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 March 31, 2009

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 o 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
(do not check if a smaller reporting company) Smaller reporting company o

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 May 7, 2009
Class A Common Stock $.014 Par Value	58,845,961 (a) (a) includes 2,025,994 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 March 31, 2009 and December 31, 2008		3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008		5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008		6
		Notes to the Condensed Consolidated Financial Statements		7
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	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		48
	Item 5	Other Information		48
	Item 6	Exhibits		49
SIGNATURES				50
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-31.1
EX-31.2
EX-32.1

2

Part I. Financial Information

Item 1. Financial Statements

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	March 31, 2009		December 31, 2008
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	138,832	$	86,450
Short-term investments		260,524		257,435
Accounts receivable, net		50,913		52,588
Inventories, net		25,351		24,226
Deferred tax assets, net		66,058		53,161
Other current assets		20,879		19,676
Total current assets		562,557		493,536
Property and equipment, net		26,558		26,300
Intangible assets:
Intangible assets related to product line acquisitions and business combinations		267,624		267,624
Other intangible assets		7,899		7,752
		275,523		275,376
Less: accumulated amortization		119,462		113,947
Net intangible assets		156,061		161,429
Goodwill		156,776		156,762
Deferred tax assets, net		73,540		77,149
Long-term investments		40,378		55,333
Other assets		39		2,925
	$	1,015,909	$	973,434

See accompanying notes to condensed consolidated financial statements.

3

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS, Continued

(in thousands, except share amounts)

	March 31, 2009			December 31, 2008
Liabilities	(unaudited)
Current liabilities:
Accounts payable	$	43,752		$	39,032
Reserve for sales returns		68,406			59,611
Income taxes payable		4,440			—
Other current liabilities		113,867			87,258
Total current liabilities		230,465			185,901
Long-term liabilities:
Contingent convertible senior notes		169,326			169,326
Deferred revenue		3,542			4,167
Other liabilities		8,174			10,346
Stockholders’ Equity
Preferred stock, $0.01 par value; shares authorized: 5,000,000; no shares issued		—			—
Class A common stock, $0.014 par value; shares authorized: 150,000,000; issued and outstanding: 69,488,936 and 69,396,394 at March 31, 2009 and December 31, 2008, respectively		969			969
Class B common stock, $0.014 par value; shares authorized: 1,000,000; issued and outstanding: none		—			—
Additional paid-in capital		664,776			661,703
Accumulated other comprehensive income		2,106			2,106
Accumulated earnings		280,263			282,284
Less: Treasury stock, 12,711,063 and 12,678,559 shares at cost at March 31, 2009 and December 31, 2008, respectively		(343,712	)		(343,368	)
Total stockholders’ equity		604,402			603,694
	$	1,015,909		$	973,434

See accompanying notes to condensed consolidated financial statements.

4

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(in thousands, except per share data)

	Three Months Ended
	March 31, 2009			March 31, 2008
Net product revenues	$	96,600		$	125,054
Net contract revenues		3,219			3,849
Net revenues		99,819			128,903
Cost of product revenues (1)		9,446			11,132
Gross profit		90,373			117,771
Operating expenses:
Selling, general and administrative (2)		70,425			72,062
Research and development (3)		13,275			9,189
Depreciation and amortization		7,132			6,722
Operating (loss) income		(459	)		29,798
Other expense, net		2,873			2,871
Interest and investment income		(2,487	)		(9,199	)
Interest expense		1,054			2,407
(Loss) income before income tax expense		(1,899	)		33,719
Income tax (benefit) expense		(2,228	)		13,194
Net income	$	329		$	20,525
Basic net income per share	$	0.01		$	0.36
Diluted net income per share	$	0.01		$	0.31
Cash dividend declared per common share	$	0.04		$	0.04
Weighted average number of common shares used in calculating:
Basic net income per share		56,731			56,358
Diluted net income per share		56,867			70,332
(1) amounts exclude amortization of intangible assets related to acquired products	$	5,443		$	5,286
(2) amounts include share-based compensation expense	$	3,733		$	4,329
(3) amounts include share-based compensation expense	$	139		$	61

See accompanying notes to condensed consolidated financial statements.

5

MEDICIS PHARMACEUTICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in thousands)

	Three Months Ended
	March 31, 2009			March 31, 2008
Operating Activities:
Net income	$	329		$	20,525
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,132			6,722
Amortization of deferred financing fees		—			285
Adjustment of impairment of available-for-sale investments		(13	)		—
Charge reducing value of investment in Revance		2,886			2,871
Gain on sale of available-for-sale investments, net		(10	)		(117	)
Share-based compensation expense		3,872			4,390
Deferred income tax (benefit) expense		(10,680	)		4,997
Tax expense from exercise of stock options and vesting of restricted stock awards		(644	)		(354	)
Excess tax benefits from share-based payment arrangements		—			(10	)
Increase in provision for sales discounts and chargebacks		144			519
Accretion (amortization) of (discount)/premium on investments		516			(773	)
Changes in operating assets and liabilities:
Accounts receivable		1,531			(12,284	)
Inventories		(1,125	)		3,277
Other current assets		(1,203	)		(6,497	)
Accounts payable		4,720			17,863
Reserve for sales returns		8,795			(689	)
Income taxes payable		4,440			(1,651	)
Other current liabilities		26,016			(5,083	)
Other liabilities		(1,308	)		(888	)
Net cash provided by operating activities		45,398			33,103
Investing Activities:
Purchase of property and equipment		(1,875	)		(3,898	)
Payments for purchase of product rights		(161	)		(33	)
Purchase of available-for-sale investments		(74,264	)		(247,967	)
Sale of available-for-sale investments		30,494			151,451
Maturity of available-for-sale investments		55,029			161,975
Net cash provided by investing activities		9,223			61,528
Financing Activities:
Payment of dividends		(2,313	)		(1,707	)
Excess tax benefits from share-based payment arrangements		—			10
Proceeds from the exercise of stock options		—			765
Net cash used in financing activities		(2,313	)		(932	)
Effect of exchange rate on cash and cash equivalents		74			(97	)
Net increase in cash and cash equivalents		52,382			93,602
Cash and cash equivalents at beginning of period		86,450			108,046
Cash and cash equivalents at end of period	$	138,832		$	201,648

See accompanying notes to condensed consolidated financial statements.

6

MEDICIS PHARMACEUTICAL CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
(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, aesthetic and podiatric 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, acne, fungal infections, rosacea, hyperpigmentation, photoaging, psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Medicis currently offers 18 branded products. Its primary brands are PERLANE^®, RESTYLANE^®, SOLODYN^®, TRIAZ^®, VANOS^® and ZIANA^®. Medicis entered the non-invasive fat ablation market with its acquisition of LipoSonix in July 2008. In addition, as discussed in Note 17, on April 29, 2009, the FDA approved DYSPORT^TM, which Medicis will market in the U.S. for the aesthetic indication of glabellar lines.

          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, 2008. 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, 2008.

2. SHARE-BASED COMPENSATION

Stock Option and Restricted Stock Awards

          At March 31, 2009, 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. Effective July 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment, using the modified prospective method. Other than restricted stock, no share-based employee compensation cost has been reflected in net income prior to the adoption of SFAS No. 123R.

          The total value of the stock option awards is expensed ratably over the service period of the employees receiving the awards. As of March 31, 2009, total unrecognized compensation cost related to stock option awards, to be recognized as expense subsequent to March 31, 2009, was approximately $4.4 million and the related weighted-average period over which it is expected to be recognized is approximately 1.3 years.

7

          A summary of stock option activity within the Company’s stock-based compensation plans and changes for the three months ended March 31, 2009 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Balance at December 31, 2008		10,707,357		$	27.98
Granted		77,017		$	11.28
Exercised		—		$	—
Terminated/expired		(141,367	)	$	30.83
Balance at March 31, 2009		10,643,007		$	27.82		3.5	$	952,959

          Options exercisable under the Company’s share-based compensation plans at March 31, 2009 were 9,703,841, with a weighted average exercise price of $27.38, a weighted average remaining contractual term of 3.3 years, and an aggregate intrinsic value of $869,010.

          A summary of fully vested stock options and stock options expected to vest, based on historical forfeiture rates, as of March 31, 2009, is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Shares		Price		Term		Value
Outstanding		9,736,889	$	27.99		3.6	$	783,300
Exercisable		8,880,402	$	27.56		3.4	$	714,240

          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:

	Three Months Ended			Three Months Ended
	March 31, 2009			March 31, 2008
Expected dividend yield		0.35	%		0.6	%
Expected stock price volatility		0.45			0.38
Risk-free interest rate		2.2	%		3.0	%
Expected life of options		7 Years			7 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 three months ended March 31, 2009 and 2008 was $5.32 and $8.19, respectively.

          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 three months ended March 31, 2009, 975,173 shares of restricted stock were granted to certain employees. Share-based compensation expense related to all restricted stock awards outstanding during the three months

8

ended March 31, 2009 and 2008, was approximately $1.8 million and $1.1 million, respectively. As of March 31, 2009, the total amount of unrecognized compensation cost related to nonvested restricted stock awards, to be recognized as expense subsequent to March 31, 2009, was approximately $31.8 million, and the related weighted-average period over which it is expected to be recognized is approximately 3.6 years.

          A summary of restricted stock activity within the Company’s share-based compensation plans and changes for the three months ended March 31, 2009 is as follows:

				Weighted-
				Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at December 31, 2008		1,204,851		$	23.38
Granted		975,173		$	11.28
Vested		(92,572	)	$	28.11
Forfeited		(4,478	)	$	24.87
Nonvested at March 31, 2009		2,082,974		$	17.50

          The total fair value of restricted shares vested during the three months ended March 31, 2009 and 2008 was approximately $2.6 million and $2.1 million, respectively.

Stock Appreciation Rights

          On February 27, 2009, the Company granted 2,013,832 cash-settled stock appreciation rights (“SARs”) to certain 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. SFAS No. 123R requires the fair value of SARs 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 March 31, 2009 was approximately $0.2 million. As of March 31, 2009, the total measured amount of unrecognized compensation cost related to outstanding SARs, to be recognized as expense subsequent to March 31, 2009, was approximately $12.7 million, and the related weighted-average period over which it is expected to be recognized is approximately 4.9 years.

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

	SARs Granted During the			Remeasurement
	Three Months Ended			as of
	March 31, 2009			March 31, 2009
Expected dividend yield		0.35	%		1.29	%
Expected stock price volatility		0.45			0.48
Risk-free interest rate		2.2	%		2.3	%
Expected life of SARs		7.0 Years			6.9 Years

9

          A summary of SARs activity for the three months ended March 31, 2009 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of SARs		Price		Term		Value
Balance at December 31, 2008		—	$	—
Granted		2,013,832	$	11.28
Exercised		—	$	—
Terminated/expired		—	$	—
Balance at March 31, 2009		2,013,832	$	11.28		6.9	$	2,195,077

          No SARs were exercisable as of March 31, 2009.

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 March 31, 2009, the Company has recorded the estimated fair value in available-for-sale securities for short-term and long-term investments of approximately $260.5 million and $40.4 million, respectively.

          Available-for-sale and trading securities consist of the following at March 31, 2009 (amounts in thousands):

	March 31, 2009
								Other-
								Than-
			Gross		Gross			Temporary
			Unrealized		Unrealized			Impairment			Fair
	Cost		Gains		Losses			Losses			Value
Corporate notes and bonds	$	107,353	$	472	$	(477	)	$	—		$	107,348
Federal agency notes and bonds		137,614		1,175		(30	)		—			138,759
Auction rate floating securities		44,575		838		(429	)		(6,382	)		38,602
Asset-backed securities		16,657		41		(505	)		—			16,193
Total securities	$	306,199	$	2,526	$	(1,441	)	$	(6,382	)	$	300,902

10

     During the three months ended March 31, 2009, the gross realized gains on sales of available-for-sale securities totaled $9,389, while no gross losses were realized. Such amounts of gains and losses are determined based on the specific identification method. The net adjustment to unrealized gains during the three months ended March 31, 2009, on available-for-sale securities included in stockholders’ equity totaled $74,549. The amortized cost and estimated fair value of the available-for-sale securities at March 31, 2009, by maturity, are shown below (amounts in thousands):

	March 31, 2009
			Estimated
	Cost		Fair Value
Available-for-sale
Due in one year or less	$	207,391	$	207,939
Due after one year through five years		54,233		54,361
Due after five years through 10 years		—		—
Due after 10 years		43,275		37,336
	$	304,899	$	299,636

          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 March 31, 2009, approximately $40.4 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 March 31, 2009, the Company’s investments included auction rate floating securities with a fair value of $38.6 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 and the first quarter of 2009 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. As a result of the continued lack of liquidity of these investments, the Company recorded an other-than-temporary impairment loss of $6.4 million during the year ended December 31, 2008 on its auction rate floating securities in other expense, based on the Company’s estimate of the fair value of these investments. The Company’s estimate of the fair value of its auction rate floating securities was based on market information and assumptions determined by the Company’s management, which could change significantly based on market conditions.

          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 March 31, 2009 and December 31, 2008, the Company held one auction rate floating security with a par value of $1.3 million that was subject to the settlement agreement. The Company elected the irrevocable Fair Value Option treatment under SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, and adjusted the put option to fair value. The Company 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 will be recorded in earnings.

11

          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 March 31, 2009 (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	$	35,419	$	270	$	6,265	$	207
Federal agency notes and bonds		27,643		30		—		—
Auction rate floating securities		23,265		429		—		—
Asset-backed securities		5,125		93		1,696		411
Total securities	$	91,452	$	822	$	7,961	$	618

          As of March 31, 2009, 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 has the intent and ability to hold these investments for the time necessary to recover its cost, which for debt securities may be at maturity.

4. FAIR VALUE MEASUREMENTS

          As of March 31, 2009, 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 Revance Therapeutics, Inc. (“Revance”).

          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 recent 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 March 31, 2009. 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 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.

          As a result of the liquidity issues of the Company’s auction rate floating securities, the Company recorded an other-than-temporary impairment loss of $6.4 million in other expense during the three months ended December 31, 2008, based on the Company’s estimate of the fair value of these investments. The auction rate floating securities held by the Company at March 31, 2009 and December 31, 2008, totaling $38.6 million and $38.2 million, respectively, were in securities collateralized by student loan portfolios. These securities were included in long-term investments at March 31, 2009 and December 31, 2008 in the accompanying condensed consolidated balance sheets. As of March 31, 2009, the Company continued to earn interest on virtually all of its auction rate floating securities. Any future fluctuation in fair value related to the auction rate floating securities classified as available-for-sale that the Company deems to be temporary, would be recorded to accumulated other comprehensive (loss) income. If the

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Company determines that any future decline in fair value of its available-for-sale securities was other than temporary, it would record a charge to earnings as appropriate.

          The Company estimates changes in the net realizable value of its investment in Revance based on a hypothetical liquidation at book value approach (see Note 5). 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 as of March 31, 2009.

          The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS No. 157 at March 31, 2009, were as follows (in thousands):

	Fair Value Measurement at Reporting Date Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Mar. 31, 2009		(Level 1)		(Level 2)		(Level 3)
Auction rate floating securities	$	38,602	$	—	$	—	$	38,602
Other available-for-sale securities		262,300		262,300		—		—
Investment in Revance		—		—		—		—
Total assets measured at fair value	$	300,902	$	262,300	$	—	$	38,602

          The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS No. 157 for the three months ended March 31, 2009 (in thousands):

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Auction Rate			Investment
	Floating			in
	Securities			Revance
Balance at December 31, 2008	$	38,225		$	2,887
Transfers to (from) Level 3		—			—
Total gains included in interest and investment income		5			—
Total gains (losses) included in other expense		13			(2,887	)
Total gains included in other comprehensive income		409			—
Purchases and settlements (net)		(50	)		—
Balance at March 31, 2009	$	38,602		$	—

5. 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 expected to be used by Revance primarily for the development of the

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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 United States. 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 estimates 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 is available for these purposes (such as the completion of an equity financing by Revance). During the three months ended March 31, 2009 and the three months ended March 31, 2008, the Company reduced the carrying value of its investment in Revance by approximately $2.9 million and $2.9 million, respectively, 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 and March 31, 2008. Such amounts were recognized as other expense during the three months ended March 31, 2009 and three months ended March 31, 2008, respectively. Upon the recognition of the $2.9 million reduction of the Company’s investment in Revance during the three months ended March 31, 2009, the Company’s investment in Revance as of March 31, 2009, is $0.

          A business entity is subject to the consolidation rules of FASB Interpretation No. 46, Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”) 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 criteria set forth in FIN 46. FIN 46 also requires disclosures 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.

6. STRATEGIC COLLABORATION WITH 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 Abbreviated New Drug Application (“ANDA”) #90-024.

          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^® intellectual property rights belonging to the Company upon the occurrence of specific events. Upon launch of its generic

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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, the Company paid IMPAX $5.0 million upon the achievement of a clinical milestone, in accordance with terms of the agreement. In addition, the Company will be required to pay up to $18.0 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 Medicis 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 a charge to research and development expense during the three months ended December 31, 2008, and the $5.0 million clinical milestone achievement payment was recognized as a charge to research and development expense during the three months ended March 31, 2009.

7. 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 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 LOPROX^®, PERLANE^®, RESTYLANE^® and VANOS^®. The non-dermatological product lines include AMMONUL^® and BUPHENYL^®. The non-dermatological field also includes contract revenues associated with licensing agreements and authorized generics, and LipoSonix revenues.

          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
	March 31,
	2009		2008
Acne and acne-related dermatological products	$	66,453	$	80,134
Non-acne dermatological products		23,473		39,091
Non-dermatological products		9,893		9,678
Total net revenues	$	99,819	$	128,903

	Three Months Ended
	March 31,
	2009			2008
Acne and acne-related dermatological products		67	%		62	%
Non-acne dermatological products		23			30
Non-dermatological products		10			8
Total net revenues		100	%		100	%

8. INVENTORIES

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

          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 March 31, 2009 and December 31, 2008, there was $0.9 million and $1.1 million, respectively, of costs capitalized into inventory for products that have not yet received regulatory approval.

          Inventories are as follows (amounts in thousands):

	March 31, 2009			December 31, 2008
Raw materials	$	9,498		$	7,234
Finished goods		16,736			18,407
Valuation reserve		(883	)		(1,415	)
Total inventories	$	25,351		$	24,226

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9. OTHER CURRENT LIABILITIES

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

	March 31,		December 31,
	2009		2008
Accrued incentives	$	11,502	$	18,910
Managed care and Medicaid reserves		31,657		16,956
Accrued consumer rebate and loyalty programs		46,316		28,449
Deferred revenue		3,679		3,341
Other accrued expenses		20,713		19,602
	$	113,867	$	87,258

          Included in deferred revenue as of March 31, 2009 and December 31, 2008 was $0.9 million and $0.7 million, respectively, associated with the deferral of the recognition of revenue and related cost of revenue for certain sales of inventory into the distribution channel that are in excess of eight (8) weeks of projected demand.

10. 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 March 31, 2009 or December 31, 2008. 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. Pursuant to SFAS No. 48, Classification of Obligations That Are Callable by the Creditor, 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;

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• during the five trading day period immediately following any nine consecutive day trading period in which the trading price of the Old Notes per $1,000 principal amount for each day of such period was less than 95% of the product of the closing sale price of the Company’s Class A common stock on that day multiplied by the number of shares of the Company’s Class A common stock issuable upon conversion of $1,000 principal amount of the Old Notes; or

• upon the occurrence of specified corporate transactions.

          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 March 31, 2009 or December 31, 2008. 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 is amortizing these costs over the first five-year Put period, which runs 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 March 31, 2009 and December 31, 2008.

          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;

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• 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.

          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 March 31, 2009 and December 31, 2008, 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.

11. 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 under SFAS 123R 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 in accordance with FIN 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. Under FIN 48, tax benefits are recognized 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 March 31, 2009, the Company has an unrealized tax loss of $21.0 million related to the Company’s option to acquire Revance or license Revance’s 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 March 31, 2009, 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 March 31, 2009 and March 31, 2008, the Company made net tax payments of $1.5 million and $36.9 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

19

through fiscal 2004. The Internal Revenue Service has recently informed the Company that the tax return for the period ending December 31, 2007 has been selected for a limited scope examination.

          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 2004 forward are open under the statute of limitation.

          At December 31, 2008, the Company had $2.5 million in unrecognized tax benefits, the recognition of which would have a favorable effect of $2.1 million on the Company’s effective tax rate. The amount of unrecognized tax benefits decreased $1.4 million from $2.5 million to $1.1 million during the three months ended March 31, 2009 due to statute closures. Recognition of the $1.1 million unrecognized tax benefits would have a favorable effect of $0.7 million on the Company’s effective tax rate. During the next twelve months, the Company estimates that the amount of unrecognized tax benefits will not change.

          The Company recognizes accrued interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. The Company had approximately $165,000 and $290,000 for the payment of interest and penalties accrued (net of tax benefit) at March 31, 2009 and December 31, 2008, respectively.

12. DIVIDENDS DECLARED ON COMMON STOCK

          On March 11, 2009, the Company declared a cash dividend of $0.04 per issued and outstanding share of its Class A common stock payable on April 30, 2009 to stockholders of record at the close of business on April 1, 2009. The $2.4 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 March 31, 2009. The Company has not adopted a dividend policy.

13. 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 March 31, 2009 and 2008 was $0.3 million and $21.5 million, respectively.

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14. 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
	March 31,
	2009		2008
BASIC
Net income	$	329	$	20,525
Weighted average number of common shares outstanding		56,731		56,358
Basic net income per common share	$	0.01	$	0.36
DILUTED
Net income	$	329	$	20,525
Add:
Tax-effected interest expense and issue costs related to Old Notes		—		666
Tax-effected interest expense and issue costs related to New Notes		—		851
Net income assuming dilution	$	329	$	22,042
Weighted average number of common shares		56,731		56,358
Effect of dilutive securities:
Old Notes		—		5,823
New Notes		—		7,325
Stock options and restricted stock		136		826
Weighted average number of common shares assuming dilution		56,867		70,332
Diluted net income per common share	$	0.01	$	0.31

          Diluted net income per common share must be calculated using the “if-converted” method in accordance with EITF 04-8, Effect of Contingently Convertible Debt on Earnings per Share. Diluted net income per share is calculated by adjusting net income for tax-effected net interest and issue costs on the Old Notes and New Notes, divided by the weighted average number of common shares outstanding assuming conversion.

          The diluted net income per common share computation for the three months ended March 31, 2009 and 2008 excludes 12,106,591 and 7,667,494 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 months ended March 31, 2009 also excludes 5,822,551 and 4,685 shares of common stock, issuable upon conversion of the Old Notes and New Notes, respectively, as the effect of applying the “if-converted” method in calculating diluted net income per common share would be anti-dilutive.

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          In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. In FSP 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be 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 shareholders. The Company adopted FASB Staff Position No. EITF 03-6-1 on January 1, 2009, and it did not have a material impact on its disclosure of earnings per share.

15. 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 SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, a liability for the costs associated with an exit or disposal activity is recognized when the liability is incurred. In accordance with SFAS 146, 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.

          As of March 31, 2009, approximately $3.5 million of lease exit costs remain accrued and are expected to be paid by December 2010 of which $1.9 million is classified in other current liabilities and $1.6 million is classified in other 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 three months ended March 31, 2009:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2008		to Expense		Made			from Sublease		March 31, 2009
Lease exit costs liability	$	3,996,102	$	65,737	$	(534,528	)	$	—	$	3,527,311

Medicaid Drug Rebates

          In April 2009, the Company completed a voluntary review of pricing data submitted to the Medicaid Drug Rebate Program (the “Program”) for the period from the first quarter of 2006 through the fourth quarter of 2007. The review identified certain corrective actions that were needed in relation to the reviewed data. The Company expects that the corrective actions, when implemented, would result in an increase to the Company’s rebate liability under the Program in the amount of approximately $3.1 million for the eight-quarter period reviewed. The Company has disclosed the results of the review and revised rebate liability to the Centers for Medicare and Medicaid Services (“CMS”), which administers the Program, and is awaiting CMS instruction as to whether and when to re-file the revised pricing data. The Company’s submission to CMS also included a request that CMS approve a change in drug category for certain Company products. If CMS does not accept the Company’s request for this change, the Company may owe additional Medicaid rebates which would result in additional liability under the Program. Upon completion of CMS’s review of the Company’s submission, the Company will evaluate the impact that CMS’s conclusions will have on the Company’s liability under related drug rebate agreements with various states and the Public Health Service Drug Pricing Program. As of March 31, 2009, the Company accrued $3.1 million for the 2006 and 2007 liability, which was recognized as a reduction of net revenues during the three months ended March 31, 2009.

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Department of Defense/TRICARE

          On March 17, 2009, the Department of Defense (“DoD”) issued a Final Rule (the “Rule”) implementing Section 703 of the National Defense Authorization Act of 2008. The Rule establishes a program under which DoD will seek Federal Ceiling Price-based refunds, or rebates, from drug manufacturers on TRICARE retail pharmacy utilization. Under the Rule, effective May 26, 2009, DoD seeks refunds, or rebates, on TRICARE Retail Pharmacy Program prescriptions filled from January 28, 2008 forward. The Rule also provides that an agreement from the manufacturer to honor the new pricing standards is required to include the manufacturer’s product(s) on the DoD uniform formulary and make that drug available through retail network pharmacies without prior authorization. Among other things, the Rule further provides that manufacturers may apply for compromise or waivers of amounts due. As a result of this Final Rule, the Company’s rebate liability as of March 31, 2009 for 2008 utilization is approximately $1.6 million, and the estimated rebate liability for the first quarter of 2009 is approximately $0.8 million. It is possible that, pursuant to the compromise or waiver process set forth in the Rule, DoD will agree to accept a lesser sum for the 2008 and first quarter of 2009 periods. As of March 31, 2009 the Company accrued $2.4 million for the 2008 and first quarter of 2009 liability, which was recognized as a reduction of net revenues during the three months ended March 31, 2009.

Legal Matters

          On January 13, 2009, the Company filed suit against Mylan, Inc., Matrix Laboratories Ltd., Matrix Laboratories Inc., Sandoz, Inc., and Barr Laboratories, Inc. (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”) by submitting to the FDA their respective ANDAs for generic versions of SOLODYN^®. The relief requested by the Company includes a request for a permanent injunction preventing Defendants from infringing the ‘838 patent by selling generic versions of SOLODYN^®. On March 18, 2009, the Company entered into a Settlement Agreement with Barr (a subsidiary of Teva) whereby all legal disputes between the Company and Teva relating to SOLODYN^® were terminated and where 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 Medicis and Matrix Laboratories Inc. without prejudice, pursuant to a stipulation between Medicis and Matrix Laboratories Inc.

          On January 21, 2009, the Company received a letter from a stockholder demanding that its Board of Directors take certain actions, including potentially legal action, in connection with the restatement of its consolidated financial statements in 2008. The letter states that, if the Board of Directors does not take the demanded action, the stockholder will commence a derivative action on behalf of the Company. The Company’s Board of Directors is reviewing the letter and has established a special committee of the Board, comprised of directors who are independent and disinterested with respect to the allegations in the letter, (i) to assess whether there is any merit to the allegations contained in the letter, (ii) if the special committee does conclude that there may be merit to any of the allegations contained in the letter, to further assess whether it is in the best interest of the Company and its shareholders to pursue litigation or other action against any or all of the persons named in the letter or any other persons not named in the letter, and (iii) to recommend to the Board any other appropriate action to be taken.

          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 complaints name as defendants Medicis Pharmaceutical Corp. and the Company’s Chief Executive Officer and Chairman of the Board, Jonah Shacknai, the Company’s Chief Financial Officer, Executive Vice President and Treasurer, Richard D. Peterson, and the Company’s Chief Operating Officer and Executive Vice President,

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Mark A. Prygocki. Plaintiffs’ claims arise in connection with the restatement of the Company’s annual, transition, and quarterly periods in fiscal years 2003 through 2007 and the first and second quarters of 2008. The complaints allege violations of federal securities laws, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, based on alleged material misrepresentations to the market that had the effect of artificially inflating the market price of the Company’s stock. The plaintiffs seek to recover unspecified damages and costs, including counsel and expert fees. The Court has consolidated these actions into a single proceeding, appointed a lead plaintiff and lead plaintiff’s counsel, and ordered the lead plaintiff to file a single, consolidated complaint by May 18, 2009. The Company intends 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.

          On April 30, 2008, the Company received notice from Perrigo Israel Pharmaceuticals Ltd. (“Perrigo Israel”), a generic pharmaceutical company, that it had filed an ANDA with the FDA for a generic version of the Company’s VANOS^® fluocinonide cream 0.1%. Perrigo Israel’s notice indicated that it was challenging only one of the two patents that the Company listed with the FDA for VANOS^® Cream. On June 6, 2008, the Company filed a complaint for patent infringement against Perrigo Israel and its domestic corporate parent Perrigo Company in the United States District Court for the Western District of Michigan, Civil Action No. 1:08-cv-0539-PLM. The complaint asserts that Perrigo Israel and Perrigo Company have infringed both of the Company’s patents for VANOS^® Cream (United States Patent Nos. 6,765,001 and 7,220,424). Perrigo Israel and Perrigo Company filed a joint Answer on November 4, 2008. As discussed further in Note 17, “Subsequent Events,” on April 8, 2009, the Company, Perrigo Israel and Perrigo Company agreed to terminate all legal disputes between them relating to the Company’s VANOS^® fluocinonide Cream. On April 18, 2009, the Court formally dismissed the action.

          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.

16. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141 and establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling interest. It also established principles and requirements for how an acquirer in a business combination recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R provides for the following changes from SFAS No. 141: 1) an acquirer will record all assets and liabilities of acquired business, including goodwill, at fair value, regardless of the level of interest acquired; 2) certain contingent assets and liabilities acquired will be recognized at fair value at the acquisition date; 3) contingent consideration will be recognized at fair value on the acquisition date with changes in fair value to be recognized in earnings; 4) acquisition-related transaction and restructuring costs will be expensed as incurred rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; 5) reversals of valuation allowances related to acquired deferred tax assets and changes to acquired income tax uncertainties will be recognized in earnings; and 6) when making adjustments to finalize initial accounting, acquirers will revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they occurred on the acquisition date. SFAS No. 141R applies prospectively to business combinations the Company enters into, if any, for which the acquisition date is on or after January 1, 2009. The Company adopted SFAS No. 141R on January 1, 2009, and the impact of SFAS No. 141R, if any, on the Company’s consolidated results of operations and financial condition will depend on the nature of business combinations the Company enters into, if any, subsequent to January 1, 2009.

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          In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest, or minority interest, as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the statement of operations. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains it controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company adopted SFAS No. 160 on January 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

          In December 2007, the EITF reached a consensus on EITF 07-01, Accounting for Collaborative Agreements. EITF 07-01 prohibits companies from applying the equity method of accounting to activities performed outside a separate legal entity by a virtual joint venture. Instead, revenues and costs incurred with third parties in connection with the collaborative arrangement should be presented gross or net by the collaborators based on the criteria in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and other applicable accounting literature. The consensus should be applied to collaborative arrangements in existence at the date of adoption using a modified retrospective method that requires reclassification in all periods presented for those arrangements still in effect at the transition date, unless that application is impracticable. The consensus is effective for fiscal years beginning after December 15, 2008. The Company adopted EITF 07-01 on January 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

          In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company adopted FSP 142-3 on January 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

          In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest cost is recognized. FSP APB 14-1 requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense. FSP APB 14-1 requires retrospective application to the terms of instruments as they existed for all periods presented. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and early adoption is not permitted. The Company adopted FSP APB 14-1 on January 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

          In June 2008, the FASB reached a consensus on EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. EITF 07-5 addresses the determination of whether an instrument (or embedded feature) is indexed to an entity’s own stock. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company adopted EITF 07-5 on January 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

          In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. In FSP 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether

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paid or unpaid) are participating securities, and thus, should be 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 shareholders. The Company adopted FASB Staff Position No. EITF 03-6-1 on January 1, 2009, and it did not have a material impact on its disclosure of earnings per share.

          In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which amends SFAS No. 115 and FSP FAS No. 115-1 and FSP FAS No. 124-1, and improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS No. 115-2 and FAS No. 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS No. 115-2 and FAS No. 124-2 to have a material impact on its consolidated results of operations and financial condition.

          In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly and applies to all assets and liabilities within the scope of accounting pronouncements that require or permit fair value measurements, except in paragraphs 2 and 3 of SFAS No. 157. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS No. 157-4 to have a material impact on its consolidated results of operations and financial condition.

          In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends the disclosure requirements of SFAS No. 107 and APB No. 28 and requires disclosure about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP FAS No. 107-1 and APB Opinion No. 28-1 are effective for financial statements issued for interim reporting periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS No. 107-1 and APB Opinion No. 28-1 to have a material impact on its consolidated results of operations and financial condition.

17. SUBSEQUENT EVENTS

License and Settlement Agreement and Joint Development Agreement with Perrigo

          On April 8, 2009, the Company entered into a License and Settlement Agreement (the “License and Settlement Agreement”) and a Joint Development Agreement (the “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 License and Settlement Agreement, the Company and Perrigo agreed to terminate all legal disputes between them relating to the Company’s VANOS^® fluocinonide Cream. 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 ANDA No. 090256. Further, subject to the terms and conditions contained in the 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 Joint Development Agreement, subject to the terms and conditions contained therein:

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• 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 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 will make 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.

          The $3.0 million payment will be recognized as research and development expense during the three months ended June 30, 2009.

FDA Approval of DYSPORT^TM

          On April 29, 2009, the FDA approved the Biologics License Application for DYSPORT^TM, an acetylcholine release inhibitor and a neuromuscular blocking agent. The approval includes two separate indications, the treatment of cervical dystonia in adults to reduce the severity of abnormal head position and neck pain, and the temporary improvement in the appearance of moderate to severe glabellar lines in adults younger than 65 years of age. RELOXIN^®, which was the proposed U.S. name for Ipsen’s botulinum toxin product for aesthetic use, will be marketed under the name of DYSPORT^TM. Ipsen will market DYSPORT^TM in the U.S. for the therapeutic indication (cervical dystonia), while Medicis will market DYSPORT^TM in the U.S. for the aesthetic indication (glabellar lines).

          In March 2006, Ipsen granted the Company the rights to develop, distribute and commercialize Ipsen’s botulinum toxin product for aesthetic use in the U.S., Canada and Japan. In accordance with the agreement, the Company will pay Ipsen $75.0 million during the second quarter of 2009 as a result of the approval by the FDA. The $75.0 million payment will be capitalized into intangible assets in the Company’s consolidated balance sheet. The Company will pay Ipsen a royalty based on sales and a supply price, the total of which is equivalent to approximately 30% of net sales as defined under the agreement.

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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, aesthetic and podiatric 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 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 LOPROX^®, PERLANE^®, RESTYLANE^® and VANOS^®. Our non-dermatological product lines include AMMONUL^® and BUPHENYL^®. Our non-dermatological field also includes contract revenues associated with licensing agreements and authorized generic agreements, and LipoSonix revenues.

Financial Information About Segments

          We operate in one significant 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: PERLANE^®, RESTYLANE^®, SOLODYN^®, TRIAZ^®, VANOS^® and ZIANA^®. We believe that sales of our primary products, along with sales of DYSPORT^TM, which was approved by the FDA on April 29, 2009, will constitute a significant portion of our revenue for 2009.

          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 podiatrists and the leading plastic surgeons in the U.S. We rely on third parties to manufacture our products.

          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

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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 recognize revenue at the time of shipment to the customer, or at the time of receipt by the customer, net of estimated provisions. Beginning in the second quarter of 2009, we will recognize revenue on our aesthetics products, including RESTYLANE^®, PERLANE^® and DYSPORT^TM, upon the shipment from our exclusive distributor to physicians. 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 three months ended March 31, 2009 and affected our results of operations, our cash flows and our financial condition:

• Teva’s launch of a generic to SOLODYN^®, our settlement agreement with Teva, and the impact of the launch on our sales reserves;

• Adjustments to Medicaid drug rebate and DoD/TRICARE liabilities;

• Clinical milestone payment related to our collaboration with IMPAX; and

• Reduction in the carrying value of our investment in Revance.

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Teva’s launch of a generic to SOLODYN^®, our settlement agreement with Teva, and the impact of the launch on our sales reserves

          On March 17, 2009, Teva Pharmaceutical Industries Ltd. (“Teva”) was granted final approval by the FDA for its ANDA #65-485 to market its generic version of 45mg, 90mg and 135mg SOLODYN^® Tablets. Teva commenced shipment of this product immediately after the FDA’s approval of the ANDA.

          On March 18, 2009, we entered into a Settlement Agreement with Teva whereby all legal disputes between us and Teva relating to SOLODYN^® were terminated. Pursuant to the agreement, Teva confirmed that our patents relating to SOLODYN^® are valid and enforceable, and cover Teva’s activities relating to its generic SOLODYN^® product. As part of the settlement, Teva agreed to immediately stop all further shipments of its generic SOLODYN^® product. We agreed to release Teva from liability arising from any prior sales of its generic SOLODYN^® product, which were not authorized by Medicis. Under terms of the agreement, Teva has the option to market its generic versions of 45mg, 90mg and 135mg SOLODYN^® Tablets under the SOLODYN^® intellectual property rights belonging to us in November 2011, or earlier under certain conditions.

          Teva’s shipment of its generic SOLODYN^® product upon FDA approval, but prior to the consummation of the Settlement Agreement with us on March 18, 2009 caused wholesalers to reduce ordering levels for SOLODYN^®, and caused us to increase our reserves for sales returns and consumer rebates. As a result, net revenues of SOLODYN^® during the three months ended March 31, 2009 decreased as compared to the three months ended March 31, 2008 and as compared to the three months ended December 31, 2008.

Adjustments to Medicaid drug rebate and Department of Defense/TRICARE liabilities

          In April 2009, we completed a voluntary review of pricing data submitted to the Medicaid Drug Rebate Program (the “Program”) for the period from the first quarter of 2006 through the fourth quarter of 2007. The review identified certain corrective actions that were needed in relation to the reviewed data. We expect that the corrective actions, when implemented, would result in an increase to our rebate liability under the Program in the amount of approximately $3.1 million for the eight-quarter period reviewed. We have disclosed the results of the review and revised rebate liability to the Centers for Medicare and Medicaid Services (“CMS”), which administers the Program, and are awaiting CMS instruction as to whether and when to re-file the revised pricing data. Our submission to CMS also included a request that CMS approve a change in drug category for certain of our products. If CMS does not accept our request for this change, we may owe additional Medicaid rebates which would result in additional liability under the Program. Upon completion of CMS’s review of our submission, we will evaluate the impact that CMS’s conclusions will have on our liability under related drug rebate agreements with various states and the Public Health Service Drug Pricing Program. As of March 31, 2009, we accrued $3.1 million for the 2006 and 2007 liability, which was recognized as a reduction of net revenues during the three months ended March 31, 2009.

          On March 17, 2009, the Department of Defense (“DoD”) issued a Final Rule (the “Rule”) implementing Section 703 of the National Defense Authorization Act of 2008. The Rule establishes a program under which DoD will seek Federal Ceiling Price-based refunds, or rebates, from drug manufacturers on TRICARE retail pharmacy utilization. Under the Rule, effective May 26, 2009, DoD seeks refunds, or rebates, on TRICARE Retail Pharmacy Program prescriptions filled from January 28, 2008 forward. The Rule also provides that an agreement from the manufacturer to honor the new pricing standards is required to include the manufacturer’s product(s) on the DoD uniform formulary and make that drug available through retail network pharmacies without prior authorization. Among other things, the Rule further provides that manufacturers may apply for compromise or waivers of amounts due. As a result of this Final Rule, our rebate liability as of March 31, 2009 for 2008 utilization is approximately $1.6 million, and the estimated rebate liability for the first quarter of 2009 is approximately $0.8 million. It is possible that, pursuant to the compromise or waiver process set forth in the Rule, DoD will agree to accept a lesser sum for the 2008 and first quarter of 2009 periods. As of March 31, 2009 we accrued $2.4 million for the 2008 and first quarter of 2009 liability, which was recognized as a reduction of net revenues during the three months ended March 31, 2009.

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Clinical milestone payment related to our collaboration with IMPAX

          On November 26, 2008, we 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, we and IMPAX agreed to terminate all legal disputes between us relating to SOLODYN^®. Additionally, under terms of the License and Settlement Agreement, IMPAX confirmed that our patents relating to SOLODYN^® are valid and enforceable, and cover IMPAX’s activities relating to its generic product under ANDA #90-024. 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^® intellectual property rights belonging to us upon the occurrence of specific events. Upon launch of its generic formulations of SOLODYN^®, IMPAX may be required to pay us 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, we and IMPAX will collaborate on the development of five strategic dermatology product opportunities, including an advanced-form SOLODYN^® product. Under terms of the agreement, we made an initial payment of $40.0 million upon execution of the agreement. During the three months ended March 31, 2009, we paid IMPAX $5.0 million upon the achievement of a clinical milestone, in accordance with terms of the agreement. In addition, we are required to pay up to $18.0 million upon successful completion of certain other clinical and commercial milestones. We will also make royalty payments based on sales of the advanced-form SOLODYN^® product if and when it is commercialized by us upon approval by the FDA. We 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 a charge to research and development expense during the three months ended December 31, 2008, and the $5.0 million clinical milestone achievement payment was recognized as a charge to research and development expense during the three months ended March 31, 2009.

Reduction in the carrying value of our investment in Revance

          On December 11, 2007, we announced a strategic collaboration with Revance Therapeutics, Inc. (“Revance”), a privately-held, venture-backed development-stage company, whereby we 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 our 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 our $20.0 million payment, we 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 is expected to be used by Revance primarily for the development of the product. Approximately $12.0 million of the $20.0 million payment represents the fair value of the investment in Revance at the time of the investment and was included in other long-term assets in our condensed consolidated balance sheets as of December 31, 2007. The remaining $8.0 million, which is non-refundable and is expected to be utilized in the development of the new product, represents 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.

          We estimate the net realizable value of the Revance investment based on a hypothetical liquidation at book value approach as of the reporting date, unless a quantitative valuation metric is available for these purposes (such as the completion of an equity financing by Revance).

          During 2008, we reduced the carrying value of our investment in Revance and recorded a related charge to earnings of approximately $9.1 million 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 December 31, 2008. Additionally, during the three months ended March 31, 2009, we reduced the carrying value of our 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 as of March 31, 2009. We recognized the $2.9 million as other expense in our condensed consolidated statement of

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operations during the three months ended March 31, 2009. Upon the recognition of the $2.9 million reduction of our investment in Revance during the three months ended March 31, 2009, our investment in Revance as of March 31, 2009, is $0.

Subsequent Events

License and Settlement Agreement and Joint Development Agreement with Perrigo

          On April 8, 2009, we entered into a License and Settlement Agreement (the “License and Settlement Agreement”) and a Joint Development Agreement (the “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 License and Settlement Agreement, we and Perrigo agreed to terminate all legal disputes between them relating to our VANOS^® fluocinonide Cream. In addition, Perrigo confirmed that certain of our patents relating to VANOS^® are valid and enforceable, and cover Perrigo’s activities relating to its generic product under ANDA No. 090256. Further, subject to the terms and conditions contained in the License and Settlement Agreement:

• we 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 us a royalty based on sales of such generic products.

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

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

• we have 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 FDA, we 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 us all of our novel proprietary product requirements in the U.S.;

• we will make 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

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

          The $3.0 million payment will be recognized as research and development expense during the three months ended June 30, 2009.

FDA Approval of DYSPORT^TM

          On April 29, 2009, the FDA approved the Biologics License Application for DYSPORT^TM, an acetylcholine release inhibitor and a neuromuscular blocking agent. The approval includes two separate indications, the treatment of cervical dystonia in adults to reduce the severity of abnormal head position and neck pain, and the temporary improvement in the appearance of moderate to severe glabellar lines in adults younger than 65 years of age. RELOXIN^®, which was the proposed U.S. name for Ipsen’s botulinum toxin product for aesthetic use, will be marketed under the name of DYSPORT^TM. Ipsen will market DYSPORT^TM in the U.S. for the therapeutic indication (cervical dystonia), while Medicis will market DYSPORT^TM in the U.S. for the aesthetic indication (glabellar lines).

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          In March 2006, Ipsen granted us the rights to develop, distribute and commercialize Ipsen’s botulinum toxin product for aesthetic use in the U.S., Canada and Japan. In accordance with the agreement, we will pay Ipsen $75.0 million during the second quarter of 2009 as a result of the approval by the FDA. The $75.0 million payment will be capitalized into intangible assets in our consolidated balance sheet. We will pay Ipsen a royalty based on sales and a supply price, the total of which is equivalent to approximately 30% of net sales as defined under the agreement.

Results of Operations

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

	Three Months Ended
	March 31,			March 31,
	2009 (a)			2008 (b)
Net revenues		100.0	%		100.0	%
Gross profit (c)		90.5			91.4
Operating expenses		91.0			68.3
Operating (loss) income		(0.5	)		23.1
Other expense, net		(2.9	)		(2.2	)
Interest and investment income, net		1.5			5.3
(Loss) income before income tax expense		(1.9	)		26.2
Income tax benefit (expense)		2.2			(10.3	)
Net income		0.3	%		15.9	%

(a)	Included in operating expenses is $3.9 million (3.9% of net revenues) of compensation expense related to stock options and restricted stock.
(b)	Included in operating expenses is $4.4 million (3.4% of net revenues) of compensation expense related to stock options and restricted stock.
(c)	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 March 31, 2009 Compared to the Three Months Ended March 31, 2008

Net Revenues

          The following table sets forth our net revenues for the three months ended March 31, 2009 (the “first quarter of 2009”) and March 31, 2008 (the “first quarter of 2008”), along with the percentage of net revenues and percentage point change for each of our product categories (dollar amounts in millions):

	First Quarter		First Quarter
	2009		2008		$ Change			% Change
Net product revenues	$	96.6	$	125.1	$	(28 5	)		(22.8	)%
Net contract revenues		3.2		3.8		(0.6	)		(16.4	)%
Total net revenues	$	99.8	$	128.9	$	(29.1	)		(22.6	)%

	First Quarter		First Quarter
	2009		2008		$ Change			% Change
Acne and acne-related dermatological products	$	66.4	$	80.1	$	(13.7	)		(17.1	)%
Non-acne dermatological products		23.5		39.1		(15.6	)		(40.0	)%
Non-dermatological products (including contract revenues)		9.9		9.7		0.2			2.2	%
Total net revenues	$	99.8	$	128.9	$	(29.1	)		(22.6	)%

	First Quarter			First Quarter
	2009			2008			Change
Acne and acne-related dermatological products		66.6	%		62.2	%		4.4	%
Non-acne dermatological products		23.5	%		30.3	%		(6.8	)%
Non-dermatological products (including contract revenues)		9.9	%		7.5	%		2.4	%
Total net revenues		100.0	%		100.0	%		—

          Net revenues associated with our acne and acne-related dermatological products decreased by $13.7 million, or 17.1%, during the first quarter of 2009 as compared to the first quarter of 2008 primarily as a result of the decreased sales of SOLODYN^® due to the impact of the one-day launch of Teva’s generic SOLODYN^® product, which caused wholesalers to reduce ordering levels of SOLODYN^® and caused us to increase our reserves for sales returns and consumer rebates. We expect net revenues of SOLODYN^® to continue to be negatively affected during the remainder of 2009 as units of Teva’s generic SOLODYN^® product that were sold prior to the consummation of a Settlement Agreement with us on March 18, 2009 are sold and prescribed through the distribution channel. Net revenues associated with our non-acne dermatological products decreased as a percentage of net revenues, and decreased in net dollars by $15.6 million, or 40.0%, during the first quarter of 2009 as compared to the first quarter of 2008. Beginning in the second quarter of 2009, we will recognize revenue on our aesthetics products, including RESTYLANE^®, PERLANE^® and DYSPORT^TM, upon the shipment from our exclusive distributor 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 $0.2 million, or 2.2%, and increased by 2.4 percentage points as a percentage of net revenues during the first quarter of 2009 as compared to the first quarter of 2008.

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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 first quarter of 2009 and 2008 was approximately $5.4 million and $5.3 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 first quarter of 2009 and 2008, along with the percentage of net revenues represented by such gross profit (dollar amounts in millions):

	First Quarter			First Quarter
	2009			2008			$ Change			% Change
Gross profit	$	90.4		$	117.8		$	(27.4	)		(23.3	)%
% of net revenues		90.5	%		91.4	%

          The decrease in gross profit during the first quarter of 2009, compared to the first quarter of 2008, was due to the decrease in our net revenues, and the decrease in gross profit as a percentage of net revenues was primarily due to the different mix of products sold during the first quarter of 2009 as compared to the first quarter of 2008. Decreased sales of SOLODYN^®, a higher margin product, during the first quarter of 2009, was the primary change in the mix of products sold during the comparable periods that affected gross profit as a percentage of net revenues.

Selling, General and Administrative Expenses

          The following table sets forth our selling, general and administrative expenses for the first quarter of 2009 and 2008, along with the percentage of net revenues represented by selling, general and administrative expenses (dollar amounts in millions):

	First Quarter			First Quarter
	2009			2008			$ Change			% Change
Selling, general and administrative	$	70.4		$	72.1		$	(1.7	)		(2.3	)%
% of net revenues		70.6	%		55.9	%
Share-based compensation expense included in selling, general and administrative	$	3.7		$	4.3		$	(0.6	)		(13.8	)%

          The decrease in selling, general and administrative expenses during the first quarter of 2009 from the first quarter of 2008 was attributable to approximately $2.4 million of decreased professional and consulting expenses and a net reduction of $1.4 million of other selling, general and administrative costs incurred during the first quarter of 2009, partially offset by $2.1 million of increased personnel costs, primarily related to an increase in the number of employees from 496 as of March 31, 2008 to 613 as of March 31, 2009 and the effect of the annual salary increase that occurred during February 2009. Professional and consulting expenses incurred during the first quarter of 2008 included costs related to the implementation of our new enterprise resource planning (ERP) system. The increase of selling, general and administrative expenses as a percentage of net revenues during the first quarter of 2009 as compared to the first quarter of 2008 was primarily due to the $29.1 million decrease in net revenues.

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Research and Development Expenses

          The following table sets forth our research and development expenses for the first quarter of 2009 and 2008 (dollar amounts in millions):

	First Quarter		First Quarter
	2009		2008		$Change		% Change
Research and development	$	13.3	$	9.2	$	4.1		44.5	%
Charges included in research and development	$	5.0	$	—	$	5.0		100.0	%
Share-based compensation expense included in research and development	$	0.1	$	0.1	$	—		—	%

          Included in research and development expenses for the first quarter of 2009 was a $5.0 million payment to IMPAX for the achievement of a clinical milestone. The primary product under development during the first quarter of 2009 and 2008 was DYSPORT^TM, which was formerly known as RELOXIN^® during clinical development. 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 first quarter of 2009 increased $0.4 million, or 6.1%, to $7.1 million from $6.7 million during the first quarter of 2008. This increase was primarily due to depreciation incurred related to our new headquarters facility.

Other Expense, net

          Other expense, net, of $2.9 million recognized during the first quarter of 2009 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. Other expense, net, of $2.9 million recognized during the first quarter of 2008 represented a 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, 2008.

Interest and Investment Income

          Interest and investment income during the first quarter of 2009 decreased $6.7 million, or 73.0%, to $2.5 million from $9.2 million during the first quarter of 2008, due to an decrease in the funds available for investment due to the repurchase of $283.7 million of our New Notes in June 2008 and our $150.0 million acquisition of LipoSonix in July 2008, and a decrease in the interest rates achieved by our invested funds during the first quarter of 2009. We expect interest and investment income to be lower in the first half of 2009 as compared to the first half of 2008 due to the decrease in funds available for investment due to the repurchase of $283.7 million of our New Notes in June 2008 and our $150.0 million acquisition of LipoSonix in July 2008.

Interest Expense

          Interest expense during the first quarter of 2009 decreased $1.3 million, to $1.1 million during the first quarter of 2009 from $2.4 million during the first quarter of 2008. Our interest expense during the first quarter of 2009 and 2008 consisted of interest expense on our Old Notes, which accrue interest at 2.5% per annum, our New Notes, which accrue interest at 1.5% per annum, and amortization of fees and other origination costs related to the issuance of the New Notes. The decrease in interest expense during the first quarter of 2009 as compared to the first quarter of 2008 was primarily due to the repurchase of $283.7 million of our New Notes in June 2008, and the fees and origination costs related to the issuance of the New Notes becoming fully amortized during the second quarter of 2008. See Note 10 in our accompanying condensed consolidated financial

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statements for further discussion on the Old Notes and New Notes. We expect interest expense to be lower in the first half of 2009 as compared to the first half of 2008 due to the impact of the repurchase of $283.7 million of our New Notes in June 2008 and the impact of the origination costs of the New Notes being fully amortized as of June 30, 2008.

Income Tax Expense

          Our effective tax rate for the first quarter of 2009 was 117.3%, as compared to 39.1% for the first quarter of 2008. The effective tax rate for the first quarter of 2009 reflects a $1.4 million discrete tax benefit recognized due to statute closures. Excluding the discrete tax benefit, the effective tax rate for the first quarter of 2009 was 41.6%. The 41.6% reflects management’s estimate of the effective tax rate expected to be applicable for the full year.

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Liquidity and Capital Resources

Overview

          The following table highlights selected cash flow components for the first quarter of 2009 and 2008, and selected balance sheet components as of March 31, 2009 and December 31, 2008 (dollar amounts in millions):

	First Quarter			First Quarter
	2009			2008			$ Change			% Change
Cash provided by (used in):
Operating activities	$	45.4		$	33.1		$	12.3			37.2	%
Investing activities		9.2			61.5			(52.3	)		(85.0	)%
Financing activities		(2.3	)		(0.9	)		(1.4	)		(148.2	)%

	Mar. 31, 2009		Dec. 31, 2008		$ Change			% Change
Cash, cash equivalents, and short-term investments	$	399.4	$	343.9	$	55.5			16.1	%
Working capital		332.1		307.6		24.5			8.0	%
Long-term investments		40.4		55.3		(14.9	)		(27.0	)%
2.5% contingent convertible senior notes due 2032		169.2		169.2		—			—
1.5% contingent convertible senior notes due 2033		0.2		0.2		—			—

Working Capital

          Working capital as of March 31, 2009 and December 31, 2008 consisted of the following (dollar amounts in millions):

	Mar. 31, 2009		Dec. 31, 2008		$Change			% Change
Cash, cash equivalents, and short-term investments	$	399.4	$	343.9	$	55.5			16.1	%
Accounts receivable, net		50.9		52.6		(1.7	)		(3.2	)%
Inventories, net		25.4		24.2		1.2			4.6	%
Deferred tax assets, net		66.1		53.2		12.9			24.4	%
Other current assets		20.8		19.6		1.2			6.1	%
Total current assets		562.6		493.5		69.1			14.0	%
Accounts payable		43.8		39.0		4.8			12.1	%
Reserve for sales returns		68.4		59.6		8.8			14.8	%
Income taxes payable		4.4		—		4.4			100.0	%
Other current liabilities		113.9		87.3		26.6			30.5	%
Total current liabilities		230.5		185.9		44.6			24.0	%
Working capital	$	332.1	$	307.6	$	24.5			8.0	%

          We had cash, cash equivalents and short-term investments of $399.4 million and working capital of $332.1 million at March 31, 2009, as compared to $343.9 million and $307.6 million, respectively, at December 31, 2008. The increases were primarily due to the generation of $45.4 million of operating cash flow during the first quarter of 2009.

          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, including $75.0 million that we will pay to Ipsen during the second quarter of 2009 as a result of the FDA’s April 29, 2009 approval of DYSPORT^TM (formerly known as RELOXIN^® during clinical development), strategic investments, acquisitions of companies or products complementary to our business, the repayment of outstanding indebtedness, repurchases of our outstanding securities and

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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 that employs a staff of approximately 40 scientists, engineers and clinicians located near Seattle, Washington. LipoSonix is a medical device company developing non-invasive body sculpting technology, and its first product is being marketed and sold through distributors in Europe. The LipoSonix technology is currently not approved for sale or use in the United States. 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 technology and if various commercial milestones are achieved on a worldwide basis.

          As of December 31, 2008, our short-term investments included $38.2 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. As a result of the continued lack of liquidity of these investments, we recorded an other-than-temporary impairment loss of $6.4 million during the fourth quarter of 2008 on our auction rate floating securities, based on our estimate of the fair value of these investments.

Operating Activities

          Net cash provided by operating activities during the first quarter of 2009 was approximately $45.4 million, compared to cash provided by operating activities of approximately $33.1 million during the first quarter of 2008. The following is a summary of the primary components of cash provided by operating activities during the first quarter of 2009 and 2008 (in millions):

	First Quarter			First Quarter
	2009			2008
Income taxes paid	$	(1.5	)	$	(11.3	)
Payment made to IMPAX related to development agreement		(5.0	)		—
Other cash provided by operating activities		51.9			44.4
Cash provided by operating activities	$	45.4		$	33.1

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Investing Activities

          Net cash provided by investing activities during the first quarter of 2009 was approximately $9.2 million, compared to net cash provided by investing activities during the first quarter of 2008 of $61.5 million. The change was primarily due to the net purchases and sales of our short-term and long-term investments during the respective quarters.

Financing Activities

          Net cash used in financing activities during the first quarter of 2009 was $2.3 million, compared to net cash used in financing activities of $0.9 million during the first quarter of 2008. Dividends paid during the first quarter of 2009 were $2.3 million, and dividends paid during the first quarter of 2008 were $1.7 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 $11.7 million of long-term liabilities at March 31, 2009 and we had $230.5 million of current liabilities at March 31, 2009. 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.

          We have made available to BioMarin the ability to draw down on a Convertible Note up to $25.0 million beginning July 1, 2005 (the “Convertible Note”). The Convertible Note is convertible based on certain terms and conditions including a change of control provision. Money advanced under the Convertible Note is convertible into BioMarin shares at a strike price equal to the BioMarin average closing price for the 20 trading days prior to such advance. The Convertible Note matures on the option purchase date in 2009 as defined in the securities purchase agreement entered into on May 18, 2004, but may be repaid by BioMarin at any time prior to the option purchase date. As of May 11, 2009, BioMarin has not requested any monies to be advanced under the Convertible Note, and no amounts are outstanding.

          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 SFAS 146, a liability for the costs associated with an exit or disposal activity is recognized when the liability is incurred. In accordance with SFAS 146, 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. These amounts were recorded as selling, general and administrative expenses in our condensed consolidated statements of operations. We have not recorded any other costs related to the lease for the prior headquarters.

          As of March 31, 2009, approximately $3.5 million of lease exit costs remain accrued and are expected to be paid by December 2010 of which $1.9 million is classified in other current liabilities and $1.6 million is classified in other liabilities. Although we no longer use the facilities, the lease exit cost

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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 three months ended March 31, 2009:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2008		to Expense		Made			from Sublease		March 31, 2009
Lease exit costs liability	$	3,996,102	$	65,737	$	(534,528	)	$	—	$	3,527,311

Dividends

          We do not have a dividend policy. Since July 2003, we have paid quarterly cash dividends aggregating approximately $39.5 million on our common stock. In addition, on March 11, 2009, we declared a cash dividend of $0.04 per issued and outstanding share of common stock payable on April 30, 2009 to our stockholders of record at the close of business on April 1, 2009. 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 $38.6 million at March 31, 2009. These securities were included in long-term investments at March 31, 2009. We also utilize unobservable (Level 3) inputs to value our investment in Revance, which was $0 at March 31, 2009.

          Our auction rate floating securities are classified as available for sale 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 SFAS No 157. However, due to events in credit markets 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 utilizing a discounted cash flow analysis as of March 31, 2009. 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, and we recorded an other-than-temporary impairment loss of $6.4 million during the fourth quarter of 2008 on our auction rate floating securities, based on our estimate of the fair value of these investments. Our estimate of fair value of our auction-rate floating securities was based on market information and estimates determined by our management, which could change in the future based on market conditions.

          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 March 31, 2009 and December 31, 2008, 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 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, 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.

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Off-Balance Sheet Arrangements

          As of March 31, 2009, 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, 2008. There were no new significant accounting estimates in the first quarter of 2009, 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, 2008.

Recent Accounting Pronouncements

          In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141 and establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling interest. It also established principles and requirements for how an acquirer in a business combination recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R provides for the following changes from SFAS No. 141: 1) an acquirer will record all assets and liabilities of acquired business, including goodwill, at fair value, regardless of the level of interest acquired; 2) certain contingent assets and liabilities acquired will be recognized at fair value at the acquisition date; 3) contingent consideration will be recognized at fair value on the acquisition date with changes in fair value to be recognized in earnings; 4) acquisition-related transaction and restructuring costs will be expensed as incurred rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; 5) reversals of valuation allowances related to acquired deferred tax assets and changes to acquired income tax uncertainties will be recognized in earnings; and 6) when making adjustments to finalize initial accounting, acquirers will revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they occurred on the acquisition date. SFAS No. 141R applies prospectively to business combinations we enter into, if any, for which the acquisition date is on or after January 1, 2009. We adopted SFAS No. 141R on January 1, 2009, and the impact of SFAS No. 141R, if any, on our consolidated results of operations and financial condition will depend on the nature of business combinations we enter into, if any, subsequent to January 1, 2009.

          In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest, or minority interest, as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the statement of operations. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains it controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its

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noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We adopted SFAS No. 160 on January 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

          In December 2007, the EITF reached a consensus on EITF 07-01, Accounting for Collaborative Agreements. EITF 07-01 prohibits companies from applying the equity method of accounting to activities performed outside a separate legal entity by a virtual joint venture. Instead, revenues and costs incurred with third parties in connection with the collaborative arrangement should be presented gross or net by the collaborators based on the criteria in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and other applicable accounting literature. The consensus should be applied to collaborative arrangements in existence at the date of adoption using a modified retrospective method that requires reclassification in all periods presented for those arrangements still in effect at the transition date, unless that application is impracticable. The consensus is effective for fiscal years beginning after December 15, 2008. We adopted EITF 07-01 on January 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

          In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We adopted FSP 142-3 on January 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

          In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest cost is recognized. FSP APB 14-1 requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense. FSP APB 14-1 requires retrospective application to the terms of instruments as they existed for all periods presented. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and early adoption is not permitted. We adopted FSP APB 14-1 on January 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

          In June 2008, the FASB reached a consensus on EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. EITF 07-5 addresses the determination of whether an instrument (or embedded feature) is indexed to an entity’s own stock. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We adopted EITF 07-5 on January 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

          In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. In FSP 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be 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 shareholders. We adopted FASB Staff Position No. EITF 03-6-1 on January 1, 2009, and it did not have a material impact on our disclosure of earnings per share.

          In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which amends SFAS No. 115 and FSP FAS No. 115-1 and FSP FAS No. 124-1, and improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS No. 115-2 and FAS No. 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the adoption of FSP FAS No. 115-2 and FAS No. 124-2 to have a material impact on our consolidated results of operations and financial condition.

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          In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly and applies to all assets and liabilities within the scope of accounting pronouncements that require or permit fair value measurements, except in paragraphs 2 and 3 of SFAS No. 157. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the adoption of FSP FAS No. 157-4 to have a material impact on our consolidated results of operations and financial condition.

          In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends the disclosure requirements of SFAS No. 107 and APB No. 28 and requires disclosure about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP FAS No. 107-1 and APB Opinion No. 28-1 are effective for financial statements issued for interim reporting periods ending after June 15, 2009. We do not expect the adoption of FSP FAS No. 107-1 and APB Opinion No. 28-1 to have a material impact on our consolidated 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 recent FDA approvals of Evolence^®, Prevelle^® Silk, Radiesse^®, Sculptra^®, Elevess^™, Juvéderm^™ Ultra and Juvéderm^™ Ultra Plus, competitors to RESTYLANE^® and PERLANE^®, a generic form of our DYNACIN^® Tablets product, generic forms of our LOPROX^® TS and LOPROX^® Cream and LOPROX^® Gel products, and potential generic forms of our LOPROX^® Shampoo, 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;

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• changes in our product mix;

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

• changes in prescription levels;

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

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

• manufacturing or supply interruptions;

• importation of other dermal filler 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 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 federal and/or state legislation or regulatory action affecting, among other things, 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;

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

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• 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, 2008 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          As of March 31, 2009, 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, 2008.

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 March 31, 2009 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 March 31, 2009, 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 following supplements and amends the discussion set forth under Part I, Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2008.

          On January 13, 2009, we filed suit against Mylan, Inc., Matrix Laboratories Ltd., Matrix Laboratories Inc., Sandoz, Inc., and Barr Laboratories, Inc. (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 our U.S. Patent No. 5,908,838 (the “ ‘838 patent”) by submitting to the FDA their respective ANDAs for generic versions of SOLODYN^®. The relief we requested includes a request for a permanent injunction preventing Defendants from infringing the ‘838 patent by selling generic versions of SOLODYN^®. On March 18, 2009, we entered into a Settlement Agreement with Barr (a subsidiary of Teva) whereby all legal disputes between us and Teva relating to SOLODYN^® were terminated and where Barr/Teva agreed that our 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 Matrix Laboratories Inc. and us without prejudice, pursuant to a stipulation between Medicis and Matrix Laboratories Inc.

          On January 21, 2009, we received a letter from a stockholder demanding that our Board of Directors take certain actions, including potentially legal action, in connection with the restatement of our consolidated financial statements in 2008. Our Board of Directors is reviewing the letter and has established a special committee of the Board, comprised of directors who are independent and disinterested with respect to the allegations in the letter, (i) to assess whether there is any merit to the allegations contained in the letter, (ii) if the special committee does conclude that there may be merit to any of the allegations contained in the letter, to further assess whether it is in the best interest of us and our shareholders to pursue litigation or other action against any or all of the persons named in the letter or any other persons not named in the letter, and (iii) to recommend to the Board any other appropriate action to be taken. The ultimate outcome of these potential actions could have a material adverse effect on our business, financial condition, cash flows and the trading price for our securities.

          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 our securities during the period between October 30, 2003 and approximately September 24, 2008. The complaints name as defendants Medicis Pharmaceutical Corp. and our Chief Executive Officer and Chairman of the Board, Jonah Shacknai, our Chief Financial Officer, Executive Vice President and Treasurer, Richard D. Peterson, and our Chief Operating Officer and Executive Vice President, Mark A. Prygocki. Plaintiffs’ claims arise in connection with the restatement of our annual, transition, and quarterly periods in fiscal years 2003 through 2007 and the first and second quarters of 2008. The complaints allege violations of federal securities laws, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, based on alleged material misrepresentations to the market that had the effect of artificially inflating the market price of our stock. The plaintiffs seek to recover unspecified damages and costs, including counsel and expert fees. The Court has consolidated these actions into a single proceeding, appointed a lead plaintiff and lead plaintiff’s counsel, and ordered the lead plaintiff to file a single, consolidated complaint by May 18, 2009. We intend to vigorously defend the claims in these consolidated matters. There can be no assurance, however, that we will be successful, and an adverse resolution of the lawsuits could have a material adverse effect on our financial position and results of operations in the period in which the lawsuits are resolved. We are not presently able to reasonably estimate potential losses, if any, related to the lawsuits.

          On April 30, 2008, we received notice from Perrigo Israel Pharmaceuticals Ltd. (“Perrigo Israel”), a generic pharmaceutical company, that it had filed an ANDA with the FDA for a generic version of our VANOS^® fluocinonide cream 0.1%. Perrigo Israel’s notice indicated that it was challenging only one of

47

the two patents that we listed with the FDA for VANOS^® Cream. On June 6, 2008, we filed a complaint for patent infringement against Perrigo Israel and its domestic corporate parent Perrigo Company in the United States District Court for the Western District of Michigan, Civil Action No. 1:08-cv-0539-PLM. The complaint asserts that Perrigo Israel and Perrigo Company have infringed both of our patents for VANOS^® Cream (United States Patent Nos. 6,765,001 and 7,220,424). Perrigo Israel and Perrigo Company filed a joint Answer on November 4, 2008. On April 8, 2009, Medicis, Perrigo Israel and Perrigo Company agreed to terminate all legal disputes between them relating to our VANOS^® fluocinonide Cream. On April 18, 2009, the Court formally dismissed the action.

          On October 27, 2005, we filed suit against Upsher-Smith Laboratories, Inc. of Plymouth, Minnesota and against Prasco Laboratories of Cincinnati, Ohio for infringement of Patent No. 6,905,675 entitled “Sulfur Containing Dermatological Compositions and Methods for Reducing Malodors in Dermatological Compositions” covering our sodium sulfacetamide/sulfur technology. This intellectual property is related to our PLEXION^® Cleanser product. The suit was filed in the U.S. District Court for the District of Arizona, and seeks an award of damages, as well as a preliminary and a permanent injunction. A hearing on our preliminary injunction motion was heard on March 8 and March 9, 2006. On May 2, 2006, an order denying the motion for a preliminary injunction was received by Medicis. The Court has entered an order staying the case until the conclusion of a patent reexamination request submitted by Medicis.

          In addition to the matters discussed above, we and certain of our subsidiaries are parties to other actions and proceedings incident to our business, including litigation regarding our intellectual property, challenges to the enforceability or validity of our intellectual property and claims that our products infringe on the intellectual property rights of others. We record contingent liabilities resulting from claims against us when it is probable (as that word is defined in Statement of Financial Accounting Standards No. 5) that a liability has been incurred and the amount of the loss is reasonably estimable. We disclose material contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. In all of the cases noted where we are the defendant, we believe we have meritorious defenses to the claims in these actions and resolution of these matters will not have a material adverse effect on our business, financial condition, or results of operation; however, the results of the proceedings are uncertain, and there can be no assurance to that effect.

Item 1A. Risk Factors

          We operate in a rapidly changing environment that involves a number of risks. The following discussion highlights some of these risks and others are discussed elsewhere in this report. These and other risks 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 fiscal year ended December 31, 2008.

          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 fiscal year ended December 31, 2008.

Item 5. Other Information

     During the first quarter of 2009, we executed and delivered to each of our directors and officers an indemnification agreement approved by our Board of Directors. The agreement confirms our obligations to indemnify the directors and officers to the fullest extent authorized by applicable law and supplements the indemnification otherwise available to the covered person under our charter and bylaws. The form of indemnification agreement is attached hereto as Exhibit 10.5 and is incorporated herein by this reference. The description above is qualified in its entirety by reference to such exhibit.

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Item 6. Exhibits

Exhibit 3.2	Amended and Restated By-Laws of the Company (1)
Exhibit 10.1+	Amendment No. 4 to the Medicis 2006 Incentive Award Plan, dated March 26, 2009.
Exhibit 10.2+*	Settlement Agreement, dated March 18, 2009, between the Company and Barr Laboratories, Inc., a wholly owned subsidiary of Teva Pharmaceuticals USA, Inc.
Exhibit 10.3+*	License and Settlement Agreement, dated April 8, 2009, between the Company and Perrigo Israel Pharmaceuticals Ltd. and Perrigo Company.
Exhibit 10.4+*	Joint Development Agreement, dated April 8, 2009, between the Company and Perrigo Israel Pharmaceuticals Ltd.
Exhibit 10.5+	Form of Indemnification Agreement for Directors and Officers of the Company.
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

+	Filed herewith
*	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.
(1)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 19, 2009.

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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: May 11, 2009	By:	/s/ Jonah Shacknai
		Jonah Shacknai
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
Date: May 11, 2009	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

AMENDMENT NO. 4
TO THE
MEDICIS 2006 INCENTIVE AWARD PLAN

               This Amendment No. 4 (“Amendment”) to the Medicis 2006 Incentive Award Plan, as amended (the “Plan”), is adopted by Medicis Pharmaceutical Corporation, a Delaware corporation (the “Company”), as of March 26, 2009.

RECITALS

               A. The Stock Option and Compensation Committee (the “Committee”) of the Board of Directors of the Company deems it advisable and in the best interest of the Company and its stockholders to amend the Plan, as provided below.

               B. Pursuant to Section 11.2 of the Plan, the Committee has the authority to amend the Plan.

AMENDMENT

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

          “2.1. Shares Subject to Plan.

     (a) Subject to Section 11.3 and Section 2.1(b), the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Awards under the Plan shall not exceed 3,416,511 shares (the “Authorized Shares”). In addition, in the event of any cancellation, termination, expiration or forfeiture of any Prior Award during the term of the Plan (including any shares of Common Stock that are forfeited by the holder or repurchased by the Company pursuant to the terms of the applicable award agreement at a price not greater than the original purchase price paid by the holder), the number of shares of Common Stock that may be issued or transferred pursuant to Awards under the Plan shall automatically be increased by one share for each share subject to such Prior Award that is so cancelled, terminated, expired, forfeited or repurchased (collectively, the “Cancelled Prior Award Shares”). The aggregate number of shares of Common Stock available for issuance under the Plan pursuant to this Section 2.1 shall be reduced by one share for each share of Common Stock delivered in settlement of any Full Value Award. In no event, however, shall the aggregate number of Authorized Shares and Cancelled Prior Award Shares made available for issuance under the Plan exceed 7,500,000.

     (b) To the extent that an Award terminates, expires, lapses or is forfeited for any reason, any shares of Common Stock then subject to such Award shall again be available for the grant of an Award pursuant to the Plan; provided, however, that the number of shares that shall again be available for the grant of an Award pursuant to the Plan shall be increased by one share for each share of Common Stock subject to a Full Value Award at the time such Full Value Award terminates, expires, lapses or is forfeited for any reason. To the

extent permitted by applicable law or any exchange rule, shares of Common Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Common Stock available for grant pursuant to this Plan. If any shares of Restricted Stock are surrendered by the Holder or repurchased by the Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be granted or awarded hereunder, subject to the limitations of Section 2.1(a). To the extent exercised, the full number of shares subject to an Option or Stock Appreciation Right shall be counted for purposes of calculating the aggregate number of shares of Common Stock available for issuance under the Plan as set forth in Section 2.1(a) and for purposes of calculating the share limitation set forth in Section 2.3, regardless of the actual number of shares issued or transferred upon any net exercise of an Option (in which Common Stock is withheld to satisfy the exercise price or taxes) or upon exercise of any Stock Appreciation Right for Common Stock or cash. The payment of Dividend Equivalents in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan. Notwithstanding the provisions of this Section 2.1(b), no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.”

2. Section 6.4 of the Plan is hereby amended and restated in its entirety to read as follows:

     “6.4. Rights as Stockholders. Holders shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option (including, without limitation, the right to receive dividends in respect of such shares) unless and until certificates representing such shares have been issued by the Company to such Holders.”

3. Section 8.3 of the Plan is hereby amended and restated in its entirety to read as follows:

     “8.3. Dividend Equivalents. Any Employee, Non-Employee Director or Consultant selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date a Deferred Stock, Performance Award or Restricted Stock Unit award is granted and the date such Deferred Stock, Performance Award or Restricted Stock Unit award vests, is exercised, is distributed or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator.”

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4. Section 9.1 of the Plan is hereby amended and restated in its entirety to read as follows:

     “9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Employee, Non-Employee Director or Consultant selected by the Administrator; provided, however, that in no event shall the term of any Stock Appreciation Right granted under the Plan exceed ten (10) years from the date such Stock Appreciation Right is granted. A Stock Appreciation Right may be granted: (a) in connection and simultaneously with the grant of an Option, or (b) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement. Holders of Stock Appreciation Rights shall not be entitled to receive dividends in respect of any shares deliverable upon the exercise of any Stock Appreciation Right unless and until certificates representing such shares have been issued by the Company to such Holders.”

     5. Capitalized terms used in this Amendment and not otherwise defined shall have the same meanings assigned to them in the Plan. Except as otherwise expressly set forth in this Amendment, the Plan shall remain in full force and effect in accordance with its terms.

     6. This Amendment shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws relating to conflicts or choice of laws, of the State of Delaware applicable to agreements made and to be performed wholly within the State of Delaware.

* * * * *

               I hereby certify that this Amendment No. 4 was adopted by the Stock Option and Compensation Committee of the Board of Directors on March 26, 2009.

               Executed this 26^th day of March, 2009.

MEDICIS PHARMACEUTICAL CORPORATION
 

/s/ Richard D. Peterson  

Richard D. Peterson  

Executive Vice President, Chief Financial Officer & Treasurer 

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EX-10.2

Exhibit 10.2

     *** 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.

SETTLEMENT AGREEMENT

     THIS SETTLEMENT AGREEMENT (this “Agreement”) dated as of March 18, 2009 (the “Effective Date”) is entered into between Medicis Pharmaceutical Corporation, a Delaware corporation with offices located at 7720 North Dobson Road, Scottsdale, Arizona 85256 on behalf of itself and its Affiliates (collectively, “Medicis”), and Barr Laboratories, Inc. (a wholly owned subsidiary of Teva Pharmaceuticals USA, Inc. (“Teva USA”)), a Delaware corporation with offices located at 225 Summit Avenue, Montvale, NJ 07645 on behalf of itself and its Affiliates (collectively, “Teva”).

     WHEREAS, Medicis is the owner of the Patent Rights (as defined below);

     WHEREAS, Teva filed and owns the ANDA (as defined below) and has manufactured and sold Generic Product (as defined below) without authorization from Medicis, which manufacture, use, sale, offer for sale, importation and distribution infringes or induces the infringement of one or more of the Patent Rights; and

     WHEREAS, in consideration for Teva’s agreement to immediately cease manufacturing, using, selling, offering for sale, importing and distributing Generic Product and stipulate to the validity of the Patent Rights, Medicis agrees to release Teva from liability arising from the manufacture and distribution of the Generic Product prior to the Effective Date, 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. 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. For clarity, Teva USA hereby represents as of the Effective Date that Barr Laboratories, Inc. is an Affiliate of Teva USA.

          1.2 “AG Date” means the earlier of:

(a) November ***, 2011;

(b) *** or

(c) ***

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          1.3 “ANDA” means the Abbreviated New Drug Application #65-485 and any supplements or amendments thereto.

          1.4 “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 or the License 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.

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

          1.6 “Generic Product” means, ***

          1.7 “License Agreement” shall have the meaning set forth in Section 2.5.1.

          1.8 “Patent Rights” means (a) the patents and patent applications listed on Exhibit A to this Agreement, (b) ***; (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 and certificates of invention, together with any reissues, renewals, extensions or additions thereto.

          1.9 “Solodyn Products” means the Solodyn® products listed on Exhibit B.

          1.10 “Third Party” means any person or entity other than Medicis or Teva.

     2. RELEASE; PERMANENT INJUNCTION; LICENSE AGREEMENT.

          2.1 Releases. Teva represents and warrants that, as of the Effective Date, it has only distributed in the United States those units of Generic Product without authorization from Medicis as set forth on Schedule A (the “Distributed Quantities”), and the Distributed Quantities are the only infringements of the Patent Rights by Teva with respect to the sale or offer for sale of Generic Product in the United States. In consideration for the covenants set forth in this Agreement, and in reliance on the representation and warranty in the preceding

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sentence, Medicis hereby as of the Effective Date (on behalf of itself, the Medicis Indemnified Parties, and their predecessors, successors and assigns) irrevocably releases Teva (and the Teva Indemnified Parties, and their predecessors, successors, assigns, suppliers, purchasers, customers and patients) from all claims and other Losses arising from the manufacture, use, sale, offer for sale, importation or distribution of Generic Product prior to the Effective Date (including, without limitation, infringement or induced infringement of any of the Patent Rights by any of such activities or by filing the ANDA).

          2.2 Prior to AG Date. Commencing on the Effective Date and continuing until the occurrence of the AG Date, Teva shall not, and shall not directly or indirectly encourage or assist any Third Party, on a voluntary basis, to develop, make, use, sell, offer for sale, distribute, import or otherwise commercialize any Generic Product in the United States, except as expressly permitted by the terms of the License Agreement.

          2.3 Validity of Patent Rights. Teva hereby admits that the claims of the Patent Rights are valid and enforceable. Teva hereby admits that the making, using, offering to sell, selling, importation and/or distribution into the United States of a Generic Product is covered by one or more claims of *** under 35 U.S.C. § 271. The foregoing admission shall be binding on Teva and admissible against Teva in any dispute or litigation between the parties regarding the Patent Rights, and Teva will not challenge any such admission. This Section 2.3 (including, without limitation, those admissions regarding validity and enforceability) shall apply only to Generic Products (and no other products), and further shall apply only in the United States.

          2.4 Consent Judgment for Permanent Injunction. Upon the Effective Date, Medicis and Teva shall cause to be completed, executed and filed with the United States District Court for the District of Delaware (the “Court”) a Consent Judgment and Permanent Injunction in the form attached hereto as Exhibit C, and Medicis, with Teva’s agreement, shall move for the entry of the Consent Judgment and Permanent Injunction by such Court.

          2.5 License Agreement.

               2.5.1 Effective on the AG Date, and pursuant to a separate license agreement to be entered into between Teva and Medicis (the “License Agreement”), Medicis will grant to Teva a non-exclusive license under the Patent Rights to make, use, sell, offer for sale and import a Generic Product in or for the United States (where “United States” for purposes of this Agreement shall include its territories and possessions, including, without limitation, the District of Columbia and the Commonwealth of Puerto Rico (but excluding direct sales of Generic Product into the Commonwealth of Puerto Rico)). If the AG Date occurs before the License Agreement is executed by the parties, then such license shall go into effect as of the AG Date (and before the AG Date for reasonable commercial preparation as contemplated by the first bullet below), and the parties shall work to expedite reaching agreement on the License Agreement. Neither party shall enter into any agreement in conflict with any provisions of this Agreement or any provisions to be included in the License Agreement.

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               2.5.2 Commencing on the Effective Date, the parties shall negotiate in good faith the terms of and enter into the License Agreement, which will contain the following provisions:

• Unless earlier terminated for cause or by Teva for convenience, the term of the License Agreement shall extend from the AG Date and remain in effect until the expiration of the last to expire of the Patent Rights. ***.

• In exchange for the license rights to be granted under the License Agreement, Teva agrees that (a) during the term of the License Agreement Teva shall not make, use, sell, offer for sale, import or distribute a Generic Product in the United States except for Generic Product in accordance with the terms of the License Agreement, and (b) in the case of an early termination of the License Agreement by Medicis because of a material, uncured breach by Teva, and continuing until the expiration of the last to expire of any valid and enforceable Patent Rights covering Generic Product, Teva shall not make, use, sell, offer for sale, import or distribute a Generic Product in the United States;

• Teva shall pay to Medicis on a quarterly basis, on such additional terms as are agreed by the parties, for any Generic Product sold after the AG Date (and, for clarity, not including any of the Distributed Quantities for which no payments will be owed Medicis): *** of all gross profit (meaning net sales minus costs of good sold) resulting from sales of Generic Product made by Teva within *** of the AG Date and covered by a valid, issued and enforceable unexpired Patent Right licensed to Teva under the License Agreement, which amount Medicis shall have the right to audit on customary terms, ***

• Medicis and Teva will each indemnify the other for third party claims arising from their actions under the License Agreement and breaches of representations and warranties; and

• such other terms as the parties may agree and as are commercially reasonable and usual and customary for agreements of such type.

               2.5.3 If the parties do not agree upon the terms of the License Agreement within six (6) months following the Effective Date, then either party may, by written notification to the other party, submit the matter to binding “baseball” arbitration to determine the terms of the License Agreement as follows. Promptly following receipt of such notice, the parties shall meet and discuss in good faith and agree on an arbitrator to resolve the issue, which arbitrator shall be neutral and independent of both parties, shall have significant experience and expertise in license agreements in the generic pharmaceutical industry, and shall have some experience in mediating or arbitrating issues relating to such agreements. If the parties cannot agree on such arbitrator within thirty (30) days of request by a party for arbitration, then such arbitrator shall be appointed by the American Arbitration Association, which arbitrator must meet the foregoing criteria. Within fifteen (15) days after an arbitrator is selected (or appointed, as the case may be), each party will deliver to both the arbitrator and the other party a detailed written proposal setting forth its proposed terms for the License Agreement, which terms shall not conflict with the terms set forth in Section 2.5.2 (the “Proposed Terms” of the party) and a memorandum (the “Support Memorandum”) in support thereof, not exceeding ten (10) pages in length. The parties

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will also provide the arbitrator a copy of this Agreement, as may be amended at such time. Within fifteen (15) days after receipt of the other party’s Proposed Terms and Support Memorandum, each party may submit to the arbitrator (with a copy to the other party) a response to the other party’s Support Memorandum, such response not exceeding five (5) pages in length. Neither party may have any other communications (either written or oral) with the arbitrator other than for the sole purpose of engaging the arbitrator or as expressly permitted in this Section 2.5.3; provided that, the arbitrator may convene a hearing if the arbitrator so chooses to ask questions of the parties and hear oral argument and discussion regarding each party’s Proposed Terms. Within sixty (60) days after the arbitrator’s appointment, the arbitrator will select one of the two Proposed Terms (without modification) provided by the parties that he or she believes is most consistent with the intention underlying and agreed principles set forth in this Agreement and most accurately reflects industry norms for a transaction of this type. The decision of the arbitrator shall be final, binding, and unappealable and the parties shall promptly enter into a License Agreement having the terms set forth in the Proposed Terms selected by the arbitrator. For clarity, the arbitrator must select as the only method to determine the terms of the License Agreement one of the two sets of Proposed Terms, and may not combine elements of both Proposed Terms or take any other action. The parties shall share equally the out-of-pocket costs of such arbitration.

          2.6 No Licenses. 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, except pursuant to the License Agreement.

     3. TERM AND TERMINATION.

          3.1 Term. Subject to Section 3.2, this Agreement shall expire on the expiration of the last to expire of the Patent Rights; provided, however, that if 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. The expiration or termination of this Agreement shall not cause the expiration or termination of the License Agreement and vice versa.

          3.2 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 forty-five (45) days after receipt of express written notice thereof by the non-breaching party. Any termination of this Agreement by Medicis for material uncured breach by Teva shall give rise to a right of Medicis also to terminate the License Agreement; however, any breach of the License Agreement will not be automatically deemed a breach of this Agreement.

          3.3 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, 2.3, 2.6, 3.3, 4, 5.4, 6 and 7 shall survive the

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expiration or termination of this Agreement. No other provisions shall survive expiration or termination of this Agreement.

     4. CONFIDENTIALITY.

          4.1 Confidentiality. Until the last to expire of this Agreement or the License Agreement, and for a period of five (5) years 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.

          4.2 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 4.1.

          4.3 Litigation and Governmental Disclosure. Each party may disclose Confidential Information of the other party or the terms of this Agreement to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, complying with a court order or applicable law, governmental regulations or investigation, provided that if a party is required by 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.

          4.4 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; (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,

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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. The parties agree that the press release(s) set forth on Schedule B will be issued as of the Effective Date.

     5. REPRESENTATIONS AND WARRANTIES.

          5.1 Representations.

               5.1.1 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.

          5.2 Disclaimer of Warranties. Except for those warranties set forth in Section 5.1, 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.

          5.3 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 6 (INDEMNIFICATION), OR A BREACH BY TEVA OF SECTIONS 2.2 OR 2.3, 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.

          5.4 Equitable Relief. Teva acknowledges and agrees that the obligations and undertakings of Teva pursuant to Sections 2.2 and 2.3 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 Teva’s breach or threatened breach or failure to comply with such Sections 2.2 and 2.3 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. Teva further acknowledges and agrees that Medicis shall have the right to apply to any court of competent jurisdiction for an injunction order restraining

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any breach or threatened breach of Sections 2.2 or 2.3 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 or giving Teva an opportunity to cure, in addition to seeking any other remedy available to Medicis in law or equity. Teva agrees that it shall not challenge any of the foregoing acknowledgements and agreements concerning injunctive relief in any proceeding brought by Medicis.

     6. INDEMNIFICATION.

          6.1 Teva Indemnification. Teva 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 Teva’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.

          6.2 Medicis Indemnification. Medicis shall indemnify, defend and hold harmless Teva, its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Teva 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 Teva’s breach of any representation, warranty or covenant under this Agreement.

          6.3 Obligations. A party which intends to claim indemnification under this Section 6 (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 6. 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.

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     7. GENERAL PROVISIONS.

          7.1 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:

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 Teva:	Teva Pharmaceuticals USA, Inc.
	1090 Horsham Road.
	North Wales, PA 19454
	Attn: President & CEO
	Facsimile: (215) 591-8803
With a copy to:	Teva Pharmaceuticals USA, Inc.
	1090 Horsham Road.
	North Wales, PA 19454
	Attn: General Counsel
	Facsimile: (215) 293-6499

     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 7.1.

          7.2 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 Teva and Medicis and their respective permitted successors and assigns.

          7.3 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.

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          7.4 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.

          7.5 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; and (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. 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 7.5 shall be void.

          7.6 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 (except for a matter addressed in Section 2.5.3) 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.

          7.7 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.

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

          7.9 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.

          7.10 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.

BARR LABORATORIES, INC.		MEDICIS PHARMACEUTICAL CORPORATION
By:		By:
	Name:		Name:
	Title:		Title:
By:
	Name:
	Title:

EXHIBIT A

Patent Rights

Issued Patents (all U.S.)	Pending Applications (all U.S.)
5,908,838	11/166,817 11/776,669 11/776,676 11/776,691 11/776,711 11/944,186 11/695,513 11/695,514 11/695,528 11/695,539 11/695,541 12/253,845

A-1

EXHIBIT B

Products

PRODUCT	NDC
Solodyn 45mg	99207-0460-30 99207-0460-10
Solodyn 90mg	99207-0461-30 99207-0461-10
Solodyn 135mg	99207-0462-30 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,	)
	)
v.	)	C.A. No. 09-033 (JJF)
	)
MYLAN INC.;	)
MATRIX LABORATORIES LTD.;	)
MATRIX LABORATORIES INC.;	)
SANDOZ, INC.; and	)
BARR LABORATORIES, INC.	)
	)
Defendants.	)

UNOPPOSED MOTION FOR ENTRY OF CONSENT JUDGMENT AND
PERMANENT INJUNCTION AS TO BARR LABORATORIES, INC.

     Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendant Barr Laboratories, Inc. (“Barr”) having met, conferred, and agreed to resolve their dispute upon execution of a separate Settlement Agreement (“Settlement Agreement”), Medicis respectfully moves for entry of the executed Consent Judgment and Permanent Injunction submitted herewith. Barr does not oppose this motion.

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MORRIS, NICHOLS, ARSHT & TUNNELL LLP
 

Jack B. Blumenfeld (#1014)
Karen Jacobs Louden (#2881)
1201 North Market Street
Wilmington, DE 19899-1347
(302) 658-9200
Jblumenfeld@mnat.com
klouden@mnat.com

Attorneys for Plaintiff
Medicis Pharmaceutical Corporation

OF COUNSEL:

Matthew D. Powers
WEIL, GOTSHAL & MANGES LLP
201 Redwood Shores Parkway
Redwood Shores, CA 94065
Telephone: (650) 802-3000
Facsimile: (650) 802-3100

Elizabeth Stotland Weiswasser
Peter Sandel
Jennifer H. Wu
Andrew Werner
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007

Dated:

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

MEDICIS PHARMACEUTICAL	)
CORPORATION,	)
	)
Plaintiff,	)
	)
v.	)	C.A. No. 09-033 (JJF)
	)
MYLAN INC.;	)
MATRIX LABORATORIES LTD.;	)
MATRIX LABORATORIES INC.;	)
SANDOZ, INC.; and	)
BARR LABORATORIES, INC.	)
	)
Defendants.	)

CONSENT JUDGMENT AND PERMANENT INJUNCTION
AS TO BARR LABORATORIES, INC.

     This matter is before the Court on the unopposed motion of Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendant Barr Laboratories, Inc. (“Barr”).

     WHEREAS, this Consent Judgment and Permanent Injunction as to Barr concerns only Medicis’s claims against Barr and Barr’s counterclaims against Medicis in this civil action no. 09-033-JJF (referred to herein as the “Litigation”).

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

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

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     WHEREAS, Barr submitted Abbreviated New Drug Application No. 65-485 (“Barr’s 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 for the treatment of acne.

     WHEREAS, in the Litigation, Medicis alleged that Barr 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 Barr’s submission of Barr’s ANDA to the FDA.

     WHEREAS, in this Litigation, Medicis alleged that it would be irreparably harmed if Barr 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 this Litigation, Medicis requested that this Court enter a permanent injunction enjoining Barr from infringing the ’838 patent.

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

     WHEREAS, final settlement of the Litigation will help Medicis and Barr avoid the substantial uncertainty and risks involved with prolonged litigation.

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

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

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

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

     1. The Court has jurisdiction over Medicis and Barr and the subject matter of this Litigation.

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

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

     4. Barr acknowledges that it has infringed the ’838 patent under 35 U.S.C. § 271(e)(2) and that Medicis did not authorize the manufacture, use, sale, offer for sale, importation and distribution of the product described in Barr’s ANDA.

     5. Barr and its affiliates, including, but not limited to, Teva Pharmaceuticals USA, Inc. (“Teva”), 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 Barr’s ANDA 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

C-5

distribute any current products, or future products having the same strength and dosage form of the current Solodyn^® products, that are the subject of Barr’s ANDA that is not pursuant to a license granted by Medicis.

     6. All claims and counterclaims in this Litigation are hereby dismissed without prejudice.

     7. The parties are hereby ordered to comply with the terms of the Settlement Agreement.

     8. Each party shall bear its own costs and attorneys’ fees.

     9. This Court shall retain jurisdiction over Barr 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 by any third party.

IT IS SO ORDERED, DECREED AND ADJUDGED this ___ day of March, 2009 by:

The Honorable Joseph J. Farnan Jr.
United States District Judge

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Agreed to:
MORRIS, NICHOLS, ARSHT & TUNNELL LLP	POTTER ANDERSON & CORROON LLP
Jack B. Blumenfeld (#1014) Karen Jacobs Louden (#2881) MORRIS, NICHOLS, ARSHT & TUNNELL LLP 1201 North Market Street Wilmington, DE 19899-1347 (302) 658-9200 Jblumenfeld@mnat.com klouden@mnat.com Attorneys for Medicis Pharmaceutical Corporation	Richard L. Horwitz (#2246) David E. Moore (#3983) D. Fon Muttamara-Walker (#4646) Hercules Plaza, 6th Floor 1313 N. Market Street Wilmington, DE 19801 (302) 984-6000 rhorwitz@potteranderson.com dmoore@potteranderson.com fmuttamara-walker@potteranderson.com
OF COUNSEL:	Attorneys for Barr Laboratories, Inc.
Matthew D. Powers WEIL, GOTSHAL & MANGES LLP 201 Redwood Shores Parkway Redwood Shores, CA 94065 Telephone: (650) 802-3000 Facsimile: (650) 802-3100 Elizabeth Stotland Weiswasser Peter Sandel Jennifer H. Wu Andrew Werner WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, NY 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007	OF COUNSEL: Thomas J. Meloro Eugene L. Chang Michael W. Johnson Chandra E. Garry Fara S. Sunderji WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, NY 10019 Telephone: (212) 728-8000 Facsimile: (212) 728-8111

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SCHEDULE A

Distributed Quantities

45mg (30tab/bottle) — *** bottles

45mg (100tab/bottle) — *** bottles

90mg (30tab/bottle) — *** bottles

90mg (100tab/bottle) — *** bottles

135mg (30tab/bottle) — *** bottles

135mg (100tab/bottle) — *** bottles

SCHEDULE B

Press Release(s)

[Medicis/Teva] today announced they have agreed to terminate all legal disputes between them relating to SOLODYN® (minocycline HCl, USP) Extended Release Tablets. Pursuant to an agreement entered into between the parties, Teva has confirmed that Medicis’ patents relating to SOLODYN® are valid and enforceable, and cover Teva’s activities relating to its generic product under Abbreviated New Drug Application (ANDA) #65-485. As part of the settlement, Teva has agreed to immediately stop all further shipments of generic SOLODYN®. Medicis has agreed to release Teva from liability arising from any prior sales of its generic SOLODYN®, which were not authorized by Medicis.

Under the terms of the Settlement Agreement, Teva has the option to market its generic versions of SOLODYN® 45mg, 90mg and 135mg under the SOLODYN® intellectual property rights belonging to Medicis commencing in November 2011, or earlier under certain conditions. Additional terms were not disclosed.

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EX-10.3

Exhibit 10.3

     *** 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 April 8, 2009 (the “Effective Date”) is entered into between Medicis Pharmaceutical Corporation, a Delaware corporation with offices located at 7720 North Dobson Road, Scottsdale, Arizona 85256 (“Medicis”), and Perrigo Israel Pharmaceuticals Ltd., an Israeli Company with offices located at 29 Lehi Street, B’nai Brak 51200, Israel and Perrigo Company, a Michigan corporation with offices located at 515 Eastern Avenue, Allegan, MI 49010 (“collectively Perrigo”).

     WHEREAS, Medicis and Perrigo are parties to patent infringement litigation in the Action (as defined below);

     WHEREAS, Medicis and Perrigo seek to resolve the Action without further litigation;

     WHEREAS, Medicis is the owner of the Patent Rights (as defined below); and

     WHEREAS, Perrigo desires to receive a license under the Patent Rights and Medicis desires to grant to Perrigo a license under the Patent Rights, 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 “Action” means Medicis Pharmaceutical Corporation v. Perrigo Israel Pharmaceuticals, Ltd. and Perrigo Company, Civil Action No. 1:08-cv-0539-PLM in the United States District Court for the Western Division of Michigan (Southern Division).

          1.2 “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. 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.

          1.3 “ANDA” means an Abbreviated New Drug Application and any supplements thereto.

          1.4 “Business Day” means any day other than a Saturday, Sunday or a day on which banks in Arizona are authorized or required by law to close.

          1.5 “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.

          1.6 “Control” means with respect to any material, information, or intellectual property right, that a party (a) owns such material, information, or intellectual property right, or (b) has a license or right to use such material, information, or intellectual property right, in each case with the ability to grant to the other party access, a right to use, a license, or a sublicense (as applicable) to such material, information, or intellectual property right on the terms and conditions set forth herein, without violating the terms of any agreement or other arrangement with any Third Party.

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

          1.8 “Generic Equivalent” means, ***

          1.9 “Generic Product” means ***

          1.10 “Grantback Patents” means (a) *** (b) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, the patent applications described in clause (a) above or the patent applications that resulted in the patents described in clause (a) above, and (c) all patents that have issued or in the future issue from any of the foregoing patent applications, including utility, model and design patents and certificates of invention, together with any reissues, renewals, extensions or additions thereto. As of the Effective Date, Perrigo represents that there are no Grantback Patents in existence.

          1.11 “Gross Profit” means, with respect to all Generic Products sold in a calendar quarter, the positive remainder, if any, that results from Net Sales of such Generic Products in the Territory minus the Manufacturing Costs of such Generic Products.

          1.12 “License Trigger” means the earliest of the following dates:

               (a) December 15, 2013;

2

               (b) ***

               (c) ***

               (d) ***

          1.13 “Manufacturing Costs” means (each of the following to be determined in accordance with GAAP applied in a manner consistent with past practices of Perrigo) (a) the delivered cost to Perrigo of a Generic Product for use or sale in the Territory provided that such Generic Product is provided pursuant to an arms-length and commercially reasonable agreement, or (b) where Perrigo is itself the manufacturer, the sum of Materials Costs *** incurred by Perrigo to produce such Generic Product for use or sale in the Territory. As used herein, “Materials Cost” means Perrigo’s procurement costs for (i) raw materials (both active and inactive ingredients), and (ii) packaging, labeling and storing materials, incurred in connection with the manufacture, testing, labeling, purchasing and distribution of such Generic Product; *** all as determined in accordance with the U.S. GAAP.

          1.14 “Net Sales” means, with respect to the Generic Product, the aggregate gross price of such Generic Products received by Perrigo, its Affiliates or sublicensees from unaffiliated retailers, distributors or other customers, less the sum of the following items (to the extent actually incurred or accrued and to the extent not already deducted in computing the total amount invoiced by Perrigo), all of which must directly relate to the sale and distribution of such Generic Products and be determined in accordance with GAAP applied in a manner consistent with past practices of Perrigo: (a) returns, credits, rebates, discounts, allowances, promotional payments, free goods, chargebacks and other price reduction programs customary to the trade or required by law, (b) sales, valued-added and other taxes imposed upon and paid with respect to such sales (excluding income or franchise taxes of any kind), (c) *** and (d) customs duties, surcharges and other governmental charges. Sales between or among Perrigo and its Affiliates shall not be included in Net Sales unless Perrigo or its Affiliates are the end user of the Generic Products.

          1.15 “Patent Rights” means (a) the patents and patent applications listed on Exhibit A to this Agreement, (b) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, the patent applications described in clause (a) above or the patent applications that resulted in the patents described in clause (a) above, and (c) all patents that have issued or in the future issue from any of the foregoing patent applications, including utility, model and design patents and certificates of invention, together with any reissues, renewals, extensions or additions thereto.

          1.16 “Patents-In-Suit” means ***.

          1.17 “Product” means any product for which the making, using, selling or importation is covered by one or more claims of the Patent Rights.

          1.18 “Territory” means the United States of America, its territories and possessions, including the Commonwealth of Puerto Rico.

          1.19 “Third Party” means any person or entity other than Medicis or Perrigo or their respective Affiliates.

3

          1.20 “Valid Claim” means ***

          1.21 “Vanos Products” means the Vanos products listed on Exhibit B, as such products are marketed and sold by Medicis as of the Effective Date in the Territory.

          1.22 “Vanos Product Patents” means (a) all patents and patent applications in the Territory Controlled by Perrigo or its Affiliates heretofore or hereafter that claim or cover a Vanos Product or the manufacture or use of a Vanos Product, (b) all divisions, continuations and continuations-in-part (solely to the extent directed to subject matter disclosed in a patent or patent application described in clause (a) above) that (i) claim priority to, or common priority with, the patent applications described in clause (a) above or the patent applications that resulted in the patents described in clause (a) above and (ii) claim or cover a Vanos Product or the manufacture or use of a Vanos Product, and (c) all patents that issue after the Effective Date from any of the foregoing patent applications, including utility, model and design patents and certificates of invention, together with any reissues, renewals, extensions or additions thereto. ***

     2. LICENSES; RELEASES.

          2.1 License Grant for Generic Product.

               2.1.1 Effective only upon the occurrence of the License Trigger, Medicis hereby grants to Perrigo a non-exclusive, non-transferable (except as permitted in Section 8.6) license (without the right to grant sublicenses except to have Generic Products made on behalf of Perrigo) under the Patent Rights to make, have made, use, offer for sale, sell and import Generic Products inside the Territory.

               2.1.2 Until the occurrence of the License Trigger, neither Perrigo nor its Affiliates shall, and neither shall directly or indirectly encourage or assist any Third Party to, develop, make, use and/or commercialize any Generic Products in the Territory.

               2.1.3 Nothing in this Agreement shall be construed as creating an obligation, express or implied, on Medicis to supply any Generic Product to Perrigo. Perrigo shall be solely responsible for manufacturing, or having manufactured, its supply of Generic Product.

          2.2 ***

          2.3 Grantbacks.

               2.3.1 Perrigo and its Affiliates hereby grant to Medicis a perpetual, royalty-free, fully-paid up, non-transferable (except as provided in Section 8.5), non-exclusive license (with the right to grant sublicenses through multiple tiers) under the Grantback Patents to make, have made, use, offer for sale, sell and import Products in the Territory.

               2.3.2 Perrigo and its Affiliates hereby grant to Medicis a perpetual, royalty-free, fully-paid up, non-transferable (except as provided in Section 8.5), non-exclusive license (with the right to grant sublicenses through multiple tiers) under the Vanos Product Patents to make, have made, use, offer for sale, sell and import Vanos Products in the Territory.

4

          2.4 Validity of Patents-In-Suit.

               2.4.1 Perrigo, on behalf of itself and its Affiliates, hereby admits that the claims of the Patents-In-Suit are valid and enforceable. The foregoing admission regarding validity and enforceability shall be binding on Perrigo and its Affiliates and admissible against Perrigo and its Affiliates in any dispute or litigation between the parties regarding the Patents-In-Suit, and neither Perrigo nor its Affiliates will challenge any such admission.

               2.4.2 Perrigo, on behalf of itself and its Affiliates, hereby also admits that the making, using, offering to sell, selling, and/or importation into the Territory of Perrigo’s product that is to be sold pursuant to Perrigo’s ANDA #090256 (and any amendments thereto) is covered by one or more claims of the Patent Rights under 35 U.S.C. § 271. ***

               2.4.3 Perrigo shall not receive any ownership rights in the Patent Rights under this Agreement, and Medicis shall retain the sole right, to prepare, prosecute, maintain and enforce the Patent Rights.

          2.5 No Implied Licenses. Except as explicitly set forth in this Agreement, neither party grants to the other party under its patents or other intellectual property any license, express or implied. Perrigo shall not use Medicis’ name or any Medicis trademarks (including without limitation Vanos^®) in connection with the marketing, promotion or sale of any products without the prior written consent of Medicis in each instance.

          2.6 Releases. In consideration of the mutual covenants herein and in the Joint Dismissal Agreement attached hereto as Exhibit C and incorporated herein by reference, and without limiting any remedies a party may have against the other party for a breach of this Agreement, Perrigo hereby releases and agrees to release Medicis and Medicis hereby releases and agrees to release Perrigo from all claims arising out of the Action. Upon the Effective Date, Perrigo and Medicis shall cause to be completed, executed and filed with the Court a stipulated dismissal with prejudice of the Action, in the form of the Joint Dismissal Agreement attached hereto as Exhibit C, and to seek entry of such order by the Court.

     3. FINANCIAL CONSIDERATIONS.

          3.1 Royalty.

               3.1.1 With respect to the Generic Products, and subject to the terms and conditions of this Agreement, commencing on the date Perrigo begins selling a Generic Product, within sixty (60) days following the end of each calendar quarter thereafter, Perrigo shall pay to Medicis *** of all Gross Profit for sales up to *** and *** of all Gross Profit for sales exceeding *** accrued during such calendar quarter and arising from Net Sales of such Generic Products during such quarter. If there are one or more Generic Equivalents, other than the Generic Product, being marketed, Perrigo shall pay to Medicis *** of all Gross Profit for sales up to *** and *** of all Gross Profit for sales exceeding *** accrued during such calendar quarter and arising from Net Sales of such Generic Products during such quarter. Medicis’ right to receive a share of the Gross Profit under this Section 3.1.1 shall expire upon ***

5

               3.1.2 Perrigo shall not (a) have any obligation to pay any amounts pursuant to Section 3.1.1, or (b) be subject to the restrictions under Section 2.1.2, in each case if there is no Valid Claim in the Territory at the time of sale of a Generic Product.

               3.1.3 Each payment made under this Section 3.1 shall be accompanied by a written report stating the number and description of all Generic Products sold in the Territory during the relevant calendar quarter; a detailed breakdown of the Manufacturing Costs associated therewith; the calculation of Net Sales thereon, including without limitation the amount of any deduction provided for in the definition of Net Sales; and the calculation of Gross Profits therefrom.

          3.2 Taxes. Perrigo shall be responsible for, and may withhold from payments made to Medicis under this Agreement, any taxes required to be withheld by Perrigo under applicable law. Accordingly, if any such taxes are levied on such payments due hereunder (“Withholding Taxes”), Perrigo 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 sixty (60) days following that tax payment.

          3.3 Audit Rights. On no less than fourteen (14) business days notice from Medicis, Perrigo shall make all such records, books of account, information and data concerning (a) its sales of Generic Products pursuant to this Agreement; (b) its manufacture of any Generic Products, and (iii) to the extent in its possession, the manufacture of Generic Products on behalf of Perrigo by its Third Party contract manufacturer, in each case available for inspection during normal business hours by an independent auditor selected by Medicis and reasonably acceptable to Perrigo for the purpose of an audit to determine the accuracy of the reports delivered and amounts paid by Perrigo pursuant to Section 3.1; provided that Medicis may not request such inspection more than once in any calendar year unless a discrepancy has been identified by Medicis. Medicis shall be solely responsible for its costs in making any such audit, unless Medicis identifies a discrepancy in favor of Perrigo in the calculation of the share of Gross Profit paid to Medicis under this Agreement in any calendar year from those properly payable for that calendar year of five percent (5%) or greater, in which event Perrigo shall be solely responsible for the reasonable cost of such audit and pay Medicis any underpayment.

     4. TERM AND TERMINATION.

          4.1 Term. Subject to Section 4.2, this Agreement shall expire on the expiration of the later to occur of (a) the date when there are no Valid Claims in the Territory, and (b) the expiration of all payment obligations of Perrigo to Medicis hereunder.

          4.2 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 thirty (30) days after receipt of express written notice thereof by the non-breaching party.

          4.3 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

6

termination, and the provisions of Sections 2.2, 2.3, 2.4, 2.6, 3.3 (until expiration of the three (3) year period set forth therein), 4.3, 5, 7 and 8 shall survive the expiration or termination of this Agreement.

     5. CONFIDENTIALITY.

          5.1 Confidentiality. Until the last to expire of this Agreement, the Joint Development Agreement, and for a period of five (5) years 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 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.

          5.2 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 5.1.

          5.3 Litigation and Governmental Disclosure. Each party may disclose Confidential Information of the other party to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, complying with a court order or applicable law, governmental regulations or investigation, provided that if a party is required by 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.

          5.4 Limitation of Disclosure. The parties agree that, except as otherwise may be required by applicable laws, regulations, rules or orders, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission, or any regulations of any national securities exchange, and except as may be authorized in Section 5.5, no information concerning this Agreement and the transactions contemplated herein shall be made public by either party without the prior written consent of the other.

          5.5 Publicity. Neither party shall make any publicity releases, interviews or other non-confidential 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

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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; (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.

          5.6 Legal Compliance. Notwithstanding anything to the contrary in this Agreement, the parties shall submit this Agreement, the Joint Development Agreement and the Joint Dismissal Agreement (collectively “the Settlement Documents”) to the appropriate personnel at the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”) as soon as practicable after the Effective Date. To the extent that any legal or regulatory issues or barriers arise with respect to the Agreement, or any subpart thereof, the parties shall *** to modify the Agreement to address any such legal or regulatory issues (including for example any objections by the FTC or DOJ) while maintaining the material terms of the transaction. Should the FTC or DOJ, as the case may be, object to any such modifications, the parties agree to continue to *** modify, as many times as necessary, the Agreement as required above in this section. ***

     6. REPRESENTATIONS AND WARRANTIES.

          6.1 Representations. Each party hereby represents and warrants 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.

          6.2 Compliance with Law. Perrigo shall comply with all applicable laws and regulations with respect to obtaining regulatory approval for the sale of Generic Products and its manufacture, sale and commercialization of Generic Products.

          6.3 Disclaimer of Warranties. Except for those warranties set forth in Section 6.1, 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

8

A PARTICULAR PURPOSE AND NONINFRINGEMENT HEREBY ARE DISCLAIMED BY BOTH PARTIES.

          6.4 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 7, OR A BEACH BY PERRIGO OF SECTIONS 2.1.2 OR 2.4, 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.

          6.5 Equitable Relief. The parties acknowledge and agree that their respective obligations and undertakings under this Agreement are reasonable and necessary to protect their legitimate interests, that neither party would have entered into this Agreement in the absence of such provisions, and that a party’s breach or threatened breach or failure to comply with this Agreement shall cause the other party 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. The parties further acknowledge and agree that either party shall have the right to apply to any court of competent jurisdiction for an injunction order restraining any breach or threatened breach of this Agreement and specifically enforcing the terms and provisions of this Agreement, without the necessity of posting any bond or security, in addition to seeking any other remedy available to such party in law or equity.

     7. INDEMNIFICATION.

          7.1 Perrigo Indemnification. Perrigo 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) Perrigo’s manufacture or sale of any Generic Product pursuant to this Agreement; or (b) Perrigo’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.

          7.2 Medicis Indemnification. Medicis shall indemnify, defend and hold harmless Perrigo, its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Perrigo 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 Perrigo’s breach of any representation, warranty or covenant under this Agreement.

          7.3 Obligations. A party which intends to claim indemnification under this Section 7 (the “Indemnified Party”) shall promptly notify the other party (the “Indemnifying

9

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 7. 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.

     8. GENERAL PROVISIONS.

          8.1 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:

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 Perrigo:	Perrigo Company 515 Eastern Avenue Allegan, Michigan 49010 Attn: Chief Executive Officer Facsimile: 269-673-1386
With a copy to:	Perrigo Company 515 Eastern Avenue Allegan, Michigan 49010 Attn: General Counsel Facsimile: 269-673-1386

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     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 8.1.

          8.2 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 Perrigo and Medicis and their respective permitted successors and assigns.

          8.3 Waiver. None of the provisions of this Agreement (including the Exhibits hereto) 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.

          8.4 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.

          8.5 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; and (ii) in the case of a merger, consolidation, change in control or sale of all or substantially all of the assets of the party relating to this Agreement and the resulting entity assumes all of the obligations under this Agreement. 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 8.5 shall be void.

          8.6 Independent Contractor. Perrigo and Medicis are acting under this Agreement as independent contractors and neither shall be considered an agent of, or joint venturer with, the other. Unless otherwise provided herein to the contrary, each party shall furnish all expertise, labor, supervision, machining and equipment necessary for the performance of its obligations hereunder and shall obtain and maintain all building and other permits and licenses required by public authorities.

          8.7 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 Arizona, without regard to the principles of conflicts of laws.

          8.8 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

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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.

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

          8.10 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.

          8.12 No Prejudice. If at any time this Agreement is rendered null and void with respect to the Territory or any portion thereof, or if either of Perrigo or Medicis cannot fulfill its obligations with respect to this Agreement, it is the intent of the Parties that neither Party will be in any way prejudiced with respect to its claims, causes of action, defenses and counterclaims in the Action in such jurisdiction or otherwise and, except as provided herein or therein, no consent judgment, order or dismissal entered by either Party pursuant to this Agreement in the Territory or portion thereof, as applicable, will be deemed an admission on the part of such Party.

[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.

PERRIGO COMPANY		MEDICIS PHARMACEUTICAL CORPORATION
By:		By:
	Name:		Name:
	Title:		Title:

PERRIGO ISRAEL PHARMACEUTICALS LTD.
By:
	Name:
	Title:

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EXHIBIT A

Patent Rights

***

A-1

EXHIBIT B

Products

PRODUCT	NDC
Vanos (fluocinonide cream 1%) 30g	99207-0525-30
Vanos (fluocinonide cream 1%) 60g	99207-0525-60
Vanos (fluocinonide cream 1%) 120g	99207-0525-10

B-1

EXHIBIT C

Joint Dismissal Agreement

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN

MEDICIS PHARMACEUTICAL
CORPORATION,

Plaintiff,

v.

PERRIGO ISRAEL
PHARMACEUTICALS, LTD. and
PERRIGO COMPANY,

Defendants. )
)
)
)
)
)
)
)
)
)
)
)
)
)




Civil Action No. 1:08-cv-0539-PLM

Hon. Paul L. Maloney

UNOPPOSED MOTION FOR ENTRY OF CONSENT JUDGMENT AND
PERMANENT INJUNCTION AS TO PERRIGO ISRAEL PHARMACEUTICALS LTD.
AND PERRIGO COMPANY

          Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendants Perrigo Israel Pharmaceuticals, Ltd. and Perrigo Company (collectively, “Perrigo”) having met, conferred, and agreed to resolve their dispute upon execution of a separate Settlement Agreement (“Settlement Agreement”), Medicis respectfully moves for entry of the executed Consent Judgment and Permanent Injunction submitted herewith. Perrigo does not oppose this motion.

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Respectfully submitted,
 

Larry J. Murphy 

Brian D. Wassom
Honigman Miller Schwartz and Cohn LLP
Attorneys for Plaintiff
2290 First National Building
Detroit, MI 48226

Attorneys for Plaintiff
Medicis Pharmaceutical Corporation 

OF COUNSEL:

Matthew D. Powers
Weil, Gotshal, & Manges LLP
201 Redwood Shores Parkway
Redwood Shores, CA 94065
Telephone: (650) 802-3000
Facsimile: (650) 802-3100

Nicolas G. Barzoukas
Jason C. Abair
Weil, Gotshal, & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Telephone: (713) 546-5000
Facsimile: (713) 224-9511

Dated:

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN

MEDICIS PHARMACEUTICAL	)
CORPORATION,	)
	)
Plaintiff,	)
	)
v.	)	Civil Action No. 1:08-cv-0539-PLM
	)
PERRIGO ISRAEL	)	Hon. Paul L. Maloney
PHARMACEUTICALS, LTD. and	)
PERRIGO COMPANY,	)
	)
Defendants.	)
	)
	)

CONSENT JUDGMENT AND PERMANENT INJUNCTION
AS TO PERRIGO ISRAEL PHARMACEUTICALS LTD. AND PERRIGO COMPANY

     This matter is before the Court on the unopposed motion of Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendants Perrigo Israel Pharmaceuticals, Ltd. and Perrigo Company (collectively, “Perrigo”).

     WHEREAS, this Consent Judgment and Permanent Injunction as to Perrigo concerns only Medicis’s claims against Perrigo, and Perrigo’s counterclaims against Medicis in this Civil Action No. 1:08-cv-0539-PLM (referred to herein as the “Litigation”).

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

     WHEREAS, Medicis owns United States Patent No. 6,765,001 (the “’001 patent”) and United States Patent No. 7,220,424 (the “’424 patent”).

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     WHEREAS, Medicis has an approved New Drug Application No. 21-758 for fluocinonide cream 0.1%, which is sold Under Medicis’s trademark Vanos®.

     WHEREAS, Perrigo Company submitted Abbreviated New Drug Application No. 090256 (“ANDA No. 90-256”) to the FDA under 21 U.S.C. § 355(j) seeking to obtain approval to commercially manufacture and sell generic fluocinonide cream 0.1%.

     WHEREAS, in the Litigation, Medicis alleged that Perrigo infringed the claims of the ’001 and ’424 patents under 35 U.S.C. § 271(e)(2) by Perrigo Company’s submission of ANDA No. 90-256 to the FDA.

     WHEREAS, in this Litigation, Medicis requested that a permanent injunction be issued under 35 U.S.C. § 271(e) restraining or enjoining Perrigo, its officers, agents, or attorneys and employees, and those acting in privity or in concert with them, from engaging in the commercial manufacture, use, offer to sell, or sale within the United States, or importation into the United States, of any therapeutic composition, or method of use covered by the ’001 and ’424 patents for the full term thereof, and from inducing or contributing to such activities.

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

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

     WHEREAS, final settlement of the Litigation will help Medicis and Perrigo avoid the substantial uncertainty and risks involved with prolonged litigation.

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

     WHEREAS, Medicis and Perrigo each consent to personal jurisdiction in the Western District of Michigan for purposes of enforcing the Settlement Agreement.

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

     1. The Court has jurisdiction over Medicis and Perrigo and the subject matter of this Litigation.

     2. Perrigo acknowledges Medicis’s ownership and standing to sue for infringement of the ’424 patent.

     3. Perrigo acknowledges that the ’424 patent is valid and enforceable, as described more fully in the Settlement Agreement.

     4. Pursuant to 35 U.S.C. § 271(e)(4)(A), the effective date of any Food and Drug Administration approval of ANDA No. 90-256 will be a date not earlier than the License Trigger, as defined in the Settlement Agreement.

     5. Perrigo acknowledges that it has infringed the ’424 patent under 35 U.S.C. § 271(e)(2) and that Medicis did not authorize the manufacture, use, sale, offer for sale, importation and distribution of the product described in ANDA No. 90-256.

     6. Perrigo and its affiliates are permanently enjoined as of the date hereof from infringing the ’424 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 Vanos® products, that are the subject of ANDA No. 90-256 that is not pursuant to a license granted by Medicis, and from inducing others to infringe the ’424 patent by inducing

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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 Vanos® products, that are the subject of ANDA No. 90-256 and that is not pursuant to a license granted by Medicis.

     7. All claims and counterclaims in this Litigation are hereby dismissed without prejudice.

     8. The parties are hereby ordered to comply with the terms of the Settlement Agreement.

     9. Each party shall bear its own costs and attorneys’ fees.

    10. This Court shall retain jurisdiction over Perrigo 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 by any third party.

IT IS SO ORDERED, DECREED AND ADJUDGED this ___ day of April, 2009 by:

The Honorable Paul L. Maloney
United States District Judge

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EX-10.4

Exhibit 10.4

     ***  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.

JOINT DEVELOPMENT AGREEMENT

     THIS JOINT DEVELOPMENT AGREEMENT (this “Agreement”) dated as of April 8, 2009 (the “Effective Date”) is entered into between Medicis Pharmaceutical Corporation, a Delaware corporation with offices located at 7720 North Dobson Road, Scottsdale, Arizona 85256 (“Medicis”), and Perrigo Israel Pharmaceuticals, Ltd., an Israeli Company with offices located at 25 Lehi Street, B’nei Brak ISRAEL (“Perrigo”).

     WHEREAS, Perrigo has the expertise and know-how to conduct a joint development program with Medicis to research and develop the Product (as defined below); and

     WHEREAS, Medicis desires to collaborate with Perrigo regarding the research and development of the Product, 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. 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.

          1.2 “Business Day” means any day other than a Saturday, Sunday or a day on which banks in Arizona are authorized or required by law to close.

          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.

          1.4 “Development Plan” means the plan for the research and development of the Product as set forth on Exhibit A, and as such plan may be amended, supplemented or restated from time to time by mutual written agreement of the parties.

          1.5 “Development Program” means the development program described in the Development Plan.

          1.6 “Exclusion Lists” mean: (a) the HHS/OIG List of Excluded Individuals/Entities (available through the Internet at http://www.oig.hhs.gov); and (b) the General Services Administration’s List of Parties Excluded from Federal Programs (available through the Internet at http://www.epls.gov).

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

          1.8 “FD&C Act” means the United States Federal Food, Drug and Cosmetic Act, as may be amended from time to time.

          1.9 “Ineligible Person” means a person who: (a) is currently excluded, debarred, suspended, or otherwise ineligible to participate in the Federal health care programs or in Federal procurement or non-procurement programs; or (b) has been convicted of a criminal offense that falls within the ambit of 42 U.S.C. § 1320a-7(a), but has not yet been excluded, debarred, suspended, or otherwise declared ineligible.

          1.10 “NDA” means a New Drug Application as defined in the FD&C Act or FDA Regulations (21 CFR).

          1.11 “Net Sales” means the gross price invoiced by Medicis or its Affiliate to a retailer or distributor for the Product, as applicable, less the sum of the following items (to the extent actually incurred or accrued and to the extent not already deducted in computing the total amount invoiced by Medicis): (a) credits or allowances actually granted, if any, for recalls, rejection or return of items previously sold, (b) rebates and cash discounts actually granted, (c) *** (d) excise taxes, sales taxes, duties or other taxes imposed upon and paid with respect to such sales ***, (all such amounts determined in accordance with GAAP applied in a manner consistent with past practices). Sales between Medicis and its Affiliates shall not be included in Net Sales unless such Affiliate is the end user of the Product.

          1.12 “Perrigo Know-How Rights” means all trade secret and other know-how rights in and to all data, information, compositions and other technology (including, but not limited to, formulae, procedures, protocols, techniques and results of experimentation and testing) which are necessary or useful to make, use, develop, sell or seek regulatory approval to market the Product and which Perrigo has an ownership or (sub)licensable interest as of on or after the Effective Date.

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          1.13 “Perrigo IP Rights” means the Perrigo Patent Rights and Perrigo Know-How Rights.

          1.14 “Perrigo Patent Rights” means (a) the patents and patent applications listed on Exhibit B, (b) all patents and patent applications in any country of the world that claim or cover the Product or the manufacture or use thereof in which Perrigo has an ownership or (sub)licensable interest as of on or after the Effective Date, (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 and certificates of invention, together with any reissues, renewals, extensions or additions thereto.

          1.15 “Product” means *** product, as described in the Development Plan to be prepared by the parties.

          1.16 “Product Technology” means all discoveries, inventions, improvements and other technology that specifically relates to the Product and is conceived or reduced to practice by Perrigo, Medicis or both in the conduct of the Development Program.

          1.17 “Royalty Term” means the period commencing on the date of first commercial sale of the first Product and expiring *** thereafter.

          1.18 “Steering Committee” means the committee composed of representatives of Perrigo and Medicis described in Section 2.3 below.

          1.19 “Third Party” means any person or entity other than Medicis, Perrigo or their respective Affiliates.

          1.20 “Valid Claim” means ***

     2. DEVELOPMENT PROGRAM; STEERING COMMITTEE.

          2.1 Overview. Perrigo timely conduct the Development Program in accordance with the Development Plan. Perrigo shall bear its own costs to conduct the Development Program.

          2.2 Amendment of Development Plan. The Development Plan may be amended from time to time, only upon recommendation of the Steering Committee and upon mutual written agreement of Medicis and Perrigo.

          2.3 Steering Committee. The Steering Committee shall foster the collaborative relationship between the parties and shall in particular have the oversight and responsibility to review and give recommendations regarding the progress of the Development Program. The Steering Committee shall be comprised of three (3) named representatives of Perrigo and three (3) named representatives of Medicis. Each party shall appoint its respective representatives to the Steering Committee from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other party of such change

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but shall use commercially reasonable efforts to maintain stability of Steering Committee representation. As provided in Section 2.6, for each calendar quarter during the term of the Development Program, Perrigo shall provide to the Steering Committee a report that details the progress and results of the Development Program. The Steering Committee shall review such report and make recommendations regarding changes to the Development Program. No such changes shall be binding unless the Development Plan has been amended by the parties as required herein. The term of the Steering Committee shall commence on the Effective Date and continue until the date when Perrigo has completed all of its obligations under the Development Plan.

          2.4 Conflict. In the event that the terms of the Development Plan are inconsistent with the terms of this Agreement, this Agreement shall control, unless otherwise explicitly agreed to in writing by the parties. The Development Plan shall be incorporated herein by reference and made a part of this Agreement.

          2.5 Records. Perrigo shall maintain complete and accurate records of all work it conducts under the Development Program and all results, data and developments made in connection therewith. Such records shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of the Development Program in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes. Medicis shall have the right to review and copy such records (including raw data and scientific notebooks) at reasonable times to the extent necessary for Medicis to exercise its rights under this Agreement.

          2.6 Reports. Within thirty (30) days following the end of each calendar quarter during the term of the Development Program, Perrigo shall prepare and deliver to Medicis a written summary report which shall describe the research performed to date under the Development Program and all results, analysis and conclusions thereof.

     3. INTELLECTUAL PROPERTY/MARKETING.

          3.1 Research License. During the term of the Development Program, Medicis hereby grants to Perrigo a non-exclusive license (without the right to grant sublicenses) under Medicis’ patents, know-how and other intellectual property rights for the sole purpose of conducting the Development Program.

          3.2 License Grant. Perrigo hereby grants to Medicis a worldwide, perpetual, irrevocable exclusive license (with the right to grant sublicenses through multiple tiers) under the Perrigo IP Rights to make, have made, use, offer for sale, sell and import the Product. For avoidance of doubt, the exclusive license is strictly limited to the Product and does not cover rights to the Perrigo IP Rights for any product other than the Product. The foregoing license shall survive the termination or expiration of the term of the Agreement for any reason.

          3.3 Product Technology. Perrigo shall promptly disclose to Medicis all Product Technology. Medicis shall solely own all right, title and interest in and to the Product Technology and all patent and other intellectual property rights therein. Perrigo hereby assigns to Medicis all of its right, title and interest in and to the Product Technology and all patent and

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other intellectual property rights therein. Perrigo shall perform, during and after the term of this Agreement, all acts that Medicis reasonably deems necessary or desirable to permit and assist Medicis, at Medicis’ expense, in obtaining, perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Product Technology and all patent and other intellectual property rights therein. If Medicis is unable for any reason to secure Perrigo’s signature to any document required to file, prosecute, register or memorialize the assignment of any rights to the Product Technology as provided under this Agreement, Perrigo hereby irrevocably designates and appoints Medicis and Medicis’ duly authorized officers and agents as Perrigo’s agents and attorneys-in-fact to act for and on Perrigo’s behalf and instead of Perrigo to take all lawfully permitted acts to further the filing, prosecution, registration, memorialization of assignment, issuance and enforcement of such rights, all with the same legal force and effect as if executed by Perrigo. The foregoing is deemed a power coupled with an interest and is irrevocable. Medicis shall have the world-wide right to control the drafting, filing, prosecution, maintenance and enforcement of patents covering the Product Technology and shall be fully responsible for related costs.

          3.4 No Implied Licenses. Except as explicitly set forth in this Agreement, neither party grants to the other party any license, express or implied, under its patents or other intellectual property.

          3.5 Marketing of Product. Medicis shall have the sole right to make, use, sell, distribute, market, exploit or otherwise commercialize the Product. Perrigo acknowledges and agrees that, except as otherwise provided under this Agreement it shall have no right to and it shall not (and shall not assist any third party to), make, have made, use, sell, distribute, market, exploit or otherwise commercialize the Product.

          3.6 Regulatory Matters. Medicis shall have the exclusive responsibility, at its sole discretion, for all preclinical, clinical, regulatory and commercialization activities regarding the Product, including without limitation marketing, pricing, promotion, strategy, reimbursement, branding, distribution, and sale. Medicis shall bear its own costs in connection with any such activities, including the costs for conducting all pre-clinical and clinical studies. ***

     4. SUPPLY OF PRODUCT.

           4.1 Terms of Supply Agreement. Commencing on the date the Product NDA has been submitted to the FDA (the “Supply Date”), the parties shall negotiate in good faith the terms of and enter into a commercial supply agreement, which shall contain the following provisions:

                 4.1.1 For a period of three (3) years following approval of the NDA for the Product, Medicis would exclusively purchase from Perrigo, and Perrigo would exclusively supply to Medicis all of Medicis’ Product requirements in the United States, subject to Medicis’ right to qualify alternative manufacturers for the Product.

                 4.1.2 Perrigo would be responsible for manufacture, delivery and supply of the Products.

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               4.1.3 Medicis would have the option to procure an alternative manufacturer and supplier for the Products in the event Perrigo has a material supply interruption or otherwise failed to supply Medicis’ requirements of Product.

               4.1.4 Perrigo would cooperate and assist in the transfer of all necessary technical information to qualify the alternative manufacturer and in the event of a material supply interruption, would cooperate and assist with the orderly transition of the manufacture of Products to the alternative manufacturer.

               4.1.5 The price for the Product would be *** of Perrigo’s direct cost to manufacture the Product, calculated in accordance with GAAP.

          4.2 Arbitration. If the parties are unable to agree upon the terms of the supply agreement described in Section 4.1 within sixty (60) days after the Supply Date, then either party may, by written notification to the other party, submit the matter to binding “baseball” arbitration to determine the terms of such supply agreement as follows. Promptly following receipt of such notice, the parties shall meet and discuss in good faith and agree on an arbitrator to resolve the issue, which arbitrator shall be neutral and independent of both parties, shall have significant experience and expertise in supply agreements in the generic pharmaceutical industry, and shall have some experience in mediating or arbitrating issues relating to such agreements. If the parties cannot agree on such arbitrator within thirty (30) days of request by a party for arbitration, then such arbitrator shall be appointed by the American Arbitration Association, which arbitrator must meet the foregoing criteria. Within fifteen (15) days after an arbitrator is selected (or appointed, as the case may be), each party will deliver to both the arbitrator and the other party a detailed written proposal setting forth its proposed terms for such supply agreement, which terms shall not conflict with the terms set forth in Section 4.1 (the “Proposed Terms” of the party) and a memorandum (the “Support Memorandum”) in support thereof, not exceeding ten (10) pages in length. The parties will also provide the arbitrator a copy of this Agreement, as may be amended at such time. Within fifteen (15) days after receipt of the other party’s Proposed Terms and Support Memorandum, each party may submit to the arbitrator (with a copy to the other party) a response to the other party’s Support Memorandum, such response not exceeding five (5) pages in length. Neither party may have any other communications (either written or oral) with the arbitrator other than for the sole purpose of engaging the arbitrator or as expressly permitted in this Section 4.2; provided that, the arbitrator may convene a hearing if the arbitrator so chooses to ask questions of the parties and hear oral argument and discussion regarding each party’s Proposed Terms. Within sixty (60) days after the arbitrator’s appointment, the arbitrator will select one of the two Proposed Terms (without modification) provided by the parties that he or she believes is most consistent with the intention underlying and agreed principles set forth in this Agreement and most accurately reflects industry norms for a transaction of this type. The decision of the arbitrator shall be final, binding, and unappealable and the parties shall promptly enter into a Distribution Agreement having the terms set forth in the Proposed Terms selected by the arbitrator. For clarity, the arbitrator must select as the only method to determine the terms of such supply agreement one of the two sets of Proposed Terms, and may not combine elements of both Proposed Terms or take any other action.

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     5. FINANCIAL CONSIDERATIONS.

          5.1 Upfront Payment. In consideration of the exclusive rights granted by Perrigo to Medicis and Medicis’ acceptance of the Development Plan within five (5) Business Days after the Effective Date, Medicis shall pay to Perrigo a payment of Three Million United States Dollars ($3,000,000 USD).

          5.2 Milestone Payments. Medicis shall pay to Perrigo the milestone payment amounts set forth in the following table within thirty (30) days after the first achievement of the corresponding milestone:

Milestone Event	Milestone Payment
***	Two Million United States Dollars ($2,000,000 USD)
***	One Million United States Dollars ($1,000,000 USD)
***	One Million United States Dollars ($1,000,000 USD)
***	One Million United States Dollars ($1,000,000 USD)

Each such milestone shall be payable only once pursuant to this Section 5.2 upon the initial achievement of such milestone. *** If the parties agree to select another product to develop in accordance with Section 6.3, they shall utilize good faith negotiations to determine the milestone events and obligations associated with the development of such product; provided that ***

          5.3 Royalties. Subject to the terms and conditions of this Agreement, during the Royalty Term, Medicis shall pay to Perrigo a royalty on Net Sales of the Product as follows: *** All royalties due under this Section 5.3 shall be paid quarterly within sixty (60) days after the end of the relevant calendar quarter for which royalties are due. Each royalty payment shall be accompanied by a written report stating the number and description of all Product sold during the relevant calendar quarter; the gross sales associated therewith; and the calculation of Net Sales thereon, including without limitation the amount of any deduction provided for in the definition of Net Sales. ***

          5.4 Taxes. Medicis shall be responsible for and may withhold from payments made to Perrigo under this Agreement any taxes required to be withheld by Medicis under applicable law. Accordingly, if any such taxes are levied on such payments due hereunder (“Withholding Taxes”), Medicis 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 Perrigo within sixty (60) days following that tax payment.

          5.5 Audit Rights. On reasonable advance written notice from Perrigo, Medicis shall make all such records, books of account, information and data concerning the royalty payment owing under Section 5.3 available for inspection during normal business hours

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by Perrigo or its auditors for the purpose of general review or audit; provided that Perrigo may not request such inspection more than once in any calendar year unless a discrepancy has been identified by Perrigo. Upon reasonable belief of discrepancy or dispute, Perrigo or Perrigo’s 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 provided the external auditor signs a confidentiality agreement with Medicis providing that, as between the external auditor and Medicis, such records, books of account, information and data shall be treated as Confidential Information of Medicis but may be disclosed to Perrigo. Perrigo shall be solely responsible for its costs in making any such review and audit, unless Perrigo identifies a discrepancy in the calculation of the share of Gross Profit or royalty payment owed, as applicable, under this Agreement in any calendar year from those properly payable for that calendar year of *** or greater, in which event Medicis shall be solely responsible for the cost of such review and audit and pay Perrigo any underpayment. All information disclosed by Medicis or its Affiliates pursuant to this Section shall be deemed Confidential Information of Medicis.

     6. TERM AND TERMINATION.

          6.1 Term. Subject to Section 6.2 below, this Agreement shall expire on the expiration of Medicis’ obligation to pay royalties to Perrigo under Section 5.3. The license grant under Section 3.2 shall be effective at all times prior to such expiration and following such expiration of this Agreement Medicis shall have a fully paid-up, non-exclusive license under the Perrigo IP Rights to make, have made, use, sell, offer for sale and import Product.

          6.2 Termination for Cause. Either party may terminate this Agreement upon or after the breach of any material provision of this Agreement by the other party if the other party has not cured such breach within thirty (30) days after receipt of express written notice thereof by the non-breaching party.

          6.3 Medicis right to Terminate for Failure of Commercial Potential. In the event that *** Medicis may provide notice to Perrigo that all work relating to the development and commercialization of the Product be terminated. If Medicis provides such notice, the parties shall meet within thirty (30) days of the notification date to determine whether the parties can select a replacement product to be governed by this Joint Development Agreement. If the parties cannot agree upon a replacement product within sixty (60) days of such meeting, Medicis shall have the right to terminate this Agreement by providing written notice to Perrigo, provided that Medicis shall remain liable for surviving payments as expressly provided for in Section 5.2.

          6.4 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 3.2, 3.3, 6.4, 7, 9 and 10 shall survive the expiration or termination of this Agreement.

     7. CONFIDENTIALITY.

          7.1 Confidentiality. During the term of this Agreement, and for a period of five (5) years following the expiration or earlier termination hereof, except with respect to any

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Confidential Information constituting a trade secret in which case the receiving party’s obligation continues in perpetuity, each party shall maintain in confidence all Confidential Information disclosed by the other party (including all Confidential Information disclosed under the Confidentiality 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.

          7.2 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 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 to the same extent as set forth in Section 7.1.

          7.3 Litigation and Governmental Disclosure. Each party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, complying with applicable governmental regulations, and in the case of Medicis as the receiving party to conduct pre-clinical or clinical trials of the Product, provided that if a party is required by 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.

          7.4 Limitation of Disclosure. The parties agree that, except as otherwise may be required by applicable laws, regulations, rules or orders, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission, and except as may be authorized in Section 7.4, no information concerning this Agreement and the transactions contemplated herein shall be made public by either party without the prior written consent of the other.

          7.5 Publicity. 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, the United States Securities Exchange Act of 1934; (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

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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.

     8. REPRESENTATIONS AND WARRANTIES.

          8.1 Mutual Representations. Each party hereby represents and warrants 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.

          8.2 Compliance. Perrigo represents, warrants and covenants that:

               (a) neither it nor any of its personnel (including subcontractors) have been nor are disqualified or debarred under Section 306 of the Federal Food, Drug and Cosmetic Act (as amended by the Generic Drug Enforcement Act of 1992), 21 U.S.C. § 336;

               (b) it shall not use in any capacity the services of any person debarred, disqualified or under investigation under the provisions of the Section 306 of the Federal Food, Drug and Cosmetic Act (as amended by the Generic Drug Enforcement Act of 1992), 21 U.S.C. § 336, and will notify Medicis immediately in the event Perrigo is made aware of any investigation or proceeding for debarment;

               (c) neither it nor any personnel within five (5) years preceding the Effective Date have been convicted of any violation of the Federal Food, Drug and Cosmetic Act;

               (d) it shall comply with all applicable laws and regulations in the performance of its obligations under the Agreement; and

               (e) it shall not use any Ineligible Person or a person on an Exclusion List in connection with the performance of any of its obligations or activities under the Agreement.

          8.3 Disclaimer of Warranties. Except for those warranties set forth in Section 8.1 and Section 8.2, neither party makes any warranty, written, oral, express or implied, with respect to Development Program or the Product. 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.

          8.4 Limitation of Liability. WITH THE EXCEPTION OF DAMAGES RESULTING FROM A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER THE AGREEMENT OR A PARTY’S OBLIGATIONS UNDER SECTION 9

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(INDEMNIFICATION), 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.

     9. INDEMNIFICATION.

          9.1 Medicis Indemnification. Medicis shall indemnify, defend and hold harmless Perrigo and its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Perrigo 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) incurred as a result of any claims, demands, actions or other proceedings by Third Parties against any of the Perrigo Parties to the extent arising out of (a) a breach by Medicis of any representation, warranty or covenant under this Agreement, or (b) the research, development, regulatory approval or commercialization of the Products by or on behalf of Medicis.

          9.2 Perrigo Indemnification. Perrigo shall indemnify, defend and hold harmless Medicis and its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Medicis 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) incurred as a result of any claims, demands, actions or other proceedings by Third Parties against any of the Medicis Parties to the extent arising out of (a) a breach by Perrigo of any representation, warranty or covenant under this Agreement, or (b) the conduct of the Development Program by or on behalf of Perrigo.

          9.3 Obligations. A party which intends to claim indemnification under this Section 9 (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 9. 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.

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     10. GENERAL PROVISIONS.

          10.1 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:

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 Perrigo:	Perrigo Company 515 Eastern Avenue Allegan, Michigan 49010 Attn: Chief Executive Officer Facsimile: 269-673-1386
With a copy to:	Perrigo Company 515 Eastern Avenue Allegan, Michigan 49010 Attn: General Counsel Facsimile: 269-673-1386

     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 10.1.

          10.2 Entire Agreement. The parties hereto acknowledge that this Agreement, together with the Non-Disclosure Agreement entered into between the parties effective as of January 13, 2009 (the “NDA”), 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. Notwithstanding Section 10 of the NDA, the rights and obligations of the parties under the NDA, including without limitation under Section 6 of the NDA, shall continue until the expiration or termination of this Agreement. 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 Perrigo and Medicis and their respective permitted successors and assigns.

          10.3 Bankruptcy. All rights granted under this Agreement by Perrigo to Medicis are and shall be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy

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Code, licenses of rights to “intellectual property” as defined under Section 101(52) of the US. Bankruptcy Code. The parties agree that Medicis, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, subject to performance by Medicis of its pre-existing obligations under this Agreement. The parties further agree that, if a bankruptcy proceeding is commenced by or against Perrigo, Medicis shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and the same, if not already in Medicis’ possession, shall be promptly delivered to Medicis (a) after any such commencement of a bankruptcy proceeding upon request of Medicis, unless Perrigo elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under subsection (a) above, upon the rejection of this Agreement by or on behalf of Perrigo upon written request therefore by Medicis.

          10.4 Waiver. None of the provisions of this Agreement (including the Exhibits hereto) or the Development Plan 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.

          10.5 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.

          10.6 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 in the case of an assignment to an Affiliate or a merger, consolidation, change in control or sale of all or substantially all of the assets of such party relating to the business or assets covered by this Agreement. 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 10.6 shall be void.

          10.7 Independent Contractor. Perrigo and Medicis are acting under this Agreement as independent contractors and neither shall be considered an agent of, or joint venturer with, the other. Unless otherwise provided herein to the contrary, each party shall furnish all expertise, labor, supervision, machining and equipment necessary for the performance of its obligations hereunder and shall obtain and maintain all building and other permits and licenses required by public authorities.

          10.8 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 Arizona, without regard to the principles of conflicts of laws.

          10.9 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

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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.

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

          10.11 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.

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.

PERRIGO ISRAEL PHARMACEUTICALS LTD.		MEDICIS PHARMACEUTICAL CORPORATION
By:		By:
	Name:		Name:
	Title:		Title:

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EXHIBIT A

Development Plan

***

15

EXHIBIT B

Perrigo Patent Rights

***

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EX-10.5

Exhibit 10.5

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (“Agreement”) is made as of ________ __, 20___ (the “Effective Date”) by and between Medicis Pharmaceutical Corporation, a Delaware corporation (the “Company”), and _________ who serves as a [director and/or officer] of the Company (“Indemnitee”).

     WHEREAS, highly competent persons have become more reluctant to serve as directors or officers of companies unless they are provided with adequate protection through insurance and/or indemnification against the risks of claims being asserted against them arising out of their service to and activities on behalf of such companies;

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to help attract and retain qualified individuals as directors and officers, the best interests of the Company and its stockholders will be served by attempting to maintain, on an ongoing basis, at the Company’s sole expense, insurance to protect persons serving the Company and its subsidiaries as directors or officers from certain liabilities;

     WHEREAS, the Board has determined that, in order to help attract and retain qualified individuals as directors and officers, the best interests of the Company and its stockholders will be served by assuring such individuals that the Company will indemnify them to the maximum extent permitted by law;

     WHEREAS, the Certificate of Incorporation (the “Charter”) of the Company permits indemnification of the officers and directors of the Company;

     WHEREAS, the Board has determined it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance defense costs on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

     WHEREAS, this Agreement is a supplement to and in furtherance of the Charter and shall not be deemed a substitute therefor, nor shall it be deemed to diminish or abrogate any rights of Indemnitee thereunder;

     WHEREAS, the Board recognizes that the Indemnitee does not regard the protection available under the Company’s Charter, bylaws and insurance program as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director, officer or in such other capacity as the Company may request without adequate protection, and the Company desires Indemnitee to serve in such capacity; and

     WHEREAS, Indemnitee is willing to serve, and continue to serve, [as a member of the Board (and any committee thereof)] [or] [as an officer of the Company], on the condition that he or she be indemnified as provided for herein.

     NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

     1. Services to the Company. Indemnitee will serve or continue to serve, at the will of the Company, as a director or officer of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation. This Agreement shall not serve as a binding commitment on the part of Indemnitee to continue to serve in such capacity, or on the part of the Company to cause him or her to be nominated to successive terms as a director or officer or to not otherwise be removed for cause or without cause, as permitted under law. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Company’s Charter, bylaws, and the General Corporation Law of the State of Delaware (the “DGCL”).

     2. Definitions. As used in this Agreement:

          (a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 issued under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

          (b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

               (i) Acquisition of Stock by Third Party. Any Person (as defined below, but excluding any subsidiary or employee benefit plan of the Company), subsequent to the date of this Agreement, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, unless (1) the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors, or (2) such acquisition was approved in advance by the Continuing Directors (as defined below) and such acquisition would not constitute a Change in Control under part (iii) of this definition;

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               (ii) Change in Board of Directors. Individuals who, as of the date hereof, constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds of the directors then still in office who were directors on the date hereof or whose election for nomination for election was previously so approved (collectively, the “Continuing Directors”), cease for any reason to constitute at least a majority of the members of the Board at any time after the date hereof;

               (iii) Corporate Transactions. The effective date of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, following such Business Combination: (1) all or substantially all of the individuals and entities who were the Beneficial Owners of securities entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the securities entitled to vote generally in the election of directors; (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 15% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the Board resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

               (iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than factoring the Company’s current receivables or escrows due (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions); or

               (v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

          (c) “Corporate Status” shall describe the status of a person who is or was a director, officer, trustee, partner, member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below), which such person is or was serving at the request of the Company.

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          (d) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding (as defined below) in respect of which indemnification is sought by Indemnitee.

          (e) “Enterprise” shall mean any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, administrator, partner, member, fiduciary, employee or agent.

          (f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

          (g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts and accountants, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types and amounts customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding (as defined below). Expenses also shall include costs incurred in connection with any appeal resulting from any Proceeding (as defined below), including, without limitation, the premium, security for, and other costs relating to any bond, supersedeas bond, or other appeal bond or its equivalent, to the extent permitted by law. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

          (h) “Independent Counsel” shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

          (i) References to “fines” shall include any excise tax assessed on a person with respect to any employee benefit plan pursuant to applicable law.

          (j) References to “serving at the request of the Company” shall include any service provided at the request of the Company as a director, officer, trustee, administrator, partner, member, fiduciary, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, trustee, administrator, partner, member, fiduciary, employee or agent with respect to an employee benefit plan, its participants or beneficiaries.

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          (k) “Person” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company and (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company.

          (l) Any action taken or omitted to be taken by a person for a purpose which he or she reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have been taken in “good faith” and for a purpose which is “not opposed to the best interests of the Company”, as such terms are referred to in this Agreement and used in the DGCL.

          (m) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any related appeal, in which Indemnitee was, is or will be involved as a party or witness or otherwise by reason of the fact that Indemnitee is or was a director, officer, trustee, administrator, partner, member, fiduciary, employee or agent of the Company, by reason of any action taken or not taken by him or her while acting as director, officer, trustee, administrator, partner, member, fiduciary, employee or agent of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, trustee, administrator, partner, member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

     3. Indemnity in Third-Party Proceedings. The Company shall indemnify and hold harmless Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is made, or is threatened to be made, a party to or a participant in (as a witness or otherwise) any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified and held harmless against all judgments, fines, penalties, amounts paid in settlement (if such settlement is approved in writing in advance by the Company, which approval shall not be unreasonably withheld) (including, without limitation, all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing) (collectively, “Losses”) and Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any action, discovery event, claim, issue or matter therein or related thereto, if Indemnitee acted in good faith, for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding, in addition, had no reasonable cause to believe that his or her conduct was unlawful.

     4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is made, or is threatened to be made, a party to or a participant in (as a

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witness or otherwise) any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified and held harmless against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with the defense or settlement of such Proceeding or any action, discovery event, claim, issue or matter therein or related thereto, if Indemnitee acted in good faith, for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification, however, shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that the court in which the Proceeding was brought or, if no Proceeding was brought in a court, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, Indemnitee fairly and reasonably is entitled to indemnification for such portion of the Expenses as the court deems proper.

     5. Indemnification for Expenses Where Indemnitee is Wholly or Partly Successful. Notwithstanding and in addition to the provisions of Section 3 and 4 of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to a Proceeding and is successful, on the merits or otherwise, in the defense of any claim, issue or matter therein, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with such successful defense. For the avoidance of doubt, if Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 5, and without limitation, the termination of any claim, issue or matter in such a Proceeding by withdrawal or dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

     6. Indemnification for Expenses of a Witness. To the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in or otherwise incurs Expenses in connection with any Proceeding to which Indemnitee is not a party, he or she shall be indemnified and held harmless by the Company against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

     7. Additional Indemnification Provisions.

          (a) Notwithstanding any limitation in Sections 3, 4, or 5 hereof or in Section 145 of the DGCL or other applicable statutory provision, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is made, or is threatened to be made, a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Losses and Expenses actually and reasonably incurred by Indemnitee in connection with the Proceeding, provided that no indemnification shall be made under this Section 7(a) on account of

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Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

          (b) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

          (c) For purposes of Sections 7(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

               (i) to the fullest extent authorized or permitted by the then-applicable provisions of the DGCL or other applicable statutory provision, that authorize or contemplate indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL or other applicable statutory provision, and

               (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL or other applicable statutory provision, adopted after the date of this Agreement that increase the extent to which a corporation limited liability company or partnership, as applicable, may indemnify its officers, directors or persons holding similar fiduciary responsibilities.

          (d) Indemnitee shall be entitled to the prompt payment of all Expenses reasonably incurred in enforcing successfully (fully or partially) this Agreement to the extent permitted by applicable law.

     8. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company, on the one hand, and Indemnitee, on the other, as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company, on the one hand (and its directors, officers, employees and agents) and Indemnitee, on the other, in connection with such event(s) and/or transaction(s).

     9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

          (a) for which payment actually has been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect

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to any excess beyond the amount actually received under such insurance policy or other indemnity provision; or

          (b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company or any subsidiary of the Company within the meaning of Section 16(b) of the Exchange Act, as amended, or similar provisions of state blue sky law, state statutory law or common law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

          (c) prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company (other than any Proceeding referred to in Sections 14(d) or (e) below or any other Proceeding commenced to recover any Expenses referred to in Section 7(c) above) or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

          (d) if the funds at issue were paid pursuant to a settlement approved by a court and indemnification would be inconsistent with any condition with respect to indemnification expressly imposed by the court in approving the settlement.

     10. Advances of Expenses; Defense of Claim.

          (a) The Company shall advance pursuant to this Section 10(a) the Expenses incurred by Indemnitee in connection with any Proceeding within thirty (30) days after the receipt by the Company of a written statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay such advances. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce such right to receive advances. Notwithstanding any provision of this Agreement to the contrary, the Indemnitee shall be entitled to advances of Expenses incurred by him or her or on his or her behalf in connection with a Proceeding that Indemnitee claims is covered by Sections 3 and 4 hereof, prior to a final determination of eligibility for indemnification and prior to the final disposition of the Proceeding, upon the execution and delivery to the Company of an undertaking by or on behalf of the Indemnitee providing that the Indemnitee will repay such advances to the extent that it ultimately is determined that Indemnitee is not

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entitled to be indemnified by the Company. This Section 10(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.

          (b) The Company will be entitled to participate in the Proceeding at its own expense.

          (c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on the Indemnitee without the Indemnitee’s prior written consent, which consent shall not be unreasonably withheld.

     11. Procedure for Notification and Application for Indemnification.

          (a) Within sixty (60) days after the actual receipt by Indemnitee of written notice that he or she is a party to or is requested to be a participant in (as a witness or otherwise) any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The failure by the Indemnitee to notify the Company within such 60-day period will not relieve the Company from any liability which it may have to Indemnitee (i) other than under this Agreement, and (ii) under this Agreement, provided that if the Company can establish that such failure to notify the Company in a timely manner resulted in actual prejudice to the Company, then the Company will be relieved from liability under this Agreement only to the extent of such actual prejudice.

          (b) Indemnitee shall at the time of giving such notice pursuant to Section 11(a) or thereafter deliver to the Company a written application for indemnification. Such application may be delivered at such time as Indemnitee deems appropriate in his or her sole discretion. Following delivery of such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification shall be determined promptly according to Section 12(a) of this Agreement and the outcome of such determination shall be reported to Indemnitee in writing within forty-five (45) days of the submission of such application.

     12. Procedure Upon Application for Indemnification.

          (a) Upon written application by Indemnitee for indemnification pursuant to Section 11(b) or written statement by Indemnitee for advances of Expenses pursuant to Section 10(a), a determination with respect to Indemnitee’s entitlement thereto pursuant to the mandatory terms of this Agreement, pursuant to statute, or pursuant to other sources of right to indemnity, shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, whether or not such directors otherwise would constitute a quorum of the Board; (ii) by a committee of Disinterested Directors designated by a majority vote of such directors, whether or not such directors would otherwise constitute a quorum of the Board, (iii) if there are no Disinterested Directors, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (iv) by the stockholders of the Company. Indemnitee shall reasonably cooperate with the person, persons or entity making the determination with

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respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless from any such costs and Expenses.

          (b) If it is determined that Indemnitee is entitled to the indemnification requested by the Indemnitee in a written application submitted to the Company pursuant to Section 11(b), payment to Indemnitee shall be made within ten (10) days after such determination. All advances of Expenses requested in a written statement by Indemnitee pursuant to Section 10(a) prior to a final determination of eligibility for indemnification shall be paid in accordance with Section 10.

          (c) In the event the determination of entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for advancement of Expenses or indemnification pursuant to Section 10(a) or 11(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall

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designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof.

          (d) The Company shall pay the reasonable fees and expenses of the Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

          (e) Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, any Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

     13. Presumptions and Effect of Certain Proceedings.

          (a) Presumption in Favor of Indemnitee. In making a determination with respect to entitlement to indemnification or advancement of Expenses hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification or advancement of Expenses under this Agreement if Indemnitee has submitted an application for advancement of Expenses in accordance with Section 10(a) of this Agreement or indemnification in accordance with Section 11(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption.

          (b) No Presumption Against Indemnitee. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met the applicable standard of conduct for indemnification shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

          (c) Sixty Day Period for Determination. If the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification or advancement of Expenses shall not have made a determination within sixty (60) days after receipt by the Company of an application therefor, a determination of entitlement to indemnification or advancement of Expenses shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the application for indemnification or advancement of Expenses, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

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          (d) No Presumption from Termination of a Proceeding. The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere, or its equivalent, shall not of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

          (e) Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action or failure to act is based on the records or books of account of the Company or any Enterprise other than the Company, including financial statements, or on information supplied to Indemnitee by the officers of the Company or any Enterprise other than the Company in the course of their duties, or on the advice of legal counsel for the Company or any Enterprise other than the Company or on information or records given or reports made to the Company or any Enterprise other than the Company by an independent certified public accountant or by an appraiser or other expert selected by the Company or any Enterprise other than the Company, except if the Indemnitee knew or had reason to know that such records or books of account of the Company, information supplied by the officers of the Company, advice of legal counsel or information or records given or reports made by an independent certified public accountant or by an appraiser or other expert were materially false or materially inaccurate. The provisions of this Section 13(e) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met any applicable standard of conduct.

          (f) Actions of Others. The knowledge and/or actions, or failure to act, of any other director, officer, trustee, administrator, partner, member, fiduciary, employee or agent of the Company or any Enterprise other than the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

     14. Remedies of Indemnitee.

          (a) Adjudication/Arbitration. In the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) subject to Section 13(b), no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within 60 days after receipt by the Company of the application for indemnification, or (iv) payment of indemnification is not made pursuant to Sections 3, 4, 5, 6, 7 and 12(b) of this Agreement within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or after receipt by the Company of a written request for any additional monies owed with respect to a Proceeding as to which it already has been determined that Indemnitee is entitled to indemnification, Indemnitee

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shall be entitled to an adjudication by a court of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

          (b) Indemnitee Not Prejudiced by Prior Adverse Determination. In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the prior adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

          (c) Company Bound by Prior Determination. If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

          (d) Expenses. In the event that Indemnitee, pursuant to this Section 14, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be jointly and severally indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration if it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive all or part of the indemnification or advancement of Expenses sought which the Company had disputed prior to the commencement of the judicial proceeding or arbitration.

          (e) Advances of Expenses. The Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the

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Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 14(e) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.

          (f) Precluded Assertions by the Company. The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

     15. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

          (a) Rights of Indemnitee Not Exclusive. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, or the bylaws of the Company, any agreement, vote of investors or a resolution of directors, members, partners, or otherwise. No right or remedy herein conferred by this Agreement is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other right or remedy.

          (b) Survival of Rights. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal.

          (c) Change of Law. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Charter or the bylaws of the Company, or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy and be conferred by this Agreement the greater benefits so afforded by such change.

          (d) Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, administrators partners, members, fiduciaries, employees, or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, member, fiduciary, officer, employee or agent under such policy or policies. If, at the

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time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect that covers Indemnitee, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

          (e) Subrogation. In the event of any payment under this Agreement, the Company, shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

          (f) Other Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

          (g) Other Indemnification. The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, administrator partner, member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

     16. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as any of the following: a director, officer, agent or employee of the Company or as a director, officer, trustee, administrator partner, member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including after the expiration of any rights of appeal) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement (including any rights of appeal of any Proceeding commenced pursuant to Section 14). This Agreement shall be binding upon the Company and its respective successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators.

     17. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such

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provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

     18. Enforcement.

          (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve, or to continue to serve, as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company.

          (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

     19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

     20. Successors and Binding Agreement.

          (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) and any acquiror of all or substantially all of the business or assets of the Company by agreement in form and substance reasonably satisfactory to Indemnitee and/or his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform it if no such succession had taken place.

          (b) This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including, without limitation, any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for purposes of this Agreement), but will not otherwise be assignable or delegatable by the Company.

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          (c) This Agreement will inure to the benefit of and be enforceable by the Indemnitee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, legatees and other successors.

          (d) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 20(a), (b) and (c). Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder will not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitee’s will, devise, a grantor’s trust instrument under which the Indemnitee or his estate is the sole beneficiary, or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 20(d), the Company will have no liability to pay any amount so attempted to be assigned or transferred.

     21. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if: (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the date of such receipt, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

          (a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee subsequently shall provide in writing to the Company.

          (b) If to the Company to:

Medicis Pharmaceutical Corporation
7720 N. Dobson Road
Scottsdale, Arizona 85256
Attention: General Counsel

or to any other address as may have been furnished to Indemnitee in writing by the Company.

     22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws, principles or rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14 of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding

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arising out of or in connection with this Agreement, (iii) irrevocably appoint, to the extent such party is not a resident of the State of Delaware, The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

     23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

     24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

[The remainder of this page is intentionally left blank.]

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     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

MEDICIS PHARMACEUTICAL CORPORATION		INDEMNITEE
By:		Name:
	Name:
	Title:	Address for Notices to Indemnitee:

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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: May 11, 2009

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: May 11, 2009

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 March 31, 2009, 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
May 11, 2009 

/s/ RICHARD D. PETERSON  

Richard D. Peterson 

Executive Vice President, Chief Financial Officer
and Treasurer
May 11, 2009 

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.