Via Facsimile and U.S. Mail
Mail Stop 03-09
March 11, 2005
Mr. Mark Prygocki, Sr.
Executive Vice President, Chief Financial Officer,
Corporate Secretary and Treasurer
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, AZ 85258-2463
Re: Medicis Pharmaceutical Corporation
Form 10-K for the fiscal year ended June 30, 2004
Form 8-K filed on January 20, 2005
File No. 001-14471
Dear Mr. Prygocki:
We have reviewed your filings and have the following
comments.
We have limited our review of the above referenced filings to only
those issues addressed. Where our comments call for disclosure,
we
think you should revise your documents in response to these
comments
in future filings beginning with your Form 10-Q for the period
ended
March 31, 2005. In a supplemental letter, please either confirm
that
you will comply with these comments in future filings or, if you
disagree, we will consider your explanation as to why our comments
are inapplicable or a revision is unnecessary. In some of our
comments, we ask you to provide us with supplemental information
so
we may better understand your disclosure. Please provide us this
letter, that keys your responses to our comments, within 10
business
days of the date of this letter or tell us when you will provide
the
letter prior to the expiration of the 10-day period. Detailed
letters greatly facilitate our review. Please file your letter on
EDGAR under the form type label CORRESP. Please understand that
we
may have additional comments after reviewing your responses to our
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended June 30, 2004
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Contractual Obligations, page 40
1. It appears that scheduled interest payments on long-term debt
are
excluded from the table. Please include interest payments in the
table or disclose, and explain to us, why interest payments are
excluded. If you believe that interest payments should be
excluded
from the table, please expand your liquidity and capital resources
disclosures to discuss the amount and timing of interest payments
necessary to understand your future cash requirements. Please
refer
to section IV of Financial Reporting Release 72.
2. Your discussion of license agreements includes references to
payments that you will make related to achievement of milestones.
Please assess whether these milestone payments meet criteria as a
purchase obligation and if these milestone payments should be
shown
in the contractual obligations table under Item 303(a)(5) of
Regulation S-K. Include explanatory footnotes to this table as
necessary to provide the necessary data to understand the timing
and
amount of your specified contractual obligations as well as those
obligations that have been excluded from the table. If as a result
of
that assessment, you do not include these payments in the table,
please expand your liquidity and capital resources disclosures to
discuss the amount and timing of event milestones commitments that
are reasonably likely to be paid. Please refer to section IV of
Financial Reporting Release 72.
Critical Accounting Policies and Estimates
Revenue Recognition, page 41
3. We noted your critical accounting policies merely duplicates
information presented in your notes to consolidated financial
statements. Please revise your disclosures to provide an enhanced
discussion to supplement the description of accounting policies
that
are already disclosed in your notes to consolidated financial
statements. As noted in Section V of FR-72, disclosure of
critical
accounting estimates should provide greater insight into the
quality
and variability of information regarding financial condition and
operating performance. Further, your disclosures should address
material implications of uncertainties associated with the
methods,
assumptions and estimates underlying your critical accounting
measurements. Consistent with Section V of FR-72 please consider
the
following disclosures:
a. Disclose your analysis of the uncertainties involved in
applying a
principle at a given time or the variability that is reasonably
likely to result for its application over time.
b. Specifically address why your accounting estimates or
assumptions
bear the risk of change.
c. Analyze, to the extent material, such factors as how accurate
the
estimate/assumption has been in the past, how it has changed in
the
past, and whether it is reasonably likely to change in the future.
d. Analyze the estimate/assumption specific sensitivity to change,
based on other outcomes that are reasonably likely to occur and
would
have a material effect.
4. We believe that your disclosure related to estimates of items
that
reduce gross revenue such as product returns, chargebacks,
customer
rebates and other discounts and allowances could be improved as
follows:
a. Disclose the nature and amount of each accrual at the balance
sheet date and the effect that could result from using other
reasonably likely assumptions than what you used to arrive at each
accrual such as a range of reasonably likely amounts or other type
of
sensitivity analysis.
b. Disclose the factors that you consider in estimating each
accrual
such as historical return of products, levels of inventory in the
distribution channel, estimated remaining shelf life, price
changes
from competitors and introductions of generics and/or new
products.
c. To the extent that information you consider in b) is
quantifiable,
disclose both quantitative and qualitative information and discuss
to
what extent information is from external sources, e.g. end-
customer
prescription demand, third-party market research data comparing
wholesaler inventory levels to end-customer demand. For example,
in
discussing your estimate of product that may be returned, consider
disclosing and discussing, preferably by product and in tabular
format, the total amount of product in sales dollars that could be
potentially be returned as of the balance sheet date and
disaggregated by expiration period.
d. If applicable, discuss any shipments made as a result of
incentives and/or in excess of your customer`s ordinary course of
business inventory level. Discuss your revenue recognition policy
for such shipments.
e. You should consider disclosing a roll forward of the accrual
for
each estimate for each period presented showing the following:
* Beginning balance,
* Current provision related to sales made in current period,
* Current provision related to sales made in prior periods,
* Actual returns or credits in current period related to sales
made
in current period,
* Actual returns or credits in current period related to sales
made
in prior periods, and
* Ending balance.
f. In your discussion of results of operations for the period to
period revenue comparisons, discuss the amount of and reason for
fluctuations for each type of reduction of gross revenue, i.e.
product returns, chargebacks, customer rebates and other discounts
and allowances, including the effect that changes in your
estimates
of these items had on your revenues and operations.
Consolidated Financial Statements
Consolidated Statements of Income, page F-5
5. We note in MD&A that the amortization of intangible assets
related
to products sold is not included in gross profit. We believe
amortization related to acquired developed products should be
included in cost of sales. Alternatively, expand the "cost of
product revenue" caption to include parenthetical disclosure
indicating that amortization of intangible assets related to
products
sold is excluded and disclose the amount of amortization excluded
from cost of sales. Please refer to SAB Topic 11:B. In addition,
if
you elect to include the amortization within cost of sales, please
modify your gross profit analysis in MD&A to disclose the gross
profit amounts including amortization.
Notes to Consolidated Financial Statement
Note 2. Summary of Significant Accounting Policies
Goodwill and Other Identifiable Intangible Assets, page F-10
6. Please provide expanded disclosure describing the nature of the
intangible assets including the amount assigned to any major
intangible asset class, the amount of any significant residual
value
by major intangible asset class and the weighted-average
amortization
period per asset class. Please refer to paragraph 44 of SFAS 142.
Note 4. Segment and Product Information, page F-16
7. Please disclose the factors used to identify reportable
segments
as required by paragraph 26(a) of SFAS 131. Please explain to us
why
your pharmaceutical franchises are not considered operating
segments,
as they appear to meet the characteristics described in SFAS 131.
If
true, disclose that your chief operating decision maker does not
regularly review disaggregated information by franchise or advise
us.
Form 8-K dated January 20, 2005
Exhibit 99.5 - Copy of press release, dated January 20, 2005,
issued
by Medicis Pharmaceutical Corporation
8. We note your disclosure of "if converted" net income and
related
per share amounts. Your press release does not disclose the
substantive reasons why the presentation of these non-GAAP
financial
measures provides useful information to investors regarding your
results of operations. Further, to the extent material, include a
statement disclosing the additional purposes, if any, for which
management uses the non-GAAP measure. Please refer to the
requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K.
As
it appears that you have not fully complied with Item 2.02 of Form
8-
K, please revise your disclosures in future filings.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Dana Hartz, Staff Accountant, at (202) 942-
2976 or Don Abbott, Senior Accountant, at (202) 942-2819 if you
have
questions regarding the comments. In this regard, do not hesitate
to
contact me, at (202) 942-1803.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. Prygocki, Sr.
Medicis Pharmaceutical Corporation
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