Medicis Acquires Graceway Pharmaceuticals

Medicis has acquired Graceway Pharmaceuticals. Graceway filed for Chapter 11 bankruptcy protection on September 29, 2011. Medicis funded the transaction from its existing cash balances.

PRESS RELEASE

Medicis MRX +0.62% today announced that it has completed its acquisition of substantially all of the assets of Graceway Pharmaceuticals, LLC (Graceway), following approval by Graceway’s board of directors, clearance under the Hart-Scott-Rodino Act and final approval by the U.S. bankruptcy court overseeing Graceway’s Chapter 11 case and the Canadian court overseeing the receivership of Graceway’s Canadian subsidiary. Medicis announced on November 18, 2011, that the Company was the successful bidder at a bankruptcy auction conducted by Graceway for substantially all of the outstanding U.S. and Canadian pharmaceutical assets of Graceway. Graceway filed for Chapter 11 bankruptcy protection on September 29, 2011.

“We are pleased to announce the close of this important transaction as Medicis broadens its presence within dermatology,” said Jonah Shacknai, Chairman and Chief Executive Officer of Medicis. “We are confident that key Graceway products currently in the marketplace represent a sound investment in the future of Medicis. The Graceway research and development (R&D) pipeline includes several patented and patent-pending, mid- and late-stage assets which may represent annual net sales peak potential of over $500 million. We remain committed to the growth of our current brands and are excited at this opportunity to diversify our product portfolio.”

Terms of the Transaction

Under the terms of the transaction, Medicis paid to Graceway a purchase price of $455 million for Graceway’s commercial pharmaceutical product portfolio, which includes prescription products in the dermatology, respiratory and women’s health specialties, and certain other assets. Included in the purchase is a strong R&D pipeline:

— a formulation-stage dermatology project with an applied-for patent and
projected annual peak sales in excess of $200 million;

— a Phase 2 dermatology new chemical entity product currently
patent-protected through 2016 with a potential patent term extension of
up to five years and projected peak sales in excess of $200 million;
and

— a nearer-term women’s health product which has completed Phase 2 and
will soon enter Phase 3 with an applied-for patent and projected annual
peak sales in excess of $100 million.

Additionally, Medicis has the opportunity to launch two recently approved line extensions for the Zyclara(TM) franchise, which has several applied-for patents currently under accelerated examination in the United States and related patent protection in Canada already obtained.

Medicis funded the transaction from its existing cash balances.

Current 2011 Guidance

The Company will allocate the $455 million lump-sum payment to the acquired Graceway assets and liabilities, including, but not limited to, intangible assets and in-process R&D. Medicis is in the process of completing a valuation to determine the amounts to be assigned to the acquired assets, including intangible assets and their related amortization periods, and the amount of in-process R&D. As a result of this transaction, the Company will be providing non-generally accepted accounting principles (non-GAAP, defined below) diluted earnings per share (EPS, defined below) and non-GAAP diluted cash EPS (defined below) guidance.

Based upon information available currently to the Company’s management, the Company’s financial guidance for the remainder of 2011 is anticipated as follows:

Calendar 2011
(in millions, except per share amounts)

First Second Third Fourth Calendar
Quarter Quarter Quarter Quarter Year-End
(3/31/11) (6/30/11) (9/30/11) (12/31/11) 2011

Actual Actual Actual Estimated Estimated
———— ———— ———— —————- —————

Revenue $165 $191 $185 $187-$200 $728-$741

Non-GAAP diluted EPS objectives $0.50 $0.64 $0.56 $0.63-$0.69 $2.33-$2.39

Non-GAAP diluted cash EPS objectives $0.55 $0.68 $0.61 $0.68-$0.74 $2.52-$2.58

Additional 2011 Guidance Considerations

Revenue, non-GAAP diluted EPS and non-GAAP diluted cash EPS objectives include certain assumptions associated with:

— the Company’s decision, effective July 1, 2011, to stop shipment of the
Legacy Strengths1 of SOLODYN(R) to wholesalers. The Company’s guidance
issued today in the table above reflects the decrease in sales and
profitability associated with the Legacy Strengths. The average selling
price (ASP) for the Legacy Strengths is approximately $200 higher than
that of the current strengths.

— continued acceptance of newer strengths of SOLODYN by physicians;

— levels of managed care rebates for SOLODYN and the Company’s other
therapeutic brands;

— the Company’s early 2011 discontinuation of TRIAZ(R) and decision to no
longer promote PLEXION(R);

— the exclusion of all revenue and expenses associated with LipoSonix, as
the Company began classifying the LipoSonix business as a discontinued
operation in the first quarter of 2011;

— competition in the dermal filler and botulinum toxin markets;

— gross profit margins of approximately 90-91% of revenues;

— selling, general and administrative (SG&A) expenses of approximately
47-49% of revenues;

— R&D expenses of approximately 5-6% of revenues;

— depreciation and amortization of approximately $29-$30 million for the
year;

— effective tax rate of approximately 39-40%; and

— fully diluted weighted average shares outstanding of approximately 66-67
million shares.

The above guidance does not take into account the following:

— revenue and operating expenses associated with the Graceway transaction.
If the Company is able to re-label and subsequently ship product within
the fourth quarter 2011, the impact on the quarter’s cash EPS is
expected to be minimal, as any incremental revenue would be offset by
associated operating expenses.

— Any expenses that may result from the Graceway transaction, including,
but not limited to, acquired in-process R&D and amortization related to
acquired intangibles associated with the Graceway transaction;

— changes in levels of managed care rebates, and the associated impact on
sales, reserves, profitability and the ASP, for SOLODYN and the
Company’s other therapeutic brands. The Company is actively engaged in a
strategy, which management believes will significantly reduce the
Company’s exposure to managed care restrictions for SOLODYN and the
Company’s other therapeutic products. This strategy includes, among
other things, negotiating new, multi-year contracts to begin in 2012
with targeted managed care organizations and pharmacy benefit managers,
which, in aggregate, account for approximately 40% of the insurable
lives for the Company’s therapeutic products. SOLODYN was the 7th
largest infectious disease prescription product in the U.S. for 2010,2
and we believe that our anticipated growth of SOLODYN will increase the
risk of managed care restrictions. If we are successful in our
negotiations, we would anticipate having to accrue additional sales
reserves, not contemplated in our above revenue guidance, totaling
approximately $12-$17 million, and a corresponding impact on EPS
guidance for the fourth quarter 2011.

— proceeds from the disposition of the LipoSonix business;

— special charges associated with R&D milestones or contract payments;

— the financial impact of fluctuations in the Company’s stock price and
the resulting effect on its Stock Appreciation Rights (SARs);

— the financial impact of potential share repurchases made under the
Company’s previously announced Stock Repurchase Plan;

— the financial impact of legal settlements;

— additional recognized losses on our auction rate securities investments;

— recognized losses resulting from impairments on our intangible
assets;

— the impact of accounting for new collaborative arrangements with Medicis
partners;

— the financial impact of changes in accounting or governmental
pronouncements;

— charges related to the accounting for our investment in Revance or
Hyperion;

— material changes to the demand for ZIANA(R) associated with the launch
of a competitive product;

— material changes to our assumptions regarding sales of SOLODYN to
wholesalers and the demand for SOLODYN associated with the anticipated
November 2011 launch of generic forms of the Legacy Strengths of
SOLODYN;

— material changes to our assumptions regarding returns, including
associated returns reserves, of SOLODYN and the Company’s other
therapeutic brands;

— the timing of additional SOLODYN patent allowances, if any;

— uncertainty relating to the reduction of the ASP, including reserves,
for covered products as a result of the rise in costs associated with
consumer rebate programs, including MediSAVE and other point-of-sale
offers;

— changes in reimbursement policies of health plans and other health
insurers;

— the impact of the U.S. economy on the Company’s aesthetic and
therapeutic franchises; and

— significant changes in assumptions and estimates used for calculating
various sales reserves.

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

Conference Call / Webcast

Medicis will host a conference call and webcast for the investment community on Monday, December 5, 2011, at 11 a.m. Eastern Time (8 a.m. Pacific Time), to discuss corporate strategy, the Graceway acquisition, financial guidance and other company updates. A live webcast will be available at http://www.Medicis.com/company/index.asp . The webcast will be archived on the Company’s website for 10 business days following the live call.

Callers should dial in approximately 10 minutes prior to the start of the call. No reservation is necessary to participate on the call. The phone number to join the conference call is +1 (877) 233-0981 (U.S. and Canada) or +1 (706) 679-5708 (international and local). The access code for the live call is 31818427. For investors unable to participate on the live call, a replay will be available soon after the live call. The phone number to access the replay is +1 (855) 859-2056 (U.S. and Canada) or +1 (404) 537-3406 (international and local). The access code for the replay is 31818427. The replay will be available for 10 business days following the live call.

Key Graceway Pharmaceutical Products (See Important Safety Information Below)

The following key Graceway pharmaceutical products to be acquired represent in excess of $125 million in annual revenues.3

Dermatology

Aldara(R) (imiquimod) Cream, 5% is indicated for: the topical treatment of clinically typical, nonhyperkeratotic, nonhypertrophic actinic keratoses (AK) on the face or scalp in immunocompetent adults; the topical treatment of biopsy-confirmed, primary superficial basal cell carcinoma (sBCC) in immunocompetent adults, with a maximum tumor diameter of 2.0 cm, located on the trunk (excluding anogenital skin), neck, or extremities (excluding hands and feet), when surgical methods are medically less appropriate and patient follow-up can be reasonably assured; and the treatment of external genital and perianal warts/condyloma acuminata in patients 12 years old or older. The histological diagnosis of sBCC should be established prior to treatment since safety and efficacy of Aldara Cream have not been established for other types of basal cell carcinomas (BCC), including nodular and morpheaform (fibrosing or sclerosing) types. Efficacy was not demonstrated for molluscum contagiosum in children aged 2–12.

Atopiclair(R) Nonsteroidal Cream is a nonsteroidal cream indicated to manage and relieve the itching, burning and pain experienced with various types of dermatoses, including atopic dermatitis and allergic contact dermatitis. Atopiclair Nonsteroidal Cream helps to relieve dry, waxy skin by maintaining a moist skin environment which is beneficial to the healing process.

Zyclara(TM) (imiquimod) Cream, 3.75%and 2.5% are indicated for the topical treatment of clinically typical visible or palpable AK of the full face or balding scalp in immunocompetent adults. Additionally, Zyclara 3.75% is indicated for the treatment of external genital and perianal warts (EGW)/condyloma acuminata in patients 12 years or older. Efficacy was not demonstrated in molluscum contagiosum in children aged 2-12.

Respiratory

Maxair(R) Autohaler(R) (pirbuterol acetate inhalation aerosol) is indicated for the prevention of and reversal of bronchospasm in patients aged 12 years and older with reversible bronchospasm, including asthma. It may be used with or without concurrent theophylline and/or corticosteroid therapy.

Women’s Health

Estrasorb(R) (estradiol topical emulsion)is indicated for the treatment of moderate to severe vasomotor symptoms (hot flashes) associated with menopause.

MetroGel-Vaginal(R) (metronidazole vaginal gel) 0.75% Vaginal Gel is indicated for the treatment of bacterial vaginosis (formerly referred to as Haemophilus vaginitis, Gardnerella vaginitis, nonspecific vaginitis, Corynebacterium vaginitis, or anaerobic vaginitis).

Diluted Earnings Per Share

Diluted earnings per share amounts are calculated using the “if-converted” method of accounting regardless of whether the Company’s outstanding convertible bonds meet the criteria for conversion and regardless of whether the bondholders actually convert their bonds into shares.

Non-GAAP Diluted Earnings Per Share

Historically, the Company’s non-GAAP diluted EPS amounts have been calculated excluding certain items, such as R&D charges which result from payments made to Medicis partners, transaction costs, the impairment of long-lived assets, gains resulting from the sale of subsidiaries, charges related to the accounting for our investment in Revance or Hyperion and litigation reserves.

In this press release, management is providing another financial measure, diluted cash EPS, which excludes amortization, in addition to all of the items identified in the paragraph above.

Use of Non-GAAP Financial Information

The Company provides non-GAAP financial information in this press release. Management measures the Company’s performance using non-GAAP financial measures, such as those that are disclosed in this press release, to provide meaningful supplemental information regarding its operational performance and to enhance its investors’ overall understanding of its core financial performance. This information facilitates management’s internal comparisons to the Company’s historical core operating results and competitors’ core operating results, and is a basis for financial decision making. Management believes that Medicis’ investors benefit from seeing the Company’s results on the same basis as management, in addition to the GAAP presentation, where applicable. In our view, non-GAAP financial measures, such as non-GAAP diluted EPS and non-GAAP diluted cash EPS, which are based on non-GAAP net income as defined below, are informative to investors, allowing them to focus on the ongoing operations and core results of Medicis’ business. Historically, Medicis has provided similar non-GAAP information to its investors and believes that the use of such numbers provides consistency in the Company’s financial disclosures. This information is not in accordance with, or an alternative for, information prepared using GAAP. Non-GAAP net income excludes certain items, such as R&D charges which result from payments made to Medicis partners, transaction costs, amortization (for calculation of diluted cash EPS only), the impairment of long-lived assets, gains resulting from the sale of subsidiaries, charges related to the accounting for our investment in Revance or Hyperion and litigation reserves. These items may have a material effect on the Company’s net income and diluted earnings per common share calculated in accordance with GAAP. The Company excludes such charges and the related tax benefits when analyzing its financial results, as the items are distinguishable events or large non-cash expenses related to intangibles. Management believes that, by viewing the Company’s results of operations excluding these charges, investors are given an indication of the ongoing results of the Company’s operations.

About Medicis

Medicis is the leading independent specialty pharmaceutical company in the United States focusing primarily on the treatment of dermatological and aesthetic conditions. The Company is dedicated to helping patients attain a healthy and youthful appearance and self-image. Medicis has leading branded prescription products in a number of therapeutic and aesthetic categories. The Company’s products have earned wide acceptance by both physicians and patients due to their clinical effectiveness, high quality and cosmetic elegance.

The Company’s products include the brands DYSPORT(R) (abobotulinumtoxinA) 300 Units for Injection, PERLANE(R) Injectable Gel, PERLANE-L(R) Injectable Gel with 0.3% Lidocaine, RESTYLANE(R) Injectable Gel, RESTYLANE-L(R) Injectable Gel with 0.3% Lidocaine, LOPROX(R) (ciclopirox) Gel 0.77% and Shampoo 1%, SOLODYN(R) (minocycline HCl, USP) Extended Release Tablets, VANOS(R) (fluocinonide) Cream, 0.1%, ZIANA(R) (clindamycin phosphate 1.2% and tretinoin 0.025%) Gel, AMMONUL(R) (sodium phenylacetate and sodium benzoate) Injection 10%/10%, BUPHENYL(R) (sodium phenylbutyrate) Tablets and Powder and the over-the-counter brand ESOTERICA(R).