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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended
June 30, 2005.
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-18443
 MEDICIS PHARMACEUTICAL CORPORATION
  Delaware
    
    52-1574808(State of other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 8125 North Hayden Road, Scottsdale, Arizona
    
    85258-2463(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code:
    
    (602) 808-8800
  New York Stock Exchange
    
    Preference Share Purchase Rights(Name of each exchange on which
    
    (Title of each Class)registered)
 Securities registered pursuant to Section 12(g) of the Act:
    
    NONE
 þ o
 o
 þ o
 o þ
      1




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TABLE OF CONTENTS  PART IITEM 1: BUSINESSITEM 2: PROPERTIESITEM 3: LEGAL PROCEEDINGSITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6: SELECTED FINANCIAL DATAITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A: CONTROLS AND PROCEDURESPART IIIITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11: EXECUTIVE COMPENSATIONITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND            MANAGEMENTITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit IndexExhibit 10.21Exhibit 10.30Exhibit 12Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I
 
 ITEM 1: BUSINESS
   ® ® ® ® ® ® 
 ®
 ®   ® ®   ® ®
 ®
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OUR PRODUCTS
  Brand
    
    Treatment
    
    U.S. Market ImpactDYNACIN®
    
    Oral adjunctive treatment for moderate
to severe acne
    
    The number one branded minocycline
product in the U.S., DYNACIN® tablets and
capsules are available in a range of strengths for
moderate to severe acneLOPROX®
    
    Topical treatment for certain fungal and
yeast infections
    
    A leading antifungal agent, including the
number one branded shampoo for seborrheic
dermatitisOMNICEF®
    
    A patented oral cephalosporin for skin and
skin-structure infections
    
    Superior kill rate compared to most frequently
prescribed antibiotic for this indicationPLEXION®
    
    Topical treatments for rosacea and
acne-related conditions
    
    Includes the leading branded prescription cleanser
indicated for the treatment of rosacea, and the first
prescription cleansing cloth for the treatment of acne
and rosaceaRESTYLANE®
    
    Injectable gel for treatment of fine lines
and wrinkles, shaping facial contours and
correcting deep facial folds
    
    Launched on January 6, 2004, following approval
by FDA on December 12, 2003TRIAZ®
    
    Topical patented gel and cleanser and
patent-pending pad treatments for acne
    
    The leading branded prescription benzoyl
peroxide productVANOS
    
    Super-high potency topical corticosteroid
for the treatment of plaque-type psoriasis
in adult patients
    
    Launched on April 19, 2005 following
FDA approval on February 11, 2005
 PRESCRIPTION PHARMACEUTICALS
  DYNACIN ® ® ® ® ®
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LOPROX ® ® ® ® ® ® ® ® ® ® ®
 OMNICEF ® ® ® ®
 PLEXION ® ® ® ® ® ® ® , ® ® ®
 TRIAZ ® ® ® ®
 VANOS TM TM ® TM TM TM TM
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DERMAL RESTORATIVE PRODUCTS
  RESTYLANE ® , PERLANE TM RESTYLANE FINE LINES TM TM ® PERLANETM TM
 PRODUCTS IN DEVELOPMENT
  TM TM TM TM TM TM NASHATM ® TM TM
   5




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TM
 SALES AND MARKETING
    WAREHOUSING AND DISTRIBUTION
  6




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CUSTOMERS
  Fiscal 2005
    
    
    Fiscal 2004
    
    
    Fiscal 2003McKesson
    
    
    51.2
    %
    
    
    36.9
    %
    
    
    20.2
    %Cardinal
    
    
    21.8
    %
    
    
    23.8
    %
    
    
    25.4
    %Quality King
    
    
    *
    
    
    
    *
    
    
    
    17.0
    %AmerisourceBergen
    
    
    *
    
    
    
    *
    
    
    
    15.5
    %
 
 *
    
    less than 10% ®
 MANUFACTURING
  ® ®
 ® ®
 ® ® ® ®
 ®
 ®
 TM
 LICENSE AND ROYALTY AGREEMENTS
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##### Table of Contents



TRADEMARKS, PATENTS, AND PROPRIETARY RIGHTS
  ® ® ® ® ® ® ®
  COMPETITION
   TM TM ® TM ® ® ®
 ®
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GOVERNMENT REGULATION
  ® ® ®
     9




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® ® ® ® ® ® ® ®
 ® ®
   EMPLOYEES
  10




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AVAILABLE INFORMATION
 www.medicis.com
 RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
    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 ® ® ®
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##### Table of Contents



®
 
    
    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;
    
    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
  
    
    changes in the amount we spend to develop, acquire or license new products,
technologies or businesses;
    
    untimely contingent research and development payments under our third-party product
development agreements;
    
    changes in the amount we spend to promote our products;
    
    delays between our expenditures to acquire new products, technologies or businesses
and the generation of revenues from those acquired products, technologies or
businesses;
    
    changes in treatment practices of physicians that currently prescribe our products;
    
    changes in reimbursement policies of health plans and other similar health insurers,
including changes that affect newly developed or newly acquired products;
    
    increases in the cost of raw materials used to manufacture our products;
    
    manufacturing and supply interruptions, including failure to comply with
manufacturing specifications;
    
    development of new competitive products by others;
    
    the mix of products that we sell during any time period;
    
    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 timing and receipt of FDA approvals;
    
    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;
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
    
    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.
  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; and
    
    government or regulatory delays.
  If The Proposed Merger With Inamed Is Not Completed, We Will Have Incurred Substantial Costs That
May Adversely Affect Our Financial Results And Operations And The Market Price Of Our Common Stock
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We Will Have More Indebtedness After The Completion Of The Proposed Merger With Inamed, Which Could
Adversely Affect Our Cash Flows and Business
  
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing funds available for working capital, capital
expenditures, dividends, acquisitions and other purposes;
    
    increase our vulnerability to, and limit flexibility in planning for, adverse
economic and industry conditions;
    
    adversely affect our credit rating;
    
    limit our ability to obtain additional financing to fund future working capital,
capital expenditures, additional acquisitions and other general corporate requirements;
    
    create competitive disadvantages compared to other companies with less indebtedness;
and
    
    limit our ability to apply proceeds from an offering or asset sales to purposes
other than the repayment of debt.
 If We Are Unable To Finance The Proposed Merger With Inamed Through Existing Cash Balances and
Financings, The Completion Of The Proposed Merger Will Be Jeopardized
  We May Not Realize All Of The Anticipated Benefits Of The Proposed Merger With Inamed
  
    
    coordinating sales and marketing, research and development and manufacturing functions;
    
    unanticipated issues in integrating information, communications and other systems;
    
    unanticipated incompatibility of purchasing, logistics, marketing and administration methods;
    
    maintaining employee morale and retaining key employees;
    
    integrating the business cultures of both companies;
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
    
    preserving important strategic and customer relationships;
    
    consolidating corporate and administrative infrastructures and eliminating duplicative operations;
    
    the diversion of managements attention from ongoing business concerns; and
    
    coordinating geographically separate organizations.
  Provisions Of The Merger Agreement May Deter Alternative Business Combinations And Could Negatively
Impact The Stock Prices Of Medicis If The Merger Agreement Is Terminated In Certain Circumstances
  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
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Our Continued Growth Depends Upon Our Ability To Develop New Products
    ® TM TM ® TM TM
  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
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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 ® ,
PERLANE TM And RESTYLANE FINE LINES TM
 ® TM TM
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® TM TM
 ® TM TM ® ® TM TM
 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; and
    
    conditions affecting the cost and availability of raw materials.
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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; Trends May Change And Applicable Laws May Affect Sales
Or Product Margins Of RESTYLANE®
 ® ® ®
 ® ®
 We May Not Be Able To Repurchase The Old Notes And New Notes When Required We May
Not Be Able To Repurchase The Old Notes And New Notes When Required
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RISKS RELATED TO OUR INDUSTRY
 The Growth Of Managed Care Organizations, Other Third-Party Reimbursement Policies, State
Regulatory Agencies And Retailer Fulfillment Policies May Harm Our Pricing, Which May Reduce Our
Market Share And Margins
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We Are Subject To Extensive Governmental Regulation
  
    
    fines;
    
    changes to advertising;
    
    suspensions of regulatory approvals of products;
    
    product recalls;
    
    delays in product distribution, marketing and sale; and
    
    civil or criminal sanctions.
    If We Market Products In A Manner That Violates Health Care Fraud And Abuse Laws, We May Be Subject
To Civil Or Criminal Penalties
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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;
    
    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.
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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.
     ®
 
 ITEM 2: PROPERTIES
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ITEM 3: LEGAL PROCEEDINGS
  ®
 ®
  
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  27




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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
  DIVIDENDSHIGH
    
    LOW
    
    DECLAREDFISCAL YEAR ENDED JUNE 30, 2005First Quarter
    
    $
    40.65
    
    
    $
    32.85
    
    
    $
    0.03Second Quarter
    
    
    41.00
    
    
    
    34.64
    
    
    
    0.03Third Quarter
    
    
    37.67
    
    
    
    28.69
    
    
    
    0.03Fourth Quarter
    
    
    31.97
    
    
    
    26.80
    
    
    
    0.03FISCAL YEAR ENDED JUNE 30, 2004First Quarter
    
    $
    32.00
    
    
    $
    27.27
    
    
    $
    0.025Second Quarter
    
    
    36.01
    
    
    
    27.81
    
    
    
    0.025Third Quarter
    
    
    41.50
    
    
    
    33.86
    
    
    
    0.025Fourth Quarter
    
    
    45.26
    
    
    
    38.45
    
    
    
    0.025
  Dividend Policy
   Recent Sales of Unregistered Securities
  Equity Compensation Plan Information
  28




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(a)
    
    
    (b)
    
    
    (c)Number of Securities
    
    
    Weighted-Average
    
    
    Number of Securities Remainingto be Issued Upon
    
    
    Exercise Price of
    
    
    Available for Future IssuanceExercise of
    
    
    Outstanding
    
    
    Under Equity Compensation PlansOutstanding Options,
    
    
    Options, Warrants
    
    
    (Excluding Securities Reflected inPlan Category
    
    Warrants and Rights
    
    
    and Rights
    
    
    Column (a))Equity compensation plans approved
by stockholders (1)
    
    
    8,070,963
    
    
    $
    26.05
    
    
    
    2,117,072Equity compensation plans not approved
by stockholders (2)
    
    
    5,577,415
    
    
    $
    28.11
    
    
    
    157,546All plans
    
    
    13,648,378
    
    
    $
    26.89
    
    
    
    2,274,618
 
 (1)
    
    Represents the 2004, 1998, 1996, 1995 and 1992 Stock Option Plans.(2)
    
    Represents the 2002 Stock Option Plan.  29




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ITEM 6: SELECTED FINANCIAL DATA
  FISCAL YEAR ENDED JUNE 30,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands, except per share amounts)Statements of Operations Data:Net revenues
    
    $
    376,899
    
    
    $
    303,722
    
    
    $
    247,539
    
    
    $
    212,807
    
    
    $
    167,802Gross profit (1)
    
    
    321,452
    
    
    
    257,116
    
    
    
    209,279
    
    
    
    177,042
    
    
    
    137,105Operating expenses:Selling, general and administrative
    
    
    135,154
    (a)
    
    
    118,253
    
    
    
    91,648
    
    
    
    77,314
    
    
    
    59,508Research and development
    
    
    65,676
    (b)
    
    
    16,494
    (c)
    
    
    29,568
    (d)
    
    
    15,132
    (e)
    
    
    25,515
    (f)In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,217
    
    
    
    Depreciation and amortization
    
    
    22,350
    
    
    
    16,794
    
    
    
    10,125
    
    
    
    7,928
    
    
    
    8,261Total operating expenses
    
    
    223,180
    
    
    
    151,541
    
    
    
    131,341
    
    
    
    106,591
    
    
    
    93,284Operating income
    
    
    98,272
    
    
    
    105,575
    
    
    
    77,938
    
    
    
    70,451
    
    
    
    43,821Other:Net interest income (expense)
    
    
    830
    
    
    
    (758
    )
    
    
    (278
    )
    
    
    8,533
    
    
    
    15,504Loss 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
    
    
    $
    40,420Basic net income per share
    
    $
    1.18
    
    
    $
    0.55
    
    
    $
    0.94
    
    
    $
    0.83
    
    
    $
    0.67Diluted net income per share
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84
    
    
    $
    0.79
    
    
    $
    0.64Cash dividend declared per common share
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.025
    
    
    
    
    
    
    
    Basic common shares outstanding
    
    
    55,196
    
    
    
    55,618
    
    
    
    54,376
    
    
    
    60,536
    
    
    
    60,268Diluted common shares outstanding
    
    
    70,909
    
    
    
    72,481
    
    
    
    70,191
    
    
    
    63,828
    
    
    
    63,388(1) amounts exclude amortization of intangible
assets related to acquired products
    
    $
    19,620
    
    
    $
    14,891
    
    
    $
    9,166
    
    
    $
    7,109
    
    
    $
    7,587
 (a)
    
    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(b)
    
    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(c)
    
    Includes approximately $2.4 million paid to Dow for a research and development collaboration(d)
    
    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(e)
    
    Includes $7.7 million paid to aaiPharma for a research and development collaboration(f)
    
    Includes $17.0 million paid to Corixa Corporation for a development, commercialization and
licensing agreement 30




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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
    
    
    $
    334,157Working capital
    
    
    600,070
    
    
    
    666,743
    
    
    
    576,781
    
    
    
    611,259
    
    
    
    358,468Total assets
    
    
    1,043,251
    
    
    
    1,078,384
    
    
    
    932,841
    
    
    
    876,273
    
    
    
    550,007Long-term debt
    
    
    453,065
    
    
    
    453,067
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    Stockholders equity
    
    
    486,346
    
    
    
    555,303
    
    
    
    461,121
    
    
    
    429,059
    
    
    
    503,453FISCAL 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
    
    
    $
    71,120Net 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
 31




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ITEM 7:
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  EXECUTIVE SUMMARY
  ® ® ® ® ® ® TM ® ® ® ®
 Key Aspects of Our Business
 ®
   32




---



##### Table of Contents



-
    
    definitive merger agreement with Inamed;-
    
    FDA approval of VANOSTM and AMMONUL®;-
    
    amendment of strategic alliance with aaiPharma;-
    
    amendments of agreements with BioMarin;-
    
    license of proprietary peptide technology from Ansata;-
    
    repurchases of $150.0 million of Class A common stock;-
    
    license of product rights to Taro;-
    
    license of SubQTM from Q-Med; and-
    
    increase in amount of declared cash dividends.
 33




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##### Table of Contents



Definitive Merger Agreement with Inamed
 ® ® ® ®
     FDA Approval of VANOS TM and AMMONUL ®
 TM TM ® TM TM
 ® ® ®
 Amendment of Strategic Alliance with aaiPharma
  34




---



##### Table of Contents



Amendments of Agreements with BioMarin
 ® ®
  License of Proprietary Peptide Technology from Ansata
   35




---



##### Table of Contents



Repurchases of $150.0 Million of Class A Common Stock
  License of Product Rights to Taro
 ® ®
 License of SubQ TM from Q-Med
 TM TM TM
 TM TM
 TM TM ®  TM
 TM
 Increase in Amount of Declared Cash Dividends
  36




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##### Table of Contents



RESULTS OF OPERATIONS
  Percentage of Net Revenues
 FISCAL YEAR ENDED JUNE 30,2005***
    
    
    2004**
    
    
    2003*Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    85.3
    
    
    
    84.7
    
    
    
    84.5Operating expenses
    
    
    59.2
    
    
    
    49.9
    
    
    
    53.1Operating income
    
    
    26.1
    
    
    
    34.8
    
    
    
    31.5Interest income (expense), net
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    (0.1
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    (19.3
    )
    
    
    Income tax expense
    
    
    (9.1
    )
    
    
    (5.0
    )
    
    
    (10.7
    )Net income
    
    
    17.2
    %
    
    
    10.2
    %
    
    
    20.7
    %
 
 *
    
    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.**
    
    Included in operating expenses is a $2.4 million payment (0.8% of net revenues) to Dow for a
research and development collaboration.***
    
    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. Fiscal Year Ended June 30, 2005 Compared To Fiscal Year Ended June 30, 2004
 Net Revenues
  Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeNet revenues
    
    $
    376.9
    
    
    $
    303.7
    
    
    $
    73.2
    
    
    
    24.1
    %
 Fiscal 2005
    
    
    Fiscal 2004
    
    
    ChangeAcne 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 ® ® ®
 37




---



##### Table of Contents



® TM ® ® ®
 Gross Profit
   Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeGross profit
    
    $
    321.5
    
    
    $
    257.1
    
    
    $
    64.4
    
    
    
    25.0
    %% of net revenues
    
    
    85.3
    %
    
    
    84.7
    %
  Selling, General and Administrative Expenses
  Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeSelling, general and administrative
    
    $
    135.2
    
    
    $
    118.3
    
    
    $
    16.9
    
    
    
    14.3
    %% of net revenues
    
    
    35.9
    %
    
    
    38.9
    %
 ® ® ® ®
 38




---



##### Table of Contents



Research and Development Expenses
  Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeResearch 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 TM
 Depreciation and Amortization Expenses
  Interest Income
  Interest Expense
 
 Income Tax Expense
  Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeIncome tax expense
    
    $
    34.1
    
    
    $
    15.3
    
    
    $
    18.8
    
    
    
    122.7
    %Effective tax rate
    
    
    34.4
    %
    
    
    33.2
    %
  39




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##### Table of Contents



Fiscal Year Ended June 30, 2004 Compared To Fiscal Year Ended June 30, 2003
 Net Revenues
  Fiscal 2004
    
    Fiscal 2003
    

$ Change
    
    % ChangeNet revenues
    
    $
    303.7
    
    
    $
    247.5
    
    
    $
    56.2
    
    
    
    22.7
    %
 Fiscal 2004
    
    
    Fiscal 2003
    
    
    ChangeAcne 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
  40




---



##### Table of Contents



Fiscal 2004
    
    Fiscal 2003
    

$ Change
    
    % ChangeGross profit
    
    $
    257.1
    
    
    $
    209.3
    
    
    $
    47.8
    
    
    
    22.9
    %% of net revenues
    
    
    84.7
    %
    
    
    84.5
    %
  Selling, General and Administrative Expenses
  Fiscal 2004
    
    Fiscal 2003
    

$ Change
    
    % ChangeSelling, general and administrative
    
    $
    118.3
    
    
    $
    91.6
    
    
    $
    26.7
    
    
    
    29.0
    %% of net revenues
    
    
    38.9
    %
    
    
    37.0
    %
 ® ® ®
 Research and Development Expenses
  Fiscal 2004
    
    Fiscal 2003
    

$ Change
    
    % ChangeResearch 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
    )%
  41




---



##### Table of Contents



Depreciation and Amortization Expenses
 ®
 Interest Income
  Interest Expense
 
 Loss on Early Extinguishment of Debt
  Income Tax Expense
  Fiscal 2004
    
    Fiscal 2003
    

$ Change
    
    % ChangeIncome tax expense
    
    $
    15.3
    
    
    $
    26.4
    
    
    $
    (11.1
    )
    
    
    (42.0
    )%Effective tax rate
    
    
    33.2
    %
    
    
    34.0
    %
  42




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Overview
  Fiscal 2005
    
    Fiscal 2004
    

$ Change
    
    % ChangeCash 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, 2005
    
    June 30, 2004
    

$ Change
    
    % ChangeCash, 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
  June 30, 2005
    
    
    June 30, 2004
    
    

$ Change
    
    
    % ChangeCash, 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
  43




---



##### Table of Contents



Operating Activities
  Investing Activities
  ® Q-Med ®
 Financing Activities
  Contingent Convertible Senior Notes and Other Long-Term Commitments
     44




---



##### Table of Contents



Repurchases of Common Stock
  Dividends
  Line of Credit
  Off-Balance Sheet Arrangements
  45




---



##### Table of Contents



Contractual Obligations
  Payments Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    

1 Year
    
    

1-3 Years
    
    

3-5 Years
    
    

5 YearsLong-term debt
    
    $
    453,065
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    453,065Interest on long-term debt
    
    
    233,422
    
    
    
    8,488
    
    
    
    16,975
    
    
    
    16,975
    
    
    
    190,984Operating leases
    
    
    11,661
    
    
    
    2,112
    
    
    
    4,204
    
    
    
    4,276
    
    
    
    1,069Other purchase obligations
and commitments
    
    
    867
    
    
    
    173
    
    
    
    347
    
    
    
    347
    
    
    
    Total contractual obligations
    
    $
    699,015
    
    
    $
    10,773
    
    
    $
    21,526
    
    
    $
    21,598
    
    
    $
    645,118
      46




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Revenue Recognition
    Items Deducted From Gross Revenue
   47




---



##### Table of Contents



Product Returns and Exchanges
   Sales Discounts
  Contract Chargebacks
  Total Allowances
  Managed Care and Medicaid Rebates
   48




---



##### Table of Contents



®
  Goodwill and Other Identifiable Intangible Assets
     Income Taxes
  49




---



##### Table of Contents



Research and Development Costs and Accounting for Strategic Collaborations
    EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   50




---



##### Table of Contents



ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  51




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##### Table of Contents



Interest Rate Sensitivity
Principal Amount by Expected Maturity as of June 30, 2005
 Financial instruments mature during fiscal year ended June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterAvailable-for-sale securities
    
    $
    182,589
    
    
    $
    68,358
    
    
   $
    26,731
    
    
    $
    1,493
    
    
    $
    3,637
    
    
    $
    142,975Weighted-average yield rate
    
    
    2.5
    %
    
    
    3.0
    %
    
    
    3.3
    %
    
    
    2.6
    %
    
    
    3.5
    %
    
    
    3.2
    %Contingent convertible
senior notes due 2032
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    169,155Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    %Contingent convertible
senior notes due 2033
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    283,910Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    %
   
 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  52




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##### Table of Contents



ITEM 9:
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A: CONTROLS AND PROCEDURES
  Managements Report on Internal Control over Financial Reporting
     
 ITEM 9B: OTHER INFORMATION
  53




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##### Table of Contents



Salaries for fiscal 2006 and bonuses for fiscal 2005
 Fiscal
    
    FiscalExecutive Name
    
    2006 Salary
    
    2005 BonusJonah Shacknai
    
    $
    1,020,000
    
    
    $
    950,000Richard J. Havens
    
    
    448,000
    
    
    
    435,000Mark A. Prygocki, Sr.
    
    
    496,000
    
    
    
    455,000Mitchell S. Wortzman, Ph. D.
    
    
    380,800
    
    
    
    290,000
  
 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
  54




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##### Table of Contents



PART IV
 
 ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Page(a)
    
    Documents filed as a part of this Report(1)
    
    Financial Statements:Index to consolidated financial statements
    
    
    F-1Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
    
    
    F-2Consolidated balance sheets at June 30, 2005 and 2004
    
    
    F-4Consolidated statements of income
for the years ended June 30, 2005, 2004 and 2003
    
    
    F-6Consolidated statements of stockholders equity for the years ended June 30, 2005, 2004 and 2003
    
    
    F-7Consolidated statements of cash flows for the years ended June 30, 2005, 2004 and 2003
    
    
    F-9Notes to consolidated financial statements
    
    
    F-10(2)
    
    Financial Statement Schedule:Schedule II - Valuation and Qualifying Accounts
    
    
    S-1This financial statement schedule should be read in conjunction withthe consolidated financial statements.  Financial statement schedulesnot included in this Annual Report on Form 10-K have been omittedbecause they are not applicable or the required information is shownin the financial statements or notes thereto.(3)
    
    Exhibits filed as part of this Report:
 Exhibit No.
    
    
    
    Description2.1
    
    -
    
    Agreement of Merger by and between the Company, Medicis Acquisition Corporation and
GenDerm Corporation, dated November 28, 1997 (11)2.1 (a)
    
    -
    
    Agreement of Plan of Merger, dated as of October 1, 2001, by and among the Company, MPC
Merger Corp. and Ascent Pediatrics, Inc. (17)2.1 (b)
    
    -
    
    Agreement and Plan of Merger, dated
as of March 20, 2005, by and among the Company,
Masterpiece Acquisition Corp. and Inamed Corporation (24)3.1
    
    -
    
    Certificate of Incorporation of the
Company, as amended
(23)3.3 (a)
    
    -
    
    Amended and Restated By-Laws of the Company (13)4.1
    
    -
    
    Rights Agreement, dated August 17, 1995, between the Company and American
Stock Transfer & Trust Company, as Rights Agent (4)4.1 (b)
    
    -
    
    Amendment No. 2 to Rights Agreement, dated March 17, 1997, between the
Company and Norwest Bank Minnesota, N.A. (9)4.1 (c)
    
    -
    
    Amendment No. 3 to Rights Agreement, dated May 31, 2002, between the Company and Wells
Fargo Bank Minnesota, N.A., as successor-in-interest to American Stock Transfer & Trust
Company (18)4.1 (d)
    
    -
    
    Amended and Restated Rights Agreement, dated as of August 17, 2005, between the Company
and Wells Fargo Bank, N.A., as Rights Agent(26)4.1 (e)
    
    -
    
    Indenture, dated as of August 19, 2003, by and between the Company, as issuer, and
Deutsche Bank Trust Company Americas, as trustee (23)4.1 (f)
    
    -
    
    Indenture, dated as of June 4, 2002, by and between the Company, as issuer, and
Deutsche Bank Trust Company Americas, as trustee. (19)4.1 (g)
    
    -
    
    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)4.2
    
    -
    
    Registration Rights Agreement, dated as of June 4, 2002, by and between the Company and
Deutsche Bank Securities Inc. (19)4.3
    
    -
    
    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
    
    -
    
    Securities Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin
Pharmaceutical Inc. and BioMarin Pediatrics Inc., dated May 18, 2004 (23)
 55




---



##### Table of Contents



Exhibit No.
    
    
    
    Description10.3
    
    -
    
    License Agreement among the Company, Ascent Pediatrics, Inc. and BioMarin Pediatrics
Inc., dated May 18, 2004 (23)10.8
    
    -
    
    Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by
reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders previously filed with the SEC, File No. 0-18443)10.9
    
    -
    
    Employment Agreement between the Company and Jonah Shacknai, dated
July 24, 1996 (8)10.9 (a)
    
    -
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated April 1, 1999 (15)10.9 (b)
    
    -
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated February 21, 2001 (15)10.20
    
    -
    
    Medicis Pharmaceutical Corporation 2002 Stock Option Plan (20)10.21
    
    -
    
    Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan (filed herewith)10.30
    
    -
    
    Waiver Letter dated March 18, 2005 between the Company and Q-Med AB (filed herewith)10.59
    
    -
    
    Supply Agreement, dated October 21, 1992, between Schein Pharmaceutical and the Company
(2)10.70
    
    -
    
    Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between
Schein Pharmaceutical and the Company (3)10.72(a)
    
    -
    
    Credit and Security Agreement, dated August 3, 1995, between the Company and
Norwest Business Credit, Inc. (5)10.72(b)
    
    -
    
    First Amendment to Credit and Security Agreement, dated May 29, 1996,
between the Company and Norwest Bank Arizona, N.A. (8)10.72(c)
    
    -
    
    Second Amendment to Credit and Security Agreement, dated November 22, 1996,
by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest
to Norwest Business Credit, Inc. (10)10.72(d)
    
    -
    
    Third Amendment to Credit and Security Agreement, dated November 22, 1998, by
and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest
to Norwest Business Credit, Inc. (12)10.72(e)
    
    
    
    Fourth Amendment to Credit and Security Agreement, dated November 22, 2000,
by and between the Company and Wells Fargo Bank Arizona, N.A., formerly
known as Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business
Credit, Inc. (16)10.72(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)10.73(a)
    
    -
    
    Patent Collateral Assignment and Security Agreement, dated August 3, 1995, by
the Company to Norwest Business Credit, Inc. (6)10.73(b)
    
    -
    
    First Amendment to Patent Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)10.73(c)
    
    -
    
    Amended and Restated Patent Collateral Assignment and Security Agreement, dated
November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (12)10.74(a)
    
    -
    
    Trademark Collateral Assignment and Security Agreement, dated August 3, 1995,
by the Company to Norwest Business Credit, Inc. (7)10.74(b)
    
    -
    
    First Amendment to Trademark Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)10.74(c)
    
    -
    
    Amended and Restated Trademark, Tradename, and Service Mark Collateral
Assignment and Security Agreement, dated November 22, 1998, by the Company
to Norwest Bank Arizona, N.A. (12)10.75
    
    -
    
    Assignment and Assumption of Loan Documents, dated May 29, 1996, from
Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (8)10.76
    
    -
    
    Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank
Arizona, N.A. (8)10.89
    
    -
    
    Asset Purchase Agreement dated November 15, 1998, by and among the Company and
Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and
Hoechst Marion Roussel, S.A. (12)
 56




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##### Table of Contents



Exhibit No.
    
    
    
    Description10.90
    
    -
    
    License and Option Agreement dated November 15, 1998, by and among the Company
and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and
Hoechst Marion Roussel, S.A. (12)10.91
    
    -
    
    Loprox Lotion Supply Agreement dated November 15, 1998, by and between the
Company and Hoechst Marion Roussel, Inc. (12)10.92
    
    -
    
    Supply Agreement dated November 15, 1998, by and between the Company and
Hoechst Marion Roussel Deutschland GMBH (12)10.93
    
    -
    
    Asset Purchase Agreement effective January 31, 1999, between the Company and
Bioglan Pharma Plc (14)10.94
    
    -
    
    Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and
Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated
April 19, 1999 (14)10.95
    
    -
    
    Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc,
dated June 29, 1999 (14)10.96
    
    -
    
    Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan
Pharma Plc, the Company and IMX Pharmaceuticals, Inc., dated June 29, 1999 (16)10.97
    
    -
    
    Medicis Pharmaceutical Corporation Executive Retention Plan (14)10.98
    
    
    
    Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated
September 14, 1999(14)10.99
    
    -
    
    Share Purchase Agreement between Q-Med International B.V. and Startskottet 21914
AB (under proposed change of name to Medicis Sweden Holdings AB), dated
February 10, 2003(21)10.99(a)
    
    -
    
    Amendment No. 1 to Share Purchase Agreement between Q-Med International
B.V. and Startskottet 21914 AB (under proposed change of name to Medicis Sweden
Holdings AB), dated March 7, 2003(21)10.100
    
    -
    
    Supply Agreement between Q-Med AB and the Company,
dated March 7, 2003(21)10.101
    
    -
    
    Amended and Restated Intellectual Property Agreement between Q-Med AB and HA
North American Sales AB, dated March 7, 2003(21)10.102
    
    -
    
    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 1934.10.103
    
    -
    
    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 1934.12
    
    -
    
    Computation of Ratios of Earnings to Fixed Charges (filed herewith)21.1
    
    -
    
    Subsidiaries (filed herewith)23.1
    
    -
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed
herewith)24.1
    
    -
    
    Power of Attorney See signature page31.1
    
    -
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended (filed herewith)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 (filed herewith)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 (filed herewith)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)99.1
    
    -
    
    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)99.1 (a)
    
    -
    
    Charter of the Nominating and Governance Committee of the Board of Directors of Medicis
Pharmaceutical Corporation(22)99.2
    
    -
    
    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
 57




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##### Table of Contents



Exhibit No.
    
    
    
    DescriptionInvestments LLC, FS Parallel Fund L.P., BancBoston Ventures Inc. and Flynn Partners (17)99.2 (a)
    
    -
    
    Medicis Pharmaceutical Corporation Corporate Governance Guidelines(22)99.3
    
    -
    
    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)
 
 (1)
    
    Incorporated by reference to the exhibit with the same number in the Registration
Statement on Form S-1 of the Registrant, File No. 33-32918, filed with the SEC on January
16, 1990(2)
    
    Incorporated by reference to the exhibit with the same number in Registration Statement
on Form S-1 of the Company, File No. 33-54276, filed with the SEC on June 11, 1993(3)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18443, filed with
the SEC on October 13, 1993(4)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1995, File No. 0-18443, previously
filed with the SEC (the 1994 Form 10-K)(5)
    
    Incorporated by reference to exhibit number 4.2 in the 1995 Form 10-K(6)
    
    Incorporated by reference to exhibit number 4.4 in the 1995 Form 10-K(7)
    
    Incorporated by reference to exhibit number 4.5 in the 1995 Form 10-K(8)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-18443, previously
filed with the SEC(9)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-18443, previously filed
with the SEC(10)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996, File No. 0-18443, previously
filed with the SEC(11)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on December 15, 1997(12)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998, File No. 0-18443,
previously filed with the SEC(13)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-18443, previously filed with the SEC(14)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1999, File No. 0-18443, previously
filed with the SEC(15)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001, File No. 0-18443, previously
filed with the SEC(16)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 2001, File No. 0-18443, previously
filed with the SEC(17)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on October 2, 2001(18)
    
    Incorporated by reference to the exhibit with the same number in the Companys
registration statement on Form 8-A12B/A filed with the SEC on June 4, 2002(19)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on June 6, 2002(20)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 2002, File No. 0-18443, previously filed with the
SEC(21)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on March 10, 2003(22)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 2003, File No. 0-18443, previously filed with
the SEC(23)
    
    Incorporated by reference to the exhibit with the same number in the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 2004, File No. 0-18443, previously filed with the
SEC(24)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on March 21, 2005
 58




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##### Table of Contents



(25)
    
    Incorporated by reference to the exhibit with the same number in the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005, File No. 0-18443, previously filed with the
SEC(26)
    
    Incorporated by reference to the exhibit with the same number in the Companys Current
Report on Form 8-K filed with the SEC on August 18, 2005
 (b)
    
    The exhibits to this Form 10-K follow the Companys Financial Statement Schedule included in
this Form 10-K.(c)
    
    The Financial Statement Schedule to this Form 10-K appears on page S-1 of this Form 10-K.
 59




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##### Table of Contents



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

Jonah Shacknai
    
    Chairman of the Board of Directors

and Chief Executive Officer
(Principal Executive Officer)
    
    September 12, 2005/s/ MARK A. PRYGOCKI, SR.

Mark A. Prygocki, Sr.
    
    Executive Vice President, Chief Financial
Officer,
Corporate Secretary and Treasurer
(Principal Financial and Accounting Officer)
    
    September 12, 2005/s/ ARTHUR G. ALTSCHUL, JR.

Arthur G. Altschul, Jr.
    
    Director
    
    September 12, 2005/s/ SPENCER DAVIDSON

Spencer Davidson
    
    Director
    
    September 12, 2005/s/ STUART DIAMOND

Stuart Diamond
    
    Director
    
    September 12, 2005/s/ PETER S. KNIGHT, ESQ.

Peter S. Knight, Esq
    
    Director
    
    September 12, 2005/s/ MICHAEL A. PIETRANGELO

Michael A. Pietrangelo
    
    Director
    
    September 12, 2005/s/ PHILIP S. SCHEIN, M.D.

Philip S. Schein, M.D.
    
    Director
    
    September 12, 2005/s/ LOTTIE SHACKELFORD

Lottie Shackelford
    
    Director
    
    September 12, 2005
 60




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReports of Ernst & Young LLP, Independent Registered
Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of June 30, 2005 and 2004
    
    
    F-4Consolidated Statements of Income for the fiscal years
ended June 30, 2005, 2004 and 2003
    
    
    F-6Consolidated Statements of Stockholders Equity for the
fiscal years ended June 30, 2005, 2004 and 2003
    
    
    F-7Consolidated Statements of Cash Flows for the fiscal years
ended June 30, 2005, 2004 and 2003
    
    
    F-9Notes to Consolidated Financial Statements
    
    
    F-10Schedule II  Valuation and Qualifying Accounts
    
    
    S-1
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Stockholders of Medicis Pharmaceutical Corporation
    The Effect
of Contingently Convertible Instruments on Diluted Earnings per Share
   
 F-2




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Report of Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of Medicis Pharmaceutical Corporation
     .
   
 F-3




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 JUNE 30,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    177,785
    
    
    $
    46,621Short-term investments
    
    
    425,783
    
    
    
    587,419Accounts receivable, less allowances:2005: $19,073; 2004: $15,955
    
    
    47,220
    
    
    
    47,858Inventories, net
    
    
    20,701
    
    
    
    19,540Deferred tax assets, net
    
    
    11,001
    
    
    
    14,104Other current assets
    
    
    16,435
    
    
    
    18,321Total current assets
    
    
    698,925
    
    
    
    733,863Property and equipment, net
    
    
    6,143
    
    
    
    5,842Intangible assets:Intangible assets related to product line acquisitions and
business combinations
    
    
    326,780
    
    
    
    324,345Other intangible assets
    
    
    4,507
    
    
    
    3,647331,287
    
    
    
    327,992Less: accumulated amortization
    
    
    71,749
    
    
    
    51,961Net intangible assets
    
    
    259,538
    
    
    
    276,031Goodwill
    
    
    64,672
    
    
    
    55,113Deferred financing costs, net
    
    
    5,397
    
    
    
    7,535Other non-current assets
    
    
    8,576
    
    
    
    $
    1,043,251
    
    
    $
    1,078,384
  F-4




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED BALANCE SHEETS, Continued
 (in thousands, except share amounts)
 JUNE 30,2005
    
    
    2004LiabilitiesCurrent liabilities:Accounts payable
    
    $
    30,832
    
    
    $
    13,912Short-term contract obligation
    
    
    27,407
    
    
    
    17,891Income taxes payable
    
    
    10,236
    
    
    
    712Other current liabilities
    
    
    30,379
    
    
    
    34,605Total current liabilities
    
    
    98,854
    
    
    
    67,120Long-term liabilities:Contingent convertible senior notes
    
    
    453,065
    
    
    
    453,067Deferred tax liability, net
    
    
    4,986
    
    
    
    2,894Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value; shares authorized: 5,000,000;
no shares issued
    
    
    
    
    
    
    Class A
common stock, $0.014 par value; shares authorized: 150,000,000; issued and outstanding: 67,007,330 and 65,419,460 at
June 30, 2005 and 2004, respectively
    
    
    938
    
    
    
    916Class B common stock, $0.014 par value; shares authorized: 1,000,000;
issued and outstanding: 0 and 758,032 at June 30, 2005 and
2004, respectively
    
    
    
    
    
    
    10Additional paid-in capital
    
    
    539,443
    
    
    
    517,468Accumulated other comprehensive income
    
    
    (606
    )
    
    
    (1,020
    )Deferred compensation
    
    
    (697
    )
    
    
    (1,212
    )Accumulated earnings
    
    
    288,474
    
    
    
    230,049Less: Treasury stock, 12,620,554 and 8,681,468 shares at cost at
June 30, 2005 and 2004, respectively
    
    
    (341,206
    )
    
    
    (190,908
    )Total stockholders equity
    
    
    486,346
    
    
    
    555,303$
    1,043,251
    
    
    $
    1,078,384
  F-5




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share data)
 YEAR ENDED JUNE 30,2005
    
    
    2004
    
    
    2003Net product revenues
    
    $
    305,114
    
    
    $
    291,607
    
    
    $
    241,909Net contract revenues
    
    
    71,785
    
    
    
    12,115
    
    
    
    5,630Net revenues
    
    
    376,899
    
    
    
    303,722
    
    
    
    247,539Cost of product revenue (1)
    
    
    55,447
    
    
    
    46,606
    
    
    
    38,260Gross profit
    
    
    321,452
    
    
    
    257,116
    
    
    
    209,279Operating costs and expenses:Selling, general and administrative
    
    
    135,154
    
    
    
    118,253
    
    
    
    91,648Research and development
    
    
    65,676
    
    
    
    16,494
    
    
    
    29,568Depreciation and amortization
    
    
    22,350
    
    
    
    16,794
    
    
    
    10,125Operating costs and expenses
    
    
    223,180
    
    
    
    151,541
    
    
    
    131,341Operating income
    
    
    98,272
    
    
    
    105,575
    
    
    
    77,938Interest income
    
    
    11,470
    
    
    
    10,050
    
    
    
    12,302Interest expense
    
    
    (10,640
    )
    
    
    (10,808
    )
    
    
    (12,580
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    (58,660
    )
    
    
    Income before income tax expense
    
    
    99,102
    
    
    
    46,157
    
    
    
    77,660Income tax expense
    
    
    (34,112
    )
    
    
    (15,317
    )
    
    
    (26,404
    )Net income
    
    $
    64,990
    
    
    $
    30,840
    
    
    $
    51,256Basic net income per common share
    
    $
    1.18
    
    
    $
    0.55
    
    
    $
    0.94Diluted net income per common share
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84Cash dividend declared per common share
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.025Basic common shares outstanding
    
    
    55,196
    
    
    
    55,618
    
    
    
    54,376Diluted common shares outstanding
    
    
    70,909
    
    
    
    72,481
    
    
    
    70,191
 
 (1) amounts exclude
amortization of intangible assets
related
to acquired products
    
    $
    19,620
    
    
    $
    14,891
    
    
    $
    9,166
  F-6




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 Class A
    
    
    Class BCommon Stock
    
    
    Common StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at June 30, 2002
    
    
    61,552
    
    
    $
    862
    
    
    
    758
    
    
    $
    10Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized losses on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeDividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation, net
of cancellations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation, net of award
reacquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    958
    
    
    
    14
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2003
    
    
    62,510
    
    
    
    876
    
    
    
    758
    
    
    
    10Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeConversion of contingent convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation, net of award
reacquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    2,909
    
    
    
    40
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2004
    
    
    65,419
    
    
    
    916
    
    
    
    758
    
    
    
    10Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized losses on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeConversion of Class B common stock to
Class A common stock
    
    
    758
    
    
    
    10
    
    
    
    (758
    )
    
    
    (10
    )Conversion of contingent convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation,
net of cancellations
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation, net of award
reacquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    812
    
    
    
    12
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2005
    
    
    67,007
    
    
    $
    938
    
    
    
    
    
    
    $
    
  F-7




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##### Table of Contents



AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TreasuryPaid-In
    
    
    Comprehensive
    
    
    Deferred
    
    
    Accumulated
    
    
    
    

StockCapital
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Total$
    429,515
    
    
    $
    790
    
    
    $
    (2,094
    )
    
    $
    154,923
    
    
    
    (6,824
    )
    
    $
    (154,947
    )
    
    $
    429,059
    
    
    
    
    
    
    
    
    
    
    
    51,256
    
    
    
    
    
    
    
    
    
    
    
    51,256
    
    
    
    1,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,396
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21452,866
    
    
    
    
    
    
    
    
    
    
    
    (1,362
    )
    
    
    
    
    
    
    
    
    
    
    (1,362
    )(2
    )
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36512,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,7603,394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,858
    )
    
    
    (35,961
    )
    
    
    (35,961
    )445,653
    
    
    
    2,400
    
    
    
    (1,727
    )
    
    
    204,817
    
    
    
    (8,682
    )
    
    
    (190,908
    )
    
    
    461,121
    
    
    
    
    
    
    
    
    
    
    
    30,840
    
    
    
    
    
    
    
    
    
    
    
    30,840
    
    
    
    (3,452
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,452
    )
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3227,4206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    (5,608
    )
    
    
    
    
    
    
    
    
    
    
    (5,608
    )
    
    
    
    
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51551,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,43320,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,416517,468
    
    
    
    (1,020
    )
    
    
    (1,212
    )
    
    
    230,049
    
    
    
    (8,682
    )
    
    
    (190,908
    )
    
    
    555,303
    
    
    
    
    
    
    
    
    
    
    
    64,990
    
    
    
    
    
    
    
    
    
    
    
    64,990
    
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75
    )
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (6,565
    )
    
    
    
    
    
    
    
    
    
    
    (6,565
    )298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (298
    )
    
    
    
    
    
    
    
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51516,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,5835,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,920
    )
    
    
    (150,000
    )
    
    
    (150,000
    )$
    539,443
    
    
    $
    (606
    )
    
    $
    (697
    )
    
    $
    288,474
    
    
    
    (12,620
    )
    
    $
    (341,206
    )
    
    $
    486,346
 F-8




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 YEAR ENDED JUNE 30,2005
    
    
    2004
    
    
    2003Operating Activities:Net income
    
    $
    64,990
    
    
    $
    30,840
    
    
    $
    51,256Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    24,493
    
    
    
    18,938
    
    
    
    12,766Loss (gain) on sale of property and equipment
    
    
    52
    
    
    
    (4
    )
    
    
    Loss on sale of product rights
    
    
    
    
    
    
    32
    
    
    
    Loss (gain) on sale of available-for-sale investments
    
    
    882
    
    
    
    (599
    )
    
    
    (380
    )Amortization of deferred compensation
    
    
    515
    
    
    
    515
    
    
    
    365Deferred income tax expense (benefit)
    
    
    5,369
    
    
    
    (3,634
    )
    
    
    8,879Tax benefit from exercise of stock options
    
    
    5,104
    
    
    
    20,416
    
    
    
    3,394Provision for doubtful accounts and returns
    
    
    3,118
    
    
    
    1,050
    
    
    
    5,321Accretion of premium on investments
    
    
    6,528
    
    
    
    7,284
    
    
    
    3,657Loss on early extinguishment of debt
    
    
    
    
    
    
    58,660
    
    
    
    Changes in operating assets and liabilities :Accounts receivable
    
    
    (2,480
    )
    
    
    2,753
    
    
    
    (11,318
    )Inventories
    
    
    (1,160
    )
    
    
    (5,535
    )
    
    
    (2,050
    )Other current assets
    
    
    1,886
    
    
    
    (1,472
    )
    
    
    (378
    )Accounts payable
    
    
    15,580
    
    
    
    (4,655
    )
    
    
    4,553Income taxes payable
    
    
    9,524
    
    
    
    232
    
    
    
    (979
    )Other current liabilities
    
    
    (4,420
    )
    
    
    3,143
    
    
    
    9,581Net cash provided by operating activities
    
    
    129,981
    
    
    
    127,964
    
    
    
    84,667Investing Activities:Purchase of property and equipment
    
    
    (2,913
    )
    
    
    (4,594
    )
    
    
    (1,367
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    131
    
    
    
    Payment of direct merger costs
    
    
    (7,454
    )
    
    
    (633
    )
    
    
    (1,511
    )Payment for purchase of product rights
    
    
    (3,296
    )
    
    
    (84,116
    )
    
    
    (81,727
    )Proceeds from sale of product rights
    
    
    
    
    
    
    12,100
    
    
    
    Purchase of available-for-sale investments
    
    
    (762,561
    )
    
    
    (888,152
    )
    
    
    (712,040
    )Sale of available-for-sale investments
    
    
    846,143
    
    
    
    622,006
    
    
    
    566,080Maturity of available-for-sale investments
    
    
    70,568
    
    
    
    123,072
    
    
    
    138,975Decrease (increase) in restricted cash
    
    
    
    
    
    
    53,837
    
    
    
    (22,153
    )Change in other assets
    
    
    
    
    
    
    8
    
    
    
    34Net cash provided by (used in) investing
activities
    
    
    140,487
    
    
    
    (166,341
    )
    
    
    (113,709
    )Financing Activities:Payment of deferred financing costs
    
    
    (6
    )
    
    
    (5,276
    )
    
    
    (142
    )Payment of dividends
    
    
    (6,370
    )
    
    
    (5,536
    )
    
    
    Purchase of treasury stock
    
    
    (150,000
    )
    
    
    
    
    
    
    (35,961
    )Proceeds from the exercise of stock options
    
    
    16,583
    
    
    
    51,433
    
    
    
    12,760Net cash (used in) provided by financing activities
    
    
    (139,793
    )
    
    
    40,621
    
    
    
    (23,343
    )Effect of exchange rate on cash and
cash equivalents
    
    
    489
    
    
    
    31
    
    
    
    214Net increase (decrease) in cash and cash equivalents
    
    
    131,164
    
    
    
    2,275
    
    
    
    (52,171
    )Cash and cash equivalents at beginning of year
    
    
    46,621
    
    
    
    44,346
    
    
    
    96,517Cash and cash equivalents at end of year
    
    $
    177,785
    
    
    $
    46,621
    
    
    $
    44,346
  F-9




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2005
 NOTE 1. NATURE OF BUSINESS
  ® ® ® ® ® ® 
 ®   ® ®  
 ®
  NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Cash and Cash Equivalents
  F-10




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##### Table of Contents



Investments
  Inventories
   JUNE 30,2005
    
    
    2004Raw materials
    
    $
    5,283
    
    
    $
    8,785Finished goods
    
    
    16,518
    
    
    
    11,105Valuation reserve
    
    
    (1,100
    )
    
    
    (350
    )Total inventories
    
    $
    20,701
    
    
    $
    19,540
 Property and Equipment
  JUNE 30,2005
    
    
    2004Furniture, fixtures and equipment
    
    $
    9,377
    
    
    $
    7,268Leasehold improvements
    
    
    1,989
    
    
    
    2,01811,366
    
    
    
    9,286Less: accumulated depreciation
    
    
    (5,223
    )
    
    
    (3,444
    )$
    6,143
    
    
    $
    5,842
  Goodwill and Other Identifiable Intangible Assets
  F-11




---



##### Table of Contents



June 30, 2005
    
    
    June 30, 2004Weighted
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedAverage Life
    
    
    Gross
    
    

    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetRelated to product line
acquisitions
    
    
    22.1
    
    
    $
    321,698
    
    
    $
    (69,727
    )
    
    $
    251,971
    
    
    $
    319,263
    
    
    $
    (50,724
    )
    
    $
    268,539Related to business
combinations
    
    
    7.5
    
    
    
    5,082
    
    
    
    (1,346
    )
    
    
    3,736
    
    
    
    5,082
    
    
    
    (730
    )
    
    
    4,352Patents and trademarks
    
    
    17.2
    
    
    
    4,507
    
    
    
    (676
    )
    
    
    3,831
    
    
    
    3,647
    
    
    
    (507
    )
    
    
    3,140Total other identifiable
intangible assets
    
    
    
    
    
    $
    331,287
    
    
    $
    (71,749
    )
    
    $
    259,538
    
    
    $
    327,992
    
    
    $
    (51,961
    )
    
    $
    276,031
  Deferred Financing Costs
  Managed Care and Medicaid Reserves
  F-12




---



##### Table of Contents



Other Current Liabilities
  JUNE 30,2005
    
    
    2004Accrued incentives
    
    $
    9,505
    
    
    $
    8,069Deferred revenue
    
    
    1,862
    
    
    
    3,545Managed care and Medicaid
reserves
    
    
    5,365
    
    
    
    11,671Other accrued expenses
    
    
    13,647
    
    
    
    11,320$
    30,379
    
    
    $
    34,605
 Revenue Recognition
    Advertising
  Stock-Based Compensation
  F-13




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    64,990
    
    
    $
    30,840
    
    
    $
    51,256Deduct: Total
stock-based
employee
compensation
expense determined
under fair value
methods of all
awards, net of
related tax effects
    
    
    21,813
    
    
    
    17,078
    
    
    
    18,056Pro forma net income
    
    $
    43,177
    
    
    $
    13,762
    
    
    $
    33,200Earnings per common share:Basic, as reported
    
    $
    1.18
    
    
    $
    0.55
    
    
    $
    0.94Basic, pro forma
    
    $
    0.78
    
    
    $
    0.25
    
    
    $
    0.61Diluted, as reported
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84Diluted, pro forma
    
    $
    0.70
    
    
    $
    0.23
    
    
    $
    0.59
  Shipping and Handling Costs
  Research and Development Costs and Accounting for Strategic Collaborations
   F-14




---



##### Table of Contents



Income Taxes
  Earnings Per Common Share
  Use of Estimates and Risks and Uncertainties
   Fair Value of Financial Instruments
  Reclassifications
  Recently Issued Accounting Pronouncements
  F-15




---



##### Table of Contents



Accounting
for Preexisting Relationships between the Parties to a Business Combination
  F-16




---



##### Table of Contents



NOTE 3. CHANGE IN ESTIMATE
  NOTE 4: SEGMENT AND PRODUCT INFORMATION
 ® ® ® ® ® ®  ® ® ® ®
 ® ® ® ® ®
 Fiscal 2005
    
    Fiscal 2004
    
    Fiscal 2003McKesson
    
    
    51.2
    %
    
    
    36.9
    %
    
    
    20.2
    %Cardinal
    
    
    21.8
    %
    
    
    23.8
    %
    
    
    25.4
    %Quality King
    
    
    *
    
    
    
    *
    
    
    
    17.0
    %AmerisourceBergen
    
    
    *
    
    
    
    *
    
    
    
    15.5
    %
 
 *
    
    less than 10% ®
  FISCAL YEAR ENDED JUNE 30,2005
    
    2004
    
    2003Acne and acne-related dermatological products
    
    
    30
    %
    
    
    30
    %
    
    
    33
    %Non-acne dermatological products
    
    
    47
    
    
    
    51
    
    
    
    37Non-dermatological products
    
    
    23
    
    
    
    19
    
    
    
    30Total net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 NOTE 5. STRATEGIC COLLABORATIONS
  F-17




---



##### Table of Contents



® ®
 TM TM TM TM TM
  
  F-18




---



##### Table of Contents



NOTE 6. DEFINITIVE MERGER AGREEMENT WITH INAMED
 ® ® ® ®
     F-19




---



##### Table of Contents



NOTE 7. LICENSE OF ORAPRED ® TO BIOMARIN
 ® ® ®
  ®
 ® ®
  F-20




---



##### Table of Contents



NOTE 8. ACQUISITION OF DERMAL AESTHETIC ENHANCEMENT PRODUCTS FROM THE Q-MED GROUP
 ® TM TM ® ® TM TM ® TM
 NOTE 9. LICENSE AND SALE OF PRODUCTS TO TARO PHARMACEUTICAL INDUSTRIES, LTD.
 ® ®
 ® ® ® ®
 NOTE 10. MERGER OF ASCENT PEDIATRICS, INC.
  F-21




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##### Table of Contents



NOTE 11. SHORT-TERM INVESTMENTS
  JUNE 30, 2005Gross
    
    
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. corporate securities
    
    $
    144,017
    
    
    $
    20
    
    
    $
    476
    
    
    $
    143,561Other debt securities
    
    
    283,372
    
    
    
    7
    
    
    
    1,157
    
    
    
    282,222Total securities
    
    $
    427,389
    
    
    $
    27
    
    
    $
    1,633
    
    
    $
    425,783
 JUNE 30, 2004Gross
    
    
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. corporate securities
    
    $
    123,848
    
    
    $
    224
    
    
    $
    360
    
    
    $
    123,712Other debt securities
    
    
    465,070
    
    
    
    164
    
    
    
    1,527
    
    
    
    463,707Total securities
    
    $
    588,918
    
    
    $
    388
    
    
    $
    1,887
    
    
    $
    587,419
  JUNE 30, 2005EstimatedCost
    
    
    Fair ValueAvailable-for-saleDue in one year or less
    
    $
    183,614
    
    
    $
    182,589Due after one year through five years
    
    
    100,807
    
    
    
    100,219Due after five years through 10 years
    
    
    1,750
    
    
    
    1,750Due after 10 years
    
    
    141,218
    
    
    
    141,225$
    427,389
    
    
    $
    425,783
 NOTE 12. DEBT AND OTHER LONG-TERM COMMITMENTS
  F-22




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##### Table of Contents



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 conversion
rate of approximately 34.4234 shares per $1,000 principal amount of Old Notes, subject
to adjustment;
    
    if the Company has called the Old Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive day
trading period in which the trading price of the Old Notes per $1,000 principal amount
for each day of such period was less than 95% of the product of the closing sale price
of the Companys Class A common stock on that day multiplied by the number of shares of
the Companys Class A common stock issuable upon conversion of $1,000 principal amount
of the Old Notes; or
    
    upon the occurrence of specified corporate transactions.
  F-23




---



##### Table of Contents




    
    during any quarter commencing after September 30, 2003, if the closing price of the
Companys Class A common stock over a specified number of trading days during the
previous quarter, including the last trading day of such quarter, is more than 120% of
the conversion price of the New Notes, or $46.51. The Notes are initially convertible
at a conversion price of $38.76 per share, which is equal to a conversion rate of
approximately 25.7998 shares per $1,000 principal amount of New Notes, subject to
adjustment;
    
    if the Company has called the New Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive day
trading period in which the trading price of the New Notes per $1,000 principal amount
for each day of such period was less than 95% of the product of the closing sale price
of the Companys Class A common stock on that day multiplied by the number of shares of
the Companys Class A common stock issuable upon conversion of $1,000 principal amount
of the New Notes; or
    
    upon the occurrence of specified corporate transactions.
   F-24




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##### Table of Contents



NOTE 14. COMMITMENTS AND CONTINGENCIES
 Occupancy Arrangements
   YEAR ENDING JUNE 30,2006
    
    $
    2,1122007
    
    
    2,0662008
    
    
    2,1382009
    
    
    2,1382010
    
    
    2,138Thereafter
    
    
    1,069$
    11,661
 Research and Development and Consulting Contracts
  Litigation
  F-25




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##### Table of Contents



NOTE 15. INCOME TAXES
  JUNE 30,2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    27,516
    
    
    $
    15,831
    
    
    $
    17,123State
    
    
    1,215
    
    
    
    861
    
    
    
    1,305Foreign
    
    
    156
    
    
    
    109
    
    
    
    1428,887
    
    
    
    16,801
    
    
    
    18,442DeferredFederal
    
    
    4,456
    
    
    
    (1,404
    )
    
    
    7,532State
    
    
    787
    
    
    
    (80
    )
    
    
    430Foreign
    
    
    (18
    )
    
    
    
    
    
    
    5,225
    
    
    
    (1,484
    )
    
    
    7,962Total
    
    $
    34,112
    
    
    $
    15,317
    
    
    $
    26,404
   JUNE 30,2005
    
    2004
    
    2003Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State tax rate, net of federal benefit
    
    
    1.4
    
    
    
    1.1
    
    
    
    1.5Tax-exempt interest
    
    
    (1.0
    )
    
    
    (4.2
    )
    
    
    (2.1
    )Other
    
    
    (1.0
    )
    
    
    1.3
    
    
    
    (0.4
    )34.4
    %
    
    
    33.2
    %
    
    
    34.0
    %
  JUNE 30,2005
    
    
    2004Current
    
    
    Long-term
    
    
    Current
    
    
    Long-termDeferred tax assets:Net operating loss carryforwards
    
    $
    
    
    
    $
    23,161
    
    
    $
    
    
    
    $
    25,691Reserves and liabilities
    
    
    10,415
    
    
    
    
    
    
    
    10,390
    
    
    
    Unrealized losses on securities
    
    
    586
    
    
    
    
    
    
    
    555
    
    
    
    Research and development credits
    
    
    
    
    
    
    1,246
    
    
    
    
    
    
    
    1,920Excess of net book value over tax basis
of intangible assets
    
    
    
    
    
    
    6,613
    
    
    
    
    
    
    
    Charitable contributions, other
    
    
    
    
    
    
    4,455
    
    
    
    3,159
    
    
    
    834Valuation allowance
    
    
    
    
    
    
    (17,473
    )
    
    
    
    
    
    
    (17,492
    )11,001
    
    
    
    18,002
    
    
    
    14,104
    
    
    
    10,953Deferred tax liabilities:Depreciation on property and equipment
    
    
    
    
    
    
    (611
    )
    
    
    
    
    
    
    (175
    )Bond interest
    
    
    
    
    
    
    (22,377
    )
    
    
    
    
    
    
    (9,068
    )Excess of net book value over tax basis
of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,604
    )Net deferred tax assets (liabilities)
    
    $
    11,001
    
    
    $
    (4,986
    )
    
    $
    14,104
    
    
    $
    (2,894
    )
 F-26




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##### Table of Contents



NOTE 16. STOCK TRANSACTIONS
   F-27




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##### Table of Contents



NOTE 17. DEFERRED COMPENSATION
   NOTE 18. DIVIDENDS DECLARED ON COMMON STOCK
  F-28




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##### Table of Contents



NOTE 19. STOCK OPTION PLANS
  Weighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$  6.06  $14.42
    
    
    1,193,809
    
    
    
    3.70
    
    
    $
    11.27
    
    
    
    1,193,809
    
    
    $
    11.27$14.50  $18.33
    
    
    2,310,364
    
    
    
    6.86
    
    
    $
    18.22
    
    
    
    520,310
    
    
    $
    17.84$18.57  $26.89
    
    
    555,868
    
    
    
    6.76
    
    
    $
    23.41
    
    
    
    322,728
    
    
    $
    23.11$26.90  $26.95
    
    
    1,857,074
    
    
    
    6.05
    
    
    $
    26.95
    
    
    
    765,766
    
    
    $
    26.95$26.98  $27.63
    
    
    1,989,928
    
    
    
    5.10
    
    
    $
    27.63
    
    
    
    1,505,918
    
    
    $
    27.63$27.70  $29.13
    
    
    139,310
    
    
    
    7.52
    
    
    $
    28.33
    
    
    
    30,480
    
    
    $
    28.26$29.20  $29.20
    
    
    2,387,300
    
    
    
    8.08
    
    
    $
    29.20
    
    
    
    285,746
    
    
    $
    29.20$29.25  $36.06
    
    
    501,325
    
    
    
    7.09
    
    
    $
    30.66
    
    
    
    343,115
    
    
    $
    30.27$38.45  $38.45
    
    
    2,566,400
    
    
    
    9.04
    
    
    $
    38.45
    
    
    
    0
    
    
    $
    0.00$39.04  $39.04
    
    
    147,000
    
    
    
    9.25
    
    
    $
    39.04
    
    
    
    0
    
    
    $
    0.00
  WeightedAverageQualified
    
    
    Non-Qualified
    
    
    Total
    
    
    PriceBalance at June 30, 2002
    
    
    3,956,382
    
    
    
    7,179,224
    
    
    
    11,135,606
    
    
    $
    21.08Granted
    
    
    12,340
    
    
    
    3,476,376
    
    
    
    3,488,716
    
    
    $
    19.11Exercised
    
    
    (451,596
    )
    
    
    (505,234
    )
    
    
    (956,830
    )
    
    $
    13.33Terminated/expired
    
    
    (310,664
    )
    
    
    (575,236
    )
    
    
    (885,900
    )
    
    $
    22.32Balance at June 30, 2003
    
    
    3,206,462
    
    
    
    9,575,130
    
    
    
    12,781,592
    
    
    $
    21.11Granted
    
    
    10,272
    
    
    
    3,403,248
    
    
    
    3,413,520
    
    
    $
    29.32Exercised
    
    
    (1,383,395
    )
    
    
    (1,526,179
    )
    
    
    (2,909,574
    )
    
    $
    17.68Terminated/expired
    
    
    (275,772
    )
    
    
    (985,822
    )
    
    
    (1,261,594
    )
    
    $
    25.41Balance at June 30, 2004
    
    
    1,557,567
    
    
    
    10,466,377
    
    
    
    12,023,944
    
    
    $
    23.82Granted
    
    
    
    
    
    
    2,795,890
    
    
    
    2,795,890
    
    
    $
    38.48Exercised
    
    
    (269,554
    )
    
    
    (542,216
    )
    
    
    (811,770
    )
    
    $
    20.43Terminated/expired
    
    
    (62,896
    )
    
    
    (296,790
    )
    
    
    (359,686
    )
    
    $
    28.82Balance at June 30, 2005
    
    
    1,225,117
    
    
    
    12,423,261
    
    
    
    13,648,378
    
    
    $
    26.89
  F-29




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Expected dividend yield
    
    
    0.3%
    
    
    
    0.3%
    
    
    
    0.3%Expected stock price volatility
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.5Risk-free interest rate
    
    
    3.6%
    
    
    
    3.3%
    
    
    
    2.5%Expected life options
    
    5 Years
    
    5 Years
    
    5 Years
  F-30




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##### Table of Contents



NOTE 20. NET INCOME PER COMMON SHARE
  FISCAL YEAR ENDED JUNE 30,2005
    
    
    2004
    
    
    2003BASICNet income
    
    $
    64,990
    
    
    $
    30,840
    
    
    $
    51,256Weighted average number of common shares outstanding
    
    
    55,196
    
    
    
    55,618
    
    
    
    54,376Basic net income per common share
    
    $
    1.18
    
    
    $
    0.55
    
    
    $
    0.94DILUTEDNet income
    
    $
    64,990
    
    
    $
    30,840
    
    
    $
    51,256Add:Tax-effected interest expense and issue costs related
to Old Notes
    
    
    3,347
    
    
    
    3,884
    
    
    
    7,901Tax-effected interest expense and issue costs related
to New Notes
    
    
    3,353
    
    
    
    2,925
    
    
    
    Net income assuming dilution
    
    $
    71,690
    
    
    $
    37,649
    
    
    $
    59,157Weighted average number of common shares
    
    
    55,196
    
    
    
    55,618
    
    
    
    54,376Effect of dilutive securities:Old Notes
    
    
    5,823
    
    
    
    6,777
    
    
    
    13,770New Notes
    
    
    7,325
    
    
    
    6,446
    
    
    
    Stock options and restricted stock
    
    
    2,565
    
    
    
    3,640
    
    
    
    2,045Weighted average number of common shares
assuming dilution
    
    
    70,909
    
    
    
    72,481
    
    
    
    70,191Diluted net income per common share
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84
   NOTE
21. FINANCIAL INSTRUMENTS  CONCENTRATIONS OF CREDIT RISK
  F-31




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NOTE 22. FAIR VALUE OF FINANCIAL INSTRUMENTS
  NOTE 23. DEFINED CONTRIBUTION PLAN
  F-32




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##### Table of Contents



NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  YEAR ENDED JUNE 30, 2005(FOR THE QUARTERS ENDED)SEPTEMBER 30, 2004(a)
    
    DECEMBER 31, 2004(b)
    
    MARCH 31, 2005(c)
    
    JUNE 30, 2005(d)Net revenues
    
    $
    88,818
    
    
    $
    92,349
    
    
    $
    95,188
    
    
    $
    100,544Gross profit(1)
    
    
    74,985
    
    
    
    78,911
    
    
    
    81,274
    
    
    
    86,282Net income
    
    
    1,023
    
    
    
    20,201
    
    
    
    19,371
    
    
    
    24,395Basic net income
per common share
    
    $
    0.02
    
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.45Diluted net income
per common share
    
    $
    0.02
    
    
    $
    0.31
    
    
    $
    0.30
    
    
    $
    0.38YEAR ENDED JUNE 30, 2004(FOR THE QUARTERS ENDED)SEPTEMBER 30, 2003
    
    DECEMBER 31, 2003(e)
    
    MARCH 31, 2004
    
    JUNE 30, 2004Net revenues
    
    $
    63,295
    
    
    $
    70,633
    
    
    $
    81,839
    
    
    $
    87,954Gross profit(1)
    
    
    53,114
    
    
    
    59,396
    
    
    
    68,721
    
    
    
    75,885Loss on early
extinguishment of debt
    
    
    (58,660
    )
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    
    (27,164
    )
    
    
    13,627
    
    
    
    20,671
    
    
    
    23,705Basic net (loss) income
per common share
    
    $
    (0.50
    )
    
    $
    0.25
    
    
    $
    0.37
    
    
    $
    0.42Diluted 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.Quarterly results were impacted by the following items:(a)
    
    Operating expenses included approximately $30.0 million
paid to Q-Med related to an exclusive license agreement for the development of
SubQ, and approximately $0.7 million of professional fees related to the agreement.(b)
    
    Operating expenses 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.(c)
    
    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 estimate 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.(d)
    
    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 changed the estimated useful life for certain intangible assets
related to Ascent. This change increased amortization expense by approximately $0.8 million during the quarter ended June 30, 2005.(e)
    
    Operating expenses included approximately $2.4 million paid to Dow for a research and development collaboration. F-33




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 (in thousands)
 Balance at
    
    Charged tobeginning of
    
    costs and
    
    Charged to other
    
    
    
    
    
    Balance at end ofDescription
    
    year
    
    expenses
    
    accounts
    
    Deductions
    
    yearYear Ended June 30, 2005Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    15,955
    
    
    $
    95,979
    
    
    
    
    
    
    $
    (92,861
    )
    
    $
    19,073Year Ended June 30, 2004Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    15,079
    
    
    $
    96,263
    
    
    
    
    
    
    $
    (95,387
    )
    
    $
    15,955Year Ended June 30, 2003Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    10,628
    
    
    $
    78,044
    
    
    
    
    
    
    $
    (73,593
    )
    
    $
    15,079




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    
    
    Description10.21
    
    
    
    Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan10.30
    
    
    
    Waiver Letter dated March 18, 2005 between the Company and Q-Med AB12
    
    
    
    Computation of Ratios of Earnings to Fixed Charges21.1
    
    
    
    Subsidiaries23.1
    
    
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm24.1
    
    
    
    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 amended31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended32.1
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002