8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 15, 2006

Medicis Pharmaceutical Corporation

(Exact name of registrant as specified in its charter)

Delaware	0-18443	52-1574808
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

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

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

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

     On March 15, 2006, Medicis Pharmaceutical Corporation issued a press release announcing its financial results for the quarter ended December 31, 2005. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated by reference herein.

     The information in this Current Report, including the accompanying exhibit, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing.

Item 9.01 Exhibits.

(c)	Exhibits
99.1	Press Release dated March 15, 2006

SIGNATURE

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

Dated: March 15, 2006	Medicis Pharmaceutical Corporation
	By:	/s/ Mark A. Prygocki, Sr.
		Mark A. Prygocki, Sr. Executive Vice President, Chief Financial Officer, Corporate Secretary and Treasurer

Exhibit Index

Exhibit Number	Description
99.1	Press Release dated March 15, 2006

EX-99.1

Exhibit 99.1

MEDICIS NEWS 8125 North Hayden Road Scottsdale, AZ 85258 (602) 808-8800 www.medicis.com FOR IMMEDIATE RELEASE

CONTACT:
Kara Stancell, Investor Relations & Corporate Communications, (602) 808-3854

MEDICIS REPORTS DECEMBER 2005 FINANCIAL RESULTS

SCOTTSDALE, Arizona—March 15, 2006—Medicis (NYSE:MRX) today announced December 2005 quarter-end revenue of approximately $80.7 million with “if-converted” net income of approximately $20.1 million, or $0.29 per diluted share, absent tax-effected special items of $18.8 million. The net impact of the special items resulted in an increase to net income and is more fully described below. This is compared to December 2004 quarter-end revenue of $92.3 million with “if-converted” net income of $25.4 million, or $0.36 per diluted share, absent tax-effected special charges of $3.6 million.

Including the tax-effected special items of $18.8 million, the Company reported Generally Accepted Accounting Principles (“GAAP”) net income of $37.3 million, or $0.56 per diluted share for the December 2005 quarter-end, compared to December 2004 quarter-end GAAP net income of $20.2 million, or $0.31 per diluted share. Diluted per share amounts are calculated using the “if-converted” method of accounting in accordance with GAAP.

During the three months ended December 31, 2005, the Company recorded a net increase of $18.8 million associated with the following special items:

• $59.8 million ($38.3 million tax-effected) gain included in other income, net of the expensing of accumulated transaction costs related to the terminated Inamed Corporation merger transaction and integration planning costs incurred during the quarter ended December 31, 2005;

• $11.9 million ($7.7 million tax-effected) special charge for purchased research and development associated with the achievement of certain clinical milestones by Dow Pharmaceutical Sciences (“Dow”);

• $9.2 million ($5.9 million tax-effected) special charge associated with the write-down of an intangible asset associated with DYNACIN^® Capsules; and

• $7.3 million ($5.9 million tax-effected) expense associated with FAS 123R share-based compensation expense. $6.8 million of this expense was recorded in selling, general and administrative expenses, and $0.5 million was recorded in research and development expenses.

The decrease in total revenue of approximately $11.7 million in the December 2005 quarter primarily is attributable to a $12.9 million reduction in contract revenue. The Company continues to experience erosion in our DYNACIN^® and LOPROX^® franchises due to generic competition. The Company believes its future growth drivers to be the RESTYLANE^®, VANOS™ and PLEXION^® franchises. At the end of the December 2005 quarter, the Company’s core brands included DYNACIN^®, LOPROX^®, OMNICEF^®, PLEXION^®, RESTYLANE^®, TRIAZ^® and VANOS™. Additionally, the Company’s gross profit margin for the quarter ended December 31, 2005, was consistent with the prior period at approximately 85%.

Absent the special items above, selling, general and administrative expenses for the three months ended

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December 31, 2005, were approximately $31.9 million, compared to $32.2 million for the same period last year, absent special charges of $0.6 million.

The following table represents a reconciliation of GAAP financial information to non-GAAP financial information. All numbers are shown in thousands and are not tax-effected.

	Three Months Ended
	December 31,
	2005			2004
GAAP selling, general and administrative	$	47,873		$	32,810
Special charge for R&D, including related professional fees		—			(527	)
Special charge for write-down of an intangible asset associated with DYNACIN® Capsules		(9,171	)		—
FAS 123R share-based compensation expense		(6,763	)		(129	)
Selling, general and administrative, absent special charges and FAS 123R expenses	$	31,939		$	32,154

Absent FAS 123R share-based compensation expense and special charges for a research and development collaboration, research and development expenses were approximately $4.9 million for the December 2005 quarter-end, compared to approximately $4.4 million for the same period last year.

The following table represents a reconciliation of GAAP financial information to non-GAAP financial information. All numbers are shown in thousands and are not tax-effected.

	Three Months Ended
	December 31,
	2005			2004
GAAP research and development	$	17,313		$	9,377
Special charge for R&D collaborations		(11,948	)		(5,000	)
FAS 123R share-based compensation expense — R&D		(494	)		—
Research and development, absent special charges and
FAS 123R share-based compensation expense	$	4,871		$	4,377

Interest income for the December 2005 quarter-end increased $3.3 million, or 132.5%, to $5.9 million from $2.6 million during the December 2004 quarter, primarily due to an increase in the interest rates achieved by our invested funds during the period. Absent the special items above, diluted earnings per share were $0.29 for the three months ended December 31, 2005, compared to $0.36 for the same period last year. The reduction in diluted earnings per share primarily is due to the reduction in contract revenue and profitability associated with it.

For the six months ended December 31, 2005, Medicis reported revenue of approximately $164.0 million with “if-converted” net income of approximately $39.8 million, or $0.57 per diluted share, absent tax-effected special items of $13.3 million. The net impact of the special items resulted in an increase to net income and is more fully described below. This compared to revenue of $181.2 million with “if-converted” net income of $47.6 million, or $0.66 per diluted share, for the six months ended December 31, 2004, absent tax-effected special charges of $23.0 million.

Including the tax-effected special items of $13.3 million reported in the six months ended December 31, 2005, Medicis reported GAAP net income of $49.7 million, or $0.76 per diluted share for the six months ended December 31, 2005. The Company reported GAAP net income of $21.2 million, or $0.34 per diluted share for the six months ended December 31, 2004.

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During the six months ended December 31, 2005, the Company recorded a net increase of $13.3 million associated with the following special items:

• $59.1 million ($37.8 million tax-effected) gain included in other income, net of the expensing of accumulated transaction costs related to the transaction and integration planning costs incurred during the six months ended December 31, 2005;

• $11.9 million ($7.7 million tax-effected) special charge for purchased research and development associated with the Dow project;

• $9.2 million ($5.9 million tax-effected) special charge associated with the write-down of an intangible asset associated with DYNACIN^® Capsules; and

• $14.9 million ($10.9 million tax-effected) expense associated with FAS 123R share-based compensation expense. $13.9 million of this expense was recorded in selling, general and administrative expenses, and $1.0 million was recorded in research and development expenses.

The decrease in total revenue of approximately $17.2 million for the six months ended December 31, 2005, primarily is attributable to a $25.8 million reduction in contract revenue and the effects of generic erosion in our DYNACIN^® and LOPROX^® franchises. RESTYLANE^®, PLEXION^® Cleansing Cloths and VANOS™ were the growth drivers for the six months ended December 31, 2005. Additionally, the Company’s gross profit margin for the six months ended December 31, 2005, was consistent with the prior period at approximately 85%.

Absent the special items above, selling, general and administrative expenses for the six months ended December 31, 2005 were approximately $65.6 million, compared to $64.2 million for the six months ended December 31, 2004, absent special charges of $1.5 million.

The following table represents a reconciliation of GAAP financial information to non-GAAP financial information. All numbers are shown in thousands and are not tax-effected.

	Six Months Ended
	December 31,
	2005			2004
GAAP selling, general and administrative	$	89,360		$	65,736
Special charge for R&D, including related professional fees		—			(1,277	)
Special charge for integration planning costs		(691	)		—
Special charge for write-down of an intangible asset associated with DYNACIN® Capsules		(9,171	)		—
FAS 123R share-based compensation expense		(13,947	)		(258	)
Selling, general and administrative, absent special charges and FAS 123R expenses	$	65,551		$	64,201

Absent FAS 123R share-based compensation expense and special charges for a research and development collaboration, research and development expenses were consistent year over year with the Company reporting approximately $9.4 million for the six months ended December 31, 2005, compared to $10.1 million for the same period last year.

The following table represents a reconciliation of GAAP financial information to non-GAAP financial information. All numbers are shown in thousands and are not tax-effected.

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	Six Months Ended
	December 31,
	2005			2004
GAAP research and development	$	22,367		$	45,140
Special charge for R&D collaborations		(11,948	)		(35,000	)
FAS 123R share-based compensation expense — R&D		(1,000	)		—
Research and development, absent special charges and
FAS 123R share-based compensation expense	$	9,419		$	10,140

Interest income for the six months ended December 31, 2005, increased $5.0 million, or 98.2%, to $10.1 million from $5.1 million during the comparable 2004 six months, primarily due to an increase in the interest rates achieved by our invested funds during the period. Absent the special items above, diluted earnings per share were $0.57 for the six months ended December 31, 2005, compared to $0.66 for the same period last year, primarily due to the reduction in contract revenue and profitability associated with it.

“We are pleased with the progress in our research and development pipeline and our corporate development opportunities,” said Jonah Shacknai, Chairman and Chief Executive Officer of Medicis. “We are very excited about the addition of RELOXIN^® to our aesthetics franchise, and the potential future it holds for the Company. As noted in our 2006 guidance projections, we anticipate launching a new product in the relatively near future. We remain extremely confident in the Company’s prospects.”

Effective December 31, 2005, the Company changed its fiscal year end from June 30 to December 31. As a result, we have included, as a point of reference, the past two calendar years ending December 31, 2005 and December 31, 2004.

Per share amounts are calculated using the “if-converted” method of accounting in accordance with GAAP regardless of whether the outstanding 2.5% Convertible Senior Notes and 1.5% Convertible Senior Notes meet the criteria for conversion and regardless of whether the bondholders actually convert their bonds into shares.

The Company incurred Inamed transaction expenses during the calendar years ending 2004 and 2005. The total net benefit recognized from the inception of the proposed transaction through the termination of the Agreement was approximately $53.8 million. This includes the $59.1 million gain recognized during our transition period of July 1, 2005 through December 31, 2005, partially offset by approximately $5.3 million of integration planning costs incurred during the three months ended June 30, 2005.

Use of Non-GAAP Financial Information:

To the extent that the Company has provided non-GAAP financial information in this press release, it has done so in order to provide meaningful supplemental information regarding its operational performance and to enhance its investors’ overall understanding of its core financial performance. Management measures the Company’s performance using non-GAAP financial measures such as those that are disclosed in this press release. This information facilitates management’s internal comparisons to the Company’s historical core operating results, comparisons to competitors’ core operating results and is a basis for financial decision making. Management believes that Medicis’ investors benefit from seeing the Company’s results on the same basis as management, in addition to the GAAP presentation. In our view, the non-GAAP adjustments are informative to investors, allowing them to focus on the ongoing operations and the core results of Medicis’ business. Historically, Medicis has reported similar non-GAAP information to its investors and believes that the inclusion of comparative numbers provides consistency in the Company’s financial disclosures. This information is not in accordance with, or an alternative for, information prepared using GAAP in the United States. It excludes items, such as special charges for research and development that

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may have a material effect on the Company’s net income and diluted net income per common share calculated in accordance with GAAP. The Company excludes such charges and the related tax benefits when analyzing its financial results as the items are distinguishable events and have no impact to the Company’s ongoing results of operations. Management believes that by viewing the Company’s results of operations excluding these charges, investors are given an indication of the ongoing results of the Company’s operations.

2006 Guidance

Based upon information available currently, the Company’s financial guidance is as follows:

Calendar 2006
(in millions, except per share amounts)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Calendar Year
	(3/31/06)		(6/30/06)		(9/30/06)		(12/31/06)		2006
	Estimated		Estimated		Estimated		Estimated		Estimated
Revenue objectives	$	75	$	85	$	88	$	96	$	344
EPS objectives	$	0.20	$	0.25	$	0.28	$	0.37	$	1.10

The above revenue and earnings per share estimates represent the approximate median of Medicis’ guidance range, excluding special charges. The above earnings per share guidance does not include FAS 123R share-based compensation expense. These estimates include the generic erosion effects of the DYNACIN^® and LOPROX^® franchises. The Company expects a product launch in the second quarter ended June 30, 2006, which is included in the above guidance. The Prescription Drug User Fee Act (“PDUFA”) date on this research and development project is in early May 2006. The Company will experience costs associated with this launch beginning in the first quarter of calendar 2006.

For calendar 2006, the Company expects gross profit margins of approximately 84%-85%, annual research and development costs of approximately 5% of total revenue, and a tax rate of 36%-37%. Selling, general and administrative expenses are expected to be between approximately $37 million and $40 million per quarter, primarily due to costs associated with the anticipated new product launch, headquarters facility expansion, an investment in an Enterprise Resource Planning (ERP) system, and an increase in general
operating costs. Shares used in diluted net income per share are expected to be approximately 70.5 million. The Company expects FAS 123R share-based compensation expense per quarter ranging from $7.2 million (pre-tax) in the first quarter of calendar 2006, decreasing to approximately $5.7 million (pre-tax) in the fourth quarter of calendar 2006, and are not included in the above guidance.

Additionally, the Company plans to incur costs associated with the clinical development of RELOXIN^® during calendar year 2006, which are not included in the current guidance. Such amounts will be concentrated mainly in research and development. The Company will give further guidance throughout the year as the project progresses.

At the time of this disclosure, Medicis believes these objectives are attainable based upon information currently available to the Company.

About Medicis

Medicis is the leading independent specialty pharmaceutical company in the United States focusing primarily on the treatment of dermatological and podiatric conditions and aesthetics medicine. The Company is dedicated to helping patients attain a healthy and youthful appearance and self-image. Medicis has leading branded prescription products in a number of therapeutic categories, including acne, eczema, fungal infections, psoriasis, rosacea, seborrheic dermatitis and skin and skin-structure infections. The

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Company’s products have earned wide acceptance by both physicians and patients due to their clinical effectiveness, high quality and cosmetic elegance.

The Company’s products include the prescription brands RESTYLANE^®, DYNACIN^® (minocycline HCl), LOPROX^® (ciclopirox), OMNICEF^® (cefdinir), PLEXION^® (sodium sulfacetamide/sulfur), TRIAZ^® (benzoyl peroxide), LIDEX^® (fluocinonide) Cream, 0.05%, VANOS™ (fluocinonide) Cream, 0.1%, and SYNALAR^® (fluocinolone acetonide), BUPHENYL^® (sodium phenylbutyrate) and AMMONUL^® (sodium phenylacetate/sodium benzoate), prescription products indicated in the treatment of Urea Cycle Disorder, and the over-the-counter brand ESOTERICA^®.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Securities Litigation Reform Act. All statements included in this press release that address activities, events or developments that Medicis expects, believes or anticipates will or may occur in the future are forward-looking statements, including Medicis’ future prospects, earnings guidance, business development activities, the potential acquisition of RELOXIN^® and the benefits related thereto and product development pipeline. These statements are based on certain assumptions made by Medicis based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. No assurances can be given, however, that these activities, events or developments will occur or that such results will be achieved. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Medicis.

The Company’s business is subject to all risk factors outlined in the Company’s most recent annual report on Form 10-K and other documents we file with the Securities and Exchange Commission. At the time of this press release, the Company cannot, among other things, assess the likelihood, timing or forthcoming results of research and development projects and the risks associated with the FDA approval process, risks associated with significant competition within the Company’s industry, nor can the Company validate its assumptions of the full impact on its business of the approval of competitive generic versions of the Company’s core brands, in particular, the recent approval of a generic LOPROX^® Cream and LOPROX^® TS, or a substitutable DYNACIN^® Tablet form, and any future competitive product approvals that may affect the Company’s brands. Additionally, Medicis may acquire and/or license products or technologies from third parties to enter into new strategic markets. The Company periodically makes up-front, non-refundable payments to third parties for research and development work which has been completed and periodically makes additional non-refundable payments for the achievement of various milestones. There can be no certainty in which periods these potential payments could be made, nor if any payments such as these will be made at all. Any estimated future guidance does not include the potential payments associated with any such transactions. Also, there are a number of additional important factors that could cause actual results to differ materially from those projected, including the anticipated size of the markets for Medicis’ products, the availability of product supply and the receipt of required regulatory approvals, the risks and uncertainties normally incident to the pharmaceutical and medical device industries including product liability claims, the introduction of federal and/or state regulations relating to the Company’s business, dependence on sales of key products, the uncertainty of future financial results and fluctuations in operating results, dependence on Medicis’ strategy (including the uncertainty of license payments and/or other payments due from third parties), the timing and success of new product development by Medicis or third parties, competitive product introductions, the risks of pending and future litigation or government investigations and other risks described from time to time in Medicis’ SEC filings including its Annual Report on Form 10-K for the year ended June 30, 2005, and other documents we file with the Securities and Exchange Commission. Additionally, there can be no assurance as to when or if any of the holders of the Notes will have the right to convert or if the Notes will be converted. Forward-looking statements represent the judgment of Medicis’ management as of the date of this release, and Medicis disclaims any intent or

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obligation to update any forward-looking statements contained herein, which speak as of the date hereof.

NOTE: Full prescribing information for any Medicis prescription product is available by contacting the Company. OMNICEF^® is a registered trademark of Abbott Laboratories, Inc. under a license from Fujisawa Pharmaceutical Co., Ltd. RESTYLANE^® is a registered trademark of HA North American Sales AB, a subsidiary of Medicis Pharmaceutical Corporation. All other marks (or brands) and names are the property of Medicis or its Affiliates.

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Medicis
Summary Statements of Operations
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Revenues	$	80,690		$	92,349		$	163,954		$	181,167
Cost of revenues		12,087			13,438			24,111			27,270
Gross profit		68,603			78,911			139,843			153,897
Operating expenses:
Selling, general and administrative		47,873	(a)(b)		32,810	(e)(f)		89,360	(h)(b)(i)		65,736	(j)(k)
Research and development		17,313	(a)(c)		9,377	(g)		22,367	(h)(c)		45,140	(l)
Depreciation and amortization		6,113			5,189			12,420			10,222
Total operating expenses		71,299			47,376			124,147			121,098
Operating (loss) income		(2,696	)		31,535			15,696			32,799
Other income, net		(59,801	)(d)		—			(59,801	)(d)		—
Interest (income) expense, net		(3,276	)		101			(4,726	)		248
Income tax expense		23,120			11,233			30,502			11,328
Net income	$	37,261		$	20,201		$	49,721		$	21,223
Basic net income per common share	$	0.69		$	0.37		$	0.92		$	0.38
Diluted net income per common share	$	0.56	(p)	$	0.31	(p)	$	0.76	(q)	$	0.34	(q)
Shares used in basic net income per common share		54,335			54,716			54,323			55,972
Shares used in diluted net income per common share		69,710			70,843			69,772			72,160
Cash flow from operations	$	119,924		$	31,559		$	147,990		$	45,465

Medicis Reconciliation of Non-GAAP Financial Measures:
This press release includes historical non-GAAP financial measures, as defined in Regulation G promulgated by the Securities and Exchange Commission, with respect to the three and six months ended December 31, 2005 and December 31, 2004, and the twelve months ended December 31, 2005 and 2004. The Company has provided non-GAAP financial information in order to provide investors with meaningful supplemental information regarding its operational performance and to enhance investors’ overall understanding of its core financial performance. Management measures the Company’s performance using non-GAAP financial measures such as those that are disclosed in this press release. This information facilitates management’s internal comparisons to the Company’s historical core operating results and comparisons to competitors’ core operating results, and is a basis for financial decision making. Management believes that Medicis’ investors benefit from seeing the Company’s results on the same basis as management, in addition to the GAAP presentation. In our view, the non-GAAP adjustments are informative to investors, allowing them to focus on the ongoing operations and the core results of Medicis’ business. Historically, Medicis has reported similar non-GAAP information to its investors and believes that the inclusion of comparative numbers provides consistency in the Company’s financial disclosures. This information is not in accordance with, or an alternative for, information prepared using GAAP in the United States. It excludes items, such as integration planning costs and FAS 123R share-based compensation expenses, which may have a material effect on the Company’s net income and diluted net income per common share calculated in accordance with GAAP. The Company excludes such charges and the related tax benefits when analyzing its financial results as the items are distinguishable events and have no impact to the Company’s ongoing results of operations. Management believes that by viewing the Company’s results of operations excluding these charges, investors are given an indication of the ongoing results of the Company’s operations.

GAAP Net income (above)	$	37,261		$	20,201		$	49,721		$	21,223
Special charge for R&D, including related professional fees (tax-effected)		7,708	(c)		3,482	(e)(g)		7,708	(c)		22,855	(j)(l)
Special charge for integration planning costs (tax-effected)		—			—			439	(i)		—
Special benefit for termination fee received from Inamed, net of transaction costs and integration planning costs (tax-effected)		(38,269	)(d)		—			(38,269	)(d)		—
Special charge for write-down of an intangible asset associated with DYNACIN® Capsules (tax-effected)		5,869	(b)		—			5,869	(b)		—
FAS 123R share-based compensation expense (tax-effected)		5,890	(a)		82	(f)		10,958	(h)		164	(k)
Net income absent special charges	$	18,459		$	23,765		$	36,426		$	44,242
Interest expense and associated bond offering costs (tax-effected)		1,675	(p)		1,674	(p)		3,354	(q)		3,351	(q)
“If-converted” net income absent special charges and FAS 123R share-based compensation expense	$	20,134		$	25,439		$	39,780		$	47,593
Shares used in diluted net income per common share		69,710			70,843			69,772			72,160
Diluted net income per common share	$	0.29		$	0.36		$	0.57		$	0.66

(a)	Reported selling, general and administrative expenses include approximately $6.8 million ($5.5 million tax-effected) of FAS 123R share-based compensation expense, and reported research and development expenses include $0.5 million ($0.4 million tax-effected) of FAS 123R share-based compensation expense.
(b)	Reported selling, general and administrative expenses include approximately $9.2 million ($5.9 million tax-effected) related to a write-down of an intangible asset associated with DYNACIN® Capsules.
(c)	Reported research and development expenses include a special charge of $11.9 million ($7.7 million tax-effected) relating to a research and development collaboration.
(d)	Other income, net, of approximately $59.8 million ($38.3 million tax-effected) represents the termination fee received from Inamed related to the termination of the proposed merger, net of the expensing of accumulated transaction costs and business integration costs incurred during the three months ended December 31, 2005.
(e)	Reported selling, general and administrative expenses include a special charge of $0.5 million ($0.3 million tax-effected) of professional fees relating to a research and development collaboration.
(f)	Reported selling, general and administrative expenses include $0.1 million ($0.1 million tax-effected) of FAS 123R share-based compensation expense related to restricted stock awards.
(g)	Reported research and development expenses include a special charge of $5.0 million ($3.2 million tax-effected) relating to a research and development collaboration.
(h)	Reported selling, general and administrative expenses include approximately $13.9 million ($10.3 million tax-effected) of FAS 123R share-based compensation expense, and reported research and development expenses include $1.0 million ($0.7 million tax-effected) of FAS 123R share-based compensation expense.
(i)	Reported selling, general and administrative expenses include a special charge of $0.7 million ($0.4 million tax-effected) related to costs associated with integration planning.
(j)	Reported selling, general and administrative expenses include a special charge of $1.3 million ($0.8 million tax-effected) of professional fees relating to research and development collaborations.

(k)	Reported selling, general and administrative expenses include $0.3 million ($0.2 million tax-effected) of FAS 123R share-based compensation expense related to restricted stock awards.
(l)	Reported research and development expenses include a special charge of $35.0 million ($22.1 million tax-effected) relating to research and development collaborations.
(m)	Reported selling, general and administrative expenses include approximately $14.2 million ($10.4 million tax-effected) of FAS 123R share-based compensation expense, and reported research and development expenses include $1.0 million ($0.7 million tax-effected) of FAS 123R share-based compensation expense.
(n)	Reported selling, general and administrative expenses include a special charge of $6.0 million ($3.8 million tax-effected) related to costs associated with integration planning.
(o)	Reported research and development expenses include a special charge of $20.3 million ($12.7 million tax-effected) relating to research and development collaborations.
(p)	To calculate diluted earnings per share, tax-effected net interest on the 2.5% and 1.5% contingent convertible notes and associated bond offering costs of $1.7 million are added back to GAAP net income for the three months ended December 31, 2005 and 2004, and divided by shares used in diluted net income per common share.
(q)	To calculate diluted earnings per share, tax-effected net interest on the 2.5% and 1.5% contingent convertible notes and associated bond offering costs of $3.4 million are added back to GAAP net income for the six months ended December 31, 2005 and 2004, and divided by shares used in diluted net income per common share.
(r)	To calculate diluted earnings per share, tax-effected net interest on the 2.5% and 1.5% contingent convertible notes and associated bond offering costs of $6.7 million are added back to GAAP net income for the twelve months ended December 31, 2005 and 2004, and divided by shares used in diluted net income per common share.
(s)	Reported selling, general and administrative expenses include a special charge of $1.3 million ($0.8 million tax-effected) of professional fees relating to research and development collaborations.
(t)	Reported selling, general and administrative expenses include $0.5 million ($0.3 million tax-effected) of FAS 123R share-based compensation expense related to restricted stock awards.
(u)	Reported research and development expenses include a special charge of $35.0 million ($22.1 million tax-effected) relating to research and development collaborations.
(v)	Diluted net income per common share for the years ended December 31, 2005 and 2004 was calculated by using the average of the periodic diluted common shares outstanding during the year. For the period from January 1, 2005 to June 30, 2005, diluted common shares outstanding was calculated using APB Opinion No. 25, while for the period from July 1, 2005 to December 31, 2005, diluted common shares outstanding was calculated using FAS 123R. The Company adopted FAS 123R effective July 1, 2005.

Balance Sheets

	At December 31, 2005		At June 30, 2005		At December 31, 2004
Assets
Cash, cash equivalents & short-term investments	$	742,532	$	603,568	$	532,518
Accounts receivable, net		46,697		47,220		45,716
Inventory, net		19,076		20,701		16,919
Other current assets		24,979		27,436		36,875
Total current assets		833,284		698,925		632,028
Property and equipment, net		5,416		6,143		6,429
Intangible assets, net		302,930		324,210		334,944
Other assets		4,325		13,973		6,470
Total assets	$	1,145,955	$	1,043,251	$	979,871
Liabilities and stockholders’ equity
Current liabilities	$	140,831	$	98,854	$	79,637
Contingent convertible senior notes 2.5% due 2032		169,155		169,155		169,155
Contingent convertible senior notes 1.5% due 2033		283,910		283,910		283,910
Deferred tax liability		8,572		4,986		2,343
Stockholders’ equity		543,487		486,346		444,826
Total liabilities and stockholders’ equity	$	1,145,955	$	1,043,251	$	979,871
Working capital	$	692,453	$	600,071	$	552,391

Summary Statements of Operations
(in thousands, except per share data)

	Twelve Months Ended
	December 31,
	2005			2004
Revenues	$	359,686		$	350,960
Cost of revenues		52,288			52,458
Gross profit		307,398			298,502
Operating expenses:
Selling, general and administrative		158,778	(b)(m)(n)		124,874	(s)(t)
Research and development		42,903	(m)(o)		52,343	(u)
Depreciation and amortization		24,548			19,850
Total operating expenses		226,229			197,067
Operating income		81,169			101,435
Other income, net		(59,801	)(d)		—
Interest (income) expense, net		(5,804	)		892
Income tax expense		53,288			34,943
Net income	$	93,486		$	65,600
Basic net income per common share	$	1.72		$	1.17
Diluted net income per common share	$	1.44	(r)(v)	$	0.99	(r)(v)
Shares used in basic net income per common share		54,290			56,219
Shares used in diluted net income per common share		69,558			72,902
Cash flow from operations	$	232,505		$	133,447

(more)

GAAP Net income (above)	$	93,486		$	65,600
Special charge for R&D, including related professional fees (tax-effected)		12,684	(o)		22,855	(s)(u)
Special charge for integration planning costs (tax-effected)		3,804	(n)		—
Special benefit for termination fee received from Inamed, net of transaction costs and integration planning costs (tax-effected)		(38,269	)(d)		—
Special charge for write-down of an intangible asset associated with DYNACIN® Capsules (tax- effected)		5,869	(b)		—
FAS 123R share-based compensation expense (tax-effected)		11,122	(m)		328	(t)
Net income absent special charges	$	88,696		$	88,783
Interest expense and associated bond offering costs (tax-effected)		6,703	(r)		6,684	(r)
“If-converted” net income absent special charges and FAS 123R share-based compensation expense	$	95,399		$	95,467
Shares used in diluted net income per common share		69,558			72,902
Diluted net income per common share	$	1.37		$	1.31

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