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, 1998.

                             Commission File Number
                                     0-28308

                        CollaGenex Pharmaceuticals, Inc.
              ----------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


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


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


Registrant's Telephone Number, Including Area Code:  (215) 579-7388
                                                     --------------

      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 issuer's classes
of common stock as of September  30, 1998:  

Class Number of Shares                                Common Stock
----------------------                                ------------
  $.01 par value                                        8,587,204


<PAGE>


<TABLE>
<CAPTION>

                            COLLAGENEX PHARMACEUTICALS, INC.
                                     AND SUBSIDIARY
                            (A Development Stage Enterprise)

                          CONDENSED CONSOLIDATED BALANCE SHEETS
                        December 31, 1997 and September 30, 1998

                                                               December 31,   September 30,
                                                                  1997            1998
                                                               ------------   -------------
                                                                               (unaudited)
                                                                  (in thousands except
                                                                      share amounts)

<S>                                                             <C>            <C>     
ASSETS
Current assets:
   Cash and cash equivalents ............................       $ 16,379       $ 11,296
   Short-term investments ...............................          6,392          3,984
   Interest receivable ..................................             88             80
   Prepaid expenses .....................................            190            500
                                                                --------       --------
        Total current assets ............................         23,049         15,860
Equipment, net ..........................................            103            109
Other assets ............................................             13             13
                                                                --------       --------
        Total assets ....................................       $ 23,165       $ 15,982
                                                                ========       ========

LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable .....................................       $    551       $  1,016
   Accrued expenses .....................................          1,906          2,363
                                                                --------       --------
        Total current liabilities .......................          2,457          3,379
                                                                --------       --------

Stockholders' equity:
   Preferred stock, $0.01 par value; 5,000,000 shares
     authorized; none issued and outstanding ............           --             --
   Common stock, $0.01 par value; 25,000,000 shares
     authorized; 8,567,579 and 8,587,204 shares issued
     and outstanding in 1997 and 1998, respectively .....             86             86
   Additional paid-in capital ...........................         47,298         47,317
   Deferred compensation ................................           (313)          (222)
   Deficit accumulated during the development stage .....        (26,363)       (34,578)
                                                                --------       --------
        Stockholders' equity ............................         20,708         12,603
                                                                --------       --------
Commitments and contingencies
        Total liabilities and stockholders' equity ......       $ 23,165       $ 15,982
                                                                ========       ========


    See accompanying notes to unaudited condensed consolidated financial statements.

                                            2

</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                COLLAGENEX PHARMACEUTICALS, INC.
                                                         AND SUBSIDIARY
                                                (A Development Stage Enterprise)

                                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the
                                 Three Months and Nine Months Ended September 30, 1997 and 1998
                           and for the period from January 10, 1992 (inception) to September 30, 1998
                                                          (Unaudited)


                                                            Three Months Ended           Nine Months Ended        For the Period
                                                               September 30                 September 30,          from 1/10/92
                                                       --------------------------    --------------------------   (inception) to
                                                           1997           1998           1997           1998          9/30/98
                                                       -----------    -----------    -----------    -----------    -------------
                                                                    (in thousands, except share and per share amounts)

<S>                                                    <C>            <C>            <C>            <C>            <C>        
Revenues:
    License revenues ...............................   $      --      $       400    $       300    $       400    $     1,125
    Contract revenues ..............................          --                1           --                8             17
                                                       -----------    -----------    -----------    -----------    -----------
        Total revenues .............................          --              401            300            408          1,142
                                                       -----------    -----------    -----------    -----------    -----------
Operating expenses incurred in the
        development stage:
    Research and development .......................         1,554          1,801          3,626          4,198         21,560
    General and administrative .....................         1,802          2,419          4,156          5,230         17,021
                                                       -----------    -----------    -----------    -----------    -----------
           Total operating expenses ................         3,356          4,220          7,782          9,428         38,581
                                                       -----------    -----------    -----------    -----------    -----------
Other income (expense):
    Interest income ................................           358            230            976            805          3,006
    Interest expense ...............................          --             --             --             --             (144)
                                                       -----------    -----------    -----------    -----------    -----------
            Net loss ...............................   $    (2,998)   $    (3,589)   $    (6,506)   $    (8,215)   $   (34,577)
                                                       ===========    ===========    ===========    ===========    ===========
Accretion of undeclared dividends
   attributable to mandatorily redeem-
   able convertible preferred stock ................   $      --      $      --      $      --      $      --      $     2,597
                                                       ===========    ===========    ===========    ===========    ===========
Net loss allocable to common
   stockholders ....................................   $    (2,998)   $    (3,589)   $    (6,506)   $    (8,215)   $   (37,174)
                                                       ===========    ===========    ===========    ===========    ===========
Net loss per share allocable to common
    stockholders:
    Basic ..........................................   $     (0.35)   $     (0.42)   $     (0.79)   $     (0.96)
    Diluted ........................................         (0.35)         (0.42)         (0.79)         (0.96)
                                                       ===========    ===========    ===========    ===========
Shares used in computing net loss per share
   allocable to common stockholders:
    Basic ..........................................     8,543,579      8,586,735      8,201,251      8,576,337
    Diluted ........................................     8,543,579      8,586,735      8,201,251      8,576,337
                                                       ===========    ===========    ===========    ===========


                        See accompanying notes to unaudited condensed consolidated financial statements.

                                                               3

</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                    COLLAGENEX PHARMACEUTICALS, INC.
                                             AND SUBSIDIARY
                                    (A Development Stage Enterprise)

                             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      For the Nine Months Ended September 30, 1997 and 1998 and for
                   the period from January 10, 1992 (inception) to September 30, 1998
                                               (Unaudited)


                                                                    Nine Months Ended       For the Period
                                                                     September  30,          from 1/10/92
                                                                ------------------------    (inception) to
                                                                   1997          1998          9/30/98
                                                                ---------      ---------    --------------
                                                                                (in thousands)

<S>                                                             <C>            <C>            <C>      
Cash flows from operating activities:
   Net loss ..................................................  $ (6,506)      $ (8,215)      $(34,578)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
        Non-cash research and development expense ............      --             --              514
        Non-cash compensation expense ........................        93             91            389
        Non-cash consulting expense ..........................      --             --               15
        Depreciation and amortization expense ................        26             27             82
        Change in assets and liabilities:
             (Increase) decrease in interest receivable ......      (100)             8            (80)
             Increase in prepaid expenses ....................       (44)          (310)          (500)
             Increase in other assets ........................        (2)          --              (13)
             Increase in accounts payable ....................       492            465          1,016
             Increase in accrued expenses ....................     1,069            457          2,363
                                                                --------       --------       --------
Net cash used in operating activities ........................    (4,972)        (7,477)       (30,792)
                                                                --------       --------       --------
Cash flows from investing activities:
   Organizational costs ......................................      --             --               (5)
   Capital expenditures ......................................       (63)           (33)          (186)
   Purchase of short-term investments (available for
      sale) ..................................................   (18,997)        (3,474)       (39,191)
   Proceeds from the sale of short-term investments
      (available for sale) ...................................    16,718          5,882         35,207
                                                                --------       --------       --------
Net cash provided by (used in) investing activities ..........    (2,342)         2,375         (4,175)
                                                                --------       --------       --------

(Continued)

            See accompanying notes to unaudited condensed consolidated financial statements.

                                                    4

</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                    COLLAGENEX PHARMACEUTICALS, INC.
                                             AND SUBSIDIARY
                                    (A Development Stage Enterprise)

                             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      For the Nine Months Ended September 30, 1997 and 1998 and for
                   the period from January 10, 1992 (inception) to September 30, 1998
                                               (Unaudited)

(Continued from preceding page)


                                                                    Nine Months Ended       For the Period
                                                                     September  30,          from 1/10/92
                                                                ------------------------    (inception) to
                                                                   1997          1998          9/30/98
                                                                ---------      ---------    --------------
                                                                                (in thousands)

<S>                                                             <C>            <C>            <C>      
Cash flows from financing activities:
   Proceeds from issuance of preferred stock .................      --             --           13,508
   Proceeds from issuance of common stock ....................    11,567             19         29,730
   Proceeds from issuance of promissory notes ................      --             --            3,150
   Repayment of promissory note ..............................      --             --             (125)
                                                                --------       --------       --------
Net cash provided by financing activities ....................    11,567             19         46,263
                                                                --------       --------       --------
Net increase (decrease) in cash and cash equivalents .........     4,253         (5,083)        11,296
Cash and cash equivalents at beginning of period .............     9,848         16,379           --
                                                                --------       --------       --------
Cash and cash equivalents at end of period ...................  $ 14,101       $ 11,296       $ 11,296
                                                                ========       ========       ========
Supplemental disclosure of cash flows information:
   Cash paid for interest ....................................  $   --         $   --         $     23
                                                                ========       ========       ========
Supplemental schedule of non-cash financing activities:
   Conversion of mandatorily redeemable convertible
     preferred stock to common stock .........................  $   --         $   --         $ 19,628
                                                                ========       ========       ========
   Accretion of undeclared dividends attributable
      to mandatorily redeemable convertible preferred
      stock ..................................................  $   --         $   --         $  2,597
                                                                ========       ========       ========
Conversion of promissory notes to preferred stock ............  $   --         $   --         $  2,904
                                                                ========       ========       ========
Deferred compensation ........................................  $    142       $   --         $    611
                                                                ========       ========       ========
Preferred stock issued in connection with technology
  license agreements .........................................  $   --         $   --         $    498
                                                                ========       ========       ========


            See accompanying notes to unaudited condensed consolidated financial statements.

                                                    5

</TABLE>

<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 1997 and 1998
                                   (Unaudited)


(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 1997 audited  consolidated  financial
statements and footnotes.

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

      In the opinion of the Company's  management,  the  accompanying  unaudited
condensed  consolidated  financial  statements  have  been  prepared  on a basis
substantially  consistent with the audited consolidated financial statements and
contain adjustments, all of which are of a normal recurring nature, necessary to
present  fairly the Company's  financial  position as of September 30, 1998, its
results of operations for the three and nine months ended September 30, 1997 and
1998 and for the period January 10, 1992  (inception) to September 30, 1998, and
its cash flows for the nine months ended September 30, 1997 and 1998 and for the
period January 10, 1992  (inception) to September 30, 1998.  Interim results are
not necessarily indicative of results anticipated for the full fiscal year.


(2)   NEW ACCOUNTING PRONOUNCEMENTS

      Effective  January 1, 1998,  the Company  adopted  Statement  of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS
130 requires that all items defined as comprehensive  income,  including changes
in the amounts of certain items such as foreign currency translation adjustments
and  gains  and  losses  on  certain  securities,  be  shown as a  component  of
comprehensive income in a financial  statement.  The adoption of SFAS 130 had no
effect on the Company's unaudited condensed  consolidated  financial  statements
contained herein, as the Company had no items of comprehensive income during any
period presented therein.


                                       6

<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 1997 and 1998
                                   (Unaudited)
                                   (Continued)

      Statement of Financial  Accounting Standards No. 128, "Earnings Per Share"
("SFAS  128"),  was adopted by the Company on December 31, 1997.  In  accordance
with SFAS 128, all earnings per share data for periods prior to adoption  should
be  restated  to  conform  to the  new  standard.  There  was no  change  in the
previously  reported  net loss per share for the three  months  and nine  months
ended September 30, 1997 as computed under SFAS 128.

















                                       7

<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

      CollaGenex   Pharmaceuticals,   Inc.   (the   "Company")  is  an  emerging
pharmaceutical company focused on developing innovative medial therapies for the
treatment  of  diseases  involving  the  destruction  of the  body's  connective
tissues.  The Company's  core  technology  involves  inhibiting  the activity of
certain  enzymes that degrade the connective  tissues of the body. The Company's
first  product,  Periostat(R),  was approved by the United  States Food and Drug
Administration  (the  "FDA")  in  September  1998  for the  treatment  of  adult
periodontitis,  which  affects  approximately  67  million  people in the United
States and is the  leading  cause of tooth  loss.  Periostat  is a  prescription
pharmaceutical  capsule  indicated  as an adjunct to scaling  and root  planning
("SRP"),  the most prevalent therapy for  periodontitis,  to promote  attachment
level gain and to reduce  pocket  depth in  patients  with adult  periodontitis.
Periostat will be shipped to wholesalers by mid-November and should be available
to patients in the United States no later than  December 1, 1998.  Substantially
all  of  the  Company's  expenditures  to  date  have  been  for  pharmaceutical
development activities,  including the development of Periostat, and general and
administrative expenses.

      Since  inception,  the  Company  has  operated  with a  minimal  number of
employees.  Substantially all pharmaceutical  development activities,  including
clinical trials, have been contracted to independent contract research and other
organizations.  Following  approval from the FDA to market  Periostat within the
United States,  the Company has begun and  anticipates  that it will continue to
significantly increase the number of its employees over the next year, primarily
in sales and marketing  and general and  administrative  areas.  There can be no
assurance,  however,  that the Company will successfully market Periostat in the
United States or elsewhere.

      The  Company has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $34.6 million at September 30, 1998. The Company expects
to continue to incur losses in the foreseeable future from expenditures on sales
and 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

                                       8

<PAGE>

development  activities,  risks associated with conducting  business in a highly
regulated environment,  risks relating to the Company's Year 2000 compliance and
the Year 2000  compliance of the Company's  vendors,  suppliers,  manufacturers,
distributors,  marketing  partners  and certain  other  parties 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,  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 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  September 30, 1998, the Company had no revenues
from sales of its own products.  The Company expects to have Periostat available
by prescription no later than December 1, 1998.  Operating  expenses  consist of
research  and  development  expenses  and general and  administrative  expenses.
Research and development  expenses  consist  primarily of funds paid to contract
research  organizations  for the  provision of services and  materials  for drug
development and clinical  trials.  General and  administrative  expenses consist
primarily of personnel salaries and benefits,  professional and consulting fees,
insurance,  facilities and general office expenses.  Following approval from the
FDA in  September  1998 to  market  Periostat  within  the  United  States,  the
Company's  sales and  marketing  expenses have begun to increase and the Company
believes that its general and administrative  expenses will continue to increase
during the next several years due to the  expansion of the Company's  commercial
infrastructure, primarily in sales and marketing.

      The Company  earned  $8,000 and $1,000 in contract  revenues  for the nine
months and the three months ended September 30, 1998, respectively,  and did not
recognize  contract  revenues in either of the comparable year earlier  periods.
The Company earned an aggregate of $400,000 in licensing revenue during the nine
month  and three  month  periods  ending  September  30,  1998,  compared  to an
aggregate of $300,000 for the nine months ended  September 30, 1997.  There were
no licensing revenues recorded during the three months ended September 30, 1997.
Licensing revenues achieved in 1998 were attributable to the Company's licensing
arrangement with Laboratoires Pharmascience S.A. ("Laboratoires  Pharmascience")
executed in July 1998.  Licensing revenues achieved in 1997 were attributable to
the Company's licensing arrangement with Boehringer Mannheim Italia.

      Research  and  development  expenses  increased  $572,000,  or 15.8%,  and
$247,000,  or 15.9%,  respectively,  for the nine months and three  months ended
September 30, 1998,  over the comparable  year earlier  periods.  Such increases
resulted  primarily  from  expenses  relating to a Phase 3b  clinical  trial for
Periostat  initiated during the first quarter of 1998, the initiation of certain
pre-clinical studies for Nephrostat(R), the Company's compound for the treatment
of  complications  of diabetes,  and  consulting and product  registration  fees
associated  with  obtaining

                                       9

<PAGE>


regulatory approval for Periostat in the United Kingdom. The Company anticipates
that the results from the Phase 3b clinical trial, if favorable, will be used to
support marketing  activities for Periostat.  There can be no assurance that the
Company will successfully market Periostat in the future.

      General and administrative  expenses increased $1.1 million, or 25.8%, and
$617,000,  or 34.2%,  respectively,  for the nine months and three  months ended
September 30, 1998,  over the comparable  year earlier  periods.  Such increases
were primarily due to the Company's  pre-launch  marketing activities related to
Periostat  and  sales and  marketing  efforts  related  to  certain  contractual
marketing arrangements entered into during 1997.

      Interest income  decreased  $171,000,  or 17.5%,  and $128,000,  or 35.8%,
respectively,  for the nine months and three  months ended  September  30, 1998,
over the  comparable  year earlier  periods.  Such  decreases  were due to lower
balances  in cash and  short-term  investments  as a result of normal  operating
activities  since the  Company's  follow-on  public  offering of Common Stock in
April 1997.


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. At September 30, 1998, the
Company had cash, cash  equivalents and short-term  investments of approximately
$15.3  million,  a decrease of $7.5  million from the $22.8  million  balance at
December 31, 1997.  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  U.S.  Treasury  securities  and
commercial paper with a credit rating no lower than A1/P1. The Company's working
capital of $12.5  million at  September  30,  1998  reflected a decrease of $8.1
million in working capital from December 31, 1997.

      The Company had no debt or capital leases outstanding (other than accounts
payable and accrued  expenses) at  September  30,  1998.  On June 26, 1997,  the
Company  entered into a credit  arrangement  consisting of a $5,000,000  line of
credit (the "LOC") to support the future  working  capital needs of the Company.
The LOC will be unsecured as long as the Company's cash and investment  balances
maintained  with the lender or an  affiliate of the lender equal or exceed $10.0
million. At the Company's option, the LOC will bear interest at either the prime
rate  charged by the lender or LIBOR plus 2.15%.  The LOC is  terminable  by the
lender at any time.  No balance was  outstanding  under the LOC at September 30,
1998.

     The  Company   anticipates  that  its  existing  working  capital  will  be
sufficient to fund the Company's  operations  through at least 1998. The Company
is considering  capital  raising efforts to satisfy  additional  working capital
requirements.  The Company's future capital requirements and the adequacy of its
available funds will depend on many factors, including the size and scope

                                       10

<PAGE>


of the Company's sales and marketing  activities with respect to Periostat,  for
which the FDA granted approval to the Company in September 1998 to market within
the United States, the terms of agreements entered into with corporate partners,
if any,  and the  results of  research  and  development  and  pre-clinical  and
clinical studies for other  applications of the Company's core technology.  Over
the long term, the Company's  liquidity is dependent on market acceptance of its
products and technology.


Year 2000 Compliance

      The Company is presently  assessing its state of readiness with respect to
the Year 2000  problem.  The  Company  has been  informed  by the  vendor of its
internal  accounting,  management and financial reporting  applications that the
current version of such software is not presently Year 2000 compliant.  In early
1999, the Company expects to install an upgraded  version of such software which
the  vendor  has  represented  is  Year  2000  compliant.  Management  does  not
anticipate that Year 2000 issues will have a significant  impact on its internal
accounting,  management  or  financial  reporting  or  result  in a  significant
commitment  of  resources  to  resolve  potential   problems  with  its  systems
associated with this event. The Company is also presently  conducting  inquiries
of its outside  vendors,  suppliers,  manufacturers,  distributors and marketing
partners to assess their respective Year 2000 readiness.  Upon completion of the
foregoing,  the Company will be able to estimate the financial  impact,  if any,
should  such  parties  fail to be  Year  2000  compliant.  The  Company  has not
developed a contingency plan with respect to Year 2000 issues should they arise.


European Monetary Union

      On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to set fixed  conversion rates between their existing legacy
currencies and the euro. At such time, these participating countries have agreed
to adopt the euro as their  common  legal  currency.  The  eleven  participating
countries will issue  sovereign debt  exclusively in euro and will  redenominate
outstanding  sovereign  debt. The legacy  currencies will continue to be used as
legal tender through January 1, 2002, at which point the legacy  currencies will
be canceled and euro bills and coins will be used for cash  transactions  in the
participating countries.

      The Company does not denominate its international  licensing agreements in
foreign  currencies.  The  Company  currently  does  not  believe  that the euro
conversion will have a material impact on the Company's results of operations or
financial condition.

                                       11

<PAGE>


                           PART II. OTHER INFORMATION


Item 5.  Other Information

         New Drug Application

      On October 1, 1998,  the Company  announced that the FDA had granted final
approval to the  Company to market  Periostat  within the United  States for the
treatment of adult  periodontitis.  Periostat is a  prescription  pharmaceutical
capsule  indicated  as an  adjunct  to  scaling  and root  planning  to  promote
attachment  level  gain and to  reduce  pocket  depth  in  patients  with  adult
periodontitis.  The Company expects to have Periostat  available by prescription
no later than December 1, 1998.  There can be no assurance that the Company will
successfully market Periostat in the United States or elsewhere.

         Licensing Agreement

      The Company executed a licensing agreement with Laboratoires Pharmascience
in July 1998 pursuant to which  Laboratoires  Pharmascience will manufacture and
distribute Periostat in France, Morocco, Algeria, Tunisia and other countries of
French speaking Africa.  Pursuant to the agreement,  Laboratoires  Pharmascience
paid the Company a $400,000  non-refundable  license  fee on August 4, 1998.  In
addition,  Laboratoires  Pharmascience  agreed to pay  additional  fees upon the
achievement of future milestones and royalties upon future sales of Periostat in
such  areas.  The  Company  has agreed to use its  reasonable  efforts to obtain
applicable marketing authorization for Periostat in the licensing territory. The
non-refundable  license  fee was  recorded  as  licensing  revenue  in the third
quarter of 1998.

         Co-Promotion Agreement

      The Company  executed a  Co-Promotion  Agreement with  SmithKline  Beecham
Consumer Healthcare,  L.P.  ("SmithKline") in October 1998 pursuant to which the
Company  will  promote   SmithKline's   Denavir(R)   product,  an  FDA  approved
prescription pharmaceutical for the treatment of recurrent cold sores in healthy
adults,  to the United  States  dental  community.  The  agreement  provides for
certain payments by SmithKline to the Company upon future sales of Denavir.

         Distribution Services Agreement

      The  Company  executed  a  Distribution   Services   Agreement  with  Cord
Logistics, Inc. ("Cord") in November 1998 pursuant to which Cord will act as the
Company's  exclusive  distribution  agent for Periostat in the United States and
Puerto Rico.  Under this  agreement,  Cord will  warehouse and ship Periostat to
wholesalers from its distribution facility in Tennessee for a pre-negotiated fee
and will provide various financial and other support services to the Company.

                                       12

<PAGE>


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

(a)   Exhibits

     *10.1  - License  Agreement  dated as of June 30,  1998 by and  between the
              Company and Laboratoires Pharmascience S.A.

     +10.2 -  Exhibit A to  the Manufacturing  Agreement as of April 12, 1996 by
              and between  the Company and Applied Analytical Industries,  Inc.,
              filed with the Company's Registration  Statement on Form S-1 (File
              Number 333-3582) which became effective on June 20, 1996.

     *10.3 -  Co-Promotion  Agreement dated October 13, 1998  between SmithKline
              Beecham Consumer Healthcare, L.P. and the Company.

     *10.4 -  Distribution  Services  Agreement  dated  August  15, 1998 between
              Cord Logistics, Inc. and the Company.

      27   -  Financial Data Schedule.

(b)   Reports on Form 8-K.

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



* Confidential treatment has been sought for a portion of this Exhibit.
+ Confidential treatment has been granted for a portion of this Exhibit.



                                       13

<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 13, 1998             By:  /s/  Brian M. Gallagher, Ph.D.
                                         ------------------------------
                                         Brian M. Gallagher, Ph.D.
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)



Date: November 13, 1998             By:  /s/  Nancy C. Broadbent
                                         -----------------------
                                         Nancy C. Broadbent
                                         Chief Financial Officer (Principal
                                         Financial and Accounting Officer)