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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, 2010

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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 3, 2010

The 2010 Annual Meeting of Stockholders (the “Meeting”) of Auxilium Pharmaceuticals, Inc., a Delaware corporation (the “Company”), will be held at its offices at 40 Valley Stream Parkway, Malvern, Pennsylvania 19355 on Thursday, June 3, 2010, 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 5, 2010 (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 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, 2010

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE MEETING TO BE HELD ON JUNE 3, 2010

The Notice of Annual Meeting of Stockholders, Proxy Statement and 2009 Annual Report to Stockholders 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 3, 2010

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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 2010 Annual Meeting of Stockholders to be held on Thursday, June 3, 2010, (the “Meeting”) at its offices at 40 Valley Stream Parkway, 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 5, 2010 (the “Record Date”) for the first time on or about April 30, 2010. In this mailing, we are also including our Annual Report to Stockholders (“2009 Annual Report”) for the fiscal year ended December 31, 2009 (“Fiscal 2009”). In addition, we have provided brokers, dealers, banks, voting trustees and their nominees, at our expense, with additional copies of our proxy materials and 2009 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 Thursday, June 3, 2010.

Where is the Meeting?

The Meeting will be held at our offices at 40 Valley Stream Parkway, 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. All stockholders must check in at the registration desk at the Meeting.

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

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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 47,320,599 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 5, 2010, 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 3, 2010 (Proxy Cards received on or after June 3, 2010 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.

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.

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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. 2006 Employee Stock Purchase 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 Plan to increase the number of shares of Company common stock authorized for issuance under the Plan by 500,000 shares from 300,000 to 800,000 shares, 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 Fiscal 2010, 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

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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 ratification of auditors. Non-routine matters include matters such as the election of directors and the approval of, and amendments to, stock plans. Due to a change in New York Stock Exchange rules applicable to stockholder meetings held on or after January 1, 2010, an uncontested election of directors is no longer considered a routine matter and therefore brokers will no longer be entitled to exercise discretion to vote shares in an uncontested election of directors if the stockholder does not give voting instructions. 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 2009 Annual Report to Stockholders 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. With the exception of Dr. Paul A. Friedman, each of these nominees is currently a member of the Board. 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, and the key experience, attributes and qualifications of each director nominee are 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 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. With over 40 years in the pharmaceutical industry, Mr. Classon brings valuable insights into all facets of our business. In addition, as a result of Mr. Classon’s years of board experience for numerous companies, he brings valuable knowledge of corporate governance and provides valuable oversight.

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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 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. and serves as a director of Signum Biosciences, Inc. and Quinnova Pharmaceuticals, 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. Mr. Altomari brings valuable sales and marketing, business development, product launch, financial and general management experience to the Board from his more than 25 years in the pharmaceutical industry.

Armando Anido has served as one of our directors since July 2006 and as our 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. Mr. Anido provides valuable commercial, operations and management experience to the Board from his more than 25 years in the pharmaceutical industry.

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. Through his many years of experience as a chief financial officer and in numerous other financial positions, Mr. Bescherer brings financial and oversight experience to the Board.

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 47. 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 Chairman of the Board 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. Through his years in the pharmaceutical and consulting industries as well as through his venture capital experience, Dr. Chambon brings valuable experience in strategic product development, operations, oversight and corporate governance to the Board as well as insight into the capital markets.

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

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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. Through his years of experience as an executive in the pharmaceutical industry, Dr. Fetzer brings valuable strategy and corporate development, drug discovery and development, medical affairs and project management experience to the Board.

Paul A. Friedman, M.D. is a nominee to our Board. Dr. Friedman has served as Chief Executive Officer and a director of Incyte Corporation since 2001. From 1994 to 1998, Dr. Friedman served as President of Research & Development for the DuPontMerck Pharmaceutical Company; and from 1998 to 2001 as President of DuPont Pharmaceuticals Research Laboratories, a wholly owned subsidiary of the DuPont Company. From 1991 to 1994, he served as Senior Vice President at Merck Research Laboratories. Prior to his tenures at Merck and DuPont, Dr. Friedman was an Associate Professor of Medicine and Pharmacology at Harvard Medical School. Dr. Friedman is a diplomat of the American Board of Internal Medicine and a member of the American Society of Clinical Investigation. Dr. Friedman was a director of Bausch & Lomb Incorporated from June 2004 until its acquisition in October 2007 and a director of Sirtris Pharmaceuticals, Inc. from March 2008 until its acquisition in June 2008. He received his A.B. in Biology from Princeton University and his M.D. from Harvard Medical School. If elected, Dr. Friedman’s more than 20 years of experience in the pharmaceutical industry would bring management and research and development expertise to the Board. In addition, his experience as a director of other publicly held life sciences and healthcare companies would bring further oversight and corporate governance experience to the Board.

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. 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. With over 35 years in the pharmaceutical industry, Dr. Fuchs brings valuable manufacturing, development and operations experience to the Board.

William T. McKee has served as one of our directors since March 2009. Until March 2010, Mr. McKee served as 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. Through his years of experience as a chief financial officer and a public accountant, Mr. McKee provides valuable financial and leadership experience to the Board.

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

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Proposal 2: Approval of the amendment and restatement of the Auxilium Pharmaceuticals, Inc. 2006 Employee Stock Purchase Plan

Our Board of Directors amended and restated the Plan on April 18, 2010, and is submitting the amended and restated Plan to our stockholders for approval. The purpose for the amendment and restatement of the Plan and the request for stockholder approval at this time is to increase the number of shares of Common Stock reserved for issuance under the Plan from 300,000 shares to 800,000 shares.

A summary of the material features of the Plan is set forth below. This summary is qualified in its entirety by reference to the complete text of the Plan, which is attached as Appendix A to this Proxy Statement.

Material Terms of the Plan

General. The Plan provides for eligible employees to designate in advance of specified offering periods a percentage of compensation to be withheld from their pay and applied toward the purchase of shares of our common stock. The Plan was originally adopted by the Board of Directors effective July 1, 2006 and approved by our stockholders on June 6, 2006. The Plan was amended in October 2006 to make the anti-dilution adjustment provision mandatory and in July 2007 to provide for automatic enrollment from one offering period to a subsequent offering period for any participant who remains an eligible employee on the start state of such subsequent offering period. The amended and restated Plan was adopted by the Board of Directors on April 18, 2010, subject to stockholder approval at the Annual Meeting.

Administration. The Plan is administered by the Compensation Committee, or any other committee appointed by the Board for such purpose. All references to the Plan Administrator herein will be deemed to refer to the Compensation Committee or such other committee appointed by the Board of Directors to administer the Plan. The Plan Administrator has the authority to make, adopt, interpret and enforce rules and regulations in accordance with the terms of Plan.

Shares Available for Issuance Under the Plan. The number of shares of our common stock reserved for issuance under the Plan will be limited to 800,000 shares, including the 500,000 share increase subject to stockholder approval pursuant to this Proposal 2. The shares issuable under Plan may be made available from authorized but unissued shares of our common stock or from shares of common stock repurchased by us, including shares repurchased on the open market.

Adjustments. In connection with stock splits, stock dividends, spinoffs, recapitalizations and other designated events affecting our common stock, the Plan Administrator will make adjustments as it deems appropriate to the maximum number and class of securities issuable under the Plan, the maximum number and class of securities purchasable per participant on any purchase date, the maximum number and class of securities purchasable in total by all participants on any purchase date, and the number and class of securities and the price per share in effect under each outstanding option, in order to prevent the dilution or enlargement of benefits thereunder.

Eligibility. Each of our employees and employees of our subsidiaries participating in the Plan who are regularly expected to work more than 20 hours per week and for more than five months per calendar year will be eligible to participate in Plan. Under the requirements of the Internal Revenue Code, an employee who owns 5% or more of the total combined voting power of all classes of our stock is not eligible to participate in the Plan. For purposes of determining who is a 5% owner, attribution of ownership rules apply, and shares of stock subject to outstanding options are taken into account. As of April 5, 2010, approximately 435 employees, including six executive officers, were eligible to participate in the Plan.

Offering Period. Under the Plan, there will be a series of consecutive offering periods. Unless the Plan Administrator determines otherwise prior to the beginning of an offering period, each offering period will begin

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at six-month intervals on each January 1 and July 1 and last for six months, ending on June 30 or December 31, as the case may be. If any of the designated dates is not a business day, such date will be moved to the next business day.

Participation. Each eligible employee who elects to participate in an offering period will be granted an option to purchase shares of Company common stock on the first day of the offering period. The option will automatically be exercised on the last day of the offering period, which is the purchase date, based on the employee’s accumulated contributions to the Plan. The purchase price of each share of our common stock under the Plan will be equal to 85% of the lesser of the fair market value per share of our common stock on the first day of the offering period or the fair market value per share of our common stock on the last day of the offering period. As of April 5, 2010, the fair market value per share of our common stock was $33.93.

Participants will generally be permitted to allocate up to 10% of their compensation to purchase shares of our common stock under the Plan.

Maximum Number of Purchasable Shares. The maximum number of shares of common stock that a participant may purchase on any purchase date may not exceed 15,000 shares, and the maximum number of shares purchasable in the aggregate by all participants in the Plan on any one purchase date may not exceed 150,000 shares, subject to adjustment by the Plan Administrator prior to the beginning of the offering period and subject to share adjustments as described above. In addition, no participant may purchase more than $25,000 worth of our common stock under the Plan during each calendar year.

Cessation of Participation. Participants may stop their participation in the Plan at any time during any offering period. Participation ends automatically upon termination of employment or if the participant ceases to be an eligible employee.

Stockholder Rights. No participant will have any stockholder rights with respect to the shares covered by his or her outstanding options until the shares are actually purchased on the participant’s behalf and the participant has become a holder of record of the purchased shares. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.

Assignability. No options will be assignable or transferable by the participant, and the options will be exercisable only by the participant.

Change of Control. If we experience a change of control while the Plan is in effect, all outstanding options under the Plan will automatically be exercised immediately prior to the effective date of the change of control. The purchase price for each share of common stock under the Plan on such purchase date will be equal to 85% of the lesser of the fair market value per share of common stock on the first day of the offering period or the fair market value of our stock immediately prior to the change of control. If a change of control occurs, the limitation on the aggregate number of shares that all participants may purchase on the purchase date will not apply.

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

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Amendment. The Board may amend or terminate the Plan at any time, with such amendment or termination to become effective immediately following the close of the existing offering period. The Board may amend or terminate the Plan immediately at any time if the Board deems such amendment or termination is appropriate to reduce or eliminate compensation expense for financial reporting purposes in connection with the Plan. The Board of Directors may not amend the Plan without stockholder approval if such amendment increases the number of shares of common stock issuable under the Plan (except for permissible adjustments in the event of changes in our capitalization), alters the purchase price formula to reduce the purchase price payable for shares purchasable under Plan, or modifies the eligibility requirements under the Plan.

Termination. Unless sooner terminated by the Board, the Plan will terminate upon the earliest of (i) June 30, 2016, (ii) the date all shares available for issuance under the plan have been issued; or (iii) the date all options are exercised in connection with a change in control.

Plan Purchases

The following table sets forth the number of shares of our common stock purchased under the Plan from January 1, 2009 through December 31, 2009 and the weighted average purchase price paid per share, for each of our named executive officers, current executive officers as a group and all employees as a group, excluding executive officers, who elected to participate in the Plan during 2009. The members of the Company’s Board that were not also employees of the Company were not eligible to participate in the Plan.

New Plan Benefits

No options will be granted on the basis of the increase to the share reserve of the Plan unless our stockholders approve the amended and restated Plan at the Annual Meeting.

Federal Income Tax Consequences

The following generally summarizes the United States federal income tax consequences that will arise with respect to participation in the Plan and with respect to the sale of common stock acquired under the Plan. This summary is based on the tax laws in effect as of the date of this Proxy Statement. Changes to these laws could alter the tax consequences described below.

The Plan is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. Under a plan which so qualifies, no taxable income will be recognized by a participant, and no deductions will be allowable to us, upon either the grant or the exercise of the options. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the Plan or in the event the participant should die while still owning the purchased shares.

If the participant sells or otherwise disposes of the purchased shares within two years after the start date of the offering period in which such shares were acquired or within one year after the purchase date of those shares,

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then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price paid for those shares, and we will generally be entitled to an income tax deduction, for the taxable year in which such sale or disposition occurs, equal in amount to such excess.

If the participant sells or disposes of the purchased shares more than two years after the start date of the offering period in which the shares were acquired and more than one year after the purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the sale or disposition date exceeded the purchase price paid for those shares or (ii) fifteen percent (15%) of the fair market value of the shares on the start date of that offering period, and any additional gain upon the disposition will be taxed as a long-term capital gain. We will not be entitled to an income tax deduction with respect to such sale or disposition.

If the participant still owns the purchased shares at the time of death, the lesser of (i) the amount by which the fair market value of the shares on the date of death exceeds the purchase price or (ii) fifteen percent (15%) of the fair market value of the shares on the start date of the offering period in which those shares were acquired.

Accounting Treatment

The grant date fair value of each option granted will be charged as a direct compensation expense to our reported earnings over the offering period to which that option pertains. The grant-date fair value of each such option will be determined in accordance with an appropriate Black-Scholes option valuation formula that satisfies the standards of FASB Accounting Standards Codification Topic 718.

THE BOARD BELIEVES THAT THE AMENDMENT AND RESTATEMENT OF OUR 2006 EMPLOYEE STOCK PURCHASE PLAN IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF OUR 2006 EMPLOYEE STOCK PURCHASE PLAN.

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 2010. 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 2010. 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.

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 3 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.

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THE BOARD BELIEVES THAT THE AUDIT COMMITTEE’S SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2010 IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, THE BOARD 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 2009 and for the fiscal year ended December 31, 2008 (“Fiscal 2008”) were $556,500 and $548,005, respectively. These amounts consist of fees paid for professional services rendered with respect to the audit of our consolidated financial statements for Fiscal 2009 and 2008, 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”). In addition, “All Other Fees” paid to PricewaterhouseCoopers LLP during Fiscal 2009 and 2008 amounted to $425,613 and $-0-, respectively, and principally represented advisory and internal control services related to the implementation of a Learning Management System.

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 2009 and Fiscal 2008.

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.

Deadline for Submission of Stockholder Proposals for the 2011 Annual Meeting of Stockholders

Proposals of stockholders intended to be presented at the 2011 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, 2010 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 bylaws 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

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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 3, 2011 and no later than March 5, 2011, assuming that the 2011 Annual Meeting of Stockholders is to be held between May 13, 2011 and August 2, 2011, as we currently anticipate. In the event that the 2011 Annual Meeting of Stockholders is not held between May 13, 2011 and August 2, 2011, notice of stockholder nominees or proposals must be received no earlier than 120 days before the date of the 2011 Annual Meeting of Stockholders and no later than 90 days before the date of the 2011 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.

Proposals and notices mailed should be addressed to Jennifer Evans Stacey, Esq., Secretary, Auxilium Pharmaceuticals, Inc., 40 Valley Stream Parkway, Malvern, PA 19355.

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CORPORATE GOVERNANCE

Code of Conduct

We have adopted a Code of Conduct that applies to all of 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 seven meetings during Fiscal 2009. 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. Eight out of nine of our directors attended the 2009 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 10 meetings during Fiscal 2009.

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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. The Audit Committee held 10 meetings during Fiscal 2009.

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. Our Nominating and Corporate Governance Committee held three meetings during Fiscal 2009.

Board Leadership Structure

Auxilium has a board leadership structure under which the roles of Chairman of the Board and Chief Executive Officer are separate. The Board believes that it is prudent governance to separate these two functions so that the Chairman of the Board can serve as a check and balance to the Chief Executive Officer and so that the Board can exercise a strong, independent oversight function.

Our Board is comprised of eight independent directors and one management director, who also is our Chief Executive Officer and President. All of our independent directors are highly accomplished and experienced

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business people in their respective fields, who have demonstrated leadership and are familiar with board processes. For additional information about the backgrounds and qualifications of our directors, see Proposal 1: Election of Directors in this Proxy Statement.

Our Board has three standing committees—Audit, Compensation, and Nominating and Corporate Governance. All of the committees are comprised solely of independent directors and have a separate, independent chair. The chair of each of these committees is responsible for directing the work of the committee in fulfilling its responsibilities, see “Committees and Meetings of our Board of Directors” in this Proxy Statement.

The Board’s Role in Risk Oversight

The Board has primary responsibility for overseeing the Company’s risk management and administers its oversight responsibility for risk management directly and through its Committees, as follows:

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. While we do not have a formal policy regarding the consideration of diversity in identifying director candidates, the Nominating and Corporate Governance Committee also considers how the candidate can contribute to the Board in a way that can enhance perspective and experiences through diversity in gender, ethnic background, geographic origin, and professional experience (public, private and non-profit sectors). We believe that the backgrounds and qualifications of our directors as a whole should collectively represent 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 2011 Annual Meeting of Stockholders” beginning on page 13.

Communicating with our Directors

Our Board 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.

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), as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. 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, 2009, 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, 2010

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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 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 Dr. Friedman, a nominee to our Board, and each of our current 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 2009. Directors who are employees of the Company receive no compensation for their services as directors or as members of Board Committees.

2009 Director Compensation

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Effective July 1, 2009, pursuant to a plan approved by our Board, each of the non-employee members of the Board (Mr. Classon, Mr. Altomari, Mr. Bescherer, Dr. Chambon, Dr. Fetzer, Dr. Fuchs, Dr. Langer and Mr. McKee), received an annual retainer of $40,000 for all services rendered as directors. The Chairman of the Board, Mr. Classon, received an additional retainer in the amount of $35,000, for a total annual retainer of $75,000. The retainer amount was paid in quarterly installments over the calendar year as of the last day of each calendar quarter beginning with September 30, 2009. Additionally, each non-employee director serving as a chairperson or a member of the Audit and Compliance Committee, the Compensation Committee, the Nominating and Corporate Governance Committee or any Special Ad Hoc Committee after July 1, 2009 received additional cash compensation as follows:

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Effective July 1, 2009, pursuant to a plan adopted by our Board (the “Non-employee Director Compensation Plan”), each non-employee director will be required to hold 75% of all vested stock options granted to each non-employee director in his or her capacity as one of our directors until he or she ceases to be a director, including any shares of common stock resulting from the exercise of such options, net of shares withheld to satisfy tax obligations with respect to such exercise to the extent permitted under the Company’s 2004 Equity Compensation Plan. The Board has the discretion to make exceptions to this holding requirement in the event of financial hardship or other unique circumstances. See footnote 1 to the Director Compensation Table above for further details regarding the Non-employee Director Compensation Plan.

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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 2009 and explains how the Compensation Committee of our Board of Directors (the “Compensation Committee”) made its compensation decisions for our named executive officers for 2009. 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 in 2009, 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. Dr. Mattila’s employment terminated effective March 29, 2010.

Executive Summary

In 2009, the Company met, and in the case of objectives related to Testim^® and XIAFLEX^® exceeded, its corporate goals established in the beginning of 2009, 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 2009, which exceeded the goal set in early 2009. In addition, the Company continued to protect the Testim franchise through its ongoing infringement lawsuit against Upsher-Smith Laboratories, Inc. (“Upsher-Smith”) and by filing a Citizen’s Petition with the U.S. Food and Drug Administration (“FDA”) related to the Abbreviated New Drug Application filed by Upsher-Smith for a generic to Testim. The Company achieved the objectives it set in early 2009 regarding the development of XIAFLEX for Dupuytren’s contracture and Peyronie’s disease. The Company submitted the biologics license application (“BLA”) for XIAFLEX for Dupuytren’s contracture to FDA ahead of schedule in February 2009, which was accepted by FDA and granted priority review. The Company also released top line data from the phase IIb study of XIAFLEX in Peyronie’s disease. The Company also met its goals related to net loss and pre-launch preparedness for XIAFLEX. For these achievements, payouts were made under the 2009 Bonus Plan based on a Corporate Achievement Factor of 135%. With respect to 2010 salaries, the Compensation Committee adjusted Mr. Anido’s base salary by 5.1% in consideration of the comparative peer

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group data to recognize his strong performance and contributions to the Company’s overall success in 2009. For all other named executive officers the Compensation Committee approved 3.5% merit increases.

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.

Risk Considerations

Our Compensation Committee has discussed the concept of risk as it relates to our compensation program and the Compensation Committee does not believe our compensation program encourages excessive or inappropriate risk taking for the following reasons:

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

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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 2008, Radford, a division of AON the independent compensation consulting firm retained by the Compensation Committee, updated the list of peer group companies in light of industry consolidations and changes in the Company’s projected financial profile so that Radford could provide a report on executive compensation using the updated peer group list in preparation of the Compensation Committee’s February 2009 meeting at which decisions would be made regarding salary increases, bonus awards and long-term incentive awards for 2008 performance. The Compensation Committee’s decisions made at the February 2009 meeting regarding salary increases are discussed below in “Salary.”

In order to update the list of peer companies, Radford 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 Radford conducted its research.

Then, Radford qualitatively evaluated and refined the comparator pool to identify each company’s developmental stage, leading product focus and business strategy. Radford 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. Radford examined Auxilium’s historical peer group and peer companies identified by Auxilium management and the Compensation Committee. Radford ultimately selected companies with “best fit” similarities to Auxilium in terms of financial profile, stage of development and product focus.

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

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In late 2009, Radford updated the list of peer group companies in light of industry consolidations and changes in the Company’s projected headcount, financial profile and business focus. In order to update the list of peer companies, Radford 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 Radford conducted its research:

Then, Radford qualitatively evaluated and refined the broad-spectrum comparator pool to identify each company’s stage of development and business focus. Radford 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. Radford examined Auxilium’s historical peer group and peer companies identified by Auxilium management and the Compensation Committee. Radford ultimately selected commercial companies that are most similar to Auxilium with regard to financial profile, number of employees and product focus / business strategy.

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

This updated group of peer companies was used by Radford 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 28, 2010 and discussed below under “Short-Term Incentive Awards” and “Long-Term Incentive Awards” below.

In addition, in both late 2008 and 2009, Radford supplemented peer group data with broader life science market data using the Radford Global Life Sciences Survey for 2008 and 2009 with cuts of peer group data and cuts of data based upon headcount (200 to 600 for 2008 and 250 to 800 for 2009) to further ensure comprehensive and competitive market data was evaluated. Where possible, Radford blended peer proxy data and Radford survey data equally. Where peer proxy data was unavailable, Radford blended the survey peer group cut with the survey employee size cut.

In addition to peer group data, the Compensation Committee periodically reviews “tally sheets” for each executive officer in order to analyze the total opportunity for wealth accumulation that is available to each of our

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executive officers as supplemental data to the Radford report. 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:

Our Human Resources Department works with the 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 compensation 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.

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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. 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 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 2009, the Compensation Committee placed a heavy emphasis on the compensation packages provided by our peer companies 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 to attract and retain talented executives. Similarly, we believe that positioning short-term and long-term incentives at or 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 compensation consultant, in setting base salaries and determining whether an increase is warranted, the Compensation Committee also gives consideration to:

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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 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 2009 by the percentages indicated in the chart below.

The Compensation Committee was mindful of the macroeconomic climate with respect to 2009 base salaries and while the general employee population could receive a 4.0% merit increase subject to annual performance reviews, the Compensation Committee decided to limit salary increases for the named executive officers to 3.5%.

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. Our annual corporate goals are established by our Board.

To determine bonuses for performance in fiscal 2009, 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, 2009 although they are paid in the first quarter of 2010.

In February 2009, the Compensation Committee approved the 2009 Bonus Plan (in which all employees are eligible to participate). The plan was intended to motivate employees to achieve business goals in 2009, 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 2009 less any bonus paid in 2009 (“2009 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

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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 given his overall responsibility for the organization, 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 2009 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 2009 Bonus Plan was based on the following weighted metrics, reflecting financial and operational objectives approved by our Board and designed to yield increased stockholder value:

In early 2010, the Compensation Committee assessed the performance of the Company against these metrics and determined that awards under the 2009 Bonus Plan should be paid out using a 135% Corporate Achievement Factor for the reasons discussed in the “Executive Summary” above. The 2009 Bonus Plan was established in February 2009 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 2009, the Compensation Committee, at its February 28, 2010 meeting, reviewed and considered:

The Functional Achievement Factor for each named executive officer under the 2009 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 2009. These functional objectives are intended to align with the financial and operational objectives set forth in the 2009 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 2009 Bonus Plan should be paid out using a 112.5% Functional Achievement Factor for Mr. Fickenscher, and a 150% Functional Achievement Factor for both Ms. Stacey and for Mr. Graham. At its meeting on February 28, 2010, the Compensation Committee awarded the following bonus awards for performance in 2009:

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At its meeting on February 28, 2010, the Compensation Committee elected to increase Mr. Anido’s target cash bonus for 2010 from 75% to 80% of his base earnings in 2010 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 and performance-based restricted stock and awarded based upon achieving corporate 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.

To determine long-term incentive awards for performance in fiscal 2009, 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 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 and restricted stock is dependent on the market performance of our common stock following the date of grant. The decision as to whether to grant options and restricted stock 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, or if there were no trades on that date, the latest preceding date upon which a sale was reported. 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 to executive officers generally vest at a rate of 25% per year over the first four years of the ten-year option term and provide for full vesting upon a change of control of the Company. 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.

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 such forfeiture provisions lapse. Further, restricted stock subject to performance-based restricted stock awards does 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 or a change of control of the Company. 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. 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 for our executive officers.

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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 2009 the Compensation Committee considered:

At its meeting on February 28, 2010, the Compensation Committee approved the following “standard” nonqualified stock option awards to the Company’s named executive officers (“2010 Stock Option Awards”):

At its meeting on February 28, 2010, the Compensation Committee determined that the performance goal for the 2009 performance-based restricted stock awards for our named executive officers had been met. The performance goal had been established by the Compensation Committee at its February 2008 meeting. Based on the distribution of XIAFLEX for Dupuytren’s contracture into the U.S. sales channels as demonstrated by the first invoice for XIAFLEX issued by the Company to a distributor on or before September 1, 2010, Mr. Anido’s award represented 24,108 shares and the award for each of the other named executive officers represented 9,378 shares, subject to vesting.

In addition, also at its meeting on February 28, 2010, the Compensation Committee approved performance-based restricted stock awards for our named executive officers. The shares of restricted stock subject to such awards will accrue (subject to vesting) based on U.S. net sales of XIAFLEX in the year ending December 31, 2010. Mr. Anido would receive 6,000 to 33,000 shares and the other named executive officers 2,000 to 11,000 shares, as determined by the Compensation Committee in its sole discretion, based on the year-end 2010 U.S. net sales of XIAFLEX.

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The performance goal is based on the 2010 budget approved by our Board. Upon achievement of the budgeted 2010 U.S. net sales of XIAFLEX as determined by the Compensation Committee at its meeting expected to be held in the first quarter of 2011, the amount of the award would be approved, subject to vesting. The Company’s ability to achieve the target is difficult to predict, since XIAFLEX is the first non-surgical treatment approved for the treatment of Dupuytren’s contracture and the product was launched in March 2010.

The restricted stock subject to the above performance-based restricted stock awards (i) vests 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) are 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 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 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 the executive resigns for “good reason” within a specified period following the consummation of such change of control. Dr. Mattila’s employment agreement also provides for the foregoing benefits in the event of termination for disability following the consummation of a change in 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 officers’ employment without cause, or if the named executive officer terminates employment for “good reason” upon or within one year after a change in control for Mr. Anido and Mr. Graham or two years after a change in control for Mr. Fickenscher, Dr. Mattila, and Ms. Stacey. Dr. Mattila’s employment agreement also provides for the foregoing benefits in the event of termination for disability following the consummation of a change in control. 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 below for detailed descriptions of the provisions in

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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, 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 Mr. Graham, severance equal to nine months of base salary plus bonus, and in the case of Mr. Anido, 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. Dr. Mattila’s employment agreement also provides for the foregoing benefits in the event of termination for disability. 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 Mr. Fickenscher, Dr. Mattila and Mr. Graham 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:

The employment agreements also provide for payments and other benefits if we terminate the named executive officers’ employment without cause, or if the named executive officer terminates employment for “good reason” upon or within one year after a change in control for Mr. Anido and Mr. Graham or two years after a change in control for Mr. Fickenscher, Dr. Mattila and Ms. Stacey. Dr. Mattila’s employment agreement also provides for the foregoing benefits in the event of termination for disability following the consummation of a change in control. 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 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

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regarding the excise tax reimbursement. See the table entitled “Potential Payments Upon Termination or Change in Control” on page 45.

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:

On March 3, 2010, we announced that the employment of Dr. Jyrki Mattila, the Company’s Executive Vice President, Business Development, Product Development and Technical Operations, would terminate on March 29, 2010 (the “Termination Date”). On March 18, 2010, the Company entered into an Agreement and Release (the “Mattila Agreement”) with Dr. Mattila. In accordance with the terms and conditions of the Mattila Agreement, Dr. Mattila will receive:

In addition, Dr. Mattila has the right to exercise any outstanding stock options that were vested as of the Termination Date until September 30, 2010. Any options and restricted stock held by Dr. Mattila that were not vested as of the Termination Date were forfeited, except for 9,375 of the 11,250 options scheduled to vest on June 6, 2010 pursuant to the terms of that certain non-qualified stock option awarded to Dr. Mattila on June 6, 2006, which shall vest on June 6, 2010, and the remaining options were cancelled. Dr. Mattila shall have the right to exercise such 9,375 options until September 30, 2010.

In consideration for the severance payments and other benefits described above, Dr. Mattila has waived and released any and all claims against the Company.

Dr. Mattila remains bound by the non-competition, confidentiality, development assignment and non-solicitation covenants contained in his Amended and Restated Employment Agreement, dated as of December 18, 2008.

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

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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 be deductible if we believe it is in our best interests. While we believe that all compensation paid to our executives in 2009 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 45.

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, 2009, December 31, 2008 and December 31, 2007.

On February 28, 2010, the Compensation Committee awarded 24,108 performance based restricted stock to Mr. Anido and 9,378 shares of performance based restricted stock to each of Mr. Fickenscher, Dr. Mattila, Ms. Stacey and Mr. Graham, based on its evaluation of the actual achievement of the performance criteria. Of the shares granted to Dr. Mattila, 66 ²/3% was subsequently forfeited upon Dr. Mattila’s separation from the Company in March 2010.

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In addition to the benefits described above, each of our named executive officers is covered under the Company’s travel accident insurance policy. Since the travel accident insurance policy covers all of the Company’s employees at varying levels, there is no calculable incremental cost to the Company for the additional coverage extended to each of the named executive officers.

Grants of Plan-Based Awards

The table below sets forth certain information with respect to non-equity incentive plan awards, stock awards and options granted during the fiscal year ended December 31, 2009 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, 2009.