<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, 2000
                                       --------------------------------

                                       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)


<TABLE>
<S>                                                <C>
                  NEW JERSEY                           22-3103129

        (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)            IDENTIFICATION NO.)
</TABLE>

                                 25 UPTON DRIVE
                         WILMINGTON, MASSACHUSETTS 01887
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (978) 657-7500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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

                 Yes   X                             No
                     -----                              -----


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


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

                 Yes                        No
                    -----                     -----

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

                    13,730,890 shares as of November 10, 2000

                                      -1-
<PAGE>   2
PART 1.
ITEM 1.  FINANCIAL STATEMENTS

DUSA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                          SEPTEMBER 30,       DECEMBER 31,
                                                                              2000               1999
                                                                           (UNAUDITED)
<S>                                                                      <C>                 <C>
ASSETS

CURRENT ASSETS
Cash (interest bearing)                                                  $  2,104,023        $  7,028,618
U.S. government securities available for sale, at market (cost-
  $59,233,657 and $19,951,281, respectively)                               59,686,742          19,868,962
Accrued interest receivable                                                   851,728             266,621
Inventory                                                                     882,711                  --
Accounts receivable                                                           139,583                  --
Receivable under co-development program                                       602,504                  --
Other current assets                                                          183,596             132,833
                                                                         ------------        ------------
                                                                           64,450,887          27,297,034
FIXED ASSETS, NET                                                           1,237,115             428,350

DEPOSITS ON EQUIPMENT                                                         112,719              27,631

DEFERRED ROYALTY                                                              404,766             403,830

DEFERRED CHARGES                                                            1,000,000                  --

OTHER DEPOSITS                                                                201,909                  --
                                                                         ------------        ------------
                                                                         $ 67,407,396        $ 28,156,845
                                                                         ============        ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                     $    261,641        $    117,109
    Accrued payroll                                                           453,504             428,212
    Other accrued charges                                                     629,806             299,929
    Due to PARTEQ                                                                  --             370,000
    Income taxes payable                                                           --              90,000
                                                                         ------------        ------------
Total current liabilities                                                   1,344,951           1,305,250
DEFERRED REVENUES                                                           9,791,667           9,791,667
                                                                         ------------        ------------
                                                                           11,136,618          11,096,917
SHAREHOLDERS' EQUITY
Capital Stock
   Authorized: 100,000,000 shares of which 40,000,000 shares are
      designated as Common stock, no par, and 60,000,000 shares
      issuable in series or classes                                        94,720,674          51,749,987
   Issued and outstanding shares of  Common stock, no par:
       13,720,890 (1999: 11,908,357)
Additional paid-in capital                                                  1,338,854           1,338,854
Accumulated deficit                                                       (40,241,834)        (35,946,594)
Net unrealized gain (loss) on U.S. government securities available
       for sale                                                               453,084             (82,319)
                                                                         ------------        ------------
                                                                           56,270,778          17,059,928
                                                                         ------------        ------------
                                                                         $ 67,407,396        $ 28,156,845
                                                                         ============        ============
</TABLE>

See the accompanying notes to the Consolidated Financial Statements

                                      -2-
<PAGE>   3
DUSA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                   THREE MONTHS         THREE MONTHS         NINE MONTHS          NINE MONTHS
                                                       ENDED               ENDED               ENDED                 ENDED
                                                   SEPTEMBER 30,        SEPTEMBER 30,       SEPTEMBER 30,         SEPTEMBER 30,
                                                       2000                 1999                2000                 1999
                                                    (UNAUDITED)          (UNAUDITED)         (UNAUDITED)          (UNAUDITED)
<S>                                                <C>                  <C>                  <C>                  <C>
REVENUES
     Product sales                                 $    139,583         $          0         $    139,583         $          0
     Research revenue earned under
     collaborative agreements                                 0                    0              602,504                    0
                                                   ------------         ------------         ------------         ------------
TOTAL REVENUES                                          139,583                    0              742,087                    0
                                                   ------------         ------------         ------------         ------------
COSTS AND EXPENSES
     Cost of products sold                              139,583                    0              139,583                    0
     Research and development                         2,027,420              719,443            5,496,268            2,626,410
     General and administrative                         531,142              602,258            1,671,322            1,437,094
                                                   ------------         ------------         ------------         ------------
TOTAL COSTS AND EXPENSES                              2,698,145            1,321,701            7,307,173            4,063,504
                                                   ------------         ------------         ------------         ------------

OPERATING LOSS                                       (2,558,562)          (1,321,701)          (6,565,086)          (4,063,504)

OTHER INCOME
     Interest income                                    944,475              129,566            2,269,846              412,765
                                                   ------------         ------------         ------------         ------------

NET LOSS                                           $ (1,614,087)        $ (1,192,135)        $ (4,295,240)        $ (3,650,739)
                                                   ============         ============         ============         ============
OTHER COMPREHENSIVE INCOME/(LOSS)
     Net Loss                                      $ (1,614,087)        $ (1,192,135)        $ (4,295,240)        $ (3,650,739)
     Net unrealized gain (loss) on U.S.
     government securities available for
     sale                                               385,400               (9,913)             453,084              (47,512)
                                                   ------------         ------------         ------------         ------------

COMPREHENSIVE LOSS                                 $ (1,228,687)        $ (1,202,048)        $ (3,842,156)        $ (3,698,251)
                                                   ============         ============         ============         ============

BASIC AND DILUTED NET LOSS PER COMMON SHARE        $      (0.12)        $      (0.11)        $      (0.33)        $      (0.39)
                                                   ============         ============         ============         ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING                                          13,619,731           10,979,708           13,136,280            9,365,950
                                                   ============         ============         ============         ============
</TABLE>

See the accompanying notes to the Consolidated Financial Statements

                                      -3-
<PAGE>   4
DUSA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                              NINE MONTHS ENDED     NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,        SEPTEMBER 30,
                                                                                     2000                 1999
                                                                                 (UNAUDITED)          (UNAUDITED)
<S>                                                                           <C>                   <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
     Net loss                                                                   $ (4,295,240)        $ (3,650,739)
     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                                            (225,934)            (127,042)
       Depreciation and amortization                                                 181,887               55,198
       Vesting of non-employee options                                                    --               84,000
       Issue of additional shares and warrants                                            --              152,495
       Changes in other assets and liabilities impacting cash flows from
          operations:
          Accounts receivable                                                       (139,583)                  --
          Accrued interest receivable                                               (585,107)             (28,040)
          Inventory                                                                 (882,711)                  --
          Receivable under co-development program                                   (602,504)                  --
          Other current assets                                                      (252,672)             (35,576)
          Accounts payable                                                           144,533             (133,859)
          Corporate taxes payable                                                    (90,000)                  --
          Accrued payroll and other charges                                          355,165              151,214
          Due to PARTEQ                                                             (370,000)                  --
                                                                                  -----------          -----------
NET CASH USED IN OPERATING ACTIVITIES                                             (6,762,166)          (3,532,349)
                                                                                  -----------          -----------

CASH FLOWS PROVIDED BY (USED IN)
     INVESTING ACTIVITIES
     Purchases of U.S. government securities available for
        sale and investment securities                                           (50,506,441)         (14,131,033)
     Proceeds from maturing U.S. government securities
        available for sale                                                        11,450,000           10,200,000
     Purchases of fixed assets                                                      (990,652)             (21,023)
     Deposits on equipment                                                           (85,088)            (165,334)
     Deferred charges                                                               (250,000)                  --
     Deferred royalty                                                                   (936)                  --
                                                                                  -----------          -----------
NET CASH USED IN INVESTING ACTIVITIES                                            (40,383,117)          (4,117,390)
                                                                                  -----------          -----------

 CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
     Stock offering costs (note 5)                                                (2,051,714)            (296,983)
     Issuance of common stock and underwriters' options
     (note 5)                                                                     42,750,000            8,208,693
     Proceeds from exercise of options                                             1,522,402
                                                                                  -----------          -----------


NET CASH PROVIDED BY FINANCING ACTIVITIES                                         42,220,688            7,911,710

NET (DECREASE) INCREASE  IN CASH                                                  (4,924,595)             261,971

CASH AT BEGINNING OF PERIOD                                                        7,028,618            1,213,757
                                                                                  -----------          -----------


CASH AT END OF PERIOD                                                           $  2,104,023         $  1,475,728
                                                                                =============        =============

</TABLE>

Supplemental Disclosures of Cash Flow Information
During the nine months ended September 30, 2000, the Company issued 26,666.66
unregistered shares of DUSA's Common Stock, at a fair market value of $750,000,
to Sochinaz, S.A. (See Note 7.)

See the accompanying notes to the Consolidated Financial Statements

                                      -4-
<PAGE>   5
DUSA PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   The Consolidated Balance Sheet as of September 30, 2000, the Consolidated
     Statements of Operations for the three and nine-month periods ended
     September 30, 2000, and 1999, and the Consolidated Statements of Cash Flows
     for the nine-month periods ended September 30, 2000, and 1999 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, 2000, 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, 1999 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.

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 6.09% to 7.42%, and maturity
     dates ranging from October 2, 2000 to August 15, 2005.

3.   Basic net loss per common share is based on the weighted average number of
     shares outstanding during each period. None of the stock options and
     warrants are included in the computation of the weighted average number of
     shares outstanding for diluted net loss per common share during the period
     as the effect would be antidilutive.

4.   The Company has entered into a series of agreements for research projects
     and clinical studies. As of September 30, 2000, future payments to be made
     pursuant to these agreements, under certain terms and conditions, total
     approximately $504,463 for the remainder of 2000.

5.   On March 22, 2000, the Company issued 1,500,000 shares of its common stock
     in a private placement pursuant to Regulation D of the Securities Act of
     1933. The Company received gross proceeds of $42,750,000. The offering
     costs associated with the placement were $2,050,376.

6.   Under our agreement with Schering AG, two-thirds of the agreed upon
     dermatology research and development expenses, up to $3,000,000 per year,
     are to be reimbursed to DUSA by Schering AG, for 2000 and 2001. We have
     already accrued an estimated reimbursement amount of $602,504 for the
     nine-month period ended September 30, 2000. Subsequent to the end of the
     third quarter, Schering AG and DUSA have formally agreed upon the
     development program that will be subject to reimbursement for this year.
     Until total actual expenditures for the balance of the year are finalized,
     management will not accrue any additional reimbursement estimate. Because
     of the agreed upon development plan and timing of the start of clinical
     trials, the reimbursement amount for this year is expected to be less than
     $1,000,000.

7.   In June, 2000, the Company amended its Supply Agreement with Sochinaz,
     S.A., the manufacturer of the bulk drug ingredient used in Levulan(R). The
     amendment grants an option to DUSA to extend the term of the Supply
     Agreement for an additional three years to December 3, 2007. As
     consideration for the amendment, DUSA agreed to reimburse Sochinaz for a
     portion of its costs to bring its manufacturing facilities in Switzerland
     into compliance with the FDA's cGMPs. DUSA paid $250,000 in cash and issued
     26,666.66 unregistered shares of DUSA's Common Stock, at a fair market
     value of $750,000. The total $1,000,000 has been reported as deferred
     charges which will be amortized over the current term of the contract.

                                      -5-
<PAGE>   6
DUSA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)


8.      Inventories are stated at the lower of cost (first-in, first-out
        method) or market. Inventories consist of the following at September
        30, 2000:

<TABLE>
<S>                                                             <C>
            Finished goods                                     $774,567

            Raw materials                                        83,750

            Purchased parts and subassemblies                    24,394
                                                               --------
            Total inventory                                    $882,711
                                                               ========
</TABLE>

9.      Revenue Recognition: Revenue on product sales is recognized upon
        shipment. Revenue on the sale of commercial light sources will be
        initially deferred and recognized in income upon satisfaction of all
        conditions and terms of the sale and when the customer's right of
        return expires, normally after one year.

        Research revenue earned under collaborative agreements consists of
        non-refundable research and development funding from a corporate
        partner. Research revenue generally compensates the Company for a
        portion of agreed-upon research and development expenses and is
        recognized as revenue at the time the research and development
        activities are performed under the terms of the related agreements and
        when no future performance obligations exist.

        Milestone or other upfront payments are recorded as deferred revenue
        upon receipt and recognized as income on a systematic basis (based upon
        the timing and level of work performed or on a straight-line basis if
        not otherwise determinable) over the period that the related products
        or services are delivered or obligations are performed.

10.     Organization: Since its inception through June 30, 2000 the Company had
        been classified as a development stage enterprise. Effective with the
        launch on September 28th, 2000 of the Company's first commercial
        products Levulan(R) Kerastick(R) 20% Topical solution and the BLU-UO(TM)
        light source in cooperation with the Berlex Laboratories, the United
        States affiliate of Schering AG, the Company is no longer classified as
        a development stage enterprise and, accordingly, such disclosures have
        been eliminated from these financial statements.

                                      -6-
<PAGE>   7
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Overview

         The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes to the Consolidated
Financial Statements for the year ended December 31, 1999 and for the
three-month and nine-month periods ended September 30, 2000, and September 30,
1999, respectively. On September 26, 2000, DUSA Pharmaceuticals, Inc. received
marketing approval from the United States Food and Drug Administration (FDA) for
its commercial BLU-U(TM) brand light device. This event represented the final
step needed for DUSA to transition from a development-stage entity to an
operational one, following the earlier FDA approval for the Company's
LEVULAN(R) KERASTICK(R) brand drug applicator. DUSA is engaged primarily in
the research and development of a drug named 5-aminolevulinic acid, or ALA, used
in combination with appropriate light devices in order to detect or treat a
variety of medical conditions. The trademark for our brand of ALA is LEVULAN(R).
When we use LEVULAN(R) and follow it with exposure to light to produce a
therapeutic effect, the technology is called photodynamic therapy, or PDT. When
we use LEVULAN(R) and follow it with exposure to light to detect medical
conditions, the technology is called photodetection, or PD. Our first products
are the LEVULAN(R) KERASTICK(R) 20% topical solution with photodynamic therapy,
for treatment of non-hyperkeratotic actinic keratoses (AKs) of the face or
scalp, in combination with our BLU-U(TM) brand light source. Following the
recent FDA approval, LEVULAN(R) PDT for AKs was launched throughout the United
States by Berlex Laboratories, Inc., (Berlex), the U.S. affiliate of our
dermatology partner, Schering AG of Germany. Our other dermatology and internal
potential indications are at exploratory, Phase I or Phase II stages.

                                      -7-
<PAGE>   8
         We have experienced significant operating losses since our inception,
as we have devoted substantial resources to development of our first products,
while advancing the LEVULAN(R) PDT/PD technology platform for other medical
uses. As of September 30, 2000, we had an accumulated deficit of $40,241,834.
Our transition from a development-stage company to a profitable operating
company is dependent upon the market penetration by Berlex of our products and
our ability to meet the supply needs of the growing customer base. At this time,
we believe that if Berlex is able to meet its current 2001 sales goals, and
depending upon the level of research and development expenses we may incur
during next year, we may achieve an overall profit for 2001. Currently, we are
meeting Berlex's supply requirements. However, any significant delays in
delivery of sufficient product supplies from our third-party suppliers of the
KERASTICK(R) and/or the BLU-U(TM), would have a significant adverse impact on
our financial results.

         While Schering AG has significant expertise in dermatology markets
outside the United States, and Berlex has significant expertise in
non-dermatology markets in the United States, our products represent Berlex's
first dermatology marketing effort in the United States. At the current time,
Berlex has hired and trained 43 sales representatives and area managers who are
dedicated to the LEVULAN(R) PDT system.

         We expect to continue to incur operating losses into part of next year,
depending upon sales levels achieved by Berlex. Our research and development
efforts are expanding, both in dermatology (in partnership with Schering AG),
and in our internal indication development programs. We have increased our staff
in our Wilmington, Massachusetts headquarters and in our Valhalla, New York
research and development coordination center in order to properly support all
activities relating to production, maintenance, customer support for our first
and future products, as well as the research and development programs for
dermatology and internal indications. We do not

                                      -8-
<PAGE>   9
know precisely when the royalties and supply fees to which we are entitled under
our Schering AG agreement, along with interest and/or other income, may offset
the cost of these efforts.

Results of Operations

         Revenues. The Company made its first sales of the KERASTICK(R) to
Berlex during the quarter, generating revenues of $139,583. The selling price to
be paid to DUSA for sales of the KERASTICK(R) is based upon DUSA's cost of
goods, which was also $139,583, plus royalties and supply fees, based upon net
sales of Schering AG. The royalties and supply fees will be earned and
recognized when the KERASTICK(R) is sold by Berlex to its distributor, and is
due and payable to DUSA no later than 60 days following the end of the quarter
in which the sales are made. Therefore, DUSA will recognize royalties and supply
revenue related to these initial sales in the next quarter as well as revenue
from any additional sales. The Company decided that leasing the BLU-U(TM)'s to
dermatologists would be the primary method of distribution for the light
sources. The Company has engaged a medical device leasing company to complete
the leasing transactions, including coordinating payment plans with the
physicians. The Company will sell the BLU-U(TM)'s to the leasing company, and
will be paid for the units by the leasing company shortly after installation in
the physician's offices. However, because physicians have the right to cancel
their leases after one year, these revenues will be reported as deferred
revenues until their right to cancel has expired. In the event a physician does
cancel a lease, the Company has agreed to repurchase the units at an agreed upon
price. The Company expects that it will recognize revenues from the distribution
of BLU-U(TM)'s beginning in late 2001.

         Under our agreement with Schering AG, two-thirds of the agreed upon
dermatology research and development expenses, up to $3,000,000 per year, are to
be reimbursed to DUSA by Schering AG, for 2000 and 2001. We have already accrued
an estimated reimbursement amount of $602,504 for the nine-month period ended
September 30, 2000. Subsequent to the end of the third quarter, Schering AG and
DUSA have formally agreed upon the development program that will be subject to

                                      -9-
<PAGE>   10
reimbursement for this year. Until total actual expenditures for the balance of
the year are finalized, management will not accrue any additional reimbursement
estimate. Because of the agreed upon development plan and timing of the start of
clinical trials, the reimbursement amount for this year is expected to be less
than $1,000,000.

         Research and Development Costs. Total research and development costs
for the three and nine-month periods ended September 30, 2000 were $2,027,420
and $5,496,268, respectively, as compared to $719,443 and $2,626,410 for the
comparable three and nine-month periods ended September 30, 1999. The increase
is due primarily to manufacturing development expenses, mainly caused by
increased personnel costs and pre-production activities. We expect that a
portion of the on-going manufacturing personnel expenses will be allocated to
cost of goods and/or general and administrative expenses over the next few
months, since many manufacturing development activities will be complete for the
current products.

         During the quarter, DUSA worked to finalize the dermatology development
program for 2000 and 2001 with Schering AG, and to prepare for the start of
planned clinical trials in acne, warts and onychomycosis. We now expect that a
Phase I/II acne study will be initiated shortly. We have begun pre-clinical
studies on onychomycosis, initially testing drug uptake and conversion in normal
and infected nails, to be followed by human clinical trials for the treatment of
onychomychosis and for recalcitrant warts, which are expected to start in the
new year. As we implement our dermatology program with Schering AG, and expand
our internal indication programs, we expect clinical research and development
expenses to increase significantly, although two-thirds of the agreed upon
dermatology expenses will be reimbursed by Schering AG.

         With respect to internal indications, during this quarter DUSA and its
scientific team members provided several independent investigators with protocol
design, drug supplies and, in some cases, light devices, to prepare for clinical
studies that could help advance the development of

                                      -10-
<PAGE>   11
specific indications, such as those involving LEVULAN(R) PDT for the prevention
of restenosis following angioplasty, and the treatment of pre-cancerous
Barrett's esophagus. We expect these studies to begin within the next few
months. We continue to work on the development of LEVULAN(R) PD for bladder
cancer photodetection, and photodetection of other internal cancers. However,
based upon a survey of urologists which followed our initial bladder cancer
photodetection study, we believe that this indication may be more suitable as an
office screening procedure, rather than a hospital-based procedure. This would
involve the use of a new device, and a prototype device has recently been
developed for the Company. It is currently being assessed by DUSA's light device
experts. The next human clinical trial is awaiting the evaluation of this new
equipment as well as a new formulation of LEVULAN(R).

         General and Administrative Costs. General and administration expenses
decreased for the three-month period, to $531,142 as of September 30, 2000, from
$602,258 as of September 30, 1999, but increased for the nine-month period to
$1,671,322 as of September 30, 2000, from $1,437,094 as of September 30, 1999.
During the period ended September 30, 1999, the Company incurred considerable
consulting fees and expenses related to its strategic alliance negotiations with
Schering AG. During 2000, the Company has hired additional staff, including key
management personnel in technical and operations functions. These costs are
expected to continue to increase as we continue to add personnel at all levels
of the organization.

         Other Income. As a result of the $15,000,000 from Schering AG which we
received during the fourth quarter of 1999, and the net proceeds from the March,
2000 private placement of approximately $41,000,000, interest income, earned
primarily on United States government securities, increased to $944,475 and
$2,269,846, respectively, for the three and nine-month periods ended September
30, 2000, as compared to $129,566 and $412,765 for the three and nine-month
periods ended September 30, 1999.

                                      -11-
<PAGE>   12
         Net Losses. The Company incurred a net loss of $1,614,087, or $0.12 per
share, and $4,295,240 or $.33 per share, respectively, for the three and
nine-month periods ended September 30, 2000, as compared to a net loss of
$1,192,135, or $0.11 per share, and $3,650,739 or $0.39 per share, for the three
and nine-month periods ended September 30, 1999, respectively. These losses were
within management's expectations.

Liquidity and Capital Resources

         The Company is in a strong cash position to continue and expand its
research and development activities for its LEVULAN(R) PDT/PD platform. The
Company's total assets were $67,407,396 as of September 30, 2000, compared to
$28,156,845 as of December 31, 1999. The increase is the direct result of the
completion of the private placement of the Company's shares in the first quarter
of this year. The Company is entitled to receive $15,000,000 in milestone and
research support payments from Schering AG thirty (30) days after the first
commercial sale of its products, subject to certain conditions relating to
delivery of specified quantities of BLU-U(TM) units. These payments will
further enhance DUSA's cash position.

         As of September 30, 2000, the Company had inventory of $882,711,
representing finished goods, raw material and purchased parts and subassemblies.
Also, as of the same date, the Company had net fixed assets of $1,237,115, as
compared to $428,350 as of December 31, 1999, due primarily to the acquisition
of equipment. The Company expects that it will make significant additional
capital expenditures during the balance of 2000, or in 2001, in order to acquire
equipment for a back-up second source of supply for the manufacture of the
KERASTICK(R), as required under our contract with Schering AG.

                                      -12-
<PAGE>   13
         As of September 30, 2000, the Company had outstanding current
liabilities of $1,344,951, as compared to $1,305,250 as of December 31, 1999.
Since its inception, the Company has had no long-term debt.

         The Company's United States government securities available for sale
have an aggregate cost of $59,233,657, and a current aggregate market value of
$59,686,742 as of September 30, 2000, resulting in a net unrealized gain on
securities available for sale of $453,084, which has been included in
shareholders' equity. These government securities had an aggregate cost of
$19,951,281 and an aggregate market value of $19,868,962 as of December 31,
1999, resulting in a net unrealized loss of $82,319. Due to fluctuations in
interest rates and depending upon the timing of the Company's need to convert
government securities into cash to meet its working capital requirements, some
gains or losses could be realized. The Company's securities currently have
interest rates and yields ranging from 6.09% to 7.42%, and maturity dates
ranging from October 2, 2000 to August 15, 2005.

         The Company believes that it has sufficient capital resources to
proceed with its current development program for LEVULAN(R) PDT/PD for the
foreseeable future. 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. DUSA may also use
its resources to acquire by license, purchase or other arrangements, businesses,
technologies, or products that enhance or expand DUSA's business.

         We have no long term debt. The Company had no change in deferred
revenues of $9,791,667 from December 31, 1999, as the Company will not begin to
amortize the Schering AG milestone and other payments until the fourth quarter
of 2000, when the first products were placed in physicians' offices. The
amortization period is expected to be approximately 12 years, the term of the
Schering AG agreement, based upon current revenue recognition principles.

                                      -13-
<PAGE>   14
         Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and
Hedging Activities. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
effective date of SFAS 133 was deferred in SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 which will now be effective for the fiscal quarters of
our fiscal year ending December 31, 2001. We are in the process of evaluating
the effect of this Statement on our consolidated financial statements. The
Company's management does not expect the implementation of FASB Statement No.
133 to have a significant impact on its financial statements.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101") "Revenue Recognition in Financial
Statements" which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and must be implemented no
later than the fourth fiscal quarter of this year. SAB 101 requires companies to
report any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with Accounting Principles
Board Opinion No. 20, "Accounting Changes." The Company's management does not
expect the implementation of SAB 101 to have a significant impact on its
financial statements.


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

                                      -14-
<PAGE>   15
inflation factor in its cost estimates. However, the overall net effect of
inflation on the operations of the Company should be minimal in the near term.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Forward-Looking Statements

         The foregoing Management Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993 and Section 21E of the Securities and Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to statements regarding management's belief
of the timing for achievement of operating profits, expectations of continuing
operating losses, expansion of research and development programs, commencement
of receipt of royalties and supply fees, and the support and commencement of
clinical trials by DUSA or independent investigators, the expectation of receipt
of an additional $15,000,000 from Schering, AG, the hiring of personnel and
timing thereof, the allocation of personnel costs to various activities, the
timing and amount of revenues based on Berlex's net sales, as well as on
distribution of BLU-U(TM)'s and capital expenditures, reimbursement and
accrual of selected dermatology expenses for 2000, the suitability

                                      -15-
<PAGE>   16
of the bladder cancer detection indication as an office-based procedure, the
probable increase in general and administrative expenses, the effect of recent
accounting pronouncements, the sufficiency of capital resources and potential
uses thereof, the effect of inflation, and market risk related to its government
securities. 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, the impact of competitive products and pricing, and the
timely development, FDA approval and market acceptance of the Company's
products, fluctuations in interest rates, the ability to hire qualified
personnel, the penetration by Berlex into the dermatology market, Schering AG's
commitment to fund the dermatology development program and to approve clinical
trials proposed by DUSA, the results of pre-clinical and clinical trials, and
reliance on third-party manufacturers. Results actually achieved may differ
materially from expected results included in these statements as a result of
these or other factors, identified in DUSA's SEC filings, including its Form
S-3, from time to time.

                           PART II- OTHER INFORMATION

Items 1 through  5.

         None.

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

a)       i) Exhibit 10 - Master Operating Agreement between the Company and
         International Leasing Corporation dated September 21, 2000 portions of
         which have been omitted pursuant to a request for confidential
         treatment under Rule 24(b) of the Securities Exchange Act of 1934, as
         amended.

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

b)       i) Form 8-K dated September 20, 2000 regarding the receipt of an
         "approvable" letter from the FDA relating to the BLU-U(TM) brand light
         device.

         ii) Form 8-K dated September 27, 2000 relating to the FDA approval of
         the BLU-U(TM) brand light device.

                                      -16-
<PAGE>   17
                                   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.

<TABLE>
<S>                                                  <C>

                                                     DUSA PHARMACEUTICALS, INC.





     DATE:  NOVEMBER 13, 2000                        BY:   /S/JOHN E. MATTERN
            ------------------------                    ---------------------------------------
                                                        JOHN E. MATTERN
                                                        VICE PRESIDENT, FINANCE,
                                                        AND CHIEF FINANCIAL OFFICER (Chief
                                                        Financial and Chief Accounting Officer)
</TABLE>

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
     Exhibit No.                    Description
     -----------                    -----------
<S>                                 <C>
       10                           Master Vendor Operating Agreement between
                                    the Company and International Leasing
                                    Corporation dated September 21, 2000,
                                    portions of which have been omitted pursuant
                                    to a request for confidential treatment
                                    under Rule 24(b) of the Securities Exchange
                                    Act of 1934, as amended.

       27                           Financial Data schedule, which is
                                    submitted electronically to the
                                    Securities and Exchange Commission
                                    for information only and not filed.
</TABLE>

                                      -17-