##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-31533
 DUSA PHARMACEUTICALS, INC.
  New Jersey
    
    22-3103129(State of Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)25 Upton Drive, Wilmington, MA
    
    01887(Address of Principal Executive Offices)
    
    (Zip Code)
 
 
 þ o
 o o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



DUSA PHARMACEUTICALS, INC.  TABLE OF CONTENTS TO FORM 10-Q
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements- Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008 (Unaudited)
    
    
    3- Condensed Consolidated Statements of Operations for the three-month periods ended March
31, 2009 and 2008 (Unaudited)
    
    
    4- Condensed Consolidated Statements of Cash Flows for the three-month periods ended March
31, 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
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34Exhibit IndexEX 2(A.3) THIRD AMENDMENT TO MERGER AGREEMENTEX 10(A) LETTER AGREEMENT DATED APRIL 3, 2009EX 10(B) LETTER AGREEMENT DATED APRIL 21, 2009EX 10(C) AMENDMENT TO LICENSE AGREEMENTEX-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.O.EX-32(B) SECTION 906 CERTIFICATION OF THE C.F.O.EX-99.1 PRESS RELEASEEX-2.A.3EX-10.AEX-10.BEX-10.CEX-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)
 March 31,
    
    December 31,2009
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    3,670,824
    
    
    $
    3,880,673Marketable securities, at fair value
    
    
    14,240,337
    
    
    
    15,002,830Accrued interest receivable
    
    
    97,217
    
    
    
    155,728Accounts receivable, net of allowance for
doubtful accounts of $111,000 and $98,000
in 2009 and 2008, respectively
    
    
    2,124,394
    
    
    
    2,367,803Inventory
    
    
    2,536,328
    
    
    
    2,812,825Prepaid and other current assets
    
    
    1,285,129
    
    
    
    1,718,073TOTAL CURRENT ASSETS
    
    
    23,954,229
    
    
    
    25,937,932Restricted cash
    
    
    173,976
    
    
    
    173,844Property, plant and equipment, net
    
    
    1,835,397
    
    
    
    1,937,978Deferred charges and other assets
    
    
    149,856
    
    
    
    160,700TOTAL ASSETS
    
    $
    26,113,458
    
    
    $
    28,210,454LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    386,471
    
    
    $
    305,734Accrued compensation
    
    
    554,262
    
    
    
    1,515,912Other accrued expenses
    
    
    3,604,287
    
    
    
    3,226,571Deferred revenues
    
    
    944,775
    
    
    
    611,602TOTAL CURRENT LIABILITIES
    
    
    5,489,795
    
    
    
    5,659,819Deferred revenues
    
    
    3,586,780
    
    
    
    4,157,305Warrant liability
    
    
    571,370
    
    
    
    436,458Other liabilities
    
    
    230,661
    
    
    
    244,673TOTAL LIABILITIES
    
    
    9,878,606
    
    
    
    10,498,255COMMITMENTS AND CONTINGENCIES (NOTE 15)SHAREHOLDERS EQUITYCapital Stock Authorized:100,000,000 shares; 40,000,000 shares
designated as common stock, no par, and
60,000,000 shares issuable in Series or
classes; and 40,000 junior Series A
preferred shares. Issued and
outstanding: 24,089,452 shares of
common shares, no
par, at March 31, 2009 and December 31,
2008
    
    
    151,663,943
    
    
    
    151,663,943Additional paid-in capital
    
    
    7,714,027
    
    
    
    7,514,900Accumulated deficit
    
    
    (143,457,856
    )
    
    
    (141,850,925
    )Accumulated other comprehensive income
    
    
    314,738
    
    
    
    384,281TOTAL SHAREHOLDERS EQUITY
    
    
    16,234,852
    
    
    
    17,712,199TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    26,113,458
    
    
    $
    28,210,454
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DUSA PHARMACEUTICALS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months EndedMarch 31,2009
    
    2008Product revenues
    
    $
    7,138,269
    
    
    $
    7,929,500Cost of product revenues
    
    
    1,938,226
    
    
    
    1,700,317GROSS MARGIN
    
    
    5,200,043
    
    
    
    6,229,183Operating costs:Research and development
    
    
    1,185,095
    
    
    
    2,186,209Marketing and sales
    
    
    3,410,104
    
    
    
    3,057,201General and administrative
    
    
    2,141,450
    
    
    
    2,367,824Net gain from settlement of litigation
    
    
    
    
    
    
    (235,600
    )TOTAL OPERATING COSTS
    
    
    6,736,649
    
    
    
    7,375,634LOSS FROM OPERATIONS
    
    
    (1,536,606
    )
    
    
    (1,146,451
    )Other income
    
    
    64,587
    
    
    
    206,852Loss on change in fair value of warrants
    
    
    (134,912
    )
    
    
    (344,542
    )NET LOSS
    
    $
    (1,606,931
    )
    
    $
    (1,284,141
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.07
    )
    
    $
    (0.05
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, BASIC AND DILUTED
    
    
    24,089,452
    
    
    
    24,078,418
  4




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DUSA PHARMACEUTICALS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three months endedMarch 31,2009
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,606,931
    )
    
    $
    (1,284,141
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization (accretion) of premiums and discounts on marketable securities
    
    
    2,189
    
    
    
    (77,362
    )Realized loss (gain) on sales of marketable securities
    
    
    36,822
    
    
    
    (2,364
    )Share-based compensation
    
    
    199,127
    
    
    
    331,638Depreciation and amortization
    
    
    125,393
    
    
    
    154,241Loss on change in fair value of warrants
    
    
    134,912
    
    
    
    344,542Deferred revenues recognized
    
    
    (234,905
    )
    
    
    (401,575
    )Changes in other assets and liabilities impacting cash flows from operations:Accounts receivable
    
    
    243,409
    
    
    
    (499,961
    )Inventory
    
    
    276,497
    
    
    
    (223,312
    )Accrued interest receivable, prepaid and other current assets
    
    
    491,455
    
    
    
    (26,874
    )Deferred charges and other assets
    
    
    10,844
    
    
    
    14,218Accounts payable, accrued compensation and other accrued expenses
    
    
    (503,197
    )
    
    
    23,839Deferred revenues
    
    
    (2,447
    )
    
    
    1,650,937Other liabilities
    
    
    (14,012
    )
    
    
    1,649NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (840,844
    )
    
    
    5,475CASH FLOWS FROM INVESTING ACTIVITIESCash paid for contingent consideration
    
    
    
    
    
    
    (250,000
    )Purchases of marketable securities
    
    
    (5,994,220
    )
    
    
    (7,936,363
    )Proceeds from maturities and sales of marketable securities
    
    
    6,648,159
    
    
    
    7,973,061Restricted cash
    
    
    (132
    )
    
    
    (1,077
    )Purchases of property, plant and equipment
    
    
    (22,812
    )
    
    
    (122,945
    )NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    630,995
    
    
    
    (337,324
    )CASH FLOWS PROVIDED BY FINANCING ACTIVITIESProceeds from exercise of options
    
    
    
    
    
    
    4,000NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    
    
    
    
    4,000NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (209,849
    )
    
    
    (327,849
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    3,880,673
    
    
    
    4,713,619CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,670,824
    
    
    $
    4,385,770
  5




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##### Table of Contents



DUSA PHARMACEUTICALS, INC.
 
 1) BASIS OF PRESENTATION
   2) NEW ACCOUNTING PRONOUNCEMENTS
  Determining Whether a Market Is Not Active and a
Transaction Is Not Distressed
 Recognition and
Presentation of Other-Than-Temporary Impairment,
 Interim Disclosures about Fair
Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
  Recently adopted Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities, as an amendment to SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities
 3) FAIR VALUE MEASUREMENTS
 Fair Value Measurements
     6




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##### Table of Contents



Level 2Assets:United States government-backed securities
    
    $
    12,762,000Corporate debt securities
    
    
    1,478,000Total assets
    
    $
    14,240,000
 Level 3Liabilities:Warrant liability
    
    $
    571,000Total liabilities
    
    $
    571,000
 Changes in Level 3 Recurring Fair Value Measurements:
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Three-month period ended March 31, 2009Change inUnrealizedGainsRelated toPurchases,
    
    
    
    
    
    
    
    
    
    
    FinancialSales,
    
    
    Transfers
    
    
    
    
    
    
    InstrumentsFair Value at
    
    
    Total
    
    
    Issuances,
    
    
    In and/or
    
    
    Fair Value at
    
    
    Held atJanuary 1,
    
    
    Unrealized
    
    
    Settlements,
    
    
    Out of
    
    
    March 31,
    
    
    March 31,2009
    
    
    (Gains)/Losses
    
    
    net
    
    
    Level 3
    
    
    2009
    
    
    2009Warrant Liability
    
    $
    436,000
    
    
    $
    135,000
    
    
    $
    
    
    
    $
    
    
    
    $
    571,000
    
    
    $
    135,000
 7




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##### Table of Contents



4) WARRANTS
  March 31,
    
    December 31,2009
    
    2008Expected volatility
    
    
    78.9
    %
    
    
    75.0
    %Remaining contractual term (years)
    
    
    4.08
    
    
    
    4.33Risk-free interest rate
    
    
    1.67
    %
    
    
    1.55
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Common stock price
    
    $
    1.23
    
    
    $
    1.05
 5) MARKETABLE SECURITIES
  March 31, 2009GrossAmortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    12,477,000
    
    
    $
    285,000
    
    
    $
    12,762,000Corporate debt securities
    
    
    1,448,000
    
    
    
    30,000
    
    
    
    1,478,000Total marketable securities available-for-sale
    
    $
    13,925,000
    
    
    $
    315,000
    
    
    $
    14,240,000
 December 31, 2008GrossAmortized
    
    Unrealized
    
    FairCost
    
    Gains
    
    ValueUnited States government-backed securities
    
    $
    11,956,000
    
    
    $
    357,000
    
    
    $
    12,313,000Corporate debt securities
    
    
    2,662,000
    
    
    
    28,000
    
    
    
    2,690,000Total marketable securities available-for-sale
    
    $
    14,618,000
    
    
    $
    385,000
    
    
    $
    15,003,000
  6) CONCENTRATIONS
  8




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% of revenuethree months ended
    
    % of accounts receivableMarch 31,
    
    March 31,
    
    March 31,
    
    December 31,2009
    
    2008
    
    2009
    
    2008Customer A
    
    
    2
    %
    
    
    2
    %
    
    
    6
    %
    
    
    11
    %Customer B
    
    
    1
    %
    
    
    12
    %
    
    
    1
    %
    
    
    Customer C
    
    
    1
    %
    
    
    8
    %
    
    
    
    
    
    
    Customer D
    
    
    
    
    
    
    5
    %
    
    
    
    
    
    
    Customer E
    
    
    2
    %
    
    
    5
    %
    
    
    2
    %
    
    
    1
    %Customer F
    
    
    4
    %
    
    
    
    
    
    
    11
    %
    
    
    9
    %Other Customers
    
    
    90
    %
    
    
    68
    %
    
    
    80
    %
    
    
    79
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  7) INVENTORY
  March 31,
    
    December 31,2009
    
    2008Finished goods
    
    $
    1,324,000
    
    
    $
    1,348,000BLU-U® evaluation units
    
    
    83,000
    
    
    
    166,000Work in process
    
    
    525,000
    
    
    
    698,000Raw materials
    
    
    604,000
    
    
    
    601,000Total
    
    $
    2,536,000
    
    
    $
    2,813,000
 ®
 8) OTHER ACCRUED EXPENSES
  March 31,
    
    December 31,2009
    
    2008Research and development costs
    
    $
    233,000
    
    
    $
    190,000Marketing and sales costs
    
    
    376,000
    
    
    
    191,000Reserve for sales returns and allowances
    
    
    430,000
    
    
    
    500,000Accrued FDA fees
    
    
    589,000
    
    
    
    589,000Reserve for chargebacks and rebates
    
    
    10,000
    
    
    
    30,000Other product related costs
    
    
    938,000
    
    
    
    824,000Legal and other professional fees
    
    
    637,000
    
    
    
    467,000Employee benefits
    
    
    311,000
    
    
    
    278,000Other accrued expenses
    
    
    80,000
    
    
    
    158,000Total
    
    $
    3,604,000
    
    
    $
    3,227,000
 9




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##### Table of Contents



9) SHARE-BASED COMPENSATION
  Three-months ended
    
    Three-months endedMarch 31, 2009
    
    March 31, 2008Cost of product revenues
    
    $
    20,000
    
    
    $
    24,000Research and development
    
    
    50,000
    
    
    
    121,000Selling and marketing
    
    
    (15,000
    )
    
    
    (60,000
    )General and administrative
    
    
    144,000
    
    
    
    247,000Total
    
    $
    199,000
    
    
    $
    332,000
  Three months endedMarch 31, 2009Volatility
    
    
    73.4
    %Risk-free interest rate
    
    
    1.87
    %Expected dividend yield
    
    
    0
    %Expected life-directors and officers
    
    6.5 yearsExpected life-non-officer employees
    
    5.7 years
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicPrice
    
    
    (Years)
    
    
    ValueOutstanding, beginning of period
    
    
    3,011,063
    
    
    $
    9.89
    
    
    
    
    
    
    $Options granted
    
    
    686,650
    
    
    $
    1.23Options forfeited
    
    
    (4,175
    )
    
    $
    4.56Options expired
    
    
    (104,563
    )
    
    $
    9.12Options exercised
    
    
    
    
    
    $
    Outstanding, end of period
    
    
    3,588,975
    
    
    $
    8.28
    
    
    
    4.1
    
    
    $
    6,992Exercisable, end of period
    
    
    2,461,125
    
    
    $
    11.12
    
    
    
    3.0
    
    
    $
    Options vested and expected to vest, end of period
    
    
    3,403,966
    
    
    $
    8.65
    
    
    
    4.0
    
    
    $
    5,541
  10) BASIC AND DILUTED NET LOSS PER SHARE
  10




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11) SEGMENT REPORTING
  Three-month period ended2009
    
    2008REVENUESPDT drug and device product revenues
    
    $
    6,719,000
    
    
    $
    5,830,000Non-PDT drug product revenues
    
    
    419,000
    
    
    
    2,100,000Total revenues
    
    
    7,138,000
    
    
    
    7,930,000COSTS OF PRODUCT REVENUESPDT drug and device cost of product revenues
    
    
    1,715,000
    
    
    
    1,274,000Non-PDT drug cost of product revenues
    
    
    223,000
    
    
    
    427,000Total costs of product revenues
    
    
    1,938,000
    
    
    
    1,701,000GROSS MARGINPDT drug and device product gross margins
    
    
    5,004,000
    
    
    
    4,556,000Non-PDT drug product gross margins
    
    
    196,000
    
    
    
    1,673,000Total gross margins
    
    $
    5,200,000
    
    
    $
    6,229,000
  2009
    
    2008United States
    
    
    95
    %
    
    
    92
    %Canada
    
    
    2
    %
    
    
    2
    %Korea
    
    
    2
    %
    
    
    5
    %Other
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 12) COMPREHENSIVE LOSS
  March 31,
    
    March 31,2009
    
    2008NET LOSS
    
    $
    (1,607,000
    )
    
    $
    (1,284,000
    )Change in net unrealized gains on marketable securities available-for-sale
    
    
    (70,000
    )
    
    
    167,000COMPREHENSIVE LOSS
    
    $
    (1,677,000
    )
    
    $
    (1,117,000
    )
 13) STIEFEL AGREEMENT
 ® ® ®
 11




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14) DAEWOONG AGREEMENT
 ® ® ®
 15) COMMITMENTS AND CONTINGENCIES
 Business Acquisition
   AdditionalCumulative Sales Milestone:
    
    Consideration:$35.0 million
    
    $1.0 million$45.0 million
    
    $1.0 millionTotal
    
    $2.0 million
 Legal Matters
 Rivers Edge Litigation Settlement
 ® ® ®
 12




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##### Table of Contents



® Subsequent Events ®
 WINSTON LABORATORIES ARBITRATION
   16) SUBSEQUENT EVENTS
 Rivers Edge Amendment to License Agreement
  Third Amendment to Merger Agreement
   13




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##### Table of Contents



Nicomide Recall
 ® ®
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 ® ® ® ® ®
 ® ® ® ® ® ® ® ® ® ®
 ® ® ® ® ®
 ® ® ® ®
 ® ® ®
 ® ® ® ® ® ® ® ® ® ® ®
 14




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS THREE MONTHS ENDING MARCH 31, 2009 VERSUS MARCH 31, 2008
 REVENUES
 2009
    
    2008
    
    Increase/(Decrease)PDT PRODUCT REVENUESLEVULAN® KERASTICK® PRODUCT REVENUESUnited States
    
    $
    5,685,000
    
    
    $
    4,774,000
    
    
    $
    911,000Canada
    
    
    135,000
    
    
    
    159,000
    
    
    
    (24,000
    )Korea
    
    
    170,000
    
    
    
    365,000
    
    
    
    (195,000
    )Rest of world
    
    
    87,000
    
    
    
    56,000
    
    
    
    31,000Subtotal Levulan® Kerastick® product revenues
    
    
    6,077,000
    
    
    
    5,354,000
    
    
    
    723,000BLU-U® PRODUCT REVENUESUnited States
    
    
    642,000
    
    
    
    476,000
    
    
    
    166,000Subtotal BLU-U® product revenues
    
    
    642,000
    
    
    
    476,000
    
    
    
    166,000TOTAL PDT PRODUCT REVENUES
    
    
    6,719,000
    
    
    
    5,830,000
    
    
    
    889,000TOTAL NON-PDT DRUG PRODUCT REVENUES
    
    
    419,000
    
    
    
    2,100,000
    
    
    
    (1,681,000
    )TOTAL PRODUCT REVENUES
    
    $
    7,138,000
    
    
    $
    7,930,000
    
    
    $
    (792,000
    )
 ® ® ® ®
 ® ® ® ® ® ® ®
 ® ® ® ® ®
 15




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##### Table of Contents



® ® ® ® ®
 ® Subsequent Events ®
 ® ® ® ® ® ® ®
 COST OF PRODUCT REVENUES
 Increase/2009
    
    2008
    
    (Decrease)Levulan® Kerastick® Cost of Product Revenues and RoyaltiesDirect Levulan® Kerastick® Product costs
    
    $
    564,000
    
    
    $
    638,000
    
    
    $
    (74,000
    )Other Levulan® Kerastick® production costs including
internal costs assigned to support products, net
    
    
    359,000
    
    
    
    10,000
    
    
    
    349,000Royalty and supply fees
    
    
    253,000
    
    
    
    248,000
    
    
    
    5,000Subtotal Levulan® Kerastick® Cost of Product Revenues and
Royalties
    
    
    1,176,000
    
    
    
    896,000
    
    
    
    280,000BLU-U® Cost of Product RevenuesDirect BLU-U® Product Costs
    
    
    291,000
    
    
    
    201,000
    
    
    
    90,000Other BLU-U® Product Costs including internal costs assigned to
support products; as well as, costs incurred to ship, install and service the
BLU-U® in physicians offices
    
    
    248,000
    
    
    
    177,000
    
    
    
    71,000Subtotal BLU-U® Cost of Product Revenues
    
    
    539,000
    
    
    
    378,000
    
    
    
    161,000
 16




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##### Table of Contents



Increase/2009
    
    2008
    
    (Decrease)TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES AND ROYALTIES
    
    
    1,715,000
    
    
    
    1,274,000
    
    
    
    441,000Non-PDT Drug Cost of Product Revenues and Royalties
    
    
    223,000
    
    
    
    427,000
    
    
    
    (204,000
    )TOTAL COST OF PRODUCT REVENUES AND ROYALTIES
    
    $
    1,938,000
    
    
    $
    1,701,000
    
    
    $
    237,000
 MARGINS
 Increase/2009
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    (Decrease)Levulan® Kerastick® Gross Margin
    
    $
    4,901,000
    
    
    
    81
    %
    
    $
    4,458,000
    
    
    
    83
    %
    
    $
    443,000BLU-U® Gross Margin
    
    
    103,000
    
    
    
    16
    %
    
    
    98,000
    
    
    
    21
    %
    
    
    5,000Total PDT Drug and Device Gross Margin
    
    $
    5,004,000
    
    
    
    74
    %
    
    $
    4,556,000
    
    
    
    78
    %
    
    $
    448,000Total Non-PDT Drug Gross Margin
    
    
    196,000
    
    
    
    47
    %
    
    $
    1,673,000
    
    
    
    80
    %
    
    
    (1,477,000
    )TOTAL GROSS MARGIN
    
    $
    5,200,000
    
    
    
    73
    %
    
    $
    6,229,000
    
    
    
    79
    %
    
    $
    (1,029,000
    )
 ® ® ® ®
 ® ®
 ®
 RESEARCH AND DEVELOPMENT COSTS
 ® ® ®
   MARKETING AND SALES COSTS
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##### Table of Contents



GENERAL AND ADMINISTRATIVE COSTS
 NET GAIN FROM SETTLEMENT OF LITIGATION ®
 OTHER INCOME, NET
 LOSS ON CHANGE IN FAIR VALUE OF WARRANTS
 NET LOSS
 LIQUIDITY AND CAPITAL RESOURCES
   ® ® ® ®
 18




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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
 ®
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##### Table of Contents



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
    
    $
    1,550,000
    
    
    $
    453,000
    
    
    $
    903,000
    
    
    $
    194,000
    
    
    $
    Purchase obligations (1, 2)
    
    
    3,694,000
    
    
    
    3,203,000
    
    
    
    491,000
    
    
    
    
    
    
    
    Minimum royalty obligations (3)
    
    
    780,000
    
    
    
    326,000
    
    
    
    340,000
    
    
    
    114,000
    
    
    
    Total obligations
    
    $
    6,024,000
    
    
    $
    3,982,000
    
    
    $
    1,734,000
    
    
    $
    308,000
    
    
    $
    
 
 1)
    
    Research and development projects include various commitments including obligations for our study on the treatment of actinic
keratoses and reduction of non-melanoma skin cancers in immunosuppressed solid organ transplant recipients, or SOTR, who have
demonstrated that they are at risk of developing multiple squamous cell carcinomas.2)
    
    In addition to the obligations disclosed above, we have contracted with Therapeutics, Inc., a clinical research organization,
to manage the clinical development of our products in the field of dermatology. This organization has the opportunity for
additional stock grants, bonuses, and other incentives for each product indication ranging from $250,000 to $1,250,000,
depending on the regulatory phase of development of products under Therapeutics management.3)
    
    Minimum royalty obligations relate to our agreements with PARTEQ and Perrigo described above.  INFLATION
  20




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
   Derivative Financial Instruments
  Currency Exchange Rates
    
 ITEM 4. CONTROLS AND PROCEDURES
   Forward-Looking Statements Safe Harbor
 ® ® ® ® ® ® ®
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##### Table of Contents



® ®
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS
   22




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##### Table of Contents



Risks Related To DUSA
 We Are Not Currently Profitable And May Not Be Profitable In The Future Unless We Can
Successfully Market And Sell Significantly Higher Quantities Of Our Products.
 If We Do Not Become Profitable As Expected, We May Need More Capital.
  Our Ability To Become Profitable Has Been Delayed Since We No Longer Sell and Distribute
Nicomide ® As A Prescription Product.
 ® ® ® ®
 ® ®
 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.
  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,
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
    
    controlled research and testing of some of these products even after approval, and
    
    control of marketing activities, including advertising and labeling.
  
    
    send warning letters, as received by the manufacturer of our BLU-U®,
    
    impose fines and other civil penalties on us,
    
    seize our products,
    
    suspend our regulatory approvals,
    
    cease the manufacture of our products, as Actavis Totowa did with Nicomide®,
    
    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.
  ® ® ® ® ® ®
 The Current Global Credit And Financial Market Conditions May Affect Our Business.
  ® ®
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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.
   If We Are Not Successful With The Reexamination Of Our Patent, We Could Lose Market Share.
 ®
 We Have Limited Patent Protection, And If We Are Unable To Protect Our Proprietary Rights,
Competitors Might Be Able To Develop Similar Products To Compete With Our Products And
Technology.
 ®
 
    
    methods of using ALA and its unique physical forms in combination with light,
    
    compositions and apparatus for those methods, and
    
    unique physical forms of ALA.
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® ®
   ®
 ® ®
 ® ®
 ® ® ® ® ®
  
    
    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.
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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 And As A
Result, Our Revenues From Product Sales May Suffer.
 ®
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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 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,
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##### Table of Contents




    
    inability to market products due to third-party proprietary rights, and
    
    failure to achieve market acceptance.
 ®
 We Must Receive Separate Approval For Any Drug or Medical Device Products Before We Can Sell Them
Commercially In The United States Or Abroad.
 ® ® ®
 ®
 Because Of The Nature Of Our Business, The Loss Of Key Members Of Our Management Team Could Delay
Achievement Of Our Goals.
  Collaborations With Outside Scientists May Be Subject To Restriction And Change.
  29




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##### Table of Contents



Risks Related To Our Industry
 Product Liability And Other Claims Against Us May Reduce Demand For Our Products Or Result
In Damages.
 We Are Subject To Risk From Potential Product Liability Lawsuits Which Could Negatively
Affect Our Business.
  Our Business Involves Environmental Risks And We May Incur Significant Costs Complying With
Environmental Laws And Regulations.
  We May Not Be Able To Compete Against Traditional Treatment Methods Or Keep Up With Rapid Changes
In The Biotechnology And Pharmaceutical Industries That Could Make Some Or All Of Our Products
Non-Competitive Or Obsolete.
 Competing Products And Technologies Based On Traditional Treatment Methods May Make Our Products
Or Potential Products Noncompetitive Or Obsolete.
    
    
    price reductions,
    
    lower levels of third-party reimbursements,
    
    failure to achieve market acceptance, and
    
    loss of market share, 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.
 ® ® ® ® ® ®
 30




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##### Table of Contents



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




    
    clinical trial results;
    
    general market conditions;
    
    patent litigation;
    
    increased marketing activities or press releases; and
    
    changes in third-party payor reimbursement for our therapy.
  Significant Fluctuations In Orders For Our Products, On A Monthly And Quarterly Basis, Are Common
Based On External Factors And Sales Promotion Activities. These Fluctuations Could Increase The
Volatility Of Our Stock Price.
  If Outstanding Options, Warrants And Rights Are Converted, The Value Of The Shares Of Common Stock
Outstanding Just Prior To The Conversion Will Be Diluted.
  Effecting A Change Of Control Of DUSA Would Be Difficult, Which May Discourage Offers For Shares
Of Our Common Stock.
     32




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##### Table of Contents



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.
  
 ITEM 6. EXHIBITS
 EXHIBITNO.
    
    DESCRIPTION OF EXHIBIT2(a.3)
    
    Third Amendment to Merger Agreement between Registrant and Sirius Laboratories, Inc. dated April 21, 2009;3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants Form 10-K for the fiscal
year ended December 31, 1998, and is incorporated herein by reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated October 28, 2002 and filed as
Exhibit 99.3 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2002, filed November 12, 2002, and is incorporated herein by reference.3(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on Form 8-K, filed on
November 2, 2008, and is incorporated herein by reference.10(a)
    
    Letter Agreement between Registrant and the representatives of Sirius Laboratories, Inc. dated April 3, 2009;10(b)
    
    Letter Agreement between Registrant and the representatives of Sirius Laboratories, Inc. dated April 21, 2009;10(c)
    
    Amendment to License Agreement between Registrant and Rivers Edge Pharmaceuticals, LLC dated April 21, 2009;31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.1
    
    Press Release dated May 12, 2009.
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##### Table of Contents



SIGNATURES
  DUSA Pharmaceuticals, Inc.By:
    /s/ Robert F. DomanRobert DomanPresident and Chief Executive Officer
(principal executive officer)  By:
    /s/ Richard C. ChristopherRichard C. ChristopherVice President, Finance and Chief Financial
Officer (principal financial officer)  34




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##### Table of Contents



EXHIBIT INDEX
 2(a.3)
    
    Third Amendment to Merger Agreement between Registrant and Sirius Laboratories, Inc. dated April 21, 2009;3(a.1)
    
    Certificate of Incorporation, as amended, filed as Exhibit 3(a) to the Registrants Form 10-K for the fiscal
year ended December 31, 1998, and is incorporated herein by reference.3(a.2)
    
    Certificate of Amendment to the Certificate of Incorporation, as amended, dated October 28, 2002 and filed as
Exhibit 99.3 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2002, filed November 12, 2002, and is incorporated herein by reference.3(b)
    
    By-laws of the Registrant, filed as Exhibit 3.1 to the Registrants current report on Form 8-K, filed on
November 2, 2008, and is incorporated herein by reference.10(a)
    
    Letter Agreement between Registrant and the representatives of Sirius Laboratories, Inc. dated April 3, 2009;10(b)
    
    Letter Agreement between Registrant and the representatives of Sirius Laboratories, Inc. dated April 21, 2009;10(c)
    
    Amendment to License Agreement between Registrant and Rivers Edge Pharmaceuticals, LLC dated April 21, 2009;31(a)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31(b)
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.1
    
    Press Release dated May 12, 2009.
 35