##### Table of Contents



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




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##### 



DUSA PHARMACEUTICALS, INC.  TABLE OF CONTENTS TO FORM 10-Q
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements- Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008 (Unaudited)
    
    
    3- Condensed Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2009 and 2008 (Unaudited)
    
    
    4- Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2009 and 2008 (Unaudited)
    
    
    5- Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    36SIGNATURES
    
    
    37Exhibit Index
    
    
    38EX-10: FIFTH AMENDMENT TO SUPPLY AGREEMENT WITH SOCHINAZ, S.A.EX-31.A: SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.B: SECTION 302 CERTIFICATION OF THE C.F.O.EX-32.A: SECTION 906 CERTIFICATION OF THE C.E.OEX-32.B: SECTION 906 CERTIFICATION OF THE C.F.O.EX-99.1: PRESS RELEASEEX-10EX-31.AEX-31.BEX-32.AEX-32.BEX-99.1
  2




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##### Table of Contents



PART I.
 
 ITEM 1. FINANCIAL STATEMENTS
 DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 30,
    
    December 31,2009
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    5,016,994
    
    
    $
    3,880,673Marketable securities, at fair value
    
    
    10,012,948
    
    
    
    15,002,830Accounts receivable, net of allowance for
doubtful accounts of $90,000 and $98,000
in 2009 and 2008, respectively
    
    
    2,519,214
    
    
    
    2,367,803Inventory
    
    
    2,336,167
    
    
    
    2,812,825Prepaid and other current assets
    
    
    1,647,408
    
    
    
    1,873,801TOTAL CURRENT ASSETS
    
    
    21,532,731
    
    
    
    25,937,932Restricted cash
    
    
    174,170
    
    
    
    173,844Property, plant and equipment, net
    
    
    1,721,488
    
    
    
    1,937,978Deferred charges and other assets
    
    
    68,099
    
    
    
    160,700TOTAL ASSETS
    
    $
    23,496,488
    
    
    $
    28,210,454LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    188,417
    
    
    $
    305,734Accrued compensation
    
    
    889,230
    
    
    
    1,515,912Other accrued expenses
    
    
    2,343,822
    
    
    
    3,226,571Deferred revenues
    
    
    1,045,505
    
    
    
    611,602TOTAL CURRENT LIABILITIES
    
    
    4,466,974
    
    
    
    5,659,819Deferred revenues
    
    
    3,061,700
    
    
    
    4,157,305Warrant liability
    
    
    474,137
    
    
    
    436,458Other liabilities
    
    
    133,544
    
    
    
    244,673TOTAL LIABILITIES
    
    
    8,136,355
    
    
    
    10,498,255COMMITMENTS AND CONTINGENCIES (NOTE 16)SHAREHOLDERS EQUITYCapital StockAuthorized: 100,000,000 shares;
40,000,000 shares designated as common
stock, no par, and 60,000,000 shares
issuable in Series or classes; and 40,000
junior Series A preferred shares. Issued
and outstanding: 24,108,908 and
24,089,452 shares of common stock, no
par, at September 30, 2009 and December
31, 2008, respectively
    
    
    151,683,399
    
    
    
    151,663,943Additional paid-in capital
    
    
    8,122,801
    
    
    
    7,514,900Accumulated deficit
    
    
    (144,725,805
    )
    
    
    (141,850,925
    )Accumulated other comprehensive income
    
    
    279,738
    
    
    
    384,281TOTAL SHAREHOLDERS EQUITY
    
    
    15,360,133
    
    
    
    17,712,199TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    23,496,488
    
    
    $
    28,210,454
  3




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DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three-months ended
    
    Nine-months endedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Product revenues
    
    $
    6,930,110
    
    
    $
    5,726,071
    
    
    $
    21,033,920
    
    
    $
    21,767,810Cost of product revenues
    
    
    1,594,692
    
    
    
    1,462,028
    
    
    
    4,973,782
    
    
    
    4,950,039GROSS MARGIN
    
    
    5,335,418
    
    
    
    4,264,043
    
    
    
    16,060,138
    
    
    
    16,817,771Operating costs:Research and development
    
    
    963,245
    
    
    
    1,487,816
    
    
    
    3,225,049
    
    
    
    5,049,327Marketing and sales
    
    
    3,013,351
    
    
    
    2,967,431
    
    
    
    9,460,766
    
    
    
    9,520,865General and administrative
    
    
    1,877,928
    
    
    
    1,911,028
    
    
    
    6,360,325
    
    
    
    6,603,989Impairment charge related
to contingent
consideration
    
    
    
    
    
    
    1,500,000
    
    
    
    
    
    
    
    1,500,000Settlements, net
    
    
    
    
    
    
    650
    
    
    
    75,000
    
    
    
    (282,775
    )TOTAL OPERATING COSTS
    
    
    5,854,524
    
    
    
    7,866,925
    
    
    
    19,121,140
    
    
    
    22,391,406LOSS FROM OPERATIONS
    
    
    (519,106
    )
    
    
    (3,602,882
    )
    
    
    (3,061,002
    )
    
    
    (5,573,635
    )Other income, net
    
    
    79,815
    
    
    
    114,260
    
    
    
    223,801
    
    
    
    538,212Gain (loss) on change in fair
value of warrants
    
    
    24,051
    
    
    
    651,767
    
    
    
    (37,679
    )
    
    
    775,636NET LOSS
    
    $
    (415,240
    )
    
    $
    (2,836,855
    )
    
    $
    (2,874,880
    )
    
    $
    (4,259,787
    )BASIC AND DILUTED NET LOSS
PER COMMON SHARE
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.12
    )
    
    $
    (0.18
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED
    
    
    24,108,908
    
    
    
    24,078,610
    
    
    
    24,099,786
    
    
    
    24,078,546
  4




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##### Table of Contents



DUSA PHARMACEUTICALS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine-months endedSeptember 30,2009
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (2,874,880
    )
    
    $
    (4,259,787
    )Adjustments to reconcile net loss to net cash used in operating activities:Accretion (amortization) of premiums and discounts on marketable securities
    
    
    43,407
    
    
    
    (95,139
    )Realized loss on sales of marketable securities
    
    
    43,678
    
    
    
    42,989Share-based compensation
    
    
    631,770
    
    
    
    1,042,811Impairment charge related to contingent consideration
    
    
    
    
    
    
    1,500,000Depreciation and amortization
    
    
    345,720
    
    
    
    441,829Loss (gain) on change in fair value of warrants
    
    
    37,679
    
    
    
    (775,636
    )Deferred revenues recognized
    
    
    (675,037
    )
    
    
    (761,302
    )Changes in other assets and liabilities impacting cash flows used in operations:Accounts receivable
    
    
    (151,411
    )
    
    
    1,093,357Inventory
    
    
    476,658
    
    
    
    (327,363
    )Prepaid and other current assets
    
    
    226,393
    
    
    
    (277,174
    )Deferred charges and other assets
    
    
    92,601
    
    
    
    80,146Accounts payable, accrued compensation and other accrued expenses
    
    
    (1,626,748
    )
    
    
    28,036Deferred revenues
    
    
    13,335
    
    
    
    1,510,712Other liabilities
    
    
    (111,129
    )
    
    
    (53,083
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (3,527,964
    )
    
    
    (809,604
    )CASH FLOWS FROM INVESTING ACTIVITIESCash paid for contingent consideration
    
    
    
    
    
    
    (1,750,000
    )Purchases of marketable securities
    
    
    (12,049,905
    )
    
    
    (22,964,544
    )Proceeds from maturities and sales of marketable securities
    
    
    16,848,159
    
    
    
    26,368,809Restricted cash
    
    
    (326
    )
    
    
    (2,875
    )Purchases of property, plant and equipment
    
    
    (129,230
    )
    
    
    (333,526
    )NET CASH PROVIDED BY INVESTING ACTIVITIES
    
    
    4,668,698
    
    
    
    1,317,864CASH FLOWS FROM FINANCING ACTIVITIESProceeds from exercise of options
    
    
    
    
    
    
    4,000Settlements of restricted stock for tax withholding obligations
    
    
    (4,413
    )
    
    
    NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (4,413
    )
    
    
    4,000NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    1,136,321
    
    
    
    512,260CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,880,673
    
    
    
    4,713,619CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    5,016,994
    
    
    $
    5,225,879
  5




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##### Table of Contents



DUSA PHARMACEUTICALS, INC.
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1) BASIS OF PRESENTATION
    2) NEW ACCOUNTING PRONOUNCEMENTS
 Recently Adopted Accounting Standards
 Recognition and
Presentation of Other-Than-Temporary Impairments
 Subsequent Events
 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
 Recently Issued Accounting Standards
 Multiple-Deliverable Revenue Arrangements,
 6




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3) FAIR VALUE MEASUREMENTS
         Assets:Level 1Cash equivalents
    
    $
    3,634,000
 Level 2United States government-backed securities
    
    $
    9,104,000Corporate debt securities
    
    
    909,000Total assets
    
    $
    13,647,000
 Level 3Liabilities:Warrant liability
    
    
    474,000Total liabilities
    
    $
    474,000
 Changes in Level 3 Recurring Fair Value Measurements:
  7




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Change inUnrealizedLosses/(Gains)Related toPurchases,
    
    
    
    
    
    
    
    
    
    
    FinancialSales,
    
    
    Transfers
    
    
    
    
    
    
    InstrumentsFair Value at
    
    
    Total
    
    
    Issuances,
    
    
    In and/or
    
    
    Fair Value at
    
    
    Held atJanuary 1,
    
    
    Unrealized
    
    
    Settlements,
    
    
    Out of
    
    
    September 30,
    
    
    September 30,2009
    
    
    Losses/(Gains)
    
    
    net
    
    
    Level 3
    
    
    2009
    
    
    2009Warrant Liability
    
    $
    436,000
    
    
    $
    38,000
    
    
    $
    
    
    
    $
    
    
    
    $
    474,000
    
    
    $
    38,000
  4) WARRANTS
   September 30,
    
    December 31,2009
    
    2008Expected volatility
    
    
    84.4
    %
    
    
    75.0
    %Remaining contractual term (years)
    
    
    3.58
    
    
    
    4.33Risk-free interest rate
    
    
    1.67
    %
    
    
    1.55
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Common stock price
    
    $
    1.09
    
    
    $
    1.05
 5) MARKETABLE SECURITIES
  September 30, 2009Amortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    8,912,000
    
    
    $
    192,000
    
    
    $
    9,104,000Corporate securities
    
    
    821,000
    
    
    
    88,000
    
    
    
    909,000Total marketable securities available-for-sale
    
    $
    9,733,000
    
    
    $
    280,000
    
    
    $
    10,013,000
 December 31, 2008Amortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    11,956,000
    
    
    $
    357,000
    
    
    $
    12,313,000Corporate securities
    
    
    2,662,000
    
    
    
    28,000
    
    
    
    2,690,000Total marketable securities available-for-sale
    
    $
    14,618,000
    
    
    $
    385,000
    
    
    $
    15,003,000
 8




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6) CONCENTRATIONS
  % of Revenue
    
    % of RevenueThree months ended
    
    Nine months ended
    
    % of Accounts ReceivableSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    December 31,2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008Customer A
    
    
    2
    %
    
    
    1
    %
    
    
    3
    %
    
    
    2
    %
    
    
    7
    %
    
    
    11
    %Customer B
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    9
    %
    
    
    2
    %
    
    
    Customer C
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    8
    %
    
    
    
    
    
    
    Customer D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    %
    
    
    
    
    
    
    Customer E
    
    
    3
    %
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    1
    %Customer F
    
    
    1
    %
    
    
    8
    %
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %
    
    
    9
    %Other customers
    
    
    92
    %
    
    
    86
    %
    
    
    91
    %
    
    
    72
    %
    
    
    85
    %
    
    
    79
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 7) INVENTORY
  September 30,
    
    December 31,2009
    
    2008Finished goods
    
    $
    1,298,000
    
    
    $
    1,348,000BLU-U® evaluation units
    
    
    37,000
    
    
    
    166,000Work in process
    
    
    433,000
    
    
    
    698,000Raw materials
    
    
    568,000
    
    
    
    601,000Total
    
    $
    2,336,000
    
    
    $
    2,813,000
 ®
 8) OTHER ACCRUED EXPENSES
  September 30,
    
    December 31,2009
    
    2008Research and development costs
    
    $
    115,000
    
    
    $
    190,000Marketing and sales costs
    
    
    228,000
    
    
    
    191,000Reserve for sales returns and allowances
    
    
    300,000
    
    
    
    500,000Accrued FDA fees
    
    
    
    
    
    
    589,000Due to former Sirius shareholders
    
    
    210,000
    
    
    
    Other product related costs
    
    
    757,000
    
    
    
    824,000Legal and other professional fees
    
    
    386,000
    
    
    
    467,000Employee benefits
    
    
    284,000
    
    
    
    278,000Other expenses
    
    
    64,000
    
    
    
    188,000Total
    
    $
    2,344,000
    
    
    $
    3,227,000
 9




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9) SHARE-BASED COMPENSATION
  Three-months ended
    
    Nine-months endedSeptember 30, 2009
    
    September 30, 2008
    
    September 30, 2009
    
    September 30, 2008Cost of product revenues
    
    $
    13,000
    
    
    $
    18,000
    
    
    $
    47,000
    
    
    $
    59,000Research and development
    
    
    31,000
    
    
    
    70,000
    
    
    
    112,000
    
    
    
    260,000Marketing and sales
    
    
    62,000
    
    
    
    88,000
    
    
    
    65,000
    
    
    
    61,000General and administrative
    
    
    101,000
    
    
    
    177,000
    
    
    
    408,000
    
    
    
    662,000Share-based compensation expense
    
    $
    207,000
    
    
    $
    353,000
    
    
    $
    632,000
    
    
    $
    1,042,000
  Three-months ended
    
    Nine-months endedSeptember 30,
    
    September 30,2009
    
    2009Expected volatility
    
    
    75.5
    %
    
    
    73.6
    %Risk-free interest rate
    
    
    2.58
    %
    
    
    2
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected
term-directors and
officers (years)
    
    
    6.5
    
    
    
    6.5Expected
term-non-officer
employees (years)
    
    
    5.7
    
    
    
    5.7
  AverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateExercise
    
    Term
    
    IntrinsicPrice
    
    (Years)
    
    ValueOutstanding, beginning of period, July 1, 2009
    
    
    3,593,275
    
    
    $
    8.14Options granted
    
    
    20,000
    
    
    $
    1.22Options forfeited
    
    
    (24,025
    )
    
    $
    6.47Options expired
    
    
    
    
    
    $
    Options exercised
    
    
    
    
    
    $
    Outstanding, end of period
    
    
    3,589,250
    
    
    $
    8.11
    
    
    
    3.72
    
    
    $
    25Exercisable, end of period
    
    
    2,535,400
    
    
    $
    10.67
    
    
    
    2.75Options vested and expected to vest, end of period
    
    
    3,445,703
    
    
    $
    8.39
    
    
    
    3.62
    
    
    $
    21
  10




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10) BASIC AND DILUTED NET LOSS PER SHARE
  11) SEGMENT REPORTING
  Three-month period ended
    
    Nine-month period endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008REVENUESPDT drug and device product revenues
    
    $
    6,700,000
    
    
    $
    5,157,000
    
    
    $
    19,836,000
    
    
    $
    16,416,000Non-PDT product revenues
    
    
    230,000
    
    
    
    569,000
    
    
    
    1,198,000
    
    
    
    5,352,000Total revenues
    
    
    6,930,000
    
    
    
    5,726,000
    
    
    
    21,034,000
    
    
    
    21,768,000COSTS OF REVENUESPDT drug and device cost of product
revenues
    
    
    1,226,000
    
    
    
    1,146,000
    
    
    
    4,227,000
    
    
    
    3,589,000Non-PDT cost of product revenues
    
    
    369,000
    
    
    
    316,000
    
    
    
    747,000
    
    
    
    1,361,000Total costs of product revenues
    
    
    1,595,000
    
    
    
    1,462,000
    
    
    
    4,974,000
    
    
    
    4,950,000GROSS MARGINPDT drug and device product gross
margin
    
    
    5,474,000
    
    
    
    4,011,000
    
    
    
    15,609,000
    
    
    
    12,827,000Non-PDT product gross margin
    
    
    (139,000
    )
    
    
    253,000
    
    
    
    451,000
    
    
    
    3,991,000Total gross margin
    
    $
    5,335,000
    
    
    $
    4,264,000
    
    
    $
    16,060,000
    
    
    $
    16,818,000
  Three-months ended
    
    Nine-months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008United States
    
    
    93
    %
    
    
    93
    %
    
    
    94
    %
    
    
    93
    %Canada
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %
    
    
    2
    %Korea
    
    
    3
    %
    
    
    4
    %
    
    
    2
    %
    
    
    3
    %Other
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 11




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##### Table of Contents



12) COMPREHENSIVE LOSS
  Three-months ended
    
    Nine-months endedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008NET LOSS
    
    $
    (415,000
    )
    
    $
    (2,837,000
    )
    
    $
    (2,875,000
    )
    
    $
    (4,259,000
    )Change in net
unrealized (losses)
gains on marketable
securities
available-for-sale
    
    
    (34,000
    )
    
    
    58,000
    
    
    
    (105,000
    )
    
    
    45,000COMPREHENSIVE LOSS
    
    $
    (449,000
    )
    
    $
    (2,779,000
    )
    
    $
    (2,980,000
    )
    
    $
    (4,214,000
    )
 13) STIEFEL AGREEMENT
 ® ® ®
  14) DAEWOONG AGREEMENT
 ® ® ®
 12




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##### Table of Contents



15) SETTLEMENTS, NET
 Rivers Edge Litigation Settlement
 ® ® ®
 ® ®
  ® ex parte ®
 Winston Laboratories Arbitration Settlement
  13




---



##### Table of Contents



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




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##### Table of Contents



® ® ® ® ® ® ®
 ® ® ® ® ®
 ® ® ® ®
 ® ®
 ® ® ® ® ® ® ® ® ® ® ® ®
  15




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Fair Value Measurements of Marketable Securities
  RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 VERSUS SEPTEMBER 30, 2008
 REVENUES
 Three months ended
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    
    
    
    September 30,INCREASE/
    
    
    
    
    
    
    
    
    
    INCREASE/2009
    
    2008
    
    (DECREASE)
    
    2009
    
    2008
    
    (DECREASE)PDT product revenuesLevulan®
Kerastick® product
revenuesUnited States
    
    $
    5,790,000
    
    
    $
    4,374,000
    
    
    $
    1,416,000
    
    
    $
    17,096,000
    
    
    $
    13,720,000
    
    
    $
    3,376,000Canada
    
    
    162,000
    
    
    
    72,000
    
    
    
    90,000
    
    
    
    404,000
    
    
    
    449,000
    
    
    
    (45,000
    )Korea
    
    
    201,000
    
    
    
    186,000
    
    
    
    15,000
    
    
    
    498,000
    
    
    
    710,000
    
    
    
    (212,000
    )Other
    
    
    91,000
    
    
    
    99,000
    
    
    
    (8,000
    )
    
    
    261,000
    
    
    
    289,000
    
    
    
    (28,000
    )Subtotal Levulan®
Kerastick® product
revenues
    
    
    6,244,000
    
    
    
    4,731,000
    
    
    
    1,513,000
    
    
    
    18,259,000
    
    
    
    15,168,000
    
    
    
    3,091,000BLU-U® product revenuesUnited States
    
    
    456,000
    
    
    
    376,000
    
    
    
    80,000
    
    
    
    1,577,000
    
    
    
    1,198,000
    
    
    
    379,000Korea
    
    
    
    
    
    
    50,000
    
    
    
    (50,000
    )
    
    
    
    
    
    
    50,000
    
    
    
    (50,000
    )Subtotal BLU-U®
product revenues
    
    
    456,000
    
    
    
    426,000
    
    
    
    30,000
    
    
    
    1,577,000
    
    
    
    1,248,000
    
    
    
    329,000Total PDT product revenues
    
    
    6,700,000
    
    
    
    5,157,000
    
    
    
    1,543,000
    
    
    
    19,836,000
    
    
    
    16,416,000
    
    
    
    3,420,000Total Non-PDT product revenues
    
    
    230,000
    
    
    
    569,000
    
    
    
    (339,000
    )
    
    
    1,198,000
    
    
    
    5,352,000
    
    
    
    (4,154,000
    )Total product revenues
    
    $
    6,930,000
    
    
    $
    5,726,000
    
    
    $
    1,204,000
    
    
    $
    21,034,000
    
    
    $
    21,768,000
    
    
    $
    (734,000
    )
 16




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##### Table of Contents



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




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##### Table of Contents



THREE MONTHS ENDED SEPTEMBER 30,INCREASE/2009
    
    2008
    
    (DECREASE)Levulan® Kerastick® cost of product revenues and royaltiesDirect Levulan® Kerastick® product costs
    
    $
    583,000
    
    
    $
    547,000
    
    
    $
    36,000Other Levulan® Kerastick® production costs including
internal costs assigned to support products, net
    
    
    50,000
    
    
    
    2,000
    
    
    
    48,000Royalty and supply fees (1)
    
    
    238,000
    
    
    
    197,000
    
    
    
    41,000Subtotal Levulan® Kerastick® cost of product revenues and
royalties
    
    $
    871,000
    
    
    $
    746,000
    
    
    $
    125,000BLU-U® cost of product revenuesDirect BLU-U® product costs
    
    $
    212,000
    
    
    $
    205,000
    
    
    $
    7,000Other BLU-U® product costs including internal costs assigned to
support products; as well as, costs incurred to ship and install the
BLU-U® in physicians offices
    
    
    143,000
    
    
    
    195,000
    
    
    
    (52,000
    )Subtotal BLU-U® cost of product revenues
    
    $
    355,000
    
    
    $
    400,000
    
    
    $
    (45,000
    )TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,226,000
    
    
    $
    1,146,000
    
    
    $
    80,000Non-PDT cost of product revenues and royalties
    
    $
    369,000
    
    
    $
    316,000
    
    
    $
    53,000TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,595,000
    
    
    $
    1,462,000
    
    
    $
    133,000NINE MONTHS ENDED SEPTEMBER 30,INCREASE/2009
    
    2008
    
    (DECREASE)Levulan® Kerastick® cost of product revenues and royaltiesDirect Levulan® Kerastick® product costs
    
    $
    1,686,000
    
    
    $
    1,778,000
    
    
    $
    (92,000
    )Other Levulan® Kerastick® production costs including
internal costs assigned to support products, net
    
    
    498,000
    
    
    
    5,000
    
    
    
    493,000Royalty and supply fees (1)
    
    
    726,000
    
    
    
    668,000
    
    
    
    58,000Subtotal Levulan® Kerastick® cost of product revenues and
royalties
    
    $
    2,910,000
    
    
    $
    2,451,000
    
    
    $
    459,000BLU-U® cost of product revenuesDirect BLU-U® product costs
    
    $
    712,000
    
    
    $
    553,000
    
    
    $
    159,000Other BLU-U® product costs including internal costs assigned to
support products; as well as, costs incurred to ship and install the
BLU-U® in physicians offices
    
    
    605,000
    
    
    
    585,000
    
    
    
    20,000Subtotal BLU-U® cost of product revenues
    
    $
    1,317,000
    
    
    $
    1,138,000
    
    
    $
    179,000TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    4,227,000
    
    
    $
    3,589,000
    
    
    $
    638,000Non-PDT cost of product revenues and royalties
    
    $
    747,000
    
    
    $
    1,361,000
    
    
    $
    (614,000
    )TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    4,974,000
    
    
    $
    4,950,000
    
    
    $
    24,000
 18




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##### Table of Contents



1)
    
    Royalty and supply fees reflect amounts paid to our licensor, PARTEQ
Research and Development Innovations, the licensing arm of Queens
University, Kingston, Ontario, and ongoing royalties paid to Draxis
Health, Inc., on sales of the Levulan®
Kerastick® in Canada. MARGINS
 THREE MONTHS ENDED SEPTEMBER 30,INCREASE/2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    (DECREASE)Levulan® Kerastick® gross margin
    
    $
    5,373,000
    
    
    
    86
    %
    
    $
    3,986,000
    
    
    
    84
    %
    
    $
    1,387,000BLU-U® gross margin
    
    
    101,000
    
    
    
    22
    %
    
    
    25,000
    
    
    
    6
    %
    
    
    76,000Total PDT drug & device gross margin
    
    $
    5,474,000
    
    
    
    82
    %
    
    $
    4,011,000
    
    
    
    78
    %
    
    $
    1,463,000Total Non-PDT gross margin
    
    
    (139,000
    )
    
    
    (60
    )%
    
    
    253,000
    
    
    
    44
    %
    
    $
    (392,000
    )TOTAL GROSS MARGIN
    
    $
    5,335,000
    
    
    
    77
    %
    
    $
    4,264,000
    
    
    
    74
    %
    
    $
    1,071,000NINE MONTHS ENDED SEPTEMBER 30,INCREASE/2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    (DECREASE)Levulan® Kerastick® gross margin
    
    $
    15,349,000
    
    
    
    84
    %
    
    $
    12,717,000
    
    
    
    84
    %
    
    $
    2,632,000BLU-U® gross margin
    
    
    260,000
    
    
    
    16
    %
    
    
    110,000
    
    
    
    9
    %
    
    
    150,000Total PDT drug & device gross margin
    
    $
    15,609,000
    
    
    
    79
    %
    
    $
    12,827,000
    
    
    
    78
    %
    
    $
    2,782,000Total Non-PDT gross margin
    
    
    451,000
    
    
    
    38
    %
    
    
    3,991,000
    
    
    
    75
    %
    
    $
    (3,540,000
    )TOTAL GROSS MARGIN
    
    $
    16,060,000
    
    
    
    76
    %
    
    $
    16,818,000
    
    
    
    77
    %
    
    $
    (758,000
    )
 ® ® ®
 ® ® ®
 19




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##### Table of Contents



®
 RESEARCH AND DEVELOPMENT COSTS
 ® ® ® ® ®
  MARKETING AND SALES COSTS
 GENERAL AND ADMINISTRATIVE COSTS
 SETTLEMENTS, NET
 ®
 20




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OTHER INCOME, NET
 GAIN (LOSS) ON CHANGE IN FAIR VALUE OF WARRANTS
 NET LOSS
  LIQUIDITY AND CAPITAL RESOURCES
   ® ® ® ®
   21




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##### Table of Contents



AdditionalCumulative Sales Milestone:
    
    Consideration:$35.0 million
    
    $1.0 million$45.0 million
    
    $1.0 millionTotal
    
    $2.0 million
   Contractual Obligations and Other Commercial Commitments
 L. PERRIGO COMPANY
 ®
 MERGER WITH SIRIUS LABORATORIES, INC.
 ® ®
 PARTEQ AGREEMENT
 ®
 22




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NATIONAL BIOLOGICAL CORPORATION AMENDED AND RESTATED PURCHASE AND SUPPLY AGREEMENT
 ®
 SOCHINAZ SA
 ®
 LEASE AGREEMENTS
  RESEARCH AGREEMENTS
   Total
    
    1 Yr or less
    
    2-3 Years
    
    4-5 Years
    
    After 5Operating lease obligations
    
    $
    1,334,000
    
    
    $
    454,000
    
    
    $
    880,000
    
    
    $
    
    
    
    $
    Purchase obligations (1, 2)
    
    
    2,237,000
    
    
    
    1,984,000
    
    
    
    253,000
    
    
    
    
    
    
    
    Minimum royalty obligations (3)
    
    
    681,000
    
    
    
    342,000
    
    
    
    247,000
    
    
    
    92,000
    
    
    
    Total obligations
    
    $
    4,252,000
    
    
    $
    2,780,000
    
    
    $
    1,380,000
    
    
    $
    92,000
    
    
    $
    
 
 1)
    
    Research and development projects include various commitments including obligations for our study on the treatment of actinic
keratoses and reduction of non-melanoma skin cancers in immunosuppressed solid organ transplant recipients, or SOTR, who have
demonstrated that they are at risk of developing multiple squamous cell carcinomas.2)
    
    In addition to the obligations disclosed above, we have contracted with Therapeutics, Inc., a clinical research organization,
to manage the clinical development of our products in the field of dermatology. This organization has the opportunity for
additional stock grants, bonuses, and other incentives for each product indication ranging from $250,000 to $1,250,000,
depending on the regulatory phase of development of products under Therapeutics management.3)
    
    Minimum royalty obligations relate to our agreements with PARTEQ and Perrigo described above.  23




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INFLATION
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   Forward-Looking Statements Safe Harbor
 ® ® ® ® ® ® ® ® ®
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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS
   Risks Related To DUSA
 We Are Not Currently Profitable And May Not Be Profitable In The Future Unless We Can Successfully
Market And Sell Significantly Higher Quantities Of Our Products.
 If We Do Not Become Profitable, We May Need More Capital.
  If A Competitive Product Is Successful Our Market Share Could Decrease and Our Ability Become
Profitable Could Be Delayed
 ® ® ®
 25




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##### Table of Contents



® ® ® ® ®
 Our Ability To Become Profitable May Be Delayed Since We No Longer Sell Nicomide ® As A
Prescription Product.
 ® ®
 ® ®
 If We Are Not Successful With The Reexamination Of Our Levulan ® Patent, We Could Lose
Market Share.
 ®
 If Product Sales Do Not Continue to Increase, We May Not Be Able To Advance Development Of Our
Other Potential Products As Quickly As We Would Like To, Which Would Delay The Approval Process And
Marketing Of New Potential Products, if approved.
  26




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##### Table of Contents



Any Failure To Comply With Ongoing Governmental Regulations In The United States And Elsewhere Will
Limit Our Ability To Market Our Products And Become Profitable.
  
    
    approval of manufacturing facilities, including adherence to good manufacturing
and laboratory practices during production and storage,
    
    controlled research and testing of some of these products even after approval,
    
    control of marketing activities, including advertising and labeling, and
    
    state permits for the sale and distribution of products manufactured out-of-state.
  
    
    send warning letters,
    
    impose fines and other civil penalties on us,
    
    seize our products,
    
    suspend our regulatory approvals,
    
    cease the manufacture of our products,
    
    refuse to approve pending applications or supplements to approved applications filed by us,
    
    refuse to permit exports of our products from the United States,
    
    require us to recall products,
    
    require us to notify physicians of labeling changes and/or product related problems,
    
    impose restrictions on our operations, and/or
    
    criminally prosecute us.
  ® ® ® ® ® ®
 27




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##### Table of Contents



The Current Global Credit And Financial Market Conditions May Affect Our Business.
  ® ® Our Ability To Become Profitable May Be Delayed Since We
No Longer Sell Nicomide ® As A Prescription Product.
 If the Economic Slowdown Affects Our Market, Our Cash Burn Will Increase And Our Ability To Achieve
Profitability Will Be Delayed.
   We Have Significant Losses And Anticipate Continued Losses.
  If We Are Unable To Obtain The Necessary Capital To Fund Our Operations, We Will Have To Delay Our
Development Program And May Not Be Able To Complete Our Clinical Trials.
   We Have Limited Patent Protection, And If We Are Unable To Protect Our Proprietary Rights,
Competitors Might Be Able To Develop Similar Products To Compete With Our Products And Technology.
 ®
 
    
    methods of using ALA and its unique physical forms in combination with light,
    
    compositions and apparatus for those methods, and
    
    unique physical forms of ALA.
 28




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##### Table of Contents



® ®
   ®
 ® ®
 ® ® ®
 ® ® ® ® ®
  
    
    these persons or entities might breach the agreements,
    
    we might not have adequate remedies for a breach, and/or
    
    our competitors will independently develop or otherwise discover our trade secrets.
 29




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##### Table of Contents



Litigation Is Expensive And We May Not Be Able To Afford The Costs.
   Since We Now Operate The Only FDA Approved Manufacturing Facility For The Kerastick ® And
Continue To Rely Heavily On Sole Suppliers For The Manufacture Of Levulan ® , The
BLU-U ® , And Meted ® , Any Supply Or Manufacturing Problems Could Negatively
Impact Our Sales As Occurred With Nicomide ® .
 ® ® ® ® ® ®
  
    
    product yields,
    
    quality control,
    
    component and service availability,
    
    compliance with FDA regulations, and
    
    the need for further FDA approval if manufacturers make material
changes to manufacturing processes and/or facilities.
  We Have Only Limited Experience Marketing And Selling Pharmaceutical Products Outside of the United
States And As A Result, Our Revenues From Product Sales May Suffer.
 ® ® ® ® ® ®
 30




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##### Table of Contents



The Commercial Success Of Any Product That We May Develop Will Depend Upon The Degree Of Market
Acceptance Of Our Products Among Physicians, Patients, Health Care Payors, Private Health Insurers
And The Medical Community.
  
    
    the effectiveness, or perceived effectiveness, of our product in comparison to competing products;
    
    the existence of any significant side effects, as well as their severity in comparison to any
competing products,
    
    potential advantages over alternative treatments,
    
    the ability to offer our product for sale at competitive prices,
    
    relative convenience and ease of administration,
    
    the strength of marketing and distribution support, and
    
    sufficient third-party coverage or reimbursement.
 If We Cannot Improve Physician Reimbursement And/Or Convince More Private Insurance Carriers To
Adequately Reimburse Physicians For Our Product, Sales May Suffer.
 ® ®
  We Have Only Three Therapies That Have Received Regulatory Approval Or Clearance, And We Cannot
Predict Whether We Will Ever Develop Or Commercialize Any Other Levulan ® Products.
 Our Potential Products Are In Early Stages Of Development And May Never Result In Any Additional
Commercially Successful Products.
 ® ® ®
 
    
    delays in product development, clinical testing or manufacturing,
    
    unplanned expenditures in product development, clinical testing or manufacturing,
    
    failure in clinical trials or failure to receive regulatory approvals,
    
    emergence of superior or equivalent products,
    
    inability to market products due to third-party proprietary rights, and
    
    failure to achieve market acceptance.
 ®
 31




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We Must Receive Separate Approval For Any Drug or Medical Device Products Before We Can Sell Them
Commercially In The United States Or Abroad.
 ® ® ®
 ®
 ®
 ® ®
 Because Of The Nature Of Our Business, The Loss Of Key Members Of Our Management Team Could Delay
Achievement Of Our Goals.
  Collaborations With Outside Scientists May Be Subject To Restriction And Change.
  Risks Related To Our Industry
 Product Liability And Other Claims Against Us May Reduce Demand For Our Products Or Result In
Damages.
 We Are Subject To Risk From Potential Product Liability Lawsuits Which Could Negatively Affect Our
Business.
  32




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##### Table of Contents



Our Business Involves Environmental Risks And We May Incur Significant Costs Complying With
Environmental Laws And Regulations.
  We May Not Be Able To Compete Against Traditional Treatment Methods Or Keep Up With Rapid Changes
In The Biotechnology And Pharmaceutical Industries That Could Make Some Or All Of Our Products
Non-Competitive Or Obsolete.
 Competing Products And Technologies Based On Traditional Treatment Methods May Make Our Products Or
Potential Products Noncompetitive Or Obsolete.
    
    
    price reductions,
    
    lower levels of third-party reimbursements,
    
    failure to achieve market acceptance, and
    
    loss of market share, any of which could adversely affect our
business. Further, we cannot give any assurance that developments by
our competitors or future competitors will not render our technology
obsolete.
 ® ® ® ® ® ® ® ®
 Our Competitors In The Biotechnology And Pharmaceutical Industries May Have Better Products,
Manufacturing Capabilities Or Marketing Expertise.
 ®
 33




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##### Table of Contents



®
  
    
    the ease of administration of our method of PDT,
    
    the degree of generalized skin sensitivity to light,
    
    the number of required doses,
    
    the selectivity of our drug for the target lesion or tissue of interest, and
    
    the type and cost of our light systems.
  Risks Related To Our Stock
 Our Common Stock May Not Continue To Trade On The Nasdaq Global Market, Which Could Reduce The
Value Of Your Investment And Make Your Shares More Difficult To Sell.
  Our Results Of Operations And General Market Conditions For Specialty Pharmaceutical And
Biotechnology Stocks Could Result In Sudden Changes In The Market Value Of Our Stock.
  
    
    clinical trial results,
    
    health regulatory action,
    
    patent litigation,
    
    press releases, and
    
    low volume and liquidity.
  34




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##### Table of Contents



Significant Fluctuations In Orders For Our Products, On A Monthly And Quarterly Basis, Are Common
Based On External Factors And Sales Promotion Activities. These Fluctuations Could Increase The
Volatility Of Our Stock Price.
  If Outstanding Options, Warrants And Rights Are Exercised, The Value Of The Shares Of Common Stock
Outstanding Just Prior To The Conversion Will Be Diluted.
  Effecting A Change Of Control Of DUSA Would Be Difficult, Which May Discourage Offers For Shares Of
Our Common Stock.
     
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  35




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ITEM 6. EXHIBITS.
 EXHIBITNO.
    
    DESCRIPTION OF EXHIBIT3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants
Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by
reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated
October 28, 2002 and filed as Exhibit 99.3 to the Registrants Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 2002, filed November 12, 2002, and
is incorporated herein by reference10
    
    Fifth Amendment to Supply Agreement with Sochinaz S.A. dated September 10, 20093(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on
Form 8-K, filed on November 2, 2008, and is incorporated herein by reference.31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.99.1
    
    Press Release dated November 6, 2009
 36




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##### Table of Contents



SIGNATURES
  DUSA Pharmaceuticals, Inc.By:
    /s/ Robert F. DomanRobert F. DomanPresident and Chief Executive Officer
(principal executive officer)  By:
    /s/ Richard C. ChristopherRichard C. ChristopherVice President, Finance and Chief Financial
Officer (principal financial officer)  37




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##### Table of Contents



EXHIBIT INDEX
 3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants
Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by
reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated
October 28, 2002 and filed as Exhibit 99.3 to the Registrants Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 2002, filed November 12, 2002, and
is incorporated herein by reference.10
    
    Fifth Amendment to Supply Agreement with Sochinaz S.A. dated September 10, 2009.3(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on
Form 8-K, filed on November 2, 2008, and is incorporated herein by reference.31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.99.1
    
    Press Release dated November 6, 2009.
 38