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Medicis Completes Graceway Purchase

Zacks Equity Research

Medicis Pharmaceutical Corp. (MRX) recently announced that it has completed the acquisition of Graceway Pharmaceuticals, LLC. In November last year, Medicis first announced that it had successfully bid for the purchase of Graceway Pharma at the latter’s bankruptcy auction. Graceway Pharma had filed for bankruptcy in September 2011.

According to the terms of the bid, Medicis paid $455 million to Graceway Pharma in return of its pharmaceutical product portfolio, consisting of dermatology, respiratory and women's health specialty products, and certain other assets. Medicis expects the transaction to be accretive in 2012.

Graceway’s lead drug is Zyclara, which is approved for the treatment of actinic keratoses and genital warts. The drug has marketing exclusivity until July 2014.

We view this acquisition as a smart strategic move, as it will expand Medicis’ product portfolio, and help reduce the company’s dependence on Solodyn. Solodyn is Medicis’ lead marketed product. The drug is approved for the treatment of acne. Solodyn is available in the 55 mg, 80 mg and 105 mg dosage strengths in addition to the previously available dosage strengths of 65 mg and 115 mg.

We note that exactly a year earlier Medicis had entered into a research and development agreement with Anacor Pharmaceuticals Inc. (ANAC) for the discovery and development of boron-based small molecule compounds for the potential treatment of acne.

Under the agreement, Anacor is working on the early development of candidates, utilizing its proprietary boron chemistry platform, while Medicis has an option to exclusively license those products. Additionally, Medicis is responsible for further worldwide development and commercialization of the licensed products.

We currently have a Neutral recommendation on Medicis. The stock carries a Zacks #3 Rank (Hold rating) in the short-run.

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