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 September 30, 2000
                             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 October 15, 2000:

               Class                                     Number of Shares
    ----------------------------                      ---------------------
    Common Stock, $.01 par value                            8,773,676


<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, 1999 and September 30, 2000
                (unaudited)............................................       2

             Condensed Consolidated Statements of Operations
                for the Three Months Ended September 30, 1999
                and 2000 (unaudited)....................................      3

             Condensed Consolidated Statements of Operations
                for the Nine Months Ended September 30, 1999
                and 2000 (unaudited)....................................      4

             Condensed Consolidated Statements of Cash Flows
                for the Nine Months Ended September 30, 1999
                and 2000 (unaudited)....................................      5

             Notes to Condensed Consolidated Financial Statements
                (unaudited).............................................      6

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

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

             Liquidity and Capital Resources............................     12

     Item 3. Quantitative and Qualitative Disclosures About Market Risk.     14

PART II. OTHER INFORMATION..............................................     15

     Item 5. Other Information..........................................     15

     Item 6. Exhibits and Reports on Form 8-K...........................     16

SIGNATURES..............................................................     17


                                       -i-
<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS.


                                      -1-
<PAGE>
<TABLE>
<CAPTION>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                    December 31, 1999 and September 30, 2000


                                                                             December 31,    September 30,
                                  Assets                                        1999              2000
                                                                            --------------   -------------
                                                                                              (unaudited)
                                                                       (dollars in thousands, except per share data)
<S>                                                                           <C>                <C>
  Current assets:
   Cash and cash equivalents...........................................       $    7,981         $   5,220
   Short term investments..............................................            6,386             2,972
   Accounts receivable, net of allowance of $386 and $373 at December 31,
     1999 and September 30, 2000, respectively.........................            2,150             2,581
   Inventories.........................................................              695               748
   Prepaid expenses and other current assets...........................              615             1,101
                                                                              ----------        ----------
         Total current assets..........................................           17,827            12,622
Equipment and leasehold improvements, net..............................              709               706
Other assets...........................................................               27                27
                                                                              ----------         ---------
         Total assets..................................................       $   18,563         $  13,355
                                                                              ==========         =========

                   Liabilities and Stockholders' Equity

Current liabilities:
   Current portion of note payable.....................................       $       65         $      65
   Accounts payable....................................................            2,440             3,148
   Accrued expenses....................................................            2,335             2,215
                                                                              ----------         ---------
         Total current liabilities.....................................            4,840             5,428
                                                                              ----------         ---------
Note payable, less current portion.....................................              116                65
                                                                              ----------         ---------
Commitments

Stockholders' equity:

  Preferred  stock,  $0.01 par value,  5,000,000 shares  authorized;
    200,000 shares of Series D cumulative convertible preferred
    stock, $0.01 par value, issued  and  outstanding  at
    December  31,  1999 and  September  30,  2000 (liquidation value
    of $20,000 at September 30, 2000).................................                 2                 2

  Common stock, $0.01 par value,  25,000,000 shares  authorized;
    8,622,091 and 8,773,676 shares issued and outstanding at
    December 31, 1999 and September 30, 2000, respectively............                86                88

  Common stock to be issued (39,188 shares at December 31, 1999 and 0
    shares at September 30, 2000).....................................               858                --
  Additional paid in capital..........................................            66,348            68,457
  Deferred compensation...............................................               (76)              (34)
  Accumulated deficit.................................................           (53,611)          (60,651)
                                                                              ----------         ---------
         Stockholders' equity.........................................            13,607             7,862
                                                                              ----------         ---------
         Total liabilities and stockholders' equity...................       $    18,563         $  13,355
                                                                              ==========         =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Operations
             For the Three Months Ended September 30, 1999 and 2000
                                   (unaudited)
                                                                                        Three Months Ended
                                                                                          September 30,
                                                                          ---------------------------------------------
                                                                                    1999                 2000
                                                                          -----------------------  --------------------
                                                                          (dollars in thousands, except per share data)
<S>                                                                            <C>                   <C>
Revenues:
   Product sales.......................................................        $       4,219         $       4,252
   Contract revenues...................................................                  126                   992
   License revenues....................................................                   --                   220
                                                                               -------------         -------------
         Total revenues................................................                4,345                 5,464
                                                                               -------------         -------------
Operating expenses:
   Cost of product sales...............................................                  860                   816
   Research and development............................................                1,102                   562
   Selling, general and administrative.................................                5,921                 6,080
                                                                               -------------         -------------
         Total operating expenses......................................                7,883                 7,458
                                                                               -------------         -------------
         Operating loss................................................               (3,538)               (1,994)
Other income (expense):
Interest income........................................................                  255                   152
Interest expense.......................................................                   (3)                   (4)
Other expense..........................................................                   --                    (1)
                                                                               -------------         --------------
         Net loss......................................................        $      (3,286)        $      (1,847)
                                                                               =============         =============
Preferred stock dividend...............................................                  429                   429
                                                                               -------------         -------------
Net loss allocable to common stockholders..............................               (3,715)               (2,276)
                                                                               =============         =============
   Basic and diluted net loss per share allocable to common stockholders
                                                                               $       (0.43)        $       (0.26)
                                                                               =============         ============
   Shares used in computing basic and diluted net loss per share
   allocable to common stockholders....................................            8,591,992             8,740,955
                                                                               =============         =============
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.
                                      -3-
<PAGE>

<TABLE>
<CAPTION>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Operations
              For the Nine Months Ended September 30, 1999 and 2000
                                   (unaudited)
                                                                                           Nine Months Ended
                                                                                             September 30,
                                                                               --------------------------------------------
                                                                                       1999                   2000
                                                                               -------------------    ----------------------
                                                                               (dollars in thousands, except per share data)
<S>                                                                            <C>                   <C>
Revenues:
   Product sales.......................................................        $       9,839         $      15,485
   Contract revenues...................................................                  262                 2,520
   License revenues....................................................                  100                   320
                                                                               -------------         -------------
         Total revenues................................................               10,201                18,325
                                                                               -------------         -------------
Operating expenses:
   Cost of product sales...............................................                2,113                 3,113
   Research and development............................................                3,331                 2,373
   Selling, general and administrative.................................               17,694                19,516
                                                                               -------------         -------------
         Total operating expenses......................................               23,138                25,002
                                                                               -------------         -------------
         Operating loss................................................              (12,937)               (6,677)
Other income (expense):
Interest income........................................................                  615                   502
Interest expense.......................................................                 (192)                  (12)
Other expense..........................................................                   (2)                   (3)
                                                                               -------------         -------------
         Net loss......................................................        $     (12,516)        $      (6,190)
                                                                               =============         =============
Preferred stock dividend...............................................                  663                 1,278
                                                                               -------------         -------------
Net loss allocable to common stockholders..............................              (13,179)               (7,468)
                                                                               =============         =============
   Basic and diluted net loss per share allocable to common stockholders
                                                                               $       (1.53)        $       (0.86)
                                                                               =============         =============
   Shares used in computing basic and diluted net loss per share
   allocable to common stockholders....................................            8,590,224            8,690,208
                                                                               =============         ============


</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
                                      -4-
<PAGE>

<TABLE>
<CAPTION>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows
              For the Nine Months Ended September 30, 1999 and 2000
                                   (unaudited)
                                                                                         Nine Months Ended
                                                                                           September 30,
                                                                                -----------------------------------
                                                                                       1999              2000
                                                                                ----------------    ---------------
                                                                                       (dollars in thousands)
<S>                                                                             <C>                  <C>
Cash flows from operating activities:
   Net loss..............................................................       $     (12,516)       $      (6,190)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Noncash compensation expense......................................                 151                  366
       Depreciation and amortization expense.............................                 137                  170
       Change in assets and liabilities:
         Accounts receivable.............................................               1,686                 (431)
         Inventories.....................................................                (354)                 (53)
         Prepaid expenses and other current assets.......................                 132                 (486)
         Accounts payable................................................                (291)                 708
         Accrued expenses................................................                 (81)                (120)
                                                                                -------------        -------------
                  Net cash used in operating activities..................             (11,136)              (6,036)
                                                                                -------------        -------------
Cash flows from investing activities:
   Capital expenditures..................................................                (467)                (167)
   Proceeds from the sale of short term investments......................               7,464                5,638
   Purchase of short term investments....................................                (500)              (2,224)
                                                                                -------------        -------------
                  Net cash provided by investing activities..............               6,497                3,247
                                                                                -------------        -------------
Cash flows from financing activities:
   Proceeds from the issuance of convertible note payable................              10,000                   --
   Repayment of convertible note payable.................................             (10,000)                  --
   Proceeds from the issuance of preferred stock.........................              18,456                   --
   Net proceeds from the issuance of common stock........................                   9                   79
   Proceeds from the issuance of note payable............................                 219                   --
   Payments on note payable..............................................                 (21)                 (51)
                                                                                -------------        -------------
                  Net cash provided by financing activities..............              18,663                   28
                                                                                -------------        -------------
Net increase (decrease) in cash and cash equivalents.....................              14,024               (2,761)
Cash and cash equivalents at beginning of period.........................               3,286                7,981
                                                                                -------------        -------------
Cash and cash equivalents at end of period...............................       $      17,310        $       5,220
                                                                                =============        =============
Supplemental schedule of non-cash financing activities:
   Common stock dividend declared on preferred stock.....................       $         234        $         849
                                                                                =============        =============
Supplemental disclosure of cash flow information:
   Cash paid during the quarter for interest.............................       $         192        $          12
                                                                                =============        =============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                      -5-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 2000
                             (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 1999 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 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 their financial  position as of September 30, 2000, their results
of operations  for the three and nine months ended  September 30, 1999 and 2000,
and their cash flows for the nine  months  ended  September  30,  1999 and 2000.
Interim  results are not necessarily  indicative of results  anticipated for the
full fiscal year.

     Certain  amounts in the December 31, 1999  Consolidated  Balance Sheet have
been reclassified to conform with the September 30, 2000 presentation.

NOTE 2 -- INVENTORIES:

     Inventories  at December  31, 1999 and  September  30, 2000  consist of the
following:

                                      1999            2000
                                    --------        -------
                 Raw materials      $    254        $    83
                 Finished goods          441            665
                                    --------        -------
                                    $    695        $   748
                                    ========        =======

                                      -6-
<PAGE>
                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
                                   (CONTINUED)


NOTE 3 -- RECENT PRONOUNCEMENTS:

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued a Staff Accounting  Bulletin No. 101,  "Revenue  Recognition in Financial
Statements"  ("SAB 101").  SAB 101  summarizes  certain of the staff's  views in
applying  generally  accepted  accounting  principles to revenue  recognition in
financial statements,  including the recognition of non-refundable fees received
upon entering into arrangements. We are in the process of evaluating SAB 101 and
the  effect  it will  have  in our  financial  statements  and  current  revenue
recognition  policy.  SAB 101,  as  amended,  must be  adopted no later than the
fourth  quarter  of  2000  with  any  impact  reported  as a  cumulative  effect
adjustment  calculated as of January 1, 2000. Certain license fees recognized as
revenue during the three and nine months ended September 30, 2000 may need to be
deferred  once  SAB 101 is  adopted  and  amortized  over a yet to be  estimated
expected period of benefit.

NOTE 4 -- CONTRACT DISPUTE WITH AAI:

     Applied  Analytical   Industries,   Inc.  ("AAI"),  the  Company's  current
manufacturer of Periostat,  notified the Company in October 2000 of AAI's belief
that  it is  commercially  impracticable  for  AAI to  continue  to  manufacture
Periostat  at  current  pricing  levels  as a result  of  certain  manufacturing
specifications  for  Periostat  that were mandated by the FDA. AAI is seeking to
recover certain costs that AAI claims it has incurred since beginning commercial
manufacture  of  Periostat  in late 1998.  AAI is also seeking to effect a price
increase on future  quantities  of Periostat  manufactured  for the Company.  At
present,  the Company and AAI are actively working to reach a resolution to this
matter,  including possibly submitting the dispute to binding  arbitration.  The
Company  cannot  be  certain  that an  agreement  will be  reached  with  AAI on
commercially reasonable terms, if at all, or that supplies of Periostat will not
be disrupted in the future as a result of this dispute.

                                      -7-
<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.
                                AND SUBSIDIARIES

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

OVERVIEW

     CollaGenex Pharmaceuticals,  Inc. and its subsidiaries (the "Company") is a
specialty   pharmaceutical  company  focused  on  providing  innovative  medical
therapies to the dental market.  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.  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-sterodial anti-inflammatory drug developed by Merck
& Co., Inc.  ("Merck")  and  Denavir(R),  a  prescription  cold sore  medication
developed  by  SmithKline  Beecham  Consumer   Healthcare,   L.P.   ("SmithKline
Beecham"),  and the Company is actively  seeking other products to market to the
dental community.

     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.

     The  Company  has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $60.7 million at September 30, 2000. The Company expects
to continue to incur  losses in the  foreseeable  future  from  expenditures  on
sales,   marketing,   manufacturing,   drug  development,   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  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


                                      -8-
<PAGE>

periodontists,  dental practitioners,  other health care providers, patients and
insurance  companies.  Other than Periostat,  which has been approved by the FDA
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 or Denavir 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.  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 co-promotion agreements and $100,000 in license fees.
During the nine months  ended  September  30,  2000,  the Company  achieved  net
product sales of $15.5 million from sales of Periostat. In addition,  during the
nine months ended  September  30, 2000,  the Company  generated  $2.5 million in
contract  revenues  from its  co-promotion  agreements  and  $320,000 in license
revenues.

     Net sales of Periostat  for the three months ended  September 30, 2000 were
$4.3  million as compared to $5.7  million and $5.5 million for the three months
ended June 30, 2000 and March 31, 2000, respectively. Based on prescription data
provided by NDC/Source,  end user demand was higher in the third quarter of 2000
than the first and second quarters of 2000.  However,  during the fourth quarter
of 1999 and the first and second  quarters of 2000,  wholesale  buying  modestly
exceeded estimated end user demand. The Company believes,  however,  that as the
rate of growth in end user demand slowed during 2000,  wholesalers reduced their
weeks  of sales  in  inventories  and drew  down  existing  inventories  to meet
demands, rather than placing new orders.

     To  broaden  and  increase   Periostat  usage,  the  Company   initiated  a
direct-to-consumer  advertising  test  program in October 2000 aimed at patients
and an Expanded Use Initiative in June 2000 aimed at dental  professionals.  The
Company has not yet  determined  the impact of such  initiatives on net sales of
Periostat, if any.

     The Company realized a net loss during the third quarter of 2000, resulting
primarily from higher  revenue  offset by higher  planned  sales,  marketing and
administrative  expenses 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 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


                                      -9-
<PAGE>

consist  primarily of personnel  salaries and benefits,  direct marketing costs,
professional and consulting fees, insurance and general office expenses.

THREE MONTHS ENDED  SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 1999

     REVENUES.  The Company  realized  $5.5 million in net  revenues  during the
three months ended  September 30, 2000 compared to $4.3 million during the three
months ended September 30, 1999. Revenues for the third quarter of 2000 included
$4.3 million in net sales of Periostat, $992,000 in contract revenues which were
derived  from the  Company's  co-promotion  of Vioxx for Merck and  Denavir  for
SmithKline Beecham and $220,000 in Periostat license revenues.  Revenues for the
three  months ended  September  30, 1999  included  $4.2 million in net sales of
Periostat and $126,000 in contract revenues. There were no co-promotion revenues
earned from Merck during the three months ended September 30, 1999.

     COST OF PRODUCT  SALES.  Cost of product sales for Periostat were $816,000,
or 19.2% of net product  sales,  for the three months ended  September 30, 2000,
compared to $860,000,  or 20.4% of net product sales, for the three months ended
September  30, 1999.  This  decrease in cost of product sales for Periostat as a
percentage of net product sales for Periostat  resulted  primarily from per unit
price  increases of Periostat in effect during the three months ended  September
30, 2000.

     RESEARCH  AND  DEVELOPMENT  EXPENSES.  Research  and  development  expenses
decreased  49.0% to $562,000 in the third  quarter of 2000 from $1.1  million in
the third quarter of 1999. This decrease resulted  primarily from fewer expenses
related to Phase 3b clinical studies to support the future marketing  activities
for Periostat,  decreased  manufacturing  and formulation  development  work for
Periostat tablets and reduced research and development activities.  Expenditures
made during the three  months ended  September  30, 2000  included,  among other
expenditures,  regulatory and consulting  fees associated with the Company's New
Drug Application for Periostat tablets submitted to the FDA in the first quarter
of 2000 and ongoing Phase IV marketing studies of Periostat.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased 2.6% to $6.1 million in the third quarter of
2000 from $5.9  million in the third  quarter  of 1999.  This  increase  was due
primarily to the initiation of a  direct-to-consumer  advertising  test campaign
which commenced  during the quarter and higher  personnel and training  expenses
associated with additional sales representatives hired in 2000. The Company also
incurred  advertising and promotional  expenses for Vioxx and Denavir during the
third quarter of 2000 as a result of its  co-promotional  agreements  with Merck
and SmithKline Beecham.

     OTHER  INCOME/EXPENSE.  Interest income  decreased to $152,000 in the third
quarter of 2000 from  $255,000 in the third  quarter of 1999.  This decrease was
due to lower  average  balances  in cash and  short-term  investments.  Interest
expense was $4,000 in the third  quarter of 2000 compared to $3,000 in the third
quarter of 1999.  These  expenses were primarily due to interest on the $219,000
note payable executed by the Company in April 1999.

                                      -10-
<PAGE>

     PREFERRED STOCK  DIVIDENDS.  Preferred stock dividends were $429,000 in the
third  quarter of 2000 as a result of the  Company's  obligations  in connection
with the  issuance  of its  Series  D Stock  (as  defined  below)  in May  1999.
Preferred  stock  dividends  accrued  in the  third  quarter  of 1999  were also
$429,000.

NINE MONTHS ENDED SEPTEMBER  30,2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

     REVENUES.  The Company  realized  $18.3 million in net revenues  during the
nine months ended  September 30, 2000 compared to $10.2 million  during the nine
months ended  September 30, 1999.  Revenues for the nine months ended  September
30, 2000  included  $15.5  million in net sales of  Periostat,  $2.5  million in
contract  revenues which were derived from the Company's  co-promotion  of Vioxx
for Merck and Denavir for SmithKline  Beecham and $320,000 in Periostat  license
revenues.  Revenues for the nine months ended  September  30, 1999 included $9.8
million in net sales of Periostat, $262,000 in contract revenues and $100,000 in
Periostat  license  revenues.  There were no  co-promotion  revenues earned from
Merck during the nine months  ended  September  30,  1999.  During the first two
quarters of 2000, net revenues included $2.3 million in stocking orders from one
of the Company's major customers,  which may have  significantly  increased that
customer's  weeks of sales in inventory  during the nine months ended  September
30, 2000.  During the nine month period ended  September 30, 1999, this customer
placed  orders  totaling  $940,000,  which also may have  increased its weeks of
sales in inventory during the nine months ended September 30, 1999.

     COST OF  PRODUCT  SALES.  Cost of  product  sales for  Periostat  were $3.1
million,  or 20.1% of net product sales, for the nine months ended September 30,
2000,  compared to $2.1  million,  or 21.5% of net product  sales,  for the nine
months ended  September  30, 1999.  This  decrease in cost of product  sales for
Periostat as a percentage of net product sales for Periostat  resulted primarily
from the  absence of trade  allowances  realized  on product  sales and per unit
price  increases of Periostat in effect  during the nine months ended  September
30, 2000.

     RESEARCH  AND  DEVELOPMENT  EXPENSES.  Research  and  development  expenses
decreased  28.7% to $2.4  million for the nine months ended  September  30, 2000
from $3.3 million for the nine months ended  September  30, 1999.  This decrease
resulted  primarily from fewer expenses  related to Phase 3b clinical studies to
support the future marketing activities for Periostat,  decreased  manufacturing
and formulation  development work for Periostat tablets and reduced research and
development  activities.  These  decreases were  partially  offset by a $324,000
non-cash  compensation charge incurred during the period related to accelerating
the vesting schedule on stock options granted to certain  non-employees in 1999.
Expenditures  made during the nine months  ended  September  30, 2000  included,
among other  expenditures,  regulatory and consulting  fees  associated with the
Company's New Drug Application for Periostat tablets submitted to the FDA during
the period and ongoing Phase IV marketing studies of Periostat.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased  10.3% to $19.5  million for the nine months
ended  September 30, 2000 from $17.7 million for the nine months ended September
30, 1999.  This increase was due primarily to higher  personnel,  recruiting and
continued  training  expenses  associated with additional sales  representatives
hired in 2000. The Company also incurred advertising and promotional expenses

                                      -11-
<PAGE>

for Vioxx and  Denavir  during the nine  months  ended  September  30, 2000 as a
result of its co-promotional agreements with Merck and SmithKline Beecham.

     OTHER  INCOME/EXPENSE.  Interest  income  decreased to $502,000 in the nine
months ended September 30, 2000 from $615,000 in the nine months ended September
30, 1999.  This decrease was due to slightly lower average  balances in cash and
short-term  investments  during 2000.  Interest  expense was $12,000 in the nine
months  ended  September  30,  2000.  This  expense  was due to  interest on the
outstanding  balance on the  $219,000  note  payable  executed by the Company in
April 1999.  Interest  expense was $192,000 for the nine months ended  September
30, 1999 due primarily to interest on the $10.0  million short term  convertible
note executed by the Company in March 1999 which was repaid in  connection  with
the Company's Financing (as defined below) in May 1999.

     PREFERRED STOCK  DIVIDENDS.  Preferred stock dividends were $1.3 million in
the nine months ended  September  30, 2000 and were $663,000 for the nine months
ended September 30, 1999 as a result of the Company's  obligations in connection
with the issuance of its Series D Stock in May 1999.

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  "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. A portion
of the  proceeds of such  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 Financing.

     The Series D Stock is  convertible  at any time into shares of common stock
of the Company at an initial  conversion  price of $11.00 per common share.  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  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  have  been and will  continue  to 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

                                      -12-
<PAGE>

prices on the Nasdaq is at least 200% of the conversion price then in effect (as
of September 30, 2000, $11.00 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.

     At  September  30,  2000,  the  Company  had  cash,  cash  equivalents  and
short-term investments of approximately $8.2 million, a decrease of $6.2 million
from the $14.4 million  balance at December 31, 1999,  due primarily to the loss
from operations during the nine months ended September 30, 2000.

     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
September 30, 2000 was $7.2  million,  a decrease of $5.8 million from the $13.0
million balance at December 31, 1999.  This decrease was primarily  attributable
to the Company's  cash used for normal  operations  during the nine months ended
September 30, 2000.

     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  newly leased  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.

     The  Company   anticipates  that  its  existing  working  capital  will  be
sufficient to fund the Company's  operations through at least the year 2001. 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 efforts 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.

RECENT PRONOUNCEMENTS

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued a Staff Accounting  Bulletin No. 101,  "Revenue  Recognition in Financial
Statements"  ("SAB 101").

                                      -13-
<PAGE>

SAB 101 summarizes  certain of the staff's views in applying  generally accepted
accounting principles to revenue recognition in financial statements,  including
the recognition of non-refundable fees received upon entering into arrangements.
We are in the process of  evaluating  SAB 101 and the effect it will have in our
financial  statements  and  current  revenue  recognition  policy.  SAB 101,  as
amended,  must be  adopted  no later  than the  fourth  quarter of 2000 with any
impact reported as a cumulative  effect  adjustment  calculated as of January 1,
2000.  Certain  license  fees  recognized  as revenue  during the three and nine
months ended  September 30, 2000 may need to be deferred once SAB 101 is adopted
and amortized over a yet to be estimated expected period of benefit.

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.


                                      -14-
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION.

     DISTRIBUTION AGREEMENTS

     On August 24, 2000 the Company  announced that it had executed an agreement
for  the   marketing  and   distribution   of  Periostat  in  Israel  with  Taro
International Limited ("Taro"), a wholly-owned subsidiary of Taro Pharmaceutical
Industries  Limited,  an Israeli  company.  The agreement  calls for Taro to pay
milestone fees associated with the regulatory approvals of Periostat.

     On October 25, 2000 the Company  announced that it has agreed to extend the
rights of ISDIN S.A., a joint venture between the Spanish companies Laboratorios
del Dr. Esteve S.A. and Antonio Puig S.A., to market and distribute Periostat in
Greece. The Company previously announced an exclusive marketing and distribution
agreement with ISDIN S.A. for the countries of Spain and Portugal.

     APPOINTMENT OF DIRECTOR

     On  October  4,  2000,  the  Company  announced  that W.  James  O'Shea was
appointed to the Company's Board of Directors.  Mr. O'Shea  currently  serves as
the president and chief operating officer of Sepracor Inc.

     NEW PRODUCT MARKET

     On October 5, 2000, the Company  announced that Periostat will be available
for  prescription  in the United  Kingdom,  and will be  marketed  to the United
Kingdom periodontal community by CollaGenex International,  Ltd., a wholly-owned
subsidiary of the Company.

     GRANT AWARD

     On October 18, 2000,  the Company  announced that it had received a Phase I
STTR grant from the National Heart, Lung and Blood Institute,  a division of the
National Institute of Health.  The grant will support the potential  development
of one of the Company's  group of compounds  known as IMPACS(R)  (Inhibitors  of
Multiple Proteases And Cytokines) for the prevention and treatment of acute lung
injury.

     CONTRACT DISPUTE WITH AAI

     Applied  Analytical   Industries,   Inc.  ("AAI"),  the  Company's  current
manufacturer of Periostat,  notified the Company in October 2000 of AAI's belief
that  it is  commercially  impracticable  for  AAI to  continue  to  manufacture
Periostat  at  current  pricing  levels  as a result  of  certain  manufacturing
specifications  for  Periostat  that were mandated by the FDA. AAI is seeking to
recover certain costs that AAI claims it has incurred since beginning commercial
manufacture  of  Periostat  in late 1998.  AAI is also seeking to effect a price
increase on future  quantities  of Periostat  manufactured  for the Company.  At
present, the Company and AAI are

                                      -15-
<PAGE>

actively  working  to reach a  resolution  to this  matter,  including  possibly
submitting  the dispute to binding  arbitration.  The Company  cannot be certain
that an agreement will be reached with AAI on commercially  reasonable terms, if
at all, or that  supplies of Periostat  will not be disrupted in the future as a
result of this dispute.

     DISCUSSIONS WITH LABORATORIES PHARMASCIENCE

     As  previously  disclosed  by the  Company,  the Company  and  Laboratories
Pharmascience S.A. have been engaged in ongoing  discussions to evaluate whether
the parties will continue their relationship  under their previously  negotiated
1998 License Agreement. After further discussions,  the parties mutually decided
to discontinue their relationship.  The Company is actively seeking a partner to
market and distribute  Periostat in France, upon receipt of requisite regulatory
approval in such region.

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

     (a)  Exhibits

          27   - Financial Data Schedule.

     (b)  Reports on Form 8-K.

     No  reports on Form 8-K were  filed  during the  quarter to which this Form
10-Q relates.


                                      -16-
<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: November 14, 2000                 By: /s/ Brian M. Gallagher, Ph.D.
                                            -------------------------------
                                            Brian M. Gallagher, Ph.D.
                                            Chairman, President and Chief
                                            Executive Officer (Principal
                                            Executive Officer)



Date: November 14, 2000                 By: /s/ Nancy C. Broadbent
                                            --------------------------------
                                            Nancy C. Broadbent
                                            Chief Financial Officer (Principal
                                            Financial and Accounting Officer)