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



                                                               November 14, 2001

Via EDGAR
---------

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

         Re:    CollaGenex Pharmaceuticals, Inc. (Commission File No. 0-28308)
                Form 10-Q for the Quarter Ended September 30, 2001

Dear Sirs:

     Pursuant to Rule 13a-13(a)  under the  Securities  Exchange Act of 1934, as
amended, on behalf of CollaGenex  Pharmaceuticals,  Inc., a Delaware corporation
(the  "Corporation"),   submitted  herewith  for  filing  is  the  Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.

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




                                   /s/ Frank Ruffo
                                   Frank Ruffo
                                   Controller








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



<PAGE>


                       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, 2001
                             Commission File Number
                                     0-28308

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


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


41 University Drive, Newtown, PA                               18940
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                    (Zip Code)

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

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

       Yes:   X                                           No:
            ------                                            ------

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock as of October 15, 2001:

            Class                                         Number of Shares
 ----------------------------                             ----------------
 Common Stock, $.01 par value                               10,999,573

<PAGE>

                        COLLAGENEX PHARMACEUTICALS, INC.

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

                                                                          Page
                                                                          ----

PART I. FINANCIAL INFORMATION...........................................    1

   Item 1. Financial Statements.........................................    1

           Condensed Consolidated Balance Sheets as of December 31,
              2000 and September 30, 2001 (unaudited)...................    2

           Condensed Consolidated Statements of Operations for the Three
              Months Ended September 30, 2000 and 2001 (unaudited)......    3

           Condensed Consolidated Statements of Operations for the Nine
              Months Ended September 30, 2000 and 2001 (unaudited)......    4

           Condensed Consolidated Statements of Cash Flows for the Nine
              Months Ended September 30, 2000 and 2001 (unaudited)......    5

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

   Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................    9

           Results of Operations........................................   10

           Liquidity and Capital Resources..............................   14

   Item 3. Quantitative and Qualitative Disclosures About Market Risk...   17

PART II. OTHER INFORMATION..............................................   18

   Item 2. Changes in Securities and Use of Proceeds....................   18

   Item 4. Submission of Matters to a Vote of Security Holders..........   18

   Item 5. Other Information.............................................  18

   Item 6. Exhibits and Reports on Form 8-K..............................  19

SIGNATURES...............................................................  21


                                      -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, 2000 and September 30, 2001
                  (dollars in thousands, except per share data)



                                                                                 December 31,        September 30,
                                  Assets                                            2000                 2001
                                                                              ---------------      ----------------
                                                                                (unaudited)
Current assets:

<S>                                                                           <C>                   <C>
   Cash and cash equivalents...........................................       $     3,709           $     7,637
   Short term investments..............................................             1,739                    99
   Accounts receivable, net of allowance of $381 and $602 at
    December 31, 2000 and September 30, 2001, respectively............              3,038                 4,320
   Inventories.........................................................               277                 1,170
   Prepaid expenses and other current assets...........................               989                 1,082
                                                                              -----------           -----------
         Total current assets..........................................             9,752                14,308
Equipment and leasehold improvements, net..............................               652                   534
Other assets...........................................................                27                   926
                                                                              -----------           -----------
         Total assets..................................................       $    10,431           $    15,768
                                                                              ===========           ===========

                   Liabilities and Stockholders' Equity

Current liabilities:

   Current portion of note payable.....................................       $        65           $        55
   Accounts payable....................................................             1,865                 3,679
   Accrued expenses....................................................             2,514                 3,062
                                                                              -----------           -----------
         Total current liabilities.....................................             4,444                 6,796
                                                                              -----------           -----------
Note payable, less current portion.....................................                47                    --
Deferred revenue.......................................................               676                   629

Commitments

Stockholders' equity:

   Preferred stock, $0.01 par value, 5,000,000 shares authorized;
     200,000 shares of Series D cumulative convertible preferred stock
     issued and outstanding at December 31, 2000 and September 30,
     2001 (liquidation value of $20,000 at September 30, 2001)........                 2                     2

   Common stock, $0.01 par value; 25,000,000 shares authorized,
     8,775,176 and 10,999,573 shares issued and outstanding at
     December 31, 2000 and September 30, 2001, respectively...........                88                   110

   Common stock to be issued (275,462 shares at December 31, 2000
     and 0 shares at September 30, 2001) ..............................              872                    --
   Additional paid in capital..........................................            68,461                80,129
   Deferred compensation...............................................               (29)                   (8)
   Accumulated deficit.................................................           (64,130)              (71,890)
         Stockholders' equity..........................................             5,264                 8,343
                                                                              -----------           -----------
         Total liabilities and stockholders' equity....................       $    10,431           $    15,768
                                                                              ===========           ===========

</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, 2000 and 2001
                  (dollars in thousands, except per share data)
                                   (unaudited)
                                                                                     Three Months Ended
                                                                                       September 30,
                                                                          ---------------------------------------
                                                                                  2000                  2001
                                                                          -------------------      --------------
                                                                                Restated
                                                                              (See Note 3)

Revenues:
<S>                                                                            <C>                   <C>
   Product sales.......................................................        $       4,252         $      8,320
   Contract revenues...................................................                  992                  913
   License revenues....................................................                   15                   16
                                                                               -------------         ------------
        Total revenues.................................................                5,259                9,249
                                                                               -------------         ------------
Operating expenses:
   Cost of product sales...............................................                  816                1,274
   Research and development............................................                  562                1,024
   Selling, general and administrative.................................                6,080                8,548
                                                                               -------------         ------------
         Total operating expenses......................................                7,458               10,846
                                                                               -------------         ------------
         Operating loss................................................               (2,199)              (1,597)

Other income (expense):
   Interest income.....................................................                  152                   53
   Interest expense....................................................                   (4)                  (2)
   Other expense.......................................................                   (1)                  --
                                                                               -------------         ------------
         Net loss......................................................               (2,052)              (1,546)
Preferred stock dividends..............................................                  429                  420
                                                                               -------------         ------------
Net loss allocable to common stockholders..............................        $      (2,481)        $     (1,966)
                                                                               =============         ============
Basic and diluted net loss per share allocable to common
  stockholders.........................................................        $       (0.28)        $      (0.18)
                                                                               =============         ============
Shares used in computing basic and diluted net loss per share
  allocable to common stockholders.....................................            8,740,955           10,745,876
                                                                               =============         ============
</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, 2000 and 2001
                  (dollars in thousands, except per share data)
                                   (unaudited)
                                                                                     Nine Months Ended
                                                                                       September 30,
                                                                             ----------------------------------
                                                                                   2000                 2001
                                                                             ---------------       ------------
                                                                                 Restated
                                                                               (See Note 3)

Revenues:
<S>                                                                            <C>                   <C>
   Product sales.......................................................        $      15,485         $     21,701
   Contract revenues...................................................                2,520                2,812
   License revenues....................................................                  396                  472
                                                                               -------------         ------------
        Total revenues.................................................               18,401               24,985
                                                                               -------------         ------------
Operating expenses:
   Cost of product sales...............................................                3,113                4,156
   Research and development............................................                2,374                2,842
   Selling, general and administrative.................................               19,516               25,095
                                                                               -------------         ------------
         Total operating expenses......................................               25,003               32,093
                                                                               -------------         ------------
         Operating loss................................................               (6,602)              (7,108)

Other income (expense):
   Interest income.....................................................                  502                  189
   Interest expense....................................................                  (12)                  (7)
   Other income (expense)..............................................                   (3)                   8
                                                                               -------------         ------------
         Loss before cumulative effect of change in accounting
         principle....................................................                (6,115)              (6,918)
Cumulative effect of change in accounting principle....................                  764                  --
                                                                               -------------         ------------
         Net loss......................................................               (6,879)              (6,918)
Preferred stock dividends..............................................                1,278                1,260
                                                                               -------------         ------------
Net loss allocable to common stockholders..............................        $      (8,157)              (8,178)
                                                                               =============         ============
Basic and diluted net loss per share allocable to common
   stockholders before cumulative effect of change in accounting
   principle...........................................................        $       (0.85)        $      (0.80)
Cumulative effect of change in accounting principle....................                (0.09)                  --
                                                                               -------------         ------------
Basic and diluted net loss per share allocable to common
   stockholders........................................................        $       (0.94)        $      (0.80)
                                                                               =============         ============
Shares used in computing basic and diluted net loss per share
   allocable to common stockholders....................................            8,690,208           10,216,213
                                                                               =============         ============

</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, 2000 and 2001
                                              (dollars in thousands)
                                                   (unaudited)
                                                                                      Nine Months Ended
                                                                                        September 30,
                                                                                -------------------------------
                                                                                   2000                 2001
                                                                                -----------         -----------
                                                                                Restated
                                                                              (See Note 3)

Cash flows from operating activities:
<S>                                                                         <C>                      <C>
   Net loss............................................................     $       (6,879)          $    (6,918)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
       Noncash compensation expense....................................                366                   183
       Depreciation and amortization expense...........................                170                   192
       Cumulative effect of change in accounting principle.............                764                    --
       Change in assets and liabilities:
         Accounts receivable...........................................               (431)               (1,282)
         Inventories...................................................                (53)                 (893)
         Prepaid expenses and other assets.............................               (486)                 (992)
         Accounts payable..............................................                708                 1,814
         Accrued expenses..............................................               (120)                  548
         Deferred revenue..............................................                (75)                  (47)
                                                                              -------------          ------------
                  Net cash used in operating activities................             (6,036)               (7,395)
                                                                              -------------          ------------
Cash flows from investing activities:
   Capital expenditures................................................               (167)                  (74)
   Proceeds from the sale of short term investments....................              5,638                 1,936
   Purchase of short term investments..................................             (2,224)                 (296)
                                                                              -------------          ------------
                  Net cash provided by investing  activities...........              3,247                 1,566
                                                                              -------------          ------------
Cash flows from financing activities:
   Net proceeds from issuance of common stock..........................                 79                 9,814
   Repayment of long-term debt.........................................                (51)                  (57)
                                                                              -------------          ------------
                  Net cash provided by financing activities............                 28                 9,757

Net (decrease) increase in cash and cash equivalents...................             (2,761)                3,928
Cash and cash equivalents at beginning of period.......................              7,981                 3,709
                                                                              -------------          ------------
Cash and cash equivalents at end of period.............................     $        5,220        $        7,637
                                                                              =============          ============
Supplemental schedule of noncash financing activities:
     Common stock dividends issued or issuable
     on preferred stock................................................     $          849        $          840
                                                                              =============         =============
     Issuance of common stock to be issued.............................                858                   872
                                                                              =============         =============
Supplemental disclosure of cash flow information:
     Cash paid during the period for interest..........................     $           12        $            7
                                                                              =============         =============
</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, 2000 and 2001
                             (dollars in thousands)
                                   (unaudited)

NOTE 1 -- BASIS OF PRESENTATION:

     The unaudited condensed  consolidated  financial statements included herein
have been prepared by the Company,  pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with accounting  principles
generally  accepted in the United  States of America.  Certain  information  and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted  pursuant to such rules and  regulations.
These unaudited condensed  consolidated  financial  statements should be read in
conjunction with the Company's 2000 audited  consolidated  financial  statements
and footnotes.

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

     In the opinion of the  Company's  management,  the  accompanying  unaudited
condensed  consolidated  financial  statements  have  been  prepared  on a basis
substantially  consistent with the audited consolidated financial statements and
contain adjustments, all of which are of a normal recurring nature, necessary to
present fairly the Company's consolidated financial position as of September 30,
2001,  their results of operations for the three and nine months ended September
30, 2000 and 2001, and their cash flows for the nine months ended  September 30,
2000 and  2001.  Interim  results  are not  necessarily  indicative  of  results
anticipated for the full fiscal year.

NOTE 2 -- INVENTORIES:

     Inventories  at December  31, 2000 and  September  30, 2001  consist of the
following:

                                        2000             2001
                                      ---------       ---------
     Raw materials                    $      60       $     225
     Work-in-process                         --             100
     Finished goods                         217             845
                                      ---------       ---------
                                      $     277       $   1,170
                                      =========       =========

NOTE 3 -- CHANGE IN ACCOUNTING PRINCIPLE:

     In the fourth  quarter  of 2000,  the  Company  adopted  SAB 101,  "Revenue
Recognition  in  Financial   Statements",   implementing  a  change  in  revenue
recognition policy for certain upfront

                                      -6-

<PAGE>


payments  received  in  international   licensing  arrangements  for  Periostat.
Effective January 1, 2000,  upfront payments received from licensees,  where the
Company has  continuing  involvement,  were  deferred and  recognized as license
revenue  over  the  estimated  performance  period  of  the  individual  license
agreements.  In previous years,  prior to the Company's adoption of SAB 101, the
Company  recognized  revenue when the upfront payments were received,  generally
upon the  execution  of each  agreement.  During the three and nine months ended
September 30, 2001, the Company recognized $16 and $47, respectively, in license
revenues  which were  deferred  under SAB 101.  During the three and nine months
ended September 30, 2000, the Company recognized $15 and $388, respectively,  in
license revenues which were deferred upon the implementation of SAB 101.

     The condensed consolidated  statements of operations for the three and nine
months ended September 30, 2000 and the condensed consolidated statement of cash
flows for the nine months  ended  September  30, 2000 have been  restated in the
accompanying  financial  statements based on the adoption of SAB 101. The change
decreased  revenue and increased net loss before  cumulative effect of change in
accounting  principle by $205 during the three months ended  September 30, 2000,
and increased  revenue and decreased net loss before cumulative effect of change
in accounting  principle by $76 during the nine months ended September 30, 2000.
During the nine months ended  September 30, 2000, the Company  recorded a charge
of $764,  as a result  of the  cumulative  effect of the  change  in  accounting
principle for revenue recognized prior to January 1, 2000.

NOTE 4 -- COMMON STOCK AND DEBT FINANCING:

     On March 12, 2001,  the Company  consummated a private  equity  offering of
1,500,000  shares of Common  Stock for an  aggregate  purchase  price of $7,500,
which  generated  net  proceeds  to the  Company  of  approximately  $6,800.  In
addition,  the  investors  in such  financing  were also issued an  aggregate of
400,000  warrants which are  exercisable  for up to three (3) years into 400,000
shares of the  Company's  Common Stock at an exercise  price per share of $6.00.
The  consideration  received  for such  warrants is  included  in the  aggregate
proceeds  received in such  financing.  The Company also issued to its financial
advisor in such  financing,  warrants to purchase an aggregate of 150,000 shares
of the Company's  Common  Stock,  exercisable  for up to three (3) years,  at an
exercise price of $5.70 per share. All such warrants may be deemed automatically
exercised in certain  circumstances  based on the  Company's  stock  price.  The
Company is  obligated  to maintain  the  effectiveness  of a shelf  registration
statement  with  respect to all such  shares of Common  Stock  issued and shares
underlying  all such  warrants for a continuous  twenty-four  (24) month period.
Should the  Company  fail to maintain  the  effectiveness  of such  registration
statement,  the investors and the financial  advisor shall receive an additional
27,500 shares of the Company's Common Stock, in the aggregate, for no additional
consideration.  As a  result  of such  financing,  the  conversion  price of the
Company's  Series D Preferred  Stock was reduced from $11.00 to $9.94 per share.
Such conversion  price was further reduced to $9.91 per share in connection with
the sale of shares of the  Company's  Common Stock to Atrix  Laboratories,  Inc.
(see Note 5 below).

     On March 19, 2001, the Company consummated a revolving credit facility (the
"Facility") with Silicon Valley Bank (the "Bank").  The Company may borrow up to
the lesser of $3,000 or 80% of eligible  accounts  receivable,  as defined under
the Facility. The amount

                                      -7-

<PAGE>


available  under the Facility is also reduced by  outstanding  letters of credit
which may be issued  under the  Facility in amounts  totaling up to $1,500.  The
Company  is not  obligated  to draw  amounts  under  the  Facility  and any such
borrowings under the Facility bear interest,  payable monthly, at the prime rate
plus 1.5% per annum and may be used only for working capital  purposes.  Without
the consent of the Bank, the Company, among other things, shall not (i) merge or
consolidate with another entity; (ii) acquire assets outside the ordinary course
of business;  or (iii) pay or declare any cash dividends on the Company's Common
Stock. The Company must also maintain a certain tangible net worth and a minimum
of $2,000 in cash, net of borrowings under the Facility, at all times during the
term of the Facility. In addition, the Company has secured its obligations under
the Facility  through the  granting of a security  interest in favor of the Bank
with  respect  to  all of  the  Company's  assets,  including  its  intellectual
property.  As of September 30, 2001,  the Company has an  outstanding  letter of
credit issued  relating to open purchase  commitments  in the amount of $716 and
there are no borrowings outstanding against the Facility.

NOTE 5 -- LICENSING AND MARKETING AGREEMENT:

     On August 24, 2001, the Company signed an exclusive  License Agreement (the
"Atrix License  Agreement") with Atrix  Laboratories,  Inc.  ("Atrix") to market
Atrix's  proprietary  dental  products,  Atridox(R),  Atrisorb(R)-Free  Flow and
Atrisorb(R)-D,  to the United States dental market. Pursuant to the terms of the
Atrix License  Agreement,  among other things:  (i) Atrix will  manufacture  the
dental  products  for the  Company  at an agreed  upon  transfer  price and will
receive  royalties on future net sales of the products each calendar year;  (ii)
the Company paid to Atrix a $1.0 million  licensing fee to market such products;
(iii) the Company has committed to no less than $2.0 million in advertising  and
selling  expenses  related to the  products  during the  fiscal  year  beginning
January  1,  2002  and  certain  additional  advertising  and  selling  expenses
commencing with fiscal year 2003; (iv) the Company has agreed to maintain, for a
period of 24  months,  a force of no less  than  ninety  (90)  full time  dental
consultants  and  divisional  and  regional  managers  to make sales and product
recommendation  calls on dental  professionals;  and (v) the  Company has agreed
that the  products  will be the subject of a specific  number of detail calls in
the United  States  during 2002.  The $1.0 million  license fee payment has been
deferred and is being  amortized over the ten year estimated term of the license
on a straight-line basis.

     In  addition,  pursuant to the terms of a Stock  Purchase  Agreement  dated
August 24, 2001 by and between the Company and Atrix,  Atrix  purchased  330,556
unregistered  shares of the  Company's  Common Stock for an  aggregate  purchase
price of $3.0  million.  As a result of the sale of such  shares  to Atrix,  the
conversion  price of the  Company's  Series D Preferred  Stock was reduced  from
$9.94 to $9.91 per share.

NOTE 6 -- STOCK OPTION PLAN:

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

                                      -8-

<PAGE>

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

Overview

     CollaGenex  Pharmaceuticals,  Inc. and  subsidiaries  (the  "Company") is a
specialty   pharmaceutical  company  focused  on  providing  innovative  medical
therapies to the dental market. The Company's first product, Periostat(R), is an
orally administered,  prescription  pharmaceutical  product that was approved by
the United States Food and Drug Administration (the "FDA") in September 1998 and
is the first and only  pharmaceutical to treat adult periodontitis by inhibiting
the enzymes that  destroy  periodontal  support  tissues.  In December  2000 and
February  2001,  the  United  Kingdom  Medicines  Control  Agency  and the  FDA,
respectively,  granted  marketing  approval  for a  new  tablet  formulation  of
Periostat.  In July 2001,  the Company  launched this new tablet  formulation of
Periostat,  which offers  manufacturing  cost advantages over, and will replace,
the Company's  capsule  formulation  of Periostat.  Periostat is indicated as an
adjunct  to scaling  and root  planing,  the most  prevalent  therapy  for adult
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-steroidal,  anti-inflammatory  drug
developed   by   Merck   &  Co.,   Inc.   and   Dentaplex(TM),   the   Company's
professionally-recommended  nutritional  supplement  formulated to help maintain
optimal oral  health.  Pursuant to an exclusive  License  Agreement  (the "Atrix
License Agreement") with Atrix Laboratories,  Inc. ("Atrix"),  the Company began
in  October  2001  to  actively  market  Atrix's  proprietary  dental  products,
Atridox(R), Atrisorb(R)-Free Flow and Atrisorb(R)-D, to the United States dental
market. The Company is actively pursuing other prescription and non-prescription
products to market to the professional dental and medical community and directly
to the consumer.

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

     The  Company  has  incurred  losses  each year since  inception  and had an
accumulated  deficit of $71.9 million at September 30, 2001. The Company expects
to continue to incur losses in the foreseeable  future from expenditures on drug
development, marketing, manufacturing and administrative activities.

     Statements  contained or incorporated by reference in this Quarterly Report
on Form  10-Q  that  are not  based  on  historical  fact  are  "forward-looking
statements" within the meaning of Section 21E of the Securities  Exchange Act of
1934,  as amended.  Forward-looking  statements  may be identified by the use of
forward-looking   terminology  such  as  "may,"  "will,"  "expect,"  "estimate,"
"anticipate,"  "continue,"  or similar  terms,  variations  of such terms or the
negative of those terms. This Form 10-Q contains forward-looking statements that
involve risks and

                                      -9-

<PAGE>

uncertainties.  The  Company's  business of selling,  marketing  and  developing
pharmaceutical  products is subject to a number of significant risks,  including
risks relating to the  implementation of the Company's sales and marketing plans
for Periostat,  risks  inherent in research and  development  activities,  risks
associated  with  conducting  business  in a highly  regulated  environment  and
uncertainty  relating to  clinical  trials of products  under  development.  The
success of the Company  depends to a large degree upon the market  acceptance of
Periostat by periodontists,  dental practitioners,  other health care providers,
patients and  insurance  companies.  Periostat  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 will
be  successfully  commercialized  by the Company.  In addition,  there can be no
assurance  that  the  Company  will  successfully  commercialize  Dentaplex(TM),
Vioxx(R),  Atridox(R),  Atrisorb(R)-Free Flow and Atrisorb(R)-D.  As a result of
these risks, and others expressed from time to time in Collagenex's filings with
the Securities and Exchange Commission,  the Company's actual results may differ
materially  from  the  results  discussed  in  the  forward-looking   statements
contained herein.

Periostat(R),   Metastat(R),  IMPACS(TM),  Dermostat(R)  and  Dentaplex(TM)  are
trademarks of CollaGenex Pharmaceuticals, Inc.


CollaGenex(TM)  and  Periostat(R)  are  trademarks of  CollaGenex  International
Limited.


VIOXX(R)is a trademark of Merck & Co., Inc.


Atridox(R),  Atrisorb - Free Flow(R) and  Atrisorb-D(R)  are trademarks of Atrix
Laboratories, Inc.

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 two (2)  co-promotion  agreements (one (1) of which, the
Company's  agreement  with  respect  to  Denavir(R),  a  prescription  cold sore
medication  owned  by  Novartis  Pharmaceuticals   Corporation,  was  terminated
effective  April 13, 2001) and $100,000 in license fees  relating to the signing
of a distribution agreement for Periostat in Canada.

     During the year ended December 31, 2000,  the Company  achieved net product
sales of $20.5 million from sales of Periostat. In addition, in 2000 the Company
generated $3.2 million in contract revenues from two (2) co-promotion agreements
(one (1) of which was for Denavir) and  $530,000 in license and  milestone  fees
from various  foreign  distribution  and  marketing  agreements  for  Periostat.
$397,000  of  such   $530,000  in  license   revenues  were  deferred  upon  the
implementation  of Staff Accounting  Bulletin ("SAB 101"),  effective January 1,
2000;  these amounts were  previously  recognized  as license  revenues in prior
years under the historical  revenue  recognition policy prior to the adoption of
SAB 101.

                                      -10-

<PAGE>


     During the three months ended September 30, 2001, the Company  achieved net
product  sales of $8.3 million from the sale of Periostat.  In addition,  during
the three months ended  September 30, 2001,  the Company  generated  $913,000 in
contract  revenues from its  co-promotion  agreement  with Merck with respect to
Vioxx and $16,000 in licensing revenue,  which consisted of previously  deferred
license fees from certain of the Company's European partners.

     To broaden awareness of and increase Periostat usage, the Company initiated
a  direct-to-consumer  ("DTC") advertising test program in the fall of 2000. DTC
is a relatively new but highly effective  marketing tool used by  pharmaceutical
companies  to  build  patient  awareness  of  prescription  drugs  and to  drive
prescription  and revenue growth.  In October 2000, the Company  launched a test
DTC campaign in Tampa and St. Louis to evaluate the potential  effectiveness  of
this  tool  for  increasing   Periostat   prescription   growth.  New  Periostat
prescriptions  in those test cities were 48% higher during the fourth quarter of
2000 than the third  quarter of 2000  compared to a 1.4%  increase  between such
quarters in new Periostat  prescriptions in the rest of the United States. Based
on these results,  during 2001 the Company expanded its DTC campaign to a number
of major cities across the country.

     The  Company  realized a net loss  during  the first  nine  months of 2001,
resulting  primarily from increased sales and marketing expenses associated with
the Company's  investment in DTC  advertising  for  Periostat.  Total  operating
expenses consist of the cost of product sales, research and development expenses
and selling, general and administrative expenses. Cost of product sales consists
primarily  of  direct  manufacturing   expenses  and  royalties.   Research  and
development  expenses  consist  primarily  of funds  paid to  contract  research
organizations  for the provision of services and materials for drug development,
ongoing manufacturing and formulation enhancements and clinical trials. Selling,
general and administrative  expenses consist primarily of personnel salaries and
benefits,  direct marketing costs,  professional and consulting fees,  insurance
and general office expenses.

     Three  Months  Ended  September  30, 2001  Compared to Three  Months  Ended
September 30, 2000

     Revenues.  The Company  realized  $9.2 million in net  revenues  during the
three months ended  September  30, 2001 compared to $5.3 million in net revenues
during the three months ended September 30, 2000. Revenues for the third quarter
of 2001 included  $8.3 million in net sales of  Periostat,  $913,000 in contract
revenues  which were  derived  from the  Company's  co-promotion  of Vioxx,  and
$16,000 in foreign license revenues related to Periostat.  Revenues from Denavir
did not  account  for any of such  contract  revenues.  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
and Denavir,  and $15,000 in Periostat license  revenues.  Revenues from Denavir
accounted for approximately  $175,000 of such contract revenues.  Novartis,  the
owner of Denavir,  terminated its  co-promotion  agreement with the Company with
respect to Denavir  effective  April 13, 2001. In accordance with SAB 101, which
was adopted on January 1, 2000, the license  revenues  recorded during the three
months ended September 30, 2001 and 2000 were attributable to the recognition of
up-front license fees received for various agreements which are being recognized
over the expected term of such agreements.  License revenues during the quarters
ended September 30, 2001 and 2000 include $16,000 and $15,000 that were recorded
in periods  prior to the adoption of SAB 101 which were  deferred as a result of
the cumulative effect of a change in accounting principle as of January 1,

                                      -11-

<PAGE>

2000.

     Cost of  Product  Sales.  Cost of  product  sales for  Periostat  were $1.3
million, or 15.3% of net product sales, for the three months ended September 30,
2001, compared to $816,000,  or 19.2% of net product sales, for the three months
ended  September 30, 2000. This decrease in cost of product sales for Periostat,
as a percentage  of net product  sales,  resulted  from the  manufacturing  cost
savings for Periostat tablets which were launched on July 2, 2001.

     Research  and  Development  Expenses.  Research  and  development  expenses
increased  82.2% to $1.0 million for the three months ended  September  30, 2001
from  $562,000 for the three months ended  September  30, 2000.  The increase in
2001  resulted   primarily  from  the   initiation  of  contracted   formulation
development  projects for Periostat and ongoing clinical trial  expenditures for
Metastat.  Other  incremental  expenses  incurred  during the three months ended
September 30, 2001 included  regulatory costs and  registration  fees associated
with obtaining marketing approval for Periostat tablets in Europe.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  increased  40.6% to $8.5  million for the three months
ended  September 30, 2001 from $6.1 million for the three months ended September
30, 2000.  This  increase was due  primarily  to increased  sales and  marketing
expenses  associated  with  the  Company's  investment  in DTC  advertising  for
Periostat and advertising, promotional and other launch expenses associated with
the Dentaplex introduction during the three months ended September 30, 2001.

     Other  Income/Expenses.  Interest  income  decreased to $53,000  during the
three  months ended  September  30, 2001 from  $152,000  during the three months
ended  September 30, 2000.  This  decrease was due to lower average  balances in
cash and  short-term  investments.  Interest  expense for the three months ended
September  30,  2001 was $2,000  compared to $4,000 for the three  months  ended
September  30,  2000.  These  expenses  were  primarily  due to  interest on the
$219,000  note payable  executed by the Company in April 1999.  Other expense of
$1,000 was  recognized  during the three  months ended  September  30, 2000 as a
result of foreign currency transactions.  There were no such expenses recognized
during the three months ended September 30, 2001.

     Preferred  Stock  Dividends.  Preferred  stock  dividends of $420,000  were
recorded  during the three  months ended  September  30, 2001 as a result of the
Company's  obligations in connection with the issuance of its Series D Stock (as
defined below) in May 1999.  Similarly,  preferred  stock  dividends of $429,000
were recorded during the three months ended September 30, 2000.

     Nine  Months  Ended  September  30,  2001  Compared  to Nine  Months  Ended
September 30, 2000

     Revenues.  The Company  realized  $25.0 million in net revenues  during the
nine months ended  September  30, 2001 compared to $18.4 million in net revenues
during the nine months ended  September  30, 2000.  Revenues for the nine months
ended September 30, 2001 included $21.7 million in net sales of Periostat,  $2.8
million in contract revenues which were derived from the Company's  co-promotion
of Vioxx and Denavir, and $472,000 in foreign license and milestone revenues for
Periostat. Revenues from Denavir accounted for approximately $297,000


                                      -12-
<PAGE>

of such contract revenues. 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 fromthe Company's co-promotion of Vioxx and Denavir,
and $396,000 in Periostat license revenues.  Revenues from Denavir accounted for
approximately  $525,000  of such  contract  revenues.  Novartis,  the  owner  of
Denavir,  terminated its co-promotion agreement with the Company with respect to
Denavir  effective April 13, 2001. In accordance with SAB 101, which was adopted
on January 1, 2000, the license  revenues  recorded during the nine months ended
September 30, 2001 and 2000 were  attributable,  in part, to the  recognition of
up-front license fees received for various agreements which are being recognized
over the expected  term of such  agreements.  License  revenues  during the nine
months ended  September 30, 2001 and 2000 include $47,000 and $388,000 that were
recorded in periods  prior to the  adoption of SAB 101 which were  deferred as a
result  of the  cumulative  effect  of a change in  accounting  principle  as of
January 1, 2000.

     Cost of  product  sales.  Cost of  product  sales for  Periostat  were $4.2
million,  or 19.2% of net product sales, for the nine months ended September 30,
2001,  compared to $3.1  million,  or 20.1% of net product  sales,  for the nine
months ended  September  30, 2000.  This  decrease in cost of product  sales for
Periostat, as a percentage of net product sales, resulted from the manufacturing
cost savings for Periostat tablets which were launched on July 2, 2001.

     Research  and  Development  Expenses.  Research  and  development  expenses
increased  19.7% to $2.8  million for the nine months ended  September  30, 2001
from $2.4  million  for the nine  months  ended  September  30,  2000.  Expenses
incurred during the nine months ended September 30, 2001 included  approximately
$425,000  more in Metastat  contract  clinical  trial  expenses  and $240,000 in
formulation development costs for Periostat, while expenses incurred in the nine
months ended September 30, 2000 included $160,000 more in compensation  expenses
relating to certain non-employee stock options.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  increased  28.6% to $25.1  million for the nine months
ended  September 30, 2001 from $19.5 million for the nine months ended September
30, 2000.  This  increase was due  primarily  to increased  sales and  marketing
expenses  associated  with  the  Company's  investment  in DTC  advertising  for
Periostat.

     Other  Income/Expenses.  Interest income  decreased to $189,000 in the nine
months ended September 30, 2001 from $502,000 in the nine months ended September
30, 2000. This decrease was due to lower average balances in cash and short-term
investments  during 2001.  Interest  expense for the nine months ended September
30, 2001 was $7,000  compared to $12,000 for the nine months ended September 30,
2000. These expenses were primarily due to interest on the $219,000 note payable
executed  by the Company in April 1999.  Other  income of $8,000 was  recognized
during the nine months ended  September  30, 2001,  mainly the result of foreign
currency transactions.

     Preferred Stock  Dividends.  Preferred stock dividends of $1.3 million were
recorded  during each of the nine months ended  September 30, 2001 and September
30,  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.

                                      -13-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     Since its origin in January 1992,  the Company has financed its  operations
through  private  placements  of preferred  stock and common  stock,  an initial
public  offering  of  2,000,000  shares of common  stock,  which  generated  net
proceeds to the Company of approximately  $18.0 million after  underwriting fees
and related  expenses,  and a subsequent  public offering of 1,000,000 shares of
common stock, which generated net proceeds to the Company of approximately $11.6
million  after  underwriting  fees and related  expenses.  On May 12, 1999,  the
Company consummated a $20.0 million financing (the "1999 Financing") through the
issuance of its Series D Cumulative  Convertible  Preferred Stock (the "Series D
Stock"),  which  generated  net  proceeds to the Company of $18.5  million.  The
issuance  of the  Series D Stock was  approved  by a majority  of the  Company's
stockholders at the Company's  Annual Meeting of Stockholders on May 11, 1999. A
portion of the proceeds of the 1999 Financing were used to repay a $10.0 million
Senior  Secured  Convertible  Note provided by one of the investors on March 19,
1999 in connection with the 1999 Financing. The remaining proceeds have been and
will be used for general working capital purposes.

     The Series D Stock is  convertible  at any time into shares of common stock
of the  Company  at a  current  conversion  price  of  $9.91  per  share,  which
conversion price reflects a decrease from the initial conversion price of $11.00
per share as a result of both a Common  Stock  financing by the Company in March
2001, as discussed  below,  and the sale of shares of the Company's Common Stock
to Atrix in August  2001,  as  discussed  below.  Such  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
are entitled to receive  dividends  payable in shares of fully registered common
stock at a rate of 8.4% per annum. Thereafter, dividends will be payable in cash
at a rate of 8.0% per annum.

     All or a portion  of the shares of Series D Stock  shall,  at the option of
the  Company  (as  determined  by the  Board  of  Directors),  automatically  be
converted into fully paid, registered and non-assessable shares of common stock,
if the following two conditions are met: (i) the last sale price, or, in case no
such sale takes  place on such day,  the  average of the  closing  bid and asked
prices on the Nasdaq is at least 200% of the conversion price then in effect (as
of September  30,  2001,  such  conversion  price was $9.91 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

                                      -14-
<PAGE>

prior to such twelve month period.

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

     On March 12, 2001,  the Company  consummated a private  equity  offering of
1,500,000  shares  of  Common  Stock  for an  aggregate  purchase  price of $7.5
million,  which  generated  net  proceeds to the Company of  approximately  $6.8
million (the "2001  Financing").  Such proceeds are being used primarily for the
Company's DTC advertising campaign and for general working capital purposes.  In
addition,  the  investors  in such  financing  were also issued an  aggregate of
400,000  warrants which are  exercisable for up to three (3) years from the date
of such  financing  into  400,000  shares of the  Company's  Common  Stock at an
exercise price per share of $6.00. The consideration  received for such warrants
is included  in the  aggregate  proceeds  received  in the 2001  Financing.  The
Company  also  issued to its  financial  advisor in such  financing  warrants to
purchase  an  aggregate  of  150,000  shares  of  the  Company's   Common  Stock
exercisable  for up to three (3) years at an exercise  price of $5.70 per share,
as partial  consideration  for  services  rendered in  connection  with the 2001
Financing.  Such  warrants  may be deemed  automatically  exercised  in  certain
circumstances  based upon the Company's stock price. In connection with the 2001
Financing,  the Company is obligated to maintain  the  effectiveness  of a shelf
registration  statement  with  respect to all such shares of Common Stock issued
and shares underlying all such warrants for a continuous  twenty-four (24) month
period,  or the  Company  will be  required  to issue to the  investors  and the
financial  advisor an additional 27,500 shares of the Company's Common Stock, in
the aggregate, for no additional consideration.

     On March 19, 2001, the Company consummated a revolving credit facility (the
"Facility") with Silicon Valley Bank (the "Bank").  The Company may borrow up to
the lesser of $3.0 million or 80% of eligible  accounts  receivable,  as defined
under the Facility.  The amount  available under the Facility is also reduced by
outstanding  letters of credit which may be issued under the Facility in amounts
totaling up to $1.5 million.  The Company is not obligated to draw amounts under
the Facility and any such borrowings  under the Facility bear interest,  payable
monthly,  at the prime rate plus 1.5% per annum and may be used only for working
capital  purposes.  The Company has secured its purchase order  commitments  for
Periostat from Pharmaceutical  Manufacturing Research Services, Inc., a contract
manufacturing  company, with a letter of credit under the Facility.  Without the
consent of the Bank,  the Company,  among other  things,  shall not (i) merge or
consolidate with another entity; (ii) acquire assets outside the ordinary course
of business;  or (iii) pay or declare any cash dividends on the Company's Common
Stock. The Company must also maintain a certain tangible net worth and a minimum
of $2.0 million in cash,  net of  borrowings  under the  Facility,  at all times
during the term of the  Facility.  In  addition,  the  Company  has  secured its
obligations  under the Facility  through the granting of a security  interest in
favor of the Bank with respect to all of the  Company's  assets,  including  its
intellectual  property. As of September 30, 2001, the Company has an outstanding
letter of credit issued  relating to open purchase  commitments in the amount of
$716,000 and there are no borrowings outstanding against the Facility.



                                      -15-
<PAGE>


     On August 24, 2001,  the Company  signed the Atrix License  Agreement  with
Atrix to market Atrix's proprietary dental products,  Atridox(R),  Atrisorb(R) -
Free Flow and  Atrisorb(R)-D,  the United States dental market.  Pursuant to the
terms of the Atrix  License  Agreement,  among  other  things:  (i)  Atrix  will
manufacture the dental products for the Company at an agreed upon transfer price
and will receive  royalties on future net sales of the  products  each  calendar
year; (ii) the Company paid to Atrix a $1.0 million licensing fee to market such
products;  (iii) the  Company  has  committed  to no less than $2.0  million  in
advertising and selling  expenses related to the products during the fiscal year
beginning  January  1,  2002 and  certain  additional  advertising  and  selling
expenses  commencing  with  fiscal  year 2003;  (iv) the  Company  has agreed to
maintain,  for a period of 24 months,  a force of no less than  ninety (90) full
time dental  consultants and divisional and regional  managers to make sales and
product  recommendation calls on dental  professionals;  and (v) the Company has
agreed  that the  products  will be the  subject of a specific  number of detail
calls in the United States during 2002.

     In  addition,  pursuant to the terms of a Stock  Purchase  Agreement  dated
August 24, 2001 by and between the Company and Atrix,  Atrix  purchased  330,556
unregistered  shares of the  Company's  Common Stock for an  aggregate  purchase
price of approximately  $3.0 million.  As a result of the sale of such shares to
Atrix,  the  conversion  price of the Company's  Series D Stock was reduced from
$9.94 to $9.91 per share.

     In October 2001, the Company filed a shelf  Registration  Statement on Form
S-3 to register 964,880 shares of its Common Stock. Such Registration  Statement
has not yet been declared  effective by the Securities and Exchange  Commission.
Upon the declaration of the  effectiveness of such Registration  Statement,  the
Company will be permitted to issue such  registered  shares of Common Stock from
time to time and may use the proceeds  thereof for research and  development  of
additional   products,   expansion  of  the   Company's   sales  and   marketing
capabilities,   potential  product  acquisitions  and  other  general  corporate
purposes,   including,   but  not  limited  to,  working   capital  and  capital
expenditures.

     At  September  30,  2001,  the  Company  had  cash,  cash  equivalents  and
short-term  investments  of  approximately  $7.7  million,  an  increase of $2.3
million from the $5.4 million  balance at December 31, 2000.  This  increase was
primarily  attributable  to the net  proceeds  of $6.8  million  from  the  2001
Financing,  and $3.0  million  from the sale of shares of the  Company's  Common
Stock to Atrix, less cash used to fund operating  activities for the nine months
ended September 30, 2001. In accordance with investment  guidelines  approved by
the Company's  Board of Directors,  cash balances in excess of those required to
fund  operations  have  been  invested  in  short-term  United  States  Treasury
securities  and commercial  paper with a credit rating no lower than A1/P1.  The
Company's working capital at September 30, 2001 was $7.5 million, an increase of
$2.2 million from $5.3 million at December 31, 2000. This increase was primarily
attributable to the net proceeds of $9.8 million from the 2001 Financing and the
sale of shares of the  Company's  Common Stock to Atrix,  less cash used to fund
operations during the nine months ended September 30, 2001.

     The  Company   anticipates  that  its  existing  working  capital  will  be
sufficient to fund the Company's operations through at least 2002. The Company's
future capital  requirements and the adequacy of its available funds will depend
on many factors,  including the size and scope of the Company's marketing effort
and sales of Periostat, the terms of agreements entered into with



                                      -16-

<PAGE>


corporate  partners,  if any,  and the results of research and  development  and
pre-clinical and clinical  studies for other  applications of the Company's core
technology.  Over the long-term,  the Company's liquidity is dependent on market
acceptance of its products and technology.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

                                   -17-

<PAGE>


                           PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

Changes in Securities

     (c) On August 24, 2001,  the Company  issued and sold 330,556  unregistered
shares of its  Common  Stock to Atrix for an  aggregate  purchase  price of $3.0
million.  Such sale and issuance of Common Stock was  consummated  in connection
with the grant of an exclusive  license and  marketing  rights to the Company by
Atrix to market  certain of Atrix's  proprietary  dental  products in the United
States.  The Company believes that the issuance of the foregoing  securities was
exempt from  registration  under Section 4(2) of the  Securities Act of 1933, as
amended, as a transaction not involving any public offering.  Atrix had adequate
access to information about the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On October 15,  2001,  the Company  received the  unanimous  consent of the
holders  of its  Series  D Stock  to amend  the  terms of the  Series D Stock to
provide that:  (i) a vacancy in any  directorship  elected by the holders of the
Company's  Common  Stock may be  filled,  until the next  annual  meeting of the
stockholders of the Company, by the vote or written consent of a majority of the
directors  then in office  elected  by the  holders  of Common  Stock;  (ii) the
maximum aggregate number of Common Stock or options to purchase shares of Common
Stock  constituting   Permitted  Options  (as  defined  in  the  certificate  of
designation,  preferences  and rights for the Series D Stock) be increased  from
Two Million Three Hundred Two Thousand  (2,302,000)  shares to Three Million One
Hundred  Seventeen  Thousand Four Hundred Thirty Nine  (3,117,439)  shares;  and
(iii) any subsequent  option grant which otherwise  requires the approval of the
board of directors, shall require, prior to the time of such grant, the approval
of the director elected by the holders of the Series D Stock.

     On October 18, 2001,  the Company  filed a current  report on Form 8-K with
the Securities and Exchange Commission regarding such amendments.

ITEM 5.  OTHER INFORMATION.

Licensing and Marketing Agreement

     On August 24, 2001, the Company signed an exclusive  License Agreement (the
"Atrix License  Agreement") with Atrix  Laboratories,  Inc.  ("Atrix") to market
Atrix's  proprietary  dental  products,  Atridox(R),  Atrisorb(R)-Free  Flow and
Atrisorb(R)-D,  to the United States dental market. Under the terms of the Atrix
License Agreement, Atrix will manufacture the dental products for the Company at
an agreed upon transfer price and will receive royalties on future net sales. In
addition,  Atrix purchased 330,556  unregistered  shares of the Company's Common
Stock for an aggregate purchase price of $3.0 million.

                                      -18-
<PAGE>


Results From Dermostat Acne Study

     On October 1, 2001, the Company  announced the clinically and statistically
significant  results of a  six-month,  60-patient  clinical  trial  designed  to
evaluate the efficacy of Dermostat,  a sub-antimicrobial  regimen of doxycycline
hyclate tablets, 20 mg., for the treatment of patients with moderate acne.

     The results showed that the patients receiving  Dermostat  experienced more
than a 50% reduction in comedones and inflammatory lesions.  Patent applications
for Dermostat have been filed with the U.S. Patent and Trademark Office.

     The  Dermostat  clinical  trial  was  a  multi-center,  placebo-controlled,
double-blind  study chaired by Dr. Robert Skidmore,  Chief of Dermatology at the
University  of Florida  Medical  Center,  and was also  conducted by Dr.  Rodney
Kovach, Chief of Dermatology at West Virginia University Health Sciences Center.
The results revealed  statistically  significant  benefits to patients receiving
Dermostat  for all three of the  pre-established  primary  endpoints:  change in
total comedones, total inflammatory lesions and total lesion counts.

Shelf Registration Statement on Form S-3

     In October 2001, the Company filed a shelf  Registration  Statement on Form
S-3 to register 964,880 shares of its Common Stock. Such Registration  Statement
has not yet been declared  effective by the Securities and Exchange  Commission.
Upon the declaration of the  effectiveness of such Registration  Statement,  the
Company will be permitted to issue such  registered  shares of Common Stock from
time to time and may use the proceeds  thereof for research and  development  of
additional   products,   expansion  of  the   Company's   sales  and   marketing
capabilities,   potential  product  acquisitions  and  other  general  corporate
purposes,   including,   but  not  limited  to,  working   capital  and  capital
expenditures.

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

          (a)  Exhibits

               * 10.1 - License  Agreement  dated as of August  24,  2001 by and
               between the Company and Atrix Laboratories, Inc.

               * 10.2 - Stock  Purchase  Agreement  dated August 24, 2001 by and
               between the Company and Atrix Laboratories, Inc.

          (b)  Reports on Form 8-K.

               On July 20, 2001,  the Company filed a current report on Form 8-K
               with the  Securities  and  Exchange  Commission  relating  to its
               Dentaplex  product and the related  governmental  regulation with
               respect to dietary supplements.

               On October 18, 2001,  the Company filed a Current  Report on Form
               8-K with the Securities and Exchange  Commission  with respect to
               the  filing  of:  (i) the  Amended  Certificate  of  Designation,
               Preferences  and  Rights of the Series D

                                      -19-
<PAGE>

               Cumulative    Convertible    Preferred    Stock   of   CollaGenex
               Pharmaceuticals,  Inc.; (ii) Amendment No. 1 to the  Stockholders
               and Registration  Rights Agreement,  dated March 19, 1999, by and
               among   CollaGenex    Pharmaceuticals,    Inc.,   OCM   Principal
               Opportunities  Fund,  L.P. and the  Purchasers set forth therein;
               (iii) Amendment No. 2 to the Stockholders and Registration Rights
               Agreement,   dated  March  19,  1999,  by  and  among  CollaGenex
               Pharmaceuticals, Inc., OCM Principal Opportunities Fund, L.P. and
               the Purchasers set forth therein; and (iv) Amendment No. 2 to the
               Shareholder  Protection  Rights  Agreement,  dated  September 15,
               1997, between CollaGenex Pharmaceuticals, Inc. and American Stock
               Transfer & Trust Company, as amended.


               *  Confidential  Treatment has been sought for a portion of these
               exhibits.


                                      -20-
<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, 2001              By:/s/ Brian M. Gallagher, Ph.D.
                                         --------------------------------------
                                         Brian M. Gallagher, Ph.D.
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)



Date:  November 14, 2001              By:/s/ Nancy C. Broadbent
                                         --------------------------------------
                                         Nancy C. Broadbent
                                         Chief Financial Officer (Principal
                                         Financial and Accounting Officer)



<PAGE>





                                  EXHIBIT 10.1

        LICENSE AGREEMENT DATED AS OF AUGUST 24, 2001 BY AND BETWEEN THE
                      COMPANY AND ATRIX LABORABORIES, INC.




<PAGE>


                                  EXHIBIT 10.2

           STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 24, 2001 BY AND
                BETWEEN THE COMPANY AND ATRIX LABORATORIES, INC.