
    
    282,284
    
    
    
    281,218Less: Treasury stock, 12,678,559 and 12,656,503 shares at cost at
December 31, 2008 and 2007, respectively
    
    
    (343,368
    )
    
    
    (343,010
    )Total stockholders equity
    
    
    603,694
    
    
    
    583,301$
    973,434
    
    
    $
    1,213,411
  F-4




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 YEARS ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006Net product revenues
    
    $
    500,977
    
    
    $
    441,868
    
    
    $
    377,548Net contract revenues
    
    
    16,773
    
    
    
    15,526
    
    
    
    15,617Net revenues
    
    
    517,750
    
    
    
    457,394
    
    
    
    393,165Cost of product revenues (1)
    
    
    38,714
    
    
    
    56,110
    
    
    
    46,106Gross profit
    
    
    479,036
    
    
    
    401,284
    
    
    
    347,059Operating expenses:Selling, general and administrative (2)
    
    
    279,768
    
    
    
    242,633
    
    
    
    202,457Impairment of intangible assets
    
    
    
    
    
    
    4,067
    
    
    
    52,586Research and development (3)
    
    
    99,916
    
    
    
    39,428
    
    
    
    161,837In-process research and development
    
    
    30,500
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    27,698
    
    
    
    24,548
    
    
    
    23,048Operating income (loss)
    
    
    41,154
    
    
    
    90,608
    
    
    
    (92,869
    )Other expense
    
    
    (15,470
    )
    
    
    
    
    
    
    Interest and investment income
    
    
    23,396
    
    
    
    38,390
    
    
    
    30,787Interest expense
    
    
    (6,674
    )
    
    
    (10,018
    )
    
    
    (10,640
    )Income (loss) before income tax
    
    
    42,406
    
    
    
    118,980
    
    
    
    (72,722
    )Income tax expense (benefit)
    
    
    32,130
    
    
    
    48,544
    
    
    
    (24,570
    )Net income (loss)
    
    $
    10,276
    
    
    $
    70,436
    
    
    $
    (48,152
    )Basic net income (loss) per share
    
    $
    0.18
    
    
    $
    1.26
    
    
    $
    (0.88
    )Diluted net income (loss) per share
    
    $
    0.18
    
    
    $
    1.08
    
    
    $
    (0.88
    )Cash dividend declared per common share
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    0.12Weighted average number of common shares
used in calculating:Basic net income (loss) per share
    
    
    56,567
    
    
    
    55,988
    
    
    
    54,688Diluted net income (loss) per share
    
    
    57,323
    
    
    
    71,246
    
    
    
    54,688
 
 (1)   amounts exclude amortization of
intangible assets related to acquired
products
    
    $
    21,479
    
    
    $
    21,606
    
    
    $
    20,017(2)   amounts include share-based
compensation expense
    
    $
    16,265
    
    
    $
    21,031
    
    
    $
    24,453(3)   amounts include share-based
compensation expense
    
    $
    332
    
    
    $
    112
    
    
    $
    1,626
  F-5




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
 Class A
    
    
    Class BCommon Stock
    
    
    Common StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2005
    
    
    67,052
    
    
    $
    938
    
    
    
    
    
    
    $
    Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized losses on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive lossShare-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred
compensation
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares held in lieu of employee taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    968
    
    
    
    14
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    68,044
    
    
    
    952
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeAdjustment for adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred
compensation
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares held in lieu of employee taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    924
    
    
    
    13
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    69,005
    
    
    
    965
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized losses on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeShare-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred
compensation
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares held in lieu of employee taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    281
    
    
    
    4
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    69,396
    
    
    $
    969
    
    
    
    
    
    
    $
    
  F-6




---



##### Table of Contents



AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TreasuryPaid-In
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockCapital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Total$
    550,006
    
    
    $
    379
    
    
    $
    273,158
    
    
    
    (12,647
    )
    
    $
    (342,730
    )
    
    $
    481,751
    
    
    
    
    
    
    
    (48,152
    )
    
    
    
    
    
    
    
    
    
    
    (48,152
    )
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )(47,994
    )26,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,614
    )
    
    
    
    
    
    
    
    
    
    
    (6,614
    )
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (66
    )
    
    
    (66
    )18,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,4443,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,921598,435
    
    
    
    537
    
    
    
    218,392
    
    
    
    (12,650
    )
    
    
    (342,796
    )
    
    
    475,520
    
    
    
    
    
    
    
    70,436
    
    
    
    
    
    
    
    
    
    
    
    70,436
    
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    885
    
    
    
    799
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79972,120
    
    
    
    
    
    
    
    (808
    )
    
    
    
    
    
    
    
    
    
    
    (808
    )21,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,143
    
    
    
    
    
    
    
    (6,802
    )
    
    
    
    
    
    
    
    
    
    
    (6,802
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (214
    )
    
    
    (214
    )19,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,7522,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,590641,907
    
    
    
    2,221
    
    
    
    281,218
    
    
    
    (12,656
    )
    
    
    (343,010
    )
    
    
    583,301
    
    
    
    
    
    
    
    10,276
    
    
    
    
    
    
    
    
    
    
    
    10,276
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    (143
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )10,16116,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,597
    
    
    
    
    
    
    
    (9,210
    )
    
    
    
    
    
    
    
    
    
    
    (9,210
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    (358
    )
    
    
    (358
    )4,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,846(1,643
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,643
    )$
    661,703
    
    
    $
    2,106
    
    
    $
    282,284
    
    
    
    (12,679
    )
    
    $
    (343,368
    )
    
    $
    603,694
 F-7




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 YEARS ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006Operating Activities:Net income (loss)
    
    $
    10,276
    
    
    $
    70,436
    
    
    $
    (48,152
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:In-process research and development
    
    
    30,500
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    27,698
    
    
    
    24,548
    
    
    
    23,048Amortization of deferred financing fees
    
    
    666
    
    
    
    1,519
    
    
    
    2,144Impairment of intangible assets
    
    
    
    
    
    
    4,067
    
    
    
    52,586Impairment of available-for-sale investments
    
    
    6,400
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    20
    
    
    
    19
    
    
    
    449Loss on sale of product rights
    
    
    398
    
    
    
    259
    
    
    
    Charge reducing value of investment in Revance
    
    
    9,071
    
    
    
    
    
    
    
    Gain on sale of available-for-sale investments, net
    
    
    (1,020
    )
    
    
    (105
    )
    
    
    (421
    )Share-based compensation expense
    
    
    16,597
    
    
    
    21,143
    
    
    
    26,079Deferred income tax (benefit) expense
    
    
    (42,690
    )
    
    
    14,027
    
    
    
    (43,896
    )Tax (expense) benefit from exercise of stock options and
vesting of restricted stock awards
    
    
    (1,643
    )
    
    
    2,590
    
    
    
    3,921Excess tax benefits from share-based payment arrangements
    
    
    (169
    )
    
    
    (1,494
    )
    
    
    (2,166
    )Increase (decrease) in provision for sales
discounts and chargebacks
    
    
    888
    
    
    
    (1,318
    )
    
    
    154(Amortization) accretion of (discount)/premium on
Investments
    
    
    (60
    )
    
    
    (3,369
    )
    
    
    (2,159
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (30,259
    )
    
    
    50,777
    
    
    
    (8,955
    )Inventories
    
    
    6,693
    
    
    
    (2,957
    )
    
    
    (7,940
    )Other current assets
    
    
    (1,176
    )
    
    
    (2,060
    )
    
    
    (3,749
    )Accounts payable
    
    
    3,707
    
    
    
    (12,622
    )
    
    
    (10,195
    )Reserve for sales returns
    
    
    (9,176
    )
    
    
    (18,625
    )
    
    
    (23,414
    )Income taxes payable
    
    
    (7,731
    )
    
    
    (4,420
    )
    
    
    (20,175
    )Other current liabilities
    
    
    28,417
    
    
    
    8,000
    
    
    
    21,878Other liabilities
    
    
    (1,637
    )
    
    
    8,529
    
    
    
    Net cash provided by (used in)
operating activities
    
    
    45,770
    
    
    
    158,944
    
    
    
    (40,963
    )Investing Activities:Purchase of property and equipment
    
    
    (11,090
    )
    
    
    (10,020
    )
    
    
    (4,450
    )Proceeds from sale of property and equipment
    
    
    19
    
    
    
    
    
    
    
    Equity investment in an unconsolidated entity
    
    
    
    
    
    
    (11,957
    )
    
    
    LipoSonix acquisition, net of cash acquired
    
    
    (149,805
    )
    
    
    
    
    
    
    Payment of direct acquisition costs
    
    
    (3,637
    )
    
    
    
    
    
    
    (27,420
    )Payments for purchase of product rights
    
    
    (1,024
    )
    
    
    (30,394
    )
    
    
    (2,164
    )Proceeds from sale of product rights
    
    
    
    
    
    
    1,000
    
    
    
    Increase in other assets
    
    
    (34
    )
    
    
    
    
    
    
    Purchase of available-for-sale investments
    
    
    (393,862
    )
    
    
    (741,075
    )
    
    
    (822,512
    )Sale of available-for-sale investments
    
    
    417,536
    
    
    
    291,804
    
    
    
    349,034Maturity of available-for-sale investments
    
    
    361,988
    
    
    
    231,156
    
    
    
    290,597Net cash provided by (used in)
investing activities
    
    
    220,091
    
    
    
    (269,486
    )
    
    
    (216,915
    )Financing Activities:Payment of dividends
    
    
    (8,600
    )
    
    
    (6,771
    )
    
    
    (6,581
    )Payment of contingent convertible senior notes
    
    
    (283,729
    )
    
    
    (5
    )
    
    
    Excess tax benefits from share-based
payment arrangements
    
    
    169
    
    
    
    1,494
    
    
    
    2,166Proceeds from the exercise of stock options
    
    
    4,846
    
    
    
    19,752
    
    
    
    18,693Net cash (used in) provided by
financing activities
    
    
    (287,314
    )
    
    
    14,470
    
    
    
    14,278Effect of exchange rate on cash and
cash equivalents
    
    
    (143
    )
    
    
    799
    
    
    
    (78
    )Net decrease in cash and cash equivalents
    
    
    (21,596
    )
    
    
    (95,273
    )
    
    
    (243,678
    )Cash and cash equivalents at beginning of period
    
    
    108,046
    
    
    
    203,319
    
    
    
    446,997Cash and cash equivalents at end of period
    
    $
    86,450
    
    
    $
    108,046
    
    
    $
    203,319
  F-8




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
 The Company
  ® ® ® ® ® ®
  NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Cash and Cash Equivalents
  Short-Term and Long-Term Investments
  Inventories
  F-9




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##### Table of Contents



DECEMBER 31,2008
    
    
    2007Raw materials
    
    $
    7,234
    
    
    $
    9,002Finished goods
    
    
    18,407
    
    
    
    24,789Valuation reserve
    
    
    (1,415
    )
    
    
    (3,818
    )Total inventories
    
    $
    24,226
    
    
    $
    29,973
 Property and Equipment
  DECEMBER 31,2008
    
    
    2007Furniture, fixtures and equipment
    
    $
    26,661
    
    
    $
    19,102Leasehold improvements
    
    
    14,489
    
    
    
    4,08241,150
    
    
    
    23,184Less: accumulated depreciation
    
    
    (14,850
    )
    
    
    (9,334
    )$
    26,300
    
    
    $
    13,850
  Goodwill
  F-10




---



##### Table of Contents



Intangible Assets
  December 31, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedAverage Life
    
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetRelated to product line
acquisitions
    
    
    15.7
    
    
    $
    253,142
    
    
    $
    (107,377
    )
    
    $
    145,765
    
    
    $
    253,791
    
    
    $
    (87,406
    )
    
    $
    166,385Related to business
combinations
    
    
    8.9
    
    
    
    14,482
    
    
    
    (5,176
    )
    
    
    9,306
    
    
    
    5,082
    
    
    
    (3,919
    )
    
    
    1,163Patents and trademarks
    
    
    18.0
    
    
    
    7,752
    
    
    
    (1,394
    )
    
    
    6,358
    
    
    
    6,695
    
    
    
    (1,157
    )
    
    
    5,538Total intangible assets
    
    
    
    
    
    $
    275,376
    
    
    $
    (113,947
    )
    
    $
    161,429
    
    
    $
    265,568
    
    
    $
    (92,482
    )
    
    $
    173,086
  Impairment of Long-Lived Assets
   F-11




---



##### Table of Contents



®
 ®
 ® ®
  Long-lived asset related to LOPROX® products
    
    $
    49,163Long-lived asset related to ESOTERICA® products
    
    
    3,267Other long-lived asset
    
    
    156$
    52,586
 ® ® ® ® ®
 ® ® ® ® ® ®
 Managed Care and Medicaid Reserves
  Consumer Rebate and Loyalty Programs
  F-12




---



##### Table of Contents



Other Current Liabilities
  DECEMBER 31,2008
    
    
    2007Accrued incentives
    
    $
    18,910
    
    
    $
    15,324Managed care and Medicaid
reserves
    
    
    16,956
    
    
    
    4,881Accrued consumer rebate and loyalty
programs
    
    
    28,449
    
    
    
    14,745Deferred revenue
    
    
    3,341
    
    
    
    4,758Other accrued expenses
    
    
    19,602
    
    
    
    16,099$
    87,258
    
    
    $
    55,807
  Revenue Recognition
 Revenue Recognition in Financial Statements. Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products)
   F-13




---



##### Table of Contents



Advertising
  Share-Based Compensation
 Share-Based
Payment
   WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Shares
    
    Price
    
    Term
    
    ValueBalance at December 31, 2007
    
    
    11,666,955
    
    
    $
    27.99Granted
    
    
    127,702
    
    
    $
    22.22Exercised
    
    
    (278,492
    )
    
    $
    15.59Terminated/expired
    
    
    (808,808
    )
    
    $
    31.55Balance at December 31, 2008
    
    
    10,707,357
    
    
    $
    27.98
    
    
    
    3.7
    
    
    $
    1,826,187
   WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Shares
    
    Price
    
    Term
    
    ValueOutstanding
    
    
    9,807,554
    
    
    $
    28.14
    
    
    
    3.8
    
    
    $
    1,500,943Exercisable
    
    
    8,985,667
    
    
    $
    27.60
    
    
    
    3.6
    
    
    $
    1,500,943
 F-14




---



##### Table of Contents



Year Ended
    
    Year Ended
    
    Year EndedDecember 31, 2008
    
    December 31, 2007
    
    December 31, 2006Expected dividend yield
    
    0.6% to 0.7%
    
    
    0.4
    %
    
    
    0.4
    %Expected stock price volatility
    
    
    0.35 to 0.38
    
    
    
    0.35
    
    
    
    0.36Risk-free interest rate
    
    3.0% to 3.4%
    
    4.5% to 4.8%
    
    4.5% to 4.6%Expected life of options
    
    7 Years
    
    7 Years
    
    7 Years
     Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    Fair ValueNonvested at December 31, 2007
    
    
    552,769
    
    
    $
    31.92Granted
    
    
    864,423
    
    
    $
    19.14Vested
    
    
    (122,722
    )
    
    $
    31.57Forfeited
    
    
    (89,619
    )
    
    $
    23.82Nonvested at December 31, 2008
    
    
    1,204,851
    
    
    $
    23.38
   F-15




---



##### Table of Contents



Shipping and Handling Costs
  Research and Development Costs and Accounting for Strategic Collaborations
   Income Taxes
 Accounting for Uncertainty in Income Taxes  an Interpretation of
FASB Statement No. 109
 Legal Contingencies
  Foreign Currency Translations
 Foreign Currency
 F-16




---



##### Table of Contents



Translation.
 Earnings Per Common Share
 Earnings Per Share Effect of Contingently Convertible
Debt on Diluted Earnings per Share
 Use of Estimates and Risks and Uncertainties
   Fair Value of Financial Instruments
  Supplemental Disclosure of Cash Flow Information
  F-17




---



##### Table of Contents



Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in
Consolidated Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Accounting for
Collaborative Agreements Reporting Revenue Gross as a Principal versus Net as an
Agent
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 F-18




---



##### Table of Contents



Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
 , Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active. Fair Value Measurements
 NOTE 3. SEGMENT AND PRODUCT INFORMATION
 ® ® ® ® ® ® ® ® ® ® ®
 ® ® ®
 YEARS ENDEDDECEMBER 31,2008
    
    2007
    
    2006McKesson
    
    
    45.8
    %
    
    
    52.2
    %
    
    
    56.8
    %Cardinal
    
    
    21.2
    %
    
    
    16.9
    %
    
    
    19.3
    %
 ® ®
 F-19




---



##### Table of Contents



YEARS ENDEDDECEMBER 31,2008
    
    
    2007
    
    
    2006Acne and acne-related dermatological products
    
    $
    325,020
    
    
    $
    243,414
    
    
    $
    159,815Non-acne dermatological products
    
    
    147,954
    
    
    
    172,902
    
    
    
    199,613Non-dermatological products
    
    
    44,776
    
    
    
    41,078
    
    
    
    33,737Total net revenues
    
    $
    517,750
    
    
    $
    457,394
    
    
    $
    393,165
 YEARS ENDEDDECEMBER 31,2008
    
    2007
    
    2006Acne and acne-related dermatological products
    
    
    63
    %
    
    
    53
    %
    
    
    41
    %Non-acne dermatological products
    
    
    29
    
    
    
    38
    
    
    
    51Non-dermatological products
    
    
    8
    
    
    
    9
    
    
    
    8Total net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  NOTE 4. STRATEGIC COLLABORATIONS
 ® ®
 ® ® ®
 ® ®
   F-20




---



##### Table of Contents



®
   NOTE 5. ACQUISITION OF LIPOSONIX
    Cash consideration
    
    $
    150.0Transaction costs
    
    
    3.6$
    153.6
  Current assets
    
    $
    2.1Deferred tax assets, short-term
    
    
    3.8Deferred tax assets, long-term
    
    
    14.9Property and equipment
    
    
    0.7Identifiable intangible assets
    
    
    9.4In-process research and development
    
    
    30.5Goodwill
    
    
    93.7Accounts payable and other current liabilities
    
    
    (1.5
    )$
    153.6
 F-21




---



##### Table of Contents



YEAR ENDED DECEMBER 31,2008
    
    2007Net revenues
    
    $
    518.5
    
    
    $
    457.4Net income
    
    
    4.6
    
    
    
    59.2Diluted net income per share
    
    $
    0.08
    
    
    $
    0.92
 NOTE 6. INVESTMENT IN REVANCE
   F-22




---



##### Table of Contents



Consolidation of Variable Interest Entities  an Interpretation of Accounting Research
Bulletin No. 51
 NOTE 7. STRATEGIC COLLABORATION WITH HYPERION
 ® Accounting for Revenue Arrangements with Multiple Deliverables, Revenue Recognition in Financial Statements ® ®
 ®
  ® ®
 F-23




---



##### Table of Contents



NOTE 8. DEVELOPMENT AND DISTRIBUTION AGREEMENT WITH IPSEN FOR RIGHTS TO
IPSENS BOTULINUM TOXIN TYPE A PRODUCT KNOWN AS RELOXIN ®
 ® ®
   ®
   F-24




---



##### Table of Contents



NOTE 9. LICENSE OF ORAPRED ® TO BIOMARIN
 ® ® ®
  ®
 ® ®
  F-25




---



##### Table of Contents



NOTE 10. MERGER OF ASCENT PEDIATRICS, INC.
  NOTE 11. SHORT-TERM AND LONG-TERM INVESTMENTS
  F-26




---



##### Table of Contents



DECEMBER 31, 2008Other-Gross
    
    
    Gross
    
    
    Than-TemporaryUnrealized
    
    
    Unrealized
    
    
    Impairment
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    124,622
    
    
    $
    418
    
    
    $
    (429
    )
    
    $
    
    
    
    $
    124,611Federal agency notes and bonds
    
    
    117,040
    
    
    
    1,841
    
    
    
    
    
    
    
    
    
    
    
    118,881Auction rate floating securities
    
    
    44,625
    
    
    
    
    
    
    
    
    
    
    
    (6,400
    )
    
    
    38,225Asset-backed securities
    
    
    31,681
    
    
    
    
    
    
    
    (630
    )
    
    
    
    
    
    
    31,051Total securities
    
    $
    317,968
    
    
    $
    2,259
    
    
    $
    (1,059
    )
    
    $
    (6,400
    )
    
    $
    312,768
 DECEMBER 31, 2007Other-Gross
    
    
    Gross
    
    
    Than-TemporaryUnrealized
    
    
    Unrealized
    
    
    Impairment
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    283,248
    
    
    $
    498
    
    
    $
    (624
    )
    
    $
    
    
    
    $
    283,122Federal agency notes and bonds
    
    
    206,308
    
    
    
    968
    
    
    
    
    
    
    
    
    
    
    
    207,276Auction rate floating securities
    
    
    101,649
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    101,650Asset-backed securities
    
    
    76,936
    
    
    
    399
    
    
    
    (83
    )
    
    
    
    
    
    
    77,252Commercial paper
    
    
    34,409
    
    
    
    3
    
    
    
    (6
    )
    
    
    
    
    
    
    34,406Total securities
    
    $
    702,550
    
    
    $
    1,869
    
    
    $
    (713
    )
    
    $
    
    
    
    $
    703,706
  DECEMBER 31, 2008EstimatedCost
    
    
    Fair ValueAvailable-for-saleDue in one year or less
    
    $
    223,008
    
    
    $
    224,188Due after one year through five years
    
    
    50,334
    
    
    
    50,354Due after five years through 10 years
    
    
    
    
    
    
    Due after 10 years
    
    
    43,326
    
    
    
    36,973$
    316,668
    
    
    $
    311,515
   F-27




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##### Table of Contents



The Fair Value Option for Financial Assets
and Financial Liabilities
  Less Than 12 MonthsOther-Than-
    
    
    Greater Than 12 MonthsGross
    
    
    Temporary
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Impairment
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Loss
    
    
    Value
    
    
    LossCorporate notes and bonds
    
    $
    50,780
    
    
    $
    274
    
    
    $
    
    
    
    $
    6,313
    
    
    $
    155Federal agency notes and bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Auction rate floating securities
    
    
    38,225
    
    
    
    
    
    
    
    6,400
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    28,987
    
    
    
    281
    
    
    
    
    
    
    
    2,064
    
    
    
    349Total securities
    
    $
    117,992
    
    
    $
    555
    
    
    $
    6,400
    
    
    $
    8,377
    
    
    $
    504
  NOTE 12. FAIR VALUE MEASUREMENTS
 Fair Value Measurements
  F-28




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##### Table of Contents



Fair Value Measurement at Reporting Date UsingQuoted
    
    
    SignificantPrices in
    
    
    Other
    
    
    SignificantActive
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    InputsDec. 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Auction rate floating securities
    
    $
    38,225
    
    
    $
    
    
    
    $
    
    
    
    $
    38,225Other available-for-sale securities
    
    
    274,543
    
    
    
    274,543
    
    
    
    
    
    
    
    Investment in Revance
    
    
    2,887
    
    
    
    
    
    
    
    
    
    
    
    2,887Total assets measured at fair value
    
    $
    315,655
    
    
    $
    274,543
    
    
    $
    
    
    
    $
    41,112
  F-29




---



##### Table of Contents



Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Auction Rate
    
    
    InvestmentFloating
    
    
    inSecurities
    
    
    RevanceBalance at January 1, 2008
    
    $
    
    
    
    $
    11,957Transfers to Level 3
    
    
    101,650
    
    
    
    Total losses included in other expense
    
    
    (6,400
    )
    
    
    (9,070
    )Total gains (losses) included in other
comprehensive (loss) income
    
    
    
    
    
    
    Purchases and settlements (net)
    
    
    (57,025
    )
    
    
    Balance at December 31, 2008
    
    $
    38,225
    
    
    $
    2,887
 NOTE 13. CONTINGENT CONVERTIBLE SENIOR NOTES
  Classification of Obligations That Are Callable by the Creditor
  
    
    during any quarter commencing after June 30, 2002, if the closing price of
the Companys Class A common stock over a specified number of trading days
during the previous quarter, including the last trading day of such quarter, is
more than 110% of the conversion price of the Old Notes, or $31.96. The Old
Notes are initially convertible at a conversion price of $29.05 per share, which
is equal to a conversion rate of approximately 34.4234 shares per $1,000
principal amount of Old Notes, subject to adjustment;
    
    if the Company has called the Old Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive
day trading period in which the trading price of the Old Notes per $1,000
principal amount for each day of such period was less than 95% of the product of
the closing sale price of the Companys Class A common stock on that day
multiplied by the number of shares of the Companys Class A common stock
issuable upon conversion of $1,000 principal amount of the Old Notes; or
    
    upon the occurrence of specified corporate transactions.
 F-30




---



##### Table of Contents




    
    during any quarter commencing after September 30, 2003, if the closing price
of the Companys Class A common stock over a specified number of trading days
during the previous quarter, including the last trading day of such quarter, is
more than 120% of the conversion price of the New Notes, or $46.51. The Notes
are initially convertible at a conversion price of $38.76 per share, which is
equal to a conversion rate of approximately 25.7998 shares per $1,000 principal
amount of New Notes, subject to adjustment;
    
    if the Company has called the New Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive
day trading period in which the trading price of the New Notes per $1,000
principal amount for each day of such period was less than 95% of the product of
the closing sale price of the Companys Class A common stock on that day
multiplied by the number of shares of the Companys Class A common stock
issuable upon conversion of $1,000 principal amount of the New Notes; or
    
    upon the occurrence of specified corporate transactions.
  F-31




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##### Table of Contents



Outstanding
    
    
    
    
    
    OutstandingConversion
    
    Principal Amounts
    
    Conversion
    
    Principal AmountsEligibility
    
    of Old Notes
    
    Eligibility
    
    of New NotesCriteria Met
    
    Converted During
    
    Criteria Met
    
    Converted DuringQuarter Ended
    
    For Old Notes?
    
    Subsequent Quarter
    
    For New Notes?
    
    Subsequent QuarterDecember 31, 2008
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ASeptember 30, 2008
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AJune 30, 2008
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2008
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ADecember 31, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ASeptember 30, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AJune 30, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ADecember 31, 2006
    
    Yes
    
    $
    5,000
    
    
    No
    
    
    N/ASeptember 30, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AJune 30, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/A
  NOTE 14. COMMITMENTS AND CONTINGENCIES
 Occupancy Arrangements
    F-32




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##### Table of Contents



YEAR ENDING DECEMBER 31,2009
    
    $
    4,9052010
    
    
    6,2002011
    
    
    4,1372012
    
    
    4,1662013
    
    
    4,417Thereafter
    
    
    29,592$
    53,417
 Lease Exit Costs
 Accounting for Costs
Associated with Exit or Disposal Activities,
   Liability as of
    
    Amounts Charged
    
    Cash Payments
    
    Cash Received
    
    Liability as ofDec. 31, 2007
    
    to Expense
    
    Made
    
    from Sublease
    
    Dec. 31, 2008Lease exit costs
liability
    
    $
    
    
    
    $
    4,812,928
    
    
    $
    (816,826
    )
    
    $
    
    
    
    $
    3,996,102
 Research and Development and Consulting Contracts
  Litigation
 ®
 F-33




---



##### Table of Contents



®
   ® ® ®
 ® ® ® ®
 ®
 F-34




---



##### Table of Contents



® ®
  NOTE 15. INCOME TAXES
  YEARS ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006CurrentFederal
    
    $
    68,767
    
    
    $
    31,639
    
    
    $
    14,172State
    
    
    3,631
    
    
    
    186
    
    
    
    1,415Foreign
    
    
    2,422
    
    
    
    3,194
    
    
    
    3,87074,820
    
    
    
    35,019
    
    
    
    19,457DeferredFederal
    
    
    (40,435
    )
    
    
    13,091
    
    
    
    (42,662
    )State
    
    
    (2,255
    )
    
    
    434
    
    
    
    (1,365
    )Foreign
    
    
    
    
    
    
    
    
    
    
    (42,690
    )
    
    
    13,525
    
    
    
    (44,027
    )Total
    
    $
    32,130
    
    
    $
    48,544
    
    
    $
    (24,570
    )
  F-35




---



##### Table of Contents



YEARS ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0
    )%State tax rate, net of federal benefit
    
    
    2.2
    
    
    
    0.9
    
    
    
    (1.9
    )Share-based payments
    
    
    2.4
    
    
    
    0.4
    
    
    
    3.1Foreign taxes
    
    
    3.3
    
    
    
    1.7
    
    
    
    3.9Tax contingencies reserve
    
    
    0.3
    
    
    
    (0.4
    )
    
    
    (6.8
    )Non-deductible research and development
expense
    
    
    25.2
    
    
    
    
    
    
    
    Other non-deductible items
    
    
    4.2
    
    
    
    1.3
    
    
    
    5.0Credits and other
    
    
    (4.5
    )
    
    
    (0.8
    )
    
    
    (2.1
    )Valuation allowance
    
    
    7.7
    
    
    
    2.7
    
    
    
    75.8
    %
    
    
    40.8
    %
    
    
    (33.8
    )%
  DECEMBER 31,2008
    
    
    2007Current
    
    
    Long-term
    
    
    Current
    
    
    Long-termDeferred tax assets:Net operating loss
carryforwards
    
    $
    7,558
    
    
    $
    13,547
    
    
    $
    
    
    
    $
    4,959Reserves and liabilities
    
    
    46,037
    
    
    
    6,176
    
    
    
    40,247
    
    
    
    4,513Unrealized losses on securities
    
    
    
    
    
    
    2,319
    
    
    
    
    
    
    
    Excess of tax basis over net
book value of intangible assets
    
    
    
    
    
    
    80,182
    
    
    
    
    
    
    
    65,060Share-based payment awards
    
    
    
    
    
    
    17,665
    
    
    
    
    
    
    
    15,946Depreciation on property and equipment
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    249Credits and other
    
    
    
    
    
    
    1,387
    
    
    
    
    
    
    
    Capital loss carryover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Charitable contributions, other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,62353,595
    
    
    
    121,417
    
    
    
    40,247
    
    
    
    93,376Deferred tax liabilities:Unrealized gains on securities
    
    
    (434
    )
    
    
    
    
    
    
    (418
    )
    
    
    Bond interest
    
    
    
    
    
    
    (37,605
    )
    
    
    (30,639
    )
    
    
    (30,537
    )(434
    )
    
    
    (37,605
    )
    
    
    (31,057
    )
    
    
    (30,537
    )Valuation allowance
    
    
    
    
    
    
    (6,663
    )
    
    
    
    
    
    
    (3,262
    )Net deferred tax assets
    
    $
    53,161
    
    
    $
    77,149
    
    
    $
    9,190
    
    
    $
    59,577
    F-36




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##### Table of Contents



Accounting for Uncertainty
in Income Taxes
 2008
    
    
    2007Balance at beginning of period
    
    $
    3,410
    
    
    $
    4,310Additions based on tax positions related to the current year
    
    
    
    
    
    
    Additions for tax positions of prior years
    
    
    
    
    
    
    200Reductions for tax positions of prior years
    
    
    
    
    
    
    (1,100
    )Settlements
    
    
    (898
    )
    
    
    Reductions due to lapse in statute of limitations
    
    
    
    
    
    
    Balance at end of period
    
    $
    2,512
    
    
    $
    3,410
    F-37




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##### Table of Contents



NOTE 16. SHARE REPURCHASE PROGRAM
  NOTE 17. DIVIDENDS DECLARED ON COMMON STOCK
  NOTE 18. STOCK OPTION PLANS
  Weighted
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$10.13-$11.00
    
    
    619,577
    
    
    
    0.6
    
    
    $
    10.97
    
    
    
    619,577
    
    
    $
    10.97$11.53-$18.33
    
    
    1,369,012
    
    
    
    3.4
    
    
    $
    18.20
    
    
    
    1,369,012
    
    
    $
    18.20$18.57-$26.90
    
    
    582,283
    
    
    
    4.0
    
    
    $
    23.19
    
    
    
    456,290
    
    
    $
    23.45$26.95-$26.95
    
    
    1,374,354
    
    
    
    2.5
    
    
    $
    26.95
    
    
    
    1,374,354
    
    
    $
    26.95$27.30-$27.63
    
    
    1,543,794
    
    
    
    1.6
    
    
    $
    27.63
    
    
    
    1,543,794
    
    
    $
    27.63$27.70-$29.13
    
    
    78,910
    
    
    
    4.0
    
    
    $
    28.31
    
    
    
    78,910
    
    
    $
    28.31$29.20-$29.20
    
    
    1,795,640
    
    
    
    4.6
    
    
    $
    29.20
    
    
    
    1,795,640
    
    
    $
    29.20$29.30-$32.56
    
    
    1,141,030
    
    
    
    4.7
    
    
    $
    31.56
    
    
    
    860,540
    
    
    $
    31.33$32.81-$36.06
    
    
    176,407
    
    
    
    5.2
    
    
    $
    33.77
    
    
    
    161,338
    
    
    $
    33.77$38.45-39.04
    
    
    2,026,350
    
    
    
    5.6
    
    
    $
    38.49
    
    
    
    1,557,674
    
    
    $
    38.5110,707,357
    
    
    
    3.7
    
    
    $
    27.98
    
    
    
    9,817,129
    
    
    $
    27.42
 F-38




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##### Table of Contents



WeightedAverageQualified
    
    Non-Qualified
    
    Total
    
    PriceBalance at December 31, 2005
    
    
    1,204,939
    
    
    
    13,174,397
    
    
    
    14,379,336
    
    
    $
    27.21Granted
    
    
    
    
    
    
    91,125
    
    
    
    91,125
    
    
    $
    31.38Exercised
    
    
    (260,756
    )
    
    
    (739,075
    )
    
    
    (999,831
    )
    
    $
    20.43Terminated/expired
    
    
    (18,394
    )
    
    
    (463,225
    )
    
    
    (481,619
    )
    
    $
    30.60Balance at December 31, 2006
    
    
    925,789
    
    
    
    12,063,222
    
    
    
    12,989,011
    
    
    $
    27.63Granted
    
    
    
    
    
    
    119,553
    
    
    
    119,553
    
    
    $
    33.75Exercised
    
    
    (270,194
    )
    
    
    (621,545
    )
    
    
    (891,739
    )
    
    $
    20.65Terminated/expired
    
    
    (29,948
    )
    
    
    (519,922
    )
    
    
    (549,870
    )
    
    $
    32.70Balance at December 31, 2007
    
    
    625,647
    
    
    
    11,041,308
    
    
    
    11,666,955
    
    
    $
    27.99Granted
    
    
    
    
    
    
    127,702
    
    
    
    127,702
    
    
    $
    22.22Exercised
    
    
    (62,422
    )
    
    
    (216,070
    )
    
    
    (278,492
    )
    
    $
    15.59Terminated/expired
    
    
    (58,936
    )
    
    
    (749,872
    )
    
    
    (808,808
    )
    
    $
    31.55Balance at December 31, 2008
    
    
    504,289
    
    
    
    10,203,068
    
    
    
    10,707,357
    
    
    $
    27.98
 F-39




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##### Table of Contents



NOTE 19. NET INCOME (LOSS) PER COMMON SHARE
  YEARS ENDED DECEMBER 31,2008
    
    
    2007
    
    
    2006BASICNet income (loss)
    
    $
    10,276
    
    
    $
    70,436
    
    
    $
    (48,152
    )Weighted average number of
common shares outstanding
    
    
    56,567
    
    
    
    55,988
    
    
    
    54,688Basic net income (loss) per common share
    
    $
    0.18
    
    
    $
    1.26
    
    
    $
    (0.88
    )DILUTEDNet income (loss)
    
    $
    10,276
    
    
    $
    70,436
    
    
    $
    (48,152
    )Add:Tax-effected interest expense and
issue costs related to Old Notes
    
    
    
    
    
    
    2,950
    
    
    
    Tax-effected interest expense and
issue costs related to New Notes
    
    
    
    
    
    
    3,357
    
    
    
    Net income (loss) assuming dilution
    
    $
    10,276
    
    
    $
    76,743
    
    
    $
    (48,152
    )Weighted average number of
common shares outstanding
    
    
    56,567
    
    
    
    55,988
    
    
    
    54,688Effect of dilutive securities:Old Notes
    
    
    
    
    
    
    5,823
    
    
    
    New Notes
    
    
    
    
    
    
    7,325
    
    
    
    Stock options and restricted stock
    
    
    756
    
    
    
    2,110
    
    
    
    Weighted average number of
common shares assuming dilution
    
    
    57,323
    
    
    
    71,246
    
    
    
    54,688Diluted net income (loss) per common share
    
    $
    0.18
    
    
    $
    1.08
    
    
    $
    (0.88
    )
 Effect of Contingently Convertible Debt on Diluted Earnings
per Share
   F-40




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##### Table of Contents



NOTE 20. FINANCIAL INSTRUMENTS  CONCENTRATIONS OF CREDIT AND OTHER RISKS
     NOTE 21. DEFINED CONTRIBUTION PLAN
  F-41




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##### Table of Contents



NOTE 22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  YEAR ENDED DECEMBER 31, 2008(FOR THE QUARTERS ENDED)MARCH 31, 2008 (a)
    
    JUNE 30, 2008 (b)
    
    SEPTEMBER 30, 2008(c)
    

DECEMBER 31, 2008(d)Net revenues
    
    $
    128,903
    
    
    $
    137,450
    
    
    $
    115,425
    
    
    $
    135,971Gross profit (1)
    
    
    117,771
    
    
    
    128,246
    
    
    
    104,577
    
    
    
    128,442Net income (loss)
    
    
    20,525
    
    
    
    13,009
    
    
    
    (14,657
    )
    
    
    (8,601
    )Basic net income (loss)
per common share
    
    $
    0.36
    
    
    $
    0.23
    
    
    $
    (0.26
    )
    
    $
    (0.15
    )Diluted net income (loss)
per common share
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    (0.26
    )
    
    $
    (0.15
    )
 YEAR ENDED DECEMBER 31, 2007(FOR THE QUARTERS ENDED)MARCH 31, 2007 (e)
    
    JUNE 30, 2007 (f)
    
    SEPTEMBER 30, 2007 (g)
    

DECEMBER 31, 2007 (h)Net revenues
    
    $
    98,665
    
    
    $
    113,606
    
    
    $
    110,983
    
    
    $
    134,140Gross profit (1)
    
    
    87,103
    
    
    
    98,340
    
    
    
    92,400
    
    
    
    123,442Net income
    
    
    11,681
    
    
    
    18,540
    
    
    
    16,993
    
    
    
    23,221Basic net income
per common share
    
    $
    0.21
    
    
    $
    0.33
    
    
    $
    0.30
    
    
    $
    0.41Diluted net income
per common share
    
    $
    0.19
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.35
 
 (1)
    
    Gross profit does not include amortization of the related intangibles.Quarterly results were impacted by the following items:(a)
    
    Operating expenses included approximately $4.4 million of compensation expense
related to stock options and restricted stock.(b)
    
    Operating expenses included a $25.0 million payment to Ipsen upon the FDAs
acceptance of Ipsens BLA for RELOXIN® and approximately $4.7 million of
compensation expense related to stock options and restricted stock.(c)
    
    Operating expenses included $30.5 million of acquired in-process research and
development expense related to our acquisition of LipoSonix, approximately $4.8
million of lease exit costs related to our previous headquarters facility and
approximately $4.1 million of compensation expense related to stock options and
restricted stock.(d)
    
    Operating expenses included $40.0 million paid to IMPAX related to a development
agreement and approximately $3.4 million of compensation expense related to stock
options and restricted stock.(e)
    
    Operating expenses included approximately $5.5 million of compensation expense
related to stock options and restricted stock.(f)
    
    Operating expenses included approximately $5.6 million of compensation expense
related to stock options and restricted stock and approximately $4.1 million for the
write-down of an intangible asset.(g)
    
    Operating expenses included approximately $4.5 million of compensation expense
related to stock options and restricted stock and approximately $2.2 million of
professional fees related to the Companys strategic collaboration with Hyperion.(h)
    
    Operating expenses included approximately $9.3 million related to the Companys
option to acquire Revance or to license Revances product currently under
development, including approximately $1.3 million of professional fees incurred
related to the transaction, and approximately $5.5 million of compensation expense
related to stock options and restricted stock. F-42




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    Charged tobeginning of
    
    costs and
    
    Charged to other
    
    
    
    
    
    Balance atperiod
    
    expenses
    
    accounts
    
    Deductions
    
    end of periodDescription
    
    (in thousands)Year Ended December 31, 2008
Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    830
    
    
    $
    15,157
    
    
    
    
    
    
    $
    (14,268
    )
    
    $
    1,719Year Ended December 31, 2007
Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    2,148
    
    
    $
    11,385
    
    
    
    
    
    
    $
    (12,703
    )
    
    $
    830Year Ended December 31, 2006
Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    1,994
    
    
    $
    13,743
    
    
    
    
    
    
    $
    (13,589
    )
    
    $
    2,148
 S-1