10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the year ended December 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 N. Dobson Road, Scottsdale, Arizona	85256-2740
(Address of principal executive office)	(Zip Code)
Registrant’s telephone number, including area code:  (602)808-8800

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

Title of each class	Name of each exchange on which registered
Class A common stock, $0.014 par value	New York Stock Exchange
Preference Share Purchase Rights

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form or any amendment to this Form 10-K 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 definition 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 Rule 12b-2 of the Exchange Act) Yes o No þ

The aggregate market value of the voting stock held on June 30, 2009 by non-affiliates of the registrant was $932,202,872 based on the closing price of $16.32 per share as reported on the New York Stock Exchange on June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter (calculated by excluding all shares held by executive officers, directors and holders known to the registrant of ten percent or more of the voting power of the registrant’s common stock, without conceding that such persons are “affiliates” of the registrant for purposes of the federal securities laws). As of February 23, 2010, there were 59,886,025 outstanding shares of Class A common stock, including 1,888,950 shares of unvested restricted stock awards.

Documents incorporated by reference:

Portions of the Proxy Statement for the registrant’s 2010 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated herein by reference in Part III of this Form 10-K to the extent stated herein.

TABLE OF CONTENTS

PART I
Item 1. Business	3
Item 1A. Risk Factors	16
Item 1B. Unresolved Staff Comments	43
Item 2. Properties	43
Item 3. Legal Proceedings	44
Item 4. Reserved	48
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	48
Item 6. Selected Financial Data	50
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	83
Item 8. Financial Statements and Supplementary Data	84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
Item 9A. Controls and Procedures	84
Item 9B. Other Information	87
PART III
Item 10. Directors and Executive Officers and Corporate Governance	87
Item 11. Executive Compensation	87
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
Item 13. Certain Relationships and Related Transactions, and Director Independence	87
Item 14. Principal Accounting Fees and Services	87
PART IV
Item 15. Exhibits, Financial Statement Schedules	88
EX-10.70
EX-10.71
EX-10.72
EX-10.73
EX-10.74
EX-10.75
EX-12
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. Business

The Company

     Medicis Pharmaceutical Corporation (“Medicis,” the “Company,” or as used in the context of “we,” “us” or “our”), together with our wholly owned subsidiaries, is a leading independent specialty pharmaceutical company focusing primarily on helping patients attain a healthy and youthful appearance and self-image through the development and marketing in the United States (“U.S.”) of products for the treatment of dermatological and aesthetic conditions. We also market products in Canada for the treatment of dermatological and aesthetic conditions and began commercial efforts in Europe with our acquisition of LipoSonix, Inc. (“LipoSonix”) in July 2008.

     We believe that the U.S. market for dermatological pharmaceutical sales exceeds $6 billion annually. According to the American Society for Aesthetic Plastic Surgery (“ASAPS”), a national not-for-profit organization for education and research in cosmetic plastic surgery, over 10.2 million cosmetic surgical and non-surgical procedures were performed in the U.S. during 2008, including approximately 8.5 million non-surgical cosmetic procedures. LipoSonix, now known as Medicis Technologies Corporation, is a medical device company developing non-invasive body sculpting technology. In the U.S., the LIPOSONIX^TM system is an investigational device and is currently not cleared or approved for sale. We believe the U.S. non-invasive fat ablation market could be several hundred million dollars annually.

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

     We offer 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). We currently offer 17 branded products. Our primary brands are DYSPORT^TM (abobotulinumtoxinA) 300 Units for Injection, the LIPOSONIX^TM system, PERLANE^® Injectible Gel, RESTYLANE^® Injectible Gel, SOLODYN^® (minocycline HCl, USP) Extended Release Tablets, TRIAZ^® (benzoyl peroxide) 3%, 6% and 9% Cleansers, Gels and Pads, and 3% and 6% Foaming Cloths, VANOS^® (fluocinonide) Cream 0.1%, and ZIANA^® (clindamycin phosphate 1.2% and tretinoin 0.025%) Gel. Many of our primary brands currently enjoy branded market leadership in the segments in which they compete. Because of the significance of these brands to our business, we concentrate our sales and marketing efforts in promoting them to physicians in our target markets. We also sell a number of other products that we consider less critical to our business.

     Our current product lines are divided between the dermatological and non-dermatological fields. The dermatological field represents products for the treatment of acne and acne-related dermatological conditions and non-acne dermatological conditions. The non-dermatological field represents products for the treatment of urea cycle disorder, non-invasive body sculpting technology and contract revenue. Our non-dermatological field also includes contract revenues associated with licensing agreements and authorized generic agreements. The following table sets forth the percentage of net revenues for each of our product categories for 2009, 2008 and 2007:

Product Category	2009		2008		2007
Acne and acne-related dermatological products	69.7	%	62.8	%	53.2	%
Non-acne dermatological products	23.4	%	28.6	%	37.8	%
Non-dermatological products (including contract revenues)	6.9	%	8.6	%	9.0	%

     We have historically developed and obtained marketing and distribution rights to pharmaceutical agents in various stages of development. We have a variety of products under development, ranging from new products to existing product line extensions and reformulations of existing products. Our product development strategy involves

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the rapid evaluation and formulation of new therapeutics by obtaining preclinical safety and efficacy data, when possible, followed by rapid safety and efficacy testing in humans. As a result of our increasing financial strength, we have begun adding long-term projects to our development pipeline. Historically, we have supplemented our research and development efforts by entering into research and development agreements with other pharmaceutical and biotechnology companies.

     Currently, except for the LIPOSONIX^TM technology, we outsource all of our product manufacturing needs. The underlying cost to us for manufacturing our products is established in our agreements with outside manufacturers. Because of the short-term nature of these agreements, our expenses for manufacturing are not fixed and could change from contract to contract.

Our Products

     We currently market 17 branded products. Our sales and marketing efforts are currently focused on our primary brands. The following chart details certain important features of our primary brands:

Brand	Treatment	U.S. Market Impact
DYSPORTTM	Temporary improvement in the appearance of moderate to severe glabellar lines in adults younger than 65 years of age	Launched in June 2009 following U.S. Food and Drug Administration (“FDA”) approval on April 29, 2009
LIPOSONIXTM	Uses high intensity focused ultrasound to permanently destroy targeted fat just beneath the skin (subcutaneous adipose tissue) in the treatment of the anterior abdomen as a non-invasive, nonsurgical approach to aesthetic body sculpting	Acquired with the acquisition of LipoSonix in July 2008; cleared for sale and use in European Union in 2008 and Canada in 2009; not currently approved or cleared for sale in the U.S; anticipated filing for FDA approval for sale and use in U.S. in 2010
PERLANE®	Implantation into the deep dermis to superficial subcutis for the correction of moderate to severe facial wrinkles and folds, such as nasolabial folds	Launched in May 2007 following FDA approval on May 2, 2007; PERLANE-LTM was approved by the FDA on January 29, 2010
RESTYLANE®	Implantation into the mid to deep dermis for the correction of moderate to severe facial wrinkles and folds, such as nasolabial folds	The first hyaluronic acid dermal filler approved in the U.S., and the #1-selling and most-studied dermal filler in the world; launched in January 2004 following FDA approval on December 12, 2003; RESTYLANE-LTM was approved by the FDA on January 29, 2010
SOLODYN®	Once daily dosage for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age and older	The #1 dermatology product by dollars in the U.S.; launched in July 2006 following FDA approval on May 8, 2006
TRIAZ® VANOS®	Topical treatment of acne vulgaris Super-high potency topical corticosteroid for the relief of the inflammatory and pruritic manifestations of corticosteroid responsive dermatoses (e.g. psoriasis) in patients 12 years of age or older	The #1 single-agent branded benzoyl peroxide product in the market; launched during fiscal 1996 Launched in April 2005 following FDA approval on February 11, 2005
ZIANA®	Once daily topical treatment of acne vulgaris in patients 12 years of age and older	First commercial sales to wholesalers in December 2006 and launched in January 2007 following FDA approval on November 7, 2006

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Facial Aesthetic Products

     Our principal branded facial aesthetic products are described below:

     DYSPORT^TM, an injectable botulinum toxin type A formulation, is an acetylcholine release inhibitor and a neuromuscular blocking agent. We market DYSPORT^TM in the U.S. for the aesthetic indication of temporary improvement in the appearance of moderate to severe glabellar lines in adults younger than 65 years of age. DYSPORT^TM was approved by the FDA on April 29, 2009 and launched by us in June 2009. We acquired the rights to the aesthetic use of DYSPORT^TM in the U.S., Canada and Japan from Ipsen, S.A. (“Ipsen”) in March 2006. According to the ASAPS, injections of botulinum toxin type A have been the number one nonsurgical cosmetic procedure for the past five years, with over 2.4 million total procedures in 2008 alone. The U.S. aesthetic market for botulinum toxin type A is estimated to be approximately $300 million to $400 million annually.

     RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM are injectable, transparent, stabilized hyaluronic acid gels, which require no patient sensitivity tests in advance of product administration. Their unique particle-based gel formulations offer structural support and lift when implanted into the skin. On a worldwide basis, more than ten million treatments of RESTYLANE^®, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM have been successfully performed in more than 70 countries since market introduction in 1996. In the U.S., the FDA regulates these products as medical devices. We began offering RESTYLANE^® and PERLANE^® in the U.S. on January 6, 2004 and May 21, 2007, respectively, following FDA approvals on December 12, 2003 and May 2, 2007, respectively. RESTYLANE^® is the world’s #1-selling and most-studied dermal filler, and is the first and only hyaluronic acid dermal filler whose FDA-approved label includes duration data up to 18 months with one follow-up treatment. On January 29, 2010, the FDA approved RESTYLANE-L^TM and PERLANE-L^TM, which include the addition of 0.3% lidocaine. We expect to begin shipping RESTYLANE-L^TM and PERLANE-L^TM during the first quarter of 2010. We offer RESTYLANE^®, PERLANE^®, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM in Canada. RESTYLANE FINE LINES ^TM and RESTYLANE SUBQ^TM are not approved by the FDA for use in the U.S. We acquired the exclusive U.S. and Canadian rights to these facial aesthetic products from Q-Med AB, a Swedish biotechnology and medical device company and its affiliates (collectively “Q-Med”) through license agreements in March 2003.

Non-Invasive Body Sculpting Technology

     The LIPOSONIX^TM system uses high intensity focused ultrasound (“HIFU”) energy to permanently destroy targeted fat just beneath the skin (subcutaneous adipose tissue) in the treatment area of the anterior abdomen as a non-invasive, nonsurgical approach to aesthetic body contouring. The LIPOSONIX^TM treatment is not a replacement for liposuction or designed for weight loss or large scale fat reduction, to treat obesity or to tighten loose skin. The LIPOSONIX^TM system is cleared for sale and use in Canada and the European Union. It is not approved or cleared for sale in the U.S. We anticipate filing for FDA review of the LIPOSONIX^TM system during the first quarter of 2010.

Prescription Pharmaceuticals

     Our principal branded prescription pharmaceutical products are described below:

     SOLODYN^®, launched to dermatologists in July 2006 after approval by the FDA on May 8, 2006, is the only branded oral minocycline approved for once daily dosage in the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age or older. SOLODYN^® is the first and only extended release minocycline with five FDA-approved dosing strengths. SOLODYN^® is available by prescription in 45mg, 65mg, 90mg, 115mg and 135mg extended release tablet dosages. The 65mg and 115mg dosages were approved by the FDA in July 2009. SOLODYN^® is lipid soluble, and distributes in the skin and sebum. SOLODYN^® is not bioequivalent to any immediate release minocycline products, and is in no way interchangeable with any immediate release forms of minocycline. SOLODYN^® has three issued patents (see also Item 1A. Risk Factors). U.S. patent No. 5,908,838 (the “’838 Patent”), which expires in 2018, relates to the use of the SOLODYN^® unique dissolution rate. We believe all forms of SOLODYN^® currently approved for use are covered by one or more claims of the ’838 Patent. The FDA listed this patent in the FDA’s Approved Drug Products with Therapeutic Equivalents (“the Orange Book”) for SOLODYN^® in December 2008. U.S. Patent No. 7,541,347, which expires in 2027, relates to the use of the 90mg controlled-release oral dosage form of minocycline to treat acne. U.S. Patent No. 7,544,373, which expires in 2027, relates to the composition of the 90mg dosage form. The

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FDA listed these two patents in the Orange Book for SOLODYN^® in June 2009. Multiple patent applications directed to key dosing, labeling and formulation aspects of SOLODYN^®, as well as an ongoing reexamination of the ’838 Patent by the U.S. Patent and Trademark Office (“USPTO”) are pending (see also Item 1A. Risk Factors).

     TRIAZ^® is a topical therapy prescribed for the treatment of numerous forms and varying degrees of acne. TRIAZ^® products are manufactured using the active ingredient benzoyl peroxide in a patented vehicle containing glycolic acid and zinc lactate. Studies conducted by third parties have shown that benzoyl peroxide is the most efficacious agent available for eradicating the bacteria that cause acne with no reported resistance. We introduced the TRIAZ^® brand in fiscal 1996. In July 2003, we launched TRIAZ^® Pads, the first benzoyl peroxide pad available in the U.S. indicated for the topical treatment of acne vulgaris, and in March 2009 we launched TRIAZ^® Foaming Cloths. TRIAZ^® is protected by a U.S. patent that expires in 2015.

     VANOS^® Cream, launched to dermatologists in April 2005 after approval by the FDA on February 11, 2005, is a super-high potency (Class I) topical corticosteroid indicated for the relief of the inflammatory and pruritic manifestations of corticosteroid responsive dermatoses (e.g. psoriasis) in patients 12 years of age or older. The active ingredient in VANOS^® is fluocinonide 0.1%, and is the only fluocinonide available in the Class I category of topical corticosteroids. Two double-blind clinical studies have demonstrated the efficacy, safety and tolerability of VANOS^®. Its base was formulated to have the cosmetic elegance of a cream, yet behave like an ointment on the skin. In addition, physicians have the flexibility of prescribing VANOS^® either for once or twice daily application. VANOS^® Cream is available by prescription in 30 gram, 60 gram and 120 gram tubes. VANOS^® Cream is protected by one U.S. patent that expires in 2021 and two U.S. patents that expire in 2024.

     ZIANA^® Gel, which contains clindamycin phosphate 1.2% and tretinoin 0.025%, was approved by the FDA on November 7, 2006. Initial shipments of ZIANA^® to wholesalers began in December 2006, with formal promotional launch to dermatologists occurring in January 2007. ZIANA^® is the first and only combination of clindamycin and tretinoin approved for once daily use for the topical treatment of acne vulgaris in patients 12 years and older. ZIANA^® is also the first and only approved acne product to combine an antibiotic and a retinoid. ZIANA^® is available by prescription in 30 gram and 60 gram tubes. ZIANA^® is protected by two U.S. patents for both composition of matter on the aqueous-based vehicle and method that expire in 2015 and 2020. Each of these patents cover aspects of the unique vehicle which are used to deliver the active ingredients in ZIANA^®.

Sale of Medicis Pediatrics

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

Research and Development

     We have historically developed and obtained rights to pharmaceutical agents in various stages of development. Currently, we have a variety of products under development, ranging from new products to existing product line extensions and reformulations of existing products. Our product development strategy involves the rapid evaluation and formulation of new therapeutics by obtaining preclinical safety and efficacy data, when possible, followed by rapid safety and efficacy testing in humans. As a result of our increasing financial strength, we have begun adding long-term projects to our development pipeline. Historically, we have supplemented our research and development efforts by entering into research and development and license agreements with other pharmaceutical and biotechnology companies for the development of new products and the enhancement of existing products.

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     We incurred total research and development costs for all of our sponsored and unreimbursed co-sponsored pharmaceutical projects for 2009, 2008 and 2007, of $71.8 million, $99.9 million and $39.4 million, respectively. Research and development costs for 2009 include $12.0 million, in aggregate, of milestone payments made to IMPAX Laboratories, Inc. (“IMPAX”) related to our joint development agreement with IMPAX, $10.0 million paid to Revance Therapeutics, Inc. (“Revance”) related to a license agreement with Revance, $5.3 million paid to Glenmark Generics Ltd. and Glenmark Generics Inc., USA (collectively, “Glenmark”) related to a license and settlement agreement with Glenmark and $5.0 million paid to Perrigo Israel Pharmaceutical Ltd. and Perrigo Company (collectively “Perrigo”) related to a joint development agreement with Perrigo. Research and development costs for 2008 include a $40.0 million payment to IMPAX related to our joint development agreement with IMPAX and a $25.0 million payment to Ipsen upon the FDA’s May 2008 acceptance of filing of Ipsen’s Biologics License Application (“BLA”) for DYSPORT^TM. Research and development costs for 2007 include $8.0 million related to our option to acquire Revance or to license Revance’s product currently under development.

     On November 14, 2009, we entered into an Asset Purchase and Development Agreement with Glenmark. In connection with the Asset Purchase and Development Agreement, we purchased from Glenmark the North American rights of a dermatology product currently under development, including the underlying technology and regulatory filings. In accordance with terms of the agreement, we made a $5.0 million payment to Glenmark upon closing of the transaction, and will make additional payments to Glenmark of up to $7.0 million upon the achievement of certain development and regulatory milestones. We will make royalty payments to Glenmark on sales of the product. The initial $5.0 million payment was recognized as research and development expense during the three months ended December 31, 2009.

     On November 26, 2008, we entered into a joint development agreement with IMPAX whereby 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, September 30, 2009 and December 31, 2009, we paid IMPAX $5.0 million, $5.0 million and $2.0 million, respectively, upon the achievement of three separate clinical milestones, in accordance with terms of the agreement. In addition, we are required to pay up to $11.0 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 payment was recognized as a charge to research and development expense during the three months ended December 31, 2008, and the three separate $5.0 million, $5.0 million and $2.0 million clinical milestone achievement payments were recognized as a charge to research and development expense during the three months ended March 31, 2009, September 30, 2009 and December 31, 2009, respectively.

     On April 8, 2009, we entered into a Joint Development Agreement with Perrigo whereby we will collaborate with Perrigo to develop a novel proprietary product for which we will have the sole right to commercialize. 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 made an up-front $3.0 million payment to Perrigo upon execution of the agreement. During the three months ended September 30, 2009, a development milestone was achieved, and we made a $2.0 million payment to Perrigo pursuant to the agreement. We will make additional payments to Perrigo of up to $3.0 million upon the achievement of other certain development and regulatory milestones. We will pay to Perrigo royalty payments on sales of the novel proprietary product. The $3.0 million up-front payment and the $2.0 million development milestone payment was recognized as research and development expense during the three months ended June 30, 2009 and September 30, 2009, respectively.

     On March 17, 2006, we entered into a development and distribution agreement with Ipsen, whereby Ipsen granted us the rights to develop, distribute and commercialize Ipsen’s botulinum toxin type A product in the U.S., Canada and Japan for aesthetic use by healthcare professionals. During the development of the product, the proposed name of the product for aesthetic use was RELOXIN^®. In May 2008, the FDA accepted the filing of Ipsen’s BLA for RELOXIN^®, and in accordance with the agreement, we paid Ipsen $25.0 million during the three months ended June 30, 2008. In December 2008, we paid Ipsen $1.5 million upon the achievement of an additional regulatory milestone. The $25.0 million payment was recognized as a charge to research and development expense during the three months ended June 30, 2008, and the $1.5 million payment was recognized as a charge to research and development expense

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during the three months ended December 31, 2008. On April 29, 2009, the FDA approved the BLA for Ipsen’s botulinum toxin type A product, DYSPORT^TM. 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, is now marketed under the name of DYSPORT^TM. Ipsen markets DYSPORT^TM in the U.S. for the therapeutic indication (cervical dystonia), while Medicis began marketing DYSPORT^TM in the U.S. in June 2009 for the aesthetic indication (glabellar lines). In accordance with the agreement, we paid Ipsen $75.0 million during the three months ended June 30, 2009, as a result of the approval by the FDA. The $75.0 million payment was capitalized into intangible assets in our consolidated balance sheet. Ipsen will manufacture and provide the product to us for the term of the agreement, which extends to December 2036. Ipsen will receive a royalty based on sales and a supply price, as defined under the agreement. Under the terms of the agreement, we are responsible for all remaining research and development costs associated with obtaining the product’s approval in Canada and Japan. We will be required to pay Ipsen an additional $2.0 million upon regulatory approval of the product in Japan.

     On December 11, 2007, we entered into a strategic collaboration with Revance 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 U.S. 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 was expected to be used by Revance primarily for the development of the new 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 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 a charge to 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 us in North America. We 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. Our 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, as defined in the license. If we elect to exercise the option, the financial terms for the acquisition or license will be determined through an independent valuation in accordance with specified methodologies.

     On July 28, 2009, we entered into a license agreement with Revance granting us worldwide aesthetic and dermatological rights to Revance’s novel, investigational, injectable botulinum toxin type A product, referred to as “RT002”, currently in pre-clinical studies. The objective of the RT002 program is the development of a next-generation neurotoxin with favorable duration of effect and safety profiles. Under the terms of the agreement, we paid Revance $10.0 million upon closing of the agreement, and will pay additional potential milestone payments totaling approximately $94 million upon successful completion of certain clinical, regulatory and commercial milestones, and a royalty based on sales and supply price, the total of which is equivalent to a double-digit percentage of net sales. The initial $10.0 million payment was recognized as research and development expense during the three months ended September 30, 2009.

Sales and Marketing

     Our combined dedicated sales force, consisting of 243 employees as of December 31, 2009, focuses on high patient volume dermatologists and plastic surgeons. Since a relatively small number of physicians are responsible for writing a majority of dermatological prescriptions and performing facial aesthetic procedures, we believe that the size of our sales force is appropriate to reach our target physicians. Our therapeutic dermatology sales forces consist of

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119 employees who regularly call on approximately 9,000 dermatologists. Our facial aesthetic sales force consists of 124 employees who regularly call on leading plastic surgeons, facial plastic surgeons, dermatologists and dermatologic surgeons. We also have eight national account managers who regularly call on major drug wholesalers, managed care organizations, large retail chains, formularies and related organizations.

     Our strategy is to cultivate relationships of trust and confidence with the high prescribing dermatologists and the leading plastic surgeons in the U.S. We use a variety of marketing techniques to promote our products including sampling, journal advertising, promotional materials, specialty publications, coupons, educational conferences and informational websites. We also promote our facial aesthetic products through television and radio advertising.

     We believe we have created an attractive incentive program for our sales force that is based upon goals in prescription growth, market share achievement and customer service.

Warehousing and Distribution

     We utilize an independent national warehousing corporation to store and distribute our pharmaceutical products in the U.S. from primarily two regional warehouses in Nevada and Georgia, as well as an additional warehouse in North Carolina. Upon the receipt of a purchase order through electronic data input (“EDI”), phone, mail or facsimile, the order is processed through our inventory management systems and is transmitted electronically to the appropriate warehouse for picking and packing. Upon shipment, the warehouse sends back to us via EDI the necessary information to automatically process the invoice in a timely manner.

Customers

     Our customers include certain of the nation’s leading wholesale pharmaceutical distributors, such as Cardinal Health, Inc. (“Cardinal”) and McKesson Corporation (“McKesson”) and other major drug chains. During 2009, 2008 and 2007, these customers accounted for the following portions of our net revenues:

	2009			2008			2007
McKesson		40.8	%		45.8	%		52.2	%
Cardinal		37.1	%		21.2	%		16.9	%

     McKesson is the sole distributor of our RESTYLANE^® and PERLANE^® products and DYSPORT^TM in the U.S.

Third-Party Reimbursement

     Our operating results and business success depend in large part on the availability of adequate third-party payor reimbursement to patients for our prescription-brand products. These third-party payors include governmental entities such as Medicaid, private health insurers and managed care organizations. Because of the size of the patient population covered by managed care organizations, marketing of prescription drugs to them and the pharmacy benefit managers that serve many of these organizations has become important to our business.

     The trend toward managed healthcare in the U.S. and the growth of managed care organizations could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. Managed care organizations and other third-party payors try to negotiate the pricing of medical services and products to control their costs. Managed care organizations and pharmacy benefit managers typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower costs, generic products are often favored. The breadth of the products covered by formularies varies considerably from one managed care organization to another, and many formularies include alternative and competitive products for treatment of particular medical conditions. Exclusion of a product from a formulary can lead to its sharply reduced usage in the managed care organization patient population. Payment or reimbursement of only a portion of the cost of our prescription products could make our products less attractive, from a net-cost perspective, to patients, suppliers and prescribing physicians.

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     Some of our products, such as our facial aesthetics products DYSPORT^TM, RESTYLANE^® and PERLANE^®, are not of a type generally eligible for reimbursement. It is possible that products manufactured by others could address the same effects as our products and be subject to reimbursement. If this were the case, some of our products may be unable to compete on a price basis. In addition, decisions by state regulatory agencies, including state pharmacy boards, and/or retail pharmacies may require substitution of generic for branded products, may prefer competitors’ products over our own, and may impair our pricing and thereby constrain our market share and growth.

Seasonality

     Our business, taken as a whole, is not materially affected by seasonal factors. We schedule our inventory purchases to meet anticipated customer demand. As a result, relatively small delays in the receipt of manufactured products by us could result in revenues being deferred or lost.

Manufacturing

     We currently, except for the LIPOSONIX^TM technology, outsource all of our manufacturing needs, and we are required by the FDA to contract only with manufacturers who comply with current Good Manufacturing Practices (“cGMP”) regulations and other applicable laws and regulations. Typically our manufacturing contracts are short term. We review our manufacturing arrangements on a regular basis and assess the viability of alternative manufacturers and suppliers of raw materials if our current manufacturers are unable to fulfill our needs. If any of our manufacturing partners are unable to perform their obligations under our manufacturing agreements or if any of our manufacturing agreements are terminated, we may experience a disruption in the manufacturing of the applicable product that would adversely affect our results of operations. In some cases, the sources of our raw materials are outside of the U.S., and as such we cannot always guarantee that the political and industry climate in these countries will always be stable and provide a surety of supply. We also work though U.S. agents for the supply of active pharmaceutical ingredients brought into the U.S. and in some cases are only able to purchase on a purchase order basis.

     Under several exclusive supply agreements, with certain exceptions, we must purchase most of our product supply from specific manufacturers. If any of these exclusive manufacturer or supplier relationships were terminated, we would be forced to find a replacement manufacturer or supplier. The FDA requires that all manufacturers used by pharmaceutical companies comply with the FDA’s regulations, including the cGMP regulations applicable to manufacturing processes. The cGMP validation of a new facility, the qualification of a new supply source and the approval of that manufacturer for a new drug product may take a year or more before manufacture can begin at the facility. Delays in obtaining FDA validation of a replacement manufacturing facility could cause an interruption in the supply of our products. Although we have business interruption insurance to assist in covering the loss of income for products where we do not have a secondary manufacturer, which may reduce the harm to us from the interruption of the manufacturing of our largest-selling products caused by certain events, the loss of a manufacturer could still cause a significant reduction in our sales, margins and market share, as well as harm our overall business and financial results.

     We and the manufacturers of our products rely on suppliers of raw materials used in the production of our products. Some of these materials are available from only one source and others may become available from only one source. We try to maintain inventory levels at various in-process stages (e.g., raw material inventory and finished product inventory) that are no greater than necessary to meet our current projections, which could have the effect of exacerbating supply problems. Any interruption in the supply of finished products could hinder our ability to timely distribute finished products and prevent us from increasing raw material and finished product inventory levels to mitigate supply risks as a temporary solution. If we are unable to obtain adequate product supplies to satisfy our customers’ orders, we may lose those orders and our customers may cancel other orders and stock and sell competing products. This, in turn, could cause a loss of our market share and reduce our revenues. In addition, any disruption in the supply of raw materials or an increase in the cost of raw materials to our manufacturers could have a significant effect on their ability to supply us with our products, which would adversely affect our financial condition and results of operations.

     Our TRIAZ^®, VANOS^® and ZIANA^® branded products are manufactured by Contract Pharmaceuticals Limited pursuant to a manufacturing agreement that automatically renews on an annual basis, unless terminated by

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either party. We are also in the process of evaluating alternative manufacturing facilities and raw material suppliers for some of these products.

     Our RESTYLANE^® and PERLANE^® branded products in the U.S. and Canada are manufactured by Q-Med pursuant to a long-term supply agreement that expires no earlier than 2014.

     Our DYSPORT^TM branded product is manufactured by Ipsen pursuant to a long-term supply agreement that expires in 2036.

     Our SOLODYN^® branded product is manufactured by Wellspring Pharmaceutical and AAIPharma pursuant to long-term supply agreements that expire in 2011 and 2012, respectively, unless extended by mutual agreement. We are also in the process of evaluating an alternative manufacturing facility for future SOLODYN^® production.

Raw Materials

     We and the manufacturers of our products rely on suppliers of raw materials used in the production of our products. Some of these materials are available from only one source and others may become available from only one source. Any disruption in the supply of raw materials or an increase in the cost of raw materials to our manufacturers could have a significant effect on their ability to supply us with our products.

License and Royalty Agreements

     Pursuant to license agreements with third parties, we have acquired rights to manufacture, use or market certain of our existing products, as well as many of our development products and technologies. Such agreements typically contain provisions requiring us to use our best efforts or otherwise exercise diligence in pursuing market development for such products in order to maintain the rights granted under the agreements and may be canceled upon our failure to perform our payment or other obligations. In addition, we have licensed certain rights to manufacture, use and sell certain of our technologies outside the U.S. and Canada to various licensees.

Trademarks, Patents and Proprietary Rights

     We believe that trademark protection is an important part of establishing product and brand recognition. We own a number of registered trademarks and trademark applications. U.S. federal registrations for trademarks remain in force for 10 years and may be renewed every 10 years after issuance, provided the mark is still being used in commerce.

     We have obtained and licensed a number of patents covering key aspects of our products, including a U.S. patent expiring in October of 2015 covering various formulations of TRIAZ^®, a U.S. patent expiring in December 2017 covering RESTYLANE^®, a U.S. patent expiring in February 2018 covering SOLODYN^® Tablets, two U.S. patents expiring in February 2015 and August 2020 covering ZIANA^® Gel, one U.S. patent expiring in December 2021 and two U.S. patents expiring in January 2024 covering VANOS^® Cream, a U.S. patent expiring in December 2024 covering LIPOSONIX^TM technology and two U.S. patents expiring in 2027 covering 90mg SOLODYN^® Tablets. We have patent applications pending relating to SOLODYN^® Tablets and LOPROX^® Shampoo. We are also pursuing several other U.S. and foreign patent applications. We hold additional LIPOSONIX^TM patents, and have numerous LIPOSONIX^TM patent applications pending in the U.S. and in other countries.

     We rely and expect to continue to rely upon unpatented proprietary know-how and technological innovation in the development and manufacture of many of our principal products. Our policy is to require all our employees, consultants and advisors to enter into confidentiality agreements with us, and we employ other security measures to protect our trade secrets and other confidential information. Our success with our products will depend, in part, on our ability to obtain, and successfully defend if challenged, patent or other proprietary protection. Our patents are obtained after examination by the USPTO and are presumed valid. However, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. Accordingly, our patents may not prevent other companies from developing similar or functionally equivalent products or from successfully challenging the validity of our patents. As a result, if our patent applications are not approved or, even if approved, patents arising from such patent applications are circumvented or not upheld in a legal proceeding, our ability to competitively exploit our patented products and technologies may be significantly reduced. Also, such patents may

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or may not provide competitive advantages for their respective products or they may be challenged or circumvented by competitors, in which case our ability to commercially exploit these products may be diminished.

     Third parties may challenge and seek to invalidate, limit or circumvent our patents and patent applications relating to our products, product candidates and technologies. Challenges may result in potentially significant harm to our business. The cost of responding to these challenges and the inherent costs to defend the validity of our patents, including the prosecution of infringements and the related litigation, can require a substantial commitment of our management’s time, be costly and can preclude or delay the commercialization of products or result in the genericization of markets for our products. For example, on December 28, 2009, we filed suit against Barr Laboratories, Inc. (“Barr”) and its parent company, Teva Pharmaceuticals USA Inc (together, “Barr/Teva”), in the United States District Court for the District of Maryland seeking an adjudication that Barr/Teva has infringed one or more claims of the ’838 Patent by submitting to the FDA a supplement to its earlier Abbreviated New Drug Application (“ANDA”) for generic versions of 65mg and 115mg strength SOLODYN^®, and on November 17, 2009 we filed suit against Lupin Ltd. (“Lupin”) in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA an ANDA for generic versions of 45mg, 90mg and 135mg strength SOLODYN^®, and on December 28, 2009 and February 2, 2010, respectively, we amended our complaint against Lupin seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA supplements to its earlier ANDA for generic versions of 65mg and 115mg strengths of SOLODYN^®. See Item 3 of Part I of this report, “Legal Proceedings” and Note 12, “Commitments and Contingencies,” in the notes to the consolidated financial statements listed under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules,” for information concerning our current intellectual property litigation.

     From time to time, we may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such products may be inhibited or prevented.

Competition

     The pharmaceutical and facial aesthetics industries are characterized by intense competition, rapid product development and technological change. Numerous companies are engaged in the development, manufacture and marketing of health care products competitive with those that we offer. As a result, competition is intense among manufacturers of prescription pharmaceuticals and dermal injection products, such as for our primary brands.

     Many of our competitors are large, well-established pharmaceutical, chemical, cosmetic or health care companies with considerably greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present and potential competitors have research and development capabilities that may allow them to develop new or improved products that may compete with our product lines. Our products could be rendered obsolete or made uneconomical by the development of new products to treat the conditions addressed by our products, technological advances affecting the cost of production, or marketing or pricing actions by one or more of our competitors. Each of our products competes for a share of the existing market with numerous products that have become standard treatments recommended or prescribed by dermatologists and administered by plastic surgeons and aesthetic dermatologists. In addition to product development, other competitive factors affecting the pharmaceutical industry include testing, approval and marketing, industry consolidation, product quality and price, product technology, reputation, customer service and access to technical information.

     The largest competitors for our prescription dermatological products include Allergan, Galderma, Johnson & Johnson, Sanofi-Aventis, GlaxoSmithKline, plc (Stiefel Laboratories) and Warner Chilcott. Several of our primary prescription brands compete or may compete in the near future with generic (non-branded) pharmaceuticals, which claim to offer equivalent therapeutic benefits at a lower cost. In some cases, insurers, third-party payors and pharmacies seek to encourage the use of generic products, making branded products less attractive, from a cost perspective, to buyers.

     Our facial aesthetics products compete primarily against Allergan. DYSPORT^TM competes directly with Allergan’s Botox^®, an established botulinum toxin product that was approved by the FDA for aesthetic purposes in 2002. Allergan is a larger company than Medicis, and has greater financial resources than those available to us. There are also other botulinum toxin products under development.

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     Among other dermal filler products, Allergan markets Juvéderm^® Ultra and Juvéderm^® Ultra Plus. Other dermal filler products on the market include: Prevelle^® Silk by Mentor Corporation (a subsidiary of Johnson & Johnson), BioForm Medical’s Radiesse^®, Sanofi-Aventis’ Sculptra^® Aesthetic, Suneva Medical’s Artefill^® and Coapt Systems’ Hydrelle^TM. Patients may differentiate these products from RESTYLANE^® and PERLANE^® based on price, efficacy and/or duration, which may appeal to some patients. In addition, there are several dermal filler products under development and/or in the FDA pipeline for approval, including products from Johnson & Johnson and its subsididary Mentor Corporation, Allergan and Merz which claim to offer equivalent or greater facial aesthetic benefits than RESTYLANE^® and PERLANE^® and, if approved, the companies producing such products could charge less to doctors for their products.

Government Regulation

     The manufacture and sale of medical devices, drugs and biological products are subject to regulation principally by the FDA, but also by other federal agencies, such as the Drug Enforcement Administration (“DEA”), and state and local authorities in the United States, and by comparable agencies in certain foreign countries. The Federal Trade Commission (“FTC”), the FDA and state and local authorities regulate the advertising of over-the-counter drugs and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended (“FDCA”) and the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, sale, distribution, advertising and promotion of our products.

     The FDA requires a Boxed Warning (sometimes referred to as a “Black Box” Warning) for products that have shown a significant risk of severe or life-threatening adverse events. Because there have been post-marketing reports of symptoms consistent with botulinum toxin effects (reported hours to weeks after injection), a Boxed Warning is now required for all botulinum toxin products, including our product DYSPORT^TM, and competitor products Botox^®, Botox^® Cosmetic and Myobloc^®. This is known as a “class label.” The FDA’s requirement for a Boxed Warning on all marketed botulinum toxin products is the culmination of a safety review of Botox^®, Botox^® Cosmetic, and Myobloc^® that the agency announced in early 2008. In addition to the Boxed Warning, the FDA has required implementation of a Risk Evaluation and Mitigation Strategy (“REMS”) for all botulinum toxin products. The REMS will help ensure that healthcare professionals and patients are adequately informed about product risks. The FDA notified the manufacturers of Botox^®, Botox^® Cosmetic, and Myobloc^® that label changes (e.g., the Boxed Warning) and a REMS are necessary to ensure that the benefits of the products outweigh the risks. The Boxed Warning and REMS for DYSPORT™ were approved by the FDA as part of the product approval.

     Our RESTYLANE^® and PERLANE^® dermal filler products are prescription medical devices intended for human use and are subject to regulation by the FDA in the U.S. Unless an exemption applies, a medical device in the U.S. must have a Premarket Approval Application (“PMA”) in accordance with the FDCA, or a 510(k) clearance (a demonstration that the new device is “substantially equivalent” to a device already on the market). RESTYLANE^®, PERLANE^® and non-collagen dermal fillers are subject to PMA regulations that require premarket review of clinical data on safety and effectiveness. FDA device regulations for PMAs generally require reasonable assurance of safety and effectiveness prior to marketing, including safety and efficacy data obtained under clinical protocols approved under an Investigational Device Exemption (“IDE”) and the manufacturing of the device requires compliance with “quality system regulations” (“QSRs”), as verified by detailed FDA inspections of manufacturing facilities. These regulations also require post-approval reporting of alleged product defects, recalls and certain adverse experiences to the FDA. Generally, FDA regulations divide medical devices into three classes. Class I devices are subject to general controls that require compliance with device establishment registration, product listing, labeling, QSRs and other general requirements that are also applicable to all classes of medical devices but, at least currently, most are not subject to premarket review. Class II devices are subject to special controls in addition to general controls and generally require the submission of a premarket notification 501(k) clearance before marketing is permitted. Class III devices are subject to the most comprehensive regulation and in most cases, other than those that remain grandfathered based on clinical use before 1976, require submission to the FDA of a PMA application that includes biocompatibility, manufacturing and clinical data supporting the safety and effectiveness of the device as well as compliance with the same provisions applicable to all medical devices such as QSRs. Annual reports must be submitted to the FDA, as well as descriptions of certain adverse events that are reported to the sponsor within specified timeframes of receipt of such reports. RESTYLANE^® and PERLANE^® are regulated as Class III PMA-required medical devices. RESTYLANE^® and PERLANE^® have been approved by the FDA under a PMA.

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     In general, products falling within the FDA’s definition of “new drugs,” including both drugs and biological products, require premarket approval by the FDA. Products falling within the FDA’s definition of “cosmetics” or “drugs” and that are “generally recognized as safe and effective” (and therefore not “new drugs”) do not require premarketing clearance although all drugs must comply with a host of post-market regulations, including manufacture under cGMP and adverse experience reporting.

     “New drug” products are thoroughly tested to demonstrate their safety and effectiveness. Preclinical or biocompatibility testing is generally conducted on laboratory animals to evaluate the potential safety and toxicity of a drug. The results of these studies are submitted to the FDA as a part of an Investigational New Drug Application (“IND”), which must be effective before clinical trials in humans can begin. Typically, clinical evaluation of new drugs involves a time consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of healthy subjects to determine the early safety profile, the relationship of safety to dose, and the pattern of drug distribution and metabolism. In Phase II, one or more clinical trials are conducted with groups of patients afflicted with a specific disease or condition to determine preliminary efficacy and expanded evidence of safety; the degree of effect, if any, as compared to the current treatment regimen; and the optimal dose to be used in large scale trials. In Phase III, typically at least two large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease or condition to provide sufficient confirmatory data to support the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical trials and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based upon the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patient.

     The steps required before a “new drug” may be marketed, shipped or sold in the U.S. typically include (i) preclinical laboratory and animal testing of pharmacology and toxicology; (ii) submission to the FDA of an IND; (iii) at least two adequate and well-controlled clinical trials to establish the safety and efficacy of the drug (for some applications, the FDA may accept one large clinical trial) beyond those human clinical trials necessary to establish a safe dose and to identify the human absorption, distribution, metabolism and excretion of the active ingredient or biological substance as applicable; (iv) submission to the FDA of an NDA or BLA; (v) FDA approval of the NDA or BLA; and (vi) manufacture under cGMPs as verified by a pre-approval inspection (“PAI”) by the FDA. In addition to obtaining FDA approval for each product, each drug-manufacturing establishment must be registered with the FDA.

     Generic versions of new drugs may also be approved by the agency pursuant to an ANDA if the product is pharmaceutically equivalent (i.e. it has the same active ingredient, strength, doseage form and route of administration) and bioequivalent to the reference listed drug (“RLD”). The agency will not approve an ANDA, however, if the RLD has statutory marketing exclusivity. If the RLD has patent protection, the FDA will approve an ANDA only if the applicant filed a paragraph IV certification and there is no 30-month stay in place. Approval of an ANDA does not generally require the submission of clinical data on the safety and effectiveness of the drug product if in an oral or parental dosage form. Clinical studies demonstrating equivalence to the innovator drug product may be required for certain topical drug products submitted under ANDAs. However, even if no clinical studies are required, the applicant must provide dissolution and/or bioequivalence studies to show that the active ingredient in an oral generic drug sponsor’s application is comparably available to the patient as the RLD upon which the ANDA is based.

     FDA approval is required before a “new drug” product may be marketed in the U.S. However, many historically over-the-counter (“OTC”) drugs are exempt from the FDA’s premarket approval requirements. In 1972, the FDA instituted the ongoing OTC Drug Review to evaluate the safety and effectiveness of all OTC active ingredients and associated labeling (“OTC drugs”). Through this process, the FDA issues monographs that set forth the specific active ingredients, dosages, indications and labeling statements for OTC drugs that the FDA will consider generally recognized as safe and effective and therefore not subject to premarket approval. Before issuance of a final OTC drug monograph as a federal regulation, OTC drugs are classified by the FDA in one of three categories: Category I ingredients and labeling which are deemed “generally recognized as safe and effective” for OTC use; Category II ingredients and labeling, which are deemed “not generally recognized as safe and effective” for OTC use; and Category III ingredients and labeling, for which “available data are insufficient” to classify as Category I or II, pending further studies. Based upon the results of these ongoing studies and pursuant to a court order, the FDA is required to reclassify all Category III ingredients as either Category I or Category II before issuance of a final monograph through notice and comment rule-making. For certain categories of OTC drugs not yet subject to a final monograph, the FDA usually permits such drugs to continue to be marketed until a final monograph becomes effective, unless the drug will pose a potential health hazard to consumers. Stated differently,

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the FDA generally permits continued marketing only of any Category I products and Category III products that are “safe but unknown efficacy” products during the pendency of a final monograph. Drugs subject to final monographs, as well as drugs that are subject only to proposed monographs, are also and separately subject to various FDA regulations concerning, for example, cGMP, general and specific OTC labeling requirements and prohibitions against promotion for conditions other than those stated in the labeling. OTC drug manufacturing facilities are subject to FDA inspection, and failure to comply with applicable regulatory requirements may lead to administrative or judicially imposed penalties.

     The active ingredient in the LOPROX^® (ciclopirox) products has been approved by the FDA under multiple NDAs. The active ingredient in the DYNACIN^® (minocycline HCl) branded products has been approved by the FDA under multiple ANDAs. Benzoyl peroxide, the active ingredient in the TRIAZ^® products, has been classified as a Category III ingredient under a tentative final FDA monograph for OTC use in treatment of labeled conditions. The FDA has requested, and a task force of the Non-Prescription Drug Manufacturers Association (or “NDMA”), a trade association of OTC drug manufacturers, has undertaken further studies to confirm that benzoyl peroxide is not a tumor promoter when tested in conjunction with UV light exposure. The TRIAZ^® products, which we sell on a prescription basis, have the same ingredients at the same dosage levels as the OTC products. When the FDA issues the final monograph, one of several possible outcomes that may occur is that we may be required by the FDA to discontinue sales of TRIAZ^® products until and unless we file an NDA covering such product. There can be no assurance as to the results of these studies or any FDA action to reclassify benzoyl peroxide. In addition, there can be no assurance that adverse test results would not result in withdrawal of TRIAZ^® products from marketing. An adverse decision by the FDA with respect to the safety of benzoyl peroxide could result in the assertion of product liability claims against us and could have a material adverse effect on our business, financial condition and results of operations.

     Our TRIAZ^® branded products must meet the composition and labeling requirements established by the FDA for OTC products containing their respective basic ingredients. We believe that compliance with those established standards avoids the requirement for premarket clearance of these products. There can be no assurance that the FDA will not take a contrary position in the future. Our PLEXION^® branded products, which contain the active ingredients sodium sulfacetamide and sulfur, are marketed under the FDA compliance policy entitled “Marketed New Drugs without Approved NDAs or ANDAs.”

     We believe that certain of our products, as they are promoted and intended by us for use, are exempt from being considered “new drugs” and therefore do not require premarket clearance. There can be no assurance that the FDA will not take a contrary position in the future. If the FDA were to do so, we may be required to seek FDA approval for these products, market these products as OTC products or withdraw such products from the market. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a disease or condition that affects populations of fewer than 200,000 individuals in the U.S. or a disease whose incidence rates number more than 200,000 where the sponsor establishes that it does not realistically anticipate that its product sales will be sufficient to recover its costs. The sponsor that obtains the first marketing approval for a designated orphan drug for a given rare disease is eligible to receive marketing exclusivity for use of that drug for the orphan indication for a period of seven years. AMMONUL^®, adjunctive therapy for the treatment of acute hyperammonemia and associated encephalopathy in patients with deficiencies in enzymes of the urea cycle, has been granted orphan drug status.

     We also will be subject to foreign regulatory authorities governing clinical trials and pharmaceutical sales for products we seek to market outside the U.S. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained before marketing the product in those countries. The approval process varies from country to country, the approval process time required may be longer or shorter than that required for FDA approval, and any foreign regulatory agency may refuse to approve any product we submit for review.

Our History

     We filed our certificate of incorporation with the Secretary of State of Delaware on July 28, 1988. We completed our initial public offering during our fiscal year ended June 30, 1990, and launched our initial pharmaceutical products during our fiscal year ended June 30, 1991.

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Change in Fiscal Year

     Effective December 31, 2005, we changed our fiscal year end from June 30 to December 31. This change was made to align our fiscal year end with other companies within our industry. This Form 10-K is intended to cover the audited calendar year January 1, 2009 to December 31, 2009, which we refer to as “2009.” We refer to the audited calendar year January 1, 2008 to December 31, 2008 as “2008.” We refer to the audited calendar year January 1, 2007 to December 31, 2007 as “2007.” We refer to the audited calendar year January 1, 2006 to December 31, 2006 as “2006.” Comparative financial information to 2006 is provided in this Form 10-K with respect to the calendar year January 1, 2005 to December 31, 2005, which is unaudited and we refer to as “2005.” Additional audited information is provided with respect to the transition period July 1, 2005 through December 31, 2005, which we refer to as the “Transition Period.” We refer to the period beginning July 1, 2004 and ending June 30, 2005 as “fiscal 2005.”

Employees

     At December 31, 2009, we had 612 full-time employees. No employees are subject to a collective bargaining agreement. We believe we have a good relationship with our employees.

Available Information

     We make available free of charge on or through our Internet website, www.Medicis.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, if any, filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). We also make available free of charge on or through our website our Business Code of Conduct and Ethics, Corporate Governance Guidelines, Nominating and Governance Committee Charter, Stock Option and Compensation Committee Charter, Audit Committee Charter, Employee Development and Retention Committee Charter and Compliance Committee Charter. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.

Item 1A. Risk Factors

     Our statements in this report, other reports that we file with the SEC, our press releases and in public statements of our officers and corporate spokespersons contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current events, and contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “will,” “plan,” “believe,” “should,” “outlook,” “could,” “target” and other words of similar meaning in connection with discussion of future operating or financial performance. These include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results. 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. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. These forward-looking statements reflect the current views of senior management with respect to future events and financial performance. No assurances can be given, however, that these activities, events or developments will occur or that such results will be achieved, and actual results may vary materially from those anticipated in any forward-looking statement. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context of the various disclosures made by us about our businesses including, without limitation, the risk factors discussed below. We do not plan to update any such forward-looking statements and expressly disclaim any duty to update the information contained in this filing except as required by law.

     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.

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Risks Related To Our Business

Certain of our primary products could lose patent protection in the near future and become subject to competition from generic forms of such products. If that were to occur, sales of those products would decline significantly and such decline could have a material adverse effect on our results of operations.

     We depend upon patents to provide us with exclusive marketing rights for certain of our primary products for some period of time. If product patents for our primary products expire, or are successfully challenged by our competitors, in the United States and in other countries, we would face strong competition from lower price generic drugs. Loss of patent protection for any of our primary products would likely lead to a rapid loss of sales for that product, as lower priced generic versions of that drug become available. In the case of products that contribute significantly to our sales, the loss of patent protection could have a material adverse effect on our results of operations.

     We currently have one issued patent, the ’838 Patent, relating to SOLODYN^® that does not expire until 2018, and two other issued patents, U.S. Patent No. 7,541,347 (the “’347 Patent”) and U.S. Patent No. 7,544,373 (the “’373 Patent”), relating to 90mg SOLODYN^® Tablets that do not expire until 2027. As part of our patent strategy, we are currently pursuing additional patent applications for SOLODYN^®. However, we cannot provide any assurance that any additional patents will be issued relating to SOLODYN^®. For example, on November 17, 2009, we received a non-final office action from the USPTO in SOLODYN^® patent application number 12/253,845 (the “’845 Application”) in which the sole basis for rejection could be overcome by the filing of the Terminal Disclaimer. In response, we filed a Terminal Disclaimer with the USPTO on November 25, 2009. The Terminal Disclaimer has the effect of making the expiration dates of the ’845 Application and the related patent application number 11/166817 (“’817 Application”) the same. On November 25, 2009, we filed a Request for Continued Examination with the USPTO in the ’817 Application so that the USPTO could consider references recently filed in the Reexamination of the ’838 Patent, as discussed in more detail below, and in accordance with our ongoing obligation to advise the USPTO of any references that could be deemed by the examiner to be material. The failure to obtain additional patent protection could adversely affect our ability to deter generic competition, which would adversely affect SOLODYN^® revenue and our results of operations.

SOLODYN^® faced generic competition during 2009 and may face additional generic competition in the near future.

     On January 15, 2008, we announced that IMPAX sent us a letter advising that IMPAX has filed an ANDA seeking FDA approval to market a generic version of SOLODYN^® (minocycline HCl) extended-release capsules. Also on January 15, 2008, IMPAX filed a lawsuit against us in the United States District Court for the Northern District of California seeking a declaratory judgment that the ’838 Patent related to SOLODYN^® is invalid and is not infringed by IMPAX’s ANDA for a generic version of SOLODYN^®. On April 16, 2008, the Court granted Medicis’ motion to dismiss the IMPAX complaint for lack of jurisdiction. IMPAX appealed the Court’s order dismissing the case to the United States Court of Appeals for the Federal Circuit. On November 26, 2008, we entered into a License and Settlement Agreement and a Joint Development Agreement with IMPAX. In connection with the License and Settlement Agreement, Medicis and IMPAX agreed to terminate all legal disputes between them relating to SOLODYN^®. Additionally, under terms of the License and Settlement Agreement, IMPAX has confirmed that Medicis’ 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 Medicis upon the occurrence of certain events. Upon launch of its generic formulations of SOLODYN^®, IMPAX may be required to pay Medicis a royalty, based on sales of those generic formulations by IMPAX under terms described in the License and Settlement Agreement. On December 12, 2008, we announced that we had received a Paragraph IV Patent Certification from IMPAX, advising it had filed an ANDA with the FDA for generic SOLODYN^® in its current forms of 45mg, 90mg and 135mg strengths. IMPAX’s certification alleged that the ’838 Patent will not be infringed by IMPAX’s manufacture, use or sale of the product for which the ANDA was submitted because it has been granted a patent license by us for the ’838 Patent. On February 3, 2009, the FDA approved IMPAX’s ANDA for generic SOLODYN^®. IMPAX has not yet launched a generic formulation of SOLODYN^®.

     On June 23, 2009, we and IMPAX entered into a Settlement Agreement (the “IMPAX Settlement Agreement”) and Amendment No. 2 to the License and Settlement Agreement. In conjunction with the IMPAX Settlement Agreement, both we and IMPAX released, acquitted, covenanted not to sue and forever discharged each

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other and our affiliates from any and all liabilities relating to the litigation stemming from the initial License and Settlement Agreement between IMPAX and us. We made a settlement payment to IMPAX in conjunction with the execution of the IMPAX Settlement Agreement and Amendment No. 2 to the License and Settlement Agreement, which was included in selling, general and administrative expenses during the three months ended June 30, 2009.

     On August 18, 2008, we announced that the USPTO had granted a Request for Ex Parte Reexamination of our ’838 Patent. In March 2009, the USPTO issued a non-final office action in the reexamination of the ’838 Patent. On May 13, 2009, we filed our response to the non-final office action with the USPTO, canceling certain claims and adding amended claims. On November 13, 2009, we received a second non-final office action from the USPTO in the reexamination of the ’838 Patent. The latest office action rejects certain claims of the ’838 Patent. On January 8, 2010, we filed our response to the non-final office action with the USPTO. Reexamination can result in confirmation of the validity of all of a patent’s claims, the invalidation of all of a patent’s claims, or the confirmation of some claims and the invalidation of others. We cannot guarantee the outcome of the reexamination. It is possible that one or more of our patents covering SOLODYN^® may be found invalid or narrowed in scope as the result of the pending reexamination or a future reexamination by the USPTO. If the USPTO’s action leads the court in a SOLODYN^® patent infringement suit, including the suits described in this Report, to hold that the patent for SOLODYN^® is invalid or not infringed, such a holding would permit the FDA to lift the 30-month stay on approval of ANDAs for generic versions of SOLODYN^®.

     Pursuant to Section 125 of the Food and Drug Administration Modernization Act (FDAMA), several statutory provisions added to the FDCA by the Hatch-Waxman Amendments of 1984, including the patent listing, certification and notice provisions and the 30-month stay provision, did not apply to so-called “old antibiotics” such as minocycline HCl, the active ingredient in SOLODYN^®. On October 8, 2008, the President signed into law the QI Program Supplemental Funding Act of 2008, Pub. L. No. 110-379, 122 Stat. 4075 (2008) (the “Antibiotic Act”), which provides that notwithstanding section 125 of FDAMA or any other provision of law, the provisions of the Hatch-Waxman Amendments shall apply to old antibiotics. On December 3, 2008, in accordance with and pursuant to the Antibiotic Act and FDA’s recently issued Draft Guidance for Industry entitled Submission of Patent Information for Certain Old Antibiotics (Nov. 2008) (“November 2008 Guidance”), Medicis submitted the ’838 Patent covering SOLODYN^® to the Orange Book.

     On December 8, 2008, we announced that we had received a Paragraph IV Patent Certification from Mylan Inc. (“Mylan”) advising that Mylan’s majority owned subsidiary Matrix Laboratories Limited (“Matrix”) has filed an ANDA with the FDA for generic SOLODYN^® in its current forms of 45mg, 90mg and 135mg strengths. Mylan has not advised us as to the timing or status of the FDA’s review of Matrix’s filing, or whether Matrix has complied with FDA requirements for proving bioequivalence. Mylan’s Paragraph IV Certification alleges that our ’838 Patent is invalid, unenforceable and/or will not be infringed by Matrix’s manufacture, use, or sale of the product for which the ANDA was submitted.

     On December 12, 2008, we announced that we had received a Paragraph IV Patent Certification from Sandoz, Inc., a division of Novartis AG (“Sandoz”), advising that Sandoz had filed an ANDA with the FDA for generic SOLODYN^® in its current forms of 45mg, 90mg and 135mg strengths. Sandoz’s Paragraph IV Certification alleges that our ’838 Patent is invalid, unenforceable and/or will not be infringed by Sandoz’s manufacture, use, or sale of the product for which the ANDA was submitted.

     On December 29, 2008 we announced that we had received a Paragraph IV Patent Certification from Barr Laboratories, Inc. (“Barr”) advising that Barr has filed an ANDA with the FDA for generic SOLODYN^® in its current forms of 45mg, 90mg and 135mg strengths. Barr’s Paragraph IV Certification alleges that our ’838 Patent is invalid, unenforceable and/or will not be infringed by Barr’s manufacture, use, or sale of the product for which the ANDA was submitted.

     On January 13, 2009, we filed suit against Mylan, Matrix, Matrix Laboratories Inc., Sandoz and Barr (collectively “Defendants”) in the United States District Court for the District of Delaware seeking an adjudication that Defendants have infringed one or more claims of our ’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^®. Mylan has answered that the ’838 Patent is not infringed and/or is invalid. On March 30, 2009, the Delaware court dismissed the claims between us and Matrix Laboratories Inc. without prejudice, pursuant to a stipulation between us and Matrix Laboratories Inc.

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     On February 13, 2009, we submitted a Citizen Petition to the FDA arguing that the Agency could not approve the Mylan, Sandoz and Barr ANDAs for generic versions of SOLODYN^® for thirty (30) months pursuant to Section 505(j)(5)(B)(iii) of the FDCA because we sued the submitters of all three ANDAs for patent infringement within 45 days of receiving notice from them of the submission of a Paragraph IV Certification. In light of the recently enacted Antibiotic Act, we argued that neither FDAMA nor the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) stood as a barrier to SOLODYN^® receiving a 30-month stay. On March 17, 2009, we received a response from the FDA in which the agency concluded that the Antibiotic Act did not alter the MMA provision barring ANDA was pending with the FDA at the time the patent was submitted to the Orange Book. Because the ’838 Patent could not be submitted to the Orange Book until the passage of the Antibiotics Act, the ’838 Patent was not submitted to the Orange Book until after the ANDAs in question were already pending with the FDA. The FDA therefore denied the petition.

     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 versions of 45mg, 90mg and 135mg SOLODYN^® Extended Release 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^® Extended Release Tablets were terminated and whereby Teva agreed that Medicis’ patents related to SOLODYN^® are valid and enforceable, and cover Teva’s activities relating to its generic SOLODYN^® product under ANDA #65-485. 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 us. Under terms of the agreement, Teva has the option to market its generic versions of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® patent 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 during the three months ended March 31, 2009. On November 13, 2009, we entered into an amended and restated settlement agreement with Teva for the purpose of providing additional detail around certain terms of the original settlement agreement.

     On August 13, 2009, Sandoz was granted final approval by the FDA for its ANDA #90-422 to market its generic versions of 45mg, 90mg and 135mg SOLODYN^® Extended Release Tablets. Sandoz commenced shipment of this product immediately after the FDA’s approval of the ANDA. On August 18, 2009, we entered into a settlement agreement with Sandoz whereby all legal disputes between us and Sandoz relating to SOLODYN^® Extended Release Tablets were terminated and where Sandoz agreed that our patents relating to SOLODYN^® are valid and enforceable, and cover Sandoz’s activities relating to its generic SOLODYN^® product under ANDA #90-422. Sandoz agreed that any prior sales of its generic SOLODYN^® product were not authorized by us and further agreed to be permanently enjoined from any further distribution of generic SOLODYN^®. The Delaware court subsequently entered a permanent injunction against any infringement by Sandoz. We agreed in the settlement agreement to release Sandoz from liability arising from any prior sales of its generic SOLODYN^® which were not authorized by us. Sandoz has the option to market its generic version of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® intellectual property rights belonging to us commencing in November 2011, or earlier under certain conditions.

     On May 6, 2009, we received a Paragraph IV Patent Certification from Ranbaxy Laboratories Limited (“Ranbaxy”) advising that Ranbaxy has filed an ANDA with the FDA for generic SOLODYN^® in its form of 135mg strength. Ranbaxy did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleged that Ranbaxy’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of our ’838 Patent. On June 11, 2009, we filed suit against Ranbaxy and Ranbaxy Inc. (hereinafter collectively “Ranbaxy”) in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the ’838 Patent by submitting the above ANDA to the FDA. The relief we requested included a request for a permanent injunction preventing Ranbaxy from infringing the ’838 Patent by selling a generic version of SOLODYN^®. Ranbaxy has answered that the ’838 Patent is not infringed, is invalid and/or is unenforceable. On January 5, 2010, we received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-118 (“Ranbaxy ANDA Supplement/Amendment”) with the FDA for generic SOLODYN^® in its forms of 45mg and 90mg strengths. Ranbaxy has not advised us as to the timing or status of the FDA’s review of

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its filing, or whether Ranbaxy has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleges that our ’838 Patent is invalid, unenforceable and/or will not be infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s Paragraph IV Certification also alleges that neither our ‘347 Patent nor our ‘373 Patent is infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s submission as to the 45mg and 90mg strengths amends an ANDA already subject to a 30-month stay. As such, we believe that the Ranbaxy ANDA Supplement/Amendment cannot be approved by the FDA until after the expiration of the 30-month period or in the event of a court decision holding that the patents are invalid or not infringed. On February 16, 2010, we filed a complaint against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the patents by submitting the Ranbaxy ANDA Supplement/Amendment for generic SOLODYN^® in its forms of 45mg and 90mg strengths.

     On October 8, 2009, we received a Paragraph IV Patent Certification from Lupin advising that Lupin has filed an ANDA with the FDA for generic SOLODYN^® in its forms of 45mg, 90mg, and 135mg strengths. Lupin did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleged that Lupin’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of our ’838 Patent. On November 17, 2009, we filed suit against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA an ANDA for generic SOLODYN^® in its forms of 45mg, 90mg and 135mg strengths. The relief we requested includes a request for a permanent injunction preventing Lupin from infringing the ’838 Patent by selling generic versions of SOLODYN^®. On November 24, 2009, we received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment I”) with the FDA for generic SOLODYN^® in its form of 65mg strength. Lupin has not advised us as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that our ’838 Patent is invalid and/or will not be infringed by Lupin’s manufacture, use, sale and/or importation of the products for which the Lupin ANDA Supplement/Amendment I was submitted. Lupin’s submission amends an ANDA already subject to a 30-month stay. As such, we believe that the supplement or amendment cannot be approved by the FDA until after the expiration of the 30-month period or a court decision that the patent is invalid or not infringed. On December 23, 2009, we received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment II”) with the FDA for generic SOLODYN ^® in its form of 115mg strength. Lupin has not advised us as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that our ’838 Patent is invalid and/or will not be infringed by Lupin’s manufacture, use, sale and/or importation of the products for which the Lupin ANDA Supplement/Amendment II was submitted. Lupin’s submission amends an ANDA already subject to a 30-month stay. As such, we believe that the supplement or amendment cannot be approved by the FDA until after the expiration of the 30-month period or a court decision that the patent is invalid or not infringed. On December 28, 2009, we amended our complaint against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting its supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 for generic SOLODYN^® in its form of 65mg strength. On February 2, 2010, we amended our complaint against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting its supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 for generic SOLODYN^® in its form of 115mg strength.

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

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be approved by the FDA until after the expiration of a 30-month stay period or a court decision that the patent is invalid or not infringed.

     On February 1, 2010, we received a Paragraph IV Patent Certification from Sandoz, advising that Sandoz has filed a supplement to its earlier filed ANDA #91-422 (“Sandoz ANDA Supplement”) with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Sandoz has not advised us as to the timing or status of the FDA’s review of its filing, or whether Sandoz has complied with FDA requirements for proving bioequivalence. Sandoz’s Paragraph IV Certification alleges that the ’838 Patent will not be infringed by Sandoz’s manufacture, importation, use, sale and/or offer for sale of the products for which the Sandoz ANDA Supplement was submitted because it has been granted a patent license by us for the ’838 Patent.

In addition to SOLODYN^®, our other prescription products, including VANOS ^® and LOPROX^®, are or may be subject to generic competition in the near future.

     On May 1, 2008, we announced that 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 the two patents that we listed with the FDA for VANOS^® cream, our U.S. Patent No. 6,765,001 (the “’001 Patent”) that will expire in 2021. 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. In August 2008, we received notice that Perrigo Israel amended its ANDA to challenge our other patent listed with the FDA for VANOS^® cream, our U.S. Patent No. 7,220,424 (the “’424 Patent) that will expire in 2023. Our complaint asserts that Perrigo Israel and Perrigo Company have infringed on both of our patents for VANOS^® cream. On April 8, 2009, we entered into a license and settlement agreement with Perrigo. In connection with the license and settlement agreement, we and Perrigo agreed to terminate all legal disputes between us relating to our VANOS^® cream. In addition, Perrigo confirmed that certain of our patents relating to VANOS^® cream are valid and enforceable, and are infringed by Perrigo’s activities relating to its generic product under ANDA #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.

     On May 8, 2009, we received a Paragraph IV Patent Certification from Glenmark advising that Glenmark has filed an ANDA with the FDA for a generic version of VANOS^® cream. Glenmark has not advised us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleges that our ’001 Patent and ’424 Patent will not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’424 Patent is 2023. On June 19, 2009, we filed a complaint for patent infringement against Glenmark in the United States District Court for the District of New Jersey. On July 14, 2009, Glenmark and Glenmark Ltd. answered our complaint, and filed counterclaims seeking a declaration that the patents we listed with the FDA for VANOS^® cream were invalid and unenforceable, and would not be infringed by Glenmark’s generic version of VANOS^®. On November 14, 2009, we entered into a license and settlement agreement with Glenmark Ltd. and Glenmark. In connection with the license and settlement agreement, we and Glenmark agreed to terminate all legal disputes between us relating to VANOS^®. In addition, Glenmark confirmed that certain of our patents relating to VANOS^® cream are valid and enforceable, and cover Glenmark’s activities relating to its generic versions of VANOS^® cream under its ANDA. Further, subject to the terms and conditions contained in the license and settlement agreement, we granted Glenmark, 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. Upon commercialization by Glenmark of generic versions of VANOS^® products, Glenmark will pay us a royalty based on sales of such generic products.

     On September 21, 2009, we received a Paragraph IV Patent Certification from Glenmark advising that Glenmark has filed an ANDA with the FDA for a generic version of LOPROX^® Gel. Glenmark did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleged that our U.S. Patent No. 7,018,656 (the “’656 Patent”) would not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’656 Patent is 2018. On November 14, 2009, we entered into a License and Settlement Agreement with Glenmark and its foreign corporate parent Glenmark Ltd. In connection with the

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License and Settlement Agreement, we and Glenmark agreed to terminate all legal disputes between us relating to LOPROX^® Gel. In addition, Glenmark confirmed that certain of our patents relating to LOPROX^® Gel are valid and enforceable, and cover Glenmark’s activities relating to its generic version of LOPROX^® Gel under an ANDA. Subject to the terms and conditions contained in the License and Settlement Agreement, we also granted Glenmark a license to make and sell generic versions of LOPROX^® Gel. Upon commercialization by Glenmark of generic versions of LOPROX^® Gel, Glenmark will pay us a royalty based on sales of such generic products.

     On December 7, 2009, we entered into a Settlement Agreement (the “Paddock Settlement Agreement”) with Paddock Laboratories, Inc. (“Paddock”). In connection with the Paddock Settlement Agreement, we and Paddock agreed to settle all legal disputes between us relating to our LOPROX^® Shampoo and we agreed to withdraw our complaint against Paddock pending in the U.S. District Court for the District of Arizona. In addition, Paddock confirmed that Paddock’s activities relating to its generic version of LOPROX^® Shampoo are covered by our current and pending patent applications. Further, subject to the terms and conditions contained in the Paddock Settlement Agreement, we granted Paddock a non-exclusive, royalty-bearing license to make and sell limited quantities of its generic version of LOPROX^® Shampoo.

     On February 16, 2010, the FDA approved an ANDA filed by an affiliate of Perrigo for a generic version of LOPROX^® Shampoo. In addition, other companies may seek approval of an ANDA covering a generic version of LOPROX^® Shampoo.

     If any of our primary products are rendered obsolete or uneconomical by competitive changes, including generic competition, our results of operation would be materially and adversely affected.

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

     Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets, operate without infringing upon the proprietary rights of others, and prevent others from infringing on our patents, trademarks, service marks and other intellectual property rights.

     The patents and patent applications in which we have an interest may be challenged as to their validity or enforceability or infringement. Any such challenges may result in potentially significant harm to our business and enable generic entry to markets for our products. The cost of responding to any such challenges and the cost of prosecuting infringement claims and any related litigation, could be substantial. In addition, any such litigation also could require a substantial commitment of our management’s time.

     See the previously listed Risk Factor, “Certain of our primary products could lose patent protection in the near future and become subject to competition from generic forms of such products. If that were to occur, sales of those products would decline significantly and such decline could have a material adverse effect on our results of operations,” Item 3 of Part I of this report, “Legal Proceedings,” and Note 12, “Commitments and Contingencies” in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules,” for information concerning our current intellectual property litigation.

     We are pursuing several United States patent applications, but we cannot be sure that any of these patents will ever be issued. We also have acquired rights under certain patents and patent applications in connection with our licenses to distribute products and by assignment of rights to patents and patent applications from certain of our consultants and officers. These patents and patent applications may be subject to claims of rights by third parties. If there are conflicting claims to the same patent or patent application, we may not prevail and, even if we do have some rights in a patent or patent application, those rights may not be sufficient for the marketing and distribution of products covered by the patent or patent application.

     The ownership of a patent or an interest in a patent does not always provide significant protection. Others may independently develop similar technologies or design around the patented aspects of our products. We only conduct patent searches to determine whether our products infringe upon any existing patents when we think such searches are appropriate. As a result, the products and technologies we currently market, and those we may market in the future, may infringe on patents and other rights owned by others. If we are unsuccessful in any challenge to the marketing and sale of our products or technologies, we may be required to license the disputed rights, if the holder of those rights is willing to license such rights, otherwise we may be required to cease marketing the

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challenged products, or to modify our products to avoid infringing upon those rights. A claim or finding of infringement regarding one of our products could harm our business, financial condition and results of operations. The costs of responding to infringement claims could be substantial and could require a substantial commitment of our management’s time. The expiration of patents may expose our products to additional competition.

     We believe that the protection of our trademarks and service marks is an important factor in product recognition and in our ability to maintain or increase market share. If we do not adequately protect our rights in our various trademarks and service marks from infringement, their value to us could be lost or diminished. If the marks we use are found to infringe upon the trademark or service mark of another company, we could be forced to stop using those marks and, as a result, we could lose the value of those marks and could be liable for damages caused by an infringement.

     We also rely upon trade secrets, unpatented proprietary know-how and continuing technological innovation in developing and manufacturing many of our primary products. It is our policy to require all of our employees, consultants and advisors to enter into confidentiality agreements prohibiting them from taking or disclosing our proprietary information and technology and we employ other strategies to protect our trade secrets and other confidential information. Nevertheless, these agreements may not provide meaningful protection for our trade secrets and proprietary know-how if they are used or disclosed. Despite all of the precautions we may take, people who are not parties to confidentiality agreements may obtain access to our trade secrets or know-how. In addition, others may independently develop similar or equivalent trade secrets or know-how.

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

     We have acquired the rights to manufacture, use and market certain products, including certain of our primary products. We also expect to continue to obtain licenses for other products and technologies in the future. Our license agreements generally require us to develop a market for the licensed products. If we do not develop these markets within specified time frames, the licensors may be entitled to terminate these license agreements.

     We may fail to fulfill our obligations under any particular license agreement for various reasons, including insufficient resources to adequately develop and market a product, lack of market development despite our diligence and lack of product acceptance. Our failure to fulfill our obligations could result in the loss of our rights under a license agreement.

     Our inability to continue the distribution of any particular licensed product could harm our business, market share and profitability. Also, certain products we license are used in connection with other products we own or license. A loss of a license in such circumstances could materially harm our ability to market and distribute these other products.

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

     The research, development and marketing of our products are subject to extensive regulation by government agencies in the U.S, particularly the FDA, and other countries. The process of obtaining FDA and other regulatory approvals is time consuming and expensive. Clinical trials are required, and the manufacturing of pharmaceutical and medical device products is subject to rigorous testing procedures. We may not be able to obtain FDA approval to conduct clinical trials or to manufacture or market any of the products we develop, acquire or license on a timely basis or at all. Moreover, the costs to obtain approvals could be considerable, and the failure to obtain or delays in obtaining an approval could significantly harm our business performance and financial results. Marketing approval or clearance of a new product or new indication for an approved product may be delayed, restricted, or denied for many reasons, including:

• determination by the FDA that the product is not safe and effective;

• a different interpretation of preclinical and clinical data by FDA;

• failure to obtain approval of the manufacturing process or facilities;

• results of post-marketing studies;

• changes in FDA policy or regulations related to product approvals; and

• failure to comply with applicable regulatory requirements.

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     No amount of time, effort, or resources invested in a new product or new indication for an approved product can guarantee that regulatory approval will be granted.

     The FDA vigorously monitors the ongoing safety of products, which can affect the approvability of our products or the continued ability to market our products. If adverse events are associated with products that have already been approved or cleared for marketing, such products could be subject to increased regulatory scrutiny, changes in regulatory approval or labeling, or withdrawal from the market. Even if pre-marketing approval from the FDA is received, the FDA is authorized to impose post-marketing requirements such as:

• testing and surveillance to monitor the product and its continued compliance with regulatory requirements, including cGMPs for drug and biologic products and the QSRs for medical device products;

• submitting products, facilities and records for inspection and, if any inspection reveals that the product is not in compliance, prohibiting the sale of all products from the same lot;

• suspending manufacturing;

• switching status from prescription to over-the-counter drug;

• completion of post-marketing studies;

• changes to approved product labeling;

• advertising or marketing restrictions, including direct-to-consumer advertising;

• REMS;

• recalling products; and

• withdrawing marketing clearance.

     In their regulation of advertising, the FDA and FTC from time to time issue correspondence to pharmaceutical companies alleging that some advertising or promotional practices are false, misleading or deceptive. The FDA has the power to impose a wide array of sanctions on companies for such advertising practices, and the receipt of correspondence from the FDA alleging these practices could result in the following:

• incurring substantial expenses, including fines, penalties, legal fees and costs to comply with the FDA’s requirements;

• changes in the methods of marketing and selling products;

• taking FDA-mandated corrective action, which may include placing advertisements or sending letters to physicians rescinding previous advertisements or promotion; and

• disruption in the distribution of products and loss of sales until compliance with the FDA’s position is obtained.

     In recent years, various legislative proposals have been offered in Congress and in some state legislatures that include major changes in the health care system. These proposals have included price or patient reimbursement constraints on medicines, restrictions on access to certain products, re-importation of products from Canada or other sources and mandatory substitution of generic for branded products. We cannot predict the outcome of such initiatives, and it is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting us.

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

     Federal health care program anti-kickback statutes prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed health care programs. This statute has been interpreted to apply to arrangements between pharmaceutical and medical device manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. 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.

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Although we believe that we are in compliance, our practices may be determined to fail to meet all of the criteria for safe harbor protection from anti-kickback liability.

     Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical and medical device companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the Medicaid Rebate Program. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

     On April 25, 2007, we entered into a Settlement Agreement with the Justice Department, the Office of Inspector General of the Department of Health and Human Services (“OIG”) and the TRICARE Management Activity (collectively, the “United States”) and private complainants to settle all outstanding federal and state civil suits against us in connection with claims related to our alleged off-label marketing and promotion of LOPROX^® and LOPROX^® TS products to pediatricians during periods prior to our May 2004 disposition of our pediatric sales division (the “Settlement Agreement”). The settlement is neither an admission of liability by us nor a concession by the United States that its claims are not well founded. Pursuant to the Settlement Agreement, we agreed to pay approximately $10 million to settle the matter. Pursuant to the Settlement Agreement, the United States released us from the claims asserted by the United States and agreed to refrain from instituting action seeking exclusion from Medicare, Medicaid, the TRICARE Program and other federal health care programs for the alleged conduct. These releases relate solely to the allegations related to us and do not cover individuals. The Settlement Agreement also provides that the private complainants release us and our officers, directors and employees from the asserted claims, and we release the United States and the private complainants from asserted claims.

     As part of the settlement, we have entered into a five-year Corporate Integrity Agreement (the “CIA”) with the OIG to resolve any potential administrative claims the OIG may have arising out of the government’s investigation. The CIA acknowledges the existence of our comprehensive existing compliance program and provides for certain other compliance-related activities during the term of the CIA, including the maintenance of a compliance program that, among other things, is designed to ensure compliance with the CIA, federal health care programs and FDA requirements. Pursuant to the CIA, we are required to notify the OIG, in writing, of: (i) any ongoing government investigation or legal proceeding involving an allegation that we have committed a crime or have engaged in fraudulent activities; (ii) any other matter that a reasonable person would consider a probable violation of applicable criminal, civil, or administrative laws; (iii) any written report, correspondence, or communication to the FDA that materially discusses any unlawful or improper promotion of our products; and (iv) any change in location, sale, closing, purchase, or establishment of a new business unit or location related to items or services that may be reimbursed by Federal health care programs. We are also subject to periodic reporting and certification requirements attesting that the provisions of the CIA are being implemented and followed, as well as certain document and record retention mandates. We have hired a Chief Compliance Officer and created an enterprise-wide compliance function to administer our obligations under the CIA. Failure to comply under the CIA could result in substantial civil or criminal penalties and being excluded from government health care programs, which could materially reduce our sales and adversely affect our financial condition and results of operations.

     On or about October 12, 2006, we and the United States Attorney’s Office for the District of Kansas entered into a Nonprosecution Agreement wherein the government agreed not to prosecute us for any alleged criminal violations relating to the alleged off-label marketing and promotion of LOPROX^®. In exchange for the government’s agreement not to pursue any criminal charges against us, we agreed to continue cooperating with the government in its ongoing investigation into whether past and present employees and officers may have violated federal criminal law regarding alleged off-label marketing and promotion of LOPROX^® to pediatricians. As a result of the investigation, prosecutions and other proceedings, certain past and present sales and marketing employees and officers separated from the Company. See Item 3 of Part I of this report, “Legal Proceedings” and Note 12,

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“Commitments and Contingencies,” in the notes to the consolidated financial statements listed under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules,” for information concerning our current litigation.

Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable U.S. federal and state regulations and all potentially applicable foreign regulations.

     The development, manufacturing, distribution, pricing, sales, marketing and reimbursement of our products, together with our general operations, is subject to extensive federal and state regulation in the United States and in foreign countries. While we have developed and instituted a corporate compliance program based on what we believe to be current best practices, we cannot assure you that we or our employees are or will be in compliance with all potentially applicable federal, state or foreign regulations and/or laws or the Corporate Integrity Agreement we entered into with the Office of Inspector General of the Department of Health and Human Services. If we fail to comply with the Corporate Integrity Agreement or any of these regulations and/or laws a range of actions could result, including, but not limited to, the failure to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal of our products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation.

We depend on a limited number of customers for a substantial portion of our revenues, and if we lose any of them, our business could be harmed.

     Our customers include some of the United States’ leading wholesale pharmaceutical distributors, such as Cardinal, McKesson, and major drug chains. We are party to distribution services agreements with McKesson and Cardinal. During 2009, McKesson and Cardinal accounted for 40.8% and 37.1%, respectively, of our net revenues. During 2008, McKesson and Cardinal accounted for 45.8% and 21.2%, respectively, of our net revenues. During 2007, McKesson and Cardinal accounted for 52.2% and 16.9%, respectively, of our net revenues. The loss of either of these customers’ accounts or a material reduction in their purchases could harm our business, financial condition or results of operations. McKesson is our sole distributor of our RESTYLANE^® and PERLANE^® products and DYSPORT^TM in the U.S.

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

     We sell our pharmaceutical products primarily through major wholesalers. These customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network is continuing to undergo significant consolidation marked by mergers and acquisitions. As a result, a smaller number of large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as retail consolidation has occurred. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses which may result in product returns to us, cause a reduction in the inventory levels of distributors and retailers, result in reductions in purchases of our products or increase competitive and pricing pressures on pharmaceutical manufacturers, any of which could harm our business, financial condition and results of operations.

We derive a majority of our sales revenue from our primary products, and any factor adversely affecting sales of these products would harm our business, financial condition and results of operations.

     We believe that the prescription volume of our primary prescription products, in particular, SOLODYN^®, VANOS^® and ZIANA^®, and sales of our facial aesthetic products, DYSPORT^TM, RESTYLANE^® and PERLANE^®, will continue to constitute a significant portion of our sales revenue for the foreseeable future. Accordingly, any factor adversely affecting our sales related to these products, individually or collectively, could harm our business, financial condition and results of operations.

     DYSPORT^TM competes directly with Allergan’s Botox^® Cosmetic, an established botulinum toxin product that was approved by the FDA for aesthetic purposes in 2002.

     We are experiencing intense competition in the dermal filler market. Other dermal filler products on the market include: Juvéderm^®, Prevelle^® Silk, Radiesse^®, Sculptra^® Aesthetic, Artefill^® and Hydrelle^TM. Patients may differentiate these products from our RESTYLANE^® and PERLANE^® products based on price, efficacy and/or duration, which may appeal to some patients. In addition, there are several dermal filler products under

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development and/or in the FDA pipeline for approval which claim to offer equivalent or greater facial aesthetic benefits to RESTYLANE^® and PERLANE^® and, if approved, the companies producing such products could charge less to doctors for their products.

     We are involved in patent litigation with certain competitors, primarily related to our SOLODYN^® and VANOS^® branded products. See the previously listed Risk Factor, “Certain of our primary products could lose patent protection in the near future and become subject to competition from generic forms of such products. If that were to occur, sales of those products would decline significantly and such decline could have a material adverse effect on our results of operations,” and Item 3 of Part I of this report, “Legal Proceedings,” and Note 12, “Commitments and Contingencies” in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules” for information concerning our current intellectual property litigation. There can be no assurance that we will prevail in patent litigation or that these competitors will not successfully introduce products that would cause a loss of our market share and reduce our revenues.

     Sales related to our primary prescription drug products, including SOLODYN^®, VANOS^® and ZIANA^®, and sales of our facial aesthetic products, DYSPORT^TM, RESTYLANE^® and PERLANE^® could also be adversely affected by other factors, including:

• manufacturing or supply interruptions;

• the development of new competitive pharmaceuticals and technological advances to treat the conditions addressed by our primary products, including the introduction of new products into the marketplace;

• generic competition;

• marketing or pricing actions by one or more of our competitors;

• regulatory action by the FDA and other government regulatory agencies;

• importation of other dermal fillers;

• changes in the prescribing or procedural practices of dermatologists and/or plastic surgeons;

• changes in the reimbursement or substitution policies of third-party payors or retail pharmacies;

• product liability claims;

• the outcome of disputes relating to trademarks, patents, license agreements and other rights;

• changes in state and federal law that adversely affect our ability to market our products to dermatologists and/or plastic surgeons;

• restrictions on travel affecting the ability of our sales force to market to prescribing physicians and plastic surgeons in person; and

• restrictions on promotional activities.

Our continued growth depends upon our ability to develop new products.

     Our ability to develop new products is the key to our continued growth. Our research and development activities, as well as the clinical testing and regulatory approval process, which must be completed before commercial sales can commence, will require significant commitments of personnel and financial resources. We cannot assure you that we will be able to develop products or technologies in a timely manner, or at all. Delays in the research, development, testing or approval processes will cause a corresponding delay in revenue.

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

     Our strategy for continued growth includes the acquisition of products, technologies and businesses. These acquisitions could involve acquiring other pharmaceutical companies’ assets, products or technologies. In addition, we may seek to obtain licenses or other rights to develop, manufacture and distribute products. We cannot be certain that we will be able to identify suitable acquisition or licensing candidates, if they will be accretive in the near future, or if any will be available on acceptable terms. Other pharmaceutical companies, with greater financial, marketing and sales resources than we have, are also attempting to grow through similar acquisition and licensing strategies. Because of their greater resources, our competitors may be able to offer better terms for an acquisition or license than we can offer, or they may be able to demonstrate a greater ability to market licensed products. In addition, even if we identify potential acquisitions and enter into definitive agreements relating to such acquisitions, we may not be able to consummate planned acquisitions on the terms originally agreed upon or at all. For example,

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on March 20, 2005, we entered into an agreement and plan of merger with Inamed, pursuant to which we agreed to acquire Inamed. On December 13, 2005, we entered into a merger termination agreement with Inamed following Allergan Inc.’s exchange offer for all outstanding shares of Inamed, which was commenced on November 21, 2005.

     We reevaluate our research and development efforts regularly to assess whether our efforts to develop a particular product or technology are progressing at a rate that justifies our continued expenditures. On the basis of these reevaluations, we have abandoned in the past, and may abandon in the future, our efforts on a particular product or technology. Products that we research or develop may not be successfully commercialized. If we fail to take a product or technology from the development stage to market on a timely basis, we may incur significant expenses without a near-term financial return.

     We have in the past, and may in the future, supplement our internal research and development by entering into research and development agreements with other pharmaceutical companies. We may, upon entering into such agreements, be required to make significant up-front payments to fund the projects. We cannot be sure, however, that we will be able to locate adequate research partners or that supplemental research will be available on terms acceptable to us in the future. If we are unable to enter into additional research partnership arrangements, we may incur additional costs to continue research and development internally or abandon certain projects. Even if we are able to enter into collaborations, we cannot assure you that these arrangements will result in successful product development or commercialization.

Our products may not gain market acceptance.

     There is a risk that our products may not gain market acceptance among physicians, patients and the medical community generally. The degree of market acceptance of any medical device or other product that we develop will depend on a number of factors, including demonstrated clinical efficacy and safety, cost-effectiveness, potential advantages over alternative products, and our marketing and distribution capabilities. Physicians will not recommend our products until clinical data or other factors demonstrate their safety and efficacy compared to other competing products. Even if the clinical safety and efficacy of using our products is established, physicians may elect to not recommend using them for any number of other reasons, including whether our products best meet the particular needs of the individual patient.

Our operating results and financial condition may fluctuate.

     Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons. The following events or occurrences, among others, could cause fluctuations in our financial performance from period to period:

• development and launch of new competitive products, including OTC or generic competitor products;

• the timing and receipt of FDA approvals or lack of approvals;

• the timing and receipt of patent claim issuances or lack of issuances or rejections in prosecution or reexamination proceedings before the USPTO;

• changes in the amount we spend to develop, acquire or license new products, technologies or businesses;

• costs related to business development transactions;

• untimely contingent research and development payments under our third-party product development agreements;

• changes in the amount we spend to promote our products;

• delays between our expenditures to acquire new products, technologies or businesses and the generation of revenues from those acquired products, technologies or businesses;

• changes in treatment practices of physicians that currently prescribe our products;

• changes in reimbursement policies of health plans and other similar health insurers, including changes that affect newly developed or newly acquired products;

• increases in the cost of raw materials used to manufacture our products;

• manufacturing and supply interruptions, including failure to comply with manufacturing specifications;

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• changes in prescription levels and the effect of economic changes in hurricane and other natural disaster-affected areas;

• the impact on our employees, customers, patients, manufacturers, suppliers, vendors, and other companies we do business with and the resulting impact on the results of operations associated with the possible mutation of the avian form of influenza from birds or other animal species to humans, current human morbidity, and mortality levels persist following such potential mutation;

• the mix of products that we sell during any time period;

• lower than expected demand for our products;

• our responses to price competition;

• expenditures as a result of legal actions, including the defense of our patents and other intellectual property;

• market acceptance of our products;

• the impairment and write-down of goodwill or other intangible assets;

• implementation of new or revised accounting or tax rules or policies;

• disposition of primary products, technologies and other rights;

• termination or expiration of, or the outcome of disputes relating to, trademarks, patents, license agreements and other rights;

• increases in insurance rates for existing products and the cost of insurance for new products;

• general economic and industry conditions, including changes in interest rates affecting returns on cash balances and investments that affect customer demand, and our ability to recover quickly from such economic and industry conditions;

• seasonality of demand for our products;

• our level of research and development activities;

• new accounting standards and/or changes to existing accounting standards that would have a material effect on our consolidated financial position, results of operations or cash flows;

• costs and outcomes of any tax audits or any litigation involving intellectual property, customers or other issues;

• failure by us or our contractors to comply with all applicable FDA and other regulatory requirements;

• the imposition of a REMS program requirement on any of our products;

• adverse decisions by FDA advisory committees related to any of our products; and

• timing of payments and/or revenue recognition related to licensing agreements and/or strategic collaborations.

     As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful, and these comparisons should not be relied upon as an indication of future performance. The above factors may cause our operating results to fluctuate and adversely affect our financial condition and results of operations.

We face significant competition within our industry.

     The pharmaceutical and facial aesthetics industries are highly competitive. Competition in our industry occurs on a variety of fronts, including:

• developing and bringing new products to market before others;

• developing new technologies to improve existing products;

• developing new products to provide the same benefits as existing products at less cost; and

• developing new products to provide benefits superior to those of existing products.

     The intensely competitive environment requires an ongoing, extensive search for technological innovations and the ability to market products effectively. Consequently, we must continue to develop and introduce products in a timely and cost-efficient manner to effectively compete in the marketplace and maintain our revenue and gross margins.

     Our competitors vary depending upon product categories. Many of our competitors are large, well-established companies in the fields of pharmaceuticals, chemicals, cosmetics and health care. Among our largest

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competitors are Allergan, Galderma, Johnson & Johnson, Sanofi-Aventis, GlaxoSmithKline, plc (Stiefel Laboratories), Warner Chilcott and others.

     Many of these companies have greater resources than we do to devote to marketing, sales, research and development and acquisitions. As a result, they have a greater ability to undertake more extensive research and development, marketing and pricing policy programs. It is possible that our competitors may develop new or improved products to treat the same conditions as our products or make technological advances reducing their cost of production so that they may engage in price competition through aggressive pricing policies to secure a greater market share to our detriment. These competitors also may develop products that make our current or future products obsolete. Any of these events could significantly harm our business, financial condition and results of operations, including reducing our market share, gross margins, and cash flows.

     We sell and distribute prescription brands, medical devices and over-the-counter products. Each of these products competes with products produced by others to treat the same conditions. Several of our prescription products compete with generic pharmaceuticals, which claim to offer equivalent benefit at a lower cost. In some cases, insurers and other health care payment organizations try to encourage the use of these less expensive generic brands through their prescription benefits coverage and reimbursement policies. These organizations may make the generic alternative more attractive to the patient by providing different amounts of reimbursement so that the net cost of the generic product to the patient is less than the net cost of our prescription brand product. Aggressive pricing policies by our generic product competitors and the prescription benefits policies of third-party payors could cause us to lose market share or force us to reduce our gross margins in response.

     There are several dermal filler products under development and/or in the FDA pipeline for approval which claim to offer equivalent or greater facial aesthetic benefits to RESTYLANE^® and PERLANE^® and if approved, the companies producing such products could charge less to doctors for their products.

Our investments in other companies and our collaborations with companies could adversely affect our results of operations and financial condition.

     We have made substantial investments in, and entered into significant collaborations with, other companies. We may use these and other methods to develop or commercialize products in the future. These arrangements typically involve other pharmaceutical companies as partners that may be competitors of ours in certain markets. In many instances, we will not control these companies or collaborations, and cannot assure you that these ventures will be profitable or that we will not lose any or all of our invested capital. If these investments and collaborations are unsuccessful, our results of operations could materially suffer.

Our profitability is impacted by our continued participation in governmental pharmaceutical pricing programs.

     In order for our products to receive reimbursement by state Medicaid programs and the Medicare Part B program, we must participate in the Medicaid drug rebate program. Participation in the program requires us to provide a rebate for each unit of our products that is reimbursed by Medicaid. Rebate amounts for our products are determined by a statutory formula that is based on prices defined by statute: average manufacturer price (“AMP”), which we must calculate for all products that are covered outpatient drugs under the Medicaid program, and best price, which we must calculate only for those of our covered outpatient drugs that are innovator products. We are required to report AMP and best price for each of our covered outpatient drugs to the government on a regular basis. In July 2007, the Centers for Medicare and Medicaid Services (“CMS”), the federal agency that is responsible for administering the Medicaid drug rebate program, issued a final rule that, among other things, clarifies how manufacturers must calculate both AMP and best price and implements new requirements under the Deficit Reduction Act of 2005 on the use of AMP to calculate federal upper limits on pharmacy reimbursement amounts under the Medicaid program. These upper limits are used to determine ceilings placed on the amounts that state Medicaid programs can pay for certain prescription drugs using federal dollars. In December 2007, a federal court issued an injunction prohibiting the implementation of those provisions in the final rule relating to federal upper limits, and that injunction is still in place. We cannot predict the full impact of these changes, which otherwise became effective in part on January 1, 2007 and in part on October 1, 2007, on our business, nor can we predict whether there will be additional federal legislative or regulatory proposals to modify current Medicaid rebate rules.

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     To receive reimbursement under state Medicaid programs and the Medicare Part B program for our products, we also are required by federal law to provide discounts under other pharmaceutical pricing programs. For example, we are required to enter into a Federal Supply Schedule (“FSS”) contract with the Department of Veterans Affairs (“VA”) under which we must make our covered drugs available to the “Big Four” federal agencies — the VA, the Department of Defense (“DoD”), the Public Health Service, and the Coast Guard — at pricing that is capped pursuant to a statutory Federal ceiling price (“FCP”) formula set forth in the Veterans Health Care Act of 1992 (“VHCA”). The FCP is based on a weighted average wholesaler price known as the “non-federal average manufacturer price,” which manufacturers are required to report on a quarterly and annual basis to the VA. FSS contracts are federal procurement contracts that include standard government terms and conditions and separate pricing for each product. In addition to the Big Four agencies, all other federal agencies and some non-federal entities are authorized to access FSS contracts. FSS contractors are permitted to charge FSS purchasers other than the Big Four agencies “negotiated pricing” for covered drugs that is not capped by the VHCA formula; instead, such pricing is negotiated based on a mandatory disclosure of the contractor’s commercial “most favored customer” pricing. Medicis chooses to offer one single FCP-based FSS contract price for each product to the Big Four agencies as well as all to other FSS purchasers. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing to an agreed “tracking customer” is reduced.

     To receive reimbursement under state Medicaid programs and the Medicare Part B program for our products, we also are required by federal law to provide discounted purchase prices under the Public Health Service Drug Pricing Program to certain categories of entities defined by statute. The formula for determining the discounted purchase price is defined by statute and is based on the AMP and rebate amount for a particular product as calculated under the Medicaid drug rebate program, discussed above. To the extent that the statutory and regulatory definitions of AMP and the Medicaid rebate amount change as a result of the Deficit Reduction Act and final rule discussed above, these changes also could impact the discounted purchase prices that we are obligated to provide under this program. We cannot predict the full impact of these changes, which became effective in part on January 1, 2007 and in part on October 1, 2007, on our business, nor can we predict whether there will be additional federal legislative or regulatory proposals to modify this program or current Medicaid rebate rules which then could impact this program as well.

Our profitability may be impacted by our ongoing review of our prior reports under certain Federal pharmaceutical pricing programs.

     Under the terms of our Medicaid drug rebate program agreement and our VA FSS contract and related pricing agreements required under the VHCA, we are required to accurately report our pharmaceutical pricing data, which is based, in part, on accurate classifications of our customers’ classes of trade. On May 1, 2007, and on May 15, 2007, we notified the U.S. Department of Health and Human Services and the VA, respectively, that we may have misclassified certain of our customers’ classes of trade, which could affect the prices previously reported under the Medicaid drug rebate program and/or prices on our VA FSS contract. We have reviewed this issue and have identified certain customer class of trade misclassifications.

     Based on this finding, we undertook a review and recalculation of our Non-Federal Average Manufacturer Prices (“Non-FAMPs”) and related FCPs, AMPs, and Best Prices (“BPs”) for a period going back at least (3) years from the expected completion date of the recalculation to determine the impact, if any, that reclassification of customers to appropriate classes of trade might have on these reported prices. In doing the recalculation, we generally reviewed the methodologies for computing the reported prices, the classification of products under the various programs, and any other potentially significant issues identified in the course of the review. In April 2009, we completed the 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 actions that were needed in relation to the reviewed data. We expect that the 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 CMS, which administers the Program, and are awaiting CMS’s 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, which CMS approved in December 2009. The fiscal impact of that change is included in the rebate liability figure noted above. 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

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Service Drug Pricing Program. 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.

     In July 2009, we completed the extension of this review to the pricing data submitted to the Program for the period from the first quarter of 2008 through the fourth quarter of 2008. The review again identified certain actions that were needed in relation to the reviewed data. We expect that the actions, when implemented, would result in an increase to our rebate liability under the Program in the amount of approximately $0.2 million for the additional four-quarter period reviewed. This change in rebate liability includes the impact of the drug category change approved by CMS in December 2009. Upon completion of CMS’s review of our submission for this additional four-quarter period, 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. We accrued $0.2 million for the 2008 liability, which was recognized as a reduction of net revenues during the three months ended June 30, 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 established a program under which the DoD seeks FCP-based refunds, or rebates, from drug manufacturers on TRICARE retail pharmacy utilization. Under the Rule, effective May 26, 2009, the DoD is seeking rebates on TRICARE retail pharmacy program prescriptions filled from January 28, 2008, forward. The Rule sets forth a program in which the DoD asks manufacturers to enter into agreements with the agency pursuant to which the manufacturers commit to pay such rebates. Products that are not listed in such agreements will not be able to be included on the DoD Uniform Formulary. Additionally, products not listed in TRICARE retail agreements will not be available through TRICARE 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 the Rule, our rebate liability as of March 31, 2009, for 2008 utilization is approximately $1.6 million, the rebate liability for the first quarter of 2009 is approximately $0.8 million, and the rebate liability for the second quarter of 2009 prior to the date of execution of our TRICARE retail agreement on June 29, 2009 is $0.6 million. It is possible that, pursuant to the compromise or waiver process set forth in the Rule, the DoD will agree to accept a lesser sum for the 2008 period and for the first and second quarters of 2009. We applied timely for a waiver of liability from January 28, 2008 through the date of our TRICARE rebate agreement, which was executed on June 29, 2009. We accrued $2.4 million in the aggregate for the liability for 2008 and the first quarter of 2009, which was recognized as a reduction of net revenues during the three months ended March 31, 2009. We also accrued $0.6 million in our financial statements as of June 30, 2009 for TRICARE rebate liability for the second quarter of 2009 through June 28, 2009, the day prior to execution of our TRICARE rebate agreement. This sum was recognized as a reduction of net revenues during that period.

     In addition, we conducted a review and recalculation of our Non-FAMPs and FCPs for a period spanning the duration of our current FSS contract to determine what, if any, impact reclassification of customers to appropriate classes of trade and any other issues identified in the course of the review might have on these reported prices. In doing the recalculation, we assigned all customers to an appropriate class of trade, implemented a revised calculation methodology, and addressed all other issues identified in the course of the review. Our review also involved assessment of compliance with the FSS Price Reductions Clause for the products on our current FSS contract.

     On September 15, 2008, we submitted a report to the VA detailing the recalculations and the impact figures associated with overcharges under the current FSS contract. The submission showed liability in the amount of $121,646, resulting from overcharges under our FSS contract through July 31, 2008. On December 18, 2008, we submitted a supplement to the September 15 submission, which, based on certain issues uncovered subsequent to the September 15, 2008 submission, showed an additional $61,459 in overcharges. The VA informed us that our submission is under review. Upon VA approval of our submissions, we will calculate the impact, if any, associated with August — December 2008.

We will be unable to meet our anticipated development and commercialization timelines if clinical trials for our products are unsuccessful, delayed, or additional information is required by the FDA.

     The production and marketing of our products and our ongoing research and development, pre-clinical testing and clinical trials activities are subject to extensive regulation and review by numerous governmental authorities. Before obtaining regulatory approvals for the commercial sale of any products, we and/or our partners

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must demonstrate through pre-clinical testing and clinical trials that our products are safe and effective for use in humans. Conducting clinical trials is a lengthy, time-consuming and expensive process that may be subject to unexpected delays. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling and record-keeping procedures.

     Completion of clinical trials may take several years or more. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:

• lack of efficacy during the clinical trials;

• unforeseen safety issues;

• severe or harmful side effects;

• failure to obtain necessary proprietary rights;

• shortage or lack of supply sufficient to complete studies;

• the decision to modify the product;

• lack of economical pathway to manufacture and commercialize product;

• cost-effectiveness of continued product development;

• slower than expected patient recruitment;

• failure of Medicis, investigators, or other contractors to strictly adhere to federal regulations governing the conduct and data collection procedures involved in clinical trials;

• development of issues that might delay or impede performance by a contractor;

• errors in clinical documentation or at the clinical locations;

• non-acceptance by the FDA of our NDAs, ANDAs or BLAs;

• government or regulatory delays; and

• unanticipated requests from the FDA for new or additional information.

     The results from pre-clinical testing and early clinical trials are often not predictive of results obtained in later clinical trials. A number of new products have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including perceived defects in the design of the clinical trials and changes in regulatory policy during the period of product development. Any delays in, or termination of, our clinical trials could materially and adversely affect our development and commercialization timelines, which could adversely affect our financial condition, results of operations and cash flows.

Downturns in general economic conditions may adversely affect our financial condition, results of operations and cash flows.

     Our business, and in particular our facial aesthetic and branded prescription products, have been and are expected to continue to be adversely affected by downturns in general economic conditions. Economic conditions such as employment levels, business conditions, interest rates, energy and fuel costs, consumer confidence and tax rates could change consumer purchasing habits or reduce personal discretionary spending. A reduction in consumer spending may have an adverse impact on our financial condition, results of operations and cash flows. In addition, our ability to meet our expected financial performance is dependent upon our ability to rapidly recover from downturns in general economic conditions.

     Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most major economies continuing into 2010. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished expectations for western and emerging economies. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have contributed to volatility of unprecedented levels.

     As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce,

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and in some cases, cease to provide credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending. Continued turbulence in the U.S. and international markets and economies and prolonged declines in business consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

The current condition of the credit markets may not allow us to secure financing for potential future activities on satisfactory terms, or at all.

     Our existing cash and short-term investments are available for dividends, strategic investments, acquisitions of companies or products complimentary to our business, the repayment of outstanding indebtedness, repurchases of our outstanding securities and other potential large-scale needs. 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. As a result of recent subprime loan losses and write-downs, as well as other economic trends in the credit market industry, we may not be able to secure additional financing for future activities on satisfactory terms, or at all, which may adversely affect our financial condition and results of operations.

Negative conditions in the credit markets may impair the liquidity of a portion of our short-term and long-term investments.

     Our short-term and long-term investments consist of corporate and various government agency and municipal debt securities and auction rate floating securities. As of December 31, 2009, our investments included $26.8 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. The recent negative conditions in the credit markets have prevented some investors from liquidating their holdings, including their holdings of auction rate floating securities. Since early 2008, there has been insufficient demand at auction for auction rate floating 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. We may not be able to liquidate the securities until a future auction on these investments is successful. We could be required to record impairment losses in the future, depending on market conditions.

If Q-Med is unable to protect its intellectual property and proprietary rights with respect to our dermal filler products, our business could suffer.

     The exclusivity period of the license granted to us by Q-Med for RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM will terminate on the later of (i) the expiration of the last patent covering the products (estimated to be 2017) or (ii) upon the licensed know-how becoming publicly known. If the validity or enforceability of our patents is successfully challenged, the cost to us could be significant and our business may be harmed. For example, if any such challenges are successful, Q-Med may be unable to supply products to us. As a result, we may be unable to market, distribute and commercialize the products or it may no longer be profitable for us to do so.

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

     Our success depends significantly on the continued individual and collective contributions of our senior management team, and Jonah Shacknai, our Chairman and Chief Executive Officer, in particular. While we have entered into employment agreements with many members of our senior management team, including Mr. Shacknai, the loss of the services of any member of our senior management for any reason or the inability to hire and retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results. In addition, our future success depends on our ability to hire, train and retain skilled employees. Competition for these employees is intense.

We may acquire technologies, products and companies in the future and these acquisitions could disrupt our business and harm our financial condition and results of operations. In addition, we may not obtain the benefits that the acquisitions were intended to create.

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     As part of our business strategy, we regularly consider and, as appropriate, make acquisitions (whether by acquisition, license or otherwise) of technologies, products and companies that we believe are complementary to our business. Acquisitions typically entail many risks and could result in difficulties in integrating the operations, personnel, technologies, products and companies acquired, and may result in significant charges to earnings. If we are unable to successfully integrate our acquisitions with our existing business, or we otherwise make an acquisition that does not result in the benefits that we anticipated, our business, results of operations, financial condition and cash flows could be materially and adversely affected, which would adversely affect our ability to develop and introduce new products and the market price of our stock. In addition, in connection with acquisitions, we could experience disruption in our business or employee base, or key employees of companies that we acquire may seek employment elsewhere, including with our competitors. Furthermore, the products of companies we acquire may overlap with our products or those of our customers, creating conflicts with existing relationships or with other commitments that are detrimental to the combined businesses.

We may not realize all of the anticipated benefits of our acquisition of LipoSonix.

     Our ability to realize the anticipated benefits of our acquisition of LipoSonix could be affected by a number of factors, including:

• our ability to attain regulatory approvals, both in the United States and worldwide, and the timing of such approvals;

• our compliance with existing and future legal and regulatory requirements, both in the United States and worldwide;

• the efficacy of the LIPOSONIX^TM system;

• market acceptance of the LIPOSONIX^TM system;

• 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 the LIPOSONIX^TM system;

• the costs associated with investment in new infrastructure to support worldwide operations;

• the strength of our intellectual property portfolio related to the LIPOSONIX^TM system;

• the ability of other companies to design around the proprietary technology in the LIPOSONIX^TM system;

• the anticipated pricing, margins, size of the markets and demand related to the LIPOSONIX^TM system;

• the challenges associated with using distributors or finding new distributors for marketing and sales of the LIPOSONIX^TM system;

• the challenges associated with advertisement and promotion related to the LIPOSONIX^TM system, which is dynamic and varies according to jurisdiction and distribution channel mode;

• the possibility of adverse patient events pertaining to the LIPOSONIX^TM system;

• risks inherent to operations outside of the United States, including foreign currency exchange rate fluctuations;

• our ability to integrate the operations of LipoSonix with our operations;

• our ability to retain key personnel of LipoSonix; and

• our ability to effectively compete in the fat removal marketplace.

We rely on third parties to conduct business operations outside of the U.S., and we may be adversely affected if they act in violation of the U.S. Foreign Corrupt Practices Act or other anti-bribery laws.

     The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions prohibit companies and their agents from making improper payments to government officials for the purpose of obtaining or retaining business. These laws are complex and often difficult to interpret and apply, and in certain cases, local business practices may conflict with strict adherence to anti-bribery laws. Our policies and contractual arrangements are designed to maintain compliance with these anti-bribery laws. We perform, on a periodic basis, an extensive background check to verify several aspects of compliance, including but not limited to, national and international “black lists”. We also provide training to relevant employees and agents regarding compliance with anti-bribery laws. We cannot guarantee that our policies and procedures, contractual obligations, background checks and training programs will prevent reckless or criminal acts committed by our employees or agents. Violations may result in criminal and civil penalties, including fines, imprisonment, loss of our export licenses,

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suspension of our ability to do business with the federal government, denial of government reimbursement for our products, and exclusion from participation in government healthcare programs. Allegations or evidence that we or our agents have violated these laws could disrupt our business and subject us to criminal or civil enforcement actions. Such action could have a material adverse effect on our business.

Our success depends on our ability to manage our growth.

     We have experienced a period of rapid growth from both acquisitions and internal expansion of our operations. This growth has placed significant demands on our human and financial resources. We must continue to improve our operational, financial and management information controls and systems and effectively motivate, train and manage our employees to properly manage this growth. If we do not manage this growth effectively, maintain the quality of our products despite the demands on our resources and retain key personnel, our business could be harmed.

We rely on others to manufacture our products.

     Currently, we rely on third-party manufacturers for much of our product manufacturing needs. All third-party manufacturers are required by law to comply with the FDA’s regulations, including the cGMP regulations (for drugs and biologics) and the QSR (for medical devices), as applicable. These regulations set forth standards for both quality assurance and quality control. Third-party manufacturers also must maintain records and other documentation as required by applicable laws and regulations. In addition to a legal obligation to comply, our third-party manufacturers are contractually obligated to comply with all applicable laws and regulations. However, we cannot guarantee that third-party manufacturers will ensure compliance with all applicable laws and regulations. Failure of a third-party manufacturer to maintain compliance with applicable laws and regulations could result in decreased sales of our products and decreased revenues. Failure of a third-party manufacturer to maintain compliance with applicable laws and regulations also could result in reputational harm to Medicis and potentially subject us to sanctions, including:

• delays, warning letters, and fines;

• product recalls or seizures;

• injunctions on sales;

• refusal of FDA to review pending applications;

• total or partial suspension of production;

• withdrawal of prior marketing approvals or clearances; and

• civil penalties and criminal prosecutions.

     Typically, our manufacturing contracts are short term. We are dependent upon renewing agreements with our existing manufacturers or finding replacement manufacturers to satisfy our requirements. As a result, we cannot be certain that manufacturing sources will continue to be available or that we can continue to outsource the manufacturing of our products on reasonable or acceptable terms.

     The underlying cost to us for manufacturing our products is established in our agreements with these outside manufacturers. Because of the short-term nature of these agreements, our expenses for manufacturing are not fixed and could change from contract to contract. If the cost of production increases, our gross margins could be negatively affected.

     In addition, we rely on outside manufacturers to provide us with an adequate and reliable supply of our products on a timely basis and in accordance with good manufacturing standards and applicable product specifications. As a result, we are subject to and have little or no control over delays and quality control lapses that our third-party manufacturers and suppliers may suffer. For example, in early May 2008, we became aware that our third-party manufacturer and supplier of SOLODYN^® mistakenly filled at least one bottle labeled as SOLODYN^® with a different pharmaceutical product. As a result of this occurrence, we initiated a voluntary recall of the two affected lots. We were able, however, to recoup some of our losses from this voluntary recall during 2009 as a result of an indemnification claim against the manufacturer.

     Loss of a supplier or any difficulties that arise in the supply chain could significantly affect our inventories and supply of products available for sale. We do not have alternative sources of supply for all of our products. If a

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primary supplier of any of our primary products is unable to fulfill our requirements for any reason, it could reduce our sales, margins and market share, as well as harm our overall business and financial results. If we are unable to supply sufficient amounts of our products on a timely basis, our revenues and market share could decrease and, correspondingly, our profitability could decrease.

     Under several exclusive supply agreements, with certain exceptions, we must purchase most of our product supply from specific manufacturers. If any of these exclusive manufacturer or supplier relationships were terminated, we would be forced to find a replacement manufacturer or supplier. Manufacturing facilities must be approved by the FDA before they are used to manufacture our products. The validation of a new facility and the approval of that manufacturer for a new product may take a year or more before manufacture can begin at the facility. Delays in obtaining FDA validation of a replacement manufacturing facility could cause an interruption in the supply of our products. The new facility also may be subject to follow-up inspections. Although we have business interruption insurance to assist in covering the loss of income for products where we do not have a secondary manufacturer, which may mitigate the harm to us from the interruption of the manufacturing of our largest selling products caused by certain events, the loss of a manufacturer could still cause a reduction in our sales, margins and market share, as well as harm our overall business and financial results.

We and our third-party manufacturers rely on a limited number of suppliers of the raw materials of our products. A disruption in supply of raw material would be disruptive to our inventory supply.

     We and the manufacturers of our products rely on suppliers of raw materials used in the production of our products. Some of these materials are available from only one source and others may become available from only one source. We try to maintain inventory levels that are no greater than necessary to meet our current projections, which could have the effect of exacerbating supply problems. Any interruption in the supply of finished products could hinder our ability to timely distribute finished products. If we are unable to obtain adequate product supplies to satisfy our customers’ orders, we may lose those orders and our customers may cancel other orders and stock and sell competing products. This, in turn, could cause a loss of our market share and reduce our revenues. In addition, any disruption in the supply of raw materials or an increase in the cost of raw materials to our manufacturers could have a significant effect on their ability to supply us with our products, which would adversely affect our financial condition and results of operations.

We could experience difficulties in obtaining supplies of RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM.

     The manufacturing process to create bulk non-animal stabilized hyaluronic acid necessary to produce RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM products is technically complex and requires significant lead-time. Any failure by us to accurately forecast demand for finished product could result in an interruption in the supply of RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM products and a resulting decrease in sales of the products.

     We depend exclusively on Q-Med for our supply of RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM products. There are currently no alternative suppliers of these products. Q-Med has committed to supply RESTYLANE^® to us under a long-term license that is subject to customary conditions and our delivery of specified milestone payments. Q-Med manufactures RESTYLANE^®, RESTYLANE-L^TM, PERLANE^®, PERLANE-L^TM, RESTYLANE FINE LINES^TM and RESTYLANE SUBQ^TM at its facility in Uppsala, Sweden. We cannot be certain that Q-Med will be able to meet our current or future supply requirements. Any impairment of Q-Med’s manufacturing capacities could significantly affect our inventories and our supply of products available for sale, which would materially and adversely affect our results of operations.

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

     Numerous factors could cause interruptions in the supply of our finished products, including:

• timing, scheduling and prioritization of production by our contract manufacturers;

• labor interruptions;

• changes in our sources for manufacturing;

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• the timing and delivery of domestic and international shipments;

• our failure to locate and obtain replacement manufacturers as needed on a timely basis;

• conditions affecting the cost and availability of raw materials; and

• hurricanes and other natural disasters.

     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 products. Overestimates of demand may result in excessive inventory production and underestimates may result in inadequate supply of our products in channels of distribution.

     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. We have recently entered into 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 supplied by our major wholesalers. We rely wholly upon our wholesale and drug chain customers to effect the distribution allocation of substantially all of our products.

     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 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 in product inventory in the distribution channel. Any decision made by management to reduce wholesale inventory levels will decrease our product revenue.

Fluctuations in demand for our products create inventory maintenance uncertainties.

     We schedule our inventory purchases to meet anticipated customer demand. As a result, miscalculation of customer demand or relatively small delays in our receipt of manufactured products could result in revenues being deferred or lost. Our operating expenses are based upon anticipated sales levels, and a high percentage of our operating expenses are relatively fixed in the short term. 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. 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 selectively outsource certain non-sales and non-marketing services, and cannot assure you that we will be able to obtain adequate supplies of such services on acceptable terms.

     To enable us to focus on our core marketing and sales activities, we selectively outsource certain non-sales and non-marketing functions, such as laboratory research, manufacturing and warehousing. As we expand our activities, we expect to expend additional financial resources in these areas. We typically do not enter into long-term manufacturing contracts with third-party manufacturers. Whether or not such contracts exist, we cannot assure

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you that we will be able to obtain adequate supplies of such services or products in a timely fashion, on acceptable terms, or at all.

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

     Our products are subject to competition from lower priced versions of our products and competing products from Canada and other countries where government price controls or other market dynamics result in lower prices. The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere targeted to American purchasers, the increase in United States-based businesses affiliated with Canadian pharmacies marketing to American purchasers, and other factors. Most of these foreign imports are illegal under current United States law. However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the United States Customs Service, and there is increased political pressure to permit the imports as a mechanism for expanding access to lower priced medicines.

     In December 2003, Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This law contains provisions that may change United States import laws and expand consumers’ ability to import lower priced versions of our and competing products from Canada, where there are government price controls. These changes to United States import laws will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will lead to substantial savings for consumers and will not create a public health safety issue. The former Secretary of Health and Human Services did not make such a certification. However, it is possible that the current Secretary or a subsequent Secretary could make the certification in the future. As directed by Congress, a task force on drug importation recently conducted a comprehensive study regarding the circumstances under which drug importation could be safely conducted and the consequences of importation on the health, medical costs and development of new medicines for United States consumers. The task force issued its report in December 2004, finding that there are significant safety and economic issues that must be addressed before importation of prescription drugs is permitted, and the current Secretary has not yet announced any plans to make the required certification. In addition, federal legislative proposals have been made to implement the changes to the United States import laws without any certification, and to broaden permissible imports in other ways. Even if the changes to the United States import laws do not take effect, and other changes are not enacted, imports from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA, the United States Customs Service and other government agencies.

     The importation of foreign products adversely affects our profitability in the United States. This impact could become more significant in the future, and the impact could be even greater if there is a further change in the law or if state or local governments take further steps to facilitate the importation of products from abroad.

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

     We are exposed to risks of product liability claims from allegations that our products resulted in adverse effects to the patient or others. These risks exist even with respect to those products that are approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA.

     In addition to our desire to reduce the scope of our potential exposure to these types of claims, many of our customers require us to maintain product liability insurance as a condition of conducting business with us. We currently carry product liability insurance on a claims-made basis. Nevertheless, this insurance may not be sufficient to cover all claims made against us. Insurance coverage is expensive and may be difficult to obtain. As a result, we cannot be certain that our current coverage will continue to be available in the future on reasonable terms, if at all. If we are liable for any product liability claims in excess of our coverage or outside of our coverage, the cost and expense of such liability could cause our earnings and financial condition to suffer.

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

     Physicians and potential patients may have a number of concerns about the safety of our products, whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research. Negative

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publicity, whether accurate or inaccurate, concerning our products could reduce market or governmental acceptance of our products and could result in decreased product demand or product withdrawal. In addition, significant negative publicity could result in an increased number of product liability claims, whether or not these claims are supported by applicable law.

Rising insurance costs could negatively impact profitability.

     The cost of insurance, including workers compensation, product liability and general liability insurance, has been relatively stable in recent years but may increase in the future. In response, we may increase deductibles and/or decrease certain coverages to mitigate these costs. These increases, and our increased risk due to increased deductibles and reduced coverages, could have a negative impact on our results of operations, financial condition and cash flows.

DYSPORT^TM, RESTYLANE^® and PERLANE^® are consumer products and as such, are susceptible to changes in popular trends and applicable laws, which could adversely affect sales or product margins of DYSPORT^TM, RESTYLANE^® and PERLANE^®.

     DYSPORT^TM, RESTYLANE^® and PERLANE^® are consumer products. If we fail to anticipate, identify or react to competitive products or if consumer preferences in the cosmetic marketplace shift to other treatments for the treatment of glabellar lines, fine lines, wrinkles and deep facial folds, we may experience a decline in demand for DYSPORT^TM, RESTYLANE^® and PERLANE^®. In addition, the popular media has at times in the past produced, and may continue in the future to produce, negative reports regarding the efficacy, safety or side effects of facial aesthetic products. Consumer perceptions of DYSPORT^TM, RESTYLANE^® and PERLANE^® may be negatively impacted by these reports and other reasons.

     Demand for DYSPORT^TM, RESTYLANE^® and PERLANE^® may be materially adversely affected by changing economic conditions. Generally, the costs of cosmetic procedures are borne by individuals without reimbursement from their medical insurance providers or government programs. Individuals may be less willing to incur the costs of these procedures in weak or uncertain economic environments, and demand for DYSPORT^TM, RESTYLANE^® and PERLANE^® could be adversely affected.

The restatement of our consolidated financial statements has subjected us to a number of additional risks and uncertainties, including increased costs for accounting and legal fees and the increased possibility of legal proceedings.

     As discussed in our Form 10-K/A for the year ended December 31, 2007 filed with the SEC on November 10, 2008, and in Note 2 to our consolidated financial statements therein, we determined that our consolidated financial statements for the annual, transition and quarterly periods in fiscal years 2003 through 2007 and the first and second quarters of 2008 should be restated due to an error in our interpretation and application of Statement of Financial Accounting Standards No. 48, Revenue Recognition When Right of Return Exists (“SFAS 48”), as it applies to a component of our sales return reserve calculations. SFAS 48 is now part of ASC 605, Revenue Recognition (“ASC 605”). As a result of the restatement, we have become subject to a number of additional risks and uncertainties, including:

• We incurred substantial unanticipated costs for accounting and legal fees in connection with the restatement. Although the restatement is complete, we expect to continue to incur accounting and legal costs as noted below.

• As a result of the restatement, we have been named in a putative shareholder class action complaint, as discussed in Item 3 of Part I of this report, “Legal Proceedings” and Note 12, “Commitments and Contingencies.” The plaintiffs in this consolidated lawsuit may make additional claims, expand existing claims and/or expand the time periods covered by the complaints. Other plaintiffs may bring additional actions with other claims, based on the restatement. If such events occur, we may incur substantial defense costs regardless of the outcome of these actions and insurance and indemnification may not be sufficient to cover the losses we may incur. Likewise, such events might cause a diversion of our management’s time and attention. If we do not prevail in this action or other potential actions, we could be required to pay substantial damages or settlement costs, which could adversely affect our business, financial condition, results of operations and liquidity.

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• 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, and threatening to pursue a derivative claim if our Board of Directors does not comply with the stockholder’s demands. We may receive similar letters from other stockholders. Our Board of Directors reviewed the letter during the course of 2009 and established a special committee of the Board, comprised of directors who are independent and disinterested with respect to the letter, (i) to assess whether there is any merit to the allegations contained in the letter, (ii) if the special committee were to conclude that there may be merit to any of the allegations contained in the letter, to further assess whether it is in our best interest 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 special committee engaged outside counsel to conduct an inquiry. The ultimate outcome of these potential actions could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price for our securities.

In 2008, management identified a material weakness in our internal control over financial reporting with respect to our accounting for sales return reserves. Although as of December 31, 2008 management determined that the material weakness identified in 2008 had been remediated, management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.

     In connection with the restatement of our consolidated financial statements in 2008, management identified a material weakness in our internal control over financial reporting with respect to our interpretation and application of SFAS 48 (now part of ASC 605) as it applies to the calculation of sales return reserves. Management took steps to remediate the material weakness in our internal control over financial reporting and, as of December 31, 2008, management determined that the material weakness identified in 2008 had been remediated. There can be no assurance, however, that additional material weaknesses will not be identified in the future.

     Any failure to remedy additional deficiencies in our internal control over financial reporting that may be discovered in the future could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that our internal control over our financial reporting is effective and, moreover, affect the results of our independent registered public accounting firm’s attestation report regarding our management’s assessment. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies and could cause investors to lose confidence in our reported financial information, which could have an adverse effect on the trading price of our common stock.

     In addition, if we or our independent registered public accounting firm identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, additional deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us to a variety of administrative sanctions, including the suspension or delisting of our ordinary shares from the NYSE and review by the NYSE, the SEC, or other regulatory authorities.

We may not be able to repurchase the Old Notes when required.

     We have $169.2 million principal amount of outstanding 2.5% Contingent Convertible Senior Notes due 2032 (the “Old Notes”). 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.

     The source of funds for any repurchase required as a result of any such event will be our available cash or cash generated from operating activities or other sources, including borrowings, sales of assets, sales of equity or funds provided by a new controlling entity. We cannot assure you, however, that sufficient funds will be available at the time of any such event to make any required repurchases of the Notes tendered. If sufficient funds are not available to repurchase the Old Notes, we may be forced to incur other indebtedness or otherwise reallocate our financial resources. Furthermore, the use of available cash to fund the repurchase of the Old Notes may impair our ability to obtain additional financing in the future.

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Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.

     We are subject to income taxes in both the U.S. and other foreign jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in or interpretations of tax laws including pending tax law changes (such as the research and development credit and the deductibility of executive compensation), changes in our manufacturing activities and changes in our future levels of research and development spending. In addition, we are subject to the periodic examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these periodic examinations will not have an adverse effect on our provision for income taxes and estimated income tax liabilities.

Risks Related to Our Industry

The growth of managed care organizations, other third-party reimbursement policies, state regulatory agencies and retailer fulfillment policies may harm our pricing, which may reduce our market share and margins.

     Our operating results and business success depend in large part on the availability of adequate third-party payor reimbursement to patients for our prescription-brand products. These third-party payors include governmental entities such as Medicaid, private health insurers and managed care organizations. Because of the size of the patient population covered by managed care organizations, marketing of prescription drugs to them and the pharmacy benefit managers that serve many of these organizations has become important to our business.

     The trend toward managed healthcare in the United States and the growth of managed care organizations could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. Managed care organizations and other third-party payors try to negotiate the pricing of medical services and products to control their costs. Managed care organizations and pharmacy benefit managers typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower costs, generic products are often favored. The breadth of the products covered by formularies varies considerably from one managed care organization to another, and many formularies include alternative and competitive products for treatment of particular medical conditions. Exclusion of a product from a formulary can lead to its sharply reduced usage in the managed care organization patient population. Payment or reimbursement of only a portion of the cost of our prescription products could make our products less attractive, from a net-cost perspective, to patients, suppliers and prescribing physicians. We cannot be certain that the reimbursement policies of these entities will be adequate for our pharmaceutical products to compete on a price basis. If our products are not included within an adequate number of formularies or adequate reimbursement levels are not provided, or if those policies increasingly favor generic products, our market share and gross margins could be harmed, as could our business, financial condition, results of operations and cash flows.

     In addition, healthcare reform could affect our ability to sell our products and may have a material adverse effect on our business, results of operations, financial condition and cash flows.

     Some of our products are not of a type generally eligible for reimbursement. It is possible that products manufactured by others could address the same effects as our products and be subject to reimbursement. If this were the case, some of our products may be unable to compete on a price basis. In addition, decisions by state regulatory agencies, including state pharmacy boards, and/or retail pharmacies may require substitution of generic for branded products, may prefer competitors’ products over our own, and may impair our pricing and thereby constrain our market share and growth.

     Managed care initiatives to control costs have influenced primary-care physicians to refer fewer patients to dermatologists and other specialists. Further reductions in these referrals could reduce the size of our potential market, and harm our business, financial condition, results of operations and cash flows.

We are subject to extensive governmental regulation.

     Pharmaceutical companies are subject to significant regulation by a number of national, state and local governments and agencies. The FDA administers requirements covering testing, manufacturing, safety,

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effectiveness, labeling, storage, record keeping, approval, sampling, advertising and promotion of our products. Several states have also instituted laws and regulations covering some of these same areas. In addition, the FTC and state and local authorities regulate the advertising of over-the-counter drugs and cosmetics. Failure to comply with applicable regulatory requirements could, among other things, result in:

• fines;

• changes to advertising;

• suspensions of regulatory approvals of products;

• product withdrawals and recalls;

• delays in product distribution, marketing and sale; and

• civil or criminal sanctions.

     For example, in early May 2008, we became aware that our third-party manufacturer and supplier of SOLODYN^® mistakenly filled at least one bottle labeled as SOLODYN^® with a different pharmaceutical product. As a result of this occurrence, we initiated a voluntary recall of the two affected lots, each of which was shipped subsequent to March 31, 2008, and we may be subject to claims, fines or other penalties.

     Our prescription and over-the-counter products receive FDA review regarding their safety and effectiveness. However, the FDA is permitted to revisit and change its prior determinations. We cannot be sure that the FDA will not change its position with regard to the safety or effectiveness of our products. If the FDA’s position changes, we may be required to change our labeling or formulations or cease to manufacture and market the challenged products. Even prior to any formal regulatory action, we could voluntarily decide to cease distribution and sale or recall any of our products if concerns about their safety or effectiveness develop.

     Before marketing any drug that is considered a “new drug” by the FDA, the FDA must provide its approval of the product. All products which are considered drugs which are not “new drugs” and that generally are recognized by the FDA as safe and effective for use do not require the FDA’s approval. We believe that some of our products, as they are promoted and intended for use, are exempt from treatment as “new drugs” and are not subject to approval by the FDA. The FDA, however, could take a contrary position, and we could be required to seek FDA approval of those products and the marketing of those products. We could also be required to withdraw those products from the market.

     Sales representative activities may also be subject to the Voluntary Compliance Guidance issued for pharmaceutical manufacturers by the OIG of the Department of Health and Human Services, as well as state laws and regulations. We have established compliance program policies and training programs for our sales force, which we believe are appropriate. The OIG and/or state law enforcement entities, however, could take a contrary position, and we could be required to modify our sales representative activities.

Item 1B. Unresolved Staff Comments

     We have received no written comments regarding our periodic or current reports from the Staff of the SEC that were issued 180 days or more preceding the end of 2009 and that remain unresolved.

Item 2. Properties

     During July 2006, we executed a lease agreement for new headquarter office space to accommodate our expected long-term growth. The first phase is for approximately 150,000 square feet with the right to expand. We occupied the new headquarter office space, which is located approximately one mile from our previous headquarter office space in Scottsdale, Arizona, during the second quarter of 2008. We obtained possession of the leased premises and therefore began accruing rent expense during the first quarter of 2008. The term of the lease is twelve years. The average annual expense under the amended lease agreement is approximately $3.9 million. During the first quarter of 2008, we received approximately $6.7 million in tenant improvement incentives from the landlord. This amount has been capitalized into leasehold improvements and is being depreciated on a straight-line basis over the lesser of the useful life or the term of the lease. The tenant improvement incentives are also included in other long-term liabilities as deferred rent, and will be recognized as a reduction of rent expense on a straight-line basis over the term of the lease. In 2008, upon vacating our previous headquarters facility, we recorded a charge for the estimated remaining net cost for the lease, net of potential sublease income, of $4.8 million. See Item 7 of Part II of

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this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contingent Convertible Senior Notes and Other Long-Term Commitments”.

     During October 2006, we executed a lease agreement for additional headquarter office space, which is also located approximately one mile from our current headquarter office space in Scottsdale, Arizona to accommodate our current needs and future growth. Under this agreement, approximately 21,000 square feet of office space is being leased for a period of three years. In May 2007, we began occupancy of the additional headquarter office space. The lease expires in May 2010. We intend to extend the lease beyond May 2010.

     LipoSonix, now known as Medicis Technologies Corporation, presently leases approximately 24,700 square feet of office, laboratory and manufacturing space in Bothell, Washington, under a lease agreement that expires in October 2012.

     Medicis Aesthetics Canada Ltd., a wholly owned subsidiary, presently leases approximately 3,600 square feet of office space in Toronto, Ontario, Canada, under a lease agreement, as extended, that expires in June 2010.

     Rent expense was approximately $3.6 million, $9.4 million and $2.5 million for 2009, 2008 and 2007, respectively. Rent expense for 2008 includes a $4.8 million charge for the estimated remaining net cost for our previous headquarters facility lease, net of potential sublease income.

Item 3. Legal Proceedings

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

     On October 8, 2009, we received a Paragraph IV Patent Certification from Lupin advising that Lupin had filed an ANDA with the FDA for generic SOLODYN^® in its forms of 45mg, 90mg, and 135mg strengths. Lupin did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleged that Lupin’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of our ’838 Patent. On November 17, 2009, we filed suit against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA an ANDA for generic SOLODYN^® in its forms of 45mg, 90mg and 135mg strengths. The relief we requested includes a request for a permanent injunction preventing Lupin from infringing the ’838 Patent by selling generic versions of SOLODYN^®. On November 24, 2009, we received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment I”) with the FDA for generic SOLODYN ^® in its form of 65mg strength. Lupin has not advised us as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that our ’838 Patent is invalid and/or will not be infringed by Lupin’s manufacture, use, sale and/or importation of the products for which the Lupin ANDA Supplement/Amendment I was submitted. Lupin’s submission amends an ANDA already subject to a 30-month stay. As such, we believe that the amendment cannot be approved by the FDA until after the expiration of the 30-month period or a court decision that the patent is invalid or not infringed. On December 23, 2009, we received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment II”) with the FDA for generic SOLODYN ^® in its form of 115mg strength. Lupin has not advised us as to the timing or status

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

     On September 21, 2009, we received a Paragraph IV Patent Certification from Glenmark advising that Glenmark has filed an ANDA with the FDA for a generic version of LOPROX^® Gel. Glenmark did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleged that our U.S. Patent No. 7,018,656 (the “’656 Patent”) would not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’656 Patent is 2018. On November 14, 2009, we entered into a License and Settlement Agreement with Glenmark and its foreign corporate parent Glenmark Ltd. In connection with the License and Settlement Agreement, we and Glenmark agreed to terminate all legal disputes between us relating to LOPROX^® Gel. In addition, Glenmark confirmed that certain of our patents relating to LOPROX^® Gel are valid and enforceable, and cover Glenmark’s activities relating to its generic version of LOPROX^® Gel under an ANDA. Subject to the terms and conditions contained in the License and Settlement Agreement, we also granted Glenmark a license to make and sell generic versions of LOPROX^® Gel. Upon commercialization by Glenmark of generic versions of LOPROX^® Gel, Glenmark will pay us a royalty based on sales of such generic products.

     On December 7, 2009, we entered into a Settlement Agreement (the “Paddock Settlement Agreement”) with Paddock Laboratories, Inc. (“Paddock”). In connection with the Paddock Settlement Agreement, we and Paddock agreed to settle all legal disputes between us relating to our LOPROX^® Shampoo and we agreed to withdraw our complaint against Paddock pending in the U.S. District Court for the District of Arizona. In addition, Paddock confirmed that Paddock’s activities relating to its generic version of LOPROX^® Shampoo are covered by our current and pending patent applications. Further, subject to the terms and conditions contained in the Paddock Settlement Agreement, we granted Paddock a non-exclusive, royalty-bearing license to make and sell limited quantities of its generic version of LOPROX^® Shampoo.

     On May 8, 2009, we received a Paragraph IV Patent Certification from Glenmark advising that Glenmark has filed an ANDA with the FDA for a generic version of VANOS^® cream. Glenmark has not advised us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleges that our ’001 Patent and 424 Patent will not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’424 Patent is 2023. On June 19, 2009, we filed a complaint for patent infringement against Glenmark in the United States District Court for the District of New Jersey. On July 14, 2009, Glenmark and Glenmark Ltd. answered our complaint, and filed counterclaims seeking a declaration that the patents we listed with the FDA for VANOS^® cream were invalid and unenforceable, and would not be infringed by Glenmark’s generic version of VANOS^®. On November 14, 2009, we entered into a license and settlement agreement with Glenmark Ltd. and Glenmark. In connection with the license and settlement agreement, we and Glenmark agreed to terminate all legal disputes between us relating to VANOS^®. In addition, Glenmark confirmed that certain of our patents relating to VANOS^® cream are valid and enforceable, and cover Glenmark’s activities relating to its generic versions of VANOS^® cream under its ANDA. Further, subject to the terms and conditions contained in the license and settlement agreement, we granted Glenmark, 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. Upon commercialization by Glenmark of generic versions of VANOS^® products, Glenmark will pay us a royalty based on sales of such generic products.

     On May 6, 2009, we received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy had filed an ANDA with the FDA for generic SOLODYN^® in its form of 135mg strength. Ranbaxy did not advise us as

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to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleged that Ranbaxy’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of our ’838 Patent. On June 11, 2009, we filed suit against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the ’838 Patent by submitting the above ANDA to the FDA. The relief we requested included a request for a permanent injunction preventing Ranbaxy from infringing the ’838 Patent by selling a generic version of SOLODYN^®. Ranbaxy has answered that the ’838 Patent is not infringed, is invalid, and/or is unenforceable. On January 5, 2010, we received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-118 (“Ranbaxy ANDA Supplement/Amendment”) with the FDA for generic SOLODYN^® in its forms of 45mg and 90mg strengths. Ranbaxy has not advised us as to the timing or status of the FDA’s review of its filing, or whether Ranbaxy has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleges that our ’838 Patent is invalid, unenforceable, and/or will not be infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s Paragraph IV Certification also alleges that our ‘347 Patent or ‘373 Patent is not infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s submission as to the 45mg and 90mg strengths amends an ANDA already subject to a 30-month stay. As such, we believe that the Ranbaxy ANDA Supplement/Amendment cannot be approved by the FDA until after the expiration of the 30-month period or in the event of a court decision holding that the patents are invalid or not infringed. On February 16, 2010, we filed a complaint against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the patents by submitting the Ranbaxy ANDA Supplement/Amendment for generic SOLODYN^® in its forms of 45mg and 90mg strengths.

     On June 23, 2009, the Company and IMPAX entered into a Settlement Agreement (the “IMPAX Settlement Agreement”) and Amendment No. 2 to the License and Settlement Agreement initially entered into between IMPAX and the Company. In conjunction with the IMPAX Settlement Agreement, both IMPAX and the Company released, acquitted, covenanted not to sue and forever discharged one another and their affiliates from any and all liabilities relating to the litigation stemming from the initial License and Settlement Agreement between IMPAX and the Company.

     A third party has requested that the USPTO conduct an Ex Parte Reexamination of the ’838 Patent. The USPTO granted this request. In March 2009, the USPTO issued a non-final office action in the reexamination of the ’838 Patent. On May 13, 2009, Medicis’ filed its response to the non-final office action with the USPTO, canceling certain claims and adding amended claims. On November 13, 2009, we received a second non-final office action from the USPTO in the reexamination of the ’838 Patent. The latest office action rejects certain claims of the ’838 Patent. On January 8, 2010, the Company filed its response to the non-final office action with the USPTO. Reexamination can result in confirmation of the validity of all of a patent’s claims, the invalidation of all of a patent’s claims, or the confirmation of some claims and the invalidation of others. We cannot guarantee the outcome of the reexamination. It is possible that one or more of our patents covering SOLODYN^® may be found invalid or narrowed in scope as the result of the pending reexamination or a future reexamination by the USPTO. If the USPTO’s action leads the court in a SOLODYN^® patent infringement suit, including the suits described in this Report, to hold that the patent for SOLODYN^® is invalid or not infringed, such a holding would permit the FDA to lift the 30-month stay on approval of ANDAs for generic versions of SOLODYN^®.

     On January 13, 2009, we filed suit against Mylan, Matrix, Matrix Laboratories Inc., Sandoz, and Barr (collectively “Defendants”) in the United States District Court for the District of Delaware seeking an adjudication that Defendants have infringed one or more claims of our ’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^®. Mylan has answered that the ’838 Patent is not infringed and/or invalid. 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 whereby Teva agreed that our patent related to SOLODYN^® valid, and enforceable and cover Teva’s activities relating to its generic SOLODYN^®. As part of the settlement, Teva agreed to immediately stop all further shipments of its generic SOLODYN^® product. On March 30, 2009, the Delaware Court dismissed the claims between us and Matrix Laboratories Inc. without prejudice, pursuant to a stipulation between us and Matrix Laboratories Inc. On August 18, 2009, we entered into a Settlement Agreement with Sandoz whereby all legal disputes between us and Sandoz relating to SOLODYN^® were terminated and where Sandoz agreed that our patents related to SOLODYN^® are valid and enforceable, and cover Sandoz’s activities relating to its generic SOLODYN^®

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product under ANDA #90-422. Sandoz agreed to be permanently enjoined from any further distribution of generic SOLODYN^®.

     On February 1, 2010, we received a Paragraph IV Patent Certification from Sandoz, advising that Sandoz has filed a supplement to its earlier filed ANDA #91-422 (“Sandoz ANDA Supplement”) with the FDA for generic SOLODYN^® in its forms of 65mg and 115mg strengths. Sandoz has not advised us as to the timing or status of the FDA’s review of its filing, or whether Sandoz has complied with FDA requirements for proving bioequivalence. Sandoz’s Paragraph IV Certification alleges that the ’838 Patent will not be infringed by Sandoz’s manufacture, importation, use, sale and/or offer for sale of the products for which the ANDA Supplement was submitted because it has been granted a patent license by us for the ’838 Patent.

     On January 21, 2009, we received a letter from an alleged 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. The letter states that, if the Board of Directors does not take the demanded action, the alleged stockholder will commence a derivative action on behalf of us. Our Board of Directors reviewed the letter during the course of 2009 and 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 were to 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 of Directors any other appropriate action to be taken. The special committee engaged outside counsel to assist with the investigation.

     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 Court has consolidated these actions into a single proceeding and appointed a lead plaintiff and lead plaintiff’s counsel. On May 18, 2009, the lead plaintiff filed an amended complaint. The amended complaint names 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, our Chief Operating Officer and Executive Vice President, Mark A. Prygocki, and our independent auditors, Ernst & Young LLP. The claims alleged in the amended complaint arose 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 amended complaint alleges 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 allegedly had the effect of artificially inflating the market price of our stock. The amended complaint sought to recover unspecified damages and costs, including counsel and expert fees. On July 17, 2009, we and the other defendants filed motions to dismiss the amended complaint in its entirety on various grounds. The lead plaintiff filed an opposition to the motions to dismiss on August 31, 2009, and we and the other defendants filed reply memoranda in support of the motions to dismiss on October 15, 2009. On December 2, 2009, the court dismissed the consolidated amended complaint without prejudice, permitting the lead plaintiff the opportunity to replead. On January 18, 2010, the lead plaintiff filed a second amended complaint. On February 19, 2010, we and the other defendants filed motions to dismiss the second amended complaint in its entirety on various grounds. We will continue 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.

     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 ASC 450, Contingencies) 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

47

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.

     The information set forth under “Legal Matters” in Note 12 in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules,” is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see “Risk Factors” in Item 1A of this Report.

Item 4. Reserved

PART II

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

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

     Our Class A common stock trades on the New York Stock Exchange under the symbol “MRX”. The following table sets forth the high and low sale prices for our Class A common stock on the New York Stock Exchange for the fiscal periods indicated:

	HIGH		LOW		DIVIDENDS DECLARED
YEAR ENDED DECEMBER 31, 2009
First Quarter	$	15.59	$	7.85	$	0.04
Second Quarter		16.74		11.61		0.04
Third Quarter		22.40		14.70		0.04
Fourth Quarter		27.82		20.48		0.04
YEAR ENDED DECEMBER 31, 2008
First Quarter	$	27.02	$	18.51	$	0.04
Second Quarter		24.49		18.84		0.04
Third Quarter		22.10		13.60		0.04
Fourth Quarter		15.19		9.66		0.04

     On February 23, 2010, the last reported sale price on the New York Stock Exchange for Medicis’ Class A common stock was $22.78 per share. As of such date, there were approximately 180 holders of record of Class A common stock.

Dividend Policy

     We do not have a dividend policy. Since July 2003, we have paid quarterly cash dividends aggregating approximately $46.6 million on our common stock. In addition, on December 16, 2009, we declared a cash dividend of $0.04 per issued and outstanding share of common stock payable on January 29, 2010 to our stockholders of record at the close of business on January 4, 2010. Prior to these dividends, we had not paid a cash dividend on our common stock. Any future determinations to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements and other factors that our Board of Directors deems relevant.

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     Our 1.5% Contingent Convertible Senior Notes due 2033 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. As of December 31, 2009, $181,000 of our 1.5% Contingent Convertible Senior Notes was outstanding.

Recent Sales of Unregistered Securities

     None.

Equity Compensation Plan Information

     The following table provides information as of December 31, 2009, about compensation plans under which shares of our common stock may be issued to employees, consultants or non-employee directors of our Board of Directors upon exercise of options, warrants or rights under all of our existing equity compensation plans. Our existing equity compensation plans include our 2006 Incentive Plan, our 2004, 1998, 1996, 1995 and 1992 Stock Option Plans, in which all of our employees and non-employee directors are eligible to participate, and our 2002 Stock Option Plan, in which our employees are eligible to participate but our non-employee directors and officers may not participate. Restricted stock grants may only be made from our 2006 and 2004 Plans. No further shares are available for issuance under the 2001 Senior Executive Restricted Stock Plan.

							Number of securities
							remaining available for
			Number of securities		Weighted-average		future issuance under
			to be issued upon		exercise price		equity compensation
			exercise of		of outstanding		plans (excluding
			outstanding options,		options, warrants		securities reflected in
			warrants and rights		and rights		column a)
Plan Category	Date		(a)		(b)		(c)
Plans approved by stockholders (1)		12/31/2009		6,332,755	$	28.70		2,818,071
Plans not approved by stockholders (2)		12/31/2009		2,921,092	$	30.40		—
Total				9,253,847	$	29.24		2,818,071

(1)

Represents options outstanding and shares available for future issuance under the 2006 Incentive Plan. Also includes options outstanding under the 2004, 1998, 1996, 1995 and 1992 Stock Option Plans, which have been terminated as to future grants.

(2)

Represents the 2002 Stock Option Plan, which was implemented by our board in November 2002. The 2002 Plan was terminated on May 23, 2006 as part of the stockholders’ approval of the 2006 Incentive Plan, and no options can be granted from the 2002 Plan after May 23, 2006. Options previously granted from this plan remain outstanding and continue to be governed by the rules of the plan. The 2002 Plan was a non-stockholder approved plan under which non-qualified incentive options have been granted to our employees and key consultants who are neither our executive officers nor our directors at the time of grant. The board authorized 6,000,000 shares of common stock for issuance under the 2002 Plan. The option price of the options is the fair market value, defined as the closing quoted selling price of the common stock on the date of the grant. No option granted under the 2002 Plan has a term in excess of ten years, and each will be subject to earlier termination within a specified period following the optionee’s cessation of service with us. As of December 31, 2009, the weighted average term to expiration of these options is 3.8 years. Each granted option vests in one or more installments over a period of five years. However, the options will vest on an accelerated basis in the event we experience a change of control (as defined in the 2002 Plan).

     As of February 23, 2010, there were 9,223,782 shares subject to issuance upon exercise of outstanding options or awards under all of our equity compensation plans, at a weighted average exercise price of $29.23, and with a weighted average remaining life of 2.8 years. In addition, as of February 23, 2010, there were 1,888,950

49

unvested shares of restricted stock outstanding under all of our equity compensation plans. As of February 23, 2010, there were 2,852,360 shares available for future issuance under those plans.

Item 6. Selected Financial Data

     The following table sets forth selected consolidated financial data for the year ended December 31, 2009, 2008, 2007 and 2006. The data for the year ended December 31, 2009, 2008, 2007 and 2006 is derived from our audited consolidated financial statements and accompanying notes. The comparability of the periods presented is impacted by certain product rights and business acquisitions and dispositions. Gross profit does not include amortization of our intangible assets.

	Year			Year			Year			Year
	Ended			Ended			Ended			Ended
	Dec. 31, 2009			Dec. 31, 2008			Dec. 31, 2007			Dec. 31, 2006
				(in thousands, except per share amounts)
Statements of Operations Data:
Net product revenues	$	561,761		$	500,977		$	441,868		$	377,548
Net contract revenues		10,154			16,773			15,526			15,617
Net revenues		571,915			517,750			457,394			393,165
Gross profit (a)		515,082			479,036			401,284			347,059
Operating expenses:
Selling, general and administrative		282,950	(b)		279,768	(e)		242,633	(i)		202,457	(k)
Research and development		71,765	(c)		99,916	(f)		39,428	(j)		161,837	(l)
Depreciation and amortization		29,047			27,698			24,548			23,048
In-process research and development		—			30,500	(g)		—			—
Impairment of intangible assets		—			—			4,067			52,586
Total operating expenses		383,762			437,882			310,676			439,928
Operating income		131,320			41,154			90,608			(92,869	)
Other:
Interest and investment (income) expense, net		(3,403	)		(16,722	)		(28,372	)		(20,147	)
Other income, net		(867	)(d)		15,470	(h)		—			—
Income tax expense		59,639			32,130			48,544			(24,570	)
Net income	$	75,951		$	10,276		$	70,436		$	(48,152	)
Basic net income per share	$	1.29		$	0.18		$	1.25		$	(0.88	)
Diluted net income per share	$	1.21		$	0.18		$	1.07		$	(0.88	)
Cash dividend declared per common share	$	0.16		$	0.16		$	0.12		$	0.12
Basic common shares outstanding		57,252			56,567			55,988			54,688
Diluted common shares outstanding		63,172			56,567			71,179			54,688

(a)	Amounts exclude $22.4 million, $21.5 million, $21.6 million, and $20.0 million of amortization expense related to acquired intangible assets for the year ended December 31, 2009, 2008, 2007 and 2006, respectively.
(b)	Includes approximately $18.1 million of compensation expense related to stock options, restricted stock and stock appreciation rights.
(c)	Includes $12.0 million paid to IMPAX related to a development agreement, $10.0 million paid to Revance related to a license agreement, $5.0 million paid to Glenmark related to a development agreement, $5.0

50

	million paid to Perrigo related to a development agreement and approximately $1.1 million of compensation expense related to stock options, restricted stock and stock appreciation rights.
(d)	Includes a $2.9 million reduction in the carrying value of our investment in Revance as a result of a reduction in the net realizable value of the investment using the hypothetical liquidation at book value approach and a $2.2 million gain on the sale of Medicis Pediatrics to BioMarin. See Item 7 of Part II of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.”
(e)	Includes approximately $16.3 million of compensation expense related to stock options and restricted stock and $4.8 million of lease exit costs related to our previous headquarters facility.
(f)	Includes $40.0 million paid to IMPAX related to a development agreement and $25.0 million paid to Ipsen upon the FDA’s acceptance of Ipsen’s BLA for DYSPORTTM and approximately $0.3 million of compensation expense related to stock options and restricted stock.
(g)	In-process research and development expense of $30.5 million is related to our acquisition of LipoSonix.
(h)	Represents a $9.1 million reduction in the carrying value of our investment in Revance as a result of a reduction in the net realizable value of the investment using the hypothetical liquidation at book value approach as of December 31, 2008, and a $6.4 million other-than-temporary impairment loss recognized related to our auction-rate securities investments.
(i)	Includes approximately $21.0 million of compensation expense related to stock options and restricted stock, $2.2 million of professional fees related to a strategic collaboration with Hyperion Therapeutics, Inc. and $1.3 million of professional fees related to a strategic collaboration agreement with Revance.
(j)	Includes approximately $8.0 million related to our option to acquire Revance or to license Revance’s topical product currently under development and approximately $0.1 million of compensation expense related to stock options and restricted stock.
(k)	Includes approximately $24.5 million of compensation expense related to stock options and restricted stock, $10.2 million related to a loss contingency for a legal matter and $1.8 million related to a settlement of a dispute related to our merger with Ascent.
(l)	Includes approximately $125.2 million paid to Ipsen related to the DYSPORTTM development and distribution agreement and approximately $1.6 million of compensation expense related to stock options and restricted stock.

	DECEMBER 31,
	2009		2008			2007		2006
			(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	528,280	$	343,885	(a)	$	794,680	$	554,261	(b)
Working capital		434,639		307,635			422,971		323,070
Long-term investments		25,524		55,333			17,072		130,290
Total assets		1,172,198		973,434			1,213,411		1,122,720
Current portion of long-term debt		—		—			283,910		169,155
Long-term debt		169,326		169,326			169,145		283,910
Stockholders’ equity		695,259		603,694			583,301		475,520

	Year Ended
	Dec. 31, 2009				Dec. 31, 2008				Dec. 31, 2007				Dec. 31, 2006
					(in thousands)
Cash Flow Data:
Net cash provided by (used in) operating activities	$	177,885		(c)	$	45,770		(d)	$	158,944		(e)	$	(40,963	)	(f)
Net cash (used in) provided by investing activities		(62,226	)			220,091		(g)		(269,486	)	(h)		(216,915	)
Net cash provided by (used in) financing activites		6,953				(287,314	)	(i)		14,470				14,278

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(a)	Decrease in cash, cash equivalents and short-term investments from December 31, 2007 to December 31, 2008 primarily due to the repurchase of $283.7 million of our 1.5% Contingent Convertible Senior Notes,our $150.0 million acquisition of LipoSonix, $40.0 million paid to IMPAX related to a development agreement, $25.0 million paid to Ipsen upon the FDA’s acceptance of Ipsen’s BLA for DYSPORTTM, and payments totaling $87.8 million for income taxes during 2008.
(b)	Decrease in cash, cash equivalents and short-term investments from December 31, 2005 to December 31, 2006 primarily due to payments totaling $125.2 million made to Ipsen related to a development and distribution agreement for the development of DYSPORTTM, payment of the $27.4 million contingent payment related to the merger with Ascent, and payments totaling $35.7 million for income taxes during 2006. In addition, approximately $130.3 million of our available-for-sale investments have been treated as long-term assets as of December 31, 2006, based on their expected maturities.
(c)	Net cash provided by operating activities for the year ended December 31, 2009 is net of $12.0 million paid to IMPAX related to a development agreement, $10.0 million paid to Revance related to a license agreement, $5.0 million paid to Glenmark related to a development agreement and $5.0 million paid to Perrigo related to a development agreement.
(d)	Net cash provided by operating activities for the year ended December 31, 2008 is net of $40.0 million paid to IMPAX related to a development agreement and $25.0 million paid to Ipsen upon the FDA’s acceptance of Ipsen’s BLA for DYSPORTTM.
(e)	Net cash provided by operating activities for the year ended December 31, 2007 is net of $8.0 million of the $20.0 million payment to Revance, representing the residual value of the option to acquire Revance or to license Revance’s topical product currently under development, included in research and development expense.
(f)	Net cash used in operating activities for the year ended December 31, 2006 included payments totaling $125.2 million made to Ipsen related to a development and distribution agreement for the development of DYSPORTTM.
(g)	Net cash provided by investing activities for the year ended December 31, 2008 included $150.0 million of cash used for our acquisition of LipoSonix.
(h)	Net cash used in investing activities for the year ended December 31, 2007 includes a $12.0 million investment in Revance, representing the fair value of the investment in Revance at the time of the investment.
(i)	Net cash used in financing activities for the year ended December 31, 2008 includes the repurchase of $283.7 million of our 1.5% Contingent Convertible Senior Notes.

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     The following table sets forth selected consolidated financial data for the year ended December 31, 2005, the Transition Period, the corresponding six-month period in 2004, and the year ended June 30, 2005. The data for the Transition Period and the year ended June 30, 2005 is derived from our audited consolidated financial statements and accompanying notes, while the data for the year ended December 31, 2005 and the six-month period ended December 31, 2004 is derived from our unaudited consolidated financial statements. The comparability of the periods presented is impacted by certain product rights and business acquisitions and dispositions. Gross profit does not include amortization of our intangible assets.

												Fiscal
					Transition				Six Months			Year Ended
	Year Ended				Period Ended				Ended			June 30,
	Dec. 31, 2005				Dec. 31, 2005				Dec. 31, 2004			2005
	(unaudited)								(unaudited)
					(in thousands, except per share amounts)
Statements of Income Data:
Net product revenues	$	306,735			$	156,963			$	144,116		$	293,888
Net contract revenues		46,002				8,385				34,168			71,785
Net revenues		352,737				165,348				178,284			365,673
Gross profit (a)		297,000				139,583				148,859			307,548
Operating expenses:
Selling, general and administrative		146,158		(b)		78,535		(f)		63,305	(h)		130,927		(j)
Research and development		42,903		(c)		22,367		(g)		45,140	(i)		65,676		(k)
Depreciation and amortization		24,548				12,420				10,222			22,350
Impairment of intangible assets		9,171				9,171				—			—
Total operating expenses		222,780				122,493				118,667			218,953
Operating income		74,220				17,090				30,192			88,595
Other:
Interest and investment (income) expense, net		(5,804	)			(4,726	)			248			(830	)
Other income, net		(59,801	)	(d)		(59,801	)	(d)		—			—
Income tax expense		49,551				29,811				10,377			30,996
Net income	$	90,274			$	51,806			$	19,567		$	58,429
Basic net income per share	$	1.66			$	0.95			$	0.35		$	1.06
Diluted net income per share	$	1.39		(e)	$	0.79			$	0.32		$	0.92
Cash dividend declared per common share	$	0.12			$	0.06			$	0.06		$	0.12
Basic common shares outstanding		54,290				54,323				55,972			55,196
Diluted common shares outstanding		69,558		(e)		69,772				72,160			70,909

(a)	Amounts exclude $21.6 million, $10.9 million, $8.9 million and $19.6 million for amortization expense related to acquired intangible assets in the year ended December 31, 2005, the Transition Period, the six months ended December 31, 2004 and fiscal 2005, respectively.
(b)	Includes approximately $13.9 million of compensation expense related to stock options and restricted stock recognized during the Transition Period and approximately $6.0 million of integration planning costs incurred related to the proposed Inamed transaction during the three months ended June 30, 2005 and three months ended September 30, 2005.
(c)	Includes approximately $8.3 million paid to AAIPharma related to a research and development collaboration, $11.9 million related to a research and development collaboration with Dow and approximately $1.0 million of compensation expense related to stock options and restricted stock.
(d)	Represents a termination fee of $90.5 million received from Inamed upon the termination of the proposed merger with Inamed, net of a termination fee paid to an investment banker and the expensing of

53

	accumulated transactions costs of $27.0 million, and integration costs incurred during the three months ended December 31, 2005 of $3.7 million.
(e)	Diluted net income per common share for the unaudited year ended December 31, 2005 was calculated by using the average of the periodic diluted common shares outstanding during the year. For the period from January 1, 2005 to June 30, 2005, diluted common shares outstanding was calculated using APB Opinion No. 25, while for the period from July 1, 2005 to December 31, 2005, diluted common shares outstanding was calculated using SFAS 123R. The Company adopted SFAS No. 123R effective July 1, 2005.
(f)	Includes approximately $13.9 million of compensation expense related to stock options and restricted stock recognized during the Transition Period and approximately $0.7 million of integration planning costs incurred related to the proposed Inamed transaction during the three months ended September 30, 2005.
(g)	Includes approximately $11.9 million related to a research and development collaboration with Dow and approximately $1.0 million of compensation expense related to stock options and restricted stock.
(h)	Includes approximately $1.3 million of professional fees related to research and development collaborations with Ansata and Q-Med.
(i)	Includes $5.0 million paid to Ansata related to an exclusive development and license agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the development of RESTYLANE SUBQTM.
(j)	Includes approximately $5.3 million of business integration planning costs related to the proposed merger with Inamed, and approximately $1.3 million of professional fees related to research and development collaborations with AAIPharma, Ansata and Q-Med.
(k)	Includes approximately $8.3 million paid to AAIPharma related to a research and development collaboration, $5.0 million paid to Ansata related to an exclusive development and license agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the development of RESTYLANE SUBQTM.

        The cash flow data for the year ended December 31, 2005 and the six months ended December 31, 2004, is unaudited.

	December 31,		June 30,
	2005		2005
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents, and short-term investments	$	742,532	$	603,568
Working capital		630,951		530,850
Total assets		1,196,354		1,095,087
Long-term debt		453,065		453,065
Stockholders’ equity		481,751		416,891

										Fiscal
	Year						Six Months			Year Ended
	Ended			Transition			Ended			June 30,
	Dec. 31, 2005			Period			Dec. 31, 2004			2005
	(unaudited)						(unaudited)
				(in thousands)
Cash Flow Data:
Net cash provided by operating activities	$	232,506	(a)	$	147,990	(a)	$	45,465		$	129,981
Net cash provided by investing activities		187,994			123,665			76,158			140,487
Net cash used in financing activities		(5,137	)		(2,792	)		(137,447	)		(139,793	)

(a) Net cash provided by operating activities for the year ended December 31, 2005 and the Transition Period included a $90.5 million termination fee received from Inamed related to the termination of a proposed merger.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations, as well as discusses our critical accounting policies and estimates. You should read the following discussion and analysis together with our consolidated financial statements, including the related notes, which are included in this Form 10-K. Certain information contained in the discussion and analysis set forth below and elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Risk Factors” in Item 1A of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements in this report. Our MD&A is composed of four major sections; Executive Summary, Results of Operations, Liquidity and Capital Resources and Critical Accounting Policies and Estimates.

Executive Summary

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

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

Financial Information About Segments

     We operate in one business segment: pharmaceuticals. Our current pharmaceutical franchises are divided between the dermatological and non-dermatological fields. Information on revenues, operating income, identifiable assets and supplemental revenue of our business franchises appears in the consolidated financial statements included in Item 8 hereof.

Key Aspects of Our Business

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

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

     We estimate customer demand for our prescription products primarily through use of third-party syndicated data sources which track prescriptions written by health care providers and dispensed by licensed pharmacies. The data represents extrapolations from information provided only by certain pharmacies and are estimates of historical demand levels. We estimate customer demand for our non-prescription products primarily through internal data that we compile. We observe trends from these data and, coupled with certain proprietary information, prepare demand

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forecasts that are the basis for our purchase orders for finished and component inventory from our third-party manufacturers and suppliers. Our forecasts may fail to accurately anticipate ultimate customer demand for our products. Overestimates of demand and sudden changes in market conditions may result in excessive inventory production and underestimates may result in inadequate supply of our products in channels of distribution.

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

     We sell our products primarily to major wholesalers and retail pharmacy chains. Approximately 65-75% of our gross revenues are typically derived from two major drug wholesale concerns. Depending on the customer, we recognize revenue at the time of shipment to the customer, or at the time of receipt by the customer, net of estimated provisions. As a result of certain modifications made to our distribution services agreement with McKesson, our exclusive U.S. distributor of our aesthetics products DYSPORT^TM, PERLANE^® and RESTYLANE^®, we began recognizing revenue on these products upon the shipment from McKesson to physicians beginning in the second quarter of 2009. Consequently, variations in the timing of revenue recognition could cause significant fluctuations in operating results from period to period and may result in unanticipated periodic earnings shortfalls or losses. We have distribution services agreements with our two largest wholesale customers. We review the supply levels of our significant products sold to major wholesalers by reviewing periodic inventory reports that are supplied to us by our major wholesalers in accordance with the distribution services agreements. We rely wholly upon our wholesale and drug chain customers to effect the distribution allocation of substantially all of our prescription products. We believe our estimates of trade inventory levels of our products, based on our review of the periodic inventory reports supplied by our major wholesalers and the estimated demand for our products based on prescription and other data, are reasonable. We further believe that inventories of our products among wholesale customers, taken as a whole, are similar to those of other specialty pharmaceutical companies, and that our trade practices, which periodically involve volume discounts and early payment discounts, are typical of the industry.

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

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

Recent Developments

     As described in more detail below, the following significant events and transactions occurred during 2009, and affected our results of operations, our cash flows and our financial condition:

- Asset Purchase and Development Agreement and License and Settlement Agreements with Glenmark;

- FDA approval of additional strengths of SOLODYN^®;

- License Agreement with Revance;

- License and Settlement Agreement and Joint Development Agreement with Perrigo;

- FDA approval of DYSPORT^TM;

- Sale of Medicis Pediatrics;

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

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- Clinical milestone payments related to our collaboration with IMPAX;

- Reduction in the carrying value of our investment in Revance; and

- Obtainment of a CE Mark verification for the LIPOSONIX^TM system in Europe and Health Canada’s approval of LIPOSONIX^TM system sales in Canada.

Asset Purchase and Development Agreement and License and Settlement Agreements with Glenmark

     On November 14, 2009, we entered into an Asset Purchase and Development Agreement with Glenmark Generics Ltd. and Glenmark Generics Inc., USA (collectively, “Glenmark”) (the “Glenmark Asset Purchase and Development Agreement”) and two License and Settlement Agreements with Glenmark (one, the “Vanos License and Settlement Agreement, the other, the “Loprox License and Settlement Agreement” and, collectively, the “Glenmark License and Settlement Agreements”) with Glenmark.

     In connection with the Glenmark Asset Purchase and Development Agreement, we purchased from Glenmark the North American rights of a dermatology product currently under development, including the underlying technology and regulatory filings. In accordance with terms of the agreement, we made a $5.0 million payment to Glenmark upon closing of the transaction, and will make additional payments to Glenmark of up to $7.0 million upon the achievement of certain development and regulatory milestones. We will make royalty payments to Glenmark on sales of the product. The initial $5.0 million payment was recognized as research and development expense during the three months ended December 31, 2009.

     In connection with the Glenmark License and Settlement Agreements, we and Glenmark agreed to terminate all legal disputes between us relating to our VANOS^® (fluocinonide) Cream 0.1% and LOPROX^® Gel. In addition, Glenmark confirmed that certain of our patents relating to VANOS^® and LOPROX^® are valid and enforceable, and cover Glenmark’s activities relating to its generic versions of VANOS^® and LOPROX^® Gel under ANDAs. Further, subject to the terms and conditions contained in the Vanos License and Settlement Agreement, we granted Glenmark, 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. Upon commercialization by Glenmark of generic versions of VANOS^® products, Glenmark will pay us a royalty based on sales of such generic products. Subject to the terms and conditions contained in the Loprox License and Settlement Agreement, we also granted Glenmark a license to make and sell generic versions of LOPROX^® Gel. Upon commercialization by Glenmark of generic versions of LOPROX^® Gel, Glenmark will pay us a royalty based on sales of such generic products. In accordance with the terms of the Glenmark License and Settlement Agreements, we paid Glenmark $0.3 million for attorneys’ fees incurred by Glenmark related to the legal disputes. The $0.3 million payment was recognized as selling, general and administrative expense during the three months ended December 31, 2009.

FDA approval of additional strengths of SOLODYN^®

     On July 27, 2009, we announced that the FDA had approved additional strengths of SOLODYN^® in 65mg and 115mg dosages for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age and older. With the addition of these newly-approved strengths, SOLODYN^® is now available in five dosages: 45mg, 65mg, 90mg, 115mg, and 135mg. Shipment of the newly-approved 65mg and 115mg products to wholesalers began during the third quarter of 2009.

License Agreement with Revance

     On July 28, 2009, we and Revance, a privately-held, venture-backed development-stage company, entered into a license agreement granting us worldwide aesthetic and dermatological rights to Revance’s novel, investigational, injectable botulinum toxin type A product, referred to as “RT002”, currently in pre-clinical studies. The objective of the RT002 program is the development of a next-generation neurotoxin with favorable duration of effect and safety profiles.

     Under the terms of the agreement, we paid Revance $10.0 million upon execution of the agreement, and will pay additional potential milestone payments totaling approximately $94 million upon successful completion of certain clinical, regulatory and commercial milestones, and a royalty based on sales and supply price, the total of which is equivalent to a double-digit percentage of net sales. The initial $10.0 million payment was recognized as research and development expense during the three months ended September 30, 2009.

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License and Settlement Agreement and Joint Development Agreement with Perrigo

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

     In connection with the Perrigo License and Settlement Agreement, we and Perrigo agreed to terminate all legal disputes between us relating to our VANOS^® (fluocinonide) Cream 0.1%. On April 17, 2009, the Court entered a consent judgment dismissing all claims and counterclaims between us and Perrigo, and enjoining Perrigo from marketing a generic version of VANOS^® other than under the terms of the settlement agreement. 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 #090256. Further, subject to the terms and conditions contained in the Perrigo 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 Perrigo 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 made an up-front $3.0 million payment to Perrigo, and will make additional payments to Perrigo of up to $5.0 million upon the achievement of certain development, regulatory and commercialization milestones; and
•	we will pay to Perrigo royalty payments on sales of the novel proprietary product.

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

FDA approval of DYSPORT^TM

     On April 29, 2009, the FDA approved the Biologics License Application (“BLA”) 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, is now marketed under the name of DYSPORT^TM. Ipsen markets DYSPORT^TM in the U.S. for the therapeutic indication (cervical dystonia), while Medicis began marketing DYSPORT^TM in the U.S. during June 2009 for the aesthetic indication (glabellar lines).

     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 paid Ipsen $75.0 million during the second quarter of 2009 as a result of the approval by the FDA. The $75.0 million payment was capitalized into

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intangible assets in our consolidated balance sheet. We will pay Ipsen a royalty based on sales and a supply price, as defined under the agreement.

Sale of Medicis Pediatrics

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

     As a result of the BioMarin Option Closing, we recognized a pretax gain of $2.2 million during the three months ended June 30, 2009, which is included in other (income) expense, net, in the accompanying consolidated statements of income for the year ended December 31, 2009. Because of the difference between our book and tax basis of goodwill in Medicis Pediatrics, the transaction resulted in a $24.8 million gain for income tax purposes, and, accordingly, we recorded a $9.0 million income tax provision during the three months ended June 30, 2009, which is included in income tax expense in the accompanying consolidated statements of operations for the year ended December 31, 2009.

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 #065485 to market its generic version of 45mg, 90mg and 135mg SOLODYN^® Extended Release 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^® Extended Release Tablets under the SOLODYN^® patent 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.

Clinical milestone payments 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. 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 #090024. Under the terms of the License and Settlement Agreement, IMPAX has a license to market its generic versions of SOLODYN^® 45mg, 90mg and 135mg under the SOLODYN^® patent rights belonging to us upon the occurrence of certain events. Upon launch of its generic formulations of SOLODYN^®, IMPAX may be required to pay us a royalty, based on sales of those generic

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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, September 30, 2009, and December 31, 2009, we paid IMPAX $5.0 million, $5.0 million and $2.0 million, respectively, upon the achievement of three separate clinical milestones, in accordance with terms of the agreement. In addition, we are required to pay up to $11.0 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 three separate $5.0 million, $5.0 million and $2.0 million clinical milestone achievement payments were recognized as a charge to research and development expense during the three months ended March 31, 2009, September 30, 2009 and December 31, 2009, respectively.

Reduction in the carrying value of our investment in Revance

     On December 11, 2007, we announced a strategic collaboration with Revance, 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 U.S. 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 was 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 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 consolidated statement of operations during the three months ended March 31, 2009, and as a result, our investment in Revance as of March 31, 2009, was $0.

Obtainment of a CE Mark verification for the LIPOSONIX^TM system in Europe and Health Canada’s approval of LIPOSONIX^TM system sales in Canada.

     During 2009, we filed for a CE Marking certification for the LIPOSONIX^TM system in Europe in accordance with the European Union’s (“EU”) Medical Device Directive (“MDD”). A CE marking certifies that a product has met EU consumer safety, health or environmental requirements. We also filed in 2009 for approval from Health Canada for the use and sale of the LIPOSONIX^TM system in Canada. The filing process in Europe and Canada required us to provide efficacy, safety and scientific information about the LIPOSONIX^TM system. In September 2009, LipoSonix was granted the CE marking in accordance with the MDD. In June 2009, Health Canada provided its market clearance approval. The LIPOSONIX^TM system is not approved for sales in the U.S. We anticipate filing for FDA approval for the sale and use of the LIPOSONIX^TM system in the U.S. in 2010.

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Subsequent Event

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

Results of Operations

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

	YEARS ENDED DECEMBER 31,
	2009				2008				2007
Net revenues		100.0	%			100.0	%			100.0	%
Gross profit (d)		90.1				92.5				87.7
Operating expenses		67.1		(a)		84.6		(b)		67.9		(c)
Operating income		23.0				7.9				19.8
Other income (expense), net		0.2				(3.0	)			—
Interest and investment income, net		0.6				3.3				6.2
Income before income tax expense		23.8				8.2				26.0
Income tax expense		(10.4	)			(6.2	)			(10.6	)
Net income		13.4	%			2.0	%			15.4	%

(a)	Included in operating expenses is $12.0 million (2.1% of net revenues) paid to Impax related to a product development agreement, $10.0 million (1.7% of net revenues) paid to Revance related to a product development agreement, $5.3 million (0.9% of net revenues) paid to Glenmark related to a product development agreement and two license and settlement agreements, $5.0 million (0.9% of net revenues) paid to Perrigo related to a product development agreement and $19.2 million (3.4% of net revenues) of compensation expense related to stock options, restricted stock and stock appreciation rights.
(b)	Included in operating expenses is $40.0 million (7.8% of net revenues) paid to IMPAX related to a development agreement, $30.5 million (5.9% of net revenues) of acquired in-process research and development expense related to our acquisition of LipoSonix, $25.0 million (4.9% of net revenues) paid to Ipsen upon the FDA’s acceptance of Ipsen’s BLA for DYSPORTTM, $16.6 million (3.2% of net revenues) of compensation expense related to stock options and restricted stock and $4.8 million (0.9% of net revenues) of lease exit costs related to our previous headquarters facility.
(c)	Included in operating expenses is $21.1 million (4.6% of net revenues) of share-based compensation expense related to stock options and restricted stock, $9.3 million (2.0% of net revenues) related to our option to acquire Revance or to license Revance’s topical product currently under development (including $1.3 million of professional fees incurred related to the agreement), $4.1 million (0.9% of net revenues) for the write-down of an intangible asset related to OMNICEF® and $2.2 million (0.5% of net revenues) of professional fees related to a strategic collaboration with Hyperion.
(d)	Gross profit does not include amortization of the related intangibles as such expense is included in operating expenses.

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Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Net Revenues

     The following table sets forth our net revenues for the year ended December 31, 2009 and the year ended December 31, 2008, along with the percentage of net revenues and percentage point change for each of our product categories (dollar amounts in millions):

	2009		2008		$ Change			% Change
Net product revenues	$	561.7	$	501.0	$	60.7			12.1	%
Net contract revenues		10.2		16.8		(6.6	)		(39.3)	%
Total net revenues	$	571.9	$	517.8	$	54.1			10.4	%

	2009		2008		$ Change			% Change
Acne and acne-related dermatological products	$	398.8	$	325.0	$	73.8			22.7	%
Non-acne dermatological products		133.6		148.0		(14.4	)		(9.7)	%
Non-dermatological products (including contract revenues)		39.5		44.8		(5.3	)		(11.8)	%
Total net revenues	$	571.9	$	517.8	$	54.1			10.4	%

	2009			2008			Change
Acne and acne-related dermatological products		69.7	%		62.8	%		6.9	%
Non-acne dermatological products		23.4	%		28.6	%		(5.2)	%
Non-dermatological products (including contract revenues)		6.9	%		8.6	%		(1.7)	%
Total net revenues		100.0	%		100.0	%		—

     Net revenues associated with our acne and acne-related dermatological products increased by $73.8 million, or 22.7%, during 2009 as compared to 2008 primarily as a result of increased sales of SOLODYN^®. The increased sales of SOLODYN^® were primarily generated by strong prescription growth, partially offset by the negative impact of units of Teva’s and Sandoz’ respective unauthorized generic SOLODYN^® products that were sold into the distribution channel prior to the consummation of settlement agreements with us on March 18, 2009, and August 18, 2009, respectively. In addition, during the third quarter of 2009 we launched new 65mg and 115mg strengths of SOLODYN^® after they were approved by the FDA. We expect net revenues of SOLODYN^® will continue to be negatively affected during 2010 as units of Teva’s and Sandoz’ respective unauthorized generic SOLODYN^® products 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 $14.4 million, or 9.7%, during 2009 as compared to 2008, primarily due to decreased sales of RESTYLANE^® and PERLANE^®, partially offset by the initial sales of DYSPORT^TM, which was launched in June 2009. As a result of certain modifications made to our distribution services agreement with McKesson, our exclusive U.S. distributor of our aesthetics products DYSPORT^TM, PERLANE^® and RESTYLANE^®, we began recognizing revenue on these products upon the shipment from McKesson to physicians beginning in the second quarter of 2009.

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     Net revenues associated with our non-dermatological products decreased by $5.3 million, or 11.8%, during 2009 as compared to 2008, primarily due to a decrease in contract revenues.

Gross Profit

     Gross profit represents our net revenues less our cost of product revenue. Our cost of product revenue primarily 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 2009 and 2008 was approximately $22.4 million and $21.5 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 2009 and 2008, along with the percentage of net revenues represented by such gross profit (dollar amounts in millions):

	2009			2008			$ Change		% Change
Gross profit	$	515.1		$	479.0		$	36.1		7.5	%
% of net revenues		90.1	%		92.5	%

     The increase in gross profit during 2009, compared to 2008, was due to the increase in our net revenues, while the decrease in gross profit as a percentage of net revenues was primarily due to the different mix of products sold during 2009 as compared to 2008, including the impact of the launch of DYSPORT^TM during the second quarter of 2009, which has a lower gross profit margin than most of our other products, and the decrease in contract revenues. In addition, gross margin for 2009 included a charge of $4.8 million associated with an increase in our inventory reserve during 2009, due to an increase in the amount of inventory projected not to be sold by expiry dates.

Selling, General and Administrative Expenses

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

	2009			2008			$ Change		% Change
Selling, general and administrative	$	283.0		$	279.8		$	3.2		1.1	%
% of net revenues		49.5	%		54.0	%
Share-based compensation expense included in selling, general and administrative	$	18.1		$	16.3		$	1.8		11.0	%

     The $3.2 million increase in selling, general and administrative expenses during 2009 as compared to 2008 was attributable to approximately $10.6 million of increased personnel costs, primarily related to an increase in the number of employees from 587 as of December 31, 2008, to 620 as of December 31, 2009, and the effect of the annual salary increase that occurred during February 2009, and $8.5 million of increased promotion expenses, primarily due to the launch of DYSPORT^TM during the second quarter of 2009, partially offset by $9.4 million of decreased professional and consulting expenses, $4.8 million related to a lease retirement obligation recorded during 2008 and a net reduction of $1.7 million of other selling, general and administrative costs incurred during 2009. Professional and consulting expenses incurred during 2008 included costs related to the restatement of our 2007 Form 10-K and our Form 10-Q’s for the first and second quarters of 2008 and the implementation of our new enterprise resource planning (ERP) system. The decrease of selling, general and administrative expenses as a percentage of net revenues during 2009 as compared to 2008 was primarily due to the $54.1 million increase in net revenues.

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Research and Development Expenses

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

	2009		2008		$ Change			% Change
Research and development	$	71.8	$	99.9	$	(28.1	)		(28.1)	%
Up-front and milestone payments included in research and development	$	32.5	$	65.0	$	(32.5	)		(50.0)	%
Share-based compensation expense included in research and development	$	1.1	$	0.3	$	0.8			266.7	%

     Included in research and development expenses for 2009 was a $10.0 million up-front payment to Revance related to a product development agreement, $12.0 million (in aggregate) of milestone payments to Impax related to a product development agreement, a $5.0 million up-front payment to Glenmark related to a product development agreement, $5.0 million (in aggregate) of up-front and milestone payments to Perrigo related to a product development agreement and a $0.5 million milestone payment made to a U.S. company related to a product development agreement. Included in research and development expenses for 2008 was a $40.0 million up-front payment to Impax related to a development agreement and a $25.0 million milestone payment to Ipsen, upon the FDA’s acceptance of Ipsen’s BLA for 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 2009 increased $1.3 million, or 4.9%, to $29.0 million from $27.7 million during 2008. This increase was primarily due to initial amortization of the $75.0 million milestone payment made to Ipsen during the second quarter of 2009 upon the FDA’s approval of DYSPORT^TM, which was capitalized as an intangible asset, and depreciation incurred related to our new headquarters facility.

In-Process Research and Development Expense

     On July 1, 2008, we acquired LipoSonix, a medical device company developing non-invasive body sculpting technology. As part of the acquisition, we recorded a $30.5 million charge for acquired in-process research and development during the third quarter of 2008. No income tax benefit was recognized related to this charge.

Interest and Investment Income

     Interest and investment income during 2009 decreased $15.8 million, or 67.4%, to $7.6 million from $23.4 million during 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 2009.

Interest Expense

     Interest expense during 2009 decreased $2.4 million, to $4.2 million during 2009 from $6.7 million during 2008. Our interest expense during 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 2009 as compared to 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 11, “Contingent Convertible Senior Notes” in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules” for further discussion on the Old Notes and New Notes.

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Other (Income) Expense, net

     Other income, net, of $0.9 million recognized during 2009 primarily represented a $2.2 million gain on the sale of Medicis Pediatrics to BioMarin, which closed during June 2009 and a $1.5 million gain on the sale of certain auction rate floating securities, partially offset by 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. The $1.5 million gain on the sale of certain auction rate floating securities was the result of a transaction whereby the broker through which we purchased auction rate floating securities agreed to repurchase from us three auction rate floating securities with an aggregate par value of $7.0 million, at par. The adjusted basis of these securities was $5.5 million, in aggregate, as a result of an other-than-temporary impairment loss of $1.5 million recorded during the year ended December 31, 2008. The realized gain of $1.5 million was recognized as other income during 2009.

     Other expense of $15.5 million recognized during 2008 represented a $9.1 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 December 31, 2008, and a $6.4 million other-than-temporary impairment loss recognized related to our auction-rate securities investments. $1.5 million of this impairment loss was recognized as a gain during 2009 upon the sale, at par, of certain auction rate floating securities, as discussed above.

Income Tax Expense

     The following table sets forth our income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for 2009 and 2008 (dollar amounts in millions):

	2009			2008			$ Change		% Change
Income tax expense	$	59.6		$	32.1		$	27.5		85.7	%
Effective tax rate		44.0	%		75.8	%

     The effective tax rate for 2009 reflects a $9.0 million discrete tax expense due to the taxable gain on the sale of Medicis Pediatrics. Our effective tax rate for 2008 included the impact of no tax benefit being recorded on the charge associated with the reduction in carrying value of our investment in Revance or on the in-process research and development charge related to our investment in LipoSonix. As of December 31, 2009, the cumulative $21.0 million reduction in the carrying value of the Revance investment is currently an unrealized loss for income tax purposes. We will not be able to determine the character of the loss until we exercise or fail to exercise our option. A realized loss is characterized as a capital loss can only be utilized to offset capital gains. We recorded a valuation allowance against the deferred tax asset associated with this unrealized tax loss to reduce the carrying value to $0, which is the amount that we believe is more likely than not to be realized.

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Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Net Revenues

     The following table sets forth our net revenues for the year ended December 31, 2008 and the year ended December 31, 2007, along with the percentage of net revenues and percentage point change for each of our product categories (dollar amounts in millions):

	2008		2007		$ Change		% Change
| | | |
Net product revenues	$	501.0	$	441.9	$	59.1		13.4	%
Net contract revenues		16.8		15.5		1.3		8.4	%
Total net revenues	$	517.8	$	457.4	$	60.4		13.2	%

	2008		2007		$ Change			% Change
| | | |
Acne and acne-related dermatological products	$	325.0	$	243.4	$	81.6			33.5	%
Non-acne dermatological products		148.0		172.9		(24.9	)		(14.4	)%
Non-dermatological products (including contract revenues)		44.8		41.1		3.7			9.0	%
Total net revenues	$	517.8	$	457.4	$	60.4			13.2	%

	2008			2007			Change
Acne and acne-related dermatological products		62.8	%		53.2	%		9.6	%
Non-acne dermatological products		28.6	%		37.8	%		(9.2	)%
Non-dermatological products (including contract revenues)		8.6	%		9.0	%		(0.4	)%
Total net revenues		100.0	%		100.0	%		—	%

     Our total net revenues increased during 2008 primarily as a result of an increase in sales of SOLODYN^®.

     Net revenues associated with our acne and acne-related dermatological products increased by $81.6 million, or 33.5%, and by 9.6 percentage points as a percentage of net revenues during 2008 as compared to 2007 primarily as a result of the increased sales of SOLODYN^®.

     Net revenues associated with our non-acne dermatological products decreased as a percentage of net revenues, and decreased in net dollars by 14.4% during 2008 as compared to 2007. This decrease is a result of the non-acne dermatological product category being more sensitive to weakness in the U.S. economy than the acne and acne-related dermatological product category.

     Net revenues associated with our non-dermatological products increased by $3.7 million, or 9.0%, during 2008 as compared to 2007, primarily due to an increase in sales of BUPHENYL^® and AMMONUL^® and an increase in contract revenue.

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Gross Profit

     Gross profit represents our net revenues less our cost of product revenue. Our cost of product revenue primarily 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 intangible assets for 2008 and 2007 was approximately $21.5 million and $21.6 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 2008 and 2007, along with the percentage of net revenues represented by such gross profit (dollar amounts in millions):

	2008			2007			$ Change		% Change
Gross profit	$	479.0		$	401.3		$	77.7		19.4	%
% of net revenues		92.5	%		87.7	%

     The increase in gross profit during 2008, compared to 2007, was due to the increase in our net revenues and the increase in gross profit as a percentage of net revenues was primarily due to the different mix of high gross margin products sold during 2008 as compared to 2007. Increased sales of SOLODYN^®, a higher margin product, during 2008, was the primary change in the mix of products sold during the comparable periods that affected gross profit as a percentage of net revenues. In addition, gross margin for 2007 included a charge for the write-off of $6.1 million of certain inventories that, during the third quarter of 2007, were determined to be unsaleable, and a $2.5 million increase in our inventory valuation reserve recorded during 2007, as compared to a $2.4 million decrease in our inventory valuation reserve during 2008. The change in the inventory valuation reserve during 2008 was due to a decrease in the amount of inventory projected to not be sold by expiry dates.

Selling, General and Administrative Expenses

     The following table sets forth our selling, general and administrative expenses for 2008 and 2007, along with the percentage of net revenues represented by selling, general and administrative expenses (dollar amounts in millions):

	2008			2007			$ Change			% Change
Selling, general and administrative	$	279.8		$	242.6		$	37.2			15.3	%
% of net revenues		54.0	%		53.0	%
Share-based compensation expense included in selling, general and administrative expense	$	16.3		$	21.0		$	(4.7	)		(22.4	)%

     The increase in selling, general and administrative expenses during 2008 from 2007 was attributable to approximately $19.0 million of increased personnel costs, primarily related to an increase in the number of employees from 472 as of December 31, 2007 to 587 as of December 31, 2008 and the effect of the annual salary increase that occurred during February 2008, $19.7 million of increased professional and consulting expenses, including costs related to patent litigation associated with our SOLODYN^® product, business development costs, costs related to the restatement of our 2007 Form 10-K and our Form 10-Q’s for the first and second quarters of 2008 and the implementation of our new enterprise resource planning (ERP) system, and $4.8 million related to a lease retirement obligation recorded during the third quarter of 2008 related to our prior headquarters location, partially offset by a $4.5 million decrease in promotion costs and a $1.8 million decrease in other selling, general and administrative costs during 2008.

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Research and Development Expenses

     The following table sets forth our research and development expenses for 2008 and 2007 (dollar amounts in millions):

	2008		2007		$ Change		% Change
Research and development	$	99.9	$	39.4	$	60.5		153.6	%
Up-front and milestone payments included in research and development	$	65.0	$	8.0	$	57.0		712.5	%
Share-based compensation expense included in research and development	$	0.3	$	0.1	$	0.2		200.0	%

     Included in research and development expenses for 2008 was a $40.0 million payment to IMPAX related to a development agreement and a $25.0 million milestone payment made to Ipsen after the FDA’s May 19, 2008 acceptance of the filing of Ipsen’s BLA for DYSPORT^TM. Included in research and development expense for 2007 was $8.0 million related to our option to acquire Revance or to license Revance’s topical product currently under development. The primary product under development during 2008 and 2007 was DYSPORT^TM. 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 2008 increased $3.2 million, or 12.8%, to $27.7 million from $24.5 million during 2007. This increase was primarily due to amortization related to a $29.1 million milestone payment made to Q-Med related to the FDA approval of PERLANE^®, which was capitalized during the second quarter of 2007, and depreciation incurred in 2008 related to our new ERP system and our new headquarters facility.

In-Process Research and Development Expense

     On July 1, 2008, we acquired LipoSonix, a medical device company developing non-invasive body sculpting technology. As part of the acquisition, we recorded a $30.5 million charge for acquired in-process research and development during the third quarter of 2008. No income tax benefit was recognized related to this charge.

Impairment of Intangible Assets

     During the second quarter of 2007, an intangible asset related to OMNICEF^® was determined to be impaired based on our analysis of the intangible asset’s carrying value and projected future cash flows. As a result of the impairment analysis, we recorded a write-down of approximately $4.1 million related to this intangible asset.

     Factors affecting the future cash flows of the OMNICEF^® intangible asset included an early termination letter received during May 2007 from Abbott Laboratories, Inc. (“Abbott”), which transitioned our co-promotion agreement with Abbott for OMNICEF^® into a two-year residual period, and competitive pressures in the marketplace, including generic competition.

Interest and Investment Income

     Interest and investment income during 2008 decreased $15.0 million, or 39.1%, to $23.4 million from $38.4 million during 2007, due to a decrease in the funds available for investment as a result of 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 2008. 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 resulting from the repurchase of $283.7 million of our New Notes in June 2008 and our $150.0 million acquisition of LipoSonix in July 2008. See Note 11, “Contingent Convertible Senior Notes” in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules” for further discussion on the New Notes.

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Interest Expense

     Interest expense during 2008 decreased $3.3 million, or 33.4%, to $6.7 million from $10.0 million during 2007. Our interest expense during 2008 and 2007 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 Old Notes and New Notes. The decrease in interest expense during 2008 as compared to 2007 was primarily due to the repurchase of $283.7 million of our New Notes in June 2008, the fees and origination costs related to the issuance of the Old Notes becoming fully amortized during the second quarter of 2007, 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 13 in our accompanying consolidated financial statements for further discussion on the Old Notes and New Notes.

Other Expense

     Other expense of $15.5 million recognized during 2008 represented a $9.1 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 December 31, 2008, and a $6.4 million other-than-temporary impairment loss recognized related to our auction-rate securities investments.

Income Tax Expense

     The following table sets forth our income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for 2008 and 2007 (dollar amounts in millions):

	2008			2007			$ Change			% Change
Income tax expense	$	32.1		$	48.5		$	(16.4	)		(33.8	)%
Effective tax rate		75.8	%		40.8	%

     Our effective rate was higher during 2008 as compared to 2007 as no tax benefits were recorded related to the charge associated with the reduction in carrying value of our investment in Revance and on the in-process research and development charge related to our acquisition of LipoSonix. The effective tax rate for 2007 of 40.8% includes a $3.3 million tax charge recorded during the fourth quarter of 2007 relating to a valuation allowance recorded against the deferred tax asset associated with the expensing of the option to acquire Revance or license Revance’s topical product that is under development. As of December 31, 2008, the cumulative $18.1 million reduction in the carrying value of the Revance investment is currently an unrealized loss for income tax purposes. We will not be able to determine the character of the loss until we exercise or fail to exercise our option. A realized loss characterized as a capital loss can only be utilized to offset capital gains. We recorded a valuation allowance against the deferred tax asset associated with this unrealized tax loss to reduce the carrying value to $0, which is the amount that we believe is more likely than not to be realized.

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Liquidity and Capital Resources

Overview

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

	2009			2008			$ Change			% Change
Cash provided by (used in):
Operating activities	$	177.9		$	45.8		$	132.1			288.4	%
Investing activities		(62.2	)		220.1			(282.3	)		(128.3)	%
Financing activities		7.0			(287.3	)		294.3			(102.4)	%

	Dec. 31, 2009		Dec. 31, 2008		$ Change			% Change
Cash, cash equivalents, and short-term investments	$	528.3	$	343.9	$	184.4			53.6	%
Working capital		434.6		307.6		127.0			41.3	%
Long-term investments		25.5		55.3		(29.8	)		(53.9)	%
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 December 31, 2009 and 2008, consisted of the following (dollar amounts in millions):

	Dec. 31, 2009		Dec. 31, 2008		$ Change			% Change
Cash, cash equivalents, and short-term investments	$	528.3	$	343.9	$	184.4			53.6	%
Accounts receivable, net		95.2		52.6		42.6			81.0	%
Inventories, net		26.0		24.2		1.8			7.4	%
Deferred tax assets, net		66.3		53.2		13.1			24.6	%
Other current assets		16.5		19.6		(3.1	)		(15.8	) %
Total current assets		732.3		493.5		238.8			48.4	%
Accounts payable		44.2		39.0		5.2			13.3	%
Reserve for sales returns		48.0		59.6		(11.6	)		(19.5)	%
Accrued consumer rebate and loyalty programs		73.3		28.4		44.9			158.1	%
Managed care and Medicaid reserves		47.1		17.0		30.1			177.1	%
Income taxes payable		16.7		—		16.7			100.0	%
Other current liabilities		68.4		41.9		26.5			63.2	%
Total current liabilities		297.7		185.9		111.8			60.1	%
Working capital	$	434.6	$	307.6	$	127.0			41.3	%

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     We had cash, cash equivalents and short-term investments of $528.3 million and working capital of $434.6 million at December 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 $177.9 million of operating cash flow during 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, strategic investments, acquisitions of companies or products complementary to our business, the repayment of outstanding indebtedness, repurchases of our outstanding securities and other potential large-scale needs. In addition, we may consider incurring additional indebtedness and issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt or for general corporate purposes. If a material acquisition or investment is completed, our operating results and financial condition could change materially in future periods. However, no assurance can be given that additional funds will be available on satisfactory terms, or at all, to fund such activities.

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

     As of December 31, 2009, and December 31, 2008, our short-term investments included $26.8 million and $38.2 million, respectively, 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. On April 9, 2009, the Financial Accounting Standards Board (“FASB”) released FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2”), effective for interim and annual reporting periods ending after June 15, 2009. Upon adoption, FSP FAS 115-2, which is now part of ASC 320, Investments – Debt and Equity Securities, requires that entities should report a cumulative effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of previously recognized other-than-temporary impairments on debt securities held at that date from retained earnings to other comprehensive income if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis. We adopted FSP FAS 115-2 during the three months ended June 30, 2009, and accordingly, we reclassified $3.1 million of previously recognized other-than-temporary impairment losses, net of income taxes, related to our auction rate floating securities from retained earnings to other comprehensive income in our consolidated balance sheets during the three months ended June 30, 2009. During 2009, we liquidated $9.6 million of our auction rate floating securities.

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Operating Activities

     Net cash provided by operating activities during the year ended December 31, 2009 was approximately $177.9 million, compared to cash provided by operating activities of approximately $45.8 million during the year ended December 31, 2008. The following is a summary of the primary components of cash provided by operating activities during the year ended December 31, 2009 and 2008 (in millions):

	2009			2008
Payment made to Revance related to a development agreement	$	(10.0	)	$	—
Payments made to IMPAX related to a development agreement		(12.0	)		(40.0	)
Payments made to Perrigo related to a development agreement		(5.0	)		—
Payment made to Glenmark related to a development agreement and license and settlement agreements		(5.3	)		—
Payment made to Ipsen related to development of DYSPORTTM		—			(25.0	)
Income taxes paid		(44.6	)		(87.8	)
Other cash provided by operating activities		254.8			198.6
Cash provided by operating activities	$	177.9		$	45.8

     Other cash flows provided by operating activities increased from $198.6 million during the year ended December 31, 2008, to $254.8 million during the year ended December 31, 2009, primarily due to an increase in other current liabilities, primarily related to increases in consumer rebate and Medicaid and managed care rebate liabilities. The change in other current liabilities during the year ended December 31, 2008, was operating cash provided of $28.4 million, as compared to operating cash provided of $94.0 million during the year ended December 31, 2009.

Investing Activities

     Net cash used in investing activities during the year ended December 31, 2009, was approximately $62.2 million, compared to net cash provided by investing activities during the year ended December 31, 2008, of $220.1 million. The change was primarily due to the net purchases and sales of our short-term and long-term investments during the respective periods. During 2009, we paid $75.0 million to Ipsen upon the FDA’s approval of DYSPORT^TM, and we received $70.3 million upon the sale of Medicis Pediatrics to BioMarin, which closed in June 2009. During 2008, we paid $149.8 million for the acquisition of LipoSonix, net of cash acquired.

Financing Activities

     Net cash provided by financing activities during the year ended December 31, 2009, was $7.0 million, compared to net cash used in financing activities of $287.3 million during the year ended December 31, 2008. Cash used during 2008 included the repurchase of $283.7 million of New Notes during June 2008. Proceeds from the exercise of stock options were $16.1 million during the year ended December 31, 2009, compared to $4.8 million during the year ended December 31, 2008. Dividends paid during the year ended December 31, 2009, were $9.4 million, compared to dividends paid during the year ended December 31, 2008, of $8.6 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

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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 $9.9 million of long-term liabilities at December 31, 2009, and we had $297.7 million of current liabilities at December 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.

     In connection with occupancy of the new headquarter office during 2008, we ceased use of the prior headquarter office, which consists of approximately 75,000 square feet of office space, at an average annual expense of approximately $2.1 million, under an amended lease agreement that expires in December 2010. Under ASC 420, Exit or Disposal Cost Obligations (formerly 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. 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 consolidated statements of income. We have not recorded any other costs related to the lease for the prior headquarters, other than accretion expense.

     As of December 31, 2009, approximately $2.1 million of lease exit costs remain accrued and are expected to be paid by December 2010, all of which is classified in other current liabilities. Although we no longer use the facilities, the lease exit cost accrual has not been offset by an adjustment for estimated sublease rentals. After considering sublease market information as well as factors specific to the lease, we concluded it was probable we would be unable to reasonably obtain sublease rentals for the prior headquarters and therefore we would not be subleased for the remaining lease term. We will continue to monitor the sublease market conditions and reassess the impact on the lease exit cost accrual.

     The following is a summary of the activity in the liability for lease exit costs for the year ended December 31, 2009:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2008		to Expense		Made			from Sublease		Dec. 31, 2009
Lease exit costs liability	$	3,996,102	$	211,545	$	(2,143,970	)	$	—	$	2,063,677

Dividends

     We do not have a dividend policy. Since July 2003, we have paid quarterly cash dividends aggregating approximately $46.6 million on our common stock. In addition, on December 16, 2009, we declared a cash dividend of $0.04 per issued and outstanding share of common stock payable on January 29, 2010, to our stockholders of record at the close of business on January 4, 2010. Prior to these dividends, we had not paid a cash dividend on our common stock. Any future determinations to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements and other factors that our Board of Directors deems relevant.

Fair Value Measurements

     We utilize unobservable (Level 3) inputs in determining the fair value of our auction rate floating security investments, which totaled $26.8 million at December 31, 2009. These securities were included in long-term investments at December 31, 2009. We also utilize unobservable (Level 3) inputs to value our investments in Revance and Hyperion.

     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 ASC 820, Fair Value Measurements and Disclosure (formerly SFAS No 157). However, due to events in credit markets that began during the first quarter of 2008, the auction events for most of these instruments failed, and, therefore, we determined the estimated fair values of these securities, beginning in the first quarter of 2008, utilizing a discounted cash flow analysis. These analyses

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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 accordance with a new accounting standard which is now part of ASC 320, Investments – Debt and Equity Securities, during the three months ended June 30, 2009, we reclassified $3.1 million of previously recognized other-than-temporary impairment losses, net of income taxes, related to our auction rate floating securities from retained earnings to other comprehensive income in our consolidated balance sheets during the three months ended June 30, 2009.

     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 December 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 ASC 825, Financial Instruments (formerly 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.

     On July 14, 2009, the broker through which we purchased auction rate floating securities agreed to repurchase from us three auction rate floating securities with an aggregate par value of $7.0 million, at par. The adjusted basis of these securities was $5.5 million, in aggregate, as a result of an other-than-temporary impairment loss of $1.5 million recorded during the year ended December 31, 2008. The realized gain of $1.5 million was recognized in other (income) expense during the three months ended September 30, 2009.

Off-Balance Sheet Arrangements

     As of December 31, 2009, we are not involved in any off-balance sheet arrangements, as defined in Item 3(a)(4)(ii) of SEC Regulation S-K.

Contractual Obligations

     The following table summarizes our significant contractual obligations at December 31, 2009, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes certain other purchase obligations as discussed below (in thousands):

	Payments Due by Period
					More Than		More Than
					1 Year and		3 Years and
			Less Than		Less Than		Less Than		More Than
	Total		1 Year		3 Years		5 Years		5 Years
Long-term debt	$	169,326	$	—	$	169,145	$	181	$	—
Interest on long-term debt		95,208		4,231		8,463		8,463		74,051
Operating leases		49,702		6,635		9,013		8,972		25,082
Other purchase obligations and commitments		867		173		347		347		—
Total contractual obligations	$	315,103	$	11,039	$	186,968	$	17,963	$	99,133

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     The long-term debt consists of our Old Notes and New Notes. We may redeem some or all of the Old Notes and New Notes at any time on or after June 11, 2007, and June 11, 2008, respectively, at a redemption price, payable in cash, of 100% of the principal amount, plus accrued and unpaid interest, including contingent interest, if any. Holders of the Old Notes and New Notes may require us to repurchase all or a portion of their Old Notes on June 4, 2012 and 2017 and New Notes on June 4, 2013 and 2018, or upon a change in control, as defined in the indenture agreements governing the Old Notes and New Notes, at 100% of the principal amount of the Old Notes and New Notes, plus accrued and unpaid interest to the date of the repurchase, payable in cash. As of December 31, 2009, $169.1 million of the Old Notes were classified in the “More than 1 year and less than 3 years” category as the holders of the Old Notes may require us to repurchase all or a portion of their Old Notes on June 4, 2012, which is more than 1 year but less than 3 years from the December 31, 2009 balance sheet date. As of December 31, 2009, $0.2 million of New Notes were classified in the “More than 3 years and less than 5 years” category as the holders of the New Notes may require us to repurchase all or a portion of their New Notes on June 4, 2013, which is more than 3 years but less than 5 years from the December 31, 2009 balance sheet date.

     Interest on long-term debt includes interest payable on our Old Notes and New Notes, assuming the Old Notes and New Notes will not have any redemptions or conversions into shares of our Class A common stock until their respective maturities in 2032 and 2033, but does not include any contingent interest. The amount of interest ultimately paid in future years could change if any of the Old Notes or New Notes are converted or redeemed and/or if contingent interest becomes payable if certain future criteria are met.

     Other purchase obligations and commitments include payments due under research and development and consulting contracts.

     We have committed to make potential future “milestone” payments to third-parties as part of certain product development and license agreements. Payments under these agreements generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement and timing of these milestones are not fixed or reasonably determinable, such contingencies have not been recorded on our consolidated balance sheets and are not included in the above table. The total amount of potential future milestone payments related to development and license agreements is approximately $353.7 million.

     Purchase orders for raw materials, finished goods and other goods and services are not included in the above table. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purpose of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs, based on expected demand, and are fulfilled by our vendors, in most cases, with relatively short timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed our short-term expected requirements. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.

     The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

Critical Accounting Policies and Estimates

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the 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, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules”. We believe the following critical

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accounting policies affect our most significant estimates and assumptions used in the preparation of our consolidated financial statements and are important in understanding our financial condition and results of operations.

Revenue Recognition

     Revenue from our product sales is recognized pursuant to Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements, which is now part of ASC 605, Revenue Recognition. Accordingly, revenue is recognized when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products has occurred; (iii) the selling price is both fixed and determinable; and (iv) collectibility is reasonably assured. Our customers consist primarily of large pharmaceutical wholesalers who sell directly into the retail channel.

     We do not provide any material forms of price protection to our wholesale customers and permit product returns if the product is damaged, or, depending on the customer and product, if it is returned within six months prior to expiration or up to 12 months after expiration. Our customers consist principally of financially viable wholesalers, and depending on the customer, revenue is recognized based upon shipment (“FOB shipping point”) or receipt (“FOB destination”), net of estimated provisions. As a result of certain modifications made to our distribution services agreement with McKesson, our exclusive U.S. distributor of our aesthetics products DYSPORT^TM, PERLANE^® and RESTYLANE^®, we began recognizing revenue on these products upon the shipment from McKesson to physicians beginning in the second quarter of 2009. As a general practice, we do not ship prescription product that has less than 12 months until its expiration date. We also authorize returns for damaged products and credits for expired products in accordance with our returned goods policy and procedures. The shelf life associated with our products is up to 36 months depending on the product. The majority of our prescription products have a shelf life of approximately 18-24 months.

     We enter into licensing arrangements with other parties whereby we receive contract revenue based on the terms of the agreement. The timing of revenue recognition is dependent on the level of our continuing involvement in the manufacture and delivery of licensed products. If we have continuing involvement, the revenue is deferred and recognized on a straight-line basis over the period of continuing involvement. In addition, if our licensing arrangements require no continuing involvement and payments are merely based on the passage of time, we assess such payments for revenue recognition under the collectibility criteria of SAB 104.

Items Deducted From Gross Revenue

     Provisions for estimated product returns, sales discounts and chargebacks are established as a reduction of product sales revenues at the time such revenues are recognized. Provisions for managed care and Medicaid rebates and consumer rebate and loyalty programs are established as a reduction of product sales revenues at the later of the date at which revenue is recognized or the date at which the sales incentive is offered. In addition, we defer revenue for certain sales of inventory into the distribution channel that are in excess of eight (8) weeks of projected demand. These deductions from gross revenue are established by us as our best estimate based on historical experience adjusted to reflect known changes in the factors that impact such reserves, including but not limited to, prescription data, industry trends, competitive developments and estimated inventory in the distribution channel. Our estimates of inventory in the distribution channel are based on inventory information reported to us by our major wholesale customers for which we have inventory management agreements, historical shipment and return information from our accounting records and data on prescriptions filled, which we purchase from IMS Health, Inc., one of the leading providers of prescription-based information. We regularly monitor internal as well as external data from our wholesalers, in order to assess the reasonableness of the information obtained from external sources. We also utilize projected prescription demand for our products, as well as, our internal information regarding our products. These deductions from gross revenue are generally reflected either as a direct reduction to accounts receivable through an allowance, as a reserve within current liabilities, or as an addition to accrued expenses.

     We identify product returns by their manufacturing lot number. Because we manufacture in bulk, lot sizes can be large and, as a result, sales of any individual lot may occur over several periods. As a result, we are unable to specify if actual returns or credits relate to a sale that occurred in the current period or a prior period, and therefore, we cannot specify how much of the provision recorded relates to sales made in prior periods. However, we believe the process discussed above, including the tracking of returns by lot, and the availability of other internal and external data allows us to reasonably estimate the level of product returns, as well as estimate the level of expected credits associated with rebates or chargebacks.

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     Our accounting policies for revenue recognition have a significant impact on our reported results and rely on certain estimates that require complex and subjective judgment on the part of our management. If the levels of product returns, inventory in the distribution channel, cash discounts, chargebacks, managed care and Medicaid rebates and consumer rebate and loyalty programs fluctuate significantly and/or if our estimates do not adequately reserve for these reductions of gross product revenues, our reported net product revenues could be negatively affected.

     The following table shows the activity of each reserve, associated with the various sales provisions that serve to reduce our accounts receivable balance or increase our accrued expenses or deferred revenue, for the years ended December 31, 2008 and 2009 (dollars in thousands):

													Managed			Consumer
													Care &			Rebate
	Reserve						Sales						Medicaid			and
	for Sales			Deferred			Discounts			Chargebacks			Rebates			Loyalty
	Returns			Revenue			Reserve			Reserve			Reserve			Programs			Total
Balance at December 31, 2007	$	68,787		$	1,907		$	511		$	320		$	4,881		$	14,745		$	91,151
Actual		(50,042	)		—			(12,268	)		(2,001	)		(17,230	)		(49,462	)		(131,003	)
Provision		40,866			(1,193	)		13,005			2,152			29,305			63,165			147,300
Balance at December 31, 2008	$	59,611		$	714		$	1,248		$	471		$	16,956		$	28,448		$	107,448
Actual		(29,498	)		—			(18,042	)		(2,812	)		(68,578	)		(168,196	)		(287,126	)
Provision		17,949			549			18,954			3,029			98,700			213,059			352,240
Balance at December 31, 2009	$	48,062		$	1,263		$	2,160		$	688		$	47,078		$	73,311		$	172,562

Reserve for Sales Returns

     We account for returns of product by establishing an allowance based on our estimate of revenues recorded for which the related products are expected to be returned in the future. We estimate the rate of future product returns for our established products based on our historical experience, the relative risk of return based on expiration date, and other qualitative factors that could impact the level of future product returns, such as competitive developments, product discontinuations and our introduction of similar new products. Historical experience and the other qualitative factors are assessed on a product-specific basis as part of our compilation of our estimate of future product returns. We also estimate inventory in the distribution channel by monitoring inventories held by our distributors, as well as prescription trends to help us assess whether historical rates of return continue to be appropriate given current conditions. We estimate returns of new products primarily based on our historical acceptance of our new product introductions by our customers and product returns experience of similar products, products that have similar characteristics at various stages of their life cycle, and other available information pertinent to the intended use and marketing of the new product. Changes due to our competitors’ price movements have not adversely affected us. We do not provide material pricing incentives to our distributors that are intended to have them assume additional inventory levels beyond what is customary in their ordinary course of business.

     Our actual experience and the qualitative factors that we use to determine the necessary accrual for future product returns are susceptible to change based on unforeseen events and uncertainties. We assess the trends that could affect our estimates and make changes to the accrual quarterly when it appears product returns may differ from our original estimates.

     The provision for product returns was $17.9 million, or 1.9% of gross product sales, and $40.9 million, or 6.2% of gross product sales, for the years ended December 31, 2009 and 2008, respectively. The reserve for

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product returns was $48.1 million and $59.6 million as of December 31, 2009 and 2008, respectively. The decrease in the provision and the reserve was primarily related to a reduction in product returns experienced during 2009 and lower levels of inventory in the distribution channel at December 31, 2009.

     If the amount of our estimated quarterly returns increased by 10.0 percent, our sales returns reserve at December 31, 2009, would increase by approximately $4.2 million and corresponding revenue would decrease by the same amount. Conversely, if the amount of our estimated quarterly returns decreased by 10.0 percent, our sales returns reserve at December 31, 2009, would decrease by approximately $4.2 million and corresponding revenue would increase by the same amount. We consider the sensitivity analysis of a 10.0 percent variance between estimated and actual sales returns to be representative of the range of other outcomes that we are reasonably likely to experience in estimating our sales returns reserves.

     For newly-launched products, if the returns reserve percentage increased by one percentage point, our sales return reserve at December 31, 2009, would increase by approximately $1.3 million and corresponding revenue would decrease by the same amount. Conversely, if the returns reserve percentage decreased by one percentage point, our sales returns reserve at December 31, 2009, would have decreased by approximately $1.3 million and corresponding revenue would increase by the same amount. We consider the sensitivity analysis of a one percentage point variance between estimated and actual returns reserve percentage to be representative of the range of other outcomes that we are reasonably likely to experience in estimating our sales returns reserves for newly-launched products.

     We also defer 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. The distribution channel’s market demand requirement is estimated based on inventory information reported to us by our major wholesale customers for which we have inventory management agreements, who make up a significant majority of our total sales of inventory into the distribution channel. No adjustment is made for those customers who do not provide inventory information to us. Deferred product revenue associated with estimated excess inventory at wholesalers was approximately $1.2 million and $0.7 million as of December 31, 2009 and 2008, respectively.

Sales Discounts

     We offer cash discounts to our customers as an incentive for prompt payment, generally approximately 2% of the sales price. We account for cash discounts by establishing an allowance reducing accounts receivable by the full amount of the discounts expected to be taken by the customers. We consider payment performance and adjust the allowance to reflect actual experience and our current expectations about future activity.

     The provision for cash discounts was $19.0 million, or 2.0% of gross product sales, and $13.0 million, or 2.0% of gross product sales, for the years ended December 31, 2009 and 2008, respectively. The reserve for cash discounts was $2.2 million and $1.2 million as of December 31, 2009 and 2008, respectively. The increase in the provision was due to an increase in gross product sales. The balance in the reserve for sales discounts at the end of the fiscal year is related to the amount of accounts receivable that is outstanding at that date that is still eligible for the cash discounts to be taken by the customers. The fluctuations in the reserve for sales discounts between periods are normally reflective of increases or decreases in the related eligible outstanding accounts receivable amounts at the comparable dates.

Contract Chargebacks

     We have agreements for contract pricing with several entities, whereby pricing on products is extended below wholesaler list price. These parties purchase products through wholesalers at the lower contract price, and the wholesalers charge the difference between their acquisition cost and the lower contract price back to us. We account for chargebacks by establishing an allowance reducing accounts receivable based on our estimate of chargeback claims attributable to a sale. We determine our estimate of chargebacks based on historical experience and changes to current contract prices. We also consider our claim processing lag time, and adjust the allowance periodically throughout each quarter to reflect actual experience. Although we record an allowance for estimated chargebacks at the time we record the sale (typically when we ship the product), the actual chargeback related to that sale is not processed until the entities purchase the product from the wholesaler. We continually monitor our historical experience and current pricing trends to ensure the liability for future chargebacks is fairly stated.

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     The provision for contract chargebacks was $3.0 million, or 0.3% of gross product sales, and $2.2 million, or 0.3% of gross product sales, for the years ended December 31, 2009 and 2008, respectively. The reserve for contract chargebacks was $0.7 million and $0.5 million as of December 31, 2009 and 2008, respectively.

Managed Care and Medicaid Rebates

     Managed care and Medicaid rebates are contractual discounts offered to government programs and private health plans that are eligible for such discounts at the time prescriptions are dispensed, subject to various conditions. We record provisions for rebates based on factors such as timing and terms of plans under contract, time to process rebates, product pricing, sales volumes, amount of inventory in the distribution channel, and prescription trends. We continually monitor historical payment rates and actual claim data to ensure the liability is fairly stated.

     The provision for managed care and Medicaid rebates was $98.7 million, or 10.5% of gross product sales, and $29.3 million, or 4.4% of gross product sales, for the years ended December 31, 2009 and 2008, respectively. The reserve for managed care and Medicaid rebates was $47.1 million and $17.0 million as of December 31, 2009 and 2008, respectively. The increase in the provision was primarily due to an increase in the number of pricing contracts in place during the comparable periods related to SOLODYN^®. The increase in the reserve is due to an increase in the amount of rebates outstanding at the comparable dates, due to the increase in the number of SOLODYN^® pricing contracts in place.

Consumer Rebates and Loyalty Programs

     We offer consumer rebates on many of our products and we have consumer loyalty programs. We generally account for these programs by establishing an accrual based on our estimate of the rebate and loyalty incentives attributable to a sale. We generally base our estimates for the accrual of these items on historical experience and other relevant factors. We adjust our accruals periodically throughout each quarter based on actual experience and changes in other factors, if any, to ensure the balance is fairly stated.

     The provision for consumer rebates and loyalty programs was $213.1 million, or 22.6% of gross product sales, and $63.2 million, or 9.6% of gross product sales, for the years ended December 31, 2009 and 2008, respectively. The reserve for consumer rebates and loyalty programs was $73.3 million and $28.4 million as of December 31, 2009 and 2008, respectively. The increase in the provision and the reserve was primarily due to new consumer rebate programs initiated during 2009 related to our SOLODYN^®, ZIANA^®, DYSPORT^TM, RESTYLANE^® and PERLANE^® products.

     If our 2009 estimates of rebate redemption rates or average rebate amounts for our consumer rebate programs changed by 10.0 percent, or our estimates of eligible procedures completed related to our customer loyalty programs were to change by 10.0 percent, our reserve for these items would be impacted by approximately $4.1 million and corresponding revenue would be impacted by the same amount. We consider the sensitivity analysis of a 10.0 percent variance in our estimated rebate redemption rates and average rebate amounts to be representative of the range of other outcomes that we are reasonably likely to experience in estimating our reserve for consumer rebates and loyalty programs.

Use of Information from External Sources

     We use information from external sources to estimate our significant items deducted from gross revenues. Our estimates of inventory in the distribution channel are based on historical shipment and return information from our accounting records and data on prescriptions filled, which we purchase from IMS Health, Inc., one of the leading providers of prescription-based information. We regularly monitor internal data as well as external data from our wholesalers, in order to assess the reasonableness of the information obtained from external sources. We also utilize projected prescription demand for our products, as well as, written and oral information obtained from certain wholesalers with respect to their inventory levels and our internal information. We use the information from IMS Health, Inc. to project the prescription demand for our products. Our estimates are subject to inherent limitations pertaining to reliance on third-party information, as certain third-party information is itself in the form of estimates.

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Use of Estimates in Reserves

     We believe that our allowances and accruals for items that are deducted from gross revenues are reasonable and appropriate based on current facts and circumstances. It is possible, however, that other parties applying reasonable judgment to the same facts and circumstances could develop different allowance and accrual amounts for items that are deducted from gross revenues. Additionally, changes in actual experience or changes in other qualitative factors could cause our allowances and accruals to fluctuate, particularly with newly launched products. We review the rates and amounts in our allowance and accrual estimates on a quarterly basis. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues; conversely, if actual returns, rebates and chargebacks are significantly less than those reflected in our recorded reserves, the resulting adjustments to those reserves would increase our reported net revenues. If we changed our assumptions and estimates, our related reserves would change, which would impact the net revenues we report.

Share-Based Compensation

     In accordance with ASC 718, Compensation — Stock Compensation, we are required to recognize the fair value of share-based compensation awards as an expense. Determining the appropriate fair-value model and calculating the fair value of share-based awards at the date of grant requires judgment. We use the Black-Scholes option pricing model to estimate the fair value of employee stock options. Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. We use a blend of historical and implied volatility based on options freely traded in the open market as we believe this is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. Increasing the weighted average volatility by 2.5 percent (from 0.45 — 0.46 percent to 0.475 — 0.485 percent) would have increased the fair value of stock options granted in 2009 to $7.56 per share. Conversely, decreasing the weighted average volatility by 2.5 percent (from 0.45 — 0.46 percent to 0.425 — 0.435 percent) would have decreased the fair value of stock options granted in 2009 to $6.96 per share. The expected life of the awards is based on historical experience of awards with similar characteristics. Stock option awards granted during 2009 have a stated term of 7 years, and the weighted average expected life of the awards was determined to be 7 years. Decreasing the weighted average expected life by 0.5 years (from 7.0 years to 6.5 years) would have decreased the fair value of stock options granted in 2009 to $7.06 per share. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on our history and expectation of future dividend payouts.

     The fair value of our restricted stock grants is based on the fair market value of our common stock on the date of grant.

     The fair value of stock appreciation rights (SARs) is adjusted at the end of each reporting period based on updated valuation variables at the end of each reporting period. The fair value of SARs is most affected by changes in the fair market value of our common stock at the end of each reporting period.

     We are required to develop an estimate of the number of share-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. The effect of forfeiture adjustments in the first quarter of 2010 was immaterial.

     We evaluate the assumptions used to value our awards on a quarterly basis. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what was recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards to employees or we assume unvested equity awards in connection with acquisitions.

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     Our estimates of these important assumptions are based on historical data and judgment regarding market trends and factors. If actual results are not consistent with our assumptions and judgments used in estimating these factors, we may be required to record additional stock-based compensation expense or income tax expense, which could be material to our results of operations.

Inventory

     Inventory costs associated with products that have not yet received regulatory approval are capitalized if we believe 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. We could be required to expense previously capitalized costs related to pre-approval inventory if the probability of future commercial use and future economic benefit changes due to denial or delay of regulatory approval, a delay in commercialization, or other factors. Conversely, our gross margins could be favorably impacted if previously expensed pre-approval inventory becomes available and is used for commercial sale. As of December 31, 2009, there were $0.3 million of costs capitalized into inventory for products that have not yet received regulatory approval. We believe that it is probable that these products will receive regulatory approval and future revenues that exceed costs will be generated from the sale of the inventory.

Long-lived Assets

     We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. Recoverability of assets that will continue to be used in our operations is measured by comparing the carrying amount of the asset grouping to our estimate of the related total future net cash flows. If an asset carrying value is not recoverable through the related cash flows, the asset is considered to be impaired. The impairment is measured by the difference between the asset grouping’s carrying amount and its fair value, based on the best information available, including market prices or discounted cash flow analysis.

     When we determine that the useful lives of assets are shorter than we had originally estimated, and there are sufficient cash flows to support the carrying value of the assets, we accelerate the rate of amortization charges in order to fully amortize the assets over their new shorter useful lives.

     During 2009 and 2008, we did not recognize an impairment charge as a result of our review of long-lived assets. During 2007, an impairment charge of $4.1 million was recognized related to our review of long-lived assets, and the remaining useful life of the intangible asset that was deemed to be impaired was reduced. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record additional impairment charges for, and/or accelerate amortization of, long-lived assets.

Income Taxes

     Income taxes are determined using an annual effective tax rate, which generally differs from the U.S. Federal statutory rate, primarily because of state and local income taxes, enhanced charitable contribution deductions for inventory, tax credits available in the U.S., the treatment of certain share-based payments that are not designed to normally result in tax deductions, various expenses that are not deductible for tax purposes, changes in valuation allowances against deferred tax assets and differences in tax rates in certain non-U.S. jurisdictions. Our effective tax rate may be subject to fluctuations during the year as new information is obtained which may affect the assumptions we use to estimate our annual effective tax rate, including factors such as our mix of pre-tax earnings in the various tax jurisdictions in which we operate, 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 we conduct operations. We recognize tax benefits only if the tax position is more likely than not to be sustained. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating losses and credit carryforwards. We record valuation allowances against our deferred tax assets to reduce the net carrying values to amounts that management believes is more likely than not to be realized.

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     Based on our historical pre-tax earnings, we believe it is more likely than not that we will realize the benefit of substantially all of the existing net deferred tax assets at December 31, 2009. We believe the existing net deductible temporary differences will reverse during periods in which we generate net taxable income; however, there can be no assurance that we will generate any earnings or any specific level of continuing earnings in future years. Certain tax planning or other strategies could be implemented, if necessary, to supplement income from operations to fully realize recorded tax benefits.

     The Company has an option to acquire Revance or license Revance’s topical product that is under development. Through December 31, 2009, we have recorded $21.0 million of charges related to the reduction in the carrying value of the Revance investment. The reduction in the carrying value of the Revance investment is currently an unrealized loss for tax purposes. We will not be able to determine the character of the loss until we exercise or fail to exercise our option. A realized loss characterized as a capital loss can only be utilized to offset capital gains. We have recorded a $7.6 million valuation allowance 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 we believe is more likely than not to be realized.

Research and Development Costs and Accounting for Strategic Collaborations

     All research and development costs, including payments related to products under development and research consulting agreements, are expensed as incurred. We may continue to make non-refundable payments to third parties for new technologies and for new technologies and research and development work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made.

     Our policy on accounting for costs of strategic collaborations determines the timing of our recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or capitalized as an asset. We are required to form judgments with respect to the commercial status of such products in determining whether development costs meet the criteria for immediate expense or capitalization. For example, when we acquire certain products for which there is already an ANDA or NDA approval related directly to the product, and there is net realizable value based on projected sales for these products, we capitalize the amount paid as an intangible asset. In addition, if we acquire product rights which are in the development phase and as to which we have no assurance that the third party will successfully complete its development milestones, we expense such payments.

Legal Contingencies

     We record contingent liabilities resulting from asserted and unasserted claims against us when it is probable 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 addition to the matters disclosed in “Item 3. Legal Proceedings,” we are party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings.

Recent Accounting Pronouncements

     In April 2009, the FASB issued new guidance that provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This new guidance, which is now part of ASC 820, Fair Value Measurements and Disclosures, 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. The new guidance is effective for interim and annual reporting periods ending after June 15, 2009. We adopted the new guidance on April 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

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     In April 2009, the FASB issued new guidance related to the disclosure about the fair value of a reporting entity’s financial instruments whenever it issues summarized financial information for interim reporting periods. The new guidance, which is now part of ASC 825, Financial Instruments, is effective for financial statements issued for interim reporting periods ending after June 15, 2009. We adopted the new guidance on April 1, 2009, and it did not have a material impact on our consolidated results of operations and financial condition.

     In June 2009, the FASB issued revised guidance on the accounting for variable interest entities. The revised guidance, which was issued as SFAS No. 167, New Consolidation Guidance for Variable Interest Entities (VIE), which amends FIN 46 (R), Consolidation of Variable Interest Entities, has not yet been adopted into the FASB Standards Accounting Codification (“Codification”). The revised guidance addresses the elimination of the concept of a qualifying special purpose entity and replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the revised guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The revised guidance is effective for annual reporting periods beginning after November 30, 2009. We are currently assessing what impact, if any, the revised guidance will have on our results of operations and financial condition.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     At December 31, 2009, $197.5 million of our cash equivalent investments are in money market securities that are reflected as cash equivalents, because all maturities are within 90 days. Included in money market securities are commercial paper, Federal agency discount notes and money market funds. Our interest rate risk with respect to these investments is limited due to the short-term duration of these arrangements and the yields earned, which approximate current interest rates.

     Our policy for our 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 our investment guidelines and market conditions. Our investment portfolio, consisting of fixed income securities that we hold on an available-for-sale basis, was approximately $344.8 million as of December 31, 2009, and $312.8 million as of December 31, 2008. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. We have the ability to hold our fixed income investments until maturity and, therefore, we would not expect to recognize any material adverse impact in income or cash flows if market interest rates increase.

     As of December 31, 2009, and December 31, 2008, our short-term investments included auction rate floating securities with a fair value of $26.8 million and $38.2 million, respectively. 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. The negative conditions in the credit markets during 2008 and 2009 have prevented some investors from liquidating their holdings, including their holdings of auction rate floating 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. We may not be able to liquidate the securities until a future auction on these investments is successful. As a result of the lack of liquidity of these investments, we recorded an

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other-than-temporary impairment loss of $6.4 million during 2008 on our auction rate floating securities. During the three months ended June 30, 2009, we adopted FSP FAS 115-2 (now part of ASC 320), and accordingly, we reclassified $3.1 million of this other-than-temporary impairment loss, net of income taxes, from retained earnings to other comprehensive income in our consolidated balance sheets during the three months ended June 30, 2009.

     The following table provides information about our available-for-sale and trading securities that are sensitive to changes in interest rates. We have aggregated our available-for-sale securities for presentation purposes since they are all very similar in nature (dollar amounts in thousands):

Interest Rate Sensitivity
Principal Amount by Expected Maturity as of December 31, 2009

	Financial instruments mature during year ended December 31,
	2010			2011			2012			2013			2014			Thereafter
Financial instruments mature during year ended December 31,
Available-for-sale and trading securities	$	143,417		$	167,522		$	8,290		$	—		$	—		$	25,524
Weighted-average yield rate		1.2	%		1.2	%		1.4	%		0.0	%		0.0	%		1.8	%
Contingent convertible senior notes due 2032	$	—		$	—		$	—		$	—		$	—		$	169,145
Interest rate		—			—			—			—			—			2.5	%
Contingent convertible senior notes due 2033	$	—		$	—		$	—		$	—		$	—		$	181
Interest rate		—			—			—			—			—			1.5	%

     Changes in interest rates do not affect interest expense incurred on our Contingent Convertible Senior Notes as the interest rates are fixed. We have not entered into derivative financial instruments. We have minimal operations outside of the U.S. and, accordingly, we have not been susceptible to significant risk from changes in foreign currencies.

     During the normal course of business we could be subjected to a variety of market risks, examples of which include, but are not limited to, interest rate movements and foreign currency fluctuations, as we discussed above, and collectibility of accounts receivable. We continuously assess these risks and have established policies and procedures to protect against the adverse effects of these and other potential exposures. Although we do not anticipate any material losses in these risk areas, no assurance can be made that material losses will not be incurred in these areas in the future.

Item 8. Financial Statements and Supplementary Data

     Our financial statements and related financial statement schedule and the Independent Registered Public Accounting Firm’s Reports are incorporated herein by reference to the financial statements set forth in Item 15 of Part IV of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. 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

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management, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective and designed 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 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 error 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 December 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.

Management’s Report on Internal Control over Financial Reporting

     The management of Medicis Pharmaceutical Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     Under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009. The framework on which such evaluation was based is contained in the report entitled “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”). Based on that evaluation and the criteria set forth in the COSO Report, management concluded that our internal control over financial reporting was effective as of December 31, 2009.

     Our independent registered public accounting firm, Ernst & Young LLP, who also audited our consolidated financial statements, audited the effectiveness of our internal control over financial reporting. Ernst & Young LLP has issued their attestation report, which is included below.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Medicis Pharmaceutical Corporation

     We have audited Medicis Pharmaceutical Corporation’s (the “Company”) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Medicis Pharmaceutical Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included above under the heading “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, Medicis Pharmaceutical Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the December 31, 2009 consolidated financial statements of Medicis Pharmaceutical Corporation and subsidiaries and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Phoenix, Arizona
March 1, 2010

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Item 9B. Other Information

     None.

PART III

Item 10. Directors and Executive Officers and Corporate Governance

     The Company has adopted a written code of ethics, “Medicis Pharmaceutical Corporation Code of Business Conduct and Ethics,” which is applicable to all directors, officers and employees of the Company, including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who perform similar functions (collectively, the “Selected Officers”). In accordance with the rules and regulations of the SEC, a copy of the code is available on the Company’s website. The Company will disclose any changes in or waivers from its code of ethics applicable to any Selected Officer on its website at http://www.Medicis.com or by filing a Form 8-K.

     The Company has filed, as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2009, the certifications of its Chief Executive Officer and Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     On May 26, 2009, the Company submitted to the New York Stock Exchange the Annual CEO Certification required pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.

     The information in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance”, “Director Biographical Information”, “Board Nominees”, “Executive Officers” and “Governance of Medicis” in the Proxy Statement is incorporated herein by reference.

Item 11. Executive Compensation

     The information to be included in the sections entitled “Executive Compensation,” “Compensation of Directors,” and “Stock Option and Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information to be included in the section entitled “Security Ownership of Directors and Executive Officers and Certain Beneficial Owners” in the Proxy Statement and in the section entitled “Equity Compensation Plan Information” in Item 5 of this Annual Report on Form 10-K is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

     The information to be included in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

     The information to be included in the section entitled “Independent Public Accountants” in the Proxy Statement is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

	Page
(a) Documents filed as a part of this Report
(1) Financial Statements:
Index to consolidated financial statements		F-1
Report of Independent Registered Public Accounting Firm		F-2
Consolidated balance sheets as of December 31, 2009 and 2008		F-3
Consolidated statements of income for the years ended December 31, 2009, 2008 and 2007		F-5
Consolidated statements of stockholders’ equity for the years ended December 31, 2009, 2008 and 2007		F-6
Consolidated statements of cash flows for the years ended December 31, 2009, 2008 and 2007		F-8
Notes to consolidated financial statements		F-9
(2) Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts		S-1
This financial statement schedule should be read in conjunction with the consolidated financial statements. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) Exhibits filed as part of this Report:

Exhibit No.	Description
2.1	Agreement of Merger by and between the Company, Medicis Acquisition Corporation and GenDerm Corporation, dated November 28, 1997 (11)
2.2	Agreement of Plan of Merger, dated as of October 1, 2001, by and among the Company, MPC Merger Corp. and Ascent Pediatrics, Inc. (17)
2.3	Agreement and Plan of Merger by and among the Company, Donatello, Inc., and LipoSonix, Inc. dated June 16, 2008(49)
3.1	Certificate of Incorporation of the Company, as amended (23)
3.2	Amended and Restated By-Laws of the Company (43)
4.1	Amended and Restated Rights Agreement, dated as of August 17, 2005, between the Company and Wells Fargo Bank, N.A., as Rights Agent(26)
4.2	Indenture, dated as of August 19, 2003, by and between the Company, as issuer, and Deutsche Bank Trust Company Americas, as trustee (23)
4.3	Indenture, dated as of June 4, 2002, by and between the Company, as issuer, and Deutsche Bank Trust Company Americas, as trustee. (19)
4.4	Supplemental Indenture dated as of February 1, 2005 to Indenture dated as of August 19, 2003 between the Company and Deutsche Bank Trust Company Americas as Trustee (25)
4.5	Registration Rights Agreement, dated as of June 4, 2002, by and between the Company and Deutsche Bank Securities Inc. (19)
4.6	Form of specimen certificate representing Class A common stock (1)
10.1	Asset Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin Pharmaceutical Inc., and BioMarin Pediatrics Inc., dated April 20, 2004 (23)
10.2	Merger Termination Agreement, dated as of December 13, 2005, by and among the Company, Masterpiece Acquisition Corp., and Inamed Corporation(31)
10.3	Securities Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin Pharmaceutical Inc. and BioMarin Pediatrics Inc., dated May 18, 2004 (23)
10.4	Termination Agreement dated October 19, 2005 between the Company and Michael A. Pietrangelo(28)
10.5	License Agreement among the Company, Ascent Pediatrics, Inc. and BioMarin Pediatrics Inc., dated May 18, 2004 (23)
10.6	Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual

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Exhibit No.	Description
	Meeting of Shareholders previously filed with the SEC, File No. 0-18443)
10.7(a)	Employment Agreement between the Company and Jonah Shacknai, dated July 24, 1996 (8)
10.7(b)	Amendment to Employment Agreement by and between the Company and Jonah Shacknai, dated April 1, 1999 (15)
10.7(c)	Amendment to Employment Agreement by and between the Company and Jonah Shacknai, dated February 21, 2001 (15)
10.7(d)	Third Amendment, dated December 30, 2005, to Employment Agreement between the Company and Jonah Shacknai(32)
10.8	Medicis Pharmaceutical Corporation 2001 Senior Executive Restricted Stock Plan(30)
10.9(a)	Medicis Pharmaceutical Corporation 2002 Stock Option Plan (20)
10.9(b)	Amendment No. 1 to the Medicis Pharmaceutical Corporation 2002 Stock Option Plan, dated August 1, 2005(29)
10.10(a)	Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(27)
10.10(b)	Amendment No. 1 to the Medicis Pharmaceutical Corporation 2004 Stock Option Plan, dated August 1, 2005(29)
10.11(a)	Medicis Pharmaceutical Corporation 1998 Stock Option Plan(33)
10.11(b)	Amendment No. 1 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated August 1, 2005(29)
10.11(c)	Amendment No. 2 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated September 30, 2005(29)
10.12(a)	Medicis Pharmaceutical Corporation 1996 Stock Option Plan(34)
10.12(b)	Amendment No. 1 to the Medicis Pharmaceutical Corporation 1996 Stock Option Plan, dated August 1, 2005(29)
10.13	Waiver Letter dated March 18, 2005 between the Company and Q-Med AB(27)
10.14	Supply Agreement, dated October 21, 1992, between Schein Pharmaceutical and the Company (2)
10.15	Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between Schein Pharmaceutical and the Company (3)
10.16(a)	Credit and Security Agreement, dated August 3, 1995, between the Company and Norwest Business Credit, Inc. (5)
10.16(b)	First Amendment to Credit and Security Agreement, dated May 29, 1996, between the Company and Norwest Bank Arizona, N.A. (8)
10.16(c)	Second Amendment to Credit and Security Agreement, dated November 22, 1996, by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest to Norwest Business Credit, Inc. (10)
10.16(d)	Third Amendment to Credit and Security Agreement, dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business Credit, Inc. (12)
10.16(e)	Fourth Amendment to Credit and Security Agreement, dated November 22, 2000, by and between the Company and Wells Fargo Bank Arizona, N.A., formerly known as Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business Credit, Inc. (16)
10.16(f)	Fifth Amendment to Credit and Security Agreement, dated November 22, 2002, by and between the Company and Wells Fargo Bank Arizona, N.A., formerly known as Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business Credit, Inc. (23)
10.17(a)	Patent Collateral Assignment and Security Agreement, dated August 3, 1995, by the Company to Norwest Business Credit, Inc. (6)
10.17(b)	First Amendment to Patent Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)
10.17(c)	Amended and Restated Patent Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (12)
10.18(a)	Trademark Collateral Assignment and Security Agreement, dated August 3, 1995, by the Company to Norwest Business Credit, Inc. (7)
10.18(b)	First Amendment to Trademark Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)
10.18(c)	Amended and Restated Trademark, Tradename, and Service Mark Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (12)
10.19	Assignment and Assumption of Loan Documents, dated May 29, 1996, from Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (8)
10.20	Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank

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Exhibit No.		Description
		Arizona, N.A. (8)
10.21		Asset Purchase Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and Hoechst Marion Roussel, S.A. (12)
10.22		License and Option Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and Hoechst Marion Roussel, S.A. (12)
10.23		Loprox Lotion Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel, Inc. (12)
10.24		Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel Deutschland GMBH (12)
10.25		Asset Purchase Agreement effective January 31, 1999, between the Company and Bioglan Pharma Plc (14)
10.26		Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated April 19, 1999 (14)
10.27		Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc, dated June 29, 1999 (14)
10.28		Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan Pharma Plc, the Company and IMX Pharmaceuticals, Inc., dated June 29, 1999 (16)
10.29		Medicis Pharmaceutical Corporation Executive Retention Plan (14)
10.30		Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated September 14, 1999(14)
10.31(a)		Share Purchase Agreement between Q-Med International B.V. and Startskottet 21914 AB (under proposed change of name to Medicis Sweden Holdings AB), dated February 10, 2003(21)
10.31(b)		Amendment No. 1 to Share Purchase Agreement between Q-Med International B.V. and Startskottet 21914 AB (under proposed change of name to Medicis Sweden Holdings AB), dated March 7, 2003(21)
10.32		Supply Agreement between Q-Med AB and the Company, dated March 7, 2003(21)
10.33		Amended and Restated Intellectual Property Agreement between Q-Med AB and HA North American Sales AB, dated March 7, 2003(21)
10.34		Supply Agreement between Medicis Aesthetics Holdings Inc., a wholly owned subsidiary of the Company, and Q-Med AB, dated July 15, 2004 (23) Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
10.35		Intellectual Property License Agreement between Q-Med AB and Medicis Aesthetics Holdings Inc., dated July 15, 2004 (23) Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
10.36		Note Agreement, dated as of October 1, 2001, by and among Ascent Pediatrics, Inc., the Company, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent Investments LLC, FS Parallel Fund L.P., BancBoston Ventures Inc. and Flynn Partners (17)
10.37		Voting Agreement, dated as of October 1, 2001, by and among the Company, MPC Merger Corp., FS Private Investments LLC, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent Investments LLC and FS Parallel Fund L.P. (17)
10.38		Exclusive Remedy Agreement, dated as of October 1, 2001, by and among the Company, Ascent Pediatrics, Inc., FS Private Investments LLC, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent Investments LLC and FS Parallel Fund L.P., BancBoston Ventures Inc., Flynn Partners, Raymond F. Baddour, Sc.D., Robert E. Baldini, Medical Science Partners L.P. and Emmett Clemente, Ph.D. (17)
10.39		Medicis Pharmaceutical Corporation 1992 Stock Option Plan(35)
10.40		Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(36)
10.41		Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(36)
10.42		Letter Agreement dated as of March 13, 2006 among Medicis Pharmaceutical Corporation, Aesthetica Ltd., Medicis Aesthetics Holdings Inc., Ipsen S.A. and Ipsen Ltd. (37)
10.43	*	Development and Distribution Agreement by and between Aesthetica, Ltd. and Ipsen,

90

Exhibit No.		Description
		Ltd.(38)
10.44	*	Trademark License Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd. (38)
10.45	*	Trademark Assignment Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd. (38)
10.46(a)		Medicis 2006 Incentive Award Plan(39)
10.46(b)		Amendment to the Medicis 2006 Incentive Award Plan, dated July 10, 2006(41)
10.46(c)		Amendment No. 2 to the Medicis 2006 Incentive Award Plan, dated April 11, 2007(46)
10.46(d)		Amendment No. 3 to the Medicis 2006 Incentive Award Plan, dated April 16, 2007(45)
10.46(e)		Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2006 Incentive Award Plan(48)
10.46(f)		Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2006 Incentive Award Plan(48)
10.47		Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and Mark A. Prygocki, Sr. (40)
10.48		Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and Mitchell S. Wortzman, Ph.D. (40)
10.49		Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and Richard J. Havens (40)
10.50		Employment Agreement, dated July 27, 2006, between Medicis Pharmaceutical Corporation and Jason D. Hanson (40)
10.51	*	Office Sublease by and between Apex 7720 North Dobson, L.L.C., an Arizona limited liability company, and Medicis Pharmaceutical Corporation, dated as of July 26, 2006(42)
10.52		Corporate Integrity Agreement between the Office of Inspector General of the department of Health and Human Services and Medicis Pharmaceutical Corporation(44)
10.53	*	Collaboration Agreement, dated as of August 23, 2007, by and between Ucyclyd Pharma, Inc. and Hyperion Therapuetics, Inc. (47)
10.54		Employment Agreement, dated December 23, 2008, by and between the Company and Joseph P. Cooper (50)
10.55		Amended and Restated Employment Agreement, dated December 23, 2008, by and between the Company and Jason D. Hanson (50)
10.56		Employment Agreement, dated December 23, 2008, by and between the Company and Vincent P. Ippolito (50)
10.57		Employment Agreement, dated December 23, 2008, by and between the Company and Richard D. Peterson (50)
10.58		Amended and Restated Employment Agreement, dated December 23, 2008, by and between the Company and Mark A. Prygocki (50)
10.59		Amended and Restated Employment Agreement, dated December 23, 2008, by and between the Company and Mitchell S. Wortzman, Ph.D. (50)
10.60		Fourth Amendment to Employment Agreement, dated December 23, 2008, by and between the Company and Jonah Shacknai (50)
10.61	*	Joint Development Agreement, dated as of November 26, 2008, between the Company and Impax Laboratories, Inc.
10.62	*	License and Settlement Agreement, dated as of November 26, 2008, between the Company and Impax Laboratories, Inc.
10.63		Amendment No. 4 to the Medicis 2006 Incentive Award Plan, dated March 26, 2009.(52)
10.64	*	Settlement Agreement, dated March 18, 2009, between the Company and Barr Laboratories, Inc., a wholly owned subsidiary of Teva Pharmaceuticals USA, Inc.(52)
10.65	*	License and Settlement Agreement, dated April 8, 2009, between the Company and Perrigo Israel Pharmaceuticals Ltd. and Perrigo Company.(52)
10.66	*	Joint Development Agreement, dated April 8, 2009, between the Company and Perrigo Israel Pharmaceuticals Ltd.(52)
10.67		Form of Indemnification Agreement for Directors and Officers of the Company.(52)
10.68	*	Second Amendment to the Collaboration Agreement between Ucyclyd Pharma, Inc. and Hyperion Therapeutics, Inc.(53)
10.69		Settlement Agreement and Mutual Releases, dated August 18, 2009 between the Company and Sandoz, Inc.(54)
10.70	+*	Transition Agreement, dated as of January 25, 2005, between the Company and aaiPharma Inc.
10.71	+*	First Amendment to the Transition Agreement, dated as of August 11, 2006, between the Company and aaiPharma Inc.
10.72	+*	Second Amendment to the Transition Agreement, dated as of September 8, 2006, between the Company and aaiPharma Inc.
10.73	+*	Master Manufacturing Agreement, dated as of March 20, 2008, between Medicis Global

91

Exhibit No.		Description
		Services Corporation and WellSpring Pharmaceutical Canada Corp.
10.74	+*	License and Settlement Agreement, dated as of November 14, 2009, among the Company, Glenmark Generics Ltd. and Glenmark Generics Inc., USA
10.75	+*	Amended and Restated Settlement Agreement, dated as of November 13, 2009, between the Company and Teva Pharmaceutical Industries Ltd.
12	+	Computation of Ratios of Earnings to Fixed Charges
21.1	+	Subsidiaries
23.1	+	Consent of Independent Registered Public Accounting Firm
24.1		Power of Attorney See signature page
31.1	+	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2	+	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
32.1	+	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	+	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+	Filed herewith
*	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 Registration Statement on Form S-1 of the Registrant, File No. 33-32918, filed with the SEC on January 16, 1990
(2)	Incorporated by reference to the Registration Statement on Form S-1 of the Company, File No. 33-54276, filed with the SEC on June 11, 1993
(3)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18443, filed with the SEC on October 13, 1993
(4)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1995, File No. 0-18443, previously filed with the SEC (the “1994 Form 10-K”)
(5)	Incorporated by reference to the Company’s 1995 Form 10-K
(6)	Incorporated by reference to the Company’s 1995 Form 10-K
(7)	Incorporated by reference to the Company’s 1995 Form 10-K
(8)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-18443, previously filed with the SEC
(9)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-18443, previously filed with the SEC
(10)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, File No. 0-18443, previously filed with the SEC
(11)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 15, 1997
(12)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, File No. 001-14471, previously filed with the SEC
(13)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 13, 2006
(14)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999, File No. 001-14471, previously filed with the SEC
(15)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 001-14471, previously filed with the SEC
(16)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001, File No. 001-14471, previously filed with the SEC
(17)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 2, 2001
(18)	Incorporated by reference to the Company’s registration statement on Form 8-A12B/A filed with the SEC on June 4, 2002
(19)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2002
(20)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002, File No. 0-18443, previously filed with the SEC
(21)	Incorporated by reference to the Company’s Current Report on Form

92

	8-K filed with the SEC on March 10, 2003
(22)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003, File No. 001-14471, previously filed with the SEC
(23)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004, File No. 001-14471, previously filed with the SEC
(24)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 21, 2005
(25)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, File No. 001-14471, previously filed with the SEC
(26)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 18, 2005
(27)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, File No. 001-14471, previously filed with the SEC
(28)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2005
(29)	Incorporated by reference to the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2005, File No. 001-14471, previously filed with the SEC on October 28, 2005
(30)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-14471, previously filed with the SEC
(31)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2005
(32)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 3, 2006
(33)	Incorporated by reference to Appendix 1 to the Company’s definitive Proxy Statement for the 1998 Annual Meeting of Stockholders filed with the SEC on December 2, 1998
(34)	Incorporated by reference to Appendix 2 to the Company’s definitive Proxy Statement for the 1996 Annual Meeting of Stockholders filed with the SEC on October 23, 1996
(35)	Incorporated by reference to Exhibit B to the Company’s definitive Proxy Statement for the 1992 Annual Meeting of Stockholders previously filed with the SEC
(36)	Incorporated by reference to the Company’s Annual Report on Form 10-K/T for the six month transition period ended December 31, 2005, File No. 001-14471, previously filed with the SEC on March 16, 2006
(37)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2006
(38)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 001-14471, previously filed with the SEC
(39)	Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the 2006 Annual Meeting of Stockholders filed with the SEC on April 13, 2006
(40)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 31, 2006
(41)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 001-14471, previously filed with the SEC
(42)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, File No. 001-14471, previously filed with the SEC
(43)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2009
(44)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2007
(45)	Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 16, 2007
(46)	Incorporated by reference to the Company’s Registration Statement on Form S-8 dated September 3, 2007
(47)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, File No. 001-14471, previously filed with the SEC
(48)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 001-14471, previously filed with the SEC
(49)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, File No. 001-14471, previously filed with the SEC.

93

(50)	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2008
(51)	Incorporated by reference to the Company’s Annual Report on 10-K for the year ended December 31, 2008, File No. 0-14471, previously filed with the SEC
(52)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, File No. 001-14471, previously filed with the SEC.
(53)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, File No. 001-14471, previously filed with the SEC.
(54)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, File No. 001-14471, previously filed with the SEC.

(b) The exhibits to this Form 10-K follow the Company’s Financial Statement Schedule included in this Form 10-K.

(c) The Financial Statement Schedule to this Form 10-K appears on page S-1 of this Form 10-K.

94

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 1, 2010

MEDICIS PHARMACEUTICAL CORPORATION
By:	/s/ JONAH SHACKNAI
	Jonah Shacknai
	Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jonah Shacknai and Richard D. Peterson, or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any documents related to this report and filed pursuant to the Securities Exchange Act of 1934, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. This power of attorney shall be governed by and construed with the laws of the States of Delaware and applicable federal securities laws.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ JONAH SHACKNAI Jonah Shacknai	Chairman of the Board of Directors  and Chief Executive Officer (Principal Executive Officer)	March 1, 2010
/s/ RICHARD D. PETERSON Richard D. Peterson	Executive Vice President, Chief Financial Officer,  and Treasurer (Principal Financial and Accounting Officer)	March 1, 2010
/s/ ARTHUR G. ALTSCHUL, JR. Arthur G. Altschul, Jr.	Director	March 1, 2010
/s/ SPENCER DAVIDSON Spencer Davidson	Director	March 1, 2010
/s/ STUART DIAMOND Stuart Diamond	Director	March 1, 2010
/s/ PETER S. KNIGHT, ESQ. Peter S. Knight, Esq.	Director	March 1, 2010
/s/ MICHAEL A. PIETRANGELO Michael A. Pietrangelo	Director	March 1, 2010
/s/ PHILIP S. SCHEIN, M.D. Philip S. Schein, M.D.	Director	March 1, 2010
/s/ LOTTIE SHACKELFORD Lottie Shackelford	Director	March 1, 2010

95

MEDICIS PHARMACEUTICAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2009 and 2008		F-3
Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007		F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2008 and 2007		F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007		F-8
Notes to Consolidated Financial Statements		F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Medicis Pharmaceutical Corporation

     We have audited the accompanying consolidated balance sheets of Medicis Pharmaceutical Corporation and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based upon our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medicis Pharmaceutical Corporation and subsidiaries at December 31, 2009 and 2008 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Medicis Pharmaceutical Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP  

Phoenix, Arizona
March 1, 2010

F-2

MEDICIS PHARMACEUTICAL CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands)

	DECEMBER 31,
	2009		2008
Assets
Current assets:
Cash and cash equivalents	$	209,051	$	86,450
Short-term investments		319,229		257,435
Accounts receivable, less allowances:
December 31, 2009 and 2008: $2,848 and $1,719, respectively		95,222		52,588
Inventories, net		25,985		24,226
Deferred tax assets, net		66,321		53,161
Other current assets		16,525		19,676
Total current assets		732,333		493,536
Property and equipment, net		25,247		26,300
Net intangible assets		227,840		161,429
Goodwill		93,282		156,762
Deferred tax assets, net		64,947		77,149
Long-term investments		25,524		55,333
Other assets		3,025		2,925
	$	1,172,198	$	973,434

See accompanying notes to consolidated financial statements.

F-3

MEDICIS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS, Continued
(in thousands, except share amounts)

	DECEMBER 31,
	2009			2008
Liabilities
Current liabilities:
Accounts payable	$	44,183		$	39,032
Reserve for sales returns		48,062			59,611
Accrued consumer rebate and loyalty programs		73,311			28,449
Managed care and Medicaid reserves		47,078			16,956
Income taxes payable		16,679			—
Other current liabilities		68,381			41,853
Total current liabilities		297,694			185,901
Long-term liabilities:
Contingent convertible senior notes		169,326			169,326
Other liabilities		9,919			14,513
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: 70,732,409 and 69,396,394 at December 31, 2009 and December 31, 2008, respectively		985			969
Class B common stock, $0.014 par value; shares authorized: 1,000,000; issued and outstanding: none		—			—
Additional paid-in capital		690,497			661,703
Accumulated other comprehensive (loss) income		(3,814	)		2,106
Accumulated earnings		351,842			282,284
Less: Treasury stock, 12,749,261 and 12,678,559 shares at cost at December 31, 2009 and December 31, 2008, respectively		(344,251	)		(343,368	)
Total stockholders’ equity		695,259			603,694
	$	1,172,198		$	973,434

See accompanying notes to consolidated financial statements.

F-4

MEDICIS PHARMACEUTICAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
Net product revenues	$	561,761		$	500,977		$	441,868
Net contract revenues		10,154			16,773			15,526
Net revenues		571,915			517,750			457,394
Cost of product revenues (1)		56,833			38,714			56,110
Gross profit		515,082			479,036			401,284
Operating expenses:
Selling, general and administrative (2)		282,950			279,768			242,633
Research and development (3)		71,765			99,916			39,428
Depreciation and amortization		29,047			27,698			24,548
In-process research and development		—			30,500			—
Impairment of intangible assets		—			—			4,067
Operating income		131,320			41,154			90,608
Interest and investment income		(7,631	)		(23,396	)		(38,390	)
Interest expense		4,228			6,674			10,018
Other (income) expense, net		(867	)		15,470			—
Income before income tax expense		135,590			42,406			118,980
Income tax expense		59,639			32,130			48,544
Net income	$	75,951		$	10,276		$	70,436
Basic net income per share	$	1.29		$	0.18		$	1.25
Diluted net income per share	$	1.21		$	0.18		$	1.07
Cash dividend declared per common share	$	0.16		$	0.16		$	0.12
Common shares used in calculating:
Basic net income per share		57,252			56,567			55,988
Diluted net income per share		63,172			56,567			71,179

(1)  amounts exclude amortization of intangible assets related to acquired products	$	22,378	$	21,479	$	21,606
(2)   amounts include share-based compensation expense	$	18,122	$	16,265	$	21,031
(3)   amounts include share-based compensation expense	$	1,053	$	332	$	112

See accompanying notes to consolidated financial statements.

F-5

MEDICIS PHARMACEUTICAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

	Class A				Class B
	Common Stock				Common Stock
	Shares		Amount		Shares		Amount
Balance at December 31, 2006		68,044	$	952		—	$	—
Comprehensive income:
Net income		—		—		—		—
Net unrealized gains on available-for-sale securities		—		—		—		—
Foreign currency translation adjustment		—		—		—		—
Comprehensive income
Adjustment for adoption of FIN 48 (a)		—		—		—		—
Share-based compensation		—		—		—		—
Dividends declared		—		—		—		—
Restricted shares issued for deferred compensation		37		—		—		—
Restricted shares held in lieu of employee taxes		—		—		—		—
Exercise of stock options		924		13		—		—
Tax effect of stock options exercised		—		—		—		—
Balance at December 31, 2007		69,005		965		—		—
Comprehensive income:
Net income		—		—		—		—
Net unrealized gains on available-for-sale securities		—		—		—		—
Foreign currency translation adjustment		—		—		—		—
Comprehensive income
Share-based compensation		—		—		—		—
Dividends declared		—		—		—		—
Restricted shares issued for deferred compensation		110		—		—		—
Restricted shares held in lieu of employee taxes		—		—		—		—
Exercise of stock options		281		4		—		—
Tax effect of stock options exercised		—		—		—		—
Balance at December 31, 2008		69,396		969		—		—
Comprehensive income:
Net income		—		—		—		—
Net unrealized losses on available-for-sale securities		—		—		—		—
Foreign currency translation adjustment		—		—		—		—
Comprehensive income
Adjustment for adoption of FSP FAS 115-2 (b)		—		—		—		—
Share-based compensation		—		—		—		—
Dividends declared		—		—		—		—
Restricted shares issued for deferred compensation		202		—		—		—
Restricted shares held in lieu of employee taxes		—		—		—		—
Exercise of stock options		1,134		16		—		—
Tax effect of stock options exercised		—		—		—		—
Balance at December 31, 2009		70,732	$	985		—	$	—

(a)	FIN 48 is now part of ASC 740, Income Taxes.
(b)	FSP FAS 115-2 is now part of ASC 320, Investments — Debt and Equity Securities.

See accompanying notes to consolidated financial statements.

F-6

	Accumulated
Additional	Other						Treasury
Paid-in	Comprehensive			Accumulated			Stock
Capital	Income (Loss)			Earnings			Shares			Amount			Total
$598,435	$	537		$	218,392			(12,650	)	$	(342,796	)	$	475,520
—		—			70,436			—			—			70,436
—		885			—			—			—			885
—		799			—			—			—			799
														72,120
—		—			(808	)		—			—			(808	)
21,143		—			—			—			—			21,143
—		—			(6,802	)		—			—			(6,802	)
—		—			—			—			—			—
—		—			—			(6	)		(214	)		(214	)
19,739		—			—			—			—			19,752
2,590		—			—			—			—			2,590
641,907		2,221			281,218			(12,656	)		(343,010	)		583,301
—		—			10,276			—			—			10,276
—		28			—			—			—			28
—		(143	)		—			—			—			(143	)
														10,161
16,597		—			—			—			—			16,597
—		—			(9,210	)		—			—			(9,210	)
—		—			—			—			—			—
—		—			—			(23	)		(358	)		(358	)
4,842		—			—			—			—			4,846
(1,643)		—			—			—			—			(1,643	)
661,703		2,106			282,284			(12,679	)		(343,368	)		603,694
—		—			75,951			—			—			75,951
—		(2,814	)		—			—			—			(2,814	)
—		(11	)		—			—			—			(11	)
														73,126
—		(3,095	)		3,095			—			—			—
13,556		—			—			—			—			13,556
—		—			(9,488	)		—			—			(9,488	)
—		—			—			—			—			—
—		—			—			(70	)		(883	)		(883	)
16,107		—			—			—			—			16,123
(869)		—			—			—			—			(869	)
$690,497	$	(3,814	)	$	351,842			(12,749	)	$	(344,251	)	$	695,259

F-7

MEDICIS PHARMACEUTICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
Operating Activities:
Net income	$	75,951		$	10,276		$	70,436
Adjustments to reconcile net income to net cash provided by operating activities:
In-process research and development		—			30,500			—
Depreciation and amortization		29,046			27,698			24,548
Amortization of deferred financing fees		—			666			1,519
Impairment of intangible assets		—			—			4,067
Loss on disposal of property and equipment		—			20			19
(Gain) loss on sale of product rights		(350	)		398			259
Gain on sale of Medicis Pediatrics		(2,915	)		—			—
Impairment of available-for-sale investments		—			6,400			—
Charge reducing value of investment in Revance		2,886			9,071			—
Gain on sale of available-for-sale investments, net		(1,609	)		(1,020	)		(105	)
Share-based compensation expense		19,175			16,597			21,143
Deferred income tax (benefit) expense		(3,408	)		(42,690	)		14,027
Tax (expense) benefit from exercise of stock options and vesting of restricted stock awards		(925	)		(1,643	)		2,590
Excess tax benefits from share-based payment arrangements		(241	)		(169	)		(1,494	)
Increase (decrease) in provision for sales discounts and chargebacks		1,129			888			(1,318	)
Accretion (amortization) of premium/(discount) on investments		3,273			(60	)		(3,369	)
Changes in operating assets and liabilities:
Accounts receivable		(43,763	)		(30,259	)		50,777
Inventories		(1,759	)		6,693			(2,957	)
Other current assets		3,152			(1,176	)		(2,060	)
Accounts payable		5,151			3,707			(12,622	)
Reserve for sales returns		(11,549	)		(9,176	)		(18,625	)
Income taxes payable		16,679			(7,731	)		(4,420	)
Other current liabilities		93,981			28,417			8,000
Other liabilities		(6,019	)		(1,637	)		8,529
Net cash provided by operating activities		177,885			45,770			158,944
Investing Activities:
Purchase of property and equipment		(5,339	)		(11,071	)		(10,020	)
Equity investment in an unconsolidated entity		(616	)		—			(11,957	)
LipoSonix acquisition, net of cash acquired		—			(149,805	)		—
Payment of direct merger costs		—			(3,637	)		—
Payments for purchase of product rights		(88,860	)		(1,024	)		(30,394	)
Proceeds from sale of product rights		350			—			1,000
Proceeds from sale of Medicis Pediatrics		70,294			—			—
Purchase of available-for-sale investments		(414,527	)		(393,862	)		(741,075	)
Sale of available-for-sale investments		131,914			417,536			291,804
Maturity of available-for-sale investments		244,553			361,988			231,156
Decrease (increase) in other assets		5			(34	)		—
Net cash (used in) provided by investing activities		(62,226	)		220,091			(269,486	)
Financing Activities:
Payment of dividends		(9,411	)		(8,600	)		(6,771	)
Payment of contingent convertible senior notes		—			(283,729	)		(5	)
Proceeds from the exercise of stock options		16,123			4,846			19,752
Excess tax benefits from share-based payment arrangements		241			169			1,494
Net cash provided by (used in) financing activities		6,953			(287,314	)		14,470
Effect of exchange rate on cash and cash equivalents		(11	)		(143	)		799
Net increase (decrease) in cash and cash equivalents		122,601			(21,596	)		(95,273	)
Cash and cash equivalents at beginning of period		86,450			108,046			203,319
Cash and cash equivalents at end of period	$	209,051		$	86,450		$	108,046

See accompanying notes to consolidated financial statements.

F-8

MEDICIS PHARMACEUTICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND BASIS OF PRESENTATION

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

     The Company offers a broad range of products addressing various conditions or aesthetic improvements including facial wrinkles, glabellar lines, acne, fungal infections, rosacea, hyperpigmentation, photoaging, psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Medicis currently offers 17 branded products. Its primary brands are DYSPORT™, PERLANE^®, RESTYLANE^®, SOLODYN^®, TRIAZ^®, VANOS^® and ZIANA^®. Medicis entered the non-invasive body contouring market with its acquisition of LipoSonix in July 2008.

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

     In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. SFAS No. 168 establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities, and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification supersedes all of the existing non-SEC accounting and reporting standards, but is not intended to change or alter existing U.S. GAAP. The Codification changes the references of financial standards within the Company’s financial statements. All references made to U.S. GAAP use the new Accounting Standards Codification (“ASC”) and the new Codification numbering system prescribed by the FASB.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

     At December 31, 2009, cash and cash equivalents included highly liquid investments in money market accounts consisting of government securities and high-grade commercial paper. These investments are stated at cost, which approximates fair value. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

Short-Term and Long-Term Investments

     The Company’s short-term and long-term investments are classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains and losses reported in stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary are included in operations. On an ongoing basis, the Company evaluates its available-for-sale securities to determine if a decline in value is other-than-temporary. A decline in market value of any available-for-sale security below cost that is determined to be other-than-temporary, results in an impairment in 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. Realized gains and losses and interest and dividends on securities are included in interest and investment income. The cost of securities sold is calculated using the specific identification method.

F-9

Inventories

     The Company primarily utilizes third parties to manufacture and package inventories held for sale, takes title to certain inventories once manufactured, and warehouses such goods until packaged for final distribution and sale. Inventories consist of salable products held at third-party 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 December 31, 2009 and 2008, there was $0.3 million and $1.1 million of costs capitalized into inventory for products that have not yet received regulatory approval.

     Inventories are as follows (amounts in thousands):

	DECEMBER 31,
	2009			2008
Raw materials	$	7,472		$	4,462
Work-in-process		3,660			2,508
Finished goods		21,087			18,671
Valuation reserve		(6,234	)		(1,415	)
Total inventories	$	25,985		$	24,226

     The increase in the valuation reserve during 2009, which primarily occurred during the fourth quarter of 2009, was due to an increase in the amount of inventory that was projected to not be sold by expiry dates, as of December 31, 2009 as compared to December 31, 2008.

     Selling, general and administrative costs capitalized into inventory during 2009, 2008 and 2007 was $1.4 million, $0.5 million and $0, respectively. Selling, general and administrative expenses included in inventory as of December 31, 2009 and 2008 was $1.2 million and $0.4 million, respectively.

Property and Equipment

     Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of property and equipment (three to five years). Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term. Property and equipment consist of the following (amounts in thousands):

	DECEMBER 31,
	2009			2008
Furniture, fixtures and equipment	$	31,765		$	26,661
Leasehold improvements		14,655			14,489
		46,420			41,150
Less: accumulated depreciation		(21,173	)		(14,850	)
	$	25,247		$	26,300

F-10

     Total depreciation expense for property and equipment was approximately $6.4 million, $6.0 million and $2.7 million for 2009, 2008 and 2007, respectively.

Goodwill

     Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company is required to perform an impairment assessment at least annually, and more frequently under certain circumstances. The goodwill is subject to this annual impairment test during the last quarter of the Company’s fiscal year. If the Company determines through the impairment process that goodwill has been impaired, the Company will record the impairment charge in the statement of operations. For the years ended December 31, 2009, 2008 and 2007, there was no impairment charge related to goodwill. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

     The following is a summary of changes in the Company’s recorded goodwill during 2008 and 2009 (amounts in thousands):

Balance at December 31, 2007	$	63,107
Acquisition of Liposonix (see Note 8)		93,655
Balance at December 31, 2008		156,762
Sale of Medicis Pediatrics (see Note 6)		(63,107	)
Adjustment of LipoSonix tax attributes acquired		(373	)
Balance at December 31, 2009	$	93,282

     Prior to December 31, 2007, there were no impairments or other adjustments made to the Company’s recorded goodwill.

Intangible Assets

     The Company has acquired license agreements, product rights, and other identifiable intangible assets. The Company amortizes intangible assets on a straight-line basis over their expected useful lives, which range between five and 25 years. Details of total intangible assets were as follows (dollars in thousands):

	Weighted		December 31, 2009							December 31, 2008
	Average				Accumulated							Accumulated
	Life		Gross		Amortization			Net		Gross		Amortization			Net
Related to product line acquisitions		15.6	$	320,796	$	(107,278	)	$	213,518	$	253,142	$	(107,377	)	$	145,765
Related to business combinations		10.0		9,400		(1,005	)		8,395		14,482		(5,176	)		9,306
Patents and trademarks		19.3		7,598		(1,671	)		5,927		7,752		(1,394	)		6,358
Total intangible assets			$	337,794	$	(109,954	)	$	227,840	$	275,376	$	(113,947	)	$	161,429

     Total amortization expense was approximately $22.7 million, $21.7 million and $21.8 million for 2009, 2008 and 2007, respectively. Based on the intangible assets recorded at December 31, 2009, and assuming no subsequent impairment of the underlying assets, annual amortization expense for the next five years is expected to be as follows: $21.7 million for the years ended December 31, 2010, 2011, 2012 and 2013, and $20.4 million for the year ended December 31, 2014.

F-11

Impairment of Long-Lived Assets

     The Company assesses the potential impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant under-performance of a product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the Company’s use of the assets. Recoverability of assets that will continue to be used in the Company’s operations is measured by comparing the carrying amount of the asset grouping to the Company’s estimate of the related total future net cash flows. If an asset carrying value is not recoverable through the related cash flows, the asset is considered to be impaired. The impairment is measured by the difference between the asset grouping’s carrying amount and its fair value, based on the best information available, including market prices or discounted cash flow analysis. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment loss through a charge to operating results to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset’s carrying value. When it is determined that the useful lives of assets are shorter than originally estimated, and there are sufficient cash flows to support the carrying value of the assets, the Company will accelerate the rate of amortization charges in order to fully amortize the assets over their new shorter useful lives.

     This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, the Company may be required to record impairment charges for these assets.

     During the year ended December 31, 2007, an intangible asset related to OMNICEF^® was determined to be impaired based on the Company’s analysis of its carrying value and projected future cash flows. As a result of the impairment analysis, the Company recorded a write-down of approximately $4.1 million related to this intangible asset.

     In addition, as a result of the impairment analysis, the remaining amortizable life of the intangible asset related to OMNICEF^® was reduced to two years, and accordingly was fully amortized by June 30, 2009.

Managed Care and Medicaid Reserves

     Rebates are contractual discounts offered to government agencies and private health plans that are eligible for such discounts at the time prescriptions are dispensed, subject to various conditions. The Company records provisions for rebates based on factors such as timing and terms of plans under contract, time to process rebates, product pricing, sales volumes, amount of inventory in the distribution channel, and prescription trends.

Consumer Rebate and Loyalty Programs

     Consumer rebate and loyalty programs are contractual discounts and incentives offered to consumers at the time prescriptions are dispensed, subject to various conditions. The Company estimates its accruals for consumer rebates based on estimated redemption rates and average rebate amounts based on historical and other relevant data. The Company estimates its accruals for loyalty programs, which are related to the Company’s aesthetic products, based on an estimate of eligible procedures based on historical and other relevant data.

Other Current Liabilities

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

	DECEMBER 31,
	2009		2008
Accrued incentives	$	26,671	$	18,910
Deferred revenue		18,508		3,341
Other accrued expenses		23,202		19,602
	$	68,381	$	41,853

F-12

     Included in deferred revenue as of December 31, 2009 and 2008 was $1.2 million and $0.7 million, respectively, associated with the deferral 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.

Revenue Recognition

     Revenue from product sales is recognized pursuant to Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements, which is now part of ASC 605, Revenue Recognition. Accordingly, revenue is recognized when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products has occurred; (iii) the selling price is both fixed and determinable; and (iv) collectibility is reasonably assured. The Company’s customers consist primarily of large pharmaceutical wholesalers who sell directly into the retail channel. Provisions for estimated product returns, sales discounts and chargebacks are established as a reduction of product sales revenues at the time such revenues are recognized. Provisions for managed care and Medicaid rebates and consumer rebate and loyalty programs are established as a reduction of product sales revenues at the later of the date at which revenue is recognized or the date at which the sales incentive is offered. These deductions from gross revenue are established by the Company’s management as its best estimate based on historical experience adjusted to reflect known changes in the factors that impact such reserves, including but not limited to, prescription data, industry trends, competitive developments and estimated inventory in the distribution channel. The Company’s estimates of inventory in the distribution channel are based on inventory information reported to the Company by its major wholesale customers for which the Company has inventory management agreements, historical shipment and return information from its accounting records, and data on prescriptions filled, which the Company purchases from one of the leading providers of prescription-based information. The Company continually monitors internal and external data, in order to ensure that information obtained from external sources is reasonable. The Company also utilizes projected prescription demand for its products, as well as, the Company’s internal information regarding its products. These deductions from gross revenue are generally reflected either as a direct reduction to accounts receivable through an allowance, as a reserve within current liabilities, or as an addition to accrued expenses.

     The Company enters into licensing arrangements with other parties whereby the Company receives contract revenue based on the terms of the agreement. The timing of revenue recognition is dependent on the level of the Company’s continuing involvement in the manufacture and delivery of licensed products. If the Company has continuing involvement, the revenue is deferred and recognized on a straight-line basis over the period of continuing involvement. In addition, if the licensing arrangements require no continuing involvement and payments are merely based on the passage of time, the Company assesses such payments for revenue recognition under the collectibility criteria of SAB 104. Direct costs related to contract acquisition and origination of licensing agreements are expensed as incurred.

     The Company does not provide any material forms of price protection to its wholesale customers and permits product returns if the product is damaged, or, depending on the customer and product, if it is returned within six months prior to expiration or up to 12 months after expiration. The Company’s customers consist principally of financially viable wholesalers, and depending on the customer, revenue is based upon shipment (“FOB shipping point”) or receipt (“FOB destination”), net of estimated provisions. As a result of certain modifications made to the Company’s distribution services agreement with McKesson, the Company’s exclusive U.S. distributor of its aesthetics products DYSPORT^TM, PERLANE^® and RESTYLANE^®, the Company began recognizing revenue on these products upon the shipment from McKesson to physicians beginning in the second quarter of 2009. As a general practice, the Company does not ship prescription product that has less than 12 months until its expiration date. The Company also authorizes returns for damaged products and credits for expired products in accordance with its returned goods policy and procedures.

Advertising

     The Company expenses advertising costs as incurred. Advertising expenses for 2009, 2008 and 2007 were $51.9 million, $47.0 million and $47.9 million, respectively. Advertising expenses include samples of the Company’s products given to physicians for marketing to their patients.

F-13

Share-Based Compensation

     At December 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.

     The total value of the stock options awards is expensed ratably over the service period of the employees receiving the awards. As of December 31, 2009, total unrecognized compensation cost related to stock option awards, to be recognized as expense subsequent to December 31, 2009, was approximately $1.6 million and the related weighted-average period over which it is expected to be recognized is approximately 1.6 years.

     A summary of stock option activity within the Company’s stock-based compensation plans and changes for 2009 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	of Shares			Price		Term		Value
| | | |
Balance at December 31, 2008		10,707,357		$	27.98
Granted		182,017		$	13.94
Exercised		(1,134,415	)	$	14.21
Terminated/expired		(501,112	)	$	30.70
Balance at December 31, 2009		9,253,847		$	29.24		3.0	$	11,860,331

     The intrinsic value of options exercised during 2009 was $5,405,151. Options exercisable under the Company’s share-based compensation plans at December 31, 2009, were 8,917,859 with a weighted average exercise price of $29.52, a weighted average remaining contractual term of 2.9 years, and an aggregate intrinsic value of $9,369,695.

     A summary of outstanding stock options that are fully vested and are expected to vest, based on historical forfeiture rates, and those stock options that are exercisable, as of December 31, 2009, is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Shares		Price		Term		Value
Outstanding, net of expected forfeitures		8,480,159	$	29.34		3.1	$	10,739,330
Exercisable		8,179,147	$	29.62		2.9	$	8,485,569

F-14

     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:

	YEAR ENDED
	DECEMBER 31, 2009	DECEMBER 31, 2008	DECEMBER 31, 2007
Expected dividend yield	0.3% to 1.0%	0.6% to 0.7%		0.4	%
Expected stock price volatility	0.45 to 0.46	0.35 to 0.38		0.35
Risk-free interest rate	2.2% to 2.8%	3.0% to 3.4%	4.5% to 4.8%
Expected life of options	7.0 Years	7.0 Years	7.0 Years

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

     The weighted average fair value of stock options granted during 2009, 2008 and 2007 was $6.44, $8.90 and $14.98, 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 2009, 975,173 shares of restricted stock were granted to certain employees. Share-based compensation expense related to all restricted stock awards outstanding during 2009, 2008 and 2007 was approximately $8.7 million, $5.9 million and $3.7 million, respectively. As of December 31, 2009, the total amount of unrecognized compensation cost related to nonvested restricted stock awards, to be recognized as expense subsequent to December 31, 2009, was approximately $24.1 million, and the related weighted-average period over which it is expected to be recognized is approximately 3.0 years.

     A summary of restricted stock activity within the Company’s share-based compensation plans and changes for 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		(201,600	)	$	25.35
Forfeited		(62,955	)	$	20.08
Nonvested at December 31, 2009		1,915,469		$	17.12

     The total fair value of restricted shares vested during 2009, 2008 and 2007 was approximately $5.1 million, $3.9 million and $1.3 million, respectively.

Stock Appreciation Rights

     During 2009, the Company granted, in aggregate, 2,039,558 cash-settled stock appreciation rights (“SARs”) to over 200 of its employees. SARs generally vest over a graduated five-year period and expire seven years from the date of grant, unless such expiration occurs sooner due to the employee’s termination of employment, as provided in the

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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 consolidated balance sheets until settled. The fair value of SARs is required to be remeasured at the end of each reporting period until the award is settled, and changes in fair value must be recognized as compensation expense to the extent of vesting each reporting period based on the new fair value. Share-based compensation expense related to SARs during 2009 was approximately $5.6 million. As of December 31, 2009, the total measured amount of unrecognized compensation cost related to outstanding SARs, based on the valuation performed on December 31, 2009, to be recognized as expense subsequent to December 31, 2009, was approximately $27.9 million, and the related weighted average remaining vesting period for the awards is approximately 4.2 years.

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

	SARS Granted During		Remeasurement
	the Year Ended		as of
	December 31, 2009		December 31, 2009
Expected dividend yield	0.3% to 1.0%			0.6%
Expected stock price volatility		0.38 to 0.46		0.34
Risk-free interest rate	2.2% to 3.0%			3.4
Expected life of SARs	7.0 years			6.2 to 6.8 years

     The weighted average fair value of SARs granted during 2009, as of the respective grant dates, was $5.36. The weighted average fair value of all SARs outstanding as of the remeasurement date of December 31, 2009, was $17.50

     A summary of SARs activity for the year ended December 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		2,039,558		$	11.39
Exercised		—		$	—
Terminated/expired		(123,402	)	$	11.28
Balance at December 31, 2009		1,916,156		$	11.40		6.2	$	29,991,583

     No SARs were exercisable as of December 31, 2009.

     See Note 15 for further discussion of the Company’s share-based employee compensation plans.

Shipping and Handling Costs

     Substantially all costs of shipping and handling of products to customers are included in selling, general and administrative expense. Shipping and handling costs for 2009, 2008 and 2007 were approximately $2.5 million, $2.8 million and $2.8 million, respectively.

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Research and Development Costs and Accounting for Strategic Collaborations

     All research and development costs, including payments related to products under development and research consulting agreements, are expensed as incurred. The Company may continue to make non-refundable payments to third parties for new technologies and for research and development work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made.

     The Company’s policy on accounting for costs of strategic collaborations determines the timing of the recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or capitalized as an asset. Management is required to form judgments with respect to the commercial status of such products in determining whether development costs meet the criteria for immediate expense or capitalization. For example, when the Company acquires certain products for which there is already an Abbreviated New Drug Application (“ANDA”) or a New Drug Application (“NDA”) approval related directly to the product, and there is net realizable value based on projected sales for these products, the Company capitalizes the amount paid as an intangible asset. If the Company acquires product rights which are in the development phase and to which the Company has no assurance that the third party will successfully complete its development milestones, the Company expenses such payments.

Income Taxes

     Income taxes are determined using an annual effective tax rate, which generally differs from the U.S. Federal statutory rate, primarily because of state and local income taxes, enhanced charitable contribution deductions for inventory, tax credits available in the U.S., the treatment of certain share-based payments that are not designed to normally result in tax deductions, various expenses that are not deductible for tax purposes, and differences in tax rates in certain non-U.S. jurisdictions. The Company recognizes tax benefits only if the tax position is more likely than not of being sustained. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities, along with net operating losses and credit carryforwards. The Company records valuation allowances against its deferred tax assets to reduce the net carrying value to amounts that management believes is more likely than not to be realized.

Legal Contingencies

     In the ordinary course of business, the Company is involved in legal proceedings involving regulatory inquiries, contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is estimable. 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. Currently, the Company does not believe any of its pending legal proceedings or claims will have a material adverse effect on its results of operations or financial condition. See Note 12 for further discussion.

Foreign Currency Translations

     The U.S. Dollar is the functional currency of all our foreign subsidiaries. The financial statements of foreign subsidiaries have been translated into U.S. Dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income. Total accumulated gains from foreign currency translation, included in accumulated other comprehensive (loss) income at December 31, 2009, and December 31, 2008, was approximately $1.3 million and $1.3 million, respectively. The effect on the consolidated statements of income of transaction gains and losses is not material for all years presented.

Earnings Per Common Share

     Basic and diluted earnings per common share are calculated in accordance with the requirements of ASC 260, Earnings Per Share. Because the Company has Contingently Convertible Debt (see Note 11), diluted net income per common share must be calculated using the “if-converted” method. Diluted net income per common

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share is calculated by adjusting net income for tax-effected net interest and issue costs on the Contingent Convertible Debt, divided by the weighted average number of common shares outstanding assuming conversion.

     In June 2008, the FASB issued new guidance on determining whether instruments granted in share-based payment transactions are participating securities. In the new guidance, which is now part of ASC 260, 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 stockholders. Restricted stock granted to certain employees by the Company participate in dividends on the same basis as common shares, and these dividends are not forfeitable by the holders of the restricted stock. As a result, the restricted stock grants meet the definition of a participating security. The Company adopted the new guidance on January 1, 2009.

     A detailed presentation of earnings per share is included in Note 16.

Use of Estimates and Risks and Uncertainties

     The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates that require management’s most significant, difficult and subjective judgments include the assessment of recoverability of long-lived assets and goodwill; the valuation of auction rate floating securities; the recognition and measurement of current and deferred income tax assets and liabilities; and the reductions to revenue recorded at the time of sale for various items, including sales returns and rebate reserves. The actual results experienced by the Company may differ from management’s estimates.

     The Company purchases its inventory from third-party manufacturers, many of whom are the sole source of products for the Company. The failure of such manufacturers to provide an uninterrupted supply of products could adversely impact the Company’s ability to sell such products.

Fair Value of Financial Instruments

     The carrying amount of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities reported in the consolidated balance sheets approximates fair value because of the immediate or short-term maturity of these financial instruments. Long-term investments are carried at fair value based on market quotations and a discounted cash flow analysis for auction rate floating securities. The fair value of the Company’s contingent convertible senior notes, based on market quotations, is approximately $171.7 million at December 31, 2009.

Supplemental Disclosure of Cash Flow Information

     During 2009, 2008 and 2007, the Company made interest payments of $4.2 million, $6.4 million and $8.5 million, respectively.

Accumulated Other Comprehensive (Loss) Income

     Accumulated other comprehensive loss of $3.8 million as of December 31, 2009 included $5.1 million of accumulated unrealized losses related the Company’s short-term and long-term available-for-sale securities investments, partially offset by $1.3 million of accumulated foreign currency translation adjustments.

Recent Accounting Pronouncements

     In April 2009, the FASB issued new guidance that provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This new guidance, which is now part of ASC 820, Fair Value Measurements and Disclosures, 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. The new guidance is effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the new guidance on April 1, 2009, and it did not have a material impact on its consolidated results of operations and financial condition.

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     In April 2009, the FASB issued new guidance related to the disclosure of the fair value of a reporting entity’s financial instruments whenever it issues summarized financial information for interim reporting periods. The new guidance, which is now part of ASC 825, Financial Instruments, is effective for financial statements issued for interim reporting periods ending after June 15, 2009. The Company adopted the new guidance on April 1, 2009, and it did not have a material impact on its results of operations and financial condition.

     In May 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855, Subsequent Events, is effective for financial statements ending after June 15, 2009, and the Company adopted the new guidance during the three months ended June 30, 2009. The new guidance establishes general standards of accounting for and disclosure of subsequent events that occur after the balance sheet date. The Company has evaluated subsequent events through the date of issuance of its financial statements.

     In June 2009, the FASB issued revised guidance on the accounting for variable interest entities. The revised guidance, which was issued as SFAS No. 167, New Consolidation Guidance for Variable Interest Entities (VIE), which amends FIN 46 (R), Consolidation of Variable Interest Entities, has not yet been adopted into the Codification. The revised guidance addresses the elimination of the concept of a qualifying special purpose entity and replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the revised guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The revised guidance is effective for annual reporting periods beginning after November 30, 2009. The Company is currently assessing what impact, if any, the revised guidance will have on its results of operations and financial condition.

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

3. SEGMENT AND PRODUCT INFORMATION

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

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     The Company’s pharmaceutical products, with the exception of AMMONUL^® and BUPHENYL^®, are promoted to dermatologists 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. During 2009, 2008 and 2007, two wholesalers accounted for the following portions of the Company’s net revenues:

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
McKesson		40.8	%		45.8	%		52.2	%
Cardinal		37.1	%		21.2	%		16.9	%

     McKesson is the sole distributor for the Company’s RESTYLANE^® and PERLANE^® products and DYSPORT^TM in the U.S.

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

	YEARS ENDED DECEMBER 31,
	2009		2008		2007
Acne and acne-related dermatological products	$	398,861	$	325,020	$	243,414
Non-acne dermatological products		133,595		147,954		172,902
Non-dermatological products		39,459		44,776		41,078
Total net revenues	$	571,915	$	517,750	$	457,394

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
Acne and acne-related dermatological products		70	%		63	%		53	%
Non-acne dermatological products		23			29			38
Non-dermatological products		7			8			9
Total net revenues		100	%		100	%		100	%

     During 2009, 2008 and 2007, the Company’s top three products constituted 71.4%, 69.4% and 70.8%, respectively, of its total net revenues. Less than 5% of the Company’s net revenues are generated outside the U.S.

4. STRATEGIC COLLABORATIONS

     Glenmark

     On November 14, 2009, the Company entered into an Asset Purchase and Development Agreement with Glenmark Generics Ltd. and Glenmark Generics Inc., USA (collectively, “Glenmark”) (the “Glenmark Asset Purchase Agreement”) and two License and Settlement Agreements with Glenmark (one, the “Vanos License and Settlement Agreement, the other, the “Loprox License and Settlement Agreement” and, collectively, the “License and Settlement Agreements”)

     In connection with the Glenmark Asset Purchase and Development Agreement, the Company purchased from Glenmark the North American rights of a dermatology product currently under development, including the underlying technology and regulatory filings. In accordance with terms of the agreement, the Company made a $5.0 million

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payment to Glenmark upon closing of the transaction, and will make additional payments to Glenmark of up to $7.0 million upon the achievement of certain development and regulatory milestones. The Company will make royalty payments to Glenmark on sales of the product. The initial $5.0 million payment was recognized as a charge to research and development expense during the three months ended December 31, 2009.

     In connection with the Glenmark License and Settlement Agreements, the Company and Glenmark agreed to terminate all legal disputes between them relating to the Company’s VANOS^® (fluocinonide) Cream 0.1% and LOPROX^® Gel. In addition, Glenmark confirmed that certain of the Company’s patents relating to VANOS^® and LOPROX^® are valid and enforceable, and cover Glenmark’s activities relating to its generic versions of VANOS^® and LOPROX^® Gel under ANDAs. Further, subject to the terms and conditions contained in the Vanos License and Settlement Agreement, the Company granted Glenmark, 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. Upon commercialization by Glenmark of generic versions of VANOS^® products, Glenmark will pay the Company a royalty based on sales of such generic products. Subject to the terms and conditions contained in the Loprox License and Settlement Agreement, the Company also granted Glenmark a license to make and sell generic versions of LOPROX^® Gel. Upon commercialization by Glenmark of generic versions of LOPROX^® Gel, Glenmark will pay the Company a royalty based on sales of such generic products. In accordance with the terms of the License and Settlement Agreements, the Company paid Glenmark $0.3 million for attorneys’ fees incurred by Glenmark related to the legal disputes. The $0.3 million payment was recognized as selling, general and administrative expense during the three months ended December 31, 2009.

     Revance

     On July 28, 2009, the Company and Revance Therapeutics, Inc. (“Revance”) entered into a license agreement granting Medicis worldwide aesthetic and dermatological rights to Revance’s novel, investigational, injectable botulinum toxin type A product, referred to as “RT002”, currently in pre-clinical studies. The objective of the RT002 program is the development of a next-generation neurotoxin with favorable duration of effect and safety profiles.

     Under the terms of the agreement, Medicis paid Revance $10.0 million upon execution of the agreement, and will pay additional potential milestone payments totaling approximately $94 million upon successful completion of certain clinical, regulatory and commercial milestones, and a royalty based on sales and supply price, the total of which is equivalent to a double-digit percentage of net sales. The initial $10.0 million payment was recognized as research and development expense during the year ended December 31, 2009.

     Hyperion

     On August 28, 2007, the Company, through its wholly-owned subsidiary Ucyclyd Pharma, Inc. (“Ucyclyd”), announced a strategic collaboration with Hyperion Therapeutics, Inc. (“Hyperion”) whereby Hyperion will be responsible for the ongoing research and development of a compound referred to as GT4P for the treatment of Urea Cycle Disorder, Hepatic Encephalopathies and other indications, and additional indications for AMMONUL^®. Under terms of the Collaboration Agreement between Ucyclyd and Hyperion, dated as of August 23, 2007, Hyperion made an initial non-refundable payment of $10.0 million to Ucyclyd for the rights and licenses granted to Hyperion in the agreement. This $10.0 million payment was recorded as deferred revenue and is being recognized on a ratable basis over a period of four years. In addition, if certain specified conditions are satisfied relating to the Ucyclyd development projects, then Hyperion will have certain purchase rights with respect to the Ucyclyd development products, as well as Ucyclyd’s existing on-market products, AMMONUL^® and BUPHENYL^®, and will pay Ucyclyd royalties and regulatory and sales milestone payments in connection with certain licenses that would be granted to Hyperion upon exercise of the purchase rights. Hyperion will be funding all research and development costs for the Ucyclyd research projects.

     Until June 6, 2008, Hyperion undertook certain sales and marketing efforts for Ucyclyd’s existing on-market products. Hyperion received a commission from Ucyclyd equal to a certain percentage of any increase in unit sales during the period Hyperion was performing these sales and marketing efforts. Ucyclyd will continue to record product sales for the existing on-market Ucyclyd products until such time as Hyperion exercises its purchase rights.

     Ucyclyd entered into an amendment (the “Amendment”), effective as of November 24, 2008, to the Collaboration Agreement with Hyperion. Among other actions, the Amendment terminates all rights, including research and development rights, granted to Hyperion under the Collaboration Agreement related to Ammonul for the

F-21

treatment of hepatic encephalopathy (“Ammonul HE”). Hyperion retains buyout rights to Ammonul HE in the event Hyperion exercises its buyout rights to Ucyclyd’s on-market and other development products. Hyperion and Ucyclyd also agreed that Hyperion’s rights to promote AMMONUL^® and BUPHENYL^® for the treatment of urea cycle disorder were terminated, effective June 6, 2008.

     On June 29, 2009, Ucyclyd and Hyperion entered into a second amendment (the “Second Amendment”) to their existing Collaboration Agreement. In connection with Hyperion obtaining additional venture financing, Ucyclyd agreed in the Second Amendment to restructure the royalty and milestone payments in exchange for Hyperion having agreed to issue five percent of its fully-diluted common stock to Ucyclyd. In addition, pursuant to the Second Amendment, Ucyclyd agreed to provide seller financing in the event that Hyperion exercises its buyout rights with respect to GT4P.

     The common stock of Hyperion that was received by Ucyclyd in consideration for the restructuring of the royalty and milestone payments was valued at $2.4 million, which was derived utilizing the per share price of preferred shares issued by Hyperion at the same time as the common shares that were issued to Ucyclyd. The $2.4 million value of the Hyperion common shares is included in other assets in the Company’s consolidated balance sheets at December 31, 2009, along with corresponding deferred revenue, which is being recognized as contract revenue ratably over a 30-month period ending December 31, 2011, which corresponds to the period over which the Company is recording contract revenue on the original license for GT4P.

     On October 12, 2009, Ucyclyd and Hyperion entered into a third amendment to the existing Collaboration Agreement (“Third Amendment”). Under the terms of the Third Amendment, Ucyclyd agreed to disclose to Hyperion certain know-how for the manufacture of GT4P.

     The Company recognized approximately $2.8 million, $2.5 million and $0.8 million of contract revenue during 2009, 2008 and 2007, respectively, related to this transaction, as amended.

     Professional fees of approximately $2.2 million were incurred related to the completion of the original August 2007 agreement with Hyperion. These costs were recognized as general and administrative expenses during 2007.

     Perrigo

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

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

•	the Company granted Perrigo, effective December 15, 2013, or earlier upon the occurrence of certain events, a license to make and sell generic versions of the existing VANOS® products; and
•	when Perrigo does commercialize generic versions of VANOS® products, Perrigo will pay the Company a royalty based on sales of such generic products.
	Pursuant to the Perrigo Joint Development Agreement, subject to the terms and conditions contained therein:
•	the Company and Perrigo will collaborate to develop a novel proprietary product;

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

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

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

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

     During the year ended December 31, 2009, a development milestone was achieved, and the Company made a $2.0 million payment to Perrigo pursuant to the Perrigo Joint Development Agreement. The $3.0 million up-front payment and the $2.0 million development milestone payment were recognized as research and development expense during the year ended December 31, 2009.

     IMPAX

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

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

     Under the Joint Development Agreement, the Company and IMPAX will collaborate on the development of five strategic dermatology product opportunities, including an advanced-form SOLODYN^® product. Under terms of the agreement, the Company made an initial payment of $40.0 million upon execution of the agreement. During the year ended December 31, 2009, the Company paid IMPAX $12.0 million upon the achievement of clinical milestones, in accordance with terms of the agreement. In addition, the Company will be required to pay up to $11.0 million upon successful completion of certain other clinical and commercial milestones. The Company will also make royalty payments based on sales of the advanced-form SOLODYN^® product if and when it is commercialized by 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 2008, and the $12.0 million of clinical milestone payments were recognized as a charge to research and development expense during the year ended December 31, 2009.

5. DEVELOPMENT AND DISTRIBUTION AGREEMENT WITH IPSEN FOR RIGHTS TO IPSEN’S BOTULINUM TOXIN TYPE A PRODUCT KNOWN AS DYSPORT^TM

     On March 17, 2006, the Company entered into a development and distribution agreement with Ipsen Ltd., a wholly-owned subsidiary of Ipsen, S.A. (“Ipsen”), whereby Ipsen granted Aesthetica Ltd., rights to develop, distribute and commercialize Ipsen’s botulinum toxin type A product in the United States, Canada and Japan for aesthetic use by healthcare professionals. During the development of the product, the proposed name of the product for aesthetic use in the U.S. was RELOXIN^®.

     In May 2008, the FDA accepted the filing of Ipsen’s Biologics License Application (“BLA”) for RELOXIN^® and, in accordance with the agreement, Medicis paid Ipsen $25.0 million upon achievement of this

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milestone. The $25.0 million was recognized as a charge to research and development expense during the year ended December 31, 2008.

     On April 29, 2009, the FDA approved the BLA for Ipsen’s botulinum toxin type A product, DYSPORT^TM. 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, is now marketed under the name of DYSPORT^TM. Ipsen will market DYSPORT^TM in the U.S. for the therapeutic indication (cervical dystonia), while Medicis markets DYSPORT^TM in the U.S. for the aesthetic indication (glabellar lines).

     In accordance with the agreement, the Company paid Ipsen $75.0 million as a result of the approval by the FDA. The $75.0 million payment was capitalized into intangible assets in the Company’s consolidated balance sheet, and is being amortized on a straight-line basis over a period of 15 years. Ipsen will manufacture and provide the product to Medicis for the term of the agreement, which extends to December 2036. Medicis will pay Ipsen a royalty based on sales and a supply price, as defined under the agreement.

     The product is not currently approved for aesthetic use in Canada or Japan. Under the terms of the agreement, Medicis is responsible for all remaining research and development costs associated with obtaining the product’s approval in Canada and Japan. Medicis will pay an additional $2.0 million to Ipsen upon regulatory approval of the product in Japan.

6. SALE OF MEDICIS PEDIATRICS

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

     As a result of the BioMarin Option Closing, the Company recognized a pretax gain of $2.2 million, which is included in other (income) expense, net, in the consolidated statements of income for the year ended December 31, 2009. The $2.2 million pretax gain is net of approximately $0.7 million of professional fees related to the transaction. Because of the difference between the Company’s book and tax basis of goodwill in Medicis Pediatrics, the transaction resulted in a $24.8 million gain for income tax purposes, and, accordingly, the Company recorded a $9.0 million income tax provision, which is included in income tax expense in the consolidated statements of income for the year ended December 31, 2009.

7. INVESTMENT IN REVANCE

     On December 11, 2007, the Company announced a strategic collaboration with Revance, a privately-held, venture-backed development-stage entity, whereby the Company made an equity investment in Revance and purchased an option to acquire Revance or to license exclusively in North America Revance’s novel topical botulinum toxin type A product currently under clinical development. The consideration to be paid to Revance upon the Company’s exercise of the option will be at an amount that will approximate the then fair value of Revance or the license of the product under development, as determined by an independent appraisal. The option period will extend through the end of Phase 2 testing in the United States. In consideration for the Company’s $20.0 million payment, the Company received preferred stock representing an approximate 13.7 percent ownership in Revance, or approximately 11.7 percent on a fully diluted basis, and the option to acquire Revance or to license the product under development. The $20.0 million was used by Revance primarily for the development of the product. Approximately $12.0 million of the $20.0 million payment represented the fair value of the investment in Revance

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at the time of the investment and was included in other long-term assets in the Company’s 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 year ended December 31, 2007.

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

     The Company 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 2009 and 2008, the Company reduced the carrying value of its investment in Revance by approximately $2.9 million and $9.1 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. Such amounts were recognized in other (income) expense. As of December 31, 2009, the Company’s investment in Revance related to this transaction was $0.

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

8. ACQUISITION OF LIPOSONIX

     On July 1, 2008, the Company, through its wholly-owned subsidiary Donatello, Inc., acquired LipoSonix, an independent, privately-held company with a staff of approximately 40 scientists, engineers and clinicians located near Seattle, Washington. LipoSonix, now known as Medicis Technologies Corporation, is a medical device company developing non-invasive body sculpting technology. It launched its first product, the LIPOSONIX^TM system, in Europe in 2008 and recently launched in Canada. The LIPOSONIX^TM system is being marketed and sold through distributors in Europe. In the U.S., the LIPOSONIX^TM system is an investigational device and is currently not cleared or approved for sale.

     Under terms of the transaction, Medicis paid $150 million in cash for all of the outstanding shares of LipoSonix. In addition, Medicis will pay LipoSonix stockholders certain milestone payments up to an additional $150 million upon FDA approval of the LIPOSONIX^TM technology and if various commercial milestones are achieved on a worldwide basis.

     The following is a summary of the components of the LipoSonix purchase price (in millions):

Cash consideration	$	150.0
Transaction costs		3.6
	$	153.6

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     The following is a summary of the estimated fair values of the net assets acquired (in millions):

Current assets	$	2.1
Deferred tax assets, short-term		3.8
Deferred tax assets, long-term		14.9
Property and equipment		0.7
Identifiable intangible assets		9.4
In-process research and development		30.5
Goodwill		93.7
Accounts payable and other current liabilities		(1.5	)
	$	153.6

     The Company believes the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.

     During the three months ended September 30, 2009, the Company recorded $0.4 million of net deferred tax assets and decreased goodwill by $0.4 million as a result of an adjustment to the tax attributes acquired.

     Identifiable intangible assets of $9.4 million include existing technology of $6.7 million, with an estimated amortizable life of ten years, and trademarks and trade names of $2.7 million, with an estimated indefinite amortizable life.

     The $30.5 million of acquired in-process research and development was recognized as in-process research and development expense in the Company’s statement of operations during the three months ended September 30, 2008. No tax benefit was recognized related to this charge.

     The results of operations of LipoSonix are included in the Company’s consolidated financial statements beginning on July 1, 2008.

     The following unaudited proforma financial information for the years ended December 31, 2008 and 2007 gives effect to the acquisition of LipoSonix as if it had occurred on January 1, 2007. Such unaudited proforma information is based on historical financial information with respect to the acquisition and does not reflect operational and administrative cost savings, or synergies, that management of the combined company estimates may be achieved as a result of the acquisition. The $30.5 million in-process research and development charge has not been included in the unaudited proforma financial information since this adjustment is non-recurring in nature.

	YEAR ENDED DECEMBER 31,
	2008		2007
	(in millions, except per share data)
Net revenues	$	518.5	$	457.4
Net income		4.6		59.2
Diluted net income per share	$	0.08	$	0.92

9. 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 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

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interest income are recognized when earned. The cost of securities sold is calculated using the specific identification method. At December 31, 2009, the Company has recorded the estimated fair value in available-for-sale and trading securities for short-term and long-term investments of approximately $319.2 million and $25.5 million, respectively.

     Available-for-sale and trading securities consist of the following at December 31, 2009 and 2008 (amounts in thousands):

	DECEMBER 31, 2009
								Other-Than
			Gross		Gross			Temporary
			Unrealized		Unrealized			Impairment		Fair
	Cost		Gains		Losses			Losses		Value
Corporate notes and bonds	$	98,993	$	506	$	(83	)	$	—	$	99,416
Federal agency notes and bonds		215,759		221		(203	)		—		215,777
Auction rate floating securities		35,000		—		(8,179	)		—		26,821
Asset-backed securities		3,070		25		(356	)		—		2,739
Total securities	$	352,822	$	752	$	(8,821	)	$	—	$	344,753

	DECEMBER 31, 2008
								Other-Than
			Gross		Gross			Temporary
			Unrealized		Unrealized			Impairment			Fair
	Cost		Gains		Losses			Losses			Value
Corporate notes and bonds	$	124,622	$	418	$	(429	)	$	—		$	124,611
Federal agency notes and bonds		117,040		1,841		—			—			118,881
Auction rate floating securities		44,625		—		—			(6,400	)		38,225
Asset-backed securities		31,681		—		(630	)		—			31,051
Total securities	$	317,968	$	2,259	$	(1,059	)	$	(6,400	)	$	312,768

     During 2009, 2008 and 2007, the gross realized gains on sales of available-for-sale securities totaled $1.6 million, $1.1 million and $0.1 million, respectively, and gross losses totaled $0, $6.5 million (including $6.4 million of other-than-temporary impairment losses) and $0, respectively. Such amounts were determined based on the specific identification method. The net adjustment to unrealized gains during 2009, 2008 and 2007, on available-for-sale securities included in stockholders’ equity totaled $5.9 million, $0 and $0.9 million, respectively. Of the 2009 amount, $3.1 million was reclassified from retained earnings to other comprehensive income in accordance with a new accounting standard (see below) during the three months ended June 30, 2009. The amortized cost and estimated fair value of the available-for-sale securities at December 31, 2009, by maturity, are shown below (amounts in thousands):

	DECEMBER 31, 2009
			Estimated
	Cost		Fair Value
Available-for-sale
Due in one year or less	$	142,256	$	142,120
Due after one year through five years		175,566		175,812
Due after 10 years		33,700		25,524
	$	351,522	$	343,456

     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 December 31, 2009, approximately $25.5 million in estimated fair value

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expected to mature greater than one year has been classified as long-term investments because 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 December 31, 2009, the Company’s investments included auction rate floating securities with a fair value of $26.8 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 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, 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. On April 9, 2009, the FASB released FASB Staff Position (“FSP”) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2”), effective for interim and annual reporting periods ending after June 15, 2009. Upon adoption, FSP FAS 115-2, which is now part of ASC 320, Investments – Debt and Equity Securities, requires that entities should report a cumulative effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of previously recognized other-than-temporary impairments on debt securities held at that date from retained earnings to other comprehensive income if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis. The Company adopted FSP FAS 115-2 during the three months ended June 30, 2009, and accordingly, reclassified approximately $3.1 million of previously recognized other-than-temporary impairment losses, net of income taxes, related to its auction rate floating securities from retained earnings to other comprehensive income in the Company’s consolidated balance sheets.

     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 December 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. At inception, the Company elected the irrevocable Fair Value Option treatment under ASC 825, Financial Instruments (formerly SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities), and accordingly adjusts the put option to fair value at each reporting date. Concurrent with the execution of the settlement agreement, the Company reclassified this auction rate floating security from available-for-sale to trading securities and accordingly, future changes in fair value related to this investment and the related put option will be recorded in earnings.

     On July 14, 2009, the broker through which the Company purchased auction rate floating securities agreed to repurchase from the Company three auction rate floating securities with an aggregate par value of $7.0 million, at par. The adjusted basis of these securities was $5.5 million, in aggregate, as a result of an other-than-temporary impairment loss of $1.5 million recorded during the year ended December 31, 2008. The realized gain of $1.5 million was recognized in other (income) expense during the three months ended September 30, 2009.

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     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 December 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	$	18,968	$	83	$	—	$	—
Federal agency notes and bonds		103,635		203		—		—
Auction rate floating securities		—		—		26,821		8,179
Asset-backed securities		—		—		1,193		356
Total securities	$	122,603	$	286	$	28,014	$	8,535

     As of December 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.

10. FAIR VALUE MEASUREMENTS

     As of December 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 investments in Revance and Hyperion.

     The Company has invested in auction rate floating securities, which are classified as available-for-sale or trading securities and reflected at fair value. Due to events in credit markets, the auction events for some of these instruments held by the Company failed during the three months ended March 31, 2008 (see Note 9). 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 December 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.

     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 7). During the year ended December 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, which reduced the Company’s investment in Revance to $0 as of December 31, 2009.

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     The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820, Fair Value Measurements and Disclosures (formerly SFAS No. 157, Fair Value Measurements), at December 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
	Dec. 31, 2009		(Level 1)		(Level 2)		(Level 3)
Auction rate floating securities	$	26,821	$	—	$	—	$	26,821
Other available-for-sale securities		317,932		317,932		—		—
Investment in Hyperion		2,375		—		—		2,375
Total assets measured at fair value	$	347,128	$	317,932	$	—	$	29,196

     The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2009 (in thousands):

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Auction Rate			Investment			Investment
	Floating			in			in
	Securities			Revance			Hyperion
Balance at December 31, 2008	$	38,225		$	2,887		$	—
Total gains (losses) included in other (income) expense, net		1,525			(2,887	)		—
Total losses included in other comprehensive income		(3,304	)		—			—
Common stock of Hyperion related to amendment of collaboration agreement (see Note 4)		—			—			2,375
Purchases and settlements (net)		(9,625	)		—			—
Balance at December 31, 2009	$	26,821		$	—		$	2,375

11. CONTINGENT CONVERTIBLE SENIOR NOTES

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

     The Company may redeem some or all of the Old Notes at any time on or after June 11, 2007, at a redemption price, payable in cash, of 100% of the principal amount of the Old Notes, plus accrued and unpaid interest, including contingent interest, if any. Holders of the Old Notes may require the Company to repurchase all or a portion of their Old Notes on June 4, 2012 and June 4, 2017, or upon a change in control, as defined in the indenture governing the Old Notes, at 100% of the principal amount of the Old Notes, plus accrued and unpaid interest to the date of the repurchase, payable in cash. Under GAAP, if an obligation is due on demand or will be due on demand within one year from the balance sheet date, even though liquidation may not be expected within

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that period, it should be classified as a current liability. Accordingly, the outstanding balance of Old Notes along with the deferred tax liability associated with accelerated interest deductions on the Old Notes will be classified as a current liability during the respective twelve month periods prior to June 4, 2012 and June 4, 2017.

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

• during any quarter commencing after June 30, 2002, if the closing price of the Company’s Class A common stock over a specified number of trading days during the previous quarter, including the last trading day of such quarter, is more than 110% of the conversion price of the Old Notes, or $31.96. The Old Notes are initially convertible at a conversion price of $29.05 per share, which is equal to a conversion rate of approximately 34.4234 shares per $1,000 principal amount of Old Notes, subject to adjustment;

• if the Company has called the Old Notes for redemption;

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

• 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 December 31, 2009. The New Notes mature on June 4, 2033.

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

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

F-31

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

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

• if the Company has called the New Notes for redemption;

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

• upon the occurrence of specified corporate transactions.

     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 all of the fiscal quarters during 2009, 2008 and 2007, the Old Notes and New Notes did not meet the criteria for the right of conversion. At the end of each future quarter, the conversion rights will be reassessed in accordance with the bond indenture agreement to determine if the conversion trigger rights have been achieved.

12. COMMITMENTS AND CONTINGENCIES

Occupancy Arrangements

     During July 2006, the Company executed a lease agreement for new headquarter office space to accommodate its expected long-term growth. The first phase is for approximately 150,000 square feet with the right to expand. The Company occupied the new headquarter office space, which is located approximately one mile from its previous headquarter office space in Scottsdale, Arizona, during the second quarter of 2008. The Company obtained possession of the leased premises and, therefore, began accruing rent expense during the first quarter of 2008. The term of the lease is twelve years. The average annual expense under the amended lease agreement is approximately $3.9 million. During the first quarter of 2008, the Company received approximately $6.7 million in tenant improvement incentives from the landlord. This amount has been capitalized into leasehold improvements and is being depreciated on a straight-line basis over the lesser of the useful life or the term of the lease. The tenant improvement incentives are also included in other long-term liabilities as deferred rent, and will be recognized as a reduction of rent expense on a straight-line basis over the term of the lease.

     During October 2006, the Company executed a lease agreement for additional headquarter office space, which is also located approximately one mile from the Company’s current headquarter office space in Scottsdale, Arizona to accommodate its current needs and future growth. Under this agreement, approximately 21,000 square feet of office space is being leased for a period of three years. In May 2007, the Company began occupancy of the additional headquarter office space. The lease expires in May 2010. The Company intends to extend the lease beyond May 2010.

     LipoSonix, now known as Medicis Technologies Corporation, presently leases approximately 24,700 square feet of office, laboratory and manufacturing space in Bothell, Washington under a lease agreement that expires in October 2012.

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     Medicis Aesthetics Canada Ltd., a wholly owned subsidiary of the Company, presently leases approximately 3,600 square feet of office space in Toronto, Ontario, Canada, under a lease agreement, as extended, that expires in June 2010.

     Rent expense was approximately $3.6 million, $9.4 million and $2.5 million for 2009, 2008 and 2007, respectively. Rent expense for 2008 includes a $4.8 million charge for the estimated remaining net cost for the Company’s previous headquarters facility lease, net of potential sublease income.

     At December 31, 2009, approximate future lease payments under the Company’s operating leases are as follows (amounts in thousands):

YEAR ENDING DECEMBER 31,
2010	$	6,635
2011		4,532
2012		4,481
2013		4,413
2014		4,559
Thereafter		25,082
	$	49,702

Lease Exit Costs

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

     As of December 31, 2009, approximately $2.1 million of lease exit costs remain accrued and are expected to be paid by December 2010, all of which is classified in other current liabilities. Although the facilities are no longer in use by the Company, the lease exit cost accrual has not been offset by an adjustment for estimated sublease rentals. After considering sublease market information as well as factors specific to the lease, the Company concluded it was probable it would be unable to obtain sublease rentals for the prior headquarters, and, therefore, it would not be subleased for the remaining lease term. The Company will continue to monitor the sublease market conditions and reassess the impact on the lease exit cost accrual.

     The following is a summary of the activity in the liability for lease exit costs for the year ended December 31, 2009:

	Liability as of		Amounts Charged		Cash Payments			Cash Received		Liability as of
	December 31, 2008		to Expense		Made			from Sublease		Dec. 31, 2009
Lease exit costs liability	$	3,996,102	$	211,545	$	(2,143,970	)	$	—	$	2,063,677

Research and Development and Consulting Contracts

     The Company has various consulting agreements with certain scientists in exchange for the assignment of certain rights and consulting services. At December 31, 2009, the Company had approximately $867,300 of commitments (solely attributable to the Chairman of the Central Research Committee of the Company) payable over the remaining five years under an agreement that is cancelable by either party under certain conditions.

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Medicaid Drug Rebates

     During 2009, the Company completed a voluntary review of pricing data submitted to the Medicaid Drug Rebate Program (the “Program”) for 2006, 2007 and 2008. The review identified certain actions that were needed in relation to the reviewed data. The Company expects that the actions, when implemented, will result in an increase to the Company’s rebate liability under the Program in the amount of approximately $3.3 million for the 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, which CMS approved in December 2009. The fiscal impact of that change is included in the rebate liability figure noted above. 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. The Company has accrued $3.3 million for this liability, and recognized a corresponding reduction of net revenues during the year ended December 31, 2009.

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 established a program under which the DoD seeks FCP-based refunds, or rebates, from drug manufacturers on TRICARE retail pharmacy utilization. Under the Rule, effective May 26, 2009, the DoD is seeking rebates on TRICARE retail pharmacy program prescriptions filled from January 28, 2008, forward. The Rule sets forth a program in which the DoD asks manufacturers to enter into agreements with the agency pursuant to which the manufacturers commit to pay such rebates. Products that are not listed in such agreements will not be able to be included on the DoD Uniform Formulary. Additionally, products not listed in TRICARE retail agreements will not be available through TRICARE 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 the Rule, the Company’s rebate liability as of March 31, 2009 for 2008 utilization is approximately $1.6 million, the rebate liability for the first quarter of 2009 is approximately $0.8 million and the rebate liability for the second quarter of 2009 prior to the date of execution of the Company’s TRICARE retail agreement on June 29, 2009 is $0.6 million. It is possible that, pursuant to the compromise or waiver process set forth in the Rule, the DoD will agree to accept a lesser sum for the 2008 period and for the first and second quarters of 2009. The Company applied timely for a waiver of liability from January 28, 2008 through the date of its TRICARE rebate agreement, which was executed on June 29, 2009. The Company accrued $2.4 million in aggregate for the liability for 2008 and the first quarter of 2009, which was recognized as a reduction of net revenues during the three months ended March 31, 2009. The Company also accrued $0.6 million in its financial statements as of June 30, 2009 for TRICARE rebate liability for the second quarter of 2009 through June 28, 2009, the day prior to execution of the Company’s TRICARE rebate agreement. This sum was recognized as a reduction of net revenues during that period.

Legal Matters

     On October 8, 2009, the Company received a Paragraph IV Patent Certification from Lupin advising that Lupin had filed an ANDA with the FDA for generic SOLODYN^® in its forms of 45mg, 90mg, and 135mg strengths. Lupin did not advise the Company as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleged that Lupin’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of the Company’s ’838 Patent. The expiration date for the ’838 Patent is 2018. On November 17, 2009, the Company filed suit against Lupin in the United States District Court for the District of Maryland seeking an adjudication that Lupin has infringed one or more claims of the ’838 Patent by submitting to the FDA an ANDA for generic SOLODYN^® in its forms of 45mg, 90mg and 135mg strengths. The relief the Company requested includes a request for a permanent injunction preventing Lupin from infringing the ’838 Patent by selling generic versions of SOLODYN^®. On November 24, 2009, the Company received a Paragraph IV Patent Certification from Lupin, advising that Lupin has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-424 (“Lupin ANDA Supplement/Amendment I”) with the FDA for generic SOLODYN ^® in its form of 65mg strength. Lupin has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Lupin has complied with FDA requirements for proving bioequivalence. Lupin’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid and/or will not be infringed by Lupin’s manufacture,

F-34

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

     On September 21, 2009, the Company received a Paragraph IV Patent Certification from Glenmark advising that Glenmark has filed an ANDA with the FDA for a generic version of LOPROX^® Gel. Glenmark did not advise the Company as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleged that the Company’s U.S. Patent No. 7,018,656 (the “’656 Patent”) would not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’656 Patent is 2018. On November 14, 2009, the Company entered into a License and Settlement Agreement with Glenmark and its foreign corporate parent Glenmark Ltd. In connection with the License and Settlement Agreement, the Company and Glenmark agreed to terminate all legal disputes between them relating to LOPROX^® Gel. In addition, Glenmark confirmed that certain of the Company’s patents relating to LOPROX^® Gel are valid and enforceable, and cover Glenmark’s activities relating to its generic version of LOPROX^® Gel under an ANDA. Subject to the terms and conditions contained in the License and Settlement Agreement, the Company also granted Glenmark a license to make and sell generic versions of LOPROX^® Gel. Upon commercialization by Glenmark of generic versions of LOPROX^® Gel, Glenmark will pay the Company a royalty based on sales of such generic products.

     On December 7, 2009, the Company entered into a Settlement Agreement (the “Paddock Settlement Agreement”) with Paddock Laboratories, Inc. (“Paddock”). In connection with the Paddock Settlement Agreement, the Company and Paddock agreed to settle all legal disputes between them relating to the Company’s LOPROX^® Shampoo and the Company agreed to withdraw its complaint against Paddock pending in the U.S. District Court for the District of Arizona. In addition, Paddock confirmed that Paddock’s activities relating to its generic version of LOPROX^® Shampoo are covered by the Company’s current and pending patent applications. Further, subject to the terms and conditions contained in the Paddock Settlement Agreement, the Company granted Paddock a non-exclusive, royalty-bearing license to make and sell limited quantities of its generic version of LOPROX^® Shampoo.

     On June 23, 2009, the Company and IMPAX entered into a Settlement Agreement (the “IMPAX Settlement Agreement”) and Amendment No. 2 to the License and Settlement Agreement . initially entered into between IMPAX and the Company In conjunction with the IMPAX Settlement Agreement, both IMPAX and the Company released, acquitted, covenanted not to sue and forever discharged one another and their affiliates from any and all liabilities relating to the litigation stemming from the initial License and Settlement Agreement between IMPAX and the Company. The Company made a settlement payment to IMPAX in conjunction with the execution of the IMPAX Settlement Agreement and Amendment No. 2 to the License and Settlement Agreement, which was included in selling, general and administrative expenses during the three months ended June 30, 2009.

     On May 8, 2009, the Company received a Paragraph IV Patent Certification from Glenmark advising that Glenmark had filed an ANDA with the FDA for a generic version of VANOS^®. Glenmark did not advise the Company as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Glenmark’s Paragraph IV Certification alleged that the Company’s U.S.

F-35

Patent No. 6,765,001 (the “’001 Patent”) and U.S. Patent No. 7,220,424 (the “’424 Patent”) would not be infringed by Glenmark’s manufacture, use or sale of the product for which the ANDA was submitted. The expiration date for the ’001 Patent is 2021, and the expiration date for the ’424 Patent is 2023. On June 19, 2009, the Company filed a complaint for patent infringement against Glenmark and its foreign corporate parent Glenmark Ltd. in the United States District Court for the District of New Jersey. On July 14, 2009, Glenmark and Glenmark Ltd. answered the Company’s complaint, and filed counterclaims seeking a declaration that the patents the Company listed with the FDA for VANOS^® cream were invalid and unenforceable, and would not be infringed by Glenmark’s generic version of VANOS^® cream. On November 14, 2009, the parties entered into a settlement agreement whereby Glenmark obtained certain patent rights and rights to market its ANDA product on a certain timeline. On November 14, 2009, the court entered a consent judgment dismissing all claims of patent inifringement and enjoining Glenmark from marketing a generic version of VANOS^® cream other than under the terms of the settlement agreement.

     On May 6, 2009, the Company received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy had filed an ANDA with the FDA for generic SOLODYN^® in its form of 135mg strength. Ranbaxy did not advise us as to the timing or status of the FDA’s review of its filing, or whether it has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleged that Ranbaxy’s manufacture, use, sale or offer for sale of the product for which the ANDA was submitted would not infringe any valid claim of our ’838 Patent. The expiration date for the ’838 Patent is 2018. On June 11, 2009, we filed suit against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the ’838 Patent by submitting the above ANDA to the FDA. The relief we requested included a request for a permanent injunction preventing Ranbaxy from infringing the ’838 Patent by selling a generic version of SOLODYN^®. Ranbaxy has answered that the ’838 Patent is not infringed, invalid, and/or unenforceable. On January 5, 2010, the Company received a Paragraph IV Patent Certification from Ranbaxy advising that Ranbaxy has filed a supplement or amendment to its earlier filed ANDA assigned ANDA #91-118 (“Ranbaxy ANDA Supplement/Amendment”) with the FDA for generic SOLODYN^® in its forms of 45mg and 90mg strengths. Ranbaxy has not advised the Company as to the timing or status of the FDA’s review of its filing, or whether Ranbaxy has complied with FDA requirements for proving bioequivalence. Ranbaxy’s Paragraph IV Certification alleges that the Company’s ’838 Patent is invalid, unenforceable, and/or will not be infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s Paragraph IV Certification also alleges that the Company’s ‘347 Patent or ‘373 Patent is not infringed by Ranbaxy’s manufacture, importation, use, sale and/or offer for sale of the products for which the Ranbaxy ANDA Supplement/Amendment was submitted. Ranbaxy’s submission as to the 45mg and 90mg strengths amends an ANDA already subject to a 30-month stay. As such, the Company believes that the Ranbaxy ANDA Supplement/Amendment cannot be approved by the FDA until after the expiration of the 30-month period or in the event of a court decision holding that the patents are invalid or not infringed. On February 16, 2010, the Company filed a complaint against Ranbaxy in the United States District Court for the District of Delaware seeking an adjudication that Ranbaxy has infringed one or more claims of the patents by submitting the Ranbaxy ANDA Supplement/Amendment for generic SOLODYN^® in its forms of 45mg and 90mg strengths.

     On May 1, 2008, the Company announced that it 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, the Company’s U.S. Patent No. 6,765,001 (the “’001 Patent”) that will expire in 2021. 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. In August 2008, the Company received notice that Perrigo Israel amended its ANDA to challenge the Company’s other patent listed with the FDA for VANOS^® cream, its U.S. Patent No. 7,220,424 (the “’424 Patent) that will expire in 2023. The Company’s complaint asserts that Perrigo Israel and Perrigo Company have infringed on both of the Company’s patents for VANOS^® cream. On April 8, 2009, the Company entered into a license and settlement agreement with Perrigo. In connection with the license and settlement agreement, the Company and Perrigo agreed to terminate all legal disputes between them relating to our VANOS^® cream. In addition, Perrigo confirmed that certain of the Company’s patents relating to VANOS^® cream are valid and enforceable, and are infringed by Perrigo’s activities relating to its generic product under ANDA #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.

F-36

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

     A third party has requested that the U.S. Patent and Trademark Office (“USPTO”) conduct an Ex Parte Reexamination of the ’838 patent. The USPTO granted this request. In March 2009, the USPTO issued a non-final office action in the reexamination of the ’838 patent. On May 13, 2009, Medicis’ filed its response to the non-final office action with the USPTO, canceling certain claims and adding amended claims. On November 10, 2009, the USPTO issued a second non-final office action in the reexamination of the ’838 patent. On January 8, 2010, the Company filed its response to the non-final office action with the USPTO. Reexamination can result in confirmation of the validity of all of a patent’s claims, the invalidation of all of a patent’s claims, or the confirmation of some claims and the invalidation of others. The Company cannot guarantee the outcome of the reexamination. It is possible that one or more of the Company’s patents covering SOLODYN^® may be found invalid or narrowed in scope as the result of the pending reexamination or a future reexamination by the USPTO. If the USPTO’s action leads the court in a SOLODYN^® patent infringement suit, including the suits described in this Report, to hold that the patent for SOLODYN^® is invalid or not infringed, such a holding would permit the FDA to lift the 30-month stay on approval of ANDAs for generic versions of SOLODYN^®.

     On January 13, 2009, the Company filed suit against Mylan, Inc., Matrix Laboratories Ltd., Matrix Laboratories Inc., Sandoz, Inc., (“Sandoz”) and Barr Laboratories, Inc. (“Barr”) (collectively “Defendants”) in the United States District Court for the District of Delaware seeking an adjudication that Defendants have infringed one or more claims of the Company’s ’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^®. Mylan has answered that the ’838 Patent is not infringed and/or invalid. On March 18, 2009, the Company entered into a settlement agreement with Barr, a subsidiary of Teva Pharmaceutical Industries Ltd. (“Teva”), whereby all legal disputes between the Company and Teva relating to SOLODYN^® were terminated and whereby Barr/Teva agreed that Medicis’ patent-in-suit is valid, enforceable and not infringed and that it should be permanently enjoined from infringement. The Delaware court subsequently entered a permanent injunction against any infringement by Barr/Teva. On March 30, 2009, the Delaware Court dismissed the claims between the Company and Matrix Laboratories Inc. without prejudice, pursuant to a stipulation between Medicis and Matrix Laboratories Inc. On August 18, 2009, the Company entered into a Settlement Agreement with Sandoz whereby all legal disputes between the Company and Sandoz relating to SOLODYN^® were terminated and where Sandoz agreed that Medicis’ patent-in-suit is valid, enforceable and not infringed and that it should be permanently enjoined from infringement. The Delaware court subsequently entered a permanent injunction against any infringement by Sandoz.

     On January 21, 2009, the Company received a letter from an alleged 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 alleged stockholder will commence a derivative action on behalf of the Company. The Company’s Board of Directors reviewed the letter during the course of 2009 and 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 were to 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 of Directors any other appropriate action to be taken. The special committee engaged outside counsel to assist with the investigation.

F-37

     On October 3, 10, and 27, 2008, purported stockholder class action lawsuits styled Andrew Hall v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01821-MHB); Steamfitters Local 449 Pension Fund v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01870-DKD); and Darlene Oliver v. Medicis Pharmaceutical Corp., et al. (Case No. 2:08-cv-01964-JAT) were filed in the United States District Court for the District of Arizona on behalf of stockholders who purchased securities of the Company during the period between October 30, 2003, and approximately September 24, 2008. The Court has consolidated these actions into a single proceeding and appointed a lead plaintiff and lead plaintiff’s counsel. On May 18, 2009, the lead plaintiff filed an amended complaint. The amended complaint names 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, the Company’s Chief Operating Officer and Executive Vice President, Mark A. Prygocki, and the Company’s independent auditors, Ernst & Young LLP. The claims alleged in the amended complaint 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 amended complaint alleges 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 allegedly had the effect of artificially inflating the market price of the Company’s stock. The amended complaint seeks to recover unspecified damages and costs, including counsel and expert fees. On July 17, 2009, the Company and the other defendants filed motions to dismiss the amended complaint in its entirety on various grounds. The lead plaintiff filed an opposition to the motions to dismiss on August 31, 2009, and the Company and the other defendants filed reply memoranda in support of the motions to dismiss on October 15, 2009. On December 2, 2009, the court dismissed the consolidated amended complaint without prejudice, permitting the lead plaintiff the opportunity to replead. On January 18, 2010, the lead plaintiff filed a second amended complaint. On February 19, 2010, the Company and the other defendants filed motions to dismiss the second amended complaint in its entirety on various grounds. The Company will continue to vigorously defend the claims in these consolidated matters. There can be no assurance, however, that the Company will be successful, and an adverse resolution of the lawsuits could have a material adverse effect on the Company’s financial position and results of operations in the period in which the lawsuits are resolved. The Company is not presently able to reasonably estimate potential losses, if any, related to the lawsuits.

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

13. INCOME TAXES

     The provision (benefit) for income taxes consists of the following (amounts in thousands):

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
Current
Federal	$	55,978		$	68,767		$	31,639
State		4,364			3,631			186
Foreign		2,704			2,422			3,194
		63,046			74,820			35,019
Deferred
Federal		(2,873	)		(40,435	)		13,091
State		(534	)		(2,255	)		434
		(3,407	)		(42,690	)		13,525
Total	$	59,639		$	32,130		$	48,544

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     During 2009, 2008 and 2007, “Additional paid-in-capital” was (decreased)/increased by $(0.9) million, $(1.6) million and $2.6 million, respectively, as a result of tax (shortfalls)/windfalls related to the vesting of restricted stock and exercise of employee stock options.

     The reconciliations of the U.S. federal statutory rate to the combined effective tax rate used to determine income tax expense (benefit) are as follows:

	YEARS ENDED DECEMBER 31,
	2009			2008			2007
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State tax rate, net of federal benefit		0.9			2.2			0.9
Share-based payments		0.7			2.4			0.4
Foreign taxes		1.2			3.3			1.7
Tax contingencies reserve		—			0.3			(0.4	)
Non-deductible research and development expense		—			25.2			—
Taxable gain in excess of book gain on sale of subsidiary		5.9			—			—
Other non-deductible items		0.7			4.2			1.3
Credits and other		(1.1	)		(4.5	)		(0.8	)
Valuation allowance		0.7			7.7			2.7
		44.0	%		75.8	%		40.8	%

     Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (amounts in thousands):

	DECEMBER 31,
	2009					2008
	Current		Long-term			Current			Long-term
Deferred tax assets:
Net operating loss carryforwards	$	7,177	$	2,706		$	7,558		$	13,547
Reserves and liabilities		59,104		11,826			46,037			6,176
Unrealized losses on securities		40		2,885			—			2,319
Excess of tax basis over net book value of intangible assets		—		83,204			—			80,182
Share-based payment awards		—		18,511			—			17,665
Depreciation on property and equipment		—		—			—			141
Credits and other		—		1,775			—			1,387
		66,321		120,907			53,595			121,417
Deferred tax liabilities:
Unrealized gains on securities		—		—			(434	)		—
Bond interest		—		(45,334	)		—			(37,605	)
Depreciation on property and equipment		—		(3,009	)		—			—
		—		(48,343	)		(434	)		(37,605	)
Valuation allowance		—		(7,617	)		—			(6,663	)
Net deferred tax assets	$	66,321	$	64,947		$	53,161		$	77,149

F-39

     On June 10, 2009, the Company sold all of the outstanding capital stock of Medicis Pediatrics (see Note 6). The transaction generated a $24.8 million net gain for income tax purposes and, accordingly, a $9.0 million income tax provision was established as part of the transaction.

     In connection with its acquisition of LipoSonix in July 2008, the Company recorded $18.7 million of net deferred tax assets and decreased goodwill by $18.7 million as a result of tax attributes acquired and basis differences in the net assets acquired. During the three months ended September 30, 2009, the Company recorded $0.4 million of net deferred tax assets and decreased goodwill by $0.4 million as a result of an adjustment to the tax attributes acquired.

     At December 31, 2009, the Company has a federal net operating loss carryforward of approximately $28.2 million, of which a portion will expire beginning in 2021 if not previously utilized. The entire net operating loss carryforward was acquired in connection with the Company’s acquisition of LipoSonix. As a result of the related ownership change for LipoSonix, the annual utilization of the net operating loss carryforward is limited under Internal Revenue Code Section 382. The federal net operating loss of $28.2 million is net of the Section 382 limitation, thus representing the Company’s estimate of the net operating loss carryforward that will be realized.

     At December 31, 2009 and 2008, the Company has an unrealized tax loss of $21.0 million and $18.1 million, respectively, related to the Company’s option to acquire Revance or license Revance’s topical product that is under development. The Company will not be able to determine the character of the loss until the Company exercises or fails to exercise its option. A realized loss characterized as a capital loss can only be utilized to offset capital gains. At December 31, 2009 and 2008, the Company has recorded a valuation allowance of $7.6 million and $6.7 million, respectively, 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.

     The Company recorded a deferred tax asset (liability) of approximately $2.9 million, $(0.4) million and $(0.4) million related to unrealized gains on available-for-sale securities in 2009, 2008 and 2007, respectively. All amounts have been presented as a component of other comprehensive income in stockholders’ equity.

     During 2009, 2008 and 2007, the Company made net tax payments of $44.6 million, $87.8 million and $35.4 million, respectively.

     The Company operates in multiple tax jurisdictions and is periodically subject to audit in these jurisdictions. These audits can involve complex issues that may require an extended period of time to resolve and may cover multiple years. The Company and its domestic subsidiaries file a consolidated U.S. federal income tax return. Such returns have either been audited or settled through statute expiration through fiscal 2004. The Internal Revenue Service recently completed a limited scope examination of the Company’s tax return for the period ending December 31, 2007. The exam resulted in no changes to the tax return as filed. In addition, the state of California is currently conducting an examination on the Company’s tax return for the periods ended June 30, 2005, December 31, 2005, December 31, 2006 and December 31, 2007.

     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 limitations may be open for up to five years from the date the tax return was filed. Thus, all returns filed from fiscal 2005 forward are open under the statute of limitations.

F-40

     Effective January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes. In accordance with FIN No. 48 (now part of ASC 740, Income Taxes), the Company recognized a cumulative-effect adjustment of approximately $808,000, increasing its liability for unrecognized tax benefits, interest, and penalties and reducing the January 1, 2007 balance of retained earnings. A reconciliation of the 2009, 2008 and 2007 beginning and ending amount of unrecognized tax benefits is as follows (amounts in thousands):

	2009			2008			2007
Balance at beginning of period	$	2,512		$	3,410		$	4,310
Additions based on tax positions related to the current year		118			—			—
Additions for tax positions of prior years		1,010			—			200
Reductions for tax positions of prior years		—			—			(1,100	)
Settlements		—			(898	)		—
Reductions due to lapse in statute of limitations		(1,383	)		—			—
Balance at end of period	$	2,257		$	2,512		$	3,410

     The amount of unrecognized tax benefits which, if ultimately recognized, could favorably affect the effective tax rate in a future period is $1.7 million, $2.1 million and $2.5 million as of December 31, 2009, 2008 and 2007, respectively. The Company estimates that it is reasonably possible that the amount of unrecognized tax benefits will decrease by $0.8 million in the next twelve months due to normal statute closures.

     The Company recognizes accrued interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2009, 2008 and 2007, the Company did not recognize a material amount in interest and penalties. The Company had approximately $0.5 million and $0.3 million for the payment of interest and penalties accrued (net of tax benefit) at December 31, 2009 and 2008, respectively.

14. DIVIDENDS DECLARED ON COMMON STOCK

     During 2009, 2008 and 2007, the Company paid quarterly cash dividends aggregating $9.4 million, $8.6 million and $6.8 million, respectively, on its common stock. In addition, on December 16, 2009, the Company declared a cash dividend of $0.04 per issued and outstanding share of its Class A common stock payable on January 29, 2010, to stockholders of record at the close of business on January 4, 2010. The $2.4 million dividend was recorded as a reduction of accumulated earnings and is included in other current liabilities in the accompanying consolidated balance sheets as of December 31, 2009. The Company has not adopted a dividend policy.

F-41

15. STOCK OPTION PLANS

     As of December 31, 2009, the Company has seven active Stock Option Plans (the 2006, 2004, 2002, 1998, 1996, 1995 and 1992 Plans or, collectively, the “Plans”). Of these seven Plans, only the 2006 Incentive Award Plan is eligible for the granting of future awards. As of December 31, 2009, 9,253,847 options were outstanding under these Plans. Except for the 2002 Stock Option Plan, which only includes non-qualified incentive options, the Plans allow the Company to designate options as qualified incentive or non-qualified on an as-needed basis. Qualified and non-qualified stock options 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. Options are granted at the fair market value on the grant date. Options outstanding at December 31, 2009 vary in price from $11.28 to $39.04, with a weighted average exercise price of $29.24 as is set forth in the following chart:

			Weighted		Weighted				Weighted
			Average		Average				Average
Range of	Number		Contractual		Exercise		Number		Exercise
Exercise Prices	Outstanding		Life		Price		Exerciseable		Price
$11.28 - $18.33		1,022,899		3.4	$	17.56		842,834	$	18.33
$19.60 - $26.89		536,849		3.2	$	23.28		518,720	$	23.41
$26.95 - $26.95		1,306,464		1.5	$	26.95		1,306,464	$	26.95
$27.30 - $27.63		1,512,068		0.6	$	27.63		1,512,068	$	27.63
$27.70 - $28.87		62,510		2.9	$	28.20		62,510	$	28.20
$29.20 - $29.20		1,666,710		3.6	$	29.20		1,666,710	$	29.20
$29.30 - $32.56		1,095,330		3.7	$	31.54		968,264	$	31.44
$32.81 - $36.06		171,607		4.3	$	33.78		160,879	$	33.81
$38.45 - $39.04		1,879,410		4.6	$	38.50		1,879,410	$	38.50
		9,253,847		3.0	$	29.24		8,917,859	$	29.52

F-42

     A summary of stock options granted within the Plans and related information for 2009, 2008 and 2007 is as follows:

										Weighted
										Average
	Qualified			Non-Qualified			Total			Price
Balance at December 31, 2006		925,789			12,063,222			12,989,011		$	27.63
Granted		—			119,553			119,553		$	33.75
Exercised		(270,194	)		(621,545	)		(891,739	)	$	20.65
Terminated/expired		(29,948	)		(519,922	)		(549,870	)	$	32.70
Balance at December 31, 2007		625,647			11,041,308			11,666,955		$	27.99
Granted		—			127,702			127,702		$	22.22
Exercised		(62,422	)		(216,070	)		(278,492	)	$	15.59
Terminated/expired		(58,936	)		(749,872	)		(808,808	)	$	31.55
Balance at December 31, 2008		504,289			10,203,068			10,707,357		$	27.98
Granted		—			182,017			182,017		$	13.94
Exercised		(157,515	)		(976,900	)		(1,134,415	)	$	14.21
Terminated/expired		(51,884	)		(449,228	)		(501,112	)	$	30.70
Balance at December 31, 2009		294,890			8,958,957			9,253,847		$	29.24

16. NET INCOME PER COMMON SHARE

     In June 2008, the FASB issued new guidance on determining whether instruments granted in share-based payment transactions are participating securities. In the new guidance, which is now part of ASC 260, Earnings per Share, 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 stockholders. Restricted stock granted to certain employees by the Company (see Note 2) participate in dividends on the same basis as common shares, and these dividends are not forfeitable by the holders of the restricted stock. As a result, the restricted stock grants meet the definition of a participating security. The Company adopted the new guidance on January 1, 2009. Prior periods have been restated as the provisions of the new guidance are to be applied retrospectively. The adoption of the new guidance reduced basic earnings per share for years ended December 31, 2009 and 2007, by $0.04 and $0.01, respectively. The adoption of the new guidance reduced diluted earnings per share for the years ended December 31, 2009 and 2007 by $0.03 and $0.01, respectively. There was no impact to basic or diluted earnings per share for the year ended December 31, 2008.

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

	YEARS ENDED DECEMBER 31,
	2009			2008		2007
BASIC
Net income	$	75,951		$	10,276	$	70,436
Less: income allocated to participating securities		2,363			158		657
Net income available to common stockholders	$	73,588		$	10,118	$	69,779
Weighted average number of common shares outstanding		57,252			56,567		55,988
Basic net income per common share	$	1.29		$	0.18	$	1.25
DILUTED
Net income	$	75,951		$	10,276	$	70,436
Less: income allocated to participating securities		2,363			158		657
Net income available to common stockholders		73,588			10,118		69,779
Less:
Undistributed earnings allocated to unvested stockholders		(2,099	)		—		(597	)
Add:
Undistributed earnings re-allocated to unvested stockholders		2,096			—		576
Add:
Tax-effected interest expense and issue costs related to Old Notes		2,664			—		2,950
Tax-effected interest expense and issue costs related to New Notes		2			—		3,357
Net income assuming dilution	$	76,251		$	10,118	$	76,065
Weighted average number of common shares outstanding		57,252			56,567		55,988
Effect of dilutive securities:
Old Notes		5,823			—		5,823
New Notes		4			—		7,325
Stock options		93			—		2,043
Weighted average number of common shares assuming dilution		63,172			56,567		71,179
Diluted net income per common share	$	1.21		$	0.18	$	1.07

     Diluted net income per common share must be calculated using the “if-converted” method. Diluted net income per share using the “if-converted” method is calculated by adjusting net income for tax-effected net interest 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 2009 excludes 10,329,522 shares of stock 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.

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     The diluted net income per common share computation for 2008 excludes 9,919,690 shares of stock 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 2008 also excludes restricted stock and stock options convertible into 755,408 shares in the aggregate, and 5,822,551 and 3,124,742 shares of common stock, issuable upon conversion of the Old Notes and New Notes, respectively, as they were anti-dilutive.

     The diluted net income per common share computation for 2007 excludes 3,585,908 shares of stock 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.

17. FINANCIAL INSTRUMENTS – CONCENTRATIONS OF CREDIT AND OTHER RISKS

     Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term and long-term investments and accounts receivable.

     The Company maintains cash, cash equivalents and short-term and long-term investments primarily with two financial institutions that invest funds in short-term, interest-bearing, investment-grade, marketable securities. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of investments in debt securities and trade receivables. The Company’s investment policy requires it to place its investments with high-credit quality counterparties, and requires investments in debt securities with original maturities of greater than six months to consist primarily of AAA rated financial instruments and counterparties. The Company’s investments are primarily in direct obligations of the United States government or its agencies and corporate notes and bonds.

     At December 31, 2009 and 2008, two customers comprised approximately 84.2% and 64.7%, respectively, of accounts receivable. The Company does not require collateral from its customers, but performs periodic credit evaluations of its customers’ financial condition. Management does not believe a significant credit risk exists at December 31, 2009.

     Substantially all of the Company’s inventory is contract manufactured. The Company and the manufacturers of its products rely on suppliers of raw materials used in the production of its products. Some of these materials are available from only one source and others may become available from only one source. Any disruption in the supply of raw materials or an increase in the cost of raw materials to these manufacturers could have a significant effect on their ability to supply the Company with its products. The failure of any such suppliers to meet its commitment on schedule could have a material adverse effect on the Company’s business, operating results and financial condition. If a sole-source supplier were to go out of business or otherwise become unable to meet its supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time the Company’s production could be delayed. Such delays could have a material adverse effect on the Company’s business, operating results and financial condition.

18. DEFINED CONTRIBUTION PLAN

     The Company has a defined contribution plan (the “Contribution Plan”) that is intended to qualify under Section 401(k) of the Internal Revenue Code. All employees, except those who have not attained the age of 21, are eligible to participate in the Contribution Plan. Participants may contribute, through payroll deductions, up to 20.0% of their basic compensation, not to exceed Internal Revenue Code limitations. Although the Contribution Plan provides for profit sharing contributions by the Company, the Company had not made any such contributions since its inception until April 2002. Beginning in April 2002, the Company began matching employee contributions at 50% of the first 3% of basic compensation contributed by the participants, and in April 2006 increased the matching contribution to 50% of the first 6% of basic compensation contributed by the participants. During 2009, 2008 and 2007, the Company also made a discretionary contribution to the plan. During 2009, 2008 and 2007, the Company recognized expense related to matching and discretionary contributions under the Contribution Plan of $3.7 million, $2.7 million and $2.3 million, respectively.

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19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The tables below list the quarterly financial information for 2009 and 2008. All figures are in thousands, except per share amounts, and certain amounts do not total the annual amounts due to rounding.

	YEAR ENDED DECEMBER 31, 2009
	(FOR THE QUARTERS ENDED)
	MARCH 31, 2009 (a)		JUNE 30, 2009 (b)		SEPTEMBER 30, 2009 (c)		DECEMBER 31, 2009 (d)
Net revenues	$	99,819	$	141,246	$	151,811	$	179,040
Gross profit (1)		90,373		128,179		138,271		158,259
Net income		329		15,593		21,148		38,882
Basic net income per common share	$	0.01	$	0.26	$	0.36	$	0.65
Diluted net income per common share	$	0.01	$	0.25	$	0.33	$	0.60

	YEAR ENDED DECEMBER 31, 2008
	(FOR THE QUARTERS ENDED)
	MARCH 31, 2008 (e)		JUNE 30, 2008 (f)		SEPTEMBER 30, 2008 (g)			DECEMBER 31, 2008 (h)
Net revenues	$	128,903	$	137,450	$	115,425		$	135,971
Gross profit (1)		117,771		128,246		104,577			128,442
Net income (loss)		20,525		13,009		(14,657	)		(8,601	)
Basic net income (loss) per common share	$	0.36	$	0.23	$	(0.26	)	$	(0.15	)
Diluted net income (loss) per common share	$	0.31	$	0.21	$	(0.26	)	$	(0.15	)

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

Quarterly results were impacted by the following items:

(a)	Operating expenses included $5.0 million paid to IMPAX related to a product development agreement and approximately $3.9 million of compensation expense related to stock options, restricted stock and stock appreciation rights.
(b)	Operating expenses included approximately $5.0 million of compensation expense related to stock options, restricted stock and stock appreciation rights and $3.0 million paid to Perrigo related to a product development agreement.
(c)	Operating expenses included $10.0 million paid to Revance related to a product development agreement, $5.0 million paid to IMPAX related to a product development agreement, $2.0 million paid to Perrigo related to a product development agreement and approximately $4.7 million of compensation expense related to stock options, restricted stock and stock appreciation rights.
(d)	Operating expenses included $5.3 million paid to Glenmark related to license and settlement agreements, $2.0 million paid to IMPAX related to a product development agreement and approximately $5.6 million of compensation expense related to stock options, restricted stock and stock appreciation rights.
(e)	Operating expenses included approximately $4.4 million of compensation expense related to stock options and restricted stock.
(f)	Operating expenses included a $25.0 million payment to Ipsen upon the FDA’s acceptance of Ipsen’s BLA for DYSPORTTM and approximately $4.7 million of compensation expense related to stock options and restricted stock.
(g)	Operating expenses included $30.5 million of acquired in-process research and development expense related to the Company’s acquisition of LipoSonix, approximately $4.8 million of lease exit costs related to

F-46

	the Company’s previous headquarters facility and approximately $4.1 million of compensation expense related to stock options and restricted stock.
(h)	Operating expenses included $40.0 million paid to IMPAX related to a product development agreement and approximately $3.4 million of compensation expense related to stock options and restricted stock.

F-47

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

	Balance at		Charged to
	beginning of		costs and		Charged to					Balance at end
Description	period		expense		other accounts		Deductions			of period
	(in thousands)
Year Ended December 31, 2009
Deducted from Asset Accounts:
Accounts Receivable:
Allowances	$	1,719	$	21,983	$	—	$	(20,854	)	$	2,848
Year Ended December 31, 2008
Deducted from Asset Accounts:
Accounts Receivable:
Allowances	$	830	$	15,157	$	—	$	(14,268	)	$	1,719
Year Ended December 31, 2007
Deducted from Asset Accounts:
Accounts Receivable:
Allowances	$	2,148	$	11,385	$	—	$	(12,703	)	$	830

S-1

EX-10.70

Exhibit 10.70

*** 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.

TRANSITION AGREEMENT

     This Transition Agreement (this “Agreement”) is entered into as of January 28, 2005, by and between Medicis Pharmaceutical Corporation, a Delaware corporation, having offices at 8125 North Hayden Road, Scottsdale, AZ 85258 (hereinafter “Medicis”), and aaiPharma Inc., a Delaware corporation and the parent company of AAI Development Services, Inc. (formerly known as AAI International, Inc.), having offices at 2320 Scientific Park Drive, Wilmington, NC 28405 (hereinafter “AAI,” and together with Medicis, hereinafter the “Parties,” or individually, hereinafter a “Party”).

RECITALS:

     A. Medicis and AAI entered into that certain Development, Commercialization and License Agreement, effective as of June 26, 2002, as amended on December 18, 2002 (collectively, the “DCL Agreement”). Capitalized terms used in this Agreement which are not defined herein shall have the meanings given to such terms in the DCL Agreement.

     B. On January 28, 2005 (the “Termination Date”), pursuant to a letter agreement, Medicis and AAI mutually terminated the DCL Agreement under Section 7.2.4 thereof effective as of the Termination Date.

     C. The Parties mutually desire to enter into certain arrangements and agreements to facilitate transition matters arising from the termination of the DCL Agreement.

STATEMENT OF AGREEMENT:

     Now, therefore, in consideration of the mutual promises and agreements herein contained and for other good, valuable and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

     1. Return of Work Product; Survival.

          1.1 The Parties acknowledge and agree that Medicis is the owner of all Work Product in accordance with Sections 7.3.2, 2.4.4 and 10.4 of the DCL Agreement, and in furtherance of such ownership and to facilitate the return of Medicis’ property to Medicis on the Closing Date (as such term is defined in Section 5.1 hereof) AAI shall (a) provide Medicis or its designee with a complete disclosure of all Work Product not yet disclosed to Medicis and shall deliver to Medicis or its designee the Work Product, and (b) execute such documents and take such steps as Medicis may reasonably request in order to vest Medicis with full record ownership of all Work Product.

          1.2 The Parties acknowledge and agree that Section 7.4 (and the additional sections referenced therein) of the DCL Agreement shall survive the termination of the DCL Agreement.

     2. Assignment of Agreements.

1

          2.1 On the Closing Date, AAI shall hereby transfer and assign to Medicis or its designee all of AAI’s and its Affiliates rights, title and interests in and to and obligations under the contracts and agreements set forth on Schedule 2 hereto (each a “Transferred Contract” and collectively, the “Transferred Contracts”) designated by Medicis to be assumed by Medicis. AAI represents and warrants to Medicis that the Transferred Contracts represent all of the contracts and agreements entered into by AAI or its Affiliates exclusively for purposes of performing AAI’s obligations under the DCL Agreement and that to AAI’s knowledge as of the Closing Date, there are no other material contracts or agreements to which AAI or any of its Affiliates is a party which are necessary for the performance of the Work Plan. For each Transferred Contract designated by Medicis to be assumed by Medicis on Schedule 2 hereto, Medicis shall assume all of AAI’s obligations thereunder to the extent arising following the Closing Date.

          2.2 AAI shall use its commercially reasonable efforts, and Medicis shall cooperate with AAI, to obtain all necessary consents in order to transfer or assign on the Closing Date each Transferred Contract designated by Medicis to be assumed by Medicis on Schedule 2 hereto to Medicis or its designee; provided, however, that neither AAI nor Medicis shall be obligated to pay any consideration therefor to the third party from whom such consent is requested. In the event and to the extent that the required consent to the transfer or assignment of any of the Transferred Contracts has not been obtained by the Closing Date, AAI shall continue to be, or shall cause its Affiliates to continue to be, bound thereunder in accordance with the terms thereof and shall use its commercially reasonable efforts to perform and discharge fully all of the obligations of AAI or its Affiliates thereunder from and after the Closing Date; provided, however, that (a) Medicis shall pay, or reimburse AAI upon receipt of a reasonably detailed invoice, for AAI’s standard hourly rate, if any, and AAI’s out-of-pocket, third party costs under each such Transferred Contract in accordance with its terms, and (b) AAI shall not alter, modify or extend the terms and conditions of any such Transferred Contract without the prior written consent of Medicis, and at the request of, the sole expense of, and for the account of, Medicis, AAI shall take all reasonably requested actions to protect its rights thereunder.

     3. Transferred Contracts Indemnification.

          3.1 Medicis shall indemnify, defend and hold AAI, its Affiliates and their respective directors, officers, shareholders, employees, representatives, agents, successors and permitted assigns (collectively “AAI Indemnified Parties”) harmless from and against any and all third party liabilities, losses, claims, demands, obligations, judgments, causes of action, assessments, fines, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees) (collectively, the “Claims”), in each case, to the extent such Claims are incurred following the Closing Date and arise out of the Transferred Contracts, but Medicis shall have no indemnification obligations under this Section 3.1 to the extent any such Claim arises out of any negligence or willful or reckless actions or misconduct of AAI or its employees, agents and/or subcontractors.

          3.2 AAI shall indemnify, defend and hold Medicis, its Affiliates and their respective directors, officers, shareholders, employees, representatives, agents, successors and permitted assigns (collectively, the “Medicis Indemnified Parties”) harmless from and against any and all Claims, in each case, to the extent such Claims are incurred (i) on or prior to the

2

Closing Date and arise out of the Transferred Contracts, and (ii) after the Closing Date and arise out of any negligence or willful or reckless actions or misconduct of AAI or its employees, agents and/or subcontractors. The Parties acknowledge that the third parties who are parties to the Transferred Contracts shall not be deemed to be AAI’s agents or subcontractors pursuant to such Transferred Contracts for periods following the Closing Date.

     4. Closing Date Payments to AAI.

          4.1 Notwithstanding anything to the contrary contained in Section 7.3.2(a) of the DCL Agreement, in consideration for the Parties entering into this Agreement, Medicis shall pay to AAI on the Closing Date by wire transfer in immediately available funds to an account designated by AAI an amount equal to *** (the “Closing Sum”).

          4.2 ***

          4.3 Within *** following the date hereof, AAI shall prepare and deliver to Medicis a detailed statement of AAI’s fees and expenses incurred from and after January 1, 2005 through and including January 31, 2005, for the services provided by or on behalf of AAI to Medicis (the “Expense Statement”), accompanied by reasonably detailed invoices evidencing the incurrence of such fees and expenses. Any and all expenses incurred in connection with the preparation of the Expense Statement shall be the sole responsibility of AAI.

          4.4 The Expense Statement shall become final and binding upon the Parties within thirty (30) days following the receipt thereof by Medicis, unless Medicis notifies AAI of an objection thereto in writing within such 30-day period, which writing shall set forth in reasonable detail the reasons for Medicis’ objection (an “Objection Notice”). If Medicis sends an Objection Notice to AAI, Medicis and AAI shall negotiate in good faith to resolve the matter or matters in dispute. If, within thirty (30) days following the date of the Objection Notice, such disputes have not been resolved, the Parties shall submit the dispute to be resolved to *** or another “Big Four” accounting firm mutually acceptable to the Parties (the “Accounting Firm”). Medicis and AAI will direct the Accounting Firm to deliver within thirty (30) days after its retention a written report stating its resolution of such disputes and Medicis and AAI and their respective agents will cooperate with the Accounting Firm during its engagement. Following the issuance of the Accounting Firm’s written report, the Expense Statement (as adjusted in accordance with such written report) shall be final, binding and not subject to any appeal. The fees and expenses of the Accounting Firm shall be paid one-half by Medicis and one-half by AAI.

          4.5 If the aggregate amount of fees and expenses reflected on the Expense Statement as finally determined in accordance with Section 4.4 is less than the Estimated January Expenses, then AAI will, within *** after the date of such final determination, reimburse and pay to Medicis an amount equal to the difference between (a) the Estimated January Expenses and (b) the aggregate amount of fees and expenses reflected on the Expense Statement as finally determined in accordance with Section 4.4. No payment will be required by either Party if the aggregate amount of fees and expenses reflected on the Expense Statement as finally determined in accordance with Section 4.4 is greater than the Estimated January Expenses.

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     5. Closing and Deliveries.

          5.1 Closing. The consummation of the transactions contemplated hereby shall take place at a closing (the “Closing”), to be held at the offices of Akin Gump Strauss Hauer & Feld LLP, 590 Madison Avenue, New York, NY, at 10:00 a.m. local time, or another mutually acceptable time and location. The date of Closing is hereinafter called the “Closing Date.” The Closing shall be effective for all purposes as of 11:59 p.m. on the Closing Date.

          5.2 Deliveries.

               5.2.1 At the Closing, AAI shall deliver, or shall cause to be delivered, the following to Medicis:

(a)	The Work Product pursuant to Section 1;
(b)	The Transferred Contracts pursuant to Section 2;
(c)	A quality control agreement, duly executed by AAI; and
(d)	Such other agreements, consents, documents, instruments and writings as are reasonably requested by Medicis or otherwise required to be delivered by AAI at or prior to the Closing Date pursuant to this Agreement.

               5.2.2 At the Closing, Medicis shall deliver, or shall cause to be delivered, the following to AAI:

(a)	The payments required to be made by Medicis to AAI pursuant to Sections 4.1 and 4.2;
(b)	A quality control agreement, duly executed by Medicis; and
(c)	Such other agreements, consents, documents, instruments and writings as are reasonably requested by AAI or otherwise required to be delivered by Medicis at or prior to the Closing Date pursuant to this Agreement.

     6. Transition Services.

               6.1.1 Subject to the terms of this Agreement, following the Closing Date and until termination as provided in Section 16.1 hereof, (i) AAI shall, in accordance with the Work Plan, including the hourly fee rates attached hereto as Exhibit II or Exhibit III and incorporated herein by reference, perform certain clinical and non-clinical work relating to the Work Product, including, but not limited to, clinical monitoring services, data management services, stability work and Product optimization in accordance with industry standards and manufacturing-related services relating to the Products in accordance with industry standards, all as more fully described in each written service estimate or statement of work to be signed by both of the Parties hereto (“Service Estimates”) incorporated into the Work Plan (collectively, the “Initial Services”), and (ii) Medicis shall pay AAI for such Initial Services in accordance with the Service Estimates included within the Work Plan and their related fee schedules until

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the Initial Services are terminated, as provided herein. The Parties acknowledge and agree that all of the Service Estimates entered into and to be entered into by the Parties are part of Exhibit II, and if applicable to manufacturing, shall be subject to the terms and conditions of Exhibit III.

               6.1.2 The hourly fee rates shall be subject to annual review and increase. Hourly fees are exclusive of third party fees, costs and expenses, including shipping and material costs. All out-of-pocket third party costs and expenses related to the Services, including shipping, shall be passed through to Medicis at cost ***. Unless otherwise agreed to in any Service Estimate, Medicis shall be billed monthly for the Initial Services. The Parties may agree in writing to additional or modified Initial Services, all of which shall be documented in a Service Estimate or change order incorporated into the Work Plan by written agreement between the Parties.

               6.1.3 To the extent that certain components of the Work Product are necessary in order for AAI to continue its services in accordance with the provisions of this Section 6.1, AAI shall be permitted to retain a copy of such materials; provided, that it provides Medicis with a written notice setting forth the specific Work Product that it has copied and that such copies are returned to Medicis promptly following the completion of such Initial Services. AAI shall provide Medicis with a written update, not less than weekly, of the Initial Services performed by AAI under this Section 6.1, including electronic and hard copy documentation of the Work Product generated in performing the Initial Services that are necessary or useful to obtaining governmental approval for the commercialization or manufacture of the Products.

               6.1.4 Without the prior written approval of Medicis, AAI shall not knowingly utilize in the performance of the Services hereunder or under any Service Estimate, nor incorporate into the resulting Work Product, any intellectual property or proprietary rights of AAI and/or any third party (“Outside Technology”), except as AAI is freely permitted to do so without further compensation from Medicis.

          6.2 Following the Closing Date, (a) AAI shall manufacture commercial batches, including bulk clinical supply and samples, of Products in accordance with industry standards and the manufacturing terms attached hereto as Exhibit III and incorporated herein by reference (collectively, the “Manufacturing Services”, and together with the Initial Services, the “Services”), until such Manufacturing Services are terminated in accordance with the terms hereof, including Exhibit III hereto, and (b) Medicis shall pay AAI for such Manufacturing Services in accordance with Section 7 hereof and the fee schedule set forth in Exhibit III hereto. AAI shall provide Medicis with updates, not less than weekly, of the Manufacturing Services performed by AAI under this Section 6.2, including available electronic and hard copy documentation of the Work Product generated in performing the Manufacturing Services that are necessary or useful to obtaining governmental approval for the commercialization or manufacture of the Products.

          6.3 To the extent that the Services performed by AAI hereunder yield Work Product, such Work Product shall be the property of Medicis. AAI shall provide Medicis or its designee with a complete disclosure of all such Work Product not yet disclosed to Medicis on a monthly basis, or more frequently, if available, and (c) AAI shall execute such documents and

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take such steps as are necessary in order to vest Medicis with full record ownership of such Work Product.

          6.4 AAI shall reasonably cooperate with and assist Medicis, at Medicis’ expense with respect to third party costs, (a) in transferring the Manufacturing Services promptly following the date on which the United States Food and Drug Administration (the “FDA”) approves the Product (the “FDA Approval Date”) to a third party designated by Medicis (the “New Manufacturing Site”), and (b) in obtaining appropriate governmental qualifications, including all required FDA approvals, necessary for the New Manufacturing Site to perform the Manufacturing Services. Upon the request of AAI, AAI shall have the right to review and provide comments to Medicis with respect to the applications to be submitted to the FDA for approval of the New Manufacturing Site. Within *** following the later of the FDA Approval Date and the date on which the FDA approves the New Manufacturing Site (the “New Site Approval Date”), Medicis shall pay to AAI, by wire transfer in immediately available funds to a account designated by AAI, ***; provided that AAI is not then in breach of its obligations under this Section 6.4.

          6.5 During the term of Exhibit III hereto and until the *** of the termination of Exhibit III hereto, AAI and its Affiliates shall not, for their own benefit or for the benefit of any third party other than Medicis and its successors and assigns or *** and its successors and assigns ***, manufacture products containing modified minocycline or Extended Release Minocycline; provided, however, that AAI and its Affiliates shall not manufacture products containing modified minocycline or Extended Release Minocycline in capsule or tablet form for ***.

     7. Payments for Services. (a) All payments for Services shall be made by wire transfer in immediately available funds to a bank account designated in writing by AAI prior to the date such payment is due. AAI shall provide to Medicis written invoices for Services and Medicis shall pay such invoices *** following Medicis’ receipt thereof. In the event Medicis fails to pay such amount on the date due as referenced in the applicable invoice, AAI shall send written notice to Medicis of such failure, and Medicis shall have the right to pay such amount in full without interest thereon within *** of the date Medicis receives such notice. AAI reserves the right to charge, and Medicis shall pay, interest at the then Prime Rate as determined by Citibank N.A. plus *** on all past due amounts; provided, however, that no such interest shall be charged to the extent that the failure of Medicis to make a timely payment hereunder arises from a good faith dispute between Medicis and AAI with respect to the amount due. If AAI shall not have received payment of an invoice within *** following the date of Medicis’ receipt of such invoice, AAI shall have the right to cease performance of Services hereunder without liability to Medicis provided that AAI is not then in breach of its obligations under this Agreement. AAI shall have no further obligation to perform such Services, unless and until such amounts have been paid, and following delivery of such payment, AAI shall promptly recommence its obligations to perform Services hereunder. In the event that during the term of this Agreement, Medicis shall fail on *** occasions to make payment of an invoice within *** following the date of Medicis’ receipt of the applicable invoice, AAI shall have the right upon one hundred eighty (180) days prior written notice to Medicis to terminate this Agreement without liability to Medicis provided that AAI is not then in beach of its obligations under this Agreement.

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     (b) If the Parties have a dispute regarding any payment hereunder and they are unable to reach agreement thereon within 60 days of the date of the first invoice for such payment, an independent arbitrator mutually appointed by the Parties and expert in accounting shall be retained to determine the matter or matters in dispute. The Parties shall each submit one (1) proposal to the arbitrator who shall be required to select one (1) of the submitted proposals, and the arbitrator shall not be entitled to compromise between such proposals. The arbitrator’s determination shall be made within thirty (30) days of submission and shall be conclusive and binding upon the Parties. Each Party shall provide the arbitrator with all relevant books and records, any work papers, supporting documentation and any other documentation used in determining its proposal pursuant to this Section 7(b); provided that such documentation shall be concurrently provided to the other Party. All fees and expenses of the arbitrator shall be paid by the Party whose proposal is not selected.

     8. AAI Performance. AAI shall use commercially reasonable efforts to perform and timely complete its obligations under this Agreement in conformity with the terms and conditions of this Agreement. AAI shall comply with all applicable United States federal, state and local laws and regulations in performing the Services, including but not limited to current Good Manufacturing Practices, Good Clinical Practices, Good Laboratory Practices, ICH guidelines, and all other applicable FDA regulations in effect at the time that the obligations are performed (“Applicable Laws”).

     9. Mutual Representations, Warranties and Covenants. Each of the Parties represents, warrants and covenants to the other that:

          9.1 It shall not use the services of any persons debarred or suspended under 21 U.S.C. § 335a(a) or (b) in any capacity associated with or related to the manufacture of Products. It shall not hire or retain as an officer or employee any person who has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the United States Food, Drug, and Cosmetic Act (the “Act”);

          9.2 It is validly existing and in good standing under the laws of the state of its incorporation;

          9.3 The execution of this Agreement and full and timely performance of the covenants, duties and obligations described herein have been duly authorized by all necessary corporate action in accordance with all applicable United States federal, state and local laws;

          9.4 It has the full power and authority to execute and deliver this Agreement and perform its covenants, duties and obligations described in this Agreement;

          9.5 This Agreement is a valid, legal and binding obligation upon such Party, enforceable against such Party in accordance with its terms, except as enforceability may be limited by applicable insolvency and other laws affecting creditors’ rights generally or by the availability of equitable remedies; and

          9.6 It is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

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     10. AAI’S Representations, Warranties and Covenants.

          10.1 All Products manufactured or supplied by AAI or its agents shall conform to, and shall be manufactured in conformity with, any and all Applicable Laws, including, but not limited to, current Good Manufacturing Practices, Good Clinical Practices, Good Laboratory Practices, ICH guidelines, the NDA and all other applicable FDA regulations;

          10.2 When shipped from AAI, All Products shall conform to the applicable Specifications (as such term is defined in Exhibit III hereto) therefor;

          10.3 When shipped from AAI, Product shall not be adulterated within the meaning of the Act, and shall not be an article which may not, under the Act, be introduced into interstate commerce;

          10.4 Product shall be free and clear of all liens, security interests, or other encumbrances;

          10.5 All studies performed by AAI and its agents shall be performed in conformity with current and applicable Good Manufacturing Practices, Good Clinical Practices, Good Laboratory Practices, ICH guidelines and all other applicable FDA regulations;

          10.6 AAI and its agents shall maintain all records and reports as required to comply with applicable United States federal, state and local work regulations, as required by FDA regulations, and as further required under the Work Plan and in connection with the Services;

          10.7 AAI and its agents shall obtain informed consent from any study subjects used by AAI or its agents in the performance of this Agreement; and

          10.8 Provided that Medicis remains current on all amounts due to AAI, AAI shall make prompt payment to all of its subcontractors under this Agreement.

          10.9 THESE EXPRESS WARRANTIES IN ARTICLE 10 ARE IN LIEU OF, AND AAI DISCLAIMS ALL OTHER CONDITIONS, REPRESENTATIONS, WARRANTIES AND STATEMENTS REGARDING THE PRODUCTS AND SERVICES PROVIDED TO MEDICIS HEREUNDER, WHETHER EXPRESS OR IMPLIED BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, ANY SUCH CONDITION, WARRANTY, OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF PRODUCTS, THEIR MERCHANTABILITY, OR THEIR FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITION) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY EXCLUDED.

          IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST PROFITS, PUNITIVE OR OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. THE LIMITATION ON LIABILITY SET FORTH IN THIS SECTION SHALL NOT APPLY TO EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER

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THIS AGREEMENT OR DAMAGES ARISING OUT OF A PARTY’S INTENTIONAL BREACH OF, OR MISCONDUCT UNDER, THIS AGREEMENT.

     11. Certain Obligations.

            11.1 Supply of Active Ingredient.

(a) AAI shall use the Active Ingredient already provided to it by Medicis to perform its obligations hereunder. Thereafter, Medicis shall, at its sole cost and expense, deliver the Active Ingredient to AAI in quantities agreed to between the Parties. All risk (other than arising from or in connection with AAI’s or its employees’, agents’ or subcontractors’ negligence or willful or reckless actions or misconduct), right, title and interest in and to the Active Ingredient shall at all times belong to and remain in Medicis. AAI shall only use the Active Ingredient received by it to perform the Services. AAI shall promptly notify Medicis in writing of any Active Ingredient that does not meet the specifications identified in Attachment I of Exhibit III, and AAI shall return such Active Ingredient in accordance with Medicis’ instructions to either Medicis or its designee at Medicis’ risk and expense.

(b) AAI shall not be responsible for any loss or damage to the Active Ingredient, except where such loss or damage occurs as a result of AAI’s or its employees’, agents’ or subcontractors’ negligence or willful or reckless actions or misconduct. In such circumstances, AAI shall promptly reimburse Medicis for the Reimbursable Value (as such term is defined in Exhibit III hereto) therefor. Except as otherwise provided herein, all other supplies and materials that are required for the Services shall be obtained by AAI.

          11.2 Safety. Each Party shall be responsible for the safety of its own employees and agents with respect to the handling, use, or storage of materials involved in performance of the Services.

          11.3 Regulatory Approvals. Medicis shall own all right, title and interest in and to the regulatory approvals for the Products. Medicis has responsibility for the content of any Product labels, packaging and instructions and shall supply same to AAI.

          11.4 Regulatory Reporting. AAI shall promptly inform Medicis in accordance with FDA regulations of any adverse events and other regulatory reporting events or activities arising from performance of the Work Plan or the Services.

          11.5 Subcontractors. In the event that AAI desires to use the services of third parties to perform any of AAI’s obligations under this Agreement, AAI shall first obtain the prior written approval of Medicis with respect to each such subcontractor and, prior to such approval and thereafter, shall provide Medicis with any information reasonably requested by Medicis or any governmental or regulatory authority with respect to each such subcontractor. With respect to each subcontractor approved by Medicis, which approval shall be granted by Medicis in its sole and absolute discretion, AAI shall ensure that each such subcontractor complies with the

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applicable obligations of AAI under this Agreement and shall enter into a written agreement with each such subcontractor that:

(a)	contains obligations of confidentiality on such subcontractor no less protective of Medicis Confidential Information than the obligations of AAI under this Agreement, unless otherwise agreed to by Medicis in a signed writing;
(b)	requires such subcontractor to enter in to a confidentiality agreement in the form attached as Exhibit IV hereto;
(c)	shall include substantially the same terms as those appearing in Section 9 of the DCL Agreement “Ownership of Work Product” to ensure that Medicis obtains the same rights in the Work Product generated under such subcontractor agreement as those set forth in this Agreement;
(d)	permits Medicis to exercise its inspection and audit rights pursuant to Section 12 “Inspections and Audits” hereof; and
(e)	without Medicis’ prior written consent, does not impose any payment obligations and/or liability on Medicis.

          11.6 Storage of Original Records. Records related to or arising out of the performance of the Services shall be stored by AAI in accordance with the FDA’s archival guidelines. At least ninety (90) days prior to the expiration of the storage period required by the FDA, AAI shall notify Medicis in writing of such expiration, and at the end of such period, shall transfer such records to Medicis in a manner designated by Medicis. Medicis shall be responsible for the reasonable cost of the transfer of such records.

          11.7 Insurance. Each Party shall maintain comprehensive general liability insurance, including blanket contractual liability insurance covering its obligations under this Agreement while this Agreement is in effect, which insurance shall afford limits of not less than *** for each occurrence for bodily injury liability, personal injury liability, products liability, property damage liability, contractual liability and completed operations liability. The Parties shall provide each other with certificates of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date and the limits of liability. The insurance certificate shall further provide for a minimum of thirty (30) days written notice to the other Party of a cancellation of or material change in the insurance. AAI’s insurance policy shall name Medicis as an additional insured, and Medicis’ insurance policy shall name AAI as an additional insured. AAI’s comprehensive general liability insurance policy shall contain a waiver of subrogation rights which Medicis’ insurer(s) may have against it, and Medicis’ comprehensive general liability insurance policy shall contain a waiver of subrogation rights which AAI’s insurer(s) may have against it.

     12. Inspections and Audits.

          12.1 Medicis and its authorized representatives shall have the right to inspect the manufacturing and testing facilities of AAI and its subcontractors or agents, and to discuss and review in detail the manufacturing and testing process and quality control procedures used

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(and the records created) by AAI during the performance of the Services with any employees or consultants familiar with the Services; provided, however, that such inspections shall be during normal business hours and shall not unreasonably interrupt the operations of AAI. Such inspections shall be made no more frequently than once every *** unless (i) consented to by AAI, such consent not to be unreasonably withheld; (ii) such inspection relates to a Product recall, correction or failure or review of process optimization and validation activities, or (iii) AAI is subject to any inspection pursuant to Section 12.2 below.

          12.2 AAI shall cooperate with the FDA or any other governmental agency with respect to any inspections it may require of AAI’s facilities and procedures in connection with provision of the Services. AAI shall promptly notify in writing and provide copies to Medicis of any communications regarding the Services, the manufacture of the Products or the Products sent to or received from the FDA. Medicis shall promptly notify in writing and provide copies to AAI of any written communications regarding the manufacture of the Products or the Products sent to or received from the FDA.

     13. Indemnification.

          13.1 Indemnification by Medicis. Subject to the terms of Section 13.3, Medicis shall indemnify, defend and hold the AAI Indemnified Parties harmless from and against any and all Claims, in each case to the extent such Claims arise out of: (a) a breach or inaccuracy of any representation or warranty made by Medicis in this Agreement; (b) a material breach of this Agreement by Medicis; (c) any negligence or willful or reckless actions or misconduct of Medicis or its employees, agents and/or subcontractors; (d) any allegation of infringement or misappropriation of copyright or trademark rights of any party resulting from the Products, including Medicis’ instructions for labeling, or packaging of the Products; (e) harm to a third party arising out of the inherent toxicological properties of Active Ingredient and the Products or (f) the handling, storage, shipment, labeling, marketing, sale and use of the Products by Medicis. Notwithstanding the foregoing, Medicis shall not be liable for any Claims to the extent caused by any of the AAI Indemnified Parties as determined in a final, non-appealable order of a court of competent jurisdiction.

          13.2 Indemnification by AAI. Subject to the terms of Section 13.3, AAI shall indemnify, defend and hold the Medicis Indemnified Parties harmless from and against any and all Claims, in each case to the extent such Claims arise out of: (a) a breach or inaccuracy of any representation or warranty made by AAI in this Agreement; (b) a material breach of this Agreement by AAI; (c) any negligence or willful or reckless actions or misconduct of AAI or its employees, agents and/or subcontractors; (d) or any allegations of infringement or misappropriation of any patent or trade secret rights arising out of AAI’s or AAI’s employees’; agent’s or subcontractors performance of the Services. Notwithstanding the foregoing, AAI shall not be liable for any Claims to the extent caused by any of the Medicis Indemnified Parties as determined in a final, non-appealable order of a court of competent jurisdiction.

          13.3 Procedures for Indemnification.

               13.3.1 General. Promptly after becoming aware of same, the Party seeking indemnification (the “Indemnified Party”) shall notify the other Party (the

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“Indemnifying Party”) of any Claim covered under the terms of Sections 13.1 or 13.2, as applicable, for which the Indemnified Party seeks indemnification; provided, however, that any delay in giving such notice shall not relieve the Indemnifying Party hereunder except to the extent such delay materially prejudices the Indemnifying Party’s ability to defend against such Claim or materially increases the amount of damages awarded or paid in settlement of such Claim. For a period that shall not exceed ten (10) business days following any such notification, the Indemnified Party and Indemnifying Party shall investigate and discuss in good faith whether such claim is subject to indemnification under Sections 13.1 or 13.2, as applicable. During such discussions, the Indemnified Party shall give the Indemnifying Party full access to all records, data and personnel of the Indemnified Party as may be reasonably necessary to make such determination. If the parties are unable to agree on whether the Indemnifying Party is required to indemnify the Indemnified Party under the terms of Sections 13.1 or 13.2, as applicable, the Indemnifying Party, at its option, shall either assume or decline defense of the Claim, including negotiations for its settlement or compromise.

               13.3.2 Defense Assumed. If the Indemnifying Party assumes defense of a third party Claim as described herein, the Indemnified Party shall reasonably cooperate with the Indemnifying Party in the defense of such third party Claim and may be represented, at the Indemnified Party’s expense, by counsel of its choice, provided, that, where the Indemnifying Party has assumed defense of a third party Claim, the Indemnifying Party shall have sole control over such defense. The Indemnifying Party shall not be responsible for defending any claims other than those described in Sections 13.1 or 13.2, as applicable, even if brought in the same suit. In addition to the foregoing, if a court of competent jurisdiction later determines that a third party Claim for which the Indemnifying Party assumed defense was not eligible for indemnification under Sections 13.1 or 13.2, as applicable, within *** following such determination, the Indemnified Party shall reimburse the Indemnifying Party in full for all judgments, costs and expenses (including reasonable attorneys’ fees) incurred in connection with such third party Claim.

               13.3.3 Defense Declined. If the Indemnifying Party declines to assume defense of any third party Claim, and it is later determined by a court of competent jurisdiction that such third party Claim was eligible for indemnification under Sections 13.1 or 13.2, as applicable, within *** following such determination, the Indemnifying Party shall reimburse the Indemnified Party in full for all judgments, costs and expenses (including attorneys’ fees and expenses) incurred in connection with such third party Claim.

               13.3.4 Settlement of Third Party Claims. The Indemnifying Party shall not settle any third party Claim without the prior written consent of the Indemnified Party if such settlement: (a) materially diminishes any of the Indemnified Party’s rights under this Agreement or seeks to impose additional obligations on the Indemnified Party; or (b) arises out of or is a part of any criminal action, suit or proceeding or contains a stipulation or admission or acknowledgement of any liability or wrongdoing (whether in contract, tort or otherwise) on the part of the Indemnified Party.

               13.3.5 Contributory Negligence; Right of Contribution. Nothing contained herein shall bar a claim for contributory negligence or a Party’s right of contribution.

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     14. Confidential Information.

          14.1 Medicis Confidential Information. AAI acknowledges and agrees (a) that (i) Work Product created by or on behalf of AAI or Medicis pursuant to this Agreement, (ii) any plans, specifications, designs, data, results, information, works in progress and any other documents or material provided by or on behalf of Medicis for the provision of Services, and (iii) any information, works in progress, trade secrets, data or other secret, sensitive or confidential material related to the business technology, products, systems, formulas, practices, processes, customers or projects of Medicis that are disclosed to or become known by AAI during the term of this Agreement and which are not generally known to the public constitute the confidential information of Medicis (collectively the “Medicis Confidential Information”); (b) to hold such Medicis Confidential Information in strict confidence; (c) not to disclose such Medicis Confidential Information to any third party, except as necessary to perform its obligations hereunder, provided that such third party is bound to keep such information confidential in accordance with the terms hereof and AAI shall be responsible for any breach by such third party of the terms hereof; (d) to use such Medicis Confidential Information only as necessary to perform the Services; and (e) upon termination of this Agreement, to destroy or return all tangible Medicis Confidential Information (including tangible media containing Medicis Confidential Information) to Medicis. Notwithstanding the foregoing, AAI may retain one (1) copy to the extent required by any Applicable Law. Medicis Confidential Information shall include the identity of the investigators used to conduct the clinical tests. This provision shall not supercede and replace any previous confidentiality and/or non-disclosure agreements between the Parties, other than those previous confidentiality and/or non-disclosure provisions which directly and specifically cover the Services provided hereunder.

          14.2 AAI Confidential Information. Medicis acknowledges and agrees (a) that any information, work in progress, trade secrets, data or other secret, sensitive or confidential material related to the business technology, products, systems, formulas, practices, processes, customers or projects of AAI that are disclosed to or become known by Medicis during the term of this Agreement and which are not generally known to the public constitute the confidential information of AAI (collectively the “AAI Confidential Information”) (b) to hold such AAI Confidential Information in strict confidence; (c) not to disclose such AAI Confidential Information to any third party; and (d) to use such AAI Confidential Information only as reasonably useful to further develop, manufacture, and/or commercialize any Products or any formulation based on the Products. AAI Confidential Information includes AAI intellectual property, technology, know-how and processes (whether or not patented or patentable) developed by AAI prior to execution of this Agreement, including the AAI Test Procedures (the “AAI Intellectual Property”). Medicis acknowledges that AAI shall remain the exclusive owner of all AAI Intellectual Property; provided, however, that in no event shall AAI Intellectual Property include any Work Product.

          14.3 Notwithstanding Sections 14.1 and 14.2, either party may disclose Medicis Confidential Information or AAI Confidential Information in response to (i) an order from a court or governmental agency; (ii) in response to a party in litigation, provided that an appropriate protective order has been entered; or (iii) if such disclosure is necessary to comply with any other laws or regulations applicable to the disclosing party.

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          14.4 Notwithstanding Section 14.2, Medicis may disclose any AAI Confidential Information, including without limitation any plans, specifications, designs, processes, reports, papers, formulas and any other information and material provided to Medicis under this Agreement to third parties as reasonably useful to further develop, enhance, improve, manufacture, or commercialize any Products or any formulations based on the Products; provided, however, that Medicis shall require any such third parties to execute a corresponding confidentiality agreement reasonably acceptable to AAI.

     15. Further Assurances.

          15.1 From time to time following the date hereof, at the request of any Party hereto and without further consideration, the other Party hereto shall execute and deliver to such requesting Party such agreements, instruments and documents and take such other action as such requesting Party may reasonably request in order to consummate more fully and effectively the transactions contemplated hereby.

     16. Termination.

          16.1 Term and Termination. This Agreement (including Exhibits II and III) shall commence on the date of its execution. Unless sooner terminated, as permitted by this Agreement, including Section 2.1(b) of Exhibit III, the Manufacturing Services shall remain in full force and effect for an initial term of four (4) years from the Post-Launch Date (as such term is defined in Exhibit III and as more fully described in Section 2.1(b) of Exhibit III) , or such other time as the parties hereto shall mutually agree. The Initial Services may be terminated from time to time, in whole or in part, by Medicis upon thirty days written notice to AAI or by AAI in accordance with Section 7 hereof. Exhibits II and III and this Agreement to the extent related thereto, may also be terminated as follows:

(a) by mutual agreement of the Parties;

(b) by either Party by written notice to the other upon the occurrence of either of the following events:

(i)	either Party is in material breach of this Agreement and fails to cure such breach within *** after receipt of written notice from the other Party identifying the breach;
(ii)	either Party enters into bankruptcy, whether voluntary or involuntary, has a receiver appointed, becomes insolvent, enters into any arrangement with its creditors, takes or suffers any similar action in consequence of debt or ceases or threatens to cease to carry on its business as usual or permits the entry of an order adjudicating it to be bankrupt or insolvent and such order is not discharged within ***; or
(iii)	as permitted by Section 17.5 hereof.

(c) Any termination or expiration of this Agreement shall not affect any outstanding obligations or payments due hereunder prior to such termination or expiration, nor

14

shall it prejudice any other remedies that the Parties may have under this Agreement.

     16.2 Effect of Termination. Upon termination of the Initial Services, in whole or in part, or Exhibit III or both:

               16.2.1 Upon termination of any Initial Services , AAI shall stop the performance of such Initial Services and Medicis shall pay AAI for any Initial Services performed prior thereto which have not yet been paid for and shall reimburse AAI for costs and expenses incurred or uncancellable prior to the date of such termination; provided, however, that in such event AAI shall have a duty to cancel and mitigate such costs and expenses. Upon termination of Exhibit III, AAI shall stop the performance of the Manufacturing Services provided thereunder. Notwithstanding the foregoing, if requested, and pre-paid for, by Medicis, AAI shall complete or cause the completion of the manufacturing of any work-in-process that is subject to a firm order (including a Binding Order (as such term is defined in Exhibit III)) on the date on which the termination is effective.

               16.2.2 Medicis shall (in addition to any other remedies AAI may have in the event of default by Medicis):

(a)	***
(b)	***
(c)	***

     17. Miscellaneous.

          17.1 Notices. All notices and consents required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, (b) mailed by first class certified mail, return receipt requested, postage prepaid, on the date certified by the U.S. Postal Service to have been received by the addressee, (c) by facsimile, provided the sender personally calls the recipient and confirms receipt of such facsimile, or (d) on the date certified by a nationally recognized overnight express courier service to have been received by the recipient, as follows:

If to AAI:

President
aaiPharma
2320 Scientific Park Drive
Wilmington, NC 28405
Tel: ***
Fax: 910-815-2387

15

With a copy to:

General Counsel
aaiPharma
2320 Scientific Park Drive
Wilmington, NC 28405
Tel: ***
Fax: 910-815-2340

If to Medicis:

Chief Executive Officer
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, AZ 85258-2463
Tel: ***
Fax: 602-778-6007

and

Legal Department
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, AZ 85258-2463
Tel: ***
Fax: 602-808-3881

          17.2 Relationship Between Parties. The relationship of AAI to Medicis shall be that of an independent contractor, and no provision of this Agreement shall be construed to constitute any Party as a partner or joint venturer of the other Party, or an employer or employee of the other. Except as may be more specifically set forth herein, (a) neither Party shall be liable in any manner for the debts and liabilities of the other Party, and (b) each Party shall be solely responsible for all costs and expenses incurred by it in performing its obligations under this Agreement.

          17.3 Media Releases. Neither Party shall issue or release any media release or public announcement (including, without limitation, any announcements made via any posting on the World Wide Web or Internet), or other similar publicity announcing the existence of this Agreement, the termination letter agreement or relating to any term or condition of this Agreement in any country or the relationships created by this Agreement without providing the other Party at least three (3) business days prior notice in order to review and comment on such release or announcement; provided, however, that such prior notice shall only be required to the extent that any release or announcement contains information that is substantially different (including expansive) from that previously issued or released by either or both of the Parties hereto; and provided, further, however, that no such release or announcement shall include a Party’s or its Affiliates’ corporate identifiers without the express prior written approval of such Party. Notwithstanding the foregoing, each Party shall have the right to issue media releases,

16

immediately and without prior consent of the other Party, that disclose any information required by the rules and regulations of the Securities and Exchange Commission or any federal, state or foreign law or regulation; provided, that the disclosing Party shall use commercially reasonable efforts to notify the other Party prior to disclosure, provide a copy of the relevant wording relating to the Agreement or term or condition of the Agreement, and seek confidential treatment of any information that the other Party reasonably requests to be maintained as confidential. AAI shall contact the following Medicis representatives for any required approval: Chief Financial Officer at ***; Director of Investor Relations at ***; or Chief Executive Officer at ***. Medicis shall contact the following AAI representatives for any required approval: Chief Executive Officer or General Counsel at ***.

          17.4 Assignments. Neither Party shall voluntarily, by operation of law or otherwise, assign any of its rights or obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, this Agreement may be assigned by either party, without the other party’s consent, as part of a merger transaction involving such Party or an assignment or sale of all, or substantially all, of its assets or business to which this Agreement relates, and either Party may assign its rights and obligations under this Agreement to an Affiliate, provided that it promptly notifies the other Party of the assignment.

          17.5 Force Majeure. Any delays in performance or failure to perform by either Party under this Agreement (including the performance under the Exhibits hereto) shall not be construed as a breach of this Agreement (or corresponding Exhibit) if and to the extent such delay is caused by occurrences beyond the reasonable control of the Party affected (“Force Majeure”), including but not limited to acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, terrorism, wars, civil disorder, rebellion or sabotage. Delays caused by events for which a Party could have but failed to take commercially reasonable steps to prevent or compensate for (e.g. fire insurance, data backup) shall not be considered to be caused by Force Majeure events and delays in making payments when due hereunder shall not be considered to be caused by Force Majeure events. The non-performing Party shall, upon giving written notice to the other Party of the reason for delay, due to Force Majeure, be temporarily excused from such performance to the extent of such prevention, interference or delay, provided that the non-performing Party shall use its commercially reasonable best efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed. In the event that a Force Majeure causes a continuous delay in excess of ***, the Agreement may be terminated by either party upon *** written notice to the other party.

          17.6 Controlling Document. In the event of any conflict between the terms and conditions of this Agreement and any terms and conditions set forth in any Exhibits hereto or Service Estimates, proposals, invoices or purchase orders, the terms and conditions of this Agreement shall control.

          17.7 Costs and Attorneys’ Fees. The prevailing Party in any suit or proceeding arising out of or relating to this Agreement shall be entitled to recover all of its costs and expenses, including reasonable attorneys’ fees.

17

          17.8 Parties in Interest. This Agreement shall bind AAI and Medicis and their respective successors, agents and permitted assigns, if any. There are no third party beneficiaries to this Agreement, except for the AAI Indemnified Parties and the Medicis Indemnified Parties.

          17.9 No Waivers. No failure to exercise, delay in exercising, or single or partial exercise of any right, power, or remedy by either party shall constitute a waiver of, or shall preclude any other or further exercise of, the same or any other right, power, or remedy.

          17.10 Severability. If any provision of this Agreement is construed to be invalid, illegal, or unenforceable, then the remaining provisions of this Agreement shall not be affected thereby and shall be enforceable without regard thereto but construed and reformed so as to conform as nearly as possible to the intent of the Parties in entering into this Agreement.

          17.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart hereof.

          17.12 Controlling Law. This Agreement is made under, and shall be construed and enforced in accordance with, the laws of the State of Delaware, without regard to that State’s conflict of law rules or principles.

          17.13 Entire Understanding. This Agreement, along with any other attachments, appendixes, Exhibits, or schedules hereto, states the entire understanding between the Parties with respect to the subject matter hereof, and supersedes all earlier and contemporaneous oral and written communications and agreements or promises made with respect to the same subject matter, and any other previous agreements, promises, or representations of any kind with respect to the relationship between the Parties hereto. This Agreement shall not be modified except as provided in this Agreement or in a written document signed by both Parties.

          17.14 Jurisdiction and Venue. The Parties hereby submit to the jurisdiction of, and waive any venue objections against, the United States District Court for the District of Delaware and the state courts of Delaware, in any litigation or dispute arising out of this Agreement.

          17.15 Headings and References. The headings and captions used in this Agreement are used for convenience only and are not to be construed or interpreting this Agreement.

          17.16 Parties Represented by Counsel. Each of the Parties has been represented by counsel in the negotiation and drafting of this Agreement. Both Parties have participated in its drafting. This Agreement shall not be construed against either Party on account of it having been drafted by the other Party or by lack of representation by counsel.

          17.17 Survival. The Parties agree that the following provisions of this Agreement shall survive the expiration or termination of this Agreement: 1.2, 3, 10.9, 11.6, 13, 14, 16, 17, and Article 4 and Section 6.1 of Exhibit III.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first above written.

MEDICIS PHARMACEUTICAL CORPORATION
By:
	Name:
	Title:
AAIPHARMA INC.
By:
	Name:
	Title:

19

Schedule 2

TRANSFER CONTRACTS

1. MP-0104-04:

***

13 sites

Study Counter-party	Principal Investigator
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***

2. MP-010405:

***

16 sites

Study Counter-party	Principal Investigator
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***

1

3. MP-0104-07:

***

28 sites

Study Counter-party	Principal Investigator
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***

4. MP-0104-09:

***

Study Counter-party	Principal Investigator
***	***

5. MP-0104-10 — Study completed, awaiting data report

***

Study Counter-party	Principal Investigator
***	***
***	***
***	***

2

6. Other Agreements

•  ***

•  ***

•  ***

•  ***

•  ***

•  ***

7. MP-0104-01

14 sites

Study Counter-party	Principal Investigator
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***

3

EXHIBIT II

WORK PLAN

EXHIBIT II-A
WORK PLAN

***

EXHIBIT II-B
WORK PLAN

***

EXHIBIT II-C
WORK PLAN

***

EXHIBIT II-D
WORK PLAN

***

EXHIBIT II - E
WORK PLAN

***

EXHIBIT II-F
WORK PLAN

***

EXHIBIT III

MANUFACTURING TERMS

EXHIBIT III

[Execution Copy]

MANUFACTURING TERMS

1. INTERPRETATION
1.1	Definitions. Capitalized terms used herein which are not defined shall have the meanings given to such terms in the Agreement. In addition, as used herein, the following capitalized terms shall have the meanings set forth below:

     “Active Materials” and “Minocycline” shall mean Minocycline Hydrocholoride.

     “Agreement” shall mean that certain Transition Agreement, dated as of January 28, 2005, between Medicis and AAI, as the same may be amended from time to time in accordance with its terms.

     “Alternate Supplier Products” shall mean modified release oral dosage forms for Minocycline produced for Medicis by a manufacturer or manufacturers other than AAI.

     “Closing Date” shall have the meaning given to such term in the Agreement.

     “Components” shall mean, collectively, all packaging components, raw materials and ingredients (including labels, product inserts and other labeling for the Products), required to be used in order to produce the Products in accordance with the Specifications, other than the Active Materials.

     “Exhibit III” shall mean this Exhibit III – Manufacturing Terms to the Agreement.

     “Inventory” shall mean all inventories of Components and work-in-process produced or held by AAI in connection with the manufacture of the Products in accordance with the Specifications, but, for greater certainty, shall not include the Active Materials.

     “Product(s)” shall mean modified release oral dosage forms for Minocycline as developed by AAI for Medicis.

     “Quality Control Agreement” shall mean that certain Quality Control Agreement, dated as of the date of the Agreement, between Medicis and AAI, as the same may be amended from time to time in accordance with its terms.

     “Reimbursable Value” shall mean the actual replacement cost of the Active Materials at the time of replacement.

     “Shortage” shall mean, with respect to any batch, any amount of Product delivered to Medicis from that batch that is less than *** of the Theoretical Yield.

1

     “Specifications” shall mean shall mean the specifications of the Product set forth in Attachment A hereto and in the Quality Control Agreement.

     “Term” shall have the meaning given to such term in Section 5.1 hereof.

     “Theoretical Yield” shall mean the yield set forth in Attachment A hereto.

     “Trademarks” shall mean DYNACIN^®, MEDICIS^®, and all other trademarks and trade names, registered or unregistered, that are owned or used by Medicis.

1.2 Attachments. The following exhibits are attached to this Exhibit III and are incorporated in and are deemed to be an integral part hereof:

Attachment A	-	Product List and specifications for Products and Active Materials
Attachment B	-	Price List
Attachment C	-	Stability Testing Procedures/Fee Schedule
Attachment D	-	Lot Numbering and Expiration Dates

2.	MANUFACTURE AND SUPPLY OF PRODUCTS
2.1	Manufacture.

(a)	From and after the Closing Date and until the later of (i) the date which is *** after the FDA Approval Date, or (ii) the New Site Approval Date (the “Post-Launch Date”), AAI shall manufacture and sell to Medicis, and Medicis shall be required to purchase from AAI, one hundred percent (100%) of Medicis’ required commercial supply, including bulk clinical supply and samples, of the Products.
(b)	From and after:

(i)	the Post-Launch Date and until and including the ***, AAI shall manufacture and sell to Medicis, and Medicis shall be required to purchase from AAI, not less than *** of the following: Medicis’ required commercial supply of the Products plus Alternate Supplier Products during such time period;
(ii)	the *** and until and including ***, AAI shall manufacture and sell to Medicis, and Medicis shall be required to purchase from AAI, not less than *** of the following: Medicis’ required commercial supply of the Products plus Alternate Supplier Products during such time period;

2

(iii)	the *** and until and including ***, AAI shall manufacture and sell to Medicis, and Medicis shall be required to purchase from AAI, not less than *** of the following: Medicis’ required commercial supply of the Products plus Alternate Supplier Products during such time period; and
(iv)	the *** and until and including ***, AAI shall manufacture and sell to Medicis, and Medicis shall be required to purchase from AAI, not less *** of the following: Medicis’ required commercial supply of the Products plus Alternate Supplier Products during such time period;]

; provided, however, that in no event shall Medicis be required to purchase any Products from AAI under this Section 2.1(b) if, at any time, or from time to time, the prices offered by AAI for its Products are less favorable than the prices available to Medicis for Alternate Supplier Products by *** or more. In the event that the prices offered by AAI are less favorable than the prices offered by another supplier by *** or more and Medicis purchases from AAI an amount of Products which is less than the percentage of the Products set forth in this Section 2.1(b) during the periods set forth in this Section 2.1(b), then AAI shall have the right, upon *** notice to Medicis, to terminate the Manufacturing Services. Within *** of each year-end referenced in Section 2.1(b), Medicis shall provide AAI with all documentation reasonably necessary for AAI to confirm the total amount of Products plus Alternate Supplier Products purchased by Medicis during the applicable year, and in the event Medicis has purchased less than the required applicable percentage from AAI, documentation regarding the price paid by Medicis for the Alternate Supplier Products.

2.2

Packaging. Medicis shall be solely responsible for the content of all labels, product inserts and other labelling (“Labeling”) and shall ensure that all such Labeling complies in all material respects with applicable law. AAI shall package the Products with Labeling as specified and approved by Medicis. Medicis may, in its sole discretion, make changes to Labeling for the Products, which changes shall be submitted by Medicis to all applicable governmental agencies and other third parties responsible for the approval of the Products, if required. AAI’s name shall not appear on the Labeling or anywhere else on the Products unless required by a governmental authority or other applicable laws or regulations.

2.3

Quality Control and Assurance.

(a)

AAI shall manufacture and supply the Products in accordance with (i) the Specifications; (ii) the approved NDA; and (iii) the current Good Manufacturing Practices for manufacturing finished products specified by the FDA (collectively, “GMPs”). AAI’s responsibilities and obligations with respect to the manufacture of Products as set forth in this Section 2.4(a) are hereinafter referred to as the “AAI Manufacturing Requirements.”

(b)

AAI shall perform such quality control and quality assurance testing as is reasonably required by the Quality Control Agreement to ensure that the Products

3

comply with all of the AAI Manufacturing Requirements as of the date of shipment to Medicis.

(c)	If the Products as manufactured by AAI do not satisfy its quality control and quality assurance testing obligations due to AAI’s failure to produce the Products in accordance with the Quality Control Agreement, AAI shall, at its sole cost and expense, manufacture additional Products to replace such defective Products. In such circumstances, Medicis shall have no obligation to purchase or pay for any rejected Products that are defective, unless and only to the extent that such Product is used by Medicis for another purpose, in which event Medicis shall only be required to pay for that portion of the rejected Products which it actually so uses.
(d)	The Parties hereto agree that except in the circumstances where AAI has failed to comply with the AAI Manufacturing Requirements, AAI shall not be liable or have any responsibility for any deficiencies with respect to the Labeling and procedures specified by Medicis, sales and marketing of the Products or distribution of the Products.
(e)	AAI shall provide Medicis with a certificate of conformance, a certificate of analysis, and copies of the batch record, any deviation and investigation reports, and Labeling prior to shipping Products to Medicis. The certificate of analysis will set out the actual test results for each lot of Products, and will certify that the Products shipped to Medicis have been evaluated by AAI’s Quality Control/Quality Assurance department and that the Products comply with the Specifications. Medicis shall issue a formal QA release prior to the shipment of product by AAI.

2.4	Delivery. All Product(s) shall be delivered F.O.B. from AAI’s manufacturing facility. Medicis shall be responsible for arranging the shipment of the Product(s) from AAI’s manufacturing facility to its final destination. All shipping costs and taxes associated with the sale to Medicis of Products hereunder will be for the account and expense of Medicis.
2.5	Rejection of Products.

(a)

Medicis shall inspect the Products manufactured by AAI within *** after receipt thereof and shall give AAI written notice (a “Deficiency Notice”) of all Shortages and obvious damage to or defects in the delivered Products, prior to the expiry of *** day period, except that Medicis shall give AAI a Deficiency Notice of any non-obvious defects, including failure to meet Specifications, within *** following discovery thereof. Except as set forth in Section 4.2 below, AAI shall have no liability for any Shortages or defects for which it has not received a Deficiency Notice within such ***.

(b)

A Deficiency Notice pursuant to this Section 2.5 shall describe the deficiency in such detail as to reasonably inform AAI of its nature and basis. Thereafter, upon

4

request, Medicis shall provide AAI with all information and documentation reasonably requested by AAI in order to evaluate the Deficiency Notice. AAI shall have a period of *** after its receipt of a Deficiency Notice to present in writing to Medicis any objections AAI may have to the matters set forth therein. If no objections are raised within such ***, the Deficiency Notice shall be deemed final and accepted and approved by AAI on such ***. If AAI shall raise any objections, Medicis and AAI shall attempt to resolve the matters in dispute, and if resolved, the Parties shall accordingly revise the Deficiency Notice and the Deficiency Notice as so revised shall become final. If such dispute cannot be resolved by the Parties within *** after delivery of the Deficiency Notice to AAI, then, upon *** prior written notice to the other party, the matters in dispute shall be submitted to Boston Analytical, Inc. of Salem, New Hampshire, unless objected to by either party within the *** notice period, or such other laboratory as agreed to in writing by the Parties (in either case, the “Laboratory”), which Laboratory shall make a final and binding determination as to such matters. The expenses associated with such dispute determination by the Laboratory shall be borne by the Party whose position was not substantiated by such firm.

(c) To the extent that a deficiency is set forth in a final Deficiency Notice, AAI shall, as soon as is commercially reasonable but in no event later than *** after the Deficiency Notice becomes final in accordance with Section 2.6(b) hereof, supply Medicis with Product conforming to the Specifications in an amount equal to the deficiency, and reimburse Medicis for all Active Materials consumed in the production of such Product, at the Reimbursable Value.

2.6 Manufacturing-Related Services.

(a) Upon the written request of Medicis, AAI shall conduct stability testing on the Products in accordance with the protocols submitted by Medicis and a Service Estimate to be agreed to between the Parties, the particulars of which will be incorporated into Attachment C hereto once agreed to and executed by the Parties. AAI shall not make any changes to the testing procedures without prior written approval from Medicis. In the event that any lot of Products fails stability testing, AAI and Medicis shall jointly determine the proceedings and methods to be undertaken to investigate the causes of such failure, including which Party shall bear the cost of such investigation. AAI shall not be liable for any costs of such investigation, unless there has been a breach by AAI of the AAI Manufacturing Requirements. In the event of a breach by AAI of the AAI Manufacturing Requirements, AAI shall promptly reimburse Medicis for (a) Medicis’ actual costs with respect to the Active Materials delivered by Medicis to AAI in the manufacture of such Products, and (b) the purchase price paid for any batches of Products which fail stability testing as a result of AAI’s breach. AAI will provide Medicis with any and all data and results relating to the stability testing in accordance with the Quality Control Agreement. From time to time, AAI may, at the request of Medicis, also provide Medicis with stability testing services with respect to products not manufactured by AAI, the cost of such services to be agreed to between the Parties prior to such services being undertaken. Medicis

5

reserves its right to use an alternative second source of stability testing at any time.

2.6.2 The pricing contained in Attachment B does not apply to manufacturing-related services set forth in Service Estimates.

2.7 Manufacturing Changes. Except with respect to the New Manufacturing Site and as provided in the Quality Control Agreement, AAI shall not make any change in the manufacturing site of the Products or make any change to the manufacturing equipment or manufacturing process of the Products without having such changes approved in writing by Medicis prior to implementation. Medicis may not unreasonably withhold or delay such approval. Both Parties will establish a change control procedure.

3.	ORDERS, DELIVERY, INVOICING AND PAYMENT
3.1	Yearly Forecasts. On the Closing Date, Medicis shall provide AAI with a forecast of the volume of each Product required during the first year of the Agreement. Medicis shall provide AAI with rolling forecasts of the volume of each Product required during the next *** months (or such shorter period if expiration of the Term shall be less than *** months from the date of such forecasts). Such rolling quarterly volume forecasts shall (i) be updated by Medicis by the 15th day of every month with respect to the next full ***; (ii) with respect to the first *** months of such forecasts, be a binding commitment that Medicis is obligated to order and purchase from AAI as forecasted and shall not be subject to reduction (“Binding Order”); and (iii) with respect to all periods other than the *** of such forecasts subject to the Binding Order, be updated as soon as practicable by Medicis upon its determination that the volumes contemplated in the most recent of such forecasts have changed by *** or more.
3.2	Written Orders. The written Binding Orders submitted by Medicis to AAI pursuant to Section 3.1(ii) hereof shall specify Medicis’ purchase order number, quantities by Product type, monthly pick-up schedule and any other elements reasonably necessary to ensure the timely production of the Products.
3.3	Packaging and Raw Materials. All Components shall be purchased (with the exception of those which are supplied by Medicis), and tested in accordance with the Quality Control Agreement, by AAI at AAI’s expense to ensure that such Components meet any Specifications. Amendments to such Specifications requested by Medicis will only be implemented with the approval of AAI following a technical and cost review, such approval not to be unreasonably withheld but being subject to Medicis and AAI reaching agreement as to price revisions necessitated by any such amendment in accordance with Section 3.7 below.
3.4	Change in Specifications.

(a) If Medicis requests a change in the manufacturing process, Specifications or Labeling which would result in an increase in AAI’s costs for Components, the Parties shall discuss what impact, if any, such change should have on the price of the Products. Unless otherwise agreed by the Parties, any and all direct costs

6

associated with Specification changes, including changes requested by Medicis or required by applicable law, shall be borne by Medicis. The price change shall become effective only with respect to those orders of Products which are manufactured in accordance with the revised Specifications.

(b)

Notwithstanding any change in the Specifications implemented in accordance with the terms of Section 3.4(a) above, Medicis agrees to purchase all Products manufactured by AAI and ordered by Medicis based upon any “old” Specifications at the then-current price for those Products. In addition, Medicis agrees to purchase, at AAI’s out-of-pocket cost, all Inventory, defined as the finished product, raw materials and components, utilized under the “old” Specifications and purchased or maintained by AAI in order to fill firm written orders (including a Binding Order), to the extent that such Inventory can no longer be utilized under the revised Specifications. Medicis shall reimburse AAI for any out-of-pocket costs associated with destruction of such obsolete Inventory or Active Materials. Open purchase orders for Components no longer required under any revised Specifications which were placed by AAI with suppliers in order to fill firm written orders (including a Binding Order) shall be cancelled where possible, and where such orders are not subject to cancellation without penalty, such orders shall, at AAI’s election, either (i) be cancelled, with Medicis paying the penalty; or (ii) be assigned to and satisfied by Medicis.

3.5	Invoices and Payment. Except as otherwise provided in this Exhibit III, AAI shall charge Medicis for only those Products that are released by Medicis in accordance with the terms hereof, including Section 2.5 hereof. AAI shall submit to Medicis, with each such shipment of Products, an invoice covering such shipment. AAI shall also provide Medicis with an invoice covering any Inventory or Components purchased by Medicis from AAI in accordance with the terms of this Exhibit III. Each such invoice shall, to the extent applicable, identify the Medicis purchase order number, Product numbers, names and quantities, unit price, freight charges and the total amount to be remitted by Medicis. Medicis shall pay all such invoices within *** of the receipt thereof.
3.6	Lot Numbering/Expiration Dates. AAI shall make arrangements for and implement the imprinting of lot numbers and expiration dates for each Product shipped. Such lot numbers and expiration dates shall be affixed on the Products and on the shipping carton of each product as is required by GMPs. The system used by AAI for lot numbering and expiration dates is detailed on Attachment D hereto.
3.7	No Guarantee: Except as expressly provided in this Exhibit III, AAI acknowledges that there are no guaranteed volumes of the Products.
4.	CO-OPERATION
4.1	Records and Accounting by AAI. AAI shall keep records of the manufacture, testing and shipping of the Products, and retain samples of such Products that are necessary to comply with FDA manufacturing requirements and AAI Manufacturing Requirements as well as to assist with resolving product complaints and other similar investigations.

7

	Copies of such records and samples shall be made available to Medicis upon its reasonable request and shall be retained by AAI and be available to Medicis for a period of *** following the date of manufacture, or *** past expiry or longer if required by law.
4.2	Product Recalls.

(a)

AAI and Medicis shall each maintain records as may be necessary to permit a recall or a field correction of any the Products delivered to Medicis or customers of Medicis, effected voluntarily or under a threat of, or a directive by, any governmental agency. Each Party shall give immediate notice by telephone (to be confirmed in writing) to the Director of Quality Control/Quality Assurance of the other Party upon discovery that any Products should be recalled or corrected, or may be required to be recalled or corrected, and, each Party upon receiving any such notice or upon any such discovery, shall evaluate the need to cease and desist from further shipments of such Products in its possession or control until a decision has been made whether a recall or some other corrective action is necessary. The decision to initiate a recall or to take some other corrective action, if any, shall be made and implemented by Medicis. AAI will co-operate as reasonably required by Medicis, having regard to all applicable laws and regulations. Each Party shall co-operate with the other in developing any necessary recall plan, and the manner and extent of such plan shall be subject to prior consultation, which consultation shall not unreasonably delay such plan.

(b)

To the extent that a recall results from, or arises out of, any breach by AAI of the AAI Manufacturing Requirements then (i) AAI shall reimburse Medicis for Medicis’ documented out-of-pocket, direct costs and expenses arising from the recall, and (ii) AAI shall replace the recalled Products with new Products as soon as commercially reasonable, contingent upon the receipt or availability from Medicis of all Active Materials; provided, however, that if AAI shall have all of the Components and Active Materials necessary to manufacture the Products on its premises, then AAI shall begin manufacturing to replace the recalled Products with new Products within *** following the resolution of all issues related to such recall. AAI’s cost for such Active Materials lost as a result of any breach by AAI of the AAI Manufacturing Requirements shall be limited to the Reimbursable Value thereof. In the event that (x) AAI is unable to replace the recalled Products within the time period required by the immediately preceding sentence (except where such inability results from a failure to receive the required Active Materials, Components or a Force Majeure event), or (y) such new Products are also recalled or returned due to a breach by AAI of the AAI Manufacturing Requirements, then AAI shall reimburse Medicis for the purchase price that Medicis paid AAI for the returned inventory of the affected Products. Medicis shall be responsible for all costs and expenses associated with a recall or corrective action that does not result from, or arise out of, a breach by AAI of the AAI Manufacturing Requirements.

4.3 Governmental Agencies. Medicis shall have sole responsibility for obtaining any and all necessary regulatory approvals from the FDA for modifications to the manufacturing

8

process, Specifications and NDA and for reporting any modifications to such manufacturing process, Specifications or the NDA to the FDA as appropriate.

4.4 Customer Questions and Complaints. Medicis shall have the sole responsibility for responding to questions and complaints from Medicis customers. Questions or complaints received by AAI from Medicis customers shall be promptly referred to Medicis. AAI shall co-operate as reasonably required to allow Medicis to determine the cause of and resolve any customer questions and complaints. Such assistance shall include follow-up investigations including testing. In addition, within ten (10) days from the date of request, AAI shall provide Medicis with all available information that will assist Medicis in responding to questions or complaints relating to the Products. All costs incurred in respect of this Section 4.4 shall be borne by the respective Parties who incurred such costs. Medicis shall fax product complaints to AAI within *** after Medicis confirms such complaint to:

AAI Development Services
Attention: Corporate Quality
2320 Scientific Park Dr.
Wilmington, NC 28405

5.	TERM
5.1	Term. The term of the terms and conditions of this Exhibit III shall commence on the Closing Date and continue for the term described in Section 16.1 of the Agreement, unless terminated as provided therein or in Section 2.1(b) hereof or extended for such period of time as the parties hereto shall mutually agree to in writing (the “Term”).
6.	REPRESENTATIONS AND WARRANTIES
6.1	Formulas and Trademarks. Medicis represents and warrants that the Specifications for each of the Products are its property and that Medicis may lawfully disclose the Specifications to AAI. Medicis further represents and warrants that any trademarks it authorizes to be utilized by AAI in connection with any of the Products, including the Trademarks, are its property and may be lawfully used as directed by Medicis. Medicis further represents and warrants that the Specifications for all Products conform in all material respects to all applicable laws and regulations, and that the Products if labelled and formulated in accordance with the Specifications and manufactured in compliance with applicable GMPs may be lawfully sold and distributed in every jurisdiction in which Medicis markets such Products and Medicis will sell and distribute in compliance with applicable laws.
7.	PRICE
7.1	Price. The prices for the Products are shown in Attachment B hereto and incorporated herein by reference. In addition, Medicis shall be responsible for the payment of any and all sales and use taxes applicable to the Products and services described herein. The prices may be adjusted by AAI on the anniversary of the first firm order by Medicis, and

9

annually thereafter by the total percentage change in the price of the Product as reflected in the *** over the preceding ***. AAI shall notify Medicis of such increase within *** days of the price change date.

8.	MISCELLANEOUS
8.1	Permits. AAI shall, at its own expense, obtain and maintain the necessary permits required for the manufacture and supply of the Products, provided that AAI shall not be responsible for obtaining or maintaining any other permits or other regulatory approvals in respect of the Products or the Specifications, which shall be the sole responsibility of Medicis.
8.2	Trademarks. Medicis and AAI hereby acknowledge that neither Party has, nor shall it acquire, any interest in any of the other Party’s copyrighted material, trademarks, trade names or other intellectual property unless otherwise expressly agreed to in writing. The Parties agree not to use any trademark or trade name of the other Party, except as specifically authorized by the other Party.
8.3	Reports. AAI will supply on an annual basis, Product data, including release test results, complaint test results and all investigations (in manufacturing, testing and storage) directly related to the Product and AAI’s ability to produce the Products in accordance with all applicable laws, and will also prepare and complete the full Annual Product Review, which Medicis will then review before preparing the Annual Report with the FDA. If Medicis reasonably finds the Annual Product Review non-conforming, AAI shall prepare an appropriate revision.
8.4	Additional Product. The Parties covenant and agree that additional products may be added to Attachment A hereto and such additional products shall be governed by the general conditions hereof with any special terms (including, without limitation, price) governed by an addendum hereto.

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ATTACHMENT A

PRODUCTS AND SPECIFICATIONS

***

1

ATTACHMENT B

A. PRICE LIST

Product	Fill	Annual	Run	Unit Price
Description	Size	Quantity	Quantity	(USD)

1

ATTACHMENT C

STABILITY TESTING PROCEDURES/FEE SCHEDULE

***

1

ATTACHMENT D

LOT NUMBERING AND EXPIRATION DATES

***

EXHIBIT IV

FORM OF CONFIDENTIALITY AGREEMENT

EXHIBIT IV

Form of Confidentiality Agreement for Subcontractors

CONFIDENTIALITY AGREEMENT

This Agreement is made the             day of                     , 200___ (this “Agreement”), by and between [COMPANY], a [INSERT STATE] corporation, having offices at                                                                                                      (hereinafter “COMPANY”), and                                         , an individual residing [or a corporation, maintaining principal offices] at (hereinafter referred to as “RECIPIENT”).

          WHEREAS, COMPANY possesses certain valuable and confidential information, data and expertise (collectively the “Confidential Information”) relating to COMPANY’s pharmaceutical business activities, technology, research and development activities, and COMPANY’S product development activities in collaboration with Medicis Pharmaceutical Corporation, a Delaware corporation, having offices at 8125 North Hayden Road, Scottsdale, AZ 85258 (hereinafter “MEDICIS”);

          WHEREAS, some of the Confidential Information has been provided to COMPANY by MEDICIS and is considered by MEDICIS to be secret and confidential, and the Confidential Information is a valuable commercial asset of MEDICIS, and COMPANY is contractually obligated to MEDICIS to treat and keep this Confidential Information as secret and not allow it to be used other than on behalf of MEDICIS in accordance with that certain                                                              Agreement between MEDICIS and COMPANY dated as of                                          (as the same may be amended from time to time in accordance with its terms, the “Medicis Agreement”);

          WHEREAS, COMPANY desires to contract with RECIPIENT to provide services to COMPANY as a subcontractor to COMPANY in the performance of COMPANY’s obligations under the Medicis Agreement, pursuant to a written agreement between COMPANY and RECIPIENT;

          WHEREAS, MEDICIS consents, subject to the terms and conditions hereof, to the disclosure of Confidential Information, to RECIPIENT for the purpose of enabling RECIPIENT to perform its functions and obligations as a subcontractor to COMPANY.

          NOW THEREFORE, in consideration of the foregoing premises that are hereby incorporated as a part of this Agreement and the mutual covenants hereinafter set forth, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. COMPANY shall disclose and/or authorize disclosure through designated representatives to RECIPIENT all relevant Confidential Information as deemed necessary by COMPANY to facilitate RECIPIENT’S ability to perform its functions and obligations as a subcontractor to

1

COMPANY. RECIPIENT shall accept and hold such Confidential Information in confidence in accordance with the provisions hereof.

2. Without the prior written consent of COMPANY, RECIPIENT shall neither (i) disclose, directly or indirectly, to any third party or permit any third party to have access to any of MEDICIS’ Confidential Information disclosed to RECIPIENT by COMPANY, nor (ii) use, directly or indirectly, such Confidential Information for any purpose other than as set forth herein. However, the aforesaid obligations of confidentiality assumed by RECIPIENT shall not apply to any Confidential Information that RECIPIENT can clearly demonstrate falls within any of the following categories:

(a)	Confidential Information that is now generally known to the public in an integrated written form or subsequently becomes generally known to the public in an integrated written form through no fault of RECIPIENT or breach of any other confidentiality obligation owed to COMPANY or MEDICIS;
(b)	Confidential Information that, as of the time of disclosure to RECIPIENT, was already known to and in the possession of RECIPIENT as evidenced by written records and not otherwise subject to a confidentiality obligation; or
(c)	Confidential Information obtained after the date hereof by RECIPIENT from a third party lawfully in possession of, and having the right to disclose same.

3. For purposes of keeping Confidential Information confidential, the RECIPIENT shall use efforts at least commensurate with those employed by RECIPIENT for the protection of its own Confidential Information, but the use of such efforts shall not constitute a defense in the event that any of the Confidential Information is not kept confidential in accordance with the terms of this Agreement. The RECIPIENT shall take all reasonable measures including, but not limited to, court proceedings, at its own expense, to restrain consultants, agents, associates, employees or former employees from unauthorized use or disclosure of Confidential Information and RECIPIENT shall be liable to COMPANY and/or MEDICIS for any damages resulting from the breach by any of RECIPIENT’S consultants, agents, associates, employees or former employees of the terms hereof. RECIPIENT acknowledges that in the event of a breach of this Agreement, both COMPANY and MEDICIS may suffer irreparable damage that may not be fully remedied by monetary damages. RECIPIENT therefore agrees that COMPANY, or MEDICIS, or both of them shall be entitled to seek injunctive relief against any such breach in any court of competent jurisdiction. COMPANY’s and MEDICIS’ rights under this Section 3 shall not in any way be construed to limit or restrict their rights to seek other damages or relief available under this Agreement or applicable law.

4. Except as may otherwise be expressly set forth in an agreement between the parties hereto entered into after the date hereof, neither COMPANY nor RECIPIENT make and shall not be deemed to make or have made any representation or warranty as to the accuracy or completeness of the Confidential Information or any part thereof.

2

5. Except as provided in Section 1 hereof, no license or other right to use the Confidential Information is granted hereby.

6. The disclosure of Confidential Information by COMPANY to RECIPIENT shall not result in any obligation on the part of either party to enter into any future agreement relating to the Confidential Information or to undertake any other obligation not set forth in written agreement signed by the parties hereto.

7. Confidential Information furnished by COMPANY to RECIPIENT under this Agreement shall remain COMPANY’s or MEDICIS’ property, and any document or recording/reproduction containing such Confidential Information in written or other form shall be promptly returned to COMPANY or MEDICIS upon request. Return or destruction of Confidential Information of documents or other tangible things which embody or record the Confidential Information does not affect the continuing obligations of the RECIPIENT under this Agreement.

8. RECIPIENT acknowledges that any work product (including but not limited to data, reports including case reports and case report forms, interpretations, opinions and recommendations), trade secret information, copyrightable work product and any and all other intellectual property rights developed, derived from or otherwise generated by RECIPIENT, directly or indirectly, from the Information shall be owned by and belong exclusively to COMPANY. Further, RECIPIENT agrees to treat such work product or information as Confidential Information subject to the confidentiality, nonuse and nondisclosure obligations hereunder. RECIPIENT agrees to promptly and fully disclose such work product or information to COMPANY. RECIPIENT hereby assigns and agrees to assign to COMPANY the ownership right, title, and interest in such material, including, without limitation, inventions (whether patentable or unpatentable), and copyrightable work product and COMPANY shall have the right to obtain and hold in its own name, without obligation of any kind to RECIPIENT, patents, copyrights, or other protection which may be available or become available with respect to such items. RECIPIENT further agrees to give COMPANY and its designees or assignees all assistance reasonably required to perfect such rights, titles and interests. These obligations shall survive and continue beyond the termination of this Agreement and shall be binding upon RECIPIENT’s assigns, executives, administrators and other legal representatives.

9. With the exception of personal and confidential patient medical records, all case report forms and other reports and data generated during the course of any study performed by RECIPIENT as a subcontractor to COMPANY between the parties shall be the sole property of COMPANY. Such data may be used by COMPANY or MEDICIS for any purpose without further obligation or liability to the RECIPIENT, unless otherwise agreed to in writing by the parties.

10. RECIPIENT represents and warrants that it is not now nor shall it be a party to any other agreement or under any obligation to or restriction by any third party which would prevent the RECIPIENT from entering into this Agreement or which would conflict with any of its obligations under this Agreement or any of the undertakings set forth herein in any manner.

3

11.	Neither party hereto shall be entitled to assign its rights hereunder without the express written consent of the other party, except that COMPANY may assign it rights under this Agreement to MEDICIS.
12.	A waiver by either party of any term or condition of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach thereof. All rights, remedies, undertakings, or obligations contained in this Agreement shall be cumulative and none of them shall be in limitation of any other right, remedy, undertaking, or obligation of either party.
13.	If and to the extent that any court of competent jurisdiction holds any provision or part of this Agreement to be invalid or unenforceable, the remainder of this Agreement shall be construed and reformed so as to as to as nearly as possible give effect to the intentions of the parties in entering in to this Agreement, and to as completely as possible protect the confidentiality of MEDICIS’ Confidential Information.
14.	In the event that RECIPIENT becomes legally compelled to disclose any of the Confidential Information, RECIPIENT shall give COMPANY prompt notice so that they may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or the COMPANY waives compliance with the provisions of this Agreement, RECIPIENT shall furnish only that portion of the Confidential Information which is legally required to be disclosed.
15.	Without the prior written consent of COMPANY, RECIPIENT shall not disclose to any person or entity (a) the terms of its engagement involving COMPANY, MEDICIS and RECIPIENT, (b) that RECIPIENT has requested or received any Confidential Information, or (c) any of the terms, conditions or other facts with respect to any work performed by RECIPIENT as a subcontractor to COMPANY, including the status thereof.
16.	This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to that State’s conflict-of-laws rules or principles requiring the application of the laws of another jurisdiction. MEDICIS is an express third party beneficiary of this Agreement, with full rights to enforce the provisions hereof as if a party hereto.
17.	This Agreement contains the entire understanding between the parties with respect to the matters contemplated herein and supersedes all previous written and oral negotiations, commitments, and understandings. This Agreement cannot be altered or otherwise amended except pursuant to an instrument in writing signed by each of the parties hereto and making specific reference to this Agreement.

[Signature Page Follows]

4

          IN WITNESS HEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY	RECIPIENT
By:	By:
Name:	Name:
Title:	Title:

5

AGREEMENT OF QUALITY / TECHNICAL RESPONSIBILITY

This document constitutes the Quality/Technical Agreement (“QT Agreement”) of responsibilities for contract pharmaceutical manufacture and/or packaging is between AAI Development Services (“AAI”) and Medicis Pharmaceutical Corporation (“Medicis”). This QT Agreement is incorporated within, and intended to supplement, the Manufacturing Terms attached as Exhibit III to that certain Transition Agreement (the “Manufacturing Terms”) between the parties dated January 28, 2005 with respect to the Product manufactured thereunder.

This QT Agreement defines the individual responsibilities of Medicis and AAI, and in particular defines who is responsible for the cGMP aspects of manufacturing and specifies the way in which Product Batches will be released for sale, ensuring that the Product complies with the Regulatory Approval and the Product Specifications.

The QT Agreement takes the form of a detailed checklist of all the activities associated with pharmaceutical production, analysis, release, and distribution. Responsibility for each activity is assigned either to AAI or Medicis, or is designated as not applicable (“N/A”) in the appropriate tick box. In the event of a conflict between terms of this QT Agreement and the Manufacturing Terms, the terms of the Manufacturing Terms shall govern.

KEY CONTACTS:

All quality issues (except medical or non-medical Product complaints, or regulatory affairs) will be directed through the Key Quality Assurance contact, as listed below, for each party.

If any key contacts change for a party, such party will notify the other party in writing and designate a new contact person. Other contacts within each party may be identified as needed to facilitate communication of technical issues.

KEY CONTACTS:

Area of Responsibility	AAI	Medicis
Quality Assurance	***	***
Regulatory Affairs	***	***
Technical Services	***	***
Medical Affairs	***	***
Non-medical Product Complaints	***	TBD

* Key Quality Assurance contact

Page 1 of 13

DEFINITIONS

Capitalized terms used, but not defined herein, shall have the meaning given to them in the Manufacturing Terms.

TERMS

1.	The term of this QT Agreement will begin on the Effective Date (see 3. below) and will expire on the date of expiration or earlier termination of the Manufacturing Terms.
2.	The parties will review this QT Agreement at least annually to verify that the technical responsibilities allocated in this QT Agreement are current and valid.
3.	The “Effective Date” of this QT Agreement will be the signature date of the last party to sign this QT Agreement. The QT Agreement shall be fully implemented within thirty (30) days of the Effective Date.

CHANGE CONTROL PROCESS

Either party may propose updates, amendments, modifications, or supplements (collectively, the “Amendments”) to this QT Agreement. No Amendment will be valid or effective unless made in writing and signed by duly authorized officers of both parties.

Page 2 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	1	COMPLIANCE REQUIREMENTS
	1.1	Perform and maintain all audit documentation regarding supplier(s) of Active Ingredient for the Products.	***	***	***
	1.2	Perform and maintain all qualification documentation regarding suppliers of Components for the Products.	***	***	***
	1.3	Manufacture, test and package Product in strict adherence to the approved drug application, cGMPs, and Specifications.	***	***	***
	1.4	*** shall not to subcontract any of the work to a third party without prior written agreement of ***, which prior agreement shall not be unreasonably withheld or delayed. *** shall be responsible for auditing subcontractors to ensure cGMP compliance.	***	***	***
	1.5	Provide *** with copies of all information supporting annual Product reports for Products supplied to Medicis.	***	***	***
	1.6	Provide *** with copies/correspondence regarding the approved drug applications for the Products.	***	***	***
	1.7	Notify *** and have written authorization from *** prior to implementing any proposed changes to the facilities, manufacturing process, materials, Specifications, and/or testing that impact the approved registration, or that require revalidation. Identify for ***, in writing prior to delivery, the first manufactured Batch incorporating any approved changes.	***	***	***
	1.8	Provide notification to the other party of any organizational and/or personnel changes to Quality Assurance, Technical Services, or Regulatory Affairs Contacts.	***	***	***
	1.9	*** will make every reasonable effort to provide copies of any Form 483s, Warning Letters, Field Alerts or similar correspondence from Governmental Authorities within one (1) business day of receipt and subsequent responses(s) relating to the Products or processes used to produce, test, or package the Products promptly thereafter. *** approval is required for responses related to the Products.	***	***	***

Page 3 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	1.10	Notify *** within one (1) business day of any circumstances likely to result in a recall, Product withdrawal or field correction, including any confirmed Product failure.	***	***	***
	1.11	Perform and maintain as current all appropriate validation, including but not limited to: process, analytical method, cleaning, computer, and packaging.	***	***	***
	1.12	Dispose of all production residue, manufacturing rejects, tailings, other chemicals, containers and packaging materials associated with Products manufactured for Medicis in compliance with all applicable laws and regulations.	***	***	***
	1.13	*** will notify *** within (2) two business days, then proceed to promptly investigate and resolve to the reasonable satisfaction of *** all “Out-of-Specification” results. *** to review and approve any retesting scenarios in OOS investigations.	***	***	***
	1.14	Notify *** of any requests for information, notices of violations or other communication from a Governmental Agency related to the Medicis Products or processes promptly within no more than two (2) business days after *** receipt thereof.	***	***	***
	1.15	Notify *** of any incident affecting compliance to environmental, occupational health and safety laws related to handling *** Products or processes within three (3) business days.	***	***	***
	2	PRODUCTION AND TESTING OF BULK PRODUCT
	2.1	*** to Maintain the Master Formula (or Product structure). *** to review and approve.	***	***	***
	2.2	*** will maintain approved Specifications.	***	***	***
	2.3	Provide consistent Batch identification system for bulk manufacture. Immediately notify *** of any proposed changes to identification system prior to implementation of any such changes.	***	***	***

Page 4 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	2.4	Qualify Active Ingredient suppliers.	***	***	***
	2.5	Maintain Active Ingredient Specification, and ensure compliance of the Specification with regulatory and compendial requirements.	***	***	***
	2.6	Procure Active Ingredient (include Certificate of Analysis, COA, for the Active Ingredient). The Active Ingredient shall have not less than *** left to expiration upon receipt at AAI. Any exceptions to the above must be approved in writing by AAI.	***	***	***
	2.7	Store Active Ingredient.	***	***	***
	2.8	Sample Active Ingredient.	***	***	***
	2.9	Validate and/or transfer test method for Active Ingredient to AAI. *** to approve the analytical method.	***	***	***
	2.10	Analyze Active Ingredient (include documentation, COA).	***	***	***
	2.11	Release Active Ingredient.	***	***	***
	2.12	Retain reference samples of Active Ingredient for a minimum of *** beyond Product expiration date, of the last lot using each batch of API.	***	***	***
	2.13	Qualify inactive substance suppliers in accordance with AAI policies. Qualification does not include on-site audits.	***	***	***
	2.14	Procure inactive substances (include COA).	***	***	***
	2.15	Store inactive substances.	***	***	***
	2.16	Sample inactive substances.	***	***	***
	2.17	Validate and/or transfer test methods for the inactive substances to ***.	***	***	***
	2.18	Analyze inactive substances (include documentation, COA).	***	***	***
	2.19	Release inactive substances.	***	***	***
	2.20	Perform Process Validation. *** to review and approve.	***	***	***

Page 5 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	2.21	Perform Cleaning Validation. *** to review and approve.	***	***	***
	2.22	Provide Bill of Materials (BOM) for bulk manufacture. *** to review and approve.	***	***	***
	2.23	Provide Manufacturing Transfer Document for transfer within ***. *** to review and approve.	***	***	***
	2.24	Prepare Manufacturing Instructions (Production Operating Instructions). *** to review and approve.	***	***	***
	2.25	*** will maintain Specification for bulk Product and ensure compliance of the Specification with regulatory and compendial requirements. *** will maintain approved Specifications.	***	***	***
	2.26	Produce bulk Product (include Batch documentation).	***	***	***
	2.27	Document, investigate and resolve deviations from approved manufacturing instructions or Specifications. *** to review and approve all deviations. *** to be notified within (2) two business days of discovery of a deviation.	***	***	***
	2.28	Not to reprocess or salvage any partially processed or fully processed materials without the written consent of *** unless such activities are expressly allowed in applicable approved regulatory documents.	***	***	***
	2.29	Develop bulk Product sampling plan. *** to review and approve.	***	***	***
	2.30	Sample bulk Product.	***	***	***
	2.31	Validate and/or transfer test method for bulk Product to ***. *** to approve analytical method.	***	***	***
	2.32	Analyze bulk Product.	***	***	***
	2.33	Approve bulk Product for packaging.	***	***	***
	2.34	Produce Certificate of Analysis for bulk Product.	***	***	***

Page 6 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	2.35	Retain reference samples of bulk Product for the period of time specified in AAI’s Standard Operating Procedures.	***	***	***
	2.36	Perform manufacturing facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	2.37	Perform laboratory facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	2.38	Perform stability storage and testing of bulk Product.	***	***	***
	3.	INSPECTION, PACKAGING OF FINISHED PRODUCT
	3.1	Maintain finished Product Specification, and ensure compliance of the Specifications with regulatory and compendial requirements.	***	***	***
	3.2	Provide Batch identification system for finished Product.	***	***	***
	3.3	Provide artwork and labeling text (blister, carton, leaflet, label, etc.) to ***.	***	***	***
	3.4	Perform labeling review and approval.	***	***	***
	3.5	*** will provide Specifications for packaging materials, and ensure compliance of the Specifications with regulatory and compendial requirements. *** will maintain approved Specifications.	***	***	***
	3.6	Validate and/or transfer test method(s) for Product packaging materials to ***. *** to approve analytical methods.	***	***	***
	3.7	Qualify packaging component and labeling suppliers in accordance with AAI policies. Qualification does not include on-site audits.	***	***	***
	3.8	Procure packaging materials.	***	***	***
	3.9	Analyze packaging materials.	***	***	***
	3.10	Release packaging materials.	***	***	***

Page 7 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	3.11	Retain samples of labeling materials for a minimum of *** past Product expiry date. [NOTE: Other packaging materials need not be retained separately since they are part of the finished Product retains].	***	***	***
	3.12	Perform Packaging Validation. *** to review and approve.	***	***	***
	3.13	*** will provide Bill of Materials (BOM) for packaging. *** to review and approve.	***	***	***
	3.14	*** will prepare Packaging Instructions (Production Operating Instructions for packaging). *** to review and approve.	***	***	***
	3.15	Perform packaging operations (include documentation).	***	***	***
	3.16	Perform in-process controls during packaging (include documentation).	***	***	***
	3.17	Develop finished Product sampling plan consistent with the Manufacturing Terms for retain and stability samples. Provide finished Product release sampling plan for *** review and approval.	***	***	***
	3.18	Sample finished Product including retain samples, stability samples, release samples, and customer samples.	***	***	***
	3.19	Retain reference samples of finished Product for a minimum of one *** past Product expiry date.	***	***	***
	3.20	Reconcile packaging materials.	***	***	***
	3.21	Perform manufacturing facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	3.22	Perform laboratory facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	3.23	Document, investigate and resolve any deviations from approved packaging instructions or Specifications. *** to review and approve all deviations. Notify *** within (2) two business days of discovery of deviations.	***	***	***

Page 8 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	4.	TESTING AND RELEASE OF FINISHED PRODUCT
	4.1	Validate and/or transfer test method(s) for finished Product to ***. *** to review and approve.	***	***	***
	4.2	Perform laboratory equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	4.3	Analyze finished Product.	***	***	***
	4.4	*** to approve shipment of finished Product to ***. *** to release Product for distribution.	***	***	***
	4.5	Review Batch Record including all pertinent documentation and data. Provide copy to *** for review.	***	***	***
	4.6	Produce Certificate of Analysis for finished Product testing.	***	***	***
	4.7	Perform stability storage and testing as requested by *** in accordance with the Manufacturing Terms. Notify *** immediately within (1) one business day, if the Product fails to meet Specifications during stability testing.	***	***	***
	4.8	Stability Testing Protocol	***	***	***
		Define protocol requirements.	***	***	***
		For each packaging configuration, place the *** production Batches of Product on stability and then at least one Batch annually.	***	***	***
		Pull stability samples as per the approved stability protocol. Provide reviewed/approved test results to Medicis within *** of completion of testing.	***	***	***
		Perform stability facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
	4.9	Establish approved expiration date.	***	***	***

Page 9 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	4.10	Adverse Events and Product Complaints
		*** shall document Product complaints and adverse event claims. *** shall notify the other’s key contact as specified in the Manufacturing Terms following receipt of any Adverse Event or Product Complaint.	***	***	***
		*** shall promptly investigate any such complaints. *** shall provide *** with a summary of its investigation as soon as practicable, but in no event later than ***. Complaints designated by *** as “high priority complaints” shall be investigated by *** within ***.	***	***	***
		*** shall respond to regulatory agencies and reporters and shall be responsible for all activities relating to medical surveillance.	***	***	***
		Complete follow-up corrective action.	***	***	***
	4.11	Visually examine retain reference samples of finished Product annually. Investigate if required. Report all results to ***.	***	***	***
	4.12	Perform Annual Product Review. Provide copies of all information supporting annual Product reporting to ***.	***	***	***
	4.13	Prepare annual Product report and file with applicable regulatory agencies.	***	***	***
	4.14	Product Recall	***	***	***
		Decide to initiate recall.	***	***	***
		Notify appropriate regulatory agencies.	***	***	***
		Manage recall.	***	***	***
		Reconcile returned Product.	***	***	***

Page 10 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	4.15	Responsibility to Authorities
		Liaison with Regulatory Authorities for approval, maintenance and updating of drug application.	***	***	***
		Liaison with Regulatory Authorities for any site visits related to the Products produced for Medicis. ***to notify*** promptly within no more than one (1) business day after being contacted regarding such site visits.	***	***	***
		Maintain safety/hazard and handling data on Products and Active Ingredient.	***	***	***
		Maintain safety/hazard and handling data on Components.	***	***	***
	4.16	Special test requirements (specify):	***	***	***
	4.17	Maintain all Batch Records for a minimum of *** past Product expiry date and supply copies (true or electronic) of all such records to Medicis on request.	***	***	***
	5	STORAGE AND TRANSPORTATION OF BULK PRODUCT, FINISHED PRODUCT AND WASTE DISPOSAL
	5.1	Store bulk Product up to packaging.	***	***	***
	5.2	Store finished Product after release by Medicis.	***	***	***
	5.3	Store all materials under appropriate conditions of temperature, humidity, light and cleanliness and in a manner to avoid deterioration, theft, interference and Product contamination.	***	***	***
	6	DOCUMENTATION
	6.1	Provide *** with complete copies of Process Validation reports for the first*** Batches of each Product.	***	***	***

Page 11 of 13

NO.		RESPONSIBILITIES	N/A	Medicis	AAI
	6.2	Provide *** with complete copies of Packaging Validation reports for each Product.	***	***	***
	6.3	Provide the following documentation to *** for each Batch:	***	***	***
		Executed Batch record, including copies of labeling documenting expiration date and lot number	***	***	***
		Test results for Active Ingredient and Components (upon request)	***	***	***
		Manufacturing release summary: Certificate of Compliance (COC) statement indicating Product conformance with cGMP, signed by the responsible Quality individual performing Product approval	***	***	***
		If Product release testing is performed by ***, testing release summary, Certificate of Analysis (COA), including:	***	***	***
		- Tests performed
		- Test methods used
		- Test Specifications
		- Test results including retest results if required
		- Date of release
		- Signature of responsible Quality individual performing testing release

Page 12 of 13

Medicis	AAI
	Quality Assurance Approval:
Name: Mark A. Prygocki, Sr.	Name:
(Print/Type)	(Print/Type)
Title: Chief Financial Officer	Title:
Signature:	Signature:
Date:	Date:

AAI

Executive Approval:

Name:

(Print/Type)

Title:

Signature:

Date:

Page 13 of 13

EX-10.71

Exhibit 10.71

*** 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.

FIRST AMENDMENT TO
TRANSITION AGREEMENT DATED JANUARY 28, 2005

     This FIRST AMENDMENT to the Agreement (hereinafter defined) (this “First Amendment”), effective this 11^th day of August, 2006, is made and entered into by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation maintaining its offices at 8125 North Hayden Road, Scottsdale, Arizona 85258-2463 (“MEDICIS”), and aaiPharma Inc., a Delaware corporation and the parent company of AAIPharma Inc. (formerly known as AAI International, Inc.), having offices at 2320 Scientific Park Drive, Wilmington, NC 28405 (“AAIPharma”).

RECITALS:

     A. MEDICIS and AAIPharma have executed that certain Transition Agreement, dated as of January 28, 2005 (the “Agreement”); and

     B. MEDICIS and AAIPharma desire to amend the Agreement as hereinafter provided.

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

     All capitalized terms not otherwise defined herein shall have the meaning as set forth in the Agreement. The parties acknowledge and agree that this Amendment amends, and supercedes in part, the Agreement in accordance with the terms set forth herein.

A.	Attachment B to Exhibit III. Attachment B is hereby deleted in its entirety and replaced with the revised Attachment B attached hereto.
B.	Attachment D to Exhibit III. Attachment D is hereby deleted in its entirety and replaced with the revised Attachment D attached hereto.
C.	Binding Effect. Except as modified in this First Amendment, the Agreement shall remain unchanged and in full force and effect. The parties represent and warrant that, as of the Effective Date, no other agreements, written or oral, exist between the parties with respect to the subject matter covered herein except for the Agreement and this First Amendment. The parties acknowledge and agree that in the event of any conflict between the terms amended pursuant to this First Amendment and the other terms of the Agreement, the terms of this First Amendment shall govern.
D.	Counterparts. This First Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one and the same instrument.
E.	Authority. Each party represents and warrants to the other party that this Amendment is being executed by the authorized representatives of each party.

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their duly authorized representatives as of the date first above written.

MEDICIS PHARMACEUTICAL CORPORATION	AAIPHARMA, INC.
By:	By:
Name:	Name:
Title:	Title:

Attachment B

Pricing

***

Attachment D

Batch Record Numbering and Expiry Dating

***

        .

EX-10.72

Exhibit 10.72

*** 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.

SECOND AMENDMENT TO
TRANSITION AGREEMENT DATED JANUARY 28, 2005

     This SECOND AMENDMENT to the Agreement (hereinafter defined) (this “Second Amendment”), effective September 8, 2006 (“Effective Date”), is made and entered into by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation maintaining its offices at 8125 North Hayden Road, Scottsdale, Arizona 85258-2463 (“MEDICIS”), and aaiPharma Inc., a Delaware corporation and the parent company of AAIPharma Inc. (formerly known as AAI International, Inc.), having offices at 2320 Scientific Park Drive, Wilmington, NC 28405 (“AAIPharma”).

RECITALS:

     A. MEDICIS and AAIPharma are parties to that certain Transition Agreement, dated as of January 28, 2005, as amended pursuant that certain First Amendment, dated August 11, 2006, (collectively, the “Agreement”); and

     B. MEDICIS and AAIPharma desire to amend the Agreement as hereinafter provided.

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

     All capitalized terms not otherwise defined herein shall have the meaning as set forth in the Agreement. The parties acknowledge and agree that this Second Amendment amends, and supersedes in part, the Agreement in accordance with the terms set forth herein.

A.	Agreement of Quality/Technical Responsibility of Exhibit III. The Agreement of Quality/Technical Responsibility of Exhibit III is hereby deleted in its entirety and replaced with the revised Agreement of Quality/Technical Responsibility attached hereto.
B.	Binding Effect. Except as modified in this Second Amendment, the Agreement, as previously amended, shall remain unchanged and in full force and effect. The parties represent and warrant that, as of the Effective Date, no other agreements, written or oral, exist between the parties with respect to the subject matter covered herein except for the Agreement and this Second Amendment. The parties acknowledge and agree that in the event of any conflict between the terms amended pursuant to this Second Amendment and the other terms of the Agreement, the terms of this Second Amendment shall govern.
C.	Counterparts. This Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one and the same instrument.
D.	Authority. Each party represents and warrants to the other party that this Second Amendment is being executed by the authorized representatives of each party.

     IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their duly authorized representatives as of the Effective Date.

MEDICIS PHARMACEUTICAL CORPORATION	AAIPHARMA INC.
By:	By:
Name:	Name:
Title:	Title:

1

AGREEMENT OF QUALITY / TECHNICAL RESPONSIBILITY

This document constitutes the Quality/Technical Agreement (“QT Agreement”) of responsibilities for contract pharmaceutical manufacture and/or packaging is between AAIPharma Inc., on behalf of itself and its subsidiaries (“AAI”) and Medicis Pharmaceutical Corporation (“Medicis”). This QT Agreement is incorporated within, and intended to supplement, the Manufacturing Terms attached as Exhibit III to that certain Transition Agreement (the “Manufacturing Terms”) between the parties dated January 28, 2005 with respect to the Product manufactured thereunder.

This QT Agreement defines the individual responsibilities of Medicis and AAI, and in particular defines who is responsible for the cGMP aspects of manufacturing and specifies the way in which Product Batches will be released for sale, ensuring that the Product complies with the Regulatory Approval and the Product Specifications.

The QT Agreement takes the form of a detailed checklist of all the activities associated with pharmaceutical production, analysis, release, and distribution. Responsibility for each activity is assigned either to AAI or Medicis, or is designated as not applicable (“N/A”) in the appropriate tick box. In the event of a conflict between terms of this QT Agreement and the Manufacturing Terms, the terms of the Manufacturing Terms shall govern.

KEY CONTACTS:

All quality issues (except medical or non-medical Product complaints, or regulatory affairs) will be directed through the Key Quality Assurance contact, as listed below, for each party.

If any key contacts change for a party, such party will notify the other party in writing and designate a new contact person. Other contacts within each party may be identified as needed to facilitate communication of technical issues.

KEY CONTACTS:

Area of
Responsibility	AAI	Medicis
Quality Assurance	***	***
Regulatory Affairs	***	***
Technical Services	***	***
Medical Affairs	***	***
Non-medical Product Complaints	***	***

*	Key Quality Assurance contact
	NOTE: All documents for review and approval are to be sent to quality@medicis.com

DEFINITIONS

Capitalized terms used, but not defined herein, shall have the meaning given to them in the Manufacturing Terms.

TERMS

1.	The term of this QT Agreement will begin on the Effective Date (see 3. below) and will expire on the date of expiration or earlier termination of the Manufacturing Terms.
2.	The parties will review this QT Agreement at least annually to verify that the technical responsibilities allocated in this QT Agreement are current and valid.

2

3. The “Effective Date” of this QT Agreement will be the signature date of the last party to sign this QT Agreement. The QT Agreement shall be fully implemented within *** of the Effective Date.

CHANGE CONTROL PROCESS

Either party may propose updates, amendments, modifications, or supplements (collectively, the “Amendments”) to this QT Agreement. No Amendment will be valid or effective unless made in writing and signed by duly authorized officers of both parties.

3

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
1	COMPLIANCE REQUIREMENTS
1.1	Perform and maintain all audit documentation regarding supplier(s) of Active Ingredient for the Products.	***	***	***
1.2	Perform and maintain all qualification documentation regarding suppliers of Components for the Products.	***	***	***
1.3	Manufacture, test and package Product in strict adherence to the approved drug application, cGMPs, and Specifications.	***	***	***
1.4	*** shall not subcontract any of the work to a third party without prior written agreement of ***, which prior agreement shall not be unreasonably withheld or delayed. *** shall be responsible for auditing subcontractors to ensure cGMP compliance.	***	***	***
1.5	Provide *** with copies of all information supporting annual Product reports for Products supplied to Medicis.	***	***	***
1.6	Provide *** with copies/correspondence regarding the approved drug applications for the Products.	***	***	***
1.7	Notify *** and have written authorization from *** prior to implementing any proposed changes to the facilities, manufacturing process, materials, Specifications, and/or testing that impact the approved registration, or that require revalidation. Identify for ***, in writing prior to delivery, the first manufactured Batch incorporating any approved changes.	***	***	***
1.8	Provide notification to the other party of any organizational and/or personnel changes to Quality Assurance, Technical Services, or Regulatory Affairs Contacts.	***	***	***
1.9	*** will make every reasonable effort to provide copies of any Form 483s, Warning Letters, Field Alerts or similar correspondence from Governmental Authorities within one (1) business day of receipt and subsequent response(s) relating to the Products or processes used to produce, test, or package the Products promptly thereafter. *** approval is required for responses related to the Products.	***	***	***
1.10	Notify *** within one (1) business day of any circumstances likely to result in a recall, Product withdrawal or field correction, including any confirmed Product failure.	***	***	***
1.11	Perform and maintain as current all appropriate validation, including but not limited to: process, analytical method, cleaning, computer, and packaging.	***	***	***
1.12	Dispose of all production residue, manufacturing rejects, tailings, other chemicals, containers and packaging materials associated with Products manufactured for Medicis in compliance with all applicable laws and regulations.	***	***	***
1.13	*** will notify *** within two (2) business days, then proceed to promptly investigate and resolve to the reasonable satisfaction of *** all “Out-of-	***	***	***

3

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
	Specification” results. *** to review and approve any retesting scenarios in OOS investigations.
1.14	Notify *** of any requests for information, notices of violations or other communication from a Governmental Agency related to the Medicis Products or processes promptly within no more than two (2) business days after *** receipt thereof.	***	***	***
1.15	Notify *** of any incident affecting compliance to environmental, occupational health and safety laws related to handling Medicis Products or processes within three (3) business days.	***	***	***
2	PRODUCTION AND TESTING OF BULK PRODUCT
2.1	*** to Maintain the Master Formula (or Product structure). *** to review and approve.	***	***	***
2.2	*** will maintain approved Specifications.	***	***	***
2.3	Provide consistent Batch identification system for bulk manufacture. Immediately notify *** of any proposed changes to identification system prior to implementation of any such changes.	***	***	***
2.4	Qualify Active Ingredient suppliers.	***	***	***
2.5	Maintain Active Ingredient Specification, and ensure compliance of the Specification with regulatory and compendial requirements.	***	***	***
2.6	Procure Active Ingredient (include Certificate of Analysis, COA, for the Active Ingredient). The Active Ingredient shall have not *** left to expiration upon receipt at AAI. Any exceptions to the above must be approved in writing by AAI.	***	***	***
2.7	Store Active Ingredient.	***	***	***
2.8	Sample Active Ingredient.	***	***	***
2.9	Validate and/or transfer test method for Active Ingredient to ***. *** to approve the analytical method.	***	***	***
2.10	Analyze Active Ingredient (include documentation, COA).	***	***	***
2.11	Release Active Ingredient.	***	***	***
2.12	Retain reference samples of Active Ingredient for a *** Product expiration date, of the last lot using each batch of API.	***	***	***
2.13	Qualify inactive substance suppliers in accordance with ***. Qualification does not include on-site audits.	***	***	***
2.14	Procure inactive substances (include COA).	***	***	***
2.15	Store inactive substances.	***	***	***

4

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
2.16	Sample inactive substances.	***	***	***
2.17	Validate and/or transfer test methods for the inactive substances to ***.	***	***	***
2.18	Analyze inactive substances (include documentation, COA).	***	***	***
2.19	Release inactive substances.	***	***	***
2.20	Perform Process Validation. *** to review and approve.	***	***	***
2.21	Perform Cleaning Validation. *** to review and approve.	***	***	***
2.22	Provide Bill of Materials (BOM) for bulk manufacture. *** to review and approve.	***	***	***
2.23	Provide Manufacturing Transfer Document for transfer within ***.	***	***	***
2.23A	Review and approve the Manufacturing Transfer Document	***	***	***
2.24	Prepare Manufacturing Instructions (Production Operating Instructions). *** to review and approve.	***	***	***
2.25	*** will maintain Specification for bulk Product and ensure compliance of the Specification with regulatory and compendial requirements. *** will maintain approved Specifications.	***	***	***
2.26	Produce bulk Product (include Batch documentation).	***	***	***
2.27	Document, investigate and resolve deviations from approved manufacturing instructions or Specifications. *** to review and approve all deviations. *** to be notified within two (2) business days of discovery of a deviation.	***	***	***
2.28	Not to reprocess or salvage any partially processed or fully processed materials without the written consent of *** unless such activities are expressly allowed in applicable approved regulatory documents.	***	***	***
2.29	Develop bulk Product sampling plan.	***	***	***
2.29A	Review and approve the Product sampling plan.	***	***	***
2.31	Validate and/or transfer test method for bulk Product to ***. *** to approve analytical method.	***	***	***
2.32	Analyze bulk Product.	***	***	***
2.33	Approve bulk Product for packaging.	***	***	***
2.34	Produce Certificate of Analysis for bulk Product.	***	***	***
2.35	Retain reference samples of bulk Product for the period of time specified in AAI’s Standard Operating Procedures.	***	***	***

5

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
2.36	Perform manufacturing facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
2.37	Perform laboratory facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
2.38	Perform stability storage and testing of bulk Product as requested by *** in accordance with the Manufacturing Terms or other service estimate.	***	***	***
3.	INSPECTION, PACKAGING OF FINISHED PRODUCT
3.1	Maintain finished Product Specification, and ensure compliance of the Specifications with regulatory and compendial requirements.	***	***	***
3.2	Provide Batch identification system for finished Product.	***	***	***
3.3	Provide artwork and labeling text (blister, carton, leaflet, label, etc.) to ***.	***	***	***
3.4	Perform labeling review and approval.	***	***	***
3.5	Medicis will provide Specifications for packaging materials, and ensure compliance of the Specifications with regulatory and compendial requirements. *** will maintain approved Specifications.	***	***	***
3.6	Validate and/or transfer test method(s) for Product packaging materials to ***. *** to approve analytical methods.	***	***	***
3.7	Qualify packaging component and labeling suppliers in accordance with AAI policies. Qualification does not include on-site audits.	***	***	***
3.8	Procure packaging materials.	***	***	***
3.9	Analyze packaging materials.	***	***	***
3.10	Release packaging materials.	***	***	***
3.11	Retain samples of labeling materials for a *** Product expiry date. [NOTE: Other packaging materials need not be retained separately since they are part of the finished Product retains].	***	***	***
3.12	Perform Packaging Validation. *** to review and approve.	***	***	***
3.13	*** will provide Bill of Materials (BOM) for packaging. *** to review and approve.	***	***	***
3.14	*** will prepare Packaging Instructions (Production Operating Instructions for packaging). *** to review and approve.	***	***	***
3.15	Perform packaging operations (include documentation).	***	***	***
3.16	Perform in-process controls during packaging (include documentation).	***	***	***
3.17	Develop finished Product sampling plan consistent with the Manufacturing	***	***	***

6

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
	Terms for retain and stability samples. Provide finished Product release sampling plan for *** review and approval.
3.18	Sample finished Product including retain samples, stability samples, release samples, and customer samples.	***	***	***
3.19	Retain reference samples of finished Product for a *** past Product expiry date.	***	***	***
3.20	Reconcile packaging materials.	***	***	***
3.21	Perform manufacturing facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
3.22	Perform laboratory facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
3.23	Document, investigate and resolve any deviations from approved packaging instructions or Specifications. *** to review and approve all deviations. Notify Medicis within two (2) business days of discovery of deviations.	***	***	***
4.	TESTING AND RELEASE OF FINISHED PRODUCT
4.1	Validate and/or transfer test method(s) for finished Product to ***. *** to review and approve.	***	***	***
4.2	Perform laboratory equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
4.3	Analyze finished Product.	***	***	***
4.4	*** to approve shipment of finished Product to Medicis.*** to release Product for distribution.	***	***	***
4.5	Review Batch Record including all pertinent documentation and data. Provide copy to *** for review.	***	***	***
4.6	Produce Certificate of Analysis for finished Product testing.	***	***	***
4.7	Perform stability storage and testing as requested by *** in accordance with the Manufacturing Terms or other service estimate. Notify Medicis immediately within one (1) business day, if the Product fails to meet Specifications during stability testing.	***	***	***
4.8	Stability Testing Protocol
	Define protocol requirements.	***	***	***
	For each packaging configuration, place the*** production Batches of Product on stability and *** annually.	***	***	***
	Pull stability samples as per the approved stability protocol. Provide reviewed/approved test results to *** within *** of completion of testing.	***	***	***

7

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
	Perform stability facility, equipment and instrument qualification, preventive maintenance and calibration.	***	***	***
4.9	Establish approved expiration date.	***	***	***
4.10	Adverse Events and Product Complaints	***	***	***
	*** shall document Product complaints and adverse event claims. *** shall notify the other’s key contact as specified in the Manufacturing Terms following receipt of any Adverse Event or Product Complaint.	***	***	***
	*** shall promptly investigate any such complaints. *** shall provide *** with a summary of its investigation as soon as practicable, but in no event later than ***. Complaints designated by *** as “high priority complaints” shall be investigated by *** within ***.	***	***	***
	*** shall respond to regulatory agencies and reporters and shall be responsible for all activities relating to medical surveillance.	***	***	***
	Complete follow-up corrective action.	***	***	***
4.11	Visually examine retain reference samples of finished Product annually. Investigate if required. Report all results to ***.	***	***	***
4.12	Perform Annual Product Review. Provide copies of all information supporting annual Product reporting to ***.	***	***	***
4.13	Prepare annual Product report and file with applicable regulatory agencies.	***	***	***
4.14	Product Recall
	Decide to initiate recall.	***	***	***
	Notify appropriate regulatory agencies.	***	***	***
	Manage recall.	***	***	***
	Reconcile returned Product.	***	***	***
4.15	Responsibility to Authorities
	Liaison with Regulatory Authorities for approval, maintenance and updating of drug application.	***	***	***
	Liaison with Regulatory Authorities for any site visits related to the Products produced for Medicis. *** to notify *** promptly within no more than one (1) business day after being contacted regarding such site visits.	***	***	***

8

NO.	RESPONSIBILITIES	N/A	Medicis	AAI
	Maintain safety/hazard and handling data on Products and Active Ingredient.	***	***	***
	Maintain safety/hazard and handling data on Components.	***	***	***
4.16	Special test requirements (specify):	***	***	***
4.17	Maintain all Batch Records for a *** Product expiry date and supply copies (true or electronic) of all such records to *** on request.	***	***	***
5	STORAGE AND TRANSPORTATION OF BULK PRODUCT, FINISHED PRODUCT AND WASTE DISPOSAL
5.1	Store bulk Product up to packaging.	***	***	***
5.2	Store finished Product after release by Medicis.	***	***	***
5.3	Store all materials under appropriate conditions of temperature, humidity, light and cleanliness and in a manner to avoid deterioration, theft, interference and Product contamination.	***	***	***
6	DOCUMENTATION
6.1	Provide *** with complete copies of Process Validation reports for the *** of each Product.	***	***	***
6.2	Provide *** with complete copies of Packaging Validation reports for each Product.	***	***	***
6.3	Provide the following documentation to *** for each Batch:
	Executed Batch record, including copies of labeling documenting expiration date and lot number	***	***	***
	Test results for Active Ingredient and Components (upon request)	***	***	***
	Manufacturing release summary: Certificate of Compliance (COC) statement indicating Product conformance with cGMP, signed by the responsible Quality individual performing Product approval	***	***	***
	If Product release testing is performed by ***, testing release summary, Certificate of Analysis (COA), including:	***	***	***
	- Tests performed
	- Test methods used
	- Test Specifications
	- Test results including retest results if required
	- Date of release
	- Signature of responsible Quality individual performing testing release

9

Medicis Pharmaceutical Corporation	AAIPharma Inc.
	Quality Assurance Approval:
Name: Terri Magee	Name:
(Print/Type)	(Print/Type)
Title: Director of QC	Title:
Signature:	Signature:
Date:	Date:
	AAIPharma Inc.
	Executive Approval:
	Name:
	(Print/Type)
	Title:

10

EX-10.73

Exhibit 10.73

*** 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.

MASTER MANUFACTURING AGREEMENT

     This MASTER MANUFACTURING AGREEMENT (the “Agreement”) effective as of March 20, 2008 (the “Effective Date”) is by and between Medicis Global Services Corporation, a Delaware corporation, having offices at 8125 North Hayden Road, Scottsdale, AZ, 85258 (hereinafter “Medicis”), and WellSpring Pharmaceutical Canada Corp., having offices at 400 Iroquois Shore Road, Oakville, ON L6H 1M5, Canada (hereinafter “Supplier”). Medicis and Supplier are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

     WHEREAS, Supplier is in the business of providing contract manufacturing, supply, packaging and other related services; and

     WHEREAS, Medicis desires to utilize the contract manufacturing, supply, packaging or other related services of Supplier from time to time pursuant to the terms and conditions of this Agreement, and Supplier desires to provide such services to Medicis in accordance with the terms and conditions of this Agreement.

     NOW THEREFORE, in consideration of the above premises and subject to the terms and conditions stated herein, the Parties agree as follows:

ARTICLE 1
INTERPRETATION

1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings ascribed to them in Schedule 1.1 (Definitions) or in the context in which they are used and herein. All defined terms include the plural as well as the singular.

1.2 Sections and Headings. The division of this Agreement into Articles, Sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms “this Agreement,” “hereof,” “herein,” “hereunder” and similar expressions refer to this Agreement, inclusive of all Schedules, Exhibits and other documents incorporated by reference, and not to any particular part, Section, Schedule or the provision hereof.

1.3 Conflicts in Interpretation. In the event of any conflict between the terms and conditions of the Agreement, the Quality Agreement and the applicable Product Exhibit, unless otherwise expressly stated, the following shall be the order of precedence: (a) Agreement; (b) Quality Agreement; and (c) Product Exhibit, except for all matters pertaining to, or governed by, GMPs, the provisions of the Quality Agreement will prevail.

ARTICLE 2
MANUFACTURE AND SUPPLY OF PRODUCTS

2.1 Manufacture.

(a) Supplier shall Manufacture and sell to Medicis the Product in accordance with the terms and conditions of this Agreement, the Quality Agreement and the applicable Product Exhibit. Medicis or its Affiliates shall have the right to: (i) license to a Third Party the right to distribute, sell or market Product; and (ii) order Product under this Agreement for the benefit of such Third Party. In such an event, Supplier shall fulfill such orders in accordance with the terms and conditions of this Agreement, the Quality Agreement and the applicable Product Exhibit.

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(b) Supplier shall not Manufacture a Product, or any portion of a Product, in any facility other than the Facility without Medicis prior written approval. Supplier shall not make any material change to the manufacturing equipment or manufacturing process of the Products without Medicis’s prior written approval. The Product shall not contain reworked or reprocessed materials without Medicis’s prior written approval. Any rework process shall be approved in the applicable NDA.

2.2 Product and Product Exhibits. Each Product Exhibit will include the following, if applicable: (a) description of the Services; (b) description of the start and completion dates for the Services and any other interim milestones; (c) description of the Medicis-Supplied Material and the Medicis-Supplied Material Specifications; (d) Minimum Yield for the Product; (e) NDA for the Product, if applicable; (f) Price for the Product; (g) Specifications for the Product; and (h) minimum batch size to be ordered for each Product as set forth in the applicable Product Exhibit. Each Product Exhibit will be in the form set forth as Exhibit A.

2.3 Components. Unless otherwise set forth in a Product Exhibit, at Supplier’s expense, Supplier shall: (a) provide all Components; and (b) test and verify that all Components meet the Specifications.

2.4 Medicis-Supplied Material.

2.4.1 Delivery. At Medicis’s sole cost and expense, Medicis shall use its commercially reasonable efforts to deliver the Medicis-Supplied Material to Supplier in the quantities sufficient to meet Medicis’s forecasted requirements. Supplier shall use the Medicis-Supplied Material only to perform the Services.

2.4.2 Damage/Discrepancies. Within five (5) Business Days following Supplier’s receipt of the Medicis-Supplied Material, Supplier shall inform Medicis of any damage to the Medicis-Supplied Material received that is visually obvious (e.g., damaged or punctured containers) and/or discrepancies in quantity received. Supplier will perform an analytical testing on the Medicis-Supplied Material in accordance with the Quality Agreement, informing Medicis within *** of any failure to conform to the Specifications of the Medicis-Supplied Material. In the event such deficiency in the Medicis-Supplied Material causes Supplier to fail to meet its obligations under this Agreement, Supplier shall be excused from performance to the extent Supplier did not cause such deficiency and such deficiency adversely affects Supplier’s performance under this Agreement.

2.4.3 Risk of Loss. Risk of loss, damage, or contamination of the Medicis-Supplied Material shall pass to Supplier upon delivery. If any Medicis-Supplied Material, non-processing losses, work in process or Product is destroyed, damaged or lost while risk of loss lies with Supplier, Supplier shall reimburse Medicis for the amount of such lost, destroyed or damaged Medicis-Supplied Material at the Reimbursement Value. Supplier shall reimburse Medicis within *** after determining the root cause for the loss or, at Medicis’s option, Medicis shall set off the Reimbursement Value against invoices that Medicis owes Supplier, or against future invoices related to the Product. If Medicis receives the Reimbursement Value from Supplier, then such destroyed, damaged or lost Medicis-Supplied Material shall not be included in the calculation of Yield.

2.4.4 Title. Medicis shall at all times retain title to the Medicis-Supplied Material. Supplier shall keep Medicis’s title to all Medicis-Supplied Material free and clear of all liens and encumbrances and, if Supplier fails to keep Medicis’s title to all Medicis-Supplied Material free and clear of all liens and encumbrances, then Supplier shall pay all costs associated with securing the release of any such liens and encumbrances and shall indemnify Medicis for all Claims incurred by Medicis as a result of Supplier’s breach of this Section. If requested by Medicis, the Parties agree to discuss in good faith entering into a mutually acceptable consignment agreement (or similar document) with respect to Medicis-Supplied Material delivered to Supplier by Medicis or its supplier.

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2.4.5 Inventory Report of Medicis-Supplied Material. Within five (5) Business Days following the end of each calendar month, Supplier shall inform Medicis in writing of the quantities of Medicis-Supplied Material remaining in Supplier’s Inventory.

2.5 Packaging, Labeling and Lot Numbers/Expiration Dates.

(a) Supplier shall include Labeling on or with the Product only as specified by Medicis and with the prior written approval of Medicis. At any time, in its sole discretion and with prior written notice to Supplier, Medicis shall have the right to make changes to the Labeling for the Products, which changes Medicis shall submit to all applicable governmental agencies and other Third Parties responsible for the approval of the Products, if required. Supplier’s name shall not appear on the Labeling or Products unless required by a governmental agency or other Applicable Laws.

(b) Supplier shall arrange and implement the imprinting of lot numbers and expiration dates for each Product shipped. Such lot numbers and expiration dates shall be affixed on the Products and on the shipping carton of each Product as required by cGMPs.

2.6 Special Equipment. Supplier shall purchase any non-standard or special equipment, including without limitation instrumentation or process equipment, required for the performance of Services (“Special Equipment”) only with Medicis’s prior written approval. The Price or Fees, as applicable, shall include Special Equipment unless the Parties agree in writing that Medicis shall reimburse Supplier for the Special Equipment, in which case such reimbursement shall be made only on a pass-through basis. Title to Special Equipment shall remain vested in Supplier until it is assigned to Medicis except in the case where Special Equipment is purchased directly in Medicis’s name. In addition, Medicis shall have the right to have title to any Special Equipment purchased hereunder in the name of Medicis. Risk of damage or loss to Special Equipment shall remain with Supplier for as long as Supplier possesses the Special Equipment. Upon expiration and non-renewal or termination of the applicable Services or as otherwise requested by Medicis, Supplier shall assign the ownership of Special Equipment to Medicis pursuant to a bill of sale transferring title free of any liens or encumbrances. If applicable, all Special Equipment transferred to Medicis shall include the original manufacturer’s warranty, to the extent it is assignable to Medicis. Supplier shall not purchase Special Equipment with warranties or maintenance programs that are not assignable to Medicis without Medicis’s prior written consent.

2.7 Supplier Relationship Team. Within a reasonable period of time following the Effective Date, Supplier and Medicis shall form a team to address issues and oversee the relationship between Medicis and Supplier with at least one (1) representative from each Party (“Supplier Relationship Team”). Both Parties shall cooperate to identify for the Supplier Relationship Team and, with both Parties approval, pursue projects that will improve the manufacturing processes and reduce the costs for Product. The Parties shall share any cost savings to the Manufacture of Product realized as a result of the work of the Supplier Relationship Team and the applicable Price shall be adjusted accordingly to reflect such cost savings and sharing. Upon mutual written consent of the Parties, the Parties may invite, at their own expense, internal or external consultants to advise the Supplier Relationship Team. Any and all such external consultants shall execute a confidentiality agreement in a form mutually acceptable to the Parties.

2.8 Subcontracting. Supplier shall not utilize any subcontractors (including any Affiliate of Supplier) to provide any part of the Services without the prior written approval of Medicis.

2.9 Medicis Responsibilities. References to Medicis’s responsibilities in this Agreement or any Product Exhibit (other than Medicis’s promise to pay for the Services), are intended solely for purposes of identifying what is not Supplier’s responsibility and will not under any circumstance constitute grounds for a claim that Medicis has breached this Agreement.

2.10 Consents and Approvals. For the avoidance of doubt, all actions requiring the approval or consent of a Party under this Agreement must be approved or consented to in writing.

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ARTICLE 3
ORDERS, DELIVERY AND CAPACITY

3.1 Forecast. Prior to the end of each calendar month, Medicis shall provide to Supplier a forecast of the estimated quantities of the Product for the immediately succeeding *** (the “Forecast”). Medicis shall purchase the quantity of Product identified in the Forecast for the *** (“Firm Order”). The quantity of Product for the *** of the Forecast shall be considered non-binding. If requested by Medicis, Supplier shall exercise commercially reasonable efforts to deliver at least *** of the quantity of Product in the applicable Forecast. Except as set forth in this Agreement or the applicable Product Exhibit, Medicis makes no guarantee with respect to the quantity of Product that may be purchased from Supplier by Medicis or its Affiliates.

3.2 Written Orders. Each Firm Order shall specify Medicis’s purchase order number, quantities, monthly delivery schedule and any other elements necessary to ensure the timely production and delivery of the Products. Medicis shall have the right to postpone the delivery dates for Products ordered for delivery during the *** of such Firm Order if a request is made prior to the *** following the *** of such Firm Order. If Medicis postpones delivery of Firm Orders, at the end of *** following the original delivery date, Medicis will ***. Medicis shall receive a credit from Supplier for any such Inventory subsequently used in the production of Products. Upon mutual written agreement, the Parties may decrease the quantities for the *** of such Firm Order.

3.3 Batch Acceptance/Release.

(a) The Products to be Manufactured by Supplier may only be ordered in the minimum batch sizes set forth in the Product Exhibit, except that, if applicable, Medicis may designate split batch filling, provided that the Parties shall have agreed in advance to any increased cost of split batch filling.

(b) Supplier shall perform all applicable in-process testing in accordance with the Specifications using validated methods prior to releasing Product to Medicis. No less than five (5) Business Days prior to the requested shipment date in the applicable Firm Order, Supplier shall provide Medicis, for Medicis’s written approval for final release, a batch release document package consisting of: (i) copies of Labeling; (ii) applicable sections of batch records or upon Medicis’s request a complete copy of the batch record; (iii) a copy of all deviations/investigations, if any; (iv) a certificate of analysis; and (v) a certificate of conformance provided by Supplier’s quality control manager attesting to the fact that the Products have been Manufactured in accordance with the Specifications and Manufacturing Requirements (collectively, “Release Information”).

(c) Medicis shall have *** after receipt of the Release Information to notify Supplier in writing whether it agrees that the Product can be released for shipment. In the event of a denial, Medicis shall send to Supplier a Deficiency Notice as set forth in Section 3.4 below. Within *** after receiving Medicis’s written release to ship, Supplier shall ship the Product to Medicis, or to any other destination designated by Medicis. Shipment by Supplier shall be ***.

3.4 Non-Conforming Orders.

3.4.1 Notification. Medicis shall send to Supplier any Deficiency Notice within *** after receipt of the Product. In the event a Defect in the Product could not reasonably be discovered within this *** period (“Latent Defect”), Medicis shall have the right to reject such Product within *** after discovering the Latent Defect. Except as set out in this Section 3.4 and Section 4.9 (Product Returns) and 4.10 (Product Recalls), ***. Upon receipt of a Deficiency Notice, Supplier shall have *** to notify Medicis in writing as to whether it agrees that the subject Product deviates from the Specifications. If Medicis and Supplier fail to agree within *** following Supplier’s notice to Medicis, the Parties shall resolve the dispute pursuant to Section 3.4.3. Supplier shall, at its sole cost and expense: (a) use commercially reasonable efforts to replace the rejected Product with Product that is not Defective as soon as reasonably practicable, but in no event longer than *** of completion of the investigation of the Defect contingent upon receipt of all Medicis-Supplied Material; (b) ship such replacement Product in accordance with Section 3.3(c); and (c) reimburse to Medicis the Reimbursement Value the Medicis-Supplied Material incorporated into the

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Defective Product. If both Parties decide that the Product cannot be reworked or used, Supplier shall arrange, at its sole cost and expense, for all such Defective Product to be picked up and destroyed in accordance with all Applicable Laws and deliver to Medicis a certificate of destruction signed by an authorized representative of Supplier. Subject to the provisions of this Section, Medicis has the right to reject and return, at the expense of Supplier and for full credit, any portion of any shipment which deviates from the Specifications, without invalidating the remainder of the order.

3.4.2 Shortages. If the Yield for any batch of Product is less than *** of the batch size as set out in any Firm Order (“Acceptable Yield”), then Supplier shall reimburse Medicis for the Medicis-Supplied Material theoretically contained in the shortfall. The amount of Medicis-Supplied Materials theoretically contained in the Shortfall shall be calculated in accordance with the master batch record for such Product. Supplier shall reimburse Medicis for the Medicis-Supplied Materials at Medicis’s actual replacement cost at the time of replacement of the Medicis-Supplied Material (“Medicis-Supplied Material Reimbursement Value”). Upon the written request of Supplier, Medicis shall support the Medicis-Supplied Material Reimbursement Value by providing such documentation that Medicis has in its possession or reasonable control. Notwithstanding the foregoing, Medicis, in its discretion, shall have the right to use the Medicis-Supplied Material Reimbursement Value to set-off against future orders or any other undisputed fees or costs owed to the Supplier. To allow the Supplier to establish a consistent yield track record, the requirement to reimburse the Medicis-Supplied Material Reimbursement Value will not apply for registration batches or for the *** including the validation batches on a Product strength by Product strength basis.

3.4.3 Third-Party Testing. In the event Supplier does not agree with Medicis’s determination that the Product is Defective, the Parties shall attempt, in good faith, to resolve such dispute. If Medicis and Supplier cannot resolve such dispute, an independent laboratory that is acceptable to both Parties shall be asked to test the Product in dispute (“Disputed Product”). To the extent such laboratory finds that the Disputed Product is not Defective, Medicis shall pay the fees of such laboratory related to such testing and shall promptly pay for the Disputed Product. To the extent that such laboratory finds that the Disputed Product is Defective, Supplier shall pay the fees of such laboratory related to such testing.

3.5 Capacity.

(a) At all times during the Term of this Agreement, Supplier shall have sufficient capacity to meet Medicis’s requirements with respect to the Products. To the extent necessary to manufacture the Products, Supplier shall notify Medicis in writing of any additional costs of dedicated equipment or space. If Medicis approves of such costs, Medicis shall have the right to reimburse Supplier for such costs; provided that if Medicis reimburses Supplier for such costs, then upon the expiration and non-renewal or termination of this Agreement for any reason, at Medicis’s request, Supplier shall assign, convey, transfer and deliver such equipment to a facility of Medicis or its designee.

(b) During the Term, Supplier shall be responsible for supplying qualification documentation for inclusion in any applicable regulatory filings in the United States for any Product manufactured by Supplier under this Agreement and for the regulatory submission and approval of the Facility. Supplier shall maintain the applicable Facility in a production capable and ready state throughout the Term of this Agreement.

(c) Within *** following receipt of a Forecast, Supplier shall confirm to Medicis in writing in a form similar in form and substance to Exhibit C that it has the manufacturing capacity to deliver the forecasted volumes.

ARTICLE 4
QUALITY CONTROL AND COMPLIANCE

4.1 Quality Agreement. The Quality Agreement shall be agreed upon by the Parties prior to initiation of the process validation batches and attached as Exhibit B to this Agreement.

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4.2 Quality Control and Assurance.

(a)	Supplier shall perform the Services and perform quality assurance and quality control testing in accordance with: (i) the applicable NDA and/or regulatory approval including, without limitation, the detailed chemistry manufacturing control section thereof; (ii) the applicable Specifications; (iii) the cGMPs; (iv) all other Applicable Laws; and (v) the mutually approved batch record.
(b)	Supplier shall ensure the Products delivered under this Agreement will not be adulterated or misbranded by Supplier under the Federal Food, Drug and Cosmetic Act (“Act”), or under any other Applicable Laws.
(c)	Supplier shall perform such quality control and quality assurance testing as is reasonably required to ensure that the Products comply with all of the Manufacturing Requirements.

4.3 Product Change.

4.3.1 Change Control. Supplier and Medicis shall have formal procedures to document all changes relating to a Product, including changes that: (a) impact the regulatory approvals for the Product; (b) may affect the quality, purity, safety, identity or strength of the Medicis-Supplied Material or the Product; or (c) may require re-validation of any part of the Services or Manufacturing process. All proposed changes shall be communicated in writing and are subject to Medicis’s prior written approval.

4.3.2 Change in Specifications.

(a) Medicis shall have the right upon written notice to Supplier to request Supplier to institute a change in the Specifications for a Product. Supplier shall respond in writing within *** whether Supplier is capable of instituting the change in the Specifications requested by Medicis, the time frame necessary to implement that change, and what effect, if any, Supplier believes such change will have on the Price for such Product.

(b) If Supplier indicates that it is not capable of implementing such change and the change is required by a governmental agency or Applicable Law, the inability of Supplier shall be deemed a Force Majeure. If Supplier indicates it is capable of implementing such change, the Parties shall in good faith agree on the date for implementation of the change and what increase or decrease, if any, in the applicable Price.

4.4 Validation and Testing.

(a) Medicis shall review and approve in writing all validation protocols, results and reports of the validation activities relating to the Product.

(b) Supplier shall test the integrity of the packaging for the Product in accordance with protocols approved by Medicis. Such test will be at Medicis’s cost and expense for validation batches, and at Supplier’s cost and expense for batches for commercial production. In the event a failure in the packaging is identified, Supplier and Medicis shall jointly investigate the causes of such failure, including which Party shall bear the cost of such investigation. Upon request, Supplier shall provide to Medicis any and all data and results in its possession relating to such testing.

(c) In accordance with the applicable Product Exhibit or protocols as designated by Medicis, Supplier, Medicis or a designated Third Party shall conduct stability tests on the Product. In the event that any lot of Product fails stability testing, Supplier and Medicis shall jointly investigate the causes of such failure, including which Party shall bear the cost of such investigation. Upon request, Supplier shall provide to Medicis any and all data and results in its possession relating to the stability testing.

4.5 Product and Process Qualification. Medicis and Supplier will mutually agree upon the requirements and the degree of product and process qualifications. All qualification procedures and results shall require Medicis’s

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prior written approval. Supplier shall qualify all: (a) equipment, computer, utilities, and facilities relating to a Product; and (b) processes used in providing Services, assuring that the process is capable of consistently achieving the acceptance criteria of the process qualification and Specifications. Medicis and Supplier will work together to resolve any process capability issues.

4.6 Safety.

4.6.1 Material Safety Data Sheet. Medicis shall provide Supplier with Material Safety Data Sheets, and updates thereof, for Medicis-Supplied Material as required by Applicable Law. Each Party shall comply with any exposure requirements for Medicis-Supplied Material. Supplier shall promptly inform Medicis of any known adverse environmental, health, or safety events related to the Manufacture of Product

4.6.2 Product Safety. Supplier shall inform Medicis in writing of any major deviations that can potentially impact the Product’s safety, identity, strength, quality or purity, and shall provide supporting documentation.

4.6.3 Waste Disposal. Supplier shall collect and dispose of all waste generated in the performance of the Services in accordance with all Applicable Laws.

4.7 Personnel Training/Qualification. All Supplier personnel engaged in providing Services shall have the appropriate education, training and experience required to perform their assigned functions properly. Supplier shall have a documented training program for such personnel.

4.8 Customer Questions, Complaints and Product Inquiries.

(a) Medicis shall have the sole responsibility for responding to questions and complaints from Medicis customers. Questions or complaints received by Supplier from Medicis customers shall be referred to Medicis within ***. Medicis shall evaluate and, if necessary and as reasonably required, request Supplier’s support in its investigation.

(b) Medicis shall receive all Product inquiries including quality complaints, adverse drug reactions and requests for medical information (an “Inquiry”). Supplier shall notify Medicis within *** of any receipt of an Inquiry and immediately forward it to Medicis. Medicis shall evaluate and, if necessary and as reasonably required, request Supplier’s support in its investigation.

4.9 Product Returns. Medicis shall have the responsibility for handling customer returns of the Products and Supplier shall provide reasonable assistance to Medicis for handling such returns. To the extent that such return results from, or arises out of, any Defect, Supplier shall: (a) use commercially reasonable efforts to replace the returned Products with new Products as soon as reasonably practicable, but in no event longer than sixty (60) calendar days from the date that Medicis notifies Supplier about the returned Products, contingent upon the receipt or availability from Medicis of all Medicis-Supplied Material; and (b) Supplier shall reimburse Medicis for the sum of (A) Medicis-Supplied Material Reimbursement Value, (B) the Price paid by Medicis for the recalled Product, and (C) Medicis’s reasonable out-of-pocket expenses for retrieval, transportation and destruction of the returned Product, including reasonable administrative expenses.

4.10 Product Recalls.

(a) Supplier and Medicis shall maintain records necessary to permit a recall or a field correction of any of the Products delivered to Medicis or customers of Medicis, affected voluntarily or under a threat of, or a directive by, any governmental agency. Each Party shall give immediate notice by telephone (with written confirmation) to the Director of Quality Control or Quality Assurance of the other Party that any Products should be recalled or corrected, or may be required to be recalled or corrected. Medicis shall decide to initiate a recall or to take some other corrective action, if any. Medicis shall control such recall or corrective action, and Supplier will co-operate as reasonably required.

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(b) To the extent that a recall results from, or arises out of, a Defect then: (i) such recall shall be made at Supplier’s cost and expense, including without limitation, that Supplier shall reimburse Medicis for the sum of (A) Medicis-Supplied Material Reimbursement Value, (B) the Price for the recalled Product, and (C) Medicis’s reasonable out-of-pocket expenses for retrieval, transportation and destruction of the recalled Product; and (ii) if requested by Medicis, Supplier shall use its commercially reasonable efforts to replace the recalled Products with new Products as soon as reasonably practicable, but in no event longer than *** from the date that Medicis notifies Supplier about the recalled Products, contingent upon the receipt or availability from Medicis of all Medicis-Supplied Material.

4.11 Retention and Record Keeping.

(a) Supplier shall retain and store in a secure manner representative samples from each Product lot: (i) as required by the United States Code of Federal Regulations (“CFR”); and (ii) in no event, for at least *** after the Product’s expiration date. Supplier shall retain Component representative samples for at least ***. Supplier will notify Medicis prior to retained sample destruction and upon Medicis’s request, shall provide the samples to Medicis at Medicis’s expense.

(b) Supplier shall keep records of the Manufacture of the Products, and retain samples of such Products that are necessary to comply with applicable regulations, including the requirements of the United States Code of Federal Regulations (“CFR”) as well as to assist with resolving Product complaints and other similar investigations. Copies of such records and samples shall be made available to Medicis upon its request and shall be retained by Supplier and be available to Medicis for a period of *** following the Product’s expiration date, or longer if required by Applicable Law. Notwithstanding the foregoing, records with respect to submission and validation batches shall be retained by Supplier and be available to Medicis for the life of the Product. Supplier will notify Medicis prior to record destruction and upon Medicis’s request, shall provide the records to Medicis at Medicis’s expense.

4.12 Regulatory Matters.

(a) Medicis shall fulfill all regulatory requirements with respect to the Product that are imposed by Applicable Laws upon Medicis as the holder of the NDA. Supplier shall be responsible for the registration of the Drug Establishment and maintaining the site manufacturing license for the production of the Product. Supplier and Medicis shall provide one another with information necessary to fulfill such regulatory obligations.

(b) Medicis shall have responsibility for the filing of all documents with the FDA or any other regulatory authority or any other actions that may be required for the receipt of FDA approval or any other regulatory authority approval for the Manufacture of all of the Products hereunder. Supplier, at all times hereunder, shall assist Medicis to obtain FDA or any other regulatory authority approval for the Manufacture of all Products hereunder as quickly as reasonably possible. Medicis will provide to Supplier copies of applicable sections of the NDA (i.e., those related to the Manufacture of Product at the Facility) prior to applicable regulatory pre-approval inspections. Supplier shall review such sections and promptly provide Medicis with revised sections, if applicable.

(c) Each Party may communicate with any governmental agency, including but not limited to governmental agencies responsible for granting regulatory approval for the Products, regarding such Products if in the opinion of that Party’s counsel, such communication is necessary to comply with the terms of this Agreement or the requirements of any Applicable Law, governmental order or regulation; provided, however, that unless in the reasonable opinion of its counsel there is a legal prohibition against doing so, such Party shall permit the other Party to accompany and take part in any communications with the agency, and to receive copies of all such communications from the agency.

(d) Supplier shall notify Medicis immediately if Supplier receives: (i) any warning letters from or on behalf of a governmental agency with respect to the Facility or Manufacture of the Product including, without limitation, any Form FDA-483; or (ii) any notice of any deficiencies noted or otherwise referenced

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by any governmental agency. Supplier shall provide Medicis copies of any written communication from a governmental agency relating to a Product within *** of its receipt.

(e) If either Party becomes engaged in or participates in any investigation, claim, litigation or other proceeding with any Third Party, including but not limited to the FDA, relating in any way to Product or Manufacture of Product, the other Party will cooperate in all reasonable respects with the first Party in connection therewith, including, without limitation, using its reasonable efforts to make available to the first Party or such Third Party at the first Party’s expense, such of the other Party’s employees who may be helpful with respect to such investigation, claim, litigation or other proceeding.

4.13 Annual Product Review. After Medicis has provided written notice ***, Supplier shall provide Medicis with any data or other information that Medicis or its designated third party determines is necessary to conduct an annual product review and in a form and manner reasonably determined by Medicis. Such data shall include, without limitation,: (a) Product information related to all batches produced, batch release (including results from its suppliers), Yield evaluation, release testing data, deviations, rejections, change controls, and validation activities; and (b) control charting or trend analysis of key parameters.

4.14 Inspection Rights.

(a)	Medicis shall have the right to conduct *** Manufacturing Audit (as defined below) *** according to the terms specified in this Section 4.14 hereof (such annual Manufacturing Audit to be hereinafter referred to as an “Annual MA”).
(b)	In addition to the Annual MA, in the event that (i) Supplier is conducting start-up activities, (ii) Supplier receives a FORM FDA 483 or a “Warning Letter” from the FDA, Health Canada or any foreign equivalent outside Canada or the United States relating to the manufacture, packaging or labeling of the Products by Supplier, (iii) Medicis has rejected a batch of Product where it has been agreed or determined that such Product failed to meet the Specifications or GMPs, (iv) Medicis or Supplier has received a series of complaints (i.e., three or more complaints on at least two lots of a Product) from third parties within any calendar year relating to the manufacture of the Product, or (v) if there is a quality issue related to the Product, Medicis shall have the right to conduct additional Manufacturing Audits according to the terms specified in subsection (d) below (such additional Manufacturing Audit or Audits to be hereinafter referred to as an “Incident MA”).
(c)	It is agreed that Medicis may arrange routine observational visits to Supplier’s Facility of not longer than *** and in no greater frequency than *** in any ***.
(d)	For purposes of this Agreement, the term “Manufacturing Audit” shall mean an audit of Supplier’s Facility by no more than *** Medicis employees and/or agents for purposes of reviewing Supplier’s procedures and processes used in manufacturing and/or packaging the Products. Any such agents shall be qualified to conduct manufacturing audits, shall comply with all Supplier’s facility rules regarding safety and security notified by Supplier to Medicis and its employees and/or agents and shall execute a written agreement to maintain in confidence all information obtained during the course of any such audit except for disclosure to Medicis subject to the terms hereof. Each Manufacturing Audit shall be conducted during Supplier’s normal business hours and upon at *** prior written notice to Supplier in the case of an Annual MA, or *** notice to Supplier in the case of an Incident MA. In no event shall a Manufacturing Audit exceed *** in duration, and in all cases Medicis shall ensure that its employees or agents will conduct each Manufacturing Audit, to the extent reasonably possible, so as not to interfere with the normal and ordinary operation of Supplier’s Facility. During a Manufacturing Audit, upon Medicis’s request, Supplier shall make available for Medicis’s review and inspection all equipment and facilities used in or in relation to the manufacture and/or packaging of the Products, records and support documents (i.e., manufacturing and analytical) with respect to each batch of

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the Products and other raw materials and packaging components used in the manufacture or packaging of the Products hereunder. At any such audit, Medicis shall have the right to obtain copies of such batch records with respect to the Product, provided that if this would involve Supplier incurring significant cost then the parties will discuss appropriate cost sharing of those expenses.

(e) In the event Medicis provides Supplier with a written audit report, within thirty (30) days of receipt of this audit report, Supplier shall provide Medicis in writing a proposed action plan subject to Medicis’s prior written approval to address the issues described by Medicis in the report.

4.15 Regulatory Inspections. Supplier shall inform Medicis in writing within *** of any governmental or regulatory inquiry, communication, audit or inspection of the Facility, the Services or Manufacturing processes relating to a Product. Medicis shall be given the opportunity to provide assistance to Supplier in responding to any such inquiry, communication, inspection relating to a Product. Medicis shall have the right to have a representative present at the Facility during any governmental agency inspection relating to a Product. Supplier shall notify Medicis in writing prior to entering into a consent decree or an order being entered against Supplier involving Supplier failure, or alleged failure, to comply with cGMP.

4.16 Compliance with Section 6032 of Deficit Reduction Act of 2005. In accordance with Section 6032 of the Deficit Reduction Act of 2005, Pub. Law No. 109-171, Medicis has adopted a policy entitled “Medicis Employee Education Policy Concerning the Prevention and Detection of Fraud, Waste, and Abuse in Government Health Care Programs: Compliance Policy Pursuant to the Deficit Reduction Act of 2005” (“Deficit Reduction Act Compliance Policy”), which establishes a written protocol for educating all employees (including management) of Medicis, and any contractors or agents who may on behalf of Medicis furnish or authorize the furnishing of Medicis health care items or services, perform billing or coding functions, or become involved in monitoring any health care provided by Medicis (“Applicable Agents”), about Medicis’s internal policies and procedures as well as various federal and state statutes and administrative remedies related to detecting and preventing fraud, waste, and abuse in government health care programs. It is a condition of this Agreement that Supplier comply with the Deficit Reduction Act Compliance Policy, and that Supplier provide the educational information required under the Deficit Reduction Act to all its Affiliates, employees, or approved subcontractors who bear any responsibility in the performance of this Agreement. A copy of Deficit Reduction Act Compliance Policy, as well as an addendum entitled “Federal and State Statutes and Administrative Remedies Related to Preventing and Detecting Fraud, Waste, and Abuse in Government Health Care Programs,” is available at www.Medicis.com/dra, and is incorporated herein by reference. Upon request, copies of the Deficit Reduction Act Compliance Policy will be provided to Supplier. Supplier represents and warrants that, in connection with performing its obligations under this Agreement, it will comply with the Deficit Reduction Act Compliance Policy.

ARTICLE 5
PRICING AND PAYMENT TERMS

5.1 General. Subject to the terms of this Article 5, Medicis shall pay to Supplier the Price and Fees as set forth in the applicable Product Exhibit as Supplier’s total compensation for Services. Unless otherwise indicated, all monetary amounts are expressed in the lawful currency of the United States of America.

5.2 Price Adjustments. The Price shall be subject to periodic adjustment in accordance with the following:

(a)	***
(b)	***
(c)	***

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5.3 Delayed Shipment Discount. Supplier will notify Medicis immediately if it believes it will not be able to ship the Product by the requested ship date in the purchase order. Unless otherwise agreed to by both Parties, if Supplier ships the Product later than *** after the requested ship date in the purchase order (“Grace Period”), and the failure to ship is not attributable to Medicis or as a result of Force Majeure (defined in Section 13.6), then Supplier will discount the Price by *** the Product does not ship after the Grace Period, up to ***. At Medicis’s option, any amounts due under this Section shall be payable as a setoff against other payments that Medicis may owe Supplier. If Supplier fails to ship Product by the requested ship date in the purchase order for *** in a calendar year or *** over the term of the Product Exhibit, Medicis shall have the right to terminate the Product Exhibit under Section 7.2 due to a material breach, or declare that Product Exhibit non-exclusive (if agreement was exclusive) so that Medicis may immediately begin to obtain any or all of its Product needs from another source. In the event Medicis obtains Product from another source, then any Product obtained will reduce the Firm Order accordingly. Supplier will reimburse Medicis for all ***.

5.4 Invoices. Except as otherwise provided in this Agreement, Supplier shall charge and invoice Medicis for (a) those Products that are released and shipped to Medicis or a location designated by Medicis; and (b) Services actually rendered by Supplier for Other Services in accordance with a Product Exhibit and shall submit to Medicis with each invoice such documentation as may be reasonably necessary to support the amounts set forth therein. Each invoice shall, to the extent applicable, identify the Medicis purchase order number, Product numbers, names and quantities, unit price, freight charges and the total amount to be remitted by Medicis. Supplier shall invoice Medicis (referencing Medicis’s purchase order number) upon shipment of the applicable Product, or completion of the applicable Services at the following address, unless otherwise notified in writing by Medicis:

Medicis Global Services Corporation
Attn: Legal Department
8125 North Hayden Road
Scottsdale, AZ 85258-6276

5.5 Payment. Medicis shall pay all undisputed amounts invoiced in accordance with the terms of this Agreement within *** following receipt of the invoice from Supplier prepared in accordance with the terms of this Agreement.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES

6.1 Authority. Each Party represents and warrants that it has the full right and authority to enter into this Agreement, and that it is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

6.2 Not Debarred. Supplier represents and warrants that it shall not use the services of any Persons debarred or suspended under 21 U.S.C. § 335a(a) or (b) in any capacity associated with or related to the Services. Furthermore, Supplier represents and warrants that it shall not hire or retain as an officer or employee any Person who has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the United States Food, Drug, and Cosmetic Act. If at any time this representation and warranty is no longer accurate, Supplier shall immediately notify Medicis of such fact

6.3 Capacity; Personnel. Supplier represents and warrants that: (a) Supplier has, and shall use reasonable commercial efforts to maintain the resources and personnel necessary to perform its obligations under this Agreement and each Product Exhibit in a timely manner; and (b) without limiting Section 4.7, any individual used by Supplier to perform the Services are, and will continue to be, qualified and have, and will continue to have, sufficient technical expertise to perform Supplier’s obligations under this Agreement and each applicable Product Exhibit.

6.4 Title. Supplier represents and warrants that no Person (other than Medicis) shall, by reason of Supplier acts or omissions, have any security interest, or lien on Medicis-Supplied Material, Medicis-Owned Developments, Medicis Confidential Information, Medicis Technical Information or released finished Product. Supplier further represents and warrants that the Medicis-Owned Developments, and Medicis’s use of the Medicis-Owned

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Developments shall not infringe upon, violate, nor be subject to any claim of misappropriation of, any Third Party Intellectual Property or proprietary rights.

6.5 Shelf Life. Supplier represents and warrants that, unless otherwise mutually agreed upon by the Parties, Product shipped to Medicis or other location of Medicis’s designation shall have the shelf life specified in the Product Exhibit.

6.6 Compliance with Laws. Without limiting any terms or conditions of this Agreement, Supplier represents and warrants that:

     (a) Supplier shall perform the Services in accordance with (i) the Applicable Laws; (ii) current Good Laboratory Practices, cGMP or ICH Guidelines, (iii) the terms and conditions of the Product Exhibit; (iv) generally prevailing industry standards; and (v) Medicis’s written instructions consistent with the foregoing;

     (b) all Product, at the date shipped to Medicis or to a location of Medicis’s designation, shall (i) fully conform to the applicable Specifications and Release Information; (ii) have been Manufactured in compliance with the applicable regulatory requirements, cGMP, the Manufacturing Requirements and all Applicable Laws; (iii) not be materially different from the potency specified in the Certificate of Analysis, nor adulterated or misbranded within the meaning of any Applicable Law; and (iv) not be Defective. Medicis may request Product to be shipped under “Restricted Release” (Quarantine) under a planned deviation approved by responsible Quality Department personnel from Medicis and Supplier, in which case the Specifications as defined in this Agreement would refer to the specifications designated in writing by the Quality Department personnel from Medicis and Supplier.

     (c) with respect to its overall operations or the Facility, (i) Supplier has and during the Term shall comply with Applicable Laws; (ii) Supplier has not received any warning letters from or on behalf of a governmental agency; (iii) any deficiencies noted or otherwise referenced in any Form FDA-483 issued to Supplier have been corrected prior to the Effective Date; and (iv) is in compliance with the applicable good manufacturing practices set forth in regulations promulgated by the FDA.

6.7 Components. Supplier represents and warrants that no Product (and no Components thereof) delivered pursuant to this Agreement shall be derived from or Manufactured using any human components. Except as otherwise set forth in the Product Exhibit, Supplier further represents and warrants that no Product (and no Components thereof) shall be derived from or Manufactured using any animal components without the prior written consent of Medicis, which consent may be withheld by Medicis by any reason.

6.8 Performance of Obligations. The Parties represents and warrant that it is not now a party to any agreement which would prevent it from fulfilling its obligations under this Agreement and during the Term of this Agreement it will not knowingly enter into any agreement with any other party that would in any way prevent it from performing its obligations under this Agreement or any Product Exhibit.

6.9 Intellectual Property. Supplier warrants that the sale, use or incorporation into manufactured products of all Products and Services furnished by Supplier hereunder which are either (a) not of Medicis’s design or composition or (b) not as specified in the Specifications, will not infringe upon or dilute any U.S. or foreign patent, copyright, trademark, service mark, trade name or other intellectual property right, and will not misappropriate any trade secret. In addition to its other rights and remedies, Medicis shall have the right to cancel delivery of any Products or Services to be provided hereunder to which any claim described in this Section relates and to return to Supplier for full credit or refund any such Products or Services.

6.10 Additional Covenants of Medicis. Medicis shall:

(a) provide all information in Medicis’s possession or within its control that is necessary for Supplier to Manufacture the Products in accordance with the Specifications and all applicable laws, including GMPs; and

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(b) make its employees available on a timely basis to respond to questions concerning such information.

6.11 Disclaimers.

(a)	EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 6, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND BOTH PARTIES EXPRESSLY DISCLAIM ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY OF NON-INFRINGEMENT.
(b)	IN ADDITION, SUPPLIER MAKES NO WARRANTY REGARDING, AND SHALL HAVE NO LIABILITY WITH RESPECT TO THE CONDUCT OF MEDICIS OR ANY THIRD PARTY OTHER THAN SUPPLIER’S AFFILIATES, SUBCONTRACTORS AND REPRESENTATIVES.
(c)	SUPPLIER WILL NOT BE RESPONSIBLE FOR DELAYS ARISING FROM THE FAILURE OF MEDICIS TO PROVIDE TO SUPPLIER THOSE MATERIALS, INFORMATION AND CO-OPERATION IN A TIMELY MANNER THAT SUPPLIER ADVISES MEDICIS IN WRITING ARE REQUIRED IN ORDER FOR SUPPLIER TO PERFORM ITS OBLIGATIONS ON A TIMELY BASIS INCLUDING THE DATES BY WHICH SUPPLIER REQUIRES SUCH MATERIALS, INFORMATION AND CO-OPERATION. SUPPLIER WILL USE COMMERCIALLY REASONABLE EFFORTS TO MEET THE AGREED UPON TIMELINES AND SPECIFICATIONS. SHOULD THE OCCASION ARISE, SUPPLIER WILL ATTEMPT TO LIMIT THE EFFECT OF SUCH DELAYS AND WILL INFORM MEDICIS OF THE DELAYS AND THEIR IMPACT TO THE TIMELINE.

6.12 Application/Survival. The warranties herein cover both Parties. No warranties shall be deemed disclaimed or excluded unless agreed to in writing by an authorized representative of both Parties. A Party’s approval of designs furnished by the other Party shall not relieve it of its warranties under this Section. The warranties in this Section, and all other warranties express or implied, shall survive delivery, final acceptance and payment pursuant to UCC 2-601 and 2-608.

ARTICLE 7
TERM, RENEWAL AND TERMINATION

7.1 Term. This Agreement shall be effective as of the Effective Date and shall expire at *** (the “Initial Term”). At the end of the Initial Term, this Agreement shall continue automatically for additional one (1) year periods (each a “Renewal Term,” together with the Initial Term, the “Term”) under the same terms and conditions hereunder until terminated in accordance with the terms of Section 7.2 of this Agreement.

7.2 Termination. This Agreement or a Product Exhibit may be terminated as follows:

(a)	By mutual agreement of the Parties.
(b)	Upon failure of either Party to remedy its material breach of any of the obligations or provisions of this Agreement within *** following receipt of written notice of said breach, the aggrieved Party shall have the right to terminate this Agreement immediately by written notice.
(c)	Either Party at its sole option may immediately terminate this Agreement upon written notice, but without prior advance notice, to the other Party in the event that (i) the other Party is declared insolvent or bankrupt by a court of competent jurisdiction; (ii) a voluntary petition of bankruptcy

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is filed in any court of competent jurisdiction by such other party; (iii) a receiver is appointed or applied for; or (iv) this Agreement is assigned by such other Party for the benefit of creditors.

(d) By Medicis upon the occurrence of the following and Supplier fails to cure within *** after receipt of written notice from Medicis identifying the breach. Such termination shall be without liability to Medicis except for Product or Services previously delivered and accepted.

(i)	Supplier fails to make delivery of Products or Services on or before the delivery date specified on the Product Exhibit, in accordance with the terms of Section 5.3;
(ii)	Supplier materially breaches any material term, provisions, warranty, representation obligation or condition of this Agreement;
(iii)	Supplier, due to its negligence or willful misconduct and excluding Force Majeure events, fails to make progress as to endanger performance of the applicable Product Exhibit in accordance with its terms; or
(iv)	Supplier ceases to conduct its operations in the normal course of business (including inability to meet its obligations as they mature).

(e) By Supplier upon:

(i)	a material breach by Medicis of Medicis’s obligations of confidentiality under Article 8 of this Agreement if Medicis fails to cure such breach within *** after receipt of written notice from the Supplier identifying the breach; or
(ii)	non-payment of an undisputed amount invoiced by Supplier to Medicis if Medicis fails to cure such breach within *** after receipt of written notice from Supplier identifying the non-payment and Supplier’s intent to terminate this Agreement pursuant to this Section.

(f) Medicis may terminate this Agreement or any Product Exhibit as to any Products or Services upon *** written notice in the event that any governmental agency takes any action, or raises any objection, that prevents Medicis from importing, exporting, purchasing or selling such Products. If the basis for the action results from the breach of this Agreement by Supplier, Medicis shall have the right to terminate this Agreement with respect to the affected Products and to Manufacture the Products itself or have the Products Manufactured by a an alternate manufacturer.

(g) This Agreement or any Product Exhibit may be terminated by either Party for any reason upon *** prior written notice.

(h) This Agreement may be terminated by either Party at the expiration of the Initial Term or at the expiration of any Renewal Term upon not less than *** prior written notice to the other Party.

7.3 Rights and Obligations Upon Termination.

(a) Each Product Exhibit shall terminate automatically and immediately upon termination of the Agreement for any reason. Any termination of a Product Exhibit shall not be deemed to be termination of this Agreement or any other Product Exhibit. At Medicis’s option, the Initial Term or any Renewal Term will automatically be extended for any period commensurate with the remaining term of any Product Exhibits which are then in effect. In such a case, the termination of this Agreement will be the termination date of the last Product Exhibit to terminate.

(b) Unless otherwise set forth in a Product Exhibit, Supplier shall retain samples of the Products in accordance with Section 4.11. Supplier will contact Medicis to arrange for proper disposal of all samples and all other chemical wastes generated by the Product Exhibit at Medicis’s expense and direction.

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Notwithstanding the foregoing, all other Products and Medicis-Supplied Materials shall be delivered or returned to Medicis, or, at Medicis’s direction, destroyed.

(c) Any termination or expiration of this Agreement shall not affect any outstanding obligations or payments due hereunder prior to such termination or expiration, nor shall it prejudice any other remedies that the Parties may have under this Agreement or otherwise.

(d) If this Agreement expires or is terminated in whole or in part for any reason other than a default by Supplier, Medicis shall:

(i)	***
(ii)	***
(iii)	***

In the event of the termination of this Agreement or any Product Exhibit for any reason ***, Supplier agrees to continue to Manufacture Products for Medicis and its Affiliates and their respective sublicensees pursuant to the terms and conditions of this Agreement until such time as Medicis has transitioned successfully the Manufacture of the Products. Medicis agrees to exercise commercially reasonable efforts to transition the Manufacture of the Products, and Supplier shall provide the assistance reasonably necessary to effectuate such transition including assisting Medicis in the transfer of relevant manufacturing technology and information to another qualified manufacturing site.

(e) Supplier shall return to Medicis any unused Medicis-Supplied Material and all samples and Specifications, records and data held or generated by Supplier in performing the Services under this Agreement, provided however, that that one (1) copy of such Specifications, records and data may be retained by Supplier for legal compliance purposes, as means of determining any continuing obligation or confidentiality, but for no other purpose.

7.4 Survival. The provisions of Articles 1, 6 and 8 through 13 and Sections 4.8, 4.9, 4.10, 4.11 and 7.3 shall survive the termination, expiration and non-renewal or completion of this Agreement, except to the extent any provision of such Section is expressly limited to the term of this Agreement or the Product Exhibit.

ARTICLE 8
CONFIDENTIALITY

8.1 Medicis Confidential Information. Supplier acknowledges and agrees: (a) that (i) any documents or materials created pursuant to this Agreement, (ii) any plans, Specifications, designs, data, results, information, works in progress and any other documents or material related to the Product, and (iii) any information, works in progress, trade secrets, data or other secret, sensitive or confidential material related to the business technology, products, systems, formulas, practices, processes, customers or projects of Medicis that are disclosed to or become known by Supplier during the Term of this Agreement and which are not generally known to the public constitute the confidential information of Medicis including, without limitation, the Medicis Patents, Medicis-Supplied Material and the Medicis Technical Information (collectively, the “Medicis Confidential Information”); (b) to hold such Medicis Confidential Information in strict confidence; (c) not to disclose such Medicis Confidential Information to any Third Party except to Supplier’s Representatives on a need to know basis, provided such Representatives are subject to confidentiality provisions substantially similar to those set forth herein protecting Medicis Confidential Information; (d) to use such Medicis Confidential Information only as necessary to perform the Services for Medicis under this Agreement; and (e) upon termination or expiration and non-renewal of this Agreement, to destroy or return all tangible Medicis Confidential Information (including tangible media containing Medicis Confidential Information) to Medicis, except that one copy thereof may be maintained in the file of Supplier (subject to Supplier’s on-going compliance with the obligations set forth herein) to document information developed. This

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provision shall supersede and replace any previous confidentiality or non-disclosure agreements between the Parties with respect to the subject matter hereof and be deemed to cover all information disclosed thereunder.

8.2 Supplier Confidential Information. Medicis acknowledges and agrees: (a) (i) that any Supplier Technical Information that is not generally known to the public constitute the confidential information of Supplier, and (ii) any information, works in progress, trade secrets, data or other secret, sensitive or confidential material related to the business technology, products, systems, formulas, practices, processes, customers or projects of Supplier including, without limitation, the Supplier’s Patents, Material and Supplier Technical Information, and that are (A) disclosed to or become known by Medicis during the Term of this Agreement, (B) not generally known to the public, and (C) do not in any manner contain or use or in any way were created, developed, devised or discovered by any Person using Medicis’s Confidential Information (collectively the “Supplier Confidential Information”); (b) to hold such Supplier Confidential Information in strict confidence; (c) not to disclose such Supplier Confidential Information to any Third Party except to Medicis’s Representatives on a need to know basis, provided such Representatives are subject to confidentiality provisions substantially similar to those set forth herein protecting Supplier Confidential Information; (d) to use such Supplier Confidential Information only as reasonably useful to further develop, manufacture, or commercialize any Products or any formulation based on the Products; and (e) upon termination or expiration and non-renewal of this Agreement, to destroy or return all tangible Supplier Confidential Information (including tangible media containing Supplier’s Confidential Information) to Supplier, except that one copy thereof may be maintained in the file of Medicis’s law department to document information developed. This provision shall supersede and replace any previous confidentiality or non-disclosure agreements between the Parties with respect to the subject matter hereof and be deemed to cover all information disclosed thereunder.

8.3 Permitted Disclosures. Notwithstanding Sections 8.1 and 8.2, either Party may disclose Medicis Confidential Information or Supplier Confidential Information in response to: (a) an order from a court or governmental agency; (b) in response to a party in litigation, provided that an appropriate protective order has been entered; or (c) if such disclosure is necessary to comply with any other laws or regulations applicable to the disclosing party. Notwithstanding Section 8.2, Medicis may disclose Supplier Confidential Information to Third Parties either with (x) Supplier’s written consent, not to be unreasonably withheld, or (y) pursuant to a written confidentiality agreement with confidentiality obligations no less restrictive then the confidentiality obligations of this Agreement, and as reasonably necessary (as determined by Medicis) to further develop, enhance, improve, Manufacture, or commercialize any Products or any formulations based on the Products.

8.4 Exceptions. Notwithstanding Sections 8.1 and 8.2, the foregoing restrictions on disclosure of Confidential Information shall not apply to information that a Party can reasonably demonstrate: (a) is or hereafter becomes generally available to the trade or public other than by reason of any breach hereof; (b) was already known to the receiving Party at the time of disclosure; (c) is disclosed to the receiving Party by a Third Party that has the right to disclose such information without any obligations of confidentiality; or (d) is developed by or on behalf of the receiving Party independently, without reliance on Confidential Information received hereunder.

ARTICLE 9
PROPRIETARY RIGHTS

9.1 License to Manufacture Product. During the Term, Medicis grants to Supplier a non-exclusive, non-transferable license under the Medicis Patents and Medicis Confidential Information to Manufacture the Products solely for Medicis, its Affiliates and their respective Sublicensees and to perform the Other Services. The foregoing license granted to Supplier shall terminate immediately with respect to a Product under a Product Exhibit upon termination or expiration or non-renewal of the applicable Product Exhibit.

9.2 NDAs. Notwithstanding any assistance provided by Supplier in acquiring approval from the FDA of any NDA, Medicis shall own all right, title and interest in and to each NDA.

9.3 Intellectual Property.

(a) Medicis shall retain ownership of all information, documents, and materials that Medicis provides to Supplier in connection with the performance of this Agreement and all Product Exhibits. Further,

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Medicis shall have the right to obtain and use copies of all reports, documents and other tangible materials generated by Supplier that are related to the Product as part of the Services rendered under this Agreement.

(b)

Medicis shall own, and Supplier hereby assigns to Medicis, all right, title and interest in and to any Intellectual Property developed by Supplier in the course of Supplier performing the Services under this Agreement that arise from, are based on, or relate to Supplier’s use of Confidential Information of Medicis or its Affiliates or the Product, including without limitation, the composition or formulation of, apparatus, system, processes or method of manufacture for or method of use of Product, any patents, trademarks, service marks, trade names, slogans, logos, copyrights, trade dress, designs, moral rights, know-how and goodwill associated with, related to or arises from Product and any improvements, enhancements, modifications, changes or derivative works thereof (collectively, the “Medicis Owned Developments”); provided, however, that Medicis Owned Developments shall not include Supplier Owned Developments. As used herein, “Supplier Owned Developments” means Intellectual Property that ***. With respect to Supplier Owned Developments, Supplier hereby grants to Medicis a non-exclusive, irrevocable, royalty-free license, with the right to sublicense, to use such Supplier Owned Developments in connection with Product. Supplier shall have no rights of ownership or use in any Intellectual Property owned by Medicis or any Medicis Owned Developments, including without limitation the Product and related technology. Upon completion or termination of the Services under the applicable Product Exhibit, Supplier shall disclose to Medicis all Medicis Owned Developments developed as part of such Services.

9.4 Trademarks. Medicis hereby grants to Supplier a nonexclusive license to use the trademarks MEDICIS PHARMACEUTICAL CORPORATION, MEDICIS, and any trademarks that are identified in a Product Exhibit as a “Product Trademark,” for the sole purpose of labeling and packaging Product that is Manufactured for Medicis in accordance with this Agreement. Any use by Supplier of a Product Trademark is subject to Medicis’s prior written approval. Such license shall terminate immediately upon termination or expiration of this Agreement or the Product Exhibit with respect to a Product Trademark. Supplier may not sublicense its rights under this Section except with Medicis’s prior written consent, which consent may be withheld by Medicis for any reason.

9.5 Settlement. If a Third Party asserts that the use of Supplier technology in the Manufacture of the Product directly or indirectly infringes a patent or other right owned by such Third Party, Supplier shall use commercially reasonable efforts to resolve the problem raised by the asserted infringement. The matter shall be deemed resolved if Supplier obtains: (a) a license permitting Medicis to use the Third Party patent rights or Third Party technology for the Product with either no royalties or royalties payable by Medicis; or (b) an agreement from the Third Party that: (i) no action will be taken against Medicis or Sublicensees, or (ii) that the patent or other right is not infringed; or (c) a holding that the Third-Party patent is invalid, or the Third-Party patent or other right is unenforceable or not infringed by a court of competent jurisdiction from which no appeal has or can be taken.

ARTICLE 10
INDEMNITY

10.1 Indemnification by Medicis. Medicis shall indemnify, defend and hold Supplier, its Representatives and their respective directors, officers, successors and permitted assigns (“Supplier Indemnified Parties”) harmless from and against any and all Third Party liabilities, losses, claims, demands, obligations, judgments, causes of action, assessments, fines, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees) (collectively, “Claims”), in each case to the extent such Claims are based on, arise out of, or are caused by: (a) a breach or inaccuracy of any representation or warranty made by Medicis in this Agreement or any Product Exhibit; (b) any negligent, willful, or reckless action, misconduct, error, inaction or omission of Medicis or its employees, agents or subcontractors; (c) any failure to perform any covenant, obligation, agreement, undertaking, or responsibility of Medicis in this Agreement or a Product Exhibit; (d) any allegation of infringement or misappropriation of patent, trade secret, copyright or trademark rights or other intellectual property of any Third Party resulting from Medicis’s instructions for labeling or packaging of the Products or Medicis’s design or Specifications for the Products; or (e) the handling, possession, marketing, distribution, promotion, sale, or use of Product following shipment of Product to Medicis by Supplier including, but not limited to, any claim asserting strict liability, except with respect to any of the foregoing under subsections (a), (b), (c), (d) or (e) to the extent such

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Claims are caused directly by, the negligence, gross negligence or willful misconduct of Supplier or its Representatives or suppliers, any breach of any representation or warranty made by Supplier in this Agreement, or Supplier failure to perform any covenant, agreement, undertaking or responsibility of Supplier contained in this Agreement or a Product Exhibit. Notwithstanding the foregoing, Medicis shall not be liable for any Claims to the extent caused by any of the Supplier Indemnified Parties as determined in a final, non-appealable order of a court of competent jurisdiction.

10.2 Indemnification by Supplier. Supplier shall indemnify, defend and hold Medicis, its Representatives and their respective directors, officers, successors and permitted assigns (“Medicis Indemnified Parties”) harmless from and against any and all Claims, in each case to the extent such Claims are based on, arise out of, or are caused by: (a) a breach or inaccuracy of any representation or warranty made by Supplier in this Agreement or any Product Exhibit; (b) a failure by Supplier or its employees, agents, or subcontractors to perform the Services in accordance with this Agreement or any Product Exhibit; (c) any negligent, willful or reckless action, misconduct, error, inaction or omission of Supplier or its employees, agents or subcontractors; or (d) any allegations of infringement or misappropriation of any patent or trade secret rights of a Third Party arising out of Supplier’s or Supplier’s Representatives performance of the Services under this Agreement not related to Medicis’s design or Specifications for the Products except with respect to any of the foregoing under subsections (a), (b), (c) or (d), to the extent such Claims are based on, arise out of, or are caused by, the negligence, gross negligence or willful misconduct of Medicis or its Representatives or suppliers or any breach of any representation or warranty made by Medicis in this Agreement, or Medicis’ failure to perform any covenant, agreement, undertaking or responsibility of Medicis contained in this Agreement or a Product Exhibit. Notwithstanding the foregoing, Supplier shall not be liable for any Claims to the extent caused by any of the Medicis Indemnified Parties as determined in a final, non-appealable order of a court of competent jurisdiction.

10.3 Procedures for Indemnification. The obligations and rights of the each of the parties as an Indemnifying Party (as defined below) or as an Indemnified Party (as defined below) under Sections 10.1 or 10.2, as the case may be, with respect to Claims that are subject to indemnification as provided for in Sections 10.1 or 10.2 (a “Claim”) shall be governed by and be contingent upon the following additional terms and conditions set forth in this Section 10.3. As soon as a party becomes aware of a Claim (actual or threatened) for which it intends to seek indemnification under Section 10.1 (in the case of Supplier) or Section 10.2 (in the case of Medicis) (the party seeking indemnification being referred to as the “Indemnified Party” and the party obligated for indemnification being referred to as the “Indemnifying Party”), the Indemnified Party shall give the Indemnifying Party prompt written notice and shall permit the Indemnifying Party to manage and have control over the defense of such Claim. The Indemnified Party agrees to provide all reasonable information and assistance, at the Indemnified Party’s sole cost and expense, to the Indemnifying Party in such defense. The Indemnifying Party is authorized to direct all aspects of the defense for which it has an obligation of indemnification and defense hereunder, including without limitation, selection of counsel, discovery, motions and settlement. The Indemnifying Party may not, however, settle or dispose of any such matter in any manner which would confess wrongdoing or otherwise adversely impact the rights or interest of the Indemnified Party without the prior written consent of the Indemnified Party, which consent may not be unreasonably delayed or withheld.

ARTICLE 11
LIMITATION OF LIABILITY

11.1 No Indirect Damages. Except as set forth in Section 11.3, neither Party to this Agreement shall have liability to the other Party to this Agreement for special, incidental, indirect, consequential, exemplary or punitive damages of any kind arising under this Agreement, whether any such claim is based upon warranty, breach of contract, negligence, strict liability or other tort, or any other legal theory, even if such Party has been advised of the possibility of such damages.

11.2 Direct Damages. Except as set forth in Section 11.3, in no event shall either Party’s liability hereunder exceed ***.

11.3 Exceptions. Sections 11.1 and 11.2 shall not apply to the following: (a) a Party’s obligation to indemnify the other for Claims in Article 10; (b) the costs of a recall set forth in Section 4.10; (c) either Party’s wrongful

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termination of this Agreement or abandonment of the performance of its obligations under this Agreement or any Product Exhibit; (d) damages arising out of either Party’s gross negligence or intentional misconduct or intentional inaction under this Agreement; or (e) damages due to a Party’s breach of confidentiality.

ARTICLE 12
DISPUTE RESOLUTION

12.1 Senior Executives. In the event the Parties do not or are unable to reach a mutually agreeable resolution within *** of receipt of written notice of any claim, dispute, or controversy, the Parties’ respective project managers shall promptly elevate the dispute to representative senior executives of each Party. These senior executives from each Party shall meet for face-to-face negotiation within *** from the date of the original written notice. If the senior executives do not reach a resolution within *** after such meeting, or if either Party does not make a senior executive available for face-to-face negotiation as provided herein, if the Parties choose not to submit to Voluntary Non-Binding Mediation in accordance with Section 12.2 then they shall be free to pursue those remedies available to them at law or in equity subject to the terms of this Agreement.

12.2 Voluntary, Non-Binding Mediation. If executive-level performance review is not successful in resolving the dispute, the Parties may, but shall not be obligated to, mutually agree in writing to submit the dispute to non-binding mediation. Mediation must occur within twenty (20) Business Days after the Parties agree to submit the dispute to mediation. The Parties mutually shall select an independent mediator experienced in the Services that are the subject of the dispute, and each shall designate a representative(s) to meet with the mediator in good faith in an effort to resolve the dispute. The specific format for the mediation shall be left to the discretion of the mediator and the designated Party representatives and may include the preparation of agreed-upon statements of fact or written statements of position furnished to the other Party.

12.3 Continued Performance; No Tolling of Cure Periods. Except where clearly prevented by dispute, each Party agrees to continue performing its obligations under this Agreement and all Product Exhibits while the dispute is being resolved, subject to continued performance by the other Party of its obligations unless and until the dispute is resolved or until this Agreement or the Product Exhibit is terminated in accordance with the terms of this Agreement or the Product Exhibits. The time frame for a Party to cure any breach of the terms of this Agreement or any Product Exhibit shall not be tolled by the pendency of any dispute resolution procedures.

12.4 ***

12.5 Equitable Relief. Notwithstanding the foregoing, either Party may apply to any court having jurisdiction over the Parties and the subject matter of the dispute for a temporary restraining order or preliminary injunction to enjoin the other Party from misappropriating or infringing any Intellectual Property rights of the Party seeking such relief, or to enforce the termination or confidentiality provisions of this Agreement.

ARTICLE 13
MISCELLANEOUS

13.1 Permits. Supplier shall obtain and maintain, at its own expense, the necessary permits required for the Manufacture of the Products by Supplier to Medicis and its Representatives under this Agreement, provided that Supplier shall not be responsible for obtaining or maintaining any other permits or other regulatory approvals in respect of the Products or the Specifications, which shall be the sole responsibility of Medicis.

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13.2 Insurance.

13.2.1 Property Damage. Medicis shall purchase and maintain insurance or may self-insure to cover the Medicis-Supplied Material during shipment to Supplier. Supplier shall purchase and maintain insurance to cover the Medicis-Supplied Material and other items supplied by Medicis, work-in-process and finished goods while such items are at Supplier.

13.2.2 Liability. During the Term and for a period of *** thereafter, each party shall obtain and maintain at its own cost and expense from a qualified insurance company, comprehensive general liability insurance, including standard product liability insurance designating the other party as an additional insured. Such policies will provide protection against any and all claims, demands and causes of action arising out of any defects or failure to perform, alleged or otherwise, of the Product or any material used in connection therewith or any use thereof. The minimum amount of liability coverage required by this Agreement shall be not less than *** for each occurrence for bodily injury liability, personal injury liability, products liability, property damage liability, contractual liability and completed operations liability and not less than *** annual aggregate limit.

13.2.3 Evidence of Coverage; Cancellation. Each Party will provide the other with a certificate of insurance evidencing the applicable coverage and showing the name of the issuing company, the policy number, the effective date, the expiration date and the limits of liability. The insurance certificate shall further provide for a minimum of thirty (30) calendar days written notice to the recipient of a cancellation of, or material change in, the insurance. Each Party shall cause its insurance policy to name the other Party hereto as an additional insured and a loss payee.

13.3 Notices. All notices and consents required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, (b) mailed by first class certified mail, return receipt requested, postage prepaid, on the date certified by the U.S. Postal Service to have been received by the addressee, (c) by facsimile, provided the sender personally calls the recipient and confirms receipt of such facsimile, or (d) on the date certified by a nationally recognized overnight express courier service to have been received by the recipient, as follows:

If to Supplier:

Attn: ***
WellSpring Pharmaceutical Canada Corp.
400 Iroquois Shore Road
Oakville, ON L6H 1M5, Canada
Fax: (905)337-7239

with a courtesy copy, which shall not constitute notice hereunder, sent to:

If to Medicis:

Medicis Global Services Corporation
Attn: Legal Department
8125 North Hayden Road
Scottsdale, AZ 85258-6276
Fax: (602) 808-3891

13.4 Publicity. Neither Party shall issue or release any media release or public announcement (including any announcements made via any posting on the World Wide Web or Internet), or other similar publicity announcing the existence of this Agreement or relating to any term or condition of this Agreement in any country or the relationships created by this Agreement without three (3) Business Days’ prior written notice, including by e-mail, to the other Party and the prior agreement of the other Party on the relevant wording relating to the Agreement or term or condition of the Agreement. Notwithstanding the foregoing, each Party shall have the right to issue media

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releases, immediately and without prior consent of the other Party that disclose any information required by the rules and regulations of the Securities and Exchange Commission, the New York Stock Exchange (NYSE), National Association of Securities Dealers (NASD) or Applicable Law; provided that the disclosing Party shall notify, including by e-mail, the other Party no later than simultaneously with such issuance of such disclosure and shall use commercially reasonable efforts to provide a copy of the relevant wording relating to the Agreement, or any term or condition thereof to the other Party prior to the disclosure thereof. Supplier shall contact Medicis’s Investor Relations Group for any such approval by Medicis.

13.5 Relationship Between Parties. The relationship of Supplier to Medicis shall be that of an independent contractor, and no provision of this Agreement shall be construed to constitute any Party as a partner or joint venturer of the other Party. Under no circumstances shall the independent contractor or any employee of Supplier be considered an employee or agent of Medicis. Except as may be more specifically set forth herein; (a) neither Party shall be liable in any manner for the debts and liabilities of the other Party; (b) neither Party shall have any right by virtue of this Agreement to bind the other Party in any manner whatsoever; and (c) each Party shall be solely responsible for all costs and expenses incurred by it in performing its obligations under this Agreement.

13.6 Force Majeure.

(a) If either Party is prevented from complying, either totally or in part with any of the terms or provisions set forth herein (except for an obligation to make monetary payments), by reason of force majeure, including, by way of example and not of limitation, fire, flood, explosion, storm, strike, lockout or other labor dispute, riot, war, rebellion, acts of terrorism, accidents, acts of God, acts of governmental agencies or instrumentalities, failure of suppliers (including Medicis’s inability to obtain Medicis-Supplied Material from a Third Party) or any other external or non-negligent internal cause or externally induced casualty, which, in each instance, are beyond its reasonable control, whether similar to the foregoing contingencies or not (“Force Majeure”), such Party shall provide written notice to the other Party within *** following the occurrence of such event and shall identify the requirements of this Agreement or such of its obligations as may be affected, and to the extent so affected and beyond such Party’s reasonable control, such obligations shall be suspended during the period of such disability. Delays caused by events for which a Party could have but failed to take commercially reasonable steps to prevent or compensate for (e.g. fire insurance) shall not be considered to be caused by Force Majeure events.

(b) If any raw materials, facility systems, or capacity are used for both Product and any other products or purposes (such other products or purposes are collectively referred to as, “Competing Products”), any allocation necessary as a result of a Force Majeure event shall be made as between Medicis’s needs and the needs of any other Third Party to whom Supplier has firm contractual obligations *** in the *** preceding the date of the event constituting Force Majeure.

(c) The Party prevented from performing hereunder shall use reasonable efforts to remove such disability, and shall continue performance whenever such causes are removed. The Party so affected shall give to the other Party a good faith estimate of the continuing effect of the Force Majeure condition and the duration of the affected Party’s nonperformance.

(d) If the period of any previous actual nonperformance of Supplier because of Supplier Force Majeure conditions plus the anticipated future period of Supplier nonperformance because of such conditions will exceed an aggregate of ***, Medicis may terminate this Agreement by notice to Supplier. If the period of any previous actual nonperformance of Medicis because of Medicis Force Majeure conditions plus the anticipated future period of Medicis nonperformance because of such conditions will exceed an aggregate of ***, Supplier may terminate this Agreement by notice to Medicis.

13.7 Binding, Nature, Assignments.

(a) This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and assigns; provided, however, that neither Party shall voluntarily, by operation of law or otherwise, assign or delegate any of its rights, duties or obligations (including, without limitation, by engaging a subcontractor) under this Agreement without the prior written consent of the other Party, which

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consent shall not: (i) be unreasonably withheld, delayed or conditioned nor (ii) require the payment of any additional consideration. Notwithstanding the foregoing, Medicis may assign this Agreement, without Supplier’s consent and without any additional consideration, as part of an assignment or sale of all, or substantially all, of its assets to which this Agreement relates provided Medicis provides Supplier with prior written notice of the assignment and the entity to which the Agreement is assigned agrees to comply with all of Medicis’s obligations under this Agreement.

(b) This Agreement also may be assigned by Medicis, in whole or in part, as part of an assignment, sale or licensing of a Product(s) to which this Agreement relates to subject to Supplier’s prior written consent, provided: (i) such consent shall not be unreasonably withheld, delayed or conditioned and shall not be conditioned upon any additional payments to Supplier; and (ii) the entity to which the Agreement is assigned agrees to comply with all of Medicis’ obligations under this Agreement.

(c) Supplier acknowledges that such an assignment or sale may be structured as a license with an option to purchase and that Medicis may be responsible for the Manufacture of the applicable Products for a certain period of time, in which case the acquiring entity or licensee shall place orders for Products through Medicis; (i) agrees that such a structure shall not be a basis for withholding its consent; and (ii) agrees to fulfill such orders in accordance with the terms and conditions of this Agreement.

13.8 Costs and Attorneys’ Fees. The prevailing Party in any suit or proceeding arising out of or relating to this Agreement shall be entitled to recover all of its costs and expenses, including reasonable attorneys’ fees.

13.9 No Waivers. No failure to exercise, delay in exercising, or single or partial exercise of any right, power, or remedy by either Party shall constitute a waiver of, nor preclude any other or further exercise of, the same or any other right, power, or remedy.

13.10 Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws, the legality, validity, and enforceability of the remaining provisions shall not be affected thereby, and in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of the document a provision that is legal, valid, and enforceable, and as similar in terms to such illegal, invalid, or unenforceable provision as may be possible while giving effect to the benefits and burdens for which the Parties have bargained hereunder.

13.11 Neither Party Considered Drafter. Despite the possibility that one Party may have prepared the initial draft of this Agreement or played the greater role in the preparation of subsequent drafts, the Parties agree that neither of them shall be deemed the drafter of this Agreement and that, in construing this Agreement in case of any claim that any provision hereof may be ambiguous, no such provision shall be construed in favor of one Party on the ground that such provision was drafted by the other.

13.12 Cumulative Remedies. All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either Party at law, in equity or otherwise.

13.13 Controlling Law, Jurisdiction and Venue. This Agreement is made under, and shall be construed and enforced in accordance with, the laws of the State of New York, without regard to that State’s conflict of law rules or principles. The Parties hereby submit to the jurisdiction of, and waive any venue objections against, the United States District Court for the District of New York and the state courts of New York, in any litigation or dispute arising out of this Agreement.

13.14 Amendment. This Agreement may be modified or amended only by written agreement of the Parties hereto signed by authorized representatives of the Parties.

13.15 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart hereof.

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13.16 Entire Understanding. This Agreement, the Quality Agreement, the Product Exhibit and any other attachments, appendixes, exhibits, or schedules hereto and thereto, state the entire understanding between the Parties with respect to the subject matter hereof, and supersedes all earlier and contemporaneous oral and written communications and agreements or promises made with respect to the same subject matter, and any other previous agreements, promises, or representations of any kind with respect to the relationship between the Parties hereto.

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative as of the Effective Date.

MEDICIS GLOBAL SERVICES CORPORATION		WELLSPRING PHARMACEUTICAL CANADA CORP.
By:		By:
	Name: Mark A. Prygocki, Sr.		Name:
	Title: CFO and Treasurer		Title:

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APPENDIX 1

DEVELOPMENT, TECHNICAL TRANSFER AND OTHER SERVICES

1. General. Supplier acknowledges and agrees that from time to time Medicis may request, and Supplier shall provide, certain Other Services in accordance with the terms and conditions of a mutually agreed Product Exhibit and this Agreement.

1.1 Performance Milestones. Supplier shall perform the Other Services in accordance with the time frames and milestones set forth in the applicable Product Exhibit. Except as set forth in Section 1.3 below, if Supplier fails to meet a deadline or milestone set forth in the Product Exhibit for any reason (“Deadline”), then in addition to any other rights or remedies that may be available to Medicis as provided in this Agreement and/or the applicable Product Exhibit or at law or in equity, Medicis shall send Supplier written notice of such failure (“Default Notice”) (which notice may be sent electronically). If Supplier does not perform with respect to such Deadline within *** following the date of such Default Notice (“Default Period”), Medicis shall have the right to the remedies set forth in Section 1.2.

1.2 Remedies for Defective Services.

1.

Except as otherwise set forth in Section 1.3, in the event that Supplier’s performance of, or failure to perform, the Other Services (excluding, but not limited to, Force Majeure, failure to perform due to sanctions, warnings, orders or penalties imposed by any Governmental Bodies) results in (a) the Services not being performed in accordance with the Product Exhibit, including Supplier’s failure to meet any applicable Deadlines, (b) the Services and/or deliverables having to be re-performed to obtain the desired result, and/or (c) the deliverables containing errors or Defects (subsections (a), (b) and (c) are individually and collectively referred to as the “Defective Services”), then in addition to any other rights or remedies that may be available to Medicis as provided in this Agreement and/or the applicable Product Exhibit or at law or in equity, Supplier shall, at no additional cost to Medicis and at Medicis’s option (x) repeat the Defective Services until such time as Services have been provided in accordance with the applicable Product Exhibit; or (y) refund to Medicis all amounts paid by Medicis to Supplier in connection with the Defective Services and any affected Services.

2.

In addition to each of the foregoing options, if Supplier fails to meet a Deadline in accordance with Section 1.1 above, Medicis shall have the right, to the fullest extent permitted by law, hold back any fees owed and not yet paid to Supplier pursuant to the Project Exhibit (the “Hold Back Amount”). Medicis agrees to notify Supplier of its decision to exercise its right of hold back, provided, that the failure to give such notice shall not affect the validity of any such refusal to make payments. If, however, Supplier performs its obligations within *** of the date of the expiration of the Default Period, Medicis shall release to Supplier the entire Holdback Amount. If Supplier fails to perform its obligations within *** following the date of the expiration of the Default Period, Medicis shall have the right to retain the entire Hold Back Amount.

1.3 Exceptions to Remedies for Defective Services. Supplier shall not be liable for Defective Services to the extent that: (a) Supplier is prevented from achieving a Deadline or from performing its obligations under a Product Exhibit as a result of Medicis’s or a Third Party Subcontractor’s failure to perform an obligation that is identified as a precondition to Supplier’s ability to perform; or (b) Medicis’s failure to provide materials, information and co-operation from Medicis required under the applicable Product Exhibit to perform the Other Services. In the event a Defective Service is caused by Medicis or a Third Party Subcontractor, both Parties shall work in good faith to determine an appropriate course of action and if needed, to modify the applicable Product Exhibit Deadlines. As used herein, “Third Party Subcontractor” means any subcontractor used by Supplier and authorized by Medicis to perform the Other Services.

1.4 Change in Scope of Services. No change will be made in the nature or scope of the Other Services to be performed by Supplier or in the amounts to be paid by Medicis therefore without the prior written approval of an authorized representative of each of Supplier and Medicis.

Appendix 1
Medicis / Wellspring — Master Manufacturing Agreement

Page 1 of 2

1.5 Progress Reports. Accompanying each monthly invoice submitted by Supplier to Medicis will be a written report of Supplier’s progress and activities in carrying out the Other Services during the month for which any such invoice is being submitted. All such reports shall be in such detail and in such format as the Parties shall reasonably agree.

1.6 Project Managers. Each of Supplier and Medicis shall designate at least one (1) individual to meet, in person or by telephone, on a regular basis as needed, but no less often than once every month to discuss Supplier’s progress and activities as well as any problems that have arisen in connection with performance by either Party in connection with the Other Services.

1.7 DISCLAIMER. WITH RESPECT TO FORMULATION DEVELOPMENT SERVICES ONLY, DUE TO THE NATURE OF THE WORK INVOLVED, RESULTS OF THE DEVELOPMENT CANNOT BE GUARANTEED, HOWEVER, SUPPLIER WILL USE GOOD FAITH AND COMMERCIALLY REASONABLE EFFORTS IN PERFORMING THE WORK OUTLINED IN THE APPLICABLE PRODUCT EXHIBITS THAT INCLUDE DEVELOPMENT SERVICES TO ACHIEVE MEDICIS’S OBJECTIVE. MEDICIS ACKNOWLEDGES THAT THE RESULTS OF SUCH DEVELOPMENT SERVICES ARE INHERENTLY UNCERTAIN AND THAT ACCORDINGLY, THERE CAN BE NO ASSURANCE, REPRESENTATION OR WARRANTY BY SUPPLIER THAT THE SERVICES PROVIDED THEREUNDER CAN OR WILL RESULT IN A FORMULATION THAT WILL RECEIVE THE REQUIRED APPROVAL(S) FROM THE FDA, OR OTHER REGULATORY AGENCY OR AUTHORITY.

Appendix 1
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SCHEDULE 1.1
DEFINITIONS

As used in this Agreement, the following capitalized terms shall have the meanings set forth below:

“Affiliate” means any Person which any Party directly or indirectly through one or more intermediaries controls or which is controlled by or under common control with such Party. For the purpose of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an individual, corporation or other legal entity, whether through the ownership of voting securities, by contract, or otherwise.

“Applicable Laws” mean all applicable federal, state, provincial and local laws, statutes, ordinances, rules, and regulations of any kind whatsoever, and any applicable orders, injunctions, or decrees of any court, administrative agency, or similar authority, whether federal, state, provincial, or local, including the laws, rules and regulations imposed by the United States Food and Drug Administration.

“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in Arizona or Ontario, Canada are authorized or obligated by Applicable Law or executive order to remain closed. Unless otherwise specified, the “days” shall mean “Business Days.”

“Calendar Quarter” or “Quarterly” means the three-month period ending on March 31, June 30, September 30 or December 31.

“cGMPs” mean current good manufacturing practices as described in Parts 210 and 211 of Title 21 of the United States’ Code of Federal Regulations and the latest FDA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time.

“Components” mean, collectively, all raw materials necessary for Services or supply of Product described in the applicable Product Exhibit (excluding Medicis-Supplied Material), including but not limited to excipients, packaging components and printed material components.

“Defect” means an impurity, contamination or non-conformity in the Product caused by (i) a non-conformance to the Specifications and/or the Manufacturing Requirements; and/or (ii) the negligence or willful misconduct of Supplier, or its Representatives. Product that is subject to a Defect may be referred to herein as “Defective.”

“Deficiency Notice” means a written notice from Medicis claiming (a) a Defect(s) with respect to the Product and/or (b) shortages in the amount of delivered Product.

“Facility” means Supplier’s manufacturing facility located at 400 Iroquois Shore Road, Oakville, Ontario L6H 1M5 Canada.

“Fees” mean the fees to be charged by Supplier for Other Services as set forth in the applicable Product Exhibit.

“FDA” means the United States Food and Drug Administration and any successor agency or entity that may be established thereafter.

“Intellectual Property” means all rights under patent, trademark, copyright and trade secret laws, and any other intellectual property or proprietary rights recognized in any country or jurisdiction worldwide now or in the future.

“Inventory” means all inventories of Components and work-in-process produced or held by Supplier in connection with the Manufacture of the Products in accordance with the Specifications.

“Labeling” means the label affixed to the applicable container, the package insert and the applicable container carton or any Product specific printed information packaged with such Product.

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Schedule 1.1

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“Manufacture” means the manufacturing, supplying, testing, packaging, labeling, storing and preparing for shipment (FCA Supplier’s Facility) to Medicis or to a location designated by Medicis.

“Manufacturing Requirements” mean Supplier’s responsibilities and obligations as set forth in Articles 3 and 4 as well as the Product Exhibit.

“Medicis Patents” mean those patents (including all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, re-validations, patents of addition, Supplementary Protection Certificates or the equivalents thereof) and patent applications (including, without limitation, all continuations, continuations-in-part and divisional): (i) that are owned by, licensed to, or otherwise controlled by, Medicis and claim an invention necessary for the Manufacture of Product by Supplier under the terms of this Agreement; or (ii) under which Medicis has a right to have Product or Medicis-Supplied Material made and that, in each case, claim an invention necessary for the Manufacture of Product by Supplier under the terms of this Agreement.

“Medicis-Supplied Material” means the material or formulations to be supplied by Medicis, as specified in the applicable Product Exhibit, for the Manufacture of Product by Supplier.

“Medicis-Supplied Material Specifications” mean the specifications for Medicis-Supplied Material, which specifications are set forth in the applicable Product Exhibit.

“Medicis Technical Information” means any information provided by, or on behalf of, Medicis to Supplier relating to the Product and/or the Services including, without limitation:

(i)	a detailed description of the Product and any Medicis-Supplied Material, including their respective physical and chemical characteristics and stability;
(ii)	the Labeling;
(iii)	shipping and storage requirements; and
(iv)	all environmental, health and safety information relating to the Product including material safety data sheets, incident reports, risk analyses, health concerns, preventative measures and procedures for waste disposal, all as updated, amended and revised from time to time by Medicis.

“Minimum Yield” means the minimum percent Yield identified in the applicable Product Exhibit.

“NDA” means the New Drug Application that may be identified in the applicable Product Exhibit, including any subsequent submissions, supplements, or amendments thereto.

“Other Services” mean development services, technical transfer services and any other services to be provided by Supplier to Medicis under a Product Exhibit and this Agreement but specifically excluding the commercial Manufacture of Product.

“Person” means a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any Governmental Body, or any other entity or organization.

“Price” means the price that Supplier will charge to Medicis for the Manufacture of the Product as set forth in the applicable Product Agreement.

“Product” means the various forms and presentations of the products described in the applicable Specifications. Products may include commercial and non-commercial product including, but not limited to, product in development and product for pre-clinical, clinical, research and/or development purposes.

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Schedule 1.1

Page 2 of 3

“Product Exhibit” means one or more exhibits that are signed by authorized representatives of the Parties, reference this Agreement, describe the Product and/or Services to be supplied or otherwise provided by Supplier under this Agreement and contain the information described in Section 2.3 of this Agreement.

“Quality Agreement” means an agreement between the Parties that describes the quality and regulatory responsibilities relating to the Manufacture and release for sale of Product to Medicis or its designees, which agreement will be attached hereto and incorporated herein by reference as Exhibit B.

“Reimbursement Value” means the actual replacement cost of the Medicis-Supplied Material to Medicis at the time of replacement, as evidenced by supporting documentation to be provided by Medicis upon request.

“Representatives” mean with respect to a Party: (i) its Affiliates, contractors and subcontractors, and (ii) the agents, employees, consultants, lenders, investors, and advisors of such Party and its Affiliates, contractors and subcontractors.

“Services” mean all of the services provided or to be provided by Supplier under this Agreement including, without limitation, the Manufacture of Product and Other Services.

“Specifications” mean the specifications in effect at the time of execution for Manufacturing and testing such Product as referred to in the applicable Product Exhibit, copies of which are maintained by both parties’ Quality Departments and may be amended from time to time by Medicis in accordance with the terms of this Agreement.

“Sublicensee” means a Third Party who has licensed or sublicensed rights to the Product from Medicis.

“Supplier Technical Information” means all proprietary know-how, trade secrets, unpatented inventions, technical data or information, manufacturing systems, practices, processes and knowledge concerning the Manufacture of the Product, which are now owned, licensed, developed or controlled, in whole or in part, by or on behalf of Supplier or any of its Affiliates and which are necessary or useful for Manufacturing the Product. Supplier Technical Information does not include Medicis Confidential Information.

“Third Party” means a Person other than Medicis, Supplier or an Affiliate of Medicis or Supplier.

“United States” means the fifty (50) states and the District of Columbia constituting the United States of America and any territory owned or controlled by the United States of America including, without limitation, Puerto Rico.

“Yield” means the actual amount of such Product shipped to Medicis or to a location designated by Medicis, expressed as a percentage of the theoretical amount of such Product that could have been produced from the amount of Medicis-Supplied Material used to Manufacture such Product, calculated on a batch-by-batch basis.

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Schedule 1.1

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EXHIBIT A
PRODUCT EXHIBIT # [__]

     This PRODUCT EXHIBIT #[___] (the “Product Exhibit”) effective as of                      ___, 2008 (the “Effective Date”) is by and between Medicis Global Services Corporation, a Delaware corporation, having offices at 8125 North Hayden Road, Scottsdale, AZ, 85258 (hereinafter “Medicis”), and WellSpring Pharmaceutical Canada Corp., having offices at 400 Iroquois Shore Road, Oakville, ON L6H 1M5, Canada (hereinafter “Supplier”). Medicis and Supplier are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

Medicis and Supplier agree that this Product Exhibit is entered into pursuant to the Master Manufacturing Agreement between Medicis and Supplier dated                      (the “Agreement”). The Product and Services described herein shall be governed by the terms, conditions and obligations set forth in the Agreement and this Product Exhibit, and the terms of the Agreement are hereby incorporated into this Product Exhibit by reference. Notwithstanding the incorporation by reference of the Agreement into this Product Exhibit, in the event of conflict between the terms, conditions and obligations of this Product Exhibit and the Agreement, the terms, conditions and obligations of this Agreement shall govern. Capitalized terms not otherwise defined herein shall have the meaning given them in the Agreement.

1.	Medicis-Supplied Material. The Medicis-Supplied Material is described on Attachment 1 to this Product Exhibit.
2.	Product Specifications. The Product Specifications are described on Attachment 2 to this Product Exhibit.
3.	Medicis Obligations. Medicis shall provide the following to Supplier in accordance with the following time periods:

i.	At least                      (___) weeks prior to the Commencement Date, any Labeling to be printed by Supplier on the Finished Product, all of which shall be in conformity with the regulations of the United States Food and Drug Administration and any other applicable federal, state or local Governmental Body
ii.	At least                      (___) weeks prior to the Commencement Date, any Medicis-Supplied Materials;
iii.	At least                      (___) weeks prior to the Commencement Date, the lot and expiry information of the Products;
iv.	At least                      (___) weeks prior the Commencement Date, the Medicis-Supplied Material Specifications;
v.	At least                      (___) weeks prior the Commencement Date, the Medicis Technical Information; and
vi.	At least                      (___) weeks prior the Commencement Date, the Specifications.

4.	Start-Up Activities. “Start-Up Activities” means those activities required by the Medicis or Supplier that are necessary to commence the Manufacture of Products as set forth on Attachment 3 to this Product Exhibit.
5.	Minimum Batch Size. The minimum batch size is                      (                    ).
6.	Minimum Yield. “Minimum Yield” shall mean the yield set forth in writing by the Supplier Relationship

Exhibit A — Product Exhibit #[_]
Medicis/Wellspring Master manufacturing Agreement

Page 1 of 2

Team prior to the Commencement Date. The Supplier Relationship Team may change the Minimum Yield from time to time. Any setting of the Minimum Yield must be signed by an authorized representative of each Party and are hereby incorporated into this Product Exhibit by reference.

7.	NDA. “NDA” shall mean the New Drug Application Number                      and any subsequent submissions, supplements or amendments thereto.
8.	Product. “Product” shall mean various presentations of the finished product containing Medicis-Supplied Material and as described in the Specifications.
9.	Product Specifications. The Specifications for Manufacturing and testing the Product are set forth on Attachment 2 to this Product Exhibit.
10.	Shelf Life and Storage Requirements. Product shipped to Medicis or other location of Medicis’s designation shall have a shelf life of at least                      (                    ) months from the date of shipment. The storage requirements for the Product are set forth on Attachment 4 to this Product Exhibit.
11.	Price Schedule.
12.	Minimum Order Quantities.

MEDICIS GLOBAL SERVICES CORPORATION		WELLSPRING PHARMACEUTICAL CANADA CORP.
By:		By:
	Name:		Name:
	Title:		Title:

Exhibit A — Product Exhibit #[_]
Medicis/Wellspring Master manufacturing Agreement

Page 2 of 2

ATTACHMENT 1

MEDICIS-SUPPLIED MATERIAL SPECIFICATIONS

[TO BE PROVIDED]

Attachment 1 to Product Exhibit #[_]
Medicis / Wellspring Master manufacturing Agreement

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ATTACHMENT 2

PRODUCT SPECIFICATIONS

[TO BE PROVIDED]

Attachment 2 to Product Exhibit #[___]
Medicis / Wellspring Master Manufacturing Agreement

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ATTACHMENT 3

START-UP ACTIVITIES

[TO BE PROVIDED]

Attachment 3 to Product Exhibit #[___]
Medicis / Wellspring Master Manufacturing Agreement

Page 1 of 1

ATTACHMENT 4

SHELF LIFE AND STORAGE REQUIREMENTS

[TO BE PROVIDED]

Attachment 4 to Product Exhibit #[___]
Medicis / Wellspring Master Manufacturing Agreement

Page 1 of 1

EXHIBIT B:

QUALITY AGREEMENT (QA)

[TO BE PROVIDED BY MEDICIS]

Exhibit B
Medicis / Wellspring Master Manufacturing Agreement

Page 1 of 1

EXHIBIT B: QUALITY AGREEMENT (QA)

Overview

This Quality Assurance Agreement (“Quality Agreement”) is effective as of March 20, 2008 (“Effective Date”) between WellSpring Pharmaceutical Canada Corp (hereinafter referred to as “WPCC”) located at 400 Iroquois Shore Road, Oakville, Ontario, L6H 1M5 and Medicis Global Services Corporation (hereinafter referred to as “Medicis”), located at 8125 North Hayden Road, Scottsdale, Arizona, USA, 85258. Any capitalized terms not otherwise defined in this Quality Agreement shall have the meaning ascribed to it in the Master Manufacturing Agreement between Medicis and WPCC, dated March 11, 2008 (“MMA”). In the event of a conflict between the terms of the Quality Agreement and the MMA, the MMA shall control.

This Quality Assurance Agreement sets out certain responsibilities of the parties relating to the Manufacture of the Products listed in Appendix I to this Quality Agreement, which responsibilities are in addition to those set forth in the MMA. This Quality Agreement has been drawn up according to Title 21 of the US Code of Federal Regulations parts 210 & 211, Current Good Manufacturing Practices, as amended from time to time and will apply respectively to Product Manufactured for U.S. distribution.

Term of Quality Agreement

     The term of this Quality Agreement shall be coterminous with the term of the MMA; provided, however, in the event that the MMA is terminated for any reason, the Quality Agreement shall remain in effect and apply to those Products remaining in the field and stability commitments.

Revisions to Agreement

No amendment to the terms of this Quality Agreement shall be binding on the parties hereto unless made in writing and signed by an authorized representative of each of the parties.

Communication

     The parties have identified and listed in Appendix II a list of personnel responsible for the administration of this Quality Agreement. Personnel may be added or deleted to Appendix II upon written notice to the other party.

Responsibilities

     The parties agree that WPCC and Medicis will be responsible for all operations marked with an “X” in their respective column and will provide cooperation if marked with an “o”. An “X” in both columns indicates each party is responsible for complying with or performing the applicable activity.

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AREA OF RESPONSIBILITY — GENERAL

		WPCC	MEDICIS
1.	Provide Specifications to Manufacture Product in compliance with regulations, FDA guidelines, industry standards and product processing documents.	***	***
2.	Manufacture Product in strict adherence to the approved Specifications, Applicable Laws, applicable site SOPs, cGMPs and NDA/ANDA submissions.	***	***
3.	As per the Generic Drug Enforcement Act of 1992, is not debarred nor shall employ or use the services of any individual who is debarred.	***	***
4.	Not to subcontract any work, including raw material, bulk and/or finished Product laboratory testing, to any Third Party, other than those listed in Appendix III, without prior written approval from *** in accordance with Section 13.7(a) of the MMA.	***	***
5.	Provide tabulated information and a cGMP annual product review report in compliance with 21 CFR 211.180(e).	***	***
6.	Provide to *** required information for annual reports and other documents to support Medicis regulatory filings and commitments upon request including qualification documentation.	***	***
7.	Notify *** within one (1) Business Day of receipt of an governmental or regulatory inquiry, communication, audit or inspection of the Services, Facilities, or Manufacturing processes relating to a Product.	***	***
8.	Responsible for the registration of the Drug Establishment and maintaining the site manufacturing license for the production of the Product.	***	***
9.	Review and approve responses to regulatory authorities directly related to the Product prior to submission to the regulatory authority and *** shall cooperate with *** in accordance with the MMA, including without limitation Section 4.12].	***	***

AREA OF RESPONSIBILITY – QUALITY SYSTEMS

		WPCC	MEDICIS
10.	Notify *** as soon as possible and not longer than one (1) business day of areas of concern identified during the review of any Medicis product documents, requests for Medicis product samples or notice of inspections for a Medicis product.	***	***
11.	Liaise with regulatory authorities for approval and ongoing maintenance of submissions as it pertains to the product .	***	***
12.	Perform services, quality assurance and quality control testing in accordance with applicable nda, regulatory approvals, the batch records, all applicable laws, specifications, and cgmps.	***	***

QUALITY SYSTEMS – CHANGE CONTROL

		WPCC	MEDICIS
13.	Notification of all changes to product including, process and controls (e.g. Changes in raw materials/packaging materials specifications, test methods, manufacturing processes, product specifications, master batch records etc.) In accordance to the provisions of the mma including without limitation section 4.3.1.	***	***
14.	Approve any changes impacting regulatory submissions, specifications and/or impacting the identity, strength, quality, purity, potency, safety, efficacy and availability of the product.	***	***
15.	Provide regulatory input on timing of changes for appropriate products.	***	***
16.	Update relevant documents affected by changes described in section 12 of this quality agreement.	***	***
17.	Approve relevant documents provided under section 15 of this quality agreement.	***	***
18.	Provide copies of approved, implemented documents within 15 days of approval.	***	***

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	QUALITY SYSTEMS – DOCUMENTATION	WPCC	MEDICIS
19.	Create master batch record (includes formulation, filling and packaging) based on Medicis technical information.	***	***
20.	Approve master batch record.	***	***
21.	Generate, issue and execute accurate copies of the master batch record.	***	***
22.	Create raw material, product, packaging and testing specifications based on Medicis technical information.	***	***
23.	Approve raw material, product, packaging and testing specifications.	***	***
24.	Maintain records and evidence of the testing of components for *** after the components are last used in the manufacture of the product	***	***
25.	Retain originals of non-validation and non-developmental batch documentation and representative samples from each product lot as required by the cfr or in any event for at least *** past the expiry of the product.	***	***
26.	Maintain executed batch records for validation and developmental batches for the life of the product and product line. Provide copies to ***.	***	***
27.	Provide copies of entire batch records to *** for their files, submissions or for investigative purposes as requested.	***	***
28.	Submit field alert reports.	***	***

	QUALITY SYSTEMS – DEVIATIONS AND INVESTIGATIONS	WPCC	MEDICIS
29.	Notify *** of any major deviation impacting the quality, strength, purity, safety and compliance of a product lot or methods used for the manufacture, of a product within *** of its occurrence.	***	***
30.	Conduct investigation of major and minor deviations.	***	***
31.	Create deviation/investigation report for major and minor deviations.	***	***
32.	Review and approve the final deviation/investigation report for major deviations.	***	***
33.	Provide copies of final major and minor deviation/investigation report with batch documentation.	***	***

	QUALITY SYSTEMS - COMMERCIAL PRODUCT RELEASE & RECALL	WPCC	MEDICIS
34.	No less than *** prior to the requested shipment date, provide *** a certificate of conformance, certificate of analysis, copies of labeling, applicable sections of the batch records or upon *** request the complete batch record, copy of investigations and deviations for each bulk and finished product in accordance with the mma including without limitation section 3.3(b).	***	***
35.	All deviations and oos investigations must be closed prior to batch release and a copy of the closed investigation included in the batch record. Long-term capa items may remain open with agreement from Medicis.	***	***
36.	Release of bulk product for filling and packaging.	***	***
37.	Release of finished product for commercial distribution.	***	***
38.	Initiate product recall.	***	***
39.	Participate in product recall investigations at *** request.	***	***

	QUALITY SYSTEMS - LAB TESTING	WPCC	MEDICIS
40.	Supply/develop and validate analytical test methods for finished product and raw materials if non-compendial.	***	***
41.	Verify compendial methods as per internal sops.	***	***
42.	Coordinate all bulk and finished product testing activities, including stability.	***	***
43.	Develop test method transfer protocols.	***	***
44.	Test method transfer protocol execution – raw materials, bulk & finished product analytical methodology.	***	***
45.	Review & approve test method transfer protocols, data and final report for raw materials, bulk and finished product.	***	***

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	QUALITY SYSTEMS – OUT OF SPECIFICATIONS (“OOS”) INVESTIGATIONS	WPCC	MEDICIS
46.	Out of specification investigation –provide report to ***.	***	***
47.	Notify *** in writing within *** of a batch failure, deviation, or within *** of a confirmed oos test result for commercial release testing. It is understood by both parties that *** may complete an internal laboratory investigation without requiring a *** quality signature, but shall place a copy of the completed report in the batch record as part of *** final batch record review and disposition prior to release.	***	***
48.	Review and approve any confirmed oos or non-conformance reports (ncr).	***	***

	QUALITY SYSTEMS - STABILITY PROGRAM	WPCC	MEDICIS
49.	Responsibility for stability programs complying with applicable regulatory guidance & product filings, including the suitability of the expiry period to the formulation and packaging system.	***	***
50.	Assign expiration dating.	***	***
51.	Designate which lots are to be placed on stability.	***	***
52.	Provide validated stability indicating assay.	***	***
53.	Generate stability protocol.	***	***
54.	Approve stability protocol.	***	***
55.	Execute stability protocol testing.	***	***
56.	Notify *** of any stability failure for product within *** of discovery.	***	***
57.	Provide stability data reports within *** of completion of testing.	***	***
58.	All missed stability test stations will be properly investigated and documented. *** will be notified of missed test stations. (provide copy of deviation investigation)	***	***

	QUALITY SYSTEMS - RESERVE SAMPLES	WPCC	MEDICIS
59.	Retain reserve samples of finished product for *** beyond product expiry.	***	***
60.	Perform annual reserve sample inspection as per 21cfr 211.170. Provide reports at time of annual product review per product.	***	***

	QUALITY SYSTEM – CUSTOMER COMPLAINTS INVESTIGATION	WPCC	MEDICIS
61.	Complete an investigation of a complaint within *** of receipt of a request by ***.	***	***
62.	Investigate complaints related to the manufacture of the products.	***	***
63.	Investigate complaints related to the effectiveness of product.	***	***
64.	Investigate complaints related to the adverse effects of the product.	***	***
65.	Reply to complainant.	***	***

	QUALITY SYSTEMS – AUDITS	WPCC	MEDICIS
66.	Permit audits of all relevant premises, processes, procedures and documentation by *** or its representatives and notify *** of any inspection by regulatory authorities in accordance with the provisions in the mma.	***	***
67.	Audit api manufacturer.	***	***
68.	Approval of component manufacturers.	***	***

AREA OF RESPONSIBILITY-MANUFACTURING

	MANUFACTURING – RAW MATERIALS	WPCC	MEDICIS
69.	Establish & approve specifications for the raw materials	***	***
70.	Prepare documents for change control for any matters related to the raw materials.	***	***
71.	Select vendor for components.	***	***
72.	Approve vendor for components.	***	***
73.	Procurement of components.	***	***
74.	Procurement of API.	***	***
75.	Inspection, testing documents, testing & release/rejection of components.	***	***
76.	Inspection, testing documents, testing & release/rejection of API.	***	***
77.	Retention of components raw material samples for one (1) year beyond product expiry.	***	***
78.	Retention of Api Raw material samples in accordance with 21 C.F.R. §211.170.	***	***

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	MANUFACTURING - PACKAGING MATERIALS	WPCC	MEDICIS
79.	Artwork development, review and approval.	***	***
80.	Establish and approve packaging specifications.	***	***
81.	Prepare packaging specification documentation for review through change control.	***	***
82.	Vendor selection.	***	***
83.	Vendor approval.	***	***
84.	Packaging materials procurement.	***	***
85.	Inspection, inspection documents, testing & release/rejection of packaging materials.	***	***
86.	Notify *** of material rejections of packaging materials for *** products.	***	***

	MANUFACTURING- BULK FORMULATION	WPCC	MEDICIS
87.	Provide the specifications for product.	***	***
88.	Prepare master manufacturing batch record.	***	***
89.	Approve master manufacturing batch record.	***	***
90.	Manufacture bulk products per approved specifications.	***	***
91.	Control & review all process deviations.	***	***
92.	Review and approve major and minor process deviations.	***	***
93.	Establish & approve bulk product specifications.	***	***
94.	Prepare change control bulk product specifications documentation.	***	***
95.	Provide bulk product sampling plan.	***	***
96.	Bulk product sampling.	***	***
97.	Bulk product testing as per approved specification.	***	***
98.	Review of manufacturing batch documents.	***	***
99.	Release/rejection of bulk product for internal filling and packaging.	***	***
100.	Approval of bulk product rejections.	***	***

	MANUFACTURING – FILLING & PACKAGING	WPCC	MEDICIS
101.	Master packaging work order preparation.	***	***
102.	Master packaging work order approval.	***	***
103.	Expiry date determination.	***	***
104.	Application of lot number and expiry date to products.	***	***
105.	Filling and packaging of released bulk products per approved packaging work orders.	***	***
106.	Packaging in-process line inspection and sampling.	***	***
107.	Establish & approve finished product specifications.	***	***
108.	Prepare finished product specifications documents.	***	***
109.	Provide finished product sampling plan.	***	***
110.	Finished product sampling.	***	***
111.	Finished product testing as per approved specification.	***	***
112.	Review of packaging batch documents.	***	***

	MANUFACTURING – VALIDATION	WPCC	MEDICIS
113.	Facility validation.	***	***
114.	Consult with *** regarding selection of equipment used in the manufacture of medicis products.	***	***
115.	Approve of changes in equipment used in the manufacture of medicis products.	***	***
116.	Manufacturing equipment validation (iq, oq, pq).	***	***
117.	Preparation and approval of cleaning procedures.	***	***
118.	Cleaning validation.	***	***
119.	Review and approve validation protocols and summary reports of validation activities relating to the product.	***	***
120.	Confirm that validation protocol complies with product filings.	***	***
121.	Develop manufacturing protocol.	***	***
122.	Validation summary report development.	***	***

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	MANUFACTURING – SHIPPING	WPCC	MEDICIS
123.	Notification of special storage conditions for intermediate materials and/or finished product.	***	***
124.	Release/rejection of finished goods for shipping to market	***	***
125.	Selection of carrier for shipping and shipping conditions.	***	***
126.	Preparation of shipping documents.	***	***
127.	Arrangement of shipping details including, but not limited to, pick up.	***	***
128.	Transmittal of production batch documents.	***	***

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     Approval Signatures

     On behalf of WellSpring Pharmaceutical Canada Corp. and Medicis Manufacturing Corporation, we agree to the conditions and relative responsibilities as set out in the above document.

WellSpring Pharmaceutical Canada Corp.
Garnet Thompson
Associate Director, Quality Assurance and Compliance
WellSpring Pharmaceutical Canada Corp.	Date
James Booker
Director, Quality and Regulatory Affairs
Medicis Global Services Corporation
Tom Miller
Executive Director of Quality Operations
Medicis Global Services Corporation
Terri Magee
Director of Quality Control

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Appendix I

PRODUCT LIST

				Laboratory*
			Packaging	(or noted in
Product Code	Product Name	Dosage	Configuration	Appendix III)
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***

Appendix I

1of 1

Appendix II

CONTACT LIST

WellSpring	Medicis
***	***
***	***

Appendix II

1 of 2

Appendix II

CONTACT LIST

WELLSPRING CANADA’S PRIMARY QUALITY CONTACTS

Contact Name	Title	Telephone Number	e-mail
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***

MEDICIS’ PRIMARY QUALITY CONTACTS

Contact Name	Title	Telephone Number	e-mail
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***

Appendix II

2 of 2

Appendix III

APPROVED OUTSIDE LABORATORIES

		Additional Lab	Tests by Nucro-	Tests by Bodycote-
Raw Material	Analytical Lab	Reqd?	Technics,	ORTECH Inc.
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***

		Additional Lab	Tests by Nucro-	Tests by Bodycote-
Packaging Material	Analytical Lab	Reqd?	Technics	ORTECH, Inc.
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***
***	***	***	***	***

* ***.

Appendix III
Page 1 of 1

EXHIBIT C

FORM OF CERTIFICATION REQUIRED PURSUANT TO SECTION 3.5

Reference is made to that certain Master Manufacturing Agreement dated as of                                         , 20                      (the “Agreement”) by and between WellSpring Pharmaceutical Canada Corp. (“Supplier”) and Medicis Global Services Corporation (“Medicis”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Agreement.

I,                                                             , on behalf of and in my capacity as [title] of Supplier, do hereby certify pursuant to Section 3.5 of the Agreement, that Supplier has the manufacturing capacity to deliver the forecasted volumes set forth in the *** forecast delivered by Medicis pursuant to Section 3.1 of the Agreement and the monthly forecast delivered by Medicis to Supplier pursuant to Section 3.1 of the Agreement, each of which is attached hereto.

[DATE]

By:

Title:

Exhibit C
Medicis/Wellspring Master manufacturing Agreement
Page 1 of 1

EX-10.74

Exhibit 10.74

*** 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.

CONFIDENTIAL

LICENSE AND SETTLEMENT AGREEMENT

     THIS LICENSE AND SETTLEMENT AGREEMENT (this “Agreement”) dated as of November 14, 2009 (the “Effective Date”) is entered into between Medicis Pharmaceutical Corporation, a Delaware corporation with an address at 7720 North Dobson Road, Scottsdale, Arizona 85256 USA on behalf of itself and its Affiliates (collectively, “Medicis”), and Glenmark Generics Ltd., an Indian corporation with an address at Glenmark House, HDO Corporate building, A- Wing; B.D. Sawant Marg, Off. Western Express Highway, Chakala; Andheri — East, Mumbai- 400099 INDIA, and Glenmark Generics Inc., USA, a Delaware corporation with an Address at 750 Corporate Drive, Mahwah, New Jersey 07430 USA, on behalf of themselves and their Affiliates (collectively, “Glenmark”).

     WHEREAS, Medicis has asserted various claims and causes of action against Glenmark in an action captioned Medicis Pharmaceutical Corp. v. Glenmark Generics, Inc. USA and Glenmark Generics Ltd., Case No. 09-03010 (PGS)(ES) (the “Litigation”), which is pending in the United States District Court, District of New Jersey (the “Court”).

     WHEREAS, Medicis and Glenmark seek to resolve the Litigation without further litigation;

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

     WHEREAS, Glenmark desires to receive a license under the Patent Rights and Medicis desires to grant to Glenmark 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 “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 “ANDA” means an Abbreviated New Drug Application and any supplements thereto.

          1.3 “Authorized Generic” shall mean the Generic Equivalent to the Vanos Product that is manufactured by or on behalf of Medicis and supplied to Glenmark under the Distribution Agreement in accordance with the terms of the Distribution Agreement provided for in Section 3.

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          1.4 “Bundled Products” means Authorized Generic or Generic Product, as applicable, sold or otherwise transferred or delivered to a Third Party with one or more other products or services in circumstances where the price of the Authorized Generic or Generic Product is either not shown separately on the invoice, or is shown as nil (free of charge) on a separate document in relation to the Authorized Generic or Generic Product or to a portion of the quantities of the Authorized Generic or Generic Product.

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

          1.7 “Fully Allocated Manufacturing Costs” or “FAMC” for Generic Product shall have the meaning set forth in Exhibit E.

          1.8 “GAAP” shall mean generally accepted accounting principles in effect in the United States from time to time, as consistently applied by the applicable Party with regard to their own products and/or the standards of the industry.

          1.9 “Generic Equivalent” means ***

          1.10 “Generic Product” means ***

          1.11 “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.

          1.12 “License Trigger” means, with respect to a Generic Equivalent to a Vanos Product, the earliest of the following dates:

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               (a) ***;

               (b) ***; and

               (c) ***.

          1.13 “Net Profits” means ***

          1.14 “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.

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

          1.16 “Territory” means the United States of America, its territories and possessions, including the Commonwealth of Puerto Rico (but excluding direct sales of Authorized Generic into the Commonwealth of Puerto Rico).

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

          1.18 “Transfer Price” shall be Medicis’ actual out of pocket acquisition cost of Authorized Generic, the current such costs are set forth on Exhibit F (which prices will change from time to time to reflect Medicis’ then-current acquisition costs). For the avoidance of doubt, Medicis shall not have a duty to update Exhibit F.

          1.19 “Valid Claim” means ***.

          1.20 “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.

          1.21 “Vanos Product Patents” means (a) all patents and patent applications in the Territory owned or controlled by Glenmark or its Affiliates heretofore or hereafter that claim or cover a Vanos Product or Generic Equivalent or the manufacture or use of a Vanos Product or Generic Equivalent, (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 Generic Equivalent, or the manufacture or use of a Vanos Product or Generic Equivalent, 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.

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     2. LICENSES; RELEASES.

          2.1 License Grant for Generic Product.

               2.1.1 Effective only upon the occurrence of the License Trigger for a Generic Product, Medicis hereby grants to Glenmark a non-exclusive, non-transferable (except as permitted in Section 9.5) license (without the right to grant sublicenses except to have Generic Products made on behalf of Glenmark) under the Patent Rights to make, have made, use, offer for sale, sell and import such Generic Products inside the Territory.

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

               2.1.3 Except as expressly set forth in Section 3, nothing in this Agreement shall be construed as creating an obligation, express or implied, on Medicis to supply any Product to Glenmark and Glenmark shall be solely responsible for manufacturing, or having manufactured, its supply of Generic Product.

          2.2 ***

          2.3 Grantbacks.

               2.3.1 Glenmark and its Affiliates hereby grant to Medicis a perpetual, royalty-free, fully-paid up, non-transferable (except as provided in Section 9.5), 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 Glenmark and its Affiliates hereby grant to Medicis a perpetual, royalty-free, fully-paid up, non-transferable (except as provided in Section 9.5), 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.

          2.4 Validity of Patent Rights.

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

               2.4.2 Glenmark, 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 a Generic Product is covered by one or more claims of the Patent Rights under 35 U.S.C. § 271.

               2.4.3 Glenmark shall not assist any Third Party in an action to invalidate or render unenforceable any of the Patent Rights, and Glenmark shall not disclose any of its

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proprietary or confidential information relating to the validity or enforceability of any of the Patent Rights, except to the extent required by court order or other applicable law.

               2.4.4 Glenmark 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. Glenmark 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; provided, however, that in connection with the Distribution Agreement Glenmark may use the Medicis tradename Vanos (but not any associated logo or artwork) for the sole purpose of identifying the corresponding Authorized Generic as being comparable to the applicable Vanos Product.

          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, Glenmark hereby releases and agrees to release Medicis and Medicis hereby releases and agrees to release Glenmark from all claims arising out of the Litigation. Upon the Effective Date, Glenmark and Medicis shall cause to be completed, executed and filed with the Court a stipulated dismissal with prejudice of the Litigation, in the form of the Joint Dismissal Agreement attached hereto as Exhibit C, and to seek entry of such order by the Court. Within five (5) business days of the execution of this Agreement, Medicis shall pay to Glenmark an amount equal to the attorneys’ fees incurred by Glenmark in preparing for and defending the Litigation, the sum of ***.

     3. DISTRIBUTOR.

          3.1 Distribution Agreement. If, as of the License Trigger date, Glenmark has not received approval from the FDA of its ANDA covering a Generic Equivalent, then effective as of the License Trigger, Medicis hereby appoints Glenmark as its non-exclusive distributor of the Authorized Generic in the Territory and authorizes Glenmark, under the Patent Rights, to market the Authorized Generic solely to wholesalers, distributors, retailers, mail order, managed care, and group purchasing organizations in the Territory, pursuant to a separate distribution and supply agreement (the “Distribution Agreement”) to be entered into between Glenmark and Medicis.

          3.2 Terms. Commencing on the License Trigger, or if the License Trigger appears to be imminent then upon written notice by a party to the other party, the parties shall negotiate in good faith the terms of and enter into the Distribution Agreement, which will contain the following provisions:

               • Unless earlier terminated by either party for cause or by Glenmark for convenience, the term of any such appointment of Glenmark as the non-exclusive distributor of the Authorized Generic shall extend from the License Trigger and remain in effect until such

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time as Glenmark has obtained approval from the FDA for its ANDA covering the Generic Equivalent, but in no event longer than *** after the License Trigger;

                • Medicis will supply (either itself or through its Third Party manufacturer) Glenmark *** in the Territory for the Authorized Generic in finished form; on such forecasting, invoicing, shipment, delivery, inspection and payment terms as are agreed upon by the parties and set forth in the Distribution Agreement;

                • Medicis will sell the Authorized Generic to Glenmark at Transfer Price;

                • Glenmark shall retain *** of all Net Sales resulting from sales of the Authorized Generic and shall pay the remaining *** of Net Sales to Medicis, on a quarterly basis, where “Net Sales” is defined as the amount invoiced by Glenmark in arm’s length transactions for the sale of the Authorized Generic in the Territory to independent Third Parties in the Territory, less the sum of the following items, all of which must directly relate to the sale and distribution of Authorized Generic:

                    (i) trade, quantity and cash discounts and rebates;

                    (ii) any adjustments on account of price adjustments (including for example shelf stock adjustments), rejected goods, damaged goods and returns, and product recalls;

                    (iii) credits, charge backs and prime vendor rebates, fees, reimbursements, and similar payments actually granted or given to wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations, other institutions or health care organizations or other customers;

                    (iv) rebates or other price reductions provided, based on sales by Glenmark of Authorized Generic, to any governmental or regulatory authority in respect of any state or federal Medicare, Medicaid or similar programs;

                    (v) any invoiced charge for freight, insurance, handling, or other transportation costs, to the extent specifically invoiced to the customer;

                    (vi) credits or discounts related to sales promotions and trade show discounts; and

                    (vii) any duties, sales taxes, excise taxes or other taxes imposed upon and paid by Glenmark and not reimbursed with respect to such sales (excluding income or franchise taxes of any kind), for all activities paid or incurred by Glenmark.

Net Sales shall be determined in accordance with the accrual method of accounting in accordance with GAAP. Sales or transfers between or among Glenmark and its Affiliates shall be excluded from the computation of Net Sales except where such Affiliates are end users, but Net Sales shall include the subsequent final sales to Third Parties by such Affiliates. Bundled

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Products shall be deemed invoiced at the Authorized Generic market price established by Glenmark in general conditions of sales, or failing such general conditions, at the arm’s length price that Glenmark would generally or in the average invoice for Authorized Generic alone. Any and all unsold inventory, unsold product from firm purchase orders or unused in-process or excess materials and components shall not be deducted from the Net Sales calculation.

                • Medicis and Glenmark will each indemnify the other for third party claims arising from their actions under the Distribution 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.

          3.3 ***

     4. FINANCIAL CONSIDERATIONS.

          4.1 Royalty.

               4.1.1 Within *** following the end of each calendar quarter during the term of this Agreement, Glenmark shall pay to Medicis a royalty equal to *** of all *** received during such calendar quarter for Generic Product. Medicis’s right to receive a share of the *** under this Section 4.1.1 shall expire upon the expiration, cancellation, invalidation or abandonment (whichever comes first) of the last Valid Claim. On the launch of a *** Generic Equivalent by a Third Party after the Effective Date of this Agreement, for so long as there are *** Generic Equivalents offered for sale in the Territory Glenmark shall pay to Medicis a reduced royalty at the rate of *** of all Net Profit received.

               4.1.2 Within *** following the end of each calendar quarter during the term of this Agreement, Glenmark shall provide to Medicis a written report stating the number and description of all Generic Product sold during the relevant calendar quarter; the gross sales associated therewith; the calculation of *** thereon, and the royalties that will be payable for such calendar quarter in accordance with Section 4.1.1.

          4.2 Taxes. Glenmark shall be responsible for, and may withhold from payments made to Medicis under this Agreement, any taxes required to be withheld by Glenmark under applicable law. Accordingly, if any such taxes are levied on such payments due hereunder (“Withholding Taxes”), Glenmark 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.

          4.3 Audit Rights. Not more than once per calendar year during the portion of the term of this Agreement during which Glenmark shall pay Medicis royalties, on no less than thirty (30) business days notice from Medicis, Glenmark 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 Glenmark by its Third Party contract

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manufacturer, in each case available for inspection during normal business hours by an independent auditor selected by Medicis and reasonably acceptable to Glenmark for the purpose of an audit to determine the accuracy of the reports delivered and amounts paid by Glenmark pursuant to Section 4.1. Medicis shall be solely responsible for its costs in making any such audit, unless Medicis identifies a discrepancy in favor of Glenmark in the calculation of the share of Net Profit paid to Medicis under this Agreement in any calendar year from those properly payable for that calendar year of *** or greater, in which event Glenmark shall be solely responsible for the reasonable cost of such audit and pay Medicis any underpayment.

     5. TERM AND TERMINATION.

          5.1 Term. Subject to Section 5.2, this Agreement shall expire on the date when there are no Valid Claims in the Territory; 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.

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

          5.3 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 2.2, 2.3, 2.4, 2.6, 4.3, 5.3, 6, 8 and 9 shall survive the expiration or termination of this Agreement.

     6. CONFIDENTIALITY.

          6.1 Confidentiality. For a period of five (5) years following the expiration or earlier termination of this Agreement, 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.

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

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          6.3 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.

          6.4 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, the Department of Justice and the Federal Trade Commission, or any regulations of any national securities exchange, and except as may be authorized in Section 6.5, 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.

          6.5 Publicity. Except for the press release attached hereto as Exhibit D, which both parties shall be freely able to disclose, 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 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.

     7. REPRESENTATIONS AND WARRANTIES.

          7.1 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

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any agreement, instrument or understanding, oral or written, to which such party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

          7.2 Compliance with Law. Glenmark 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 Authorized Generic and Generic Products. Medicis shall comply with all applicable laws and regulations with respect to the manufacture of the Authorized Generic.

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

          7.4 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 8, OR A BREACH BY GLENMARK 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.

          7.5 Equitable Relief. Glenmark acknowledges and agrees that its obligations and undertakings under 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 Glenmark’s threatened breach or failure to comply with Section 2.4 of this Agreement 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. Glenmark further acknowledges and agrees that Medicis 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 Medicis in law or equity.

     8. INDEMNIFICATION.

          8.1 Glenmark Indemnification. Glenmark 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 a Medicis Indemnified Party to the extent arising out of (a) Glenmark’s

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CONFIDENTIAL

manufacture or sale of Generic Product pursuant to this Agreement or the sale of Authorized Generic pursuant to the Distribution Agreement; or (b) Glenmark’s breach of any representation, warranty or covenant under this Agreement, except to the extent that such Losses arise out of Medicis’ breach of any representation, warranty or covenant under this Agreement.

          8.2 Medicis Indemnification. Medicis shall indemnify, defend and hold harmless Glenmark, its directors, managers, members, officers, employees, authorized subcontractors and agents (collectively the “Glenmark 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 a Glenmark Indemnified Party to the extent arising out of (a) Medicis’ manufacture of Authorized Generic pursuant to the Distribution Agreement; or (b) Medicis’ breach of any representation, warranty or covenant under this Agreement, except to the extent that such Losses arise out of Glenmark’s breach of any representation, warranty or covenant under this Agreement.

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

     9. GENERAL PROVISIONS.

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

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

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	7720 North Dobson Road
	Scottsdale, Arizona 85256
	Attn: General Counsel
	Facsimile: 480-291-8508
If to Glenmark:	Glenmark Generics Inc., USA
	750 Corporate Drive
	Mahwah, New Jersey 07430
	Attn: CEO
	Facsimile: 201-831-0080
With a copy to:	Glenmark Generics Ltd.
	Glenmark House, HDO Corporate building, A- Wing; B.D.
	Sawant Marg, Off. Western Express Highway, Chakala;
	Andheri — East, Mumbai- 400099 INDIA
	Attn: CEO
	Facsimile: 91-22-67589990

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

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

          9.3 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.

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

          9.5 Assignment. Neither party shall assign this Agreement or any part hereof or any interest herein (whether by operation of law or otherwise) to any Third Party (or use any subcontractor) without the written approval of the other party; provided, however, that either party may assign this Agreement without such consent (i) to any Affiliate; 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

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of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of its obligations hereunder. Any purported assignment in violation of this Section 9.5 shall be void.

          9.6 Independent Contractor. Glenmark 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.

          9.7 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.

          9.8 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 interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein.

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

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

          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 Glenmark 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 Litigation 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.

GLENMARK GENERICS LTD.	MEDICIS PHARMACEUTICAL CORPORATION
By:	By:
Name:	Name:
Title:	Title:
GLENMARK GENERICS INC., USA.
By:
Name:
Title:

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EXHIBIT A

Patent Rights

Patents	Pending Applications (all U.S.)
***	***

***

A-1

EXHIBIT B

Vanos Products

PRODUCT	NDC
Vanos (fluocinonide cream 0.1%) 30g	99207-0525-30
Vanos (fluocinonide cream 0.1%) 60g	99207-0525-60
Vanos (fluocinonide cream 0.1%) 120g	99207-0525-10

B-1

EXHIBIT C

Joint Dismissal Agreement

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

MEDICIS PHARMACEUTICAL CORPORATION,	)
	)
Plaintiff,	)
	)
v.	)	Civil Action No. 09-3010 (PGS)(ES)
	)
GLENMARK GENERICS INC., USA and GLENMARK GENERICS LTD.,	) )
	)
Defendants.	)
	)
	)
	)
	)

UNOPPOSED MOTION FOR ENTRY OF CONSENT JUDGMENT AND
PERMANENT INJUNCTION AS TO GLENMARK GENERICS INC., USA AND
GLENMARK GENERICS LTD.

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

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Respectfully submitted,

Sheila F. McShane

Gibbons, P.C.

Attorney for Plaintiff

One Gateway Center

Newark, NJ 07102-5496

(973) 596-4637

Fax (973) 639-6482

SMcShane@gibbonslaw.com

Attorney           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

Audrey L. Maness

Weil, Gotshal, & Manges LLP

700 Louisiana, Suite 1600

Houston, TX 77002

Telephone: (713) 546-5000

Facsimile: (713) 224-9511

Edward D. Pergament

Milagros A. Cepeda

Michael Kenney (pro hac vice)

Attorneys for Glenmark Generics Inc., USA and

Glenmark Generics, Ltd.

1480 Route 9 North, Suite 204

Woodbridge, NJ 07095

Tel: (732) 636-4500

epergament@kgplaw.com

Dated: November 13, 2009

C-2

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

MEDICIS PHARMACEUTICAL	)
CORPORATION,	)
Plaintiff,	)
	)
v.	)	Civil Action No. 09-3010 (PGS)(ES)
	)
GLENMARK GENERICS INC., USA and GLENMARK GENERICS LTD.,	) )
	)
Defendants.	)
	)
	)
	)

CONSENT JUDGMENT AND PERMANENT INJUNCTION
AS TO GLENMARK GENERICS INC., USA AND GLENMARK GENERICS LTD.

          This matter is before the Court on the unopposed motion of Plaintiff Medicis Pharmaceutical Corporation (“Medicis”) and Defendants Glenmark Generics Inc., USA and Glenmark Generics Ltd. (collectively, “Glenmark”).

          WHEREAS, this Consent Judgment and Permanent Injunction as to Glenmark concerns only Medicis’s claims against Glenmark, and Glenmark’s counterclaims against Medicis in this Civil Action No. 09-3010 (PGS)(ES) (referred to herein as the “Litigation”).

          WHEREAS, Medicis requests that this Consent Judgment and Permanent Injunction as to Glenmark be entered in the above-captioned case, and Glenmark 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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CONFIDENTIAL

          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, Glenmark Generics USA, Inc. submitted Abbreviated New Drug Application No. 91-282 (“ANDA No. 91-282”) 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 Glenmark infringed the claims of the ’001 and ’424 patents under 35 U.S.C. § 271(e)(2) by Glenmark Generics USA, Inc.’s submission of ANDA No. 91-282 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 Glenmark, 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 Glenmark have reached an agreement to finally settle the Litigation as set forth in this Consent Judgment and Permanent Injunction as to Glenmark, and a separate License and 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 Glenmark associated with infringement.

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

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

          WHEREAS, Medicis and Glenmark each consent to personal jurisdiction in the District of New Jersey for purposes of enforcing the Settlement Agreement.

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

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

          2. Glenmark acknowledges Medicis’s ownership and standing to sue for infringement of the ’001 patent and ’424 patent.

          3. Glenmark acknowledges that the ’001 patent and ’424 patent are 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. 91-282 will be a date not earlier than the License Trigger, as defined in the Settlement Agreement.

          5. Glenmark acknowledges that it has infringed the ’001 patent and 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. 91-282.

          6. Glenmark and its affiliates are permanently enjoined as of the date hereof from infringing the ’001 patent and ’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. 91-282 that is not pursuant to a license granted by Medicis, and from inducing others to infringe the ’001

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patent and the ’424 patent by inducing others to manufacture, use, offer to sell, sale, import, or distribute any current products, or future products having the same strength and dosage form of the current Vanos® products, that are the subject of ANDA No. 91-282 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 Glenmark 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 November, 2009 by:

The Honorable Peter G. Sheridan

United States District Judge

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EXHIBIT D

Press Release

Glenmark Generics Inc., USA (GGI), the United States subsidiary of Glenmark Generics Limited (GGL), announced today the settlement of all litigation pending between Glenmark and Medicis Pharmaceutical Corporation relating to the patent actions regarding fluocinonide, the generic version of Medicis’ Vanos® cream and ciclopirox olamine, the generic version of Medicis’ Loprox® gel.

Under the terms of the Settlement Agreement, Glenmark will be able to market and distribute its generic version of Vanos® cream under license from Medicis as early as December 2013, or earlier in certain circumstances. In addition, Glenmark will have a license to launch a generic version of Loprox® gel 0.77%, supplied by Medicis.

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EXHIBIT E

Fully Allocated Manufacturing Costs (“FAMC”)

***

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EXHIBIT F

VANOS ACTUAL OUT OF POCKET ACQUISITION COST

30 GRAM	***/EACH
60 GRAM	***/EACH
120 GRAM	***/EACH

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EX-10.75

Exhibit 10.75

*** 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.

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AMENDED AND RESTATED SETTLEMENT AGREEMENT

     THIS AMENDED AND RESTATED SETTLEMENT AGREEMENT (this “Agreement”) dated as of November 13, 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 and Teva entered into that certain Settlement Agreement (the “Original Agreement”) effective as of March 18, 2009 (the “Original Effective Date”);

     WHEREAS, Medicis and Teva desire to amend and restate the Original Agreement as set forth in this Agreement;

     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 agreed to release Teva from liability arising from the manufacture and distribution of the Generic Product prior to the Original 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, Medicis and Teva hereby agree that the Original Agreement is amended and restated in its entirety 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.

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          1.2 “AG Date” means the earlier of:

               (a) November ***, 2011;

               (b) ***; or

               (c) ***

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

          1.4 “Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.

          1.5 “Calendar Year” means each successive period of twelve (12) months commencing on January 1 and ending on December 31.

          1.6 “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.

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

          1.8 “Generic Product” means, ***.

          1.9 [Reserved].

          1.10 “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)

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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.

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

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

     2. RELEASE; PERMANENT INJUNCTION; LICENSE.

          2.1 Releases. Teva represents and warrants that, as of the Original 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 sentence, Medicis hereby as of the Original 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 Original 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 Original 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 this 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. Teva agrees that from the Effective Date forward, Teva shall not assist any Third Party in an action to invalidate or render unenforceable any of the Patent Rights, except to the extent required by court order or other applicable law. 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 Original Effective Date, Medicis and Teva have caused 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, has moved for the entry of the Consent Judgment and Permanent Injunction by such Court.

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          2.5 License Grant.

               2.5.1 Medicis hereby grants to Teva a non-exclusive license under the Patent Rights to make, have made (solely as set forth below), use, sell, offer for sale and import 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)) from and after the AG Date (and before the AG Date for reasonable commercial preparation as contemplated by Section 2.5.2). Neither party shall enter into any agreement in conflict with any provisions of this Agreement. Teva will have the right to grant sublicenses under the licenses granted in this Section 2.5.1 solely for its suppliers to make Generic Product (and for clarity API therefor) for sale only to Teva.

               2.5.2 ***

               2.5.3 In exchange for the license rights granted in this Section 2.5, Teva agrees that (a) during the term of this 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 this Agreement, and (b) in the case of an early termination of this 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.

               2.5.4 Teva shall pay to Medicis on a quarterly basis 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 resulting from sales of Generic Product made by Teva within *** of the AG Date (the “Payment Period”) and covered by a valid, issued and enforceable unexpired Patent Right licensed to Teva under this Agreement, ***.

               2.5.5 For the *** period following the expiration of Teva’s obligations to make royalty payments hereunder, Teva shall permit an independent auditor selected by Medicis, familiar with the generic pharmaceutical industry and reasonably acceptable to Teva, to have access, (i) during normal business hours, (ii) upon reasonable prior notice (not more often than *** in any Calendar Year) and (iii) such access not to unreasonably interfere with the day-to-day operations of Teva, to those books and records maintained by Teva necessary for Medicis to verify the accuracy of Teva’s calculation of any Net Sales, and/or Gross Profit; provided that no such independent auditor shall be retained on a contingency basis. All such information shall be retained on a confidential basis by such auditor’s firm, and such firm’s use of such information shall be limited to the aforementioned verification. The fees charged by such auditor shall be paid by Medicis; provided, however, if the audit discloses that the royalties payable by Teva for the audited period are more than *** of the royalties actually paid during such period, then Teva shall promptly pay the reasonable fees and expenses charged by such auditor in addition to any underpayments. Upon Teva’s request, Medicis shall provide Teva with a copy of the report or other summary of its findings prepared by such auditor.

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               2.5.6 Certain Definitions: For the purposes of this Section 2.5:

                    (i) “Gross Profit” means, with respect to any Generic Product sold by Teva, Net Sales of such Generic Product less the Costs of Goods for such Generic Product.

                    (ii) “Net Sales” means the aggregate gross sales of the amounts invoiced for the sale of Generic Product by Teva in arm’s length transactions with Third Parties for use in the United States, less good faith and reasonable estimates for the following: (A) cash discounts, (B) adjustments on account of ***, (C) returns, shortages or rejected/damaged goods, (D) chargebacks, and (E) rebates, promotional allowances, administrative fee arrangements, and similar payments to all direct and indirect customers, including wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations, Medicaid or Medicare or similar type programs. In the event that Teva sells Generic Product as part of a bundle or group sale with other products not covered by this Agreement, and Teva provides a discount, allowance or rebate to the purchaser of such Generic Product based on the invoiced prices for all products sold, such discount must be allocated pro rata based on the selling prices of all such products. Net Sales shall be determined using the accrual method of accounting determined in a manner consistent with Teva’s practice for its other pharmaceutical products and in accordance with GAAP consistently applied. Sales of Generic Product by and between Teva and its Affiliates are not sales to Third Parties and shall be excluded from Net Sales calculations for all purposes, but the final sale to a Third Party shall be included in Net Sales.

Within ninety (90) days after the end of the Payment Period, the Parties agree to allow for a “true up” reconciliation (and provide Medicis a written report of such reconciliation) of the deductions from gross sales of the amounts invoiced for the sale of Generic Product to the extent such deductions have not already been made during the Payment Period. The “true up” reconciliation shall be based on actual credits issued and estimates for those incurred related to the reported invoiced sales, but not yet issued for amounts as outlined in clauses (ii)(A) through (ii)(E) of this definition of “Net Sales”. If the foregoing reconciliation report shows either an underpayment or an overpayment to Medicis, Medicis shall pay Teva the amount of the overpayment, or Teva shall pay Medicis the amount of the underpayment, (whichever shall be applicable) within thirty (30) days of the date of its receipt of the report.

                    (iii) “Cost of Goods” means the fully burdened manufacturing cost (as defined below), excluding handling losses of the finished product. For purposes of this definition, the term “fully burdened manufacturing cost” shall mean and comprise the sum of:

                         (1) The cost of goods produced as determined by Teva in accordance with U.S. GAAP consistently applied, including ***all to the extent directly attributable and allocable to the manufacture and supply of Generic Product;

                         (2) *** and

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                         (3) Any other costs borne by Teva for transport, customs clearance and storage of Generic Product (i.e., freight, customs, duty, and transportation related insurance).

          2.6 No Licenses. Except as expressly set forth herein, nothing in this Agreement shall be construed as: (a) an obligation to bring or prosecute actions or suits against Third Parties for infringement of any patent, whether within the Patent Rights or otherwise; (b) conferring a right to use in advertising, publicity, promotion or otherwise any trademark or trade name of Medicis; or (c) granting by implication, estoppel or otherwise, any licenses or rights under the Patent Rights or any other patents.

     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.

          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.

          3.3 Termination for Challenge. Medicis shall have the right to immediately terminate this Agreement at any time after the Effective Date in the event Teva or any of its Affiliates contests or challenges, or supports or assists any Third Party to contest or challenge, with the patent office or any court, regulatory agency or other forum, Medicis’ ownership of or rights in, or the validity, enforceability or scope of, any of the Patent Rights, provided that Medicis has first provided Teva with thirty (30) days prior written notice of its intent to terminate and Teva has not ceased contesting or challenging, or ceased supporting or assisting any Third Party to contest or challenge, Medicis’s ownership of or rights in, or the validity, enforceability or scope of, any of the Patent Rights within such thirty (30) day period. This Section 3.3 shall apply only to contests or challenges of the Patent Rights with respect to Generic Products (and no other products), and further shall apply only in the United States.

          3.4 Effect of Expiration or Termination. Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination, and the provisions of Sections 2.1, 2.2, 2.3, 2.6, 3.4, 4, 5.4, 6 and 7 shall survive the expiration or termination of this Agreement. No other provisions shall survive expiration or termination of this Agreement.

     4. CONFIDENTIALITY.

          4.1 Confidentiality. For a period of five (5) years following the expiration or earlier termination of this Agreement, 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

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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, 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

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acknowledge and agree that the press release(s) set forth on Schedule B was issued on the Original 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 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.

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     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.

     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:

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If to Medicis:	Medicis Pharmaceutical Corporation
	7720 North Dobson Road
	Scottsdale, Arizona 85256
	Attn: Chief Executive Officer
	Facsimile: 480-291-5175
with a copy to:	Medicis Pharmaceutical Corporation
	7720 North Dobson Road
	Scottsdale, Arizona 85256
	Attn: General Counsel
	Facsimile: 480-291-8508
If to 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.

          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.

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          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 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]

11

CONFIDENTIAL

Settlement Agreement

     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.)

5,908,838
7,541,347 (issued June 2, 2009 from 11/695,528)
7,544,373 (issued June 9, 2009 from 11/695,539)

Pending Applications (all U.S.)

11/776,669
11/776,676
11/776,691
11/776,711
11/944,186
11/695,513
11/695,514
11/695,541
12/253,845

A-1

EXHIBIT B

Products

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

B-1

EXHIBIT C

Consent Judgment for Permanent Injunction

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

MEDICIS PHARMACEUTICAL	)
CORPORATION,	)
	)
Plaintiff,	)
	)
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.

C-1

	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: November 13, 2009

C-2

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.;	)
MATRIXLABORATORIES 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”).

C-3

          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.

C-4

          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

C-6

Agreed to:

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

C-7

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.

EX-12

Exhibit 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)

	Fiscal			Six Months
	Year Ended			Ended						Years Ended
	June 30,			December 31,						December 31,
	2005			2005			2006			2007			2008			2009
EARNINGS:
Income (loss) before income tax expense	$	89,425		$	81,617		$	(72,722	)	$	118,980		$	42,406		$	135,590
Add: Fixed charges		12,092			6,084			12,133			11,839			9,546			6,694
Earnings as defined	$	101,517		$	87,701		$	(60,589	)	$	130,819		$	51,952		$	142,284
FIXED CHARGES:
Interest expense	$	8,488		$	4,253		$	8,488		$	8,495		$	6,008		$	4,228
Amortization of deferred financing fees		2,152			1,080			2,152			1,523			666			—
Interest expense as reported		10,640			5,333			10,640			10,018			6,674			4,228
Portion of rent expense as interest		1,452			751			1,493			1,821			2,872			2,466
Fixed charges as defined	$	12,092		$	6,084		$	12,133		$	11,839		$	9,546		$	6,694
Ratio of earnings to fixed charges		8.4	x		14.4	x		(5.0)	x		11.1	x		5.4	x		21.3	x

     For purposes of computing the ratios of earnings to fixed charges, earnings represent pretax income from continuing operations plus fixed charges. Fixed charges represent interest expense and the portion of rents representative of interest related to continuing operations.

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES

		Percentage
Subsidiary	Incorporated In	Owned
Medicis, The Dermatology Company	Delaware		100	%
Dermavest, Inc.	Nevada		100	%
Medicis Global Services Corporation	Delaware		100	%
Medicis Canada Ltd.	Canada		100	%
Ucyclyd Pharma, Inc.	Maryland		100	%
Medicis Aesthetics Inc.	Delaware		100	%
Dermavest Swedish Holdings AB	Sweden		100	%
HA North American Sales AB	Sweden		100	%
Medicis Aesthetics Canada Ltd.	Canada		100	%
9 TV LLC	Delaware		100	%
RTI Acquisition Corporation, Inc.	Delaware		100	%
Medicis Technologies Corporation	Delaware		100	%

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 33-45573, 33-88590, 33-311419, 33-333647, 333-81647, 333-101467, 333-126785, 333-135675 and 333-147705), and in the Registration Statements (Form S-3 No. 333-97207 and Form S-4 No. 333-107089) of Medicis Pharmaceutical Corporation of our reports dated February 24, 2009, with respect to the consolidated financial statements and schedule of Medicis Pharmaceutical Corporation and the effectiveness of internal control over financial reporting of Medicis Pharmaceutical Corporation, included in its Annual Report (Form 10-K) for the year ended December 31, 2009.

/s/ Ernst & Young LLP

Phoenix, Arizona
March 1, 2010

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jonah Shacknai, certify that:

1.	I have reviewed this annual report on Form 10-K of Medicis Pharmaceutical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a 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 annual 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 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 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 the 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: March 1, 2010

JONAH SHACKNAI
 

/s/ JONAH SHACKNAI  

(Jonah Shacknai) 

Chairman of the Board and
Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Richard D. Peterson, certify that:

1.	I have reviewed this annual report on Form 10-K of Medicis Pharmaceutical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a 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 annual 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 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 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 the 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: March 1, 2010


RICHARD D. PETERSON
 

/s/ RICHARD D. PETERSON  

(Richard D. Peterson) 

Executive Vice President, Chief Financial Officer,
and Treasurer 

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the annual report of Medicis Pharmaceutical Corporation (the “Company”) on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonah Shacknai, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

/s/ JONAH SHACKNAI  

Jonah Shacknai 

Chairman of the Board and
Chief Executive Officer 

March 1, 2010 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Medicis Pharmaceutical Corporation and will be retained by Medicis Pharmaceutical Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the annual report of Medicis Pharmaceutical Corporation (the “Company”) on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard D. Peterson, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

/s/ RICHARD D. PETERSON  

Richard D. Peterson 

Executive Vice President, Chief Financial Officer
and Treasurer 

March 1, 2010 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Medicis Pharmaceutical Corporation and will be retained by Medicis Pharmaceutical Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.