10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

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: 001-14471

MEDICIS PHARMACEUTICAL CORPORATION

(Exact name of Registrant as specified in its charter)

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

7720 North Dobson Road
Scottsdale, Arizona 85256-2740
(Address of principal executive offices)

(602) 808-8800
(Registrant’s telephone number,
including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 4, 2010
Class A Common Stock $.014 Par Value		60,171,937 (a)
		(a) includes 1,814,237 shares of unvested restricted stock awards

MEDICIS PHARMACEUTICAL CORPORATION

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		1
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009		3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		4
Notes to the Condensed Consolidated Financial Statements		5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3 Quantitative and Qualitative Disclosures About Market Risk		46
Item 4 Controls and Procedures		46
PART II. OTHER INFORMATION
Item 1 Legal Proceedings		47
Item 1A Risk Factors		47
Item 6 Exhibits		48
SIGNATURES		49
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I. Financial Information

Item 1. Financial Statements

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2010		December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	98,308	$	209,051
Short-term investments		445,209		319,229
Accounts receivable, net		136,899		95,222
Inventories, net		37,251		25,985
Deferred tax assets, net		67,261		66,321
Other current assets		20,418		16,525
Total current assets		805,346		732,333
Property and equipment, net		26,281		25,247
Net intangible assets		216,245		227,840
Goodwill		93,282		93,282
Deferred tax assets, net		52,818		64,947
Long-term investments		60,996		25,524
Other assets		3,025		3,025
	$	1,257,993	$	1,172,198

See accompanying notes to condensed consolidated financial statements.

1

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS, Continued

(in thousands, except share amounts)

	June 30, 2010			December 31, 2009
	(unaudited)
Liabilities
Current liabilities:
Accounts payable	$	58,574		$	44,183
Reserve for sales returns		49,194			48,062
Accrued consumer rebates and loyalty programs		90,364			73,311
Managed care and Medicaid reserves		44,410			47,078
Income taxes payable		2,756			16,679
Other current liabilities		71,466			68,381
Total current liabilities		316,764			297,694
Long-term liabilities:
Contingent convertible senior notes		169,326			169,326
Other liabilities		7,961			9,919
Stockholders’ Equity
Preferred stock, $0.01 par value; shares authorized: 5,000,000; issued and outstanding: none		—			—
Class A common stock, $0.014 par value; shares authorized: 150,000,000; issued and outstanding: 71,204,269 and 70,732,409 at June 30, 2010 and December 31, 2009, respectively		986			985
Class B common stock, $0.014 par value; shares authorized: 1,000,000; issued and outstanding: none		—			—
Additional paid-in capital		696,611			690,497
Accumulated other comprehensive loss		(2,813	)		(3,814	)
Accumulated earnings		416,504			351,842
Less: Treasury stock, 12,882,586 and 12,749,261 shares at cost at June 30, 2010 and December 31, 2009, respectively		(347,346	)		(344,251	)
Total stockholders’ equity		763,942			695,259
	$	1,257,993		$	1,172,198

See accompanying notes to condensed consolidated financial statements.

2

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Net product revenues	$	172,183		$	138,695		$	336,723		$	235,294
Net contract revenues		1,862			2,551			3,812			5,770
Net revenues		174,045			141,246			340,535			241,064
Cost of product revenues (1)		16,527			13,067			32,283			22,512
Gross profit		157,518			128,179			308,252			218,552
Operating expenses:
Selling, general and administrative (2)		80,873			71,654			156,822			142,079
Research and development (3)		10,511			12,072			20,675			25,347
Depreciation and amortization		7,239			7,945			14,292			15,077
Operating income		58,895			36,508			116,463			36,049
Interest and investment income		(780	)		(2,158	)		(1,940	)		(4,645	)
Interest expense		1,061			1,058			2,119			2,112
Other (income) expense, net		(2	)		(2,243	)		257			630
Income before income tax expense		58,616			39,851			116,027			37,952
Income tax expense		22,117			24,258			44,158			22,031
Net income	$	36,499		$	15,593		$	71,869		$	15,921
Basic net income per share	$	0.61		$	0.26		$	1.19		$	0.27
Diluted net income per share	$	0.56		$	0.25		$	1.10		$	0.27
Cash dividend declared per common share	$	0.06		$	0.04		$	0.12		$	0.08
Common shares used in calculating:
Basic net income per share		58,271			57,088			58,161			56,911
Diluted net income per share		64,395			63,008			64,294			62,838
(1) amounts exclude amortization of intangible assets related to acquired products	$	5,351		$	6,233		$	10,703		$	11,675
(2) amounts include share-based compensation expense	$	2,197		$	4,786		$	5,161		$	8,519
(3) amounts include share-based compensation expense	$	92		$	230		$	223		$	368

See accompanying notes to condensed consolidated financial statements.

3

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

	Six Months Ended
	June 30, 2010			June 30, 2009
Operating Activities:
Net income	$	71,869		$	15,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,292			15,077
Gain on sale of product rights		—			(350	)
Gain on sale of Medicis Pediatrics		—			(2,915	)
Adjustment of impairment of available-for-sale investments		260			(33	)
Charge reducing value of investment in Revance		—			2,886
Loss (gain) on sale of available-for-sale investments, net		750			(76	)
Share-based compensation expense		5,384			8,887
Deferred income tax expense (benefit)		10,602			(3,378	)
Tax expense from exercise of stock options and vesting of restricted stock awards		(269	)		(694	)
Excess tax benefits from share-based payment arrangements		(320	)		(169	)
Increase in provision for sales discounts and chargebacks		1,031			1,120
Accretion (amortization) of premium/(discount) on investments		1,811			1,416
Changes in operating assets and liabilities:
Accounts receivable		(42,708	)		(45,941	)
Inventories		(11,266	)		(259	)
Other current assets		(3,893	)		(999	)
Accounts payable		14,391			5,738
Reserve for sales returns		1,132			(1,937	)
Income taxes payable		(13,923	)		19,372
Other current liabilities		11,955			39,925
Other liabilities		(1,958	)		(2,569	)
Net cash provided by operating activities		59,140			51,022
Investing Activities:
Purchase of property and equipment		(3,732	)		(2,828	)
Payments for purchase of product rights		—			(74,932	)
Proceeds from sale of product rights		—			350
Proceeds from sale of Medicis Pediatrics		—			70,294
Purchase of available-for-sale investments		(273,403	)		(154,187	)
Sale of available-for-sale investments		41,238			71,201
Maturity of available-for-sale investments		69,515			84,276
Net cash used in investing activities		(166,382	)		(5,826	)
Financing Activities:
Payment of dividends		(5,993	)		(4,663	)
Excess tax benefits from share-based payment arrangements		320			169
Proceeds from the exercise of stock options		2,206			6,807
Net cash (used in) provided by financing activities		(3,467	)		2,313
Effect of exchange rate on cash and cash equivalents		(34	)		(177	)
Net (decrease) increase in cash and cash equivalents		(110,743	)		47,332
Cash and cash equivalents at beginning of period		209,051			86,450
Cash and cash equivalents at end of period	$	98,308		$	133,782

See accompanying notes to condensed consolidated financial statements.

4

MEDICIS PHARMACEUTICAL CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(unaudited)

1. NATURE OF BUSINESS

     Medicis Pharmaceutical Corporation (“Medicis” or the “Company”) is a leading specialty pharmaceutical company focusing primarily on the development and marketing of products in the United States (“U.S.”) for the treatment of dermatological and aesthetic conditions. Medicis also markets products in Canada for the treatment of dermatological and aesthetic conditions and began commercial efforts in Europe with the Company’s acquisition of LipoSonix, Inc. (“LipoSonix”) in July 2008.

     The Company offers a broad range of products addressing various conditions or aesthetic improvements including facial wrinkles, glabellar lines, acne, fungal infections, rosacea, hyperpigmentation, photoaging, psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Medicis currently offers 16 branded products. Its primary brands are DYSPORT^®, PERLANE^®, RESTYLANE^®, SOLODYN^®, TRIAZ^®, VANOS^® and ZIANA^®. Medicis entered the non-invasive body contouring market with its acquisition of LipoSonix in July 2008.

     The consolidated financial statements include the accounts of Medicis and its wholly owned subsidiaries. The Company does not have any subsidiaries in which it does not own 100% of the outstanding stock. All of the Company’s subsidiaries are included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The accompanying interim condensed consolidated financial statements of Medicis have been prepared in conformity with U.S. generally accepted accounting principles, consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The financial information is unaudited, but reflects all adjustments, consisting only of normal recurring adjustments and accruals, which are, in the opinion of the Company’s management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

2. SHARE-BASED COMPENSATION

Stock Option and Restricted Stock Awards

     At June 30, 2010, the Company had seven active share-based employee compensation plans. Of these seven share-based compensation plans, only the 2006 Incentive Award Plan is eligible for the granting of future awards. Stock option awards granted from these plans are granted at the fair market value on the date of grant. The option awards vest over a period determined at the time the options are granted, ranging from one to five years, and generally have a maximum term of ten years. Certain options provide for accelerated vesting if there is a change in control (as defined in the plans). When options are exercised, new shares of the Company’s Class A common stock are issued.

     The total value of the stock option awards is expensed ratably over the service period of the employees receiving the awards. As of June 30, 2010, total unrecognized compensation cost related to stock option awards, to be recognized as expense subsequent to June 30, 2010, was approximately $1.7 million and the related weighted average period over which it is expected to be recognized is approximately 2.3 years.

5

     A summary of stock option activity within the Company’s stock-based compensation plans and changes for the six months ended June 30, 2010, is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	of Shares			Price		Term		Value
Balance at December 31, 2009		9,253,847		$	29.24
Granted		153,295		$	23.33
Exercised		(121,247	)	$	18.39
Terminated/expired		(361,446	)	$	29.86
Balance at June 30, 2010		8,924,449		$	29.26		2.6	$	3,978,873

     The intrinsic value of options exercised during the six months ended June 30, 2010, was $733,008. Options exercisable under the Company’s share-based compensation plans at June 30, 2010, were 8,603,970, with a weighted average exercise price of $29.44, a weighted average remaining contractual term of 2.4 years, and an aggregate intrinsic value of $3,397,299.

     A summary of outstanding and exercisable stock options that are fully vested and are expected to vest, based on historical forfeiture rates, as of June 30, 2010, is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Shares		Price		Term		Value
Outstanding, net of expected forfeitures		8,167,720	$	29.37		2.6	$	3,488,183
Exercisable, net of expected forfeitures		7,891,666	$	29.53		2.5	$	3,058,463

     The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	Six Months Ended
	June 30, 2010	June 30, 2009
Expected dividend yield	1.02% to 1.06%	0.34% to 1.01%
Expected stock price volatility	0.33	0.45 to 0.46
Risk-free interest rate	2.82% to 3.04%	2.18% to 2.76%
Expected life of options	7.0 Years	7.0 Years

     The expected dividend yield is based on expected annual dividends to be paid by the Company as a percentage of the market value of the Company’s stock as of the date of grant. The Company determined that a blend of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The expected lives of options are based on historical data of the Company.

     The weighted average fair value of stock options granted during the six months ended June 30, 2010 and 2009, was $8.28 and $6.44, respectively.

6

     The Company also grants restricted stock awards to certain employees. Restricted stock awards are valued at the closing market value of the Company’s Class A common stock on the date of grant, and the total value of the award is expensed ratably over the service period of the employees receiving the grants. During the six months ended June 30, 2010, 511,235 shares of restricted stock were granted to certain employees. Share-based compensation expense related to all restricted stock awards outstanding during the three months ended June 30, 2010 and 2009, was approximately $1.4 million and $2.3 million, respectively. Share-based compensation expense related to all restricted stock awards outstanding during the six months ended June 30, 2010 and 2009, was approximately $3.3 million and $4.1 million, respectively. As of June 30, 2010, the total amount of unrecognized compensation cost related to nonvested restricted stock awards, to be recognized as expense subsequent to June 30, 2010, was approximately $29.9 million, and the related weighted average period over which it is expected to be recognized is approximately 3.1 years.

     A summary of restricted stock activity within the Company’s share-based compensation plans and changes for the six months ended June 30, 2010, is as follows:

				Weighted
				Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at December 31, 2009		1,915,469		$	17.12
Granted		511,235		$	22.69
Vested		(352,736	)	$	18.57
Forfeited		(223,941	)	$	18.91
Nonvested at June 30, 2010		1,850,027		$	18.17

     The total fair value of restricted shares vested during the six months ended June 30, 2010 and 2009, was approximately $6.6 million and $3.7 million, respectively.

Stock Appreciation Rights

     During 2009, the Company began granting cash-settled stock appreciation rights (“SARs”) to many of its employees. SARs generally vest over a graduated five-year period and expire seven years from the date of grant, unless such expiration occurs sooner due to the employee’s termination of employment, as provided in the applicable SAR award agreement. SARs allow the holder to receive cash (less applicable tax withholding) upon the holder’s exercise, equal to the excess, if any, of the market price of the Company’s Class A common stock on the exercise date over the exercise price, multiplied by the number of shares relating to the SAR with respect to which the SAR is exercised. The exercise price of the SAR is the fair market value of a share of the Company’s Class A common stock relating to the SAR on the date of grant. The total value of the SARs is expensed over the service period of the employees receiving the grants, and a liability is recognized in the Company’s condensed consolidated balance sheets until settled. The fair value of SARs is required to be remeasured at the end of each reporting period until the award is settled, and changes in fair value must be recognized as compensation expense to the extent of vesting each reporting period based on the new fair value. Share-based compensation expense related to SARs during the three months ended June 30, 2010 and 2009, was approximately $0.5 million and $0.9 million, respectively. Share-based compensation expense related to SARs during the six months ended June 30, 2010 and 2009, was approximately $1.2 million and $1.1 million, respectively. As of June 30, 2010, the total measured amount of unrecognized compensation cost related to outstanding SARs, to be recognized as expense subsequent to June 30, 2010, was approximately $23.6 million, and the related weighted average period over which it is expected to be recognized is approximately 4.1 years.

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     The fair value of each SAR was estimated on the date of the grant, and was remeasured at quarter-end, using the Black-Scholes option pricing model with the following assumptions:

	SARs Granted During	SARs Granted During
	the	the	Remeasurement
	Six Months Ended	Six Months Ended	as of
	June 30, 2010	June 30, 2009	June 30, 2010
Expected dividend yield	0.95% to 1.06%	0.35% to 1.01%		1.10	%
Expected stock price volatility	0.32 to 0.33	0.45 to 0.46		0.34
Risk-free interest rate	3.04% to 3.07%	2.18% to 2.76%		2.42	%
Expected life of SARs	7.0 Years	7.0 Years	5.7 to 6.8 Years

     The weighted average fair value of SARs granted during the six months ended June 30, 2010 and 2009, as of the respective grant dates, was $8.14 and $5.33, respectively. The weighted average fair value of all SARs outstanding as of the remeasurement date of June 30, 2010 was $9.69.

     A summary of SARs activity for the six months ended June 30, 2010, is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	of SARs			Price		Term		Value
Balance at December 31, 2009		1,916,156		$	11.40
Granted		1,401,769		$	22.82
Exercised		(72,328	)	$	11.30
Terminated/expired		(209,195	)	$	12.68
Balance at June 30, 2010		3,036,402		$	16.58		6.1	$	17,374,893

     The intrinsic value of SARs exercised during the six months ended June 30, 2010, was $928,011.

     As of June 30, 2010, 111,566 SARs were exercisable, with a weighted average exercise price of $11.29, a weighted average remaining contractual term of 5.7 years, and an aggregate intrinsic value of $1,181,363.

3. SHORT-TERM AND LONG-TERM INVESTMENTS

     The Company’s policy for its short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to the Company’s investment guidelines and market conditions. Short-term and long-term investments consist of corporate and various government agency and municipal debt securities. The Company’s investments in auction rate floating securities consist of investments in student loans. Management classifies the Company’s short-term and long-term investments as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses reported in stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary, if any, are included in other expense in the condensed consolidated statement of operations. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary, results in impairment of the fair value of the investment. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security. Dividends and interest income are recognized when earned. The cost of securities sold is calculated using the specific identification method. At June 30, 2010, the Company has recorded the estimated fair value of available-for-sale and trading securities in short-term and long-term investments of approximately $445.2 million and $61.0 million, respectively. At June 30, 2010, $1.3 million of the Company’s investments were classified as trading securities.

8

     Available-for-sale and trading securities consist of the following at June 30, 2010 (amounts in thousands):

	June 30, 2010
								Other-Than-
			Gross		Gross			Temporary
			Unrealized		Unrealized			Impairment		Fair
	Cost		Gains		Losses			Losses		Value
Corporate notes and bonds	$	125,343	$	427	$	(248	)	$	—	$	125,522
Federal agency notes and bonds		354,966		1,033		(112	)		—		355,887
Auction rate floating securities		31,725		—		(7,550	)		—		24,175
Asset-backed securities		613		8		—			—		621
Total securities	$	512,647	$	1,468	$	(7,910	)	$	—	$	506,205

     During the three and six months ended June 30, 2010, no gross realized gains on sales of available-for-sale securities were recognized. During the three and six months ended June 30, 2010, $0.5 million of gross realized losses were recognized. Gross unrealized gains and losses are determined based on the specific identification method. The net adjustment to unrealized gains during the three and six months ended June 30, 2010, on available-for-sale securities included in stockholders’ equity totaled $0.6 million and $0.9 million, respectively. The amortized cost and estimated fair value of the available-for-sale securities at June 30, 2010, by maturity, are shown below (amounts in thousands):

	June 30, 2010
			Estimated
	Cost		Fair Value
Available-for-sale
Due in one year or less	$	244,907	$	245,266
Due after one year through five years		236,015		236,764
Due after 10 years		30,425		22,875
	$	511,347	$	504,905

     Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties, and the Company views its available-for-sale securities as available for current operations. At June 30, 2010, approximately $61.0 million in estimated fair value expected to mature greater than one year has been classified as long-term investments since these investments are in an unrealized loss position, and management has both the ability and intent to hold these investments until recovery of fair value, which may be maturity.

     As of June 30, 2010, the Company’s investments included auction rate floating securities with a fair value of $24.2 million. The Company’s auction rate floating securities are debt instruments with a long-term maturity and with an interest rate that is reset in short intervals through auctions. The negative conditions in the credit markets during 2008, 2009 and the first half of 2010 have prevented some investors from liquidating their holdings, including their holdings of auction rate floating securities. During the three months ended March 31, 2008, the Company was informed that there was insufficient demand at auction for the auction rate floating securities. As a result, these affected auction rate floating securities are now considered illiquid, and the Company could be required to hold them until they are redeemed by the holder at maturity. The Company may not be able to liquidate the securities until a future auction on these investments is successful.

     In November 2008, the Company entered into a settlement agreement with the broker through which the Company purchased auction rate floating securities. The settlement agreement provides the Company with the right to put an auction rate floating security currently held by the Company back to the broker beginning on June 30, 2010. At

9

June 30, 2010 and December 31, 2009, the Company held one auction rate floating security with a par value of $1.3 million that was subject to the settlement agreement. At inception, the Company elected the irrevocable Fair Value Option treatment under ASC 825, Financial Instruments, and accordingly adjusts the put option to fair value at each reporting date. Concurrent with the execution of the settlement agreement, the Company reclassified this auction rate floating security from available-for-sale to trading securities and accordingly, future changes in fair value related to this investment and the related put option will be recorded in earnings. This auction rate floating security was settled at par on July 1, 2010.

     During the three months ended March 31, 2010, the Company became aware of new circumstances that directly impacted the valuation of an asset-backed security that is owned by the Company. An unrealized loss on the asset-backed security, based on the Company’s intent to hold the security until recovery of the fair value, had previously been recorded in stockholders equity. Based on the new circumstances related to the investment, the Company determined that the impairment of the asset-backed security was other-than-temporary, as the Company believed it would not recover its investment even if the asset were held to maturity. A $0.3 million impairment charge was therefore recorded in other expense, net, during the three months ended March 31, 2010 related to the asset-backed security. The asset-backed security was sold in April 2010.

     The following table shows the gross unrealized losses and the fair value of the Company’s investments, with unrealized losses that are not deemed to be other-than-temporarily impaired aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010 (amounts in thousands):

	Less Than 12 Months				Greater Than 12 Months
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
Corporate notes and bonds	$	53,508	$	248	$	—	$	—
Federal agency notes and bonds		55,418		112		—		—
Auction rate floating securities		—		—		22,875		7,550
Total securities	$	108,926	$	360	$	22,875	$	7,550

     As of June 30, 2010, the Company has concluded that the unrealized losses on its investment securities are temporary in nature and are caused by changes in credit spreads and liquidity issues in the marketplace. Available-for-sale securities are reviewed quarterly for possible other-than-temporary impairment. This review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance and the creditworthiness of the issuer. Additionally, the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell any of the securities before the recovery of their amortized cost basis.

4. FAIR VALUE MEASUREMENTS

     As of June 30, 2010, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included certain of the Company’s short-term and long-term investments, including investments in auction rate floating securities, and the Company’s investment in Hyperion Therapeutics, Inc. (“Hyperion”).

     The Company has invested in auction rate floating securities, which are classified as available-for-sale or trading securities and reflected at fair value. Due to events in credit markets, the auction events for some of these instruments held by the Company failed during the three months ended March 31, 2008 (see Note 3). Therefore, the fair values of these auction rate floating securities, which are primarily rated AAA, are estimated utilizing a discounted cash flow analysis as of June 30, 2010. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. These investments

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were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company. Changes to these assumptions in future periods could result in additional declines in fair value of the auction rate floating securities.

     The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820, Fair Value Measurements and Disclosures, at June 30, 2010, were as follows (in thousands):

			Fair Value Measurement at Reporting Date Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	June 30, 2010		(Level 1)		(Level 2)		(Level 3)
Corporate notes and bonds	$	125,522	$	125,522	$	—	$	—
Federal agency notes and bonds		355,887		355,887		—		—
Auction rate floating securities		24,175		—		—		24,175
Asset-backed securities		621		621		—		—
Investment in Hyperion		2,375		—		—		2,375
Total assets measured at fair value	$	508,580	$	482,030	$	—	$	26,550

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     The following tables present the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2010 (in thousands):

	Fair Value Measurements
	Using Significant Unobservable
	Inputs (Level 3)
	Auction
	Rate			Investment
	Floating			in
	Securities			Hyperion
Balance at March 31, 2010	$	26,254		$	2,375
Total gains (losses) included in other expense, net		—			—
Total gains included in other comprehensive income		596			—
Purchases and settlements, net		(2,675	)		—
Balance at June 30, 2010	$	24,175		$	2,375

	Fair Value Measurements
	Using Significant Unobservable
	Inputs (Level 3)
	Auction
	Rate			Investment
	Floating			in
	Securities			Hyperion
Balance at December 31, 2009	$	26,821		$	2,375
Total gains (losses) included in other expense, net		—			—
Total gains included in other comprehensive income		629			—
Purchases and settlements, net		(3,275	)		—
Balance at June 30, 2010	$	24,175		$	2,375

5. SALE OF MEDICIS PEDIATRICS

     On June 10, 2009, Medicis, Medicis Pediatrics, Inc. (“Medicis Pediatrics,” formerly known as Ascent Pediatrics, Inc.), a wholly-owned subsidiary of Medicis, and BioMarin Pharmaceutical Inc. (“BioMarin”) entered into an amendment (the “Amendment”) to the Securities Purchase Agreement (the “BioMarin Securities Purchase Agreement”), dated as of May 18, 2004, and amended on January 12, 2005, by and among Medicis, Medicis Pediatrics, BioMarin and BioMarin Pediatrics Inc., a wholly-owned subsidiary of BioMarin that previously merged into BioMarin. The Amendment was effected to accelerate the closing of BioMarin’s option under the BioMarin Securities Purchase Agreement to purchase from Medicis all of the issued and outstanding capital stock of Medicis Pediatrics (the “Option”), which was previously expected to close in August 2009. In accordance with the Amendment, the parties consummated the closing of the Option on June 10, 2009 (the “BioMarin Option Closing”). The aggregate cash consideration paid to Medicis in conjunction with the BioMarin Option Closing was approximately $70.3 million and the purchase was completed substantially in accordance with the previously disclosed terms of the BioMarin Securities Purchase Agreement.

     As a result of the BioMarin Option Closing, the Company recognized a pretax gain of $2.2 million during the three months ended June 30, 2009, which is included in other (income) expense, net, in the condensed consolidated statements of income. The $2.2 million pretax gain is net of approximately $0.7 million of

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professional fees related to the transaction. Because of the difference between the Company’s book and tax basis of goodwill in Medicis Pediatrics, the transaction resulted in a $24.8 million gain for income tax purposes, and, accordingly, the Company recorded a $9.0 million income tax provision related to this transaction during the three months ended June 30, 2009, which is included in income tax expense in the condensed consolidated statements of income.

6. INVESTMENT IN REVANCE

     On December 11, 2007, the Company announced a strategic collaboration with Revance, a privately-held, venture-backed development-stage entity, whereby the Company made an equity investment in Revance and purchased an option to acquire Revance or to license exclusively in North America Revance’s novel topical botulinum toxin type A product currently under clinical development. The consideration to be paid to Revance upon the Company’s exercise of the option will be at an amount that will approximate the then fair value of Revance or the license of the product under development, as determined by an independent appraisal. The option period will extend through the end of Phase 2 testing in the United States. In consideration for the Company’s $20.0 million payment, the Company received preferred stock representing an approximate 13.7 percent ownership in Revance, or approximately 11.7 percent on a fully diluted basis, and the option to acquire Revance or to license the product under development. The $20.0 million was used by Revance primarily for the development of the product. Approximately $12.0 million of the $20.0 million payment represented the fair value of the investment in Revance at the time of the investment and was included in other long-term assets in the Company’s condensed consolidated balance sheets as of December 31, 2007. The remaining $8.0 million, which is non-refundable and was expected to be utilized in the development of the new product, represented the residual value of the option to acquire Revance or to license the product under development and was recognized as research and development expense during the three months ended December 31, 2007.

     Prior to the exercise of the option, Revance will remain primarily responsible for the worldwide development of Revance’s topical botulinum toxin type A product in consultation with the Company in North America. The Company will assume primary responsibility for the development of the product should consummation of either a merger or a license for topically delivered botulinum toxin type A in North America be completed under the terms of the option. Revance will have sole responsibility for manufacturing the development product and manufacturing the product during commercialization worldwide. The Company’s right to exercise the option is triggered upon Revance’s successful completion of certain regulatory milestones through the end of Phase 2 testing in the U.S. A license would contain a payment upon exercise of the license option, milestone payments related to clinical, regulatory and commercial achievements, and royalties based on sales defined in the license. If the Company elects to exercise the option, the financial terms for the acquisition or license will be determined through an independent valuation in accordance with specified methodologies.

     The Company estimated the impairment and/or the net realizable value of the investment based on a hypothetical liquidation at book value approach as of the reporting date, unless a quantitative valuation metric was available for these purposes (such as the completion of an equity financing by Revance). During the three months ended March 31, 2009, the Company reduced the carrying value of its investment in Revance by approximately $2.9 million, as a result of a reduction in the estimated net realizable value of the investment using the hypothetical liquidation at book value approach. Such amount was recognized in other (income) expense. As a result of this reduction, the Company’s investment in Revance as of March 31, 2009 was $0. As of June 30, 2010, the Company’s investment in Revance related to this transaction was $0.

     A business entity is subject to consolidation rules and is referred to as a variable interest entity if it lacks sufficient equity to finance its activities without additional financial support from other parties or its equity holders lack adequate decision making ability based on certain criteria. Disclosures are required about variable interest entities that a company is not required to consolidate, but in which a company has a significant variable interest. The Company has determined that Revance is a variable interest entity and that the Company is not the primary beneficiary, and therefore the Company’s equity investment in Revance currently does not require the Company to consolidate Revance into its financial statements. The consolidation status could change in the future, however, depending on changes in the Company’s relationship with Revance.

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7. STRATEGIC COLLABORATIONS

     Perrigo

     On April 8, 2009, the Company entered into a License and Settlement Agreement (the “Perrigo License and Settlement Agreement”) and a Joint Development Agreement (the “Perrigo Joint Development Agreement”) with Perrigo Israel Pharmaceuticals Ltd. Perrigo Company was also a party to the License and Settlement Agreement. Perrigo Israel Pharmaceuticals Ltd. and Perrigo Company are collectively referred to as “Perrigo.”

     In connection with the Perrigo License and Settlement Agreement, the Company and Perrigo agreed to terminate all legal disputes between them relating to the Company’s VANOS^® fluocinonide Cream 0.1%. On April 17, 2009, the Court entered a consent judgment dismissing all claims and counterclaims between Medicis and Perrigo, and enjoining Perrigo from marketing a generic version of VANOS^® other than under the terms of the Perrigo License and Settlement Agreement. In addition, Perrigo confirmed that certain of the Company’s patents relating to VANOS^® are valid and enforceable, and cover Perrigo’s activities relating to its generic product under Abbreviated New Drug Application (“ANDA”) #090256. Further, subject to the terms and conditions contained in the Perrigo License and Settlement Agreement:

• the Company granted Perrigo, effective December 15, 2013, or earlier upon the occurrence of certain events, a license to make and sell generic versions of the existing VANOS^® products; and

• when Perrigo does commercialize generic versions of VANOS^® products, Perrigo will pay the Company a royalty based on sales of such generic products.

     Pursuant to the Perrigo Joint Development Agreement, subject to the terms and conditions contained therein:

• the Company and Perrigo will collaborate to develop a novel proprietary product;

• the Company has the sole right to commercialize the novel proprietary product;

• if and when a New Drug Application (“NDA”) for a novel proprietary product is submitted to the U.S. Food and Drug Administration (“FDA”), the Company and Perrigo shall enter into a commercial supply agreement pursuant to which, among other terms, for a period of three years following approval of the NDA, Perrigo would exclusively supply to the Company all of the Company’s novel proprietary product requirements in the U.S.;

• the Company made an up-front $3.0 million payment to Perrigo and will make additional payments to Perrigo of up to $5.0 million upon the achievement of certain development, regulatory and commercialization milestones; and

• the Company will pay to Perrigo royalty payments on sales of the novel proprietary product.

     During the three months ended September 30, 2009, a development milestone was achieved, and the Company made a $2.0 million payment to Perrigo pursuant to the Perrigo Joint Development Agreement. The $3.0 million up-front payment and the $2.0 million development milestone payment were recognized as research and development expense during the three months ended June 30, 2009 and September 30, 2009, respectively.

     IMPAX

     On November 26, 2008, the Company entered into a License and Settlement Agreement and a Joint Development Agreement with IMPAX Laboratories, Inc. (“IMPAX”). In connection with the License and Settlement Agreement, the Company and IMPAX agreed to terminate all legal disputes between them relating to SOLODYN^®. Additionally, under terms of the License and Settlement Agreement, IMPAX confirmed that the Company’s patents relating to SOLODYN^® are valid and enforceable, and cover IMPAX’s activities relating to its generic product under ANDA #09-024.

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     Under the terms of the License and Settlement Agreement, IMPAX has a license to market its generic versions of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® patent rights belonging to the Company upon the occurrence of specific events. Upon launch of its generic formulations of SOLODYN^®, IMPAX may be required to pay the Company a royalty, based on sales of those generic formulations by IMPAX under terms described in the License and Settlement Agreement.

     Under the Joint Development Agreement, the Company and IMPAX will collaborate on the development of five strategic dermatology product opportunities, including an advanced-form SOLODYN^® product. Under terms of the agreement, the Company made an initial payment of $40.0 million upon execution of the agreement. During the three months ended March 31, 2009, September 30, 2009 and December 31, 2009, the Company paid IMPAX $5.0 million, $5.0 million and $2.0 million, respectively, upon the achievement of three separate clinical milestones, in accordance with terms of the agreement. In addition, the Company will be required to pay up to $11.0 million upon successful completion of certain other clinical and commercial milestones. The Company will also make royalty payments based on sales of the advanced-form SOLODYN^® product if and when it is commercialized by the Company upon approval by the FDA. The Company will share equally in the gross profit of the other four development products if and when they are commercialized by IMPAX upon approval by the FDA.

     The $40.0 million initial payment was recognized as research and development expense during 2008, and the $5.0 million, $5.0 million and $2.0 million clinical milestone achievement payments were recognized as research and development expense during the three months ended March 31, 2009, September 30, 2009 and December 31, 2009, respectively.

8. SEGMENT AND PRODUCT INFORMATION

     The Company operates in one significant business segment: pharmaceuticals. The Company’s current pharmaceutical franchises are divided between the dermatological and non-dermatological fields. The dermatological field represents products for the treatment of acne and acne-related dermatological conditions and non-acne dermatological conditions. The non-dermatological field represents products for the treatment of urea cycle disorder, non-invasive body sculpting technology and contract revenue. The acne and acne-related dermatological product lines include DYNACIN^®, PLEXION^®, SOLODYN^®, TRIAZ^® and ZIANA^®. The non-acne dermatological product lines include DYSPORT^®, LOPROX^®, PERLANE^®, RESTYLANE^® and VANOS^®. The non-dermatological product lines include AMMONUL^®, BUPHENYL^® and the LIPOSONIX^TM system. The non-dermatological field also includes contract revenues associated with licensing agreements and authorized generics.

     The Company’s pharmaceutical products, with the exception of AMMONUL^® and BUPHENYL^®, are promoted to dermatologists, podiatrists, and plastic surgeons. Such products are often prescribed by physicians outside these three specialties; including family practitioners, general practitioners, primary-care physicians and OB/GYNs, as well as hospitals, government agencies, and others. Currently, the Company’s products are sold primarily to wholesalers and retail chain drug stores.

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          Net revenues and the percentage of net revenues for each of the product categories are as follows (amounts in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Acne and acne-related dermatological products	$	124,763	$	94,185	$	244,976	$	160,638
Non-acne dermatological products		41,017		37,100		75,269		60,573
Non-dermatological products		8,265		9,961		20,290		19,853
Total net revenues	$	174,045	$	141,246	$	340,535	$	241,064

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Acne and acne-related dermatological products		72	%		67	%		72	%		67	%
Non-acne dermatological products		23			26			22			25
Non-dermatological products		5			7			6			8
Total net revenues		100	%		100	%		100	%		100	%

9. INVENTORIES

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

          Inventory costs associated with products that have not yet received regulatory approval are capitalized if, in the view of the Company’s management, there is probable future commercial use and future economic benefit. If future commercial use and future economic benefit are not considered probable, then costs associated with pre-launch inventory that has not yet received regulatory approval are expensed as research and development expense during the period the costs are incurred. As of June 30, 2010 and December 31, 2009, there were $0.8 million and $0.3 million, respectively, of costs capitalized into inventory for products that have not yet received regulatory approval.

          Inventories are as follows (amounts in thousands):

	June 30, 2010			December 31, 2009
Raw materials	$	13,352		$	7,472
Work-in-process		2,544			3,660
Finished goods		26,613			21,087
Valuation reserve		(5,258	)		(6,234	)
Total inventories	$	37,251		$	25,985

          Selling, general and administrative costs capitalized into inventory during the three months ended June 30, 2010 and 2009 were $0.4 million and $0.4 million, respectively. Selling, general and administrative costs capitalized into inventory during the six months ended June 30, 2010 and 2009 was $0.8 million and $0.7 million,

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respectively. Selling, general and administrative expenses included in inventory as of June 30, 2010 and December 31, 2009 were $1.5 million and $1.2 million, respectively.

10. OTHER CURRENT LIABILITIES

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

	June 30, 2010		December 31, 2009
Accrued incentives, including SARs liability	$	23,013	$	26,671
Deferred revenue		18,847		18,508
Other accrued expenses		29,606		23,202
	$	71,466	$	68,381

          Included in deferred revenue as of June 30, 2010 and December 31, 2009, were $14.1 million and $15.4 million, respectively, associated with the deferral of revenue of our aesthetics products, including RESTYLANE^®, PERLANE^® and DYSPORT^®, until our exclusive U.S. distributor ships the product to physicians.

11. CONTINGENT CONVERTIBLE SENIOR NOTES

          In June 2002, the Company sold $400.0 million aggregate principal amount of its 2.5% Contingent Convertible Senior Notes Due 2032 (the “Old Notes”) in private transactions. As discussed below, approximately $230.8 million in principal amount of the Old Notes was exchanged for New Notes on August 14, 2003. The Old Notes bear interest at a rate of 2.5% per annum, which is payable on June 4 and December 4 of each year, beginning on December 4, 2002. The Company also agreed to pay contingent interest at a rate equal to 0.5% per annum during any six-month period, with the initial six-month period commencing June 4, 2007, if the average trading price of the Old Notes reaches certain thresholds. No contingent interest related to the Old Notes was payable at June 30, 2010 or December 31, 2009. The Old Notes will mature on June 4, 2032.

          The Company may redeem some or all of the Old Notes at any time on or after June 11, 2007, at a redemption price, payable in cash, of 100% of the principal amount of the Old Notes, plus accrued and unpaid interest, including contingent interest, if any. Holders of the Old Notes may require the Company to repurchase all or a portion of their Old Notes on June 4, 2012 and June 4, 2017, or upon a change in control, as defined in the indenture governing the Old Notes, at 100% of the principal amount of the Old Notes, plus accrued and unpaid interest to the date of the repurchase, payable in cash. Under GAAP, if an obligation is due on demand or will be due on demand within one year from the balance sheet date, even though liquidation may not be expected within that period, it should be classified as a current liability. Accordingly, the outstanding balance of Old Notes along with the deferred tax liability associated with accelerated interest deductions on the Old Notes will be classified as a current liability during the respective twelve month periods prior to June 4, 2012 and June 4, 2017.

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

• during any quarter commencing after June 30, 2002, if the closing price of the Company’s Class A common stock over a specified number of trading days during the previous quarter, 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

17

• upon the occurrence of specified corporate transactions.

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

          The Company incurred $12.6 million of fees and other origination costs related to the issuance of the Old Notes. The Company amortized these costs over the first five-year Put period, which ran through June 4, 2007.

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

          The New Notes bear interest at a rate of 1.5% per annum, which is payable on June 4 and December 4 of each year, beginning December 4, 2003. The Company will also pay contingent interest at a rate of 0.5% per annum during any six-month period, with the initial six-month period commencing June 4, 2008, if the average trading price of the New Notes reaches certain thresholds. No contingent interest related to the New Notes was payable at June 30, 2010 or December 31, 2009. The New Notes mature on June 4, 2033.

          As a result of the exchange, the outstanding principal amounts of the Old Notes and the New Notes were $169.2 million and $283.9 million, respectively. The Company incurred approximately $5.1 million of fees and other origination costs related to the issuance of the New Notes. The Company amortized these costs over the first five-year Put period, which ran through June 4, 2008.

          Holders of the New Notes were able to require the Company to repurchase all or a portion of their New Notes on June 4, 2008, at 100% of the principal amount of the New Notes, plus accrued and unpaid interest, including contingent interest, if any, to the date of the repurchase, payable in cash. Holders of approximately $283.7 million of New Notes elected to require the Company to repurchase their New Notes on June 4, 2008. The Company paid $283.7 million, plus accrued and unpaid interest of approximately $2.2 million, to the holders of New Notes that elected to require the Company to repurchase their New Notes. The Company was also required to pay an accumulated deferred tax liability of approximately $34.9 million related to the repurchased New Notes. This $34.9 million deferred tax liability was paid during the second half of 2008. Following the repurchase of these New Notes, $181,000 of principal amount of New Notes remained outstanding as of June 30, 2010 and December 31, 2009.

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

• during any quarter commencing after September 30, 2003, if the closing price of the Company’s Class A common stock over a specified number of trading days during the previous quarter, 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.

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          The remaining New Notes, which are unsecured, do not contain any restrictions on the incurrence of additional indebtedness or the repurchase of the Company’s securities and do not contain any financial covenants. The New Notes require an adjustment to the conversion price if the cumulative aggregate of all current and prior dividend increases above $0.025 per share would result in at least a one percent (1%) increase in the conversion price. This threshold has not been reached and no adjustment to the conversion price has been made.

          During the quarters ended June 30, 2010, March 31, 2010 and December 31, 2009, the Old Notes and New Notes did not meet the criteria for the right of conversion. At the end of each future quarter, the conversion rights will be reassessed in accordance with the bond indenture agreement to determine if the conversion trigger rights have been achieved.

12. INCOME TAXES

          Income taxes are determined using an annual effective tax rate, which generally differs from the U.S. Federal statutory rate, primarily because of state and local income taxes, enhanced charitable contribution deductions for inventory, tax credits available in the U.S., the treatment of certain share-based payments that are not designed to normally result in tax deductions, various expenses that are not deductible for tax purposes, changes in valuation allowances against deferred tax assets and differences in tax rates in certain non-U.S. jurisdictions. The Company’s effective tax rate may be subject to fluctuations during the year as new information is obtained which may affect the assumptions it uses to estimate its annual effective tax rate, including factors such as its mix of pre-tax earnings in the various tax jurisdictions in which it operates, changes in valuation allowances against deferred tax assets, reserves for tax audit issues and settlements, utilization of tax credits and changes in tax laws in jurisdictions where the Company conducts operations. The Company recognizes tax benefits only if the tax position is more likely than not of being sustained. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities, along with net operating losses and credit carryforwards. The Company records valuation allowances against its deferred tax assets to reduce the net carrying value to amounts that management believes is more likely than not to be realized.

          At June 30, 2010, the Company has an unrealized tax loss of $21.0 million related to the Company’s option to acquire Revance or license Revance’s topical product that is under development. The Company will not be able to determine the character of the loss until the Company exercises or fails to exercise its option. A realized loss characterized as a capital loss can only be utilized to offset capital gains. At June 30, 2010, the Company has recorded a valuation allowance of $7.6 million against the deferred tax asset associated with this unrealized tax loss in order to reduce the carrying value of the deferred tax asset to $0, which is the amount that management believes is more likely than not to be realized.

          During the three months ended June 30, 2010 and June 30, 2009, the Company made net tax payments of $30.9 million and $2.1 million, respectively. During the six months ended June 30, 2010 and June 30, 2009, the Company made net tax payments of $47.7 million and $3.6 million, respectively.

          The Company operates in multiple tax jurisdictions and is periodically subject to audit in these jurisdictions. These audits can involve complex issues that may require an extended period of time to resolve and may cover multiple years. The Company and its domestic subsidiaries file a consolidated U.S. federal income tax return. Such returns have either been audited or settled through statute expiration through 2005. The state of California is currently conducting an examination on the Company’s tax returns for the periods ending June 30, 2005, December 31, 2005, December 31, 2006 and December 31, 2007. The state has proposed audit adjustments. The Company has recorded adequate accruals for these proposed adjustments.

          The Company owns two subsidiaries that file corporate tax returns in Sweden. The Swedish tax authorities examined the tax return of one of the subsidiaries for fiscal 2004. The examiners issued a no change letter, and the examination is complete. The Company’s other subsidiary in Sweden has not been examined by the Swedish tax authorities. The Swedish statute of limitation may be open for up to five years from the date the tax return was filed. Thus, all returns filed from fiscal 2005 forward are open under the statute of limitation.

          At June 30, 2010 and December 31, 2009, the Company had $2.3 million in unrecognized tax benefits, the recognition of which would have a favorable effect of $1.7 million on the Company’s effective tax rate. During the next twelve months, the Company estimates that it is reasonably possible that the amount of unrecognized tax benefits will decrease by $0.8 million due to normal statute closures.

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          The Company recognizes accrued interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. The Company had approximately $0.5 million for the payment of interest and penalties accrued (net of tax benefit) at June 30, 2010 and December 31, 2009.

13. DIVIDENDS DECLARED ON COMMON STOCK

          On June 9, 2010, the Company announced that its Board of Directors had declared a cash dividend of $0.06 per issued and outstanding share of the Company’s Class A common stock payable on July 30, 2010, to stockholders of record at the close of business on July 1, 2010. The $3.6 million dividend was recorded as a reduction of accumulated earnings and is included in other current liabilities in the accompanying condensed consolidated balance sheets as of June 30, 2010. The Company has not adopted a dividend policy.

14. COMPREHENSIVE INCOME

          Total comprehensive income includes net income and other comprehensive income (loss), which consists of foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments. Total comprehensive income for the three months ended June 30, 2010 and 2009, was $36.9 million and $14.4 million, respectively. Total comprehensive income for the six months ended June 30, 2010 and 2009, was $72.9 million and $14.7 million, respectively.

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15. NET INCOME PER COMMON SHARE

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

	Three Months Ended						Six Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
BASIC
Net income	$	36,499		$	15,593		$	71,869		$	15,921
Less: income allocated to participating securities		1,205			526			2,368			467
Net income available to common stockholders		35,294			15,067			69,501			15,454
Weighted average number of common shares outstanding		58,271			57,088			58,161			56,911
Basic net income per common share	$	0.61		$	0.26		$	1.19		$	0.27
DILUTED
Net income	$	36,499		$	15,593		$	71,869		$	15,921
Less: income allocated to participating securities		1,205			526			2,368			467
Net income available to common stockholders		35,294			15,067			69,501			15,454
Less:
Undistributed earnings allocated to unvested stockholders		(1,113	)		(453	)		(2,170	)		(342	)
Add:
Undistributed earnings re-allocated to unvested stockholders		1,107			452			2,159			341
Add:
Tax-effected interest expense and issue costs related to Old Notes		666			666			1,332			1,332
Tax-effected interest expense and issue costs related to New Notes		—			—			1			1
Net income assuming dilution	$	35,954		$	15,732		$	70,823		$	16,786
Weighted average number of common shares outstanding		58,271			57,088			58,161			56,911
Effect of dilutive securities:
Old Notes		5,823			5,823			5,823			5,823
New Notes		4			4			4			4
Stock options		297			93			306			100
Weighted average number of common shares assuming dilution		64,395			63,008			64,294			62,838
Diluted net income per common share	$	0.56		$	0.25		$	1.10		$	0.27

          Diluted net income per common share must be calculated using the “if-converted” method. Diluted net income per share using the “if-converted” method is calculated by adjusting net income for tax-effected net interest

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and issue costs on the Old Notes and New Notes, divided by the weighted average number of common shares outstanding assuming conversion.

          Unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, are included in the two-class method of computing earnings per share. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that would otherwise have been available to common stockholders. Restricted stock granted to certain employees by the Company (see Note 2) participate in dividends on the same basis as common shares, and these dividends are not forfeitable by the holders of the restricted stock. As a result, the restricted stock grants meet the definition of a participating security.

          The diluted net income per common share computation for the three and six months ended June 30, 2010 excludes 8,027,204 and 8,559,315 shares of stock, respectively, that represented outstanding stock options whose exercise price were greater than the average market price of the common shares during the period and were anti-dilutive. The diluted net income per common share computation for the three and six months ended June 30, 2009 excludes 10,679,752 and 11,266,093 shares of stock, respectively, that represented outstanding stock options whose exercise price were greater than the average market price of the common shares during the period and were anti-dilutive.

16. COMMITMENTS AND CONTINGENCIES

Lease Exit Costs

          In connection with occupancy of the new headquarter office, the Company ceased use of the prior headquarter office in July 2008, which consists of approximately 75,000 square feet of office space, at an average annual expense of approximately $2.1 million, under an amended lease agreement that expires in December 2010. Under ASC 420, Exit or Disposal Cost Obligations, a liability for the costs associated with an exit or disposal activity is recognized when the liability is incurred. The Company recorded lease exit costs of approximately $4.8 million during the three months ended September 30, 2008, consisting of the initial liability of $4.7 million and accretion expense of $0.1 million. These amounts were recorded as selling, general and administrative expenses. The Company has not recorded any other costs related to the lease for the prior headquarters, other than accretion expense.

          As of June 30, 2010, approximately $1.1 million of lease exit costs remain accrued and are expected to be paid by December 2010, all of which is classified in other current liabilities. Although the facilities are no longer in use by the Company, the lease exit cost accrual has not been offset by an adjustment for estimated sublease rentals. After considering sublease market information as well as factors specific to the lease, the Company concluded it was probable it would be unable to obtain sublease rentals for the prior headquarters, and, therefore, it would not be subleased for the remaining lease term. The Company will continue to monitor the sublease market conditions and reassess the impact on the lease exit cost accrual.

          The following is a summary of the activity in the liability for lease exit costs for the six months ended June 30, 2010:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2009		to Expense		Made			from Sublease		June 30, 2010
Lease exit costs liability	$	2,063,677	$	58,664	$	(1,069,056	)	$	—	$	1,053,285

Legal Matters

          On January 13, 2009, the Company filed suit against Mylan, Inc., Matrix Laboratories Ltd., Matrix Laboratories Inc., Sandoz, Inc. (“Sandoz”) and Barr Laboratories, Inc. (“Barr”) (collectively “Defendants”) in the United States District Court for the District of Delaware seeking an adjudication that Defendants have infringed one or more claims of the Company’s U.S. Patent No. 5,908,838 (the “’838 Patent”) related to the Company’s acne medication SOLODYN^®, by submitting to the FDA their respective ANDAs for generic versions of SOLODYN^® in its forms of 45mg, 90mg, and 135mg strengths. The relief requested by the Company included a request for a

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permanent injunction preventing Defendants from infringing the ’838 Patent by selling generic versions of SOLODYN^®. The expiration date for the ’838 Patent is in 2018. On March 18, 2009, the Company entered into a settlement agreement with Barr, a subsidiary of Teva Pharmaceutical Industries Ltd. (“Teva”), whereby all legal disputes between the Company and Teva relating to SOLODYN^® were terminated and whereby Barr/Teva agreed that Medicis’ patent-in-suit is valid, enforceable and not infringed and that it should be permanently enjoined from infringement. The Delaware court subsequently entered a permanent injunction against any infringement by Barr/Teva. On March 30, 2009, the Delaware Court dismissed the claims between the Company and Matrix Laboratories Inc. without prejudice, pursuant to a stipulation between Medicis and Matrix Laboratories Inc. On August 18, 2009, the Company entered into a Settlement Agreement with Sandoz whereby all legal disputes between the Company and Sandoz relating to SOLODYN^® were terminated and whereby Sandoz agreed that Medicis’ patent-in-suit is valid, enforceable and not infringed and that it should be permanently enjoined from infringement. The Delaware court subsequently entered a permanent injunction against any infringement by Sandoz.

          On May 6, 2009, the Company received a Paragraph IV Patent Certification from Ranbaxy Laboratories Limited (“Ranbaxy Limited”) advising that Ranbaxy Limited had filed an ANDA with the FDA for generic SOLODYN^® in its form of 135mg strength. Ranbaxy Limited’s Paragraph IV Certification alleged that Ranbaxy Limited’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of the Company’s ’838 Patent. On June 11, 2009, the Company filed suit against Ranbaxy Limited and Ranbaxy Inc. (collectively, “Ranbaxy”) in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the ’838 Patent by submitting the above ANDA to the FDA. The relief the Company requested included a request for a permanent injunction preventing Ranbaxy from infringing the ’838 Patent by selling a generic version of SOLODYN^®.

          On September 24, 2009, the Delaware District Court held a scheduling hearing and ordered that the Mylan and Ranbaxy cases be consolidated and that in both cases trial would commence in May 2010. The parties filed opening claim construction briefs on December 15, 2009, and answering claim construction briefs on January 8, 2010. On March 25, 2010, the Delaware District Court cancelled the April 8, 2010 pretrial conference and the May 7, 2010 trial, and referred the case to Magistrate Judge Stark to hear and address the scheduling of trial and related matters.

          On January 5, 2010, the Company received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy had filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-118 (“Ranbaxy ANDA Supplement/Amendment I”) with the FDA for generic SOLODYN^® in its forms of 45mg and 90mg strengths. Ranbaxy’s Paragraph IV Certification alleged that the Company’s ’838 Patent is invalid, unenforceable, and/or will not be infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment I was submitted. Ranbaxy’s Paragraph IV Certification also alleged that the Company’s U.S. Patent No. 7,541,347 (the “’347 Patent”) or 7,544,373 (the “’373 Patent”) is not infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the ANDA Supplement/Amendment I was submitted. The expiration dates for the ’347 and ’373 Patents are in 2027. Ranbaxy’s submission as to the 45mg and 90mg strengths amended an ANDA already subject to a 30-month stay. As such, the Company believes that the Ranbaxy ANDA Supplement/Amendment I could not be approved by the FDA until after the expiration of the 30-month period or in the event of a court decision holding that the patents are invalid or not infringed. On February 16, 2010, the Company filed suit against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy infringed one or more claims of the patents by submitting the Ranbaxy ANDA Supplement/Amendment I for generic SOLODYN^® in its forms of 45mg and 90mg strengths. The relief requested by the Company included a request for a permanent injunction preventing Ranbaxy from infringing the ’838 patent by selling generic versions of SOLODYN^®.

          On April 15, 2010, the Company received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy had filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-118 (“Ranbaxy ANDA Supplement/Amendment II”) with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Ranbaxy’s Paragraph IV Certification alleged that the Company’s ’838 Patent is invalid, unenforceable, and/or will not be infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment II was submitted. Ranbaxy’s submission as to the 65mg and 115mg strengths amended an ANDA already subject to a 30-month stay. As such, the Company believes that the supplement or amendment could not be approved by the FDA until after the expiration of the 30-month period or in the event of a court decision holding that the patent is invalid or not infringed.

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          On May 4, 2010, the Company entered into a License and Settlement Agreement (the “Ranbaxy Settlement Agreement”) with Ranbaxy. Pursuant to the Settlement Agreement, the Company and Ranbaxy agreed to terminate all legal disputes between them relating to SOLODYN^®. In addition, Ranbaxy confirmed that the Company’s patents relating to SOLODYN^® are valid and enforceable, and cover Ranbaxy’s activities relating to Ranbaxy’s generic SOLODYN^® products under ANDA #91-118. Ranbaxy also agreed to be permanently enjoined from any distribution of generic SOLODYN^® except pursuant to the terms of the Ranbaxy Settlement Agreement. Under the Ranbaxy Settlement Agreement, the Company granted to Ranbaxy a license to make and sell its generic version of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® intellectual property rights belonging to the Company commencing in November 2011, or earlier under certain conditions. The Company also granted to Ranbaxy a license to make and sell generic versions of SOLODYN^® 65mg and 115mg under the Company’s SOLODYN^® intellectual property rights upon certain conditions but not upon any specified date in the future. The Ranbaxy Settlement Agreement provides that Ranbaxy will be required to pay the Company royalties based on sales of Ranbaxy’s generic SOLODYN^® products pursuant to the foregoing licenses. In addition, the Ranbaxy Settlement Agreement provides for the Company’s grant to Ranbaxy of a license to make and sell a branded proprietary dermatology product currently under development by Ranbaxy, which is not therapeutically equivalent to any of the Company’s currently marketed dermatology products, under certain intellectual property rights belonging to the Company, commencing the later of August 2011 or upon the sale of such product by Ranbaxy following approval by the FDA. Ranbaxy will be required to pay the Company a royalty based on sales of such product pursuant to the license.

          On October 8, 2009, the Company received a Paragraph IV Patent Certification from Lupin advising that Lupin had filed an ANDA with the FDA for generic SOLODYN^® in its forms of 45mg, 90mg, and 135mg strengths. Lupin did not advise the Company as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid. Lupin’s Paragraph IV Certification also alleges that the Company’s ’347 Patent or ’373 Patent is not infringed by Lupin’s manufacture, importation, use, sale and/or offer for sale of the products for which the Lupin ANDA was submitted. On November 17, 2009, the Company filed suit against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA an ANDA for generic SOLODYN^® in its forms of 45mg, 90mg and 135mg strengths. The relief the Company requested includes a request for a permanent injunction preventing Lupin from infringing the ’838 Patent by selling generic versions of SOLODYN^®. On November 24, 2009, the Company received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment I”) with the FDA for generic SOLODYN ^® in its form of 65mg strength. Lupin has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid. Lupin’s Paragraph IV Certification also alleges that the Company’s ’347 Patent or ’373 Patent is not infringed by Lupin’s manufacture, importation, use, sale and/or offer for sale of the products for which the Lupin ANDA Supplement/Amendment I was submitted. Lupin’s submission amends an ANDA already subject to a 30-month stay. As such, the Company believes that the amendment cannot be approved by the FDA until after the expiration of the 30-month period or a court decision that the patent is invalid or not infringed.

          On December 23, 2009, the Company received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment II”) with the FDA for generic SOLODYN ^® in its form of 115mg strength. Lupin has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid. Lupin’s Paragraph IV Certification also alleges that the Company’s ’347 Patent or ’373 Patent is not infringed by Lupin’s manufacture, importation, use, sale and/or offer for sale of the products for which the Lupin ANDA Supplement/Amendment II was submitted. Lupin’s submission amends an ANDA already subject to a 30-month stay. As such, the Company believes that the amendment cannot be approved by the FDA until after the expiration of the 30-month period or a court decision that the patent is invalid or not infringed. On December 28, 2009, the Company amended its complaint against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting its supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 for generic SOLODYN^® in its form of 65mg strength. On February 2, 2010, the Company amended its complaint against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of

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the ’838 Patent by submitting its supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 for generic SOLODYN^® in its form of 115mg strength.

          On November 20, 2009, the Company received a Paragraph IV Patent Certification from Barr, advising that Barr has filed a supplement to its earlier filed ANDA #65-485 (“Barr ANDA Supplement”) with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Barr has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Barr has complied with FDA requirements for proving bioequivalence. Barr’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid, unenforceable and/or will not be infringed by Barr’s manufacture, use, sale and/or importation of the products for which the Barr ANDA Supplement was submitted. On December 28, 2009, the Company filed suit against Barr and Teva Pharmaceuticals USA, Inc., (collectively “Barr/Teva USA”) in the United States District Court for the District of Maryland seeking an adjudication that Barr/Teva USA has infringed one or more claims of the ’838 Patent by submitting to the FDA the Barr ANDA Supplement for generic SOLODYN^® in its forms of 65mg and 115mg strengths. The relief the Company requested includes a request for a permanent injunction preventing Barr/Teva USA from infringing the ’838 Patent by selling generic versions of SOLODYN^® in its forms of 65mg and 115mg strengths. As a result of the filing of the suit, the Company believes that the supplement to the ANDA cannot be approved by the FDA until after the expiration of a 30-month stay period or a court decision that the patent is invalid or not infringed.

          On January 28, 2010, the Company received a Paragraph IV Patent Certification from Sandoz, advising that Sandoz has filed a supplement to its earlier filed ANDA #91-422 (“Sandoz ANDA Supplement”) with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Sandoz has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Sandoz has complied with FDA requirements for proving bioequivalence. Sandoz’s Paragraph IV Certification alleges that the Company’s ’838 Patent will not be infringed by Sandoz’s manufacture, use, sale and/or importation of the products for which the Sandoz ANDA Supplement was submitted because it has been granted a patent license by the Company for the ’838 Patent.

          On May 7, 2010, the Company received notice from Mylan Inc. that its majority owned subsidiary Matrix Laboratories Limited (“Matrix”) had filed an ANDA containing a Paragraph IV Patent Certification with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Mylan Inc. did not advise the Company as to the timing or status of the FDA’s review of Matrix’s filing, or whether Matrix had complied with FDA requirements for proving bioequivalence. The Paragraph IV Certification alleged that the Company’s ’838 Patent is invalid and/or will not be infringed by Matrix’s manufacture, use or sale of the products for which the ANDA was submitted. On June 14, 2010, the Company filed suit against Mylan Inc. and Matrix in the United States District Court for the District of Delaware seeking an adjudication that Matrix had infringed one or more claims of the Company’s ’838 Patent by submitting to the FDA its ANDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. The relief requested by the Company included a request for a permanent injunction preventing Matrix from infringing the ’838 Patent by selling generic versions of SOLODYN^®. As a result of the filing of the suit, the Company believes that the ANDA could not be approved by the FDA until after the expiration of a 30-month stay period or a court decision that the ’838 Patent is invalid or not infringed.

          A third party requested that the U.S. Patent and Trademark Office (“USPTO”) conduct an Ex Parte Reexamination of the ’838 Patent. The USPTO granted this request. In March 2009, the USPTO issued a non-final office action in the reexamination of the ’838 Patent. On May 13, 2009, Medicis filed its response to the non-final office action with the USPTO, canceling certain claims and adding amended claims. On November 10, 2009, the USPTO issued a second non-final office action in the reexamination of the ’838 Patent. On January 8, 2010, the Company filed its response to the non-final office action with the USPTO. On March 17, 2010, the Company received a Notice of Intent to Issue a Reexamination Certificate issued by the USPTO in connection with the USPTO’s reexamination of the ’838 Patent. On June 1, 2010, the Company received the Reexamination Certificate (the “Reexamination Certificate”) from the USPTO. The Reexamination Certificate is directed to patentable claims 3, 4, 12, and 13, as well as new claims 19-34. The USPTO determined that the claims are patentable, including over all the cited prior art. The claims are the subject of patent infringement lawsuits filed by the Company in Maryland.

          On July 1, 2010, the Company amended its complaint against Lupin in the United States District Court for the District of Maryland relating to Lupin’s filing of its ANDA, and amendments or supplements thereto, for generic SOLODYN^® in its forms of 45mg, 65mg, 90mg, 115mg and 135mg strengths. The Company amended the complaint to assert new claims 19, 21, 23, 25 and 27-34 included in the Reexamination Certificate. The complaint

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seeks an adjudication that Lupin has infringed one or more claims of the ’838 Patent, including the new claims, by submitting the ANDA, and amendments or supplements thereto, to the FDA.

          On July 8, 2010, the Company amended its complaint against Mylan Inc. and Matrix in the United States District Court for the District of Delaware relating to Matrix’s filing of its ANDA for generic SOLODYN^® in its forms of 45mg, 90mg and 135mg strengths. The Company amended the complaint to assert new claims 19, 21, 23, 25 and 27-34 included in the Reexamination Certificate. The complaint sought an adjudication that Matrix had infringed one or more claims of the ’838 Patent, including the new claims, by submitting the ANDA to the FDA.

          On July 22, 2010, the Company entered into a Settlement Agreement and a License Agreement (the “Mylan License Agreement”) with Mylan Inc. and certain of its affiliates, including Matrix and Mylan Pharmaceuticals Inc. (collectively, “Mylan”). Pursuant to the agreements, the companies agreed to terminate all legal disputes between them relating to SOLODYN^®. In addition, Mylan confirmed that the Company’s patents relating to SOLODYN^® are valid and enforceable, and cover Mylan’s activities relating to Mylan’s generic SOLODYN^® products under its ANDAs described above. Mylan also acknowledged that any prior sales of its generic SOLODYN^® products were not authorized by the Company, and agreed to be permanently enjoined from any further distribution of generic SOLODYN^® products except pursuant to the Mylan License Agreement as described below. The Company agreed to release Mylan from liability arising from any prior sales of its generic SOLODYN^® products that were not authorized by the Company. Under the Mylan License Agreement, the Company granted to Mylan a license to make and sell its generic versions of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® intellectual property rights belonging to the Company commencing in November 2011, or earlier under certain conditions. The Company also granted to Mylan a license to make and sell generic versions of SOLODYN^® 65mg and 115mg under the Company’s SOLODYN^® intellectual property rights upon certain conditions, but not upon any specified date in the future. The Mylan License Agreement provides that Mylan will be required to pay the Company royalties based on sales of Mylan’s generic SOLODYN^® products pursuant to the foregoing licenses.

          On July 9, 2010, the Company amended its complaint against Barr/Teva USA in the United States District Court for the District of Maryland relating to Barr/Teva USA’s filing of its ANDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. The Company amended the complaint to assert new claims 19, 21, 23, 25 and 27-34 included in the Reexamination Certificate. The complaint seeks an adjudication that Barr/Teva USA has infringed one or more claims of the ’838 Patent, including the new claims, by submitting the ANDA to the FDA.

          On March 17, 2010, the Company received a Paragraph IV Patent Certification from Taro Pharmaceuticals U.S.A., Inc. (“Taro U.S.A.”) advising that Taro U.S.A. has filed an ANDA with the FDA for a generic version of VANOS^® (fluocinonide) Cream 0.1%. Taro U.S.A. has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Taro U.S.A. has complied with FDA requirements for proving bioequivalence. Taro U.S.A.’s Paragraph IV Certification alleges that the Company’s U.S. Patent No. 6,765,001 (the “’001 Patent”) and U.S. Patent No. 7,220,424 (the “’424 Patent”) will not be infringed by Taro U.S.A.’s manufacture, use, sale or importation of the product for which the ANDA was submitted, and that claim 3 of the ’424 Patent is invalid. On April 28, 2010, the Company filed suit against Taro U.S.A. and Taro Pharmaceuticals Industries, Ltd. (collectively, “Taro”) in the United States District Court for the District of Delaware and the United States District Court for the Southern District of New York seeking an adjudication that Taro has infringed one or more claims of the ’001 Patent, the ’424 Patent and the Company’s U.S. Patent No. 7,217,422 (the “’422 Patent”) by submitting the ANDA to the FDA. The relief requested by the Company includes a request for a permanent injunction preventing Taro from infringing the patents by selling a generic version of VANOS^® prior to the expiration of the asserted patents.

          On April 7, 2010, the Company received a Paragraph IV Patent Certification from Nycomed US Inc. (“Nycomed”) advising that Nycomed has filed an ANDA with the FDA for a generic version of VANOS^® (fluocinonide) Cream 0.1%. Nycomed has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Nycomed has complied with FDA requirements for proving bioequivalence. Nycomed’s Paragraph IV Certification alleges that the Company’s ’001 Patent and ’424 Patent will not be infringed by Nycomed’s manufacture, use, sale, offer for sale or importation of the product for which the ANDA was submitted. On May 19, 2010, the Company filed suit against Nycomed and Nycomed GmbH in the United States District Court for the District of Delaware and the United States District Court for the Southern District of New York seeking an

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adjudication that Nycomed has infringed one or more claims of the Company’s ’001 Patent, ’424 Patent and ’422 Patent by submitting the ANDA to the FDA. The relief requested by the Company includes a request for a permanent injunction preventing Nycomed from infringing the patents by selling a generic version of VANOS^® prior to the expiration of the asserted patents.

          On July 28, 2010, the Company filed suit against Stiefel Laboratories, Inc., a subsidiary of GlaxoSmithKline plc (“Stiefel”), in the United States District Court for the Western District of Texas — San Antonio Division seeking a declaratory judgment that the manufacture and sale of Stiefel’s acne product VELTIN™ Gel, which was recently approved by the FDA, will infringe one or more claims of the Company’s U.S. Patent No. RE41,134 (the “’134 Patent”) covering the Company’s product ZIANA^® Gel, a prescription topical gel indicated for the treatment of acne that was approved by the FDA in November 2006. The ’134 Patent is listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) and expires in February 2015. The Company has rights to the ’134 Patent pursuant to an exclusive license agreement with the owner of the patent. The relief requested by the Company in the lawsuit includes a request for a permanent injunction preventing Stiefel from infringing the ’134 Patent by engaging in the commercial manufacture, use, importation, offer to sell, or sale of any therapeutic composition or method of use covered by the ’134 Patent, including such activities relating to VELTIN™, and from inducing or contributing to any such activities.

          On October 3, 10, and 27, 2008, purported stockholder class action lawsuits styled Andrew Hall v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01821-MHB); Steamfitters Local 449 Pension Fund v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01870-DKD); and Darlene Oliver v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01964-JAT) were filed in the United States District Court for the District of Arizona on behalf of stockholders who purchased securities of the Company during the period between October 30, 2003 and approximately September 24, 2008. The Court consolidated these actions into a single proceeding and on May 18, 2009 an amended complaint was filed alleging violations of the federal securities laws arising out of the Company’s restatement of its consolidated financial statements in 2008. On December 2, 2009, the court dismissed the consolidated amended complaint without prejudice, and on January 18, 2010 the lead plaintiff filed a second amended complaint. On February 19, 2010, the Company and the other defendants filed motions to dismiss the second amended complaint in its entirety on various grounds. The Company will continue to vigorously defend the claims in these consolidated matters. There can be no assurance, however, that the Company will be successful, and an adverse resolution of the lawsuits could have a material adverse effect on the Company’s financial position and results of operations in the period in which the lawsuits are resolved. The Company is not presently able to reasonably estimate potential losses, if any, related to the lawsuits.

          In addition to the matters discussed above, in the ordinary course of business, the Company is involved in a number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, it is the opinion of the Company’s management, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations, financial condition or cash flows of the Company.

17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In October 2009, the FASB approved for issuance Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (ASC 605) — Multiple — Deliverable Revenue Arrangements, a consensus of EITF 08-01, Revenue Arrangements with Multiple Deliverables. This guidance modifies the fair value requirements of ASC subtopic 605-25 Revenue Recognition — Multiple Element Arrangements by providing principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. An estimated selling price method is introduced for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This updated guidance is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The Company is currently assessing what impact, if any, the updated guidance will have on its results of operations and financial condition.

          In March 2010, the FASB approved for issuance ASU No. 2010-17, Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The updated guidance recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development transactions, and is

27

effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently assessing what impact, if any, the updated guidance will have on its results of operations and financial condition.

18. SUBSEQUENT EVENTS

          The Company has evaluated subsequent events through the date of issuance of its financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

          We are a leading independent specialty pharmaceutical company focused primarily on helping patients attain a healthy and youthful appearance and self-image through the development and marketing in the U.S. of products for the treatment of dermatological and aesthetic conditions. We also market products in Canada for the treatment of dermatological and aesthetic conditions and began commercial efforts in Europe with our acquisition of LipoSonix in July 2008. We offer a broad range of products addressing various conditions or aesthetics improvements, including facial wrinkles, acne, fungal infections, rosacea, hyperpigmentation, photoaging, psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin).

          Our current product lines are divided between the dermatological and non-dermatological fields. The dermatological field represents products for the treatment of acne and acne-related dermatological conditions and non-acne dermatological conditions. The non-dermatological field represents products for the treatment of urea cycle disorder, non-invasive body sculpting technology and contract revenue. Our acne and acne-related dermatological product lines include DYNACIN^®, PLEXION^®, SOLODYN^®, TRIAZ^® and ZIANA^®. Our non-acne dermatological product lines include DYSPORT^®, LOPROX^®, PERLANE^®, RESTYLANE^® and VANOS^®. Our non-dermatological product lines include AMMONUL^®, BUPHENYL^® and the LIPOSONIX^TM system. Our non-dermatological field also includes contract revenues associated with licensing agreements and authorized generic agreements.

Financial Information About Segments

          We operate in one business segment: pharmaceuticals. Our current pharmaceutical franchises are divided between the dermatological and non-dermatological fields. Information on revenues, operating income, identifiable assets and supplemental revenue of our business franchises appears in the condensed consolidated financial statements included in Item 1 hereof.

Key Aspects of Our Business

          We derive a majority of our revenue from our primary products: DYSPORT^®, PERLANE^®, RESTYLANE^®, SOLODYN^®, TRIAZ^®, VANOS^® and ZIANA^®. We believe that sales of our primary products will constitute a significant portion of our revenue for 2010.

          We have built our business by executing a four-part growth strategy: promoting existing brands, developing new products and important product line extensions, entering into strategic collaborations and acquiring complementary products, technologies and businesses. Our core philosophy is to cultivate high integrity relationships of trust and confidence with the foremost dermatologists and the leading plastic surgeons in the U.S. We rely on third parties to manufacture our products (except for the LIPOSONIX^TM system).

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

          We schedule our inventory purchases to meet anticipated customer demand. As a result, miscalculation of customer demand or relatively small delays in our receipt of manufactured products could result in revenues being deferred or lost. Our operating expenses are based upon anticipated sales levels, and a high percentage of our operating expenses are relatively fixed in the short term.

          We sell our products primarily to major wholesalers and retail pharmacy chains. Approximately 65-75% of our gross revenues are typically derived from two major drug wholesale concerns. Depending on the customer, we

29

recognize revenue at the time of shipment to the customer, or at the time of receipt by the customer, net of estimated provisions. As a result of certain amendments made to our distribution services agreement with McKesson, our exclusive U.S. distributor of our aesthetics products DYSPORT^®, PERLANE^® and RESTYLANE^®, we began recognizing revenue on these products upon the shipment from McKesson to physicians beginning in the second quarter of 2009. Consequently, variations in the timing of revenue recognition could cause significant fluctuations in operating results from period to period and may result in unanticipated periodic earnings shortfalls or losses. We have distribution services agreements with our two largest wholesale customers. We review the supply levels of our significant products sold to major wholesalers by reviewing periodic inventory reports that are supplied to us by our major wholesalers in accordance with the distribution services agreements. We rely wholly upon our wholesale and drug chain customers to effect the distribution allocation of substantially all of our prescription products. We believe our estimates of trade inventory levels of our products, based on our review of the periodic inventory reports supplied by our major wholesalers and the estimated demand for our products based on prescription and other data, are reasonable. We further believe that inventories of our products among wholesale customers, taken as a whole, are similar to those of other specialty pharmaceutical companies, and that our trade practices, which periodically involve volume discounts and early payment discounts, are typical of the industry.

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

          Purchases by any given customer, during any given period, may be above or below actual prescription volumes of any of our products during the same period, resulting in fluctuations of product inventory in the distribution channel.

Recent Developments

          As described in more detail below, the following significant events and transactions occurred during the six months ended June 30, 2010, and affected our results of operations, our cash flows and our financial condition:

- FDA approval of RESTYLANE-L^TM and PERLANE-L^TM;

- Increase of our quarterly dividend from $0.04 per share to $0.06 per share;

- Notice of Allowance received from the USPTO for a patent application related to SOLODYN^®; and

- Reexamination Certificate received from the USPTO related to SOLODYN^®.

FDA approval of RESTYLANE-L^TM and PERLANE-L^TM

          On January 29, 2010, the FDA approved our dermal fillers RESTYLANE-L^TM and PERLANE-L^TM, which include the addition of 0.3% lidocaine. RESTYLANE-L^TM is approved for implantation into the mid to deep dermis, and PERLANE-L^TM is approved for implantation into the deep dermis to superficial subcutis, both for the correction of moderate to severe facial wrinkles and folds, such as nasolabial folds. We began shipping RESTYLANE-L^TM and PERLANE-L^TM during February 2010.

Increase of our quarterly dividend from $0.04 per share to $0.06 per share

          On March 10, 2010, we announced that our Board of Directors had declared a cash dividend of $0.06 per issued and outstanding share of our Class A common stock, payable on April 30, 2010, to stockholders of record at the close of business on April 1, 2010. This represented a 50% increase compared to our previous $0.04 dividend. On June 9, 2010, we announced that our Board of Directors had declared a cash dividend of $0.06 per issued and

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outstanding share of our Class A common stock payable on July 30, 2010, to our stockholders of record at the close of business on July 1, 2010.

Notice of Allowance received from the USPTO related to SOLODYN^®

          On April 2, 2010, we received a second Notice of Allowance from the U.S. Patent and Trademark Office (“USPTO”) for our U.S. patent application No. 11/166,817, entitled “Method For The Treatment Of Acne” (the “’817 Application”). The USPTO initially issued a Notice of Allowance for the ’817 Application in October 2009; however, we filed a Request for Continued Examination with the USPTO in the ’817 Application in November 2009 so that the USPTO could consider references filed in the Reexamination of our U.S. Patent No. 5,908,838. The newly allowed claims under the ’817 Application cover methods of using a controlled-release oral dosage form of minocycline to treat acne, including the use of our product SOLODYN^® (minocycline HCl, USP) Extended Release Tablets in all five currently available dosage forms.

Reexamination Certificate received from the USPTO related to SOLODYN^®

          On June 1, 2010, we received a Reexamination Certificate issued by the USPTO in connection with the USPTO’s reexamination of U.S. Patent No. 5,908,838 related to our acne medication SOLODYN^®. The Reexamination Certificate is directed to patentable claims 3, 4, 12, and 13, as well as new claims 19-34. The USPTO determined that the claims are patentable, including over all the cited prior art. The claims are the subject of patent infringement lawsuits filed by the Company in Maryland.

Subsequent Event

          On July 20, 2010, we received a Notice of Allowance issued by the USPTO for our U.S. patent application directed to the use of SOLODYN ^® in all five currently available dosage forms. The patent application is U.S. Application No. 12/253,845, entitled “Minocycline Oral Dosage Forms For The Treatment of Acne.” The newly allowed claims are directed to methods of treating acne using controlled-release oral dosage forms of minocycline.

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Results of Operations

          The following table sets forth certain data as a percentage of net revenues for the periods indicated.

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2010			2009			2010			2009
	(a)			(b)			(c)			(d)
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit (e)		90.5			90.7			90.5			90.7
Operating expenses		56.7			64.9			56.3			75.7
Operating income		33.8			25.8			34.2			15.0
Other income (expense), net		—			1.6			(0.1	)		(0.3	)
Interest and investment (expense) income, net		(0.2	)		0.8			(0.1	)		1.1
Income before income tax expense		33.6			28.2			34.0			15.8
Income tax expense		(12.7	)		(17.2	)		(13.0	)		(9.1	)
Net income		20.9	%		11.0	%		21.0	%		6.7	%

(a)	Included in operating expenses is $2.3 million (1.3% of net revenues) of compensation expense related to stock options, restricted stock and stock appreciation rights.
(b)	Included in operating expenses is $5.0 million (3.6% of net revenues) of compensation expense related to stock options, restricted stock and stock appreciation rights and $3.0 million (2.1% of net revenues) paid to Perrigo related to a product development agreement.
(c)	Included in operating expenses is $5.4 million (1.6% of net revenues) of compensation expense related to stock options, restricted stock and stock appreciation rights.
(d)	Included in operating expenses is $5.0 million (2.1% of net revenues) paid to IMPAX related to a product development agreement, $3.0 million (1.2% of net revenues) paid to Perrigo related to a product development agreement and $8.9 million (3.7% of net revenues) of compensation expense related to stock options, restricted stock and stock appreciation rights.
(e)	Gross profit does not include amortization of the related intangibles as such expense is included in operating expenses.

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Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009

Net Revenues

          The following table sets forth our net revenues for the three months ended June 30, 2010 (the “second quarter of 2010”) and June 30, 2009 (the “second quarter of 2009”), along with the percentage of net revenues and percentage point change for each of our product categories (dollar amounts in millions):

	Second Quarter		Second Quarter
	2010		2009		$ Change			% Change
Net product revenues	$	172.2	$	138.7	$	33.5			24.2	%
Net contract revenues		1.8		2.5		(0.7	)		(28.0	)%
Total net revenues	$	174.0	$	141.2	$	32.8			23.2	%

	Second Quarter		Second Quarter
	2010		2009		$ Change			% Change
Acne and acne-related dermatological products	$	124.7	$	94.2	$	30.5			32.4	%
Non-acne dermatological products		41.0		37.1		3.9			10.5	%
Non-dermatological products (including contract revenues)		8.3		9.9		(1.6	)		(16.2	)%
Total net revenues	$	174.0	$	141.2	$	32.8			23.2	%

	Second Quarter			Second Quarter
	2010			2009			Change
Acne and acne-related dermatological products		71.7	%		66.7	%		5.0	%
Non-acne dermatological products		23.6	%		26.3	%		(2.7	)%
Non-dermatological products (including contract revenues)		4.7	%		7.0	%		(2.3	)%
Total net revenues		100.0	%		100.0	%		—

          Net revenues associated with our acne and acne-related dermatological products increased by $30.5 million, or 32.4%, during the second quarter of 2010 as compared to the second quarter of 2009 primarily as a result of increased sales of SOLODYN^® and ZIANA^®, both of which were generated by strong prescription growth. In addition, during the third quarter of 2009 we launched new 65mg and 115mg strengths of SOLODYN^® after they were approved by the FDA.

          Net revenues associated with our non-acne dermatological products increased by $3.9 million, or 10.5% during the second quarter of 2010 as compared to the second quarter of 2009, primarily due to increased sales of DYSPORT^®, which was launched in June 2009, and increased sales of RESTYLANE^®, partially offset by a decrease in sales of LOPROX^®, which was negatively impacted by generic competition. RESTYLANE-L^TM and PERLANE-L^TM were launched during February 2010 following FDA approval on January 29, 2010. Net revenues associated with our non-acne dermatological products decreased as a percentage of net revenues during the second quarter of 2010 as compared to the second quarter of 2009, primarily due to the $30.5 million increase in our acne and acne-related dermatological products.

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          Net revenues associated with our non-dermatological products decreased by $1.6 million, or 16.2%, during the second quarter of 2010 as compared to the second quarter of 2009 primarily due to a decrease in sales of BUPHENYL^® and a reduction in contract revenue.

Gross Profit

          Gross profit represents our net revenues less our cost of product revenue. Our cost of product revenue includes our acquisition cost for the products we purchase from our third party manufacturers and royalty payments made to third parties. Amortization of intangible assets related to products sold is not included in gross profit. Amortization expense related to these intangibles for the second quarter of 2010 and 2009 was approximately $5.4 million and $6.2 million, respectively. Product mix plays a significant role in our quarterly and annual gross profit as a percentage of net revenues. Different products generate different gross profit margins, and the relative sales mix of higher gross profit products and lower gross profit products can affect our total gross profit.

          The following table sets forth our gross profit for the second quarter of 2010 and 2009, along with the percentage of net revenues represented by such gross profit (dollar amounts in millions):

	Second Quarter			Second Quarter
	2010			2009			$ Change		% Change
Gross profit	$	157.5		$	128.2		$	29.3		22.9	%
% of net revenues		90.5	%		90.7	%

          The increase in gross profit during the second quarter of 2010 as compared to the second quarter of 2009 is primarily due to the $32.8 million increase in net revenues. Gross profit as a percentage of net revenues was 90.5% during the second quarter of 2010, as compared to 90.7% during the second quarter of 2009. Net revenues of SOLODYN^®, a high gross margin product, increased during the second quarter of 2010 as compared to the second quarter of 2009, while net revenues of other products, which have lower gross margins, also increased.

Selling, General and Administrative Expenses

          The following table sets forth our selling, general and administrative expenses for the second quarter of 2010 and 2009, along with the percentage of net revenues represented by selling, general and administrative expenses (dollar amounts in millions):

	Second Quarter			Second Quarter
	2010			2009			$ Change			% Change
Selling, general and administrative	$	80.9		$	71.7		$	9.2			12.8	%
% of net revenues		46.5	%		50.7	%
Share-based compensation expense included in selling, general and administrative	$	2.2		$	4.8		$	(2.6	)		(54.2	)%

          Selling, general and administrative expenses increased $9.2 million, or 12.8%, during the second quarter of 2010 as compared to the second quarter of 2009, but decreased as a percentage of net revenues from 50.7% during the second quarter of 2009 to 46.5% during the second quarter of 2010. Included in this increase was a $5.2 million increase in personnel expenses, primarily due to $2.9 million of severance expense related to the departure of an executive employee, and an increase of $4.0 million of other selling, general and administrative costs. The decrease of selling, general and administrative expenses as a percentage of net revenues during the second quarter of 2010 as compared to the second quarter of 2009 was primarily due to the $32.8 million increase in net revenues.

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Research and Development Expenses

          The following table sets forth our research and development expenses for the second quarter of 2010 and 2009 (dollar amounts in millions):

	Second		Second
	Quarter		Quarter
	2010		2009		$ Change			% Change
Research and development	$	10.5	$	12.1	$	(1.6	)		(13.2)	%
Charges included in research and development	$	—	$	3.0	$	(3.0	)		(100.0)	%
Share-based compensation expense included in research and development	$	0.1	$	0.2	$	(0.1	)		(50.0)	%

          Included in research and development expenses for the second quarter of 2009 was a $3.0 million payment to Perrigo related to a development agreement. We expect research and development expenses to continue to fluctuate from quarter to quarter based on the timing of the achievement of development milestones under license and development agreements, as well as the timing of other development projects and the funds available to support these projects.

Depreciation and Amortization Expenses

          Depreciation and amortization expenses during the second quarter of 2010 were $7.2 million, as compared to $7.9 million during the second quarter of 2009. The decrease was primarily due amortization expense related to intangible assets related to Medicis Pediatrics, Inc., which was sold to BioMarin Pharmaceutical Inc. during the second quarter of 2009, not being incurred during the second quarter of 2010.

Interest and Investment Income

          Interest and investment income during the second quarter of 2010 decreased $1.4 million, or 63.9%, to $0.8 million from $2.2 million during the second quarter of 2009, due to a decrease in the interest rates achieved by our invested funds during the second quarter of 2010.

Interest Expense

          Interest expense during the second quarter of 2010 and the second quarter of 2009 was $1.1 million. Our interest expense during the second quarter of 2010 and 2009 consisted of interest expense on our Old Notes, which accrue interest at 2.5% per annum, and our New Notes, which accrue interest at 1.5% per annum. See Note 11 in our accompanying condensed consolidated financial statements for further discussion on the Old Notes and New Notes.

Other Income, net

          Other income, net, of $2.2 million recognized during the second quarter of 2009 primarily represented the $2.2 million gain on the sale of Medicis Pediatrics to BioMarin that closed during June 2009.

Income Tax Expense

          Our effective tax rate for the second quarter of 2010 was 37.7%, as compared to 60.9% for the second quarter of 2009. The effective tax rate for the second quarter of 2009 reflects a $9.0 million discrete tax expense due to the taxable gain on the sale of Medicis Pediatrics. Excluding this discrete tax expense (and the associated accounting gain of $2.2 million), the effective tax rate for the second quarter of 2009 was 40.5%.

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Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

Net Revenues

          The following table sets forth our net revenues for the six months ended June 30, 2010 (the “2010 six months”) and June 30, 2009 (the “2009 six months”), along with the percentage of net revenues and percentage point change for each of our product categories (dollar amounts in millions):

	2010 Six		2009 Six
	Months		Months		$ Change			% Change
Net product revenues	$	336.7	$	235.3	$	101.4			43.1	%
Net contract revenues		3.8		5.8		(2.0	)		(34.5	)%
Total net revenues	$	340.5	$	241.1	$	99.4			41.2	%

	2010 Six		2009 Six
	Months		Months		$ Change		% Change
Acne and acne-related dermatological products	$	245.0	$	160.6	$	84.4		52.6	%
Non-acne dermatological products		75.2		60.6		14.6		24.1	%
Non-dermatological products (including contract revenues)		20.3		19.9		0.4		2.0	%
Total net revenues	$	340.5	$	241.1	$	99.4		41.2	%

	2010 Six			2009 Six
	Months			Months			Change
Acne and acne-related dermatological products		71.9	%		66.7	%		5.2	%
Non-acne dermatological products		22.1	%		25.1	%		(3.0	)%
Non-dermatological products (including contract revenues)		6.0	%		8.2	%		(2.2	)%
Total net revenues		100.0	%		100.0	%		—	%

          Net revenues associated with our acne and acne-related dermatological products increased by $84.4 million, or 52.6%, during the 2010 six months as compared to the 2009 six months primarily as a result of increased sales of SOLODYN^® and ZIANA^®, both of which generated strong prescription growth. Net revenues of SOLODYN^® during the 2009 six months were negatively impacted by the unauthorized one-day launch of Teva’s generic SOLODYN^® product units that were sold into the distribution channel prior to the consummation of a Settlement Agreement with us on March 18, 2009. These units caused wholesalers to reduce ordering levels of SOLODYN^® and caused us to increase our reserves for sales returns and consumer rebates during the first quarter of 2009. In addition, during the third quarter of 2009 we launched new 65mg and 115mg strengths of SOLODYN^® after they were approved by the FDA.

          Net revenues associated with our non-acne dermatological products increased by $14.6 million, or 24.1% during the 2010 six months as compared to the 2009 six months, primarily due to sales of DYSPORT^®, which was launched in June 2009, and increased sales of RESTYLANE^®. RESTYLANE-L^TM and PERLANE-L^TM were launched during February 2010 following FDA approval on January 29, 2010. Net revenues associated with our non-acne dermatological products decreased as a percentage of net revenues during the 2010 six months as

36

compared to the 2009 six months, primarily due to the $84.4 million increase in our acne and acne-related dermatological products. Beginning in the second quarter of 2009, as a result of certain modifications made to our distribution services agreement with McKesson, our exclusive U.S. distributor of our aesthetics products RESTYLANE^®, PERLANE^® and DYSPORT^®, we began recognizing revenue on these products upon the shipment from McKesson to physicians. As a result, aesthetic product net revenues were negatively impacted during the first quarter of 2009 in anticipation of this change in revenue recognition.

          Net revenues associated with our non-dermatological products increased by $0.4 million, or 2.0%, during the 2010 six months as compared to the 2009 six months primarily due to an increase in sales of BUPHENYL^®.

Gross Profit

          Gross profit represents our net revenues less our cost of product revenue. Our cost of product revenue includes our acquisition cost for the products we purchase from our third party manufacturers and royalty payments made to third parties. Amortization of intangible assets related to products sold is not included in gross profit. Amortization expense related to these intangibles for the 2010 six months and 2009 six months was approximately $10.7 million and $11.7 million, respectively. Product mix plays a significant role in our quarterly and annual gross profit as a percentage of net revenues. Different products generate different gross profit margins, and the relative sales mix of higher gross profit products and lower gross profit products can affect our total gross profit.

          The following table sets forth our gross profit for the 2010 six months and 2009 six months, along with the percentage of net revenues represented by such gross profit (dollar amounts in millions):

	2010 Six			2009 Six
	Months			Months			$ Change		% Change
Gross profit	$	308.3		$	218.6		$	89.7		41.0	%
% of net revenues		90.5	%		90.7	%

          The increase in gross profit during the 2010 six months as compared to the 2009 six months is primarily due to the $99.4 million increase in net revenues. Gross profit as a percentage of net revenues was 90.5% during the 2010 six months, as compared to 90.7% during 2009 six months. Net revenues of SOLODYN^®, a high gross margin product, increased during the 2010 six months as compared to the 2009 six months, while net revenues of other products, which have lower gross margins, also increased.

Selling, General and Administrative Expenses

          The following table sets forth our selling, general and administrative expenses for the 2010 six months and 2009 six months, along with the percentage of net revenues represented by selling, general and administrative expenses (dollar amounts in millions):

	2010 Six			2009 Six
	Months			Months			$ Change			% Change
Selling, general and administrative	$	156.8		$	142.1		$	14.7			10.3	%
% of net revenues		46.1	%		58.9	%
Share-based compensation expense included in selling, general and administrative expense	$	5.2		$	8.5		$	(3.3	)		(38.8	)%

          Selling, general and administrative expenses increased $14.7 million, or 10.3%, during the 2010 six months as compared to the 2009 six months, but decreased as a percentage of net revenues from 58.9% during the 2009 six months to 46.1% during the 2010 six months. Included in this increase was a $6.5 million increase in personnel costs, primarily due to the effect of the annual salary increase that occurred during February 2010 and $2.9 million of severance expense related to the departure of an executive employee, a $4.9 million increase in promotion expenses, primarily related to the promotion of DYSPORT^® and an increase of $3.3 million of other selling, general and administrative costs. The decrease of selling, general and administrative expenses as a percentage of net revenues during the 2010 six months as compared to the 2009 six months was primarily due to the $99.4 million increase in net revenues.

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Research and Development Expenses

          The following table sets forth our research and development expenses for the 2010 six months and 2009 six months (dollar amounts in millions):

	2010 Six		2009 Six
	Months		Months		$ Change			% Change
Research and development	$	20.7	$	25.3	$	(4.6	)		(18.2)	%
Charges included in research and development	$	—	$	8.0	$	(8.0	)		(100.0)	%
Share-based compensation expense included in research and development	$	0.2	$	0.4	$	(0.2	)		(50.0)	%

          Included in research and development expenses for the 2009 six months was a $5.0 million milestone payment to Impax related to a development agreement and a $3.0 million payment to Perrigo related to a development agreement. We expect research and development expenses to continue to fluctuate from quarter to quarter based on the timing of the achievement of development milestones under license and development agreements, as well as the timing of other development projects and the funds available to support these projects.

Depreciation and Amortization Expenses

          Depreciation and amortization expenses during the 2010 six months were $14.3 million, as compared to $15.1 million during the 2009 six months. An increase related to amortization of the $75.0 million milestone payment made to Ipsen during the second quarter of 2009 upon the FDA’s approval of DYSPORT^®, which was capitalized as an intangible asset, was offset by the amortization expense related to intangible assets related to Medicis Pediatrics, Inc., which was sold to BioMarin Pharmaceutical Inc. during the second quarter of 2009, not being incurred during the 2010 six months.

Interest and Investment Income

          Interest and investment income during the 2010 six months decreased $2.7 million, or 58.2%, to $1.9 million from $4.6 million during the 2009 six months, due to a decrease in the interest rates achieved by our invested funds during the 2010 six months.

Interest Expense

          Interest expense during the 2010 six months and the 2009 six months was $2.1 million. Our interest expense during the 2010 six months and 2009 six months consisted of interest expense on our Old Notes, which accrue interest at 2.5% per annum, and our New Notes, which accrue interest at 1.5% per annum. See Note 11 in our accompanying condensed consolidated financial statements for further discussion on the Old Notes and New Notes.

Other Expense, net

          Other expense of $0.3 million recognized during the 2010 six months represented an other-than-temporary impairment on an asset-backed security investment.

          Other expense, net, of $0.6 million recognized during the 2009 six months primarily represented a $2.9 million reduction in the carrying value of our investment in Revance as a result of a reduction in the estimated net realizable value of the investment using the hypothetical liquidation at book value approach as of March 31, 2009, partially offset by a $2.2 million gain on the sale of Medicis Pediatrics to BioMarin, which closed during June 2009.

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Income Tax Expense

          Our effective tax rate for the 2010 six months was 38.1%, as compared to 58.0% for the 2009 six months. The effective tax rate for the 2009 six months reflects a $1.4 million discrete tax benefit recognized due to statute closures and a $9.0 million discrete tax expense due to the taxable gain on the sale of Medicis Pediatrics. Excluding this discrete tax benefit and this discrete tax expense (and the associated accounting gain of $2.2 million), the effective tax rate for the 2009 six months was 40.5%.

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Liquidity and Capital Resources

Overview

          The following table highlights selected cash flow components for the 2010 six months and 2009 six months, and selected balance sheet components as of June 30, 2010 and December 31, 2009 (dollar amounts in millions):

	2010 Six			2009 Six
	Months			Months			$ Change			% Change
Cash provided by (used in):
Operating activities	$	59.1		$	51.0		$	8.1			15.9	%
Investing activities		(166.4	)		(5.8	)		(160.6	)		2,769.0	%
Financing activities		(3.5	)		2.3			(5.8	)		(252.2	)%

	June 30, 2010		Dec. 31, 2009		$ Change		% Change
Cash, cash equivalents, and short-term investments	$	543.5	$	528.3	$	15.2		2.9	%
Working capital		488.5		434.6		53.9		12.4	%
Long-term investments		61.0		25.5		35.5		139.2	%
2.5% contingent convertible senior notes due 2032		169.1		169.1		—		—	%
1.5% contingent convertible senior notes due 2033		0.2		0.2		—		—	%

Working Capital

          Working capital as of June 30, 2010 and December 31, 2009, consisted of the following (dollar amounts in millions):

	June 30, 2010		Dec. 31, 2009		$ Change			% Change
Cash, cash equivalents, and short-term investments	$	543.5	$	528.3	$	15.2			2.9	%
Accounts receivable, net		136.9		95.2		41.7			43.8	%
Inventories, net		37.2		26.0		11.2			43.1	%
Deferred tax assets, net		67.3		66.3		1.0			1.5	%
Other current assets		20.4		16.5		3.9			23.6	%
Total current assets		805.3		732.3		73.0			10.0	%
Accounts payable		58.6		44.2		14.4			32.6	%
Reserve for sales returns		49.2		48.1		1.1			2.3	%
Accrued consumer rebate and loyalty programs		90.4		73.3		17.1			23.3	%
Managed care and Medicaid reserves		44.4		47.1		(2.7	)		(5.7	)%
Income taxes payable		2.7		16.7		(14.0	)		(83.8	)%
Other current liabilities		71.5		68.3		3.2			4.7	%
Total current liabilities		316.8		297.7		19.1			6.4	%
Working capital	$	488.5	$	434.6	$	53.9			12.4	%

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          We had cash, cash equivalents and short-term investments of $543.5 million and working capital of $488.5 million at June 30, 2010, as compared to $528.3 million and $434.6 million, respectively, at December 31, 2009. The increases were primarily due to the generation of $59.1 million of operating cash flow during the 2010 six months.

          Management believes existing cash and short-term investments, together with funds generated from operations, should be sufficient to meet operating requirements for the foreseeable future. Our cash and short-term investments are available for dividends, milestone payments related to our product development collaborations, strategic investments, acquisitions of companies or products complementary to our business, the repayment of outstanding indebtedness, repurchases of our outstanding securities and other potential large-scale needs. In addition, we may consider incurring additional indebtedness and issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt or for general corporate purposes. If a material acquisition or investment is completed, our operating results and financial condition could change materially in future periods. However, no assurance can be given that additional funds will be available on satisfactory terms, or at all, to fund such activities.

          On July 1, 2008, we acquired LipoSonix, an independent, privately-held company with a staff of approximately 40 scientists, engineers and clinicians located near Seattle, Washington. LipoSonix, now known as Medicis Technologies Corporation, is a medical device company developing non-invasive body sculpting technology. Its first product, the LIPOSONIX^TM system, is currently marketed and sold through distributors in Europe and Canada. On June 15, 2009, Medicis Aesthetics Canada, Ltd. announced that Health Canada had issued a Medical Device License authorizing the sale of the LIPOSONIX^TM system in Canada. In the U.S., the LIPOSONIX^TM system is an investigational device and is not currently cleared or approved for sale. Under terms of the transaction, we paid $150 million in cash for all of the outstanding shares of LipoSonix. In addition, we will pay LipoSonix stockholders certain milestone payments up to an additional $150 million upon FDA approval of the LIPOSONIX^TM system and if various commercial milestones are achieved on a worldwide basis.

          As of June 30, 2010, our short-term investments included $24.2 million of auction rate floating securities. Our auction rate floating securities are debt instruments with a long-term maturity and with an interest rate that is reset in short intervals through auctions. During the three months ended March 31, 2008, we were informed that there was insufficient demand at auction for the auction rate floating securities, and since that time we have been unable to liquidate our holdings in such securities. As a result, these affected auction rate floating securities are now considered illiquid, and we could be required to hold them until they are redeemed by the holder at maturity or until a future auction on these investments is successful. During the first six months of 2010, we liquidated $3.3 million of our auction rate floating securities at par.

Operating Activities

          Net cash provided by operating activities during the 2010 six months was approximately $59.1 million, compared to cash provided by operating activities of approximately $51.0 million during the 2009 six months. The following is a summary of the primary components of cash provided by operating activities during the 2010 six months and 2009 six months (in millions):

	2010 Six			2009 Six
	Months			Months
Income taxes paid		(47.7	)		(3.6	)
Payment made to IMPAX related to development agreement		—			(5.0	)
Payment made to Perrigo related to development agreement		—			(3.0	)
Other cash provided by operating activities		106.8			62.6
Cash provided by operating activities	$	59.1		$	51.0

Investing Activities

          Net cash used in investing activities during the 2010 six months was approximately $166.4 million, compared to net cash used in investing activities during the 2009 six months of $5.8 million. The change was primarily due to the net purchases and sales of our short-term and long-term investments during the respective

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quarters. During the 2009 six months, we paid $75.0 million to Ipsen upon the FDA’s approval of DYSPORT^®, and we received $70.3 million upon the sale of Medicis Pediatrics to BioMarin, which closed in June 2009.

Financing Activities

          Net cash used in financing activities during the 2010 six months was $3.5 million, compared to net cash provided by financing activities of $2.3 million during the 2009 six months. Proceeds from the exercise of stock options were $2.2 million during the 2010 six months compared to $6.8 million during the 2009 six months. Dividends paid during the 2010 six months were $6.0 million, and dividends paid during the 2009 six months were $4.7 million.

Contingent Convertible Senior Notes and Other Long-Term Commitments

          We have two outstanding series of Contingent Convertible Senior Notes, consisting of $169.2 million principal amount of 2.5% Contingent Convertible Senior Notes due 2032 (the “Old Notes”) and $0.2 million principal amount of 1.5% Contingent Convertible Senior Notes due 2033 (the “New Notes”). The New Notes and the Old Notes are unsecured and do not contain any restrictions on the incurrence of additional indebtedness or the repurchase of our securities, and do not contain any financial covenants. The Old Notes do not contain any restrictions on the payment of dividends. The New Notes require an adjustment to the conversion price if the cumulative aggregate of all current and prior dividend increases above $0.025 per share would result in at least a one percent (1%) increase in the conversion price. This threshold has not been reached and no adjustment to the conversion price has been made. On June 4, 2012 and 2017, or upon the occurrence of a change in control, holders of the Old Notes may require us to offer to repurchase their Old Notes for cash. On June 4, 2013 and 2018, or upon the occurrence of a change in control, holders of the New Notes may require us to offer to repurchase their New Notes for cash.

          Except for the New Notes and Old Notes, we had only $8.0 million of long-term liabilities at June 30, 2010, and we had $316.8 million of current liabilities at June 30, 2010. Our other commitments and planned expenditures consist principally of payments we will make in connection with strategic collaborations and research and development expenditures, and we will continue to invest in sales and marketing infrastructure.

          In connection with occupancy of the new headquarter office during 2008, we ceased use of the prior headquarter office, which consists of approximately 75,000 square feet of office space, at an average annual expense of approximately $2.1 million, under an amended lease agreement that expires in December 2010. Under ASC 420, Exit or Disposal Cost Obligations, a liability for the costs associated with an exit or disposal activity is recognized when the liability is incurred. We recorded lease exit costs of approximately $4.8 million during the three months ended September 30, 2008 consisting of the initial liability of $4.7 million and accretion expense of $0.1 million. We have not recorded any other costs related to the lease for the prior headquarters.

          As of June 30, 2010, approximately $1.1 million of lease exit costs remain accrued and are expected to be paid by December 2010, all of which is classified in other current liabilities. Although we no longer use the facilities, the lease exit cost accrual has not been offset by an adjustment for estimated sublease rentals. After considering sublease market information as well as factors specific to the lease, we concluded it was probable we would be unable to reasonably obtain sublease rentals for the prior headquarters and therefore we would not be subleased for the remaining lease term. We will continue to monitor the sublease market conditions and reassess the impact on the lease exit cost accrual.

          The following is a summary of the activity in the liability for lease exit costs for the six months ended June 30, 2010:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2009		to Expense		Made			from Sublease		June 30, 2010
Lease exit costs liability	$	2,063,677	$	58,664	$	(1,069,056	)	$	—	$	1,053,285

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Dividends

          We do not have a dividend policy. Since July 2003, we have paid quarterly cash dividends aggregating approximately $52.6 million on our common stock. In addition, on June 9, 2010, we announced that our Board of Directors had declared a cash dividend of $0.06 per issued and outstanding share of common stock payable on July 30, 2010, to our stockholders of record at the close of business on July 1, 2010. Prior to these dividends, we had not paid a cash dividend on our common stock. Any future determinations to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements and other factors that our Board of Directors deems relevant.

Fair Value Measurements

          We utilize unobservable (Level 3) inputs in determining the fair value of our auction rate floating security investments, which totaled $24.2 million at June 30, 2010. These securities were included in long-term investments at June 30, 2010. We also utilize unobservable (Level 3) inputs to value our investment in Hyperion Therapeutics, Inc.

          Our auction rate floating securities are classified as available-for-sale securities or trading securities and are reflected at fair value. In prior periods, due to the auction process which took place every 30-35 days for most securities, quoted market prices were readily available, which would qualify as Level 1 under ASC 820, Fair Value Measurements and Disclosure. However, due to events in credit markets that began during the first quarter of 2008, the auction events for most of these instruments failed, and, therefore, we determined the estimated fair values of these securities, beginning in the first quarter of 2008, utilizing a discounted cash flow analysis. These analyses consider, among other items, the collateralization underlying the security investments, the expected future cash flows, including the final maturity, associated with the securities, and the expectation of the next time the security is expected to have a successful auction. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by us. Due to these events, we reclassified these instruments as Level 3 during the first quarter of 2008.

          In November 2008, we entered into a settlement agreement with the broker through which we purchased auction rate floating securities. The settlement agreement provides us with the right to put an auction rate floating security currently held by us back to the broker beginning on June 30, 2010. At June 30, 2010 and December 31, 2009, we held one auction rate floating security with a par value of $1.3 million that was subject to the settlement agreement. We elected the irrevocable Fair Value Option treatment under ASC 825, Financial Instruments, and adjusted the put option to fair value. We reclassified this auction rate floating security from available-for-sale to trading securities as of December 31, 2008, and future changes in fair value related to this investment and the related put right will be recorded in earnings. This auction rate floating security was settled at par on July 1, 2010.

Off-Balance Sheet Arrangements

          As of June 30, 2010, we are not involved in any off-balance sheet arrangements, as defined in Item 3(a)(4)(ii) of Securities and Exchange Commission (“SEC”) Regulation S-K.

Critical Accounting Policies and Estimates

          The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates related to sales allowances, chargebacks, rebates, returns and other pricing adjustments, depreciation and amortization and other contingencies and litigation. We base our estimates on historical experience and various other factors related to each circumstance. Actual results could differ from those estimates based upon future events, which could include, among other risks, changes in the regulations governing the manner in which we sell our products, changes in the health care environment and managed care consumption patterns. Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Form 10-K for the year ended December 31, 2009. There were no new significant accounting estimates in the second quarter of 2010, nor were there any material changes to the critical accounting policies and estimates discussed in our Form 10-K for the year ended December 31, 2009.

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Recent Accounting Pronouncements

          In October 2009, the FASB approved for issuance Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (ASC 605) — Multiple — Deliverable Revenue Arrangements, a consensus of EITF 08-01, Revenue Arrangements with Multiple Deliverables. This guidance modifies the fair value requirements of ASC subtopic 605-25 Revenue Recognition — Multiple Element Arrangements by providing principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. An estimated selling price method is introduced for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This updated guidance is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. We are currently assessing what impact, if any, the updated guidance will have on our results of operations and financial condition.

          In March 2010, the FASB approved for issuance ASU No. 2010-17, Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The updated guidance recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development transactions, and is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. We are currently assessing what impact, if any, the updated guidance will have on our results of operations and financial condition.

Forward Looking Statements

          This Quarterly Report on Form 10-Q and other documents we file with the SEC include forward-looking statements. These include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales and marketing efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. From time to time, we also may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on certain assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “outlook,” “could,” “target,” and other words and terms of similar meaning in connection with any discussion of future operations or financial performance. Among the factors that could cause actual results to differ materially from our forward-looking statements are the following:

• competitive developments affecting our products, such as the FDA approvals of Prevelle^® Silk, Radiesse^®, Sculptra^®, Artefill^®, Hydrelle^™, Juvéderm^® Ultra and Juvéderm^® Ultra Plus, competitors to RESTYLANE^® and PERLANE^®, VELTIN^TM, a competitor to ZIANA^®, a generic form of our DYNACIN^® Tablets product, generic forms of our LOPROX^® TS, LOPROX^® Cream, LOPROX^® Gel and LOPROX^® Shampoo products, and potential generic forms of our TRIAZ^®, PLEXION^®, SOLODYN^® or VANOS^® products;

• increases or decreases in the expected costs to be incurred in connection with the research and development, clinical trials, regulatory approvals, commercialization and marketing of our products;

• the success of research and development activities, including the development of additional forms of SOLODYN^®, and our ability to obtain regulatory approvals;

• the speed with which regulatory authorizations and product launches may be achieved;

• changes in the FDA’s position on the safety or effectiveness of our products;

• changes in our product mix;

• the anticipated size of the markets and demand for our products;

• changes in prescription levels;

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• the impact of acquisitions, divestitures and other significant corporate transactions, including our acquisition of LipoSonix;

• risks associated with realizing all of the anticipated benefits of our acquisition of LipoSonix;

• the effect of economic changes generally and in hurricane-effected areas;

• manufacturing or supply interruptions;

• importation of other dermal filler or botulinum toxin products, including the unauthorized distribution of products approved in countries neighboring the U.S.;

• changes in the prescribing or procedural practices of dermatologists, podiatrists and/or plastic surgeons, including prescription levels;

• the ability to successfully market both new products, including DYSPORT^®, and existing products;

• difficulties or delays in manufacturing and packaging of our products, including delays and quality control lapses of third party manufacturers and suppliers of our products;

• the availability of product supply or changes in the cost of raw materials;

• the ability to compete against generic and other branded products;

• trends toward managed care and health care cost containment;

• inadequate protection of our intellectual property or challenges to the validity or enforceability of our proprietary rights and our ability to secure patent protection from filed patent applications for our primary products, including SOLODYN^®;

• possible introduction of generic versions of our products, including SOLODYN^®;

• possible federal and/or state legislation or regulatory action affecting, among other things, the Company’s ability to enter into agreements with companies introducing generic versions of the Company’s products as well as pharmaceutical pricing and reimbursement, including Medicaid and Medicare and involuntary approval of prescription medicines for over-the-counter use;

• legal defense costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to product liability, patent protection, government investigations, and other legal proceedings (see Part II, Item 1, Legal Proceedings);

• changes in U.S. generally accepted accounting principles;

• additional costs related to compliance with changing regulation of corporate governance and public financial disclosure;

• any changes in business, political and economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world;

• access to available and feasible financing on a timely basis;

• the availability of product acquisition or in-licensing opportunities;

• the risks and uncertainties normally incident to the pharmaceutical and medical device industries, including product liability claims;

• the risks and uncertainties associated with obtaining necessary FDA approvals, including for the LIPOSONIX^TM system;

• the inability to obtain required regulatory approvals for any of our pipeline products;

• unexpected costs and expenses, or our ability to limit costs and expenses as our business continues to grow;

• downturns in general economic conditions that negatively affect our dermal restorative and branded prescription products, and our ability to accurately forecast our financial performance as a result;

• failure to comply with our corporate integrity agreement, which could result in substantial civil or criminal penalties and our being excluded from government health care programs, which could materially reduce our sales and adversely affect our financial condition and results of operations; and

• the inability to successfully integrate newly-acquired entities, such as LipoSonix.

          We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to review any future disclosures contained in the reports that we file with the SEC. Our Annual Report on Form 10-K for the year ended December 31, 2009, and this Quarterly Report contain discussions of various risks relating to our business that could cause actual results to differ materially from expected and historical results, which you should review. You should understand that it is not possible to predict or identify all such risks. Consequently, you should not consider any such list or discussion to be a complete set of all potential risks or uncertainties.

45

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          As of June 30, 2010, there were no material changes to the information previously reported under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. Controls and Procedures

          We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2010, and have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

          Although the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, believes that our disclosure controls and internal controls currently provide reasonable assurance that our desired control objectives have been met, management does not expect that our disclosure controls or internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

          During the three months ended June 30, 2010, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

          The information set forth under Note 16 in our accompanying condensed consolidated financial statements, included in Part I, Item I of this Report, is incorporated herein by reference.

Item 1A. Risk Factors

          We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. For a detailed discussion of the risk factors that should be understood by any investor contemplating investment in our stock, please refer to Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009.

          There are no material changes from the risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009.

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Item 6. Exhibits

Exhibit 3.1	Amended and Restated By-Laws of the Company(1)
Exhibit 10.1+*	License and Settlement Agreement, dated May 4, 2010, among the Company, Ranbaxy Inc. and Ranbaxy Laboratories Limited.
Exhibit 10.2+	Settlement Agreement and Release, dated June 15, 2010, between the Company and Joseph P. Cooper.
Exhibit 10.3+	First Amendment to Amended and Restated Employment Agreement, dated June 15, 2010, between the Company and Jason D. Hanson.
Exhibit 10.4+	First Amendment to Employment Agreement, dated June 15, 2010, between the Company and Richard D. Peterson.
Exhibit 10.5+	First Amendment to Amended and Restated Employment Agreement, dated June 15, 2010, between the Company and Mark A. Prygocki.
Exhibit 31.1+	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2+	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1+	Certification by the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101+**	The following financial information from Medicis Pharmaceutical Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009, (ii) the Condensed Consolidated Statements of Income for each of the three-month and six-month periods ended June 30, 2010 and 2009, (iii) the Condensed Consolidated Statements of Cash Flows for each of the six-month periods ended June 30, 2010 and 2009, and (iv) the Notes to the Condensed Consolidated Financial Statements.

+	Filed herewith
(1)	Filed as Exhibit 3.1 to Form 8-K on June 18, 2010 and incorporated herein by reference.
*	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.
**	Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

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SIGNATURES

          Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MEDICIS PHARMACEUTICAL CORPORATION
Date: August 9, 2010	By:	/s/ Jonah Shacknai
		Jonah Shacknai
		Chairman of the Board and    Chief Executive Officer    (Principal Executive Officer)
Date: August 9, 2010	By:	/s/ Richard D. Peterson
		Richard D. Peterson
		Executive Vice President    Chief Financial Officer and Treasurer    (Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

*** INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

LICENSE AND SETTLEMENT AGREEMENT

     THIS LICENSE AND SETTLEMENT AGREEMENT (this “Agreement”) dated as of May 4, 2010 (the “Effective Date”) is entered into between Medicis Pharmaceutical Corporation, a Delaware corporation with an address at 7720 North Dobson Road, Scottsdale, Arizona 85256 on behalf of itself and its Affiliates (collectively, “Medicis”), and Ranbaxy Inc., a Delaware corporation, with an address at 600 College Road East, Princeton, New Jersey 08540 and Ranbaxy Laboratories Limited, a corporation organized under the laws of the Republic of India with an address at Plot 90, Sector 32, Gurgaon (Haryana) India – 122001, on behalf of themselves and their respective Affiliates (collectively, “Ranbaxy”).

     WHEREAS, Medicis is the owner of the Patent Rights (as defined below) and Medicis has asserted various claims and causes of action against Ranbaxy in an action captioned Medicis Pharmaceutical Corp. v. Ranbaxy Inc. et al., Civil Action No. 09-CV-435-JJF (consolidated with Medicis Pharmaceutical Corp. v. Mylan, Inc. et al., Civil Action No. 09-CV-033-JJF), and Medicis Pharmaceutical Corp. v. Ranbaxy Inc. et al., Civil Action No. 10-120-JJF-MPT (collectively, the “Litigation”), which are pending in the United States District Court, District of Delaware (the “Court”); and

     WHEREAS, the parties desire to settle the Litigation and Ranbaxy desires to receive, and Medicis desires to grant to Ranbaxy, (i) a covenant not to sue, (ii) a royalty-bearing license under the Patent Rights to develop, make, use, sell, offer for sale, market, promote, distribute, import and/or otherwise commercialize Current Generic Product and Future Generic Product (as each term is defined below), and (iii) and a royalty-bearing license under the Patent Rights to develop, make, use, sell, offer for sale, market, promote, distribute, import and/or otherwise commercialize Ranbaxy Product (as such term is defined below), all on the terms and conditions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. DEFINITIONS.

          1.1 “Affiliate” means, with respect to any entity, any other entity that directly or indirectly controls, is controlled by, or is under common control with, such entity, provided, however, that for purposes of this Agreement, Daiichi Sankyo Co., Ltd. (“Daiichi”), a corporation organized under the laws of Japan, and its direct subsidiaries, excluding Ranbaxy, shall not be considered an Affiliate of Ranbaxy. An entity shall be regarded as in control of another entity if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other entity, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other entity by any means whatsoever.

1

          1.2 “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which the state or federal courts located in the State of Delaware are authorized or obligated by law or executive order to be closed.

          1.3 “Confidential Information” means all non-public materials, information and data concerning the disclosing party and its operations that is disclosed by the disclosing party to the receiving party pursuant to this Agreement, orally or in written, electronic or tangible form, or otherwise obtained by the receiving party through observation or examination of the disclosing party’s operations. Confidential Information includes, but is not limited to, information about the disclosing party’s financial condition and projections; business, marketing or strategic plans; sales information, customer lists; price lists; databases; trade secrets; product prototypes and designs; techniques, formulae, algorithms and other non-public process information. Notwithstanding the foregoing, Confidential Information of a party shall not include that portion of such materials, information and data that, and only to the extent, the recipient can establish by written documentation: (a) is known to the recipient as evidenced by its written records before receipt thereof from the disclosing party, (b) is disclosed to the recipient free of confidentiality obligations by a Third Party who has the right to make such disclosure without obligations of confidentiality, (c) is or becomes part of the public domain through no fault of the recipient, or (d) the recipient can reasonably establish is independently developed by persons on behalf of recipient without the use of the information disclosed by the disclosing party. The identity of the Designated Strengths (as defined in Section 1.17) that are not already part of the public domain shall be the Confidential Information of Medicis until such time that the identity of such Designated Strength(s) become a part of the public domain.

          1.4 “Current Generic Products” means, regardless of whether a product is considered generic (including, without limitation, authorized generic), branded, private-labeled or otherwise, a product that is bioequivalent to (or in the case of an authorized generic, the same as) one of the Current Solodyn Products and has the same strength and dosage form as one of the Current Solodyn Products.

          1.5 “Current Solodyn Products” means the Solodyn^® products listed on Exhibit B.

          1.6 “Current Strengths Trigger Date” means with respect to a Current Generic Product, on a Current Generic Product-by-Current Generic Product basis, the earliest of:

               (a) November ***, 2011;

               (b) ***; or

               (c) ***

***

***

          1.7 “FDA” means the United States Food and Drug Administration or any successor entity thereto.

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          1.8 “Future Generic Products” means, ***

          1.9 “Future Solodyn Products” means (a) the 65 mg and 115 mg dosage strengths of the Solodyn-branded minocycline products that were previously approved by the FDA under the Medicis NDA, and (b) all other dosage strengths of the Solodyn-branded minocycline products that are approved by the FDA under the Medicis NDA after the Effective Date.

          1.10 “Future Strengths Trigger Date” means, with respect to a Future Generic Product for which Ranbaxy has an approved ANDA, on a Future Generic Product-by-Future Generic Product basis, the earliest of:

               (a) ***; or

               (b) ***

***

***

          1.11 “GAAP” means generally accepted accounting principles in effect in the United States from time to time, as consistently applied by Ranbaxy.

          1.12 “Medicis NDA” means the New Drug Application #50-808 and any supplements or amendments thereto.

          1.13 “Net Profit” means, with respect to a calendar quarter, Net Sales of Current Generic Product or Future Generic Product, as applicable, during such calendar quarter, less Ranbaxy’s fully-burdened cost to manufacture such Current Generic Product or Future Generic Product, less ***.

          1.14 “Net Sales” means, for the applicable period of calculation, the aggregate gross revenues derived by or payable to Ranbaxy and its Affiliates from or on account of the sale of Ranbaxy Product, Current Generic Product and Future Generic Product, less the sum of the following items, all of which must directly relate to the sale and distribution of Ranbaxy Product, Current Generic Product, or Future Generic Product: *** (all such amounts determined in accordance with GAAP applied in a manner consistent with past practices of Ranbaxy). Subsections (a) through (d) shall be collectively referred to as “Deductions”.

          1.15 “Patent Rights” means (a) the patents and patent applications listed on Exhibit A to this Agreement, (b) all patents and patent applications that (i) claim or cover a Current Solodyn Product or Future Solodyn Product or the manufacture or use of such product and (ii) Medicis owns or controls as of the Effective Date or anytime thereafter; (c) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, the patent applications described in clauses (a) and (b) above or the patent applications that resulted in the patents described in clauses (a) and (b) above, and (d) all patents that have issued or in the future issue from any of the foregoing patent applications, including utility, model and design patents

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and certificates of invention, together with any reissues, reexaminations, renewals, extensions or additions thereto.

          1.16 “Ranbaxy NDA” means the New Drug Application seeking approval to market the Ranbaxy Product ***

          1.17 “Ranbaxy Product” means ***

          1.18 “Ranbaxy Product Trigger Date” means, with respect to a Ranbaxy Product, the later of (a) August ***, 2011 or (b) the date of first commercial sale in the United States of such Ranbaxy Product to a Third Party that is not an Affiliate of Ranbaxy after the FDA has approved the NDA for such Ranbaxy Product.

          1.19 “Third Party” means any person or entity other than Medicis or Ranbaxy.

          1.20 “United States” means the United States of America, including its territories and possessions, but excluding direct sales by Ranbaxy into the Commonwealth of Puerto Rico, provided, however, that transportation of product to a customer’s warehouse located in the Commonwealth of Puerto Rico at the direction of such customer located outside of the Commonwealth of Puerto Rico shall not constitute a direct sale by Ranbaxy.

     2. RELEASE; PERMANENT INJUNCTION.

          2.1 Prior to Trigger Dates.

               (a) Commencing on the Effective Date and continuing until the occurrence of the Current Strengths Trigger Date for a Current Generic Product, on a Current Generic Product-by-Current Generic Product basis, Ranbaxy shall not, and shall not directly or indirectly encourage or assist any Third Party, to sell, offer for sale, distribute, promote, market or otherwise commercialize such Current Generic Product. ***

               (b) Commencing on the Effective Date and continuing until the occurrence of the Future Strengths Trigger Date for a Future Generic Product, on a Future Generic Product-by-Future Generic Product basis, Ranbaxy shall not, and shall not directly or indirectly encourage or assist any Third Party, to sell, offer for sale, distribute, promote, market or otherwise commercialize such Future Generic Product. ***

               (c) Commencing on the Effective Date and continuing until the occurrence of the Ranbaxy Product Trigger Date for a Ranbaxy Product, on a Ranbaxy Product-by-Ranbaxy Product basis, Ranbaxy shall not, and shall not directly or indirectly encourage or assist any Third Party, to sell, offer for sale, distribute or otherwise commercialize such Ranbaxy Product. ***

               (d) ***

               (e) ***

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          2.2 Validity of Patent Rights. Ranbaxy hereby admits that the claims of the Patent Rights are valid and enforceable ***. Ranbaxy hereby admits that the making, using, offering to sell, selling, importation and/or distribution into the United States of a Ranbaxy Product, Current Generic Product or a Future Generic Product, in each case are covered by one or more claims of the Patent Rights under 35 U.S.C. § 271. The foregoing admission shall be binding on Ranbaxy and admissible against Ranbaxy in any dispute or litigation between the parties regarding the Patent Rights, and Ranbaxy will not challenge any such admission. *** Solely with respect to Ranbaxy Product, Current Generic Product, or Future Generic Product, Ranbaxy shall not assist any Third Party in an action to invalidate or render unenforceable any of the Patent Rights, and Ranbaxy shall not disclose any of its proprietary or confidential information relating to the validity or enforceability of any of the Patent Rights, except to the extent required by court order or other applicable law.

          2.3 Consent Judgment for Permanent Injunction. Upon the Effective Date, Medicis and Ranbaxy have caused to be completed and executed a Consent Judgment and Permanent Injunction in the form attached hereto as Exhibit C, and Medicis, with Ranbaxy’s agreement, shall file with and move the Court within *** following the Effective Date for the entry of the Consent Judgment and Permanent Injunction. ***

          2.4 Mutual Releases. Consistent with the representations, warranties and covenants made in this Agreement, as of the Effective Date Ranbaxy and each of its predecessors, successors, parents, subsidiaries, Affiliates, divisions, general partners, limited partners, and assigns (collectively, the “Ranbaxy Releasees”), fully, finally and forever release, relinquish, acquit, and discharge Medicis and each of its respective predecessors, successors, parents, subsidiaries, Affiliates, divisions, general partners, limited partners, and assigns, (collectively, the “Medicis Releasees”) of and from, and covenant not to sue, not to assign to any other entity a right to sue, and not to authorize any other entity to sue, any Medicis Releasee for, any and all claims, counterclaims, defenses, demands, causes of action, suits, damages, debts, liabilities, obligations, rights, and set-offs of any and all kind or description whatsoever, including federal or state antitrust or unfair competition law claims relating to the manufacture, use, sale, offer for sale or distribution of Current Solodyn Products, Future Solodyn Products, Current Generic Products, Future Generic Products and/or Ranbaxy Products or the obtaining or enforcing of intellectual property or rights relating to Current Solodyn Products, Future Solodyn Products, Current Generic Products, Future Generic Products and/or Ranbaxy Products including costs, expenses, and attorneys’ fees related thereto or arising therefrom (collectively, “Losses”), known or unknown, suspected or unsuspected, asserted or unasserted, in law or equity, on which no judgment has yet been rendered, in each case prior to the Effective Date that could have been, are or were asserted in connection with (i) Ranbaxy’s ANDA for a Current Generic Product or Future Generic Product, (ii) Ranbaxy’s NDA, or (iii) the Litigation or that arise out of any claim, counterclaim, affirmative defense, act, transaction, series of transactions, fact, omission, or matter that could have been, is or was the subject matter of (i) Ranbaxy’s ANDA for a Current Generic Product or Future Generic Product, (ii) Ranbaxy’s NDA, or (iii) the Litigation (collectively, “Acts”). Consistent with the representations, warranties and covenants made in this Agreement, as of the Effective Date, Medicis and each of the other Medicis Releasees, fully, finally and forever release, relinquish, acquit, and discharge the Ranbaxy Releasees of and from, and covenant not to sue, not to assign to any other entity a right to sue, and not to authorize any other entity to sue, any Ranbaxy Releasee for, any and all Losses, known or unknown, suspected

5

or unsuspected, asserted or unasserted, in law or equity, on which no judgment has yet been rendered, in each case prior to the Effective Date that could have been, are or were asserted in, or that arise out of any Acts.

          2.5 Filing of Agreement. Within ten (10) business days after the Effective Date, the Parties shall each submit this Agreement to the U.S. Federal Trade Commission (“FTC”) and U.S. Department of Justice (the “DOJ”) pursuant to Section 1112 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The Parties shall promptly in good faith coordinate the foregoing filings and respond promptly in good faith to any requests for additional information made by either of such agencies.

     3. LICENSE

          3.1 License Grants.

               3.1.1 Medicis hereby covenants that it will not sue, assert any claim or counterclaim against, otherwise participate in any action or proceeding against Ranbaxy or any of its shareholders, Affiliates, licensees, sublicensees, customers, suppliers, importers, manufacturers, distributors, insurers, or any heirs, administrators, executors, predecessors, successors, or assigns of the foregoing, or cause or authorize any person or entity to do any of the foregoing, in each case claiming or otherwise asserting that Ranbaxy’s manufacture, use, sale, offer for sale, or importation of the Ranbaxy Product, Ranbaxy’s Current Generic Product, and Ranbaxy’s Future Generic Product to the extent the same is within the scope of the licenses granted under this Agreement infringes the Patent Rights, provided that Ranbaxy remains in compliance with the terms of this Agreement.

               3.1.2 Subject to the terms and conditions of this Agreement, and effective on the applicable Current Strengths Trigger Date for each applicable Current Generic Product, Medicis hereby grants to Ranbaxy and its Affiliates a non-exclusive, non-transferable, non-sublicensable, royalty-bearing right and license under the Patents Rights to sell, offer for sale, distribute and/or otherwise commercialize the applicable Current Generic Product in the United States, provided, however, that, effective as of the Effective Date, Ranbaxy shall have the limited right and license under the Patent Rights to develop, make, have made, import, store, handle and transport (but not sell or offer for sale) in the United States amounts of Current Generic Product for Ranbaxy’s good faith preparation for, and in anticipation of, the applicable Current Strengths Trigger Date, subject to Ranbaxy’s compliance with the restrictions contained herein until the applicable Current Strengths Trigger Date. For the sake of clarity, indirect sales of Current Generic Product into the Commonwealth of Puerto Rico shall not constitute a breach of this Agreement, including, without limitation, transportation of such Current Generic Product to a customer’s warehouse located in Puerto Rico at the direction of such customer located outside of the Commonwealth of Puerto Rico.

               3.1.3 Subject to the terms and conditions of this Agreement, and effective on the applicable Future Strengths Trigger Date for each applicable Future Generic Product for which Ranbaxy has an approved ANDA, Medicis hereby grants to Ranbaxy and its Affiliates a non-exclusive, non-transferable, non-sublicensable, royalty-bearing right and license under the Patents Rights to sell, offer for sale, distribute and/or otherwise commercialize in the

6

United States the applicable Future Generic Product for which Ranbaxy has an approved ANDA, provided, however, that, effective as of the Effective Date, Ranbaxy shall have the limited right and license under the Patent Rights to develop, make, have made, import, store, handle and transport (but not sell or offer for sale) in the United States amounts of Future Generic Product for Ranbaxy’s good faith preparation for, and in anticipation of, the applicable Future Strengths Trigger Date, subject to Ranbaxy’s compliance with the restrictions contained herein until the applicable Future Strengths Trigger Date. For the sake of clarity, indirect sales of Future Generic Product into the Commonwealth of Puerto Rico shall not constitute a breach of this Agreement, including, without limitation, transportation of such Current Generic Product to a customer’s warehouse located in Puerto Rico at the direction of such customer located outside of the Commonwealth of Puerto Rico.

               3.1.4 Subject to the terms and conditions of this Agreement, and effective on the Ranbaxy Product Trigger Date for each applicable Ranbaxy Product, Medicis hereby grants to Ranbaxy, including it’s Affiliates, a non-exclusive, non-transferable (except in the event of the sale of all assets related to the Ranbaxy Product or all of the stock of Ranbaxy or an Affiliate which holds all of the assets related to the Ranbaxy Product), royalty-bearing right and license under the Patents Rights to sell, offer for sale, distribute and/or otherwise commercialize in the United States such Ranbaxy Product. For the sake of clarity, indirect sales of Ranbaxy Product into the Commonwealth of Puerto Rico shall not constitute a breach of this Agreement, including, without limitation, transportation of such Current Generic Product to a customer’s warehouse located in Puerto Rico at the direction of such customer located outside of the Commonwealth of Puerto Rico.

               3.1.5 Except as provided in Section 3.1.6, during each twelve (12) month period following the Ranbaxy Product Trigger Date and each anniversary thereof (each a “Ranbaxy Product Year”) until ***, the license provided under Section 3.1.4 shall only grant Ranbaxy rights to sell the aggregate *** of Ranbaxy Product set forth in the table below, provided, however, that following ***, the limits on the *** of Ranbaxy Product Ranbaxy can sell under the license provided under Section 3.1.4 shall no longer apply. During the applicable Ranbaxy Product Year, Ranbaxy shall not sell or distribute (and shall not authorize or assist any Third Party to sell or distribute) amounts of Ranbaxy Product in excess of the following aggregate amounts for all Ranbaxy Product.

***

Upon written request of Medicis, Ranbaxy shall provide to Medicis certification and/or such information as Medicis requests as reasonably necessary to confirm that any product that Ranbaxy purports to be a Ranbaxy Product satisfies the definition of “Ranbaxy Product” as set forth in Section 1.17. By way of example, but not limitation, Medicis shall have the right to request, and Ranbaxy shall provide, copies of any NDA (or amendment or supplement to an existing NDA) submitted by Ranbaxy to the FDA with respect to any such purported Ranbaxy Product. All such information provided by Ranbaxy to Medicis hereunder shall be the Confidential Information of Ranbaxy.

               3.1.6 In the event that after the Ranbaxy Product Trigger Date but before the end of ***, a Third Party *** (“Third Party *** Sale”), the volume limitations set forth in

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section 3.1.5 shall no longer apply, provided, however, that if such Third Party *** Sale is not pursuant to a license agreement with, or otherwise under authorization by, Medicis in existence as of the date of such Third Party *** Sale, the volume limitations set forth in section 3.1.5 shall remain in effect until at least *** after the date Ranbaxy provides to Medicis written notice of such Third Party *** Sale if Medicis provides Ranbaxy with written notice within *** after receipt of such written notice from Ranbaxy regarding the Third Party *** Sale of Medicis’ intent to: (i) seek Judicial Relief, or (ii) enter into an agreement with the Third Party, in either or both cases to prohibit further Third Party *** Sales in the United States by the Third Party. In the event that Medicis obtains Judicial Relief or an agreement with the Third Party, either or both within *** after receipt of such notice from Ranbaxy regarding the Third Party *** Sale that restrains further Third Party *** Sales by the Third Party, then for purposes of this Section 3.1.6 no Third Party *** Sale shall have occurred.

          3.2 Prior to Trigger Dates. During the term of this Agreement, subject to Section 2.1, Ranbaxy shall not sell, offer for sale, market, promote or distribute any Ranbaxy Product, Current Generic Product or Future Generic Product until, as the case may be, the applicable Ranbaxy Product Trigger Date, Current Strength Trigger Date or Future Strength Trigger Date in accordance with the terms of this Agreement.

          3.3 ***

          3.4 No Licenses. Except as otherwise provided herein, nothing in this Agreement shall be construed as: (a) an obligation to bring or prosecute actions or suits against Third Parties for infringement of any patent, whether within the Patent Rights or otherwise; (b) conferring a right to use in advertising, publicity, promotion or otherwise any trademark or trade name of Medicis; or (c) granting by implication, estoppel or otherwise, any licenses or rights under the Patent Rights or any other patents. For the avoidance of doubt, nothing in this Agreement grants to Ranbaxy or its Affiliates any right to use, and Ranbaxy and its Affiliates shall not use (and shall not authorize or assist any Third Party to use), the names or trademarks of Medicis (including without limitation “Medicis” and “Solodyn^®”) in connection with the promotion, manufacture, marketing, sale or distribution of the Ranbaxy Product, except to the extent required by law.

          3.5 Right of First Offer.

               (a) In the event that Ranbaxy or its Affiliates (i) elect to sell, license or otherwise transfer to a Third Party any of the rights to the Ranbaxy Product, excluding only a transaction that consists of the sale of all or substantially all of the assets of Ranbaxy or its Affiliate holding such rights (unless the only asset or Primary Asset of such Affiliate are rights to the Ranbaxy Product), or (ii) elect not to launch or elect to otherwise discontinue the sale of Ranbaxy Product, then Ranbaxy shall notify Medicis in writing. Ranbaxy hereby grants to Medicis for a period of *** following the date Medicis receives such notice from Ranbaxy (the “Negotiation Period”), the exclusive right to negotiate with Ranbaxy to exclusively license or acquire such rights. ***

               (b) During the applicable Negotiation Period (i) Ranbaxy shall provide to Medicis such information and documents (including regulatory and technical information) as

8

reasonably necessary for Medicis to evaluate the Ranbaxy Product and (ii) the parties shall negotiate in good faith and attempt to reach mutual agreement on commercially reasonable terms and conditions for such license or acquisition. If the parties are unable to agree upon such terms and conditions during the applicable Negotiation Period, then Ranbaxy shall not grant to any Third Party a license or otherwise sell or transfer such rights on terms and conditions that are more favorable to such Third Party than those last offered to Medicis unless Ranbaxy first offers to Medicis the right, for a period of not less than ***, to accept those more favorable terms and conditions and Medicis fails to accept such terms and conditions during such *** period.

               (c) If Ranbaxy sells, licenses or transfers the rights to the Ranbaxy Product to a Third Party, then such agreement shall be subject to the provisions of Section 2.2 with respect to the Ranbaxy Product.

     4. ROYALTIES

          4.1 Payment.

               4.1.1 Subject to the terms and conditions of this Agreement, within *** following the end of each calendar quarter during the term of this Agreement, Ranbaxy shall pay to Medicis in U.S. dollars (i) a royalty of *** of Net Sales of the Ranbaxy Product during such calendar quarter, (ii) a royalty of *** of Net Profit of the Current Generic Product during such calendar quarter, and (iii) a royalty of *** of Net Profit of the Future Generic Product during such calendar quarter. All payments shall be made by wire transfer in US Dollars to such bank account as may be designated from time-to-time by Medicis in writing to Ranbaxy. In the event that an unaffiliated Third Party enters the United States market with an AB-Rated generic version of the Ranbaxy Product, then Ranbaxy shall provide to Medicis written notice of the sale of such AB-Rated generic version of the Ranbaxy Product by such Third Party. In the event that Medicis is unable to obtain either Judicial Relief or an agreement with the Third Party, either or both within *** after receipt of such written notice from Ranbaxy regarding the sale of such AB-Rated generic version of the Ranbaxy Product that restrains further sales of such AB-Rated generic version of the Ranbaxy Product by the Third Party in the United States, then if Ranbaxy launches an authorized generic version of the Ranbaxy Product, the royalty payable on such sales of authorized generic Ranbaxy Product shall be *** of Net Profit. For the sake of clarity, in the event Ranbaxy launches an authorized generic Ranbaxy Product but continues to sell a branded Ranbaxy Product, Ranbaxy shall continue to pay a royalty of *** of Net Sales on sales of branded Ranbaxy Product.

               4.1.2 Within *** following the end of each calendar quarter in which the Ranbaxy Product, Current Generic Product or Future Generic Product is sold during the term of this Agreement, Ranbaxy shall provide to Medicis a written estimate of the royalty amount that will be payable for each product for such calendar quarter in accordance with Section 4.1.1. Within *** following the end of each calendar quarter in which the Ranbaxy Product, Current Generic Product or Future Generic Product is sold during the term of this Agreement, Ranbaxy shall provide to Medicis a written report stating the number and description of all Ranbaxy Product, Current Generic Product or Future Generic Product sold during the relevant calendar quarter; the gross sales associated therewith; the calculation of Net Sales thereon, including

9

without limitation the amount of any Deductions; and the royalties that will be payable for such calendar quarter in accordance with Section 4.1.1.

               4.1.3 Any late payments shall bear interest at the lower of (a) *** per annum, or (b) the maximum rate allowed by law, commencing on the date payment is due.

          4.2 Taxes. Ranbaxy shall be responsible for and may withhold from payments made to Medicis under this Agreement any taxes required to be withheld by Ranbaxy under applicable law. Accordingly, if any such taxes are levied on such payments due hereunder (“Withholding Taxes”), Ranbaxy shall (i) deduct the Withholding Taxes from the payment amount, (ii) pay all applicable Withholding Taxes to the proper taxing authority, and (iii) send evidence of the obligation together with proof of tax payment to Medicis within *** following the applicable tax payment.

          4.3 Audit Rights. On no less than *** notice from Medicis, Ranbaxy shall make available for inspection during normal business hours by an independent auditor selected by Medicis and reasonably acceptable to Ranbaxy all records, books of account, information and data concerning (a) Net Sales pursuant to this Agreement for the purpose of an audit to determine the accuracy of the reports delivered and amounts paid by Ranbaxy pursuant to Section 4.1 and (b) Ranbaxy’s compliance with Section 3.1.5 of this Agreement. Upon reasonable belief of discrepancy or dispute, Medicis’ external auditors shall be entitled to take copies or extracts from such records, books of account, information and data (but only to the extent related to the contractual obligations set out in this Agreement) during any review or audit. Medicis shall be solely responsible for its costs in making any such audit, unless Medicis identifies a discrepancy in favor of Ranbaxy in the calculation of the Net Sales and royalties paid to Medicis under this Agreement in any calendar year from those properly payable for that calendar year of *** or greater, in which event Ranbaxy shall be solely responsible for the reasonable cost of such audit and pay Medicis any underpayment.

     5. TERM AND TERMINATION.

          5.1 Term. Subject to Section 5.2, this Agreement, shall expire on the expiration of the last to expire of the Patent Rights; provided, however, that if at any time during the Term there are no valid, issued patents within the Patent Rights, but there are at such time pending patent applications within the Patent Rights, then subject to the terms and conditions of this Agreement, the term of this Agreement shall continue for the pendency of such pending patent applications.

          5.2 Termination for Cause. Either party may terminate this Agreement upon or after the material breach of any material provision of this Agreement by the other party if the other party has not cured such breach within *** after receipt of express written notice thereof by the non-breaching party. If this Agreement is terminated prior to expiration of the last to expire of the Patent Rights, Ranbaxy shall not make, have made, use, sell, offer for sale, import or distribute Ranbaxy Product, Current Generic Product or Future Generic Product until the expiration of the last to expire of the Patent Rights.

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          5.3 Termination for Challenge. Except as expressly permitted in Section 2.2 above, Medicis shall have the right to immediately terminate this Agreement at any time after the Effective Date in the event Ranbaxy or any of its Affiliates contests or challenges, or supports or assists any Third Party to contest or challenge, with the patent office or any court, regulatory agency or other forum, Medicis’ ownership of or rights in, or the validity, enforceability or scope of, any of the Patent Rights, solely with respect to Ranbaxy Product, Current Generic Product or Future Generic Product.

          5.4 Effect of Expiration or Termination. Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination, and the provisions of Sections 2.1, 2.2, 3.3, 4.3, 5.2, 5.4, 6, 7.4, 8 and 9 shall survive the expiration or termination of this Agreement. No other provisions shall survive expiration or termination of this Agreement.

     6. CONFIDENTIALITY.

          6.1 Confidentiality. Until the expiration or earlier termination of this Agreement, and for a period of *** following the expiration or earlier termination hereof or thereof, except with respect to any Confidential Information constituting a trade secret in which case the receiving party’s obligation continues in perpetuity, provided such receiving party has been informed as to the status of such Confidential Information as a trade secret, each party shall maintain in confidence all Confidential Information disclosed by the other party and the terms of this Agreement, and shall not use, grant the use of or disclose to any Third Party the Confidential Information of the other party other than as expressly permitted hereby. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party’s Confidential Information or the terms of this Agreement. Without limiting the generality of the foregoing, Ranbaxy shall not disclose to any Third Party the Designated Strengths that are not part of the public domain and Ranbaxy shall not use the knowledge of the Designated Strengths that are not part of the public domain for any purpose (including without limitation, filing an NDA or ANDA, or filing an amendment or supplement to an existing NDA or ANDA) other than for the sole purpose of ensuring that the Ranbaxy Products do not have strengths identical to any of the Designated Strengths. Notwithstanding the foregoing, Ranbaxy may continue ongoing development and shall be permitted to file an ANDA for any of the Designated Strengths that were identified and/or or were in development by Ranbaxy prior to the Effective Date, as may be evidenced by the written records of Ranbaxy.

          6.2 Permitted Disclosures. Either party may disclose Confidential Information of the disclosing party (a) on a need-to-know basis, to such party’s directors, officers and employees to the extent such disclosure is reasonably necessary in connection with such party’s activities as expressly authorized by this Agreement, and (b) to those agents and consultants, and contract manufacturers who need to know such information to accomplish the purposes of this Agreement (collectively, “Permitted Recipients”); provided such Permitted Recipients are bound to maintain such Confidential Information in confidence at least to the same extent as set forth in Section 6.1.

          6.3 Litigation and Governmental Disclosure. Each party may disclose Confidential Information of the other party to the extent such disclosure is reasonably necessary

11

for prosecuting or defending litigation or complying with a court order or applicable law, governmental regulations or investigation, provided that if a party is required by court order, law or regulation to make any such disclosure of the other party’s Confidential Information it will give reasonable advance notice to the other party of such disclosure requirement and will use good faith efforts to assist such other party to secure a protective order or confidential treatment of such Confidential Information required to be disclosed.

          6.4 Publicity. Except as expressly authorized hereunder, neither party shall make any publicity releases, interviews or other dissemination of information concerning this Agreement or its terms, or either party’s performance hereunder, to communication media, financial analysts or others without the prior written approval of the other party, which approval shall not be unreasonably withheld, delayed or conditioned. Notwithstanding anything to the contrary in this Agreement, the parties understand and agree that either party, may, if so required, disclose some or all of the information included in this Agreement or other Confidential Information of the other party (a) in order to comply with its obligations under the law, including the United States Securities Act of 1933 and the United States Securities Exchange Act of 1934 (or the applicable ex-U.S. equivalent); (b) in order to comply with the listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market or New York Stock Exchange or other similar laws of a governmental authority; (c) to respond to an inquiry of a governmental authority or regulatory authority as required by law; or (d) in a judicial, administrative or arbitration proceeding. In any such event the party making such disclosure shall (i) provide the other party with as much advance notice as reasonably practicable of the required disclosure, (ii) cooperate with the other party in any attempt to prevent or limit the disclosure, and (iii) limit any disclosure to the specific purpose at issue. In connection with any filing of a copy of this Agreement with the Securities and Exchange Commission, the filing party shall endeavor to obtain confidential treatment of economic and trade secret information, and shall keep the other party informed as the planned filing (including, but not limited to providing the other party with the proposed filing reasonably in advance of making the planned filing) and consider the requests of the other party regarding such confidential treatment.

     7. REPRESENTATIONS AND WARRANTIES.

          7.1 Representations.

               7.1.1 Each party hereby represents and warrants as of the Effective Date to the other party that (a) the person executing this Agreement is authorized to execute this Agreement; (b) this Agreement is legal and valid and the obligations binding upon such party are enforceable by their terms; and (c) the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which such party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

               7.1.2 ***

               7.1.3 ***

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               7.1.4 ***

               7.1.5 ***

               7.1.6 ***

          7.2 Disclaimer of Warranties. Except for those warranties set forth in Section 7.1, neither party makes any warranty, written, oral, express or implied, with respect to this Agreement. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT HEREBY ARE DISCLAIMED BY BOTH PARTIES.

          7.3 Limitation of Liability. WITH THE EXCEPTION OF DAMAGES RESULTING FROM A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER THIS AGREEMENT OR ITS OBLIGATIONS UNDER SECTION 8 (INDEMNIFICATION), OR A BREACH BY RANBAXY OF SECTIONS 2.1 OR 2.2, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE FOR LOSS OF USE OR PROFITS OR OTHER COLLATERAL, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT, WHETHER SUCH CLAIMS ARE FOUNDED IN TORT OR CONTRACT.

          7.4 Equitable Relief. Ranbaxy acknowledges and agrees that the obligations and undertakings of Ranbaxy pursuant to Sections 2.1 and 2.2 of this Agreement are reasonable and necessary to protect the legitimate interests of Medicis, that Medicis would not have entered into this Agreement in the absence of such provisions, and that Ranbaxy’s breach or threatened breach or failure to comply with such Sections 2.1 and 2.2, solely with respect to the Ranbaxy’s Current Generic Product and Future Generic Product, shall cause Medicis significant and irreparable harm, the amount of which shall be extremely difficult to estimate and ascertain, and for which money damages shall not be adequate. Ranbaxy further acknowledges and agrees that Medicis shall have the right, solely with respect to Ranbaxy’s Current Generic Product and Future Generic Product, to apply to any court of competent jurisdiction for an injunction order restraining any breach or threatened breach of Sections 2.1 or 2.2 of this Agreement and specifically enforcing the terms and provisions of such Sections of this Agreement, without the necessity of posting any bond or security, in addition to seeking any other remedy available to Medicis in law or equity, provided, however, that with respect to the Ranbaxy Product, Medicis shall have the right to apply to any court of competent jurisdiction for an injunction order restraining any demonstrated breach of Section 2.1 or 2.2 and specifically enforcing the terms and provisions of such Sections of this Agreement, subject to the posting of a bond or security, in addition to seeking any other remedy available to Medicis at law or equity, and provided, further, that Medicis shall only have the right to apply for an injunction or equitable relief, or otherwise assert damages, against Ranbaxy with respect to the applicable Ranbaxy Product alleged to be the subject of a breach.

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     8. INDEMNIFICATION.

          8.1 Ranbaxy Indemnification. Ranbaxy shall indemnify, defend and hold harmless Medicis, its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Medicis Indemnified Parties”) from and against any and all liabilities, obligations, penalties, judgments, disbursements of any kind and nature, losses, damages, costs and expenses (including, without limitation, reasonable attorney’s fees and costs) (collectively, “Losses”) incurred as a result of any claims, demands, actions or other proceedings by a Third Party against an Indemnified Party to the extent arising out of (a) Ranbaxy’s breach of any representation, warranty or covenant under this Agreement, except to the extent that such Losses arise out of Medicis’ breach of any representation, warranty or covenant under this Agreement, ***

          8.2 Medicis Indemnification. (a) Medicis shall indemnify, defend and hold harmless Ranbaxy, its Affiliates, directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Ranbaxy Indemnified Parties”) from and against any and all Losses incurred as a result of any claims, demands, actions or other proceedings by a Third Party against an Indemnified Party to the extent arising out of Medicis’ breach of any representation, warranty or covenant under this Agreement, except to the extent that such Losses arise out of Ranbaxy’s breach of any representation, warranty or covenant under this Agreement.

          8.3 Obligations. A party which intends to claim indemnification under this Section 8 (the “Indemnified Party”) shall promptly notify the other party (the “Indemnifying Party”) in writing of any claim, demand, action, or other proceeding in respect of which the Indemnified Party intends to claim such indemnification; provided, however, that failure to provide such notice within a reasonable period of time shall not relieve the Indemnifying Party of any of its obligations hereunder except to the extent the Indemnifying Party is prejudiced by such failure. The Indemnified Party shall permit the Indemnifying Party, at its discretion, to settle any such action, claim or other matter. Notwithstanding the foregoing, the Indemnifying Party shall not enter into any settlement that would adversely affect the Indemnified Party’s rights hereunder, or impose any obligations on the Indemnified Party in addition to those set forth herein, in order for it to exercise such rights, without the Indemnified Party’s prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld or delayed. The Indemnified Party shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation and defense of any claim, demand, action, or other proceeding covered by the indemnification obligations of this Section 8. The Indemnified Party shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

     9. GENERAL PROVISIONS.

          9.1 Notices. All notices hereunder shall be delivered by facsimile (confirmed by overnight delivery), or by overnight delivery with a reputable overnight delivery service, to the following address of the respective parties:

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If to Medicis:	Medicis Pharmaceutical Corporation 7720 North Dobson Road Scottsdale, Arizona 85256 Attn: Chief Executive Officer Facsimile: 480-291-5175
with a copy to:	Medicis Pharmaceutical Corporation 7720 North Dobson Road Scottsdale, Arizona 85256 Attn: General Counsel Facsimile: 480-291-8508
If to Ranbaxy:	Ranbaxy Laboratories Limited Corporate Office, Plot 90, Sector 32 Gurgaon -122001 (Haryana), India Attn: Head – Global Legal Facsimile:
With a copy to:	Ranbaxy Inc. 600 College Road East Suite 2100 Princeton, New Jersey 08540 Attn: Legal Department Facsimile: (609) 720-1155

     Notices shall be effective on the day of receipt. A party may change its address listed above by notice to the other party given in accordance with this Section 9.1.

          9.2 Entire Agreement. The parties hereto acknowledge that this Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior written or oral agreements or understandings with respect to the subject matter hereof. No modification of any of the terms of this Agreement, or any amendments thereto, shall be deemed to be valid unless in writing and signed by an authorized agent or representative of both parties hereto. No course of dealing or usage of trade shall be used to modify the terms and conditions herein. This Agreement shall be binding on each of Ranbaxy and Medicis and their respective permitted successors and assigns.

          9.3 Waiver. None of the provisions of this Agreement shall be considered waived by any party hereto unless such waiver is agreed to, in writing, by authorized agents of such party. The failure of a party to insist upon strict conformance to any of the terms and conditions hereof, or failure or delay to exercise any rights provided herein or by law shall not be deemed a waiver of any rights of any party hereto.

          9.4 Obligations to Third Parties. Each party warrants and represents that this Agreement does not conflict with any contractual obligations, expressed or implied, undertaken with any Third Party.

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          9.5 Assignment. Neither party shall assign this Agreement or any part hereof or any interest herein (whether by operation of law or otherwise) to any Third Party (or use any subcontractor) without the written approval of the other party; provided, however, that either party may assign this Agreement without such consent (i) to any Affiliate; (ii) in the case of a merger, consolidation, change in control or sale of all or substantially all of the assets related to this Agreement, or (iii) in the case of a merger, consolidation, change in control or sale of all or substantially all of the assets or stock of Ranbaxy or an Affiliate, provided further that with respect to Ranbaxy, any such Affiliate or Third Party agrees to be bound by the terms and conditions of this Agreement including, without limitation, the provisions of Section 2.2. No assignment shall be valid unless the permitted assignee(s) assumes all obligations of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of its obligations hereunder. Any purported assignment in violation of this Section 9.5 shall be void.

          9.6 Governing Law. In any action brought regarding the validity, construction and enforcement of this Agreement, it shall be governed in all respects by the laws of the State of Delaware, without regard to the principles of conflicts of laws. The federal and state courts in the State of Delaware shall have jurisdiction over the parties hereto in all matters arising hereunder and the parties hereto agree that the venue with respect to such matters will be a state or federal court in the State of Delaware.

          9.7 Severability. If any term or provision of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein.

          9.8 Headings, Interpretation. The headings used in this Agreement are for convenience only and are not part of this Agreement.

          9.9 Attorneys’ Fees. The prevailing party shall be entitled to attorneys’ fees and its litigation or related expenses in any suit or proceeding with respect to the interpretation or enforcement of this Agreement.

          9.10 Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Remainder of this page intentionally blank]

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IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly-authorized representatives effective as of the Effective Date.

RANBAXY LABORATORIES LIMITED		MEDICIS PHARMACEUTICAL CORPORATION
By:		By:
	Name:		Name:
	Title:		Title:
RANBAXY INC.
By:
	Name:
	Title:

EXHIBIT A

Patent Rights

Issued Patents (all U.S.)	Pending Applications (all U.S.)
5,908,838	11/166,817
7,541,347	11/776,669
7,544,373	11/776,676
	11/776,691
	11/776,711
	11/944,186
	11/695,513
	11/695,514
	11/695,541
	12/253,845

A-1

EXHIBIT B

Current Solodyn Products

PRODUCT	NDC
	99207-0460-30
Solodyn 45mg	99207-0460-10
	99207-0461-30
Solodyn 90mg	99207-0461-10
	99207-0462-30
Solodyn 135mg	99207-0462-10

B-1

EXHIBIT C

Consent Judgment for Permanent Injunction

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

MEDICIS PHARMACEUTICAL CORPORATION,	)
Plaintiff,	)
		C.A. No. 09-033 (JJF)(LPS)
v.	)	C.A. No. 09-435 (JJF)
		(Consolidated)
RANBAXY INC.; and	)
RANBAXY LABORATORIES LTD.	)
ET AL.	)
Defendants.	)
	)
	)
	)
	)
	)
	)
	)
	)
MEDICIS PHARMACEUTICAL CORPORATION,	)	C.A. No. 10-120 (JJF)(MPT)
Plaintiff,	)
v.	)
RANBAXY INC.; and	)
RANBAXY LABORATORIES LTD.	)
Defendants.	)
	)
	)
	)
	)
	)
	)
	)

CONSENT JUDGMENT AND PERMANENT INJUNCTION
AS TO RANBAXY

          This matter is before the Court on the unopposed motion of Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendants Ranbaxy Inc. and Ranbaxy Laboratories Ltd. (collectively referred to herein as “Ranbaxy”).

C-1

          WHEREAS, this Consent Judgment and Permanent Injunction as to Ranbaxy concerns only Medicis’s claims against Ranbaxy and Ranbaxy’s counterclaims against Medicis in C.A. No. 09-435 (JJF) (which has been consolidated with C.A. No. 09-033 (JJF)), and C.A. No. 10-120 (JJF) (collectively referred to herein as the “Litigations”).

          WHEREAS, Medicis requests that this Consent Judgment and Permanent Injunction as to Ranbaxy be entered in the above-captioned cases, and Ranbaxy does not oppose Medicis’s request.

          WHEREAS, Medicis owns United States Patent No. 5,908,838 (“the ’838 patent”).

          WHEREAS, Ranbaxy submitted Abbreviated New Drug Application No. 91-118 (“Ranbaxy ANDA”) to the FDA under 21 U.S.C. § 355(j) seeking to obtain approval to commercially manufacture and sell generic minocycline HCl extended release tablets in its 135 milligram (“mg”) strength for the treatment of acne.

          WHEREAS, Ranbaxy submitted a supplement or amendment to the Ranbaxy ANDA (“Ranbaxy ANDA Supplement/Amendment”) to the FDA under 21 U.S.C. § 355(j) seeking to obtain approval to commercially manufacture and sell generic minocycline HCl extended release tablets in its 45 mg and 90 mg strengths for the treatment of acne.

          WHEREAS, in these Litigations, Medicis alleged that Ranbaxy infringed one or more of claims 3, 4, 12, and 13 of the ’838 patent under 35 U.S.C. § 271(e)(2) by virtue of Ranbaxy’s submission of the Ranbaxy ANDA and the Ranbaxy ANDA Supplement/Amendment to the FDA.

C-2

          WHEREAS, in these Litigations, Medicis alleged that it would be irreparably harmed if Ranbaxy is not enjoined from infringing or actively inducing or contributing to infringement of one or more of claims 3, 4, 12, and 13 of the ’838 patent.

          WHEREAS, in these Litigations, Medicis requested that this Court enter a permanent injunction enjoining Ranbaxy from infringing the ’838 patent.

          WHEREAS, Medicis and Ranbaxy have reached an agreement to finally settle these Litigations as set forth in this Consent Judgment and Permanent Injunction as to Ranbaxy and a separate confidential License and Settlement Agreement (“Settlement Agreement”) which is contemporaneously and separately being executed.

          WHEREAS, final settlement of these Litigations will help Medicis and Ranbaxy avoid the substantial uncertainty and risks involved with prolonged litigations.

          WHEREAS, final settlement of these Litigations will permit Medicis and Ranbaxy to save litigation costs, as well as adhere to the judicially recognized mandate that encourages the settlement of litigation whenever possible.

          WHEREAS, final settlement of these Litigations serves the public interest by saving judicial resources and avoiding the risks to each of Medicis and Ranbaxy associated with infringement.

          WHEREAS, Medicis and Ranbaxy each consent to personal jurisdiction in Delaware for purposes of enforcing the Settlement Agreement.

C-3

          IT IS HEREBY ORDERED, DECREED, and ADJUDGED as follows:

          1. The Court has jurisdiction over Medicis and Ranbaxy and the subject matter of these Litigations.

          2. Ranbaxy acknowledges Medicis’s ownership and standing to sue for infringement of United States Patent No. 5,908,838 (“the ‘838 patent”).

          3. Ranbaxy acknowledges that the ’838 patent is valid and enforceable, as described more fully in the Settlement Agreement.

          4. Ranbaxy acknowledges that the making, using, offering to sell, selling importation and/or distribution of the products that described in the Ranbaxy ANDA and the Ranbaxy ANDA Supplement/Amendment are covered by one or more claims of the ’838 patent under 35 U.S.C. § 271 and that Medicis did not authorize the manufacture, use, sale, offer for sale, importation and distribution of the product described in the Ranbaxy ANDA and the Ranbaxy ANDA Supplement/Amendment.

          5. As described more fully in the Settlement Agreement, Ranbaxy and its affiliates are permanently enjoined as of the date hereof from infringing the ’838 patent by the manufacture, use, offer to sell, sale, importation, or distribution of any current products, or future products having the same strength and dosage form of the current Solodyn^® products, that are the subject of the Ranbaxy ANDA and the Ranbaxy ANDA Supplement/Amendment that is not pursuant to a license granted by Medicis, and from inducing others to infringe the ’838 patent by inducing others to manufacture, use, offer to sell, sale, import, or distribute any current products, or future products having the same strength and dosage form of the current Solodyn^® products, that are the subject of the Ranbaxy ANDA and the Ranbaxy ANDA Supplement/Amendment that is not pursuant to a license granted by Medicis.

C-4

          6. Medicis acknowledges that Ranbaxy will maintain its paragraph IV certification pursuant to 21 C.F.R. § 314.94(a)(12)(v), as described more fully in the Settlement Agreement.

          7. All claims and counterclaims in these Litigations are hereby dismissed without prejudice.

          8. Except as provided in the Settlement Agreement, each side shall bear its own costs.

          9. This Court shall retain jurisdiction over Ranbaxy and Medicis for the purpose of enforcing the terms of this Consent Judgment and Permanent Injunction and over any matters related to or arising from the interpretation or enforcement of the Settlement Agreement or any legal or equitable claim concerning the Settlement Agreement.

IT IS SO ORDERED, DECREED AND ADJUDGED this ___ day of April, 2010 by:

The Honorable Joseph J. Farnan Jr.
United States District Judge Agreed to:
MORRIS, NICHOLS, ARSHT & TUNNELL LLP	POTTER ANDERSON & CORROON LLP
Jack B. Blumenfeld (#1014)	Richard L Horwitz (#2246)
Karen Jacobs Louden (#2881)	David E. Moore (#3983)
1201 North Market Street	Hercules Plaza, 6th Floor
Wilmington, DE 19899-1347	1313 North Market Street
(302) 658-9200	Wilmington, DE 19899
jblumenfeld@mnat.com	(302) 984-6000
klouden@mnat.com	rhorwitz@potteranderson.com dmoore@potteranderson.com
Attorneys for	Attorneys for Ranbaxy Inc. and

C-5

Medicis Pharmaceutical Corporation	Ranbaxy Laboratories Ltd.
OF COUNSEL:	OF COUNSEL:
Matthew D. Powers	Edgar H. Haug
WEIL, GOTSHAL & MANGES LLP	Brian J. Malkin
201 Redwood Shores Parkway	Angus Chen
Redwood Shores, CA 94065	FROMMER LAWRENCE & HAUG LLP
(650) 802-3000	745 Fifth Avenue
	New York, NY 10151 (212) 588-0800
Elizabeth Stotland Weiswasser Jennifer H. Wu Danielle Rosenthal Caroline Simons Josephine Young WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, NY 10153 (212) 310-8000

C-6

EX-10.2

Exhibit 10.2

SETTLEMENT AGREEMENT AND RELEASE

     The parties to this Settlement Agreement and Release (the “Agreement” or the “Release”) are Joseph P. Cooper (“Executive”) and Medicis Pharmaceutical Corporation (the “Company”).

RECITALS

     A. Executive is currently employed by the Company as its Executive Vice President, Corporate and Product Development. Effective December 23, 2008, Executive and the Company entered into an Employment Agreement (the “Employment Agreement”).

     B. The Company recently discussed a possible realignment of responsibilities for its executive team, which Executive found to be unacceptable. Following additional discussions, the Company and Executive have agreed that it is in both Company’s and Executive’s best interests for Executive to terminate employment with the Company as of the Separation Date (defined below).

     C. Executive and the Company each desires to resolve amicably, fully and finally all matters between them, including, but in no way limited to, those matters relating to the employment relationship between them and the termination of that relationship.

     NOW THEREFORE, in consideration of the recitals set forth above, which Executive and Company acknowledge are accurate, and the mutual promises and obligations set forth below, and other good and valuable consideration, the receipt and sufficiency of which are expressly acknowledged, it is agreed as follows:

AGREEMENTS

     1. Separation Date. The Company and Executive agree that Executive’s employment with the Company will terminate effective as of June 30, 2010 (the “Separation Date”). As of the Separation Date, and without any further action on his part, Executive hereby resigns from any and all positions or offices that Executive may hold with the Company or any affiliate of the Company as well as with any benefit plan or other entity that Executive holds either by appointment by the Company or due to his role as an officer of the Company.

     2. Transition. During the period beginning on the date on which this Agreement is executed through the Separation Date, Executive agrees to fully and diligently perform the duties assigned to him by the Company, which may differ from the duties currently assigned to him, and to cooperate with and assist the Company in the transition of his responsibilities to others. As part of Executive’s transition of his responsibilities to others, Executive will diligently and promptly work on the preparation of a transition memorandum covering such items as may be requested by the Company. During the period beginning on the Separation Date and ending on the first anniversary of the Separation Date, Executive also agrees, without further compensation, to make himself reasonably available during normal business hours to respond to inquiries from representatives of the Company regarding any matter or issue with which Executive was involved during his period of employment with the Company.

     3. Payments and Benefits. Executive shall be entitled to receive the following payments and benefits:

          (a) Severance Payments. Executive shall be entitled to receive three (3) separate severance payments (the “Severance Payments”) totaling $2,900,000 and payable in accordance with the following schedule:

Payment	Payment Date	Amount
Payment 1	Effective Date	$	1,000,000
Payment 2	July 1, 2011	$	1,000,000
Payment 3	January 15, 2012	$	900,000

     Payment 1 will be paid within seven (7) business days following the “Effective Date,” which is the latest of(1) the Separation Date, (2) the expiration of the revocation period referred to in Section 5(f) or (3) the expiration of the revocation period referred to in the Supplemental Release attached hereto as Exhibit A, if applicable. If Executive complies with the terms of this Agreement, Payments 2 and 3 will be made within seven (7) business days of the dates specified above. Nevertheless, all three payments are conditioned on Executive’s full compliance with all of the obligations contained in this Agreement, including but not limited to the “Company Protection Provisions.” For this purpose, the “Company Protection Provisions” are Section 9 (Non-Competition) of this Agreement and Sections 6 (Confidentiality) and 7.1 (Non-Solicitation) of the Employment Agreement, which survive the execution of this Agreement pursuant to Section 15. If Executive fails to honor or satisfy the obligations imposed upon him pursuant to the Company Protection Provisions for the maximum period set forth in the Company Protection Provisions, or if Executive challenges such provisions and a court of competent jurisdiction reduces the temporal or geographic scope of such provisions, Executive will relinquish any right to any payments remaining due after the date of the violation or the date of the filing of such challenge, as applicable. At all times, the right to each of the three (3) Severance Payment made pursuant to this Section 3(a) shall be treated as the right to a series of separate payments within the meaning of Treas. Reg. § 1.409A-2(b)(2)(iii). If Executive fails to sign this Agreement within the 21-day period referred to in Section 5(e) or if Executive fails to sign the Supplemental Release attached as Exhibit A in accordance with Section 6 within the period referred to in Exhibit A, or if Executive revokes his execution of this Agreement or the Supplemental Release within the applicable seven (7) day revocation period, Executive shall not be entitled to receive any of the payments provided pursuant to this Section 3(a) or any amounts due pursuant to any other provision of this Agreement.

          (b) Acceleration of Severance Payments Due to Change in Control. If a transaction that results in a “Change in Control” of the Company closes prior to December 15, 2011, the Severance Payments due pursuant to Section 3(a) shall be paid on the earlier of: (1) the dates specified in Section 3(a) or (2) within thirty (30) days following the closing of the transaction that results in the Change in Control. For purposes of this Agreement, “Change in Control” shall mean and refer to any transaction or event that: (1) results in a “Change in Control” as that term is defined in Section 5.8(b) of the Employment Agreement; and (2) that also qualifies as a “change in control event” within the meaning of Treas. Reg. § 1.409A-3(i)(5).

          (c) Health Care Coverage. If Executive makes a timely election pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) to continue his benefits under a Company sponsored group health plan, the Company will reimburse Executive for the actual cost of his COBRA coverage for a period of up to eighteen (18) months following Executive’s “Separation from Service.” If Executive becomes ineligible for COBRA coverage for

2

any reason during such eighteen (18) month period (including but not limited to the nonpayment of premiums) the Company’s obligation to reimburse Executive’s COBRA premiums shall cease. The eighteen (18) month period referred to above shall run concurrently with the applicable COBRA continuation period and shall not extend the maximum period under which Executive may receive continued group health insurance benefits pursuant to COBRA. The liaison of the Company for COBRA reimbursement matters shall be Lanora Contreras. Executive may not elect to receive cash or any other allowance in lieu of any benefits provided by this Agreement. For purposes of this Agreement, “Separation from Service” shall have the meaning set forth in Treas. Reg. § 1.409A-1(h).

          (d) No Further Obligation. The Company’s provision of the Severance Payments and the COBRA premium reimbursements described in this Section 3 shall fully satisfy its obligations to Executive under the terms of Executive’s Employment Agreement. Executive shall have no further right to receive any benefits or payments pursuant to the Employment Agreement or any other severance plan or program sponsored by the Company. Executive’s rights to vest in any restricted stock or vest in or exercise stock options will be determined pursuant to the provisions of the plans or agreements pursuant to which such stock options or restricted stock were granted or awarded to Executive and shall not be enhanced or otherwise impacted by the provisions of this Agreement.

          (e) Gross Amounts. All amounts referred to in this Agreement are gross amounts. The Company will deduct required and authorized withholdings.

          (f) Miscellaneous Payment Provisions. Under no circumstances may the time or schedule of any payment made or benefit provided pursuant to this Agreement be accelerated (except as otherwise provided in Section 3(b)) or subject to a further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Internal Revenue Code (the “Code”) or applicable regulations. Executive has not been given the right to make any election regarding the time or form of any payment due to him under this Agreement nor has Executive been permitted to elect the taxable year of the Severance Payment.

     4. General Release.

          (a) By Executive. Executive does hereby release and forever discharge the “Company Releasees” herein, consisting of the Company, its parent, subsidiary and affiliate corporations, and each of their respective past and present parents, subsidiaries, affiliates, associates, owners, members, stockholders, predecessors, successors, assigns, employees, agents, directors, officers, partners, representatives, lawyers, and all persons acting by, through, under, or in concert with them, or any of them, of and from any and all manner of claims or causes of action, in law or in equity, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), that Executive now has or may hereafter have against the Company Releasees by reason of any and all acts, omissions, events or facts occurring or existing prior to Executive’s execution of this Release. The Claims released hereunder include, without limitation, any alleged breach of any express or implied agreement (including without limitation the Employment Agreement); any alleged torts or other alleged legal restrictions relating to the Executive’s service to the Company and the termination thereof; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, as amended; the Americans with Disabilities Act, as amended; the Rehabilitation Act of 1973, as

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amended; the Age Discrimination in Employment Act, as amended (“ADEA”); the Civil Rights Act of 1866, and the Civil Rights Act of 1991, as both have been amended; the Equal Pay Act, as amended; regulations of the Office of Federal Contract Compliance; the Worker Adjustment and Retraining Notification Act, as amended; the Family and Medical Leave Act, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act, as amended; the Occupational Safety and Health Act, as amended; the Arizona Employment Protection Act, as amended; or any other federal, state or local laws. This Release shall not apply to any of the following: the Company’s obligations to provide Severance Payments and COBRA reimbursements under this Agreement; to Executive’s rights to indemnification under a written agreement previously entered into with the Company or the Articles or Bylaws of the Company or applicable law; to claims for workers’ compensation benefits; or Executive’s vested rights under any stock option, restricted stock, retirement or welfare benefit plan.

          (b) By Company. Company does hereby release Executive from any Claims (as defined above) that Company now has or may hereafter have against Executive by reason of any and all acts, omissions, events, or facts occurring or existing prior to Company’s execution of this Release but only if and to the extent that Executive is entitled to indemnification from Company with respect to such acts, omissions, events, or facts pursuant to a written agreement previously entered into between Executive and Company, the Articles or Bylaws of Company as in effect on the date of this Agreement, or applicable law.

     5. Rights Under the Older Worker’s Benefit Protection Act. Executive agrees and expressly acknowledges that this Release includes a waiver and release of all claims which he has or may have under the Older Worker’s Benefit Protection Act and the ADEA. The following terms and conditions apply to and are part of the waiver and release of the Older Worker’s Benefit Protection Act claims and ADEA claims under this Release:

          (a) Executive acknowledges that this paragraph and this Release are written in a manner calculated to be understood by Executive.

          (b) The waiver and release of claims under the ADEA contained in this Release does not cover rights or claims that may arise after the date on which Executive signs this Release.

          (c) Executive acknowledges that this Agreement provides for consideration in exchange for this Release in addition to anything of value to which Executive is already entitled.

          (d) Executive has been advised to consult an attorney before signing this Release.

          (e) Executive, through his attorney, was first presented with this Release on May 21, 2010. Executive accordingly has already had twenty-one (21) days to decide whether or not to sign this Release. The Company has agreed to extend the period within which Executive may decide whether or not to sign this Release through the close of business on June 15, 2010. Executive and Company agree that the changes made from the original version of the Release provided to Executive on May 21 do not entitle Executive to an additional twenty-one (21) day period within which to decide whether or not to sign this Release.

          (f) Executive has the right to revoke this Release within seven (7) days of signing this Release. In the event this Release is revoked, Executive understands that this Release will be null and void, and he will not be entitled to any compensation or benefits under this

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Agreement. If Executive wishes to revoke this Release, Executive shall deliver written notice stating his intent to revoke this Release to Jason Hanson at the offices of the Company on or before 5:00 p.m. on the seventh (7th) day after the date on which he signs this Release. Receipt by the Company of proper and timely notice of revocation from Executive cancels and voids this Agreement. If Executive does not provide a timely notice of revocation, this Agreement will become irrevocable on the calendar day immediately following expiration of the revocation period.

     6. Supplemental Release. At the request of the Company, Executive shall sign the Supplemental Release attached hereto as Exhibit A no earlier than June 30, 2010.

     7. No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that the Executive may have against the Company Releasees, or any of them. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any person asserting such assignment or transfer of any right or claims under any such assignment or transfer from Executive.

     8. No Actions. Executive agrees that if Executive hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against the Company Releasees any of the Claims released hereunder, then Executive will pay to the Company Releasees against whom such claim(s) is asserted, in addition to any other damages caused thereby, all attorneys’ fees incurred by such Company Releasees in defending or otherwise responding to said suit or Claim; provided, however, that Executive shall not be obligated to pay the Company Releasees’ attorneys’ fees to the extent such fees are attributable to claims under the ADEA or a challenge to the validity of the release of claims under the ADEA.

     9. Non-Competition. For a period of eighteen (18) months following the Separation Date, Executive shall not, directly or indirectly, in any County of the State of Arizona, any of the States of the United States of America, or any country in Europe, serve as an employee, consultant, officer, director, lender, investor, shareholder, partner, manager or member of any person or entity, or own or act as a sole proprietor of a business, that engages in the production of dermatological or facial aesthetic products or any business that engages in the lines of business in which the Company is engaged on the Separation Date (including, but not limited to, the manufacture, sale, marketing or developing of (i) dermatological or aesthetic products (including but not limited to facial aesthetic products), (ii) products or procedures for the reduction of fat or cellulite, or (iii) products that may treat Urea Cycle Disorder, any other deficiencies and enzymes of the Urea Cycle or that compete with those of UCYCLYD Pharma, Inc.) (each a “Competitor”); provided, however, that Executive’s passive ownership of securities shall not be a violation of this Section 9 if such securities represent:

          (a) less than one percent (1%) of the securities of a publicly traded entity with a market capitalization greater than $500,000,000 at the time of Executive’s investment (a “Large Publicly Traded Entity”); or

          (b) less than $500,000 and less than five percent (5%) of the securities of any entity that is not a Large Publicly Traded Entity.

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     Executive acknowledges that these restrictions shall not prevent or unduly restrict Executive from practicing his profession, or cause him economic hardship.

     Notwithstanding the foregoing, at the request of Executive, the Company will in good faith consider relieving Executive of some or all of the obligations imposed upon him pursuant to this Section 9 as it applies to a particular entity. Executive’s request shall be in writing and shall, at a minimum, include a full description of his proposed responsibilities. The review and release from the requirements of this Section 9 shall be solely in the good faith discretion of the Company.

     10. Return of Company Property. Executive agrees that prior to the Separation Date he shall make a diligent search and return to the Company all Company documents (in electronic, paper or any other form as well as all copies thereof) and other Company property that he has had in his possession at any time, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property including, but not limited to, entry cards, identification badges and keys, cell phones, laptops and any materials of any kind that may or may not contain or embody any proprietary or Confidential Information of Company (as the term “Confidential Information” is defined in Section 6 of the Employment Agreement). Any item that was paid for, or the purchase price for which was reimbursed by, the Company shall be considered to be Company property. Executive agrees to make a diligent search for all such Company property and to return any property not previously returned to the Company no later than the Separation Date. Executive further agrees to provide to the Company, within five (5) days of execution of this Agreement and upon the Separation Date, with a computer-useable copy of any Company Confidential Information or proprietary data, materials or information received, stored, reviewed, prepared or transmitted on any personal computer, server, or e-mail system, to the extent the same may be retrieved from such computers, servers and e-mail system, and, then, to delete such Company Confidential Information or proprietary information from those computers, servers and e-mail systems.

     11. Cooperation in Proceedings. The Company and Executive agree that they shall fully cooperate with each other with respect to any claim, litigation or judicial, arbitral or investigative proceeding initiated by any private party or by any regulator, governmental entity, or self-regulatory organization, that relates to or arises from any matter with which Executive was involved during his employment with the Company, or that concerns any matter of which Executive has information or knowledge (collectively, a “Proceeding”). Executive’s duty of cooperation includes, but is not limited to: (a) meeting with the Company’s attorneys by telephone or in person at mutually convenient times and places in order to state truthfully Executive’s recollection of events; (b) appearing at the Company’s request, upon reasonable notice, as a witness at depositions or trials, without the necessity of a subpoena, in order to state truthfully Executive’s knowledge of matters at issue; and (c) signing at the Company’s reasonable request declarations or affidavits that truthfully state matters of which Executive has knowledge. The Company’s duty of cooperation includes providing Executive and his counsel access to documents, information, witnesses and the Company’s legal counsel as is reasonably necessary to litigate on behalf of Executive in any Proceeding. If Executive’s cooperation involves meeting with attorneys, testimony, or attendance at hearings or other proceedings, Company shall reimburse Executive for any reasonable out-of-pocket expenses incurred in the course of performing such obligations hereunder, and, absent an agreement pursuant to the following sentence, the Company shall compensate Executive at the rate of $400.00 per hour for any hours in excess of eight per month or 16 cumulatively devoted by Executive in the fulfillment of his obligations under this

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sentence. If the obligations imposed upon Executive pursuant to this Section 11 require that Executive devote significant, concentrated periods of time to the satisfaction of his obligations, Company, on the request of Executive, will negotiate in good faith with Executive to reach an agreement to provide Executive with reasonable compensation for his services. At the request of Executive, the Company also shall consider in good faith any request from Executive to provide Executive with legal counsel, either through the Company’s counsel or separate counsel, if appropriate, in connection with such cooperation. Company shall indemnify Executive for any claims alleged against Executive arising out of his acts or omissions that occurred in the course and scope of his services to the Company in accordance with the terms of any written indemnification agreement previously entered into between Executive and Company, or the Articles or Bylaws of Company as in effect on the date of this Agreement, or applicable law. In addition, Executive agrees to notify the Company’s General Counsel promptly of any requests for information or testimony that he receives in connection with any litigation or investigation relating to the Company’s business, and the Company agrees to notify Executive promptly of any requests for information or testimony that it receives relating to Executive. Notwithstanding any other provision of this Agreement, this Agreement shall not be construed or applied so as to require any party to violate any confidentiality agreement or understanding with any third party, nor shall it be construed or applied so as to compel any party to take any action, or omit to take any action, requested or directed by any regulatory or law enforcement authority.

     12. No Disparagement. Executive and Company each acknowledge that following the execution of this Agreement they will continue to be bound by the non-disparagement provisions of Section 9.8 of the Employment Agreement.

     13. Severability. Should any provision in this Agreement be declared or determined to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected and the illegal or invalid part, term, or provision shall be deemed not to be a part of this Agreement.

     14. Acknowledgement. Executive acknowledges that he is herein being advised to consult with an attorney prior to executing this Agreement. Executive represents and agrees that he has read and fully understands all of the provisions of this Agreement, and that he is voluntarily entering into this Agreement with a full and complete understanding of all of its terms.

     15. Integration. Except as otherwise provided in this Agreement, this Agreement constitutes the entire agreement between the parties, supersedes all oral negotiations and any prior and other writings with respect to the subject matter of this Agreement and is intended by the parties as the final, complete and exclusive statement of the terms agreed to by them. Notwithstanding the foregoing, Executive and Company acknowledge and agree that this Agreement does not limit, modify, amend, or supersede, in any way, their obligations to abide by the provisions of Section 5.10 (Certain Additional Payments), Section 5.11 (Delayed Distributions and Code Section 409A Compliance), Section 5.14 (Limited Section 409A Payments), Section 6 (Confidentiality), Section 7.1 (Non-Solicitation), Section 8 (Arbitration Agreement), or Section 9.8 (Non-Disparagement) of the Employment Agreement or any other provision of the Employment Agreement that, by its terms or by implication, is intended to survive the termination of Executive’s employment with the Company. The parties acknowledge that Section 9 of this Agreement amends, restates and replaces Section 7.2 (Non-Competition) of the Employment Agreement. Nothing in this Agreement is intended to modify in any way any rights Executive may have to indemnification pursuant to a written agreement previously entered into with the Company or the Articles or Bylaws of the Company as in effect on the date of this Agreement, or applicable

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law or any vested rights Executive may have pursuant to any stock option, restricted stock, retirement or welfare benefit plan. Those provisions shall continue in full force and effect in accordance with their terms.

     16. Amendment. This Agreement shall be binding upon the parties and may not be amended, supplemented, changed, or modified in any manner, orally or otherwise, except by an instrument in writing of concurrent or subsequent date signed by the parties.

     17. Successors and Assigns. This Agreement is and shall be binding upon and inure to the benefit of the heirs, executors, successors and assigns of each of the parties.

     18. Non-Admission. This Agreement shall not in any way be construed as an admission by the Company that it has acted wrongfully with respect to Executive, and the Company specifically denies the commission of any wrongful acts against Executive. Executive acknowledges that he has not suffered any wrongful treatment by the Company.

     19. Joint Drafting. Executive and the Company agree that this Agreement shall be deemed to have been drafted jointly by the parties. Any uncertainty or ambiguity shall not be construed for or against any party based on attribution of drafting to any party.

     20. Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

     21. Governing Law. This Agreement shall be construed, performed, and enforced in accordance with, and governed by the laws of the State of Arizona without giving effect to the principles of conflict of laws thereof.

     22. No Duty to Mitigate. Executive shall be entitled to the full benefits provided under this Agreement without regard to Executive’s efforts or lack of efforts to obtain alternative employment, and the benefits provided to Executive shall not be reduced by any amounts received by Executive from any other source.

     23. Section 409A Compliance. The parties believe that the first Severance Payment due pursuant to Section 3(a) qualifies for the short-term deferral exception to the requirements of Section 409A. The parties also believe that the second and third Severance Payments called for by Section 3(a) satisfy the requirements of Section 409A as does the accelerated payment due upon a Change in Control pursuant to Section 3(b). In addition, the parties believe that the health care coverage reimbursements called for by Section 3(c) satisfy the separation pay exception to the requirements of Section 409A. The parties agree that they will not take any inconsistent positions on any tax returns that they might file.

     24. No Reemployment. Executive agrees that in the future he will not apply for employment for any position with the Company or any of is affiliates.

     25. Consent to Disclosure. Executive acknowledges that Company is obligated to disclose this Agreement pursuant to applicable securities law requirements. Executive also consents to Company’s disclosure of his departure to the Company’s employees, vendors, business partners and others. Executive understands that this disclosure will occur immediately upon the execution of this Agreement and will not be postponed until the expiration of the

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revocation period referred to in Section 5(f) or the Supplemental Release. Company shall provide Executive with an advance copy of the form 8-K that will be filed with the Securities Exchange Commission and any press release or internal communication with which Company intends to announce Executive’s departure.

     26. Consent to Realignment of Portfolio. In light of Executive’s desire to accelerate his departure from the Company, Executive understands that the Company will need to move quickly to reassign Executive’s responsibilities to others. Executive consents to the Company’s assignment of his authority, duties and responsibilities to others immediately following the execution of this Agreement and agrees that he will not assert that the reassignment of his authority, duties and responsibilities to others is “Good Reason” for his termination of employment pursuant to the provisions of the Employment Agreement, even if Executive chooses to revoke his execution of this Agreement pursuant to Section 5(f) or the Supplemental Release pursuant to its terms. If Executive does revoke his execution of this Agreement or the Supplemental Agreement, the revocation shall not have any impact upon the consent provided pursuant to this Section or Section 25, which shall continue in full force and effect despite any revocation.

     27. Representation of Executive. Executive hereby represents to the Company that he is not aware of any action or omission on his part or of a third party that would give rise to any liability of the Company to any third party or would give rise to any claim by the Company against Executive. Company hereby represents to the Executive that it is not aware of any action or omission on its part that would give rise to any claim by the Executive against Company.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized representative and Executive has executed this Agreement on this 15^th day of June, 2010.

Medicis Pharmaceutical Corporation
By:	/s/ Jason D. Hanson		/s/ Joseph P. Cooper
	Name:	Jason D. Hanson	Joseph P. Cooper
	Title:	Executive Vice President, General Counsel & Corporate Secretary
6/15/10			6/15/10
Date			Date

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EX-10.3

Exhibit 10.3

FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     Medicis Pharmaceutical Corporation (the “Company”) and Jason D. Hanson (the “Executive”) entered into an Amended and Restated Employment Agreement (the “Agreement”) effective as of December 22, 2008. The Company and Executive wish to amend the Agreement to modify the description of the Executive’s position and duties and to clarify the circumstances in which a change in the Executive’s authority, duties or responsibilities will be deemed to give rise to “Good Reason” for the Executive to terminate the Agreement. The Company and Executive each acknowledge that the modification of the Executive’s position and duties and the noted clarification is valuable to it or him and provides adequate consideration for the execution of this First Amendment.

     1. This First Amendment is effective as of June 30, 2010.

     2. Section 2.1 of the Agreement is hereby amended and restated in its entirety to read as follows:

     2.1 Position and Duties. Executive shall serve as the Executive Vice President and Chief Operating Officer of the Company, and shall have such authority, duties and responsibilities as are ordinarily assigned to an employee holding the position of Chief Operating Officer with a publicly traded company. Executive shall also have such additional authority, duties and responsibilities as may be assigned to him by the Company from time to time with his consent.

     3. Section 3.1 of the Agreement is hereby amended to provide that Executive’s salary, effective as of the effective date of this First Amendment, shall be increased to an annual rate of $625,000 per year.

     4. Section 5.6(b) of the Agreement is hereby amended and restated in its entirety to read as follows:

     (b) a material diminution in Executive’s authority, duties or responsibilities as set forth in Section 2.1, provided, however, that for

purposes of this clause (b) a change in Executive’s authority, title, duties, or responsibilities shall not be deemed to materially reduce Executive’s authority, duties, or responsibilities if all of the following conditions are satisfied: (i) at the time the change is implemented Jonah Shacknai is serving as Company’s Chief Executive Officer; (ii) Mr. Shacknai initiated or approved the change; (iii) Executive continues to report to either the supervisor to whom Executive reported immediately prior to such change or a supervisor at the same or higher level of responsibility within Company’s organizational structure; and (iv) there is no material diminution in Executive’s Base Compensation or in Executive’s opportunities for incentive or equity compensation.

     5. This First Amendment amends only the provisions of the Agreement as set forth herein, and those provisions not expressly amended by this First Amendment shall continue in full force and effect. Notwithstanding the foregoing, this First Amendment shall supersede the provisions of the Agreement to the extent those provisions are inconsistent with the provisions and the intent of this First Amendment.

     IN WITNESS WHEREOF, Executive has executed this First Amendment, and Company has caused this First Amendment to be executed by its duly authorized representative, on this 15^th day of June, 2010.

MEDICIS PHARMACEUTICAL CORPORATION
By	/s/ Mark A. Prygocki
	Its Mark A. Prygocki
	Executive Vice President, Chief Operating Officer
“EXECUTIVE”
/s/ Jason D. Hanson

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EX-10.4

Exhibit 10.4

FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT

     Medicis Pharmaceutical Corporation (the “Company”) and Richard D. Peterson (the “Executive”) entered into an Employment Agreement (the “Agreement’) effective December 22, 2008. The Company and Executive wish to amend the Agreement to modify the Executive’s salary to reflect the Executive’s additional responsibilities and to clarify the circumstances in which a change in the Executive’s authority, duties or responsibilities will be deemed to give rise to “Good Reason” for the Executive to terminate the Agreement. The Company and Executive each acknowledge that the modification of the Executive’s salary and the noted clarification is valuable to it or him and provides adequate consideration for the execution of this First Amendment.

     1. This First Amendment is effective as of June 30, 2010.

     2. Section 3.1 of the Agreement is hereby amended to provide that Executive’s salary, effective as of the effective date of this First Amendment, shall be increased to an annual rate of $555,000 per year.

     3. Section 5.6(b) of the Agreement is hereby amended and restated in its entirety to read follows:

     (b) a material diminution in Executive’s authority, duties or responsibilities as set forth in Section 2.1, provided, however, that for purposes of this clause (b) a change in Executive’s authority, title, duties, or responsibilities shall not be deemed to materially reduce Executive’s authority, duties, or responsibilities if all of the following conditions are satisfied: (i) at the time the change is implemented Jonah Shacknai is serving as Company’s Chief Executive Officer; (ii) Mr. Shacknai initiated or approved the change; (iii) Executive continues to report to either the supervisor to whom Executive reported immediately prior to such change or a supervisor at the same or higher level of responsibility within Company’s organizational structure; and (iv) there is no material diminution in Executive’s Base Compensation or in Executive’s opportunities for incentive or equity compensation.

     4. This First Amendment amends only the provisions of the Agreement as set forth

herein, and those provisions not expressly amended by this First Amendment shall continue in full force and effect. Notwithstanding the foregoing, this First Amendment shall supersede the provisions of the Agreement to the extent those provisions are inconsistent with the provisions and the intent of this First Amendment.

     IN WITNESS WHEREOF, Executive has executed this First Amendment, and Company has caused this First Amendment to be executed by its duly authorized representative, on this 15^th day of June, 2010.

MEDICIS PHARMACEUTICAL CORPORATION
By	/s/ Jason D. Hanson
	Its Jason D. Hanson
	Executive Vice President, General Counsel & Corporate Secretary
“EXECUTIVE”
/s/ Richard D. Peterson

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EX-10.5

Exhibit 10.5

FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     Medicis Pharmaceutical Corporation (the “Company”) and Mark A. Prygocki (the “Executive”) entered into an Amended and Restated Employment Agreement (the “Agreement”) effective as of December 22, 2008. The Company and Executive wish to amend the Agreement to modify the description of the Executive’s position and duties and to clarify the circumstances in which a change in the Executive’s authority, duties or responsibilities will be deemed to give rise to “Good Reason” for the Executive to terminate the Agreement. The Company and Executive each acknowledge that the modification of the Executive’s position and duties and the noted clarification are valuable to it or him and provide adequate consideration for the execution of this First Amendment.

     1. This First Amendment is effective as of June 30, 2010.

     2. Section 2.1 of the Agreement is hereby amended and restated in its entirety to read as follows:

     2.1 Position and Duties. Executive shall serve as the President of the Company and shall have such authority, duties and responsibilities as ordinarily assigned to an employee holding the position of President with a publicly traded company (or following a Change in Control, the ultimate parent entity of Company) and provided to Executive in writing. Executive shall also have such additional authority, duties and responsibilities as may be assigned to him by the Company from time to time with his consent.

     3. Section 3.1 of the Agreement is hereby amended to provide that Executive’s salary, effective as of the effective date of this First Amendment, shall be increased to an annual rate of $670,000 per year.

     4. Section 5.6(b) of the Agreement is hereby amended and restated in its entirety to read follows:

     (b) a material diminution in Executive’s authority, duties or responsibilities as set forth in Section 2.1, provided, however, that for purposes of this clause (b) a change in Executive’s authority, title, duties, or responsibilities shall not be deemed to materially reduce Executive’s authority, duties, or responsibilities if all of the following conditions are satisfied: (i) at the time the change is implemented Jonah Shacknai is serving as Company’s Chief Executive Officer; (ii) Mr. Shacknai initiated or approved the change; (iii) Executive

continues to report to either the supervisor to whom Executive reported immediately prior to such change or a supervisor at the same or higher level of responsibility within Company’s organizational structure; and (iv) there is no material diminution in Executive’s Base Compensation or in Executive’s opportunities for incentive or equity compensation.

     5. Section 5.6(f) of the Agreement is hereby amended and restated in its entirety to read as follows:

     (f) any other action or inaction that constitutes a material breach by the Company of the Agreement (including without limitation the breach by the Company of its obligation under Section 2.1 to maintain Executive’s duties as those consistent with the duties of a President of a publicly traded company or following a Change in Control, as President of the ultimate parent entity of the Company).

     6. This First Amendment amends only the provisions of the Agreement as set forth herein, and those provisions not expressly amended by this First Amendment shall continue in full force and effect. Notwithstanding the foregoing, this First Amendment shall supersede the provisions of the Agreement to the extent those provisions are inconsistent with the provisions and the intent of this First Amendment.

     IN WITNESS WHEREOF, Executive has executed this First Amendment, and Company has caused this First Amendment to be executed by its duly authorized representative, on this 15^th day of June, 2010.

MEDICIS PHARMACEUTICAL CORPORATION
By	/s/ Jason D. Hanson
	Its Jason D. Hanson
	Executive Vice President, General Counsel & Corporate Secretary
“EXECUTIVE”
/s/ Mark A. Prygocki

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Jonah Shacknai, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Medicis Pharmaceutical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010

JONAH SHACKNAI

/s/ JONAH SHACKNAI  

(Jonah Shacknai) 

Chairman of the Board and Chief Executive Officer 

EX-31.2

Exhibit 31.2

I, Richard D. Peterson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Medicis Pharmaceutical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010

RICHARD D. PETERSON

/s/ RICHARD D. PETERSON  

(Richard D. Peterson) 

Executive Vice President, Chief Financial Officer and Treasurer 

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

          In connection with the quarterly report of Medicis Pharmaceutical Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), Jonah Shacknai, Chief Executive Officer of the Company, and Richard D. Peterson, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company.

/s/ JONAH SHACKNAI  

Jonah Shacknai 

Chairman of the Board and Chief Executive Officer 

August 9, 2010

/s/ RICHARD D. PETERSON  

Richard D. Peterson 

Executive Vice President, Chief Financial Officer and Treasurer 

August 9, 2010

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Nor will this certification be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.