C O L L A G E N E X
                          p h a r m a c e u t i c a l s



                                                                May 15, 2001

Via EDGAR
---------

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

         Re:    CollaGenex Pharmaceuticals, Inc. (Commission File No. 0-28308)
                Form 10-Q for the Quarter Ended March 31, 2001

Dear Sirs:

     Pursuant to Rule 13a-13(a)  under the  Securities  Exchange Act of 1934, as
amended, on behalf of CollaGenex  Pharmaceuticals,  Inc., a Delaware corporation
(the  "Corporation"),   submitted  herewith  for  filing  is  the  Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

     If you have any  questions  or  comments  concerning  this  filing,  kindly
contact the undersigned at (215) 579-7388 ext. 3110.




                                                     /s/ Frank Ruffo
                                                     Frank Ruffo
                                                     Controller








  CollaGenex Pharmaceuticals, Inc., 41 University Drive, Newtown, PA 18940 USA
                       215-579-7388 voice 215-579-8577 fax



<PAGE>




                                                               CONFORMED COPY


                       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, 2001
                             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.)



41 University Drive, 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 April 15, 2001:


             Class                                    Number of Shares
  ----------------------------                    ------------------------
  Common Stock $.01 par value                             10,550,638


<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,
                  2000 and March 31, 2001 (unaudited)......................  2

               Condensed Consolidated Statements of Operations for the Three
                  Months Ended March 31, 2000 and 2001 (unaudited).........  3

               Condensed Consolidated Statements of Cash Flows for the Three
                  Months Ended March 31, 2000 and 2001 (unaudited).........  4

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

     Item 2.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations...................................  8

               Results of Operations.......................................  9

               Liquidity and Capital Resources............................. 11

     Item 3.   Quantitative and Qualitative Disclosures About Market Risk.. 13

PART II. OTHER INFORMATION................................................. 14

     Item 2.   Changes in Securities and Use of Proceeds................... 14

     Item 6.   Exhibits and Reports on Form 8-K............................ 15

SIGNATURES................................................................. 16


                                      -i-

<PAGE>

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

                          ITEM 1. FINANCIAL STATEMENTS.


                                      -1-
<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                      Condensed Consolidated Balance Sheets
                      December 31, 2000 and March 31, 2001
                  (dollars in thousands, except per share data)

<TABLE>
                                                                               December 31,             March 31,
                                  Assets                                          2000                    2001
                                                                              -------------           ------------
                                                                                                       (unaudited)

Current assets:

<S>                                                                           <C>                   <C>
   Cash and cash equivalents...........................................       $     3,709           $     7,749
   Short term investments..............................................             1,739                    --
   Accounts receivable, net of allowance of $381 and $330 at December 31,
     2000 and March 31, 2001, respectively.............................             3,038                 3,476
   Inventories.........................................................               277                   504
   Prepaid expenses and other current assets...........................               989                 2,513
                                                                                  -------               -------
         Total current assets..........................................             9,752                14,242
Equipment and leasehold improvements, net..............................               652                   596
Other assets...........................................................                27                    26
                                                                                  -------               -------
         Total assets..................................................       $    10,431           $    14,864
                                                                                 ========              ========

                   Liabilities and Stockholders' Equity

Current liabilities:

   Current portion of note payable.....................................       $        65           $        65
   Accounts payable....................................................             1,865                 2,486
   Accrued expenses....................................................             2,514                 2,165
                                                                                  -------               -------
         Total current liabilities.....................................             4,444                 4,716
                                                                                  -------               -------
Note payable, less current portion.....................................                47                    29
Deferred revenue.......................................................               676                   661

Commitments

Stockholders' equity:

   Preferred stock, $0.01 par value, 5,000,000 shares authorized; 200,000 shares
     of Series D cumulative convertible preferred stock issued and outstanding
     at December 31, 2000 and March 31, 2001 (liquidation
     value of $20,000 at March 31, 2001)...............................                 2                     2

   Common stock, $0.01 par value; 25,000,000 shares authorized, 8,775,176 and
     10,550,638 shares issued and outstanding at December 31, 2000
     and March 31, 2001, respectively..................................                88                   106

   Common stock to be issued (275,462 shares at December 31, 2000 and
     none at March 31, 2001) ..........................................               872                    --
   Additional paid in capital..........................................            68,461                76,193
   Deferred compensation...............................................               (29)                  (22)
   Accumulated deficit.................................................           (64,130)              (66,821)
                                                                                  -------               -------
         Stockholders' equity..........................................             5,264                 9,458
                                                                                  -------               -------
         Total liabilities and stockholders' equity....................       $    10,431           $    14,864
                                                                                 ========              ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                      -2-

<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Operations
               For the Three Months Ended March 31, 2000 and 2001
                  (dollars in thousands, except per share data)
                                   (unaudited)

<TABLE>
                                                                                 Three Months Ended March 31,
                                                                                 ----------------------------
                                                                                2000                     2001
                                                                                ----                     ----
                                                                              Restated
                                                                            (See Note 3)

Revenues:
<S>                                                                        <C>                   <C>
   Product sales.......................................................    $       5,510         $      6,113
   Contract revenues...................................................              650                  875
   License revenues....................................................              370                   36
                                                                                 -------              -------
        Total revenues.................................................            6,530                7,024
                                                                                 -------              -------
Operating expenses:
   Cost of product sales...............................................            1,170                1,366
   Research and development............................................              847                  944
   Selling, general and administrative.................................            6,767                7,477
                                                                                 -------              -------
         Total operating expenses......................................            8,784                9,787
                                                                                 -------              -------
         Operating loss................................................            2,254                2,763

Other income (expense):
   Interest income.....................................................              186                   63
   Interest expense....................................................               (5)                  (3)
   Other Income (expense)..............................................               --                   12
                                                                                 -------              -------
         Loss before cumulative effect of change in accounting
         principle.....................................................           (2,073)              (2,691)

Cumulative effect of change in accounting principle....................              764                   --
                                                                                 -------              -------
         Net loss......................................................           (2,837)              (2,691)
Preferred stock dividend...............................................              423                  420
                                                                                 -------              -------
Net loss allocable to common stockholders..............................    $      (3,260)        $     (3,111)
                                                                                ========             ========
Basic and diluted net loss per share allocable to common stockholders
   before cumulative effect of change in accounting principle..........    $       (0.29)        $      (0.33)
                                                                                --------              -------
Cumulative effect of change in accounting principle....................            (0.09)                 --
                                                                                --------              -------
Basic and diluted net loss per share allocable to
   common stockholders.................................................    $      (0.38)         $      (0.33)
                                                                               =========            =========
Shares used in computing basic and diluted net loss per share.....             8,651,597            9,336,639
                                                                               =========            =========
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                      -3-
<PAGE>



                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows
               For the Three Months Ended March 31, 2000 and 2001
                             (dollars in thousands)
                                   (unaudited)
<TABLE>

                                                                              Three Months Ended March 31,
                                                                              ----------------------------
                                                                                2000                 2001
                                                                                ----                 ----
                                                                             Restated
                                                                            (See Note 3)

Cash flows from operating activities:
<S>                                                                     <C>                   <C>
   Net loss..........................................................   $       (2,837)       $      (2,691)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Noncash compensation expense..................................               45                    7
       Depreciation and amortization expense.........................               56                   64
       Cumulative effect of change in accounting principle...........              764                   --
       Change in assets and liabilities:
         Accounts receivable.........................................             (131)                (438)
         Inventories.................................................              314                 (227)
         Prepaid expenses and other assets...........................             (103)              (1,523)
         Accounts payable............................................              505                  621
         Accrued expenses............................................             (487)                (349)
         Deferred revenue............................................             (370)                 (15)
                                                                                ------               ------
                  Net cash used in operating activities..............           (2,244)              (4,551)
                                                                                ------               ------
Cash flows from investing activities:
   Capital expenditures..............................................              (58)                  (8)
   Proceeds from the sale of short term investments..................            3,417                1,739
   Purchase of short term investments................................             (849)                  --
                                                                                ------               ------
                  Net cash provided by investing  activities.........            2,510                1,731
                                                                                ------               ------
Cash flows from financing activities:
   Net proceeds from issuance of common stock........................               70                6,878
   Repayment of long-term debt.......................................              (17)                 (18)
                                                                                ------               ------
                  Net cash provided by financing activities..........               53                6,860
Net increase in cash and cash equivalents............................              319                4,040
Cash and cash equivalents at beginning of period.....................            7,981                3,709
                                                                                ------               ------
Cash and cash equivalents at end of period...........................   $        8,300     $          7,749
                                                                               =======              =======

Supplemental schedule of noncash financing activities:
     Common stock dividends issued or issuable
     on preferred stock..............................................   $          423     $            420
                                                                              ========              =======
     Issuance of common stock to be issued...........................              858                  872
                                                                              ========              =======
Supplemental disclosure of cash flow information:
     Cash paid during the period for interest........................   $            5     $              3
                                                                              ========              =======
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                      -4-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 2000 and 2001
                             (dollars in thousands)
                                   (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 2000 audited  consolidated  financial
statements and footnotes.

     The accompanying  unaudited  condensed  consolidated  financial  statements
include  the  results of the  Company  and its  wholly-owned  subsidiaries.  All
intercompany accounts and transactions have been eliminated in consolidation.

     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 the Company's  consolidated  financial  position as of March 31,
2001,  their results of operations for the three months ended March 31, 2000 and
2001,  and their cash flows for the three  months ended March 31, 2000 and 2001.
Interim  results are not necessarily  indicative of results  anticipated for the
full fiscal year.

Note 2 -- Inventories:

     Inventories  at  December  31,  2000 and  March  31,  2001  consist  of the
following:

                                     2000            2001
                                    -----            -----
 Raw materials                    $      60       $     276
 Finished goods                         217             228
                                  ---------       ---------
                                  $     277       $     504
                                  =========       =========

Note 3 - Change in Accounting Principle:

     In the fourth  quarter  of 2000,  the  Company  adopted  SAB 101,  "Revenue
Recognition  in  Financial   Statements",   implementing  a  change  in  revenue
recognition  policy for  certain  upfront  payments  received  in  international
licensing  arrangements  for  Periostat.  Effective  January  1,  2000,  upfront
payments received from licensees,  where the Company has continuing involvement,
are now being  deferred and  recognized  as license  revenue over the  estimated
performance  period of the individual  license  agreements.  In previous  years,
prior to the

                                      -5-
<PAGE>

Company's  adoption of SAB 101, the Company  recognized revenue when the upfront
payments were received,  generally upon the execution of each agreement.  During
the three  months  ended March 31, 2000,  the Company  recorded  $370 in license
revenues which were deferred upon the implementation of SAB 101 as of January 1,
2000 and  which  were  previously  recognized  as  license  revenues  under  the
historical  revenue  recognition policy prior to the adoption of SAB 101. During
the three  months ended March 31, 2001,  the Company  recognized  $15 in license
revenues which were deferred upon the implementation of SAB 101.

     The  consolidated  statements  of  operations  and cash flows for the three
months  ended March 31, 2000 have been  restated in the  accompanying  financial
statements based on this newly adopted revenue  recognition  policy.  The change
increased  revenue and  decreased net loss by $370 during the three months ended
March 31, 2000, excluding the cumulative effect of the change.  During the three
months ended March 31, 2000,  the Company  recorded a $764 charge as a result of
the  cumulative  effect  of the  change  in  accounting  principle  for  revenue
recognized prior to January 1, 2000.

Note 4 - Common Stock and Debt Financing:

     On March 12, 2001,  the Company  consummated a private  equity  offering of
1,500,000  shares of Common  Stock for an  aggregate  purchase  price of $7,500,
which  generated  net  proceeds  to the  Company  of  approximately  $6,900.  In
addition,  the  investors  in this  financing  were also issued an  aggregate of
400,000  warrants which are  exercisable  for up to three (3) years into 400,000
shares of the  Company's  Common Stock at an exercise  price per share of $6.00.
The  consideration  received  for such  warrants is  included  in the  aggregate
proceeds  received in the  financing.  The Company also issued to its  financial
advisor in this  financing,  warrants to purchase an aggregate of 150,000 shares
of the Company's  Common  Stock,  exercisable  for up to three (3) years,  at an
exercise price of $5.70 per share. All such warrants may be deemed automatically
exercised in certain  circumstances  based on the  Company's  stock  price.  The
Company is  obligated  to maintain  the  effectiveness  of a shelf  registration
statement  with  respect to all such  shares of Common  Stock  issued and shares
underlying  all such  warrants for a continuous  twenty-four  (24) month period.
Should the  Company  fail to maintain  the  effectiveness  of such  registration
statement the  investors  and the financial  advisor shall receive an additional
27,500 shares of the Company's Common Stock, in the aggregate, for no additional
consideration.  As a result of this financing,  the conversion price paid on the
Preferred Stock has been reduced to $9.94 per share.

     On March 19, 2001, the Company consummated a revolving credit facility (the
"Facility") with Silicon Valley Bank (the "Bank").  The Company may borrow up to
the lesser of $3,000 or 80% of eligible  accounts  receivable,  as defined.  The
amount  available is also reduced by outstanding  letters of credit which may be
issued under this  agreement in amounts  totaling up to $1,500.  As of March 31,
2001,  the Company has a letter of credit in place in the amount of $1,313 which
bears interest,  payable monthly,  at the prime rate plus 1.5% per annum and may
be used only for working capital purposes.  Without the consent of the Bank, the
Company,  among other things,  shall not (i) merge or  consolidate  with another
entity;  (ii) acquire assets outside the ordinary  course of business;  or (iii)
pay or declare any cash

                                      -6-
<PAGE>


dividends  on the  Company's  Common  Stock.  The Company  must also  maintain a
certain  tangible net worth and a minimum of $2,000 in cash,  net of  borrowings
under the Facility,  at all times during the term of the Facility.  In addition,
the Company has secured its obligations  under the Facility through the granting
of a security interest in favor of the Bank with respect to all of the Company's
assets, including its intellectual property.

Note 5 - Subsequent Events:

     At the Company's 2001 Annual Meeting of Stockholders  held on May 10, 2001,
the  stockholders of the Company approved a proposal to amend the Company's 1996
Stock Option Plan (the "1996 Stock Option Plan") to increase the maximum  number
of shares of Common Stock  available  for  issuance  under the 1996 Stock Option
Plan from  1,500,000 to 2,000,000  shares and to reserve an  additional  500,000
shares of Common  Stock of the Company for  issuance in  connection  with awards
granted under the 1996 Stock Option Plan.

                                      -7-

<PAGE>


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

OVERVIEW

     CollaGenex  Pharmaceuticals,  Inc. and  subsidiaries  (the  "Company") is a
specialty   pharmaceutical  company  focused  on  providing  innovative  medical
therapies to the dental market. The Company's first product, Periostat(R), is an
orally administered,  prescription  pharmaceutical  product that was approved by
the United States Food and Drug Administration (the "FDA") in September 1998 and
is the first and only  pharmaceutical to treat adult periodontitis by inhibiting
the enzymes that  destroy  periodontal  support  tissues.  In December  2000 and
February  2001,  the  United  Kingdom  Medicines  Control  Agency  and the  FDA,
respectively,  granted  marketing  approval  for a  new  tablet  formulation  of
Periostat  which is  smaller,  easier to swallow and offers  manufacturing  cost
advantages.  This  formulation  will  replace  the  currently  marketed  capsule
formulation  during  2001.  Periostat  is indicated as an adjunct to scaling and
root planing, the most prevalent therapy for adult periodontitis, to promote the
attachment  level  gain and to  reduce  pocket  depth  in  patients  with  adult
periodontitis.  The  Company is  marketing  Periostat  to the  dental  community
through its own professional dental  pharmaceutical sales force of approximately
120 sales  representatives  and  managers.  This sales  force  also  co-promotes
Vioxx(R), a prescription non-steroidal anti-inflammatory drug developed by Merck
& Co.,  Inc.  ("Merck")  and until April 13,  2001,  co-promoted  Denavir(R),  a
prescription cold sore medication owned by Novartis Pharmaceuticals  Corporation
("Novartis").  Novartis  terminated its co-promotion  agreement with the Company
with  respect to Denavir  effective  April 13,  2001.  The  Company is  actively
pursuing  other  prescription  and  non-prescription  products  to market to the
professional  dental  community  and  directly  to the  consumer,  and may enter
directly into manufacturing  arrangements for additional complementary products,
such as dental neutraceuticals.

     The Company began operations in January 1992 and functioned  primarily as a
research and  development  company until 1998.  During this period,  the Company
operated  with  a  minimal   number  of   employees,   and   substantially   all
pharmaceutical  development  activities were contracted to independent  contract
research  and other  organizations.  Following  FDA  approval  of  Periostat  in
September  1998,  the Company  significantly  increased its number of employees,
primarily in the areas of sales and marketing. The Company continues to contract
its  research  and  development   activities  as  well  as   manufacturing   and
distribution functions.

     The  Company  has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $66.8 million at March 31, 2001. 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


                                      -8-
<PAGE>


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  and  uncertainty  relating  to clinical  trials of  products  under
development.  The  success of the  Company  depends to a large  degree  upon the
market acceptance of Periostat by  periodontists,  dental  practitioners,  other
health care providers,  patients and insurance companies.  Other than Periostat,
which has been FDA approved for  marketing in the United  States and approved by
the Medicines  Control Agency for marketing in the United Kingdom,  there can be
no assurance that any of the Company's other product candidates will be approved
by any regulatory  authority for marketing in any  jurisdiction or, if approved,
that any such products or that Vioxx will be successfully  commercialized by the
Company.  As a result of these risks,  and others expressed from time to time in
Collagenex's filings with the Securities and Exchange Commission,  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.  Most of the  1998  sales
represented  initial  wholesale  and  retail  stocking.  During  the year  ended
December 31, 1999, the Company  achieved net product sales of $15.2 million from
sales of  Periostat.  In  addition,  in 1999 the Company  generated  $770,000 in
contract revenues from its two (2) co-promotion agreements (one (1) of which was
terminated  effective  April 13, 2001) and $100,000 in license fees  relating to
the signing of a distribution agreement for Periostat in Canada. During the year
ended December 31, 2000, the Company achieved net product sales of $20.5 million
from sales of Periostat. In addition, in 2000 the Company generated $3.2 million
in contract revenues from its two (2) co-promotion  agreements (one (1) of which
was terminated  effective  April 13, 2001) and $530,000 in license and milestone
fees from various foreign  distribution and marketing  agreements for Periostat.
This amount  included  $397,000 of license  revenues that were deferred upon the
implementation  of Staff Accounting  Bulletin ("SAB") 101,  effective January 1,
2000.  These amounts were  previously  recognized  as license  revenues in prior
years under the historical  revenue  recognition policy prior to the adoption of
SAB 101.

     During the three  months  ended March 31,  2001,  the Company  achieved net
product sales of $6.1 million from the sales of Periostat.  In addition,  during
the three  months  ended  March 31,  2001,  the  Company  generated  $875,000 in
contract revenues from its two (2) co-promotion agreements (one (1) of which was
terminated effective April 13, 2001) and $36,000 in license revenues.

     To  broaden  and  increase   Periostat  usage,  the  Company   initiated  a
direct-to-consumer  ("DTC") advertising test program in the fall of 2000. DTC is
a relatively  new but highly  effective  marketing  tool used by  pharmaceutical
companies  to  build  patient  awareness  of  prescription  drugs  and to  drive
prescription  and revenue growth.  In October 2000, the Company  launched a test
DTC campaign in Tampa and St. Louis to evaluate the potential effectiveness of


                                      -9-
<PAGE>

this tool for  increasing  Periostat  prescription  growth.  During  the  fourth
quarter of 2000, new Periostat  prescriptions in the test cities were 48% higher
than the third  quarter of 2000  compared to a 1.4%  increase  in new  Periostat
prescriptions  in the rest of the  United  States.  Based on these  results,  in
January  2001 the Company  expanded  its DTC  campaign to include  Philadelphia,
Washington,  Houston and Chicago and in April 2001  launched  such a campaign in
New York City, Denver, Detroit and Boston. During the first quarter of 2001, new
Periostat  prescriptions in Philadelphia,  Washington,  Houston and Chicago were
55% higher than in the first  quarter of 2000  compared to a 10% increase in new
Periostat prescriptions in the rest of the United States.

     The Company realized a net loss during the first quarter of 2001, resulting
primarily  from  increased  sales and  marketing  expenses  associated  with the
Company's investment in DTC advertising for Periostat.  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 funds  paid to  contract  research
organizations  for the provision of services and materials for drug development,
ongoing manufacturing and formulation enhancements 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, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

     Revenues.  The Company  realized  $7.0 million in net  revenues  during the
three  months  ended March 31, 2001  compared to $6.5  million  during the three
months ended March 31, 2000.  Revenues  for the first  quarter of 2001  included
$6.1 million in net sales of Periostat, $875,000 in contract revenues which were
derived from the  Company's  co-promotion  of Vioxx and Denavir,  and $36,000 in
foreign  license and  milestone  revenues for  Periostat.  Revenues from Denavir
accounted for approximately $175,000 of such contract revenues. Revenues for the
three  months  ended  March  31,  2000  included  $5.5  million  in net sales of
Periostat,  $650,000 in contract revenues, which were derived from the Company's
co-promotion  of Vioxx and Denavir and $370,000 in foreign license and milestone
revenues for  Periostat.  Revenues  from  Denavir  accounted  for  approximately
$175,000 of such contract revenues.  Novartis, the owner of Denavir,  terminated
its  co-promotion  agreement with the Company with respect to Denavir  effective
April 13,  2001.  In  accordance  with SAB 101,  which was adopted on January 1,
2000, the license revenues recorded during the three months ended March 31, 2000
and 2001 were attributable, in part, to the recognition of up-front license fees
received for various  agreements  which are being  recognized  over the expected
term of these  agreements.  License revenues during the quarters ended March 31,
2001 and 2000 include  $15,000 and $370,000  that were recorded in periods prior
to the  adoption  of SAB 101 which were  deferred  as a results  the  cumulative
effect of a change in accounting principle as of January 1, 2000.

     Cost of  Product  Sales.  Cost of  product  sales for  Periostat  were $1.3
million,  or 22.3% of net product  sales,  for the three  months ended March 31,
2001,  compared to $1.2 million,  or 21.2% of net product  sales,  for the three
months  ended  March  31,  2000.  This  increase  in cost of  product  sales for
Periostat as a percentage of net product sales for Periostat  resulted primarily
from increases in contracted product production cost.



                                      -10-
<PAGE>



     RESEARCH AND DEVELOPMENT  EXPENSES.  Research and development  expenses for
the three months ended March 31, 2001 were $944,000 compared to $847,000 for the
three  months  ended March 31,  2000.  This  increase  resulted  primarily  from
clinical development expenses for Metastat,  the Company's lead compound for the
treatment of metastatic cancer, and formulation development expenses relating to
new product development.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased  to $7.5  million for the three months ended
March 31, 2001 from $6.8 million for the three months ended March 31, 2000. This
increase was due primarily to increased sales and marketing expenses  associated
with the Company's investment in DTC advertising for Periostat.

     OTHER  INCOME/EXPENSES.  Interest  income  decreased to $63,000  during the
three  months ended March 31, 2001 from  $186,000  during the three months ended
March 31,  2000.  This  decrease was due to lower  average  balances in cash and
short-term  investments.  Interest  expense for the three months ended March 31,
2001 was $3,000  compared to $5,000 for the three  months  ended March 31, 2000.
These  expenses  were  primarily  due to interest on the  $219,000  note payable
executed by the Company in April 1999.  Other  income of $12,000 was  recognized
during the three  months  ended March 31,  2001 as a result of foreign  currency
transactions.

     PREFERRED  STOCK  DIVIDENDS.  Preferred  stock  dividends of $420,000  were
recorded  during  the  three  months  ended  March  31,  2001 as a result of the
Company's  obligations in connection with the issuance of its Series D Stock (as
defined below) in May 1999.  Similarly,  preferred  stock  dividends of $423,000
were recorded during the three months ended March 31, 2000.

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 May 12, 1999,  the
Company consummated a $20.0 million financing (the "1999 Financing") through the
issuance of its Series D Cumulative  Convertible  Preferred Stock (the "Series D
Stock"),  which  generated  net  proceeds to the Company of $18.5  million.  The
issuance  of the  Series D Stock was  approved  by a majority  of the  Company's
stockholders at the Company's  Annual Meeting of Stockholders on May 11, 1999. A
portion of the proceeds of the 1999 Financing were used to repay a $10.0 million
Senior  Secured  Convertible  Note provided by one of the investors on March 19,
1999 in connection with the 1999 Financing. The remaining proceeds have been and
will be used for general working capital purposes.

     The Series D Stock is  convertible  at any time into shares of common stock
of the Company at a current  conversion  price of $9.94 per common share,  which
conversion price reflects a decrease from the initial conversion price of $11.00
per share as a result of the 2001 Financing (as defined  below).  The conversion
price is not subject to reset  except in the event that the Company  should fail
to declare and pay  dividends  when due or the Company  should  issue new equity
securities or convertible securities at a price per share or having a conversion

                                      -11-
<PAGE>


price per share lower than the then applicable  conversion price of the Series D
Stock. During the first three years following issuance,  holders of the Series D
Stock  will be  entitled  to  receive  dividends  payable  in  shares  of  fully
registered common stock at a rate of 8.4% per annum. Thereafter,  dividends will
be payable in cash at a rate of 8.0% per annum.

     All or a portion  of the shares of Series D Stock  shall,  at the option of
the  Company  (as  determined  by the  Board  of  Directors),  automatically  be
converted into fully paid, registered and non-assessable shares of common stock,
if the following two conditions are met: (i) the last sale price, or, in case no
such sale takes  place on such day,  the  average of the  closing  bid and asked
prices on the Nasdaq is at least 200% of the conversion price then in effect (as
of March 31, 2001, $9.94 per share) for forty consecutive trading days; and (ii)
a shelf  registration  is in effect for the shares of common  stock to be issued
upon conversion of the Series D Stock. Without written approval of a majority of
the holders of record of the Series D Stock,  the Company,  among other  things,
shall not:  (i)  declare or pay any  dividend or  distribution  on any shares of
capital  stock of the Company other than  dividends on the Series D Stock;  (ii)
make any loans,  incur any indebtedness or guarantee any  indebtedness,  advance
capital  contributions  to,  or  investments  in any  person,  issue or sell any
securities  or  warrants  or other  rights to  acquire  debt  securities  of the
Company,  except that the Company may incur such  indebtedness in any amount not
to exceed $10.0  million in the  aggregate  outstanding  at any time for working
capital requirements in the ordinary course of business;  or (iii) make research
and development  expenditures in excess of $7.0 million in any continuous twelve
month  period,  unless the Company  has  reported  positive  net income for four
consecutive quarters immediately prior to such twelve month period.

     In April 1999, the Company received  $219,000 in proceeds from the issuance
of a note  payable.  The proceeds of such note were used to fund the purchase of
equipment,  fixtures  and  furniture  for the  Company's  corporate  offices  in
Newtown,  Pennsylvania.  The term of the note is three years at 9.54% per annum,
with monthly minimum payments of principal and interest.

     On March 12, 2001,  the Company  consummated a private  equity  offering of
1,500,000  shares  of  Common  Stock  for an  aggregate  purchase  price of $7.5
million,  which  generated  net  proceeds to the Company of  approximately  $6.9
million (the "2001  Financing").  Such proceeds  will be used  primarily for the
Company's DTC advertising campaign and for general working capital purposes.  In
addition,  the  investors  in such  financing  were also issued an  aggregate of
400,000  warrants which are  exercisable  for up to three (3) years into 400,000
shares of the


                                      -12-
<PAGE>


the  Company's  Common  Stock at an  exercise  price  per  share of  $6.00.  The
consideration  received for such warrants is included in the aggregate  proceeds
received in the 2001 Financing. The Company also issued to its financial advisor
in such  financing  warrants to purchase an aggregate  of 150,000  shares of the
Company's  Common  Stock  exercisable  for up to three (3) years at an  exercise
price of $5.70 per share,  as partial  consideration  for  services  rendered in
connection with the 2001 Financing.  These warrants may be deemed  automatically
exercised in certain  circumstances  based upon the  Company's  stock price.  In
connection  with the 2001  Financing,  the Company is  obligated to maintain the
effectiveness of a shelf registration  statement with respect to all such shares
of Common Stock issued and shares  underlying all such warrants for a continuous
twenty-four  (24) month period,  or the Company will be required to issue to the
investors and the financial advisor an additional 27,500 shares of the Company's
Common Stock, in the aggregate, for no additional consideration.

     On March 19, 2001, the Company consummated a revolving credit facility (the
"Facility") with Silicon Valley Bank (the "Bank").  The Company may borrow up to
the lesser of  $3,000,000  or 80% of eligible  accounts  receivable,  as defined
under the Facility.  The amount available is also reduced by outstanding letters
of credit  which may be issued  under the  Facility  in amounts  totaling  up to
$1,500,000.  The Company is not obligated to draw amounts under the Facility and
any such draws will bear interest, payable monthly, at the then prevailing prime
rate plus 1.5% per annum and may be used only for working capital purposes.  The
Company  intends to secure its purchase  order  commitments  for Periostat  from
Pharmaceutical  Manufacturing Research Services,  Inc., a contract manufacturing
company, with a letter of credit under the Facility.  Without the consent of the
Bank, the Company,  among other things,  shall not (i) merge or consolidate with
another entity; (ii) acquire assets outside the ordinary course of business;  or
(iii) pay or declare any cash  dividends  on the  Company's  Common  Stock.  The
Company  must also  maintain a certain  tangible net worth and a minimum of $2.0
million in cash, net of borrowings  under the Facility,  at all times during the
term of the Facility. In addition, the Company has secured its obligations under
the Facility  through the  granting of a security  interest in favor of the Bank
with  respect  to  all of  the  Company's  assets,  including  its  intellectual
property.

     At March 31, 2001, the Company had cash,  cash  equivalents  and short-term
investments of approximately $7.7 million,  an increase of $2.3 million from the
$5.4  million  balance  at  December  31,  2000.  This  increase  was  primarily
attributable  to the net proceeds of $6.9 million  from the 2001  Financing  (as
defined below) less cash used to fund  operations  during the quarter and vendor
deposits  necessary  to fund the  Company's  DTC  advertising  during  2001.  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, 2001 was $9.5  million,  an increase of $4.2 million from $5.3 million
at December  31,  2000.  This  increase was  primarily  attributable  to the net
proceeds of $6.9 million from the 2001  Financing  (as defined  below) less cash
used to fund operations during the quarter.

     The  Company   anticipates  that  its  existing  working  capital  will  be
sufficient to fund the Company's operations through at least the middle of 2002.
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.

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.


                                      -13-
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Changes in Securities

     The following  information relates to all securities of the Company sold by
the Company within the first quarter of 2001 which were not registered under the
securities laws at the time of sale and/or issuance:

     1.   On March 12, 2001, the Company issued and sold shares of the Company's
          Common Stock in  connection  with the 2001  Financing,  which were not
          registered   under  the  Securities  Act  of  1933,  as  amended  (the
          "Securities Act"). The following table sets forth certain  information
          regarding such sales during the quarter:

                     NUMBER                    AGGREGATE
                   OF SHARES                 PURCHASE PRICE
                   ---------                 --------------
                   1,500,000                   $7,500,000


     2.   On March 12, 2001, the Company issued  warrants to purchase  shares of
          the Company' s Common  Stock in  connection  with the 2001  Financing,
          which were not  registered  under the  Securities  Act. The  following
          table sets forth certain  information  regarding such issuances during
          the quarter:

                     NUMBER                  EXERCISE PRICE
                   OF SHARES                   PER SHARE
                   ---------                   ---------
                    400,000                      $6.00
                    150,000                      $5.70

     On March 12, 2001, the Company  consummated the 2001 Financing  pursuant to
which  the  Company  sold  1,500,000  shares of  Common  Stock for an  aggregate
purchase price of $7.5 million,  which  generated net proceeds to the Company of
approximately  $6.9 million.  In addition,  the Investors in such financing were
issued  warrants to purchase an  aggregate  of 400,000  shares of the  Company's
Common  Stock  which are  exercisable  for up to three (3) years at an  exercise
price per share of  $6.00.  In such  financing,  Common  Stock was sold to,  and
warrants  to  purchase  shares of Common  Stock were  issued to, each of Perseus
Soros  BioPharmaceutical  Fund, L.P.; Anvil Investment  Associates,  LP; Ashford
Capital  Partners,  LP; John  Patience;  and Jack Schuler.  Tucker Anthony Sutro
Capital  Markets acted as the Company's  placement  agent in connection with the
2001  Financing  and,  in  consideration   for  such  services,   received  cash
compensation of $450,000 and warrants to purchase an aggregate of 150,000 shares
of the Company's Common Stock which are exercisable for up to three (3) years at
an exercise price of $5.70 per share.  The Company believes that the issuance of
the foregoing  securities was exempt from registration under Section 4(2) of the
Securities Act as transactions

                                      -14-
<PAGE>


not  involving  any public  offering.  All  recipients  had  adequate  access to
information about the Company.

     On April 9, 2001,  the Company filed a  registration  statement on Form S-3
with the  Securities  and  Exchange  Commission  with  respect to the  foregoing
securities.

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

     (a)  Exhibits

     *    10.1 - Services and Supply Agreement dated as of September 26, 2000 as
          amended by letter  agreement  dated as of  December  1,  2000,  by and
          between  the  Company  and   Pharmaceutical   Manufacturing   Research
          Services, Inc.

     (b)  Reports on Form 8-K.

          During the quarter  ended March 31, 2001,  the Company  filed on March
          16,  2001,  a  current  report  on Form 8-K with  the  Securities  and
          Exchange  Commission  relating  to  the  issuance  by the  Company  of
          1,500,000  shares of Common Stock for an aggregate  purchase  price of
          $7.5 million and warrants to purchase  shares of the Company's  Common
          Stock.  The  Company  amended  such Form 8-K by filing a Form 8-K/A on
          April 3, 2001.

     *    Confidential Treatment has been sought for a portion of this Exhibit


                                      -15-
<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 15, 2001        By:    /s/ Brian M. Gallagher, Ph.D.
                                    ------------------------------------------
                                    Brian M. Gallagher, Ph.D.
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)



Date:    May 15, 2001        By:    /s/ Nancy C. Broadbent
                                    ------------------------------------------
                                    Nancy C. Broadbent
                                    Chief Financial Officer (Principal
                                    Financial and Accounting Officer)


                                      -16-
<PAGE>





                                  EXHIBIT 10.1

            SERVICES AND SUPPLY AGREEMENT BY AND BETWEEN COLLAGENEX
             PHARMACEUTICALS, INC. AND PHARMACEUTICAL MANUFACTURING
                      RESEARCH SERVICES, INC., AS AMENDED