##### 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: March 31, 2010
 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
(State of Other Jurisdiction of 
Incorporation or Organization)
    
    22-3103129
(I.R.S. Employer Identification No.)25 Upton Drive, Wilmington, MA
(Address of Principal Executive Offices)
    
    01887
(Zip Code)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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 March 31, 2010 and December 31, 2009 (Unaudited)
    
    
    3 Condensed Consolidated Statements of Operations for the three-month periods ended March
31, 2010 and 2009 (Unaudited)
    
    
    4 Condensed Consolidated Statements of Cash Flows for the three-month periods ended March
31, 2010 and 2009 (Unaudited)
    
    
    5 Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Other Information
    
    
    32Item 5. Exhibits
    
    
    32SIGNATURES
    
    
    33Exhibit IndexEX-31.(A): SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.(B): SECTION 302EX-32.(A): SECTION 906EX-32.(B): SECTION 906EX-99.1: PRESS RELEASE
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PART I.
 
 ITEM 1. FINANCIAL STATEMENTS
 DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    8,541,965
    
    
    $
    7,613,378Marketable securities
    
    
    9,019,112
    
    
    
    9,055,959Accounts receivable, net of allowance for
doubtful accounts of $79,000 and $86,000
in 2010 and 2009, respectively
    
    
    2,059,100
    
    
    
    2,629,189Inventory
    
    
    1,946,592
    
    
    
    2,170,275Prepaid and other current assets
    
    
    1,191,080
    
    
    
    1,561,467TOTAL CURRENT ASSETS
    
    
    22,757,849
    
    
    
    23,030,268Restricted cash
    
    
    174,346
    
    
    
    174,255Property, plant and equipment, net
    
    
    1,586,323
    
    
    
    1,660,755Deferred charges and other assets
    
    
    68,099
    
    
    
    68,099TOTAL ASSETS
    
    $
    24,586,617
    
    
    $
    24,933,377LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    965,347
    
    
    $
    630,144Accrued compensation
    
    
    736,704
    
    
    
    1,260,609Other accrued expenses
    
    
    2,549,852
    
    
    
    2,456,612Deferred revenue
    
    
    739,023
    
    
    
    902,597TOTAL CURRENT LIABILITIES
    
    
    4,990,926
    
    
    
    5,249,962Deferred revenue
    
    
    2,910,562
    
    
    
    2,906,020Warrant liability
    
    
    1,012,180
    
    
    
    812,905Other liabilities
    
    
    108,684
    
    
    
    123,016TOTAL LIABILITIES
    
    
    9,022,352
    
    
    
    9,091,903COMMITMENTS AND CONTINGENCIES (NOTE 13)SHAREHOLDERS EQUITYCapital 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; and
40,000 junior Series A preferred shares.
Issued and outstanding: 24,173,096 and
24,108,908 shares of common shares, no
par, at March 31, 2010 and December 31,
2009, respectively
    
    
    151,747,588
    
    
    
    151,683,399Additional paid-in capital
    
    
    8,409,025
    
    
    
    8,291,805Accumulated deficit
    
    
    (144,783,700
    )
    
    
    (144,359,217
    )Accumulated other comprehensive income
    
    
    191,352
    
    
    
    225,487TOTAL SHAREHOLDERS EQUITY
    
    
    15,564,265
    
    
    
    15,841,474TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    24,586,617
    
    
    $
    24,933,377
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DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months EndedMarch 31,2010
    
    
    2009Product revenues
    
    $
    8,713,880
    
    
    $
    7,138,269Cost of product revenues and royalties
    
    
    1,818,185
    
    
    
    1,938,226GROSS MARGIN
    
    
    6,895,695
    
    
    
    5,200,043Operating costsResearch and development
    
    
    1,109,667
    
    
    
    1,185,095Marketing and sales
    
    
    3,613,799
    
    
    
    3,410,104General and administrative
    
    
    2,463,164
    
    
    
    2,141,450TOTAL OPERATING COSTS
    
    
    7,186,630
    
    
    
    6,736,649LOSS FROM OPERATIONS
    
    
    (290,935
    )
    
    
    (1,536,606
    )Loss on change in fair value of warrants
    
    
    (199,275
    )
    
    
    (134,912
    )Other income
    
    
    65,727
    
    
    
    64,587NET LOSS
    
    $
    (424,483
    )
    
    $
    (1,606,931
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.02
    )
    
    $
    (0.07
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, BASIC AND DILUTED
    
    
    24,122,459
    
    
    
    24,089,452
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DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three months endedMarch 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (424,483
    )
    
    $
    (1,606,931
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Accretion
of premiums and discounts on marketable securities
    
    
    2,712
    
    
    
    2,189Realized loss on sales of marketable securities
    
    
    
    
    
    
    36,822Share-based compensation
    
    
    211,777
    
    
    
    199,127Depreciation and amortization
    
    
    102,986
    
    
    
    125,393Loss on change in fair value of warrants
    
    
    199,275
    
    
    
    134,912Deferred revenues recognized
    
    
    (158,356
    )
    
    
    (234,905
    )Changes in other assets and liabilities impacting cash flows from operations:Accounts receivable
    
    
    570,089
    
    
    
    243,409Inventory
    
    
    223,683
    
    
    
    276,497Prepaid and other current assets
    
    
    370,387
    
    
    
    502,299Accounts payable, accrued compensation and other accrued expenses
    
    
    (95,462
    )
    
    
    (503,197
    )Deferred revenues
    
    
    (676
    )
    
    
    (2,447
    )Other liabilities
    
    
    (14,332
    )
    
    
    (14,012
    )NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    987,600
    
    
    
    (840,844
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of marketable securities
    
    
    
    
    
    
    (5,994,220
    )Proceeds from maturities and sales of marketable securities
    
    
    
    
    
    
    6,648,159Restricted cash
    
    
    (91
    )
    
    
    (132
    )Purchases of property, plant and equipment
    
    
    (28,554
    )
    
    
    (22,812
    )NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (28,645
    )
    
    
    630,995CASH FLOWS FROM FINANCING ACTIVITIESSettlements of restricted stock for tax withholding obligations
    
    
    (30,368
    )
    
    
    NET CASH USED IN FINANCING ACTIVITIES
    
    
    (30,368
    )
    
    
    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    928,587
    
    
    
    (209,849
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    7,613,378
    
    
    
    3,880,673CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    8,541,965
    
    
    $
    3,670,824
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DUSA PHARMACEUTICALS, INC.
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1) BASIS OF PRESENTATION
   2) NEW ACCOUNTING PRONOUNCEMENTS
 Multiple-Deliverable Revenue Arrangements
 3) FINANCIAL INSTRUMENTS
 Fair Value Measurements
     6




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Fair Value Measurements at March 31, 2010Quoted Pricesin Active
    
    
    Significant Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and cash equivalents
    
    $
    8,542,000
    
    
    $
    8,542,000
    
    
    
    
    
    
    
    United States government-backed securities
    
    
    8,116,000
    
    
    
    
    
    
    $
    8,116,000
    
    
    
    Corporate securities
    
    
    903,000
    
    
    
    
    
    
    
    903,000Total assets at fair value
    
    
    17,561,000
    
    
    
    8,542,000
    
    
    
    9,019,000
    
    
    
    LiabilitiesWarrant liability
    
    
    1,012,000
    
    
    
    
    
    
    
    
    
    
    $
    1,012,000Total liabilities at fair value
    
    $
    1,012,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,012,000
 Fair Value Measurements at December 31, 2009Quoted PricesinActive Markets
    
    
    
    
    
    
    Significantfor
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and cash equivalents
    
    $
    7,613,000
    
    
    $
    7,613,000
    
    
    
    
    
    
    
    United States government-backed securities
    
    
    8,150,000
    
    
    
    
    
    
    $
    8,150,000
    
    
    
    Corporate securities
    
    
    906,000
    
    
    
    
    
    
    
    906,000Total assets at fair value
    
    
    16,669,000
    
    
    
    7,613,000
    
    
    
    9,056,000
    
    
    
    LiabilitiesWarrant liability
    
    
    813,000
    
    
    
    
    
    
    
    
    
    
    $
    813,000Total liabilities at fair value
    
    $
    813,000
    
    
    $
    
    
    
    $
    
    
    
    $
    813,000
   7




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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Three-Month Period Ended March 31, 2010Change inUnrealizedGainsRelated toPurchases,
    
    
    
    
    
    
    
    
    
    
    FinancialFair Value
    
    
    
    
    
    
    Sales,
    
    
    Transfers
    
    
    
    
    
    
    Instrumentsat
    
    
    Total
    
    
    Issuances,
    
    
    In and/or
    
    
    Fair Value at
    
    
    Held atJanuary 1,
    
    
    Unrealized
    
    
    Settlements,
    
    
    Out of
    
    
    March 31,
    
    
    March 31,2010
    
    
    Loss
    
    
    net
    
    
    Level 3
    
    
    2010
    
    
    2010Warrant Liability
    
    $
    813,000
    
    
    $
    199,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,012,000
    
    
    $
    (199,000
    )
 Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Three-Month Period Ended March 31, 2009Change inUnrealizedGainsRelated toPurchases,
    
    
    
    
    
    
    
    
    
    
    FinancialSales,
    
    
    Transfers
    
    
    
    
    
    
    InstrumentsFair Value at
    
    
    Total
    
    
    Issuances,
    
    
    In and/or
    
    
    Fair Value at
    
    
    Held atJanuary 1,
    
    
    Unrealized
    
    
    Settlements,
    
    
    Out of
    
    
    March 31,
    
    
    March 31,2009
    
    
    Loss
    
    
    net
    
    
    Level 3
    
    
    2009
    
    
    2009Warrant Liability
    
    $
    436,000
    
    
    $
    135,000
    
    
    $
    
    
    
    $
    
    
    
    $
    571,000
    
    
    $
    (135,000
    )
 Marketable Securities
  March 31, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUnited States government-backed securities
    
    $
    7,998,000
    
    
    $
    118,000
    
    
    $
    
    
    
    $
    8,116,000Corporate securities
    
    
    829,000
    
    
    
    74,000
    
    
    
    
    
    
    
    903,000Total marketable securities
    
    $
    8,827,000
    
    
    $
    192,000
    
    
    $
    
    
    
    $
    9,019,000
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUnited States government-backed securities
    
    $
    8,005,000
    
    
    $
    145,000
    
    
    $
    
    
    
    $
    8,150,000Corporate securities
    
    
    825,000
    
    
    
    81,000
    
    
    
    
    
    
    
    906,000Total marketable securities
    
    $
    8,830,000
    
    
    $
    226,000
    
    
    $
    
    
    
    $
    9,056,000
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Common Stock Warrants
  March 31,
    
    
    December, 312010
    
    
    2009Expected volatility
    
    
    89.8
    %
    
    
    88.0
    %Remaining contractual term (years)
    
    
    3.1
    
    
    
    3.3Risk-free interest rate
    
    
    1.6
    %
    
    
    1.9
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Common stock price
    
    $
    1.83
    
    
    $
    1.60
 4) CONCENTRATIONS
  % of revenuethree months ended
    
    
    % of accounts receivableMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Customer A
    
    
    3
    %
    
    
    3
    %
    
    
    5
    %
    
    
    3
    %Customer B
    
    
    2
    %
    
    
    2
    %
    
    
    6
    %
    
    
    5
    %Other Customers
    
    
    95
    %
    
    
    95
    %
    
    
    89
    %
    
    
    92
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  5) INVENTORY
  March 31,
    
    
    December 31,2010
    
    
    2009Finished goods
    
    $
    665,000
    
    
    $
    974,000BLU-U® evaluation units
    
    
    84,000
    
    
    
    58,000Work in process
    
    
    435,000
    
    
    
    398,000Raw materials
    
    
    763,000
    
    
    
    740,000Total
    
    $
    1,947,000
    
    
    $
    2,170,000
 ®
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6) OTHER ACCRUED EXPENSES
  March 31,
    
    
    December 31,2010
    
    
    2009Research and development costs
    
    $
    163,000
    
    
    $
    92,000Marketing and sales costs
    
    
    249,000
    
    
    
    418,000Reserve for sales returns and allowances
    
    
    150,000
    
    
    
    225,000Other product related costs
    
    
    941,000
    
    
    
    849,000Legal and other professional fees
    
    
    462,000
    
    
    
    334,000Due to former Sirius shareholders
    
    
    219,000
    
    
    
    214,000Employee benefits
    
    
    315,000
    
    
    
    271,000Other accrued expenses
    
    
    51,000
    
    
    
    54,000Total
    
    $
    2,550,000
    
    
    $
    2,457,000
 7) SHARE-BASED COMPENSATION
  Three months ended
    
    
    Three months endedMarch 31, 2010
    
    
    March 31, 2009Cost of product revenues
    
    $
    14,000
    
    
    $
    20,000Research and development
    
    
    35,000
    
    
    
    50,000Selling and marketing
    
    
    28,000
    
    
    
    (15,000
    )General and administrative
    
    
    135,000
    
    
    
    144,000Total
    
    $
    212,000
    
    
    $
    199,000
 Incentive and Non-qualified Stock Options
  Three months
    
    
    Three monthsended
    
    
    endedMarch 31, 2010
    
    
    March 31, 2009Volatility
    
    
    75.4
    %
    
    
    73.4
    %Risk-free interest rate
    
    
    2.7
    %
    
    
    1.9
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected life-directors and officers
    
    6.0 years
    
    6.5 yearsExpected life-non-officer employees
    
    5.8 years
    
    5.7 years
  10




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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicPrice
    
    
    (Years)
    
    
    ValueOutstanding, beginning of period
    
    
    2,664,000
    
    
    $
    6.71Options granted
    
    
    605,100
    
    
    $
    1.65Options forfeited
    
    
    (10,050
    )
    
    $
    2.53Options expired
    
    
    (116,750
    )
    
    $
    28.51Options exercised
    
    
    
    
    
    $
    Outstanding, end of period
    
    
    3,142,300
    
    
    $
    4.94
    
    
    
    5.05
    
    
    $
    611,000Exercisable, end of period
    
    
    1,762,788
    
    
    $
    7.49
    
    
    
    4.15
    
    
    $
    182,000Options vested and expected to vest, end of period
    
    
    2,933,666
    
    
    $
    5.18
    
    
    
    4.95
    
    
    $
    547,000
 Unvested Shares of Common Stock
  2010
    
    2009Outstanding, beginning of period
    
    
    393,250
    
    
    
    91,000Shares granted
    
    
    308,000
    
    
    
    325,000Shares vested
    
    
    (81,250
    )
    
    
    Outstanding, end of period
    
    
    620,000
    
    
    
    416,000Weighted average grant date fair value of shares vested during period
    
    $
    1.22
    
    
    $
    Weighted average grant date fair value of shares granted during period
    
    $
    1.65
    
    
    $
    1.22Weighted average grant date fair value of unvested shares, end of period
    
    $
    1.54
    
    
    $
    1.43Weighted average remaining years to vest
    
    
    3.25
    
    
    
    2.92
  8) BASIC AND DILUTED NET LOSS PER SHARE
  9) SEGMENT REPORTING
  11




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Three-month period ended2010
    
    2009REVENUESPDT drug and device product revenues
    
    $
    8,296,000
    
    
    $
    6,719,000Non-PDT drug product revenues
    
    
    418,000
    
    
    
    419,000Total revenues
    
    
    8,714,000
    
    
    
    7,138,000COSTS OF PRODUCT REVENUESPDT drug and device cost of product revenues
    
    
    1,581,000
    
    
    
    1,715,000Non-PDT drug cost of product revenues
    
    
    237,000
    
    
    
    223,000Total costs of product revenues
    
    
    1,818,000
    
    
    
    1,938,000GROSS MARGINPDT drug and device product gross margins
    
    
    6,715,000
    
    
    
    5,004,000Non-PDT drug product gross margins
    
    
    181,000
    
    
    
    196,000Total gross margins
    
    $
    6,896,000
    
    
    $
    5,200,000
  2010
    
    2009United States
    
    
    97
    %
    
    
    95
    %Canada
    
    
    1
    %
    
    
    2
    %Korea
    
    
    1
    %
    
    
    2
    %Other
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 10) COMPREHENSIVE LOSS
  March 31,
    
    March 31,2010
    
    2009NET LOSS
    
    $
    (424,000
    )
    
    $
    (1,607,000
    )Change in net unrealized gains on marketable securities available-for-sale
    
    
    (34,000
    )
    
    
    (70,000
    )COMPREHENSIVE LOSS
    
    $
    (458,000
    )
    
    $
    (1,677,000
    )
 11) SIGNIFICANT PRODUCT AGREEMENTS
 Stiefel Agreement
  12




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Daewoong Agreement
  PhotoCure Agreement
   12) INCOME TAXES
  13) COMMITMENTS AND CONTINGENCIES
 Business Acquisition
  13




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AdditionalCumulative Sales Milestone:
    
    Consideration:$35.0 million
    
    $1.0 million$45.0 million
    
    $1.0 millionTotal
    
    $2.0 million
 Third Amendment to Merger Agreement
    Lease Arrangements
  OperatingYears Ending December 31,
    
    Lease Obligations2010
    
    $
    348,0002011
    
    
    480,0002012
    
    
    448,0002013
    
    
    Thereafter
    
    
    Total
    
    $
    1,276,000
 Legal Matters
 Rivers Edge Litigation Settlement
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##### Table of Contents



ex parte
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS THREE MONTHS ENDING MARCH 31, 2010 VERSUS MARCH 31, 2009
 REVENUES
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##### Table of Contents



2010
    
    2009
    
    Increase/(Decrease)PDT PRODUCT REVENUESLEVULAN®  KERASTICK®  PRODUCT REVENUESUnited States
    
    $
    7,549,000
    
    
    $
    5,685,000
    
    
    $
    1,864,000Canada
    
    
    57,000
    
    
    
    135,000
    
    
    
    (78,000
    )Korea
    
    
    109,000
    
    
    
    170,000
    
    
    
    (61,000
    )Rest of world
    
    
    87,000
    
    
    
    87,000
    
    
    
    Subtotal Levulan®  Kerastick®  product revenues
    
    
    7,802,000
    
    
    
    6,077,000
    
    
    
    1,725,000BLU-U®  PRODUCT REVENUESUnited States
    
    
    489,000
    
    
    
    642,000
    
    
    
    (153,000
    )Canada
    
    
    5,000
    
    
    
    
    
    
    
    5,000Subtotal BLU-U®  product revenues
    
    
    494,000
    
    
    
    642,000
    
    
    
    (148,000
    )TOTAL PDT PRODUCT REVENUES
    
    
    8,296,000
    
    
    
    6,719,000
    
    
    
    1,577,000TOTAL NON-PDT DRUG PRODUCT REVENUES
    
    
    418,000
    
    
    
    419,000
    
    
    
    (1,000
    )TOTAL PRODUCT REVENUES
    
    $
    8,714,000
    
    
    $
    7,138,000
    
    
    $
    1,576,000
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COST OF PRODUCT REVENUES
 Increase/2010
    
    
    2009
    
    
    DecreaseLevulan® Kerastick® cost of product revenues and royaltiesDirect Levulan® Kerastick® Product costs
    
    $
    665,000
    
    
    $
    564,000
    
    
    $
    101,000Other Levulan® Kerastick® production costs including internal
costs assigned to support products, net
    
    
    114,000
    
    
    
    359,000
    
    
    
    (245,000
    )Royalty and supply fees (1)
    
    
    306,000
    
    
    
    253,000
    
    
    
    53,000Subtotal Levulan® Kerastick® cost of product revenues and royalties
    
    
    1,085,000
    
    
    
    1,176,000
    
    
    
    (91,000
    )BLU-U® Cost of Product RevenuesDirect BLU-U® product costs
    
    
    277,000
    
    
    
    291,000
    
    
    
    (14,000
    )Other 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
    
    
    219,000
    
    
    
    248,000
    
    
    
    (29,000
    )Subtotal BLU-U® cost of product revenues
    
    
    496,000
    
    
    
    539,000
    
    
    
    (43,000
    )TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    
    1,581,000
    
    
    
    1,715,000
    
    
    
    (134,000
    )Non-PDT Drug cost of product revenues and royalties
    
    
    237,000
    
    
    
    223,000
    
    
    
    14,000TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,818,000
    
    
    $
    1,938,000
    
    
    $
    (120,000
    )
 
 (1)
    
    Royalty and Supply fees reflect amounts paid to our licensor, PARTEQ, and amortization of an upfront fee and royalties paid to Draxis Health, Inc. on sales
of Levulan® Kerastick® in Canada. MARGINS
 Increase/2010
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    (Decrease)Levulan® Kerastick® gross margin
    
    $
    6,717,000
    
    
    
    86
    %
    
    $
    4,901,000
    
    
    
    81
    %
    
    $
    1,816,000BLU-U® gross margin
    
    
    (2,000
    )
    
    
    
    
    
    
    103,000
    
    
    
    16
    %
    
    
    (105,000
    )Total PDT drug and device gross margin
    
    $
    6,715,000
    
    
    
    81
    %
    
    $
    5,004,000
    
    
    
    74
    %
    
    $
    1,711,000Total Non-PDT gross margin
    
    
    181,000
    
    
    
    43
    %
    
    $
    196,000
    
    
    
    47
    %
    
    
    (15,000
    )TOTAL GROSS MARGIN
    
    $
    6,896,000
    
    
    
    79
    %
    
    $
    5,200,000
    
    
    
    73
    %
    
    $
    1,696,000
 ® ® ®
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® ® ®
  RESEARCH AND DEVELOPMENT COSTS
  MARKETING AND SALES COSTS
 GENERAL AND ADMINISTRATIVE COSTS
 OTHER INCOME, NET
 LOSS ON CHANGE IN FAIR VALUE OF WARRANTS
 NET LOSS
 LIQUIDITY AND CAPITAL RESOURCES
 Liquidity and Capital Resources
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® ® ® ®
   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.
 ® ®
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Third Amendment To The Merger Agreement
   PARTEQ Agreement
 ®
  National Biological Corporation Amended And Restated Purchase And Supply Agreement
 ®
 Sochinaz SA
 ®
 Lease Agreements
  Research Agreements
   21




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##### Table of Contents



Total
    
    
    1 Yr or less
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    After 5Operating lease obligations
    
    $
    1,276,000
    
    
    $
    468,000
    
    
    $
    808,000
    
    
    $
    
    
    
    $
    Purchase obligations (1, 2)
    
    
    3,299,000
    
    
    
    3,013,000
    
    
    
    286,000
    
    
    
    
    
    
    
    Minimum royalty obligations (3)
    
    
    531,000
    
    
    
    286,000
    
    
    
    196,000
    
    
    
    49,000
    
    
    
    Total obligations
    
    $
    5,106,000
    
    
    $
    3,767,000
    
    
    $
    1,290,000
    
    
    $
    49,000
    
    
    $
    
 
 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
 Interest Rates
   Derivative Financial Instruments
  Currency Exchange Rates
    
 ITEM 4. CONTROLS AND PROCEDURES
   Forward-Looking Statements Safe Harbor
 ®
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##### Table of Contents



® ® ® ® ® ®
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS
   23




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Risks Related To DUSA
 We Are Not Currently Profitable On An Annual Basis 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 Revenues Could Decline, and Our Ability To Become
Profitable Could Be Delayed
 ® ® ® ® ® ®
 If We Are Not Successful With The Reexamination Of Our Levulan® Patent, Our Revenues
Could Decline.
 ®
 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 in and 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,
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##### Table of Contents




    
    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.
  ® ® ® ®
 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.
  The Current Global Credit And Financial Market Conditions May Affect Our Business.
  ® ®
 ® ® ® ® ®
 If The Economic Slowdown Adversely Affects Our Customers Ability To Meet Our Payment Terms, Our
Cash Flow Would Be Adversely Affected And Our Ability To Achieve Profitability On An Annual Basis
Could Be Delayed.
  We Have Had Significant Losses And May Have Losses In The Future.
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##### Table of Contents



Our Ability To Use Net Operating Loss Carryforwards and Tax Credit Carryforwards To Offset Future
Taxable Income May Be Further Limited As A Result Of Past Or Future Transactions Involving Our
Common Stock.
  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.
   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 to treat conditions such as AKs and acne,
    
    compositions and apparatus for those methods, and
    
    unique physical forms of ALA.
 ® ®
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®
 ® ® ® exparte
 ® ® ®
  
    
    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 ® ClindaReach ® , And Meted ® Any Supply Or Manufacturing
Problems Could Negatively Impact Our Sales
 ® ® ® ® ® ®
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##### Table of Contents




    
    product yields,
    
    quality control,
    
    component and service availability,
    
    compliance with FDA regulations, and
    
    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.
 ® ®
  28




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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 Additional
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.
  Collaborations With Outside Scientists May Be Subject To Restriction And Change.
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##### Table of Contents



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,
   ® ® ® ® ® ® ®
 Our Competitors In The Biotechnology And Pharmaceutical Industries May Have Better Products,
Manufacturing Capabilities Or Marketing Expertise.
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®
  
    
    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 Stock Price Is Highly Volatile And Sudden Changes In The Market Value Of Our Stock Occur Making
An Investment Risky.
  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.
  Future Sales Of Securities May Cause Our Stock Price To Decline.
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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.
  
 ITEM 4. OTHER INFORMATION.
  
 ITEM 5. 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 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,
2009, 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 May 11, 2010.
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SIGNATURES
  DUSA Pharmaceuticals, Inc.By:
    /s/ Robert F. DomanRobert DomanPresident and Chief Executive Officer
(principal executive officer)  By:
    /s/ Richard C. ChristopherRichard C. ChristopherVice President, Finance and Chief Financial
Officer (principal financial officer)  
 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,
2009, 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 May 11, 2010.
 33