SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

                                    --------

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934, FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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                         (I.R.S. Employer
of 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 March 31, 1998:

                 Class                             Number of Shares
     ---------------------------                   ----------------
     Common Stock $.01 par value                      8,569,454


<PAGE>
<TABLE>
<CAPTION>


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

                        CONDENSED CONSOLIDATED BALANCE SHEETS
                         December 31, 1997 and March 31, 1998



                                                             December 31,   March 31,
                                                                 1997          1998
                                                             ------------   ---------
                                                                           (unaudited)
                                                               (in thousands except
                                                                   share amounts)
<S>                                                            <C>           <C>     
ASSETS
Current assets:
   Cash and cash equivalents ..............................    $ 16,379      $ 16,214
   Short-term investments .................................       6,392         4,193
   Interest receivable ....................................          88            73
   Prepaid expenses .......................................         190           252
                                                               --------      --------
        Total current assets ..............................      23,049        20,732
Equipment, net ............................................         103           103
Other assets ..............................................          13            13
                                                               --------      --------
        Total assets ......................................    $ 23,165      $ 20,848
                                                               ========      ========

LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable .......................................    $    551      $    394
   Accrued expenses .......................................       1,906         1,818
                                                               --------      --------
        Total current liabilities .........................       2,457         2,212
                                                               --------      --------

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 8,569,454 shares issued
     and outstanding in 1997 and 1998, respectively .......          86            86
   Additional paid-in capital .............................      47,298        47,302
   Deferred compensation ..................................        (313)         (282)
   Deficit accumulated during the development stage .......     (26,363)      (28,470)
                                                               --------      --------
        Stockholders' equity ..............................      20,708        18,636
                                                               --------      --------
Commitments and contingencies
        Total liabilities and stockholders' equity ........    $ 23,165      $ 20,848
                                                               ========      ========

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


                                          2
<PAGE>
<TABLE>
<CAPTION>


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

                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Three Months Ended March 31, 1997 and 1998 and for
            the period from January 10, 1992 (inception) to March 31, 1998
                                      (Unaudited)

                                                                        For the Period
                                         Three Months Ended March 31,    from 1/10/92
                                        ------------------------------  (inception) to
                                            1997               1998         3/31/98
                                        -----------        -----------   -------------
                                             (in thousands, except share amounts)
<S>                                     <C>                <C>            <C>        
Revenues:
   License revenues .................   $      --          $      --      $       725
   Contract revenues ................          --                    3             12
                                        -----------        -----------    -----------
     Total revenues .................          --                    3            737
                                        -----------        -----------    -----------
Operating expenses incurred in the
     development stage:
   Research and development .........           693                999         18,362
   General and administrative .......           968              1,415         13,205
                                        -----------        -----------    -----------
      Total operating expenses ......         1,661              2,414         31,567
                                        -----------        -----------    -----------
         Loss from operations .......         1,661              2,411         30,830
Other income (expense):
   Interest income ..................           236                304          2,505
Other expense .......................          --                 --             (144)
                                        -----------        -----------    -----------
       Net loss .....................   $    (1,425)       $    (2,107)   $   (28,469)
                                        ===========        ===========    ===========
Accretion of undeclared dividends
  attributable to mandatorily
  redeemable convertible preferred
  stock .............................          --                 --            2,597
                                        ===========        ===========    ===========

Net loss allocable to common
  stockholders ......................        (1,425)            (2,107)       (31,066)
                                        ===========        ===========    ===========
Net loss per share allocable to
  common stockholders:
   Basic ............................   $     (0.19)       $     (0.25)
   Diluted ..........................         (0.19)             (0.25)
                                        ===========        ===========
Shares used in computing net loss per
  share allocable to common
  stockholders:
   Basic ............................     7,538,572          8,568,162
   Diluted ..........................     7,538,572          8,568,162
                                        ===========        ===========

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


                                          3
<PAGE>
<TABLE>
<CAPTION>


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

                            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       For the Three Months Ended March 31, 1997 and 1998 and for
                     the period from January 10, 1992 (inception) to March 31, 1998
                                              (Unaudited)


                                                                  Three Months Ended     For the Period
                                                                        March 31,         from 1/10/92
                                                                 ---------------------   (inception) to
                                                                    1997       1998         3/31/98
                                                                 ---------   ---------   --------------
                                                                           (in thousands)
<S>                                                              <C>         <C>         <C>      
Cash flows from operating activities:
   Net loss ................................................     $ (1,425)   $ (2,107)     $(28,469)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
        Non-cash research and development expense ..........         --          --             514
        Non-cash compensation expense ......................           24          31           329
        Non-cash consulting expense ........................         --          --              15
        Depreciation and amortization expense ..............            6           9            64
        Change in assets and liabilities:
          (Increase) decrease in interest receivable .......          (63)         15           (73)
          Increase in prepaid expenses .....................         (136)        (62)         (252)
          Increase in other assets .........................         --          --             (13)
          Increase (decrease) in accounts payable ..........          268        (157)          394
          Increase (decrease) in accrued expenses ..........           88         (88)        1,818
                                                                 --------    --------      --------
Net cash used in operating activities ......................       (1,238)     (2,359)      (25,673)
                                                                 --------    --------      --------
Cash flows from investing activities:
   Organizational costs ....................................         --          --              (5)
   Capital expenditures ....................................          (18)         (9)         (162)
   Purchase of short-term investments (available for
     sale) .................................................       (4,450)     (1,000)      (36,717)
   Proceeds from the sale of short-term investments
     (available for sale) ..................................        4,544       3,199        32,524
                                                                 --------    --------      --------
Net cash provided by (used in) investing activities ........           76       2,190        (4,360)
                                                                 --------    --------      --------

(Continued)
</TABLE>


                                                 4
<PAGE>
<TABLE>
<CAPTION>


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

                            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       For the Three Months Ended March 31, 1997 and 1998 and for
                     the period from January 10, 1992 (inception) to March 31, 1998
                                              (Unaudited)


(Continued from preceding page)


                                                                  Three Months Ended     For the Period
                                                                        March 31,         from 1/10/92
                                                                 ---------------------   (inception) to
                                                                    1997       1998         3/31/98
                                                                 ---------   ---------   --------------
                                                                           (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 ..................            4           4        29,714
   Proceeds from issuance of promissory notes ..............         --          --           3,150
   Repayment of promissory note ............................         --          --            (125)
                                                                 --------    --------      --------
Net cash provided by financing activities ..................            4           4        46,247
                                                                 --------    --------      --------
Net increase (decrease) in cash and cash equivalents .......       (1,158)       (165)       16,214
Cash and cash equivalents at beginning of period ...........        9,848      16,379          --
                                                                 --------    --------      --------
Cash and cash equivalents at end of period .................     $  8,690    $ 16,214      $ 16,214
                                                                 ========    ========      ========

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 ......................................     $   --      $   --        $    611
                                                                 ========    ========      ========
Preferred stock issued in connection with technology
   license agreements ......................................     $   --      $   --        $    498
                                                                 ========    ========      ========

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


                                                   5
<PAGE>


                        COLLAGENEX PHARMACEUTICALS, INC.
                                 AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 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 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 its  financial  position  as of March 31,  1998,  its results of
operations for the three months ended March 31, 1997 and 1998 and for the period
January 10, 1992 (inception) to March 31, 1998, and its cash flows for the three
months  ended  March  31,  1997 and 1998 and for the  period  January  10,  1992
(inception) to March 31, 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
                             March 31, 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 ended March 31, 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
--------

      The  Company  began  operations  in  January  1992 and is  engaged  in the
development and  commercialization of innovative,  proprietary medical therapies
for the  treatment  of  periodontal  disease  and other  pathologies.  Since its
origin,  the Company has had no revenues  from sales of its own products and has
funded  its  operations  primarily  from the  proceeds  of  public  and  private
issuances of equity securities.  Substantially all of the Company's expenditures
to date have been for  pharmaceutical  development  activities  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.  The Company anticipates that it will significantly  increase the
number of its employees  over the next several  years,  primarily in general and
administrative  areas,  following  regulatory  approval  of  Periostat(R),   the
Company's  lead drug for the treatment of periodontal  disease.  There can be no
assurance,  however,  that the Company will obtain such regulatory approval on a
timely basis, if at all.

      The  Company has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $28.5 million at March 31, 1998. The Company  expects to
continue to incur losses in the  foreseeable  future from  expenditures  on drug
development, marketing, manufacturing and administrative activities.

      Statements contained or incorporated by reference in this Quarterly Report
on Form  10-Q  that  are not  based  on  historical  fact  are  "forward-looking
statements" within the meaning of Section 21E of the Securities  Exchange Act of
1934,  as amended.  Forward-looking  statements  may be identified by the use of
forward-looking   terminology  such  as  "may,"  "will,"  "expect,"  "estimate,"
"anticipate,"  "continue,"  or similar  terms,  variations  of such terms or the
negative of those terms. This Form 10-Q contains forward-looking statements that
involve  risks  and   uncertainties.   The  Company's   business  of  developing
pharmaceutical  products is subject to a number of significant risks,  including
risks inherent in research and development activities and in conducting business
in a highly regulated environment. The success of the Company depends to a large
degree upon obtaining United States Food & Drug  Administration  (the "FDA") and
foreign  regulatory  approval to market products  currently  under  development.
There can be no assurance that any of the Company's  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.


                                       8
<PAGE>


Results of Operations
---------------------

      From its founding through March 31, 1998, the Company had no revenues from
sales  of  its  own  products.   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. The Company anticipates that general and
administrative  expenses will increase  during the next several years due to the
expansion of its commercial infrastructure, primarily in sales and marketing.

      For the three months ended March 31, 1998,  the Company  earned  $3,000 in
contract  revenues.  There were no contract  revenues for the three months ended
March 31, 1997.

      Research  and  development  expenses  for the three months ended March 31,
1998 were $1.0 million compared to $0.7 million for the three months ended March
31, 1997. This increase resulted primarily from additional costs associated with
the Company's  amendment to its new drug  application  (the "NDA") for Periostat
submitted  to the FDA in  March  1998 and a Phase 3b  clinical  trial  initiated
during the three month period ended March 31, 1998. The Company anticipates that
the results from such  clinical  trial,  if  favorable,  will be used to support
marketing activities for Periostat following  regulatory approval.  There can be
no assurance that the Company will obtain such approval on a timely basis, if at
all.

      General and  administrative  expenses for the three months ended March 31,
1998 were $1.4 million compared to $1.0 million for the three months ended March
31, 1997. This increase was 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  increased to $0.3 million  during the three months ended
March 31, 1998  compared to $0.2  million for the three  months  ended March 31,
1997.  This  increase  was  due  to  higher  balances  in  cash  and  short-term
investments  as a result of 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 March 31, 1998, the
Company had cash, cash  equivalents and short-term  investments of approximately
$20.4  million,  a decrease of $2.4  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


                                       9
<PAGE>


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 $18.5  million  at March 31,  1998  reflected  a
decrease of $2.1 million in working capital as of December 31, 1997.

      The Company had no debt or capital leases outstanding (other than accounts
payable and accrued  expenses) at March 31, 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 March 31, 1998.

      The  Company  anticipates  that  its  existing  working  capital  will  be
sufficient to fund the Company's operations through at least 1998. The Company's
future capital  requirements and the adequacy of its available funds will depend
on many factors,  including the timing of FDA approval, if any, of the Company's
NDA for Periostat, such NDA having been submitted to the FDA in August 1996, the
size and  scope of the  Company's  sales  and  marketing  effort,  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.


                                       10
<PAGE>


                           PART II. OTHER INFORMATION


Item 5.   Other Information
---------------------------

      NEW DRUG APPLICATION

      On January 28, 1998, the Company announced that it had received its second
action letter from the FDA regarding the NDA. In such letter,  and in subsequent
discussions  with the  Company,  the FDA raised new issues  about the NDA.  At a
meeting  with the FDA in March 1998,  the  Company  addressed  these  issues and
provided  a review of  summary  clinical  results  from its  recently  completed
scaling and root planing  (SRP) trial.  The FDA and the Company then agreed that
the Company  would seek a claim for Periostat  based on the  submission of a NDA
amendment containing the results from this trial. On March 31, 1998, the Company
announced that it had completed its submission of such amendment to the FDA. The
FDA has committed to review the amendment  within six months of such submission.
There can be no assurance  that the Company's NDA with respect to Periostat will
be  approved  by the FDA on a timely  basis,  if at all.  Failure  to obtain FDA
approval  of a NDA for  Periostat  would have a material  adverse  effect on the
Company's business, financial condition and results of operations.

      METASTAT(TM) CLINICAL STUDIES

      In January  1998,  the  Company  initiated  Phase I clinical  trials  with
respect to its lead cancer compound  Metastat.  Such studies are being sponsored
by  the  National  Cancer  Institute  (the  "NCI")  pursuant  to  the  Company's
collaboration agreement with the NCI.


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 report
      on Form 10-Q relates.


                                       11
<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                    CollaGenex Pharmaceuticals, Inc.



Date: May 1, 1998                   By:  /s/ Brian M. Gallagher, Ph.D.
                                         -------------------------------------
                                         Brian M. Gallagher, Ph.D.
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)



Date: May 1, 1998                   By:  /s/Nancy C. Broadbent
                                         -------------------------------------
                                         Nancy C. Broadbent
                                         Chief Financial Officer (Principal
                                         Financial and Accounting Officer)







                                       12