SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                              -------------------

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1999
                             Commission File Number
                                     0-28308

                        COLLAGENEX PHARMACEUTICALS, INC.
                 ----------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

           Delaware                                            52-1758016
------------------------------------                    ------------------------
  (State or Other Jurisdiction of                           (I.R.S. Employer
   Incorporation or Organization)                           Identification No.)

301 South State Street, Newtown, PA                                      18940
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)

                                 (215) 579-7388
                         -------------------------------
                         (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 months  (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: 
                ----                                                ----

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common  stock as of March 31,  1999:

          Class                                              Number of Shares
---------------------------                             ------------------------
Common Stock $.01 par value                                    8,589,704


<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.

                                TABLE OF CONTENTS
                                -----------------



                                                                            Page
                                                                            ----

PART I.  FINANCIAL INFORMATION............................................   1
 
     Item 1.  Financial Statements........................................   1

              Condensed Consolidated Balance Sheets as of December 31,
                 1998 and March 31,1999 (unaudited).......................   2

              Condensed Consolidated Statements of Operations for the
                 Three Months Ended March 31, 1998 and 1999 (unaudited)...   3

              Condensed Consolidated Statements of Cash Flows for the
                 Three Months Ended March 31, 1998 and 1999 (unaudited)...   4

              Notes to Condensed Consolidated Financial Statements
                 (unaudited)..............................................   5

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations.........................   7

              Results of Operations.......................................   8

              Liquidity and Capital Resources.............................   9

     Item 3.  Quantitative and Qualitative Disclosures About Market
              Risk........................................................   12

PART II. OTHER INFORMATION................................................   13

     Item 2.  Changes in Securities and Use of Proceeds...................   13

     Item 5.  Other Information...........................................   13

     Item 6.  Exhibits and Reports on Form 8-K............................   14

SIGNATURES................................................................   15

                                       -i-

<PAGE>










                          PART I. FINANCIAL INFORMATION
                          -----------------------------

                          ITEM 1. FINANCIAL STATEMENTS.





                                      -1-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY
                      Condensed Consolidated Balance Sheets
                      December 31, 1998 and March 31, 1999
<TABLE>
<CAPTION>

                                                                             DECEMBER 31,                 MARCH 31,
                                  ASSETS                                        1998                        1999
                                                                            --------------              -------------
                                                                                                         (unaudited)
                                                                        (dollars in thousands, except per share data)
<S>                                                                           <C>                        <C>      
Current assets:
   Cash and cash equivalents...........................................       $   3,286                  $  13,213
   Short term investments..............................................           6,964                      2,972
   Accounts receivable, net of allowance of $293 and $303 in 1998
     and 1999, respectively............................................           3,045                      2,189
   Inventories.........................................................             342                        528
   Prepaid expenses and other current assets...........................             823                        625
                                                                              ---------                  ---------
         Total current assets..........................................          14,460                     19,527

Equipment, net.........................................................             267                        262
Other assets...........................................................              13                         39
                                                                              ---------                  ---------
         Total assets..................................................       $  14,740                  $  19,828
                                                                              =========                  =========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:
   Convertible note payable............................................      $       --                 $   10,000
   Accounts payable....................................................           2,914                      3,203
   Accrued expenses....................................................           2,545                      2,400
                                                                              ---------                  ---------
         Total current liabilities.....................................           5,459                     15,603
                                                                              ---------                  ---------
Stockholders' equity:
   Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
     shares outstanding................................................              --                         --
   Common stock, $0.01 par value; 25,000,000 shares authorized, 8,587,204
     and 8,589,704 shares issued and outstanding in 1998 and 1999,
     respectively                                                                    86                         86
   Additional paid in capital..........................................          47,317                     47,320
   Deferred compensation...............................................            (194)                      (164)
   Accumulated deficit.................................................         (37,928)                   (43,017)
                                                                              ---------                  ---------
         Stockholders' equity..........................................           9,281                      4,225
                                                                              ---------                  ---------
Commitments
         Total liabilities and stockholders' equity....................       $  14,740                  $  19,828
                                                                              =========                  =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                      -2-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY
                 Condensed Consolidated Statements of Operations
               For the Three Months Ended March 31, 1998 and 1999
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                    THREE MONTHS ENDED MARCH 31,
                                                                                   -----------------------------
                                                                                      1998             1999
                                                                                --------------  ----------------
                                                                        (dollars in thousands, except per share data)
<S>                                                                           <C>                   <C>          
Revenues:
   Product sales.......................................................       $          --         $       2,410
   Contract revenues...................................................                   3                     8
                                                                              -------------         -------------
         Total revenues................................................                   3                 2,418
                                                                              -------------         -------------
Operating expenses:
   Cost of product sales...............................................                  --                   543
   Research and development............................................                 999                   938
   Selling, general and administrative.................................               1,415                 6,096
                                                                              -------------         -------------
         Total operating expenses......................................               2,414                 7,577
                                                                              -------------         -------------
         Operating loss................................................               2,411                 5,159
Other income (expense):
Interest income........................................................                 304                   114
Interest expense.......................................................                  --                   (44)
                                                                              -------------         -------------
         Net loss......................................................       $      (2,107)        $      (5,089)
                                                                              =============         =============
Net loss per share:
   Basic and Diluted...................................................       $       (0.25)        $       (0.59)
                                                                              =============          ============

Shares used in computing net loss per share:
   Basic and Diluted...................................................           8,568,162             8,589,037
                                                                              =============          ============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                      -3-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
               For the Three Months Ended March 31, 1998 and 1999
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                  THREE MONTHS ENDED MARCH 31,
                                                                                  ----------------------------
                                                                                      1998            1999
                                                                                  ------------  --------------
                                                                                      (dollars in thousands)
<S>                                                                            <C>                 <C>       
Cash flows from operating activities:
   Net loss..............................................................      $     (2,107)       $  (5,089)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Noncash compensation expense......................................                31               30
       Depreciation and amortization expense.............................                 9               33
       Change in assets and liabilities:
         Decrease in accounts receivable.................................                --              856
         Increase in inventories.........................................                --             (186)
         (Increase) decrease in prepaid expenses and other assets........               (47)             172
         Increase (decrease) in accounts payable.........................              (157)             289
         Decrease in accrued expenses....................................               (88)            (145)
                                                                               ------------        ---------
                  Net cash used in operating activities..................            (2,359)          (4,040)
                                                                               ------------        ---------
Cash flows from investing activities:
   Capital expenditures..................................................                (9)             (28)
   Proceeds from the sale of short term investments......................             3,199            4,492
   Purchase of short term investments....................................            (1,000)            (500)
                                                                               ------------        ---------
                  Net cash provided by investing activities..............             2,190            3,964
                                                                               ------------        ---------
Cash flows from financing activities:
   Proceeds from the issuance of convertible note payable................                --           10,000
   Proceeds from issuance of common stock................................                 4                3
                                                                               ------------        ---------
                  Net cash provided by financing activities..............                 4           10,003
Net increase (decrease) in cash and cash equivalents.....................              (165)           9,927
Cash and cash equivalents at beginning of period.........................            16,379            3,286
                                                                               ------------        ---------
Cash and cash equivalents at end of period...............................      $     16,214        $  13,213
                                                                               ============        =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                      -4-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 1998 AND 1999
                                   (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION:

     The unaudited condensed  consolidated  financial statements included herein
have been prepared by the Company,  pursuant to the rules and regulations of the
Securities  and Exchange  Commission and in accordance  with generally  accepted
accounting  principles.  Certain information and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  These unaudited condensed consolidated financial statements should
be read in conjunction  with the Company's 1998 audited  consolidated  financial
statements and footnotes.

     The accompanying  unaudited  condensed  consolidated  financial  statements
include the results of the Company and its wholly-owned  subsidiary  (CollaGenex
International,  Ltd.).  All  intercompany  accounts and  transactions  have been
eliminated.

     In the opinion of the  Company's  management,  the  accompanying  unaudited
condensed  consolidated  financial  statements  have  been  prepared  on a basis
substantially  consistent with the audited consolidated financial statements and
contain adjustments, all of which are of a normal recurring nature, necessary to
present  fairly its  financial  position  as of March 31,  1999,  its results of
operations  for the three  months  ended March 31,  1998 and 1999,  and its cash
flows for the three  months ended March 31, 1998 and 1999.  Interim  results are
not necessarily indicative of results anticipated for the full fiscal year.

NOTE 2 -- SENIOR SECURED CONVERTIBLE NOTE AND EQUITY FINANCING:

     On March 19, 1999,  the Company  received $10 million in proceeds  from the
issuance of a Senior  Secured  Convertible  Note (the  "Note") to OCM  Principal
Opportunities  Fund, L.P. ("OCM").  The Note bears interest at a rate of 12% per
annum, is due one year from the date of issuance and is secured by the assets of
the  Company.  The Note must be repaid with the  proceeds  from the  issuance of
Series D Cumulative Convertible Preferred Stock (the "Preferred Stock") prior to
June 30, 1999 (see below).  If the Note has not been repaid with the proceeds of
the Preferred Stock financing by June 30, 1999, the Note is convertible,  at the
holder's  option,  into  1,538,462  shares of the  Company's  common  stock.  In
addition,  any interest due on the Note would also be convertible into shares of
common stock at a conversion price of $6.50 per share.

     Simultaneous  with the execution of the Note,  the Company  entered into an
agreement  to issue $20 million in Preferred  Stock at a purchase  price of $100
per share to OCM and other


                                      -5-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1998 AND 1999
                                  (UNAUDITED)
                                  (CONTINUED)

investors  contingent  upon  and as soon as  practicable  following  stockholder
approval of such issuance at the Company's Annual Meeting of Stockholders on May
11, 1999. During the first three years following  issuance,  the Preferred Stock
would pay dividends in common stock at a rate of 8.4% per annum. Thereafter, the
Preferred  Stock would pay  dividends  in cash at a rate of 8.0% per annum.  The
Preferred  Stock would be  convertible,  at any time,  by the holder into common
shares of the  Company  at an  initial  conversion  price of $11.00  per  share,
subject to adjustment.





                                      -6-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS.

OVERVIEW

     CollaGenex  Pharmaceuticals,  Inc. began  operations in January 1992 and is
focused  on  providing   innovative  medical  therapies  for  the  treatment  of
periodontitis and other pathologies characterized by the progressive degradation
of the  body's  connective  tissues.  The  Company's  core  technology  involves
inhibiting the activity of certain enzymes that degrade such connective tissues.
The Company's first product, Periostat, is a prescription pharmaceutical capsule
that was approved by the United States Food and Drug  Administration (the "FDA")
in September 1998 as an adjunct to scaling and root planing,  the most prevalent
therapy for periodontitis, to promote attachment level gain and to reduce pocket
depth in  patients  with  adult  periodontitis.  Periostat  has been  shipped to
wholesale  and  retail  distributors  and is  presently  available  to  patients
throughout the United States.

     Historically,  the Company had operated with a minimal number of employees.
Substantially all  pharmaceutical  development  activities,  including  clinical
trials,  have  been  contracted  to  independent  contract  research  and  other
organizations.  The Company has recently  increased,  and expects to continue to
increase,  the number of its employees over the next several years, primarily in
the selling, general and administrative areas.

     The  Company  has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $43.0 million at March 31, 1999. The Company  expects to
continue to incur losses in the  foreseeable  future from  expenditures  on drug
development, marketing, manufacturing and administrative activities.

     Statements  contained or incorporated by reference in this Quarterly Report
on Form  10-Q  that  are not  based  on  historical  fact  are  "forward-looking
statements" within the meaning of Section 21E of the Securities  Exchange Act of
1934,  as amended.  Forward-looking  statements  may be identified by the use of
forward-looking   terminology  such  as  "may,"  "will,"  "expect,"  "estimate,"
"anticipate,"  "continue,"  or similar  terms,  variations  of such terms or the
negative of those terms. This Form 10-Q contains forward-looking statements that
involve risks and uncertainties.  The Company's  business of selling,  marketing
and  developing  pharmaceutical  products is subject to a number of  significant
risks, including risks relating to the implementation of the Company's sales and
marketing  plans for  Periostat,  risks  inherent  in research  and  development
activities,  risks  associated  with conducting  business in a highly  regulated
environment,  risks relating to the Company's Year 2000  compliance and the Year
2000   compliance   of  the   Company's   vendors,   suppliers,   manufacturers,
distributors, marketing partners and certain other parties, uncertainty relating
to clinical trials of products under  development  and  uncertainty  relating to
stockholder  approval of the Company's  proposed  Preferred  Stock financing and
whether such Preferred  Stock financing will be consummated in a timely fashion,
if at all. The success of the Company  depends to a large degree upon the market
acceptance of

                                      -7-
<PAGE>

Periostat by periodontists,  dental practitioners,  other health care providers,
patients and insurance  companies.  In addition,  there can be no assurance that
any of the  Company's  product  candidates  (other  than the FDA's  approval  of
Periostat  in the United  States,  as set forth  above)  will be approved by any
regulatory authority for marketing in any jurisdiction or, if approved, that any
such products will be successfully  commercialized by the Company. The Company's
actual  results  may  differ  materially  from  the  results  discussed  in  the
forward-looking statements contained herein.

RESULTS OF OPERATIONS

     From its founding through the quarter ended September 30, 1998, the Company
had no revenues  from sales of its own  products.  During the fourth  quarter of
1998,  the Company  achieved  net product  sales of $3.1 million  following  the
commercial  launch of Periostat in November 1998.  During the three months ended
March 31, 1999, the Company  achieved net product sales of $2.4 million from the
marketing of Periostat. The Company realized a net loss during the first quarter
of 1999,  resulting  primarily from post-launch  marketing  activities  incurred
during such  period.  Total  operating  expenses  consist of the cost of product
sales, research and development expenses and selling, general and administrative
expenses.  Cost of product  sales  consists  primarily  of direct  manufacturing
expenses and royalties.  Research and development  expenses consist primarily of
payments  to  third  parties,   including   contract   research   organizations,
universities  and  clinical  investigators,   for  services  and  materials  for
research,   drug   development  and  clinical  trials.   Selling,   general  and
administrative  expenses consist  primarily of personnel  salaries and benefits,
direct marketing costs,  professional and consulting fees, insurance and general
office expenses.

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

     The Company  realized $2.4 million in net revenues  during the three months
ended March 31, 1999  compared to $3,000 during the three months ended March 31,
1998.  Revenues for the first quarter of 1999 included $2.4 million in net sales
of  Periostat  and $8,000 in contract  revenues.  Revenues  for the three months
ended March 31, 1998 were derived solely from contract  revenues.  There were no
product sales for the three months ended March 31, 1998.

     Cost of product  sales were  $543,000  for the three months ended March 31,
1999, while there were no cost of product sales for the three months ended March
31, 1998. Such increase resulted from the Company's ongoing sales of Periostat.

     Research and development expenses for the three months ended March 31, 1999
were  $938,000  compared to $999,000  for the three months ended March 31, 1998.
This decrease  resulted  primarily  from a shift in the  Company's  research and
development  expenditures from the FDA approval process relating to Periostat to
manufacturing and formulation development for Periostat.

     Selling,  general and administrative expenses increased to $6.1 million for
the three  months  ended March 31, 1999 from $1.4  million for the three  months
ended March 31, 1998.

                                      -8-
<PAGE>

This  increase  was  due  primarily  to  the  Company's   post-launch  marketing
activities related to Periostat and the hiring of additional sales personnel.

     Interest  income  decreased to $114,000 during the three months ended March
31,  1999 from  $304,000  during the three  months  ended March 31,  1998.  This
decrease  was due to lower  balances  in cash and  short-term  investments  as a
result of normal  operating  activities  since the  Company's  follow-on  public
offering  of Common  Stock in April 1997.  Interest  expense was $44,000 for the
three  months  ended March 31, 1999 for  interest on the $10 million  short term
convertible  note  executed by the Company in March 1999.  There was no interest
expense  during the three months ended March 31, 1998, as there was no debt then
outstanding.

LIQUIDITY AND CAPITAL RESOURCES

     Since its origin in January 1992,  the Company has financed its  operations
through  private  placements  of preferred  stock and common  stock,  an initial
public  offering  of  2,000,000  shares of common  stock,  which  generated  net
proceeds to the Company of approximately  $18.0 million after  underwriting fees
and related  expenses,  and a subsequent  public offering of 1,000,000 shares of
common stock, which generated net proceeds to the Company of approximately $11.6
million after  underwriting  fees and related  expenses.  On March 19, 1999, the
Company  announced that it had entered into an agreement with investors who have
committed to purchase $20.0 million of Series D Cumulative Convertible Preferred
Stock (the  "Preferred  Stock") of the  Company at a purchase  price of $100 per
share.  In accordance  with certain  stockholder  approval  requirements  of the
Nasdaq Stock  Market,  Inc.,  the  Preferred  Stock  financing is expected to be
presented to the  Company's  common  stockholders  for approval at the Company's
Annual Meeting of  Stockholders  in May 1999 and,  assuming such  approval,  the
Company  expects  to  consummate  the  Preferred  Stock  financing  as  soon  as
practicable following such Annual Meeting of Stockholders. Simultaneous with the
signing of the  Preferred  Stock  financing  agreement,  the Company  executed a
Senior  Secured  Convertible  Note (the  "Note")  pursuant  to which the Company
received $10.0 million from one of the investors in the financing transaction to
be used for working  capital  purposes.  The Note has a term of one year,  bears
interest  at a rate of 12.0% per annum,  must be repaid  upon the closing of the
Preferred  Stock  financing and is secured by the assets of the Company.  In the
event the Preferred  Stock  financing is not  consummated  by June 30, 1999, the
noteholder  shall have the option to convert  the  principal  due under the Note
into  1,538,462  shares of Common  Stock.  Any interest due under the Note would
also be convertible  into shares of Common Stock at a conversion  price of $6.50
per share.  At March 31,  1999,  the  Company  had cash,  cash  equivalents  and
short-term  investments  of  approximately  $16.2  million,  an increase of $5.9
million from the $10.3 million  balance at December 31, 1998.

     In accordance with investment guidelines approved by the Company's Board of
Directors,  cash balances in excess of those  required to fund  operations  have
been invested in short-term  United States  Treasury  securities  and commercial
paper with a credit rating no lower than A1/P1. The Company's working capital at
March 31, 1999 was $3.9  million,  a decrease of $5.1 million from  December 31,
1998.  This decrease was primarily  attributable  to the operating loss incurred
during the first quarter of 1999.

                                      -9-
<PAGE>

     Except as set forth in the foregoing paragraph,  the Company had no debt or
capital leases outstanding (other than accounts payable and accrued expenses) at
March 31, 1999. On June 26, 1997, the Company entered into a credit  arrangement
consisting of a  $5.0 million line of credit  (the  "LOC") to support the future
working  capital needs of the Company.  The LOC will be unsecured as long as the
Company's  cash  and  investment  balances  maintained  with  the  lender  or an
affiliate of the lender equal or exceed $10.0 million.  At the Company's option,
the LOC will bear  interest  at either the prime  rate  charged by the lender or
LIBOR plus 2.15%.  The LOC is  terminable  by the lender at any time. No balance
was outstanding under the LOC at March 31, 1999.

     The  Company   anticipates  that  its  existing  working  capital  will  be
sufficient  to fund  the  Company's  operations  through  at  least  1999.  Upon
consummation of the equity financing, which is pending stockholder approval, the
Company  anticipates  that its working  capital will be  sufficient  to fund the
Company's  operations  through  mid-year  2000.  The  Company's  future  capital
requirements  and the  adequacy  of its  available  funds  will  depend  on many
factors,  including,  the size and scope of the Company's  marketing  effort and
sales of  Periostat,  the  terms  of  agreements  entered  into  with  corporate
partners,  if any, and the results of research and development and  pre-clinical
and clinical  studies for other  applications of the Company's core  technology.
Over the long-term, the Company's liquidity is dependent on market acceptance of
its products and technology.

YEAR 2000 ISSUES

     ASSESSMENT

     The Company  believes its exposure to Year 2000 problems lies  primarily in
two areas: (i) its own internal operating systems; and (ii) Year 2000 compliance
by third parties with whom the Company has a material relationship.  The Company
has  completed an assessment of its principal  internal  systems.  However,  the
Company is  continuing  to assess its Year 2000  exposure  with respect to third
parties.  While the costs of these  assessment  efforts  are not  expected to be
material  to  the  Company's  financial  condition  or  any  year's  results  of
operations, there can be no assurance that this will be the case.

     INTERNAL OPERATING SYSTEMS

     The Company  believes  that its  principal  internal  systems are Year 2000
compliant.  The Company  recently  installed  upgraded  versions of its internal
accounting, management and financial reporting applications which the vendor has
represented  are  Year  2000  compliant.  Some  of  the  Company's  non-critical
applications, however, may not be Year 2000 compliant. The Company is conducting
a program to identify and resolve any such exposure.  Although the costs related
to these  efforts are not  expected to be  material to the  Company's  business,
financial condition or results of operations, no assurance can be made that this
will be the case.

                                      -10-
<PAGE>

     THIRD-PARTY RELATIONSHIPS

     The  Company is  conducting  a program to identify  and  resolve  Year 2000
exposure from third parties.  The Company is presently  conducting  inquiries of
its  outside  vendors,  suppliers,  manufacturers,  distributors  and  marketing
partners to assess their Year 2000 readiness.  Any failure of third parties with
whom the Company has a material  relationship to resolve Year 2000 problems in a
timely  manner  could  materially   adversely  affect  the  Company's  business,
financial condition or results of operations.

     RISKS OF THE COMPANY'S YEAR 2000 ISSUES

     The Company  expects to identify  and resolve all Year 2000  problems  that
could materially adversely affect the Company's business, financial condition or
results of operations.  However, the Company believes that it is not possible to
determine with complete  certainty that all Year 2000 problems affecting it have
been  identified or will be corrected.  Further,  the Company cannot  accurately
predict how many  failures  related to the Year 2000  problem  will occur or the
severity,  duration or financial consequences of such failures. As a result, the
Company expects that it could possibly suffer the following consequences:

     o    A significant number of operational  inconveniences and inefficiencies
          for the  Company  and the  Company's  customers  that may  divert  the
          Company's  time and attention and financial and human  resources  from
          the Company's ordinary business activities; and

     o    A lesser  number of serious  system  failures  (whether the  Company's
          systems   or  those   of  its   vendors,   suppliers,   manufacturers,
          distributors  and  marketing  partners)  that may require  significant
          efforts by the Company,  its  customers or third parties to prevent or
          alleviate material business disruptions.

     COSTS

     Other than time spent by the Company's own  personnel,  to date the Company
has not incurred any significant  costs in identifying and remediating Year 2000
problems.

     THE COMPANY'S CONTINGENCY PLANS

     The Company  believes  its plans for  addressing  the Year 2000 problem are
adequate. The Company does not believe it will incur a material financial impact
from system failures, or from the costs associated with assessing and addressing
the risks of failure,  arising  from the Year 2000  problem.  Consequently,  the
Company does not intend to create a detailed contingency plan. In the event that
the Company does not adequately  identify and resolve its Year 2000 issues,  the
absence of a  detailed  contingency  plan may  materially  adversely  affect its
business, financial condition and results of operations.

                                      -11-
<PAGE>

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company  believes  that it is not  subject to a material  impact to its
financial position or results of operations relating to market risk.




                                      -12-
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.         CHANGES IN SECURITIES.

     The following  information  relates to all securities of the Company within
the first quarter of 1999 which were not registered under the securities laws at
the time of grant, issuance and/or sale:

     1.   During the first  quarter of 1999,  the Company  granted stock options
          outside of any stock plan. Such  securities were not registered  under
          the Securities  Act of 1933, as amended (the  "Securities  Act").  The
          following table sets forth certain  information  regarding such grants
          during the quarter:

                        NUMBER                           EXERCISE
                      OF SHARES                           PRICE
                      ---------                          --------
                       192,500                            $10.06

     The Company did not employ an underwriter  in connection  with the issuance
of the securities described above. The Company believes that the issuance of all
of the foregoing  securities was exempt from registration under (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities  having  been  acquired  for  investment  and  not  with  a  view  to
distribution,  or (ii) Rule 701 under the Act as transactions made pursuant to a
written  compensatory benefit plan or pursuant to a written contract relating to
compensation.  All  recipients  had  adequate  access to  information  about the
Company.

ITEM 5.         OTHER INFORMATION.

     SENIOR SECURED CONVERTIBLE NOTE AND EQUITY FINANCING

     On March 19, 1999, the Company entered into a Convertible Loan and Security
Agreement (the "Loan  Agreement")  with OCM Principal  Opportunities  Fund, L.P.
("OCM")  pursuant to which the Company  issued OCM a  convertible  note  raising
$10.0 million in gross  proceeds.  In accordance  with the Loan  Agreement,  the
Company executed and delivered to OCM a 12% senior secured  convertible note due
March 18, 2000 in the principal  amount of $10.0 million (the "Note").  The Note
must be repaid upon the closing of that certain Stock Purchase  Agreement  dated
March 19,  1999 (the  "Purchase  Agreement"),  whereby the Company has agreed to
sell to OCM and  certain  other  investors  shares  of its  Series D  Cumulative
Convertible  Preferred Stock, $.01 par value per share, at an aggregate purchase
price of $20.0 million.  The  consummation of the Purchase  Agreement is subject
to, among other things,  approval of such transaction by the stockholders of the
Company. The Company intends to seek such approval at its 1999 Annual Meeting of
Stockholders. In the event the Purchase Agreement is not consummated by June 30,
1999, OCM shall have the option to convert the principal due under the Note into
1,538,462  shares  of  Common  Stock.  The  interest  due under the Note is also
convertible  into  shares of  Common  Stock at a  conversion  price of $6.50 per
share.

                                      -13-
<PAGE>

     Prior to entering into the Note,  the Company  executed an amendment to its
Shareholder  Protection Rights Agreement in order to exclude OCM as an Acquiring
Person (as defined therein) with respect to the transactions set forth above.

     METASTAT

     In January  1998,  the  Company,  pursuant  to its  collaboration  with the
National  Cancer  Institute  ("NCI"),  initiated  Phase I clinical  trials  with
respect to Metastat,  the Company's lead compound for the potential treatment of
cancer  metastasis.  In February 1999,  the Company  released  initial  findings
related  to such  studies.  Those  findings  revealed  that oral  administration
resulted in desired plasma  concentrations  with no  dose-limiting  side effects
other  than  manageable  photosensitivity.  Subsequently,  the NCI  advised  the
Company  that  it  believed  that  the  level  of   photosensitivity,   although
manageable,  could limit the commercial viability of Metastat.  However, the NCI
also advised the Company that it remains  interested  in the mechanism of action
of this class of  compounds  and it intends to  complete  the  current  clinical
trials to establish  "proof of principle" with respect to a variety of surrogate
markers.  Meanwhile,  the Company is accelerating the development of several new
compounds  which  are  proprietary  derivatives  of  Metastat  that  have  shown
substantially lower levels of photosensitivity in IN VITRO studies. There can be
no  assurance   that  such   compounds   will  be   successfully   developed  or
commercialized.

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits

                  10.1 -   Lease  Agreement  dated  March 15,  1999 between  the
                           Company and Newtown Venture IV  Associates, effective
                           May 15, 1999.

                  27 -     Financial Data Schedule.

         (b)      Reports on Form 8-K.

                  During the quarter ended March 31, 1999, the Company filed, on
                  March  25,  1999,  a  Current  Report  on Form  8-K  with  the
                  Securities and Exchange  Commission  relating to the Company's
                  issuance of a $10.0 million  Senior Secured  Convertible  Note
                  and its  proposed  issuance  of  $20.0  million  of  Series  D
                  Cumulative Convertible Preferred Stock to certain investors.

                                      -14-
<PAGE>

                                   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.


                                    CollaGenex Pharmaceuticals, Inc.



Date:    May  7, 1999               By:    /s/ Brian M. Gallagher, Ph.D.        
                                           -------------------------------------
                                           Brian M. Gallagher, Ph.D.
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



Date:    May  7, 1999               By:    /s/ Nancy C. Broadbent               
                                           -------------------------------------
                                           Nancy C. Broadbent
                                           Chief Financial Officer (Principal
                                           Financial and Accounting Officer)



                                      -15-