<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      September 30, 1997

                                       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 of        (I.R.S. Employer
           incorporation or organization)         Identification No.)

                        181 University Avenue, Suite 1208
                         Toronto, Ontario M5H 3M7 CANADA
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (416) 363-5059
              (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.

                    9,365,950 shares as of November 10, 1997
<PAGE>   2
Part 1.
Item 1.  FINANCIAL STATEMENTS

DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,        DECEMBER 31,
                                                              1997                1996
                                                           (UNAUDITED)
<S>                                                       <C>                  <C>         
ASSETS
CURRENT ASSETS
    Cash (interest bearing)                               $   3,406,606        $  1,686,090
  U.S. government securities available for sale, at                            
         market (cost-$11,074,103 and $18,061,432                              
         respectively)                                       11,059,250          18,033,406
    Accrued interest receivable                                 104,596             208,970
    Other current assets                                        129,285              78,367
                                                          -------------        ------------
                                                             14,699,737          20,006,833
FIXED ASSETS                                                    120,662             122,424
                                                          -------------        ------------
                                                          $  14,820,399        $ 20,129,257
                                                          =============        ============
                                                                               
LIABILITIES AND SHAREHOLDERS' EQUITY                                           
                                                                               
CURRENT LIABILITIES                                                            
    Accounts payable                                      $     502,530        $    867,068
    Accrued charges                                             253,578             160,399
                                                          -------------        ------------
                                                                756,108           1,027,467
                                                          -------------        ------------
                                                                               
SHAREHOLDERS' EQUITY                                                           
   Common stock, no par, 20,000,000 shares authorized,                         
      9,355,950 issued and outstanding                       36,710,743          36,710,743
    Deficit accumulated during the development stage        (22,631,599)        (17,580,927)
   Net unrealized loss on U.S. government securities                           
      available for sale                                        (14,853)            (28,026)
                                                          -------------        ------------
                                                             14,064,291          19,101,790
                                                          -------------        ------------
                                                          $  14,820,399        $ 20,129,257
                                                          =============        ============
</TABLE>


See the accompanying notes to the Consolidated Financial Statements


                                       -2-
<PAGE>   3
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                                       CUMULATIVE
                                                                                                                       PERIOD FROM
                                                                                                                       FEBRUARY 21,
                                                                                                                      1991 (DATE OF
                                                        THREE MONTHS   THREE MONTHS    NINE MONTHS     NINE MONTHS    INCORPORATION)
                                                            ENDED          ENDED          ENDED           ENDED        TO SEPTEMBER
                                                        SEPTEMBER 30,  SEPTEMBER 30,  SEPTEMBER 30,   SEPTEMBER 30,        30,
                                                            1997           1996           1997            1996             1997
                                                         (UNAUDITED)    (UNAUDITED)    (UNAUDITED)     (UNAUDITED)     (UNAUDITED)
<S>                                                    <C>            <C>             <C>              <C>            <C>          
REVENUE
       Interest income                                 $    213,543   $    225,043    $    704,447     $    805,311   $   4,718,969
       Gain (loss) on foreign currency exchange                   -              -             240           (1,834)         18,457
       Gain on sale of U.S. government securities                 -              -               -                -         322,659
       Unrealized loss on U.S. government securities                                                                  
         available for sale                                       -              -               -              (62)        (62,832)
                                                       ------------   ------------    ------------     ------------     ----------- 
                                                            213,543        225,043         704,687          803,415       4,997,253
                                                       ------------   ------------    ------------     ------------     ----------- 
RESEARCH AND DEVELOPMENT COSTS                            1,724,864      1,446,074       4,488,870        4,205,172      20,301,640
                                                       ------------   ------------    ------------     ------------     ----------- 
OPERATING COSTS                                                                                                       
       General and administration                           360,687        425,807       1,226,205        1,227,770       7,268,027
       Depreciation and amortization                         14,281          5,634          40,284           18,195         122,017
                                                       ------------   ------------    ------------     ------------     ----------- 
                                                            374,968        431,441       1,266,489        1,245,965       7,390,044
                                                       ------------   ------------    ------------     ------------     ----------- 
LOSS BEFORE CUMULATIVE EFFECT OF                                                                                      
CHANGE IN ACCOUNTING PRINCIPLE                           (1,886,289)    (1,652,472)     (5,050,672)      (4,647,722)    (22,694,431)
CUMULATIVE EFFECT OF CHANGE IN                                                                                        
ACCOUNTING PRINCIPLE                                              -              -               -                -          62,832
                                                       ------------   ------------    ------------     ------------    ------------
NET LOSS                                               $ (1,886,289)  $ (1,652,472)   $ (5,050,672)    $ (4,647,722)    (22,694,431)
                                                       ============   ============    ============     ============     =========== 
NET LOSS PER COMMON SHARE                              $      (0.20)  $      (0.18)   $      (0.54)    $      (0.52)   $      (3.83)
                                                       ============   ============    ============     ============    ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                        9,355,950      9,353,966       9,355,950        8,997,511       5,902,783
                                                       ============   ============    ============     ============    ============ 
</TABLE>


See the accompanying notes to the Consolidated Financial Statements


                                      -3-
<PAGE>   4
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                                       CUMULATIVE  
                                                                                                                      PERIOD FROM
                                                                                                                      FEBRUARY 21,
                                                                                                                     1991 (DATE OF
                                                                                  NINE MONTHS       NINE MONTHS      INCORPORATION)
                                                                                     ENDED             ENDED          TO SEPTEMBER
                                                                                 SEPTEMBER 30,     SEPTEMBER 30,          30,
                                                                                     1997              1996               1997
                                                                                  (UNAUDITED)       (UNAUDITED)       (UNAUDITED)
                                                                                 
<S>                                                                            <C>               <C>                 <C>          
CASH FLOWS USED IN OPERATING ACTIVITIES
       Net loss                                                                $ (5,050,672)     $ (4,647,722)       $(22,631,599)
       Adjustments to reconcile net loss to net cash used in
         operating activities
          Amortization of premiums and accretion of
                  discounts on U.S. government securities
                  available for sale and investment securities, net                (113,875)           (3,308)             58,669
          Depreciation and amortization                                              40,284            18,196             122,017
          Loss (gain) on foreign currency exchange                                     (240)            1,834             (18,457)
          Loss (gain) on sale of U.S. government  securities
                  available for sale                                                   --                  62            (322,659)
          Unrealized loss on U.S. government  securities
                  available for sale                                                   --                --                62,832
          Cumulative effect of change in accounting principle                          --                --               (62,832)
          Write-off of intangible assets                                               --                --               307,519
          Compensation expense  resulting from extension of
                  outstanding stock options terms                                      --                --               557,260
          Changes in other assets and liabilities impacting cash flows from
                  operations:
                  Accrued interest receivable                                       104,374           (11,848)           (104,596)
                  Other current assets                                              (50,918)          (13,085)           (129,285)
                  Accounts payable                                                 (364,538)          743,960             502,530
                  Accrued charges                                                    93,179           (29,049)            253,578
                  License agreement obligations                                        --                --               (12,203)
                                                                               ------------      ------------        ------------ 
NET CASH USED IN OPERATING ACTIVITIES                                            (5,342,406)       (3,940,960)        (21,417,226)
                                                                               ------------      ------------        ------------ 
CASH FLOWS PROVIDED BY (USED IN)
        INVESTING ACTIVITIES
        Advances by Draxis Health Inc.                                                 --                --            (2,867,900)
        Repayment of advances by Draxis Health Inc.                                    --                --             2,867,900
        Purchases of U.S. government securities available for
          sale and investment securities                                         (8,533,796)       (9,828,107)        (98,631,231)
        Proceeds from maturing U.S. government securities
          available for sale and investment security                                   --          10,400,000          18,410,000
        Proceeds from sale of U.S. government securities
          available for sale                                                     15,635,000              --            69,411,118
        Intangible assets                                                              --                --              (193,022)
        Purchases of fixed assets                                                   (38,522)          (18,315)           (225,758)
                                                                               ------------      ------------        ------------ 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                               7,062,682           553,578         (11,228,893)
                                                                               ------------      ------------        ------------ 
</TABLE>


                                       -4-
<PAGE>   5
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                           CUMULATIVE
                                                                                                          PERIOD FROM
                                                                                                          FEBRUARY 21,
                                                                                                         1991 (DATE OF
                                                                    NINE MONTHS        NINE MONTHS       INCORPORATION)
                                                                       ENDED              ENDED                TO
                                                                   SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,
                                                                        1997               1996               1997
                                                                    (UNAUDITED)        (UNAUDITED)        (UNAUDITED)
<S>                                                               <C>                <C>                 <C>         
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
        Stock offering costs                                      $       --         $   (637,062)       $ (5,048,255)
        Issuance of common stock and underwriters' options                --            5,809,502          43,366,566
        Payment received on note receivable from director                 --               14,614              68,047
        Redemption of Draxis Option                                       --                 --            (2,250,000)
        Receipt of Section 16(b) common stock profits                     --                 --                17,125
        Payment on license agreement obligations                          --                 --              (119,215)
                                                                  ------------       ------------        ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                 --            5,187,054          36,034,268
                                                                  ------------       ------------        ------------
EFFECT OF EXCHANGE RATES ON CASH                                           240             (1,834)             18,457
                                                                  ------------       ------------        ------------
NET INCREASE  IN CASH                                                1,720,516          1,797,838           3,406,606
CASH AT BEGINNING OF PERIOD                                          1,686,090          1,197,030                --
                                                                  ------------       ------------        ------------
CASH AT END OF PERIOD                                             $  3,406,606       $  2,994,868        $  3,406,606
                                                                  ============       ============        ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
        INFORMATION
        Issuance of common stock for promissory note from
          Draxis Health Inc.                                                                             $    150,000
                                                                                                         ============
        License agreement obligations incurred in the
          acquisition of an intangible asset                                                             $    131,418
                                                                                                         ============
        Deferred stock offering costs offset against common
          stock                                                                      $    637,062        $  5,048,255
                                                                                     ============        ============
        Note receivable from director originating upon
          exercise of options for common stock                                                           $     68,047
                                                                                                         ============
        Interest paid                                                                                    $     12,594
                                                                                                         ============
</TABLE>

There were no income tax payments made during the periods.

See the accompanying notes to the Consolidated Financial Statements


                                       -5-
<PAGE>   6
DUSA PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       The Consolidated Balance Sheets as of September 30, 1997, the
     Consolidated Statements of Operations for the three and nine month periods
     ended September 30, 1997, and 1996 and for the period from February 21,
     1991, (date of incorporation) to September 30, 1997, and the Consolidated
     Statements of Cash Flows for the nine month periods ended September 30,
     1997, and 1996 and for the period from February 21, 1991, (date of
     incorporation) to September 30, 1997, have been prepared by the Company,
     without audit. In the opinion of management, all adjustments (which include
     only normal recurring adjustments) necessary to present fairly the
     financial position, results of operations and changes in cash flows as of
     September 30, 1997, and for all periods presented have been made.

         Certain information and footnote disclosures normally included in
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted. These financial
     statements should be read in conjunction with the Company's December 31,
     1996 audited consolidated financial statements and notes thereto.

         The consolidated financial statements include the accounts of the
     Company and its wholly-owned subsidiary, DUSA Pharmaceuticals New York,
     Inc. All significant intercompany accounts have been eliminated on
     consolidation. The Company was formerly a subsidiary of Draxis Health Inc.

2.       The Company's United States government securities available for sale
     consist of securities of the United States government, and its agencies,
     with interest rates and yields ranging from 5.26% to 6.875%, and maturity
     dates ranging from October 7, 1997 to August 10, 1999.

3.       Net loss per common share is based on the weighted average number of
     shares outstanding during each period. Certain common stock issuances
     (2,200,000) were made at prices less than the initial public offering
     price. Accordingly, the associated shares are included in the calculation
     of net loss per share as if they were outstanding for the entire period.
     Stock options are not included in the computation of the weighted average
     number of shares outstanding during the period as the effect would be
     antidilutive.

4.       On February 13, 1997, the Company granted, subject to regulatory
     requirements, incentive and non-qualified stock options to one consultant
     and seven employees of the Company, to purchase 41,000 shares of common
     stock at $7.25 per share pursuant to the terms of the 1996 Omnibus Plan.
     The exercise price of such options is the closing stock market price on the
     date of grant.

         On March 13, 1997 the Company conditionally granted non-qualified stock
     options to Lumenetics, Inc., a consultant to the Company, to purchase
     100,000 shares of common stock at $6.125 per share. These options were
     granted on the condition, which was fulfilled on October 14 , 1997, that
     the parties conclude a revised development agreement. In addition, the
     Company granted non-qualified stock options to a consultant to the Company
     to purchase 15,000 shares of common stock at $6.125 per share as part of a
     consulting agreement. The exercise price of such options is the closing
     market price of the Company's common stock on the date of grant.

         On June 5, 1997 at the Annual Meetings of Shareholders, the
     shareholders approved an amendment to the 1996 Omnibus Plan, providing that
     all of the stock options granted automatically to directors of the Company,
     after the date of amendment, would immediately vest on the date of the
     grant. Under the terms of the 1996 Omnibus Plan each person who is a
     continuing director following the Annual Meeting of the


                                       -6-
<PAGE>   7
     Shareholders automatically receives 10,000 non-qualified stock options.
     Consequently on June 6, 1997 the Company granted a total of 50,000
     non-qualified stock options to the directors to purchase the common stock
     of the Company at $6.25 per share. The exercise price of such options is
     the closing market price of the Company's common stock on the date of
     grant.

5.       On September 26, 1997, the Company conditionally granted non-qualified
     stock options to a consultant to the Company to purchase up to 30,000
     shares of common stock at $7.4375 per share. The grant is subject to the
     entry of a Consulting Agreement for investment advisory services. The
     exercise price of the options is the closing market price of the Company's
     common stock on the date of the grant.

         On September 26, 1997 the Company adopted a Shareholders Rights Plan
     (the "Plan"). The Plan provides for the distribution of one right as a
     dividend for each outstanding share of common stock of the Company to
     holders of record as of October 24, 1997. Each Right entitles shareholders
     to purchase one unit at a Purchase Price of $50.00. Each unit consists of
     one-tenth of a share of common stock of the Company and a note equal to
     nine-tenths of a share of common stock based on the fair market price of
     the Company's common stock on the date of exercise. The Rights may be
     exercised only if a person or group either acquires or announces a tender
     offer to acquire 15% or more of the Company's outstanding common stock, or
     if a person or group is declared an Adverse Person, as such term is defined
     in the Plan. The Rights may be redeemed by the Company at a redemption
     price of one-tenth of a cent per right until 10 days following the date a
     person acquires 15 percent or more of the Company, or until such later date
     as may be determined by the Board.

         Under the Plan, if a person or group acquires 15% or more of the
     Company's common stock, all holders of Rights (other than the acquiring
     shareholder) may, upon payment of the Purchase Price then in effect,
     purchase shares of the Company's common stock having a value of twice the
     Purchase Price. In the event that the Company is involved in a merger or
     other similar transaction where it is not the surviving corporation, all
     holders of Rights (other than the acquiring shareholder) shall be entitled,
     upon payment of the Purchase Price, to purchase common stock of the
     surviving corporation having a value of twice the Purchase Price. The
     Rights will expire on October 24, 2007, unless previously redeemed.

6.       On August 11, 1997, the Company entered into a new lease agreement for
     larger office space in Valhalla, New York. Future minimum payments under
     the new lease will total approximately $22,000 for the remainder of 1997,
     $104,100 in 1998, $110,600 in 1999, $115,000 in 2000, $121,000 in 2001, and
     $108,300 in 2002.

7.       The Company has entered into a series of agreements for research
     projects and clinical studies. As of September 30, 1997, future payments to
     be made pursuant to these agreements, under certain terms and conditions,
     total $710,021 for the remainder of 1997, and $163,953 for 1998.


                                       -7-
<PAGE>   8
ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes to Consolidated Financial Statements
for the year ended December 31, 1996 and for the three and nine-month periods
ended September 30, 1997, and September 30, 1996, respectively. The Company is a
development-stage pharmaceutical company engaged primarily in the development of
photodynamic therapy ("PDT") and photodetection ("PD") utilizing Levulan(R), the
Company's brand of 5-aminolevulinic acid ("ALA"), for various medical
indications. The Company has raised funds through its initial public offering of
the Company's common stock in January 1992, private placements, and public
offerings in December 1995 and May 1996. Since the end of the third quarter, the
Company completed its Phase III PDT trials for use of Levulan(R) to treat
actinic keratoses (AKs). The Company is in the process of compiling all of the
data from its AK program for submission of its first New Drug Application
("NDA") to the U.S. Food and Drug Administration. The Company expects to file
the NDA during the first quarter of 1998.

     The Company's wholly-owned subsidiary, DUSA Pharmaceuticals New York, Inc.,
relocated from Tarrytown, New York to larger facilities in Valhalla, New York in
October 1997 under the terms of a new five-year lease. The expanded facilities
will comprise approximately 5,200 square feet of space. Lease payments will
total approximately $22,000 for the remainder of 1997, $104,100 in 1998,
$110,600 in 1999, $115,000 in 2000, $121,000 in 2001, and $108,300 in 2002. The
Company believes that this space will accommodate anticipated increases in
personnel and operations during the term of the lease.

Financial Condition

     The Company's total assets were $14,820,399 as of September 30, 1997,
compared to $20,129,257 as of December 31, 1996. The current rate of decline is
within managements' expectations. The decline of current assets will continue as
research and development activities proceed. However, the Company is seeking a
strategic alliance partner to market its dermatology products and is hopeful
that funds which may be raised through this type of transaction would allow the
Company to continue to advance all of its current research and development
programs and perhaps to expand its activities into new areas. As of September
30, 1997, the Company had outstanding current liabilities of $756,108 as
compared to $1,027,467 as of December 31, 1996. The decrease in current
liabilities from December 31, 1996 is due to timing of the payment of expenses.
Since its inception the Company has had no long-term debt. The Company held
United States government securities at a fair market value of $11,059,250 as of
September 30, 1997, as compared to $18,033,406 as of December 31, 1996. In the
three-month period ending September 30, 1997, the Company incurred an
operational loss of 


                                      -8-
<PAGE>   9
$1,886,289, compared to $1,652,472 for the three-month period ended September
30, 1996. (See "Results of Operations" below).

     The Company cannot guarantee that it will conclude a strategic alliance
arrangement and believes, nevertheless, that it has sufficient capital resources
to proceed with its current Levulan(R) PDT/PD development program as planned for
bladder cancer, hair removal, endometrial ablation, and acne while it awaits
review of its AK NDA by the FDA. There can be no assurances, however, that
current funds will be sufficient to maintain current research and development
spending levels for the duration of the NDA review since the Company cannot
determine how long it will take to receive marketing approval, if at all, or
whether additional testing requirements will be demanded by the FDA.
Furthermore, there can be no assurance that the Company will obtain regulatory
marketing approval or have sufficient funds to market Levulan(R) for AKs or for
any other indications currently under development. As the development program
for Levulan(R) PDT/PD continues, the Company may adjust its priorities on how
its resources are to be allocated between current indications and new potential
indications. In addition, exact allocation of the proceeds for such purposes and
timing of the expenditures will be dependent on various factors, including the
progress of the Company's research and development programs, the results of
preclinical and clinical trials, the timing of regulatory marketing approvals,
competitive developments, and the availability of additional financing. The
Company may, however, enter into joint development or licensing arrangements,
both domestically and internationally, with pharmaceutical companies. The
Company may also acquire, by license, purchase or other arrangement, businesses,
technologies, or products that enhance or expand the Company's business.
Although the Company is in active strategic alliance discussions for its
dermatology products, it may also be desirable or necessary in the future to
raise additional funds through financings, corporate alliances or other sources.

         During this third quarter, the Company filed an Investigational New
Drug (IND) application with the FDA, to begin a Phase I/II multicenter clinical
trial using Levulan(R) PhotoDetection (PD) for bladder cancer. The seven-center
study, involving 60 patients, is designed to assess the ability of Levulan(R) PD
to detect bladder cancer in high-risk patients compared to current methods of
detection. The study will use light sources and cystoscopes provided by Richard
Wolf Medical Instruments Corp. The trial was initiated during the fourth
quarter. The Company's study follows publications by independent European
researchers which reported that ALA PD improved detection of bladder cancers by
up to 20% during cystoscopies by urologists, compared to standard white light
examination. When precancerous lesions were included, the reported detection
increased by 33%. The Company has also provided partial support for an ongoing
independent clinical study in Boston using Levulan(R) PD for this indication.


                                       -9-
<PAGE>   10
     The Company began a multi-center Phase I/II trial using Levulan(R) PDT for
hair removal in the first half of this year. The study is ongoing, with results
expected in 1998. The commencement of the Company's next acne study has been
deferred until 1998, after the AK NDA is filed. The Company is also supporting
an investigator sponsored trial using Levulan(R) PDT for endometrial ablation,
which is expected to begin in the fourth quarter.

     There are numerous other potential therapeutic and diagnostic uses for
Levulan(R) PDT/PD, and the Company continues to support research in certain of
these areas as appropriate, with pilot trials, and investigator-sponsored
studies based on clinical, regulatory and marketing criteria predetermined by
the Company. Some of the investigator-sponsored studies currently supported by
the Company include Levulan(R) PDT/PD for cervical cancer, psoriasis, alopecia
areata, and basal cell carcinomas.

     There can be no assurance that the AK product will be approved or that any
other product will be successfully developed, prove to be safe and effective in
necessary pivotal clinical trials, or receive applicable regulatory marketing
approvals. Therefore, there is no way to predict the timing or magnitude of the
revenues from the marketing of the Company's product or whether any such
revenues will be realized.

     Based upon the current status of the Company's research and development
program in relation to the mergers and acquisition environment and in order to
protect the long-term interests of the Company's shareholders, the Company
adopted a Shareholder Rights Plan, on September 26, 1997. (See Note 5 to the
Company's Notes to the Consolidated Financial Statements above.) The Company's
management is not aware of any takeover activity involving the Company. In
addition, the Board of Directors adopted certain amendments to the Company's
By-laws and Certificate of Incorporation which are consistent with the goals of
the Plan and which will be submitted to shareholders for approval at the
Company's next Annual Meeting of shareholders.

     Recently, the Company and PARTEQ, the Company's licensor of ALA, agreed to
certain revisions to the License Agreement dated August 27, 1991. Subject to
entry of a definitive Revised License Agreement, PARTEQ will receive options to
purchase 85,000 options to purchase common stock of the Company at an exercise
price of $10.875 per share which will vest over four (4) years. The Company has
agreed to pay certain minimum royalties and PARTEQ has reduced the amount of
royalties which would have been due on sub-license arrangements which the
Company may have entered. In addition, PARTEQ has agreed to eliminate Draxis
Health, Inc., the Company's former parent, as a guarantor under this Agreement.


                                      -10-
<PAGE>   11
Results of Operations

     The Company has had no sales to date. Interest income, earned primarily on
United States government securities, decreased to $213,543 for the three-month
period ended September 30, 1997, as compared to $225,043 for the three-month
period ended September 30, 1996, as the Company continues to expend funds for
ongoing research and development. This trend is expected to continue throughout
the Company's development stage. Interest income for the cumulative period from
February 21, 1991 (date of incorporation) to September 30, 1997 was $4,718,969.

     Research and development costs for the three-month period ended September
30, 1997, were $1,724,864 compared to $1,446,074 for the three-month period
ended September 30, 1996. The increase in expenditures is attributable to
completion of the Phase III AK clinical trials. Research and development costs
are expected to increase, as scheduled, with the increasing number of clinical
studies and the hiring of additional research and development personnel as
necessary. Total research and development costs for the cumulative period from
February 21, 1991 (date of incorporation) to September 30, 1997 were
$20,301,640. Costs and development fees associated with all agreements for
research projects and clinical studies commit the Company to make payments of
$710,021, for the remainder of 1997.

     Operating expenses were $374,968 and $431,441, respectively, for the
three-month periods ended September 30, 1997, and September 30, 1996. The
decrease in operating expenses over the prior year is due primarily to
professional fees paid in 1996 with respect to a potential acquisition which was
not completed. Operating expenses are expected, however, to increase in the
future as a result of larger facilities and as the Company continues to hire
additional financial and administrative personnel, as required, and to establish
a regulatory affairs department at the appropriate time.

     The Company incurred a net loss of $5,050,672, or $0.54 per share, for the
nine-month period ended September 30, 1997, as compared to a net loss of
$4,647,722, or $0.52 per share, for the nine-month period ended September 30,
1996. Net losses for the cumulative period from February 21, 1991 (date of
incorporation) to September 30, 1997 were $22,631,599, or $3.83 per share. Such
losses are consistent with the Company's expectations and the Company
anticipates that losses will continue throughout the development stage.

Liquidity and Capital Resources

     The Company's United States government securities available for sale have
an aggregate cost of $11,074,103 and a current aggregate market value of
$11,059,250 as of September 30, 1997, resulting in a net 


                                      -11-
<PAGE>   12
unrealized loss on securities available for sale of $14,853, the provision for
which has been charged to shareholders' equity. The decline in the market value
of the Company's government securities was the result of fluctuating interest
rates in the United States from the time these securities were acquired. Some
losses could be realized, depending upon the timing of the Company's need to
convert government securities into cash to meet its working capital
requirements. The Company's securities currently have interest rates and yields
ranging from 5.26% to 6.875%, and maturity dates ranging from October 7, 1997 to
August 10, 1999. The Company believes it has sufficient capital resources to
proceed with its current development program for Levulan(R) PDT/ PD. Management
is focusing initial pivotal clinical trials on a limited number of indications
to enhance the Company's ability to complete the regulatory process, but full
development and testing of all potential indications which are currently under
development would require additional funding (see "Financial Condition"). The
Company has invested its funds in liquid investments, so that it will have ready
access to its cash reserves, as needed, for the funding of its development plans
on a short-term and long-term basis.

     The foregoing Management Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993 which represent the Company's expectations or beliefs concerning
future events, including, but not limited to statements regarding management's
expectations of regulatory approval and the commencement of sales, and the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. 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 conditions, availability of suitable light sources,
clinical results of its trials, the impact of competitive products and pricing,
and the timely development, FDA approval and market acceptance of the Company's
products, 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.

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. The Company has included an inflation factor in its cost estimates,
however, the overall net effect of inflation on the operations of the Company
should be minimal.


                                      -12-
<PAGE>   13
                           PART II- OTHER INFORMATION

Item 1.
          None.
Item 2.
          Changes in Securities and Use of Proceeds.

               On September 26, 1997 the Company adopted a Shareholders Rights
          Plan (the "Plan"). The Plan provides for the distribution of one right
          as a dividend for each outstanding share of common stock of the
          Company to holders of record as of October 24, 1997. Each Right
          entitles shareholders to purchase one unit at a Purchase Price of
          $50.00. Each unit consists of one-tenth of a share of common stock of
          the Company and a note equal to nine-tenths of a share of common stock
          based on the fair market price of the Company's common stock on the
          date of exercise. The Rights may be exercised only if a person or
          group either acquires or announces a tender offer to acquire 15% or
          more of the Company's outstanding common stock, or if a person or
          group is declared an Adverse Person, as such term is defined in the
          Plan. The Rights may be redeemed by the Company at a redemption price
          of one-tenth of a cent per right until 10 days following the date a
          person acquires 15 percent or more of the Company, or until such later
          date as may be determined by the Board.

               Under the Plan, if a person or group acquires 15% or more of the
          Company's common stock, all holders of Rights (other than the
          acquiring shareholder) may, upon payment of the Purchase Price then in
          effect, purchase shares of the Company's common stock having a value
          of twice the Purchase Price. In the event that the Company is involved
          in a merger or other similar transaction where it is not the surviving
          corporation, all holders of Rights (other than the acquiring
          shareholder) shall be entitled, upon payment of the Purchase Price, to
          purchase common stock of the surviving corporation having a value of
          twice the Purchase Price. The Rights will expire on October 24, 2007,
          unless previously redeemed.

Items 3-5.

          None.

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

     a)   Exhibit 3(ii) - By-laws, as amended by Company's Board of Directors on
          September 26, 1997.

            Exhibit 4    - Instruments defining the rights of Security holders.
                    4.1  - Stock Certificate.
                    4.2  - Rights Agreement dated September 26, 1997 between
                           DUSA Pharmaceuticals, Inc. and American Stock
                           Transfer & Trust Company as Rights Agent,
                           incorporated by reference to Exhibit 1 to the
                           Company's Registration Statement on Form 8-A filed


                                      -13-
<PAGE>   14
                           October 24, 1997. 

                    4.3  - Form of Indenture dated as of September 26, 1997 
                           between DUSA Pharmaceuticals, Inc. and American Stock
                           Transfer & Trust Company, incorporated by reference
                           to Exhibit 2 to the Company's Registration Statement
                           on Form 8-A filed October 24, 1997. 

     b)   Form 8-K regarding adoption of the Company's Shareholder Rights Plan
          was filed on October 24, 1997.

     c)   Exhibits 27 - Financial Data Schedule, which is submitted
          electronically to the Securities and Exchange Commission for
          information only and not filed.


                                   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 November 11,  1997                 BY:   /S/D. GEOFFREY SHULMAN
                                              -------------------------
                                        D. GEOFFREY SHULMAN, MD, FRCPC
                                        PRESIDENT, CHIEF EXECUTIVE OFFICER, AND 
                                        CHIEF FINANCIAL OFFICER


                                      -14-
<PAGE>   15
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
     Exhibit Number                               Description
     --------------                               -----------
<S>                        <C>                                                                                
Exhibit 3(ii) -            By-laws, as amended by Company's Board of Directors on September
                           26, 1997.
Exhibit 4   -              Instruments defining the rights of Security holders.
        4.1 -              Stock Certificate.
        4.2 -              Rights Agreement dated September 26, 1997 between DUSA Pharmaceuticals,
                           Inc. and American Stock Transfer & Trust Company as Rights Agent,
                           incorporated by reference to Exhibit 1 to the Company's Registration Statement
                           on Form 8-A filed October 24, 1997.
        4.3 -              Form of Indenture dated as of September 26, 1997 between DUSA
                           Pharmaceuticals, Inc. and American Stock Transfer & Trust Company,
                           incorporated by reference to Exhibit 2 to the
                           Company's Registration Statement on Form 8-A filed
                           October 24, 1997.
Exhibit 27 -               Financial Data Schedule, which is submitted electronically to the Securities and
                           Exchange Commission for information only and not filed.
</TABLE>


                                      -15-