<PAGE>   1

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the quarterly period ended       June 30, 2001
                                        --------------------------

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the transition period from                 to
                                        ---------------    ----------------

Commission file number 0-19777

                           DUSA Pharmaceuticals, Inc.
             (Exact name of registrant as specified in its charter)

         New  Jersey                                   22-3103129
(State or other jurisdiction                        (I.R.S.  Employer
of incorporation or organization)                  Identification   No.)

                                 25 Upton Drive
                         Wilmington, Massachusetts 01887
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (978) 657-7500
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

            Yes   X                                         No


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.


             Yes                                           No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:
         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

                     13,799,890 shares as of August 9, 2001
<PAGE>   2
PART 1.
ITEM 1.  FINANCIAL STATEMENTS

DUSA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           June 30,          December 31,
                                                                             2001                2000
                                                                        (Unaudited)
   ASSETS

   CURRENT ASSETS

<S>                                                                      <C>                <C>
      Cash and cash equivalents                                          $4,386,928         $16,441,114
      U.S. government securities available for sale                      64,116,981          58,055,463
      Accrued interest receivable                                         1,055,871             990,083
      Accounts receivable                                                   222,486             914,959
      Receivable under co-development program                               824,202             722,570
      Inventory                                                           1,796,002           1,331,966
      Other current assets                                                1,383,249             562,240
                                                                        -----------         ------------
         TOTAL CURRENT ASSETS                                            73,785,719          79,018,395
      Property and equipment, net                                         2,483,566           1,699,530
      Deferred charges                                                      773,584             886,792
      Deferred royalty                                                      709,485             739,671
      Other assets                                                          281,393              98,000
                                                                        -----------         ------------
                                                                        $78,033,747         $82,442,388
                                                                        ===========         ============
   LIABILITIES AND SHAREHOLDERS' EQUITY

   CURRENT LIABILITIES

      Accounts payable                                                     $158,307            $100,500
      Accrued payroll                                                       411,640             615,873
      Other accrued expenses                                                551,051           1,138,174
      Deferred revenue                                                      751,744             509,207
      Due to licensor                                                           189             417,004
      Income taxes payable                                                       --              56,000
                                                                        -----------         ------------
         TOTAL CURRENT LIABILITIES                                        1,872,931           2,836,758
      Deferred revenue                                                   23,304,166          24,295,834
                                                                        -----------         ------------
                                                                         25,177,097          27,132,592
                                                                        -----------         ------------
   COMMITMENTS AND CONTINGENCIES (NOTE 8)

   SHAREHOLDERS' EQUITY

      Capital Stock

          Authorized: 100,000,000 shares; 40,000,000
          shares designated as common stock, no par,
          and 60,000,000 shares issuable in series
          or classes.                                                    94,965,212          94,757,532
          Issued and outstanding: 13,768,640 (2000:
           13,730,890) shares of common stock, no par.
      Additional paid-in capital                                          1,860,519           1,860,519
      Accumulated deficit                                               (45,302,744)        (42,487,349)
      Accumulated other comprehensive income                              1,333,663           1,179,094
                                                                        -----------         ------------
                                                                         52,856,650          55,309,796
                                                                        -----------         ------------
                                                                        $78,033,747         $82,442,388
                                                                        ===========         ============
</TABLE>

See the accompanying Notes to the Condensed Consolidated Financial Statements.


                                      -2-
<PAGE>   3
DUSA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               Three Months Ended June 30,        Six Months Ended June 30,
                                                                       (Unaudited)                       (Unaudited)
                                                              --------------------------------------------------------------
                                                                 2001            2000             2001             2000
                                                              -----------     -----------      -----------      -----------
REVENUES

<S>                                                        <C>             <C>              <C>              <C>
   Product sales                                              $196,718       $      --         $410,679         $     --
   Research grant and milestone revenue                        495,834              --          991,668               --
   Research revenue earned under collaborative                 824,202         167,347        1,304,367          602,504
      agreements
                                                           -----------     -----------      -----------      -----------
TOTAL REVENUES                                               1,516,754         167,347        2,706,714          602,504
                                                           -----------     -----------      -----------      -----------
OPERATING COSTS

   Cost of product sales                                       721,056              --        1,376,085               --
   Research and development                                  2,329,178       2,109,074        4,262,327        3,378,725
   General and administrative                                  961,566         440,828        1,918,186        1,230,303
                                                           -----------     -----------      -----------      -----------
TOTAL OPERATING COSTS                                        4,011,800       2,549,902        7,556,598        4,609,028
                                                           -----------     -----------      -----------      -----------
LOSS FROM OPERATIONS                                        (2,495,046)     (2,382,555)      (4,849,884)      (4,006,524)

OTHER INCOME

   Interest income                                             931,711         942,627        2,034,489        1,325,371
                                                           -----------     -----------      -----------      -----------
NET LOSS                                                   $(1,563,335)    $(1,439,928)     $(2,815,395)     $(2,681,153)
                                                           ===========     ===========      ===========      ===========
BASIC AND DILUTED NET LOSS PER                                $   (.11)       $   (.11)        $   (.20)        $   (.21)
         COMMON SHARE
                                                           ===========     ===========      ===========      ===========
WEIGHTED AVERAGE NUMBER OF                                  13,767,959      13,556,659       13,757,528       12,860,362
         COMMON SHARES OUTSTANDING
                                                           ===========     ===========      ===========      ===========
</TABLE>


See the accompanying Notes to the Condensed Consolidated Financial Statements.


                                      -3-
<PAGE>   4
DUSA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     Six Months Ended June 30,
                                                                                           (Unaudited)
                                                                                   ------------------------------
                                                                                      2001            2000
                                                                                    -----------     -----------
OPERATING ACTIVITIES:

<S>                                                                                <C>             <C>
   Net loss                                                                        $(2,815,395)    $(2,681,153)
   Adjustments to reconcile net loss to net cash used in operating
     activities

   Amortization of premiums and accretion of discounts on U.S. government             (192,576)       (129,677)
     securities available for sale, net
   Depreciation and amortization expense                                                416,558         105,231
   Amortization of deferred revenue                                                   (991,668)              --
   Changes in other assets and liabilities impacting cash flows from
     operations:
     Accounts receivable                                                                692,473              --
     Receivable under co-development program                                          (101,632)       (602,504)
     Inventory                                                                        (464,036)       (315,935)
     Accrued interest receivable                                                       (65,788)       (419,828)
     Other current assets                                                             (821,009)        (26,991)
     Accounts payable                                                                    57,807          45,949
     Accrued payroll and other accrued expenses                                       (791,356)         171,022
     Due to licensor                                                                  (416,815)       (370,000)
     Income taxes payable                                                              (56,000)        (90,000)
     Deferred revenue                                                                   242,537              --
                                                                                    -----------     -----------
NET CASH USED IN OPERATING ACTIVITIES                                               (5,306,900)     (4,313,886)
                                                                                    -----------     -----------
INVESTING ACTIVITIES:

   Purchases of U.S. government securities                                         (18,232,131)    (30,301,271)
   Proceeds from maturing U.S. government securities                                 12,517,758       7,100,000
   Payment to restructure supplier contract                                                  --       (250,000)
   Purchases of property and equipment                                              (1,057,200)       (782,434)
   Deposits on equipment                                                              (183,393)          27,631
                                                                                    -----------     -----------
NET CASH USED IN INVESTING ACTIVITIES                                               (6,954,966)    (24,206,074)
                                                                                    -----------     -----------
FINANCING ACTIVITIES:

     Issuance of common stock and underwriters' options, net of offering                     --      40,699,624
      costs of $94,274
     Proceeds from exercise of options and warrants                                     207,680         861,002
                                                                                    ------------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                               207,680      41,560,626
                                                                                    ------------    -----------
NET INCREASE (DECREASE) IN CASH                                                    (12,054,186)      13,040,666
                                                                                    ------------    -----------
CASH AT BEGINNING OF PERIOD                                                          16,441,114       7,028,618
                                                                                    ------------    -----------
CASH AT END OF PERIOD                                                                $4,386,928     $20,069,284
                                                                                    ===========     ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

     Income tax payments                                                               $160,700
                                                                                    ===========

</TABLE>

See the accompanying Notes to the Condensed Consolidated Financial Statements.


                                      -4-
<PAGE>   5
DUSA PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1)   BASIS OF PRESENTATION

     The Condensed Consolidated Balance Sheet as of June 30, 2001, Condensed
     Consolidated Statements of Operations for the three and six months ended
     June 30, 2001 and 2000, and Condensed Consolidated Statements of Cash Flows
     for the six months ended June 30, 2001 and 2000 have been prepared in
     accordance with accounting principles generally accepted in the United
     States of America. These condensed financial statements are unaudited but
     include all normal recurring adjustments which the management of DUSA
     Pharmaceuticals, Inc. ("DUSA" or the "Company") believes to be necessary
     for fair presentation of the periods presented.

     Certain information and footnote disclosures normally included in financial
     statements prepared in accordance with accounting principles generally
     accepted in the United States of America have been condensed or omitted.
     These condensed financial statements should be read in conjunction with the
     Company's December 31, 2000 audited consolidated financial statements and
     notes thereto.

2)   UNITED STATES GOVERNMENT SECURITIES AVAILABLE FOR SALE

     The Company's United States government securities available for sale
     consist of securities of the United States government, and its agencies,
     with current yields ranging from 4.61% to 7.22% and maturity dates ranging
     from July 2, 2001 to May 30, 2006.

     Accumulated other comprehensive income consists of net unrealized gains or
     losses on United States government securities available for sale, which is
     reported as part of shareholders' equity in the Condensed Consolidated
     Balance Sheets.

3)   INVENTORY

     Inventory consisted of the following at June 30, 2001 and December 31,
     2000:

<TABLE>
<CAPTION>
                                                       JUNE 30, 2001         DECEMBER 31,
                                                         (UNAUDITED)                 2000
                                                       ------------          ------------
<S>                                                    <C>                   <C>
               Finished goods                             $1,607,071           $1,151,537
               Work in progress                               72,612                    -
               Raw materials                                 116,319              175,344
               Purchased parts and subassemblies                  --                5,085
                                                       -------------         ------------
                                                          $1,796,002           $1,331,966
                                                       =============         ============
</TABLE>


                                      -5-
<PAGE>   6
4)   OTHER CURRENT ASSETS

     Other current assets consisted of the following at June 30, 2001 and
     December 31, 2000:

<TABLE>
<CAPTION>
                                                                  JUNE 30, 2001         DECEMBER 31,
                                                                    (UNAUDITED)                 2000
                                                                  -------------         ------------
<S>                                                               <C>                   <C>
                Prepaid expenses and deposits                          $808,926             $293,069
                Commercial light sources under lease                    504,340              261,923
                Other current assets                                     69,983                7,248
                                                                  -------------         ------------
                                                                     $1,383,249             $562,240
                                                                  =============         ============
</TABLE>

5)   DEFERRED REVENUE

     Deferred revenue associated with the Company's milestone payments,
     unrestricted research grants, and the sale of commercial light sources,
     sold primarily through a third-party leasing company, consisted of the
     following at June 30, 2001 and December 31, 2000:

<TABLE>
<CAPTION>
                                                                   JUNE 30, 2001         DECEMBER 31,
                                                                     (UNAUDITED)                 2000
                                                                   -------------         ------------
<S>                                                                <C>                   <C>
                Milestone and unrestricted grant payments            $23,304,166          $24,295,834
                Sale of commercial light sources                         751,744              509,207
                                                                   -------------         ------------
                                                                     $24,055,910          $24,805,041
                                                                   =============         ============
</TABLE>

6)   BASIC AND DILUTED NET LOSS PER SHARE

     Basic net loss per common share is based on the weighted average number of
     shares outstanding during each period. Stock options and warrants are not
     included in the computation of the weighted average number of shares
     outstanding for dilutive net loss per common share during the period, as
     the effect would be antidilutive. For the three and six-month periods ended
     June 30, 2001, approximately 822,000 and 879,000 stock options and warrants
     were excluded from the computation of net loss per share. For the three and
     six-month periods ended June 30, 2000, approximately 1,352,000 and
     1,438,000 stock options and warrants were excluded from the computation of
     net loss per share.


                                      -6-
<PAGE>   7
7)   COMPREHENSIVE LOSS

     For the three and six months ended June 30, 2001 and 2000, comprehensive
     loss consisted of the following:

<TABLE>
<CAPTION>
                                                        Three Months Ended June 30,       Six Months Ended June 30,
                                                                  (Unaudited)                      (Unaudited)
                                                       -----------------------------    -----------------------------
                                                           2001             2000            2001             2000
                                                       ------------     ------------    ------------     ------------

<S>                                                    <C>              <C>             <C>              <C>
       NET LOSS                                        $(1,563,335)     $(1,439,928)    $(2,815,395)     $(2,681,153)
          Net unrealized gains (losses) on United         (418,497)          116,773         154,569           67,684
             States securities available for sale
                                                       ------------     ------------    ------------     ------------
       COMPREHENSIVE LOSS                              $(1,981,832)     $(1,323,155)    $(2,660,826)     $(2,613,469)
                                                       ------------     ------------    ------------     ------------
</TABLE>

8)   COMMITMENTS AND CONTINGENCIES

     The Company has entered into a series of agreements for research projects
     and clinical studies. As of June 30, 2001, future payments to be made
     pursuant to these agreements, under certain terms and conditions, totaled
     approximately $527,000 for the remainder of 2001 and $562,000 thereafter.

     In February 2001, the Company agreed to compensate North Safety Products,
     Inc. ("North"), the manufacturer of our Kerastick(R) brand applicator, for
     certain overhead expenses associated with the manufacture of the
     Kerastick(R) to cover underutilization of North's facilities since current
     orders are below certain previously anticipated levels. For the six months
     ended June 30, 2001, approximately $401,000 of underutilization charges
     were recorded in cost of product sales based on the current production
     levels. In July 2001, the Company modified this agreement as defined in
     Footnote 9, Subsequent Event.

9)  SUBSEQUENT EVENT

    On July 27, 2001, DUSA revised its agreement with North pertaining to the
    payment of underutilization fees as current orders have been below certain
    previously anticipated levels. With the execution of this amendment, the
    Company paid North $1,000,000 in up-front underutilization fees and agreed
    to pay payments totaling $400,000 covering the period from the execution of
    this amendment to the agreement through December 31, 2002. In consideration
    for the underutilization fees, North has agreed to maintain its Kerastick(R)
    manufacturing capabilities in a state of readiness, with the capability of
    producing at least 25,000 Kerastick(R) units per month in accordance with
    established procedures. In addition, North will provide the Company with
    manufacturing records, personnel support, and a list of consultants and
    suppliers that have supported the development and manufacturing of the
    Kerastick(R). The term of the agreement ends on December 31, 2002 unless
    DUSA exercises an option to extend the term through June 30, 2003. If DUSA
    should decide to extend the term, North will be entitled to payment of


                                      -7-
<PAGE>   8
    additional underutilization fees of up to $500,000, prorated based on the
    level of Kerastick(R) units produced from July 1, 2001 through June 30,
    2003.

10) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

    On July 20, 2001, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
    and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141
    requires that the purchase method of accounting be used for all business
    combinations initiated after June 30, 2001 and that the use of the
    pooling-of-interest method is no longer allowed. SFAS No. 142 requires that
    upon adoption, amortization of goodwill will cease and instead, the carrying
    value of goodwill will be evaluated for impairment on an annual basis.
    Identifiable intangible assets will continue to be amortized over their
    useful lives and reviewed for impairment in accordance with SFAS No. 121
    "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
    Assets to be Disposed Of". SFAS No. 142 is effective for fiscal years
    beginning after December 15, 2001. The Company is evaluating the impact of
    the adoption of these standards and does not believe the effect of adoption
    of these statements will have any material effect on the Company's financial
    position or results of operation.

    On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
    Derivative Instruments and Hedging Activities", which was issued by the
    Financial Accounting Standards Board. The adoption of this statement did not
    have any effect on the Company's financial position or results of operation.


                                      -8-
<PAGE>   9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

        The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes to the Consolidated
Financial Statements for the year ended December 31, 2000 and its Condensed
Consolidated Financial Statements and Notes to the Condensed Consolidated
Financial Statements for the three and six-month periods ended June 30, 2001.
DUSA is engaged primarily in the research and development of a drug named
5-aminolevulinic acid, or ALA, used in combination with appropriate light
devices in order to detect or treat a variety of medical conditions. The
trademark for our brand of ALA is Levulan(R). When Levulan(R) is used and is
followed with exposure to light to produce a therapeutic effect, the technology
is called photodynamic therapy, or PDT. When Levulan(R) is used and followed
with exposure to light to detect medical conditions, the technology is called
photodetection, or PD. Our first products are the Levulan(R) Kerastick(R) 20%
topical solution with photodynamic therapy, for treatment of non-hyperkeratotic
actinic keratoses (AKs) of the face or scalp, in combination with our BLU-U(TM)
brand light source. From our inception in 1991 until September 2000 we were
classified as a development stage enterprise. However, in late September 2000,
we launched our first commercial products, Levulan(R) Kerastick(R) 20% Topical
Solution and the BLU-U(TM) brand light device, in the United States, in
cooperation with Berlex Laboratories, Inc. (Berlex), the United States affiliate
of Schering AG. At the end of June 2001, 190 BLU-U(TM) brand light units were in
place in physician's offices. We lease or rent the BLU-U(TM) to physicians,
medical institutions and academic centers throughout the country. Our other
dermatology and internal potential indications are at exploratory, Phase I or
Phase II stages. Our current products have now also been approved by the Health
Protection Branch - Canada. Our former Canadian affiliate, Draxis Health, Inc.,
retained the marketing rights for Canada, and we will be entitled to royalties
on its sales in that country. We will be working to establish a supply
arrangement for the Canadian market in the near future. In addition, Schering AG
has made regulatory filings for approval of our therapy outside of the United
States including the first filings in Austria, Australia, and Brazil. We are
bringing our products into compliance with CE marking and ISO 9000 requirements
in order to be ready to supply these markets upon regulatory approval which
Schering AG expects to occur next year.

        We have primarily devoted our resources to funding research and
development in order to advance the Levulan(R) PDT/PD technology platform and,
as a result, we have experienced significant operating losses. As of June 30,
2001, we had an accumulated deficit of approximately $45,303,000.

        Achieving our goal of becoming a profitable operating company is
dependent upon the market penetration by Berlex and Schering AG of our products,
acceptance of our therapy by the medical and consumer constituencies, and our
ability to meet the supply needs of our customer base. We have manufactured
sufficient inventory of Kerastick(R) units and BLU-U(TM) brand light devices to
meet Berlex's supply requirements in the United States for the balance of 2001;
however, any significant delays in delivery of sufficient product supplies from
our sole source third-party suppliers of Levulan(R), the Kerastick(R) and/or the
BLU-U(TM), in the future,


                                      -9-
<PAGE>   10
could have a significant adverse impact on our financial results. In February
2001 we leased additional space in our Wilmington, Massachusetts facilities to
provide warehouse, office space, and production areas as we are evaluating the
option of developing our own Kerastick(R) manufacturing capabilities. We are
also investigating other suppliers for components or the complete manufacture of
our products so that we could react more quickly if our supply was interrupted
for any reason. Also see discussion of relationship with North Safety Products,
Inc., below.

        We are encouraged by the early positive response from physicians and
patients who have used our therapy, but we recognize that market acceptance will
take longer than we originally anticipated, while third-party reimbursement
costs for our products are established during the coming months by insurance
companies and state and federal healthcare agencies. As reimbursement codes are
established at varying rates at both a national and/or state level, we believe
that reimbursement for our therapy will have to be competitive with other
reimbursement rates for treatment of actinic keratoses of the face and scalp, in
order for the medical community to accept our products on a large scale.

        We expect to continue to incur operating losses as we continue to invest
in our research and development programs, and until product sales increase
significantly. We have incurred scale-up and certain fixed costs resulting in
under-absorbed overhead, which are included in cost of product sales. Management
plans to maintain a program to continuously monitor the cost of product sales
with the goal of reducing our cost of product sales over time. It is with this
focus that we are gathering cost estimates associated with development of our
own manufacturing operation in our leased Wilmington, Massachusetts facilities.
The development of our own facility should enable us to better manage and
control the costs of production; however, cost of product sales may increase if
we incur capital expenditures associated with developing our own facility and if
product sales do not increase significantly. Our research and development
efforts are expanding, both in dermatology (in partnership with Schering AG),
and in our internal indication development programs. We have increased our staff
in our Wilmington, Massachusetts headquarters and in our Valhalla, New York
clinical research and development center in order to properly support all
activities relating to production, maintenance, customer support for our
products, as well as the research and development programs for dermatology and
internal indications.

        In February 2001, we agreed to compensate North Safety Products, Inc.
("North"), the manufacturer of our Kerastick(R) brand applicator, for certain
overhead expenses associated with the manufacture of the Kerastick(R) to cover
underutilization of North's facilities since current orders are below certain
previously anticipated levels. For the six months ended June 30, 2001,
approximately $401,000 of underutilization charges were recorded in cost of
product sales based on the current production levels. On July 27, 2001, we
revised this agreement and paid North $1,000,000 in up-front underutilization
fees and agreed to pay additional payments totaling $400,000 covering the period
from the execution of this amendment to the agreement through December 31, 2002.
In consideration for the underutilization fees, North has agreed to maintain its
Kerastick(R) manufacturing capabilities in a state of readiness, with the
capability of producing at least 25,000 Kerastick(R) units per month in
accordance with established procedures. In addition, North will provide us with
manufacturing records, personnel support, and a list of consultants and
suppliers that


                                      -10-
<PAGE>   11
have supported the development and manufacturing of the Kerastick(R). The term
of the agreement ends on December 31, 2002 unless DUSA exercises an option to
extend the term through June 30, 2003. If DUSA should decide to extend the term,
North will be entitled to payment of additional underutilization fees of up to
$500,000, prorated based on the level of Kerastick(R) units produced from July
1, 2001 through June 30, 2003.

RESULTS OF OPERATIONS

         REVENUES - Total revenues recognized for the three and six-month
periods ended June 30, 2001 were approximately $1,517,000 and $2,707,000, and
include product sales of $197,000 and $411,000, respectively, primarily
reflecting direct sales of the Kerastick(R) to Berlex. Based on the agreed upon
development plan and the timing of the start of the clinical trials, revenues
also include research and development revenue of approximately $824,000 and
$1,304,000 for the current three and six-month periods, reflecting revenue
earned payments from Schering AG to support our dermatology co-development
program. Under our agreement with Schering AG, two-thirds of the agreed upon
dermatology research and development expenses, up to $3,000,000 per year, are
reimbursable to DUSA by Schering AG for 2001. In early 2001, both parties agreed
upon the development program that will be subject to reimbursement for 2001. The
total budget for approved co-development, research and development projects
totals $3,954,000 so far for 2001, which will entitle us to a reimbursement from
Schering of $2,636,000, assuming the full budget is spent. Also included in
revenues for the current three and six-month periods are $496,000 and $992,000
of milestone and unrestricted grant payments, also from Schering AG, reflecting
the amortization of up front payments that have been recorded as deferred
revenue upon receipt and are recognized as income on a straight-line basis over
the term of the Company's alliance agreement with Schering AG. During the
comparative three and six-month periods in 2000, total revenues recognized were
approximately $167,000 and $603,000, respectively, reflecting reimbursement for
earned revenue payments from Schering to support our dermatology co-development
program.

        Based on Berlex's current forecast, we have met Berlex's entire 2001
Kerastick(R) supply needs as of June 30, 2001. We will earn royalties when
Berlex sells the Kerastick(R) into the marketplace; however, such royalties were
minimal during the first half of 2001 as Berlex met its distributor's initial
supply needs in the fourth quarter of 2000, and the royalties on those sales
were received in the first quarter of 2001. Since we do not control the
distribution channel of the Kerastick(R) and Berlex's forecast for the
manufacturing of Levulan(R), management is unable to predict the timing of
royalties on future Kerastick(R) sales by Berlex.

        During the current three and six-month periods, the number of BLU-U(TM)
brand light units in place in physician's offices increased by 43 and 93,
respectively to 190. We primarily lease or rent the BLU-U(TM) to our customers
and have engaged a medical device leasing company to complete the leasing and/or
rental transactions, including coordinating payment plans with the physicians.
We sell the leased BLU-U(TM)s to the leasing company, which usually pays us for
the units within thirty (30) days after installation in the physicians' offices.
However, because physicians have the right to cancel their leases after periods
of up to one year, these revenues are reported as deferred revenues until the
right to cancel the lease has expired. In the event a customer does cancel a
lease, we have agreed to repurchase the units from the leasing company at an
agreed upon price. Under this


                                      -11-
<PAGE>   12
arrangement, we will begin to recognize revenue from the distribution of
BLU-U(TM)s units in the second half of 2001.

         COST OF PRODUCT SALES - Cost of product sales for the three and
six-month periods ended June 30, 2001 were approximately $721,000 and
$1,376,000, respectively, including $157,000 and $358,000 in direct Kerastick(R)
related product costs, and $198,000 and $401,000 incurred to our Kerastick(R)
manufacturer for underutilization costs due to orders falling below certain
previously anticipated levels. During the current three and six-month periods,
cost of product sales also includes $56,000 and $113,000 in amortization of
deferred charges reflecting consideration paid by us in 2000 to amend our Supply
Agreement with Sochinaz SA, the manufacturer of the bulk drug ingredient used in
Levulan(R), as well as costs incurred for shipping and installing the BLU-U(TM)
in physicians offices. In 2001, we commenced allocating personnel to product
sale operations and/or general and administrative functions, as a significant
percentage of manufacturing development activities have been completed for our
current products. Such personnel-related costs allocated to cost of product
sales were approximately $210,000 and $386,000 for the three and six-month
periods ended June 30, 2001. There were no product sales and therefore no cost
of product sales during the comparative period in 2000. Inventory costs related
to the BLU-U(TM) units that are leased are deferred and recorded as other
current assets until the customer's right to cancel its lease after periods of
up to one year expires. As of June 30, 2001, deferred inventory costs were
approximately $504,000.

         The higher cost of product sales as compared to product sales is
primarily a result of the lower than anticipated level of Kerastick(R) sales,
and under-absorbed overhead attributed to the payment of underutilization costs
to our Kerastick(R) supplier, as noted above, and the allocation of personnel to
product sales operations. Management expects that such costs will be covered by
product revenue as the level of Kerastick(R) sales increases.

         In early 2001, in order to meet the production scheduling needs of our
third-party manufacturer of the BLU-U(TM), we prepaid raw material costs in the
amount of $400,000 associated with our current orders. This amount is being
credited against the final purchase price, which will be due on delivery of
finished units at the rate of $1,000 per completed unit. At the end of June
2001, approximately $248,000 of this prepayment remained outstanding and was
recorded in other current assets. In addition, if we do not order a certain
number of BLU-U(TM) brand units for delivery in 2002, we have agreed to pay
$100,000 to our manufacturer for certain overhead costs. We do not know at this
time whether we will be required to make this payment as we depend upon Berlex
to market our products. Accordingly, we have not recorded an accrual of this
liability at this point in time.

         Research and Development Costs. Research and development costs for the
three and six-month periods ended June 30, 2001 increased approximately $220,000
and $884,000, respectively, to $2,329,000 and $4,262,000, as compared to same
periods in 2000. These increases were attributed to higher expenditures for
dermatology and internal indications coupled with increased personnel costs
related to certain on-going development activities. During the first half of
2001, this increase was partially offset by the reassignment of personnel costs
to product sale operations and/or general and administrative functions, rather
than to research and


                                      -12-
<PAGE>   13
development costs, as a significant percentage of the development activities
were completed for our current products in 2000.

         As we implement our dermatology program with Schering AG, and expand
our internal indication programs, we expect clinical research and development
expenses to continue to increase significantly. In late 2000, we initiated a
Phase I/II clinical trial of Levulan(R) PDT for moderate to severe acne vulgaris
of the face.

         In July 2001, the United States Food and Drug Administration completed
its review of three Investigational New Drug applications allowing initiation of
clinical trials using Levulan(R) Photodynamic Therapy for the treatment of
onychomycosis (nail fungus), warts, and Barrett's esophagus. Subject to success
in these Phase I/II feasibility studies, DUSA plans to move forward with more
expensive pre-pivotal Phase II studies for such indications, starting in 2002.

         With respect to Levulan(R) PDT for brain cancer, although we also
originally intended to initiate a clinical study during 2001, we have decided to
first examine the market opportunities for various brain cancers. DUSA is also
supporting and collaborating in new investigator studies on Barrett's esophagus
and restenosis inhibition. In addition, independent investigators have reported
to DUSA that positive long-term results were achieved in a pilot study using
Levulan(R) PDT following balloon angioplasty to inhibit arterial restenosis.
Additional indications are being considered for future development including
detection and treatment of cervical dysplasia and dysfunctional uterine
bleeding. There have been no further developments regarding bladder cancer
detection, but DUSA continues to evaluate possible approaches for this
indication.

         General and Administrative Costs. General and administration costs for
the three and six-month periods ended June 30, 2001 increased approximately
$521,000 and $688,000, respectively, to $962,000 and $1,918,000, as compared to
the same periods in 2000. These increases were mainly attributed to the hiring
of additional staff, including key management personnel in administrative,
technical and operations functions, during the second half of 2000 and first
half of 2001. In addition, this increase also reflects the aforementioned
reassignment of personnel to general and administrative functions and/or product
sale operations, as a significant percentage of the manufacturing development
activities have been completed for our current products. General and
administrative costs are expected to continue to increase for the remainder of
2001 as we continue to add personnel at all levels of the organization.

         Interest Income. Interest income for the three-month period ended June
30, 2001 decreased slightly to $932,000 as compared to $943,000 for the
comparable period in 2000 and was attributed to lower interest rates and higher
broker fees, offset by higher investable cash balances. During the six-month
period ended June 30, 2001, interest income increased significantly to
$2,034,000 as compared to $1,325,000 for the same period in 2000 mainly due to
earnings on the $15,000,000 received from Schering AG during the fourth quarter
of 2000 and net proceeds of approximately $40,700,000 received from a private
placement in March 2000. If our product sales, which are dependent upon the
market penetration by Berlex in the United States and Schering AG in the rest of
the world, excluding Canada, and our ability to meet the supply needs of our
customer base, do not offset our expenditures, interest


                                      -13-
<PAGE>   14
income will decline as our investable cash balances are reduced to support
operating activities of the company.

         Net Losses. The Company incurred a net loss of approximately
$1,563,000, or $0.11 per share, and $2,815,000, or $0.20 per share, for the
three and six-month periods ended June 30, 2001, as compared to a net loss of
$1,440,000, or $0.11 per share, and $2,681,000, or $0.21 per share, for the
three and six-month periods ended June 30, 2000. These losses were within
management's expectations and losses are expected to be incurred until the
successful market penetration of our first products occurs.

LIQUIDITY AND CAPITAL RESOURCES

         We are in a strong cash position to continue to expand our research and
development activities for our Levulan(R) PDT/PD platform. Our total assets were
approximately $78,034,000 at June 30, 2001, compared to $82,442,000 as of
December 31, 2000. This decrease is mainly the result of net operating
activities costs incurred during the first half of 2001.

         As of June 30, 2001, we had inventory of $1,796,000, representing
finished goods, work-in-progress and raw materials, as compared to $1,332,000 as
of December 31, 2000. Also, at the end of the current quarter we had net fixed
assets of $2,484,000, compared to $1,700,000 as of December 31, 2000, due
primarily to the acquisition of equipment and software. We expect to make
additional capital expenditures during the second half of 2001 and 2002 in order
to acquire equipment for the manufacture of the Kerastick(R) for either a back
up second source of supply or the development of our own manufacturing
capabilities. As of June 30, 2001, the Company has acquired or incurred deposits
of approximately $248,000 in manufacturing equipment, which has been recorded in
other assets.

         As of June 30, 2001, we had accounts receivable of $222,000,
representing net sales associated with product sales, compared to $915,000 at
the end of 2000. In addition, based on our co-development program with Schering
AG, a receivable of $824,000 has been recorded during the current quarter for
reimbursable research and development costs. As of December 31, 2000, we
recorded a co-development receivable of $723,000.

         As of June 30, 2001, we had current liabilities of $1,873,000, compared
to $2,837,000 as of December 31, 2000. Since our inception, we have had no
long-term debt. DUSA has a secured line of credit from Schering AG for up to
$1,000,000 to help us finance inventory purchases of our BLU-U(TM) from our
supplier. This line of credit is interest-free but must be re-paid within one
year of our first draw down of funds. As of the end of the current quarter, we
had not drawn down any part of this credit facility.

         We invest our cash in United States government securities, which are
classified as available for sale. As of June 30, 2001, we held securities with
an aggregate cost of approximately $62,783,000 and a current aggregate market
value of $64,117,000, resulting in a net unrealized gain on securities available
for sale of $1,334,000, which has been included in shareholders' equity. As of
December 31, 2000, these securities had an aggregate cost of $56,876,000 and a
current aggregate market value of $58,055,000 resulting in a net unrealized gain
on securities available for sale of


                                      -14-
<PAGE>   15
$1,179,000. Due to fluctuations in interest rates and depending upon the timing
of our need to convert government securities into cash to meet our working
capital requirements, some gains or losses could be realized. These securities
currently have yields ranging from 4.61% to 7.22% and maturity dates ranging
from July 2, 2001 to May 30, 2006.

         We believe that we have sufficient capital resources to proceed with
our current development program for Levulan(R) PDT/PD for the foreseeable
future. We have invested our funds in liquid investments, so that we will have
ready access to these cash reserves, as needed, for the funding of development
plans on a short-term and long-term basis. DUSA may also use its resources to
acquire by license, purchase or other arrangements, businesses, technologies, or
products that enhance or expand DUSA's business. We continue to actively seek
relationships with pharmaceutical or other suitable organizations to help
develop and/or market some of our potential non-dermatology products and
technologies.

         As of June 30, 2001, we had deferred revenues of approximately
$24,056,000, compared to $24,805,000 at December 31, 2000. At the end of the
current quarter, deferred revenues reflected unamortized milestone and
unrestricted grant payments received from Schering AG in 1999 and 2000 of
$23,304,000, and the deferral of nearly $752,000 of BLU-U(TM) product sales
until the expiration of our customer's right of return on our commercial light
sources. Commencing with our product launch, we began to amortize the Schering
AG milestone and unrestricted grant payments over approximately 12 years, the
term of the Schering AG agreement, based upon current revenue recognition
principles.

         While the current amount of our liquid assets will enable us to
maintain our current research program as planned and support the
commercialization of Levulan(R) PDT for AKs for the foreseeable future, in order
to maintain and expand continuing research and development programs, and/or
acquire products and/or new businesses, DUSA may need to raise additional funds
in the future through corporate alliances, financings, or other sources,
depending upon the amount of revenues we receive from our first product.

         As of June 30, 2001, we had 51 full-time employees. We expect that we
will continue to hire more employees as commercialization of Levulan(R) PDT
continues, particularly in the operations, research and development, financial
and regulatory areas.

         We have not made any material capital expenditures for environmental
control facilities. However, if we establish our own production line for the
manufacture of the Kerastick(R), we expect that environmental laws will govern
our facility. We are currently obtaining estimates for the capital costs
associated with this effort. There can be no assurance, however, that we will
not be required to incur significant costs to comply with environmental laws and
regulations in the future, or any assurance that our operations, business or
assets will not be materially adversely affected by current or future
environmental laws or regulations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

         On July 20, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142


                                      -15-
<PAGE>   16
"Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 and that the use of the pooling-of-interest method is no longer
allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will
cease and instead, the carrying value of goodwill will be evaluated for
impairment on an annual basis. Identifiable intangible assets will continue to
be amortized over their useful lives and reviewed for impairment in accordance
with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. DUSA is evaluating the impact of the adoption
of these standards and does not believe the effect of adoption of these
statements will have any material effect on our financial position or results of
operation.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." On January 1,
2001, the Company adopted SFAS No. 133, which did not have any effect on our
financial position or results of operation.

INFLATION

         Although inflation rates have been comparatively low in recent years,
inflation is expected to apply upward pressure on the operating costs of the
Company. We have included an inflation factor in its cost estimates. However,
the overall net effect of inflation on our operations is expected to be minimal.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We hold fixed income U.S. government securities that are subject to
interest rate market risks. We do not believe that the risk is material at this
time as we have apportioned our investments in short-term and longer-term
instruments, up to five years, and we strive to match the maturity dates of
these instruments to our cash flow needs. A ten percent decline in the average
yield of these instruments would not have a material effect on our results of
operations or cash flows. As noted above, if significant, sudden fluctuations in
interest rates occur, losses could be realized. We do not hold derivative
securities. Accordingly, we do not believe that there is a material market risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this item.

FORWARD-LOOKING STATEMENTS

         This report, including the Management's Discussion and Analysis,
contains various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 which represent our expectations or beliefs
concerning future events, including, but not limited to statements regarding the
timing of the establishment of a Canadian supply arrangement, expectations for
regulatory approval of our products in non-U.S. countries, the achievement of
market acceptance of our products, belief that reimbursement levels must be
competitive with other AK products reimbursement levels, the goal of reducing
cost of product sales, timing of royalties on Kerastick(R) sales and recognition
of revenue on BLU-U(TM) distribution, expectations of the ability to cover
under-absorbed overhead, beliefs regarding environmental compliance,
expectations regarding the future funding of dermatology Phase II studies,
anticipation of hiring additional personnel, dependence on reimbursement
policies for significant revenues, expectations for continuing operating losses,
increasing research and development costs, levels of interest income, additional
capital expenditures, and beliefs regarding the sufficiency of our capital
resources.

                                      -16-
<PAGE>   17
These forward-looking statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statements. These factors include, without limitation, changing
market and regulatory conditions, actual clinical results of our trials, the
impact of competitive products and pricing, the timely development, FDA and
foreign regulatory approval, and market acceptance of our products, reliance on
third parties for the production, manufacture, sales and marketing of our
products, the securities regulatory process, the maintenance of our patent
portfolio and levels of reimbursement by third-party payors, none of which can
be assured. Results actually achieved may differ materially from expected
results included in these statements as a result of these or other factors
mentioned from time to time in our SEC filings.



                           PART II- OTHER INFORMATION

Items 1, 3, 5.

                  None.

Item 4. Submission of Matters to a Vote of Security Holders

Matters submitted to a vote of security holders of the Corporation at the Annual
Meeting of Shareholders held June 14, 2001 included the election of five (5)
directors and ratification of the selection of Deloitte and Touche LLP as the
independent auditors for the Corporation for 2001, and ratification of
amendments to the Company's 1996 Omnibus Plan, as amended;

a)   The following persons were elected to serve as directors of the
     Corporation:

<TABLE>
<CAPTION>
                                          Votes Cast        Votes Cast                             Broker
                                                 For           Against        Abstained         Non-votes
                                          ----------        ----------        ---------         ----------
<S>                                       <C>               <C>               <C>               <C>
          D. Geoffrey Shulman             10,082,671           552,823                0                 0
          John H. Abeles                  10,531,536           103,958                0                 0
          James P. Doherty                10,531,536           103,958                0                 0
          Richard C. Lufkin               10,531,536           103,958                0                 0
          Jay Haft                        10,531,536           103,958                0                 0
</TABLE>


                                      -17-
<PAGE>   18
b)   Shareholders ratified the selection of Deloitte & Touche LLP as the
     independent auditors for the Corporation for 2001 as follows:

<TABLE>
<CAPTION>
                                              Votes Cast         Votes Cast
                                                     For            Against        Abstained
                                   ---------------------            -------        ---------

<S>                                <C>                             <C>             <C>
         Deloitte & Touche LLP                10,529,336            98,448            7,710
</TABLE>

c)   Shareholders also voted to ratified the amendments to the 1996 Omnibus
     Plan, as amended, by casting the following votes:

<TABLE>
<CAPTION>
                                                  Votes Cast         Votes Cast
                                                         For            Against        Abstained
                                       ---------------------            -------        ---------

<S>                                    <C>                           <C>               <C>
         1996 Omnibus Plan Amendment               4,517,349         1,872,257          466,938
</TABLE>




Item 6.  Exhibits and Reports on Form 8-K.

     a)   Form 8-K dated July 17, 2001 regarding an update of the Registrant's
          research and development advancements, particularly that the United
          States Food and Drug Administration completed its review of three
          Investigational New Drug applications.


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            DUSA PHARMACEUTICALS, INC.

     DATE:  AUGUST 13, 2001                 BY:   /S/JOHN E. MATTERN
                                               _________________________________
                                            JOHN E. MATTERN
                                            VICE PRESIDENT, FINANCE,
                                            AND CHIEF FINANCIAL OFFICER(Chief
                                            Financial and Chief Accounting
                                            Officer)


                                      -18-