##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2009
 o
    
    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: 001-31533
 DUSA PHARMACEUTICALS, INC.
  New Jersey
    
    22-3103129(State of Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)25 Upton Drive, Wilmington, MA
    
    01887(Address of Principal Executive Offices)
    
    (Zip Code)
 
 
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



DUSA PHARMACEUTICALS, INC.  TABLE OF CONTENTS TO FORM 10-Q
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements- Condensed Consolidated Balance Sheets at June 30, 2009 and December 31, 2008 (Unaudited)
    
    
    3- Condensed Consolidated Statements of Operations for the three and six-month periods
ended June 30, 2009 and 2008 (Unaudited)
    
    
    4- Condensed Consolidated Statements of Cash Flows for the six-month periods ended June
30, 2009 and 2008 (Unaudited)
    
    
    5- Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    36Exhibit Index
    
    
    37EX-31.A: SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.B: SECTION 302 CERTIFICATION OF THE C.F.O.EX-32.A: SECTION 906 CERTIFICATION OF THE C.E.OEX-32.B: SECTION 906 CERTIFICATION OF THE C.F.O.EX-99.1: PRESS RELEASE
  2




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##### Table of Contents



PART I.
 
 ITEM 1. FINANCIAL STATEMENTS
 
 DUSA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 June 30,
    
    December 31,2009
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    3,894,037
    
    
    $
    3,880,673Marketable securities, at fair value
    
    
    12,488,406
    
    
    
    15,002,830Accrued interest receivable
    
    
    144,523
    
    
    
    155,728Accounts receivable, net of allowance for
doubtful accounts of $125,000 and $98,000
in 2009 and 2008, respectively
    
    
    1,550,149
    
    
    
    2,367,803Inventory
    
    
    2,550,463
    
    
    
    2,812,825Prepaid and other current assets
    
    
    1,341,263
    
    
    
    1,718,073TOTAL CURRENT ASSETS
    
    
    21,968,841
    
    
    
    25,937,932Restricted cash
    
    
    174,080
    
    
    
    173,844Property, plant and equipment, net
    
    
    1,773,485
    
    
    
    1,937,978Deferred charges and other assets
    
    
    68,099
    
    
    
    160,700TOTAL ASSETS
    
    $
    23,984,505
    
    
    $
    28,210,454LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    466,984
    
    
    $
    305,734Accrued compensation
    
    
    497,848
    
    
    
    1,515,912Other accrued expenses
    
    
    2,423,767
    
    
    
    3,226,571Deferred revenues
    
    
    717,897
    
    
    
    611,602TOTAL CURRENT LIABILITIES
    
    
    4,106,496
    
    
    
    5,659,819Deferred revenues
    
    
    3,633,727
    
    
    
    4,157,305Warrant liability
    
    
    498,188
    
    
    
    436,458Other liabilities
    
    
    144,069
    
    
    
    244,673TOTAL LIABILITIES
    
    
    8,382,480
    
    
    
    10,498,255COMMITMENTS AND CONTINGENCIES (NOTE 16)SHAREHOLDERS EQUITYCapital StockAuthorized: 100,000,000 shares;
40,000,000 shares designated as common
stock, no par, and 60,000,000 shares
issuable in Series or classes; and 40,000
junior Series A preferred shares. Issued
and outstanding: 24,108,908 and
24,089,452 shares of common stock, no
par, at June 30, 2009 and December 31,
2008, respectively
    
    
    151,683,399
    
    
    
    151,663,943Additional paid-in capital
    
    
    7,915,624
    
    
    
    7,514,900Accumulated deficit
    
    
    (144,310,565
    )
    
    
    (141,850,925
    )Accumulated other comprehensive income
    
    
    313,567
    
    
    
    384,281TOTAL SHAREHOLDERS EQUITY
    
    
    15,602,025
    
    
    
    17,712,199TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    23,984,505
    
    
    $
    28,210,454
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DUSA PHARMACEUTICALS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three-months ended
    
    Six-months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Product revenues
    
    $
    6,965,541
    
    
    $
    8,112,239
    
    
    $
    14,103,810
    
    
    $
    16,041,739Cost of product revenues
    
    
    1,440,864
    
    
    
    1,787,694
    
    
    
    3,379,090
    
    
    
    3,488,011GROSS MARGIN
    
    
    5,524,677
    
    
    
    6,324,545
    
    
    
    10,724,720
    
    
    
    12,553,728Operating costs:Research and development
    
    
    1,076,709
    
    
    
    1,375,302
    
    
    
    2,261,804
    
    
    
    3,561,511Marketing and sales
    
    
    3,037,311
    
    
    
    3,496,233
    
    
    
    6,447,415
    
    
    
    6,553,434General and administrative
    
    
    2,340,947
    
    
    
    2,325,137
    
    
    
    4,482,397
    
    
    
    4,692,961Settlements, net
    
    
    75,000
    
    
    
    (47,825
    )
    
    
    75,000
    
    
    
    (283,425
    )TOTAL OPERATING COSTS
    
    
    6,529,967
    
    
    
    7,148,847
    
    
    
    13,266,616
    
    
    
    14,524,481LOSS FROM OPERATIONS
    
    
    (1,005,290
    )
    
    
    (824,302
    )
    
    
    (2,541,896
    )
    
    
    (1,970,753
    )Gain (loss) on change in
fair value of warrants
    
    
    73,183
    
    
    
    468,411
    
    
    
    (61,730
    )
    
    
    123,869Other income, net
    
    
    79,398
    
    
    
    217,100
    
    
    
    143,986
    
    
    
    423,952NET LOSS
    
    $
    (852,709
    )
    
    $
    (138,791
    )
    
    $
    (2,459,640
    )
    
    $
    (1,422,932
    )BASIC AND DILUTED NET LOSS PER
COMMON SHARE
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.10
    )
    
    $
    (0.06
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED
    
    
    24,100,874
    
    
    
    24,078,610
    
    
    
    24,095,149
    
    
    
    24,078,514
  4




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DUSA PHARMACEUTICALS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six-months endedJune 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (2,459,640
    )
    
    $
    (1,422,932
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:Accretion (amortization) of premiums and discounts on marketable securities
    
    
    22,708
    
    
    
    (108,441
    )Realized loss on sales of marketable securities
    
    
    36,822
    
    
    
    13,488Share-based compensation
    
    
    424,593
    
    
    
    689,550Depreciation and amortization
    
    
    236,371
    
    
    
    311,191Loss (gain) on change in fair value of warrants
    
    
    61,730
    
    
    
    (123,869
    )Deferred revenues recognized
    
    
    (413,734
    )
    
    
    (640,168
    )Changes in other assets and liabilities impacting cash flows from operationsAccounts receivable
    
    
    817,654
    
    
    
    461,727Inventory
    
    
    262,362
    
    
    
    (159,383
    )Prepaid and other current assets
    
    
    376,810
    
    
    
    174,498Accrued interest receivable
    
    
    11,205
    
    
    
    (78,292
    )Deferred charges and other assets
    
    
    92,601
    
    
    
    57,543Accounts payable, accrued compensation and other accrued expenses
    
    
    (1,659,618
    )
    
    
    (652,044
    )Deferred revenues
    
    
    (3,549
    )
    
    
    1,643,937Other liabilities
    
    
    (100,604
    )
    
    
    (34,005
    )NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (2,294,289
    )
    
    
    132,800CASH FLOWS FROM INVESTING ACTIVITIESCash paid for contingent consideration
    
    
    
    
    
    
    (250,000
    )Purchases of marketable securities
    
    
    (9,038,979
    )
    
    
    (19,406,775
    )Proceeds from maturities and sales of marketable securities
    
    
    11,423,159
    
    
    
    18,078,809Restricted cash
    
    
    (236
    )
    
    
    (1,908
    )Purchases of property, plant and equipment
    
    
    (71,878
    )
    
    
    (291,823
    )NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    2,312,066
    
    
    
    (1,871,697
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from exercise of options
    
    
    
    
    
    
    4,000Settlements of restricted stock for tax withholding obligations
    
    
    (4,413
    )
    
    
    NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (4,413
    )
    
    
    4,000NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    13,364
    
    
    
    (1,734,897
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,880,673
    
    
    
    4,713,619CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,894,037
    
    
    $
    2,978,722
  5




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##### Table of Contents



DUSA PHARMACEUTICALS, INC.  NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1) BASIS OF PRESENTATION
    2) NEW ACCOUNTING PRONOUNCEMENTS
 Recently Adopted Accounting Standards
 Business Combinations SFAS 141(R).
 Interim Disclosures about Fair Value
of Financial Instruments
 Recognition and Presentation of
Other-Than-Temporary Impairments
 Subsequent Events
 3) FAIR VALUE MEASUREMENTS
 Fair Value Measurements
    6




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Level 2Assets:United States government-backed securities
    
    $
    11,166,000Corporate debt securities
    
    
    1,322,000Total assets
    
    $
    12,488,000
 Level 3Liabilities:Warrant liability
    
    
    498,000Total liabilities
    
    $
    498,000
 Changes in Level 3 Recurring Fair Value Measurements:
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Six-month period ended June 30, 2009Change inUnrealized(Gains)/LossesRelated toPurchases,
    
    
    
    
    
    
    
    
    
    
    FinancialSales,
    
    
    Transfers
    
    
    
    
    
    
    InstrumentsFair Value at
    
    
    Total
    
    
    Issuances,
    
    
    In and/or
    
    
    Fair Value at
    
    
    Held atJanuary 1,
    
    
    Unrealized
    
    
    Settlements,
    
    
    Out of
    
    
    June 30,
    
    
    June 30,2009
    
    
    (Gains)/Losses
    
    
    net
    
    
    Level 3
    
    
    2009
    
    
    2009Warrant Liability
    
    $
    436,000
    
    
    $
    62,000
    
    
    $
    
    
    
    $
    
    
    
    $
    498,000
    
    
    $
    62,000
  7




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##### Table of Contents



4) WARRANTS
   June 30,
    
    December 31,2009
    
    2008Expected volatility
    
    
    82.9
    %
    
    
    75.0
    %Remaining contractual term (years)
    
    
    3.83
    
    
    
    4.33Risk-free interest rate
    
    
    2.09
    %
    
    
    1.55
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Common stock price
    
    $
    1.10
    
    
    $
    1.05
 5) MARKETABLE SECURITIES
  June 30, 2009Amortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    10,934,000
    
    
    $
    232,000
    
    
    $
    11,166,000Corporate securities
    
    
    1,240,000
    
    
    
    82,000
    
    
    
    1,322,000Total marketable securities available-for-sale
    
    $
    12,174,000
    
    
    $
    314,000
    
    
    $
    12,488,000
 December 31, 2008Amortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    11,956,000
    
    
    $
    357,000
    
    
    $
    12,313,000Corporate securities
    
    
    2,662,000
    
    
    
    28,000
    
    
    
    2,690,000Total marketable securities available-for-sale
    
    $
    14,618,000
    
    
    $
    385,000
    
    
    $
    15,003,000
  6) CONCENTRATIONS
  8




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% of revenue
    
    % of revenuethree months ended
    
    six months ended
    
    % of accounts receivableJune 30,
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,
    
    December 31,2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008Customer A
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    2
    %
    
    
    4
    %
    
    
    11
    %Customer B
    
    
    2
    %
    
    
    12
    %
    
    
    1
    %
    
    
    12
    %
    
    
    6
    %
    
    
    Customer C
    
    
    1
    %
    
    
    15
    %
    
    
    1
    %
    
    
    11
    %
    
    
    
    
    
    
    Customer D
    
    
    
    
    
    
    5
    %
    
    
    
    
    
    
    5
    %
    
    
    1
    %
    
    
    Customer E
    
    
    4
    %
    
    
    2
    %
    
    
    3
    %
    
    
    3
    %
    
    
    
    
    
    
    1
    %Customer F
    
    
    5
    %
    
    
    
    
    
    
    4
    %
    
    
    
    
    
    
    4
    %
    
    
    9
    %Other customers
    
    
    85
    %
    
    
    63
    %
    
    
    88
    %
    
    
    67
    %
    
    
    85
    %
    
    
    79
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  7) INVENTORY
  June 30,
    
    December 31,2009
    
    2008Finished goods
    
    $
    1,486,000
    
    
    $
    1,348,000BLU-U® evaluation units
    
    
    78,000
    
    
    
    166,000Work in process
    
    
    436,000
    
    
    
    698,000Raw materials
    
    
    550,000
    
    
    
    601,000Total
    
    $
    2,550,000
    
    
    $
    2,813,000
 ®
 8) OTHER ACCRUED EXPENSES
  June 30,
    
    December 31,2009
    
    2008Research and development costs
    
    $
    110,000
    
    
    $
    190,000Marketing and sales costs
    
    
    275,000
    
    
    
    191,000Reserve for sales returns and allowances
    
    
    350,000
    
    
    
    500,000Accrued FDA fees
    
    
    
    
    
    
    589,000Due to former Sirius shareholders
    
    
    205,000
    
    
    
    Other product related costs
    
    
    686,000
    
    
    
    824,000Legal and other professional fees
    
    
    456,000
    
    
    
    467,000Employee benefits
    
    
    296,000
    
    
    
    278,000Other expenses
    
    
    46,000
    
    
    
    188,000Total
    
    $
    2,424,000
    
    
    $
    3,227,000
 9




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9) SHARE-BASED COMPENSATION
  Three-months ended
    
    Six-months endedJune 30, 2009
    
    June 30, 2008
    
    June 30, 2009
    
    June 30, 2008Cost of product revenues
    
    $
    14,000
    
    
    $
    17,000
    
    
    $
    34,000
    
    
    $
    41,000Research and development
    
    
    31,000
    
    
    
    69,000
    
    
    
    81,000
    
    
    
    190,000Marketing and sales
    
    
    18,000
    
    
    
    34,000
    
    
    
    3,000
    
    
    
    (27,000
    )General and administrative
    
    
    163,000
    
    
    
    238,000
    
    
    
    307,000
    
    
    
    486,000Share-based compensation expense
    
    $
    226,000
    
    
    $
    358,000
    
    
    $
    425,000
    
    
    $
    690,000
  Three-months
    
    Six-monthsended June 30, 2009Expected volatility
    
    
    74.6
    %
    
    
    73.5
    %Risk-free interest rate
    
    
    2.42
    %
    
    
    1.99
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected life-directors and officers
    
    
    6.5
    
    
    
    6.5Expected life-non-officer employees
    
    
    5.7
    
    
    
    5.7
  AverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicPrice
    
    
    (Years)
    
    
    ValueOutstanding, beginning of period, April 1, 2009
    
    
    3,588,975
    
    
    $
    8.28
    
    
    
    
    
    
    $Options granted
    
    
    95,000
    
    
    $
    1.15Options forfeited
    
    
    (36,575
    )
    
    $
    2.07Options expired
    
    
    (54,125
    )
    
    $
    9.52Options exercised
    
    
    
    
    
    $
    Outstanding, end of period
    
    
    3,593,275
    
    
    $
    8.14
    
    
    
    3.9
    
    
    $
    50Exercisable, end of period
    
    
    2,556,925
    
    
    $
    10.63
    
    
    
    3.0
    
    
    $
    Options vested and expected to vest, end of period
    
    
    3,435,324
    
    
    $
    8.44
    
    
    
    3.8
    
    
    $
    42
   10




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10) BASIC AND DILUTED NET LOSS PER SHARE
  11) SEGMENT REPORTING
  Three-month period ended
    
    Six-month period endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008REVENUESPDT drug and device product revenues
    
    $
    6,418,000
    
    
    $
    5,429,000
    
    
    $
    13,137,000
    
    
    $
    11,259,000Non-PDT product revenues
    
    
    548,000
    
    
    
    2,683,000
    
    
    
    967,000
    
    
    
    4,783,000Total revenues
    
    
    6,966,000
    
    
    
    8,112,000
    
    
    
    14,104,000
    
    
    
    16,042,000COSTS OF REVENUESPDT drug and device cost of
product revenues
    
    
    1,286,000
    
    
    
    1,169,000
    
    
    
    3,001,000
    
    
    
    2,443,000Non-PDT cost of product revenues
    
    
    155,000
    
    
    
    618,000
    
    
    
    378,000
    
    
    
    1,045,000Total costs of product revenues
    
    
    1,441,000
    
    
    
    1,787,000
    
    
    
    3,379,000
    
    
    
    3,488,000GROSS MARGINPDT drug and device product gross
margin
    
    
    5,132,000
    
    
    
    4,260,000
    
    
    
    10,136,000
    
    
    
    8,816,000Non-PDT product gross margin
    
    
    393,000
    
    
    
    2,065,000
    
    
    
    589,000
    
    
    
    3,738,000Total gross margin
    
    $
    5,525,000
    
    
    $
    6,325,000
    
    
    $
    10,725,000
    
    
    $
    12,554,000
  Three-months ended
    
    Six-months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008United States
    
    
    95
    %
    
    
    93
    %
    
    
    95
    %
    
    
    94
    %Canada
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    2
    %Korea
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Other
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  11




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##### Table of Contents



12) COMPREHENSIVE LOSS
  Three-months ended
    
    Six-months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008NET LOSS
    
    $
    (853,000
    )
    
    $
    (139,000
    )
    
    $
    (2,460,000
    )
    
    $
    (1,423,000
    )Change in net
unrealized gains on
marketable securities
available-for-sale
    
    
    (1,000
    )
    
    
    (180,000
    )
    
    
    (71,000
    )
    
    
    (13,000
    )COMPREHENSIVE LOSS
    
    $
    (854,000
    )
    
    $
    (319,000
    )
    
    $
    (2,531,000
    )
    
    $
    (1,436,000
    )
 13) STIEFEL AGREEMENT
 ® ® ®
  14) DAEWOONG AGREEMENT
 ® ® ®
 12




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##### Table of Contents



15) SETTLEMENTS, NET
 Rivers Edge Litigation Settlement
 ® ® ®
 ® ®
  Winston Laboratories Arbitration Settlement
  16) COMMITMENTS AND CONTINGENCIES
 Business Acquisition
  13




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##### Table of Contents



AdditionalCumulative Sales Milestone:
    
    Consideration:$35.0 million
    
    $1.0 million$45.0 million
    
    $1.0 millionTotal
    
    $2.0 million
 Third Amendment to Merger Agreement
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 ® ® ® ® ®
 ® ® ® ® ® ® ®
 ® ® ® ® ®
 ® ® ®
 14




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##### Table of Contents



®
 ® ®
 ® ® ® ® ® ® ® ® ® ® ® ®
  CRITICAL ACCOUNTING POLICIES
  Fair Value Measurements of Marketable Securities
  15




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##### Table of Contents



RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2009 VERSUS JUNE 30, 2008
 REVENUES
 Three months ended
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    June 30,INCREASE/
    
    
    
    
    
    
    
    
    
    INCREASE/2009
    
    2008
    
    (DECREASE)
    
    2009
    
    2008
    
    (DECREASE)PDT PRODUCT REVENUESLEVULAN®
KERASTICK®
PRODUCT REVENUESUnited States
    
    $
    5,621,000
    
    
    $
    4,572,000
    
    
    
    $1,049,000
    
    
    $
    11,306,000
    
    
    
    $9,346,000
    
    
    
    $1,960,000Canada
    
    
    108,000
    
    
    
    218,000
    
    
    
    (110,000
    )
    
    
    243,000
    
    
    
    377,000
    
    
    
    (134,000
    )Korea
    
    
    126,000
    
    
    
    159,000
    
    
    
    (33,000
    )
    
    
    296,000
    
    
    
    524,000
    
    
    
    (228,000
    )Other
    
    
    84,000
    
    
    
    133,000
    
    
    
    (49,000
    )
    
    
    171,000
    
    
    
    190,000
    
    
    
    (19,000
    )Subtotal
Levulan®
Kerastick®
product revenues
    
    
    5,939,000
    
    
    
    5,082,000
    
    
    
    857,000
    
    
    
    12,016,000
    
    
    
    10,437,000
    
    
    
    1,579,000BLU-U® PRODUCT
REVENUESUnited States
    
    
    479,000
    
    
    
    347,000
    
    
    
    132,000
    
    
    
    1,121,000
    
    
    
    822,000
    
    
    
    299,000Subtotal
BLU-U® product
revenues
    
    
    479,000
    
    
    
    347,000
    
    
    
    132,000
    
    
    
    1,121,000
    
    
    
    822,000
    
    
    
    299,000TOTAL PDT PRODUCT REVENUES
    
    
    6,418,000
    
    
    
    5,429,000
    
    
    
    989,000
    
    
    
    13,137,000
    
    
    
    11,259,000
    
    
    
    1,878,000TOTAL NON-PDT PRODUCT
REVENUES
    
    
    548,000
    
    
    
    2,683,000
    
    
    
    (2,135,000
    )
    
    
    967,000
    
    
    
    4,783,000
    
    
    
    (3,816,000
    )TOTAL PRODUCT REVENUES
    
    $
    6,966,000
    
    
    $
    8,112,000
    
    
    $
    (1,146,000
    )
    
    $
    14,104,000
    
    
    $
    16,042,000
    
    
    $
    (1,938,000
    )
 ® ® ® ®
 ® ® ® ® ® ® ®
 ® ®
 16




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##### Table of Contents



® ® ®
 ® ® ® ® ®
 ®
 ® ® ® ® ® ® ® ®
 COST OF PRODUCT REVENUES
 17




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##### Table of Contents



THREE MONTHS ENDED JUNE 30,INCREASE/2009
    
    2008
    
    (DECREASE)Levulan® Kerastick® cost of product revenues and royaltiesDirect Levulan® Kerastick® product costs
    
    $
    539,000
    
    
    $
    594,000
    
    
    $
    (55,000
    )Other Levulan® Kerastick® production costs including internal
costs assigned to support products, net
    
    
    89,000
    
    
    
    (8,000
    )
    
    
    97,000Royalty and supply fees (1)
    
    
    235,000
    
    
    
    223,000
    
    
    
    12,000Subtotal Levulan® Kerastick® cost of product revenues and royalties
    
    $
    863,000
    
    
    $
    809,000
    
    
    $
    54,000BLU-U® cost of product revenuesDirect BLU-U® product costs
    
    $
    209,000
    
    
    $
    147,000
    
    
    $
    62,000Other BLU-U® product costs including internal costs assigned to support
products; as well as, costs incurred to ship, install and service the BLU-U®
in physicians offices
    
    
    214,000
    
    
    
    213,000
    
    
    
    1,000Subtotal BLU-U® cost of product revenues
    
    $
    423,000
    
    
    $
    360,000
    
    
    $
    63,000TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,286,000
    
    
    $
    1,169,000
    
    
    $
    117,000Non-PDT cost of product revenues and royalties
    
    $
    155,000
    
    
    $
    618,000
    
    
    $
    (463,000
    )TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,441,000
    
    
    $
    1,787,000
    
    
    $
    (346,000
    )
 SIX MONTHS ENDED JUNE 30,INCREASE/2009
    
    2008
    
    (DECREASE)Levulan® Kerastick® cost of product revenues and royaltiesDirect Levulan® Kerastick® product costs
    
    $
    1,103,000
    
    
    $
    1,232,000
    
    
    $
    (129,000
    )Other Levulan® Kerastick® production costs including
internal costs assigned to support products, net
    
    
    448,000
    
    
    
    2,000
    
    
    
    446,000Royalty and supply fees (1)
    
    
    488,000
    
    
    
    471,000
    
    
    
    17,000Subtotal Levulan® Kerastick® cost of product revenues and
royalties
    
    $
    2,039,000
    
    
    $
    1,705,000
    
    
    $
    334,000BLU-U® cost of product revenuesDirect BLU-U® product costs
    
    $
    500,000
    
    
    $
    348,000
    
    
    $
    152,000Other BLU-U® product costs including internal costs assigned to
support products; as well as, costs incurred to ship, install and service the
BLU-U® in physicians offices
    
    
    462,000
    
    
    
    390,000
    
    
    
    72,000Subtotal BLU-U® cost of product revenues
    
    $
    962,000
    
    
    $
    738,000
    
    
    $
    224,000TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    3,001,000
    
    
    $
    2,443,000
    
    
    $
    558,000Non-PDT cost of product revenues and royalties
    
    $
    378,000
    
    
    $
    1,045,000
    
    
    $
    (667,000
    )TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    3,379,000
    
    
    $
    3,488,000
    
    
    $
    (109,000
    )
 
 1)
    
    Royalty and supply fees reflect amounts paid to our licensor, PARTEQ Research and Development
Innovations, the licensing arm of Queens University, Kingston, Ontario, and ongoing royalties
paid to Draxis Health, Inc., on sales of the Levulan® Kerastick® in Canada. 18




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##### Table of Contents



MARGINS
 THREE MONTHS ENDED JUNE 30,INCREASE/2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    (DECREASE)Levulan® Kerastick® gross margin
    
    $
    5,076,000
    
    
    
    85
    %
    
    $
    4,273,000
    
    
    
    84
    %
    
    $
    803,000BLU-U® gross margin
    
    
    56,000
    
    
    
    12
    %
    
    
    (13,000
    )
    
    
    (4
    )%
    
    
    69,000Total PDT drug & device gross margin
    
    $
    5,132,000
    
    
    
    80
    %
    
    $
    4,260,000
    
    
    
    78
    %
    
    $
    872,000Total Non-PDT gross margin
    
    
    393,000
    
    
    
    72
    %
    
    
    2,065,000
    
    
    
    77
    %
    
    $
    (1,672,000
    )TOTAL GROSS MARGIN
    
    $
    5,525,000
    
    
    
    79
    %
    
    $
    6,325,000
    
    
    
    78
    %
    
    $
    (800,000
    )
 SIX MONTHS ENDED JUNE 30,INCREASE/2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    (DECREASE)Levulan® Kerastick® gross margin
    
    $
    9,977,000
    
    
    
    83
    %
    
    $
    8,731,000
    
    
    
    84
    %
    
    $
    1,246,000BLU-U® gross margin
    
    
    159,000
    
    
    
    14
    %
    
    
    85,000
    
    
    
    10
    %
    
    
    74,000Total PDT drug & device gross margin
    
    $
    10,136,000
    
    
    
    77
    %
    
    $
    8,816,000
    
    
    
    78
    %
    
    $
    1,320,000Total Non-PDT gross margin
    
    
    589,000
    
    
    
    61
    %
    
    
    3,738,000
    
    
    
    78
    %
    
    $
    (3,149,000
    )TOTAL GROSS MARGIN
    
    $
    10,725,000
    
    
    
    76
    %
    
    $
    12,554,000
    
    
    
    78
    %
    
    $
    (1,829,000
    )
 ® ® ®
 ® ® ® ®
 RESEARCH AND DEVELOPMENT COSTS
 ® ® ® ®
  19




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##### Table of Contents



MARKETING AND SALES COSTS
 GENERAL AND ADMINISTRATIVE COSTS
 SETTLEMENTS, NET
 ®
 OTHER INCOME, NET
 GAIN (LOSS) ON CHANGE IN FAIR VALUE OF WARRANTS
 NET LOSS
 LIQUIDITY AND CAPITAL RESOURCES
  20




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##### Table of Contents



® ® ® ®
   AdditionalCumulative Sales Milestone:
    
    Consideration:$35.0 million
    
    $1.0 million$45.0 million
    
    $1.0 millionTotal
    
    $2.0 million
   Contractual Obligations and Other Commercial Commitments
 L. PERRIGO COMPANY
 ®
 MERGER WITH SIRIUS LABORATORIES, INC.
  21




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##### Table of Contents



® ®
 PARTEQ AGREEMENT
 ®
  NATIONAL BIOLOGICAL CORPORATION AMENDED AND RESTATED PURCHASE AND SUPPLY AGREEMENT
 ®
 SOCHINAZ SA
 ®
 LEASE AGREEMENTS
  RESEARCH AGREEMENTS
  22




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##### Table of Contents



Total
    
    
    1 Yr or less
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    After 5Operating lease obligations
    
    $
    1,437,000
    
    
    $
    441,000
    
    
    $
    960,000
    
    
    $
    36,000
    
    
    $
    Purchase obligations (1, 2)
    
    
    3,124,000
    
    
    
    2,676,000
    
    
    
    448,000
    
    
    
    
    
    
    
    Minimum royalty obligations (3)
    
    
    741,000
    
    
    
    336,000
    
    
    
    297,000
    
    
    
    108,000
    
    
    
    Total obligations
    
    $
    5,302,000
    
    
    $
    3,453,000
    
    
    $
    1,705,000
    
    
    $
    144,000
    
    
    $
    
 
 1)
    
    Research and development projects include various commitments including obligations for our
study on the treatment of actinic keratoses and reduction of non-melanoma skin cancers in
immunosuppressed solid organ transplant recipients, or SOTR, who have demonstrated that they
are at risk of developing multiple squamous cell carcinomas.2)
    
    In addition to the obligations disclosed above, we have contracted with Therapeutics, Inc.,
a clinical research organization, to manage the clinical development of our products in the
field of dermatology. This organization has the opportunity for additional stock grants,
bonuses, and other incentives for each product indication ranging from $250,000 to
$1,250,000, depending on the regulatory phase of development of products under Therapeutics
management.3)
    
    Minimum royalty obligations relate to our agreements with PARTEQ and Perrigo described above.  INFLATION
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   Forward-Looking Statements Safe Harbor
 ®
 23




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##### Table of Contents



® ® ® ® ® ® ® ®
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS
  24




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##### Table of Contents



Risks Related To DUSA
 We Are Not Currently Profitable And May Not Be Profitable In The Future Unless We Can Successfully
Market And Sell Significantly Higher Quantities Of Our Products.
 If We Do Not Become Profitable, We May Need More Capital.
  If A Competitive Product Is Successful Our Market Share Could Decrease and Our Ability Become
Profitable Could Be Delayed
 ® ® ® ® ® ® ® ®
 Our Ability To Become Profitable May Be Delayed Since We No Longer Sell Nicomide ® As A
Prescription Product.
 ® ®
 25




---



##### Table of Contents



® ®
 If Product Sales Do Not Continue to Increase, We May Not Be Able To Advance Development Of Our
Other Potential Products As Quickly As We Would Like To, Which Would Delay The Approval Process And
Marketing Of New Potential Products, if approved.
  Any Failure To Comply With Ongoing Governmental Regulations In The United States And Elsewhere Will
Limit Our Ability To Market Our Products And Become Profitable.
  
    
    approval of manufacturing facilities, including adherence to good manufacturing
and laboratory practices during production and storage,
    
    controlled research and testing of some of these products even after approval,
    
    control of marketing activities, including advertising and labeling, and
    
    state permits for the sale and distribution of products manufactured out-of-state.
  
    
    send warning letters,
    
    impose fines and other civil penalties on us,
    
    seize our products,
    
    suspend our regulatory approvals,
    
    cease the manufacture of our products,
    
    refuse to approve pending applications or supplements to approved applications filed by us,
    
    refuse to permit exports of our products from the United States,
    
    require us to recall products,
    
    require us to notify physicians of labeling changes and/or product related problems,
    
    impose restrictions on our operations, and/or
    
    criminally prosecute us.
  26




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##### Table of Contents



® ® ® ® ® ®
 The Current Global Credit And Financial Market Conditions May Affect Our Business.
  ® ® Our Ability To Become Profitable May Be Delayed Since We
No Longer Sell Nicomide ® As A Prescription Product.
 If the Economic Slowdown Affects Our Market, Our Cash Burn Will Increase And Our Ability To Achieve
Profitability Will Be Delayed.
   We Have Significant Losses And Anticipate Continued Losses.
  If We Are Unable To Obtain The Necessary Capital To Fund Our Operations, We Will Have To Delay Our
Development Program And May Not Be Able To Complete Our Clinical Trials.
   27




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##### Table of Contents



If We Are Not Successful With The Reexamination Of Our Patent, We Could Lose Market Share.
 ®
 We Have Limited Patent Protection, And If We Are Unable To Protect Our Proprietary Rights,
Competitors Might Be Able To Develop Similar Products To Compete With Our Products And Technology.
 ®
 
    
    methods of using ALA and its unique physical forms in combination with light,
    
    compositions and apparatus for those methods, and
    
    unique physical forms of ALA.
 ® ®
   ®
 ® ®
 28




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##### Table of Contents



® ®
 ® ® ® ® ®
  
    
    these persons or entities might breach the agreements,
    
    we might not have adequate remedies for a breach, and/or
    
    our competitors will independently develop or otherwise discover our trade secrets.
 Litigation Is Expensive And We May Not Be Able To Afford The Costs.
   Since We Now Operate The Only FDA Approved Manufacturing Facility For The Kerastick ® And
Continue To Rely Heavily On Sole Suppliers For The Manufacture Of Levulan ® , The
BLU-U ® , And Meted ® , Any Supply Or Manufacturing Problems Could Negatively
Impact Our Sales As Occurred With Nicomide ® .
 ® ® ® ® ® ®
  
    
    product yields,
    
    quality control,
    
    component and service availability,
    
    compliance with FDA regulations, and
 29




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##### Table of Contents




    
    the need for further FDA approval if manufacturers make material
changes to manufacturing processes and/or facilities.
  ®
 We Have Only Limited Experience Marketing And Selling Pharmaceutical Products Outside of the United
States And As A Result, Our Revenues From Product Sales May Suffer.
 ® ® ® ® ® ®
 The Commercial Success Of Any Product That We May Develop Will Depend Upon The Degree Of Market
Acceptance Of Our Products Among Physicians, Patients, Health Care Payors, Private Health Insurers
And The Medical Community.
  
    
    the effectiveness, or perceived effectiveness, of our product in comparison to competing products;
    
    the existence of any significant side effects, as well as their severity in comparison to any
competing products,
    
    potential advantages over alternative treatments,
    
    the ability to offer our product for sale at competitive prices,
    
    relative convenience and ease of administration,
    
    the strength of marketing and distribution support, and
    
    sufficient third-party coverage or reimbursement.
 If We Cannot Improve Physician Reimbursement And/Or Convince More Private Insurance Carriers To
Adequately Reimburse Physicians For Our Product, Sales May Suffer.
 ® ®
 30




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##### Table of Contents



We Have Only Three Therapies That Have Received Regulatory Approval Or Clearance, And We Cannot
Predict Whether We Will Ever Develop Or Commercialize Any Other Levulan ® Products.
 Our Potential Products Are In Early Stages Of Development And May Never Result In Any Commercially
Successful Products.
 ® ® ®
 
    
    delays in product development, clinical testing or manufacturing,
    
    unplanned expenditures in product development, clinical testing or manufacturing,
    
    failure in clinical trials or failure to receive regulatory approvals,
    
    emergence of superior or equivalent products,
    
    inability to market products due to third-party proprietary rights, and
    
    failure to achieve market acceptance.
 ®
 We Must Receive Separate Approval For Any Drug or Medical Device Products Before We Can Sell Them
Commercially In The United States Or Abroad.
 ® ® ®
 ®
 ®
 ®
 Because Of The Nature Of Our Business, The Loss Of Key Members Of Our Management Team Could Delay
Achievement Of Our Goals.
  31




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##### Table of Contents



Collaborations With Outside Scientists May Be Subject To Restriction And Change.
  Risks Related To Our Industry
 Product Liability And Other Claims Against Us May Reduce Demand For Our Products Or Result In
Damages.
 We Are Subject To Risk From Potential Product Liability Lawsuits Which Could Negatively Affect Our
Business.
  Our Business Involves Environmental Risks And We May Incur Significant Costs Complying With
Environmental Laws And Regulations.
  We May Not Be Able To Compete Against Traditional Treatment Methods Or Keep Up With Rapid Changes
In The Biotechnology And Pharmaceutical Industries That Could Make Some Or All Of Our Products
Non-Competitive Or Obsolete.
 Competing Products And Technologies Based On Traditional Treatment Methods May Make Our Products Or
Potential Products Noncompetitive Or Obsolete.
    
    
    price reductions,
    
    lower levels of third-party reimbursements,
    
    failure to achieve market acceptance, and
    
    loss of market share, any of which could adversely affect our
business. Further, we cannot give any assurance that developments by
our competitors or future competitors will not render our technology
obsolete.
 ® ® ®
 32




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##### Table of Contents



® ® ® ® ®
 Our Competitors In The Biotechnology And Pharmaceutical Industries May Have Better Products,
Manufacturing Capabilities Or Marketing Expertise.
 ®
 ®
  
    
    the ease of administration of our method of PDT,
    
    the degree of generalized skin sensitivity to light,
    
    the number of required doses,
    
    the selectivity of our drug for the target lesion or tissue of interest, and
    
    the type and cost of our light systems.
  Risks Related To Our Stock
 Our Common Stock May Not Continue To Trade On The Nasdaq Global Market, Which Could Reduce The
Value Of Your Investment And Make Your Shares More Difficult To Sell.
  Our Results Of Operations And General Market Conditions For Specialty Pharmaceutical And
Biotechnology Stocks Could Result In Sudden Changes In The Market Value Of Our Stock.
  
    
    quarterly levels of product sales;
 33




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##### Table of Contents




    
    clinical trial results;
    
    general market conditions;
    
    patent litigation;
    
    increased marketing activities or press releases; and
    
    changes in third-party payor reimbursement for our therapy.
  Significant Fluctuations In Orders For Our Products, On A Monthly And Quarterly Basis, Are Common
Based On External Factors And Sales Promotion Activities. These Fluctuations Could Increase The
Volatility Of Our Stock Price.
  If Outstanding Options, Warrants And Rights Are Converted, The Value Of The Shares Of Common Stock
Outstanding Just Prior To The Conversion Will Be Diluted.
  Effecting A Change Of Control Of DUSA Would Be Difficult, Which May Discourage Offers For Shares Of
Our Common Stock.
     
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  34




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   Votes
    
    
    
    
    
    BrokerVotes Cast For
    
    Withheld
    
    Abstained
    
    Non-votesJohn H. Abeles
    
    
    19,075,008
    
    
    
    639,153
    
    
    
    -0-
    
    
    
    -0-David M. Bartash
    
    
    19,111,596
    
    
    
    602,565
    
    
    
    -0-
    
    
    
    -0-Alexander W. Casdin
    
    
    19,108,872
    
    
    
    605,289
    
    
    
    -0-
    
    
    
    -0-Robert F. Doman
    
    
    19,100,208
    
    
    
    613,953
    
    
    
    -0-
    
    
    
    -0-Jay M. Haft
    
    
    19,096,771
    
    
    
    617,390
    
    
    
    -0-
    
    
    
    -0-Marvin E. Lesser
    
    
    19,111,159
    
    
    
    603,002
    
    
    
    -0-
    
    
    
    -0-Richard C. Lufkin
    
    
    19,094,138
    
    
    
    620,023
    
    
    
    -0-
    
    
    
    -0-Magnus Moliteus
    
    
    19,108,815
    
    
    
    605,346
    
    
    
    -0-
    
    
    
    -0-
  Votes Cast
    
    
    
    
    
    BrokerVotes Cast For
    
    Against
    
    Abstained
    
    Non-votesDeloitte & Touche LLP
    
    
    19,114,558
    
    
    
    588,484
    
    
    
    11,118
    
    
    
    -0-
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS.
 EXHIBITNO.
    
    DESCRIPTION OF EXHIBIT3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants Form 10-K for the fiscal year
ended December 31, 1998, and is incorporated herein by reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated October 28, 2002 and filed as Exhibit
99.3 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002, filed November
12, 2002, and is incorporated herein by reference3(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on Form 8-K, filed on November 2,
2008, and is incorporated herein by reference.31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Press Release dated August 11, 2009
 35




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##### Table of Contents



SIGNATURES
  DUSA Pharmaceuticals, Inc.By:
    /s/ Robert F. DomanRobert F. DomanPresident and Chief Executive Officer
(principal executive officer)  By:
    /s/ Richard C. ChristopherRichard C. ChristopherVice President, Finance and Chief Financial
Officer (principal financial officer)  36




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##### Table of Contents



EXHIBIT INDEX
 3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants Form 10-K for the fiscal year
ended December 31, 1998, and is incorporated herein by reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated October 28, 2002 and filed as Exhibit
99.3 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002, filed November
12, 2002, and is incorporated herein by reference.3(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on Form 8-K, filed on November 2,
2008, and is incorporated herein by reference.31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Press Release dated August 11, 2009.
 37