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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

Filed by the Registrant x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

AUXILIUM PHARMACEUTICALS, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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Notice of Annual Meeting

and Proxy Statement

April 30, 2009

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AUXILIUM PHARMACEUTICALS, INC.

40 Valley Stream Parkway

Malvern, Pennsylvania 19355

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 10, 2009

The Annual Meeting of Stockholders (the “Meeting”) of Auxilium Pharmaceuticals, Inc., a Delaware corporation (the “Company”), will be held at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 on Wednesday, June 10, 2009, at 9:00 a.m., local time. The purpose of the Meeting shall be to consider and act upon the following matters:

The holders (the “Stockholders”) of the Company’s common stock of record at the close of business on April 16, 2009 (the “Record Date”), are entitled to notice of and to vote at the Meeting, or any adjournments or postponements thereof. A complete list of such Stockholders will be open to the examination of any Stockholder at the Company’s principal executive offices at 40 Valley Stream Parkway, Malvern, Pennsylvania 19355, for a period of 10 days prior to the Meeting and at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 on the day of the Meeting.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE ENCLOSED RETURN ENVELOPE IS MAILED IN THE UNITED STATES. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE SIGNED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.

By Order of the Board of Directors,

Jennifer Evans Stacey, Esq.

Secretary

Malvern, Pennsylvania

April 30, 2009

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE MEETING TO BE HELD ON JUNE 10, 2009

The Notice of Annual Meeting of Stockholders, Proxy Statement and 2008 Annual Report to Shareholders are available at http://ir.auxilium.com.

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AUXILIUM PHARMACEUTICALS, INC.

40 Valley Stream Parkway

Malvern, Pennsylvania 19355

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 10, 2009

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ANNUAL MEETING OF STOCKHOLDERS

We have sent you this Proxy Statement and the enclosed Proxy Card because the Board of Directors (the “Board”) of Auxilium Pharmaceuticals, Inc. (referred to herein as “Auxilium”, “we”, “us” or “our”) is soliciting your proxy to vote at our Annual Meeting of Stockholders to be held on Wednesday, June 10, 2009, (the “Meeting”) at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355, at 9:00 a.m., local time, and at any adjournments or postponements thereof.

In addition to solicitations by mail, our directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone, e-mail and personal interviews. All costs of solicitation of proxies will be borne by us. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting material to the owners of stock held in their names, and we will reimburse them for their reasonable out-of-pocket expenses incurred in connection with the distribution of proxy materials.

We are mailing the Notice of Annual Meeting of Stockholders, this Proxy Statement and Proxy Card to our stockholders of record as of April 16, 2009 (the “Record Date”) for the first time on or about April 30, 2009. In this mailing, we are also including our Annual Report to Shareholders (“2008 Annual Report”) for the fiscal year ended December 31, 2008 (“Fiscal 2008”). In addition, we have provided brokers, dealers, banks, voting trustees and their nominees, at our expense, with additional copies of our proxy materials and 2008 Annual Report so that our record holders could supply these materials to the beneficial owners of shares of our common stock as of the Record Date.

Information About the Meeting

When is the Meeting?

The Meeting will be held at 9:00 a.m., local time, on Wednesday, June 10, 2009.

Where is the Meeting?

The Meeting will be held at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355.

What is the purpose of the Meeting?

At the Meeting, stockholders will act upon the matters listed in the Notice of Annual Meeting of Stockholders and any other matters that properly come before the Meeting or any adjournments or postponements thereof.

Who can attend the Meeting?

All stockholders as of the Record Date, or their duly appointed proxies, may attend the Meeting. Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport. If you hold your shares through a broker or other nominee, you must bring a copy of a brokerage statement reflecting your stock ownership as of the Record Date. Everyone must check in at the registration desk at the Meeting.

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What constitutes a quorum?

A quorum of stockholders is necessary to hold a valid meeting for the transaction of business. The presence at the Meeting, in person or by proxy, of the holders entitled to cast at least a majority of votes which all stockholders are entitled to cast as of the Record Date will constitute a quorum. Broker non-votes, abstentions and votes withheld count as shares present at the Meeting for purposes of a quorum. On the Record Date, there were 42,686,650 shares of our common stock outstanding.

What are the recommendations of the Board?

Unless you instruct otherwise on your Proxy Card, the persons named as proxy holders on the Proxy Card will vote in accordance with the recommendations of the Board. The Board’s recommendations are set forth below.

The proxy holders will vote in their own discretion with respect to any other matter that properly comes before the Meeting or any adjournments or postponements thereof.

Information About Voting

Who can vote at the Meeting?

All stockholders of record at the close of business on the Record Date, April 16, 2009, are entitled to vote at the Meeting and any adjournments or postponements of the Meeting.

What are the voting rights of the holders of the common stock?

Holders of our common stock will vote on all matters to be acted upon at the Meeting. Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon at the Meeting.

How do I vote?

You may attend the Meeting and vote in person. Alternatively, you may vote your shares by proxy by mail. To vote by mail, simply complete, sign and date your Proxy Card and return it in the postage-paid return envelope provided for receipt by us prior to June 10, 2009 (Proxy Cards received on or after June 10, 2009 will not be counted). Please note that by casting your vote by proxy you are authorizing the individuals listed on the Proxy Card to vote your shares in accordance with your instructions and in their discretion with respect to any other matter that properly comes before the Meeting or any adjournments or postponements thereof.

If you want to vote in person at the Meeting and you hold shares of our common stock in street name, you must obtain a Proxy Card from your broker and bring that Proxy Card to the Meeting, together with a copy of a brokerage statement reflecting your stock ownership as of the Record Date and valid picture identification, such as a driver’s license or passport.

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Is my vote confidential?

Yes. Proxy Cards, ballots and voting tabulations that identify stockholders are kept confidential except in certain circumstances where it is important to protect the interests of Auxilium and its stockholders.

What if I do not indicate my preference on the Proxy Card?

If you do not indicate how you would like your shares to be voted for a particular proposal, your shares will be voted as follows:

As to other matters as may properly come before the Meeting or any adjournments or postponements thereof, the persons named in the proxy will be authorized to vote upon such matters in their own discretion.

Can I change my vote after I return my Proxy Card?

Yes. Even after you have submitted your Proxy Card, you may change your vote at any time before the proxy is exercised by filing with the Secretary of Auxilium either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the Meeting in person and request to recast your vote. Attendance at the Meeting will not, by itself, revoke a previously granted proxy. For information regarding how to vote in person, see “How do I vote?” on page 3.

What vote is required to approve each proposal?

Proposal 1: Election of Directors. The affirmative vote of a plurality of the votes cast at the Meeting is required for the election of directors, provided a quorum is present in person or by proxy. A plurality means that the nine nominees receiving the most votes for election to a director position are elected as directors. Votes that are withheld and broker non-votes will be excluded entirely from the vote to elect directors and have no effect. Thus, the nine candidates with the most affirmative votes will be elected at the Meeting.

Proposal 2: Approval of the amended and restated Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan. The affirmative vote of a majority of the votes cast at the Meeting is required to adopt and approve the amendment and restatement of the Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan to increase the number of shares of Company common stock authorized for issuance under the Plan by 2,650,000 shares from 8,000,000 to 10,650,000 shares, subject to the limitation that of those 2,650,000 shares only 700,000 shares may be issued pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights), provided a quorum is present in person or by proxy. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm. The affirmative vote of a majority of the votes cast at the Meeting is required to ratify the selection by the Audit Committee of the Board of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for

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Fiscal 2009, provided a quorum is present in person or by proxy. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

What is a broker non-vote?

A broker non-vote occurs when a broker submits a Proxy Card with respect to shares of common stock held in a fiduciary capacity (typically referred to as being held in “street name”), but declines to vote on a particular matter because the broker has not received voting instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the election of directors and ratification of auditors. Non-routine matters include matters such as the approval of, and amendments to, stock plans. Therefore, if you do not give your broker or nominee specific instructions, your shares will not be voted on non-routine matters and may not be voted on routine matters. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

Important Notice Regarding the Availability of Proxy Materials for the Meeting

The Notice of Annual Meeting of Stockholders, Proxy Statement and 2008 Annual Report to Shareholders are available at http://ir.auxilium.com.

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DISCUSSION OF PROPOSALS

Proposal 1: Election of Directors

At the Meeting, nine directors are to be elected to hold office until the next Annual Meeting of Stockholders after his or her election or until his or her resignation or removal.

The affirmative vote of a plurality of the votes cast at the Meeting is required for the election of directors. A plurality means that the nine nominees receiving the most votes for election to a director position are elected as directors. Votes may be cast (i) FOR ALL NOMINEES, (ii) WITHHOLD FOR ALL NOMINEES or (iii) FOR ALL NOMINEES except as noted by you on the appropriate portion of your Proxy Card. Votes that are withheld and broker non-votes will be excluded entirely from the vote to elect directors and have no effect. Thus, the nine candidates with the most FOR votes will be elected at the Meeting.

The names and biographies of the nominees for election to our Board appear below. Each of these nominees is currently a member of the Board. William T. McKee was appointed as a director by the Board in March 2009. Mr. McKee was recommended to our Nominating and Corporate Governance Committee by a search firm with which we contracted to identify director candidates. In the event any of the nominees should become unavailable or unable to serve as a director, it is intended that votes will be cast for a substitute nominee designated by the Board. The Board has no reason to believe that the named nominees will be unable to serve if elected. Each nominee has consented to being named in this Proxy Statement and to serve if elected.

The principal occupations and business experience, for at least the past five years, of each director and nominee is as follows:

Rolf A. Classon was appointed as the Chairman of our Board of Directors in April 2005. He formerly served as Vice Chairman from March 2005 to April 2005 and has served as one of our directors since May 2004. Mr. Classon currently serves as Chairman of Hill-Rom Corporation, where he also served as Interim CEO from May 2005 until March 2006. Mr. Classon also currently serves as a member of the Board of Directors of PharmaNet Development Group, Inc., Millipore Corporation, Enzon Pharmaceuticals, Inc. and Eurand N.V. From October 2002 until July 2004, Mr. Classon was Chairman of the Executive Committee of Bayer HealthCare AG, a subsidiary of Bayer AG,. Between 1995 and 2002, he served as President of Bayer Diagnostics; and from 1991 to 1995, he served as Executive Vice President of Bayer Diagnostics. Prior to that, he held various management positions with Pharmacia Corporation. Mr. Classon received his Chemical Engineering Certificate from the Gothenburg School of Engineering in 1965 and a Business Degree from the Gothenburg University in 1969.

Al Altomari has served as one of our directors since December 2005. Mr. Altomari served as Chief Executive Officer of Barrier Therapeutics, Inc. from April to September 2008 and served as a member of its

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Board of Directors from January to September 2008. From February 2006 to March 2008, Mr. Altomari served as Chief Operating Officer of Barrier. Mr. Altomari joined Barrier in August 2003 and served as its Chief Commercial Officer from August 2003 until February 2006. Mr. Altomari currently serves as Chairman of the Board of Directors of Agile Therapeutics, Inc. Previously, Mr. Altomari held progressively senior positions at Johnson & Johnson companies during his 21 years at that company. His most recent role at Johnson & Johnson companies was as General Manager of OrthoNeutrogena, where he managed the integration of Ortho Dermatological and Neutrogena Professional. He received his B.S. degree with a dual major in Finance and Accounting from Drexel University and an M.B.A. from Rider University.

Armando Anido has served as one of our directors since July 2006 and Chief Executive Officer and President since July 2006. Since August 2003, Mr. Anido has served as a director of Adolor Corporation and currently serves as Chairman of the Governance and Nominating Committee. Mr. Anido has over 25 years of biopharmaceutical experience. Prior to Auxilium, he was the Executive Vice President, Sales and Marketing for MedImmune, Inc., a biotechnology company focused on developing and marketing products in the therapeutic areas of cancer, infectious disease and immune regulation, where he was responsible for worldwide commercialization of their portfolio. He also served on MedImmune’s Executive Committee and Product Development Committee. Prior to joining MedImmune in 1999, from 1995 to 1999, Mr. Anido was with GlaxoWellcome, Inc. where he served as Vice President, Central Nervous System Marketing after joining the company as Director, HIV Marketing. Mr. Anido was employed by Lederle Labs from 1989 to 1995 in various commercial roles, culminating as Vice President, Anti-infectives. Mr. Anido received his B.S. in Pharmacy and his M.B.A. in Marketing and Finance from West Virginia University.

Edwin A. Bescherer, Jr. has served as one of our directors since April 2004. Mr. Bescherer was also one of our directors from February 2000 to October 2003. From January 2004 to June 2005, Mr. Bescherer served as a director of Sybari Software, Inc. From 1978 to 1995, Mr. Bescherer served in a variety of management positions at Dun & Bradstreet Corporation, including as Executive Vice President, Finance and Chief Financial Officer from 1987 to 1995, as Senior Vice President, Finance and Chief Financial Officer from 1982 to 1987, and as Vice President, Controller from 1978 to 1982. Mr. Bescherer holds a B.S. from Purdue University.

Philippe O. Chambon, M.D., Ph.D., has served as one of our directors since October 2003. Since July 2005, Dr. Chambon has been a Managing Director of New Leaf Venture Partners, L.L.C., a venture capital firm (New Leaf Venture Partners is an investment manager to the Sprout Group which beneficially owns approximately 6.2% of our common stock) see “Security Ownership of Certain Beneficial Owners and Management” beginning on page 45. Previously, Dr. Chambon was a General Partner of The Sprout Group, a private equity firm and venture capital affiliate of Credit Suisse First Boston, an investment bank. Dr. Chambon also serves as a director of NxStage Medical, Inc. and is a member of the Compensation and Finance Committees. Dr. Chambon holds an M.D. and a Ph.D. from the University of Paris and an M.B.A. from Columbia University.

Oliver S. Fetzer, Ph.D., has served as one of our directors since December 2005. In April 2009, Dr. Fetzer was appointed President and Chief Executive Officer of Cerulean Pharma Inc. From July 2004 until September 2007, Dr. Fetzer served as Senior Vice President, Corporate Development and Research & Development at Cubist Pharmaceuticals, Inc. From January 2003 to July 2004, he served as Cubist Pharmaceuticals, Inc.’s Senior Vice President, Corporate Development and Chief Business Officer and, from July 2002 until January 2003, he served as its Senior Vice President, Business Development. Before his time at Cubist Pharmaceuticals, Inc., starting in 1993, Dr. Fetzer held various positions of increasing responsibility at the Boston Consulting Group (BCG), a leading management consulting firm, including Consultant, Project Leader, Manager and Vice President and Director. Dr. Fetzer received a B.S. in Biochemistry from the College of Charleston (South Carolina), a Ph.D. in Pharmaceutical Sciences from the Medical University of South Carolina and an M.B.A. from Carnegie Mellon University.

Renato Fuchs, Ph.D., has served as one of our directors since June 2007. From August 2006 to June 2007, Dr. Fuchs was Senior Vice President, Manufacturing and Technical Operations of Altus Pharmaceuticals, Inc.

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From March 2002 to August 2006, Dr. Fuchs was Senior Vice President, Manufacturing and Operations at Shire HGT (previously Transkaryotic Therapies, Inc.) Previously, he spent nine years at Chiron Corporation, most recently as Senior Vice President of BioPharmaceuticals. From 1988 to 1993, Dr. Fuchs held advancing Vice President-level positions at Centocor, Inc. Prior to 1988, Dr. Fuchs spent 15 years at Schering-Plough Corporation. Dr. Fuchs received a B.S. in Chemical Engineering from the Universidad del Valle, Cali, Colombia and an M.S. and Ph.D. in Biochemical Engineering from the Massachusetts Institute of Technology.

Dennis H. Langer, M.D., J.D., has served as one of our directors since July 2007. Since August 2005, Dr. Langer has served as Managing Partner of Phoenix IP Ventures, LLC. Prior to joining Phoenix IP Ventures in 2005, Dr. Langer served as President, North America, Dr. Reddy’s Laboratories, Ltd. He held positions of increasing responsibility at GlaxoSmithKline from 1994 until 2004, including Senior Vice President, Project and Portfolio Management, Senior Vice President, Product Development Strategy, and Senior Vice President, Healthcare Services R&D. Dr. Langer was President and Chief Executive Officer of Neose Pharmaceuticals, Inc. from 1991 until 1994. From 1988 until 1991, Dr. Langer worked at G.D. Searle & Co. Prior to that, he held positions in marketing and clinical research at Abbott Laboratories from 1984 to 1988 and began his career in the pharmaceutical industry in 1983 at Eli Lilly & Co. Dr. Langer currently serves on the Board of Directors of Myriad Genetics, Inc. Dr. Langer received a B.A. from Columbia University, an M.D. from Georgetown University School of Medicine, and a J.D. from Harvard Law School. Dr. Langer is currently a Clinical Professor in the Department of Psychiatry at Georgetown University School of Medicine.

William T. McKee has served as one of our directors since March 2009. Mr. McKee is the Executive Vice President and Chief Financial Officer of Barr Pharmaceuticals, LLC, a subsidiary of Teva Pharmaceutical Industries Limited (“Teva”) and the successor entity to Barr Pharmaceuticals, Inc. (“Barr”), a NYSE listed company which was acquired by Teva on December 23, 2008. Mr. McKee was also Executive Vice President and Chief Financial Officer of Barr prior to its acquisition by Teva, after having served in positions of increasing responsibility at Barr from 1995 until its acquisition. Prior to joining Barr, Mr. McKee served as Director of International Operations and Vice President-Finance at Absolute Entertainment, Inc. from June 1993 until December 1994. From 1990 until June 1993, Mr. McKee worked at Gramkow & Carnevale, CPA’s, and from 1983 until 1990, he worked at Deloitte & Touche. Mr. McKee received a Bachelor of Business Administration from the University of Notre Dame.

THE BOARD BELIEVES THAT THE ELECTION OF THE NOMINEES FOR DIRECTOR IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR ALL NOMINEES” FOR DIRECTOR.

Proposal 2: Approval of the amended and restated Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan

On April 16, 2009, the Board unanimously approved the amendment and restatement of the Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan (the “Plan”), subject to approval by the stockholders of the Company at the Meeting, to increase the number of shares of Company common stock authorized for issuance under the Plan by 2,650,000 shares from 8,000,000 to 10,650,000 shares, subject to the limitation that of those 2,650,000 shares only 700,000 shares may be issued pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights). Accordingly, pursuant to the amendment and restatement of the Plan, within the aggregate limit of 10,650,000 shares, the maximum number of shares of Company common stock that may be issued under the sub-limit in the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights) granted after June 10, 2009 is 1,450,000 shares, subject to adjustment as described below.

The Board has directed that the proposal to amend and restate the Plan be submitted to the Company’s stockholders for their approval at the Meeting. Stockholder approval of the amendment and restatement of the Plan is being sought (i) so that compensation attributable to grants under the Plan may continue to qualify for an

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exemption from the $1,000,000 deduction limit under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) in order for incentive stock options to meet the requirements of the Code, and (iii) in order to meet the Nasdaq Global Market listing requirements. If the stockholders do not approve the amendment and restatement of the Plan at the Meeting, the amendment and restatement of the Plan will not become effective, and the number of shares authorized for issuance under the Plan will not be increased by 2,650,000 shares and the sub-limit in the Plan applicable to stock awards, stock units and other equity-based awards (other than stock appreciation rights) will remain 750,000 shares.

The Board believes that the number of shares of Company common stock currently available for issuance or transfer under the Plan is not sufficient in view of our compensation structure and strategy and succession planning process. The Board has concluded that our ability to attract, retain and motivate top quality management and employees is material to our success and would be enhanced by our continued ability to grant equity compensation under the Plan. In addition, the Board believes that our interests and the interests of our stockholders will be advanced if we can continue to offer our employees, notably at the senior management level, advisors, consultants, and non-employee directors the opportunity to acquire or increase their proprietary interests in us.

The affirmative vote of a majority of the votes cast at the Meeting is required to adopt and approve the amendment and restatement of the Plan, provided a quorum is present in person or by proxy. Votes may be cast FOR or AGAINST or you may ABSTAIN. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

For information with respect to grants to certain executive officers in Fiscal 2008 under the Plan, see the table captioned “Grants of Plan-Based Awards” on page 40 and for information with respect to grants to the Company’s non-employee directors, see page 22.

The material terms of the proposed amendment and restatement of the Plan are summarized below. A copy of the full text of the Plan is attached to this Proxy Statement as Exhibit A. This summary of the Plan is not intended to be a complete description of the Plan. This summary is qualified in its entirety by the actual text of the Plan to which reference is made.

THE BOARD BELIEVES THAT THE AMENDMENT AND RESTATEMENT OF THE PLAN IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR” THE AMENDMENT AND RESTATEMENT.

Purposes and Effects. The Plan was adopted by the Board and approved by the Company’s stockholders in June 2004. Amendment 2006-1 to the Plan was approved by the Company’s stockholders in June 2006, and the Plan was further amended and restated by the Compensation Committee of the Board on October 3, 2006. The Plan was further amended with the approval by the Company’s stockholders in June 2007. The purpose of the Plan is to attract and retain employees, non-employee directors, consultants and advisors. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock awards, stock units, dividend equivalents and other equity-based awards. The Plan provides an incentive to participants to contribute to our economic success by aligning the economic interests of participants with those of our stockholders.

Administration of the Plan. The Plan is administered by the Compensation Committee of the Board. The Compensation Committee determines all of the terms and conditions applicable to grants under the Plan. The Compensation Committee determines who receives grants under the Plan and the number of shares of our Company common stock that will be subject to grants. Grants to our non-employee directors may only be made by the Board.

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Share Reserve. The Plan currently has 8,000,000 shares of the Company common stock authorized for issuance, of which 2,561,724 shares of Company common stock have been issued and 5,159,818 shares of Company common stock reserved for issuance with respect to outstanding awards under the Plan, both as of March 31, 2009. Pursuant to the amendment and restatement of the Plan, up to 10,650,000 shares of Company common stock will be authorized for issuance, subject to adjustment as described below. Within the 10,650,000 share limit, pursuant to the amendment and restatement of the Plan, the maximum number of shares of Company common stock that may be issued under the sub-limit in the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights) granted after June 10, 2009 is 1,450,000 shares, subject to adjustment as described below. We intend to register the additional 2,650,000 shares of Company common stock authorized for issuance under the Plan as soon as practicable after the Meeting.

The Plan contains a limit of 500,000 shares on the maximum number of shares of Company common stock that may be granted with respect to all grants other than dividend equivalents to an individual in any calendar year, subject to adjustment as described below. A grantee may not accrue dividend equivalents during any calendar year in excess of $100,000. Stockholder approval of the amendment and restatement of the Plan will constitute reapproval of the 500,000 annual individual share limit and $100,000 annual dividend equivalent limit in the Plan for purposes of section 162(m) of the Code.

If any options terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised or if and to the extent any stock awards, stock units or other equity-based awards are forfeited, the shares subject to such grants will again be available for purposes of the Plan. If any shares of Company common stock are surrendered in payment of the exercise price of an option or withheld or surrendered for payment of taxes, those shares will not be available again for grants under the Plan. If stock appreciation rights are granted as other equity-based awards, the full number of shares subject to the stock appreciation rights will be considered issued under the Plan, without regard to the number of shares issued upon exercise of the stock appreciation rights and without regard to any cash settlement of the stock appreciation rights. If any grants are paid in cash, and not in shares of Company common stock, any shares of Company common stock subject to such grants will not count against the foregoing share limits.

Adjustments. In connection with stock splits, reverse stock splits, stock dividends, recapitalizations and other events affecting Company common stock without the Company’s receipt of consideration, the maximum number of shares of Company common stock reserved for issuance as grants, the maximum number of shares of Company common stock that may be issued under the sub-limit in the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights), the maximum number of shares of Company common stock that any individual participating in the Plan may be granted in any year, the number and kind of shares covered by outstanding grants, the kind of shares that may be issued or transferred under the Plan, and the price per share or market value of any outstanding grants will be equitably adjusted by the Compensation Committee, as the Compensation Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company common stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under grants; provided, however, that any fractional shares resulting from such adjustments shall be eliminated. The Compensation Committee will have discretion to make the foregoing equitable adjustments in any circumstances in which an adjustment is not mandated by the terms of the Plan or applicable law, including in the event of a change of control. Any adjustments to outstanding grants will be consistent with section 409A or 422 of the Code, to the extent applicable. Any adjustments determined by the Compensation Committee will be final, binding and conclusive.

Eligibility. All of our employees and employees of our subsidiaries are eligible to receive grants under the Plan. In addition, our non-employee directors and consultants and advisors who perform services for us and our subsidiaries may receive grants under the Plan. As of April 16, 2009, approximately 370 persons are eligible as employees or non-employee directors to receive awards under the Plan, including six executive officers and eight non-employee directors. Consultants and advisors who perform services for us and our subsidiaries are also eligible to receive grants under the Plan, although we do not have current plans to make grants to such individuals.

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Vesting. The Compensation Committee determines the vesting of awards granted under the Plan.

Options. Under the Plan, the Compensation Committee may grant options to purchase shares of Company common stock in amounts and at exercise prices as the Compensation Committee determines. Under the Plan, the Compensation Committee may grant options intended to qualify as incentive stock options under section 422 of the Code, or nonqualified stock options, which are not intended to so qualify. Incentive stock options may only be granted to employees. The exercise price of an incentive stock option cannot be less than the fair market value of a share of Company common stock on the date the option is granted. If an incentive stock option is granted to a 10% stockholder, the exercise price cannot be less than 110% of the fair market value of a share of Company common stock on the date the option is granted. The exercise price of a nonqualified stock option may be equal to or greater than the fair market value of a share of Company common stock on the date the option is granted, as determined by the Compensation Committee.

The exercise price for any option is generally payable:

The term of an option cannot exceed ten years from the date of grant. If an incentive stock option is granted to a 10% stockholder, the term cannot exceed five years from the date of grant.

Except as provided in the grant instrument or as otherwise determined by the Compensation Committee, an option may only be exercised while a grantee is employed by or providing service to us or our subsidiaries or during an applicable period after termination of employment or service. Under the Plan, the Compensation Committee may accelerate the exercisability of any or all options at any time for any reason.

Stock Awards. Under the Plan, the Compensation Committee may grant stock awards. A stock award is an award of Company common stock that may be issued for consideration or no consideration and may be subject to restrictions as the Compensation Committee determines. The restrictions, if any, may lapse over a specified period of employment or based on the satisfaction of pre-established criteria, in installments or otherwise, as the Compensation Committee may determine. Except to the extent restricted under the grant instrument relating to the stock award, a grantee awarded a stock award will have all of the rights of a stockholder as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. All unvested stock awards are forfeited if the grantee’s employment or service is terminated for any reason, unless the Compensation Committee determines otherwise in the grant instrument.

Stock Units. Under the Plan, the Compensation Committee may grant stock units. Stock units are phantom units that represent shares of Company common stock on a one for one basis. Stock units become payable on terms and conditions determined by the Compensation Committee and will be payable in cash or shares of Company common stock as determined by the Compensation Committee. All unvested stock units are forfeited if the grantee’s employment or service terminates for any reason, unless the Compensation Committee determines otherwise in the grant instrument.

Other Equity-Based Awards. Under the Plan, the Compensation Committee may grant other types of awards that are based on, measured by or payable in shares of Company common stock, including stock appreciation rights. The Compensation Committee will determine the terms and conditions of such awards. Other equity-based awards may be payable in cash, shares of Company common stock or a combination of the two.

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Dividend Equivalents. Under the Plan, the Compensation Committee may grant dividend equivalents in connection with any grant made under the Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. The Compensation Committee will determine whether dividend equivalents will be paid currently or credited to a bookkeeping account as a dollar amount or in the form of stock units. Dividend equivalents may be paid in cash, in shares of Company common stock or in a combination of the two. The Compensation Committee will determine whether they will be conditioned upon the exercise, vesting or payment of the grant to which they relate and the other terms and conditions of the grant.

Qualified Performance-Based Compensation. The Plan permits the Compensation Committee to impose performance goals that must be met with respect to grants of stock awards, stock units, dividend equivalents and other equity-based awards that are intended to meet the exception for qualified performance-based compensation under section 162(m) of the Code. Prior to or soon after the beginning of the performance period, the Compensation Committee will establish the performance goals that must be met, the applicable performance periods, the amounts to be paid if the performance goals are met and any other conditions.

The performance goals, to the extent designed to meet the requirements of section 162(m) of the Code, will be based on one or more of the following criteria: total stockholder return; total stockholder return as compared to total stockholder return of comparable companies or a publicly available index; net income; pretax earnings; earnings before interest expense and taxes; earnings before interest expense, taxes, depreciation and amortization; earnings per share; return on equity; return on assets; revenues; asset growth; operating ratios; access to and availability of funding; asset quality; regulatory filings; regulatory approvals; or other operational, regulatory or departmental objectives. Stockholder approval of the amendment and restatement of the Plan will constitute reapproval of the foregoing list of performance criteria for purposes of section 162(m) of the Code.

Deferrals. The Compensation Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of Company common stock that would otherwise be due to the grantee in connection with a grant under the Plan. The Compensation Committee will establish the rules and procedures applicable to any such deferrals.

Change of Control. If we experience a change of control and we are not the surviving corporation, unless the Compensation Committee determines otherwise, all outstanding options will be assumed or replaced with comparable options by the surviving corporation, and other outstanding grants will be converted into similar grants of the surviving corporation.

The Compensation Committee may also provide that:

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In general terms, a change of control under the Plan occurs if:

Amendment; Termination. The Board may amend or terminate the Plan at any time; except that our stockholders must approve any amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements. Unless terminated sooner by the Board or extended with stockholder approval, the Plan will terminate on June 12, 2017.

Stockholder Approval for Qualified Performance-Based Compensation. If stock awards, stock units, other equity-based awards or dividend equivalents are granted as qualified performance-based compensation under section 162(m) of the Code as described under “Qualified Performance-Based Compensation” above, the Plan must be re-approved by the Company’s stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the Plan.

Grants Under the Plan Grants under the Plan are discretionary, so it is currently not possible to predict the number of shares of our common stock that will be granted or who will receive grants under the Plan after the Meeting. As of March 31, 2009, 2,561,724 shares of Company common stock have been issued and 5,159,818 shares are subject to outstanding awards under the Plan.

The last sales price of a share of Company common stock on March 31, 2009 was $27.72 per share.

Federal Income Tax Consequences of the Plan

The federal income tax consequences of grants under the Plan will depend on the type of grant. The following description provides only a general description of the application of federal income tax laws to grants under the Plan. This discussion is intended for the information of stockholders considering how to vote at the Meeting and not as tax guidance to grantees, as the consequences may vary with the types of grants made, the identity of the grantees and the method of payment or settlement. The summary does not address the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local, or foreign tax laws.

From the grantees’ standpoint, as a general rule, ordinary income will be recognized at the time of delivery of shares of our common stock or payment of cash under the Plan. Future appreciation on shares of our common stock held beyond the ordinary income recognition event will be taxable as capital gain when the shares of our common stock are sold. The tax rate applicable to capital gain will depend upon how long the grantee holds the shares. We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the grantee, and we will not be entitled to any tax deduction with respect to capital gain income recognized by the grantee.

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Exceptions to these general rules arise under the following circumstances:

(i) If shares of Company common stock, when delivered, are subject to a substantial risk of forfeiture by reason of any employment or performance-related condition, ordinary income taxation and our tax deduction will be delayed until the risk of forfeiture lapses, unless the grantee makes a special election to accelerate taxation under section 83(b) of the Code.

(ii) If an employee exercises a stock option that qualifies as an incentive stock option, no ordinary income will be recognized, and we will not be entitled to any tax deduction, if shares of Company common stock acquired upon exercise of the stock option are held until the later of (A) one year from the date of exercise and (B) two years from the date of grant. However, if the employee disposes of the shares acquired upon exercise of an incentive stock option before satisfying both holding period requirements, the employee will recognize ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or the amount realized on the disposition, if less) and the exercise price, and we will be entitled to a tax deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be long-term or short-term capital gain, depending upon the length of time the employee held the shares before the disposition.

(iii) A grant may be subject to a 20% tax, in addition to ordinary income tax, at the time the grant becomes vested, plus interest, if the grant constitutes deferred compensation under section 409A of the Code and the requirements of section 409A of the Code are not satisfied.

Section 162(m) of the Code generally disallows a publicly held corporation’s tax deduction for compensation paid to its chief executive officer or any of its four other most highly compensated officers in excess of $1 million in any year. Qualified performance-based compensation is excluded from the $1 million deductibility limit, and therefore remains fully deductible by the corporation that pays it. We intend that options and any stock appreciation rights granted under the Plan will be qualified performance-based compensation. Stock units, stock awards, dividend equivalents, and other equity-based awards granted under the Plan may be designated as qualified performance-based compensation if the Compensation Committee conditions such grants on the achievement of specific performance goals in accordance with the requirements of section 162(m) of the Code.

We have the right to require that grantees pay to us an amount necessary for us to satisfy our federal, state or local tax withholding obligations with respect to grants. We may withhold from other amounts payable to a grantee an amount necessary to satisfy these obligations. The Compensation Committee may permit a grantee to satisfy our withholding obligation with respect to grants paid in shares of our common stock by having shares withheld, at the time the grants become taxable, provided that the number of shares withheld does not exceed the individual’s minimum applicable withholding tax rate for federal, state and local tax liabilities.

Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm

Subject to ratification by our stockholders, the Audit Committee of the Board has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for Fiscal 2009. PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since October 2005. PricewaterhouseCoopers LLP has informed us that they are not aware of any additional independence-related relationships between their firm and us other than the professional services discussed in “Independent Registered Public Accounting Firm Fees and Other Matters” below. The affirmative vote of a majority of the votes cast at the Meeting is required to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for Fiscal 2009. Votes may be cast (i) FOR, (ii) AGAINST or (iii) may ABSTAIN. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

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Although stockholder ratification of the selection of PricewaterhouseCoopers LLP is not required by law, the Board believes that it is desirable to give our stockholders the opportunity to ratify this selection. If this proposal is not approved at the Meeting, the selection of such independent registered public accounting firm will be reconsidered by the Audit Committee of the Board. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm during the year if the Audit Committee determines such a change is advisable.

One or more representatives of PricewaterhouseCoopers LLP is expected to attend the Meeting and will have an opportunity to make a statement and respond to appropriate questions from our stockholders.

THE BOARD BELIEVES THAT THE AUDIT COMMITTEE’S SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2009 IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP.

Independent Registered Public Accounting Firm Fees and Other Matters

Aggregate “Audit Fees” paid to PricewaterhouseCoopers LLP, our independent registered public accounting firm, for professional services rendered with respect to Fiscal 2008 and for the fiscal year ended December 31, 2007 (“Fiscal 2007”) were $548,005 and $624,500, respectively. These amounts consist of fees paid for professional services rendered with respect to the audit of our consolidated financial statements for Fiscal 2008 and 2007, the review of the interim consolidated financial statements included in our Quarterly Reports on Form 10-Q, and fees associated with comfort letters, consents and assistance with and review of documents filed with the Securities and Exchange Commission (the “SEC”).

Pre-Approval Policies and Procedures

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.

The prior approval of the Audit Committee was obtained for all services provided by PricewaterhouseCoopers LLP in Fiscal 2008 and Fiscal 2007.

Other Matters

As of the date of this Proxy Statement, the Board does not know of any other matters that may come before the Meeting, other than as set forth in the Notice of Annual Meeting of Stockholders and this Proxy Statement. If any other matters properly come before the Meeting or any adjournments or postponements thereof, it is intended that holders of the proxies will vote thereon in their discretion.

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Deadline for Submission of Stockholder Proposals for the 2010 Annual Meeting of Stockholders

Proposals of stockholders intended to be presented at the 2010 Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, must be received by us no later than the close of business on December 31, 2009 in order that they may be included in the proxy statement and form of proxy relating to that meeting. Proposals should be addressed to Jennifer Evans Stacey, Esq., Secretary of Auxilium, at the address set forth below.

In addition, our by-laws require that we be given advance notice of stockholder nominations for election to the Board and of other business that stockholders wish to present for action at an Annual Meeting of Stockholders (other than matters included in our proxy statement in accordance with Rule 14a-8 as described above). Such nominations and proposals, other than those made by or on behalf of the Board, must be made by notice in writing delivered to the Secretary at the address set forth below, and received no earlier than February 10, 2010 and no later than March 12, 2010, assuming that the 2010 Annual Meeting of Stockholders is to be held between May 21, 2010 and August 9, 2010, as we currently anticipate. In the event that the 2010 Annual Meeting of Stockholders is not held between May 21, 2010 and August 9, 2010, notice of stockholder nominees or proposals must be received no earlier than 120 days before the date of the 2010 Annual Meeting of Stockholders and no later than 90 days before the date of the 2010 Annual Meeting of Stockholders or the 10th day following our first public announcement of the date of such meeting, whichever is later. Our bylaws also require that such notice contain certain additional information. Copies of our bylaws can be obtained without charge from the Secretary.

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CORPORATE GOVERNANCE

Code of Conduct

We have adopted a Code of Conduct that applies to all our directors, officers and employees. Our Code of Conduct contains written standards designed to deter wrongdoing and to promote:

Our Code of Conduct is posted on our Web site at www.auxilium.com under the heading “For Investors—Corporate Governance.” We intend to satisfy the disclosure requirements regarding any amendment to, or waiver from, a provision of the Code of Conduct by making disclosures concerning such matters available on our web site under the heading “For Investors—Corporate Governance.”

Committees and Meetings of our Board of Directors

Board of Directors. The Board held 16 meetings during Fiscal 2008. Throughout this period, each member of the Board attended or participated in at least 75% of the aggregate of the total number of duly constituted meetings of the Board held during the period for which such person had been a director, and the total number of meetings held by all committees of the Board on which each such director served during the periods the director served. The Board has three standing committees: the Compensation Committee, the Audit and Compliance Committee and the Nominating and Corporate Governance Committee, each of which operates under a charter that has been approved by the Board. Each of these charters is posted on our Web site at www.auxilium.com under the heading “For Investors—Corporate Governance.” Our Corporate Governance Guidelines provide that directors are expected to attend our Annual Meeting of Stockholders. Six out of eight of our directors attended the 2008 Annual Meeting.

Compensation Committee. Our Compensation Committee Charter is posted on our Web site at www.auxilium.com under the heading “For Investors—Corporate Governance.” Specific responsibilities of our Compensation Committee include:

Our Compensation Committee is composed solely of “independent directors” under applicable Nasdaq listing standards. The members of our Compensation Committee are Dr. Fetzer (Chairman), Dr. Chambon and Mr. Classon. Our Compensation Committee held 11 meetings during Fiscal 2008.

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Audit and Compliance Committee (the “Audit Committee”). Our Audit Committee Charter is posted on our Web site at www.auxilium.com under the heading “For Investors—Corporate Governance.” Our Audit Committee assists the Board in its oversight and review of:

The Audit Committee has the sole and direct responsibility for appointing, evaluating and retaining our independent auditors, overseeing their work and monitoring the rotation of partners on our engagement team, as required by law. All audit services and all non-audit services to be provided to us by our independent auditors must be approved in advance by the Audit Committee. The Audit Committee also discusses with management and our independent auditors the results of any annual audit and review of our quarterly financial statements.

The members of the Audit Committee are Mr. Bescherer (Chairman), Mr. Altomari, Mr. Classon and Mr. McKee, each of whom is an “independent director” under applicable Nasdaq listing standards. The Board has determined that each of Mr. Bescherer and Mr. McKee is an “audit committee financial expert” as required by Section 407 of the Sarbanes-Oxley Act of 2002. Mr. McKee was appointed to the Audit Committee upon his election to the Board in March 2009. The Audit Committee held 16 meetings during Fiscal 2008.

Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee Charter is posted on our Web site at www.auxilium.com under the heading “For Investors—Corporate Governance.” Specific responsibilities of our Nominating and Corporate Governance Committee include:

Our Nominating and Corporate Governance Committee is composed solely of “independent directors” under applicable Nasdaq listing standards. The members of our Nominating and Corporate Governance Committee are Dr. Chambon (Chairman), Mr. Bescherer, Dr. Fuchs, and Dr. Langer. Dr. Fuchs was appointed to the Nominating and Corporate Governance Committee in July 2008, and Mr. Dennis Purcell served on the Nominating and Corporate Governance Committee until July 2008. Our Nominating and Corporate Governance Committee held four meetings during Fiscal 2008.

Director Candidates

The process followed by our Nominating and Corporate Governance Committee to identify and evaluate director candidates includes requests to board members and others for recommendations, retention for a fee of search firms, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board.

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In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended director nominees, our Nominating and Corporate Governance Committee will apply the criteria contained in the Nominating and Corporate Governance Committee’s charter. These criteria include the candidate’s understanding of and experience in the pharmaceutical industry, understanding of and experience in accounting oversight and governance, finance and marketing and leadership experience with public companies or other significant organizations. We believe that the backgrounds and qualifications of our directors as a whole should collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience useful to the effective oversight of our business.

Stockholders may recommend individuals to our Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate information about the candidate that would be required to be included in a proxy statement under the rules of the SEC, information about the relationship between the candidate and the recommending stockholder, the consent of the candidate to serve as a director and proof of the number of shares of our common stock that the recommending stockholder owns and the length of time the shares have been owned to the Nominating and Corporate Governance Committee via U.S. Mail (including courier or expedited delivery service) to the address set forth below. Assuming that appropriate material has been provided on a timely basis, the Nominating and Corporate Governance Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. Candidate and related information should be sent to the address listed below:

Nominating and Corporate Governance Committee

c/o Auxilium Pharmaceuticals, Inc.

40 Valley Stream Parkway

Malvern, PA 19355

Stockholders also have the right to nominate director candidates themselves, without any prior review or recommendation by the Nominating and Corporate Governance Committee or the Board, by following the procedures set forth herein under the heading “Deadline for Submission of Stockholder Proposals for the 2010 Annual Meeting of Stockholders” beginning on page 16.

Communicating with our Directors

Our Board of Directors will give appropriate attention to written communications that are submitted by stockholders and will respond if and as appropriate. The Chairman of the Board is primarily responsible for monitoring communications from our stockholders and for providing copies or summaries of such correspondence to the other directors as he considers appropriate.

Stockholders who wish to send communications on any topic to the Board as a whole should send such communication to the attention of the Chairman of the Board of Directors via U.S. Mail (including courier or expedited delivery service) to the address set forth below or by facsimile at 484-321-5996.

Stockholders who wish to send communications on any topic to an individual director in his or her capacity as a member of the Board, may send such communications to the attention of the individual director via U.S. Mail (including courier or expedited delivery service) to the address set forth below or by facsimile at 484-321-5996.

Auxilium Pharmaceuticals, Inc.

40 Valley Stream Parkway

Malvern, PA 19355

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Report of the Audit and Compliance Committee

The Audit and Compliance Committee (the “Audit Committee”) of the Board of Directors of Auxilium Pharmaceuticals, Inc., a Delaware corporation (the “Company”), is composed of four independent directors and operates under a written charter adopted by the Board of Directors. The members of the Audit Committee are Edwin A. Bescherer, Jr. (Chairman), Al Altomari, Rolf A. Classon, and William T. McKee, who was appointed to the Audit Committee in March 2009 upon his election to the Board.

Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

In this context, the Audit Committee has met and held discussions with management and the independent registered public accounting firm regarding the Company’s audited consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee discussed with management the critical accounting policies applied by management in the preparation of the Company’s consolidated financial statements, as well as management’s assessment of the effectiveness of the Company’s internal control over financial accounting. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant that firm’s independence.

The Audit Committee met with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss their respective evaluations of the Company’s internal controls, the overall quality of the Company’s financial reporting and the scope and plans for their respective audits.

Based upon the Audit Committee’s discussions with management and the independent registered public accounting firm and the Audit Committee’s review of the representations of management and the report of the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC.

Respectfully submitted,

By the Audit and Compliance Committee of the Board of

Directors of Auxilium Pharmaceuticals, Inc.

Edwin A. Bescherer, Jr., Chairman

Al Altomari

Rolf A. Classon

William T. McKee

April 30, 2009

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Certain Relationships and Related Party Transactions

Review, Approval or Ratification of Transactions with Related Persons. We engage in a process whereby we identify and review all relationships and transactions in which Auxilium and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Our legal department is primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether the company or a related person has a direct or indirect material interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to Auxilium or a related person are disclosed in our proxy statement. The process for the review of all potential related party transactions is documented in our written corporate policies. In addition, the Audit and Compliance Committee (the “Audit Committee”) reviews and approves or ratifies any related person transaction that is required to be disclosed. In the course of its review and approval or ratification of a disclosable related party transaction, our legal department and the Audit Committee consider, among other factors:

Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction, provided, however, that such director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction.

Director Independence. The Board has determined that each of our directors, except for Armando Anido, is an “independent director” as such term is defined in Marketplace Rule 5605(a)(2) of the Financial Industry Regulatory Authority (“FINRA”) and in the Company’s Corporate Governance Guidelines. The Board also has determined that each member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee meets the independence requirements applicable to those committees as prescribed by FINRA, the SEC, the Internal Revenue Service, the Company’s Corporate Governance Guidelines and applicable committee charters. Our Corporate Governance Guidelines are posted on our web site at www.auxilium.com under the heading “For Investors—Corporate Governance.”

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DIRECTOR COMPENSATION

The following table provides information concerning the compensation of the Company’s non-employee directors for 2008. Directors who are employees of the Company receive no compensation for their services as directors or as members of Board Committees.

2008 Director Compensation

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EXECUTIVE COMPENSATION

Executive Officers

Our executive officers are elected annually by the Board and serve until their successors are duly elected and qualified. The following table identifies our current executive officers:

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Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis describes the material elements of our executive compensation program for 2008 and explains how the Compensation Committee of our Board of Directors (the “Compensation Committee”) made its compensation decisions for our executives, including our named executive officers for 2008. These named executive officers are identified in the Summary Compensation Table that immediately follows this discussion and consist of our Chief Executive Officer and President (“CEO”), Armando Anido; our Chief Financial Officer, James E. Fickenscher; and our three other most highly compensated executive officers, Dr. Jyrki Mattila, Executive Vice President, Business Development, Product Development and Technical Operations; Mr. Roger Graham, Executive Vice President, Sales and Marketing; and Ms. Jennifer Evans Stacey, Esq., Executive Vice President, General Counsel, Human Resources and Secretary.

Executive Summary

In 2008, the Company met, or in the case of objectives related to Testim^® exceeded, its corporate goals established in the beginning of 2008, and the Compensation Committee considered these accomplishments, macroeconomic conditions, data from peer group companies and other factors detailed below in making its compensation decisions. The Company reported record revenues from Testim in 2008 in line with the goal set in early 2008. In addition, the Company worked to protect the Testim franchise with the issuance of a patent in January 2008, expiring in 2025, and with its licensor, CPEX Pharmaceuticals, Inc., filing an infringement lawsuit against Upsher-Smith Laboratories, Inc. in December 2008. The Company also achieved the objectives it set in early 2008 regarding the development of XIAFLEX™ for Dupuytren’s contracture. The Company was able to release data from the phase III CORD I and CORD II studies on June 3, 2008, earlier than planned, and released its Horsham facility for cGMP manufacture in line with the projected goal. The Company also achieved its net loss goal and met goals related to compliance and implementation of the information technologies strategic plan. For these achievements, the Company was rewarded with a payout of 105% under the 2008 Bonus Plan. The Compensation Committee was mindful of the macroeconomic climate and while the general employee population could receive a 4% merit increase, the Compensation Committee decided to limit salary increases for the named executive officers to 3.5%.

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Compensation Philosophy

Our compensation philosophy, which is set by the Compensation Committee, is designed to meet our objectives of:

We believe that providing a competitive compensation package to each of our executive officers is critical to our ability to achieve the foregoing objectives.

Administration of Our Executive Compensation Program and Determination of Competitive Compensation

The Compensation Committee administers our executive compensation program. The Compensation Committee annually retains an independent consulting firm. This consulting firm reports to the Compensation Committee directly and provides the Compensation Committee with design alternatives for compensation systems and with data regarding the compensation of executive officers at our peer companies in order to assist the Compensation Committee in its determination of whether the overall compensation packages for each of our executive officers are competitive. This data include an analysis of each component of compensation as well as total cash compensation and total overall compensation, which takes into account a valuation of outstanding vested and unvested long-term incentive holdings and a detailed total stockholder return analysis including a “pay for performance analysis” to assure pay alignment with performance. While the peer group data provided by the independent consultant provides useful comparisons, the Compensation Committee uses the data as a guide, not as a rule when establishing the compensation packages we provide to our executives and takes into account other factors as it deems appropriate.

The list of peer companies used in the executive compensation analysis is annually reviewed, updated and approved by the Compensation Committee. In late 2007, Radford Consulting + Surveys, a division of AON (“AON”), the independent compensation consulting firm retained by the Compensation Committee, updated the list of peer group companies in light of changes in the Company’s projected financial profile so that AON could provide a report on executive compensation using the updated peer group list in preparation of the Compensation Committee’s February 2008 meeting at which decisions would be made regarding salary increases, bonus awards and long-term incentive awards for 2007 performance. The Compensation Committee’s decisions made at the February 2008 regarding salary increases are discussed below in “Salary”.

In order to update the list of peer companies, AON identified all publicly traded, U.S.-headquartered companies in the biotechnology / pharmaceutical marketplace and then refined the comparator pool to reflect companies generally exhibiting the following financial profile, based on the relevant Auxilium data at the time AON conducted its research:

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AON qualitatively evaluated and refined the comparator pool to identify each company’s developmental stage, leading product focus and business strategy. AON targeted commercial biotechnology / pharmaceutical companies with an internal sales force. AON examined Auxilium’s historical peer group and peer companies identified by Auxilium management and the Compensation Committee. AON selected companies with “best fit” similarities to Auxilium, considering the following characteristics:

Applying this methodology, the Compensation Committee approved the following as the list of peer companies:

In late 2008, AON updated the list of peer group companies in light of industry consolidations and changes in the Company’s projected financial profile. In order to update the list of peer companies, AON first identified all publicly traded, U.S.-headquartered companies in the biotechnology / pharmaceutical industry with the following financial profile, based on the relevant Auxilium data at the time AON conducted its research:

Then, AON qualitatively evaluated and refined the comparator pool to identify each company’s developmental stage, leading product focus and business strategy. AON targeted commercial and later stage biotechnology / pharmaceutical companies that have a similar financial profile with regard to employee size, revenue and market value and product focus / business strategy as compared to Auxilium. AON examined Auxilium’s historical peer group and peer companies identified by Auxilium management and the Compensation Committee. AON selected companies with “best fit” similarities to Auxilium, considering the following characteristics:

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Applying this methodology, the Compensation Committee approved the following as the list of peer companies:

This updated group of peer companies was used by AON to prepare the comparative compensation data considered by the Compensation Committee in connection with its compensation decisions for our executives taken at its meeting on February 25, 2009 and discussed below under “Short-Term Incentive Awards” and “Long-Term Incentive Awards” below.

In addition, in both late 2007 and 2008, AON supplemented peer group data with broader life science market data using the Radford Global Life Sciences Survey for 2007 and 2008 with cuts of peer group data and cuts of data based upon headcount (150 to 499 for 2007 and 200 to 600 for 2008).

In addition to peer group data, the Compensation Committee also reviews “tally sheets” for each executive officer in order to analyze the total opportunity for wealth accumulation that is available to each of our executive officers. The tally sheets provide the Compensation Committee with the following information for each of our executive officers to the extent applicable to each executive officer:

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Our Human Resources Department works with the executive compensation consultant to match company positions against survey positions and to compile the annual compensation data for each executive officer. Our Human Resources Department does not direct or oversee the activities of the consultant retained by the Compensation Committee.

Timing and Role of Executive Officers in Compensation Decisions

Early in the calendar year, our Board approves our financial and operational objectives for that current year, which are used as the basis of the bonus plan that is approved by the Compensation Committee. The CEO sets functional objectives for each executive officer for that current year. Each executive officer’s functional objectives relate to the corporate function for which such officer is responsible and are intended to align with the financial and operational objectives set by our Board so that each function is providing the support necessary to achieve such objectives. Generally, the Compensation Committee meets each February to determine the overall compensation package for each of our executive officers. In doing so, the Compensation Committee reviews the degree to which we achieved the goals set by our Board for the prior year and the degree to which each of the executive officers achieved their functional objectives for the prior year and their respective contributions to our financial and operational objectives for the prior year. As part of this review, our CEO provides a review of each executive officer’s performance as well as compensation recommendations to the Compensation Committee. He also provides his self-evaluation. The CEO does not make recommendations with respect to his own compensation. While the Compensation Committee utilizes this information, and values the CEO’s observations with regard to other executive officers, the ultimate decisions regarding executive compensation are made by the Compensation Committee.

The Compensation Committee may review executive compensation at such other times during the year as it deems appropriate, such as in connection with new appointments or promotions during the year.

Elements of Compensation

General

Our compensation package for our executives focuses on four principal elements:

We provide additional retirement and other benefits for executives similar to those provided by other corporations in our industry of similar size, maturity and market capitalization, except that we do not provide loans to executive officers. In administering the executive compensation program, the Compensation Committee attempts to strike an appropriate balance among the elements of our compensation program to achieve the compensation objectives listed above. Each of the elements of the program is discussed in greater detail below.

The Compensation Committee does not apply fixed weighting or formulas when it considers the criteria applied to each component of an individual’s overall compensation. Rather, the Compensation Committee exercises its judgment in determining the appropriate amount of each component of an individual’s overall compensation. In particular, because the greater Philadelphia, northern New Jersey and metropolitan New York areas are generally considered to be among the regions in the United States with the most pharmaceutical

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industry jobs, we believe that we are recruiting and endeavoring to retain talent in one of our industry’s more competitive geographic areas in the country. In 2008, the Compensation Committee placed a heavy emphasis on the compensation packages provided by our peer companies and those companies where potential candidates were employed when determining the components and levels of our compensation packages for our executive officers in order to account for this increased competitive environment.

In general, we believe that positioning salaries at the 50^th percentile of salaries for comparable executives included in the peer group data enables us to be competitive and attract talented executives. Similarly, we believe that positioning short-term and long-term incentives at ranges above the 50^th percentile for executives who routinely achieve their goals and demonstrate strong performance motivates our executive officers to increase short and long term stockholder value and ultimately their long-term financial gain. To that end, long-term incentive awards remain a significant portion of our executive compensation program. In addition, in determining the overall levels of salary, short-term incentive awards and long-term incentive awards for executive officers, the Compensation Committee also considers talent management (including the recruitment and development of a diverse and superior talent pool), and morale of and productivity of management. Unless we disclose otherwise in the future, the Compensation Committee intends to employ the methodologies described below when considering future grants of short-term and long-term incentive awards.

Salary

The salary level for each executive officer is based principally on the executive’s responsibilities. As indicated above, while we generally seek to position salaries for our executive officers so that the salary corresponds to the 50^th percentile of salaries for comparable executives included in the peer group data provided by our executive compensation consultant, in setting base salaries and determining whether an increase is warranted, the Compensation Committee also gives consideration to:

Taking these considerations into account, we may vary the salary of an individual from the 50^th percentile. We believe that base salary is competitive if it is within a range of 10 percent above or 10 percent below the base salary amounts at the 50th percentile for comparable executives, however, we may establish base salary at a level outside this range due to differences in experience, as well as variations in responsibilities, performance and ability.

Based on the peer group data provided by our executive compensation consultant and taking into consideration the responsibilities of each executive officer and his/her performance, which includes the performance of the function(s) for which such officer is responsible against the pre-determined functional objectives, and his/her overall compensation as set forth on the tally sheets, we adjusted the named executive officers’ base salaries paid in 2008 by the percentages indicated in the chart below.

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The 2008 salary adjustment for Mr. Anido was in recognition of his strong performance and contributions to the Company’s performance in 2007. With respect to 2008 base salaries, the Compensation Committee determined that a 3% merit increase for Mr. Graham was appropriate as he had only been with the Company since March 2007 and in light of the comparative peer group data. The Compensation Committee approved the 4% merit increases for all other named executive officers and approved the additional salary adjustments of 3.7% and 5% for Mr. Fickenscher and Ms. Stacey, respectively, in consideration of the comparative peer group data and their performance and contributions to the Company in 2008.

Short-Term Incentive Awards

Our short-term incentive awards, or bonuses, are cash payments based upon:

We believe that our short-term incentive program motivates our executives to meet and exceed the functional objectives defined by our Chief Executive Officer, or CEO, but does not encourage an executive to take undue or unnecessary risk. Our annual corporate goals as established by our Board.

To determine bonuses for performance in fiscal 2008, the Compensation Committee reviewed peer group data regarding the percentage of salary payable as annual bonuses upon achievement of target goals for comparable executives in order to establish compensation that rewards performance and serves to retain key contributors. We targeted total cash (base salary plus bonus at the 50^th percentile with the opportunity to earn up to the 75^th percentile based upon performance. We accrue short-term incentive awards for each executive officer, so those amounts are reflected in our financial statements for the year ended December 31, 2008 although they are paid in the first quarter of 2009.

In February 2008, the Compensation Committee approved the 2008 Bonus Plan (in which all employees are eligible to participate). The plan was intended to motivate employees to achieve 2008 business goals designed to yield increased stockholder value, allow us to attract and retain quality employees by remaining competitive in the local employment market and reinforce a pay-for-performance culture.

An employee’s target bonus is calculated by multiplying the employee’s gross earnings in 2008 less any bonus paid in 2008 (“2008 base earnings”) by the specified percentage that is the employee’s target bonus percentage. 75% of each executive officer’s bonus potential is based on the Corporate Achievement Factor and the remaining 25% is based on the Functional Achievement Factor. However, 100% of the CEO’s bonus potential is based on the Corporate Achievement Factor, and his employment agreement specifies that his bonus can range from 0% to 200% of target. The “Corporate Achievement Factor” is determined by the Compensation Committee based on its review of achievements under the 2008 Bonus Plan. The “Functional Achievement Factor” is recommended by the CEO and determined and approved by the Compensation Committee based on performance against functional objectives established at the beginning of each year. The Corporate and Functional Achievement Factors each can range from 0% to 150% based on evaluation of performance. The Corporate Achievement Factor under the 2008 Bonus Plan was based on the following weighted metrics, reflecting financial and operational objectives approved by our Board:

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In early 2009, the Compensation Committee assessed the performance of the Company against these metrics and determined that awards under the 2008 Bonus Plan should be paid out using a 105% Corporate Achievement Factor for the reasons discussed in the “Executive Summary” above. The 2008 Bonus Plan was established in February 2008 and no changes were made to the plan during the course of the year.

In order to determine the total short-term incentive award to each executive officer for performance in 2008, the Compensation Committee, at its February 25, 2009 meeting, reviewed and considered:

The Functional Achievement Factor for each named executive officer under the 2008 Bonus Plan was based on the performance of the functions for which each named executive officer is responsible against objectives agreed with the CEO at the beginning of 2008. These functional objectives are intended to align with the financial and operational objectives set forth in the 2008 Bonus Plan so that each function is providing the support necessary to achieve such objectives.

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The Compensation Committee assessed the performance of each named executive officer against these metrics and determined that awards under the 2008 Bonus Plan should be paid out using a 100% Functional Achievement Factor for Mr. Fickenscher, a 105% Functional Achievement Factor for Dr. Mattila, a 100% Functional Achievement Factor for Ms. Stacey and a 105% Functional Achievement Factor for Mr. Graham. At its meeting on February 25, 2009, the Compensation Committee awarded the following bonus awards for performance in 2008:

At its meeting on February 25, 2009, the Compensation Committee elected to increase Mr. Anido’s target cash bonus for 2009 from 65% to 75% of his base earnings in 2009 in consideration of peer group data for total cash compensation for chief executive officers and to pay for performance.

Long-Term Incentive Awards

Our long-term incentive awards are equity awards in the form of grants of stock options, including performance-based options and performance-based restricted stock. Our long-term incentive awards are based upon corporate objectives and functional objectives for the executive officer. We believe that providing our executive officers with equity awards aligns their interest with those of our stockholders.

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To determine long-term incentive awards for performance in fiscal 2008, our Compensation Committee reviewed peer group data regarding long-term incentive awards to executives at the comparator companies. The Compensation Committee generally seeks to position long-term incentive awards for our executive officers so that the awards correspond between the 60^th and 75^th percentiles of long-term incentive awards for comparable executives included in the peer group data referenced by our executive compensation consultant, depending upon individual and corporate performance.

Long-term incentive awards are considered an important complement to the elements of our executive officers’ compensation because they align the executives’ interests with stockholders’ interests. A principal factor influencing the market price of our stock is our performance as reflected in our sales, earnings, cash flow and other results. By granting stock options and restricted stock to our executive officers, we believe our executive officers are encouraged to increase stockholder value because the value of the stock option is dependent on the market performance of our common stock following the date of grant. The decision as to whether to grant options is made after an evaluation of what form or mix of equity instruments is needed as a retention/incentive tool for the individual executive based upon industry practice, market conditions and the nature of the individual’s expertise at the time the award is considered. Our stockholders have approved the plans under which such awards are made. The exercise price of our option grants equals the closing market price of our stock on the date of such grant, and the effective date of the grant is the date of the meeting of the Compensation Committee at which the grants are approved. With respect to a newly hired executive, his or her employment agreement, which is approved by the Compensation Committee, specifies that any grant of stock options or restricted stock is effective on the effective date of the employment agreement and that the exercise price of the option grant equals the closing market price of our stock on the date of such grant. The standard options granted by the Compensation Committee generally vest at a rate of 25% per year over the first four years of the ten-year option term. Vesting is based solely on the passage of time and is not performance based. We believe that this vesting period provides a meaningful incentive to our executive officers to continue their employment with us. The performance-based options have a different vesting schedule with graded vesting over two and a half years. Performance-based options begin to vest only if a specified metric is deemed to be achieved by the Compensation Committee. We select a goal that is closely linked to creation of stockholder value as the performance metric, thereby aligning the goals of the executive with those of the Company.

Options will only yield income to the executive if the market price of our stock is greater at the time of exercise than it was on the date of grant. Awards of shares of restricted stock are subject to forfeiture restrictions, which prohibit the recipient from selling such shares until a specified date set forth in the executive officer’s employment agreement. Further, awards of performance-based restricted stock do not vest until a goal specified by the Compensation Committee is achieved, and they are subject to forfeiture restrictions until specified dates set by the Compensation Committee. Grants of options and awards of restricted stock provide inducements to the executive officers to remain with us over the long-term, enhance corporate performance and, correspondingly, enhance stockholder value. We do not have stock ownership guidelines or holding requirements.

When determining whether to make grants of stock options or awards of restricted stock, as well as the size of such grants or awards, for fiscal 2008 the Compensation Committee considered:

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At its meeting on February 25, 2009, the Compensation Committee approved the following “standard” nonqualified stock option awards to the Company’s named executive officers (“2009 Stock Option Awards”):

At its meeting on February 25, 2009, the Compensation Committee approved grants of performance-based restricted stock for our named executive officers. Each “performance-based” restricted stock will accrue (subject to vesting) (i) based on non-expedited review of the Biologics License Application (“BLA”) filed on February 27, 2009 with the U.S. Food and Drug Administration (“FDA”) for XIAFLEX for the treatment of Dupuytren’s contracture, on the first commercial sale of XIAFLEX within a reasonable period of time after approval, or (ii) if a Change of Control (as defined in the 2004 Equity Compensation Plan) is consummated on or before the date of launch in (i) above and the Committee determines that it is reasonably likely that the performance goal set forth in (i) would have been achieved during such period if not for the Change of Control. In such event, Mr. Anido would receive 18,000 to 26,999 shares and the other named executive officers 7,000 to 10,499 shares, as determined by the Committee in its sole discretion, based on the timing of launch. Mr. Anido and the named executive officers will receive up to an incremental 50% in the event that the FDA grants expedited review, approves XIALFEX within the expedited timeframe and the Company launches the product shortly thereafter. However, in the event that approval and/or launch of XIAFLEX is delayed into the third quarter of 2010, Mr. Anido and named executive officers will receive up to 50% less than the targeted amount, but if performance is not achieved until after the third quarter of 2010, the named executive officers will not receive any portion of the restricted stock award.

These awards will (i) vest 33^1/3% on the date on which the Performance Goal is achieved with the balance vesting in two equal installments thereafter on the first and second anniversary of the date on which the Performance Goal is achieved, and (ii) be governed by the Company’s 2004 Equity Compensation Plan and standard form restricted stock grant agreement, including provision for immediate vesting upon a change of control of the Company.

Employment Agreements and Potential Payments Upon Termination or a Change of Control

Employment Agreements

We have entered into employment agreements with each of our executive officers. These agreements set forth the terms of the named executive officer’s employment and provide severance benefits upon certain types of termination of employment. These agreements are designed to be a part of a competitive compensation package. We believe that entering into severance arrangements with our executive officers provides financial security to an

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executive officer in the event the executive officer is terminated without cause by providing a meaningful payment to the executive officer. Each executive officer’s employment agreement also provides for certain payments and benefits upon a change of control if the executive’s employment is terminated without cause or for disability or the executive resigns for “good reason” within a specified period following the consummation of such change of control. We believe that entering into change of control arrangements with our executive officers promotes management stability during a period of uncertainty. Absent such arrangements, there is an increased risk that executive officers may be encouraged to seek other employment opportunities if they became concerned about their employment security following a change in control. See “Potential Payments Upon Termination or Change of Control” below for detailed descriptions of the provisions in the employment agreements of our named executive officers related to severance payments and payments made in the event of a change of control.

Additionally, the employment agreements include non-competition, confidentiality, development assignment and non-solicitation covenants.

Potential Payments Upon Termination or Change of Control

The employment agreements with our named executive officers provide for payments and other benefits if we terminate the named executive officer’s employment without cause or for disability, or if the named executive officer terminates employment for “good reason” upon or within one year after a change in control for our Chief Executive Officer and Executive Vice President of Sales and Marketing or two years after a change in control for our Chief Financial Officer, Executive Vice President of Business Development, Product Development and Technical Operations, and Executive Vice President, General Counsel, Human Resources and Secretary. The agreements also provide that if a change in control occurs and change in control payments are subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the “Code”) we will make additional payments to reimburse the executive for the excise and related taxes imposed under the Code. See “Potential Payments Upon Termination or Change in Control” below for detailed descriptions of the provisions in the employment agreements of our named executive officers related to severance payments and payments made in the event of a change of control. See “Tax Considerations” below for further information regarding the excise tax reimbursement.

Each of the named executive officer’s employment agreements may be terminated by us at any time for cause or upon 30 days written notice without cause. Under the agreements, if a named executive officer’s employment ends for any reason, we will pay accrued compensation and benefits. If we terminate the employment of any of these executives without cause, or due to their disability, we will be obligated to pay to that named executive officer severance equal to nine months of the named executive officer’s base salary, and in the case of our Executive Vice President of Sales and Marketing, severance equal to nine months of base salary plus bonus, and in the case of our Chief Executive Officer, twelve months of his base salary plus bonus, payable in equal monthly installments. In addition, we would be obligated to pay for continued participation in our group medical, dental and prescription drug programs during the applicable nine-month or twelve-month period after termination of employment or obtain comparable benefits at our cost. Additionally, all outstanding stock options and stock awards held by the named executive officer at the date of termination of employment that would have otherwise become vested and exercisable during the severance period will become vested and exercisable as if the named executive officer had remained employed during the severance period, except in the case of our Chief Financial Officer, Executive Vice President of Business Development, Product Development and Technical Operations and Executive Vice President of Sales and Marketing who have 90 days from the date of termination to exercise any stock options and awards vested as of that date.

For purposes of the employment agreements, cause is defined generally to mean:

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The employment agreements also provide for payments and other benefits if we terminate the named executive officer’s employment without cause or for disability, or if the named executive officer terminates employment for “good reason” upon or within one year after a change in control for our Chief Executive Officer and Executive Vice President of Sales and Marketing or two years after a change in control for our Chief Financial Officer, Executive Vice President of Business Development, Product Development and Technical Operations, and Executive Vice President, General Counsel, Human Resources and Secretary. In such event, the named executive officer will be entitled to the following change of control severance benefits:

The agreements also provide that if a change in control occurs and change in control payments are subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the “Code”) we will make additional payments to reimburse the executive for the excise and related taxes imposed under the Code. See “Tax Considerations” below for further information regarding the excise tax reimbursement. See the table entitled “Potential Payments Upon Termination or Change in Control” on page 43.

For purposes of the employment agreements, good reason includes a substantial reduction of the named executive officer’s duties and responsibilities, relocation to a place of employment more than 50 miles from the named executive officer’s previous place of employment or material reduction in the named executive officer’s base salary. In general, a change of control includes:

Tax Considerations

Under section 162(m) of the Code, a publicly held corporation may not deduct more than $1 million in a taxable year for certain forms of compensation paid to the chief executive officer and other officers listed on the Summary Compensation Table. Our policy is generally to preserve the federal income tax deductibility of compensation paid to our executives, and certain of our equity awards have been structured to preserve deductibility under section 162(m). Nevertheless, we retain the flexibility to authorize compensation that may not

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be deductible if we believe it is in our best interests. While we believe that all compensation paid to our executives in 2008 was deductible, some portion of compensation paid in future years may not be deductible as a result of section 162(m).

In the event of a change in control, payments to a named executive officer may be subject to an excise tax, and may not be deductible by us, under sections 280G and 4999 of the Code. The employment agreements require that we make additional payments to the named executive officers to reimburse them for excise tax imposed by section 4999 of the Code, as well as other taxes in respect of the additional payments. The employment agreements were implemented to motivate the named executive officers to increase stockholder value while remaining employed by us. We believe that these incentives would be frustrated by the possible imposition of significant excise taxes on the named executive officers, and we did not wish to have the provisions of the named executive officers’ agreements serve as a disincentive to their pursuit of a change in control that might otherwise be in our best interests and those of our stockholders. Accordingly, we decided to provide a payment to reimburse the executives for excise taxes payable in connection with change in control payments, as well as any taxes that accrue as a result of our reimbursement. See the table entitled “Potential Payments Upon Termination or Change in Control” on page 43.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE

Oliver S. Fetzer, Ph.D., Chairman

Philippe O. Chambon, M.D., Ph.D.

Rolf A. Classon

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Compensation of Executive Officers

Summary Compensation Table

The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal years ended December 31, 2006, December 31, 2007 and December 31, 2008.

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Grants of Plan-Based Awards

The table below sets forth certain information with respect to non-equity incentive plan awards, stock awards and option granted during the fiscal year ended December 31, 2008 to each of our named executive officers listed in the Summary Compensation Table above.

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Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding outstanding stock options and restricted stock held by the named executive officers at December 31, 2008.