05/12/98 6:46 AM 1
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
or the transition period from ------------- to -------------
Commission file number 0-18443
MEDICIS PHARMACEUTICAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1574808
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
</TABLE>
4343 East Camelback Road, Suite 250
Phoenix, Arizona 85018-2700
(Address of principal executive offices)
(602) 808-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 4, 1998
- ----------------------------------- ------------------------
<S> <C>
Class A Common Stock $.014 Par Value 18,468,591
Class B Common Stock $.014 Par Value 281,974
</TABLE>
<PAGE> 2
MEDICIS PHARMACEUTICAL CORPORATION
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PART I.FINANCIAL INFORMATION Page
Item 1-- Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1998, and June 30, 1997 3
Condensed Consolidated Statements of
Operations for the Three Months and Nine Months
Ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
March 31, 1998 and 1997 6
Notes to the Condensed Consolidated
Financial Statements 7
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings 23
Item 6 -- Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $172,791,663 $ 33,623,397
Short-term investments 60,051,875 51,508,611
Accounts receivable, net 16,450,999 6,352,840
Inventories, net 8,098,854 2,981,877
Deferred tax assets 7,332,972 6,257,000
Other current assets 4,292,213 2,818,505
------------ ------------
Total current assets 269,018,576 103,542,230
------------ ------------
Property and equipment:
Furniture and equipment 1,207,569 755,905
Leasehold improvements 376,449 170,000
Less accumulated depreciation 375,905 213,764
------------ ------------
Net property and equipment 1,208,113 712,141
------------ ------------
Intangible assets:
Intangible assets related to
acquisitions 70,779,520 36,999,644
Other intangible assets 4,792,514 1,608,762
Less accumulated amortization 5,177,845 3,325,621
------------ -----------
Net intangible assets 70,394,189 35,282,785
------------ -----------
Other non-current assets 602,907 1,000,000
------------ -----------
$341,223,785 $140,537,156
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
<S> -------------- -------------
<C> <C>
Liabilities
Current liabilities:
Accounts payable $ 6,345,940 $ 4,128,370
Notes payable 5,415 5,245
Accrued incentives 1,513,667 1,671,103
Accrued royalties 783,362 712,432
Accrued contract costs -- 600,000
Other accrued liabilities 5,387,320 1,622,093
------------ ------------
Total current liabilities 14,035,704 8,739,243
------------ ------------
Long-term liabilities:
Notes payable 105,920 111,335
Other non-current liabilities 159,120 121,761
Deferred tax liabilities 11,046,000 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value
5,000,000 shares authorized;
no shares issued -- --
Class A common stock, $0.014
par value, shares authorized:
50,000,000; 18,458,007 and
13,978,714 issued and outstanding
at March 31, 1998 and at June 30,
1997, respectively 258,412 195,702
Class B common stock, $0.014 par
value, 1,000,000 shares authorized;
281,974 issued and outstanding at
March 31, 1998 and at June 30, 1997 3,948 3,948
Additional paid-in capital 344,022,950 138,973,208
Accumulated deficit (28,408,269) (7,608,041)
------------- ------------
Total stockholders' equity 315,877,041 131,564,817
------------- ------------
$341,223,785 $140,537,156
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- -----------------------
1998 1997 1998 1997
------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $22,526,851 $10,976,107 $53,365,759 $26,752,138
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of product revenue 3,991,792 2,477,062 9,541,034 6,684,535
Selling, general and administrative 8,069,996 4,435,926 19,648,557 11,199,278
Research and development 874,483 360,166 2,337,139 972,998
In-process research and development -- -- 35,400,000 --
Depreciation and amortization 926,857 248,619 2,018,564 546,846
---------- ---------- ---------- ----------
Operating costs and expenses 13,863,128 7,521,773 68,945,294 19,403,657
---------- ---------- ---------- ----------
Operating income (loss) 8,663,723 3,454,334 (15,579,535) 7,348,481
Interest income 1,898,225 1,242,190 4,025,190 2,677,090
Interest expense (3,313) (2,844) (18,202) (19,312)
Income tax benefit (expense), net (4,124,444) (356,729) (9,296,217) 1,185,873
----------- --------- ----------- ----------
Net income (loss) $ 6,434,191 $ 4,336,951 $(20,868,764) $11,192,132
=========== ========= =========== ==========
Basic net income (loss) per
common share $ 0.38 $ 0.31 $ (1.38) $ 0.87
=========== ========= ========== ==========
Diluted net income (loss)
per common share $ 0.37 $ 0.29 $ (1.38) $ 0.82
=========== ========== ========== ==========
Shares used in computing
basic net income (loss) per share 16,883,296 14,158,770 15,175,547 12,842,949
========== ========== =========== ==========
Shares used in computing
diluted net income (loss) per share 17,553,701 14,943,698 15,175,547 13,641,818
========== ========== ========== ==========
</TABLE>
<PAGE> 6
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1998 1997
---------- -----------
<S> <C> <C>
Net income (loss) $(20,868,764) $ 11,192,132
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
In-process research and development 35,400,000 --
Depreciation and amortization 2,018,564 546,846
Provision for doubtful accounts 750,000 255,000
Deferred income tax expense (benefit) 9,714,000 (2,000,000)
Other non-cash expenses 56,500 58,500
Accretion of discount of available-for-sale investments (171,727) (259,677)
Gain on sale of available-for-sale investments (23,863) --
Change in operating assets and liabilities
net of those acquired):
Inventories (3,353,830) (122,404)
Accounts receivable (9,093,939) (3,770,841)
Accounts payable 884,989 975,763
Accrued salaries and wages -- (204,750)
Accrued incentives (157,436) (481,462)
Accrued interest (17,026) --
Other current liabilities (5,880,795) 278,746
Other current assets (827,885) (1,057,980)
----------- ----------
Net cash provided by operating activities 8,428,788 5,409,873
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (612,312) (117,086)
Proceeds from sale of license agreement 3,000,000 --
Purchase of common stock of GenDerm, net of cash acquired (57,982,386) --
Payment for intangible assets (1,010,000) (28,239,512)
Payment of license agreement (3,783,752) --
Decrease (increase) in other assets 500,000 (1,500,000)
Purchase of available-for-sale investments (80,800,841) (56,270,461)
Sale of available-for-sale investments 49,021,703 7,185,861
Maturity of available-for-sale investments 23,500,000 --
----------- -----------
Net cash used in investing activities (68,167,588) (78,941,198)
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 803,520 3,308,843
Payments of notes payable (5,245) (4,478)
Increase (decrease) in other non-current liabilities 37,359 (23,909)
Proceeds from common stock sale, net 198,071,432 90,118,210
----------- -----------
Net cash provided by financing activities 198,907,066 93,398,666
----------- -----------
Net increase in cash and cash equivalents 139,168,266 19,867,341
Cash and cash equivalents at beginning of period 33,623,397 7,956,050
----------- -----------
Cash and cash equivalents at end of period $172,791,663 $27,823,391
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 14,451 $ 19,312
Taxes $ 1,595,824 $ 759,364
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 7
MEDICIS PHARMACEUTICAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Medicis Pharmaceutical Corporation ("Medicis" or the
"Company") is the leading independent pharmaceutical company
in the United States focusing exclusively on the treatment
of dermatological conditions. The Company offers
prescription, over-the-counter ("OTC"), and cosmetic
dermatology products emphasizing the clinical effectiveness,
quality, affordability and cosmetic elegance of its
products. Medicis has achieved a leading position in
branded products for the treatment of acne, acne-related,
and pruritic conditions and psoriatic conditions, while also
offering the leading OTC fade cream product line in the
United States. The Company has built its business through
successfully introducing prescription pharmaceuticals such
as DYNACIN(R) and TRIAZ(R) products for the treatment of acne,
LUSTRA(TM), for the treatment of dyschromia and other
discolorations of the skin as well as the acquisition of the
ESOTERICA(R) fade cream product line. In addition, Medicis has
acquired the rights to LIDEX(R) and SYNALAR(R) corticosteriod
product lines from Syntex USA, Inc. and the entire product
line from GenDerm Corporation ("GenDerm"), including ZOSTRIX(R)
topical analgesics and NOVACET(R) acne rosacea treatments.
The financial information is unaudited but reflects all
adjustments, consisting only of normal recurring accruals,
which are, in the opinion of the Company's management,
necessary to a fair statement of the results for the interim
periods presented. Interim results are not necessarily
indicative of results for a full year. The financial
statements should be read in conjunction with the Company's
audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition
and Results of Operations relating thereto included in the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997. Certain immaterial amounts on the face
of the balance sheet have been reclassified to conform with
the current period's presentation.
2. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("SFAS 128"). SFAS
128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts
for all periods have been presented, and where necessary,
restated to conform to the SFAS 128 requirements and have
been computed by using the weighted average number of
shares. The impact of SFAS 128 on the calculation of
earnings per share for previously reported quarters is not
expected to be material.
<PAGE> 8
The following table sets forth all computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1998 1997 1998 1997
------- ------ ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 6,434 $ 4,337 $ (20,869) $11,192
------- ------- --------- -------
Denominator for basic earnings
per common share 16,883 14,159 15,176 12,843
Effect of dilutive securities:
Stock options 671 785 -- 1,007
-------- ------- -------- -------
Denominator for diluted
earnings per share 17,554 14,944 15,176 13,850
======== ======= ========= =======
Basic net income (loss) per
per common share $ 0.38 $ 0.31 $ (1.38) $ 0.87
======== ======== ======== =======
Diluted net income (loss)
per common share $ 0.37 $ 0.29 $ (1.38) $ 0.81
======== ======== ======== =======
</TABLE>
Options to purchase 135,050 and 122,050 shares of common
stock at prices ranging from $45.44 to $54.00 and $45.50 to
$54.00 per share were outstanding for the three and nine
months ended March 31, 1998, respectively. These were not
included in the computation of diluted earnings per share
because the option exercise price was greater than the
average market price of the Company's common stock and,
therefore, the effect would be anti-dilutive.
Common stock equivalent shares for the computation of nine
months diluted net loss per share were excluded as such
additional shares are anti-dilutive. For the 1998 nine
months, absent the special charge for in-process research
and development, basic and diluted net income per common
share would have been $0.96 and $0.92 respectively. The
computation for the nine months diluted net income per
common share of $0.92 includes an additional 694,000 common
stock equivalent shares in the denominator for dilutive
earnings per share.
3. CONTINGENCIES
The Company and certain of its subsidiaries, from time to
time, are parties to certain actions and proceedings
incident to their business. Liability in the event of final
adverse determinations in any of these matters is either
covered by insurance and/or established reserves or, in the
opinion of management, after consultation with counsel,
should not, in the aggregate, have a material adverse effect
on the consolidated financial position or results of
operations of the Company and its subsidiaries.
<PAGE> 9
4. INVENTORIES
Although the Company utilizes third parties to manufacture
and package inventories held for sale, the Company takes
title to certain inventories and records the associated
liability once inventories are manufactured. Inventories
are valued at the lower of cost or market as determined by
net realizable value using the first-in-first-out method.
Inventories, net of reserves, at March 31, 1998, and June
30, 1997, consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
Raw materials $1,113,321 $ 557,520
Finished goods 6,985,533 2,424,357
-------------- ------------
Total inventories $8,098,854 $2,981,877
============== ============
</TABLE>
5. INCOME TAXES
Income taxes have been provided using the liability method
in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The
provision for income taxes (recorded at an effective rate of
39% for the quarter and nine month periods ended March 31,
1998 excluding in-process research and development which has
no tax effect) reflects management's estimation of the
effective tax rate expected to be applicable for the full
fiscal year. This estimate is reevaluated by management
each quarter based on estimated tax expenses for the year.
The income tax benefit recorded in the 1997 nine months is a
result of management's reduction of the valuation allowance
to an amount the Company believes appropriate.
Accordingly, a credit to income tax benefit was reflected in
the 1997 nine months.
At September 30, 1997, the Company took advantage of
additional tax deductions available relating to the exercise
of non-qualified stock options and disqualified dispositions
of incentive stock options. Accordingly, the Company
recorded a $5.9 million increase to stockholders' equity
with a corresponding $0.7 million reduction to taxes payable
and a $5.2 million increase to deferred tax assets.
Quarterly adjustments for the exercise of non-qualified
stock options and disqualified dispositions of incentive
stock options may vary as they relate to the intentions of
the option holder. During the quarter ended March 31, 1998,
the tax benefit associated with the exercise of such options
was approximately $0.3 million.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the condensed consolidated financial statements and notes
thereto contained herein, the Company's audited financial
statements, notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations
relating thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, and with
the Company's Current Report on Form 8-K, and amendment
thereto, relating to the Company's acquisition of the
outstanding stock of GenDerm on December 3, 1997 (the "Form
8-K/A").
The Company's Form 10-Q contains certain "forward looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, from time to
time, the Company or its representatives have made or may
make forward looking statements, orally or in writing. Such
forward looking statements involve known and unknown risks
and uncertainties. The Company's actual actions or results
could differ materially from those anticipated and these
forward looking statements as a result of certain factors
including, but not limited to, those factors discussed in
the documents filed by the Company with the Securities and
Exchange Commission from time to time, including the
Company's Registration Statement on Form S-3 and the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997. The Company undertakes no obligation
to update any forward looking statements.
Overview
Medicis was founded in 1987 to develop and market
prescription and OTC products to treat dermatological
conditions. Innovative Therapeutics, Inc. (the predecessor
of the Company) was incorporated under the laws of the
District of Columbia on July 1, 1987, subsequently changed
its name to Medicis Corporation and was merged with and into
Medicis Corporation, which was incorporated in July 29, 1988
under the laws of Delaware, pursuant to an Agreement of
Merger dated July 29, 1988. Medicis Corporation subsequently
changed its name to Medicis Pharmaceutical Corporation.
Medicis is the leading independent pharmaceutical company in
the United States focusing exclusively on the treatment of
dermatological conditions. The Company offers prescription,
OTC, and cosmetic dermatology products, emphasizing the
clinical effectiveness, quality, affordability and cosmetic
elegance of its products. Medicis has achieved a leading
position in branded products for the treatment of acne, acne-
related conditions, psoriatic conditions, and anti-pruritic
conditions, while also offering the leading OTC fade cream
product line in the United States. The Company has built
its business through successfully introducing prescription
pharmaceuticals such as DYNACIN(R) and TRIAZ(R) products for the
treatment of acne, LUSTRA(TM) for dyschromia and other
discolorations of the skin, as well as marketing OTC
products such as the ESOTERICA(R) fade cream product line. In
addition, Medicis has acquired rights to LIDEX(R) and SYNALAR(R)
<PAGE> 11
corticosteroid product lines in the United States and Canada
from Syntex and the entire product line from GenDerm,
including ZOSTRIX(R) topical analgesics and NOVACET(R) acne
rosacea treatments.
Prescription pharmaceuticals accounted for 86.5%, 83.2% and
70.6% of net sales in the fiscal years ending June 30, 1997
("fiscal 1997"), fiscal 1996 and 1995, respectively and for
67.7% and 77.0% in the third quarter and nine months ended
March 31, 1998. Although DYNACIN(R) products accounted for a
majority of the Company's total sales in fiscal 1997, 1996
and 1995, the Company believes it will no longer derive the
majority of its net sales from DYNACIN(R) in the future. As a
result of the GenDerm acquisition, OTC products will account
for a greater percentage of the Company's total sales with
minimal impact on the Company's gross profit margins.
The Company derives a majority of its revenue from sales of
DYNACIN(R), LIDEX(R) and TRIAZ(R) products and the newly acquired
line of ZOSTRIX(R) products (the "Key Products"). The Company
believes that sales of the Key Products will constitute the
majority of net sales for the foreseeable future.
Accordingly, any factor adversely affecting the sale of the
Key Products individually or collectively would have a
material adverse effect on the Company's business, financial
condition and results of operations. Each of the Key
Products could be rendered obsolete or uneconomical by
regulatory or competitive changes. The sale of Key Products
could also be affected adversely by other factors, including
manufacturing or supply interruptions, the development of
new competitive pharmaceuticals to treat the conditions
addressed by the Key Products, technological advances,
factors affecting the cost of production, marketing or
pricing actions by one or more of the Company's competitors,
changes in the prescribing practices of dermatologists,
changes in the reimbursement policies of third-party payors,
product liability claims or other factors.
The Company's results of operations may vary from period to
period due to a variety of factors, including expenditures
incurred to acquire, license and promote pharmaceuticals,
expenditures and timing relating to acquisition and
integration of businesses, changes in prescribing practices
of dermatologists, the introduction of new products by the
Company or its competitors, cost increases from third-party
manufacturers, supply interruptions, the availability and
cost of raw materials, the mix of products sold by the
Company, changes in marketing and sales expenditures, market
acceptance of the Company's products, competitive pricing
pressures, and general economic and industry conditions that
affect customer demand, and the Company's level of research
and development activities. In addition, the Company's
business has historically been subject to seasonal
fluctuations, with lower sales generally being experienced
in the first quarter of each fiscal year. As a result of
customer buying patterns, a substantial portion of the
Company's revenues has been in the last month of each
quarter. The Company schedules its inventory purchases to
meet anticipated customer demand. As a result, relatively
small delays in the receipt of manufactured products by the
Company could result in revenues being deferred or lost.
The Company's operating expenses are based on anticipated
sales levels, and a high percentage of the Company's
expenses are relatively fixed in the short term.
Consequently, variations in the timing of recognition of
revenue could cause significant fluctuations in operating
results from period to period and may result in unanticipated
<PAGE> 12
periodic earnings shortfalls or losses. There can be no assurance
that the Company will maintain or increase revenues or profitability
or avoid losses in any future period.
The Company's strategy for growth is substantially dependent
upon its continued ability to acquire products targeted at
the dermatology market. The Company engages in limited
proprietary research and development of new products and
must rely upon the willingness of other companies to sell or
license product lines or technologies. Other companies,
including those with substantially greater financial,
marketing and sales resources, compete with the Company to
acquire such products. There can be no assurance that the
Company will be able to acquire rights to additional
products on acceptable terms, or at all. The failure of the
Company to acquire additional products or successfully
introduce new products could have a material adverse effect
on the Company's business, financial condition and results
of operations. Further, any new internally developed or
acquired products may have different distribution channels,
pricing resources and levels and competition than the
Company's current products. Consequently, there can be no
assurance that the Company will be able to compete favorably
and attain market acceptance in any new product category or
successfully integrate any acquired products or businesses.
In addition, any such products may require the Company to
significantly increase its sales force and incur
commensurate expense levels in anticipation of a new product
introduction. Failure of the Company to successfully
introduce and market new products, whether internally
developed or acquired from third parties, would have a
material adverse effect on the Company's business, financial
condition and results of operations.
The Company has recently experienced a period of significant
expansion of its operations that has placed a significant
strain upon its management system and resources. The
Company's ability to compete effectively and to manage
future growth, if any, will require the Company to continue
to improve its financial and management controls, reporting
systems and procedures on a timely basis and expand, train
and manage an increasing number of employees. The Company's
failure to do so would have a material adverse effect upon
the Company's business, financial condition and results of
operations. The Company's business strategy includes
potential acquisitions of products and businesses and
introductions of new products. The Company anticipates that
the integration of additional new businesses or potential
products, if any, would require significant expense and
management time and attention. Failure to manage such change
effectively would have a material adverse effect on the
Company's business, financial condition and results of
operations.
The Company recognizes revenues from sales upon shipment to
its customers. At the time of sale, the Company records
reserves for returns based on estimates using historical
experience. Sales are reported net of actual and estimated
product returns and net of pricing adjustments and/or
discounts. The Company applies royalty obligations to the
cost of sales in the period the corresponding sales are
recognized.
<PAGE> 13
Medicis' customers include the nation's leading wholesale
pharmaceutical distributors, such as McKesson Drug Company
("McKesson"), Bergen Brunswig Drug Company ("Bergen
Brunswig"), Cardinal Health, Inc. ("Cardinal), and major
drug chains. In the fiscal year ended June 30, 1997,
McKesson, Cardinal and Bergen Brunswig accounted for 20.6%,
16.3% and 10.9%, respectively, of the Company's sales. In
the fiscal year ended June 30, 1996, McKesson, Bergen
Brunswig and Cardinal accounted for 15.5%, 12.2% and 11.8%,
respectively, of the Company's sales. The loss of, or
deterioration in, any of these customer accounts could have
a material adverse effect upon the Company's business,
financial condition or results and operations.
To enable Medicis to focus on its core marketing and sales
activities, the Company selectively out-sources certain non-
sales and non-marketing functions, such as laboratory
research, manufacturing and warehousing. As the Company
expands its activities in these areas, additional financial
resources are expected to be utilized. The Company
typically does not enter into long-term manufacturing
contracts with third-party manufacturers. Whether or not
such contracts exist, there can be no assurance that the
Company will be able to obtain adequate supplies of such
products in a timely fashion, or at all.
The Company may increase total expenditures for research and
development and expects that research and development
expenditures as a percentage of net sales will fluctuate
from period to period. Actual expenditures will depend on a
variety of factors, including the Company's financial
condition, as well as the results of clinical testing,
delays or changes in government-required testing and
approval procedures, technological and competitive
developments and strategic marketing decisions. There can
be no assurance that any product or technology under
development will result in the successful introduction of
any new product.
The Company is reviewing the areas within its business and
operations which could be adversely affected by Year 2000
issues and evaluating the costs associated with modifying
and testing its systems for the Year 2000. Although the
Company is not yet able to estimate its incremental cost for
Year 2000 issues, based on its preliminary review to date,
the Company does not believe Year 2000 issues will have a
material adverse effect on the Company's business, financial
condition or results of operations. The Company will also
work with third parties to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their
systems interfere with the Company's system, or otherwise
impact its operations. The assessment and necessary
modifications for the Year 2000 issue is estimated to be
completed in early 1999.
Recent Events
In December 1997, the Company acquired 100% of the common
stock of GenDerm for approximately $60.0 million and the
Company could pay an additional sum not to exceed $20.0
million if sales of GenDerm products, as defined in the
acquisition agreement, are in excess of $31.0 million during
calendar 1999 and certain other conditions are met ("GenDerm
<PAGE> 14
Earnout Amount"). Products acquired in the transaction
include, among others, the prescription brands NOVACET(R) and
ZONALON(R), as well as the OTC brands ZOSTRIX(R), OCCLUSAL(R)-HP,
PENTRAX(R), and SALAC(R). Prior to the acquisition, the Company
did not market any products in the topical acne rosacea
treatment, anti-itch medication, analgesic or wart treatment
markets, and the Company has no experience marketing such
products. Successful integration of these products by the
Company is important to maintaining growth of sales of these
products. The historical net sales of GenDerm, prior to its
acquisition by Medicis, are based upon GenDerm's sales
practices which the Company believes may have included
discounts and sales incentives to increase GenDerm's sales
above historic consumption levels. Due to these selling
practices, there can be no assurance that the Company can
attain similar sales levels of the GenDerm products.
The acquisition involves a number of risks that could
adversely affect the Company's operating results, including
the assumption of liabilities and obligations of GenDerm,
including the liabilities and obligations which may not have
been adequately disclosed to the Company, the diversion of
management's attention, the assimilation of the acquired
operations into the Company's business and the valuation of
acquired intangible assets. The agreement governing the
terms of the acquisition limits the Company's remedies for
any losses incurred by the Company in connection with the
acquisition to the indemnification rights specifically
provided to the Company under the agreement governing the
acquisition. The indemnification rights are limited to a
maximum of $11.0 million, subject to certain adjustments,
together with the GenDerm Earnout Amount (and any interest
thereon). Any claims for indemnification must be made prior
to August 1, 2000 in accordance with the terms of the
agreement governing the acquisition. There can be no
assurance that the acquisition of GenDerm by the Company
will not materially and adversely affect the Company or that
such acquisition will enhance the Company's business.
In February 1998, the Company completed a public offering
for 4,000,000 primary shares of the Company's Class A Common
Stock at a price of $48.25 per share. The underwriters also
exercised the over allotment option of 340,000 primary
shares at a price of $48.25 per share. Gross proceeds from
the offering before related expenses totaled $209,405,000.
The Company intends to use some of the proceeds of this
offering for the licensing and acquisition of formulations,
technologies, products or businesses that would complement
or expand the Company's business and for marketing expenses
associated with new product introductions. The Company
intends to use the balance of the net proceeds of this
offering for the expansion of its marketing and sales
capabilities, to continue research and development of its
pharmaceutical products and for other general corporate
purposes. The Company can give no assurance that its
research and development will provide technologies or
products that will be patentable, commercially feasible or
acceptable to government agencies whose approval is
necessary. In the normal course of business, the Company
evaluates the licensing or acquisition of formulations,
technologies, products or businesses that could complement
or expand the Company's business operations, and the Company
has in place several license agreements pertaining to
potential new products currently under evalution and development.
<PAGE> 15
Other than these existing license agreements, the Company
has no present agreements to acquire formulations, technologies,
products or businesses. There can be no assurance that any future
licensing or acquisition of formulations, technologies, products or
businesses will be completed or, if completed, that the
Company will realize the same level of historical sales
achieved by a licensor or a seller or that such transaction
will prove successful for the Company.
While the Company presently intends to use the proceeds of
this offering as described in this section, the management
of the Company has broad discretion to determine the
application and allocation of the net proceeds of this
offering in order to address circumstances and
opportunities. As a result, the success of the Company will
be affected by the discretion and judgment of the management
of the Company with respect to the application and
allocation of the net proceeds of this offering. Pending
use of such proceeds, the net proceeds of this offering will
be invested by the Company in short-term, interest-bearing,
investment-grade marketable securities.
Results of Operations
The following discussion and analysis should be read in
conjunction with the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 and the Company's
Quarterly Report on Form 10-Q for the nine months ended
March 31, 1998 and the Company's Form 8-K/A. The following
table sets forth certain data as a percentage of net sales
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ---------------------
1998 1997 1996 1998 1997 1996
------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 82.3 77.4 71.8 82.1 75.0 71.9
In-process research and
development -- -- -- 66.3 -- --
Operating expenses(1) 43.8 45.9 47.0 45.0 47.5 50.5
Operating income (loss) 38.5 31.5 24.8 (29.2) 27.5 21.4
Net interest income (expense) 8.4 11.3 0.4 7.5 9.9 0.1
Income tax benefit (expense) (18.3) (3.3) ( 0.1) (17.4) 4.4 (0.4)
------ ------ ------ ------ ------ ------
Net income (loss) 28.6% 39.5% 25.1% (39.1)% 41.8% 21.1%
====== ====== ====== ======= ====== =====
</TABLE>
(1) Excludes in-process research and development.
Three Months Ended March 31, 1998 Compared to the Three
Months Ended March 31, 1997
Net Sales
Net sales for the three months ended March 31, 1998 (the
"third quarter of fiscal 1998") increased 105.2%, or $11.6
million, to $22.5 million from $11.0 million for the three
months ended March 31, 1997 (the "third quarter of fiscal 1997").
<PAGE> 16
The Company's net sales increased in the third quarter of fiscal 1998
primarily as a result of the GenDerm products which were
acquired in December 1997. The third quarter of fiscal 1997
did not include sales of the GenDerm brands. The Company's
net sales also increased as a result of both unit and dollar
sales growth of the Company's prescription products which
includes sales associated with LUSTRA(TM), an internally
developed, prescription product for the treatment of
dyschromia and discolorations of the skin, which was
introduced by the Company in the third quarter of fiscal
1998. The Company's prescription products accounted for
67.6% of net sales in the third quarter of fiscal 1998 and
87.9% in the third quarter of fiscal 1997. The OTC and
doctor dispensed products accounted for 32.4% of net sales
in the third quarter of fiscal 1998 and 12.1% in the third
quarter of fiscal 1997. The impact of the GenDerm
acquisition in December 1997 has increased the OTC
contribution as a percentage of total sales of the Company
with minimal impact on current gross profit margins.
Gross Profit
Gross profit in the third quarter of fiscal 1998 increased
118.1%, or $10.0 million, to $18.5 million from $8.5 million
in the third quarter of fiscal 1997. As a percentage of net
sales, gross profit increased 4.9 percentage points to 82.3%
in the third quarter of fiscal 1998 from 77.4% in the third
quarter of fiscal 1997, primarily as a result of increased
sales in the Company's higher margin products, LIDEX(R),
SYNALAR(R), and TRIAZ(R). The impact of the GenDerm brands on
corporate gross profit margins as a percentage of net sales
has been minimal.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the third
quarter of fiscal 1998 increased 81.6%, or $3.7 million, to
$8.1 million from $4.4 million in the third quarter of
fiscal 1997, primarily due to expenses associated with the
promoting and administration of the Company's existing
products, the sampling and advertising associated with the
GenDerm brands and the introduction of LUSTRA(TM) which was
introduced in the third quarter of fiscal 1998.
Additionally, selling, general and administrative costs also
increased due an increase in variable costs commensurate
with increased sales volume, personnel costs attributable to
the hiring of additional full-time equivalent employees,
primarily in sales functions, and cost-of-living salary
adjustments. Selling, general and administrative costs, as a
percentage of sales, decreased 4.6% in the third quarter of
fiscal 1998 relative to the third quarter of fiscal 1997.
<PAGE> 17
Research and Development Expenses
Research and development expenses in the third quarter of
fiscal 1998 increased 142.8%, or approximately $514,000, to
approximately $874,000 from approximately $360,000 in the
third quarter of fiscal 1997, primarily due to expansion of
research and development activities of new projects and an
increase in expenses associated with the clinical support of
the Company's existing products.
Depreciation and Amortization Expenses
Depreciation and amortization expenses in the third quarter
of fiscal 1998 increased 272.8%, or $678,000, to $927,000
from $249,000 in the third quarter of fiscal 1997. The
increase is primarily due to amortization of the intangible
assets associated with the Company's acquisition of GenDerm
Corporation in December 1997 as well as amortization of the
purchase price of the LIDEX(R) and SYNALAR(R) products acquired
in February 1997.
Operating Income
Operating income in the third quarter of fiscal 1998
increased 150.8%, or $5.2 million, to $8.7 million from $3.5
million in the third quarter of fiscal 1997. This
represents a 7.0 percentage point increase over the third
quarter of fiscal 1997. This increase is the result of
higher sales volume, coupled with an 4.9% increase in the
Company's gross profit as a percentage of net sales and a
4.7% decrease in selling, general and administrative cost as
a percentage of sales offset by an increase in research and
development expenses as a percentage of net sales.
Interest Income (Expense)
Interest income in the third quarter of fiscal 1998
increased to $1.9 million from approximately $1.2 million in
the third quarter of fiscal 1997, primarily due to higher
cash and short-term investment balance in the third quarter
of fiscal 1998. The higher cash and short-term investment
balance is attributable to the Company's public offering in
February 1998, which raised approximately $209.4 million
before related expenses.
Income Tax Benefit (Expense)
Income tax expense in the third quarter of fiscal 1998
increased $3.8 million to $4.1 million from $.3 million in
the third quarter of fiscal 1997. The provision for income
taxes recorded for the third quarter of fiscal 1998 reflects
management's estimate of the effective tax rate expected to
be applicable for the full fiscal year. This estimate is re-
evaluated by management each quarter based on forecasts of
income before taxes for the year. The Company's tax
provision is recorded at an effective tax rate of 39% for
the third quarter of fiscal 1998. The Company's tax
provision for the third quarter of fiscal 1997 was recorded
at 8%.
<PAGE> 18
Net Income
Net income in the third quarter of fiscal 1998 increased
approximately 48.4%, or $2.1 million to $6.4 million from
$4.3 million in net income in the third quarter of fiscal
1997. The increase is a result of an increase in sales
volume, an increase in gross profit as a percentage of net
sales, and a decrease in selling, general and administrative
costs as a percentage of sales.
Nine Months Ended March 31, 1998 Compared to the Nine Months
Ended March 31, 1997
Net Sales
Net sales for the nine months ended March 31, 1998 (the
"1998 nine months") increased 99.5% or $26.6 million, to
$53.4 million from $26.8 million for the nine months ended
March 31, 1997 (the "1997 nine months"), primarily as a
result of an increase in unit and dollar sales of the
Company's prescription products. The 1998 nine months
includes product sales from acquisitions in February 1997 of
the LIDEX(R) and SYNALAR(R) brands and in December 1997 of the
GenDerm brands. The 1997 nine months did not include sales
of the GenDerm brands and includes approximately one month
of LIDEX(R) and SYNALAR(R). The Company's prescription products
accounted for 77.0% of net sales in the 1998 nine months as
compared to 86.2% of net sales in the 1997 nine months. The
OTC and cosmetic products accounted for 23.0% of net sales
in the 1998 nine months as compared to 13.8% of net sales
for the 1997 nine months. The Company believes that as a
result of the GenDerm acquisition, OTC products will account
for a greater percentage of the Company's total sales in
future quarters with minimal impact on current gross profit
margins. The Company has in the past and anticipates it
will in the future continue to invest a majority of its
marketing funds in the Company's prescription products.
Gross Profit
Gross profit in the 1998 nine months increased 118.4%, or
$23.8 million, to $43.8 million from $20.1 million in the
1997 nine months. As a percentage of net sales, gross
profit increased 7.1 percentage points to 82.1% in the 1998
nine months from 75.0% in the 1997 nine months, primarily
attributable to sales associated with the Company's higher
margin products, LIDEX(R), SYNALAR(R) and TRIAZ(R). The Company
believes the incremental impact of the GenDerm products on
the Company's gross profit margins as a percentage of net
sales to be minimal.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the 1998
nine months increased 75.4%, or $8.4 million, to $19.6
million from $11.2 million in the 1997 nine months. The
increase is primarily due to selling, general and
administrative costs due to the expenses associated with
sampling, advertising and administration of the GenDerm
brands, the introduction of
<PAGE> 19
two new products, BETA-LIFTX(R) and AFIRM(TM), and the sampling
and advertising of the Company's existing products.
Additionally, selling, general and administration costs
increased due to an increase in variable costs commensurate
with increased sales volume, personnel costs attributable to
a rise in full-time equivalent employees, and cost-of-living
salary adjustments. Selling, general and administrative
costs, as a percentage of sales, have decreased 5.0% in the
1998 nine months compared to the 1997 nine months.
Research and Development Expenses
Research and development expenses in the 1998 nine months
increased 140.2% or $1.4 million to approximately $2.3
million, from $0.9 million in the 1997 nine months primarily
due to expansion of new product research and development
activities and an increase in costs associated with the
expanded clinical support of the Company's existing
products.
In-Process Research and Development
The Company recorded $35.4 million as in-process research
and development during the second quarter of fiscal 1998 as
part of the allocated purchase price of GenDerm. The amount
allocated to in-process research and development was based
on an independent appraisal of GenDerm's completed and in-
process technologies. The in-process research and
development of $35.4 million will be charged to operations
as required under generally accepted accounting principles
with the recording of the purchase price allocation. No
such amount was recorded in the 1997 nine months.
Operating Income
Operating income in the 1998 nine months decreased 312.0%,
or $22.9 million to a $15.6 million operating loss from $7.3
million in income in the 1997 nine months. This decrease is
the result of in-process research and development relating
to the Company's purchase of GenDerm Corporation in December
1997. Absent this one-time charge, operating income in 1998
nine months increased 169.7%, or $12.5 million, to $19.8
million from $7.3 million in the 1997 nine months as a
result of higher sales volume, coupled with an 7.1% increase
in the Company's gross profit as a percentage of net sales
and a decrease of 5.0% in selling, general and
administrative cost as a percentage of sales offset by an
increase in research and development as a percentage of net
sales.
Interest Income (Expense)
Interest income in the 1998 nine months increased to $4.0
million from approximately $2.7 million in the 1997 nine
months, primarily due to higher cash and short-term
investment balance in the 1998 nine months. The higher cash
and short-term investment balance is attributable to the
Company's public offering in January 1998 which raised
approximately $209.4 million before related expenses.
<PAGE> 20
Income Tax Benefit (Expense)
Income tax expense in the 1998 nine months increased $10.5
million to an expense of $9.3 million from a benefit of $1.2
million in the 1997 nine months. The provision for income
taxes recorded for the third quarter of fiscal 1998 reflects
management's estimate of the effective tax rate expected to
be applicable for the full fiscal year. This estimate is
reevaluated by management each quarter based on forecasts of
income before taxes for the year. The Company's tax
provision is recorded at an effective tax rate of 39% for
the 1998 nine months. No income tax benefit is associated
with the charge for in-process research and development.
The income tax benefit recorded in the 1997 nine months is a
result of management reducing the valuation allowance to an
amount the Company believes appropriate. Accordingly, a
credit to income tax benefit of $2.0 million was reflected
in the first quarter of fiscal 1997.
Net Income
Net income in the 1998 nine months decreased approximately
286.5%, or $32.1 million to a $20.9 million net loss from
$11.2 million in net income in the 1997 nine months. This
decrease is the result of a special charge for in-process
research and development relating to the Company's purchase
of GenDerm Corporation in December 1997. Absent this one-
time charge, net income in the 1998 nine months increased
29.8%, or $3.3 million, to $14.5 million from $11.2 million
in the 1997 nine months as a result of an increase in sales
volume, an increase in gross profit as a percentage of net
sales, and a decrease in selling, general and administrative
costs as a percentage of sales and an increase in interest
income offset by an increase in research and development
expenses as a percentage of net sales.
Liquidity and Capital Resources
At March 31, 1998 and June 30, 1997, the Company had cash
equivalents and short-term investments of approximately
$232.8 million and $85.1 million, respectively. The
Company's working capital was $255.0 million and $94.8
million at March 31, 1998 and June 30, 1997, respectively.
The increase in working capital is primarily attributable to
the Company's public offering in January 1998 of
approximately $209.4 million before related expenses and the
Company's cash flow from operations of approximately $8.4
million, offset by the cash and short-term investments used
to purchase 100% of the outstanding common stock of GenDerm
in December 1997.
At March 31, 1998 and June 30, 1997, the Company had
accounts receivable of $16.5 million and $6.4 million
respectively. The increase in the Company's accounts
receivable balances is primarily related to a 56.4% increase
in sales volume in the third quarter of fiscal 1998 as
compared to the quarter ended June 30, 1997.
<PAGE> 21
At March 31, 1998 and June 30, 1997, the Company had
inventories of $8.1 million and $3.0 million, respectively.
The increase in the Company's inventory balances is
primarily related to an increase in the number of stock
keeping units acquired and inventory purchase commitments
assumed in the GenDerm acquisition. The Company is required
to hold raw materials and finished goods for each stock
keeping unit. Historically, GenDerm held a greater level of
inventory balances than the Company traditionally maintains.
The Company will maintain these inventories at levels
consistent with other Medicis products.
At March 31, 1998 and June 30, 1997, the Company had current
liabilities of $14.0 million and $8.7 million, respectively.
The increase is primarily due to the consolidation of
GenDerm's liabilities into the Company's balance sheet.
In the 1998 nine months, the Company increased its cash
position primarily through a public offering yielding $209.4
million before related expenses, through $8.4 million cash
provided by operations and $0.8 million generated from the
exercise of stock options offset by the acquisition of
GenDerm which the Company paid approximately $60.0 million
in cash. In February 1997, the Company paid $28.0 million
for the purchase of the LIDEX(R) and SYNALAR(R) products.
In November 1996, the Company increased its credit facility
obtained in May 1996 with Norwest Bank Arizona, N.A.
("Norwest") from $5 million to $25 million (the "Credit
Facility"). The Credit Facility expires in November 1998.
The Credit Facility is secured by principal assets of the
Company. The Company is required to comply with certain
covenants and restrictions, including covenants relating to
the Company's financial condition and results of operations.
Although the Company has yet to draw down on the Credit
Facility, the lack of availability of loans or the
requirement to make early repayment of loans or the
inability of the Company to renew the Credit Facility could
have a material adverse effect on the Company, depending on
its liquidity and working capital at such time.
In February 1997, the Company acquired the intellectual
property rights, know-how and all finished goods inventory
specifically associated with Syntex's topical corticosteroid
dermatology products (the "Purchased Products") in the
United States and Canada from Syntex and its parent company,
F. Hoffman-LaRoche, Ltd. The Company, using cash reserves,
paid $28.0 million, and will pay an additional $3.0 million
in $1.0 million installments on the anniversary of the
purchase each year over the next three years if certain
market conditions are met. In February 1998, the Company
made the first of three $1.0 million installments. Medicis'
acquisition of the Purchased Products included the
prescription topical steroid brands LIDEX(R) and SYNALAR(R).
Prior to the acquisition, the Company did not market any
products in this category of dermatological care.
In June 1997, the Company entered into a product development
and distribution agreement with an unrelated third party
whereby the Company will pay certain costs with respect to
certain product approvals estimated to be in excess of $1.0
million for fiscal 1999.
<PAGE> 22
In accordance with various manufacturing agreements, the
Company is required to provide manufacturers with pro forma
estimated production requirements by product and in
accordance with minimum production runs. From time to time,
the Company may not take possession of all merchandise which
has been produced by the manufacturer. However, the Company
records its obligation to the manufacturer at the time
finished inventory is produced.
Inflation did not have a significant impact upon the results
of the Company during the 1998 nine months, fiscal 1997,
1996 or 1995.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This Statement established standards
for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. This Statement
is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. This
Statement, requiring only additional informational
disclosures is effective for the Company's fiscal year
ending June 30, 1999.
In June 1997, the FASB issued SPAS No. 131, "Disclosures
About Segments Of An Enterprise and Related Information."
This Statement established standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that
enterprises report selected information about operating
segments in interim financial reports issued to
stockholders. This Statement is effective for fiscal years
beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to
be restated. This Statement, requiring only additional
informational disclosures, is effective for the Company's
fiscal year ending June 30, 1999.
Part II. Other Information
Item 1. Legal Proceedings.
The Company and certain of its subsidiaries are parties to
actions and proceedings incident to their business,
including certain litigation assumed in connection with the
GenDerm acquisition. The Company believes liability in the
event of final adverse determinations in any of these
matters is either covered by the indemnification provided to
the Company under the GenDerm acquisition agreement,
insurance and/or established reserves, or will not, in the
aggregate, have a material adverse effect on the business,
financial position or results of operations of the Company.
There can be no assurance that an adverse determination on
any action or proceeding will not have a material adverse
effect on the business, financial condition and results of
operations of the Company.
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(See Note 2 to the Notes to the Condensed Consolidated
Financial Statements incorporated herein for computation of
Per Common Share Results.)
(b) Reports on Form 8-K
During the third quarter of fiscal 1998, the Company filed
an amendment to the following report on Form 8-K:
Current Report on Form 8-K dated December 15, 1997
reporting the Company's acquisition of GenDerm Corporation.
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
MEDICIS PHARMACEUTICAL CORPORATION
<TABLE>
<S> <C>
Date: By: /s/ Jonah Shacknai
------------------ -----------------------------------
Jonah Shacknai
Chairman and Chief Executive Officer
Date: By: /s/ Mark A. Prygocki Sr.
------------------- -----------------------------------
Mark A. Prygocki, Sr.
Chief Financial Officer
Secretary and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MEDICIS
BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
MARCH 31, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 172791663
<SECURITIES> 60051875
<RECEIVABLES> 16450999
<ALLOWANCES> 0
<INVENTORY> 8098854
<CURRENT-ASSETS> 269018576
<PP&E> 1584018
<DEPRECIATION> 375905
<TOTAL-ASSETS> 341223785
<CURRENT-LIABILITIES> 14035704
<BONDS> 0
0
0
<COMMON> 262360
<OTHER-SE> 315614681
<TOTAL-LIABILITY-AND-EQUITY> 341223785
<SALES> 53365759
<TOTAL-REVENUES> 53365759
<CGS> 9541034
<TOTAL-COSTS> 59404260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4006988)
<INCOME-PRETAX> (11572547)
<INCOME-TAX> 9296217
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20868764)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
