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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2003.


Or


|[   ] |  | 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

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-1574808                          
|                                                               |  |                                     
|(State of other jurisdiction
of incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                            |  |           
|------------------------------------------- |  | ----------
|8125 North Hayden Road, Scottsdale, Arizona |  | 85258-2463
|                                            |  |           
|(Address of principal executive office)     |  | (Zip Code)

|                                                    |  |               
|--------------------------------------------------- |  | --------------
|Registrants telephone number, including area code: |  | (602) 808-8800

Securities registered pursuant to Section 12(b) of the Act: Class A common stock, $0.014 par value

| | Preference Share Purchase Rights
| | --------------------------------
| |                                 
| | (Title of each Class)           

|                                                            |  |     
|----------------------------------------------------------- |  | ----
|Securities registered pursuant to Section 12(g) of the Act: |  | NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]    No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form or any amendment to this
Form 10-K [   ].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes
[X]    No [   ]

The aggregate market value of the voting stock held on September 19, 2003 by
non-affiliates of the registrant was $1,293,723,262 (calculated by excluding all
shares held by executive officers, directors and holders known to the
registrant of five percent or more of the voting power of the registrants
common stock, without conceding that such persons are affiliates of the
registrant for purposes of the federal securities laws). As of September 19,
2003, there were 27,053,403 outstanding shares of Class A common stock and
379,016 shares of Class B common stock.

Documents incorporated by reference:

Portions of the Proxy Statement for the registrants 2003 Annual Meeting of
Shareholders are incorporated herein by reference in Part III of this Form 10-K
to the extent stated herein.

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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | ITEM 1: BUSINESS                                                                             
|                                                  | ITEM 2: PROPERTIES                                                                           
|                                                  | ITEM 3: LEGAL PROCEEDINGS                                                                    
|                                                  | ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                          
|                                                  | ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                
|                                                  | ITEM 6: SELECTED FINANCIAL DATA                                                              
|                                                  | ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                           
|                                                  | ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                  | ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                  | ITEM 9A: CONTROLS AND PROCEDURES                                                             
|PART III                                         
|                                                  | ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                  | ITEM 11: EXECUTIVE COMPENSATION                                                              
|                                                  | ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                  | ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                  | ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                                          
|                                                  | ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                       
|Report of Ernst & Young LLP, Independent Auditors
|CONSOLIDATED BALANCE SHEETS                      
|CONSOLIDATED STATEMENTS OF INCOME                
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  
|CONSOLIDATED STATEMENTS OF CASH FLOWS            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       
|SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS  
|EXHIBIT INDEX                                    
|EX-12                                            
|EX-21.1                                          
|EX-23.1                                          
|EX-31.1                                          
|EX-31.2                                          
|EX-32.1                                          
|EX-32.2                                          



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PART I



|ITEM 1: |  | BUSINESS
|------- |  | --------

Medicis Pharmaceutical Corporation, together with its wholly
owned subsidiaries (Medicis, the Company, or as used in the context of
we, us or our) is a leading independent specialty pharmaceutical company
focusing primarily on developing and marketing drugs in the United States for
the treatment of dermatologic, pediatric and podiatric conditions and the
marketing of dermal aesthetic products in Canada. We believe that annual U.S.
pharmaceutical sales in the dermatological, pediatric and podiatric markets
exceed $10 billion.

We have built our business by executing a four-part growth strategy. This
strategy consists of growing existing core brands, developing new products and
important product line extensions, entering into strategic collaborations, and
acquiring complementary products, technologies and businesses.

We offer a broad range of drugs addressing various conditions including
acne, fungal infections, asthma, rosacea, hyperpigmentation, photoaging,
psoriasis, eczema, skin and skin-structure infections, seborrheic dermatitis
and cosmesis (improvement in the texture and appearance of skin). We currently
offer 15 branded products. Our core brands, DYNACIN® (minocycline HCI), LOPROX®
(ciclopirox), LUSTRA® (hydroquinone USP 4%), OMNICEF® (cefdinir) capsules,
ORAPRED® (prednisolone sodium phosphate), PLEXION® (sodium
sulfacetamide/sulfur) and TRIAZ® (benzoyl peroxide) account for substantially
all of our revenue. Most of our core brands enjoy market leadership in the
segments in which they compete. Because of the significance of these brands to
our business, we concentrate our sales and marketing efforts in promoting them
to physicians in our target markets. We also sell a number of other products,
all of which are profitable, but which are considered less critical to our
business.

In March 2003, we expanded into the dermal aesthetic market through our
acquisition of the exclusive U.S. and Canadian rights to market, distribute and
commercialize the dermal restorative product lines known as RESTYLANE®,
PERLANETM and RESTYLANE Fine LinesTM from Q-Med AB, a Swedish
biotechnology/medical device company and its affiliates, collectively Q-Med.
The RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM products are currently
being sold in over 60 countries by Q-Med, but are not yet approved for use in
the U.S. We offer RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM in Canada
for treating fine lines and wrinkles, shaping facial contours, correcting deep
facial folds and enhancing the appearance and fullness of lips.

In countries where they are currently marketed, RESTYLANE®, PERLANETM and
RESTYLANE Fine LinesTM are injectable, transparent, non-animal stabilized
hyaluronic acid gels, which require no patient sensitivity tests in advance of
product administration. These transparent, injectable products have varying
gel particle sizes which provide physicians in countries where the products are
approved with flexibility in treating fine lines and wrinkles, shaping facial
contours, correcting deep facial folds and enhancing the appearance and
fullness of lips.

In countries where the products are currently marketed, pre-packaged glass
syringes provide physicians with various options to treat nasolabial folds,
glabellar lines, periorbital lines, perioral lines, vermillion borders, lips,
chins, cheeks, smile lines, worry lines and oral commissures. In the U.S., the
Food and Drug Administration (the FDA) regulates these products as medical
devices. A pre-market approval application for RESTYLANE® was filed with the
FDA in June 2002 and is currently under review. On September 10, 2003, we
were informed by Q-Med of the FDAs verbal notification that the FDAs General
and Plastic Surgery Devices Advisory Panel will review the pre-market approval
application for RESTYLANE® at a meeting scheduled for November 21, 2003. We
anticipate that requirements for filing applications for PERLANETM and
RESTYLANE Fine LinesTM will be discussed with the FDA following the approval of
RESTYLANE®.

In November 2001, we expanded into the pediatric market through our merger
with Ascent Pediatrics, Inc. (Ascent). Ascent markets products to U.S.-based
pediatricians, including an oral treatment for children with

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asthma and other inflammatory respiratory conditions. Since the merger, this
sales force has introduced two of our core dermatological brands to high
prescribing pediatricians.

Our combined dedicated sales force, consisting of 179 employees as of June
30, 2003, focuses on high prescribing dermatologists, pediatricians and
podiatrists. Since a relatively small number of physicians are responsible for
writing a majority of prescriptions, we believe that the size of our sales
force is appropriate to reach our target physicians. Our dermatology and
podiatric sales force consists of 97 employees who regularly call on
approximately 5,000 dermatologists and 3,000 podiatrists. Our pediatric sales
force, which became part of Medicis following the merger with Ascent, consists
of approximately 70 employees who call on approximately 12,000 pediatricians.
We also have four national account managers who regularly call on managed care
organizations, large retail chains, insurance carriers and related
organizations. We are in the process of hiring a dermal aesthetic sales force
in preparation for FDA approval of RESTYLANE®. As of June 30, 2003, our dermal
aesthetic sales force consists of eight employees, which we expect to increase
to 37 upon commercial launch of RESTYLANE® in the U.S.

OUR PRODUCTS

We currently offer 15 branded products. Our sales and marketing efforts
are currently focused on our core brands, which account for substantially all
of our revenue. The following chart details certain important features of our
core brands:

|         |  |                                                                                             |  |                                                                                                                                                        
|-------- |  | ------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Brand    |  | Treatment                                                                                   |  | U.S. Market Impact                                                                                                                                     
|         |  |                                                                                             |  |                                                                                                                                                        
|DYNACIN® |  | Oral adjunctive treatment for moderate
to severe acne                                       |  | The number one branded minocycline
product in the U.S., DYNACIN® tablets and
capsules are available in a range of strengths for
moderate to severe acne
|         |  |                                                                                             |  |                                                                                                                                                        
|LOPROX®  |  | Topical treatment for certain fungal and
yeast infections                                   |  | A leading antifungal agent, including the only gel
and shampoo approved for seborrheic dermatitis                                                      
|         |  |                                                                                             |  |                                                                                                                                                        
|LUSTRA®  |  | Topical patented treatments for ultraviolet-induced skin discoloration                      |  | A leading branded prescription topical treatment
for skin discoloration                                                                                
|         |  |                                                                                             |  |                                                                                                                                                        
|OMNICEF® |  | A patented oral treatment for skin and
skin-structure infections                            |  | Superior kill rate compared to most frequently
prescribed antibiotic for this indication                                                               
|         |  |                                                                                             |  |                                                                                                                                                        
|ORAPRED® |  | Oral treatment for children with acute
asthma and other inflammatory respiratory
conditions |  | The leading branded oral liquid corticosteroid,
which utilizes a proprietary taste-masking system,
is also indicated for severe contact dermatitis     
|         |  |                                                                                             |  |                                                                                                                                                        
|PLEXION® |  | Topical treatments for rosacea and
acne-related conditions                                  |  | The leading prescription cleanser indicated
for the treatment of rosacea                                                                               
|         |  |                                                                                             |  |                                                                                                                                                        
|TRIAZ®   |  | Topical patented gel, cleanser and pad
treatments for acne                                  |  | The leading branded prescription benzoyl
peroxide product                                                                                              

PRESCRIPTION PHARMACEUTICALS

Our principal branded pharmaceutical products are described below:

DYNACIN® is an oral antibiotic, available in 75-mg and 100-mg tablets and
50-mg., 75-mg. and 100-mg. capsule dosage forms, and is prescribed as an
adjunctive treatment of moderate to severe acne. The most commonly prescribed
systemic acne treatments are tetracycline and its derivatives, minocycline and
doxycycline. Minocycline, the active ingredient in DYNACIN®, is widely
prescribed for the treatment of acne for several reasons. It has a more
convenient dosing schedule, one or two doses per day, as compared to other
forms of tetracycline, which can require up to four doses per day. Other forms
of tetracycline, including doxycycline, require ingestion on an empty stomach
and have been reported to often cause gastric irritation. Moreover, the other
forms of tetracycline may increase patient sensitivity to sunlight, creating a
greater risk of sunburn. In addition, resistance to several commonly used
antibiotics, including erythromycin, clindamycin, doxycycline and tetracycline,
by the primary bacterial organism responsible for acne has been documented.
Studies suggest that bacterial resistance to erythromycin, doxycycline and
tetracycline exceeds 50%, while the bacteria showed virtually no resistance to
minocycline. DYNACIN®

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capsules were launched in fiscal 1993 with 50-mg. and 100-mg. dosage forms
available. We launched DYNACIN® in 75-mg. dosage capsule form in fiscal 1999.
During fiscal 2003, we launched DYNACIN® in tablet form in 75-mg. and 100-mg.
dosages.

LOPROX® cream and topical suspension are both broad-spectrum prescription
antifungal agents indicated for the topical treatment of tinea pedis, tinea
corporis, tinea cruris, tinea versicolor and cutaneous candidiasis. LOPROX®
works with a unique mode of action that has been shown to have fungistatic and
fungicidal properties and enhanced penetration. We believe this unique mode of
action makes LOPROX® an appropriate choice for topical treatment alone, or as
concomitant treatment with an oral antifungal. For these reasons, we believe
LOPROX® is a highly effective product to manage the often-complicated mix of
organisms involved in tinea infections. In clinical trials, LOPROX® was shown
to produce clinical improvement of 82% to 93% of subjects after a single week
of treatment across the range of cutaneous mycoses. The most frequently
prescribed topical antifungal products in addition to LOPROX® include
Spectazole®, Nizoral®, Oxistat® and Lotrisone® (steroid/antifungal
combination). In addition to the cream and topical suspension formulations of
LOPROX®, we market LOPROX® Gel for the treatment of seborrheic dermatitis and
fungal infections. Currently, LOPROX® Gel is the only gel approved in the
United States for seborrheic dermatitis. During fiscal 2003, we launched
LOPROX® Shampoo, which is the first and only prescription antifungal shampoo
approved in the United States for the treatment of seborrheic dermatitis of the
scalp, a common fungal infection.

LUSTRA®, LUSTRA-AF® and ALUSTRA® are internally developed, topical
therapies prescribed for the treatment of ultraviolet-induced skin
discolorations and hyperpigmentation usually associated with the use of oral
contraceptives, pregnancy, hormone replacement therapy, sun damage and
superficial trauma. LUSTRA®, LUSTRA-AF® and ALUSTRA® contain 4% hydroquinone in
patented vehicles containing glycolic acid in an anti-oxidant complex. LUSTRA®
competes with products such as Tri-Luma, a product launched in 2002 by
Galderma. We launched LUSTRA® in fiscal 1998. LUSTRA-AF® contains
broad-spectrum UVA and UVB sunscreen agents and was launched in fiscal 1999.
ALUSTRA® contains retinol and was launched in fiscal 2001.

OMNICEF®is promoted to dermatologists and podiatrists pursuant to our
exclusive license agreement with Abbott Laboratories (Abbott). OMNICEF® is
indicated for the treatment of uncomplicated skin and skin-structure
infections. Studies show that OMNICEF® has superior pathogen eradication rates
versus cephalexin, the most frequently prescribed antibiotic for uncomplicated
skin and skin-structure infections. Since May 2001, we have promoted OMNICEF®
capsules in the U.S. market to dermatologists and podiatrists. In return, we
receive commission revenue from Abbott based on prescriptions generated in
these categories. Our agreement with Abbott expires in 2013.

ORAPRED® is an oral solution for the treatment of acute asthma in
children. ORAPRED® offers proprietary taste-masking technology in a dosage
strength generally preferred by physicians. ORAPRED® was launched in January
2001 by Ascent. Studies show that a drugs unpleasant taste is a barrier to
patient compliance and lack of compliance compromises the intended positive
treatment outcomes. We believe the taste of ORAPRED® encourages patient
compliance.

PLEXION®, PLEXION TS® and PLEXION SCT® are internally developed cleanser
and topical therapies for the treatment of rosacea and acne-related conditions.
Rosacea is a chronic skin condition causing inflammation and redness of the
face. PLEXION® is designed to be used in conjunction with other prescription
rosacea therapies. The active ingredients in our PLEXION® products are sodium
sulfacetamide and sulfur. PLEXION®, the leading prescription cleanser
indicated for the treatment of rosacea, was launched in fiscal 2000. The
topical acne rosacea market is comprised of products such as MetroGel®,
MetroCream® and MetroLotion®. PLEXION TS®,a gentle topical suspension
treatment for acne, was launched in fiscal 2001. In addition, during fiscal
2002 we launched PLEXION SCT®, a short contact therapy with a silicia base that
helps remove impurities from the skin pores.

TRIAZ®, a patented, internally developed topical therapy prescribed for
the treatment of numerous forms and varying degrees of acne, is available as a
gel, cleanser or pad in three concentrations. While other topical acne
treatments, including Cleocin-T®, Benzamycin® and BenzaClin®, are generally
effective, TRIAZ® offers advantages over each of these products, including
improved stability, greater convenience of use, reduced cost and fewer side
effects. TRIAZ® products are manufactured using the active ingredient benzoyl
peroxide in a patented vehicle

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containing glycolic acid and zinc lactate. Studies conducted by third
parties have shown that benzoyl peroxide is the most efficacious agent
available for eradicating the bacteria that cause acne with no reported
resistance. We believe glycolic acid enhances the effectiveness of benzoyl
peroxide by exfoliating the outer layer of the skin and that zinc lactate
reduces the appearance of inflammation and irritation often associated with
acne. We introduced the TRIAZ® brand in fiscal 1996. During July 2003, we
launched Triaz Pads, the first and only benzoyl peroxide pad available in the
U.S. indicated for the topical treatment of acne vulgaris.

PRODUCTS IN DEVELOPMENT

We have developed and obtained rights to pharmaceutical agents in various
stages of development. We have a variety of products under development, ranging
from new products to existing product line extensions and reformulations of
existing products. Our strategy involves the rapid evaluation and formulation
of new therapeutics by obtaining preclinical safety and efficacy data, when
possible, followed by rapid safety and efficacy testing in humans. Over the
next four years, our objective is to launch one new product annually through
our research and development efforts. As a result of our increasing financial
strength, we have begun adding long-term projects to our development pipeline
and may add longer-term projects with inherently greater risk in the future.
Historically, we have supplemented our research and development efforts by
entering into research and development agreements with other pharmaceutical and
biotechnology companies.

Our research and development costs for sponsored and unreimbursed
co-sponsored pharmaceutical projects for fiscal 2003, 2002 and 2001 were $29.6
million, $15.1 million and $25.5 million, respectively. Research and
development costs for fiscal 2003 include $14.2 million paid to Dow
Pharmaceutical Services, Inc. (Dow) for the development and commercialization
of a patented dermatologic product, under an agreement that we entered into in
September 2002, and $6.0 million paid to aaiPharma, Inc. (aaiPharma) for a
development milestone payment under an agreement that we entered into in June
2002 for the development, commercialization and license of a key dermatologic
product. Research and development costs for fiscal 2002 include $7.7 million
paid to aaiPharma under this agreement. In addition to the payments made
during fiscal 2003 and 2002, the Dow and aaiPharma agreements include potential
future payments due to Dow and aaiPharma upon the successful completion of
various development milestones. Research and development costs for fiscal 2001
include $17.0 million paid to Corixa Corporation (Corixa) for a development,
commercialization and license agreement covering Corixas novel psoriasis
immunotherapeutic product, PVACTM. Under the terms of the agreement, there are
additional potential development milestone payments of $35.0 million and
potential commercialization and cumulative net sales threshold milestone
payments of $55.0 million. The agreement provides that Corixa is responsible
for the development and approval of the product and that Medicis is responsible
for post-approval sales and marketing.

SALES AND MARKETING

Our combined dedicated sales force, consisting of approximately 180
employees, focuses on high prescribing dermatologists, pediatricians and
podiatrists. Since a relatively small number of physicians is responsible for
writing a majority of prescriptions, we believe that the size of our sales
force is appropriate to reach our target physicians. Our dermatology and
podiatric sales force consists of approximately 100 employees who regularly
call on approximately 5,000 dermatologists and 3,000 podiatrists. Our
pediatric sales force, which became part of Medicis following the merger with
Ascent, consists of approximately 70 employees who call on approximately 12,000
pediatricians. We also have four national account managers who regularly call
on managed care organizations, large retail chains, insurance carriers and
related organizations. We are in the process of hiring a dermal aesthetic
sales force in preparation for FDA approval of RESTYLANE®. As of June 30,
2003, our dermal aesthetic sales force consists of eight employees, which we
expect to increase to 37 upon commercial launch of RESTYLANE® in the U.S.

We cultivate relationships of trust and confidence with the high
prescribing dermatologists, pediatricians and podiatrists in the U.S. We use a
variety of marketing techniques to promote our products including sampling,
journal advertising, promotional materials, specialty publications, coupons,
money-back or product replacement guarantees, educational conferences and
informational websites.

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We believe we have created an attractive incentive program for our sales
force that is based upon goals in prescription growth and market share
achievement.

WAREHOUSING AND DISTRIBUTION

We utilize an independent national warehousing corporation to store and
distribute our products from primarily two regional warehouses in Nevada and
Georgia, as well as additional warehouses in New Jersey and Maryland. Upon the
receipt of a purchase order through electronic data input (EDI), phone, mail
or facsimile, the order is processed into our inventory systems. The order is
transmitted electronically to the appropriate warehouse for picking and
packing, with shipment to the customer occurring within 24 hours. Upon
shipment, the warehouse sends back to us via EDI the necessary information to
automatically process the invoice in a timely manner.

CUSTOMERS

Our customers include certain of the nations leading wholesale
pharmaceutical distributors, such as AmerisourceBergen Corporation
(AmerisourceBergen), Cardinal Health, Inc. (Cardinal), McKesson Corporation
(McKesson), Quality King Distributors (Quality King) and other major drug
chains. During the last three fiscal years, these customers accounted for the
following portions of our net revenues:

|                  |  |             |      |             |  |             |      |   |  |  |      |  
|----------------- |  | ----------- | ---- | ----------- |  | ----------- | ---- | - |  |  | ---- | -
|                  |  | Fiscal 2003 |      | Fiscal 2002 |  | Fiscal 2001
|                  |  |             |      |             |  |            
|Cardinal          |  |             | 25.4 | %           |  |             | 22.4 | % |  |  | 22.2 | %
|McKesson          |  |             | 20.2 | %           |  |             | 19.4 | % |  |  | 18.0 | %
|Quality King      |  |             | 17.0 | %           |  |             | 26.7 | % |  |  | 10.3 | %
|AmerisourceBergen |  |             | 15.5 | %           |  |             | 11.1 | % |  |  |      | *

*     less than 10.0%

MANUFACTURING

We currently outsource all of our manufacturing needs and we are required
by the FDA to contract only with manufacturers that comply with current Good
Manufacturing Practices (cGMP) regulations and other applicable laws and
regulations. Typically our manufacturing contracts are short-term. We review
our manufacturing arrangements on a regular basis and assess the viability of
alternative manufacturers if our current manufacturers are unable to fulfill
our needs.

Watson Pharmaceuticals, Inc. (Watson) manufactures the capsule form of
our DYNACIN® branded products in compliance with our specifications and quality
standards pursuant to a supply agreement. Under this agreement, Watson
manufactures DYNACIN® for sale in the branded market exclusively for us, but
may manufacture and sell minocycline for itself or others as a generic product.
Watson currently manufactures minocycline for the generic market under its own
label. Our supply agreement expires in December 2003. Subsequent to December
2003, Patheon, Inc. (Patheon) will be producing DYNACIN® capsules on a
purchase order basis. Par Pharmaceutical, Inc. (Par) manufactures the tablet
form of our DYNACIN® branded products in accordance with a supply agreement
that expires in June 2012.

Our LUSTRA®, PLEXION® and TRIAZ® branded products are manufactured by
Contract Pharmaceuticals Limited pursuant to a manufacturing agreement that
automatically renews on an annual basis.

Our LOPROX® cream and gel branded products are manufactured by Aventis
S.A. in accordance with a supply agreement that expires in December 2003. Our
LOPROX® TS product is manufactured by DPT Lakewood and Patheon on a purchase
order basis. Our LOPROX® shampoo branded product is manufactured by Patheon on
a purchase order basis.

Our ORAPRED® branded product is manufactured by Lyne Laboratories in
accordance with a supply agreement that expires in 2006.

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Our OMNICEF® branded product, which we promote through a license agreement
with Abbott, is manufactured by Abbott. The license agreement expires in 2013.

LICENSE AND ROYALTY AGREEMENTS

Pursuant to license agreements with third parties, we have acquired rights
to manufacture, use or market certain of our existing products, as well as many
of our proposed products and technologies. Such agreements typically contain
provisions requiring us to use our best efforts or otherwise exercise diligence
in pursuing market development for such products in order to maintain the
rights granted under the agreements and may be canceled upon our failure to
perform our payment or other obligations. In addition, we have licensed certain
rights to manufacture, use and sell certain of our technologies outside the
United States and Canada to various licensees.

TRADEMARKS, PATENTS, AND PROPRIETARY RIGHTS

We believe that trademark protection is an important part of establishing
product and brand recognition. We own a number of registered trademarks and
trademark applications and have acquired the rights to several trademarks by
license. U.S. federal registrations for trademarks remain in force for 10
years and may be renewed every 10 years after issuance, provided the mark is
still being used in commerce.

We have obtained a number of patents covering key aspects of certain of
our products, including a U.S. patent expiring in August 2004 covering
BUPHENYL®, a U.S. patent expiring in October 2015 covering various formulations
of TRIAZ®, a U.S. patent expiring in August 2017 covering our LUSTRA® branded
products, and a U.S. patent expiring in 2015 covering RESTYLANE®. We are also
pursuing several U.S. and foreign patent applications.

We rely and expect to continue to rely upon unpatented proprietary
know-how and technological innovation in the development and manufacture of
many of our principal products. Our policy is to require all our employees,
consultants and advisors to enter into confidentiality agreements with us.

COMPETITION

The pharmaceutical industry is characterized by intense competition, rapid
product development and technological change. Competition is intense among
manufacturers of prescription pharmaceuticals, such as for our core brands.

Many of our competitors are large, well-established pharmaceutical,
chemical, cosmetic or health care companies with considerably greater
financial, marketing, sales and technical resources than those available to us.
Additionally, many of our present and potential competitors have research and
development capabilities that may allow them to develop new or improved
products that may compete with our product lines. Our products could be
rendered obsolete or made uneconomical by the development of new products to
treat the conditions addressed by our products, technological advances
affecting the cost of production, or marketing or pricing actions by one or
more of our competitors. Each of our products competes for a share of the
existing market with numerous products that have become standard treatments
recommended or prescribed by dermatologists, pediatricians and podiatrists.

Several of our core brands compete or may compete in the near future with
generic (non-branded) pharmaceuticals, which claim to offer equivalent
therapeutic benefits at a lower cost. In some cases, insurers and other
third-party payors seek to encourage the use of generic products, making
branded products less attractive, from a cost perspective, to buyers.

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GOVERNMENT REGULATION

The manufacture and sale of cosmetics and drugs are subject to regulation
principally by the FDA and state and local authorities in the United States,
and by comparable agencies in certain foreign countries. The Federal Trade
Commission (FTC) and state and local authorities regulate the advertising of
over-the-counter drugs and cosmetics. The Food and Drug Act and the regulations
promulgated thereunder, and other federal and state statutes and regulations,
govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of our
products. In general, products falling within the FDAs definition of new
drugs require premarketing clearance by the FDA. Products falling within the
FDAs definition of cosmetics or of drugs that are not new drugs and that
are generally recognized as safe and effective do not require premarketing
clearance.

The steps required before a new drug may be marketed in the United
States include (i) preclinical laboratory and animal testing, (ii) submission
to the FDA of an Investigational New Drug (or IND) application, which must
become effective before clinical trials may commence, (iii) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
drug, (iv) submission to the FDA of a New Drug Application (or NDA) and (v)
FDA approval of the NDA prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic
drug-manufacturing establishment must be registered with, and approved by, the
FDA. Drug product manufacturing establishments located in California also must
be licensed by the State of California in compliance with separate regulatory
requirements.

Preclinical testing is generally conducted on laboratory animals to
evaluate the potential safety and the efficacy of a drug. The results of these
studies are submitted to the FDA as a part of an IND application, which must be
approved before clinical trials in humans can begin. Typically, clinical
evaluation involves a time consuming and costly three-phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the early safety profile, the pattern of drug distribution and metabolism. In
Phase II, clinical trials are conducted with groups of patients afflicted with
a specific disease to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In Phase III, large-scale, multi-center,
comparative trials are conducted with patients afflicted with a target disease
to provide sufficient data to demonstrate the efficacy and safety required by
the FDA. The FDA closely monitors the progress of each of the three phases of
clinical trials and may, at its discretion, re-evaluate, alter, suspend or
terminate the testing based upon the data that have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient.

In general, FDA approval is required before a new drug product may be
marketed in the United States. However, most over-the-counter drugs are exempt
from the FDAs premarketing approval requirements. In 1972, the FDA instituted
the ongoing over-the-counter Drug Review to evaluate the safety and
effectiveness of over-the-counter drug ingredients then in the market. Through
this process, the FDA issues monographs that set forth the specific active
ingredients, dosages, indications and labeling statements for over-the-counter
drug ingredients that the FDA will consider generally recognized as safe and
effective and therefore not subject to premarket approval. Over-the-counter
drug ingredients are classified by the FDA in one of three categories: Category
I ingredients which are deemed safe and effective for over-the-counter use;
Category II ingredients which are deemed not generally recognized as safe and
effective for over-the-counter use; and Category III ingredients which are
deemed possibly safe and effective with studies ongoing. Based upon the
results of these ongoing studies, the FDA may reclassify all Category III
ingredients as Category I or Category II ingredients. For certain categories of
over-the-counter drugs not yet subject to a final monograph, the FDA usually
permits such drugs to continue to be marketed until a final monograph becomes
effective, unless the drug will pose a potential health hazard to consumers.
Drugs subject to final monographs, as well as drugs that are subject only to
proposed monographs, are subject to various FDA regulations concerning, for
example, cGMP, general and specific over-the-counter labeling requirements and
prohibitions against promotion for conditions other than those stated in the
labeling. Over-the-counter drug manufacturing facilities are subject to FDA
inspection, and failure to comply with applicable regulatory requirements may
lead to administrative or judicially imposed penalties.

The active ingredients in LOPROX® have been approved by the FDA under an
NDA. The active ingredients in DYNACIN® and ORAPRED® have been approved by the
FDA under an Abbreviated New Drug

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Application (ANDA). The active ingredient in the TRIAZ® products has been
classified as a Category III ingredient under a tentative final FDA monograph
for over-the-counter use in treatment of labeled conditions. The FDA has
requested, and a task force of the Non-Prescription Drug Manufacturers
Association (or NDMA), a trade association of over-the-counter drug
manufacturers, has undertaken further studies to confirm that benzoyl peroxide,
an active ingredient in the TRIAZ® products, is not a tumor promoter when
tested in conjunction with UV light exposure. The TRIAZ® products, which we
sell on a prescription basis, have the same ingredients at the same dosage
levels as the over-the-counter products. When the FDA issues the final
monograph, we may be required by the FDA to sell TRIAZ® as an over-the-counter
drug unless we file an NDA covering such product. There can be no assurance as
to the results of these studies or any FDA action to reclassify benzoyl
peroxide. In addition, there can be no assurance that adverse test results
would not result in withdrawal of TRIAZ® from marketing. An adverse decision by
the FDA with respect to the safety of benzoyl peroxide could result in the
assertion of product liability claims against us and could have a material
adverse effect on our business, financial condition and results of operations.

Our LUSTRA® branded products contain the active ingredient hydroquinone at
a 4% concentration. Independent expert dermatologists have formally expressed
the view that hydroquinone is generally recognized as safe and effective for
its intended use. In 1992, with the concurrence of the FDA, the industry
initiated dermatological metabolism and toxicity studies to fully support
hydroquinones continued Category I status. Notwithstanding the pendency or
results of these tests, the FDA may elect to classify hydroquinone as a
Category III ingredient. If hydroquinone is not maintained as a Category I or
Category III ingredient, we would be required to cease marketing the LUSTRA®
branded products and could be subject to product liability claims. An adverse
decision by the FDA on the safety of hydroquinone could harm our business,
financial condition and results of operations.

Our TRIAZ® and LUSTRA® branded products must meet the composition and
labeling requirements established by the FDA for products containing their
respective basic ingredients. We believe that compliance with those established
standards avoids the requirement for premarketing clearance of these products.
There can be no assurance that the FDA will not take a contrary position. Our
PLEXION® branded products, which contain the active ingredients sodium
sulfacetamide and sulfur, are marketed under the FDA compliance policy entitled
Marketed New Drugs without Approved NDAs or ANDAs.

We believe that certain of our products, as they are promoted and intended
by us for use, are exempt from being considered new drugs based upon the
introduction date of their active ingredients and therefore do not require
premarketing clearance. There can be no assurance that the FDA will not take a
contrary position. If the FDA were to do so, we may be required to seek FDA
approval for these products, market these products as over-the-counter products
or withdraw such products from the market. We believe that these products are
subject to regulations governing product safety, use of ingredients, labeling,
promotion and manufacturing methods.

We also will be subject to foreign regulatory authorities governing
clinical trials and pharmaceutical sales if we seek to market our products
outside the United States. Whether or not FDA approval has been obtained,
approval of a product by the comparable regulatory authorities of foreign
countries must be obtained prior to the commencement of marketing the product
in those countries. The approval process varies from country to country, the
approval process time required may be longer or shorter than that required for
FDA approval, and any foreign regulatory agency may refuse to approve any
product we submit for review.

EMPLOYEES

At June 30, 2003, we had 311 full-time employees. We believe our
relationship with our employees is good.

AVAILABLE INFORMATION

We make available free of charge on or through our Internet website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, if any, filed or furnished
pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. Our Internet website
address is www.medicis.com and you can find these reports under Investor
Relations  SEC

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Filings captions. The information contained on our website is not intended to
be incorporated into this annual report on Form 10-K.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

Our discussion and analysis in this report, in other reports that we file
with the Securities and Exchange Commission, in our press releases and in
public statements of our officers and corporate spokespersons contain
forward-looking statements. Forward-looking statements give our current
expectations or forecasts of future events. You can identify these statements
by the fact that they do not relate strictly to historical or current events.
They use words such as anticipate, estimate, expect, intend, will,
plan, believe and other words of similar meaning in connection with
discussion of future operating or financial performance. These include
statements relating to future actions, prospective products or product
approvals, future performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies such as legal proceedings
and financial results.

Forward-looking statements may turn out to be wrong. They can be affected
by inaccurate assumptions or by known or unknown risks and uncertainties. Many
factors mentioned in this report  for example, governmental regulation and
competition in our industry  will be important in determining future results.
No forward-looking statement can be guaranteed, and actual results may vary
materially from those anticipated in any forward-looking statement.

Medicis undertakes no obligation to update any forward-looking statement.
We provide the following discussion of risks and uncertainties relevant to our
business. These are factors that we think could cause our actual results to
differ materially from expected and historical results. Our business, financial
condition or results of operation could also be adversely affected by other
factors besides those listed here.

RISKS RELATED TO OUR BUSINESS

We Derive A Majority Of Our Prescription Volume From Our Core Branded Products,
And Any Factor Adversely Affecting The Prescription Volume Related To These
Products Could Harm Our Business, Financial Condition And Results Of Operations

We derive a majority of our prescription volume from our core branded
products. We believe that the prescription volume of our core branded products
and the potential launch of RESTYLANE® will constitute the majority of our
sales for the foreseeable future. Accordingly, any factor adversely affecting
our sales related to these products, individually or collectively, could harm
our business, financial condition and results of operations. Many of our core
branded products are subject to generic competition or may be in the near
future. Each of our core branded products could be rendered obsolete or
uneconomical by regulatory or competitive changes. Sales related to our core
branded products and RESTYLANE® could also be adversely affected by other
factors, including:



| |  |  | manufacturing or supply interruptions;                                                                                                       
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the development of new competitive pharmaceuticals and
technological advances to treat the conditions addressed by our core
branded products;
|
| |  |  | marketing or pricing actions by one or more of our competitors;                                                                              
|
| |  |  | regulatory action by the FDA and other government regulatory agencies;                                                                       
|
| |  |  | changes in the prescribing or procedural practices of
dermatologists, pediatricians 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; and                                            
|
| |  |  | restrictions on travel affecting the ability of our sales
force to market to prescribing physicians in person.                               

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Our Operating Results And Financial Condition May Fluctuate

Our operating results and financial condition may fluctuate from quarter
to quarter and year to year depending upon the relative timing of events or
uncertainties which may arise. The following events or occurrences, among
others, could cause fluctuations in our financial performance from period to
period:



| |  |  | changes in the amount we spend to develop, acquire or license
new products, technologies or businesses;                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                                      
|
| |  |  | development of new competitive products by others;                                                                                                                          
|
| |  |  | the mix of products that we sell during any time period;                                                                                                                    
|
| |  |  | our responses to price competition;                                                                                                                                         
|
| |  |  | expenditures as a result of legal actions;                                                                                                                                  
|
| |  |  | 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 non-core 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;              
|
| |  |  | seasonality of demand for our products;                                                                                                                                     
|
| |  |  | our level of research and development activities; and                                                                                                                       
|
| |  |  | our board of directors determination whether to expense stock options.                                                                                                     

We Depend Upon Our Key Personnel And Our Ability To Attract, Train, And Retain
Employees

Our success depends significantly on the continued individual and
collective contributions of our senior management team. We have not entered
into employment agreements with any of our key managers, with the exception of
our Chairman and Chief Executive Officer. The loss of the services of any
member of our senior management or the inability to hire and retain experienced
management personnel could adversely affect our ability to execute our business
plan and harm our operating results. In addition, our future success depends
on our ability to hire, train and retain skilled employees. Competition for
these employees is intense.

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 strategy for continued growth includes the acquisition of products,
technologies and businesses. These acquisitions could involve acquiring other
pharmaceutical companies assets, products or technologies. In addition, we
may seek to obtain licenses or other rights to develop, manufacture and
distribute products. We cannot be certain that we will be able to identify
suitable acquisition or licensing candidates or if any will be available on
acceptable terms. Other pharmaceutical companies, with greater financial,
marketing and sales resources than we have, have

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also tried to grow through similar acquisition and licensing strategies.
Because of their greater resources, our competitors may be able to offer better
terms for an acquisition or license than we can offer, or they may be able to
demonstrate a greater ability to market licensed products.

We Cannot Assure You That The FDA Will Approve RESTYLANE® In A Timely Fashion
Or At All

In March 2003, we completed our acquisition of the rights to market,
distribute and commercialize the dermal filler product lines known as
RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM in the U.S. and Canada. The
products are approved for sale in Canada. A pre-market approval application
for RESTYLANE® was filed with the FDA in June 2002 and is currently under
review. An Advisory Panel meeting to consider this application has been
scheduled by the FDA for November 21, 2003. If we experience delays in
obtaining FDA approval or if the FDA does not approve RESTYLANE® at all, our
financial performance could be materially and negatively affected. In
addition, in countries where RESTYLANE® is currently marketed, no patient
sensitivity tests are required in advance of product administration. We cannot
assure you that the FDA will approve RESTYLANE® without a sensitivity test
requirement, or for the same indications as approved in other countries. Even
if the FDA does approve our RESTYLANE® application, we cannot assure you that
the FDA will approve supplements to the pre-market approval of PERLANETM and
RESTYLANE Fine LinesTM in a timely fashion, or for the same indications as
approved in other countries, or at all.

We Cannot Assure You That Our Dermal Aesthetic Enhancement Products Will
Achieve Widespread Acceptance

We cannot assure you that we will be able to achieve market acceptance of
our dermal aesthetic enhancement products. This market is very competitive and
some of our competitors have been competing in this market for a significant
period of time. Additionally, we expect that new competitors will be entering
this market. We understand that a competing products pre-market approval
application with the FDA is scheduled to be reviewed by an FDA Advisory Panel
on November 21, 2003, the same date that our application for RESTYLANE® is
scheduled to be reviewed. If we are unable to anticipate, identify or to react
to competitive products or if changing consumer preferences in the dermal
aesthetic enhancement marketplace shift to other treatments for the treatment
of fine lines and wrinkles, shaping facial contours, correcting deep facial
folds and enhancing the appearance and fullness of lips, we may experience
difficulties in achieving market acceptance or may experience a decline in
demand for RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM. In addition, the
popular media may produce negative reports on the efficacy, safety or side
effects of these products, which could negatively impact consumer perceptions
of the product and negatively influence market acceptance or cause a decline in
demand. We cannot assure you that consumers will prefer RESTYLANE®, PERLANETM
and RESTYLANE Fine LinesTM over other treatment options, or that we will be
able to respond in a timely manner to changes in consumer preferences.

We Cannot Assure You That We Will Effectively Integrate Our Dermal Aesthetic
Enhancement Products Into Our Existing Business Or That Our Marketing Efforts
Of The Products Will Be Successful

We will not be able to achieve the benefits of the acquisition of
RESTYLANE® unless we are able to integrate the operations of the dermal
aesthetic enhancement products with our existing products. Moreover, the
integration of these operations requires substantial attention from management
and any diversion of managements attention away from our existing business
could adversely impact our operations. In anticipation of the commercial
launch of RESTYLANE® in the U.S., we are expending significant resources. We
will not see any revenue associated with that investment until commercial sales
of RESTYLANE® begin, if at all. Although we have experience in the sales and
marketing of dermatological, pediatric and podiatric products, we have no such
experience in the dermal aesthetic enhancement market. We cannot assure you
that we will be able to hire and maintain personnel with experience in the
dermal aesthetic enhancement market or execute our business plan with respect
to this market segment.

The continued effectiveness, or persistence, of RESTYLANE® correlates
directly with the physicians injection technique at the time of
administration. We are prevented from conducting patient-based training of
physicians in the U.S. until the FDA has approved the RESTYLANE® application.
Accordingly, if immediately

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following the commercial launch of RESTYLANE® patients who receive treatments
experience a lack of persistence due to non-optimal administration by
physicians, future sales of RESTYLANE® could be adversely impacted.

We Could Experience Difficulties In Obtaining Supplies of RESTYLANE®, PERLANETM
And RESTYLANE Fine LinesTM

The manufacturing process to create bulk non-animal stabilized hyaluronic
acid necessary to produce RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM is
technically complex and requires significant lead-time. Any failure by us to
accurately forecast demand for finished product could result in an interruption
in the supply of RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM and a
resulting decrease in sales of the products. In addition, because of the
lead-time associated with obtaining a supply of RESTYLANE® following FDA
approval, we may not be in a position to immediately launch and sell these
products in the U.S.

We depend exclusively on Q-Med for our supply of RESTYLANE®, PERLANETM and
RESTYLANE Fine LinesTM. There are currently no alternative suppliers of these
products. Q-Med has committed to supply RESTYLANE® to us under a perpetual
license that is subject to customary conditions and our delivery of specified
milestone payments. Q-Med manufactures RESTYLANE®, PERLANETM and RESTYLANE
Fine LinesTM at its facility in Uppsala, Sweden. We cannot be certain that
Q-Med will be able to meet our current or future supply requirements. Any
impairment of Q-Meds manufacturing capacities could significantly affect our
inventories and our supply of products available for sale.

If Q-Med Is Unable To Protect Its Intellectual Property And Proprietary Rights
With Respect To Our Dermal Aesthetic Enhancement Products, Our Business Could
Suffer

RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM currently have patent
protection in the U.S. until 2015 and the exclusivity period of the license
granted to us by Q-Med ends when the last patent covering the products expires.
If the validity or enforceability of these patents is challenged, the cost to
our company could be significant and our business may be harmed. If any such
challenge is successful, Q-Med may be unable to supply products to us, we may
be unable to market, distribute and commercialize the products or it may no
longer be profitable for us to do so.

Our Continued Growth Depends Upon Our Ability To Develop New Products

We have internally developed potential pharmaceutical compounds and
agents. We also have acquired the rights to certain potential compounds and
agents in various stages of development. We currently have a variety of new
products in various stages of research and development and are working on
possible improvements, extensions and reformulations of some existing products.
These research and development activities, as well as the clinical testing and
regulatory approval process, which must be completed before commercial
quantities of these developments can be sold, will require significant
commitments of personnel and financial resources. Due to the limited financial
resources available for research and development, we cannot assure you that we
will be able to develop a product or technology in a timely matter, or at all.
Delays in the research, development, testing or approval processes will cause a
corresponding delay in revenue generation from those products. Regardless of
whether they are ever released to the market, the expense of such processes
will have already been incurred.

We reevaluate our research and development efforts regularly to assess
whether our efforts to develop a particular product or technology are
progressing at a rate that justifies our continued expenditures. On the basis
of these reevaluations, we have abandoned in the past, and may abandon in the
future, our efforts on a particular product or technology. Products that we
research or develop may not be successfully commercialized. If we fail to take
a product or technology from the development stage to market on a timely basis,
we may incur significant expenses without a near-term financial return.

We have in the past, and may in the future, supplement our internal
research and development by entering into research and development agreements
with other pharmaceutical companies. We may, upon entering into such
agreements, be required to make significant up-front payments to fund the
project. We cannot be sure, however, that we will be able to locate adequate
research partners or that supplemental research will be available on terms

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acceptable to us in the future. If we are unable to enter into additional
research partnership arrangements, we may incur additional costs to continue
research and development internally or abandon certain projects. Even if we
are able to enter into collaborations, we cannot assure you that these
arrangements will result in successful product development or
commercialization.

We Depend On Licenses From Others, And Any Loss Of Such Licenses Could Harm Our
Business, Market Share And Profitability

We have acquired the rights to manufacture, use and market certain
products, including certain of our core products. We also expect to continue to
obtain licenses for other products and technologies in the future. Our license
agreements generally require us to develop a market for the licensed products.
If we do not develop these markets within specified time frames, the licensors
may be entitled to terminate these license agreements.

We may fail to fulfill our obligations under any particular license
agreement for various reasons, including insufficient resources to adequately
develop and market a product, and lack of market development despite our
diligence and lack of product acceptance. Our failure to fulfill our
obligations could result in the loss of our rights under a license agreement.

Our inability to continue the distribution of any particular licensed
product could harm our business, market share and profitability. Also, certain
products we license are used in connection with other products we own or
license. A loss of a license in such circumstances could materially harm our
ability to market and distribute these other products.

Our growth and acquisition strategy depends upon the successful
integration of licensed products with our existing products. Therefore, any
loss, limitation or flaw in a licensed product could impair our ability to
market and sell our products, delay new product development and introduction,
and harm our reputation. These problems, individually or together, could harm
our business and results of operation.

We Depend On A Limited Number Of Customers, And If We Lose Any Of Them, Our
Business Could Be Harmed

Our customers include some of the nations leading wholesale
pharmaceutical distributors, such as AmerisourceBergen, Cardinal, McKesson,
Quality King, and major drug chains. During fiscal 2003, Cardinal, McKesson,
Quality King and AmerisourceBergen accounted for 25.4%, 20.2%, 17.0% and 15.5%,
respectively, of our net revenues. The loss of any of these customers
accounts or a material reduction in their purchases could harm our business,
financial condition or results of operations. In addition, we may face pricing
pressure from our customers.

The distribution network for pharmaceutical products has, in recent years,
been subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the
number of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to our company,
cause a reduction in the inventory levels of distributors and retailers, or
otherwise result in reductions in purchases of our products, any of which could
harm our business, financial condition and results of operations.

We Rely On Others To Manufacture Our Products

Currently, we outsource all of our product manufacturing needs. Typically,
our manufacturing contracts are short-term. We are dependent upon renewing
agreements with our existing manufacturers or finding replacement manufacturers
to satisfy our requirements. As a result, we cannot be certain that
manufacturing sources will continue to be available or that we can continue to
outsource the manufacturing of our products on reasonable or acceptable terms.

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The underlying cost to us for manufacturing our products is established in
our agreements with these outside manufacturers. Because of the short-term
nature of these agreements, our expenses for manufacturing are not fixed and
could change from contract to contract. If the cost of production increases,
our gross margins could be negatively affected.

In addition, we rely on outside manufacturers to provide us with an
adequate and reliable supply of our products on a timely basis. Loss of a
supplier or any difficulties that arise in the supply chain could significantly
affect our inventories and supply of products available for sale. We do not
have alternative sources of supply for all of our products. If a primary
supplier of any of our core products is unable to fulfill our requirements for
any reason, it could reduce our sales, margins and market share, as well as
harm our overall business and financial results. If we are unable to supply
sufficient amounts of our products on a timely basis, our revenues and market
share could decrease and, correspondingly, our profitability could decrease.

Under several exclusive supply agreements, with certain exceptions, we
must purchase most of our product supply from specific manufacturers. If any of
these exclusive manufacturer or supplier relationships were terminated, we
would be forced to find a replacement manufacturer or supplier. The FDA
requires that all manufacturers used by pharmaceutical companies comply with
the FDAs regulations, including the cGMP regulations applicable to
manufacturing processes. The cGMP validation of a new facility and the approval
of that manufacturer for a new drug product may take a year or more before
manufacture can begin at the facility. Delays in obtaining FDA validation of a
replacement manufacturing facility could cause an interruption in the supply of
our products. Although we have business interruption insurance covering the
loss of income for up to 12 months, which may mitigate the harm to us from the
interruption of the manufacturing of our largest selling products caused by
certain events, the loss of a manufacturer could still cause a reduction in our
sales, margins and market share, as well as harm our overall business and
financial results.

Our Reliance On Third-Party Manufacturers And Suppliers Can Be Disruptive To
Our Inventory Supply

We and the manufacturers of our products rely on suppliers of raw
materials used in the production of our products. Some of these materials are
available from only one source and others may become available from only one
source. Any disruption in the supply of raw materials or an increase in the
cost of raw materials to our manufacturers could have a significant effect on
their ability to supply us with our products.

We try to maintain inventory levels that are no greater than necessary to
meet our current projections. Any interruption in the supply of finished
products could hinder our ability to timely distribute finished products. If we
are unable to obtain adequate product supplies to satisfy our customers
orders, we may lose those orders and our customers may cancel other orders and
stock and sell competing products. This in turn could cause a loss of our
market share and reduce our revenues.

Supply Interruptions May Disrupt Our Inventory Levels And The Availability Of
Our Products

Numerous factors could cause interruptions in the supply of our finished
products, including:



| |  |  | 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; and
|
| |  |  | conditions affecting the cost and availability of raw materials.                           

We estimate anticipated customer demand for our products primarily through
use of third party syndicated data sources which track prescriptions written by
health care providers and dispensed by licensed pharmacies. These data are
extrapolations from information provided only by certain pharmacies, and are
estimates of historical demand levels. We observe trends from these data, and,
coupled with certain proprietary information, prepare demand forecasts that are
the basis for purchase orders for finished and component inventory from our
third party manufacturers and suppliers. Our forecasts may fail to accurately
anticipate ultimate customer demand for products.

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Overestimates of demand may result in excessive inventory production;
underestimates may result in inadequate supply of our products in channels of
distribution.

We sell our products primarily to major wholesalers and retail pharmacy
chains. Consistent with pharmaceutical industry patterns, approximately 80% of
our revenues are derived from four major drug wholesale concerns. While we
attempt to estimate inventory levels of our products at our major wholesale
customers, using historical prescription information and historical purchase
patterns, this process is inherently imprecise. Rarely do wholesale customers
provide us complete inventory levels at regional distribution centers, or
within their national distribution systems. We rely wholly upon our wholesale
and drug chain customers to effect the distribution allocation of our products.
There can be no assurance that these customers will adequately manage their
local and regional inventories to avoid spot outages. Based upon historically
consistent purchasing patterns of our major wholesale customers, we believe our
estimates of trade inventory levels of our products are reasonable. We further
believe that inventories of our products among wholesale customers, taken as a
whole, are similar to those of other specialty pharmaceutical companies, and
that our trade practices, which periodically involve volume discounts and early
payment discounts, are typical of the industry.

We periodically offer promotions to wholesale and chain drugstore
customers to encourage dispensing of our products, consistent with a health
care providers prescription. Because many of our products compete in
multi-source markets, it is important for us to ensure the licensed health care
providers dispensing instructions are fulfilled with our branded products and
are not substituted with a generic product or another therapeutic alternative
product which may be contrary to the licensed health care providers
recommended prescribed Medicis brand. We believe that a critical component of
our brand protection program is maintenance of full product availability at
drugstore and wholesale customers. Such availability strongly reduces the
probability of local and regional product substitutions, shortages and
backorders, which could result in lost sales. We expect to continue providing
favorable terms to wholesale and retail drug chain customers as may be
necessary to ensure the fullest possible distribution of our branded products
within the pharmaceutical chain of commerce.

We cannot control or influence greatly the purchasing patterns of
wholesale and retail drug chain customers. These are highly sophisticated
customers that purchase our products in a manner consistent with their industry
practices and perceived business interests. Our sales are subject to the
purchase requirements of our major customers, which, presumably, are based upon
their projected demand levels. Purchases by any given customer, during any
given measurement period, may be above or below actual prescription volumes of
one or more of our products during the same measurement period, resulting in
increases or decreases in product inventory existing in the distribution
channel, which are managed presumably in accordance with such customers
business practices.

Fluctuations In Demand For Our Products Create Inventory Maintenance
Uncertainties

We typically experience greater revenues and, correspondingly, greater
income during the last month of each fiscal quarter. We attempt to match our
expenditures for inventory with these historical fluctuations in demand.
However, if these demand patterns change or we experience even a short delay in
delivery of inventory, revenue could be deferred or even lost if products are
unavailable to meet peak demand. A deferral of revenue to a later period, or
the loss of revenue completely, could cause significant period-to-period
fluctuations in our operating results, as a significant portion of our
operating expenses are fixed in the short term. These fluctuations could result
in our not meeting earnings expectations or result in operating losses for a
particular period.

Our Success Depends On Our Ability To Manage Our Growth

We recently experienced a period of rapid growth from both acquisitions
and internal expansion of our operations. This growth has placed significant
demands on our human and financial resources. We must continue to improve our
operational, financial and management information controls and systems and
effectively motivate, train and manage our employees to properly manage this
growth. Even if these steps are taken, we cannot be sure that our recent
acquisitions will be assimilated successfully into our business operations. If
we do not manage this growth effectively, maintain the quality of our products
despite the demands on our resources and retain key personnel, our business
could be harmed.

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If We Are Unable To Secure And Protect Our Intellectual Property and
Proprietary Rights, Our Business Could Suffer

We believe that the protection of our trademarks and service marks is an
important factor in product recognition and in our ability to maintain or
increase market share. If we do not adequately protect our rights in our
various trademarks and service marks from infringement, their value to us could
be lost or diminished. If the marks we use are found to infringe upon the
trademark or service mark of another company, we could be forced to stop using
those marks and, as a result, we could lose the value of those marks and could
be liable for damages caused by an infringement.

The patents and patent applications in which we have an interest may be
challenged as to their validity or enforceability. Challenges may result in
potentially significant harm to our business. The cost of responding to these
challenges and the inherent costs to defend the validity of our patents,
including the prosecution of infringements and the related litigation, could be
substantial. Such litigation also could require a substantial commitment of our
managements time.

We are pursuing several U.S. patent applications, although we cannot be
sure that any of these patents will ever be issued. We also have acquired
rights under certain patents and patent applications in connection with our
licenses to distribute products and by assignment of rights to patents and
patent applications from certain of our consultants and officers. These patents
and patent applications may be subject to claims of rights by third parties. If
there are conflicting claims to the same patent or patent application, we may
not prevail and, even if we do have some rights in a patent or patent
application, those rights may not be sufficient for the marketing and
distribution of products covered by the patent or patent application.

The ownership of a patent or an interest in a patent does not always
provide significant protection. Others may independently develop similar
technologies or design around the patented aspects of our technology. We only
conduct patent searches to determine whether our products infringe upon any
existing patents when we think such searches are appropriate. As a result, the
products and technologies we currently market, and those we may market in the
future, may infringe on patents and other rights owned by others. If we are
unsuccessful in any challenge to the marketing and sale of our products or
technologies, we may be required to license the disputed rights, if the holder
of those rights is willing, or to cease marketing the challenged products, or
to modify our products to avoid infringing upon those rights. A claim or
finding of infringement regarding one of our products could harm our business,
financial condition and results of operations. The costs of responding to
infringement claims could be substantial and could require a substantial
commitment of our managements time. The expiration of patents may expose our
products to additional competition.

We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation in developing and manufacturing many of our
core products. We require all of our employees, consultants and advisors to
enter into confidentiality agreements prohibiting them from taking or
disclosing our proprietary information and technology. Nevertheless, these
agreements may not provide meaningful protection for our trade secrets and
proprietary know-how if they are used or disclosed. Despite all of the
precautions we may take, people who are not parties to confidentiality
agreements may obtain access to our trade secrets or know-how. In addition,
others may independently develop similar or equivalent trade secrets or
know-how.

If We Become Subject To Product Liability Claims, Our Earnings And Financial
Condition Could Suffer

We are exposed to risks of product liability claims from allegations that
our products resulted in adverse effects to the patient or others. These risks
exist even with respect to those products that are approved for commercial sale
by the FDA and manufactured in facilities licensed and regulated by the FDA.

In addition to our desire to reduce the scope of our potential exposure to
these types of claims, many of our customers require us to maintain product
liability insurance as a condition of conducting business with us. We currently
carry product liability insurance in the amount of $50.0 million per claim and
$50.0 million in the aggregate on a claims-made basis. Nevertheless, this
insurance may not be sufficient to cover all claims made against

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us. We also cannot be certain that our current coverage will continue to be
available in the future on reasonable terms, if at all. If we are liable for
any product liability claims in excess of our coverage or outside of our
coverage, the cost and expense of such liability could cause our earnings and
financial condition to suffer.

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

To enable us to focus on our core marketing and sales activities, we
selectively outsource certain non-sales and non-marketing functions, such as
laboratory research, manufacturing and warehousing. As we expand our
activities in these areas, additional financial resources are expected to be
utilized. We typically do not enter into long-term manufacturing contracts
with third party manufacturers. Whether or not such contracts exist, we cannot
assure you that we will be able to obtain adequate supplies of such services or
products in a timely fashion, on acceptable terms, or at all.

Our Reported Earnings Per Share May Be More Volatile Because Of The Conversion
Contingency Provision In Our Notes And New Notes

In June 2002 we sold Contingent Convertible Senior Notes, due in 2032 (the
Notes), in the amount of $400.0 million. In August 2003 we exchanged
approximately $230.8 million in principal of these Notes for approximately
$283.9 million of our Contingent Convertible Senior Notes due in 2033 (the New
Notes). Included in the terms of the Notes and the New Notes is a provision
that allows the holders of the Notes and New Notes to convert the Notes and New
Notes into our Class A common stock during any quarter commencing after June
30, 2002, and September 30, 2003, respectively, if the closing sale price of
our Class A common stock reaches certain milestone thresholds. Until this
contingency is met, the shares underlying the remaining Notes and New Notes are
not included in the calculation of basic or fully diluted earnings per share.
Should this contingency be met, earnings per share would be expected to
decrease as a result of the inclusion of the underlying shares in the earnings
per share calculation. Volatility in our stock price could cause this
condition to be met in one quarter and not in a subsequent quarter, increasing
the volatility of fully diluted earnings per share.

We May Not Be Able To Repurchase The Notes And New Notes When Required To

On June 4, 2007, 2012 and 2017 and upon the occurrence of a change in
control, holders of the remaining Notes may require us to offer to repurchase
their Notes for cash. On June 4, 2008. 2013 and 2018 and upon the occurrence
of a change in control, holders of the New Notes may require us to offer to
repurchase their New Notes for cash. We may not have sufficient funds at the
time of any such events to make the required repurchases.

The source of funds for any repurchase required as a result of any such
events will be our available cash or cash generated from operating activities
or other sources, including borrowings, sales of assets, sales of equity or
funds provided by a new controlling entity. We cannot assure you, however,
that sufficient funds will be available at the time of any such events to make
any required repurchases of the Notes tendered. Furthermore, the use of
available cash to fund the repurchase of the Notes or New Notes may impair our
ability to obtain additional financing in the future.

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

Our operating results and business success depend in large part on the
availability of adequate third-party payor reimbursement to patients for our
prescription-brand products. These third-party payors include governmental
entities such as Medicaid, private health insurers and managed care
organizations. Because of the size of the patient population covered by
managed care organizations, marketing of prescription drugs to them and the
pharmacy benefit managers that serve many of these organizations has become
important to our business.

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Managed care organizations and other third party payors try to negotiate
the pricing of medical services and products to control their costs. Managed
care organizations and pharmacy benefit managers typically develop formularies
to reduce their cost for medications. Formularies can be based on the prices
and therapeutic benefits of the available products. Due to their lower costs,
generic products are often favored. The breadth of the products covered by
formularies varies considerably from one managed care organization to another,
and many formularies include alternative and competitive products for treatment
of particular medical conditions. Exclusion of a product from a formulary can
lead to its sharply reduced usage in the managed care organization patient
population. Payment or reimbursement of only a portion of the cost of our
prescription products could make our products less attractive, from a net-cost
perspective, to patients, suppliers and prescribing physicians. We cannot be
certain that the reimbursement policies of these entities will be adequate for
our branded pharmaceutical products to compete on a price basis. If our
products are not included within an adequate number of formularies or adequate
reimbursement levels are not provided, or if those policies increasingly favor
generic products, our market share and gross margins could be harmed, as could
our overall business and financial condition.

Some of our products are not of a type generally eligible for
reimbursement. It is possible that products manufactured by others could
address the same effects as our products and be subject to reimbursement. If
this were the case, some of our products may be unable to compete on a price
basis. In addition, decisions by state regulatory agencies, including state
pharmacy boards, and / or retail pharmacies may require substitution of generic
for branded products, may prefer competitors products over our own, and may
impair our pricing and thereby constrain our market share and growth.

Managed care initiatives to control costs have influenced primary-care
physicians to refer fewer patients to dermatologists and other specialists.
Further reductions in these referrals could reduce the size of our potential
market, and harm our business, financial condition and results of operation.

We Are Subject To Extensive Governmental Regulation

Pharmaceutical companies are subject to significant regulation by a number
of national, state and local agencies. The FDA has jurisdiction over all of our
business and administers requirements covering testing, manufacturing, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. In addition, the FTC and state and local authorities
regulate the advertising of over-the-counter drugs and cosmetics. Failure to
comply with applicable regulatory requirements could, among other things,
result in:



| |  |  | fines;                                                 
| | - |  | -------------------------------------------------------
|
| |  |  | changes to advertising;                                
|
| |  |  | suspensions of regulatory approvals of products;       
|
| |  |  | product recalls;                                       
|
| |  |  | delays in product distribution, marketing and sale; and
|
| |  |  | civil or criminal sanctions.                           

Our prescription and over-the-counter products receive FDA review
regarding their safety and effectiveness. However, the FDA is permitted to
revisit and change its prior determinations. We cannot be sure that the FDA
will not change its position with regard to the safety or effectiveness of our
products. If the FDAs position changes, we may be required to change our
labeling or formulations or cease to manufacture and market the challenged
products. Even prior to any formal regulatory action, we could voluntarily
decide to cease distribution and sale or recall any of our products if concerns
about the safety or effectiveness develop.

Before marketing any drug that is considered a new drug by the FDA, the
FDA must provide its approval of the product. All products which are considered
drugs which are not new drugs and that generally are recognized by the FDA as
safe and effective for use do not require the FDAs approval. We believe that
some of our products, as they are promoted and intended for use, are exempt
from treatment as new drugs and are not subject to approval by the FDA. The
FDA, however, could take a contrary position and we could be required to seek
FDA approval of those products and the marketing of those products. We could
also be required to withdraw those products from the market.

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Obtaining FDA And Other Regulatory Approvals Is Time Consuming And Expensive

The process of obtaining FDA and other regulatory approvals is time
consuming and expensive. Clinical trials are required and the marketing and
manufacturing of pharmaceutical products are subject to rigorous testing
procedures. We may not be able to obtain FDA approval to conduct clinical
trials or to manufacture or market any of the products we develop, acquire or
license (including RESTYLANE®) on a timely basis or at all. Moreover, the
costs to obtain approvals could be considerable and the failure to obtain or
delays in obtaining an approval could significantly harm our business
performance and financial results. Even if pre-marketing approval from the FDA
is received, the FDA is authorized to impose post-marketing requirements such
as:



| |  |  | testing and surveillance to monitor the product and its
continued compliance with regulatory requirements;                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | submitting products 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;                                                                                                    
|
| |  |  | recalling products; and                                                                                                                                         
|
| |  |  | withdrawing marketing clearance.                                                                                                                                

In their regulation of advertising, the FDA and FTC from time to time
issue correspondence to pharmaceutical companies alleging that some advertising
or promotional practices are false, misleading or deceptive. The FDA has the
power to impose a wide array of sanctions on companies for such advertising
practices, and the receipt of correspondence from the FDA alleging these
practices could result in the following:



| |  |  | 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.                                                   

In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that include major changes in the
health care system. These proposals have included price or patient
reimbursement constraints on medicines, restrictions on access to certain
products and mandatory substitution of generic for branded products. We cannot
predict the outcome of such initiatives, and it is difficult to predict the
future impact of the broad and expanding legislative and regulatory
requirements affecting us.

We Face Significant Competition Within Our Industry

The pharmaceutical industry is highly competitive. Competition in our
industry occurs on a variety of fronts, including:



| |  |  | 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.        

Many of our competitors are large, well-established companies in the
fields of pharmaceuticals, chemicals, cosmetics and health care. Our
competitors include Aventis, Bristol-Myers Squibb, Elan, Galderma,
GlaxoSmithKline, ICN Pharmaceuticals, Johnson & Johnson, Pfizer,
Schering-Plough, Wyeth and others. Many of these companies have greater
resources than we do to devote to marketing, sales, research and development
and acquisitions. As a result, they have a greater ability to undertake more
extensive research and development, marketing and pricing policy programs. It
is possible that our competitors may develop new or improved products to treat
the same conditions as our products or make technological advances reducing
their cost of production so that

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they may engage in price competition through aggressive pricing
policies to secure a greater market share to our detriment. These competitors
also may develop products that make our current or future products obsolete.
Any of these events could significantly harm our business and financial
results, including reducing our market share and gross margins.

We sell and distribute both prescription brands and over-the-counter
products. Each of these products competes with products produced by others to
treat the same conditions. Several of our prescription products compete with
generic pharmaceuticals, which claim to offer equivalent benefit at a lower
cost. In some cases, insurers and other health care payment organizations try
to encourage the use of these less expensive generic brands through their
prescription benefits coverage and reimbursement policies. These organizations
may make the generic alternative more attractive to the patient by providing
different amounts of reimbursement so that the net cost of the generic product
to the patient is less than the net cost of our prescription brand product.
Aggressive pricing policies by our generic product competitors and the
prescription benefits policies of third party payors could cause us to lose
market share or force us to reduce our gross margins in response.






|ITEM 2: |  | PROPERTIES
|------- |  | ----------

During May 2003 we expanded our office space in Scottsdale, Arizona, to
approximately 75,000 square feet, under an amended lease agreement that expires
in December 2010. The average annual expense under the amended lease agreement
is approximately $2.1 million. The lease contains certain rent escalation
clauses and, upon expiration, can be renewed for two additional periods of five
years each.

Medicis Canada, Inc., a wholly owned subsidiary, presently leases
approximately 7,500 square feet of office and warehouse space in St-Laurent,
Quebec, Canada, under a lease agreement that expires in April 2005.

Rent expense was approximately $1.5 million, $1.4 million and $1.4 million
for fiscal 2003, 2002 and 2001, respectively.






|ITEM 3: |  | LEGAL PROCEEDINGS
|------- |  | -----------------

On November 9, 2001, prior to its merger with Medicis, Ascent received
notice that Triumph-Connecticut Limited Partnership and related parties
(Triumph) had brought a civil action against it in Massachusetts. In the
action, the Triumph group claims that the execution by Ascent of the merger
agreement and the consummation of the merger without the consent of the Triumph
group or the payment to the Triumph group of a specified amount breaches the
terms of a January 1997 securities purchase agreement, the terms of warrants
issued to the Triumph group, an implied covenant of good faith and fair
dealing, and certain deceptive trade laws. The Triumph group is seeking
damages in an amount not less than $22.1 million, plus treble damages. A trial
in the action has been rescheduled for early calendar 2004. We believe that
the claims of the Triumph group are without merit and we are vigorously
contesting and defending this suit.

We and certain of our subsidiaries are parties to other actions and
proceedings incident to their businesses, including litigation regarding our
intellectual property, challenges to the enforceability or validity of our
intellectual property and claims that our products infringe on the intellectual
property rights of others.

We believe that the ultimate outcome with respect to these matters, based
on the information available to us, is either covered by insurance and/or
established reserves, or in some cases rights of offset, or in the aggregate
should not have a material adverse effect on our business, financial position
or results of operations. There can be no assurance, however, that an adverse
determination on any action or proceeding will not have a material adverse
effect on our business, financial condition and results of operations, or that
we will be able to realize the full amount of any indemnification obligation or
offset that any person may have to us or that any such indemnification or
offset will adequately cover any liability.

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|ITEM 4: |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- |  | ---------------------------------------------------

No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal 2003.




PART II






|ITEM 5: |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
|------- |  | ---------------------------------------------------------------------

Price Range of Common Stock

Medicis Class A common stock trades on the New York Stock Exchange under
the symbol MRX. The following table sets forth the high and low sale prices
for our Class A common stock on the New York Stock Exchange for the fiscal
periods indicated:

|                                |                |  |      |       |     |  |   |       | 
|------------------------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                |                |  | HIGH |       | LOW
|                                |                |  |      |       |    
|FISCAL YEAR ENDED JUNE 30, 2003 |                |  |      |       |     |  |   |      
|                                | First Quarter  |  | $    | 47.40 |     |  | $ | 33.85 | 
|                                | Second Quarter |  |      | 50.14 |     |  |   | 37.95 | 
|                                | Third Quarter  |  |      | 56.60 |     |  |   | 45.21 | 
|                                | Fourth Quarter |  |      | 61.88 |     |  |   | 50.28 | 
|FISCAL YEAR ENDED JUNE 30, 2002 |                |  |      |       |     |  |   |      
|                                | First Quarter  |  | $    | 54.95 |     |  | $ | 41.80 | 
|                                | Second Quarter |  |      | 64.60 |     |  |   | 48.60 | 
|                                | Third Quarter  |  |      | 64.59 |     |  |   | 52.40 | 
|                                | Fourth Quarter |  |      | 55.75 |     |  |   | 40.27 | 

On September 19, 2003, the last reported sale price on the New York Stock
Exchange for Medicis Class A common stock was $61.60 per share. As of such
date, there were approximately 240 holders of record of Class A common stock.

Dividend Policy

On June 12, 2003, we declared a quarter-end cash dividend of $0.05 per
issued and outstanding share of common stock payable on July 31, 2003 to our
stockholders of record at the close of business on July 1, 2003. On September
19, 2003, we declared a quarter-end cash dividend of $0.05 per issued and
outstanding share of common stock payable on October 31, 2003 to our
shareholders of record at the close of business on October 1, 2003. Prior to
these dividends, we had not paid a cash dividend on our common stock, and we
have not adopted a dividend policy. Any future determinations to pay cash
dividends will be at the discretion of our board of directors and will be
dependent upon our financial condition, operating results, capital requirements
and other factors that our board of directors deems relevant.

Recent Sales of Unregistered Securities

None.

Equity Compensation Plan Information

Information required to be included about our equity compensation plan is
incorporated by reference to the material under the caption Equity
Compensation Plan Information in the proxy statement for our 2003 annual
meeting of stockholders.

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|ITEM 6: |  | SELECTED FINANCIAL DATA
|------- |  | -----------------------

The following selected consolidated financial data for the fiscal years
ended June 30, 2003, 2002, 2001, 2000 and 1999 are derived from our audited
financial statements and accompanying notes. The comparability of the years
presented is impacted by certain product rights and business acquisitions. All
business acquisitions were accounted for under the purchase method and
accordingly, the results of operations reflect the financial results of each
business acquisition from the date of the acquisition. Certain business
acquisitions resulted in the write-off of in-process research and development
resulting from an independent valuation. Gross profit does not include
amortization of the related intangibles.

|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |         |    
|---------------------------------------------------------------------- | ----------------------------------- | - | ---------------------------------------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- | --- | - | ------- | ------- | - | - | ------- | ------- | ---
|                                                                       |                                     |   | FISCAL YEAR ENDED JUNE 30,              
|                                                                       |                                     |   |                                         
|                                                                       |                                     |   | 2003                                     |         | 2002 |   | 2001    |         | 2000 |   | 1999   
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |        
|                                                                       |                                     |   | (in thousands, except per share amounts)
|Statements of Operations Data:                                         |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Net revenues                                                           |                                     | $ | 247,539                                  |         |      | $ | 212,807 |         |      | $ | 167,802 |         |     | $ | 139,099 |         |   | $ | 116,871 |        
|Gross profit                                                           |                                     |   | 209,279                                  |         |      |   | 177,042 |         |      |   | 137,105 |         |     |   | 113,187 |         |   |   | 95,236  |        
|Operating expenses:                                                    |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|                                                                       | Selling, general and administrative |   |                                          | 91,648  |      |   |         | 77,314  |      |   |         | 59,508  |     |   |         | 45,404  |   |   |         | 38,219  |    
|                                                                       | Research and development            |   |                                          | 29,568  | (a)  |   |         | 15,132  | (b)  |   |         | 25,515  | (c) |   |         | 4,903   |   |   |         | 3,396   |    
|                                                                       | In-process research and development |   |                                          |        |      |   |         | 6,217   |      |   |         |        |     |   |         |        |   |   |         | 9,500   |    
|                                                                       | Depreciation and amortization       |   |                                          | 10,125  |      |   |         | 7,928   |      |   |         | 8,261   |     |   |         | 7,374   |   |   |         | 5,810   |    
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Total operating expenses                                               |                                     |   | 131,341                                  |         |      |   | 106,591 |         |      |   | 93,284  |         |     |   | 57,681  |         |   |   | 56,925  |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Operating income                                                       |                                     |   | 77,938                                   |         |      |   | 70,451  |         |      |   | 43,821  |         |     |   | 55,506  |         |   |   | 38,311  |        
|Other:                                                                 |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|                                                                       | Gain on sale of assets              |   |                                          |        |      |   |         |        |      |   |         |        |     |   |         |        |   |   |         | 17,650  | (d)
|                                                                       | Net interest (expense) income       |   |                                          | (278    | )    |   |         | 8,533   |      |   |         | 15,504  |     |   |         | 11,876  |   |   |         | 9,678   |    
|                                                                       | Income tax expense                  |   |                                          | (26,404 | )    |   |         | (28,960 | )    |   |         | (18,905 | )   |   |         | (24,388 | ) |   |         | (24,202 | )  
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Net income                                                             |                                     | $ | 51,256                                   |         |      | $ | 50,024  |         |      | $ | 40,420  |         |     | $ | 42,994  |         |   | $ | 41,437  |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Basic net income per common share                                      |                                     | $ | 1.89                                     |         |      | $ | 1.65    |         |      | $ | 1.34    |         |     | $ | 1.48    |         |   | $ | 1.46    |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Diluted net income per common share                                    |                                     | $ | 1.82                                     |         |      | $ | 1.59    |         |      | $ | 1.28    |         |     | $ | 1.41    |         |   | $ | 1.41    |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Number of shares used in computing
basic net income per common share   |                                     |   | 27,188                                   |         |      |   | 30,268  |         |      |   | 30,134  |         |     |   | 29,029  |         |   |   | 28,414  |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        
|Number of shares used in computing
diluted net income per common share |                                     |   | 28,211                                   |         |      |   | 31,405  |         |      |   | 31,694  |         |     |   | 30,499  |         |   |   | 29,462  |        
|                                                                       |                                     |   |                                          |         |      |   |         |         |      |   |         |         |     |   |         |         |   |   |         |        



|(a) |  | Includes $14.2 million paid to Dow for a research and development
collaboration and $6.0 million paid to aaiPharma for a research and
development collaboration
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes $7.7 million paid to aaiPharma for a research and development
collaboration                                                                           
|   
|(c) |  | Includes $17.0 million paid to Corixa for a development,
commercialization and licensing agreement                                                             
|   
|(d) |  | Gain on sale of assets of $17.7 million was recognized on the sale of four
products to Bioglan Pharma plc                                                      

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|                                                                   |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                   |  | JUNE 30,      
|                                                                   |  |               
|                                                                   |  | 2003           |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                                   |  |                |         |      |  |      |         |      |  |     
|                                                                   |  | (in thousands)
|Balance Sheet Data:                                                |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents, restricted cash
and short-term investments |  | $              | 552,663 |      |  | $    | 577,576 |      |  | $    | 334,157 |  |  | $ | 285,737 |  |  | $ | 237,304 | 
|Working capital                                                    |  |                | 576,781 |      |  |      | 611,259 |      |  |      | 358,468 |  |  |   | 312,302 |  |  |   | 278,612 | 
|Total assets                                                       |  |                | 936,990 |      |  |      | 876,273 |      |  |      | 550,007 |  |  |   | 496,113 |  |  |   | 467,680 | 
|Long-term obligations                                              |  |                |        |      |  |      |        |      |  |      |        |  |  |   | 14,914  |  |  |   | 34,716  | 
|Long-term debt                                                     |  |                | 400,000 |      |  |      | 400,000 |      |  |      |        |  |  |   |        |  |  |   |        | 
|Stockholders equity                                               |  |                | 461,121 |      |  |      | 429,059 |      |  |      | 503,453 |  |  |   | 437,439 |  |  |   | 373,748 | 

|                                          |  |                            |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------- |  | -------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                          |  | FISCAL YEAR ENDED JUNE 30,
|                                          |  |                           
|                                          |  | 2003                       |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                          |  |                            |        |      |  |      |        |      |  |     
|                                          |  | (in thousands)            
|Cash Flow Data:                           |  |                            |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net cash provided by operating activities |  | $                          | 84,667 |      |  | $    | 73,542 |      |  | $    | 71,120 |  |  | $ | 41,238 |  |  | $ | 25,424 | 

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|ITEM 7: |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

You should read the following discussion and analysis together with our
consolidated financial statements, including the related notes, which are
included in this report on Form 10-K. Certain information contained in the
discussion and analysis set forth below and elsewhere in this report, including
information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risk and
uncertainties. See Risk Factors that May Affect Future Results in Item 1 in
this Form 10-K for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the
forward-looking statements in this report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in conformity with accounting principals generally accepted in
the United States. The preparation of the consolidated financial statements
requires us to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. On an ongoing
basis, we evaluate our estimates related to sales allowances, chargebacks,
rebates, returns and other pricing adjustments, depreciation and amortization
and other contingencies and litigation. We base our estimates on historical
experience and various other factors related to each circumstance. Actual
results could differ from those estimates based upon future events, which could
include, among other risks, changes in the regulations governing the manner in
which we sell our products, changes in the health care environment and managed
care consumption patterns. Our significant accounting policies are described
in Note 1 to the consolidated financial statements included in this report. We
believe the following critical accounting policies affect our most significant
estimates and assumptions used in the preparation of our consolidated financial
statements and are important in understanding our financial condition and
results of operations.

Revenue Recognition

Revenue from product sales is recognized when the merchandise is shipped
to an unrelated third party pursuant to Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. Accordingly, revenue is
recognized when all four of the following criteria are met: (i) persuasive
evidence that an arrangement exists; (ii) delivery of the products has
occurred; (iii) the selling price is both fixed and determinable and; (iv)
collectibility is reasonably assured. Our customers consist primarily of large
pharmaceutical wholesalers who sell directly into the retail channel.
Provisions for early payment discounts, and estimates for chargebacks, rebates,
damaged product returns, exchanges for expired product are established as a
reduction of product sales revenues at the time such revenues are recognized.
These revenue reductions are established by us as our best estimate at the time
of sale based on historical experience adjusted to reflect known changes in the
factors that impact such reserves. These revenue reductions are generally
reflected either as a direct reduction to accounts receivable through an
allowance, or as an addition to accrued expenses if the payment is due to a
party other than the wholesale or retail customer.

We do not provide any forms of price protection to our wholesale customers
and permit product returns only if the product is damaged or if it is returned
within six to 12 months of expiration and the customer is committed to
accepting replacement product in exchange. Our customers consist principally
of financially viable wholesalers; so, revenue is recorded upon sale to the
wholesaler, net of estimated provisions.

Goodwill and Other Identifiable Intangible Assets

We have in the past made acquisitions of products and businesses that
include goodwill, license agreements, product rights, and other identifiable
intangible assets. We assess the impairment of goodwill and other identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Some factors we consider important
which could trigger an impairment review include the following: (i) significant
underperformance relative to expected historical or projected future operating
results; (ii) significant changes in the

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manner of our use of the acquired assets or the strategy for our overall
business; and (iii) significant negative industry or economic trends.

When we determine that the carrying value of goodwill and other
identifiable intangibles may not be recoverable based upon the existence of one
or more of the above indicators of impairment, we first will perform an
assessment of the assets recoverability based on expected undiscounted future
net cash flow and, if the amount is less than the assets value, we measure any
impairment based on a projected discounted cash flow method using a discount
rate determined by our management to be commensurate with the risk inherent in
our current business model. In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, we do not amortize goodwill. In lieu of
amortization, we are required to perform an impairment review of goodwill on an
annual basis. If we determine through the impairment process that goodwill has
been impaired, we would record the impairment charge in our statement of
income.

Income Taxes

Deferred income tax assets and liabilities are established for temporary
differences between the financial and income tax basis of our assets and
liabilities at enacted tax rates expected to be in effect when the assets and
liabilities are realized or settled. A valuation allowance is established as a
reduction of deferred income tax assets when we determine that it is more
likely than not that the asset will not be realized.

Managed Care and Medicaid Reserves

We establish and maintain reserves for amounts payable by us to Managed
Care Organizations and state Medicaid programs for the reimbursement of
portions of the retail price of prescriptions filled that are covered by the
respective programs. The amounts estimated to be paid relating to products sold
are recognized as revenue reductions and as additions to accrued expenses at
the time of sale based on our best estimate of the expected prescription fill
rate to these Managed Care and state Medicaid patients, using historical
experience adjusted to reflect known changes in the factors that impact such
reserves.

Research and Development Costs and Accounting for Strategic Collaborations

All research and development costs, including payments related to products
under development and research consulting agreements, are expensed as incurred.
We may continue to make up-front, non-refundable payments to third parties for
new technologies and for research and development work that has been completed.
These up-front payments may be expensed at the time of payment depending on
the nature of the payment made.

Our policy on accounting for costs of strategic collaborations determines
the timing of our recognition of certain development costs. In addition, this
policy determines whether the cost is classified as development expense or
capitalized as an asset. We are required to form judgments with respect to the
commercial status of such products in determining whether development costs
meet the criteria for immediate expense or capitalization. For example, when
we acquire certain products in which there is already an ANDA or NDA available
and there is net realizable value based on projected sales for these products
we capitalize the amount paid as an intangible asset. In addition, if we
acquire product rights that are in the development phase and as to which we
have no assurance that the third party is required to perform additional
research efforts, we expense such payments.

OVERVIEW

We are a leading specialty pharmaceutical company focusing primarily on
developing and marketing drugs in the U.S. for the treatment of dermatological,
pediatric and podiatric conditions and the marketing of dermal aesthetic
enhancement products in Canada. We believe that annual U.S. pharmaceutical
sales in the dermatological, pediatric and podiatric markets exceed $10
billion. We offer a broad range of drugs addressing various conditions
including acne, fungal infections, asthma, rosacea, hyperpigmentation,
photoaging, psoriasis, eczema, skin and skin-structure infections, seborrheic
dermatitis and cosmesis (improvement in the texture and appearance of skin).

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We derive a majority of our prescription volume from our core products.
We believe that the prescription volume of our core products and the potential
launch of RESTYLANE® will constitute the majority of our sales for the
foreseeable future. Accordingly, any factor adversely affecting our sales
related to these products, individually or collectively, could harm our
business, financial condition and results of operations. Several of our core
products are subject to generic competition currently or may be in the future.
Each of our core products could be rendered obsolete or uneconomical by
regulatory or competitive changes.

As a result of customer buying patterns, a substantial portion of our
revenues has been recognized in the last month of each quarter. We schedule
our inventory purchases to meet anticipated customer demand. As a result,
relatively small delays in the receipt of manufactured products by us could
result in revenues being deferred or lost. Our operating expenses are based
upon anticipated sales levels, and a high percentage of our operating expenses
are relatively fixed in the short term. Consequently, variations in the timing
of revenue recognition could cause significant fluctuations in operating
results from period to period and may result in unanticipated periodic earnings
shortfalls or losses. There can be no assurance that we will maintain or
increase revenues or profitability or avoid losses in any future period.

We estimate customer demand for our products primarily through use of
third party syndicated data sources which track prescriptions written by health
care providers and dispensed by licensed pharmacies. These data are
extrapolations from information provided only by certain pharmacies, and are
estimates of historical demand levels. We observe trends from these data, and,
coupled with certain proprietary information, prepare demand forecasts that are
the basis for purchase orders for finished and component inventory from our
third party manufacturers and suppliers. Our forecasts may fail to accurately
anticipate ultimate customer demand for products. Overestimates of demand may
result in excessive inventory production; underestimates may result in
inadequate supply of our products in channels of distribution.

We sell our products primarily to major wholesalers and retail pharmacy
chains. Consistent with pharmaceutical industry patterns, approximately 80% of
our revenues are derived from four major drug wholesale concerns. While we
attempt to estimate inventory levels of our products at our major wholesale
customers, using historical prescription information and historical purchase
patterns, this process is inherently imprecise. Rarely do wholesale customers
provide us complete inventory levels at regional distribution centers, or
within their national distribution systems. We rely wholly upon our wholesale
and drug chain customers to effect the distribution allocation of our products.
There can be no assurance that these customers will adequately manage their
local and regional inventories to avoid spot outages. Based upon historically
consistent purchasing patterns of our major wholesale customers, we believe our
estimates of trade inventory levels of our products are reasonable. We further
believe that inventories of our products among wholesale customers, taken as a
whole, are similar to those of other specialty pharmaceutical companies, and
that our trade practices, which periodically involve volume discounts and early
payment discounts, are typical of the industry.

We periodically offer promotions to wholesale and chain drugstore
customers to encourage dispensing of our products, consistent with
prescriptions written by licensed health care providers. Because many of our
products compete in multi-source markets, it is important for us to ensure the
licensed healthcare providers dispensing instructions are fulfilled with our
branded products and are not substituted with a generic product or another
therapeutic alternative product which may be contrary to the licensed health
care providers recommended prescribed Medicis brand. We believe that a
critical component of our brand protection program is maintenance of full
product availability at drugstore and wholesale customers. We believe such
availability strongly reduces the probability of local and regional product
substitutions, shortages and backorders, which could result in lost sales. We
expect to continue providing favorable terms to wholesale and retail drug chain
customers as may be necessary to ensure the fullest possible distribution of
our branded products within the pharmaceutical chain of commerce.

We cannot control nor influence significantly the purchasing patterns of
our wholesale and retail drug chain customers. These are highly sophisticated
customers that purchase products in a manner consistent with their industry
practices and, presumably, based upon their projected demand levels. Purchases
by any given customer, during any given period, may be above or below the
actual prescription volumes of any of our products during the same period,
resulting in fluctuations of product inventory in the distribution channel.

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We plan to spend substantial amounts of capital to continue the
acquisition and research and development of pharmaceutical products. Actual
expenditures will depend upon our financial condition, as well as the results
of clinical testing, delays or changes in government-required testing and
approval procedures, technological and competitive developments, and strategic
marketing decisions. We may increase our expenditures for research and
development and expect that research and development expenditures as a
percentage of net revenues will fluctuate from period to period. We
periodically make up-front, non-refundable payments to third parties for
research and development work that has been completed. If there is no recourse
provision against the third party for their failure to perform future services
to earn such amounts paid, these up-front payments are expensed at the time of
payment. Payments made for product rights whereby the product has received
regulatory approval for sale are capitalized and amortized over the expected
revenue-producing period.

To enable us to focus on our core sales and marketing activities, we
selectively outsource certain non-sales and non-marketing functions, such as
laboratory research, manufacturing, warehousing and distributing. As we expand
our activities in these areas, we expect to invest additional financial
resources in these functions. The duration of our manufacturing contracts and
other agreements with third parties vary in length.

CERTAIN TRANSACTIONS IN FISCAL 2003

The following transactions that occurred during fiscal 2003 were
significant events that affected our results of operations, our cash flows and
our financial condition:

Acquisition Of Dermal Aesthetic Enhancement Products From The Q-Med Group

On March 10, 2003, we acquired all outstanding shares of HA North American
Sales AB from Q-Med, a Swedish biotechnology/medical device company. HA North
American Sales AB holds a license for the exclusive U.S. and Canadian rights to
market, distribute and commercialize the dermal aesthetic enhancement product
lines known as RESTYLANE®, PERLANETM and RESTYLANE Fine LinesTM. The RESTYLANE®,
PERLANETM and RESTYLANE Fine LinesTM products are currently being sold in over
60 countries outside the U.S. by Q-Med, but are not yet approved for use in the
U.S. The products are approved and are being sold by Medicis in Canada. We
acquired HA North American Sales AB for total consideration of approximately
$160.0 million, of which $58.2 million was paid upon closing of the
transaction, and approximately $53.3 million is payable upon FDA approval of
RESTYLANETM, approximately $19.4 million is payable upon certain cumulative
commercial milestones being achieved and approximately $29.1 million is payable
upon FDA approval of PERLANETM. As of June 30, 2003, we also incurred
approximately $3.7 million of costs related to the due diligence and execution
of the transaction, consisting of approximately $3.5 million of professional
services and approximately $0.2 million of other costs. Payments and costs
related to this acquisition are capitalized as an intangible asset and are
amortized over 15 years beginning in March 2003.

In countries where they are currently marketed, RESTYLANE®, PERLANETM and
RESTYLANE Fine LinesTM are injectable, transparent, non-animal stabilized
hyaluronic acid gels, which require no patient sensitivity tests in advance of
product administration. These transparent, injectable products have varying gel
particle sizes which provide physicians in countries where the products are
approved with flexibility in treating fine lines and wrinkles, shaping facial
contours, correcting deep facial folds and enhancing the appearance and
fullness of lips.

In countries where the products are currently marketed, pre-packaged,
glass syringes provide physicians with various options to treat nasolabial
folds, glabellar lines, periorbital lines, perioral lines, vermillion borders,
lips, chins, cheeks, smile lines, worry lines and oral commissures. In the
U.S., the FDA regulates these products as medical devices. A pre-market
approval application for RESTYLANE® was filed with the FDA in June 2002 and is
currently under review. An Advisory Panel meeting to review this application
has been scheduled by the FDA for November 21, 2003. We anticipate that
requirements for filing applications for PERLANETM and RESTYLANE Fine LinesTM
will be discussed with the FDA following the approval of RESTYLANE®.

License of Products To Taro Pharmaceutical Industries, Ltd.

On January 14, 2003, Taro Pharmaceutical Industries Ltd. (Taro) licensed
with an option to purchase from us four branded prescription product lines for
sale in the U.S. and Puerto Rico. The license agreement was effective on

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January 14, 2003 and extends through June 1, 2004, after which Taro may
purchase the product lines. We will receive quarterly license payments from
Taro during the term of the agreement. If Taro chooses to purchase the product
lines at the end of the term of the agreement, the purchase price will be $12.1
million. Under terms of the agreement, Taro is licensing from us the following
four brands: TOPICORT® (desoximetasone), a topical corticosteroid used for
inflammatory skin diseases; A/T/S® (erythromycin), a topical antibiotic used in
the treatment of acne; OVIDE® (malathion), a pediculicide used in the treatment
of head lice; and PRIMSOL® (trimethoprim HCI), an antibiotic oral solution for
children with acute otitis media, or middle ear infections.

SUBSEQUENT EVENTS

On
August 14, 2003, we exchanged approximately $230.8 million in
principal amount of our 2.5% Contingent Convertible Senior Notes Due 2032 (the
Old Notes) for approximately $283.9 million in
principal amount of our 1.5%
Contingent Convertible Senior Notes Due 2033 (the New Notes). Holders of Old
Notes that accepted our exchange offer received $1,230 in principal
amount of New Notes for each $1,000 in principal amount of Old Notes. The
terms of the New Notes are similar to the terms of the Old Notes, but have a
different interest rate, conversion rate and maturity date. Holders of Old
Notes that chose to not exchange will continue to be subject to the terms of
the Old Notes.

The New Notes bear interest at a rate of 1.5% per annum, which is payable
on June 4 and December 4 of each year, beginning December 4,
2003. We will also pay contingent interest at a rate of 0.5% per annum during any
six-month period, with the initial six-month period commencing June 4, 2008, if
the average trading price of the New Notes reaches certain thresholds. The New
Notes mature on June 4, 2033.

We may redeem some or all of the New Notes at any time on or
after June 11, 2008, at a redemption price, payable in cash, of 100% of the
principal amount of the New Notes, plus accrued and unpaid interest. Holders
of the New Notes may require us to repurchase all or a portion of
their New Notes on June 4, 2008, 2013 and 2018, and upon a change in control,
as defined in the indenture governing the New Notes, at 100% of the principal
amount of the New Notes, plus accrued and unpaid interest to the date of the
repurchase, payable in cash.

The New Notes are convertible, at the holders option, prior to the
maturity date into shares of our Class A common stock in the
following circumstances:



| |  |  | during any quarter commencing after September 30, 2003,
if the closing price of our Class A common stock over a
specified number of trading days during the previous quarter is
more than 120% of the conversion price of the New Notes on the
last trading day of the previous quarter. The Notes are
initially convertible at a conversion price of $77.52 per share,
which is equal to a conversion rate of approximately 12.8998
shares per $1,000 principal amount of New Notes, subject to
adjustment;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if we have 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 our Class A common stock on that
day multiplied by the number of shares of our Class A
common stock issuable upon conversion of $1,000 principal amount
of the New Notes; or                                                             
|
| |  |  | upon the occurrence of specified corporate
transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                    

The New Notes, which are unsecured, do not contain any restrictions on the
payment of dividends, the incurrence of additional indebtedness or the
repurchase of our securities and do not contain any financial
covenants.

As a
result of the exchange, we recognized a loss before tax
benefits on the restructuring of debt of approximately $58.7 million, including
the write-off of the net book value of the deferred financing fees related to
the exchanged portion of the Old Notes. This loss will be reflected
in our consolidated statement of operations for our first fiscal quarter
ended September 30, 2003.

On
September 19, 2003, we declared a quarter-end cash dividend of
$0.05 per issues and outstanding share of common stock payable on
October 31, 2003 to our stockholders of record at the close of
business on October 1, 2003.

RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with
the consolidated financial statements and notes thereto contained elsewhere
herein. The following table sets forth certain data as a percentage of net
revenues for the periods indicated.

Percentage of Net Revenues

|                     |  |          |       |        |  |       |       |   |  |  |       |  
|-------------------- |  | -------- | ----- | ------ |  | ----- | ----- | - |  |  | ----- | -
|                     |  | JUNE 30,
|                     |  |         
|                     |  | 2003***  |       | 2002** |  | 2001*
|                     |  |          |       |        |  |      
|Net revenues         |  |          | 100.0 | %      |  |       | 100.0 | % |  |  | 100.0 | %
|Gross profit         |  |          | 84.5  |        |  |       | 83.2  |   |  |  | 81.7  |  
|Operating expenses   |  |          | 53.1  |        |  |       | 50.1  |   |  |  | 55.6  |  
|Operating income     |  |          | 31.5  |        |  |       | 33.1  |   |  |  | 26.1  |  
|Interest income, net |  |          | (0.1  | )      |  |       | 4.0   |   |  |  | 9.2   |  
|Income tax expense   |  |          | (10.7 | )      |  |       | (13.6 | ) |  |  | (11.2 | )
|                     |  |          |       |        |  |       |       |   |  |  |       |  
|Net income           |  |          | 20.7  | %      |  |       | 23.5  | % |  |  | 24.1  | %
|                     |  |          |       |        |  |       |       |   |  |  |       |  



|*   |  | Included in operating expenses is a $17.0 million payment (10.1% of net
revenues) to Corixa for a research and development collaboration.                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Included in operating expenses is a $6.2 million charge (2.9% of net
revenues) for in-process research and development related to the merger
with Ascent and a $7.7 million payment (3.6% of net revenues) to aaiPharma
for a research and development collaboration.
|   
|*** |  | Included in operating expenses is $14.2 million in payments (5.7% of net
revenues) to Dow for a research and development collaboration
and a $6.0 million payment (2.4% of net revenues) to aaiPharma for a
research and development collaboration.                  

The following table reflects certain selected unaudited quarterly
operating results for each of the last eight quarters through the quarter ended
June 30, 2003. We believe that all necessary adjustments have been included to
fairly present our quarterly information. The operating results for any quarter
are not necessarily indicative of the results for any future period. Gross
profit does not include amortization of the related intangibles.

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FISCAL 2003 AND FISCAL 2002 ANALYSIS
(in thousands, except per share amounts, and certain amounts do not total the
annual amounts due to rounding)

|                                                      |         |   |             |        |             |   |          |        |          |   |        |        |          |   |        |        |          |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|----------------------------------------------------- | ------- | - | ----------- | ------ | ----------- | - | -------- | ------ | -------- | - | ------ | ------ | -------- | - | ------ | ------ | -------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                      |         |   | Fiscal 2003 |        | Fiscal 2002
|                                                      |         |   |             |        |            
|                                                      |         |   | Sept.(a)    |        | Dec.        |   | March(b) |        | June (c) |   | Sept.  |        | Dec. (d) |   | March  |        | June (e)
|                                                      |         |   |             |        |             |   |          |        |          |   |        |        |          |   |        |        |         
|Net revenues                                          |         | $ | 58,745      |        |             | $ | 59,514   |        |          | $ | 62,575 |        |          | $ | 66,705 |        |          | $ | 45,515 |        |  | $ | 53,042 |        |  | $ | 56,623 |        |  | $ | 57,628 |       
|Gross profit                                          |         |   | 49,587      |        |             |   | 50,207   |        |          |   | 53,461 |        |          |   | 56,024 |        |          |   | 37,874 |        |  |   | 44,015 |        |  |   | 47,225 |        |  |   | 47,928 |       
|Operating expenses                                    |         |   | 31,487      |        |             |   | 26,781   |        |          |   | 37,570 |        |          |   | 35,502 |        |          |   | 19,636 |        |  |   | 29,735 |        |  |   | 25,446 |        |  |   | 31,774 |       
|Operating income                                      |         |   | 18,100      |        |             |   | 23,426   |        |          |   | 15,891 |        |          |   | 20,522 |        |          |   | 18,238 |        |  |   | 14,280 |        |  |   | 21,779 |        |  |   | 16,154 |       
|Net income                                            |         |   | 11,879      |        |             |   | 15,301   |        |          |   | 10,224 |        |          |   | 13,851 |        |          |   | 13,781 |        |  |   | 8,631  |        |  |   | 15,875 |        |  |   | 11,737 |       
|Net income per
common share:                          |         |   |             |        |             |   |          |        |          |   |        |        |          |   |        |        |          |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                                      | Basic   |   | $           | 0.43   |             |   | $        | 0.57   |          |   | $      | 0.38   |          |   | $      | 0.51   |          |   | $      | 0.46   |  |   | $      | 0.28   |  |   | $      | 0.52   |  |   | $      | 0.39   | 
|                                                      | Diluted |   | $           | 0.42   |             |   | $        | 0.55   |          |   | $      | 0.36   |          |   | $      | 0.49   |          |   | $      | 0.44   |  |   | $      | 0.27   |  |   | $      | 0.50   |  |   | $      | 0.38   | 
|Shares used in
computing net
income per
common share: |         |   |             |        |             |   |          |        |          |   |        |        |          |   |        |        |          |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                                      | Basic   |   |             | 27,483 |             |   |          | 27,012 |          |   |        | 27,084 |          |   |        | 27,171 |          |   |        | 30,253 |  |   |        | 30,374 |  |   |        | 30,647 |  |   |        | 29,798 | 
|                                                      | Diluted |   |             | 28,336 |             |   |          | 27,946 |          |   |        | 28,119 |          |   |        | 28,435 |          |   |        | 31,442 |  |   |        | 31,744 |  |   |        | 31,858 |  |   |        | 30,734 | 



| | a) |  | Included in operating expenses is a $5.4 million payment to Dow for
research and development collaboration.                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Included in operating expenses is a $8.8 million payment to Dow for
research and development collaboration.                       
|
| | c) |  | Included in operating expenses is a $6.0 million payment to
aaiPharma for research and development collaboration.                 
|
| | d) |  | Included in operating expenses is a $6.2 million charge for
in-process research and development related to the merger with Ascent.
|
| | e) |  | Included in operating expenses is a $7.7 million payment to
aaiPharma for a research and development collaboration.               

Our fiscal year begins on July 1 and ends on June 30. Our quarterly
results may vary from period to period due to a variety of factors, including:
fluctuations in demand, expenditures incurred to acquire, license and promote
pharmaceutical products; expenditures and timing relating to the acquisition
and integration of products or businesses; changes in the prescribing practices
of physicians; the introduction of new products by us or our competitors; cost
increases from third-party manufacturers; supply interruptions; the
availability and cost of raw materials; the mix of products sold by us; changes
in marketing and sales expenditures; market acceptance of our products;
competitive pricing pressures; the outcome of disputes relating to trademarks,
patents and other rights; general economic and industry conditions that affect
customer demand; and our level of research and development activities.

Fiscal Year Ended June 30, 2003 Compared To Fiscal Year Ended June 30, 2002

Net Revenues

Net revenues during fiscal 2003 increased 16.3%, or $34.7 million, to
$247.5 million from $212.8 million during fiscal 2002. Our net revenues
increased during fiscal 2003 primarily as a result of growth in sales of the
LOPROX®, OMNICEF®, ORAPRED® and BUPHENYL® products. The growth in sales of the
LOPROX® product line is the primary cause of the non-acne dermatological
product segment growth from 34.0% of total net revenues during fiscal 2002 to
36.7% during fiscal 2003. The growth in sales of ORAPRED® and BUPHENYL®
products was the primary cause of the non-dermatological product segment growth
from 22.6% of total net revenues during fiscal 2002 to 29.7% during fiscal
2003. The acne and acne-related dermatological product segment decreased as a
percentage of total net revenues from 43.5% during fiscal 2002 to 33.6% during
fiscal 2003 primarily due to a decrease in sales of the PLEXION® product line.
This decrease was primarily due to increased competition as four products
entered the market in fiscal 2003.

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Gross Profit

Gross profit during fiscal 2003 increased 18.2%, or $32.3 million, to
$209.3 million from $177.0 million during fiscal 2002. As a percentage of net
revenues, gross profit increased to 84.5% during fiscal 2003 compared to 83.2%
during fiscal 2002. This increase was primarily due to a higher percentage of
total sales related to our LOPROX® and ORAPRED® products, which have higher
gross profit percentages than our other products. Amortization of intangible
assets related to products sold are not included in gross profit.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during fiscal 2003 increased
18.5%, or $14.3 million, to $91.6 million from $77.3 million during fiscal
2002. This increase was primarily attributable to a full fiscal year of costs
associated with our Ascent (pediatrics) sales force, including salaries and
travel expenses, and increases in personnel costs related to the hiring of
additional full-time equivalent employees, yearly salary escalations for
existing employees, operational expenses related to the acquired RESTYLANE®
family of products and an increase in variable costs commensurate with
increased sales volume. As a percentage of net revenues, selling, general and
administrative expenses increased from 36.3% of total net revenues during
fiscal 2002 to 37.0% during fiscal 2003.

Research and Development Expenses

Research and development expenses during fiscal 2003 increased $14.5
million, to $29.6 million from $15.1 million during fiscal 2002. Included in
fiscal 2003 research and development expense is $14.2 million in milestone
payments under a license and development agreement with Dow for a patented
dermatologic product, and a $6.0 million milestone payment to aaiPharma under
an agreement for the development, commercialization and license of a key
dermatologic product. Included in fiscal 2002 research and development expense
is a $7.7 million payment to aaiPharma under that agreement. Absent these
charges, research and development expense increased $2.0 million, to $9.4 in
fiscal 2003 from $7.4 million in fiscal 2002. As a percentage of net revenues,
total research and development expenses increased from 7.1% in fiscal 2002 to
12.0% in fiscal 2003. This increase is primarily attributable to the increased
milestone payments incurred during 2003 as compared to 2002. We expect
research and development expenses to fluctuate from quarter to quarter based on
the timing of the achievement of development milestones under license and
development agreements, as well as the timing of other development projects and
the funds available to support these projects.

In-Process Research and Development Expense

We recorded a $6.2 million charge to operations for in-process research
and development during fiscal 2002 as part of the allocated purchase price
related to the merger with Ascent. There were no in-process research and
development charges during fiscal 2003. The amount allocated to in-process
research and development was based on an independent valuation of Ascents
completed and in-process technologies. During fiscal 2003, we incurred
development costs of approximately $0.6 million related to the acquired
in-process research and development, and should the projects continue to move
toward commercialization, we estimate that future expenditures could
approximate $0.5 million over the next few years. None of the in-process
research and development projects had been completed as of June 30, 2003.

Depreciation and Amortization Expenses

Depreciation and amortization expenses during fiscal 2003 increased 27.7%,
or $2.2 million, to $10.1 million from $7.9 million in fiscal 2002. This
increase was primarily due to the amortization of expenses associated with the
acquisition of the RESTYLANE® family of products, which began in March 2003.

Operating Income

Operating income during fiscal 2003 increased $7.4 million, to $77.9
million from $70.5 million during fiscal 2002. Operating income during fiscal
2003 included milestone payments totaling $14.2 million related to a research
and development collaboration with Dow and a $6.0 million related to a research
and development

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collaboration with aaiPharma. Operating income during fiscal 2002 included a
charge to operations of $6.2 million for in-process research and development
relating to the merger with Ascent and a $7.7 million payment to aaiPharma for
a research and development collaboration. Absent these charges, operating
income increased 16.3% or $13.7 million from $84.4 million during fiscal 2002,
to $98.1 million during fiscal 2003, primarily due to an increase in sales
volume offset by an increase in operating expenses.

Interest Income

Interest income during fiscal 2003 increased 24.1%, or $2.4 million, to
$12.3 million from $9.9 million during fiscal 2002, primarily due to an
increase in cash available for investment from the issuance of our Notes during
June 2002 and an increase in cash flows from operations.

Interest Expense

Interest expense during fiscal 2003 increased $11.2 million, to $12.6
million from $1.4 million during fiscal 2002, primarily due to the issuance of
our Notes during June 2002. Interest payable on these Notes accrues at 2.5% per
annum. In addition, amortization of deferred financing costs related to the
Notes is recognized as interest expense over the put period of the Notes.
Total interest expense recognized during fiscal 2003 related to these Notes,
including the amortization of deferred financing costs, was approximately $12.5
million.

Income Tax Expense

Income tax expense during fiscal 2003 decreased $2.6 million, to $26.4
million from $29.0 million during fiscal 2002. The effective tax rate during
fiscal 2003 was 34.0%, as compared to 36.7% during fiscal 2002. This decrease
was primarily due to increased tax credits generated by the $20.2 million in
research and development milestone payments made during fiscal 2003, and the
$6.2 million charge that we recorded in fiscal 2002 for in-process research and
development related to the merger with Ascent, which was non-deductible for tax
purposes in fiscal 2002. In addition, the effective rate is lower than
expected federal and state income tax rates due to approximately $5.9 million
and $5.7 million of tax-exempt interest income in fiscal 2003 and 2002,
respectively, and contributions to charitable programs that receive favorable
tax treatment.

Fiscal Year Ended June 30, 2002 Compared To Fiscal Year Ended June 30, 2001

Net Revenues

Net revenues during fiscal 2002 increased 26.8%, or $45.0 million, to
$212.8 million from $167.8 million during fiscal 2001. Our net revenues
increased during fiscal 2002 primarily as a result of growth in sales of the
LOPROX®, OMNICEF®, ORAPRED®, PLEXION®, TRIAZ® and BUPHENYL® products. Fiscal
2001 did not include revenue for OMNICEF® and ORAPRED®. Non-dermatological
products increased from 11% of total net revenues in fiscal 2001 to 23% of
total net revenues in fiscal 2002. This increase was due to the addition of
ORAPRED® during fiscal 2002 from the merger with Ascent.

Gross Profit

Gross profit during fiscal 2002 increased 29.1%, or $39.9 million, to
$177.0 million from $137.1 million during fiscal 2001. As a percentage of net
revenues, gross profit increased to 83.2% during fiscal 2002 compared to 81.7%
during fiscal 2001, respectively. This increase was primarily due to a higher
percentage of total sales related to our LOPROX®, OMNICEF®, ORAPRED® and
PLEXION® products, which enjoy higher gross profit percentages than our other
products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during fiscal 2002 increased
29.9%, or $17.8 million, to $77.3 million from $59.5 million during fiscal
2001. This increase was primarily attributable to costs associated with the
Ascent sales force, increases in personnel costs related to the hiring of
additional full-time equivalent employees, primarily performing selling and
marketing functions, and yearly salary escalations for existing employees.
This

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increase was also due to promotional costs associated with the sampling and
advertising of our products, including ORAPRED® which was added to our line of
products as a result of the merger with Ascent. As a percentage of net
revenues, selling, general and administrative expenses increased to 36.3%
during fiscal 2002 from 35.5% during fiscal 2001, primarily due to the
assimilation and ramp-up of the Ascent sales force.

Research and Development Expenses

Research and development expenses during fiscal 2002 decreased 40.7%, or
$10.4 million, to $15.1 million from $25.5 million during fiscal 2001. This
decrease was primarily due to $17.0 million paid during fiscal 2001 to Corixa
for a development, commercialization and license agreement for a novel
psoriasis immunotherapeutic product, as compared to $7.7 million paid to
aaiPharma in June 2002 for the development, commercialization and license of a
key dermatologic product.

In-Process Research and Development Expense

We recorded a $6.2 million charge to operations for in-process research
and development during fiscal 2002 as part of the allocated purchase price
related to the Ascent merger. The amount allocated to in-process research and
development was based on an independent valuation of Ascents completed and
in-process technologies performed by a firm other than our independent auditors
and was charged to current operations in conformity with generally accepted
accounting principles. The $6.2 million charge was non-deductible for tax
purposes. We did not record any charge to operations for in-process research
and development during fiscal 2001.

Depreciation and Amortization Expenses

Depreciation and amortization expenses during fiscal 2002 decreased 0.4%,
or $0.4 million, to $7.9 million from $8.3 million in fiscal 2001. Included in
amortization expense during fiscal 2002 was the amortization of intangible
assets related to the OMNICEF® licensing agreement that we entered into with
Abbott Laboratories in May 2001. This increase in amortization was offset by a
$958,000 decrease in amortization expense related to certain intangible assets
whose useful lives were reviewed in the first quarter of fiscal 2002 and
extended from 20-25 years to 40 years. These changes in useful lives were
based on managements belief that the products related to these intangible
assets have longer useful lives than originally estimated.

Operating Income

Operating income during fiscal 2002 increased $26.7 million, to $70.5
million from $43.8 million during fiscal 2001. Operating income during fiscal
2002 included a charge to operations of $6.2 million for in-process research
and development relating to the Ascent merger and a $7.7 million payment to
aaiPharma for a research and development collaboration. Operating income
during fiscal 2001 included a $17.0 million payment to Corixa for a research
and development collaboration.

Interest Income

Interest income during fiscal 2002 decreased 40.9%, or $6.9 million, to
$9.9 million from $16.8 million during fiscal 2001, primarily due to the
overall decrease in interest rates and a change in our investment mix to
non-taxable securities. The increase in our cash available for investment due
to the issuance of our Contingent Convertible Senior Notes occurred near the
end of our fiscal year and therefore did not have a significant effect on
fiscal 2002s interest income.

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Interest Expense

Interest expense during fiscal 2002 increased $0.1 million, to $1.4
million from $1.3 million during fiscal 2001. This increase was primarily due
to one month of interest expense related to our Contingent Convertible Senior
Notes that were issued in June 2002, offset by a $0.6 million reduction related
to a product line acquisition obligation that was fully paid during the year.

Income Tax Expense

Income tax expense during fiscal 2002 increased $10.1 million, to $29.0
million from $18.9 million during fiscal 2001. The effective tax rate during
fiscal 2002 was 36.7%, as compared to 31.9% during fiscal 2001. This increase
was primarily due to the $6.2 million charge that we recorded for in-process
research and development related to the Ascent merger, which is non-deductible
for tax purposes. The effective rate is lower than expected federal and state
income tax rates due to approximately $5.7 million of tax-exempt interest
income in both 2002 and 2001, and contributions to charitable programs that
receive favorable tax treatment.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities during fiscal 2003 increased
$11.2 million, to $84.7 million from $73.5 million during fiscal 2002. The
increase was primarily attributable to the net favorable changes in operating
assets and liabilities, partially offset by a decrease in the tax benefit from
the exercise of stock options due to a decrease in exercise activity during
fiscal 2003 as compared to fiscal 2002.

Net cash used in investing activities during fiscal 2003 decreased $228.0
million, to $113.7 million from $341.7 million during fiscal 2002. This
decrease was primarily due to the decreased purchases of available-for-sale
investments during fiscal 2003 as compared to fiscal 2002 due to a significant
amount of purchases of available-for-sale investments at the time of the
issuance of our Notes during June 2002.

Net cash used in financing activities for fiscal 2003 was $23.3 million as
compared to cash provided by financing activities of $254.9 million during
fiscal 2002. The change is primarily attributable to the proceeds received from
the issuance of our $400.0 million Notes, offset by the purchase of $146.8
million of treasury stock in fiscal 2002.

We had cash, cash equivalents, restricted cash and short-term investments
of $552.7 million and working capital of $576.8 million at June 30, 2003, as
compared to $577.6 million and $611.3 million, respectively, at June 30, 2002.
Restricted cash and short-term investments of $53.8 million relates to amounts
in escrow related to our acquisition from Q-Med of U.S. and Canadian rights to
the RESTYLANE® family of products. The decreases are primarily the result of
the purchase of $36.0 million of treasury stock and the payment of $81.7
million for the purchase of product rights, net of operating cash generated
during fiscal 2003. The $81.7 million of cash used for the purchase of product
rights included approximately $61.9 million related to our acquisition of the
RESTYLANE® family of products, approximately $13.3 million related to the
purchase of an ANDA for a pediatric prescription product from a third-party
pharmaceutical company and approximately $6.5 million related to purchases of
other product rights.

In May 1999, our board of directors authorized the repurchase of up to $75
million of our common stock. This program provides for the repurchase of Class
A common stock at such times as management may determine. The Company has
repurchased a total of approximately $50.2 million toward the $75 million as of
June 30, 2003. The timing and amount of any future repurchases will depend
upon market conditions and corporate considerations.

On June 12, 2003, we declared a quarter-end cash dividend of $0.05 per
issued and outstanding share of common stock payable on July 31, 2003 to our
stockholders of record at the close of business on July 1, 2003. On September
19, 2003, we declared a quarter-end cash dividend of $0.05 per issues and
outstanding share of common stock payable on October 31, 2003 to our
stockholders of record at the close of business on October 1, 2003. Prior to
these dividends, we had not paid a cash dividend on our common stock, and we
have not adopted a dividend

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policy. Any future determinations to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon our financial
condition, operating results, capital requirements and other factors that our
board of directors deems relevant.

Except for $400 million of Contingent Convertible Senior Notes due in 2032
and a $7.0 million deferred tax liability, we have no long-term liabilities and
had only $68.8 million of current liabilities at June 30, 2003. Our other
commitments and planned expenditures consist principally of payments we will
make in connection with strategic collaborations and research and development
expenditures, and we will continue to invest in sales and marketing
infrastructure.

On
August 14, 2003, we exchanged approximately $230.8 million in
principal amount of our 2.5% Contingent Convertible Senior Notes Due 2032 (the
Old Notes) for approximately $283.9 million in
principal amount of our 1.5%
Contingent Convertible Senior Notes Due 2033 (the New Notes). Holders of Old
Notes that accepted our exchange offer received $1,230 in principal
amount of New Notes for each $1,000 in principal amount of Old Notes. The
terms of the New Notes are similar to the terms of the Old Notes, but have a
different interest rate, conversion rate and maturity date. Holders of Old
Notes that chose to not exchange will continue to be subject to the terms of
the Old Notes.

The New Notes bear interest at a rate of 1.5% per annum, which is payable
on June 4 and December 4 of each year, beginning December 4,
2003. We
will also pay contingent interest at a rate of 0.5% per annum during any
six-month period, with the initial six-month period commencing June 4, 2008, if
the average trading price of the New Notes reaches certain thresholds. The New
Notes mature on June 4, 2033.

We may redeem some or all of the New Notes at any time on or
after June 11, 2008, at a redemption price, payable in cash, of 100% of the
principal amount of the New Notes, plus accrued and unpaid interest. Holders
of the New Notes may require us to repurchase all or a portion of
their New Notes on June 4, 2008, 2013 and 2018, and upon a change in control,
as defined in the indenture governing the New Notes, at 100% of the principal
amount of the New Notes, plus accrued and unpaid interest to the date of the
repurchase, payable in cash.

The New Notes are convertible, at the holders option, prior to the
maturity date into shares of our Class A common stock in the
following circumstances:



| |  |  | during any quarter commencing after September 30, 2003,
if the closing price of our Class A common stock over a
specified number of trading days during the previous quarter is
more than 120% of the conversion price of the New Notes on the
last trading day of the previous quarter. The Notes are
initially convertible at a conversion price of $77.52 per share,
which is equal to a conversion rate of approximately 12.8998
shares per $1,000 principal amount of New Notes, subject to
adjustment;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if we have 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 our Class A common stock on that
day multiplied by the number of shares of our Class A
common stock issuable upon conversion of $1,000 principal amount
of the New Notes; or                                                             
|
| |  |  | upon the occurrence of specified corporate
transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                    

The New Notes, which are unsecured, do not contain any restrictions on the
payment of dividends, the incurrence of additional indebtedness or the
repurchase of our securities and do not contain any financial
covenants.

As a
result of the exchange, we recognized a loss before tax
benefits on the restructuring of debt of approximately $58.7 million, including
the write-off of the net book value of the deferred financing fees related to
the exchanged portion of the Old Notes. This loss will be reflected
in our consolidated statement of operations for our first fiscal quarter
ended September 30, 2003.

In accordance with various manufacturing agreements, we are required to
provide manufacturers with pro forma estimated production requirements by
product and in accordance with minimum production runs. From time to time, we
may not take possession of all merchandise that has been produced by the
manufacturer. However, we record our obligations to the manufacturer at the
time that finished inventory is produced.

Management believes existing cash and short-term investments, together
with funds generated from operations, should be sufficient to meet operating
requirements. Our cash and short-term investments are available for strategic
investments, mergers and acquisitions, other potential large-scale needs and to
fund our share repurchase program.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any transactions, arrangements and other relationships with
unconsolidated entities that are reasonably likely to affect our liquidity or
capital resources. We have no special purpose or limited purpose entities that
provided off-balance sheet financing, liquidity or market or credit risk
support, engage in leasing, hedging, research and development services, or
other relationships that expose us to liability that is not reflected on the
face of the financial statements. See Note 13 of the financial statements
regarding our lease commitments and other commitments.

EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative as discussed in SFAS No. 133,
clarifies when a derivative contains a financing component, amends the
definition of an underlying to conform it to the language used in FASB
Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others and amends
certain other existing pronouncements. The Company does not have any derivative
financial instruments. The Company does not anticipate that the adoption of
SFAS No. 149 will have an impact on its consolidated balance sheets or
statements of operations, shareholders equity and cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
This Statement requires that certain instruments that were previously
classified as equity on a companys statement of financial position now be
classified as liabilities. The Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company currently has no instruments impacted by the adoption of this statement
and therefore the adoption did not have an effect on the Companys consolidated
financial position, results of operations or cash flows.

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148 (SFAS No. 148), Accounting
for Stock-Based CompensationTransition and Disclosure. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to SFAS No. 123s fair value method of accounting for
stock-based employee compensation. SFAS No.

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148 also amends the disclosure provisions of SFAS No. 123 and APB 28,
Interim Financial Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an entitys accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While SFAS No.
148 does not amend SFAS No. 123 to require companies to account for employee
stock options using the fair value method, the disclosure provisions of SFAS
No. 148 are applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair value
method of SFAS No. 123 or the intrinsic value method of APB 25. As allowed by
SFAS No. 123, the Company has elected to continue to utilize the accounting
method prescribed by APB 25 and has adopted the disclosure requirements of SFAS
No. 123 as of June 30, 2003.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51.
FIN No. 46 requires certain variable interest entities, or VIEs, to be
consolidated by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN No. 46 is effective for all VIEs created or acquired after January
31, 2003. For VIEs created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company currently has no contractual
relationship or other business relationship with a variable interest entity and
therefore the adoption of FIN No. 46 is not expected to have any effect on the
Companys consolidated financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees. FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the
guarantee. At adoption, FIN 45 did not have any impact on our consolidated
statements of income or financial position. FIN 45 also requires guarantors to
disclose certain information for guarantees, including product warranties,
outstanding at June 30, 2003.






|ITEM 7A: |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|-------- |  | ---------------------------------------------------------

We are exposed to interest rate fluctuations on our short-term investments
that are comprised of U.S. corporate securities and other debt securities that
we hold on an available-for-sale basis. Changes in interest rates do not affect
interest expense incurred on our Contingent Convertible Senior Notes as the
interest rate is fixed. We have not entered into derivative financial
instruments.

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##### Table of Contents



The following tables provide information about our financial instruments
that are sensitive to changes in interest rates. For our investment portfolio,
the tables present principal cash flows and related weighted-average yield
rates by expected maturity dates. Additionally, we have assumed our
available-for-sale securities are similar enough to aggregate for presentation
purposes.

Interest Rate Sensitivity
Principal Amount by Expected Maturity as of June 30, 2003
(amounts in thousands)

|                                    |  |                                                                |         |      |  |      |         |      |  |      |        |            |  |   |   |  |  |   |   |  |  |   |         |  
|----------------------------------- |  | -------------------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---------- |  | - | - |  |  | - | - |  |  | - | ------- | -
|                                    |  | Financial instruments mature during fiscal year ended June 30,
|                                    |  |                                                               
|                                    |  | 2004                                                           |         | 2005 |  | 2006 |         | 2007 |  | 2008 |        | Thereafter
|                                    |  |                                                                |         |      |  |      |         |      |  |      |        |           
|Available-for-sale securities       |  | $                                                              | 180,403 |      |  | $    | 149,268 |      |  | $    | 74,419 |            |  | $ |  |  |  | $ |  |  |  | $ | 50,390  |  
|Weighted-average yield rate         |  |                                                                | 2.3     | %    |  |      | 2.2     | %    |  |      | 2.4    | %          |  |   |  |  |  |   |  |  |  |   | 1.0     | %
|Contingent convertible
senior notes |  | $                                                              |        |      |  | $    |        |      |  | $    |       |            |  | $ |  |  |  | $ |  |  |  | $ | 400,000 |  
|Interest rate                       |  |                                                                |        |      |  |      |        |      |  |      |       |            |  |   |  |  |  |   |  |  |  |   | 2.5     | %

We have minimal operations outside of the United States and, accordingly,
are not susceptible to significant risk from changes in foreign currencies.

During the normal course of business we are routinely subjected to a
variety of market risks, examples of which include, but are not limited to,
interest rate movements and foreign currency fluctuations, as we discussed
above, and collectibility of accounts receivable. We continuously assess these
risks and have established policies and procedures to protect against the
adverse effects of these and other potential exposures. Although we do not
anticipate any material losses in these risk areas, no assurance can be made
that material losses will not be incurred in these areas in the future.






|ITEM 8: |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- |  | -------------------------------------------

Our financial statements and related financial statement schedule at June
30, 2003 and 2002 and for each of the three years in the period ended June 30,
2003 and the Independent Auditors Report thereon are contained on pages F-1
through F-28 and S-1 of this report on Form 10-K.






|ITEM 9: |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------

None.

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##### Table of Contents








|ITEM 9A: |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------

Medicis maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in reports filed by Medicis
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms and that such information is accumulated
and communicated to Medicis management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure. Our Chief Executive Officer and Chief Financial
Officer evaluated, with the participation of other members of management, the
effectiveness of Medicis disclosure controls and procedures (as defined in
Exchange Act Rule 15d-15(e)), as of the end of the period covered by this
Annual Report on Form 10-K. Based on this evaluation, Medicis management
concluded that the Companys disclosure controls and procedures were effective.
There were no significant changes in our internal controls over financial
reporting identified in connection with this evaluation that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, Medicis internal controls over financial reporting.




PART III






|ITEM 10: |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- |  | --------------------------------------------------






|ITEM 11: |  | EXECUTIVE COMPENSATION
|-------- |  | ----------------------






|ITEM 12: |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- |  | --------------------------------------------------------------






|ITEM 13: |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- |  | ----------------------------------------------






|ITEM 14: |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- |  | --------------------------------------

The information called for by each of Items 10, 11, 12, 13 and 14 is
incorporated by reference to Medicis definitive proxy statement for the 2003
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

38



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##### Table of Contents






PART IV




ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(a) |  | Documents filed as a part of this Report
|--- |  | ----------------------------------------

|                                            |                                                                                                  |                                                                                                                                                                                                                                                                                                                               |  |      |  | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | 
|                                            |                                                                                                  |                                                                                                                                                                                                                                                                                                                               |  | Page
|                                            |                                                                                                  |                                                                                                                                                                                                                                                                                                                               |  |     
|(1)  Financial Statements:                  |                                                                                                  |                                                                                                                                                                                                                                                                                                                               |  |     
|                                            | Index to consolidated financial statements                                                       |                                                                                                                                                                                                                                                                                                                               |  | F-1  | 
|                                            | Report of Ernst & Young LLP, Independent Auditors                                                |                                                                                                                                                                                                                                                                                                                               |  | F-2  | 
|                                            | Consolidated balance sheets at June 30, 2003 and 2002                                            |                                                                                                                                                                                                                                                                                                                               |  | F-3  | 
|                                            | Consolidated statements of income for the years ended
June 30, 2003, 2002 and 2001               |                                                                                                                                                                                                                                                                                                                               |  | F-5  | 
|                                            | Consolidated statements of stockholders equity for the years
ended June 30, 2003, 2002 and 2001 |                                                                                                                                                                                                                                                                                                                               |  | F-6  | 
|                                            | Consolidated statements of cash flows for the years ended June 30,
2003, 2002 and 2001           |                                                                                                                                                                                                                                                                                                                               |  | F-8  | 
|                                            | Notes to consolidated financial statements                                                       |                                                                                                                                                                                                                                                                                                                               |  | F-9  | 
|(2)  Financial Statement Schedule:          |                                                                                                  |                                                                                                                                                                                                                                                                                                                               |  |     
|                                            | Schedule II  Valuation and Qualifying Accounts                                                  |                                                                                                                                                                                                                                                                                                                               |  | S-1  | 
|                                            |                                                                                                  | This 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. |          |  |   | Description
|            |          |  |   |            
|            | 2.1      |  | - |             | Agreement of Merger by and between Medicis Pharmaceutical Corporation, a Delaware
corporation, Medicis Acquisition Corporation, a Delaware corporation, and GenDerm
Corporation, a Delaware corporation, dated November 28, 1997 (13)
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 2.1 (a)  |  | - |             | Agreement of Plan of Merger, dated as of October 1, 2001, by and among Medicis
Pharmaceutical Corporation, MPC Merger Corp. and Ascent Pediatrics, Inc. (19)                                                                         
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 3.1      |  | - |             | Certificate of Incorporation of the Company, as amended (6)                                                                                                                                                                          
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 3.3 (a)  |  | - |             | Amended and Restated By-Laws of the Company (15)                                                                                                                                                                                     
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 4.1      |  | - |             | Rights Agreement, dated August 17, 1995, between the Company and American
Stock Transfer & Trust Company, as Rights Agent (6)                                                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 4.1 (b)  |  | - |             | Amendment No. 2 to Rights Agreement, dated March 17, 1997, between the
Company and Norwest Bank Minnesota, N.A. (11)                                                                                                                 
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 4.1 (c)  |  | - |             | Indenture, dated as of June 4, 2002, by and between Medicis Pharmaceutical Corporation,
as issuer, and Deutsche Bank Trust Company Americas, as trustee. (20)                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 4.2      |  | - |             | Registration Rights Agreement, dated as of June 4, 2002, by and between Medicis
Pharmaceutical Corporation and Deutsche Bank Securities Inc. (20)                                                                                    
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 4.3      |  | - |             | Form of specimen certificate representing Class A common stock (1)                                                                                                                                                                   
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.8     |  | - |             | 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)     
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.9     |  | - |             | Employment Agreement between the Company and Jonah Shacknai, dated
July 24, 1996 (10)                                                                                                                                                
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.9 (a) |  | - |             | Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated April 1, 1999 (17)                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.9 (b) |  | - |             | Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated February 21, 2001 (17)                                                                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.10    |  | - |             | Medicis Pharmaceutical Corporation 1988 Stock Option Plan, as amended (2)                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.18    |  | - |             | Medicis Pharmaceutical Corporation 1990 Stock Option Plan, as amended (2)                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.20    |  | - |             | Medicis Pharmaceutical Corporation 2002 Stock Option Plan (21)                                                                                                                                                                       
|            |          |  |   |             |                                                                                                                                                                                                                                      
|            | 10.58    |  | - |             | Medicis
Pharmaceutical Corporation 1992 Stock Option Plan (4)                                                                                                                                                                        

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|            |          |  |   |             |                                                                                                                                                                                                                                                       
|----------- | -------- |  | - | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |          |  |   | Description
|            |          |  |   |            
|            | 10.59    |  | - |             | Supply Agreement,
dated October 21, 1992, between Schein and the Company (3)                                                                                                                                                                          
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.70    |  | - |             | Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between
Schein and the Company (5)                                                                                                                                              
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.72(a) |  | - |             | Credit and Security Agreement, dated August 3, 1995, between the Company and
Norwest Business Credit, Inc. (7)                                                                                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.72(b) |  | - |             | First Amendment to Credit and Security Agreement, dated May 29, 1996,
between the Company and Norwest Bank Arizona, N.A. (10)                                                                                                                         
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.72(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. (12)                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.72(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. (14)                                                   
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.72(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. (18)
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.73(a) |  | - |             | Patent Collateral Assignment and Security Agreement, dated August 3, 1995 by
the Company to Norwest Business Credit, Inc. (8)                                                                                                                         
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.73(b) |  | - |             | First Amendment to Patent Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (10)                                                                                                         
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.73(c) |  | - |             | Amended and Restated Patent Collateral Assignment and Security Agreement, dated
November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (14)                                                                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.74(a) |  | - |             | Trademark Collateral Assignment and Security Agreement, dated August 3, 1995,
by the Company to Norwest Business Credit, Inc. (9)                                                                                                                     
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.74(b) |  | - |             | First Amendment to Trademark Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (10)                                                                                                      
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.74(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. (14)                                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.75    |  | - |             | Assignment and Assumption of Loan Documents, dated May 29, 1996, from
Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (10)                                                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.76    |  | - |             | Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank
Arizona, N.A. (10)                                                                                                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.89    |  | - |             | 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. (14)                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.90    |  | - |             | 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. (14)                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.91    |  | - |             | Loprox Lotion Supply Agreement dated November 15, 1998, by and between the
Company and Hoechst Marion Roussel, Inc. (14)                                                                                                                              
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.92    |  | - |             | Supply Agreement dated November 15, 1998, by and between the Company and
Hoechst Marion Roussel Deutschland GMBH (14)                                                                                                                                 
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.93    |  | - |             | Asset Purchase Agreement effective January 31, 1999, between the Company and
Bioglan Pharma Plc (16)                                                                                                                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.94    |  | - |             | 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 (16)                                                                        
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.95    |  | - |             | Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc
dated June 29, 1999 (16)                                                                                                                                                   
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.96    |  | - |             | Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan
Pharma Plc, the Company and IMX Pharmaceuticals, Inc. dated June 29, 1999 (16)                                                                                                 
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.97    |  | - |             | Medicis Pharmaceutical Corporation Executive Retention Plan (16)                                                                                                                                                                                      
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.98    |  | - |             | Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated
September 14, 1999 (16)                                                                                                                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                       
|            | 10.99    |  | - |             | 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 (22)                                                                       

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|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | -------- |  | - | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |          |  |   | Description
|            |          |  |   |            
|            |          |  |   |            
|            | 10.99(a) |  | - |             | 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(22)                                                                                                                                                                                                                                      
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 10.100   |  | - |             | Supply Agreement between Q-Med AB and Medicis Pharmaceutical Corporation,
Dated March 7, 2003(22)                                                                                                                                                                                                                                                                                                                                  
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 10.101   |  | - |             | Amended and Restated Intellectual Property Agreement between Q-Med AB and HA
North American Sales AB, dated March 7, 2003(22)                                                                                                                                                                                                                                                                                                      
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 12       |  | - |             | Computation of Ratios of Earnings to Fixed Charges (filed herewith)                                                                                                                                                                                                                                                                                                                                                                
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 21.1     |  | - |             | Subsidiaries (filed herewith)                                                                                                                                                                                                                                                                                                                                                                                                      
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 23.1     |  | - |             | Consent of Ernst & Young LLP, Independent Auditors (filed herewith)                                                                                                                                                                                                                                                                                                                                                                
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 24.1     |  | - |             | Power of Attorney See signature page(s)                                                                                                                                                                                                                                                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 31.1     |  | - |             | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K
(filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 31.2     |  | - |             | Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K
(filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 32.1     |  | - |             | Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K
(filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 32.2     |  | - |             | Certification of Chief Financial Officer pursuant to Item 601(b)(32) of Regulation S-K
(filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 99.1     |  | - |             | Exclusive Remedy Agreement, dated as of October 1, 2001, by and among Medicis
Pharmaceutical Corporation, 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. (19)
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 99.2     |  | - |             | Note Agreement, dated as of October 1, 2001, by and among Ascent Pediatrics, Inc.,
Medicis Pharmaceutical Corporation, 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 (19)                                                                                                                                                
|            |          |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 99.3     |  | - |             | Voting Agreement, dated as of October 1, 2001, by and among Medicis Pharmaceutical
Corporation, 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.
(19)                                                                                                                                                                   



|(1) |  | Incorporated by reference to the exhibit with the same number in 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 exhibit with the same number in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30,
1992, as amended, File No. 0-18443, previously filed with the SEC           
|   
|(3) |  | Incorporated by reference to the exhibit with the same number in
Registration Statement on Form S-1 of the Company, File No. 33-54276,
filed with the SEC on June 11, 1993                                               
|   
|(4) |  | Incorporated by reference to Exhibit B to the Companys definitive
Proxy Statement for its 1992 Annual Meeting of Shareholders, File No.
0-18443, previously filed with the SEC                                          
|   
|(5) |  | Incorporated by reference to the exhibit with the same number in 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              
|   
|(6) |  | Incorporated by reference to the exhibit with the same number in 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)
|   
|(7) |  | Incorporated by reference to exhibit number 4.2 in the 1995 Form 10-K                                                                                                                                                    
|   
|(8) |  | Incorporated by reference to exhibit number 4.4 in the 1995 Form 10-K                                                                                                                                                    

41



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##### Table of Contents



|(9)  |  | Incorporated by reference to exhibit number 4.5 in the 1995 Form 10-K                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(10) |  | Incorporated by reference to the exhibit with the same number in 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   
|    
|(11) |  | Incorporated by reference to the exhibit with the same number in 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   
|    
|(12) |  | Incorporated by reference to the exhibit with the same number in 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
|    
|(13) |  | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on December 15, 1997                                                    
|    
|(14) |  | Incorporated by reference to the exhibit with the same number in 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
|    
|(15) |  | Incorporated by reference to the exhibit with the same number in the
Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, File No. 0-18443, previously
filed with the SEC   
|    
|(16) |  | Incorporated by reference to the exhibit with the same number in 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   
|    
|(17) |  | Incorporated by reference to the exhibit with the same number in 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   
|    
|(18) |  | Incorporated by reference to the exhibit with the same number in 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   
|    
|(19) |  | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on October 2, 2001                                                      
|    
|(20) |  | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on June 6, 2002                                                         
|    
|(21) |  | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 10-K for the fiscal year ended June 30,
2002, File No. 0-18443, previously filed with the SEC  
|    
|(22) |  | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on March 10,
2003                                                       



|(b) |  | During the quarter ended June 30, 2003, the Company filed the following
reports on Form 8-K with the SEC:
|--- |  | ---------------------------------------------------------------------------------------------------------



| | (i)  |  | Current Report on Form 8-K dated April 22, 2003, which
announced the issuance of a press release summarizing the Companys
third quarter 2003 financial results.        
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | Current Report on Form 8-K dated June 26, 2003, which announced
the issuance of a press release summarizing the Companys revenue and
earnings guidance for fiscal 2004.



|(c) |  | The exhibits to this Form 10-K follow the Companys Financial Statement
Schedule included in this Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------
|   
|(d) |  | The Financial Statement Schedule to this Form 10-K appears on page S-1 of
this Form 10-K.                   

42



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Date: September 29, 2003

| |  |                                    |  |                                                                 
| |  | ---------------------------------- |  | ----------------------------------------------------------------
| |  | MEDICIS PHARMACEUTICAL CORPORATION
| |  |                                    |  |                                                                 
| |  | By:                                |  | /s/ JONAH SHACKNAI                                              
| |  |                                    |  |                                                                 
| |  |                                    |  | Jonah Shacknai
Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jonah Shacknai and Mark A. Prygocki, Sr., or
either of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K and any documents related to this report and filed pursuant
to the Securities and Exchange Act of 1934, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

|                                                     |  |                                                                                                                                   |  |                   
|---------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|SIGNATURE                                            |  | TITLE                                                                                                                             |  | DATE              
|                                                     |  |                                                                                                                                   |  |                   
|/s/ JONAH SHACKNAI

Jonah Shacknai                   |  | Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)                                      |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ MARK A. PRYGOCKI, SR.

Mark A. Prygocki, Sr.     |  | Executive Vice President, Chief Financial
Officer,
Corporate Secretary and Treasurer
(Principal Financial and Accounting Officer) |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ ARTHUR G. ALTSCHUL, JR.

Arthur G. Altschul, Jr. |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ SPENCER DAVIDSON

Spencer Davidson               |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ STUART DIAMOND

Stuart Diamond                   |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ PETER S. KNIGHT, ESQ.

Peter S. Knight, Esq      |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ MICHAEL A. PIETRANGELO

Michael A. Pietrangelo   |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ PHILIP S. SCHEIN, M.D.

Philip S. Schein, M.D.   |  | Director                                                                                                                          |  | September 29, 2003
|                                                     |  |                                                                                                                                   |  |                   
|/s/ LOTTIE SHACKELFORD

Lottie Shackelford           |  | Director                                                                                                                          |  | September 29, 2003

43



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MEDICIS PHARMACEUTICAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                        |  |      |     | 
|------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                        |  | PAGE
|                                                                                                        |  |     
|Report of Ernst & Young LLP, Independent Auditors                                                       |  |      | F-2 | 
|Consolidated Balance Sheets as of June 30, 2003 and 2002                                                |  |      | F-3 | 
|Consolidated Statements of Income for the fiscal years
ended June 30, 2003, 2002 and 2001               |  |      | F-5 | 
|Consolidated Statements of Stockholders Equity for the
fiscal years ended June 30, 2003, 2002 and 2001 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for the fiscal years
ended June 30, 2003, 2002 and 2001           |  |      | F-8 | 
|Notes to Consolidated Financial Statements                                                              |  |      | F-9 | 
|Schedule II  Valuation and Qualifying Accounts                                                         |  |      | S-1 | 

F-1



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Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders of Medicis Pharmaceutical Corporation

We have audited the accompanying consolidated balance sheets of Medicis
Pharmaceutical Corporation and subsidiaries as of June 30, 2003 and 2002, and
the related consolidated statements of income, stockholders equity, and cash
flows for each of the three years in the period ended June 30, 2003. Our audits
also included the financial statement schedule listed in Item 15(a)(2). These
financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and schedule based upon our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medicis
Pharmaceutical Corporation and subsidiaries at June 30, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2003, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.



| | /s/ Ernst & Young LLP
| | ---------------------

Phoenix, Arizona
August 14, 2003

F-2



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MEDICIS PHARMACEUTICAL CORPORATION




CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |        |         | 
|----------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------- | --------------------- | ------- | -------- | ------- | ------- | ------- | ------ | ------- | 
|                              |                                                                                  |                                            |                             |                       |         | JUNE 30,
|                              |                                                                                  |                                            |                             |                       |         |         
|                              |                                                                                  |                                            |                             |                       |         | 2003     |         | 2002   
|                              |                                                                                  |                                            |                             |                       |         |          |         |        
|Assets                        |                                                                                  |                                            |                             |                       |         |          |         |        
|Current assets:               |                                                                                  |                                            |                             |                       |         |          |         |        
|                              |                                                                                  | Cash and cash equivalents                  |                             | $                     | 44,346  |          |         | $       | 96,517  |       
|                              |                                                                                  | Restricted cash and short-term investments |                             |                       | 53,837  |          |         |         |        |       
|                              |                                                                                  | Short-term investments                     |                             |                       | 454,480 |          |         |         | 481,059 |       
|                              |                                                                                  | Accounts receivable, less allowances:      |                             |                       |         |          |         |         |         |       
|                              |                                                                                  |                                            | 2003: $12,716; 2002: $7,395 |                       |         | 51,661   |         |         |         | 45,054 |        
|                              |                                                                                  | Inventories, net                           |                             |                       | 14,005  |          |         |         | 11,955  |       
|                              |                                                                                  | Deferred tax assets, net                   |                             |                       | 10,450  |          |         |         | 7,388   |       
|                              |                                                                                  | Other current assets                       |                             |                       | 16,849  |          |         |         | 16,500  |       
|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |       
|                              |                                                                                  |                                            |                             | Total current assets  |         |          | 645,628 |         |         |        | 658,473 | 
|Property and equipment, net   |                                                                                  |                                            | 3,094                       |                       |         |          | 2,605   |        
|Intangible assets:            |                                                                                  |                                            |                             |                       |         |          |         |        
|                              | Intangible assets related to product line acquisitions and
business combinations |                                            |                             | 245,989               |         |          |         | 165,084 |        
|                              | Other intangible assets                                                          |                                            |                             | 13,099                |         |          |         | 11,727  |        
|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |       
|                              |                                                                                  |                                            | 259,088                     |                       |         |          | 176,811 |        
|                              | Less: accumulated amortization                                                   |                                            |                             | 40,254                |         |          |         | 31,007  |        
|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |       
|                              |                                                                                  |                                            |                             | Net intangible assets |         |          | 218,834 |         |         |        | 145,804 | 
|Goodwill                      |                                                                                  |                                            | 59,435                      |                       |         |          | 39,389  |        
|Deferred tax assets, net      |                                                                                  |                                            |                            |                       |         |          | 17,570  |        
|Deferred financing costs, net |                                                                                  |                                            | 9,991                       |                       |         |          | 12,390  |        
|Other non-current assets      |                                                                                  |                                            | 8                           |                       |         |          | 42      |        
|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |       
|                              |                                                                                  | $                                          | 936,990                     |                       |         | $        | 876,273 |        
|                              |                                                                                  |                                            |                             |                       |         |          |         |         |         |       

See accompanying notes to consolidated financial statements.

F-3



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MEDICIS PHARMACEUTICAL CORPORATION

CONSOLIDATED BALANCE SHEETS, Continued

(in thousands, except share amounts)

|                              |                                                                                                                                                                  |                                     |                            |          |          |         |         |          |         |         | 
|----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------- | -------- | -------- | ------- | ------- | -------- | ------- | ------- | 
|                              |                                                                                                                                                                  |                                     |                            |          | JUNE 30,
|                              |                                                                                                                                                                  |                                     |                            |          |         
|                              |                                                                                                                                                                  |                                     |                            |          | 2003     |         | 2002   
|                              |                                                                                                                                                                  |                                     |                            |          |          |         |        
|Liabilities                   |                                                                                                                                                                  |                                     |                            |          |          |         |         |         
|                              | Current liabilities:                                                                                                                                             |                                     |                            |          |          |         |         |          |        
|                              |                                                                                                                                                                  | Accounts payable                    |                            | $        | 18,568   |         |         | $        | 14,037  |        
|                              |                                                                                                                                                                  | Short-term contract obligation      |                            |          | 18,306   |         |         |          | 10,000  |        
|                              |                                                                                                                                                                  | Income taxes payable                |                            |          | 481      |         |         |          | 1,460   |        
|                              |                                                                                                                                                                  | Other current liabilities           |                            |          | 31,492   |         |         |          | 21,717  |        
|                              |                                                                                                                                                                  |                                     |                            |          |          |         |         |          |         |        
|                              |                                                                                                                                                                  |                                     | Total current liabilities  |          |          | 68,847  |         |          |         | 47,214  | 
|                              | Long-term liabilities:                                                                                                                                           |                                     |                            |          |          |         |         |          |        
|                              |                                                                                                                                                                  | Contingent convertible senior notes |                            |          | 400,000  |         |         |          | 400,000 |        
|                              |                                                                                                                                                                  | Deferred tax liability, net         |                            |          | 7,022    |         |         |          |        |        
|Commitments and Contingencies |                                                                                                                                                                  |                                     |                            |          |          |         |         |         
|Stockholders Equity          |                                                                                                                                                                  |                                     |                            |          |          |         |         |         
|                              | Preferred stock, $0.01 par value; shares authorized: 5,000,000;
no shares issued                                                                                 |                                     |                            |         |          |         |         |         |        
|                              | Class A common stock, $0.014 par value; shares authorized: 50,000,000;
issued and outstanding: 31,254,841 and 30,776,276 at June 30, 2003
and
2002, respectively |                                     |                            | 438      |          |         |         | 431      |        
|                              | Class B common stock, $0.014 par value; shares authorized: 1,000,000;
issued and outstanding: 379,016 and 379,016 at June 30, 2003 and
2002, respectively        |                                     |                            | 5        |          |         |         | 5        |        
|                              | Additional paid-in capital                                                                                                                                       |                                     |                            | 446,096  |          |         |         | 429,951  |        
|                              | Accumulated other comprehensive income                                                                                                                           |                                     |                            | 2,400    |          |         |         | 790      |        
|                              | Deferred compensation                                                                                                                                            |                                     |                            | (1,727   | )        |         |         | (2,094   | )      
|                              | Accumulated earnings                                                                                                                                             |                                     |                            | 204,817  |          |         |         | 154,923  |        
|                              | Less: Treasury stock, 4,340,734 and 3,412,434 shares at cost at June 30,
2003 and 2002, respectively                                                             |                                     |                            | (190,908 | )        |         |         | (154,947 | )      
|                              |                                                                                                                                                                  |                                     |                            |          |          |         |         |          |         |        
|                              |                                                                                                                                                                  |                                     | Total stockholders equity |          |          | 461,121 |         |          |         | 429,059 | 
|                              |                                                                                                                                                                  |                                     |                            |          |          |         |         |          |         |        
|                              |                                                                                                                                                                  | $                                   | 936,990                    |          |          | $       | 876,273 |         
|                              |                                                                                                                                                                  |                                     |                            |          |          |         |         |          |         |        

See accompanying notes to consolidated financial statements.

F-4



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MEDICIS PHARMACEUTICAL CORPORATION




CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |        |         | 
|------------------------------------------------------------ | ----------------------------------- | ---------------------------- | ------- | ------------------- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                             |                                     |                              |         | YEAR ENDED JUNE 30,
|                                                             |                                     |                              |         |                    
|                                                             |                                     |                              |         | 2003                |         | 2002 |         | 2001  
|                                                             |                                     |                              |         |                     |         |      |         |       
|Net revenues                                                 |                                     | $                            | 247,539 |                     |         | $    | 212,807 |        |         | $ | 167,802 |       
|Operating costs and expenses:                                |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|                                                             | Cost of product revenue             |                              |         | 38,260              |         |      |         | 35,765 |         |   |         | 30,697 |        
|                                                             | Selling, general and administrative |                              |         | 91,648              |         |      |         | 77,314 |         |   |         | 59,508 |        
|                                                             | Research and development            |                              |         | 29,568              |         |      |         | 15,132 |         |   |         | 25,515 |        
|                                                             | In-process research and development |                              |         |                    |         |      |         | 6,217  |         |   |         |       |        
|                                                             | Depreciation and amortization       |                              |         | 10,125              |         |      |         | 7,928  |         |   |         | 8,261  |        
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|                                                             |                                     | Operating costs and expenses |         |                     | 169,601 |      |         |        | 142,356 |   |         |        | 123,981 | 
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Operating income                                             |                                     |                              | 77,938  |                     |         |      | 70,451  |        |         |   | 43,821  |       
|Interest income                                              |                                     |                              | 12,302  |                     |         |      | 9,909   |        |         |   | 16,767  |       
|Interest expense                                             |                                     |                              | (12,580 | )                   |         |      | (1,376  | )      |         |   | (1,263  | )     
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Income before income tax expense                             |                                     |                              | 77,660  |                     |         |      | 78,984  |        |         |   | 59,325  |       
|Income tax expense                                           |                                     |                              | (26,404 | )                   |         |      | (28,960 | )      |         |   | (18,905 | )     
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Net income                                                   |                                     | $                            | 51,256  |                     |         | $    | 50,024  |        |         | $ | 40,420  |       
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Basic net income per common share                            |                                     | $                            | 1.89    |                     |         | $    | 1.65    |        |         | $ | 1.34    |       
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Diluted net income per common share                          |                                     | $                            | 1.82    |                     |         | $    | 1.59    |        |         | $ | 1.28    |       
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Shares used in computing basic net income per
common share   |                                     |                              | 27,188  |                     |         |      | 30,268  |        |         |   | 30,134  |       
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       
|Shares used in computing diluted net income per
common share |                                     |                              | 28,211  |                     |         |      | 31,405  |        |         |   | 31,694  |       
|                                                             |                                     |                              |         |                     |         |      |         |        |         |   |         |       

See accompanying notes to consolidated financial statements.

F-5



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MEDICIS PHARMACEUTICAL CORPORATION




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands)

|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   |  |    |   | 
|------------------------ | --------------------- | ------------------------------------------------------------------------ | -------------------- |  | ------------ | - | ------------ |  | ------ |  | ------ |  | --- | - | - |  | -- | - | 
|                         |                       |                                                                          |                      |  | Class A      |   | Class B     
|                         |                       |                                                                          |                      |  | Common Stock |   | Common Stock
|                         |                       |                                                                          |                      |  | Shares       |   | Amount       |  | Shares |  | Amount
|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |       
|Balance at June 30, 2000 |                       |                                                                          | 29,069               |  |              | $ | 407          |  |        |  | 423    |  |     | $ | 6 | 
|Comprehensive income:    |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 
|                         |                       | Net income                                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized gains on available-for-sale
securities                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized losses on foreign currency
translation                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          | Comprehensive income |  |              |   |              |  |        |  |        |  |     |   |   |  |    |   | 
|                         |                       | Exercise of stock options                                                |                      |  | 1,051        |   |              |  | 15     |  |        |  |    |   |   |  |   |  
|                         |                       | Tax effect of stock options exercised                                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Options issued in lieu of payment
for services rendered                  |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Purchase of treasury stock                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 
|Balance at June 30, 2001 |                       |                                                                          | 30,120               |  |              |   | 422          |  |        |  | 423    |  |     |   | 6 | 
|Comprehensive income:    |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 
|                         |                       | Net income                                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized gains on available-for-sale
securities                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized losses on foreign currency
translation                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          | Comprehensive income |  |              |   |              |  |        |  |        |  |     |   |   |  |    |   | 
|                         |                       | Conversion of Class B common stock to
Class A common stock               |                      |  | 44           |   |              |  | 1      |  |        |  | (44 | ) |   |  | (1 | )
|                         |                       | Restricted shares issued for deferred compensation                       |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Amortization of deferred compensation                                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Exercise of stock options                                                |                      |  | 612          |   |              |  | 8      |  |        |  |    |   |   |  |   |  
|                         |                       | Tax effect of stock options exercised                                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Purchase of treasury stock                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 
|Balance at June 30, 2002 |                       |                                                                          | 30,776               |  |              |   | 431          |  |        |  | 379    |  |     |   | 5 | 
|                         | Comprehensive income: |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   |  |   
|                         |                       | Net income                                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized gains on available-for-sale
securities                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Net unrealized gains on foreign currency
translation                     |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          | Comprehensive income |  |              |   |              |  |        |  |        |  |     |   |   |  |    |   | 
|                         |                       | Dividends declared                                                       |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Restricted shares issued for deferred compensation, net
of cancellations |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Amortization of deferred compensation, net of award
reacquisitions       |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Exercise of stock options                                                |                      |  | 479          |   |              |  | 7      |  |        |  |    |   |   |  |   |  
|                         |                       | Tax effect of stock options exercised                                    |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       | Purchase of treasury stock                                               |                      |  |             |   |              |  |       |  |        |  |    |   |   |  |   |  
|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 
|Balance at June 30, 2003 |                       |                                                                          | 31,255               |  |              | $ | 438          |  |        |  | 379    |  |     | $ | 5 | 
|                         |                       |                                                                          |                      |  |              |   |              |  |        |  |        |  |     |   |   | 

See accompanying notes to consolidated financial statements.

F-6



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##### Table of Contents



|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|---------- | ------- | ------------- |  | ------------ | ----- | ----------- |  | ------ | ------ | ------ |  | -------- | ------- | - |  |  | ------ | - |  | - | -------- | - |  | - | -------- | -
|           |         |               |  | Accumulated  |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |  
|Additional |         | Other         |  |              |       |             |  |        |        |        |  | Treasury |         |   |  | 
|Paid-In    |         | Comprehensive |  | Deferred     |       | Accumulated |  | Stock  |        |        |  |         
|Capital    |         | Income (Loss) |  | Compensation |       | Earnings    |  | Shares |        | Amount |  | Total   
|           |         |               |  |              |       |             |  |        |        |        |  |         
|$          | 372,068 |               |  | $            | 479   |             |  | $      |       |        |  | $        | 64,479  |   |  |  |       |   |  | $ |         |   |  | $ | 437,439  |  
|           |        |               |  |              |      |             |  |        |       |        |  |          | 40,420  |   |  |  |       |   |  |   |         |   |  |   | 40,420   |  
|           |        |               |  |              | 261   |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 261      |  
|           |        |               |  |              | (129  | )           |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | (129     | )
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   | 40,552   |  
|           | 22,460  |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 22,475   |  
|           | 12,886  |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 12,886   |  
|           | 28      |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 28       |  
|           |        |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  | (300   | ) |  |   | (9,927   | ) |  |   | (9,927   | )
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|           | 407,442 |               |  |              | 611   |             |  |        |       |        |  |          | 104,899 |   |  |  | (300   | ) |  |   | (9,927   | ) |  |   | 503,453  |  
|           |        |               |  |              |      |             |  |        |       |        |  |          | 50,024  |   |  |  |       |   |  |   |         |   |  |   | 50,024   |  
|           |        |               |  |              | 354   |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 354      |  
|           |        |               |  |              | (175  | )           |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | (175     | )
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   | 50,203   |  
|           |        |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   |         |  
|           | 756     |               |  |              |      |             |  |        | (2,578 | )      |  |          |        |   |  |  | 55     |   |  |   | 1,822    |   |  |   |         |  
|           |        |               |  |              |      |             |  |        | 484    |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 484      |  
|           | 14,372  |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 14,380   |  
|           | 7,381   |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 7,381    |  
|           |        |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  | (3,167 | ) |  |   | (146,842 | ) |  |   | (146,842 | )
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|           | 429,951 |               |  |              | 790   |             |  |        | (2,094 | )      |  |          | 154,923 |   |  |  | (3,412 | ) |  |   | (154,947 | ) |  |   | 429,059  |  
|           |        |               |  |              |      |             |  |        |       |        |  |          | 51,256  |   |  |  |       |   |  |   |         |   |  |   | 51,256   |  
|           |        |               |  |              | 1,396 |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 1,396    |  
|           |        |               |  |              | 214   |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 214      |  
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   | 52,866   |  
|           |        |               |  |              |      |             |  |        |       |        |  |          | (1,362  | ) |  |  |       |   |  |   |         |   |  |   | (1,362   | )
|           | (2      | )             |  |              |       |             |  |        | 2      |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   |         |  
|           |        |               |  |              |      |             |  |        | 365    |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 365      |  
|           | 12,753  |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 12,760   |  
|           | 3,394   |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  |       |   |  |   |         |   |  |   | 3,394    |  
|           |        |               |  |              |      |             |  |        |       |        |  |          |        |   |  |  | (929   | ) |  |   | (35,961  | ) |  |   | (35,961  | )
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  
|$          | 446,096 |               |  | $            | 2,400 |             |  | $      | (1,727 | )      |  | $        | 204,817 |   |  |  | (4,341 | ) |  | $ | (190,908 | ) |  | $ | 461,121  |  
|           |         |               |  |              |       |             |  |        |        |        |  |          |         |   |  |  |        |   |  |   |          |   |  |   |          |  

F-7



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |       |        |         |  
|--------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ------ | ------------------- | -------- | -------- | ------ | ------ | -------- | -------- | ----- | ------ | ------- | -
|                      |                                                                                   |                                                |                                       |                                                     |        | YEAR ENDED JUNE 30,
|                      |                                                                                   |                                                |                                       |                                                     |        |                    
|                      |                                                                                   |                                                |                                       |                                                     |        | 2003                |          | 2002     |        | 2001  
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |       
|Operating Activities: |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |         
|                      | Net income                                                                        |                                                | $                                     | 51,256                                              |        |                     | $        | 50,024   |        |        | $        | 40,420   |      
|                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      |                                                                                   | In-process research and development            |                                       |                                                     |       |                     |          |          | 6,217  |        |          |          |      |       
|                      |                                                                                   | Depreciation and amortization                  |                                       |                                                     | 12,766 |                     |          |          | 8,138  |        |          |          | 8,261 |       
|                      |                                                                                   | Gain on sale of available-for-sale investments |                                       |                                                     | (380   | )                   |          |          | (1,141 | )      |          |          | (825  | )     
|                      |                                                                                   | Amortization of deferred compensation          |                                       |                                                     | 365    |                     |          |          | 484    |        |          |          |      |       
|                      |                                                                                   | Deferred income tax expense (benefit)          |                                       |                                                     | 8,879  |                     |          |          | 679    |        |          |          | (607  | )     
|                      |                                                                                   | Provision for doubtful accounts and returns    |                                       |                                                     | 5,321  |                     |          |          | 2,345  |        |          |          | 860   |       
|                      |                                                                                   | Accretion of premium on investments            |                                       |                                                     | 3,657  |                     |          |          | 3,200  |        |          |          | 179   |       
|                      |                                                                                   | Accretion of discount on contract obligation   |                                       |                                                     |       |                     |          |          | 340    |        |          |          | 1,246 |       
|                      |                                                                                   | Other non-cash expenses                        |                                       |                                                     |       |                     |          |          |       |        |          |          | 28    |       
|                      | Changes in operating assets and liabilities (net of
acquired amounts):            |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      |                                                                                   |                                                | Accounts receivable                   |                                                     |        | (11,318             | )        |          |        | (6,604 | )        |          |       | (4,760 | )      
|                      |                                                                                   |                                                | Inventories                           |                                                     |        | (2,050              | )        |          |        | (2,246 | )        |          |       | 1,251  |        
|                      |                                                                                   |                                                | Other current assets                  |                                                     |        | (378                | )        |          |        | (1,707 | )        |          |       | 4,378  |        
|                      |                                                                                   |                                                | Accounts payable                      |                                                     |        | 4,553               |          |          |        | (256   | )        |          |       | 1,976  |        
|                      |                                                                                   |                                                | Income taxes payable                  |                                                     |        | (979                | )        |          |        | 1,197  |          |          |       | 263    |        
|                      |                                                                                   |                                                | Tax benefit of stock option exercises |                                                     |        | 3,394               |          |          |        | 7,381  |          |          |       | 12,886 |        
|                      |                                                                                   |                                                | Other current liabilities             |                                                     |        | 9,581               |          |          |        | 5,491  |          |          |       | 5,564  |        
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      |                                                                                   |                                                |                                       | Net cash provided by operating activities           |        |                     | 84,667   |          |        |        | 73,542   |          |       |        | 71,120  |  
|Investing Activities: |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |         
|                      | Purchase of property and equipment                                                |                                                |                                       | (1,367                                              | )      |                     |          | (1,299   | )      |        |          | (849     | )    
|                      | Ascent merger, net of cash acquired                                               |                                                |                                       |                                                    |        |                     |          | (62,437  | )      |        |          |         |      
|                      | Payment of direct merger costs                                                    |                                                |                                       | (1,511                                              | )      |                     |          | (1,794   | )      |        |          |         |      
|                      | Payment for purchase of product rights                                            |                                                |                                       | (81,727                                             | )      |                     |          | (18,184  | )      |        |          | (35,711  | )    
|                      | Purchase of available-for-sale investments                                        |                                                |                                       | (712,040                                            | )      |                     |          | (663,489 | )      |        |          | (392,605 | )    
|                      | Sale of available-for-sale investments                                            |                                                |                                       | 566,080                                             |        |                     |          | 289,388  |        |        |          | 236,708  |      
|                      | Maturity of available-for-sale investments                                        |                                                |                                       | 138,975                                             |        |                     |          | 116,122  |        |        |          | 94,443   |      
|                      | Increase in restricted cash and short-term investments                            |                                                |                                       | (22,153                                             | )      |                     |          |         |        |        |          |         |      
|                      | Change in other assets                                                            |                                                |                                       | 34                                                  |        |                     |          | 33       |        |        |          | 33       |      
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      |                                                                                   |                                                |                                       | Net cash used in investing activities               |        |                     | (113,709 | )        |        |        | (341,660 | )        |       |        | (97,981 | )
|Financing Activities: |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |         
|                      | Proceeds from issuance of Contingent Convertible
Senior Notes                     |                                                |                                       |                                                    |        |                     |          | 400,000  |        |        |          |         |      
|                      | Payment of deferred financing costs                                               |                                                |                                       | (142                                                | )      |                     |          | (12,600  | )      |        |          |         |      
|                      | Purchase of treasury stock                                                        |                                                |                                       | (35,961                                             | )      |                     |          | (146,842 | )      |        |          | (9,927   | )    
|                      | Proceeds from the exercise of stock options                                       |                                                |                                       | 12,760                                              |        |                     |          | 14,380   |        |        |          | 22,475   |      
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      |                                                                                   |                                                |                                       | Net cash (used in) provided by financing activities |        |                     | (23,343  | )        |        |        | 254,938  |          |       |        | 12,548  |  
|                      | Effect of foreign currency exchange rate on cash and
cash equivalents             |                                                |                                       | 214                                                 |        |                     |          | (175     | )      |        |          | (129     | )    
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      | Net decrease in cash and cash equivalents                                         |                                                |                                       | (52,171                                             | )      |                     |          | (13,355  | )      |        |          | (14,442  | )    
|                      | Cash and cash equivalents at beginning of year                                    |                                                |                                       | 96,517                                              |        |                     |          | 109,872  |        |        |          | 124,314  |      
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      
|                      | Cash and cash equivalents at end of year                                          |                                                | $                                     | 44,346                                              |        |                     | $        | 96,517   |        |        | $        | 109,872  |      
|                      |                                                                                   |                                                |                                       |                                                     |        |                     |          |          |        |        |          |          |      

See accompanying notes to consolidated financial statements.

F-8



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2003

NOTE 1. FORMATION AND DEVELOPMENT OF THE COMPANY

Medicis Pharmaceutical Corporation and its wholly owned subsidiaries
(Medicis, or the Company) is a leading specialty pharmaceutical company
focusing primarily on developing and marketing drugs in the United States for
the treatment of dermatological, pediatric and podiatric conditions and the
marketing of dermal aesthetic products in Canada. The Company offers a broad
range of drugs addressing various conditions including acne, fungal infections,
asthma, rosacea, hyperpigmentation, photoaging, psoriasis, eczema, skin and
skin-structure infections, seborrheic dermatitis and cosmesis (improvement in
the texture and appearance of skin). In March 2003, we expanded into the
dermal aesthetic market through our acquisition of the exclusive U.S. and
Canadian rights to market, distribute and commercialize the dermal restorative
product lines known as RESTYLANE®, PERLANETM and RESTYLANE
Fine LinesTM from
Q-Med AB, a Swedish biotechnology/medical device company and its affiliates,
collectively Q-Med. The RESTYLANE®, PERLANETM and RESTYLANE
Fine LinesTM
products are currently being sold in numerous countries by Q-Med, but are not
yet approved for use in the U.S. We offer RESTYLANE®, PERLANETM and RESTYLANE
Fine LinesTM in Canada for treating fine lines and wrinkles, shaping facial
contours, correcting deep facial folds and enhancing the appearance and
fullness of lips. In addition to the Companys expansion into the dermal
aesthetic market in March 2003, Medicis expanded into the pediatric market in
November 2001 through its merger with Ascent Pediatrics, Inc. (Ascent).
Ascent markets products to U.S.-based pediatricians, including an oral
treatment for children with asthma and other inflammatory respiratory
conditions. Since the merger, this sales force has introduced three of our
core dermatological brands to high prescribing pediatricians.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Medicis and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior period
amounts have been reclassified to conform with the current period presentation.

Cash and Cash Equivalents

At June 30, 2003, cash and cash equivalents included highly liquid
investments invested in money market accounts consisting of government
securities and high-grade commercial paper. These investments are stated at
cost, which approximates fair value. The Company considers all highly liquid
investments purchased with a remaining maturity of three months or less to be
cash equivalents.

Restricted Cash and Investments

Cash and investments that are restricted for use, for legal or other
contractual reasons, are segregated and classified as restricted cash and
investments.

F-9



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##### Table of Contents



Investments

The Company accounts for investments under Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Companys debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value
with the unrealized gains and losses reported in stockholders equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses and interest and
dividends on securities are included in interest income. The cost of securities
sold is based upon the specific identification method.

Inventories

The Company utilizes third parties to manufacture and package inventories
held for sale, takes title to certain inventories once manufactured, and
warehouses such goods until packaged for final distribution and sale.
Inventories consist of salable products held at the Companys warehouses, as
well as raw materials and components at the manufacturers facilities, and are
valued at the lower of cost or market using the first-in, first-out method.
The Company provides valuation reserves for estimated obsolescence or
unmarketable inventory in an amount equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions.

Inventories are as follows (amounts in thousands):

|                  |  |          |        |      |  |   |        |  
|----------------- |  | -------- | ------ | ---- |  | - | ------ | -
|                  |  | JUNE 30,
|                  |  |         
|                  |  | 2003     |        | 2002
|                  |  |          |        |     
|Raw materials     |  | $        | 5,976  |      |  | $ | 5,430  |  
|Finished goods    |  |          | 8,727  |      |  |   | 7,276  |  
|Valuation reserve |  |          | (698   | )    |  |   | (751   | )
|                  |  |          |        |      |  |   |        |  
|Total inventories |  | $        | 14,005 |      |  | $ | 11,955 |  
|                  |  |          |        |      |  |   |        |  

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of property and equipment
(three to five years). Leasehold improvements are amortized over the shorter of
their estimated useful lives or the remaining lease term. Property and
equipment consist of the following (amounts in thousands):

|                                  |  |          |        |      |  |   |        |  
|--------------------------------- |  | -------- | ------ | ---- |  | - | ------ | -
|                                  |  | JUNE 30,
|                                  |  |         
|                                  |  | 2003     |        | 2002
|                                  |  |          |        |     
|Furniture, fixtures and equipment |  | $        | 4,129  |      |  | $ | 4,354  |  
|Leasehold improvements            |  |          | 812    |      |  |   | 506    |  
|                                  |  |          |        |      |  |   |        |  
|                                  |  |          | 4,941  |      |  |   | 4,860  |  
|Less: accumulated depreciation    |  |          | (1,847 | )    |  |   | (2,255 | )
|                                  |  |          |        |      |  |   |        |  
|                                  |  | $        | 3,094  |      |  | $ | 2,605  |  
|                                  |  |          |        |      |  |   |        |  

Goodwill and Other Identifiable Intangible Assets

The Company has in the past made acquisitions of products and businesses
that include goodwill, license agreements, product rights, and other
identifiable intangible assets. The Company assesses the impairment of
goodwill and other identifiable intangibles whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Some
factors the Company considers important which could trigger an impairment
review include the following: (i) significant underperformance relative to
expected historical or projected future operating results; (ii) significant
changes in the manner of our use of the acquired assets or the strategy for our
overall business; and (iii) significant negative industry or economic trends.

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When the Company determines that the carrying value of goodwill and other
identifiable intangibles may not be recoverable based upon the existence of one
or more of the above indicators of impairment, the Company first will perform
an assessment of the assets recoverability based on expected undiscounted
future net cash flow, and if the amount is less than the assets value, the
Company will measure any impairment based on a projected discounted cash flow
method using a discount rate determined by our management to be commensurate
with the risk inherent in our current business model. In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, the Company does not amortize
goodwill. In lieu of amortization, the Company is required to perform an
impairment review of goodwill on an annual basis. If the Company determines
through the impairment process that goodwill has been impaired, the Company
will record the impairment charge in the statement of income.

The Company amortizes acquired identifiable intangible assets over their
expected useful lives, which range between five and 40 years.

Deferred Financing Costs

Deferred financing costs represent fees and other costs incurred in
connection with the June 2002 issuance of the 2.5% Contingent Convertible
Senior Notes Due 2032. These costs are being amortized on a basis that
approximates the effective interest method over the five-year period that ends
on the initial put date of the Notes. Accumulated amortization amounted to
approximately $2.8 million as of June 30, 2003.

Managed Care and Medicaid Reserves

The Company establishes and maintains reserves for amounts payable to
Managed Care Organizations and state Medicaid programs for the reimbursement of
a portion of the retail price of prescriptions filled that are covered by the
respective plans. The amounts estimated to be paid relating to products sold
are recognized as revenue reductions and as additions to accrued expenses at
the time of sale based on the Companys best estimate of the expected
prescription fill rate to these Managed Care and state Medicaid patients using
historical experience adjusted to reflect known changes in the factors that
impact such reserves.

Other Current Liabilities

Other current liabilities are as follows (amounts in thousands):

|                                   |  |          |        |      |  |   |        | 
|---------------------------------- |  | -------- | ------ | ---- |  | - | ------ | 
|                                   |  | JUNE 30,
|                                   |  |         
|                                   |  | 2003     |        | 2002
|                                   |  |          |        |     
|Accrued incentives                 |  | $        | 6,054  |      |  | $ | 5,207  | 
|Managed care and Medicaid
reserves |  |          | 11,082 |      |  |   | 5,921  | 
|Other accrued expenses             |  |          | 14,356 |      |  |   | 10,589 | 
|                                   |  |          |        |      |  |   |        | 
|                                   |  | $        | 31,492 |      |  | $ | 21,717 | 
|                                   |  |          |        |      |  |   |        | 

Revenue Recognition

Revenue from product sales is recognized when the merchandise is shipped
to an unrelated third party pursuant to Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. Accordingly, revenue is
recognized when all four of the following criteria are met: (i) persuasive
evidence that an arrangement exists; (ii) delivery of the products has
occurred; (iii) the selling price is both fixed and determinable; and (iv)
collectibility is reasonably assured. The Companys customers consist
primarily of large pharmaceutical wholesalers who sell directly into the retail
channel. Provisions for sales discounts, and estimates for chargebacks,
rebates, damaged product returns, and exchanges for expired product are
established as a reduction of product sales revenues at the time such revenues
are recognized. These revenue reductions are established by the Companys
management as its best estimate at the time of sale based on historical
experience adjusted to reflect known changes in the factors that impact such
reserves. These revenue reductions are generally reflected either as a direct
reduction

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to accounts receivable through an allowance, or as an addition to accrued
expenses if the provision is due to a party other than the wholesale or retail
customer.

The Company does not provide any forms of price protection to its
wholesale customers and permits product returns only if the product is damaged
or if it is returned with 6-12 months of expiration and the customer is
committed to accept replacement product in exchange. The
 Companys customers
consist principally of financially viable wholesalers so revenue is recorded
upon sale to the wholesaler, net of estimated provisions.

Advertising

The Company expenses advertising as incurred. Advertising expenses for the
fiscal years ended June 30, 2003 (fiscal 2003), June 30, 2002 (fiscal 2002)
and June 30, 2001 (fiscal 2001) were approximately $20.1 million, $17.4
million and $15.0 million, respectively. Advertising expenses include samples
of the Companys products given to physicians for marketing to their patients.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees and, accordingly, recognizes no compensation expense for employee
stock option grants. All stock-based awards to non-employees are accounted for
at their fair value in accordance with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123)
and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees.

The Company elected the adoption of the disclosure-only provisions of SFAS
No. 123 in fiscal 1998. SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure (SFAS No. 148) was issued in December 2002 to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. SFAS No. 148
does not amend SFAS No. 123 to require companies to account for employee stock
options using the fair value method. If the Company had elected to recognize
compensation costs based upon the fair value of the options granted at grant
date as prescribed by SFAS No. 123, operating results would have changed to the
pro forma amounts indicated in the table below (in thousands, except share and
per share data):

|                                             |                                                                                                                                       |   |        |        |      |   |        |        |  |   |        |        | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                             |                                                                                                                                       |   | 2003   |        | 2002 |   | 2001  
|                                             |                                                                                                                                       |   |        |        |      |   |       
|Net income, as reported                      |                                                                                                                                       | $ | 51,256 |        |      | $ | 50,024 |        |  | $ | 40,420 |       
|                                             | Deduct: Total
stock-based
employee
compensation
expense determined
under fair value
methods of all
awards, net of
related tax effects |   |        | 13,020 |      |   |        | 14,259 |  |   |        | 13,579 | 
|Pro forma net income                         |                                                                                                                                       | $ | 38,236 |        |      | $ | 35,765 |        |  | $ | 26,841 |       
|Net income per share:                        |                                                                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                                             | Basic, as reported                                                                                                                    |   | $      | 1.89   |      |   | $      | 1.65   |  |   | $      | 1.34   | 
|                                             | Basic, pro forma                                                                                                                      |   | $      | 1.41   |      |   | $      | 1.14   |  |   | $      | 0.89   | 
|                                             | Diluted, as reported                                                                                                                  |   | $      | 1.82   |      |   | $      | 1.59   |  |   | $      | 1.28   | 
|                                             | Diluted, pro forma                                                                                                                    |   | $      | 1.36   |      |   | $      | 1.14   |  |   | $      | 0.85   | 
|Weighted average shares
used in computation: |                                                                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                                             | Basic                                                                                                                                 |   |        | 27,188 |      |   |        | 30,268 |  |   |        | 30,134 | 
|                                             | Diluted                                                                                                                               |   |        | 28,211 |      |   |        | 31,405 |  |   |        | 31,694 | 

As required, the pro forma disclosures above include options granted since
April 1, 1996. Consequently, the effect of applying SFAS
No. 123 for providing pro
forma disclosures may not be representative of the effects on reported net
income for future years until all options outstanding are included in the pro
forma disclosures. For purposes of pro forma disclosures, the estimated fair
value of stock-based compensation plans and other options is

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amortized to expense primarily over the vesting period. See Note 18 for
further discussion of the Companys stock-based employee compensation.

Shipping and Handling Costs

Substantially all costs of shipping and handling of products to customers
are included in selling, general and administrative expense. Shipping and
handling costs for fiscal 2003, 2002 and 2001 were approximately $3.5 million,
$3.7 million and $2.8 million, respectively.

Research and Development Costs and Accounting for Strategic Collaborations

All research and development costs, including payments related to products
under development, and research consulting agreements, are expensed as
incurred. The Company makes up-front, non-refundable payments to third parties
for new technologies and for research and development work that has been
completed. These up-front payments may be expensed at the time of payment
depending on the nature of the payment made.

The Companys policy on accounting for costs of strategic collaborations
determines the timing of the recognition of certain development costs. In
addition, this policy determines whether the cost is classified as development
expense or capitalized as an asset. Management is required to form judgments
with respect to the commercial status of such products in determining whether
development costs meet the criteria for immediate expense or capitalization.

Income Taxes

Deferred income tax assets and liabilities are established for temporary
differences between the financial and income tax basis of our assets and
liabilities at enacted tax rates expected to be in effect when the assets and
liabilities are realized or settled. A valuation allowance is established as a
reduction of deferred income tax assets when it is concluded that it is more
likely than not that the asset will not be realized.

Earnings Per Share

Basic and diluted earnings per common share are calculated in accordance
with the requirements of Statement of Financial Accounting Standards No. 128,
Earnings Per Share. The contingently convertible debt has no impact on
diluted earnings per share until all conditions necessary for issuance have
been satisfied.

Use of Estimates and Risks and Uncertainties

The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates based upon future events, which could
include, among other risks, changes in the regulations governing the manner in
which the Company sells its products, changes in the health care environment
and the reliance on contract manufacturing services.

The Company purchases its inventory from third party manufacturers, many
of whom are the sole source of products for the Company. The failure of such
manufacturers to provide an uninterrupted supply of products could adversely
impact the Companys ability to sell such products.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued liabilities reported in the
consolidated balance sheets approximates fair value because of the immediate or
short-term maturity of these financial instruments. The fair market value of
the Companys long-term debt is estimated based on market quotations at
year-end. The fair market value approximates $464.5 million at June 30, 2003.

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Recently Issued Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative as discussed in SFAS No. 133,
clarifies when a derivative contains a financing component, amends the
definition of an underlying to conform it to the language used in FASB
Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others and amends
certain other existing pronouncements. The Company does not have any
derivative financial instruments. The Company does not anticipate that the
adoption of SFAS No. 149 will have an impact on its consolidated balance sheets
or statements of operations, shareholders equity and cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
This Statement requires that certain instruments that were previously
classified as equity on a companys statement of financial position now be
classified as liabilities. The Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company currently has no instruments impacted by the adoption of this
statement and therefore the adoption did not have an effect on the Companys
consolidated financial position, results of operations or cash flows.

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148 (SFAS No. 148), Accounting
for Stock-Based CompensationTransition and Disclosure. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to SFAS No. 123s fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB 28, Interim Financial
Reporting, to require
disclosure in the summary of significant accounting policies of the effects of
an entitys accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB 25. As allowed by SFAS No. 123, the Company has elected to
continue to utilize the accounting method prescribed by APB 25 and has adopted
the disclosure requirements of SFAS No. 123 as of June 30, 2003.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51.
FIN No. 46 requires certain variable interest entities, or VIEs, to be
consolidated by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN No. 46 is effective for all VIEs created or acquired after January
31, 2003. For VIEs created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company currently has no contractual
relationship or other business relationship with a variable interest entity and
therefore the adoption of FIN No. 46 is not expected to have any effect on the
Companys consolidated financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees. FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the
guarantee. At adoption, FIN 45 did not have any impact on the Companys
consolidated statements of income or financial position. FIN 45 also requires
guarantors to disclose certain information for guarantees, including product
warranties, outstanding at June 30, 2003.

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NOTE 3. CHANGE IN ESTIMATE

In the first quarter of fiscal 2002, the Company changed the estimated
useful life for certain intangible assets from 20-25 years to 40 years. These
changes in estimate are based on managements determination that the products
related to these intangible assets appear to have longer useful lives than
originally estimated. There is no cumulative effect for this change. The
effect of this change on net income for fiscal 2002 was to increase net income
by approximately $958,000 or $0.03 per diluted common share.

NOTE 4: SEGMENT AND PRODUCT INFORMATION

The Company operates in one significant business segment:
Pharmaceuticals. The Companys current pharmaceutical franchises are divided
between the Dermatological and Non-Dermatological fields. The Dermatological
field represents products for the treatment of Acne and Acne-related
dermatological conditions and Non-acne dermatological conditions. The
Non-Dermatological field represents products for the treatment of Asthma and
Urea Cycle Disorder. The Acne and Acne-related dermatological product lines
include DYNACIN®, PLEXION® and TRIAZ®. The Non-acne dermatological product
lines include ESOTERICA®, LIDEX®, LOPROX®, LUSTRA®, OMNICEF®, RESTYLANE®, and
SYNALAR®. The Non-Dermatological product lines include BUPHENYL® and ORAPRED®.

The Companys pharmaceutical products, with the exception of BUPHENYL®,
are promoted to dermatologists, podiatrists and pediatricians. Such products
are often prescribed by physicians outside these three specialties; including
family practitioners, general practitioners, primary-care physicians, plastic
surgeons and OB/GYNs, as well as hospitals, government agencies and others.
All products, with the exception of BUPHENYL®, are sold primarily to
wholesalers and retail chain drug stores. BUPHENYL® is primarily sold directly
to hospitals and pharmacies. During the last three fiscal years, four
wholesalers accounted for the following portions of the Companys net revenues:

|                  |  |             |      |             |  |             |      |   |  |  |      |  
|----------------- |  | ----------- | ---- | ----------- |  | ----------- | ---- | - |  |  | ---- | -
|                  |  | Fiscal 2003 |      | Fiscal 2002 |  | Fiscal 2001
|                  |  |             |      |             |  |            
|Cardinal          |  |             | 25.4 | %           |  |             | 22.4 | % |  |  | 22.2 | %
|McKesson          |  |             | 20.2 | %           |  |             | 19.4 | % |  |  | 18.0 | %
|Quality King      |  |             | 17.0 | %           |  |             | 26.7 | % |  |  | 10.3 | %
|AmerisourceBergen |  |             | 15.5 | %           |  |             | 11.1 | % |  |  | *    |  

* less than 10.0%

The percentage of net revenues for each of the product categories is as
follows:

|                                              |                    |  |                            |     |      |  |      |     |   |  |    |     |  
|--------------------------------------------- | ------------------ |  | -------------------------- | --- | ---- |  | ---- | --- | - |  | -- | --- | -
|                                              |                    |  | FISCAL YEAR ENDED JUNE 30,
|                                              |                    |  |                           
|                                              |                    |  | 2003                       |     | 2002 |  | 2001
|                                              |                    |  |                            |     |      |  |     
|Acne and acne-related dermatological products |                    |  | 33                         | %   |      |  | 43   | %   |   |  | 48 | %  
|Non-acne dermatological products              |                    |  | 37                         |     |      |  | 34   |     |   |  | 41 |    
|Non-dermatological products                   |                    |  | 30                         |     |      |  | 23   |     |   |  | 11 |    
|                                              |                    |  |                            |     |      |  |      |     |   |  |    |    
|                                              | Total net revenues |  |                            | 100 | %    |  |      | 100 | % |  |    | 100 | %
|                                              |                    |  |                            |     |      |  |      |     |   |  |    |    

NOTE 5. STRATEGIC COLLABORATIONS

On September 26, 2002, Medicis entered into an exclusive license and
development agreement with Dow Pharmaceutical Sciences, Inc. (Dow) for the
development and commercialization of a patented dermatologic product. Under
terms of the agreement, Medicis made an initial payment of $5.4 million and a
development milestone payment of $8.8 million to Dow during fiscal 2003, and in
accordance with the agreement between the parties, is required to make
potential additional payments upon the certification that certain development
milestones have occurred. The initial $5.4 million payment and the $8.8
million development milestone payment were recorded as charges to research and
development expense during fiscal 2003.

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On September 4, 2002, the Company purchased the Abbreviated New Drug
Application (ANDA) for a pediatric prescription product from a third-party
pharmaceutical company for $9.0 million. Under terms of the agreement, the
Company may be required to make future contingent payments based on the
achievement of certain milestones. The contingent payments, if the milestones
are achieved, would be payable at the six (6)-, twelve (12)-, and eighteen
(18)-month anniversaries of the closing of the agreement. During fiscal 2003,
a milestone was achieved and a $4.0 million contingent payment was paid to the
third-party pharmaceutical company. The Company accounted for the initial
payment and the contingent payment as an acquisition of an intangible asset and
commenced amortizing the asset over 15 years beginning in the second quarter of
fiscal 2003.

On June 26, 2002, Medicis entered into an exclusive strategic alliance
with aaiPharma, Inc. (aaiPharma) for the development, commercialization and
license of a key dermatologic product. Medicis made an initial payment of $7.7
million to aaiPharma during fiscal 2002 and made a development milestone
payment of $6.0 million to aaiPharma during fiscal 2003, and has potential
additional payments to be made upon the successful completion of various
development milestones. The $7.7 million initial payment and the $6.0 million
development milestone payment were recorded as charges to research and
development expense during the fourth quarter of fiscal 2002 and the fourth
quarter of 2003, respectively.

On May 10, 2001, Abbott Laboratories, Inc. (Abbott) and Medicis entered
into an exclusive agreement for Medicis to promote OMNICEF® capsules. OMNICEF®,
a cephalosporin antibiotic, is for the treatment of uncomplicated skin and
skin-structure infections. Medicis will promote OMNICEF® in the U.S. market to
dermatologists and podiatrists and will receive revenue generated in these
categories on a per-prescription filled basis. Abbott will continue to promote
OMNICEF® to primary care physicians and pediatricians. The agreement expires in
2013.

On August 15, 2000, Medicis entered into a multi-year development,
commercialization and license agreement covering Corixa Corporations
(Corixa) novel psoriasis immunotherapeutic product, PVAC. Under terms of the
agreement, Medicis made a non-refundable payment to Corixa of $17.0 million at
closing, with additional potential development milestone payments of $35
million, and potential commercialization and cumulative net sales threshold
milestone payments of $55 million. The $17.0 million payment was recorded as a
charge to research and development expense during the first quarter of fiscal
2001. Additionally, upon regulatory approval and commercial sale of the
product, Medicis will purchase inventory from Corixa and pay royalties on net
sales of the product.

NOTE 6. ACQUISITION OF DERMAL AESTHETIC ENHANCEMENT PRODUCTS FROM THE Q-MED GROUP

On March 10, 2003, Medicis acquired all outstanding shares of HA North
American Sales AB from Q-Med, a Swedish biotechnology/medical device company.
HA North American Sales AB holds a license for the exclusive U.S. and Canadian
rights to market, distribute and commercialize the dermal restorative product
lines known as RESTYLANE®, PERLANETM and
RESTYLANE Fine LinesTM. The RESTYLANE®,
PERLANETM and RESTYLANE Fine LinesTM products
are currently being sold in numerous countries by Q-Med, but are not yet approved for use in the United States.
The products are approved for use in Canada. Under terms of the agreements, a
wholly owned subsidiary of Medicis acquired all outstanding shares of HA North
American Sales AB for total consideration of approximately $160.0 million,
payable upon the successful completion of certain milestones or events.
Medicis paid $58.2 million upon closing of the transaction, and will pay
approximately $53.3 million upon U.S. Food and Drug Administration (FDA)
approval of RESTYLANE®, approximately $19.4 million upon certain cumulative
commercial milestones being achieved and approximately $29.1 million upon FDA
approval of PERLANETM. As of June 30, 2003, the Company additionally incurred
approximately $3.7 million of costs related to the due diligence and execution
of the transaction, consisting of approximately $3.5 million of professional
services and approximately $0.2 million of other costs. Payments and costs
related to this acquisition are capitalized as an intangible asset and are
amortized over 15 years beginning in March 2003.

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NOTE 7. LICENSE OF PRODUCTS TO TARO PHARMACEUTICAL INDUSTRIES, LTD.

On January 14 2003, Taro Pharmaceutical Industries Ltd. (Taro) licensed
with an option to purchase from Medicis four branded prescription product lines
for sale in the U.S. and Puerto Rico. The license agreement was effective on
January 14, 2003 and extends through June 1, 2004, after which Taro may
purchase the product lines. Medicis will receive quarterly license payments
from Taro during the term of the agreement. If Taro chooses to purchase the
product lines at the end of the term of the agreement, the purchase price will
be $12.1 million. Under terms of the agreement, Taro is licensing from Medicis
the following four brands: TOPICORT® (desoximetasone), a topical corticosteroid
used for inflammatory skin diseases; A/T/S® (erythromycin), a topical
antibiotic used in the treatment of acne; OVIDE® (malathion), a pediculicide
used in the treatment of head lice; and PRIMSOL® (trimethoprim HCI), an
antibiotic oral solution for children with acute otitis media, or middle ear
infections.

NOTE 8. MERGER OF ASCENT PEDIATRICS, INC.

On November 15, 2001, the Company completed its merger with Ascent,
purchasing all of the outstanding capital stock and retiring the indebtedness
of Ascent for consideration of approximately $60.0 million in cash plus up to
an additional $10.0 million per year for each of the first five years following
closing based upon reaching certain sales threshold milestones on the Ascent
products for each twelve month period ended November 15, 2006. The fixed
purchase price of $60.0 million was allocated as follows (amounts in
thousands):

|                                    |  |   |        | 
|----------------------------------- |  | - | ------ | 
|Intangible assets  core technology |  | $ | 2,049  | 
|Intangible assets  trademarks      |  |   | 2,868  | 
|Intangible assets  customer list   |  |   | 165    | 
|Deferred tax assets                 |  |   | 25,552 | 
|Goodwill                            |  |   | 29,101 | 
|In-process research and development |  |   | 6,217  | 
|Net assets acquired                 |  |   | 748    | 

Net assets acquired of $748,000 consists of current assets and net fixed
assets of $5.2 million and $148,000, respectively, offset by current
liabilities of $4.6 million. Current assets consisted primarily of cash,
accounts receivable, inventories and prepaid assets. Net fixed assets consisted
primarily of computers. Current liabilities consisted primarily of accounts
payable, accrued payroll and accrued commissions. The contingent portions of
the purchase price will be added to goodwill when and if threshold milestones
have been achieved or at such time that a payment is deemed to be probable.
The Company additionally incurred approximately $6.7 million of costs related
to the transaction, consisting of approximately $3.4 million of professional
services, including finder fees, $0.9 million of severance costs and $2.4
million of other costs. These costs were treated as additional direct costs of
acquisition and capitalized.

The value assigned to in-process research and development was determined
by an independent valuation analysis performed by a firm other than our
independent auditors. As of the valuation date, there were two projects that
were considered to be in-process. The values of the projects were determined
based on analyses of estimated cash flows to be generated by the products that
are expected to result from the in-process projects. These cash flows were
estimated by forecasting total revenues expected from these products, then
deducting appropriate operating

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expenses, cash flow adjustments and contributory asset returns to establish a
forecast of net return on the in-process technology. These net returns were
substantially reduced to take into account the time value of money and the
risks associated with the inherent difficulties and uncertainties in the FDA
approval process. The above analysis resulted in $6.2 million of value
assigned to acquired in-process research and development, which was expensed on
the acquisition date in accordance with generally accepted accounting
principles. Medicis management believes the assumptions used in valuing
in-process research and development are reasonable, but are inherently
uncertain, and no assurance can be given that the assumptions made will occur.

The contingent portions of the purchase price may be required to be paid
for each of the first five years following closing based upon reaching certain
sales threshold milestones on the Ascent products for each twelve-month period
ended November 15, 2006, subject to certain deductions and set-offs. From time
to time the Company assesses the probability and likelihood of payment in the
coming respective November period based on current sales trends. There can be
no assurance that such payment will ultimately be made nor is the accrual of a
liability an indication of current sales levels. As of June 30, 2003, the
second-year threshold had been deemed to be probable, and approximately $10.6
million (subject to potential deductions and set-offs) was recorded as
additional goodwill and as a short-term contract obligation. The Company will
reassess the recorded obligation during the remainder of the twelve-month
period ended November 15, 2003 based on actual events. A total of
approximately $18.3 million is included in short-term contract obligation in
the Companys consolidated balance sheets as of June 30, 2003, representing the
first two years contingent payments. Pursuant to the merger agreement,
payment of the contingent portion of the purchase price will be withheld
pending the final outcome of the litigation discussed in Note 13.

Ascent focuses on the marketing and sale of prescription products to U.S.
based pediatricians. Ascents portfolio of pediatric specialty pharmaceutical
products currently includes ORAPRED® (prednisolone sodium phosphate), an oral
liquid steroid for children with asthma and other respiratory inflammatory
conditions, and PEDIAMIST®, an over-the-counter saline nasal mist, as well as
certain projects that are under development. Sales of ORAPRED® comprise the
majority of the Ascent product sales. Ascent currently supports these products
with a dedicated sales force, numbering approximately 70 sales representatives
and sales management. Since the merger, this sales force has introduced three
of our core dermatological brands to high prescribing pediatricians.

The merger was accounted for as a purchase business combination in
accordance with SFAS No. 141, and accordingly, the results of Ascents
operations are included in our consolidated results from the date of the
merger.

The following unaudited pro forma data sets forth the combined
consolidated results of operations for fiscal years 2002 and 2001 as if the
merger had taken place on July 1, 2000. The pro forma data gives effect to
actual operating results prior to the merger, with adjustments for interest
income, interest expense, intangible amortization expense and income taxes. No
effect has been given to cost reductions or operating synergies in this
presentation.

|                                    |  |                                          |         |      |  |   |         | 
|----------------------------------- |  | ---------------------------------------- | ------- | ---- |  | - | ------- | 
|                                    |  | FISCAL YEAR ENDED                       
|                                    |  | JUNE 30,                                
|                                    |  | 2002                                     |         | 2001
|                                    |  |                                          |         |     
|                                    |  | (in thousands, except per share amounts)
|Net revenues                        |  | $                                        | 219,072 |      |  | $ | 173,346 | 
|Net income                          |  |                                          | 42,668  |      |  |   | 30,848  | 
|                                    |  |                                          |         |      |  |   |         | 
|Basic net income per
common share   |  | $                                        | 1.41    |      |  | $ | 1.02    | 
|                                    |  |                                          |         |      |  |   |         | 
|Diluted net income per
common share |  | $                                        | 1.36    |      |  | $ | 0.97    | 
|                                    |  |                                          |         |      |  |   |         | 

Pro forma net income for fiscal 2002 includes $6.4 million of
merger-related costs incurred by Ascent prior to the merger which consist
primarily of transaction brokers fees ($3,000,000); retention payments
($1,675,000); and legal, accounting, consulting and other fees ($1,725,000).
The unaudited pro forma results are provided for

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information purposes only and do not purport to represent what the results
of operations would actually have been had the transaction in fact occurred as
of the dates indicated, or to project the results of operations for any future
period.

NOTE 9. RESTRICTED CASH AND SHORT-TERM INVESTMENTS

In connection with the acquisition of dermal aesthetic enhancement
products from Q-Med (see Note 6), the Company was required to establish an
escrow account related to the $53.3 million the Company will pay to Q-Med upon
FDA approval of the RESTYLANE® product. The Company initially funded the
restricted cash account through transfers of existing short-term investments
into the escrow account. The balance in the escrow account as of June 30, 2003
was $53.8 million. Interest income earned on this account accrues to the
benefit of the Company.

NOTE 10. SHORT-TERM INVESTMENTS

The Companys short-term investments are intended to establish a
high-quality portfolio that preserves principal, meets liquidity needs, avoids
inappropriate concentrations and delivers an appropriate yield in relationship
to the Companys investment guidelines and market conditions.

The following is a summary of available-for-sale securities (amounts in
thousands):

|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 
|------------------------- |  | ------------- | ------- | ----- |  | ---------- | ----- | ---------- |  | ----- | -- |  |  | - | ------- | 
|                          |  | JUNE 30, 2003
|                          |  |              
|                          |  |               |         |       |  | Gross      |       | Gross      |  | Gross
|                          |  |               |         |       |  | Unrealized |       | Unrealized |  | Fair 
|                          |  | Cost          |         | Gains |  | Losses     |       | Value     
|                          |  |               |         |       |  |            |       |           
|U.S. corporate securities |  | $             | 118,001 |       |  | $          | 1,227 |            |  | $     | 11 |  |  | $ | 119,217 | 
|Other debt securities     |  |               | 333,112 |       |  |            | 2,203 |            |  |       | 52 |  |  |   | 335,263 | 
|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 
|Total securities          |  | $             | 451,113 |       |  | $          | 3,430 |            |  | $     | 63 |  |  | $ | 454,480 | 
|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 

|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 
|------------------------- |  | ------------- | ------- | ----- |  | ---------- | ----- | ---------- |  | ----- | -- |  |  | - | ------- | 
|                          |  | JUNE 30, 2002
|                          |  |              
|                          |  |               |         |       |  | Gross      |       | Gross      |  | Gross
|                          |  |               |         |       |  | Unrealized |       | Unrealized |  | Fair 
|                          |  | Cost          |         | Gains |  | Losses     |       | Value     
|                          |  |               |         |       |  |            |       |           
|U.S. corporate securities |  | $             | 189,244 |       |  | $          | 133   |            |  | $     | 7  |  |  | $ | 189,370 | 
|Other debt securities     |  |               | 290,131 |       |  |            | 1,561 |            |  |       | 3  |  |  |   | 291,689 | 
|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 
|Total securities          |  | $             | 479,375 |       |  | $          | 1,694 |            |  | $     | 10 |  |  | $ | 481,059 | 
|                          |  |               |         |       |  |            |       |            |  |       |    |  |  |   |         | 

During the years ended June 30, 2003 and 2002, the gross realized gains on
sales of available-for-sale securities totaled $396,289 and $1,663,672,
respectively, and the gross realized losses totaled $2,645 and $23,001
respectively. Such amounts of gains and losses are determined based on the
specific identification method. The net adjustment to unrealized gains during
fiscal 2003 and fiscal 2002 on available-for-sale securities included in
stockholders equity totaled $1,395,678 and $353,567, respectively. The
amortized cost and estimated fair value of the available-for-sale securities at
June 30, 2003, by maturity, are shown below (amounts in thousands). Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties, and the Company views its available-for-sale securities as available
for current operations.

|                   |                                       |   |               |         |            |   |           |         | 
|------------------ | ------------------------------------- | - | ------------- | ------- | ---------- | - | --------- | ------- | 
|                   |                                       |   | JUNE 30, 2003
|                   |                                       |   |              
|                   |                                       |   |               |         |            |   | Estimated
|                   |                                       |   | Cost          |         | Fair Value
|                   |                                       |   |               |         |           
|Available-for-sale |                                       |   |               |         |            |   |           |        
|                   | Due in one year or less               |   | $             | 179,355 |            |   | $         | 180,403 | 
|                   | Due after one year through five years |   |               | 221,368 |            |   |           | 223,687 | 
|                   | Due after five years through 10 years |   |               |        |            |   |           |        | 
|                   | Due after 10 years                    |   |               | 50,390  |            |   |           | 50,390  | 
|                   |                                       |   |               |         |            |   |           |         | 
|                   |                                       | $ | 451,113       |         |            | $ | 454,480   |        
|                   |                                       |   |               |         |            |   |           |         | 

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NOTE 11. DEBT

The Company has a revolving line of credit facility of up to $25.0 million
from Wells Fargo Bank, N.A. The facility may be drawn upon by the Company, at
its discretion, and is collateralized by principal assets of the Company. The
outstanding balance of the credit facility bears interest at a floating rate of
150 basis points in excess of the 30-day London Interbank Offered Rate and
expires in November 2004. The agreement requires the Company to comply with
certain covenants, including covenants relating to the Companys financial
condition and results of operation. The Company has not drawn on this credit
facility.

NOTE 12. CONTINGENT CONVERTIBLE SENIOR NOTES

In June 2002, the Company sold $400.0 million aggregate principal amount
of its 2.5% Contingent Convertible Notes Due 2032 in private transactions. The
Notes bear interest at a rate of 2.5% per annum, which is payable on June 4 and
December 4 of each year, beginning on December 4, 2002. The Company has
accrued approximately one month of interest expense as of June 30, 2002. The
Company also will pay contingent interest at a rate equal to 0.5% per annum
during any six-month period, with the initial six-month period commencing June
4, 2007, if the average trading price of the Notes reaches certain thresholds.
The Notes will mature on June 4, 2032.

The Company may redeem some or all of the Notes at any time on or after
June 11, 2007, at a redemption price, payable in cash, of 100% of the principal
amount of the Notes, plus accrued and unpaid interest. Holders of the Notes
may require the Company to repurchase all or a portion of their Notes on June
4, 2007, 2012 and 2017, and upon a change in control, as defined in the
indenture governing the Notes, at 100% of the principal amount of the Notes,
plus accrued and unpaid interest to the date of the repurchase, payable in
cash.

The Notes are convertible, at the holders option, prior to the maturity
date into shares of the Companys Class A common stock in the following
circumstances:



| |  |  | 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 is
more than 110% of the conversion price of the Notes on the last
trading day of the previous quarter. The Notes are initially
convertible at a conversion price of $58.10 per share, which is
equal to a conversion rate of approximately 17.217 shares per
$1,000 principal amount of Notes, subject to adjustment;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if the Company has called the Notes for redemption;                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | during the five trading day period immediately
following any nine consecutive day trading period in which the
trading price of the 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 Notes; or                                             
|
| |  |  | upon the occurrence of specified corporate
transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                

The Notes, which are unsecured, do not contain any restrictions on the
payment of dividends, the incurrence of additional indebtedness or the
repurchase of the Companys securities and do not contain any financial
covenants.

The Company incurred $12.6 million of fees and other origination costs
related to the issuance of the Notes. The Company is amortizing these costs
over a five-year period.

In August 2003, the Company exchanged approximately $230.8 million of
these Notes for approximately $283.9 million of the Companys new 1.5%
Contingent Convertible Senior Notes Due 2033 (see Note 22).

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NOTE 13. COMMITMENTS AND CONTINGENCIES

Occupancy Arrangements

The Company presently occupies approximately 75,000 square feet of office
space, at an average annual expense of approximately $2.1 million, under an
amended lease agreement that expires in December 2010. The lease contains
certain rent escalation clauses and, upon expiration, can be renewed for two
additional periods of five years each. Rent expense was approximately $1.5
million, $1.4 million and $1.4 million in fiscal 2003, 2002 and 2001,
respectively. The Company relocated to its present office space in Scottsdale,
Arizona, in February 2000. Medicis Canada, Inc., a wholly owned subsidiary,
presently leases approximately 7,500 square feet of office and warehouse space
in St-Laurent, Quebec, Canada, under a lease agreement that expires in April
2005.

At June 30, 2003, approximate future lease payments under the operating
lease are as follows (amounts in thousands):

|                     |  |   |        | 
|-------------------- |  | - | ------ | 
|YEAR ENDING JUNE 30, |  |   |        | 
|                     |  |   |        | 
|2004                 |  | $ | 2,005  | 
|2005                 |  |   | 2,050  | 
|2006                 |  |   | 2,107  | 
|2007                 |  |   | 2,061  | 
|2008                 |  |   | 2,133  | 
|Thereafter           |  |   | 5,332  | 
|                     |  |   |        | 
|                     |  | $ | 15,688 | 
|                     |  |   |        | 

Research and Development and Consulting Contracts

The Company has various consulting agreements with certain scientists in
exchange for the assignment of certain rights and consulting services. At June
30, 2003, the Company had approximately $867,300 of commitments (solely
attributable to the Chairman of the Central Research Committee of the Company)
payable over the remaining five years under an agreement that is cancelable by
either party under certain conditions.

Other

On November 9, 2001, prior to its merger with Medicis, Ascent received
notice that Triumph-Connecticut Limited Partnership and related parties had
brought a civil action against it in Massachusetts. In the action, the Triumph
group claims that the execution by Ascent of the merger agreement and the
consummation of the merger without the consent of the Triumph group or the
payment to the Triumph group of a specified amount breaches the terms of a
January 1997 securities purchase agreement, the terms of warrants issued to the
Triumph group, an implied covenant of good faith and fair dealing, and certain
deceptive trade laws. The Triumph group is seeking damages in an amount not
less than $22.1 million, plus treble damages. A trial in the action has been
rescheduled for early calendar 2004. The Company believes that the claims of
the Triumph group are without merit and it is vigorously contesting and
defending this suit.

The Company and certain of its subsidiaries are parties to other actions
and proceedings incident to their businesses, including litigation regarding
its intellectual property, challenges to the enforceability or validity of its
intellectual property and claims that its products infringe on the intellectual
property rights of others.

The Company believes that the ultimate outcome with respect to any of
these matters, based on the information available to the Company, is either
covered by insurance and/or established reserves, or in some cases rights of
offset, or in the aggregate should not have a material adverse effect on its
business, financial position or
results of operations. There can be no assurance, however, that an adverse
determination on any action or proceeding will not have a material adverse
effect on the Companys business, financial condition and results of
operations, or

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that the Company will be able to realize the full amount of
any indemnification obligation that any person may have to the Company or that
any such indemnification will adequately cover any liability.

NOTE 14. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax assets and liabilities are as follows (amounts in
thousands):

|                                      |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |        |  
|------------------------------------- | ------------------------------------------------------------ | - | -------- | ------ | --------- | - | ------- | ------- | --------- | - | ----- | ----- | - | - | ------ | ------ | -
|                                      |                                                              |   | JUNE 30,
|                                      |                                                              |   |         
|                                      |                                                              |   | 2003     |        | 2002     
|                                      |                                                              |   |          |        |          
|                                      |                                                              |   | Current  |        | Long-term |   | Current |         | Long-term
|                                      |                                                              |   |          |        |           |   |         |         |          
|Deferred tax assets:                  |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |       
|                                      | Net operating loss carryforwards                             |   | $        |       |           |   | $       | 25,396  |           |   | $     |      |   |   | $      | 25,837 |  
|                                      | Reserves and liabilities                                     |   |          | 11,742 |           |   |         |        |           |   |       | 7,961 |   |   |        |       |  
|                                      | Research and development credits                             |   |          |       |           |   |         | 1,246   |           |   |       |      |   |   |        | 1,246  |  
|                                      | Valuation allowance                                          |   |          |       |           |   |         | (20,784 | )         |   |       |      |   |   |        | (8,132 | )
|                                      |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |       
|                                      |                                                              |   | 11,742   |        |           |   | 5,858   |         |           |   | 7,961 |       |   |   | 18,951 |       
|Deferred tax liabilities:             |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |       
|                                      | Unrealized losses on securities                              |   |          | (1,292 | )         |   |         |        |           |   |       | (573  | ) |   |        |       |  
|                                      | Bond interest                                                |   |          |       |           |   |         | (11,266 | )         |   |       |      |   |   |        |       |  
|                                      | Excess of net book value over tax basis
of intangible assets |   |          |       |           |   |         | (1,614  | )         |   |       |      |   |   |        | (1,381 | )
|                                      |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |       
|Net deferred tax assets (liabilities) |                                                              | $ | 10,450   |        |           | $ | (7,022  | )       |           | $ | 7,388 |       |   | $ | 17,570 |       
|                                      |                                                              |   |          |        |           |   |         |         |           |   |       |       |   |   |        |       

During fiscal 2002, the Company merged with Ascent in a taxable stock
transaction. As a result of the Ascent merger, net deferred tax assets were
recorded. The deferred tax assets recorded relate primarily to Ascents
reserves, net operating loss carryovers, capitalized research and
experimentation costs, and research and experimentation credits. The deferred
tax liabilities related to Ascents intangible assets that have no tax basis.
All of the net operating losses and research and experimentation credits of
Ascent are limited for tax purposes under Internal Revenue Code Sections 382
and 383 which limit the annual utilization of tax attributes after an ownership
change.

During fiscal 2003, the Company completed its analysis of the equity
transactions for Ascent occurring prior to Medicis merger with Ascent in order
to determine if any additional limitations would be placed on the utilization
of Ascents net operating losses under Internal Revenue Code Section 382.
Based on this analysis, the Company determined that ownership changes prior to
its merger with Ascent did occur which will place additional limitations on the
amount of Ascent net operating losses that the Company will be able to utilize.
As a result of these additional limitations, the Company reclassified
approximately $12.6 million from deferred tax assets to goodwill to reflect its
revised estimate of the amount of income tax benefit it will realize from the
utilization of Ascents net operating loss carryforwards.

At June 30, 2003, the Company has federal net operating loss carryforwards
of approximately $73.4 million ($16.7 million net of IRC Section 382
limitations) that begin expiring in varying amounts in the years 2008 through
2021 if not previously utilized. All of the net operating loss carryforwards
are attributable to the Companys merger with Ascent and are shown net of the
limitations discussed above.

The Company recorded a deferred tax asset valuation allowance of
approximately $20.8 million during fiscal 2002. The valuation allowance was
recorded as it was more likely than not that a portion of Ascents net
operating loss and credit carryforwards would not be realized due to the
limitations described above. Subsequent tax benefits resulting from
realization of the loss carryforwards and research and experimentation credits
will be applied to reduce the valuation allowance and goodwill related to the
merger with Ascent.

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During fiscal 2003, the Company recorded a deferred tax liability of
approximately $0.7 million relating to unrealized gains on available-for-sale
securities presented in other comprehensive income in stockholders equity.
During fiscal 2002, the Company recorded a deferred tax liability of
approximately $0.2 million relating to unrealized gains on available-for-sale
securities.

During fiscal 2003, 2002 and 2001, the Company made tax payments of $16.7
million, $20.2 million and $8.2 million, respectively.

Components of the provision for income taxes are as follows (amounts in
thousands):

|         |         |       |        |          |        |      |        |        |        |  |        |        |        | 
|-------- | ------- | ----- | ------ | -------- | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|         |         |       |        | JUNE 30,
|         |         |       |        |         
|         |         |       |        | 2003     |        | 2002 |        | 2001  
|         |         |       |        |          |        |      |        |       
|Current  |         |       |        |          |        |      |        |        |        |  |        |       
|         | Federal |       | $      | 17,123   |        |      | $      | 25,966 |        |  | $      | 18,503 |       
|         | State   |       |        | 1,305    |        |      |        | 1,693  |        |  |        | 986    |       
|         | Foreign |       |        | 14       |        |      |        | 368    |        |  |        | 23     |       
|         |         |       |        |          |        |      |        |        |        |  |        |        |       
|         |         |       | 18,442 |          |        |      | 28,027 |        |        |  | 19,512 |       
|         |         |       |        |          |        |      |        |        |        |  |        |        |       
|Deferred |         |       |        |          |        |      |        |        |        |  |        |       
|         | Federal |       |        | 7,532    |        |      |        | 893    |        |  |        | (482   | )     
|         | State   |       |        | 430      |        |      |        | 40     |        |  |        | (125   | )     
|         |         |       |        |          |        |      |        |        |        |  |        |        |       
|         |         |       | 7,962  |          |        |      | 933    |        |        |  | (607   | )     
|         |         |       |        |          |        |      |        |        |        |  |        |        |       
|         |         | Total |        | $        | 26,404 |      |        | $      | 28,960 |  |        | $      | 18,905 | 
|         |         |       |        |          |        |      |        |        |        |  |        |        |       

Income tax expense for the three years ended June 30, 2003, 2002 and 2001
differs from the amount computed, applying the federal statutory rates as
follows:

|                                                           |  |          |      |      |  |      |      |   |  |  |      |  
|---------------------------------------------------------- |  | -------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                           |  | JUNE 30,
|                                                           |  |         
|                                                           |  | 2003     |      | 2002 |  | 2001
|                                                           |  |          |      |      |  |     
|Statutory federal income tax rate                          |  |          | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State tax rate, net of federal benefit                     |  |          | 1.5  |      |  |      | 1.5  |   |  |  | 0.9  |  
|Tax-exempt interest                                        |  |          | (2.1 | )    |  |      | (2.7 | ) |  |  | (3.5 | )
|Non-deductible in-process research and
development expense |  |          | 0.0  |      |  |      | 2.9  |   |  |  | 0.0  |  
|Other                                                      |  |          | (0.4 | )    |  |      | 0.0  |   |  |  | (0.5 | )
|                                                           |  |          |      |      |  |      |      |   |  |  |      |  
|                                                           |  |          | 34.0 | %    |  |      | 36.7 | % |  |  | 31.9 | %
|                                                           |  |          |      |      |  |      |      |   |  |  |      |  

NOTE 15. STOCK TRANSACTIONS

Class A common stock has one vote per share, and Class B common stock has
10 votes per share. Each share of Class B common stock may be converted into
one share of Class A common stock at the option of the holder or, in some
circumstances, may automatically be converted upon a vote of the Board of
Directors and the Class B common stock shareholders.

During fiscal 2003, Medicis purchased 928,300 shares of its Class A common
stock in the open market at an average price of $38.74 per share. These stock
purchases were made in accordance with a stock repurchase program that was
approved by the Companys Board of Directors in May 1999. This program
provides for the repurchase of up to $75 million of Class A common stock at
such times as management may determine. During fiscal 2002, the Company
purchased 102,000 shares of Class A common stock at an average price of $42.58
in the
open market under the stock repurchase program. The Company has
repurchased a total of approximately $50.2 million toward the $75 million as of
June 30, 2003.

In June 2002, the Company purchased approximately 3.2 million shares of
Class A common stock at an average price of $46.48. This purchase was made in
conjunction with the Companys sale of its $400.0 million
Contingent Convertible Senior Notes, where the Company agreed to purchase
shares of its Class A common stock sold short by purchasers of the Notes
concurrently with the sale of the Notes. This purchase was approved by the

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Companys board of directors separately from the stock repurchase program as it
occurred as part of the funding of the Notes. The price per share of the
purchase of Class A common stock was equal to the closing sale price of the
stock on the trading day on which the Note offering was priced.

In February 2002, the Company issued 43,946 shares of Class A common stock
upon the conversion of 43,946 shares of Class B common stock by a shareholder
who was not an officer, director or 5% or greater shareholder of Medicis. The
conversion was pursuant to the terms of the Class B common stock and did not
result in the receipt of additional cash consideration by Medicis. The shares
of Class B common stock converted in the transaction were originally issued to
the shareholder in October 1988. The original issuance and the conversion were
made in reliance upon exemptions from the registration requirements of the
Securities Act of 1933 afforded to transactions not involving a public
offering. As a consequence of this conversion, the number of outstanding
shares of Class B common stock decreased from 422,962 shares to 379,016 shares
at June 30, 2002.

NOTE 16. DEFERRED COMPENSATION

In July 2001, Medicis granted 55,000 restricted shares of Class A common
stock to certain employees. The Company recorded deferred compensation of
$2,577,850, representing the market price of the shares at the date of grant.
The amount of deferred compensation is presented as a reduction of
stockholders equity and is being amortized ratably over the service period of
the employees receiving the grants. The shares begin vesting two years after
the grant date, and become fully vested five years after the grant date. In
November 2002, 10,000 shares were reacquired by the Company due to an employee
departure, and the Company reversed approximately $111,000 of previously
amortized compensation expense due to the reacquisition. That employee
returned to the Company in March 2003, and Medicis granted that employee 10,000
new restricted shares of Class A common stock. The Company recorded deferred
compensation of $466,000, representing the market price of the shares at the
date of grant.

Amortization of deferred compensation was approximately $365,000 and
$484,000 for fiscal year 2003 and 2002, respectively, and has been included in
selling, general and administrative expense in the accompanying consolidated
statements of income. The Company expects to record compensation expense
related to deferred compensation of approximately $129,000 per quarter through
September 30, 2006, and approximately $23,000 per quarter thereafter through
March 31, 2008. Expense with respect to the grants could be reduced and/or
reversed to the extent employees receiving the grants leave the Company prior
to vesting in the award.

NOTE 17. DIVIDENDS DECLARED ON COMMON STOCK

On June 12, 2003, the Companys Board of Directors declared the first cash
dividend on Medicis common stock. The quarter-end cash dividend of $0.05 per
issued and outstanding share of the Companys common stock is payable on July
31, 2003 to stockholders of record at the close of business on July 1, 2003.
The $1.4 million dividend was recorded as a reduction of accumulated earnings,
and is included in other current liabilities in the accompanying consolidated
balance sheets as of June 30, 2003.

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NOTE 18. STOCK OPTION PLANS

As of June 30, 2003, the Company has five active Stock Option Plans (the
2002, 1998, 1996, 1995 and 1992 Plans or, collectively, the Plans). As of
June 30, 2003, the 2002, 1998, 1996, 1995 and 1992 Plans had the following
options outstanding: 1,369,000; 3,674,061; 973,835; 92,979; and 280,921,
respectively. The Plans allow the Company to designate options as qualified
incentive or non-qualified on an as-needed basis. Qualified and non-qualified
stock options vest over a period determined at the time the options are
granted, ranging from one to five years, and generally have a maximum term of
ten years. Options are granted at the fair market value on the grant date.
Options outstanding at June 30, 2003, vary in price from $8.44 to $70.75, with
a weighted average of $42.22 as is set forth in the following chart:

|                |  |             |           |             |  |          |      |             |  |          |       |  |  |          |         |  |  |   |       | 
|--------------- |  | ----------- | --------- | ----------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                |  |             |           |             |  | Weighted |      | Weighted    |  |          |       |  |  | Weighted
|                |  |             |           |             |  | Average  |      | Average     |  |          |       |  |  | Average 
|Range of        |  | Number      |           | Contractual |  | Exercise |      | Number      |  | Exercise
|Exercise Prices |  | Outstanding |           | Life        |  | Price    |      | Exercisable |  | Price   
|                |  |             |           |             |  |          |      |             |  |         
|$8.44 - $8.44   |  |             | 1,568     |             |  |          | 2.59 |             |  | $        | 8.44  |  |  |          | 1,568   |  |  | $ | 8.44  | 
|$12.11 - $22.00 |  |             | 909,176   |             |  |          | 5.86 |             |  | $        | 21.56 |  |  |          | 464,956 |  |  | $ | 21.15 | 
|$22.22 - $28.83 |  |             | 626,285   |             |  |          | 4.99 |             |  | $        | 25.40 |  |  |          | 481,388 |  |  | $ | 25.75 | 
|$28.88 - $36.66 |  |             | 1,547,841 |             |  |          | 8.73 |             |  | $        | 36.25 |  |  |          | 99,191  |  |  | $ | 31.10 | 
|$37.13 - $51.81 |  |             | 398,140   |             |  |          | 8.43 |             |  | $        | 45.45 |  |  |          | 117,797 |  |  | $ | 46.93 | 
|$52.51 - $53.90 |  |             | 1,148,831 |             |  |          | 8.07 |             |  | $        | 53.89 |  |  |          | 147,188 |  |  | $ | 53.88 | 
|$53.95 - $55.25 |  |             | 1,456,930 |             |  |          | 7.11 |             |  | $        | 55.24 |  |  |          | 621,082 |  |  | $ | 55.25 | 
|$55.40 - $66.25 |  |             | 296,625   |             |  |          | 8.15 |             |  | $        | 58.40 |  |  |          | 117,020 |  |  | $ | 60.61 | 
|$69.13 - $69.13 |  |             | 3,000     |             |  |          | 7.35 |             |  | $        | 69.13 |  |  |          | 1,200   |  |  | $ | 69.13 | 
|$70.75 - $70.75 |  |             | 2,400     |             |  |          | 7.33 |             |  | $        | 70.75 |  |  |          | 960     |  |  | $ | 70.75 | 

A summary of stock options granted within the Plans and related
information for the years ended June 30, 2003, 2002 and 2001 is as follows:

|                         |  |           |           |               |  |       |           |       |  |  |            |   |  |          |       | 
|------------------------ |  | --------- | --------- | ------------- |  | ----- | --------- | ----- |  |  | ---------- | - |  | -------- | ----- | 
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  | Weighted
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  | Average 
|                         |  | Qualified |           | Non-Qualified |  | Total |           | Price
|                         |  |           |           |               |  |       |           |      
|Balance at June 30, 2000 |  |           | 1,875,669 |               |  |       | 2,329,056 |       |  |  | 4,204,725  |   |  | $        | 23.45 | 
|Granted                  |  |           | 539,057   |               |  |       | 1,389,668 |       |  |  | 1,928,725  |   |  | $        | 55.57 | 
|Exercised                |  |           | (350,757  | )             |  |       | (700,253  | )     |  |  | (1,051,010 | ) |  | $        | 21.38 | 
|Terminated/expired       |  |           | (167,270  | )             |  |       | (47,545   | )     |  |  | (214,815   | ) |  | $        | 36.22 | 
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  |          |       | 
|Balance at June 30, 2001 |  |           | 1,896,699 |               |  |       | 2,970,926 |       |  |  | 4,867,625  |   |  | $        | 36.07 | 
|Granted                  |  |           | 549,802   |               |  |       | 1,014,684 |       |  |  | 1,564,486  |   |  | $        | 53.73 | 
|Exercised                |  |           | (281,383  | )             |  |       | (329,622  | )     |  |  | (611,005   | ) |  | $        | 23.53 | 
|Terminated/expired       |  |           | (186,927  | )             |  |       | (66,376   | )     |  |  | (253,303   | ) |  | $        | 41.70 | 
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  |          |       | 
|Balance at June 30, 2002 |  |           | 1,978,191 |               |  |       | 3,589,612 |       |  |  | 5,567,803  |   |  | $        | 42.15 | 
|Granted                  |  |           | 6,170     |               |  |       | 1,738,188 |       |  |  | 1,744,358  |   |  | $        | 38.21 | 
|Exercised                |  |           | (225,798  | )             |  |       | (252,617  | )     |  |  | (478,415   | ) |  | $        | 26.66 | 
|Terminated/expired       |  |           | (155,332  | )             |  |       | (287,618  | )     |  |  | (442,950   | ) |  | $        | 44.63 | 
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  |          |       | 
|Balance at June 30, 2003 |  |           | 1,603,231 |               |  |       | 4,787,565 |       |  |  | 6,390,796  |   |  | $        | 42.22 | 
|                         |  |           |           |               |  |       |           |       |  |  |            |   |  |          |       | 

Options exercisable under the Plans at June 30, 2003 were 2,052,350 with
an average exercisable price of $39.15.

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Pro forma information regarding net income and net income per share, as
disclosed in Note 1, has been determined as if the Company had accounted for
its employee stock-based compensation plans and other stock options under the
fair method of SFAS No. 123. The fair value of these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
assumptions:

|                                |  |         |     |         |  |         |     |   |  |  |     |  
|------------------------------- |  | ------- | --- | ------- |  | ------- | --- | - |  |  | --- | -
|                                |  | 2003    |     | 2002    |  | 2001   
|                                |  |         |     |         |  |        
|Expected dividend yield         |  |         | 0.3 | %       |  |         | 0.0 | % |  |  | 0.0 | %
|Expected stock price volatility |  |         | 0.5 |         |  |         | 0.4 |   |  |  | 0.5 |  
|Risk-free interest rate         |  |         | 2.5 | %       |  |         | 3.0 | % |  |  | 5.0 | %
|Expected life options           |  | 5 Years |     | 5 Years |  | 5 Years

The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which, unlike options granted by the Company,
have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Companys stock options have
characteristics significantly different from options traded on an exchange, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options. The weighted average fair value of options granted during fiscal 2003,
2002 and 2001 was $18.20, $17.88 and $16.62, respectively.

NOTE 19. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):

|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |        |       | 
|--------------------------------------------------- | ------------------------------ | ---------------------------------- | ------ | -------- | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                    |                                |                                    |        | JUNE 30,
|                                                    |                                |                                    |        |         
|                                                    |                                |                                    |        | 2003     |       | 2002 |        | 2001  
|                                                    |                                |                                    |        |          |       |      |        |       
|Numerator                                           |                                |                                    |        |          |       |      |        |        |       |   |        |       
|                                                    | Net income                     |                                    | $      | 51,256   |       |      | $      | 50,024 |       |   | $      | 40,420 |      
|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |       
|Denominator for basic net income per common
share   |                                |                                    | 27,188 |          |       |      | 30,268 |        |       |   | 30,134 |       
|                                                    | Effect of dilutive securities: |                                    |        |          |       |      |        |        |       |   |        |        |      
|                                                    |                                | Stock options and restricted stock |        |          | 1,023 |      |        |        | 1,137 |   |        |        | 1,560 | 
|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |       
|Denominator for diluted net income per common
share |                                |                                    | 28,211 |          |       |      | 31,405 |        |       |   | 31,694 |       
|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |       
|Basic net income per common share                   |                                | $                                  | 1.89   |          |       | $    | 1.65   |        |       | $ | 1.34   |       
|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |       
|Diluted net income per common share                 |                                | $                                  | 1.82   |          |       | $    | 1.59   |        |       | $ | 1.28   |       
|                                                    |                                |                                    |        |          |       |      |        |        |       |   |        |       

The diluted net income per common share computation for 2003 and 2002
excludes 3,098,163 and 3,046,663 shares of stock, respectively, which
represented outstanding stock options whose exercise prices were greater than
the average market price of the common shares during the respective fiscal
years and were anti-dilutive. Diluted net income per share as of June 30, 2003
also excludes 6,884,681 shares of common stock issuable upon conversion of the
contingent convertible senior notes based upon those shares underlying common
stock price of $58.10.

NOTE 20. FINANCIAL INSTRUMENTS  CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable.

The Company maintains cash, cash equivalents and short-term investments
primarily with two financial institutions that invest funds in short-term,
interest-bearing, investment-grade, marketable securities. The Company performs
periodic evaluations of the relative credit standing of these financial
institutions.

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At June 30, 2003 and 2002, three customers comprised approximately 72.3 %
and 83.8%, respectively, of accounts receivable. The Company does not require
collateral from its customers, but performs periodic credit evaluations of its
customers financial condition. Management does not believe a significant
credit risk existed at June 30, 2003.

NOTE 21. DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan (the Contribution Plan) that
is intended to qualify under Section 401(k) of the Internal Revenue Code. All
employees, except those who have not attained the age of 21, are eligible to

participate in the Contribution Plan. Participants may contribute, through
payroll deductions, up to 20.0% of their basic compensation, not to exceed
Internal Revenue Code limitations. Although the Contribution Plan provides for
profit sharing contributions by the Company, the Company had not made any such
contributions since its inception until April 2002. Beginning in April 2002,
the Company began matching employee contributions at 50% of the first 3% of
basic compensation contributed by the participants. During fiscal 2003 and
2002, the Company recognized expense related to matching contributions under
the Contribution Plan of $307,000 and $70,000, respectively.

NOTE 22. SUBSEQUENT EVENTS

On August 14, 2003, the Company exchanged approximately $230.8 million in
principal amount of its 2.5% Contingent Convertible Senior Notes Due 2032 (the
Old Notes) for approximately $283.9 million in principal amount of its 1.5%
Contingent Convertible Senior Notes Due 2033 (the New Notes). Holders of Old
Notes that accepted the Companys exchange offer received $1,230 in principal
amount of New Notes for each $1,000 in principal amount of Old Notes. The
terms of the New Notes are similar to the terms of the Old Notes, but have a
different interest rate, conversion rate and maturity date. Holders of Old
Notes that chose to not exchange will continue to be subject to the terms of
the Old Notes.

The New Notes bear interest at a rate of 1.5% per annum, which is payable
on June 4 and December 4 of each year, beginning December 4, 2003. The Company
will also pay contingent interest at a rate of 0.5% per annum during any
six-month period, with the initial six-month period commencing June 4, 2008, if
the average trading price of the New Notes reaches certain thresholds. The New
Notes mature on June 4, 2033.

The Company may redeem some or all of the New Notes at any time on or
after June 11, 2008, at a redemption price, payable in cash, of 100% of the
principal amount of the New Notes, plus accrued and unpaid interest. Holders
of the New Notes may require the Company to repurchase all or a portion of
their New Notes on June 4, 2008, 2013 and 2018, and upon a change in control,
as defined in the indenture governing the New Notes, at 100% of the principal
amount of the New Notes, plus accrued and unpaid interest to the date of the
repurchase, payable in cash.

The New Notes are convertible, at the holders option, prior to the
maturity date into shares of the Companys Class A common stock in the
following circumstances:



| |  |  | 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 is
more than 120% of the conversion price of the New Notes on the
last trading day of the previous quarter. The Notes are
initially convertible at a conversion price of $77.52 per share,
which is equal to a conversion rate of approximately 12.8998
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                                                                                                                                                                                                                              

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| |   |  | 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.                                                                                                                  

The New Notes, which are unsecured, do not contain any restrictions on the
payment of dividends, the incurrence of additional indebtedness or the
repurchase of the Companys securities and do not contain any financial
covenants.

As a result of the exchange, the Company recognized a loss before tax
benefits on the restructuring of debt of approximately $58.7 million, including
the write-off of the net book value of the deferred financing fees related to
the exchanged portion of the Old Notes. This loss will be reflected in the
Companys consolidated statement of operations for its first fiscal quarter
ended September 30, 2003.

NOTE 23. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The table below lists the quarterly financial information for fiscal 2003
and 2002. All figures are in thousands, except per share amounts, and certain
amounts do not total the annual amounts due to rounding.

|                                    |  |                          |        |                   |  |                |        |               |  |   |        |  |  |   |        | 
|----------------------------------- |  | ------------------------ | ------ | ----------------- |  | -------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | 
|                                    |  | YEAR ENDED JUNE 30, 2003
|                                    |  | (FOR THE QUARTERS ENDED)
|                                    |  |                         
|                                    |  | SEPTEMBER 30, 2002       |        | DECEMBER 31, 2002 |  | MARCH 31, 2003 |        | JUNE 30, 2003
|                                    |  |                          |        |                   |  |                |        |              
|Net revenues                        |  | $                        | 58,745 |                   |  | $              | 59,514 |               |  | $ | 62,575 |  |  | $ | 66,705 | 
|Gross profit                        |  |                          | 49,587 |                   |  |                | 50,207 |               |  |   | 53,461 |  |  |   | 56,024 | 
|Net income                          |  |                          | 11,879 |                   |  |                | 15,301 |               |  |   | 10,224 |  |  |   | 13,851 | 
|Basic net income
per common share   |  | $                        | 0.43   |                   |  | $              | 0.57   |               |  | $ | 0.38   |  |  | $ | 0.51   | 
|Diluted net income
per common share |  | $                        | 0.42   |                   |  | $              | 0.55   |               |  | $ | 0.36   |  |  | $ | 0.49   | 

|                                    |  |                          |        |                   |  |                |        |               |  |   |        |  |  |   |        | 
|----------------------------------- |  | ------------------------ | ------ | ----------------- |  | -------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | 
|                                    |  | YEAR ENDED JUNE 30, 2002
|                                    |  | (FOR THE QUARTERS ENDED)
|                                    |  |                         
|                                    |  | SEPTEMBER 30, 2001       |        | DECEMBER 31, 2001 |  | MARCH 31, 2002 |        | JUNE 30, 2002
|                                    |  |                          |        |                   |  |                |        |              
|Net revenues                        |  | $                        | 45,515 |                   |  | $              | 53,042 |               |  | $ | 56,623 |  |  | $ | 57,628 | 
|Gross profit                        |  |                          | 37,874 |                   |  |                | 44,015 |               |  |   | 47,225 |  |  |   | 47,928 | 
|Net income                          |  |                          | 13,781 |                   |  |                | 8,631  |               |  |   | 15,875 |  |  |   | 11,737 | 
|Basic net income
per common share   |  | $                        | 0.46   |                   |  | $              | 0.28   |               |  | $ | 0.52   |  |  | $ | 0.39   | 
|Diluted net income
per common share |  | $                        | 0.44   |                   |  | $              | 0.27   |               |  | $ | 0.50   |  |  | $ | 0.38   | 

Gross profit does not include amortization of the related intangibles.

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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

|                         |                               |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |        | 
|------------------------ | ----------------------------- | ---------- |  | ------------ | ----- | -------------- |  | ---------- | ------ | ------- |  |  | - | -------------- |  | - | ------- | - |  | - | ------ | 
|(in thousands)          
|                         |                               |            |  | Balance at   |       | Charged to     |  |            |        |         |  |  |   |                |  |   |         |  
|                         |                               |            |  | beginning of |       | costs and      |  | Charged to |        |         |  |  |   | Balance at end
|Description              |                               | year       |  | expenses     |       | other accounts |  | Deductions |        | of year
|                         |                               |            |  |              |       |                |  |            |        |        
|Year Ended June 30, 2003 |                               |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |  
|                         | Deducted from Asset Accounts: |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         | Accounts Receivable:          |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         |                               | Allowances |  | $            | 7,395 |                |  | $          | 61,034 |         |  |  |  |                |  | $ | (55,713 | ) |  | $ | 12,716 | 
|Year Ended June 30, 2002 |                               |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |  
|                         | Deducted from Asset Accounts: |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         | Accounts Receivable:          |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         |                               | Allowances |  | $            | 5,050 |                |  | $          | 36,644 |         |  |  |  |                |  | $ | (34,299 | ) |  | $ | 7,395  | 
|Year Ended June 30, 2001 |                               |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |  
|                         | Deducted from Asset Accounts: |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         | Accounts Receivable:          |            |  |              |       |                |  |            |        |         |  |  |   |                |  |   |         |   |  |   |       
|                         |                               | Allowances |  | $            | 4,190 |                |  | $          | 24,502 |         |  |  |  |                |  | $ | (23,642 | ) |  | $ | 5,050  | 

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##### Table of Contents






EXHIBIT INDEX

|            |  |   |  |                                                                                                                                                                                                                                      
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                          
|            |  |   |  |                                                                                                                                                                                                                                      
|2.1         |  | - |  | Agreement of Merger by and between Medicis Pharmaceutical Corporation, a
Delaware corporation, Medicis Acquisition Corporation, a Delaware corporation,
and GenDerm Corporation, a Delaware corporation, dated November 28, 1997 (13)
|            |  |   |  |                                                                                                                                                                                                                                      
|2.1 (a)     |  | - |  | Agreement of Plan of Merger, dated as of October 1, 2001, by and among Medicis
Pharmaceutical Corporation, MPC Merger Corp. and Ascent Pediatrics, Inc. (19)                                                                         
|            |  |   |  |                                                                                                                                                                                                                                      
|3.1         |  | - |  | Certificate of Incorporation of the Company, as amended (6)                                                                                                                                                                          
|            |  |   |  |                                                                                                                                                                                                                                      
|3.3 (a)     |  | - |  | Amended and Restated By-Laws of the Company (15)                                                                                                                                                                                     
|            |  |   |  |                                                                                                                                                                                                                                      
|4.1         |  | - |  | Rights Agreement, dated August 17, 1995, between the Company and American
Stock Transfer & Trust Company, as Rights Agent (6)                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                      
|4.1 (b)     |  | - |  | Amendment No. 2 to Rights Agreement, dated March 17, 1997, between the
Company and Norwest Bank Minnesota, N.A. (11)                                                                                                                 
|            |  |   |  |                                                                                                                                                                                                                                      
|4.1 (c)     |  | - |  | Indenture, dated as of June 4, 2002, by and between Medicis Pharmaceutical
Corporation, as issuer, and Deutsche Bank Trust Company Americas, as trustee.
(20)                                                                        
|            |  |   |  |                                                                                                                                                                                                                                      
|4.2         |  | - |  | Registration Rights Agreement, dated as of June 4, 2002, by and between Medicis
Pharmaceutical Corporation and Deutsche Bank Securities Inc. (20)                                                                                    
|            |  |   |  |                                                                                                                                                                                                                                      
|4.3         |  | - |  | Form of specimen certificate representing Class A common stock (1)                                                                                                                                                                   
|            |  |   |  |                                                                                                                                                                                                                                      
|10.8        |  | - |  | 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)     
|            |  |   |  |                                                                                                                                                                                                                                      
|10.9        |  | - |  | Employment Agreement between the Company and Jonah Shacknai, dated
July 24, 1996 (10)                                                                                                                                                
|            |  |   |  |                                                                                                                                                                                                                                      
|10.9 (a)    |  | - |  | Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated April 1, 1999 (17)                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                      
|10.9 (b)    |  | - |  | Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated February 21, 2001 (17)                                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                      
|10.10       |  | - |  | Medicis Pharmaceutical Corporation 1988 Stock Option Plan, as amended (2)                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                      
|10.18       |  | - |  | Medicis Pharmaceutical Corporation 1990 Stock Option Plan, as amended (2)                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                      
|10.20       |  | - |  | Medicis Pharmaceutical Corporation 2002 Stock Option Plan (21)                                                                                                                                                                       
|            |  |   |  |                                                                                                                                                                                                                                      
|10.58       |  | - |  | Medicis Pharmaceutical Corporation 1992 Stock Option Plan (4)                                                                                                                                                                        





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##### Table of Contents



|            |  |   |  |                                                                                                                                                                                                                                                       
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                           
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.59       |  | - |  | Supply Agreement, dated October 21, 1992, between Schein and the Company (3)                                                                                                                                                                          
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.70       |  | - |  | Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between
Schein and the Company (5)                                                                                                                                              
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.72(a)    |  | - |  | Credit and Security Agreement, dated August 3, 1995, between the Company and
Norwest Business Credit, Inc. (7)                                                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.72(b)    |  | - |  | First Amendment to Credit and Security Agreement, dated May 29, 1996,
between the Company and Norwest Bank Arizona, N.A. (10)                                                                                                                         
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.72(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. (12)                                                  
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.72(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. (14)                                                   
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.72(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. (18)
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.73(a)    |  | - |  | Patent Collateral Assignment and Security Agreement, dated August 3, 1995 by
the Company to Norwest Business Credit, Inc. (8)                                                                                                                         
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.73(b)    |  | - |  | First Amendment to Patent Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (10)                                                                                                         
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.73(c)    |  | - |  | Amended and Restated Patent Collateral Assignment and Security Agreement, dated
November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (14)                                                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.74(a)    |  | - |  | Trademark Collateral Assignment and Security Agreement, dated August 3, 1995,
by the Company to Norwest Business Credit, Inc. (9)                                                                                                                     
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.74(b)    |  | - |  | First Amendment to Trademark Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (10)                                                                                                      
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.74(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. (14)                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.75       |  | - |  | Assignment and Assumption of Loan Documents, dated May 29, 1996, from
Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (10)                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.76       |  | - |  | Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank
Arizona, N.A. (10)                                                                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.89       |  | - |  | 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. (14)                                                            
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.90       |  | - |  | 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. (14)                                                        
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.91       |  | - |  | Loprox Lotion Supply Agreement dated November 15, 1998, by and between the
Company and Hoechst Marion Roussel, Inc. (14)                                                                                                                              
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.92       |  | - |  | Supply Agreement dated November 15, 1998, by and between the Company and
Hoechst Marion Roussel Deutschland GMBH (14)                                                                                                                                 
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.93       |  | - |  | Asset Purchase Agreement effective January 31, 1999, between the Company and
Bioglan Pharma Plc (16)                                                                                                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.94       |  | - |  | 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 (16)                                                                        
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.95       |  | - |  | Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc
dated June 29, 1999 (16)                                                                                                                                                   
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.96       |  | - |  | Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan
Pharma Plc, the Company and IMX Pharmaceuticals, Inc. dated June 29, 1999 (16)                                                                                                 
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.97       |  | - |  | Medicis Pharmaceutical Corporation Executive Retention Plan (16)                                                                                                                                                                                      
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.98       |  |   |  | Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated
September 14, 1999(16)                                                                                                                                                   
|            |  |   |  |                                                                                                                                                                                                                                                       
|10.99       |  | - |  | 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(22)                                                                        





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##### Table of Contents



|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.99(a)    |  | - |  | 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(22)                                                                                                                                                                                                                                      
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.100      |  | - |  | Supply Agreement between Q-Med AB and Medicis Pharmaceutical Corporation,
Dated March 7, 2003(22)                                                                                                                                                                                                                                                                                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.101      |  | - |  | Amended and Restated Intellectual Property Agreement between Q-Med AB and HA
North American Sales AB, dated March 7, 2003(22)                                                                                                                                                                                                                                                                                                      
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|12          |  | - |  | Computation of Ratios of Earnings to Fixed Charges (filed herewith)                                                                                                                                                                                                                                                                                                                                                                
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|21.1        |  | - |  | Subsidiaries (filed herewith)                                                                                                                                                                                                                                                                                                                                                                                                      
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|23.1        |  | - |  | Consent of Ernst & Young LLP, Independent Auditors (filed herewith)                                                                                                                                                                                                                                                                                                                                                                
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|24.1        |  | - |  | Power of Attorney See signature page(s)                                                                                                                                                                                                                                                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|31.1        |  | - |  | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of
Regulation S-K (filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|31.2        |  | - |  | Certification of
Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K (filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|32.1        |  | - |  | Certification of Chief Financial Officer pursuant to Item 601(b)(32) of Regulation S-K (filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|32.2        |  | - |  | Certification of Chief Financial Officer pursuant to Item 601(b)(32) of Regulation S-K (filed herewith)                                                                                                                                                                                                                                                                                                                            
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|99.1        |  | - |  | Exclusive Remedy Agreement, dated as of October 1, 2001, by and among Medicis
Pharmaceutical Corporation, 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. (19)
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|99.2        |  | - |  | Note Agreement, dated as of October 1, 2001, by and among Ascent Pediatrics,
Inc., Medicis Pharmaceutical Corporation, 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 (19)                                                                                                                                                
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|99.3        |  | - |  | Voting Agreement, dated as of October 1, 2001, by and among Medicis
Pharmaceutical Corporation, 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. (19)                                                                                                                                                                   



|(1) |  | Incorporated by reference to the exhibit with the same number in 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 exhibit with the same number in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30,
1992, as amended, File No. 0-18443, previously filed with the SEC           
|   
|(3) |  | Incorporated by reference to the exhibit with the same number in
Registration Statement on Form S-1 of the Company, File No. 33-54276,
filed with the SEC on June 11, 1993                                               
|   
|(4) |  | Incorporated by reference to Exhibit B to the Companys definitive
Proxy Statement for its 1992 Annual Meeting of Shareholders, File No.
0-18443, previously filed with the SEC                                          
|   
|(5) |  | Incorporated by reference to the exhibit with the same number in 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              
|   
|(6) |  | Incorporated by reference to the exhibit with the same number in 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)
|   
|(7) |  | Incorporated by reference to exhibit number 4.2 in the 1995 Form 10-K                                                                                                                                                    
|   
|(8) |  | Incorporated by reference to exhibit number 4.4 in the 1995 Form 10-K                                                                                                                                                    





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##### Table of Contents





|(9)  |                                                                                                           | Incorporated by reference to exhibit number 4.5 in the 1995 Form 10-K                                                                                                                                
|---- | --------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(10) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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   
|    
|(11) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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   
|    
|(12) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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
|    
|(13) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on December 15, 1997                                                    
|    
|(14) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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
|    
|(15) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, File No. 0-18443, previously filed with the SEC   
|    
|(16) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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   
|    
|(17) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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   
|    
|(18) |                                                                                                           | Incorporated by reference to the exhibit with the same number in 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   
|    
|(19) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on October 2, 2001                                                      
|    
|(20) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on June 6, 2002                                                         
|    
|(21) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 10-K for the fiscal year ended June 30,
2002, File No. 0-18443, previously filed with the SEC  
|    
|(22) |                                                                                                           | Incorporated by reference to the exhibit with the same number in the
Companys Current Report on Form 8-K filed with the SEC on March 10,
2003                                                       
|    
|(b)  | During the quarter ended June 30, 2003, the Company filed the following
reports on Form 8-K with the SEC:



| | (i)  |  | Current Report on Form 8-K dated April 22, 2003, which
announced the issuance of a press release summarizing the Companys
third quarter 2003 financial results.        
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | Current Report on Form 8-K dated June 26, 2003, which announced
the issuance of a press release summarizing the Companys revenue and
earnings guidance for fiscal 2004.



|(c) | The exhibits to this Form 10-K follow the Companys Financial Statement
Schedule included in this Form 10-K.
|--- | ------------------------------------------------------------------------------------------------------------
|   
|(d) | The Financial Statement Schedule to this Form 10-K appears on page S-1 of
this Form 10-K.