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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K/T


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|o  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year
    ended           .                                                   
|  
|or
|  
|þ  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period from July 1, 2005 to
    December 31, 2005                        

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(Address of principal executive office) |  | 85258-2463(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


|                                                |  |                                 
|----------------------------------------------- |  | --------------------------------
|New York Stock Exchange                         |  | Preference Share Purchase Rights
|(Name of each exchange on which
    registered) |  | (Title of each Class)           

Securities registered pursuant to Section 12(g) of the
Act:


NONE


þ o


o þ


þ o


S-K 10-K/ o


12b-2


þ o o


12b-2 o þ






10-K/










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TABLE OF CONTENTS



|                                                                              |                                                                                                                      |                             |  |  |  |  |  | 
|----------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | --------------------------- |  |  |  |  |  | 
|PART I                                                                       
|                                                                              | Item 1. Business                                                                                                    
|                                                                              | Item 1A. Risk Factors                                                                                               
|                                                                              | Item 1B. Unresolved Staff Comments                                                                                  
|                                                                              | Item 2. Properties                                                                                                  
|                                                                              | Item 3. Legal Proceedings                                                                                           
|                                                                              | Item 4. Submission of Matters to a Vote of Security Holders                                                         
|                                                                              | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                                              | 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 and Financial Disclosure                                      
|                                                                              | Item 9A. Controls and Procedures                                                                                    
|                                                                              | Item 9B. Other Information                                                                                          
|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                                                                    
|SIGNATURES                                                                   
|MEDICIS PHARMACEUTICAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                                              | Report of Independent Registered Public Accounting Firm                                                             
|                                                                              |                                                                                                                      | CONSOLIDATED BALANCE SHEETS
|CONSOLIDATED STATEMENTS OF INCOME                                            
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                              
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                              
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                        
|MEDICIS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS                             
|EX-10.40                                                                     
|EX-10.41                                                                     
|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


Change in Fiscal Year


10-K/ 10-K


The Company






® ® ® ® ® ® tm


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®


Our Products




|             |  |                                                                                                                                                      |  |                                                                                                                                                                                    
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Brand        |  | Treatment                                                                                                                                            |  | U.S. Market Impact                                                                                                                                                                 
|             |  |                                                                                                                                                      |  |                                                                                                                                                                                    
|DYNACIN®     |  | Oral adjunctive treatment for severe acne                                                                                                            |  | The number one branded minocycline product in the U.S.,
    DYNACIN®
    tablets and capsules are available in a range of strengths                                                
|LOPROX®      |  | Topical treatment for certain fungal and yeast infections in
    adults                                                                              |  | A leading antifungal agent, including the number one branded
    shampoo for seborrheic dermatitis                                                                                 
|OMNICEF®     |  | A patented oral cephalosporin for skin and skin-structure
    infections                                                                             |  | Superior kill rate compared to most frequently prescribed
    antibiotic for this indication                                                                                       
|PLEXION®     |  | Topical treatments for acne vulgaris, acne rosacea and
    seborrheic dermatitis                                                                     |  | Includes the leading branded prescription cleanser indicated for
    the treatment of rosacea, and the first prescription cleansing
    cloth for the treatment of acne and rosacea
|RESTYLANE®   |  | Injectable gel for treatment of severe facial wrinkles and
    folds, such as nasolabial folds                                                       |  | Launched on January 6, 2004, following approval by the Food
    and Drug Administration (FDA) on December 12,
    2003, is the leading worldwide injectible dermal filler        
|TRIAZ®       |  | Topical patented gel and cleanser and patent-pending pad
    treatments for acne                                                                     |  | The leading branded prescription benzoyl peroxide product                                                                                                                          
|VANOS
    tm |  | Super-high potency topical corticosteroid for the treatment of
    plaque-type psoriasis in adult patients affecting up to 10% body
    surface area |  | Launched on April 19, 2005 following FDA approval on
    February 11, 2005                                                                                                         

Prescription Pharmaceuticals




DYNACIN ® 50-mg., 75-mg. 100-mg. ® ® ® ® ® tm ® 50-mg. 100-mg. ® 75-mg.


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® 75-mg. 100-mg. 50-mg.


LOPROX ® ® ® ® ® ® ® ® ® ® ® ®


OMNICEF ® ® ®


PLEXION ® ® ® ® ® ® ® ® ® ®


TRIAZ ® ® ® ®


VANOStm tm ® tm tm tm tm


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Dermal Restorative Products




RESTYLANE®,
PERLANEtm,
RESTYLANE FINE
LINEStm SubQtm tm ® tm tm tm tm


Research and Development






Q-Med tm tm tm tm tm tm tm ® tm tm


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tm tm


Sales and Marketing








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Warehousing and Distribution




Customers




|                  |  |            |      |            |           |  |      |        |  |  |        |   |  |        |      |   |  |  |      |  
|----------------- |  | ---------- | ---- | ---------- | --------- |  | ---- | ------ |  |  | ------ | - |  | ------ | ---- | - |  |  | ---- | -
|                  |  |            |      | Comparable |           |  |      |        |  |  |       
|                  |  |            |      | Six-Month  |           |  |      |        |  |  |       
|                  |  | Transition |      |            | Period in |  |      | Fiscal |  |  | Fiscal |   |  | Fiscal |     
|                  |  | Period     |      |            | 2004      |  |      | 2005   |  |  | 2004   |   |  | 2003   |     
|                  |  |            |      |            |           |  |      |        |  |  |        |   |  |        |     
|McKesson          |  |            | 54.9 | %          |           |  | 50.8 | %      |  |  | 51.2   | % |  |        | 36.9 | % |  |  | 20.2 | %
|Cardinal          |  |            | 18.9 | %          |           |  | 19.7 | %      |  |  | 21.8   | % |  |        | 23.8 | % |  |  | 25.4 | %
|Quality King      |  |            | *    |            |           |  | *    |        |  |  | *      |   |  |        | *    |   |  |  | 17.0 | %
|AmerisourceBergen |  |            | *    |            |           |  | *    |        |  |  | *      |   |  |        | *    |   |  |  | 15.5 | %






|  |              
|- | -------------
|* | less than 10%

® ®


Seasonality




Manufacturing




® ®


® ®


®


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® ® ®


®


®


tm


Raw Materials




License and Royalty Agreements




Trademarks, Patents and Proprietary Rights




® ® ® ® tm ® ®






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Competition






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tm ® ®


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Government Regulation


over-the


® ® ®








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over-the over-the over-the


® ® ® ® ® ® ® ®


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over-the




Our History


®


Financial Information About Segments




Employees




Available Information


www.medicis.com 10-K, 10-Q, 8-K,







|         |             
|-------- | ------------
|Item 1A. | Risk Factors



11



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Risks Related To Our Business




| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive a majority of our sales from our core products,
    and any factor adversely affecting sales of these products would
    harm our business, financial condition and results of
    operations

® tm ® ® ® tm tm ® tm ® ® ® ®


®




| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | manufacturing or supply interruptions;                                                                                                                                                                            
|
| |  | the development of new competitive pharmaceuticals and
    technological advances to treat the conditions addressed by our
    core products, including the introduction of new products into
    the marketplace;
|
| |  | marketing or pricing actions by one or more of our competitors;                                                                                                                                                   

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| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory action by the FDA and other government regulatory
    agencies;                                                                                   
|
| |  | changes in the prescribing or procedural practices of
    dermatologists, plastic surgeons and/or podiatrists;                                               
|
| |  | changes in the reimbursement or substitution policies of
    third-party payors or retail pharmacies;                                                        
|
| |  | product liability claims;                                                                                                                                    
|
| |  | the outcome of disputes relating to trademarks, patents, license
    agreements and other rights;                                                            
|
| |  | changes in state and federal law that adversely affect our
    ability to market our products to dermatologists, plastic
    surgeons and/or podiatrists; and
|
| |  | restrictions on travel affecting the ability of our sales force
    to market to prescribing physicians and plastic surgeons in
    person.                  

®




| |                                                                
| | ---------------------------------------------------------------
| | Our operating results and financial condition may
    fluctuate





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | development of new competitive products by others;                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the timing and receipt of FDA approvals;                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | 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;                                                                                                                                                                                                                                                                                                            
|
| |  | changes in prescription levels and the effect of economic
    changes in hurricane and other natural disaster-affected areas;                                                                                                                                                                                                                                                                                         
|
| |  | the impact on our employees, customers, patients, manufacturers,
    suppliers, vendors, and other companies we do business with and
    the resulting impact on the results of operations associated
    with the possible mutation of the avian form of influenza from
    birds or other animal species to humans, current human
    morbidity, and mortality levels persist following such potential
    mutation;
|
| |  | the mix of products that we sell during any time period;                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lower than expected demand for our products;                                                                                                                                                   
|
| |  | 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 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;                                                                                                                                              
|
| |  | new accounting standards and/or changes to existing accounting
    standards that would have a material effect on our consolidated
    financial position, results of operations or cash flows;
|
| |  | costs and outcomes of any tax audits or any litigation involving
    intellectual property, customers or other issues; and                                                                     
|
| |  | timing of revenue recognition related to licensing agreements
    and/or strategic collaborations.                                                                                             

period-to




| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will be unable to meet our anticipated development and
    commercialization timelines if clinical trials for our products
    are unsuccessful or delayed







| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | lack of efficacy during the clinical trials;                              
|
| |  | unforeseen safety issues;                                                 
|
| |  | slower than expected patient recruitment;                                 
|
| |  | government or regulatory delays; and                                      
|
| |  | unanticipated requests from the FDA for new or additional
    information.

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| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to secure and protect our intellectual
    property and proprietary rights, or if our intellectual property
    rights are found to infringe upon the intellectual property
    rights of other parties, our business could suffer













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| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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

® tm tm




| |                                                                               
| | ------------------------------------------------------------------------------
| | We may not be able to collect all scheduled license
    payments from BioMarin





| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | We depend upon our key personnel and our ability to
    attract, train, and retain employees





| |                                                                          
| | -------------------------------------------------------------------------
| | Our continued growth depends upon our ability to develop
    new products





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| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | We may acquire companies in the future and these
    acquisitions could disrupt our business





| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to identify and acquire products,
    technologies and businesses on acceptable terms, if at all,
    which may constrain our growth



17



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| |                                                            
| | -----------------------------------------------------------
| | Our success depends on our ability to manage our
    growth





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We depend on licenses from others, and any loss of such
    licenses could harm our business, market share and
    profitability











| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We depend on a limited number of customers, and if we lose
    any of them, our business could be harmed





| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | The consolidation of drug wholesalers could increase
    competition and pricing pressures throughout the pharmaceutical
    industry



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| |                                              
| | ---------------------------------------------
| | We rely on others to manufacture our products











| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Our reliance on third-party manufacturers and suppliers
    can be disruptive to our inventory supply







| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | We could experience difficulties in obtaining supplies of
    RESTYLANE®,
    PERLANETM,
    RESTYLANE FINE
    LINESTMand
    SubQTM

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® tm tm tm


® tm tm tm ® ® tm tm tm Q-Meds




| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Supply interruptions may disrupt our inventory levels and
    the availability of our products





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | timing, scheduling and prioritization of production by our
    contract manufacturers;     
|
| |  | labor interruptions;                                                                       
|
| |  | changes in our sources for manufacturing;                                                  
|
| |  | the timing and delivery of domestic and international shipments;                           
|
| |  | our failure to locate and obtain replacement manufacturers as
    needed on a timely basis;
|
| |  | conditions affecting the cost and availability of raw
    materials; and                   
|
| |  | hurricanes and other natural disasters.                                                    

®






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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Fluctuations in demand for our products create inventory
    maintenance uncertainties





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We selectively outsource certain non-sales and
    non-marketing services, and cannot assure you that we will be
    able to obtain adequate supplies of such services on acceptable
    terms





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Importation of products from Canada and other countries
    into the United States may lower the prices we receive for our
    products





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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If we become subject to product liability claims, our
    earnings and financial condition could suffer







| |                                                                 
| | ----------------------------------------------------------------
| | Rising insurance costs could negatively impact
    profitability





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | If we suffer negative publicity concerning the safety of
    our products, our sales may be harmed and we may be forced to
    withdraw products





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | RESTYLANE®
    is a consumer product and as such, it is susceptible to changes
    in popular trends and applicable laws, which could adversely
    affect sales or product margins of
    RESTYLANE®

® ® ®


®


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®




| |                                                                               
| | ------------------------------------------------------------------------------
| | We may not be able to repurchase the Old Notes and New
    Notes when required









| |                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our publicly-filed reports are reviewed by the Securities
    and Exchange Commission (the SEC) from time to time
    and any significant changes required as a result of any such
    review may result in material liability to us, and have a
    material adverse impact on the trading price of our common
    stock



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





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| |                                                    
| | ---------------------------------------------------
| | We are subject to extensive governmental regulation

over-the




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

over-the




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| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If we market products in a manner that violates health
    care fraud and abuse laws, we may be subject to civil or
    criminal penalties

® 10-K/






| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Obtaining FDA and other regulatory approvals is time
    consuming, expensive and uncertain





| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | testing and surveillance to monitor the product and its
    continued compliance with regulatory requirements;

25



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| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                        





| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                       





| |                                                    
| | ---------------------------------------------------
| | We face significant competition within our industry





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | developing and bringing new products to market before others;                                  
|
| |  | developing new technologies to improve existing products;                                      
|
| |  | developing new products to provide the same benefits as existing
    products at less cost; and
|
| |  | developing new products to provide benefits superior to those of
    existing products.        







26



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over-the


®







|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties












|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



27



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®


®


®




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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders





| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) Election of Directors                                                                                                                                                                                                                                      
|
| | The stockholders elected the following persons to serve as
    directors of the Company for a term of three years, or until
    their successors are duly elected and qualified or until their
    earlier resignation or removal. Votes were cast as follows:

|                      |  |                 |            |  |          |  |            | 
|--------------------- |  | --------------- | ---------- |  | -------- |  | ---------- | 
|                      |  | Number of Votes |           
|                      |  |                 |           
|                      |  | For             |            |  | Withheld | 
|                      |  |                 |            |  |          | 
|Spencer Davidson      |  |                 | 30,806,330 |  |          |  | 19,745,344 | 
|Stuart Diamond        |  |                 | 29,640,722 |  |          |  | 20,910,952 | 
|Peter S. Knight, Esq. |  |                 | 30,874,639 |  |          |  | 19,677,035 | 



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The directors of the Company whose terms of office continued
    were Mr. Jonah Shacknai, Mr. Arthur G.
    Altschul, Jr., Mr. Michael A. Pietrangelo,
    Mr. Philip S. Schein, M.D. and Ms. Lottie H.
    Shackelford.
|
| | 2) The stockholders approved the appointment of
    Ernst & Young LLP as independent auditors for the
    Transition Period ending December 31, 2005. Votes were cast
    as follows:                                   

|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|           |  |         |  |        
|50,405,690 |  | 134,354 |  | 11,630 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3) Three proposals contained in our proxy statement were
    not acted upon at the Annual Meeting as a result of the
    termination of our Agreement and Plan of Merger with Inamed
    Corporation, dated March 20, 2005. These proposals were:
    (i) the issuance of shares of Medicis Class A common
    stock pursuant to the agreement and plan of merger, (ii) an
    amendment to our certificate of incorporation to increase the
    number of authorized shares of Medicis Class A common stock
    from 150,000,000 to 300,000,000 and change our name from
    Medicis Pharmaceutical Corporation to
    Medicis and (iii) authorization to postpone or
    adjourn the Annual Meeting to permit further solicitation of
    proxies if there were not sufficient votes at the time of the
    Annual Meeting in favor of the other matters being voted upon.

29



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##### Table of Contents



PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Description of Registrants Securities, Price Range of
Common Stock and Dividends Declared




|                                |                                       |      |   |       |     |           |   |          |  |  |   |       | 
|------------------------------- | ------------------------------------- | ---- | - | ----- | --- | --------- | - | -------- |  |  | - | ----- | 
|                                |                                       |      |   |       |     | Dividends |  
|                                |                                       | High |   |       | Low |           |   | Declared | 
|                                |                                       |      |   |       |     |           |   |          | 
|TRANSITION PERIOD               |                                       |      |   |       |     |           |   |          |  |  |   |      
|                                | Three Months Ended September 30, 2005 |      | $ | 35.45 |     |           | $ | 31.08    |  |  | $ | 0.03  | 
|                                | Three Months Ended December 31, 2005  |      |   | 35.16 |     |           |   | 26.30    |  |  |   | 0.03  | 
|FISCAL YEAR ENDED JUNE 30, 2005 |                                       |      |   |       |     |           |   |          |  |  |   |      
|                                | First Quarter                         |      | $ | 40.65 |     |           | $ | 32.85    |  |  | $ | 0.03  | 
|                                | Second Quarter                        |      |   | 41.00 |     |           |   | 34.64    |  |  |   | 0.03  | 
|                                | Third Quarter                         |      |   | 37.67 |     |           |   | 28.69    |  |  |   | 0.03  | 
|                                | Fourth Quarter                        |      |   | 31.97 |     |           |   | 26.80    |  |  |   | 0.03  | 
|FISCAL YEAR ENDED JUNE 30, 2004 |                                       |      |   |       |     |           |   |          |  |  |   |      
|                                | First Quarter                         |      | $ | 32.00 |     |           | $ | 27.27    |  |  | $ | 0.025 | 
|                                | Second Quarter                        |      |   | 36.01 |     |           |   | 27.81    |  |  |   | 0.025 | 
|                                | Third Quarter                         |      |   | 41.50 |     |           |   | 33.86    |  |  |   | 0.025 | 
|                                | Fourth Quarter                        |      |   | 45.26 |     |           |   | 38.45    |  |  |   | 0.025 | 



Dividend Policy






Recent Sales of Unregistered Securities




Equity Compensation Plan Information




30



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                        |                                     |                                          |         |            |              |   |            |              |     |   |         |         |    
|--------------------------------------- | ----------------------------------- | ---------------------------------------- | ------- | ---------- | ------------ | - | ---------- | ------------ | --- | - | ------- | ------- | ---
|                                        |                                     |                                          |         | Six Months |              |   |           
|                                        |                                     |                                          |         | Ended      |              |   | Year Ended |             
|                                        |                                     | Transition                               |         |            | December 31, |   |            | December 31, |    
|                                        |                                     | Period                                   |         |            | 2004         |   |            | 2005         |    
|                                        |                                     |                                          |         |            |              |   |            |              |    
|                                        |                                     | (In thousands, except per share amounts) |        
|Statements of Operations Data:          |                                     |                                          |         |            |              |   |            |              |     |   |         |        
|Net product revenues                    |                                     | $                                        | 155,569 |            |              | $ | 146,999    |              |     | $ | 313,684 |        
|Net contract revenues                   |                                     |                                          | 8,385   |            |              |   | 34,168     |              |     |   | 46,002  |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Net revenues                            |                                     |                                          | 163,954 |            |              |   | 181,167    |              |     |   | 359,686 |        
|Gross profit(a)                         |                                     |                                          | 139,843 |            |              |   | 153,897    |              |     |   | 307,398 |        
|Operating expenses:                     |                                     |                                          |         |            |              |   |            |              |     |   |         |        
|                                        | Selling, general and administrative |                                          |         | 89,360     | (b)          |   |            | 65,736       | (e) |   |         | 158,778 | (g)
|                                        | Research and development            |                                          |         | 22,367     | (c)          |   |            | 45,140       | (f) |   |         | 42,903  | (h)
|                                        | Depreciation and amortization       |                                          |         | 12,420     |              |   |            | 10,222       |     |   |         | 24,548  |    
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Total operating expenses                |                                     |                                          | 124,147 |            |              |   | 121,098    |              |     |   | 226,229 |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Operating income                        |                                     |                                          | 15,696  |            |              |   | 32,799     |              |     |   | 81,169  |        
|Other:                                  |                                     |                                          |         |            |              |   |            |              |     |   |         |        
|                                        | Other income, net                   |                                          |         | 59,801     | (d)          |   |            |             |     |   |         | 59,801  | (d)
|                                        | Net interest income (expense)       |                                          |         | 4,726      |              |   |            | (248         | )   |   |         | 5,804   |    
|                                        | Income tax expense                  |                                          |         | (30,502    | )            |   |            | (11,328      | )   |   |         | (53,288 | )  
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Net income                              |                                     | $                                        | 49,721  |            |              | $ | 21,223     |              |     | $ | 93,486  |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Basic net income per share              |                                     | $                                        | 0.92    |            |              | $ | 0.38       |              |     | $ | 1.72    |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Diluted net income per share            |                                     | $                                        | 0.76    |            |              | $ | 0.34       |              |     | $ | 1.44    | (i)    
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Cash dividend declared per common share |                                     | $                                        | 0.06    |            |              | $ | 0.06       |              |     | $ | 0.12    |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Basic common shares outstanding         |                                     |                                          | 54,323  |            |              |   | 55,972     |              |     |   | 54,290  |        
|                                        |                                     |                                          |         |            |              |   |            |              |    
|Diluted common shares outstanding       |                                     |                                          | 69,772  |            |              |   | 72,160     |              |     |   | 69,558  | (i)    
|                                        |                                     |                                          |         |            |              |   |            |              |    






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Amounts exclude $10.9 million, $8.9 million and
    $21.6 million of amortization expense related to acquired
    intangible assets for the Transition Period, the six months
    ended December 31, 2004, and the year ended
    December 31, 2005.                                                                                                                                                                          
|   
|(b) |  | Includes approximately $13.9 million of compensation
    expense related to stock options and restricted stock recognized
    during the Transition Period, a charge of approximately
    $9.2 million for the write-down of a long-lived asset and
    approximately $0.7 million of integration planning costs
    incurred related to the proposed Inamed transaction during the
    three months ended September 30, 2005.
|   
|(c) |  | Includes approximately $11.9 million related to a research
    and development collaboration with Dow and approximately
    $1.0 million of compensation expense related to stock
    options and restricted stock.                                                                                                                                                                                                           

31



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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) |  | Represents a termination fee of $90.5 million received from
    Inamed upon the termination of the proposed merger with Inamed,
    net of a termination fee paid to an investment banker and the
    expensing of accumulated transactions costs of
    $27.0 million, and integration costs incurred during the
    three months ended December 31, 2005 of $3.7 million.                                                                                                                                                                        
|   
|(e) |  | Includes approximately $1.3 million of professional fees
    related to research and development collaborations with Ansata
    and Q-Med.                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(f) |  | Includes $5.0 million paid to Ansata related to an
    exclusive development and license agreement and
    $30.0 million paid to Q-Med related to an exclusive license
    agreement for the development of
    SubQtm.                                                                                                                                                                                                                                                                                                                            
|   
|(g) |  | Includes approximately $13.9 million of compensation
    expense related to stock options and restricted stock recognized
    during the Transition Period, a charge of approximately
    $9.2 million for the write-down of a long-lived asset and
    approximately $6.0 million of integration planning costs
    incurred related to the proposed Inamed transaction during the
    three months ended June 30, 2005 and three months ended
    September 30, 2005.                                                                            
|   
|(h) |  | Includes approximately $8.3 million paid to aaiPharma
    related to a research and development collaboration,
    $11.9 million related to a research and development
    collaboration with Dow and approximately $1.0 million of
    compensation expense related to stock options and restricted
    stock.                                                                                                                                                                                                                                    
|   
|(i) |  | Diluted net income per common share for the unaudited year ended
    December 31, 2005 was calculated by using the average of
    the periodic diluted common shares outstanding during the year.
    For the period from January 1, 2005 to June 30, 2005,
    diluted common shares outstanding was calculated using APB
    Opinion No. 25, while for the period from July 1, 2005
    to December 31, 2005, diluted common shares outstanding was
    calculated using SFAS 123R. The Company adopted
    SFAS No. 123R effective July 1, 2005.



|                                                  |  |                |           |     |      |   |         | 
|------------------------------------------------- |  | -------------- | --------- | --- | ---- | - | ------- | 
|                                                  |  | December 31,   |          
|                                                  |  |                |          
|                                                  |  | 2005           |           |     | 2004 |  
|                                                  |  |                |           |     |      |  
|                                                  |  | (In thousands) |          
|Balance Sheet Data:                               |  |                |           |     |      |   |         | 
|Cash, cash equivalents and short-term investments |  | $              | 742,532   | (a) |      | $ | 532,518 | 
|Working capital                                   |  |                | 692,453   |     |      |   | 552,391 | 
|Total assets                                      |  |                | 1,145,954 |     |      |   | 979,871 | 
|Long-term debt                                    |  |                | 453,065   |     |      |   | 453,065 | 
|Stockholders equity                              |  |                | 543,487   |     |      |   | 444,826 | 

|                                          |  |                |         |            |               |   |          |  
|----------------------------------------- |  | -------------- | ------- | ---------- | ------------- | - | -------- | -
|                                          |  |                |         | Six Months |              
|                                          |  | Transition     |         |            | Ended         |  
|                                          |  | Period         |         |            | Dec. 31, 2004 |  
|                                          |  |                |         |            |               |  
|                                          |  | (In thousands) |        
|Cash Flow Data:                           |  |                |         |            |               |   |          |  
|Net cash provided by operating activities |  | $              | 147,990 |            |               | $ | 45,465   |  
|Net cash provided by investing activities |  |                | 123,665 |            |               |   | 76,158   |  
|Net cash used in by financing activities  |  |                | (2,792  | )          |               |   | (137,447 | )






|    |  |                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Increase in cash, cash equivalents and short-term investments
    from December 31, 2004 to December 31, 2005 includes
    the receipt of a termination fee of $90.5 million received
    from Inamed upon the termination of the proposed merger with
    Inamed, net of expenses related to the proposed transaction.

32



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|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |         |         |     |   |         |         |    
|--------------------------------------- | ------------------------------------ | ---------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | --- | - | ------- | ------- | --- | ---- | ------- | ------- | --- | - | ------- | ------- | ---
|                                        |                                      | Fiscal Year Ended June 30,               |        
|                                        |                                      |                                          |        
|                                        |                                      | 2005                                     |         |         | 2004 |   |         | 2003    |     |   | 2002    |         |     | 2001 |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|                                        |                                      | (In thousands, except per share amounts) |        
|Statements of Operations Data:          |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |         |         |     |   |         |        
|Net product revenues                    |                                      | $                                        | 305,114 |         |      | $ | 291,607 |         |     | $ | 241,909 |         |     | $    | 211,248 |         |     | $ | 159,677 |        
|Net contract revenues                   |                                      |                                          | 71,785  |         |      |   | 12,115  |         |     |   | 5,630   |         |     |      | 1,559   |         |     |   | 8,125   |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Net revenues                            |                                      |                                          | 376,899 |         |      |   | 303,722 |         |     |   | 247,539 |         |     |      | 212,807 |         |     |   | 167,802 |        
|Gross profit(a)                         |                                      |                                          | 321,452 |         |      |   | 257,116 |         |     |   | 209,279 |         |     |      | 177,042 |         |     |   | 137,105 |        
|Operating expenses:                     |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |         |         |     |   |         |        
|                                        | Selling, general and administrative  |                                          |         | 135,154 | (b)  |   |         | 118,253 |     |   |         | 91,648  |     |      |         | 77,314  |     |   |         | 59,508  |    
|                                        | Research and development             |                                          |         | 65,676  | (c)  |   |         | 16,494  | (d) |   |         | 29,568  | (e) |      |         | 15,132  | (f) |   |         | 25,515  | (g)
|                                        | In-process research and development  |                                          |         |        |      |   |         |        |     |   |         |        |     |      |         | 6,217   |     |   |         |        |    
|                                        | Depreciation and amortization        |                                          |         | 22,350  |      |   |         | 16,794  |     |   |         | 10,125  |     |      |         | 7,928   |     |   |         | 8,261   |    
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Total operating expenses                |                                      |                                          | 223,180 |         |      |   | 151,541 |         |     |   | 131,341 |         |     |      | 106,591 |         |     |   | 93,284  |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Operating income                        |                                      |                                          | 98,272  |         |      |   | 105,575 |         |     |   | 77,938  |         |     |      | 70,451  |         |     |   | 43,821  |        
|Other:                                  |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |         |         |     |   |         |        
|                                        | Net interest income (expense)        |                                          |         | 830     |      |   |         | (758    | )   |   |         | (278    | )   |      |         | 8,533   |     |   |         | 15,504  |    
|                                        | Loss on early extinguishment of debt |                                          |         |        |      |   |         | (58,660 | )   |   |         |        |     |      |         |        |     |   |         |        |    
|                                        | Income tax expense                   |                                          |         | (34,112 | )    |   |         | (15,317 | )   |   |         | (26,404 | )   |      |         | (28,960 | )   |   |         | (18,905 | )  
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Net income                              |                                      | $                                        | 64,990  |         |      | $ | 30,840  |         |     | $ | 51,256  |         |     | $    | 50,024  |         |     | $ | 40,420  |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Basic net income per share              |                                      | $                                        | 1.18    |         |      | $ | 0.55    |         |     | $ | 0.94    |         |     | $    | 0.83    |         |     | $ | 0.67    |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Diluted net income per share            |                                      | $                                        | 1.01    |         |      | $ | 0.52    |         |     | $ | 0.84    |         |     | $    | 0.79    |         |     | $ | 0.64    |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Cash dividend declared per common share |                                      | $                                        | 0.12    |         |      | $ | 0.10    |         |     | $ | 0.025   |         |     |      |        |         |     |   |        |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Basic common shares outstanding         |                                      |                                          | 55,196  |         |      |   | 55,618  |         |     |   | 54,376  |         |     |      | 60,536  |         |     |   | 60,268  |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        
|Diluted common shares outstanding       |                                      |                                          | 70,909  |         |      |   | 72,481  |         |     |   | 70,191  |         |     |      | 63,828  |         |     |   | 63,388  |        
|                                        |                                      |                                          |         |         |      |   |         |         |     |   |         |         |     |      |        






|    |  |                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Amounts exclude $19.6 million, $14.9 million,
    $9.2 million, $7.1 million and $7.6 million for
    amortization expense related to acquired intangible assets in
    fiscal 2005, 2004, 2003, 2002 and 2001, respectively.                                                  
|   
|(b) |  | Includes approximately $5.3 million of business integration
    planning costs related to the proposed merger with Inamed, and
    approximately $1.3 million of professional fees related to
    research and development collaborations with aaiPharma, Ansata
    and Q-Med.

33



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|    |  |                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) |  | Includes approximately $8.3 million paid to aaiPharma
    related to a research and development collaboration,
    $5.0 million paid to Ansata related to an exclusive
    development and license agreement and $30.0 million paid to
    Q-Med related to an exclusive license agreement for the
    development of
    SubQtm.
|   
|(d) |  | Includes approximately $2.4 million paid to Dow for a
    research and development collaboration.                                                                                                                                                                                                                                
|   
|(e) |  | Includes $14.2 million paid to Dow for a research and
    development collaboration and approximately $6.0 million
    paid to aaiPharma for a research and development collaboration.                                                                                                                                           
|   
|(f) |  | Includes $7.7 million paid to aaiPharma for a research and
    development collaboration.                                                                                                                                                                                                                                        
|   
|(g) |  | Includes $17.0 million paid to Corixa Corporation for a
    development, commercialization and licensing agreement.                                                                                                                                                                                                              

|                                                                       |  |                |           |  |      |   |           |      |  |   |         |  |  |      |         |  |  |   |         | 
|---------------------------------------------------------------------- |  | -------------- | --------- |  | ---- | - | --------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                                       |  | June 30,       |          
|                                                                       |  |                |          
|                                                                       |  | 2005           |           |  | 2004 |   |           | 2003 |  |   | 2002    |  |  | 2001 |        
|                                                                       |  |                |           |  |      |   |           |      |  |   |         |  |  |      |        
|                                                                       |  | (In thousands) |          
|Balance Sheet Data:                                                    |  |                |           |  |      |   |           |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash, cash equivalents, restricted cash and short-term
    investments |  | $              | 603,568   |  |      | $ | 634,040   |      |  | $ | 552,663 |  |  | $    | 577,576 |  |  | $ | 334,157 | 
|Working capital                                                        |  |                | 600,070   |  |      |   | 666,743   |      |  |   | 576,781 |  |  |      | 611,259 |  |  |   | 358,468 | 
|Total assets                                                           |  |                | 1,043,251 |  |      |   | 1,078,384 |      |  |   | 932,841 |  |  |      | 876,273 |  |  |   | 550,007 | 
|Long-term debt                                                         |  |                | 453,065   |  |      |   | 453,067   |      |  |   | 400,000 |  |  |      | 400,000 |  |  |   |        | 
|Stockholders equity                                                   |  |                | 486,346   |  |      |   | 555,303   |      |  |   | 461,121 |  |  |      | 429,059 |  |  |   | 503,453 | 

|                                                    |  |                            |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|--------------------------------------------------- |  | -------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | ------- | -
|                                                    |  | Fiscal Year Ended June 30, |         
|                                                    |  |                            |         
|                                                    |  | 2005                       |          |   | 2004 |   |          | 2003 |  |   | 2002     |   |  | 2001 |         
|                                                    |  |                            |          |   |      |   |          |      |  |   |          |   |  |      |         
|                                                    |  | (In thousands)             |         
|Cash Flow Data:                                     |  |                            |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Net cash provided by operating activities           |  | $                          | 129,981  |   |      | $ | 127,964  |      |  | $ | 84,667   |   |  | $    | 73,542   |   |  | $ | 71,120  |  
|Net cash provided by (used in) investing activities |  |                            | 140,487  |   |      |   | (166,341 | )    |  |   | (113,709 | ) |  |      | (341,660 | ) |  |   | (97,981 | )
|Net cash (used in) provided by financing activities |  |                            | (139,793 | ) |      |   | 40,621   |      |  |   | (23,343  | ) |  |      | 254,938  |   |  |   | 12,548  |  

34



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

10-K/T. 10-K/T


Change in Fiscal Year




Executive Summary




® ® ® ® ® ® tm ® ® ® ®




| |                            
| | ---------------------------
| | Key Aspects of Our Business

® ® ® ® ® tm ®




35



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36



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##### Table of Contents







| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Termination of the proposed definitive merger agreement with
    Inamed Corporation;
|
| |  | Adoption of SFAS No. 123R; and                                                      
|
| |  | Write-down of a long-lived asset due to impairment.                                 



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Termination of the Proposed Definitive Merger Agreement
    with Inamed Corporation

® ® ® ®








|                                                                               |  |   |      | 
|------------------------------------------------------------------------------ |  | - | ---- | 
|Termination fee received from Inamed, including expense
    reimbursement fees |  | $ | 90.5 | 
|Less:                                                                          |  |   |      | 
|Transaction costs expensed, including legal and advisory fees                  |  |   | 27.0 | 
|Integration planning costs                                                     |  |   | 4.4  | 
|                                                                               |  |   |     
|                                                                               |  | $ | 59.1 | 
|                                                                               |  |   |     





37



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| |                          
| | -------------------------
| | Adoption of SFAS No. 123R







| |                                                   
| | --------------------------------------------------
| | Write-down of a Long-lived Asset Due to Impairment



® ®


38



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Results of Operations




|                                     |  |            |       |             |              |  |                   |         |  |  |         |   |  |         |       |   |  |  |       |  
|------------------------------------ |  | ---------- | ----- | ----------- | ------------ |  | ----------------- | ------- |  |  | ------- | - |  | ------- | ----- | - |  |  | ----- | -
|                                     |  |            |       | Six Months  |              |  |                  
|                                     |  |            |       | Ended       |              |  | Fiscal Year Ended |        
|                                     |  | Transition |       |             | December 31, |  |                   |         | 
|                                     |  | Period(a)  |       |             | 2004(b)      |  |                   | 2005(c) |  |  | 2004(d) |   |  | 2003(e) |      
|                                     |  |            |       |             |              |  |                   |         |  |  |         |   |  |         |      
|                                     |  |            |       | (Unaudited) |              |  |                   |         |  |  |        
|Net revenues                         |  |            | 100.0 | %           |              |  | 100.0             | %       |  |  | 100.0   | % |  |         | 100.0 | % |  |  | 100.0 | %
|Gross profit(f)                      |  |            | 85.3  |             |              |  | 84.9              |         |  |  | 85.3    |   |  |         | 84.7  |   |  |  | 84.5  |  
|Operating expenses                   |  |            | 75.7  |             |              |  | 66.8              |         |  |  | 59.2    |   |  |         | 49.9  |   |  |  | 53.1  |  
|Operating income                     |  |            | 9.6   |             |              |  | 18.1              |         |  |  | 26.1    |   |  |         | 34.8  |   |  |  | 31.5  |  
|Other income, net                    |  |            | 36.5  |             |              |  |                  |         |  |  |        |   |  |         |      |   |  |  |      |  
|Interest income (expense), net       |  |            | 2.9   |             |              |  | (0.1              | )       |  |  | 0.2     |   |  |         | (0.2  | ) |  |  | (0.1  | )
|Loss on early extinguishment of debt |  |            |      |             |              |  |                  |         |  |  |        |   |  |         | (19.3 | ) |  |  |      |  
|                                     |  |            |       |             |              |  |                   |         |  |  |         |   |  |         |      
|Income tax expense                   |  |            | (18.7 | )           |              |  | (6.3              | )       |  |  | (9.1    | ) |  |         | (5.0  | ) |  |  | (10.7 | )
|                                     |  |            |       |             |              |  |                   |         |  |  |         |   |  |         |      
|Net income                           |  |            | 30.3  | %           |              |  | 11.7              | %       |  |  | 17.2    | % |  |         | 10.2  | % |  |  | 20.7  | %
|                                     |  |            |       |             |              |  |                   |         |  |  |         |   |  |         |      






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Included in operating expenses is $14.9 million (9.1%) of
    net revenues) of compensation expense related to stock options
    and restricted stock, a charge of approximately
    $9.2 million (5.6% of net revenues) for the write-down of a
    long-lived asset, and $0.7 million (0.4% of net revenues)
    related to integration planning costs incurred during the three
    months ended September 30, 2005 related to the proposed
    merger with Inamed. Included in other income, net, is
    $59.8 million (36.5% of net revenue) related to a
    termination fee of $90.5 million received from Inamed upon
    the termination of the proposed merger with Inamed, net of a fee
    paid to an investment banker and the expensing of accumulated
    transaction costs of $27.0 million, and integration
    planning costs incurred during the three months ended
    December 31, 2005 of $3.7 million.
|   
|(b) |  | Included in operating expenses is $5.5 million (3.1% of net
    revenues) related to our exclusive development and license
    agreement with Ansata for proprietary technology and
    $30.7 million (17.0% of net revenues) related to our
    exclusive license agreement with Q-Med for the development of
    SubQtm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(c) |  | Included in operating expenses is $5.3 million (1.4% of net
    revenues) of business integration planning costs related to the
    proposed merger with Inamed, $8.3 million (2.2% of net
    revenues) related to a research and development collaboration
    with aaiPharma, $5.5 million (1.5% of net revenues) related
    to our exclusive development and license agreement with Ansata
    for proprietary technology and $30.7 million (8.2% of net
    revenues) related to our exclusive license agreement with Q-Med
    for the development of
    SubQtm.                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) |  | Included in operating expenses is a $2.4 million payment
    (0.8% of net revenues) to Dow for a research and development
    collaboration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(e) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(f) |  | Gross profit does not include amortization of the related
    intangibles as such expense is included in operating expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

39



---



##### Table of Contents





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Six Months Ended December 31, 2005 Compared To Six
    Months Ended December 31, 2004



| |             
| | ------------
| | Net Revenues



|                      |              |            |       |            |            |   |       |        |  |   |        |       |   |  |       |      |   
|--------------------- | ------------ | ---------- | ----- | ---------- | ---------- | - | ----- | ------ |  | - | ------ | ----- | - |  | ----- | ---- | --
|                      |              |            |       | Comparable |            |   |       |        | 
|                      |              | Transition |       |            | 2004       |   |       | $      |  |   | %      |      
|                      |              | Period     |       |            | Six Months |   |       | Change |  |   | Change |      
|                      |              |            |       |            |            |   |       |        |  |   |        |      
|Net product revenues  |              | $          | 155.6 |            |            | $ | 147.0 |        |  | $ | 8.6    |       |   |  | 5.8   | %   
|Net contract revenues |              |            | 8.4   |            |            |   | 34.2  |        |  |   | (25.8  | )     |   |  | (75.5 | )%  
|                      |              |            |       |            |            |   |       |        |  |   |        |      
|                      | Net revenues |            | $     | 164.0      |            |   | $     | 181.2  |  |   | $      | (17.2 | ) |  |       | (9.5 | )%
|                      |              |            |       |            |            |   |       |        |  |   |        |      

|                                              |                    |            |      |            |            |  |      |        |   |  |      |    | 
|--------------------------------------------- | ------------------ | ---------- | ---- | ---------- | ---------- |  | ---- | ------ | - |  | ---- | -- | 
|                                              |                    |            |      | Comparable |            |  |     
|                                              |                    | Transition |      |            | 2004       |  |      |       
|                                              |                    | Period     |      |            | Six Months |  |      | Change |  
|                                              |                    |            |      |            |            |  |      |        |  
|Acne and acne-related dermatological products |                    |            | 28.1 | %          |            |  | 32.8 | %      |   |  | (4.7 | )%
|Non-acne dermatological products              |                    |            | 58.9 | %          |            |  | 44.4 | %      |   |  | 14.5 | % 
|Non-dermatological products                   |                    |            | 13.0 | %          |            |  | 22.8 | %      |   |  | (9.8 | )%
|                                              |                    |            |      |            |            |  |      |        |  
|                                              | Total net revenues |            |      | 100.0      | %          |  |      | 100.0  | % |  |      |   | 
|                                              |                    |            |      |            |            |  |      |        |  

® ® ® ® ® ® ® tm ® ® ®




| |             
| | ------------
| | Gross Profit



40



---



##### Table of Contents





|                  |  |            |       |            |            |   |       |        |  |   |        |   |  |  |      |   
|----------------- |  | ---------- | ----- | ---------- | ---------- | - | ----- | ------ |  | - | ------ | - |  |  | ---- | --
|                  |  |            |       | Comparable |            |   |       |        | 
|                  |  | Transition |       |            | 2004       |   |       | $      |  |   | %      |  
|                  |  | Period     |       |            | Six Months |   |       | Change |  |   | Change |  
|                  |  |            |       |            |            |   |       |        |  |   |        |  
|Gross profit      |  | $          | 139.8 |            |            | $ | 153.9 |        |  | $ | (14.1  | ) |  |  | (9.1 | )%
|% of net revenues |  |            | 85.3  | %          |            |   | 84.9  | %      |  |   |        |   |  |  |      |   





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses



|                                                                                     |  |            |      |            |            |   |      |        |  |   |        |  |  |  |         |  
|------------------------------------------------------------------------------------ |  | ---------- | ---- | ---------- | ---------- | - | ---- | ------ |  | - | ------ |  |  |  | ------- | -
|                                                                                     |  |            |      | Comparable |            |   |      |        | 
|                                                                                     |  | Transition |      |            | 2004       |   |      | $      |  |   | %      | 
|                                                                                     |  | Period     |      |            | Six Months |   |      | Change |  |   | Change | 
|                                                                                     |  |            |      |            |            |   |      |        |  |   |        | 
|Selling, general and administrative                                                  |  | $          | 89.4 |            |            | $ | 65.7 |        |  | $ | 23.7   |  |  |  | 35.9    | %
|% of net revenues                                                                    |  |            | 54.5 | %          |            |   | 36.3 | %      |  |   |        |  |  |  |         |  
|Share-based compensation expense included in selling, general
    and administrative |  | $          | 13.9 |            |            | $ | 0.3  |        |  | $ | 13.6   |  |  |  | 5,416.1 | %

Q-Med tm




| |                                  
| | ---------------------------------
| | Research and Development Expenses



|                                                                          |  |            |      |            |            |   |      |        |  |   |        |   |  |  |       |   
|------------------------------------------------------------------------- |  | ---------- | ---- | ---------- | ---------- | - | ---- | ------ |  | - | ------ | - |  |  | ----- | --
|                                                                          |  |            |      | Comparable |            |   |      |        | 
|                                                                          |  | Transition |      |            | 2004       |   |      | $      |  |   | %      |  
|                                                                          |  | Period     |      |            | Six Months |   |      | Change |  |   | Change |  
|                                                                          |  |            |      |            |            |   |      |        |  |   |        |  
|Research and development                                                  |  | $          | 22.4 |            |            | $ | 45.1 |        |  | $ | (22.7  | ) |  |  | (50.4 | )%
|Charges included in research and development                              |  |            | 11.9 |            |            |   | 35.0 |        |  |   | (23.1  | ) |  |  | (65.9 | )%
|Share-based compensation expense included in research and
    development |  |            | 1.0  |            |            |   |     |        |  |   | 1.0    |   |  |  | 100.0 | % 

tm


41



---



##### Table of Contents







| |                                       
| | --------------------------------------
| | Depreciation and Amortization Expenses





| |                  
| | -----------------
| | Other Income, net



|                                                                                        |  |   |      | 
|--------------------------------------------------------------------------------------- |  | - | ---- | 
|Termination fee received from Inamed, including expense
    reimbursement fees          |  | $ | 90.5 | 
|Less:                                                                                   |  |   |      | 
|Transaction costs expensed, including legal and advisory fees                           |  |   | 27.0 | 
|Integration planning costs incurred during the three months
    ended December 31, 2005 |  |   | 3.7  | 
|                                                                                        |  |   |     
|                                                                                        |  | $ | 59.8 | 
|                                                                                        |  |   |     



| |                
| | ---------------
| | Interest Income





| |                 
| | ----------------
| | Interest Expense





| |                   
| | ------------------
| | Income Tax Expense



|                   |  |            |      |            |            |   |      |        |  |   |        |  |  |  |        | 
|------------------ |  | ---------- | ---- | ---------- | ---------- | - | ---- | ------ |  | - | ------ |  |  |  | ------ | 
|                   |  |            |      | Comparable |            |   |      |        | 
|                   |  | Transition |      |            | 2004       |   |      | $      |  |   | %      | 
|                   |  | Period     |      |            | Six Months |   |      | Change |  |   | Change | 
|                   |  |            |      |            |            |   |      |        |  |   |        | 
|Income tax expense |  | $          | 30.5 |            |            | $ | 11.3 |        |  | $ | 19.2   |  |  |  | 169.3% | 
|Effective tax rate |  |            | 38.0 | %          |            |   | 34.8 | %      |  |   |        |  |  |  |        | 



42



---



##### Table of Contents









| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2005 Compared To Fiscal
    Year Ended June 30, 2004



| |             
| | ------------
| | Net Revenues



|             |  |        |       |  |        |   |       |        |  |   |        |  |  |  |       | 
|------------ |  | ------ | ----- |  | ------ | - | ----- | ------ |  | - | ------ |  |  |  | ----- | 
|             |  | Fiscal |       |  | Fiscal |   |       | $      |  |   | %      | 
|             |  | 2005   |       |  | 2004   |   |       | Change |  |   | Change | 
|             |  |        |       |  |        |   |       |        |  |   |        | 
|Net revenues |  | $      | 376.9 |  |        | $ | 303.7 |        |  | $ | 73.2   |  |  |  | 24.1% | 

|                                              |                    |        |      |       |        |  |      |        |   |  |      |    | 
|--------------------------------------------- | ------------------ | ------ | ---- | ----- | ------ |  | ---- | ------ | - |  | ---- | -- | 
|                                              |                    | Fiscal |      |       | Fiscal |  |      |       
|                                              |                    | 2005   |      |       | 2004   |  |      | Change |  
|                                              |                    |        |      |       |        |  |      |        |  
|Acne and acne-related dermatological products |                    |        | 29.5 | %     |        |  | 30.5 | %      |   |  | (1.0 | )%
|Non-acne dermatological products              |                    |        | 47.1 | %     |        |  | 50.9 | %      |   |  | (3.8 | )%
|Non-dermatological products                   |                    |        | 23.4 | %     |        |  | 18.6 | %      |   |  | 4.8  | % 
|                                              |                    |        |      |       |        |  |      |        |  
|                                              | Total net revenues |        |      | 100.0 | %      |  |      | 100.0  | % |  |      |   | 
|                                              |                    |        |      |       |        |  |      |        |  

® ® tm ® ® ® ® ® ® tm ® ® ® ® tm ® ® ®


43



---



##### Table of Contents







| |             
| | ------------
| | Gross Profit





|                  |  |        |       |   |        |   |       |        |  |   |        |  |  |  |       | 
|----------------- |  | ------ | ----- | - | ------ | - | ----- | ------ |  | - | ------ |  |  |  | ----- | 
|                  |  | Fiscal |       |   | Fiscal |   |       | $      |  |   | %      | 
|                  |  | 2005   |       |   | 2004   |   |       | Change |  |   | Change | 
|                  |  |        |       |   |        |   |       |        |  |   |        | 
|Gross profit      |  | $      | 321.5 |   |        | $ | 257.1 |        |  | $ | 64.4   |  |  |  | 25.0% | 
|% of net revenues |  |        | 85.3  | % |        |   | 84.7  | %      |  |   |        |  |  |  |       | 





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses



|                                    |  |        |       |   |        |   |       |        |  |   |        |  |  |  |       | 
|----------------------------------- |  | ------ | ----- | - | ------ | - | ----- | ------ |  | - | ------ |  |  |  | ----- | 
|                                    |  | Fiscal |       |   | Fiscal |   |       | $      |  |   | %      | 
|                                    |  | 2005   |       |   | 2004   |   |       | Change |  |   | Change | 
|                                    |  |        |       |   |        |   |       |        |  |   |        | 
|Selling, general and administrative |  | $      | 135.2 |   |        | $ | 118.3 |        |  | $ | 16.9   |  |  |  | 14.3% | 
|% of net revenues                   |  |        | 35.9  | % |        |   | 38.9  | %      |  |   |        |  |  |  |       | 

® ® ® ®


44



---



##### Table of Contents





| |                                  
| | ---------------------------------
| | Research and Development Expenses



|                                                                                                       |  |        |      |  |        |   |      |        |  |   |          |  |  |  |          | 
|------------------------------------------------------------------------------------------------------ |  | ------ | ---- |  | ------ | - | ---- | ------ |  | - | -------- |  |  |  | -------- | 
|                                                                                                       |  | Fiscal |      |  | Fiscal |   |      | $      |  |   |         
|                                                                                                       |  | 2005   |      |  | 2004   |   |      | Change |  |   | % Change | 
|                                                                                                       |  |        |      |  |        |   |      |        |  |   |          | 
|Research and development                                                                               |  | $      | 65.7 |  |        | $ | 16.5 |        |  | $ | 49.2     |  |  |  | 298.2%   | 
|Charges included in research and development associated with
    research and development transactions |  |        | 43.3 |  |        |   | 2.4  |        |  |   | 40.9     |  |  |  | 1,686.2% | 

tm




| |                                       
| | --------------------------------------
| | Depreciation and Amortization Expenses





| |                
| | ---------------
| | Interest Income





| |                 
| | ----------------
| | Interest Expense





| |                   
| | ------------------
| | Income Tax Expense



|                   |  |        |      |   |        |   |      |        |  |   |        |  |  |  |        | 
|------------------ |  | ------ | ---- | - | ------ | - | ---- | ------ |  | - | ------ |  |  |  | ------ | 
|                   |  | Fiscal |      |   | Fiscal |   |      | $      |  |   | %      | 
|                   |  | 2005   |      |   | 2004   |   |      | Change |  |   | Change | 
|                   |  |        |      |   |        |   |      |        |  |   |        | 
|Income tax expense |  | $      | 34.1 |   |        | $ | 15.3 |        |  | $ | 18.8   |  |  |  | 122.7% | 
|Effective tax rate |  |        | 34.4 | % |        |   | 33.2 | %      |  |   |        |  |  |  |        | 



45



---



##### Table of Contents







| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2004 Compared To Fiscal
    Year Ended June 30, 2003



| |             
| | ------------
| | Net Revenues



|             |  |        |       |  |        |   |       |        |  |   |        |  |  |  |      |  
|------------ |  | ------ | ----- |  | ------ | - | ----- | ------ |  | - | ------ |  |  |  | ---- | -
|             |  | Fiscal |       |  | Fiscal |   |       | $      |  |   | %      | 
|             |  | 2004   |       |  | 2003   |   |       | Change |  |   | Change | 
|             |  |        |       |  |        |   |       |        |  |   |        | 
|Net revenues |  | $      | 303.7 |  |        | $ | 247.5 |        |  | $ | 56.2   |  |  |  | 22.7 | %

|                                              |                    |        |      |       |        |  |      |        |   |  |       |    | 
|--------------------------------------------- | ------------------ | ------ | ---- | ----- | ------ |  | ---- | ------ | - |  | ----- | -- | 
|                                              |                    | Fiscal |      |       | Fiscal |  |      |       
|                                              |                    | 2004   |      |       | 2003   |  |      | Change |  
|                                              |                    |        |      |       |        |  |      |        |  
|Acne and acne-related dermatological products |                    |        | 30.5 | %     |        |  | 33.6 | %      |   |  | (3.1  | )%
|Non-acne dermatological Products              |                    |        | 50.9 | %     |        |  | 36.7 | %      |   |  | 14.2  | % 
|Non-dermatological products                   |                    |        | 18.6 | %     |        |  | 29.7 | %      |   |  | (11.1 | )%
|                                              |                    |        |      |       |        |  |      |        |  
|                                              | Total net revenues |        |      | 100.0 | %      |  |      | 100.0  | % |  |       |   | 
|                                              |                    |        |      |       |        |  |      |        |  

® ® ® ® ® ® ® ® ® ® ®




| |             
| | ------------
| | Gross Profit





|                  |  |        |       |   |        |   |       |        |  |   |        |  |  |  |       | 
|----------------- |  | ------ | ----- | - | ------ | - | ----- | ------ |  | - | ------ |  |  |  | ----- | 
|                  |  | Fiscal |       |   | Fiscal |   |       | $      |  |   | %      | 
|                  |  | 2004   |       |   | 2003   |   |       | Change |  |   | Change | 
|                  |  |        |       |   |        |   |       |        |  |   |        | 
|Gross profit      |  | $      | 257.1 |   |        | $ | 209.3 |        |  | $ | 47.8   |  |  |  | 22.9% | 
|% of net revenues |  |        | 84.7  | % |        |   | 84.5  | %      |  |   |        |  |  |  |       | 

46



---



##### Table of Contents







| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses



|                                    |  |        |       |   |        |   |      |        |  |   |        |  |  |  |       | 
|----------------------------------- |  | ------ | ----- | - | ------ | - | ---- | ------ |  | - | ------ |  |  |  | ----- | 
|                                    |  | Fiscal |       |   | Fiscal |   |      | $      |  |   | %      | 
|                                    |  | 2004   |       |   | 2003   |   |      | Change |  |   | Change | 
|                                    |  |        |       |   |        |   |      |        |  |   |        | 
|Selling, general and administrative |  | $      | 118.3 |   |        | $ | 91.6 |        |  | $ | 26.7   |  |  |  | 29.0% | 
|% of net revenues                   |  |        | 38.9  | % |        |   | 37.0 | %      |  |   |        |  |  |  |       | 

® ® ®




| |                                  
| | ---------------------------------
| | Research and Development Expenses



|                                                                                                       |  |        |      |  |        |   |      |        |  |   |        |   |  |  |       |   
|------------------------------------------------------------------------------------------------------ |  | ------ | ---- |  | ------ | - | ---- | ------ |  | - | ------ | - |  |  | ----- | --
|                                                                                                       |  | Fiscal |      |  | Fiscal |   |      | $      |  |   | %      |  
|                                                                                                       |  | 2004   |      |  | 2003   |   |      | Change |  |   | Change |  
|                                                                                                       |  |        |      |  |        |   |      |        |  |   |        |  
|Research and development                                                                               |  | $      | 16.5 |  |        | $ | 29.6 |        |  | $ | (13.1  | ) |  |  | (44.2 | )%
|Charges included in research and development associated with
    research and development transactions |  |        | 2.4  |  |        |   | 20.2 |        |  |   | (17.8  | ) |  |  | (88.0 | )%





| |                                       
| | --------------------------------------
| | Depreciation and Amortization Expenses

®


47



---



##### Table of Contents





| |                
| | ---------------
| | Interest Income





| |                 
| | ----------------
| | Interest Expense





| |                                     
| | ------------------------------------
| | Loss on Early Extinguishment of Debt





| |                   
| | ------------------
| | Income Tax Expense



|                   |  |        |      |   |        |   |      |        |  |   |        |   |  |  |       |   
|------------------ |  | ------ | ---- | - | ------ | - | ---- | ------ |  | - | ------ | - |  |  | ----- | --
|                   |  | Fiscal |      |   | Fiscal |   |      | $      |  |   | %      |  
|                   |  | 2004   |      |   | 2003   |   |      | Change |  |   | Change |  
|                   |  |        |      |   |        |   |      |        |  |   |        |  
|Income tax expense |  | $      | 15.3 |   |        | $ | 26.4 |        |  | $ | (11.1  | ) |  |  | (42.0 | )%
|Effective tax rate |  |        | 33.2 | % |        |   | 34.0 | %      |  |   |        |   |  |  |       |   



Liquidity and Capital Resources




| |         
| | --------
| | Overview



|                            |                      |            |   |            |            |  |   |        |   |  |        |       |  |  |  |       |   
|--------------------------- | -------------------- | ---------- | - | ---------- | ---------- |  | - | ------ | - |  | ------ | ----- |  |  |  | ----- | --
|                            |                      |            |   | Comparable |            |  |   |        |  
|                            |                      | Transition |   |            | 2004       |  |   | $      |   |  | %      |      
|                            |                      | Period     |   |            | Six Months |  |   | Change |   |  | Change |      
|                            |                      |            |   |            |            |  |   |        |   |  |        |      
|Cash provided by (used in): |                      |            |   |            |            |  |   |        |   |  |        |       |  |  |  |      
|                            | Operating activities |            | $ | 148.0      |            |  | $ | 45.5   |   |  | $      | 102.5 |  |  |  | 225.5 | % 
|                            | Investing activities |            |   | 123.7      |            |  |   | 76.2   |   |  |        | 47.5  |  |  |  | 62.4  | % 
|                            | Financing activities |            |   | (2.8       | )          |  |   | (137.4 | ) |  |        | 134.6 |  |  |  | (98.0 | )%

48



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|                                                                       |  |              |       |  |          |   |       |        |  |   |        |  |  |  |      |  
|---------------------------------------------------------------------- |  | ------------ | ----- |  | -------- | - | ----- | ------ |  | - | ------ |  |  |  | ---- | -
|                                                                       |  | December 31, |       |  | June 30, |   |       | $      |  |   | %      | 
|                                                                       |  | 2005         |       |  | 2005     |   |       | Change |  |   | Change | 
|                                                                       |  |              |       |  |          |   |       |        |  |   |        | 
|Cash, cash equivalents, restricted cash and short-term
    investments |  | $            | 742.5 |  |          | $ | 603.6 |        |  | $ | 138.9  |  |  |  | 23.0 | %
|Working capital                                                        |  |              | 692.5 |  |          |   | 600.1 |        |  |   | 92.4   |  |  |  | 15.4 | %
|2.5% contingent convertible senior notes due 2032                      |  |              | 169.2 |  |          |   | 169.2 |        |  |   |       |  |  |  |     |  
|1.5% contingent convertible senior notes due 2033                      |  |              | 283.9 |  |          |   | 283.9 |        |  |   |       |  |  |  |     |  



|                            |                      |        |   |        |        |  |   |          |   |   |        |        |   |  |  |        |   
|--------------------------- | -------------------- | ------ | - | ------ | ------ |  | - | -------- | - | - | ------ | ------ | - |  |  | ------ | --
|                            |                      | Fiscal |   |        | Fiscal |  |   |          |   | % |       
|                            |                      | 2004   |   |        | 2003   |  |   | $ Change |   |   | Change |       
|                            |                      |        |   |        |        |  |   |          |   |   |        |       
|Cash provided by (used in): |                      |        |   |        |        |  |   |          |   |   |        |        |   |  |  |       
|                            | Operating activities |        | $ | 130.0  |        |  | $ | 128.0    |   |   | $      | 2.0    |   |  |  | 1.6    | % 
|                            | Investing activities |        |   | 140.5  |        |  |   | (166.3   | ) |   |        | 306.8  |   |  |  | 184.5  | % 
|                            | Financing activities |        |   | (139.8 | )      |  |   | 40.6     |   |   |        | (180.4 | ) |  |  | (444.1 | )%

|                                                                       |  |          |       |  |          |   |       |        |  |   |        |   |  |  |       |   
|---------------------------------------------------------------------- |  | -------- | ----- |  | -------- | - | ----- | ------ |  | - | ------ | - |  |  | ----- | --
|                                                                       |  | June 30, |       |  | June 30, |   |       | $      |  |   | %      |  
|                                                                       |  | 2005     |       |  | 2004     |   |       | Change |  |   | Change |  
|                                                                       |  |          |       |  |          |   |       |        |  |   |        |  
|Cash, cash equivalents, restricted cash and short-term
    investments |  | $        | 603.6 |  |          | $ | 634.0 |        |  | $ | (30.4  | ) |  |  | (4.8  | )%
|Working capital                                                        |  |          | 600.1 |  |          |   | 666.7 |        |  |   | (66.6  | ) |  |  | (10.0 | )%
|2.5% contingent convertible senior notes due 2032                      |  |          | 169.2 |  |          |   | 169.2 |        |  |   |       |   |  |  |      |   
|1.5% contingent convertible senior notes due 2033                      |  |          | 283.9 |  |          |   | 283.9 |        |  |   |       |   |  |  |      |   



| |                
| | ---------------
| | Working Capital



|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |       |      |  |       |      |      |  
|------------------------------------------------- | ------------------------- | --------------- | ----- | ----- | -------- | - | ----- | ------ | ----- | - | ------ | ----- | ---- |  | ----- | ---- | ---- | -
|                                                  |                           | December 31,    |       |       | June 30, |   |       | $      |       |   | %      |      
|                                                  |                           | 2005            |       |       | 2005     |   |       | Change |       |   | Change |      
|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |      
|Cash, cash equivalents and short-term investments |                           | $               | 742.5 |       |          | $ | 603.6 |        |       | $ | 138.9  |       |      |  | 23.0  | %   
|Accounts receivable, net                          |                           |                 | 46.7  |       |          |   | 47.2  |        |       |   | (0.5   | )     |      |  | (1.1  | )%  
|Inventories, net                                  |                           |                 | 19.1  |       |          |   | 20.7  |        |       |   | (1.6   | )     |      |  | (7.9  | )%  
|Deferred tax assets, net                          |                           |                 | 12.7  |       |          |   | 11.0  |        |       |   | 1.7    |       |      |  | 15.8  | %   
|Other current assets                              |                           |                 | 12.3  |       |          |   | 16.4  |        |       |   | (4.1   | )     |      |  | (25.5 | )%  
|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |      
|                                                  | Total current assets      |                 |       | 833.3 |          |   |       | 698.9  |       |   |        | 134.4 |      |  |       | 19.2 | %   
|Accounts payable                                  |                           |                 | 57.7  |       |          |   | 30.8  |        |       |   | 26.9   |       |      |  | 87.2  | %   
|Short-term contract obligation                    |                           |                 | 27.4  |       |          |   | 27.4  |        |       |   |       |       |      |  |      | %   
|Income taxes payable                              |                           |                 | 31.5  |       |          |   | 10.2  |        |       |   | 21.3   |       |      |  | 207.9 | %   
|Other current liabilities                         |                           |                 | 24.2  |       |          |   | 30.4  |        |       |   | (6.2   | )     |      |  | (20.4 | )%  
|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |      
|                                                  | Total current liabilities |                 |       | 140.8 |          |   |       | 98.8   |       |   |        | 42.0  |      |  |       | 42.5 | %   
|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |      
|                                                  |                           | Working capital |       | $     | 692.5    |   |       | $      | 600.1 |   |        | $     | 92.4 |  |       |      | 15.4 | %
|                                                  |                           |                 |       |       |          |   |       |        |       |   |        |      



49



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|                                                  |                           |          |       |       |          |   |       |        |  |   |        |       |   |  |         |      |   
|------------------------------------------------- | ------------------------- | -------- | ----- | ----- | -------- | - | ----- | ------ |  | - | ------ | ----- | - |  | ------- | ---- | --
|                                                  |                           | June 30, |       |       | June 30, |   |       | $      |  |   | %      |      
|                                                  |                           | 2005     |       |       | 2004     |   |       | Change |  |   | Change |      
|                                                  |                           |          |       |       |          |   |       |        |  |   |        |      
|Cash, cash equivalents and short-term investments |                           | $        | 603.6 |       |          | $ | 634.0 |        |  | $ | (30.4  | )     |   |  | (4.8    | )%  
|Accounts receivable, net                          |                           |          | 47.2  |       |          |   | 47.9  |        |  |   | (0.7   | )     |   |  | (1.3    | )%  
|Inventories, net                                  |                           |          | 20.7  |       |          |   | 19.5  |        |  |   | 1.2    |       |   |  | 5.9     | %   
|Deferred tax assets, net                          |                           |          | 11.0  |       |          |   | 14.1  |        |  |   | (3.1   | )     |   |  | (22.0   | )%  
|Other current assets                              |                           |          | 16.4  |       |          |   | 18.3  |        |  |   | (1.9   | )     |   |  | (10.3   | )%  
|                                                  |                           |          |       |       |          |   |       |        |  |   |        |      
|                                                  | Total current assets      |          |       | 698.9 |          |   |       | 733.8  |  |   |        | (34.9 | ) |  |         | (4.8 | )%
|Accounts payable                                  |                           |          | 30.8  |       |          |   | 13.9  |        |  |   | 16.9   |       |   |  | 121.6   | %   
|Short-term contract obligation                    |                           |          | 27.4  |       |          |   | 17.9  |        |  |   | 9.5    |       |   |  | 53.2    | %   
|Income taxes payable                              |                           |          | 10.2  |       |          |   | 0.7   |        |  |   | 9.5    |       |   |  | 1,337.3 | %   
|Other current liabilities                         |                           |          | 30.4  |       |          |   | 34.6  |        |  |   | (4.2   | )     |   |  | (12.2   | )%  
|                                                  |                           |          |       |       |          |   |       |        |  |   |        |      
|                                                  | Total current liabilities |          |       | 98.8  |          |   |       | 67.1   |  |   |        | 31.7  |   |  |         | 47.3 | % 
|                                                  |                           |          |       |       |          |   |       |        |  |   |        |      
|Working capital                                   |                           | $        | 600.1 |       |          | $ | 666.7 |        |  | $ | (66.6  | )     |   |  | (10.0   | )%  
|                                                  |                           |          |       |       |          |   |       |        |  |   |        |      

tm






| |                     
| | --------------------
| | Operating Activities







| |                     
| | --------------------
| | Investing Activities



50



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® ®




| |                     
| | --------------------
| | Financing Activities







| |                                                                        
| | -----------------------------------------------------------------------
| | Contingent Convertible Senior Notes and Other Long-Term
    Commitments









51



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10-K






| |                            
| | ---------------------------
| | Repurchases of Common Stock





| |          
| | ---------
| | Dividends





| |               
| | --------------
| | Line of Credit

30-day


52



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##### Table of Contents





| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements

S-K.




| |                        
| | -----------------------
| | Contractual Obligations



|                                           |  |                        |         |            |        |   |             |         |  |           |         |  |           |         |        |  |  |   |         | 
|------------------------------------------ |  | ---------------------- | ------- | ---------- | ------ | - | ----------- | ------- |  | --------- | ------- |  | --------- | ------- | ------ |  |  | - | ------- | 
|                                           |  | Payments Due By Period |        
|                                           |  |                        |        
|                                           |  |                        |         | More Than  |        |   | More Than   |         |  |          
|                                           |  |                        |         | 1 Year and |        |   | 3 Years and |         |  |          
|                                           |  |                        |         | Less Than  |        |   | Less Than   |         |  | Less Than |         |  | More Than |        
|                                           |  | Total                  |         |            | 1 Year |   |             | 3 Years |  |           | 5 Years |  |           | 5 Years |       
|                                           |  |                        |         |            |        |   |             |         |  |           |         |  |           |         |       
|Long-term debt                             |  | $                      | 453,065 |            |        | $ |            |         |  | $         |        |  |           | $       |       |  |  | $ | 453,065 | 
|Interest on long-term debt                 |  |                        | 229,178 |            |        |   | 8,488       |         |  |           | 16,975  |  |           |         | 16,975 |  |  |   | 186,740 | 
|Operating leases                           |  |                        | 10,605  |            |        |   | 2,112       |         |  |           | 4,217   |  |           |         | 4,276  |  |  |   |        | 
|Other purchase obligations and commitments |  |                        | 867     |            |        |   | 173         |         |  |           | 347     |  |           |         | 347    |  |  |   |        | 
|                                           |  |                        |         |            |        |   |             |         |  |           |         |  |           |         |       
|Total contractual obligations              |  | $                      | 693,715 |            |        | $ | 10,773      |         |  | $         | 21,539  |  |           | $       | 21,598 |  |  | $ | 639,805 | 
|                                           |  |                        |         |            |        |   |             |         |  |           |         |  |           |         |       











53



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##### Table of Contents







Critical Accounting Policies and Estimates






| |                    
| | -------------------
| | Revenue Recognition









| |                                  
| | ---------------------------------
| | Items Deducted From Gross Revenue



54



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| |                              
| | -----------------------------
| | Product Returns and Exchanges







| |                
| | ---------------
| | Sales Discounts





| |                     
| | --------------------
| | Contract Chargebacks





| |                                  
| | ---------------------------------
| | Managed Care and Medicaid Rebates



55



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##### Table of Contents





| |      
| | -----
| | Other

®






| |                         
| | ------------------------
| | Share-Based Compensation







| |                  
| | -----------------
| | Long-lived Assets







56



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##### Table of Contents





| |             
| | ------------
| | Income Taxes







| |                                                                               
| | ------------------------------------------------------------------------------
| | Research and Development Costs and Accounting for
    Strategic Collaborations







| |                    
| | -------------------
| | Legal Contingencies



57



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##### Table of Contents





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Practical Accommodation to
the Application of Grant Date as Defined in FASB Statement
No. 123R


Transition Election to Accounting for the Tax Effects of
Share-Based Payment Awards -paid-in


Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions


Accounting Changes and Error Corrections  A
Replacement of APB Opinion No. 20 and FASB Statement
No. 3


The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments







|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About Market
    Risk



58



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Interest Rate Sensitivity


Principal Amount by Expected Maturity as of December 31,
2005


|                                             |  |                                                             |        |   |      |   |        |      |  |   |       |   |  |      |       |   |            |   |      |   |  |   |         |  
|-------------------------------------------- |  | ----------------------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ---- | - |  | - | ------- | -
|                                             |  | Financial Instruments Mature During Year Ended December 31, |       
|                                             |  |                                                             |       
|                                             |  | 2006                                                        |        |   | 2007 |   |        | 2008 |  |   | 2009  |   |  | 2010 |       |   | Thereafter |  
|                                             |  |                                                             |        |   |      |   |        |      |  |   |       |   |  |      |       |   |            |  
|Available-for-sale securities                |  | $                                                           | 97,560 |   |      | $ | 20,883 |      |  | $ | 4,897 |   |  | $    | 2,464 |   |            | $ | 749  |   |  | $ | 167,350 |  
|Weighted-average yield rate                  |  |                                                             | 2.91   | % |      |   | 3.89   | %    |  |   | 2.64  | % |  |      | 3.62  | % |            |   | 3.09 | % |  |   | 4.33    | %
|Contingent convertible senior notes due 2032 |  | $                                                           |       |   |      | $ |       |      |  | $ |      |   |  | $    |      |   |            | $ |     |   |  | $ | 169,155 |  
|Interest rate                                |  |                                                             |       |   |      |   |       |      |  |   |      |   |  |      |      |   |            |   |     |   |  |   | 2.5     | %
|Contingent convertible senior notes due 2033 |  | $                                                           |       |   |      | $ |       |      |  | $ |      |   |  | $    |      |   |            | $ |     |   |  | $ | 283,910 |  
|Interest rate                                |  |                                                             |       |   |      |   |       |      |  |   |      |   |  |      |      |   |            |   |     |   |  |   | 1.5     | %










|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants and
    Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



59



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##### Table of Contents



15d-15(e)), 10-K/






Managements Report on Internal Control over Financial
Reporting


13a-15(f) 15d-15(f).






10-K/


60



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##### Table of Contents








|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

8-K.


10-K/











|         |                       
|-------- | ----------------------
|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



61



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##### Table of Contents






PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules

|    |  |                                          |  |                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                      |      | 
|--- |  | ---------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | 
|    |  |                                          |  |                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                      | Page
|    |  |                                          |  |                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                      |     
|(a) |  | Documents filed as a part of this Report |  |                                                                                                                                                                      
|    |  | (1)                                      |  | Financial Statements:                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                      |     
|    |  |                                          |  | Index to consolidated financial statements                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                      | F-1 
|    |  |                                          |  | Reports of Independent Registered Public Accounting Firm                                                                                                              |                                                                                                                                                                                                                                                                                                                                                      | F-2 
|    |  |                                          |  | Consolidated balance sheets as of December 31, 2005,
    June 30, 2005 and June 30, 2004                                                                              |                                                                                                                                                                                                                                                                                                                                                      | F-4 
|    |  |                                          |  | Consolidated statements of income for the six months ended
    December 31, 2005 and 2004 (unaudited) and the fiscal
    years ended June 30, 2005, 2004 and 2003     |                                                                                                                                                                                                                                                                                                                                                      | F-6 
|    |  |                                          |  | Consolidated statements of stockholders equity for the six
    months ended December 31, 2005 and the fiscal years ended
    June 30, 2005, 2004 and 2003            |                                                                                                                                                                                                                                                                                                                                                      | F-7 
|    |  |                                          |  | Consolidated statements of cash flows for the six months ended
    December 31, 2005 and 2004 (unaudited) and the fiscal
    years ended June 30, 2005, 2004 and 2003 |                                                                                                                                                                                                                                                                                                                                                      | F-9 
|    |  |                                          |  | Notes to consolidated financial statements                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                      | F-10
|    |  | (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/T
    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 the Company, Medicis
    Acquisition Corporation and GenDerm Corporation, dated
    November 28, 1997(11)                                    
|            | 2  | .2          |  | Agreement of Plan of Merger, dated as of October 1, 2001,
    by and among the Company, MPC Merger Corp. and Ascent
    Pediatrics, Inc.(17)                                    
|            | 3  | .1          |  | Certificate of Incorporation of the Company, as amended(23)                                                                                                                     
|            | 3  | .2          |  | Amended and Restated By-Laws of the Company(13)                                                                                                                                 
|            | 4  | .1          |  | Amended and Restated Rights Agreement, dated as of
    August 17, 2005, between the Company and Wells Fargo Bank,
    N.A., as Rights Agent(26)                                 
|            | 4  | .2          |  | Indenture, dated as of August 19, 2003, by and between the
    Company, as issuer, and Deutsche Bank Trust Company Americas, as
    trustee(23)                                 
|            | 4  | .3          |  | Indenture, dated as of June 4, 2002, by and between the
    Company, as issuer, and Deutsche Bank Trust Company Americas, as
    trustee(19)                                    
|            | 4  | .4          |  | Supplemental Indenture dated as of February 1, 2005 to
    Indenture dated as of August 19, 2003 between the Company
    and Deutsche Bank Trust Company Americas as Trustee(25)
|            | 4  | .5          |  | Registration Rights Agreement, dated as of June 4, 2002, by
    and between the Company and Deutsche Bank Securities Inc.(19)                                                   
|            | 4  | .6          |  | Form of specimen certificate representing Class A common
    stock(1)                                                                                                           
|            | 10 | .1          |  | Asset Purchase Agreement among the Company, Ascent Pediatrics,
    Inc., BioMarin Pharmaceutical Inc., and BioMarin Pediatrics
    Inc., dated April 20, 2004(23)               
|            | 10 | .2          |  | Merger Termination Agreement, dated as of December 13,
    2005, by and among the Company, Masterpiece Acquisition Corp.,
    and Inamed Corporation(31)                        

62



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##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                             
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .3          |  | Securities Purchase Agreement among the Company, Ascent
    Pediatrics, Inc., BioMarin Pharmaceutical Inc. and BioMarin
    Pediatrics Inc., dated May 18, 2004(23)                                                                         
|            | 10 | .4          |  | Termination Agreement dated October 19, 2005 between the
    Company and Michael A. Pietrangelo(28)                                                                                                                                         
|            | 10 | .5          |  | License Agreement among the Company, Ascent Pediatrics, Inc. and
    BioMarin Pediatrics Inc., dated May 18, 2004(23)                                                                                                                       
|            | 10 | .6          |  | Medicis Pharmaceutical Corporation 1995 Stock Option Plan
    (incorporated by reference to Exhibit C to the definitive
    Proxy Statement for the 1995 Annual Meeting of Shareholders
    previously filed with the SEC, File No. 0-18443)
|            | 10 | .7(a)       |  | Employment Agreement between the Company and Jonah Shacknai,
    dated July 24, 1996(8)                                                                                                                                                     
|            | 10 | .7(b)       |  | Amendment to Employment Agreement by and between the Company and
    Jonah Shacknai, dated April 1, 1999(15)                                                                                                                                
|            | 10 | .7(c)       |  | Amendment to Employment Agreement by and between the Company and
    Jonah Shacknai, dated February 21, 2001(15)                                                                                                                            
|            | 10 | .7(d)       |  | Third Amendment, dated December 30, 2005, to Employment
    Agreement between the Company and Jonah Shacknai(32)                                                                                                                            
|            | 10 | .8          |  | Medicis Pharmaceutical Corporation 2001 Senior Executive
    Restricted Stock Plan(30)                                                                                                                                                      
|            | 10 | .9(a)       |  | Medicis Pharmaceutical Corporation 2002 Stock Option Plan(20)                                                                                                                                                                               
|            | 10 | .9(b)       |  | Amendment No. 1 to the Medicis Pharmaceutical Corporation
    2002 Stock Option Plan, dated August 1, 2005(29)                                                                                                                              
|            | 10 | .10(a)      |  | Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(27)                                                                                                                                                                            
|            | 10 | .10(b)      |  | Amendment No. 1 to the Medicis Pharmaceutical Corporation
    2004 Stock Option Plan, dated August 1, 2005(29)                                                                                                                              
|            | 10 | .11(a)      |  | Medicis Pharmaceutical Corporation 1998 Stock Option Plan(33)                                                                                                                                                                               
|            | 10 | .11(b)      |  | Amendment No. 1 to the Medicis Pharmaceutical Corporation
    1998 Stock Option Plan, dated August 1, 2005(29)                                                                                                                              
|            | 10 | .11(c)      |  | Amendment No. 2 to the Medicis Pharmaceutical Corporation
    1998 Stock Option Plan, dated September 30, 2005(29)                                                                                                                          
|            | 10 | .12(a)      |  | Medicis Pharmaceutical Corporation 1996 Stock Option Plan(34)                                                                                                                                                                               
|            | 10 | .12(b)      |  | Amendment No. 1 to the Medicis Pharmaceutical Corporation
    1996 Stock Option Plan, dated August 1, 2005(29)                                                                                                                              
|            | 10 | .13         |  | Waiver Letter dated March 18, 2005 between the Company and
    Q-Med AB(27)                                                                                                                                                                 
|            | 10 | .14         |  | Supply Agreement, dated October 21, 1992, between Schein
    Pharmaceutical and the Company(2)                                                                                                                                              
|            | 10 | .15         |  | Amendment to Manufacturing and Supply Agreement, dated
    March 2, 1993, between Schein Pharmaceutical and the
    Company(3)                                                                                                              
|            | 10 | .16(a)      |  | Credit and Security Agreement, dated August 3, 1995,
    between the Company and Norwest Business Credit, Inc.(5)                                                                                                                           
|            | 10 | .16(b)      |  | First Amendment to Credit and Security Agreement, dated
    May 29, 1996, between the Company and Norwest Bank Arizona,
    N.A.(8)                                                                                                         
|            | 10 | .16(c)      |  | Second Amendment to Credit and Security Agreement, dated
    November 22, 1996, by and between the Company and Norwest
    Bank Arizona, N.A. as successor-in-interest to Norwest Business
    Credit, Inc.(10)                             
|            | 10 | .16(d)      |  | Third Amendment to Credit and Security Agreement, dated
    November 22, 1998, by and between the Company and Norwest
    Bank Arizona, N.A., as successor-in-interest to Norwest Business
    Credit, Inc.(12)                             

63



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|            |    |             |  |                                                                                                                                                                                                                                                                       
|----------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .16(e)      |  | Fourth Amendment to Credit and Security Agreement, dated
    November 22, 2000, by and between the Company and Wells
    Fargo Bank Arizona, N.A., formerly known as Norwest Bank
    Arizona, N.A., as successor-in-interest to Norwest Business
    Credit, Inc.(16)
|            | 10 | .16(f)      |  | Fifth Amendment to Credit and Security Agreement, dated
    November 22, 2002, by and between the Company and Wells
    Fargo Bank Arizona, N.A., formerly known as Norwest Bank
    Arizona, N.A., as successor-in-interest to Norwest Business
    Credit, Inc.(23) 
|            | 10 | .17(a)      |  | Patent Collateral Assignment and Security Agreement, dated
    August 3, 1995, by the Company to Norwest Business Credit,
    Inc.(6)                                                                                                                                 
|            | 10 | .17(b)      |  | First Amendment to Patent Collateral Assignment and Security
    Agreement, dated May 29, 1996, by the Company to Norwest
    Bank Arizona, N.A.(8)                                                                                                                   
|            | 10 | .17(c)      |  | Amended and Restated Patent Collateral Assignment and Security
    Agreement, dated November 22, 1998, by the Company to
    Norwest Bank Arizona, N.A.(12)                                                                                                           
|            | 10 | .18(a)      |  | Trademark Collateral Assignment and Security Agreement, dated
    August 3, 1995, by the Company to Norwest Business Credit,
    Inc.(7)                                                                                                                              
|            | 10 | .18(b)      |  | First Amendment to Trademark Collateral Assignment and Security
    Agreement, dated May 29, 1996, by the Company to Norwest
    Bank Arizona, N.A.(8)                                                                                                                
|            | 10 | .18(c)      |  | Amended and Restated Trademark, Tradename, and Service Mark
    Collateral Assignment and Security Agreement, dated
    November 22, 1998, by the Company to Norwest Bank Arizona,
    N.A.(12)                                                                       
|            | 10 | .19         |  | Assignment and Assumption of Loan Documents, dated May 29,
    1996, from Norwest Business Credit, Inc., to and by Norwest Bank
    Arizona, N.A.(8)                                                                                                                  
|            | 10 | .20         |  | Multiple Advance Note, dated May 29, 1996, from the Company
    to Norwest Bank Arizona, N.A.(8)                                                                                                                                                                      
|            | 10 | .21         |  | Asset Purchase Agreement dated November 15, 1998, by and
    among the Company and Hoechst Marion Roussel, Inc., Hoechst
    Marion Roussel Deutschland GMHB and Hoechst Marion Roussel,
    S.A.(12)                                                                 
|            | 10 | .22         |  | License and Option Agreement dated November 15, 1998, by
    and among the Company and Hoechst Marion Roussel, Inc., Hoechst
    Marion Roussel Deutschland GMBH and Hoechst Marion Roussel,
    S.A.(12)                                                             
|            | 10 | .23         |  | Loprox Lotion Supply Agreement dated November 15, 1998, by
    and between the Company and Hoechst Marion Roussel, Inc.(12)                                                                                                                                           
|            | 10 | .24         |  | Supply Agreement dated November 15, 1998, by and between
    the Company and Hoechst Marion Roussel Deutschland GMBH(12)                                                                                                                                              
|            | 10 | .25         |  | Asset Purchase Agreement effective January 31, 1999,
    between the Company and Bioglan Pharma Plc(14)                                                                                                                                                               
|            | 10 | .26         |  | Stock Purchase Agreement by and among the Company, Ucyclyd
    Pharma, Inc. and Syed E. Abidi, William Brusilow, Susan E.
    Brusilow and Norbert L. Wiech, dated April 19, 1999(14)                                                                                 
|            | 10 | .27         |  | Asset Purchase Agreement by and between the Company and Bioglan
    Pharma Plc, dated June 29, 1999(14)                                                                                                                                                               
|            | 10 | .28         |  | Asset Purchase Agreement by and among The Exorex Company, LLC,
    Bioglan Pharma Plc, the Company and IMX Pharmaceuticals, Inc.,
    dated June 29, 1999(16)                                                                                                         
|            | 10 | .29         |  | Medicis Pharmaceutical Corporation Executive Retention Plan(14)                                                                                                                                                                                                       
|            | 10 | .30         |  | Asset Purchase Agreement between Warner Chilcott, plc and the
    Company, dated September 14, 1999(14)                                                                                                                                                               
|            | 10 | .31(a)      |  | Share Purchase Agreement between Q-Med International B.V. and
    Startskottet 21914 AB (under proposed change of name to Medicis
    Sweden Holdings AB), dated February 10, 2003(21)                                                                                

64



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|            |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | --- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |     | Description
|            |     |            
|            | 10  | .31(b)      |  | Amendment No. 1 to Share Purchase Agreement between Q-Med
    International B.V. and Startskottet 21914 AB (under proposed
    change of name to Medicis Sweden Holdings AB), dated
    March 7, 2003(21)                                                                                                                                                                                                                          
|            | 10  | .32         |  | Supply Agreement between Q-Med AB and the Company, dated
    March 7, 2003(21)                                                                                                                                                                                                                                                                                                                                                     
|            | 10  | .33         |  | Amended and Restated Intellectual Property Agreement between
    Q-Med AB and HA North American Sales AB, dated March 7,
    2003(21)                                                                                                                                                                                                                                                                                              
|            | 10  | .34         |  | Supply Agreement between Medicis Aesthetics Holdings Inc., a
    wholly owned subsidiary of the Company, and Q-Med AB, dated
    July 15, 2004(23) Portions of this exhibit (indicated by
    asterisks) have been omitted pursuant to a request for
    confidential treatment pursuant to Rule 24b-2 under the
    Securities Exchange Act of 1934                                                                               
|            | 10  | .35         |  | Intellectual Property License Agreement between Q-Med AB and
    Medicis Aesthetics Holdings Inc., dated July 15, 2004(23)
    Portions of this exhibit (indicated by asterisks) have been
    omitted pursuant to a request for confidential treatment
    pursuant to Rule 24b-2 under the Securities Exchange Act of
    1934                                                                                                   
|            | 10  | .36         |  | Note Agreement, dated as of October 1, 2001, by and
    among Ascent Pediatrics, Inc., the Company, Furman Selz
    Investors II L.P., FS Employee Investors LLC, FS Ascent
    Investments LLC, FS Parallel Fund L.P., BancBoston Ventures Inc.
    and Flynn Partners(17)                                                                                                                                                        
|            | 10  | .37         |  | Voting Agreement, dated as of October 1, 2001, by and among
    the Company, MPC Merger Corp., FS Private Investments LLC,
    Furman Selz Investors II L.P., FS Employee Investors LLC,
    FS Ascent Investments LLC and FS Parallel Fund L.P.(17)                                                                                                                                                                               
|            | 10  | .38         |  | Exclusive Remedy Agreement, dated as of October 1, 2001, by
    and among the Company, Ascent Pediatrics, Inc., FS Private
    Investments LLC, Furman Selz Investors II L.P., FS Employee
    Investors LLC, FS Ascent Investments LLC and FS Parallel Fund
    L.P., BancBoston Ventures Inc., Flynn Partners, Raymond F.
    Baddour, Sc.D., Robert E. Baldini, Medical Science Partners L.P.
    and Emmett Clemente, Ph.D.(17)
|            | 10  | .39         |  | Medicis Pharmaceutical Corporation 1992 Stock Option Plan(35)                                                                                                                                                                                                                                                                                                                                                                      
|            | 10  | .40+        |  | Form of Stock Option Agreement for Medicis Pharmaceutical
    Corporation 2004 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                
|            | 10  | .41+        |  | Form of Restricted Stock Agreement for Medicis Pharmaceutical
    Corporation 2004 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                            
|            | 12+ |             |  | Computation of Ratios of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                 
|            | 21  | .1+         |  | Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 23  | .1+         |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                    
|            | 24  | .1          |  | Power of Attorney See signature page                                                                                                                                                                                                                                                                                                                                                                                               
|            | 31  | .1+         |  | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a) and Rule 15d-14(a) of the Securities
    Exchange Act, as amended                                                                                                                                                                                                                                                                                          
|            | 31  | .2+         |  | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a) and Rule 15d-14(a) of the Securities
    Exchange Act, as amended                                                                                                                                                                                                                                                                                          
|            | 32  | .1+         |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          
|            | 32  | .2+         |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          








| |     |                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the Registration Statement on
    Form S-1 of the
    Registrant, File
    No. 33-32918,
    filed with the SEC on January 16, 1990
|
| | (2) | Incorporated by reference to the Registration Statement on
    Form S-1 of the
    Company, File
    No. 33-54276,
    filed with the SEC on June 11, 1993      

65



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##### Table of Contents





| |     |                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 1993, File No. 0-18443,
    filed with the SEC on October 13, 1993                  
|
| | (4) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 1995, File No. 0-18443,
    previously filed with the SEC (the 1994
    Form 10-K)
|
| | (5) | Incorporated by reference to the Companys 1995
    Form 10-K                                                                                                                                        
|
| | (6) | Incorporated by reference to the Companys 1995
    Form 10-K                                                                                                                                        
|
| | (7) | Incorporated by reference to the Companys 1995
    Form 10-K                                                                                                                                        
|
| | (8) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 1996, File No. 0-18443,
    previously filed with the SEC                           
|
| | (9) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended March 31, 1997, File No. 0-18443,
    previously filed with the SEC                           



|     |                                                                                                                                                                              
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended December 31, 1996, File No. 0-18443,
    previously filed with the SEC
|    
|(11) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on December 15, 1997                                                        
|    
|(12) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended December 31, 1998, File No. 0-18443,
    previously filed with the SEC
|    
|(13) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended March 31, 1999, File No. 0-18443,
    previously filed with the SEC   
|    
|(14) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 1999, File No. 0-18443,
    previously filed with the SEC   
|    
|(15) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended March 31, 2001, File No. 0-18443,
    previously filed with the SEC   
|    
|(16) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 2001, File No. 0-18443,
    previously filed with the SEC   
|    
|(17) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on October 2, 2001                                                          
|    
|(18) | Incorporated by reference to the Companys registration
    statement on
    Form 8-A12B/ A
    filed with the SEC on June 4, 2002                                           
|    
|(19) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on June 6, 2002                                                             
|    
|(20) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 2002, File No. 0-18443,
    previously filed with the SEC   
|    
|(21) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on March 10, 2003                                                           
|    
|(22) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended December 31, 2003, File No. 0-18443,
    previously filed with the SEC
|    
|(23) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 2004, File No. 0-18443,
    previously filed with the SEC   
|    
|(24) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on March 21, 2005                                                           
|    
|(25) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended March 31, 2005, File No. 0-18443,
    previously filed with the SEC   
|    
|(26) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on August 18, 2005                                                          
|    
|(27) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the
    fiscal year ended June 30, 2005, File No. 0-18443,
    previously filed with the SEC   

66



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|     |                                                                                                                                                                                                 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(28) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on October 20, 2005                                                                            
|    
|(29) | Incorporated by reference to the Companys Annual Report on
    Form 10-K/A for
    the fiscal year ended June 30, 2005, File No. 0-18443,
    previously filed with the SEC on October 28, 2005
|    
|(30) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the quarter ended September 30, 2005, File
    No. 0-18443, previously filed with the SEC                  
|    
|(31) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on December 13, 2005                                                                           
|    
|(32) | Incorporated by reference to the Companys Current Report
    on Form 8-K filed
    with the SEC on January 3, 2006                                                                             
|    
|(33) | Incorporated by reference to Appendix 1 to the
    Companys definitive Proxy Statement for the 1998 Annual
    Meeting of Stockholders filed with the SEC on December 2,
    1998              
|    
|(34) | Incorporated by reference to Appendix 2 to the
    Companys definitive Proxy Statement for the 1996 Annual
    Meeting of Stockholders filed with the SEC on October 23,
    1996              
|    
|(35) | Incorporated by reference to Exhibit B to the
    Companys definitive Proxy Statement for the 1992 Annual
    Meeting of Stockholders previously filed with the SEC                            



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

67



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##### Table of Contents






SIGNATURES






| |                                         
| | ----------------------------------------
| | MEDICIS PHARMACEUTICAL 
     CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ JONAH SHACKNAI

| |                                                        
| | -------------------------------------------------------
| |                                                        
| | Jonah Shacknai                                         
| | Chairman of the Board and 
     Chief Executive Officer



POWER OF ATTORNEY


attorneys-in 10-K/ attorneys-in attorneys-in




|                                                       |  |                                                                                                                                           |  |                |  | 
|------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                              |  | Title                                                                                                                                     |  | Date          
|                                                       |  |                                                                                                                                           |  |               
|                                                      
|/s/ JONAH SHACKNAIJonah Shacknai                       |  | Chairman of the Board of Directors and Chief Executive Officer
    (Principal Executive Officer)                                          |  | March 16, 2006
|                                                      
|/s/ MARK A.
    PRYGOCKI, SR.Mark A. Prygocki, Sr.     |  | Executive Vice President, Chief Financial Officer, Corporate
    Secretary and Treasurer (Principal Financial and Accounting
    Officer) |  | March 16, 2006
|                                                      
|/s/ ARTHUR G.
    ALTSCHUL, JR.Arthur G. Altschul, Jr. |  | Director                                                                                                                                  |  | March 16, 2006
|                                                      
|/s/ SPENCER DAVIDSONSpencer Davidson                   |  | Director                                                                                                                                  |  | March 16, 2006

68



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|                                                     |  |          |  |                |  | 
|---------------------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                                            |  | Title    |  | Date          
|                                                     |  |          |  |               
|                                                    
|/s/ STUART DIAMONDStuart Diamond                     |  | Director |  | March 16, 2006
|                                                    
|/s/ PETER S.
    KNIGHT, ESQ.Peter S. Knight, Esq.   |  | Director |  | March 16, 2006
|                                                    
|/s/ MICHAEL A.
    PIETRANGELOMichael A. Pietrangelo |  | Director |  | March 16, 2006
|                                                    
|/s/ PHILIP S.
    SCHEIN, M.D.Philip S. Schein, M.D. |  | Director |  | March 16, 2006
|                                                    
|/s/ LOTTIE SHACKELFORDLottie Shackelford             |  | Director |  | March 16, 2006

69



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##### Table of Contents






MEDICIS PHARMACEUTICAL CORPORATION


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                                                                      |  |      |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                                      |  | Page |     
|                                                                                                                                                                      |  |      |     
|Reports of Independent Registered Public Accounting Firm                                                                                                              |  |      | F-2  | 
|Consolidated Balance Sheets as of December 31, 2005,
    June 30, 2005 and June 30, 2004                                                                              |  |      | F-4  | 
|Consolidated Statements of Income for the six months ended
    December 31, 2005 and 2004 (unaudited), and the fiscal
    years ended June 30, 2005, 2004 and 2003    |  |      | F-6  | 
|Consolidated Statements of Stockholders Equity for the six
    months ended December 31, 2005 and the fiscal years ended
    June 30, 2005, 2004 and 2003            |  |      | F-7  | 
|Consolidated Statements of Cash Flows for the six months ended
    December 31, 2005 and 2004 (unaudited) and the fiscal
    years ended June 30, 2005, 2004 and 2003 |  |      | F-9  | 
|Notes to Consolidated Financial Statements                                                                                                                            |  |      | F-10 | 
|Schedule II  Valuation and Qualifying Accounts                                                                                                                       |  |      | S-1  | 

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of Medicis
Pharmaceutical Corporation














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





F-2



---



##### Table of Contents



Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of Medicis
Pharmaceutical Corporation
















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





F-3



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION







CONSOLIDATED BALANCE SHEETS


|                              |                                                                                      |                                            |                       |          |         |         |           |         |         |         |           |         |         |         | 
|----------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------ | --------------------- | -------- | ------- | ------- | --------- | ------- | ------- | ------- | --------- | ------- | ------- | ------- | 
|                              |                                                                                      |                                            |                       | June 30, |        
|                              |                                                                                      | December 31,                               |                       |          |         |        
|                              |                                                                                      | 2005                                       |                       |          | 2005    |         |           | 2004    |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        
|                              |                                                                                      | (In thousands, except share amounts)       |                      
|ASSETS                       
|Current assets:               |                                                                                      |                                            |                       |          |         |         |           |         |         |         |           |        
|                              | Cash and cash equivalents                                                            |                                            | $                     | 446,997  |         |         | $         | 177,785 |         |         | $         | 46,621  |        
|                              | Short-term investments                                                               |                                            |                       | 295,535  |         |         |           | 425,783 |         |         |           | 587,419 |        
|                              | Accounts receivable, less allowances:                                                |                                            |                       |          |         |         |           |         |         |         |           |         |        
|                              |                                                                                      | December 31, 2005: $18,160; June 30, 2005: |                       |          |         |         |           |         |         |         |           |         |         |        
|                              |                                                                                      | $19,073; June 30, 2004: $15,955            |                       |          | 46,697  |         |           |         | 47,220  |         |           |         | 47,858  |        
|                              | Inventories, net                                                                     |                                            |                       | 19,076   |         |         |           | 20,701  |         |         |           | 19,540  |        
|                              | Deferred tax assets, net                                                             |                                            |                       | 12,738   |         |         |           | 11,001  |         |         |           | 14,104  |        
|                              | Other current assets                                                                 |                                            |                       | 12,241   |         |         |           | 16,435  |         |         |           | 18,321  |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        
|                              |                                                                                      | Total current assets                       |                       |          | 833,284 |         |           |         | 698,925 |         |           |         | 733,863 |        
|Property and equipment, net   |                                                                                      |                                            | 5,416                 |          |         |         | 6,143     |         |         |         | 5,842     |        
|Intangible assets:            |                                                                                      |                                            |                       |          |         |         |           |         |         |         |           |        
|                              | Intangible assets related to product line acquisitions and
    business combinations |                                            |                       | 311,406  |         |         |           | 326,780 |         |         |           | 324,345 |        
|                              | Other intangible assets                                                              |                                            |                       | 4,888    |         |         |           | 4,507   |         |         |           | 3,647   |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        
|                              |                                                                                      |                                            | 316,294               |          |         |         | 331,287   |         |         |         | 327,992   |        
|                              | Less: accumulated amortization                                                       |                                            |                       | 76,458   |         |         |           | 71,749  |         |         |           | 51,961  |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        
|                              |                                                                                      |                                            | Net intangible assets |          |         | 239,836 |           |         |         | 259,538 |           |         |         | 276,031 | 
|Goodwill                      |                                                                                      |                                            | 63,094                |          |         |         | 64,672    |         |         |         | 55,113    |        
|Deferred financing costs, net |                                                                                      |                                            | 4,325                 |          |         |         | 5,397     |         |         |         | 7,535     |        
|Other non-current assets      |                                                                                      |                                            |                      |          |         |         | 8,576     |         |         |         |          |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        
|                              |                                                                                      | $                                          | 1,145,955             |          |         | $       | 1,043,251 |         |         | $       | 1,078,384 |        
|                              |                                                                                      |                                            |                       |          |         |         |           |         |        



F-4



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


CONSOLIDATED BALANCE SHEETS  (Continued)


|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |         |   |           |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------ | --------- | -------- | ------- | - | --------- | ------- | ------- | - | --------- | ------- | ------- | 
|                                                                                                                                                                                                              |                                     |                                      |           | June 30, |        
|                                                                                                                                                                                                              |                                     | December 31,                         |           |          |         |  
|                                                                                                                                                                                                              |                                     | 2005                                 |           |          | 2005    |   |           | 2004    |        
|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |        
|                                                                                                                                                                                                              |                                     | (In thousands, except share amounts) |          
|                                                                                                                                                                                                             
|LIABILITIES                                                                                                                                                                                                  
|Current liabilities:                                                                                                                                                                                          |                                     |                                      |           |          |         |   |           |         |         |   |           |        
|                                                                                                                                                                                                              | Accounts payable                    |                                      | $         | 57,708   |         |   | $         | 30,832  |         |   | $         | 13,912  |        
|                                                                                                                                                                                                              | Short-term contract obligation      |                                      |           | 27,407   |         |   |           | 27,407  |         |   |           | 17,891  |        
|                                                                                                                                                                                                              | Income taxes payable                |                                      |           | 31,521   |         |   |           | 10,236  |         |   |           | 712     |        
|                                                                                                                                                                                                              | Other current liabilities           |                                      |           | 24,195   |         |   |           | 30,379  |         |   |           | 34,605  |        
|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |        
|                                                                                                                                                                                                              |                                     | Total current liabilities            |           |          | 140,831 |   |           |         | 98,854  |   |           |         | 67,120  | 
|Long-term liabilities:                                                                                                                                                                                        |                                     |                                      |           |          |         |   |           |         |         |   |           |        
|                                                                                                                                                                                                              | Contingent convertible senior notes |                                      |           | 453,065  |         |   |           | 453,065 |         |   |           | 453,067 |        
|                                                                                                                                                                                                              | Deferred tax liability, net         |                                      |           | 8,572    |         |   |           | 4,986   |         |   |           | 2,894   |        
|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:
    150,000,000; issued and outstanding: 67,052,326, 67,007,330,
    65,419,460 at December 31, 2005, June 30, 2005 and
    2004, respectively |                                     |                                      | 938       |          |         |   | 938       |         |         |   | 916       |        
|Class B common stock, $0.014 par value; shares
    authorized:
    1,000,000; issued and outstanding: 0, 0 and 758,032 at
    December 31, 2005, June 30, 2005 and 2004, respectively                         |                                     |                                      |          |          |         |   |          |         |         |   | 10        |        
|Additional paid-in capital                                                                                                                                                                                    |                                     |                                      | 550,006   |          |         |   | 539,443   |         |         |   | 517,468   |        
|Accumulated other comprehensive income                                                                                                                                                                        |                                     |                                      | 379       |          |         |   | (606      | )       |         |   | (1,020    | )      
|Deferred compensation                                                                                                                                                                                         |                                     |                                      |          |          |         |   | (697      | )       |         |   | (1,212    | )      
|Accumulated earnings                                                                                                                                                                                          |                                     |                                      | 334,894   |          |         |   | 288,474   |         |         |   | 230,049   |        
|Less: Treasury stock, 12,647,554, 12,620,554 and
    8,681,468 shares at cost at December 31, 2005,
    June 30, 2005 and 2004, respectively                                                                  |                                     |                                      | (342,730  | )        |         |   | (341,206  | )       |         |   | (190,908  | )      
|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |        
|                                                                                                                                                                                                              |                                     | Total stockholders equity           |           |          | 543,487 |   |           |         | 486,346 |   |           |         | 555,303 | 
|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |        
|                                                                                                                                                                                                              |                                     | $                                    | 1,145,955 |          |         | $ | 1,043,251 |         |         | $ | 1,078,384 |        
|                                                                                                                                                                                                              |                                     |                                      |           |          |         |   |           |         |        



F-5



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION







CONSOLIDATED STATEMENTS OF INCOME


|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |         |         |  |   |         |         | 
|-------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------- | ------- | ----------- | ------------------- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                       |                                        | Six Months Ended                      |         |             |                    
|                                                                                       |                                        | December 31,                          |         |             | Year Ended June 30, |  
|                                                                                       |                                        |                                       |         |             |                     |  
|                                                                                       |                                        | 2005                                  |         |             | 2004                |   |         | 2005    |  |   | 2004    |         |  | 2003 |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|                                                                                       |                                        |                                       |         | (Unaudited) |                     |   |         |         |  |   |        
|                                                                                       |                                        | (In thousands, except per share data) |        
|Net product revenues                                                                   |                                        | $                                     | 155,569 |             |                     | $ | 146,999 |         |  | $ | 305,114 |         |  | $    | 291,607 |         |  | $ | 241,909 |        
|Net contract revenues                                                                  |                                        |                                       | 8,385   |             |                     |   | 34,168  |         |  |   | 71,785  |         |  |      | 12,115  |         |  |   | 5,630   |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|                                                                                       | Net revenues                           |                                       |         | 163,954     |                     |   |         | 181,167 |  |   |         | 376,899 |  |      |         | 303,722 |  |   |         | 247,539 | 
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Cost of product revenue(1)                                                             |                                        |                                       | 24,111  |             |                     |   | 27,270  |         |  |   | 55,447  |         |  |      | 46,606  |         |  |   | 38,260  |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Gross profit                                                                           |                                        |                                       | 139,843 |             |                     |   | 153,897 |         |  |   | 321,452 |         |  |      | 257,116 |         |  |   | 209,279 |        
|Operating expenses:                                                                    |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |         |         |  |   |         |        
|                                                                                       | Selling, general and administrative(2) |                                       |         | 89,360      |                     |   |         | 65,736  |  |   |         | 135,154 |  |      |         | 118,253 |  |   |         | 91,648  | 
|                                                                                       | Research and development(3)            |                                       |         | 22,367      |                     |   |         | 45,140  |  |   |         | 65,676  |  |      |         | 16,494  |  |   |         | 29,568  | 
|                                                                                       | Depreciation and amortization          |                                       |         | 12,420      |                     |   |         | 10,222  |  |   |         | 22,350  |  |      |         | 16,794  |  |   |         | 10,125  | 
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Operating income                                                                       |                                        |                                       | 15,696  |             |                     |   | 32,799  |         |  |   | 98,272  |         |  |      | 105,575 |         |  |   | 77,938  |        
|Other income, net                                                                      |                                        |                                       | 59,801  |             |                     |   |        |         |  |   |        |         |  |      |        |         |  |   |        |        
|Interest income                                                                        |                                        |                                       | 10,059  |             |                     |   | 5,076   |         |  |   | 11,470  |         |  |      | 10,050  |         |  |   | 12,302  |        
|Interest expense                                                                       |                                        |                                       | (5,333  | )           |                     |   | (5,324  | )       |  |   | (10,640 | )       |  |      | (10,808 | )       |  |   | (12,580 | )      
|Loss on early extinguishment of debt                                                   |                                        |                                       |        |             |                     |   |        |         |  |   |        |         |  |      | (58,660 | )       |  |   |        |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Income before income tax expense                                                       |                                        |                                       | 80,223  |             |                     |   | 32,551  |         |  |   | 99,102  |         |  |      | 46,157  |         |  |   | 77,660  |        
|Income tax expense                                                                     |                                        |                                       | (30,502 | )           |                     |   | (11,328 | )       |  |   | (34,112 | )       |  |      | (15,317 | )       |  |   | (26,404 | )      
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Net income                                                                             |                                        | $                                     | 49,721  |             |                     | $ | 21,223  |         |  | $ | 64,990  |         |  | $    | 30,840  |         |  | $ | 51,256  |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Basic net income per common share                                                      |                                        | $                                     | 0.92    |             |                     | $ | 0.38    |         |  | $ | 1.18    |         |  | $    | 0.55    |         |  | $ | 0.94    |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Diluted net income per common share                                                    |                                        | $                                     | 0.76    |             |                     | $ | 0.34    |         |  | $ | 1.01    |         |  | $    | 0.52    |         |  | $ | 0.84    |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Cash dividend declared per common share                                                |                                        | $                                     | 0.06    |             |                     | $ | 0.06    |         |  | $ | 0.12    |         |  | $    | 0.10    |         |  | $ | 0.025   |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Basic common shares outstanding                                                        |                                        |                                       | 54,323  |             |                     |   | 55,972  |         |  |   | 55,196  |         |  |      | 55,618  |         |  |   | 54,376  |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|Diluted common shares outstanding                                                      |                                        |                                       | 69,772  |             |                     |   | 72,160  |         |  |   | 70,909  |         |  |      | 72,481  |         |  |   | 70,191  |        
|                                                                                       |                                        |                                       |         |             |                     |   |         |         |  |   |         |         |  |      |        
|(1) amounts exclude amortization of intangible assets
    related to acquired products |                                        | $                                     | 10,899  |             |                     | $ | 8,933   |         |  | $ | 19,620  |         |  | $    | 14,891  |         |  | $ | 9,166   |        
|(2) amounts include share-based compensation expense                                   |                                        | $                                     | 13,947  |             |                     | $ | 258     |         |  | $ | 515     |         |  | $    | 515     |         |  | $ | 365     |        
|(3) amounts include share-based compensation expense                                   |                                        | $                                     | 1,000   |             |                     |   |        |         |  |   |        |         |  |      |        |         |  |   |        |        



F-6



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##### Table of Contents





MEDICIS PHARMACEUTICAL CORPORATION







CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |   |  |        |        |   |   |          |         |   |   |         |         |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------- | ------ | ----- | ------------ | - | --- | ----------- |  | ----- | ------------- | - |  | -------- | -- | - | ----------- | -------------- | ------- | ------------ |  | - | -------- | ------ | - | ------ | ------ | --- | ------ | - | ------- | ------ | - |  | ------ | ------ | - | - | -------- | ------- | - | - | ------- | ------- | ------ | 
|                                                                             |                                                                        |                      |        |       |              |   |     | Accumulated |  |       |               |   |  |          |    |   |             |                |        
|                                                                             |                                                                        | Class A              |        |       | Class B      |   |     |             |  | Other |               |   |  |          |    |   |             |                |        
|                                                                             |                                                                        | Common Stock         |        |       | Common Stock |   |     | Additional  |  |       | Comprehensive |   |  |          |    |   |             | Treasury Stock |         |              | 
|                                                                             |                                                                        |                      |        |       |              |   |     | Paid-In     |  |       | Income        |   |  | Deferred |    |   | Accumulated |                |         |              |  |   |         
|                                                                             |                                                                        | Shares               |        |       | Amount       |   |     | Shares      |  |       | Amount        |   |  | Capital  |    |   | (Loss)      |                |         | Compensation |  |   | Earnings |        |   | Shares |        |     | Amount |   |         | Total  |  
|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |  
|                                                                             |                                                                        | (In thousands)       |       
|Balance at June 30, 2002                                                     |                                                                        |                      | 61,552 |       |              | $ | 862 |             |  |       | 758           |   |  | $        | 10 |   |             | $              | 429,515 |              |  | $ | 790      |        |   | $      | (2,094 | )   |        | $ | 154,923 |        |   |  | (6,824 | )      |   | $ | (154,947 | )       |   | $ | 429,059 |        
|Comprehensive income:                                                        |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |   |  |        |        |   |   |          |         |   |   |         |        
|                                                                             | Net income                                                             |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |       |   |        |        |    |        |   |         | 51,256 |   |  |        |       |   |   |          |        |   |   |         | 51,256  |       
|                                                                             | Net unrealized gains on available- for-sale securities                 |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          | 1,396  |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 1,396   |       
|                                                                             | Net unrealized losses on foreign currency translation                  |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          | 214    |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 214     |       
|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |  
|                                                                             |                                                                        | Comprehensive income |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |   |  |        |        |   |   |          |         |   |   |         |         | 52,866 | 
|                                                                             | Dividends declared                                                     |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |       |   |        |        |    |        |   |         | (1,362 | ) |  |        |       |   |   |          |        |   |   |         | (1,362  | )     
|Restricted shares issued for deferred compensation, net of
    cancellations |                                                                        |                      |       |       |              |   |    |             |  |       |              |   |  |          |   |   |             |                | (2      | )            |  |   |         |        |   |        | 2      |     |        |   |        |        |   |  |       |        |   |   |         |         |   |   |        |        
|Amortization of deferred compensation, net of award
    reacquisitions       |                                                                        |                      |       |       |              |   |    |             |  |       |              |   |  |          |   |   |             |                |        |              |  |   |         |        |   |        | 365    |     |        |   |        |        |   |  |       |        |   |   |         |         |   |   | 365     |        
|                                                                             | Exercise of stock options                                              |                      |        | 958   |              |   |     | 14          |  |       |               |  |  |          |    |  |             |                |         | 12,746       |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 12,760  |       
|                                                                             | Tax effect of stock options exercised                                  |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         | 3,394        |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 3,394   |       
|                                                                             | Purchase of treasury stock                                             |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        | (1,858 | ) |   |          | (35,961 | ) |   |         | (35,961 | )     
|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |  
|Balance at June 30, 2003                                                     |                                                                        |                      | 62,510 |       |              |   | 876 |             |  |       | 758           |   |  |          | 10 |   |             |                | 445,653 |              |  |   | 2,400    |        |   |        | (1,727 | )   |        |   | 204,817 |        |   |  | (8,682 | )      |   |   | (190,908 | )       |   |   | 461,121 |        
|Comprehensive income:                                                        |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |   |  |        |        |   |   |          |         |   |   |         |        
|                                                                             | Net income                                                             |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |       |   |        |        |    |        |   |         | 30,840 |   |  |        |       |   |   |          |        |   |   |         | 30,840  |       
|                                                                             | Net unrealized gains on available- for-sale securities                 |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          | (3,452 | ) |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | (3,452  | )     
|                                                                             | Net unrealized gains on foreign currency translation                   |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          | 32     |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 32      |       
|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |  
|                                                                             |                                                                        | Comprehensive income |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |   |  |        |        |   |   |          |         |   |   |         |         | 27,420 | 
|                                                                             | Conversion of contingent convertible senior notes                      |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         | 6            |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 6       |       
|                                                                             | Dividends declared                                                     |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |        |   |        |        |    |        |   |         | (5,608 | ) |  |        |       |   |   |          |        |   |   |         | (5,608  | )     
|                                                                             | Amortization of deferred compensation, net of award
    reacquisitions |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         |             |  |   |          |       |   |        |        | 515 |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 515     |       
|                                                                             | Exercise of stock options                                              |                      |        | 2,909 |              |   |     | 40          |  |       |               |  |  |          |    |  |             |                |         | 51,393       |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 51,433  |       
|                                                                             | Tax effect of stock options exercised                                  |                      |        |      |              |   |     |            |  |       |               |  |  |          |    |  |             |                |         | 20,416       |  |   |          |       |   |        |        |    |        |   |         |       |   |  |        |       |   |   |          |        |   |   |         | 20,416  |       
|                                                                             |                                                                        |                      |        |       |              |   |     |             |  |       |               |   |  |          |    |   |             |                |         |              |  |   |          |        |   |        |        |     |        |   |         |        |  
|Balance at June 30, 2004                                                     |                                                                        |                      | 65,419 |       |              |   | 916 |             |  |       | 758           |   |  |          | 10 |   |             |                | 517,468 |              |  |   | (1,020   | )      |   |        | (1,212 | )   |        |   | 230,049 |        |   |  | (8,682 | )      |   |   | (190,908 | )       |   |   | 555,303 |        



F-7



---



##### Table of Contents





MEDICIS PHARMACEUTICAL CORPORATION







CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |   |  |         |        |   |   |          |          |   |   |         |          |        | 
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------- | ------ | --- | ------------ | - | --- | ----------- |  | ----- | ------------- | - |  | -------- | --- | - | ----------- | -------------- | ------- | ------------ | - | - | -------- | --- | - | ------ | ------ | - | ------ | - | ------- | ------ | - |  | ------- | ------ | - | - | -------- | -------- | - | - | ------- | -------- | ------ | 
|                                                                       |                                                                              |                      |        |     |              |   |     | Accumulated |  |       |               |   |  |          |     |   |             |                |        
|                                                                       |                                                                              | Class A              |        |     | Class B      |   |     |             |  | Other |               |   |  |          |     |   |             |                |        
|                                                                       |                                                                              | Common Stock         |        |     | Common Stock |   |     | Additional  |  |       | Comprehensive |   |  |          |     |   |             | Treasury Stock |         |              |  
|                                                                       |                                                                              |                      |        |     |              |   |     | Paid-In     |  |       | Income        |   |  | Deferred |     |   | Accumulated |                |         |              |   |   |         
|                                                                       |                                                                              | Shares               |        |     | Amount       |   |     | Shares      |  |       | Amount        |   |  | Capital  |     |   | (Loss)      |                |         | Compensation |   |   | Earnings |     |   | Shares |        |   | Amount |   |         | Total  |  
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  
|                                                                       |                                                                              | (In thousands)       |       
|Balance at June 30, 2004                                               |                                                                              |                      | 65,419 |     |              | $ | 916 |             |  |       | 758           |   |  | $        | 10  |   |             | $              | 517,468 |              |   | $ | (1,020   | )   |   | $      | (1,212 | ) |        | $ | 230,049 |        |   |  | (8,682  | )      |   | $ | (190,908 | )        |   | $ | 555,303 |         
|Comprehensive income:                                                  |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |   |  |         |        |   |   |          |          |   |   |         |         
|                                                                       | Net income                                                                   |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         | 64,990 |   |  |         |       |   |   |          |         |   |   |         | 64,990   |       
|                                                                       | Net unrealized losses on available- for-sale securities                      |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          | (75 | ) |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | (75      | )     
|                                                                       | Net unrealized gains on foreign currency translation                         |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          | 489 |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 489      |       
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  
|                                                                       |                                                                              | Comprehensive income |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |   |  |         |        |   |   |          |          |   |   |         |          | 65,404 | 
|Conversion of Class B common stock to Class A common
    stock         |                                                                              |                      | 758    |     |              |   | 10  |             |  |       | (758          | ) |  |          | (10 | ) |             |                |        |              |   |   |         |     |   |        |       |   |        |   |        |        |   |  |        |        |   |   |         |          |   |   |        |         
|Conversion of contingent convertible senior notes                      |                                                                              |                      |       |     |              |   |    |             |  |       |              |   |  |          |    |   |             |                | 2       |              |   |   |         |     |   |        |       |   |        |   |        |        |   |  |        |        |   |   |         |          |   |   | 2       |         
|                                                                       | Dividends declared                                                           |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         | (6,565 | ) |  |         |       |   |   |          |         |   |   |         | (6,565   | )     
|                                                                       | Restricted shares issued for deferred compensation, net of
    cancellations |                      |        | 18  |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         | 298          |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         | (18    | ) |   |          | (298     | ) |   |         |         |       
|Amortization of deferred compensation, net of award
    reacquisitions |                                                                              |                      |       |     |              |   |    |             |  |       |              |   |  |          |    |   |             |                |        |              |   |   |         |     |   |        | 515    |   |        |   |        |        |   |  |        |        |   |   |         |          |   |   | 515     |         
|                                                                       | Exercise of stock options                                                    |                      |        | 812 |              |   |     | 12          |  |       |               |  |  |          |     |  |             |                |         | 16,571       |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 16,583   |       
|                                                                       | Tax effect of stock options exercised                                        |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         | 5,104        |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 5,104    |       
|                                                                       | Purchase of treasury stock                                                   |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         | (3,920 | ) |   |          | (150,000 | ) |   |         | (150,000 | )     
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  
|Balance at June 30, 2005                                               |                                                                              |                      | 67,007 |     |              |   | 938 |             |  |       |              |   |  |          |    |   |             |                | 539,443 |              |   |   | (606     | )   |   |        | (697   | ) |        |   | 288,474 |        |   |  | (12,620 | )      |   |   | (341,206 | )        |   |   | 486,346 |         
|Comprehensive income:                                                  |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |   |  |         |        |   |   |          |          |   |   |         |         
|                                                                       | Net income                                                                   |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         | 49,721 |   |  |         |       |   |   |          |         |   |   |         | 49,721   |       
|                                                                       | Net unrealized gains on available- for-sale securities                       |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          | 636 |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 636      |       
|                                                                       | Net unrealized gains on foreign currency translation                         |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          | 349 |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 349      |       
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  
|                                                                       |                                                                              | Comprehensive income |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |   |  |         |        |   |   |          |          |   |   |         |          | 50,706 | 
|Adjustment for adoption of FAS 123(R)                                  |                                                                              |                      |       |     |              |   |    |             |  |       |              |   |  |          |    |   |             |                | 827     |              |   |   |         |     |   |        | 697    |   |        |   |        |        |   |  |        |        |   |   | (1,524   | )        |   |   |        |         
|                                                                       | Share-based compensation                                                     |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         | 14,947       |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 14,947   |       
|                                                                       | Dividends declared                                                           |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         | (3,301 | ) |  |         |       |   |   |          |         |   |   |         | (3,301   | )     
|                                                                       | Restricted shares issued for deferred compensation                           |                      |        | 27  |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         |             |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         | (27    | ) |   |          |         |   |   |         |         |       
|                                                                       | Exercise of stock options                                                    |                      |        | 18  |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         | 430          |   |   |          |    |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | 430      |       
|                                                                       | Tax effect of stock options exercised                                        |                      |        |    |              |   |     |            |  |       |               |  |  |          |     |  |             |                |         | (5,641       | ) |   |          |    |   |        |        |  |        |   |         |       |   |  |         |       |   |   |          |         |   |   |         | (5,641   | )     
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  
|Balance at December 31, 2005                                           |                                                                              |                      | 67,052 |     |              | $ | 938 |             |  |       |              |   |  | $        |    |   |             | $              | 550,006 |              |   | $ | 379      |     |   | $      |       |   |        | $ | 334,894 |        |   |  | (12,647 | )      |   | $ | (342,730 | )        |   | $ | 543,487 |         
|                                                                       |                                                                              |                      |        |     |              |   |     |             |  |       |               |   |  |          |     |   |             |                |         |              |   |   |          |     |   |        |        |   |        |   |         |        |  



F-8



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |        |         |          |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------- | --------------------------------------------------- | ----------- | ------------------- | ------- | -------- | ------ | ------ | -------- | -------- | ------ | ------ | -------- | -------- | ------ | ------ | -------- | -------- | ------ | ------- | -------- | -
|                                                                                      |                                                           | Six Months Ended          |                                                     |             |                    
|                                                                                      |                                                           | December 31,              |                                                     |             | Year Ended June 30, |        
|                                                                                      |                                                           |                           |                                                     |             |                     |        
|                                                                                      |                                                           | 2005                      |                                                     |             | 2004                |         |          | 2005   |        |          | 2004     |        |        | 2003     |         
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|                                                                                      |                                                           |                           |                                                     | (Unaudited) |                     |         |          |        |        |          |         
|                                                                                      |                                                           | (In thousands)            |                                                    
|Operating Activities:                                                                 |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |       
|Net income                                                                            |                                                           | $                         | 49,721                                              |             |                     | $       | 21,223   |        |        | $        | 64,990   |        |        | $        | 30,840   |        |        | $        | 51,256   |       
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |       
|                                                                                      | Depreciation and amortization                             |                           |                                                     | 12,420      |                     |         |          | 10,222 |        |          |          | 22,350 |        |          |          | 16,794 |        |          |          | 10,125 |        
|                                                                                      | Amortization of deferred financing fees                   |                           |                                                     | 1,072       |                     |         |          | 1,072  |        |          |          | 2,143  |        |          |          | 2,144  |        |          |          | 2,641  |        
|                                                                                      | Impairment of long-lived assets                           |                           |                                                     | 9,171       |                     |         |          |       |        |          |          |       |        |          |          |       |        |          |          |       |        
|                                                                                      | Loss (gain) on sale of property and equipment             |                           |                                                     | 34          |                     |         |          | 39     |        |          |          | 52     |        |          |          | (4     | )      |          |          |       |        
|                                                                                      | Loss on sale of product rights                            |                           |                                                     |            |                     |         |          |       |        |          |          |       |        |          |          | 32     |        |          |          |       |        
|                                                                                      | Loss (gain) on sale of available-for-sale investments     |                           |                                                     | 599         |                     |         |          | 103    |        |          |          | 882    |        |          |          | (599   | )      |          |          | (380   | )      
|                                                                                      | Write-off of Inamed transaction costs                     |                           |                                                     | 14,042      |                     |         |          |       |        |          |          |       |        |          |          |       |        |          |          |       |        
|                                                                                      | Share-based compensation expense                          |                           |                                                     | 14,947      |                     |         |          | 258    |        |          |          | 515    |        |          |          | 515    |        |          |          | 365    |        
|                                                                                      | Deferred income tax expense (benefit)                     |                           |                                                     | 1,849       |                     |         |          | (3,060 | )      |          |          | 5,369  |        |          |          | (3,634 | )      |          |          | 8,879  |        
|                                                                                      | Tax benefit from exercise of stock options                |                           |                                                     |            |                     |         |          | 5,058  |        |          |          | 5,104  |        |          |          | 20,416 |        |          |          | 3,394  |        
|                                                                                      | Excess tax benefits from share-based payment arrangements |                           |                                                     | (73         | )                   |         |          |       |        |          |          |       |        |          |          |       |        |          |          |       |        
|                                                                                      | Provision for doubtful accounts and returns               |                           |                                                     | (913        | )                   |         |          | 3,100  |        |          |          | 3,118  |        |          |          | 1,050  |        |          |          | 5,321  |        
|                                                                                      | Accretion of (discount) premium on investments            |                           |                                                     | (418        | )                   |         |          | 5,010  |        |          |          | 6,528  |        |          |          | 7,284  |        |          |          | 3,657  |        
|                                                                                      | Loss on early extinguishment of debt                      |                           |                                                     |            |                     |         |          |       |        |          |          |       |        |          |          | 58,660 |        |          |          |       |        
|Changes in operating assets and liabilities:                                          |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |       
|                                                                                      |                                                           | Accounts receivable       |                                                     |             | 1,436               |         |          |        | (957   | )        |          |        | (2,480 | )        |          |        | 2,753  |          |          |        | (11,318 | )       
|                                                                                      |                                                           | Inventories               |                                                     |             | 1,625               |         |          |        | 2,621  |          |          |        | (1,160 | )        |          |        | (5,535 | )        |          |        | (2,050  | )       
|                                                                                      |                                                           | Other current assets      |                                                     |             | 4,194               |         |          |        | (1,942 | )        |          |        | 1,886  |          |          |        | (1,472 | )        |          |        | (378    | )       
|                                                                                      |                                                           | Accounts payable          |                                                     |             | 27,220              |         |          |        | 4,557  |          |          |        | 15,580 |          |          |        | (4,655 | )        |          |        | 4,553   |         
|                                                                                      |                                                           | Income taxes payable      |                                                     |             | 17,255              |         |          |        | 5,974  |          |          |        | 9,524  |          |          |        | 232    |          |          |        | (979    | )       
|                                                                                      |                                                           | Other current liabilities |                                                     |             | (6,191              | )       |          |        | (7,813 | )        |          |        | (4,420 | )        |          |        | 3,143  |          |          |        | 9,581   |         
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|                                                                                      |                                                           |                           | Net cash provided by operating activities           |             |                     | 147,990 |          |        |        | 45,465   |          |        |        | 129,981  |          |        |        | 127,964  |          |        |         | 84,667   |  
|Investing Activities:                                                                 |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |       
|Purchase of property and equipment                                                    |                                                           |                           | (748                                                | )           |                     |         | (1,829   | )      |        |          | (2,913   | )      |        |          | (4,594   | )      |        |          | (1,367   | )     
|Proceeds from sale of property and equipment                                          |                                                           |                           |                                                    |             |                     |         |         |        |        |          |         |        |        |          | 131      |        |        |          |         |       
|Payment of direct merger costs                                                        |                                                           |                           | (5,811                                              | )           |                     |         | (129     | )      |        |          | (7,454   | )      |        |          | (633     | )      |        |          | (1,511   | )     
|Payment for purchase of product rights                                                |                                                           |                           | (481                                                | )           |                     |         | (3,085   | )      |        |          | (3,296   | )      |        |          | (84,116  | )      |        |          | (81,727  | )     
|Proceeds from sale of product rights                                                  |                                                           |                           |                                                    |             |                     |         |         |        |        |          |         |        |        |          | 12,100   |        |        |          |         |       
|Purchase of available-for-sale investments                                            |                                                           |                           | (203,247                                            | )           |                     |         | (440,602 | )      |        |          | (762,561 | )      |        |          | (888,152 | )      |        |          | (712,040 | )     
|Sale of available-for-sale investments                                                |                                                           |                           | 159,597                                             |             |                     |         | 489,352  |        |        |          | 846,143  |        |        |          | 622,006  |        |        |          | 566,080  |       
|Maturity of available-for-sale investments                                            |                                                           |                           | 174,355                                             |             |                     |         | 32,451   |        |        |          | 70,568   |        |        |          | 123,072  |        |        |          | 138,975  |       
|Decrease (increase) in restricted cash                                                |                                                           |                           |                                                    |             |                     |         |         |        |        |          |         |        |        |          | 53,837   |        |        |          | (22,153  | )     
|Change in other assets                                                                |                                                           |                           |                                                    |             |                     |         |         |        |        |          |         |        |        |          | 8        |        |        |          | 34       |       
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|                                                                                      |                                                           |                           | Net cash provided by (used in) investing activities |             |                     | 123,665 |          |        |        | 76,158   |          |        |        | 140,487  |          |        |        | (166,341 | )        |        |         | (113,709 | )
|Financing Activities:                                                                 |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |          |        |        |          |          |       
|Payment of financing costs                                                            |                                                           |                           |                                                    |             |                     |         | (6       | )      |        |          | (6       | )      |        |          | (5,276   | )      |        |          | (142     | )     
|Payment of dividends                                                                  |                                                           |                           | (3,295                                              | )           |                     |         | (3,115   | )      |        |          | (6,370   | )      |        |          | (5,536   | )      |        |          |         |       
|Purchase of treasury stock                                                            |                                                           |                           |                                                    |             |                     |         | (150,000 | )      |        |          | (150,000 | )      |        |          |         |        |        |          | (35,961  | )     
|Excess tax benefits from share-based payment arrangements                             |                                                           |                           | 73                                                  |             |                     |         |         |        |        |          |         |        |        |          |         |        |        |          |         |       
|Proceeds from the exercise of stock options                                           |                                                           |                           | 430                                                 |             |                     |         | 15,674   |        |        |          | 16,583   |        |        |          | 51,433   |        |        |          | 12,760   |       
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|                                                                                      |                                                           |                           | Net cash (used in) provided by financing activities |             |                     | (2,792  | )        |        |        | (137,447 | )        |        |        | (139,793 | )        |        |        | 40,621   |          |        |         | (23,343  | )
|Effect of exchange rate on cash and cash equivalents                                  |                                                           |                           | 349                                                 |             |                     |         | 724      |        |        |          | 489      |        |        |          | 31       |        |        |          | 214      |       
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|Net increase (decrease) in cash and cash equivalents                                  |                                                           |                           | 269,212                                             |             |                     |         | (15,100  | )      |        |          | 131,164  |        |        |          | 2,275    |        |        |          | (52,171  | )     
|Cash and cash equivalents at beginning of period                                      |                                                           |                           | 177,785                                             |             |                     |         | 46,621   |        |        |          | 46,621   |        |        |          | 44,346   |        |        |          | 96,517   |       
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         
|Cash and cash equivalents at end of period                                            |                                                           | $                         | 446,997                                             |             |                     | $       | 31,521   |        |        | $        | 177,785  |        |        | $        | 46,621   |        |        | $        | 44,346   |       
|                                                                                      |                                                           |                           |                                                     |             |                     |         |          |        |        |          |          |        |        |          |         



F-9



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##### Table of Contents






MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                                      
|------- | -------------------------------------
|NOTE 1. | THE COMPANY AND BASIS OF PRESENTATION



| |            
| | -----------
| | The Company



® ® ® ® ® ® tm


® tm tm ® ® tm tm






| |                      
| | ---------------------
| | Basis of Presentation





|        |                                           
|------- | ------------------------------------------
|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |                          
| | -------------------------
| | Cash and Cash Equivalents



F-10



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Short-Term Investments




Inventories


first-in,




|                  |                   |              |        |          |      |   |        |        |  |   |        |        | 
|----------------- | ----------------- | ------------ | ------ | -------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                  |                   |              |        | June 30, |     
|                  |                   | December 31, |        |          |      |  
|                  |                   | 2005         |        |          | 2005 |   |        | 2004   | 
|                  |                   |              |        |          |      |   |        |        | 
|Raw materials     |                   | $            | 6,436  |          |      | $ | 5,283  |        |  | $ | 8,785  |       
|Finished goods    |                   |              | 13,925 |          |      |   | 16,518 |        |  |   | 11,105 |       
|Valuation reserve |                   |              | (1,285 | )        |      |   | (1,100 | )      |  |   | (350   | )     
|                  |                   |              |        |          |      |   |        |        | 
|                  | Total inventories |              | $      | 19,076   |      |   | $      | 20,701 |  |   | $      | 19,540 | 
|                  |                   |              |        |          |      |   |        |        | 

Property and Equipment




|                                  |  |              |        |          |      |   |        |      |  |   |        |  
|--------------------------------- |  | ------------ | ------ | -------- | ---- | - | ------ | ---- |  | - | ------ | -
|                                  |  |              |        | June 30, |     
|                                  |  | December 31, |        |          |      |  
|                                  |  | 2005         |        |          | 2005 |   |        | 2004 | 
|                                  |  |              |        |          |      |   |        |      | 
|Furniture, fixtures and equipment |  | $            | 10,064 |          |      | $ | 9,377  |      |  | $ | 7,268  |  
|Leasehold improvements            |  |              | 1,994  |          |      |   | 1,989  |      |  |   | 2,018  |  
|                                  |  |              |        |          |      |   |        |      | 
|                                  |  |              | 12,058 |          |      |   | 11,366 |      |  |   | 9,286  |  
|Less: accumulated depreciation    |  |              | (6,642 | )        |      |   | (5,223 | )    |  |   | (3,444 | )
|                                  |  |              |        |          |      |   |        |      | 
|                                  |  | $            | 5,416  |          |      | $ | 6,143  |      |  | $ | 5,842  |  
|                                  |  |              |        |          |      |   |        |      | 



F-11



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Goodwill






Intangible Assets




|                                     |  |              |      |                   |       |   |               |              |  |               |         |   |  |             |         |  |              |   |         |     |             |   |         |   |  |              |         |  |     |   |         |  |  |   |         |   |  |   |         | 
|------------------------------------ |  | ------------ | ---- | ----------------- | ----- | - | ------------- | ------------ |  | ------------- | ------- | - |  | ----------- | ------- |  | ------------ | - | ------- | --- | ----------- | - | ------- | - |  | ------------ | ------- |  | --- | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                                     |  |              |      | December 31, 2005 |       |   | June 30, 2005 |              |  | June 30, 2004 |        
|                                     |  |              |      |                   |       |   |               |              |  |               |        
|                                     |  | Weighted     |      |                   |       |   | Accumulated   |              |  |               |         |   |  | Accumulated |         |  |              |   |         |     | Accumulated |   |         |  
|                                     |  | Average Life |      |                   | Gross |   |               | Amortization |  |               | Net     |   |  | Gross       |         |  | Amortization |   |         | Net |             |   | Gross   |   |  | Amortization |         |  | Net |  
|                                     |  |              |      |                   |       |   |               |              |  |               |         |   |  |             |         |  |              |   |         |     |             |   |         |   |  |              |         |  |     |  
|Related to product line acquisitions |  |              | 22.4 |                   |       | $ | 306,324       |              |  | $             | (73,879 | ) |  | $           | 232,445 |  |              | $ | 321,698 |     |             | $ | (69,727 | ) |  | $            | 251,971 |  |     | $ | 319,263 |  |  | $ | (50,724 | ) |  | $ | 268,539 | 
|Related to business combinations     |  |              | 7.5  |                   |       |   | 5,082         |              |  |               | (1,824  | ) |  |             | 3,258   |  |              |   | 5,082   |     |             |   | (1,346  | ) |  |              | 3,736   |  |     |   | 5,082   |  |  |   | (730    | ) |  |   | 4,352   | 
|Patents and trademarks               |  |              | 17.8 |                   |       |   | 4,888         |              |  |               | (755    | ) |  |             | 4,133   |  |              |   | 4,507   |     |             |   | (676    | ) |  |              | 3,831   |  |     |   | 3,647   |  |  |   | (507    | ) |  |   | 3,140   | 
|                                     |  |              |      |                   |       |   |               |              |  |               |         |   |  |             |         |  |              |   |         |     |             |   |         |   |  |              |         |  |     |  
|Total intangible assets              |  |              |      |                   |       | $ | 316,294       |              |  | $             | (76,458 | ) |  | $           | 239,836 |  |              | $ | 331,287 |     |             | $ | (71,749 | ) |  | $            | 259,538 |  |     | $ | 327,992 |  |  | $ | (51,961 | ) |  | $ | 276,031 | 
|                                     |  |              |      |                   |       |   |               |              |  |               |         |   |  |             |         |  |              |   |         |     |             |   |         |   |  |              |         |  |     |  



Impairment of Long-Lived Assets




F-12



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






® ®


Deferred Financing Costs




Managed Care and Medicaid Reserves




Other Current Liabilities




|                                   |  |              |        |          |      |   |        |      |  |   |        | 
|---------------------------------- |  | ------------ | ------ | -------- | ---- | - | ------ | ---- |  | - | ------ | 
|                                   |  |              |        | June 30, |     
|                                   |  | December 31, |        |          |      |  
|                                   |  | 2005         |        |          | 2005 |   |        | 2004 | 
|                                   |  |              |        |          |      |   |        |      | 
|Accrued incentives                 |  | $            | 6,506  |          |      | $ | 9,505  |      |  | $ | 8,069  | 
|Deferred revenue                   |  |              | 1,237  |          |      |   | 1,862  |      |  |   | 3,545  | 
|Managed care and Medicaid reserves |  |              | 6,081  |          |      |   | 5,365  |      |  |   | 11,671 | 
|Other accrued expenses             |  |              | 10,371 |          |      |   | 13,647 |      |  |   | 11,320 | 
|                                   |  |              |        |          |      |   |        |      | 
|                                   |  | $            | 24,195 |          |      | $ | 30,379 |      |  | $ | 34,605 | 
|                                   |  |              |        |          |      |   |        |      | 

F-13



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Revenue Recognition








Advertising




Share-Based Compensation




F-14



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                             |  |           |            |          |          |          |           |             |  |           |           |  |  |   |            | 
|---------------------------- |  | --------- | ---------- | -------- | -------- | -------- | --------- | ----------- |  | --------- | --------- |  |  | - | ---------- | 
|                             |  |           |            |          |          | Weighted |           |             | 
|                             |  |           |            | Weighted |          |          | Average   |             |  |          
|                             |  |           |            | Average  |          |          | Remaining |             |  | Aggregate |          
|                             |  | Number of |            |          | Exercise |          |           | Contractual |  |           | Intrinsic | 
|                             |  | Shares    |            |          | Price    |          |           | Term        |  |           | Value     | 
|                             |  |           |            |          |          |          |           |             |  |           |           | 
|Balance at June 30, 2005     |  |           | 13,648,378 |          |          | $        | 26.89     |             |  |           |           |  |  |   |            | 
|Granted                      |  |           | 843,550    |          |          | $        | 32.43     |             |  |           |           |  |  |   |            | 
|Exercised                    |  |           | (17,996    | )        |          | $        | 23.87     |             |  |           |           |  |  |   |            | 
|Terminated/expired           |  |           | (94,596    | )        |          | $        | 28.85     |             |  |           |           |  |  |   |            | 
|                             |  |           |            |          |          |          |           |             |  |           |           | 
|Balance at December 31, 2005 |  |           | 14,379,336 |          |          | $        | 27.21     |             |  |           | 6.5       |  |  | $ | 87,396,722 | 
|                             |  |           |            |          |          |          |           |             |  |           |           | 



F-15



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|            |  |           |            |          |          |          |           |             |  |           |           |  |  |   |            | 
|----------- |  | --------- | ---------- | -------- | -------- | -------- | --------- | ----------- |  | --------- | --------- |  |  | - | ---------- | 
|            |  |           |            |          |          | Weighted |           |             | 
|            |  |           |            | Weighted |          |          | Average   |             |  |          
|            |  |           |            | Average  |          |          | Remaining |             |  | Aggregate |          
|            |  | Number of |            |          | Exercise |          |           | Contractual |  |           | Intrinsic | 
|            |  | Shares    |            |          | Price    |          |           | Term        |  |           | Value     | 
|            |  |           |            |          |          |          |           |             |  |           |           | 
|Outstanding |  |           | 13,816,174 |          |          | $        | 27.19     |             |  |           | 6.5       |  |  | $ | 84,119,298 | 
|Exercisable |  |           | 7,067,028  |          |          | $        | 24.24     |             |  |           | 5.4       |  |  | $ | 58,262,667 | 



|                                |  |              |              |             |              |  |         |  
|------------------------------- |  | ------------ | ------------ | ----------- | ------------ |  | ------- | -
|                                |  | Six Months   |              |             | Six Months   | 
|                                |  | Ended        |              |             | Ended        | 
|                                |  | December 31, |              |             | December 31, | 
|                                |  | 2005         |              |             | 2004         | 
|                                |  |              |              |             |              | 
|                                |  |              |              | (Unaudited) |             
|Expected dividend yield         |  |              | 0.4          | %           |              |  | 0.3     | %
|Expected stock price volatility |  |              | 0.36         |             |              |  | 0.44    |  
|Risk-free interest rate         |  |              | 4.1% to 4.2% |             |              |  | 3.6     | %
|Expected life of options        |  |              | 6 to 8 Years |             |              |  | 5 Years |  

|                                |  |               |         |   |               |  |         |               |  |  |         |  
|------------------------------- |  | ------------- | ------- | - | ------------- |  | ------- | ------------- |  |  | ------- | -
|                                |  | Twelve Months |         |   | Twelve Months |  |         | Twelve Months | 
|                                |  | Ended         |         |   | Ended         |  |         | Ended         | 
|                                |  | June 30,      |         |   | June 30,      |  |         | June 30,      | 
|                                |  | 2005          |         |   | 2004          |  |         | 2003          | 
|                                |  |               |         |   |               |  |         |               | 
|Expected dividend yield         |  |               | 0.3     | % |               |  | 0.3     | %             |  |  | 0.3     | %
|Expected stock price volatility |  |               | 0.44    |   |               |  | 0.49    |               |  |  | 0.49    |  
|Risk-free interest rate         |  |               | 3.6     | % |               |  | 3.3     | %             |  |  | 2.5     | %
|Expected life of options        |  |               | 5 Years |   |               |  | 5 Years |               |  |  | 5 Years |  





F-16



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                    |                      |              |        |      |               |   |        |               |  |   |               |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------ | ------ | ---- | ------------- | - | ------ | ------------- |  | - | ------------- | ---- |  | - | ------ | ---- | 
|                                                                                                                                                    |                      | Six Months   |        |      | Twelve Months |   |        | Twelve Months |  |   | Twelve Months |     
|                                                                                                                                                    |                      | Ended        |        |      | Ended         |   |        | Ended         |  |   | Ended         |     
|                                                                                                                                                    |                      | December 31, |        |      | June 30,      |   |        | June 30,      |  |   | June 30,      |     
|                                                                                                                                                    |                      | 2004         |        |      | 2005          |   |        | 2004          |  |   | 2003          |     
|                                                                                                                                                    |                      |              |        |      |               |   |        |               |  |   |               |     
|                                                                                                                                                    |                      | (Unaudited)  |        |      |               |   |        |               | 
|Net income, as reported                                                                                                                             |                      | $            | 21,223 |      |               | $ | 64,990 |               |  | $ | 30,840        |      |  | $ | 51,256 |     
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                      |              | 10,195 |      |               |   | 21,813 |               |  |   | 17,078        |      |  |   | 18,056 |     
|                                                                                                                                                    |                      |              |        |      |               |   |        |               |  |   |               |     
|Pro-forma net income                                                                                                                                |                      | $            | 11,028 |      |               | $ | 43,177 |               |  | $ | 13,762        |      |  | $ | 33,200 |     
|                                                                                                                                                    |                      |              |        |      |               |   |        |               |  |   |               |     
|Net income per common share:                                                                                                                        |                      |              |        |      |               |   |        |               |  |   |               |      |  |   |        |     
|                                                                                                                                                    | Basic, as reported   |              | $      | 0.38 |               |   | $      | 1.18          |  |   | $             | 0.55 |  |   | $      | 0.94 | 
|                                                                                                                                                    | Basic, pro forma     |              | $      | 0.20 |               |   | $      | 0.78          |  |   | $             | 0.25 |  |   | $      | 0.61 | 
|                                                                                                                                                    | Diluted, as reported |              | $      | 0.34 |               |   | $      | 1.01          |  |   | $             | 0.52 |  |   | $      | 0.84 | 
|                                                                                                                                                    | Diluted, pro forma   |              | $      | 0.20 |               |   | $      | 0.70          |  |   | $             | 0.23 |  |   | $      | 0.59 | 





|                               |  |        |         |            |            |   |       | 
|------------------------------ |  | ------ | ------- | ---------- | ---------- | - | ----- | 
|                               |  |        |         | Weighted-  |           
|                               |  |        |         | Average    |           
|                               |  |        |         | Grant-Date |           
|Nonvested Shares               |  | Shares |         |            | Fair Value |  
|                               |  |        |         |            |            |  
|Nonvested at June 30, 2005     |  |        | 92,000  |            |            | $ | 23.41 | 
|Granted                        |  |        | 147,710 |            |            | $ | 32.41 | 
|Vested                         |  |        | (27,000 | )          |            | $ | 23.44 | 
|Forfeited                      |  |        | (450    | )          |            | $ | 32.41 | 
|                               |  |        |         |            |            |  
|Nonvested at December 31, 2005 |  |        | 212,260 |            |            | $ | 29.65 | 
|                               |  |        |         |            |            |  



F-17



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Shipping and Handling Costs




Research and Development Costs and Accounting for Strategic
Collaborations






Income Taxes




Legal Contingencies




F-18



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Foreign Currency Translations


Foreign Currency Translation


Earnings Per Common Share


04-8, 04-8 04-8.


Use of Estimates and Risks and Uncertainties






Fair Value of Financial Instruments




Supplemental Disclosure of Cash Flow Information




F-19



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Reclassifications




Recent Accounting Pronouncements


123R-2, Practical Accommodation to the Application of Grant Date as
Defined in FASB Statement No. 123R


123R-3, Transition Election to Accounting for the Tax Effects of
Share-Based Payment Awards -paid-in


Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions


Accounting Changes and Error Corrections  A
Replacement of APB Opinion No. 20 and FASB Statement
No. 3


115-1 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments 115-1), 115-1


F-20



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


115-1 115-1




|        |                   
|------- | ------------------
|NOTE 3. | CHANGE IN ESTIMATE





|        |                                
|------- | -------------------------------
|NOTE 4. | SEGMENT AND PRODUCT INFORMATION

® ® ® ® ® ® tm ® ® ® ®


® ® ® ® ®


|                  |  |                  |      |             |        |  |      |        |  |  |        |   |  |      |      |   |  |  |      |  
|----------------- |  | ---------------- | ---- | ----------- | ------ |  | ---- | ------ |  |  | ------ | - |  | ---- | ---- | - |  |  | ---- | -
|                  |  | Six Months Ended |      |             |        |  |      |        | 
|                  |  | December 31,     |      |             |        |  |      |        | 
|                  |  |                  |      |             | Fiscal |  |      | Fiscal |  |  | Fiscal |  
|                  |  | 2005             |      |             | 2004   |  |      | 2005   |  |  | 2004   |   |  | 2003 |     
|                  |  |                  |      |             |        |  |      |        |  |  |        |   |  |      |     
|                  |  |                  |      | (Unaudited) |        |  |      |        |  |  |       
|McKesson          |  |                  | 54.9 | %           |        |  | 50.8 | %      |  |  | 51.2   | % |  |      | 36.9 | % |  |  | 20.2 | %
|Cardinal          |  |                  | 18.9 | %           |        |  | 19.7 | %      |  |  | 21.8   | % |  |      | 23.8 | % |  |  | 25.4 | %
|Quality King      |  |                  | *    |             |        |  | *    |        |  |  | *      |   |  |      | *    |   |  |  | 17.0 | %
|AmerisourceBergen |  |                  | *    |             |        |  | *    |        |  |  | *      |   |  |      | *    |   |  |  | 15.5 | %






® ®


F-21



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                              |                    |                  |    |             |                   |  |    |      |   |  |      |     |   |      |    |     |   |  |    |     |  
|--------------------------------------------- | ------------------ | ---------------- | -- | ----------- | ----------------- |  | -- | ---- | - |  | ---- | --- | - | ---- | -- | --- | - |  | -- | --- | -
|                                              |                    | Six Months Ended |    |             | Fiscal Year Ended | 
|                                              |                    | December 31,     |    |             | June 30,          | 
|                                              |                    |                  |    |             |                   | 
|                                              |                    | 2005             |    |             | 2004              |  |    | 2005 |   |  | 2004 |     |   | 2003 |   
|                                              |                    |                  |    |             |                   |  |    |      |   |  |      |     |   |      |   
|                                              |                    |                  |    | (Unaudited) |                   |  |    |      |   |  |     
|Acne and acne-related dermatological products |                    |                  | 28 | %           |                   |  | 33 | %    |   |  | 30   | %   |   |      | 30 | %   |   |  | 33 | %  
|Non-acne dermatological products              |                    |                  | 59 |             |                   |  | 44 |      |   |  | 47   |     |   |      | 51 |     |   |  | 37 |    
|Non-dermatological products                   |                    |                  | 13 |             |                   |  | 23 |      |   |  | 23   |     |   |      | 19 |     |   |  | 30 |    
|                                              |                    |                  |    |             |                   |  |    |      |   |  |      |     |   |      |   
|                                              | Total net revenues |                  |    | 100         | %                 |  |    | 100  | % |  |      | 100 | % |      |    | 100 | % |  |    | 100 | %
|                                              |                    |                  |    |             |                   |  |    |      |   |  |      |     |   |      |   



|        |                         
|------- | ------------------------
|NOTE 5. | STRATEGIC COLLABORATIONS









F-22



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




® ®


Q-Med Q-Meds tm tm tm tm tm




|        |                                                                       
|------- | ----------------------------------------------------------------------
|NOTE 6. | TERMINATION OF DEFINITIVE MERGER AGREEMENT WITH INAMED
    CORPORATION

® ® ® ®






F-23



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                               |  |   |      | 
|------------------------------------------------------------------------------ |  | - | ---- | 
|Termination fee received from Inamed, including expense
    reimbursement fees |  | $ | 90.5 | 
|Less:                                                                          |  |   |      | 
|Transaction costs expensed, including legal and advisory fees                  |  |   | 27.0 | 
|Integration planning costs                                                     |  |   | 4.4  | 
|                                                                               |  |   |     
|                                                                               |  | $ | 59.1 | 
|                                                                               |  |   |     







|        |                                        
|------- | ---------------------------------------
|NOTE 7. | LICENSE OF
    ORAPRED®
    TO BIOMARIN

® ® ®




F-24



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




®


® ®


to-date.




|        |                                                                              
|------- | -----------------------------------------------------------------------------
|NOTE 8. | ACQUISITION OF DERMAL AESTHETIC ENHANCEMENT PRODUCTS FROM THE
    Q-MED GROUP

Q-Med, ® tm tm ® ® tm


F-25



---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


tm ® tm




|        |                                                                         
|------- | ------------------------------------------------------------------------
|NOTE 9. | LICENSE AND SALE OF PRODUCTS TO TARO PHARMACEUTICAL
    INDUSTRIES, LTD.

® ®


® ® ® ®




|         |                                  
|-------- | ---------------------------------
|NOTE 10. | MERGER OF ASCENT PEDIATRICS, INC.



F-26



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                       
|-------- | ----------------------
|NOTE 11. | SHORT-TERM INVESTMENTS



|                          |                  |                   |         |            |       |   |            |        |  |       |       |     |  |   |         |         | 
|------------------------- | ---------------- | ----------------- | ------- | ---------- | ----- | - | ---------- | ------ |  | ----- | ----- | --- |  | - | ------- | ------- | 
|                          |                  | December 31, 2005 |        
|                          |                  |                   |        
|                          |                  |                   |         | Gross      |       |   | Gross      |        |  | Gross |      
|                          |                  |                   |         | Unrealized |       |   | Unrealized |        |  | Fair  |      
|                          |                  | Cost              |         |            | Gains |   |            | Losses |  |       | Value |    
|                          |                  |                   |         |            |       |   |            |        |  |       |       |    
|U.S. corporate securities |                  | $                 | 73,398  |            |       | $ | 92         |        |  | $     | 274   |     |  | $ | 73,216  |        
|Other debt securities     |                  |                   | 222,736 |            |       |   | 2          |        |  |       | 419   |     |  |   | 222,319 |        
|                          |                  |                   |         |            |       |   |            |        |  |       |       |    
|                          | Total securities |                   | $       | 296,134    |       |   | $          | 94     |  |       | $     | 693 |  |   | $       | 295,535 | 
|                          |                  |                   |         |            |       |   |            |        |  |       |       |    

|                          |                  |               |         |            |       |   |            |        |  |       |       |       |  |   |         |         | 
|------------------------- | ---------------- | ------------- | ------- | ---------- | ----- | - | ---------- | ------ |  | ----- | ----- | ----- |  | - | ------- | ------- | 
|                          |                  | June 30, 2005 |        
|                          |                  |               |        
|                          |                  |               |         | Gross      |       |   | Gross      |        |  | Gross |      
|                          |                  |               |         | Unrealized |       |   | Unrealized |        |  | Fair  |      
|                          |                  | Cost          |         |            | Gains |   |            | Losses |  |       | Value |      
|                          |                  |               |         |            |       |   |            |        |  |       |       |      
|U.S. corporate securities |                  | $             | 144,017 |            |       | $ | 20         |        |  | $     | 476   |       |  | $ | 143,561 |        
|Other debt securities     |                  |               | 283,372 |            |       |   | 7          |        |  |       | 1,157 |       |  |   | 282,222 |        
|                          |                  |               |         |            |       |   |            |        |  |       |       |      
|                          | Total securities |               | $       | 427,389    |       |   | $          | 27     |  |       | $     | 1,633 |  |   | $       | 425,783 | 
|                          |                  |               |         |            |       |   |            |        |  |       |       |      

|                          |                  |               |         |            |       |   |            |        |  |       |       |       |  |   |         |         | 
|------------------------- | ---------------- | ------------- | ------- | ---------- | ----- | - | ---------- | ------ |  | ----- | ----- | ----- |  | - | ------- | ------- | 
|                          |                  | June 30, 2004 |        
|                          |                  |               |        
|                          |                  |               |         | Gross      |       |   | Gross      |        |  | Gross |      
|                          |                  |               |         | Unrealized |       |   | Unrealized |        |  | Fair  |      
|                          |                  | Cost          |         |            | Gains |   |            | Losses |  |       | Value |      
|                          |                  |               |         |            |       |   |            |        |  |       |       |      
|U.S. corporate securities |                  | $             | 123,848 |            |       | $ | 224        |        |  | $     | 360   |       |  | $ | 123,712 |        
|Other debt securities     |                  |               | 465,070 |            |       |   | 164        |        |  |       | 1,527 |       |  |   | 463,707 |        
|                          |                  |               |         |            |       |   |            |        |  |       |       |      
|                          | Total securities |               | $       | 588,918    |       |   | $          | 388    |  |       | $     | 1,887 |  |   | $       | 587,419 | 
|                          |                  |               |         |            |       |   |            |        |  |       |       |      





F-27



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                   |                                       |                   |         |           |            |   |         |         | 
|------------------ | ------------------------------------- | ----------------- | ------- | --------- | ---------- | - | ------- | ------- | 
|                   |                                       | December 31, 2005 |        
|                   |                                       |                   |        
|                   |                                       |                   |         | Estimated |           
|                   |                                       | Cost              |         |           | Fair Value |  
|                   |                                       |                   |         |           |            |  
|Available-for-sale |                                       |                   |         |           |            |   |         |        
|                   | Due in one year or less               |                   | $       | 99,662    |            |   | $       | 99,192  | 
|                   | Due after one year through five years |                   |         | 29,123    |            |   |         | 28,993  | 
|                   | Due after five years through 10 years |                   |         | 4,000     |            |   |         | 4,000   | 
|                   | Due after 10 years                    |                   |         | 163,348   |            |   |         | 163,350 | 
|                   |                                       |                   |         |           |            |  
|                   |                                       | $                 | 296,133 |           |            | $ | 295,535 |        
|                   |                                       |                   |         |           |            |  



|         |               
|-------- | --------------
|NOTE 12. | LINE OF CREDIT

30-day




|         |                                    
|-------- | -----------------------------------
|NOTE 13. | CONTINGENT CONVERTIBLE SENIOR NOTES









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during any quarter commencing after June 30, 2002, if the
    closing price of the Companys Class A common stock
    over a specified number of trading days during the previous
    quarter, including the last trading day of such quarter, is more
    than 110% of the conversion price of the Old Notes, or $31.96.
    The Old Notes are initially convertible at a conversion price of
    $29.05 per share, which is equal to a

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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | conversion rate of approximately 34.4234 shares per $1,000
    principal amount of Old Notes, subject to adjustment;                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | if the Company has called the Old Notes for redemption;                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | during the five trading day period immediately following any
    nine consecutive day trading period in which the trading price
    of the Old Notes per $1,000 principal amount for each day of
    such period was less than 95% of the product of the closing sale
    price of the Companys Class A common stock on that
    day multiplied by the number of shares of the Companys
    Class A common stock issuable upon conversion of $1,000
    principal amount of the Old Notes; or
|
| |  | upon the occurrence of specified corporate transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                       















| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during any quarter commencing after September 30, 2003, if
    the closing price of the Companys Class A common
    stock over a specified number of trading days during the
    previous quarter, including the last trading day of such
    quarter, is more than 120% of the conversion price of the New
    Notes, or $46.51. The Notes are initially convertible at a
    conversion price of $38.76 per share, which is equal to a
    conversion rate of approximately 25.7998 shares per $1,000
    principal amount of New Notes, subject to adjustment;
|
| |  | if the Company has called the New Notes for redemption;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-29



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during the five trading day period immediately following any
    nine consecutive day trading period in which the trading price
    of the New Notes per $1,000 principal amount for each day of
    such period was less than 95% of the product of the closing sale
    price of the Companys Class A common stock on that
    day multiplied by the number of shares of the Companys
    Class A common stock issuable upon conversion of $1,000
    principal amount of the New Notes; or
|
| |  | upon the occurrence of specified corporate transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                       









|         |                              
|-------- | -----------------------------
|NOTE 14. | COMMITMENTS AND CONTINGENCIES



| |                       
| | ----------------------
| | Occupancy Arrangements



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year Ending December 31, |  |  
|                         |  |  
|2006                     |  | $ | 2,112  | 
|2007                     |  |   | 2,079  | 
|2008                     |  |   | 2,138  | 
|2009                     |  |   | 2,138  | 
|2010                     |  |   | 2,138  | 
|                         |  |   |       
|                         |  | $ | 10,605 | 
|                         |  |   |       



| |                                                  
| | -------------------------------------------------
| | Research and Development and Consulting Contracts





| |           
| | ----------
| | Litigation





|         |             
|-------- | ------------
|NOTE 15. | INCOME TAXES



|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |        |        |        |  |        |        |        | 
|-------- | ------- | ---------------- | ------ | ----------- | ------------------- |  | ------ | ------ | ------ |  | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|         |         | Six Months Ended |        |             |                    
|         |         | December 31,     |        |             | Year Ended June 30, | 
|         |         |                  |        |             |                     | 
|         |         | 2005             |        |             | 2004                |  |        | 2005   |        |  | 2004   |        |        | 2003 |       
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       
|         |         |                  |        | (Unaudited) |                     |  |        |        |        |  |       
|Current  |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |        |        |        |  |        |       
|         | Federal |                  | $      | 26,780      |                     |  | $      | 13,392 |        |  | $      | 27,516 |        |      | $      | 15,831 |        |  | $      | 17,123 |       
|         | State   |                  |        | 1,543       |                     |  |        | 822    |        |  |        | 1,215  |        |      |        | 861    |        |  |        | 1,305  |       
|         | Foreign |                  |        | 750         |                     |  |        | 110    |        |  |        | 156    |        |      |        | 109    |        |  |        | 14     |       
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       
|         |         |                  | 29,073 |             |                     |  | 14,324 |        |        |  | 28,887 |        |        |      | 16,801 |        |        |  | 18,442 |       
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       
|Deferred |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |        |        |        |  |        |       
|         | Federal |                  |        | 1,366       |                     |  |        | (2,854 | )      |  |        | 4,456  |        |      |        | (1,404 | )      |  |        | 7,532  |       
|         | State   |                  |        | 45          |                     |  |        | (142   | )      |  |        | 787    |        |      |        | (80    | )      |  |        | 430    |       
|         | Foreign |                  |        | 18          |                     |  |        |       |        |  |        | (18    | )      |      |        |       |        |  |        |       |       
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       
|         |         |                  | 1,429  |             |                     |  | (2,996 | )      |        |  | 5,225  |        |        |      | (1,484 | )      |        |  | 7,962  |       
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       
|         |         | Total            |        | $           | 30,502              |  |        | $      | 11,328 |  |        | $      | 34,112 |      |        | $      | 15,317 |  |        | $      | 26,404 | 
|         |         |                  |        |             |                     |  |        |        |        |  |        |        |        |      |       

F-31



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


paid-in paid-in






|                                       |  |                  |      |             |            |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|-------------------------------------- |  | ---------------- | ---- | ----------- | ---------- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | -
|                                       |  | Six Months Ended |      |             | Year Ended | 
|                                       |  | December 31,     |      |             | June 30,   | 
|                                       |  |                  |      |             |            | 
|                                       |  | 2005             |      |             | 2004       |  |      | 2005 |  |  | 2004 |   |  | 2003 |     
|                                       |  |                  |      |             |            |  |      |      |  |  |      |   |  |      |     
|                                       |  |                  |      | (Unaudited) |            |  |      |      |  |  |     
|Statutory federal income tax rate      |  |                  | 35.0 | %           |            |  | 35.0 | %    |  |  | 35.0 | % |  |      | 35.0 | % |  |  | 35.0 | %
|State tax rate, net of federal benefit |  |                  | 1.3  |             |            |  | 1.4  |      |  |  | 1.4  |   |  |      | 1.1  |   |  |  | 1.5  |  
|Share-based payments                   |  |                  | 1.6  |             |            |  |     |      |  |  |     |   |  |      |     |   |  |  |     |  
|Tax-exempt interest                    |  |                  |     |             |            |  | (2.4 | )    |  |  | (1.0 | ) |  |      | (4.2 | ) |  |  | (2.1 | )
|Other                                  |  |                  | 0.1  |             |            |  | 0.8  |      |  |  | (1.0 | ) |  |      | 1.3  |   |  |  | (0.4 | )
|                                       |  |                  |      |             |            |  |      |      |  |  |      |   |  |      |     
|                                       |  |                  | 38.0 | %           |            |  | 34.8 | %    |  |  | 34.4 | % |  |      | 33.2 | % |  |  | 34.0 | %
|                                       |  |                  |      |             |            |  |      |      |  |  |      |   |  |      |     

F-32



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |   |        |        |  |   |        |         |  
|------------------------------------- | ------------------------------------------------------------ | ----------------- | ------ | ------ | --------- | -------- | ------ | ------- | - | - | --------- | ------ |  | ------- | ------ | ------- | --------- | - | ------ | ------ |  | - | ------ | ------- | -
|                                      |                                                              |                   |        |        |           | June 30, |       
|                                      |                                                              |                   |        |        |           |          |       
|                                      |                                                              | December 31, 2005 |        |        | 2005      |          |        | 2004    |  
|                                      |                                                              |                   |        |        |           |          |        |         |  
|                                      |                                                              | Current           |        |        | Long-term |          |        | Current |   |   | Long-term |        |  | Current |        |         | Long-term |  
|                                      |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |  
|Deferred tax assets:                  |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |   |        |        |  |   |        |        
|                                      | Net operating loss carryforwards                             |                   | $      |       |           |          | $      | 22,584  |   |   | $         |       |  |         | $      | 23,161  |           |   | $      |       |  |   | $      | 25,691  |  
|                                      | Reserves and liabilities                                     |                   |        | 11,810 |           |          |        |        |   |   |           | 10,415 |  |         |        |        |           |   |        | 10,390 |  |   |        |        |  
|                                      | Unrealized losses on securities                              |                   |        | 215    |           |          |        |        |   |   |           | 586    |  |         |        |        |           |   |        | 555    |  |   |        |        |  
|                                      | Research and development credits                             |                   |        |       |           |          |        | 1,246   |   |   |           |       |  |         |        | 1,246   |           |   |        |       |  |   |        | 1,920   |  
|                                      | Excess of net book value over tax basis of intangible assets |                   |        |       |           |          |        | 8,885   |   |   |           |       |  |         |        | 6,613   |           |   |        |       |  |   |        |        |  
|                                      | Share-based payment awards                                   |                   |        |       |           |          |        | 4,200   |   |   |           |       |  |         |        |        |           |   |        |       |  |   |        |        |  
|                                      | Foreign tax credit                                           |                   |        | 713    |           |          |        |        |   |   |           |       |  |         |        |        |           |   |        |       |  |   |        |        |  
|                                      | Capital loss carryover                                       |                   |        |       |           |          |        | 892     |   |   |           |       |  |         |        |        |           |   |        |       |  |   |        |        |  
|                                      | Charitable contributions, other                              |                   |        |       |           |          |        | 824     |   |   |           |       |  |         |        | 4,455   |           |   |        | 3,159  |  |   |        | 834     |  
|                                      | Valuation allowance                                          |                   |        |       |           |          |        | (17,515 | ) |   |           |       |  |         |        | (17,473 | )         |   |        |       |  |   |        | (17,492 | )
|                                      |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |  
|                                      |                                                              |                   | 12,738 |        |           |          | 21,116 |         |   |   | 11,001    |        |  |         | 18,002 |         |           |   | 14,104 |        |  |   | 10,953 |        
|Deferred tax liabilities:             |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |   |        |        |  |   |        |        
|                                      | Depreciation on property and equipment                       |                   |        |       |           |          |        | (455    | ) |   |           |       |  |         |        | (611    | )         |   |        |       |  |   |        | (175    | )
|                                      | Bond interest                                                |                   |        |       |           |          |        | (29,233 | ) |   |           |       |  |         |        | (22,377 | )         |   |        |       |  |   |        | (9,068  | )
|                                      | Excess of net book value over tax basis of intangible assets |                   |        |       |           |          |        |        |   |   |           |       |  |         |        |        |           |   |        |       |  |   |        | (4,604  | )
|                                      |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |  
|Net deferred tax assets (liabilities) |                                                              | $                 | 12,738 |        |           | $        | (8,572 | )       |   | $ | 11,001    |        |  | $       | (4,986 | )       |           | $ | 14,104 |        |  | $ | (2,894 | )      
|                                      |                                                              |                   |        |        |           |          |        |         |   |   |           |        |  |         |        |         |           |  







F-33



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















|         |                   
|-------- | ------------------
|NOTE 16. | STOCK TRANSACTIONS







F-34



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                                   
|-------- | ----------------------------------
|NOTE 17. | DIVIDENDS DECLARED ON COMMON STOCK





|         |                   
|-------- | ------------------
|NOTE 18. | STOCK OPTION PLANS



|                         |  |             |            |          |             |  |          |          |  |   |             |          |  |          |           |  |  |   |       | 
|------------------------ |  | ----------- | ---------- | -------- | ----------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  |             |            | Weighted |             |  | Weighted |          |  |   |             | Weighted | 
|                         |  |             |            | Average  |             |  | Average  |          |  |   |             | Average  | 
|                         |  | Number      |            |          | Contractual |  |          | Exercise |  |   | Number      |          |  | Exercise |          
|Range of Exercise Prices |  | Outstanding |            |          | Life        |  |          | Price    |  |   | Exercisable |          |  | Price    |          
|                         |  |             |            |          |             |  |          |          |  |   |             |          |  |          |          
|$ 6.06 - $14.42          |  |             | 1,191,709  |          |             |  | 3.20     |          |  | $ | 11.27       |          |  |          | 1,191,709 |  |  | $ | 11.27 | 
|$14.50 - $18.33          |  |             | 2,284,364  |          |             |  | 6.35     |          |  | $ | 18.22       |          |  |          | 1,035,222 |  |  | $ | 18.08 | 
|$18.57 - $23.53          |  |             | 288,138    |          |             |  | 6.36     |          |  | $ | 21.69       |          |  |          | 174,008   |  |  | $ | 21.11 | 
|$23.65 - $26.95          |  |             | 2,108,662  |          |             |  | 5.62     |          |  | $ | 26.75       |          |  |          | 1,474,284 |  |  | $ | 26.75 | 
|$26.98 - $27.63          |  |             | 1,985,128  |          |             |  | 4.60     |          |  | $ | 27.63       |          |  |          | 1,966,808 |  |  | $ | 27.63 | 
|$27.70 - $29.13          |  |             | 138,410    |          |             |  | 7.01     |          |  | $ | 28.34       |          |  |          | 44,110    |  |  | $ | 28.20 | 
|$29.20 - $29.20          |  |             | 2,361,070  |          |             |  | 7.58     |          |  | $ | 29.20       |          |  |          | 588,621   |  |  | $ | 29.20 | 
|$29.25 - $36.06          |  |             | 1,330,505  |          |             |  | 7.76     |          |  | $ | 31.76       |          |  |          | 360,945   |  |  | $ | 30.34 | 
|$38.45 - $38.45          |  |             | 2,544,350  |          |             |  | 8.54     |          |  | $ | 38.45       |          |  |          | 320,038   |  |  | $ | 38.45 | 
|$39.04 - $39.04          |  |             | 147,000    |          |             |  | 8.75     |          |  | $ | 39.04       |          |  |          | 147,000   |  |  | $ | 39.04 | 
|                         |  |             |            |          |             |  |          |          |  |   |             |          |  |          |          
|                         |  |             | 14,379,336 |          |             |  | 6.49     |          |  | $ | 27.21       |          |  |          | 7,302,745 |  |  | $ | 24.24 | 
|                         |  |             |            |          |             |  |          |          |  |   |             |          |  |          |          

F-35



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |  |           |            |   |               |  |            |          |  |  |            |   |  |   |       | 
|---------------------------- |  | --------- | ---------- | - | ------------- |  | ---------- | -------- |  |  | ---------- | - |  | - | ----- | 
|                             |  |           |            |   |               |  |            | Weighted | 
|                             |  |           |            |   |               |  |            | Average  | 
|                             |  | Qualified |            |   | Non-Qualified |  |            | Total    |  |  | Price      |  
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|Balance at June 30, 2002     |  |           | 3,956,382  |   |               |  | 7,179,224  |          |  |  | 11,135,606 |   |  | $ | 21.08 | 
|                            
|Granted                      |  |           | 12,340     |   |               |  | 3,476,376  |          |  |  | 3,488,716  |   |  | $ | 19.11 | 
|Exercised                    |  |           | (451,596   | ) |               |  | (505,234   | )        |  |  | (956,830   | ) |  | $ | 13.33 | 
|Terminated/expired           |  |           | (310,664   | ) |               |  | (575,236   | )        |  |  | (885,900   | ) |  | $ | 22.32 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|Balance at June 30, 2003     |  |           | 3,206,462  |   |               |  | 9,575,130  |          |  |  | 12,781,592 |   |  | $ | 21.11 | 
|                            
|Granted                      |  |           | 10,272     |   |               |  | 3,403,248  |          |  |  | 3,413,520  |   |  | $ | 29.32 | 
|Exercised                    |  |           | (1,383,395 | ) |               |  | (1,526,179 | )        |  |  | (2,909,574 | ) |  | $ | 17.68 | 
|Terminated/expired           |  |           | (275,772   | ) |               |  | (985,822   | )        |  |  | (1,261,594 | ) |  | $ | 25.41 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|Balance at June 30, 2004     |  |           | 1,557,567  |   |               |  | 10,466,377 |          |  |  | 12,023,944 |   |  | $ | 23.82 | 
|                            
|Granted                      |  |           |           |   |               |  | 2,795,890  |          |  |  | 2,795,890  |   |  | $ | 38.48 | 
|Exercised                    |  |           | (269,554   | ) |               |  | (542,216   | )        |  |  | (811,770   | ) |  | $ | 20.43 | 
|Terminated/expired           |  |           | (62,896    | ) |               |  | (296,790   | )        |  |  | (359,686   | ) |  | $ | 28.82 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|Balance at June 30, 2005     |  |           | 1,225,117  |   |               |  | 12,423,261 |          |  |  | 13,648,378 |   |  | $ | 26.89 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|                            
|Granted                      |  |           |           |   |               |  | 843,550    |          |  |  | 843,550    |   |  | $ | 32.43 | 
|Exercised                    |  |           | (9,552     | ) |               |  | (8,444     | )        |  |  | (17,996    | ) |  | $ | 23.87 | 
|Terminated/expired           |  |           | (10,626    | ) |               |  | (83,970    | )        |  |  | (94,596    | ) |  | $ | 28.85 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  
|Balance at December 31, 2005 |  |           | 1,204,939  |   |               |  | 13,174,397 |          |  |  | 14,379,336 |   |  | $ | 27.21 | 
|                             |  |           |            |   |               |  |            |          |  |  |            |  



|         |                            
|-------- | ---------------------------
|NOTE 19. | NET INCOME PER COMMON SHARE



|                                                     |  |                  |        |             |                            |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|---------------------------------------------------- |  | ---------------- | ------ | ----------- | -------------------------- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                     |  | Six Months Ended |        |             |                           
|                                                     |  | December 31,     |        |             | Fiscal Year Ended June 30, |  
|                                                     |  |                  |        |             |                            |  
|                                                     |  | 2005             |        |             | 2004                       |   |        | 2005 |  |   | 2004   |  |  | 2003 |       
|                                                     |  |                  |        |             |                            |   |        |      |  |   |        |  |  |      |       
|                                                     |  |                  |        | (Unaudited) |                            |   |        |      |  |   |       
|BASIC                                                |  |                  |        |             |                            |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Net income                                           |  | $                | 49,721 |             |                            | $ | 21,223 |      |  | $ | 64,990 |  |  | $    | 30,840 |  |  | $ | 51,256 | 
|Weighted average number of common shares outstanding |  |                  | 54,323 |             |                            |   | 55,972 |      |  |   | 55,196 |  |  |      | 55,618 |  |  |   | 54,376 | 
|                                                     |  |                  |        |             |                            |   |        |      |  |   |        |  |  |      |       
|Basic net income per common share                    |  | $                | 0.92   |             |                            | $ | 0.38   |      |  | $ | 1.18   |  |  | $    | 0.55   |  |  | $ | 0.94   | 
|                                                     |  |                  |        |             |                            |   |        |      |  |   |        |  |  |      |       

F-36



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |        |       |  |   |        |        | 
|---------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------- | ------ | ----------- | -------------------------- | - | ------ | ----- |  | - | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ------ | 
|                                                           |                                                                        | Six Months Ended |        |             |                           
|                                                           |                                                                        | December 31,     |        |             | Fiscal Year Ended June 30, |  
|                                                           |                                                                        |                  |        |             |                            |  
|                                                           |                                                                        | 2005             |        |             | 2004                       |   |        | 2005  |  |   | 2004   |       |  | 2003 |       
|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |       
|                                                           |                                                                        |                  |        | (Unaudited) |                            |   |        |       |  |   |       
|DILUTED                                                    |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |        |       |  |   |        |       
|Net income                                                 |                                                                        | $                | 49,721 |             |                            | $ | 21,223 |       |  | $ | 64,990 |       |  | $    | 30,840 |       |  | $ | 51,256 |       
|Add:                                                       |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |        |       |  |   |        |       
|                                                           | Tax-effected interest expense and issue costs related to Old
    Notes |                  |        | 1,677       |                            |   |        | 1,675 |  |   |        | 3,347 |  |      |        | 3,884 |  |   |        | 7,901  | 
|                                                           | Tax-effected interest expense and issue costs related to New
    Notes |                  |        | 1,677       |                            |   |        | 1,677 |  |   |        | 3,353 |  |      |        | 2,925 |  |   |        |       | 
|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |       
|Net income assuming dilution                               |                                                                        | $                | 53,075 |             |                            | $ | 24,575 |       |  | $ | 71,690 |       |  | $    | 37,649 |       |  | $ | 59,157 |       
|Weighted average number of common shares                   |                                                                        |                  | 54,323 |             |                            |   | 55,972 |       |  |   | 55,196 |       |  |      | 55,618 |       |  |   | 54,376 |       
|Effect of dilutive securities:                             |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |        |       |  |   |        |       
|                                                           | Old Notes                                                              |                  |        | 5,823       |                            |   |        | 5,823 |  |   |        | 5,823 |  |      |        | 6,777 |  |   |        | 13,770 | 
|                                                           | New Notes                                                              |                  |        | 7,325       |                            |   |        | 7,325 |  |   |        | 7,325 |  |      |        | 6,446 |  |   |        |       | 
|                                                           | Stock options and restricted stock                                     |                  |        | 2,301       |                            |   |        | 3,040 |  |   |        | 2,565 |  |      |        | 3,640 |  |   |        | 2,045  | 
|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |       
|Weighted average number of common shares assuming dilution |                                                                        |                  | 69,772 |             |                            |   | 72,160 |       |  |   | 70,909 |       |  |      | 72,481 |       |  |   | 70,191 |       
|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |       
|Diluted net income per common share                        |                                                                        | $                | 0.76   |             |                            | $ | 0.34   |       |  | $ | 1.01   |       |  | $    | 0.52   |       |  | $ | 0.84   |       
|                                                           |                                                                        |                  |        |             |                            |   |        |       |  |   |        |       |  |      |       

04-8, 04-8.










|         |                                                                     
|-------- | --------------------------------------------------------------------
|NOTE 20. | FINANCIAL INSTRUMENTS  CONCENTRATIONS OF CREDIT
    AND OTHER RISKS





F-37



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|         |                                    
|-------- | -----------------------------------
|NOTE 21. | FAIR VALUE OF FINANCIAL INSTRUMENTS





|         |                          
|-------- | -------------------------
|NOTE 22. | DEFINED CONTRIBUTION PLAN



F-38



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                            
|-------- | -------------------------------------------
|NOTE 23. | QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



Six Months Ended December 31, 2005


|                                    |  |                          |        |  |              |   |        | 
|----------------------------------- |  | ------------------------ | ------ |  | ------------ | - | ------ | 
|                                    |  | (For the Quarters Ended) |       
|                                    |  |                          |       
|                                    |  | September 30,            |        |  | December 31, |  
|                                    |  | 2005(a)                  |        |  | 2005(b)      |  
|                                    |  |                          |        |  |              |  
|Net revenues                        |  | $                        | 83,264 |  |              | $ | 80,690 | 
|Gross profit(1)                     |  |                          | 71,240 |  |              |   | 68,603 | 
|Net income                          |  |                          | 12,460 |  |              |   | 37,261 | 
|Basic net income per common share   |  | $                        | 0.23   |  |              | $ | 0.69   | 
|Diluted net income per common share |  | $                        | 0.20   |  |              | $ | 0.56   | 

Year Ended June 30, 2005


|                                    |  |                          |        |  |              |   |        |           |  |   |          |  |  |   |         | 
|----------------------------------- |  | ------------------------ | ------ |  | ------------ | - | ------ | --------- |  | - | -------- |  |  | - | ------- | 
|                                    |  | (For the Quarters Ended) |       
|                                    |  |                          |       
|                                    |  | September 30,            |        |  | December 31, |   |        | March 31, |  |   | June 30, | 
|                                    |  | 2004(c)                  |        |  | 2004(d)      |   |        | 2005(e)   |  |   | 2005(f)  | 
|                                    |  |                          |        |  |              |   |        |           |  |   |          | 
|Net revenues                        |  | $                        | 88,818 |  |              | $ | 92,349 |           |  | $ | 95,188   |  |  | $ | 100,544 | 
|Gross profit(1)                     |  |                          | 74,985 |  |              |   | 78,911 |           |  |   | 81,274   |  |  |   | 86,282  | 
|Net income                          |  |                          | 1,023  |  |              |   | 20,201 |           |  |   | 19,371   |  |  |   | 24,395  | 
|Basic net income per common share   |  | $                        | 0.02   |  |              | $ | 0.37   |           |  | $ | 0.36     |  |  | $ | 0.45    | 
|Diluted net income per common share |  | $                        | 0.02   |  |              | $ | 0.31   |           |  | $ | 0.30     |  |  | $ | 0.38    | 

Year Ended June 30, 2004


|                                           |  |                          |         |   |              |   |        |           |  |   |          |  |  |   |        | 
|------------------------------------------ |  | ------------------------ | ------- | - | ------------ | - | ------ | --------- |  | - | -------- |  |  | - | ------ | 
|                                           |  | (For the Quarters Ended) |        
|                                           |  |                          |        
|                                           |  | September 30,            |         |   | December 31, |   |        | March 31, |  |   | June 30, | 
|                                           |  | 2003                     |         |   | 2003(g)      |   |        | 2004      |  |   | 2004     | 
|                                           |  |                          |         |   |              |   |        |           |  |   |          | 
|Net revenues                               |  | $                        | 63,295  |   |              | $ | 70,633 |           |  | $ | 81,839   |  |  | $ | 87,954 | 
|Gross profit(1)                            |  |                          | 53,114  |   |              |   | 59,396 |           |  |   | 68,721   |  |  |   | 75,885 | 
|Loss on early extinguishment of debt       |  |                          | (58,660 | ) |              |   |       |           |  |   |         |  |  |   |       | 
|Net (loss) income                          |  |                          | (27,164 | ) |              |   | 13,627 |           |  |   | 20,671   |  |  |   | 23,705 | 
|Basic net (loss) income per common share   |  | $                        | (0.50   | ) |              | $ | 0.25   |           |  | $ | 0.37     |  |  | $ | 0.42   | 
|Diluted net (loss) income per common share |  | $                        | (0.50   | ) |              | $ | 0.21   |           |  | $ | 0.31     |  |  | $ | 0.34   | 






|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | Gross profit does not include amortization of the related
    intangibles.





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Operating expenses included approximately $7.7 million of
    compensation expense related to stock options and restricted
    stock, and approximately $0.7 million of business
    integration planning costs related to the proposed merger with
    Inamed.                                                                                                                                                                    
| | (b) | Operating expenses included approximately $11.9 million
    paid to Dow related to a research and development collaboration,
    a charge of approximately $9.2 million for the write-down
    of a long-lived asset and approximately $7.3 million of
    compensation expense related to stock options and restricted
    stock. Other income included approximately $60.0 million
    related to a termination fee received from

F-39



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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Inamed related to the termination of the proposed merger with
    Inamed, net of the expensing of accumulated transaction costs
    and business integration planning costs incurred.                                                                                                                                                                                                                            
| | (c) | Operating expenses included approximately $30.0 million
    paid to Q-Med related to an exclusive license agreement for the
    development of
    SubQtm,
    and approximately $0.7 million of professional fees related
    to the agreement.                                                                                                                                                                 
| | (d) | Operating expense included approximately $5.0 million paid
    to Ansata related to an exclusive development and license
    agreement, and approximately $0.5 million of professional
    fees related to the agreement.                                                                                                                                                                                        
| | (e) | Operating expenses included approximately $8.3 million paid
    to aaiPharma related to a research and development
    collaboration. Effective January 1, 2005, the Company
    changed the estimated useful life for certain intangible assets
    related to its merger with Ascent. This change increased
    amortization expense by approximately $0.8 million during
    the quarter ended March 31, 2005.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | Operating expenses included approximately $5.3 million of
    business integration planning costs related to the proposed
    merger with Inamed. Effective January 1, 2005, the Company
    accelerated the estimated useful life for certain intangible
    assets related to its merger with Ascent. This change increased
    amortization expense by approximately $0.8 million during
    the quarter ended June 30, 2005.

| |     |                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------
| | (g) | Operating expenses included approximately $2.4 million paid
    to Dow for a research and development collaboration.

F-40



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##### Table of Contents






SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                   |                               |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |        | 
|---------------------------------- | ----------------------------- | -------------- |  | - | ---------- |  |  | ---------- | ------ |  | ---------- |  | -------------- | ------- |  | - | ------- | - |  | - | ------ | 
|                                   |                               | Balance at     |  |   | Charged to |  |  | Charged to |        |  |            |  |               
|                                   |                               | Beginning      |  |   | Costs and  |  |  | Other      |        |  |            |  | Balance at End |        
|Description                        |                               | of Year        |  |   | Expenses   |  |  | Accounts   |        |  | Deductions |  |                | of Year | 
|                                   |                               |                |  |   |            |  |  |            |        |  |            |  |                |         | 
|                                   |                               | (In thousands) | 
|Six Months Ended December 31, 2005 |                               |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |  
|                                   | Deducted from Asset Accounts: |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   | Accounts Receivable:          |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   |                               | Allowances     |  | $ | 19,073     |  |  | $          | 42,755 |  |            |  |               |         |  | $ | (43,668 | ) |  | $ | 18,160 | 
|Year Ended June 30, 2005           |                               |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |  
|                                   | Deducted from Asset Accounts: |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   | Accounts Receivable:          |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   |                               | Allowances     |  | $ | 15,955     |  |  | $          | 95,979 |  |            |  |               |         |  | $ | (92,861 | ) |  | $ | 19,073 | 
|Year Ended June 30, 2004           |                               |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |  
|                                   | Deducted from Asset Accounts: |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   | Accounts Receivable:          |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   |                               | Allowances     |  | $ | 15,079     |  |  | $          | 96,263 |  |            |  |               |         |  | $ | (95,387 | ) |  | $ | 15,955 | 
|Year Ended June 30, 2003           |                               |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |  
|                                   | Deducted from Asset Accounts: |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   | Accounts Receivable:          |                |  |   |            |  |  |            |        |  |            |  |                |         |  |   |         |   |  |   |       
|                                   |                               | Allowances     |  | $ | 10,628     |  |  | $          | 78,044 |  |            |  |               |         |  | $ | (73,593 | ) |  | $ | 15,079 | 

S-1



---



##### Table of Contents



Index to Exhibits


|            |     |     |             |                                                                                                                                                          
|----------- | --- | --- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |     |     | Description
|            |     |     |            
|            | 12+ |     |             | Computation of Ratios of Earnings to Fixed Charges                                                                                                       
|            | 21  | .1+ |             | Subsidiaries                                                                                                                                             
|            | 23  | .1+ |             | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                                                                          
|            | 24  | .1  |             | Power of Attorney See signature page                                                                                                                     
|            | 31  | .1+ |             | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a) and Rule 15d-14(a) of the Securities
    Exchange Act, as amended                
|            | 31  | .2+ |             | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a) and Rule 15d-14(a) of the Securities
    Exchange Act, as amended                
|            | 32  | .1+ |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
|            | 32  | .2+ |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002






|  |               
|- | --------------
|+ | Filed herewith