Historically, we devoted most of our resources to advancing the development and marketing of our Levulan® PDT technology platform. In addition to our marketed products, our drug, Levulan® brand of aminolevulinic acid HCl, or ALA, in combination with light, has been studied in a broad range of medical conditions. When Levulan® is used and followed with exposure to light to treat a medical condition, it is known as Levulan® PDT. The Kerastick® is our proprietary applicator that delivers Levulan®. The BLU-U® is our patented light device. The Levulan® Kerastick® 20% Topical Solution with PDT and the BLU-U® were launched in the United States, or U.S., in September 2000 for the treatment of non-hyperkeratotic actinic keratoses, or AKs, of the face or scalp under a former dermatology collaboration. AKs are precancerous skin lesions caused by chronic sun exposure that can develop over time into a form of skin cancer called squamous cell carcinoma. In addition, in September 2003 we received clearance from the United States Food and Drug Administration, or FDA, to market the BLU-U® without Levulan® PDT for the treatment of moderate inflammatory acne vulgaris and general dermatological conditions.
Sirius Laboratories, Inc., or Sirius, a dermatology specialty pharmaceuticals company, was founded in 2000 with a primary focus on the treatment of acne vulgaris and acne rosacea. Nicomide® was its key product, a vitamin-mineral product prescribed by dermatologists. In April 2008, we were notified by Actavis Totowa, LLC, the manufacturer of Nicomide®, that Actavis would cease manufacturing several prescription vitamins, including Nicomide®, due to continuing discussions with the FDA. As we previously disclosed, Actavis Totowa had received notice that the FDA considers prescription dietary supplements to be unapproved new drugs. In response to this notification and subsequent discussions with the FDA, we stopped the sale and distribution of Nicomide® as a prescription product in June 2008.
On August 12, 2008, we entered into a worldwide non-exclusive patent License Agreement to our patent covering Nicomide®, or License Agreement, with River's Edge Pharmaceuticals, LLC, or River's Edge, and an amendment to our Settlement Agreement with River's Edge regarding earlier litigation. See Note 15 of the Notes to the Condensed Consolidated Financial Statements. The amendment to the Settlement Agreement allowed River's Edge to manufacture and market a prescription product that could be substitutable for Nicomide® pursuant to the terms of the License Agreement and changed certain payment obligations of River's Edge for sales of its substitutable product. In consideration for granting the license, we were paid a share of the net revenues, as defined in the License Agreement, of River's Edge's licensed product sales. In April 2009, we and River's Edge entered into an Amendment to the License Agreement, or License Amendment. The License Amendment grants River's Edge an exclusive license to U.S. Patent, No. 6,979,468, and a license to use all know-how and the trademark associated with the Licensed Products worldwide. Under the License Amendment, we are required to transfer all of our rights, title and interest in and to DUSA's patent, know-how and trademark relating to the Licensed Products (but not the copyright registration relating to product labeling) to River's Edge upon our receipt of $5,000,000. Of the $5,000,000, River's Edge is required to make a minimum guaranteed payment to us of $2,600,000, in thirteen monthly installments of $200,000, subject to reduction under certain conditions, and pay additional consideration of $2,400,000 payable over time based on a share of River's Edge's net revenues as defined in the License Amendment. The License Agreement, as amended, has a term of 30 months, subject to a further extension under certain circumstances to 48 months, and may be terminated early by River's Edge on 30 days' prior written notice. Under the License Agreement, River's Edge has assumed all regulatory responsibilities for the Licensed Products. If the License Agreement is terminated prior to the payment of the $5,000,000, all of the rights and licenses granted by us to River's Edge will revert to us. We are recording the revenue under the License Amendment on a cash basis. We received the first $200,000 installment payment under the License Amendment during the second quarter of 2009, which is included in Product Revenues in the accompanying Consolidated Statements of Operations, but have not received any further payments. In the event that we terminate the License Agreement, which we have the right to do for non-payment, we will consider introducing a niacinamide product under the Dietary Supplement Health and Education Act, but in that case, the Company would expect volume and revenues to be lower than historical levels of Nicomide. As of November 6, 2009, payments due from River's Edge are six months, or $1.2 million, in arrears. We are evaluating our options for termination of the License Agreement, the potential to market a niacinamide product under the Dietary Supplement Health and Education Act, and the collection of the amounts due from River's Edge.
We are marketing Levulan® PDT under an exclusive worldwide license of patents and technology from PARTEQ Research and Development Innovations, the licensing arm of Queen's University, Kingston, Ontario, Canada. In January, 2009, we filed a request for reexamination with the USPTO of one of the Queen's patents that cover our approved indication for AK. We responded to the first office action on October 27, 2009. We also own or license certain other patents relating to our BLU-U® device and methods for using pharmaceutical formulations which contain our drug and related processes and improvements. In the United States, DUSA®, DUSA Pharmaceuticals, Inc.®, Levulan®, Kerastick®, BLU-U®, Nicomide®, Nicomide-T®, ClindaReach®, Meted®, and Psoriacap® are registered trademarks. Several of these trademarks are also registered in Europe, Australia, Canada, and in other parts of the world. Numerous other trademark applications are pending.
As of September 30, 2009, we had an accumulated deficit of approximately $144,726,000. We cannot predict whether any of our products will achieve significant enough market acceptance or generate sufficient revenues to enable us to become profitable on a sustainable basis.

CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in Note 2 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008. Since not all of these accounting policies require management to make difficult, subjective or complex judgments or estimates, they are not all considered critical accounting policies. We have discussed these policies and the underlying estimates used in applying these accounting policies with our Audit Committee. With the exception of the updated accounting policies listed below, there have been no material changes to our critical accounting policies in the nine months ended September 30, 2009. Fair Value Measurements of Marketable Securities In determining the fair value of our marketable securities, we consider the level of market activity and the availability of prices for the specific securities that we hold. For our Level 2 financial instruments, comprising our corporate debt and United States government-backed securities, we use quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency in the determination of value. We also access publicly available market activity from third party databases and credit ratings of the issuers of the securities we hold to corroborate the data used in the fair value calculations obtained from our primary source. We also take into account credit rating changes, if any, of the securities or recent marketplace activity. We do not have any Level 1 or Level 3 marketable securities.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 VERSUS SEPTEMBER 30, 2008
REVENUES -Total revenues for the three- and nine-month periods ended September 30, 2009 were $6,930,000 and $21,034,000, respectively, as compared to $5,726,000 and $21,768,000 in 2008, and were comprised of the following:

                                                     Three months ended                                                        Nine months ended
                                                        September 30,                                                            September 30,
                                                                                              INCREASE/                                                                 INCREASE/
                                                2009                    2008                 (DECREASE)                  2009                     2008                  (DECREASE)

PDT product revenues
Levulan®Kerastick® product revenues
United States                               $ 5,790,000             $ 4,374,000             $ 1,416,000             $ 17,096,000             $ 13,720,000             $  3,376,000
Canada                                          162,000                  72,000                  90,000                  404,000                  449,000                  (45,000 )
Korea                                           201,000                 186,000                  15,000                  498,000                  710,000                 (212,000 )
Other                                            91,000                  99,000                  (8,000 )                261,000                  289,000                  (28,000 )

Subtotal Levulan®Kerastick® product
revenues                                      6,244,000               4,731,000               1,513,000               18,259,000               15,168,000                3,091,000


BLU-U® product revenues
United States                                   456,000                 376,000                  80,000                1,577,000                1,198,000                  379,000

Korea                                                                    50,000                 (50,000 )                                          50,000                  (50,000 )


Subtotal BLU-U®product revenues                 456,000                 426,000                  30,000                1,577,000                1,248,000                  329,000


Total PDT product revenues                    6,700,000               5,157,000               1,543,000               19,836,000               16,416,000                3,420,000

Total Non-PDT product revenues                  230,000                 569,000                (339,000 )              1,198,000                5,352,000               (4,154,000 )


Total product revenues                      $ 6,930,000             $ 5,726,000             $ 1,204,000             $ 21,034,000             $ 21,768,000             $   (734,000 )

For the three- and nine-month periods ended September 30, 2009, total PDT Drug and Device Products revenues, comprised of revenues from our Kerastick® and BLU-U® products, were $6,700,000 and $19,836,000, respectively. This represents an increase of $1,543,000, or 30%, and $3,420,000, or 21%, over the comparable 2008 totals of $5,157,000 and $16,416,000, respectively. The incremental revenue was driven primarily by increased Kerastick® revenues and BLU-U® revenues in the United States.
For the three- and nine-month periods ended September 30, 2009, Kerastick® revenues were $6,244,000, and $18,259,000, respectively, representing a $1,513,000, or 32%, and $3,091,000, or 20%, increase over the comparable 2008 totals of $4,731,000 and $15,168,000, respectively. Kerastick® unit sales to end-users were 53,622 and 155,384, for the three- and nine-month periods ended September 30, 2009, respectively. Included in revenues for the nine months ended September 30, 2009, are 4,500 units sold in Canada and 6,606 sold in Korea. This represents an increase from 44,668 and 145,256 Levulan® Kerastick® units sold in the three- and nine-month periods ended September 30, 2008, respectively. Included in revenues for the nine months ended September 30, 2008, are 5,700 units sold in Canada and 10,692 sold in Korea. Our overall average net selling price for the Kerastick® increased to $115.87 per unit for the first nine months of 2009 from $102.79 per unit for the first nine months of 2008. Our average net selling price for the Kerastick® in the United States increased to $121.66 per unit in 2009 from $110.15 per unit in 2008. The increase in 2009 Kerastick® revenue was driven by increased sales volumes in the United States along with the increase in our overall average unit selling price.
For the three- and nine-month periods ended September 30, 2009, BLU-U® revenues were $456,000 and $1,577,000, respectively, representing a $30,000, or 7%, and $329,000, or 26%, increase over the comparable 2008 totals of $426,000 and $1,248,000, respectively. The increase in year-to-date 2009 BLU-U® revenues was driven by increased overall sales volumes, partially offset by a decrease in our average selling price. In the three- and nine-month periods ended September 30, 2009, there were 59 and 198 units sold, respectively, versus 57 and 154 units sold, respectively, in the comparable 2008 periods. All of the units sold in 2009 were sold in the United States. For the nine months ended September 30, 2008, 149 of the units were sold in the United States with 5 sold in Korea. For the first nine months of 2009, our average net selling price for the BLU-U® decreased to $7,591 from $7,820 in 2008. Our BLU-U®evaluation program allows customers to take delivery for a limited number of BLU-U®units for a period of up to four months for private practitioners and up to one year for hospital clinics, before a purchase decision is required. At September 30, 2009, there were approximately 9 units in the field pursuant to this evaluation program, compared to 58 units in the field at December 31, 2008. The units are classified as inventory in the financial statements and are being amortized during the evaluation period to cost of goods sold using an estimated life for the equipment of three years.
Non-PDT Drug Product Revenues reflect the revenues generated by the products acquired as part of our acquisition of Sirius. Total Non-PDT Product revenues for the three- and nine-month periods ended September 30, 2009 were $230,000 and $1,198,000, respectively, compared to $569,000 and $5,352,000, respectively for the comparable 2008 periods. The substantial majority of the Non-PDT product revenues were from Nicomide® related royalties from River's Edge, as further described below, and sales of ClindaReach®. In April 2008, we were notified by Actavis Totowa, LLC, the manufacturer of Nicomide®, that Actavis would cease manufacturing several prescription vitamins, including Nicomide®, due to continuing discussions with the FDA. In response to this notification and subsequent discussions with the FDA, we stopped the sale and distribution of Nicomide® as a prescription product in June 2008.
The decrease in our total revenues for the nine month period ended September 30, 2009 compared with the comparable period in 2008 results from decreases in Non-PDT revenues and international Kerastick® revenues, partially offset by increased PDT segment revenues in the United States. We must continue to increase sales from these levels in order for us to become profitable. We cannot provide any assurance that we will be able to increase sales sufficiently to become profitable, and we cannot provide assurance that a material increase in sales will necessarily cause us to be profitable. PhotoCure received FDA approval to market Metvixia® for treatment of AKs in July 2004, and this product, which is directly competitive with our Levulan® Kerastick® product, is now commercially available. On October 1, 2009, PhotoCure announced that it had sold Metvix/Metvixia to Galderma, S.A., a large dermatology company. While we are entitled to royalties on net sales of Metvixia, Galderma has a large sales force and considerably more resources than we have, which could adversely affect our ability to maintain or increase our market share. However, our PDT segment revenues in the United States have grown during 2009, due in part to the 6% increase in Medicare reimbursement of our PDT-related procedure fee, which became effective January 1, 2009, as well as our pricing strategies. Although we expect growth in our PDT segment revenues, we are susceptible to the uncertain economic conditions, particularly with our customer base in the U.S. that focuses on the cosmetic market and with the international markets. Reduced sales to the cosmetic customer base and softness in the international markets could be expected until the economy recovers. We expect our Non-PDT revenues for the full year 2009 to be significantly reduced compared to 2008 since we are no longer manufacturing and marketing Nicomide® and are experiencing difficulty collecting payments due under the License Agreement with River's Edge. COST OF PRODUCT REVENUES - Cost of product revenues for the three- and nine-month periods ended September 30, 2009 were $1,595,000 and $4,974,000 as compared to $1,462,000 and $4,950,000 in the comparable periods in 2008. A summary of the components of cost of product revenues and royalties is provided below:

                                                                     THREE MONTHS ENDED SEPTEMBER 30,
                                                                                                     INCREASE/
                                                              2009                 2008              (DECREASE)

Levulan® Kerastick® cost of product revenues and
royalties
Direct Levulan® Kerastick® product costs                  $   583,000          $   547,000          $   36,000
Other Levulan® Kerastick® production costs
including internal costs assigned to support
products, net                                                  50,000                2,000              48,000
Royalty and supply fees (1)                                   238,000              197,000              41,000


Subtotal Levulan® Kerastick® cost of product
revenues and royalties                                    $   871,000          $   746,000          $  125,000


BLU-U® cost of product revenues

Direct BLU-U® product costs                               $   212,000          $   205,000          $    7,000
Other BLU-U® product costs including internal costs
assigned to support products; as well as, costs
incurred to ship and install the BLU-U® in
physicians offices                                            143,000              195,000             (52,000 )


Subtotal BLU-U® cost of product revenues                  $   355,000          $   400,000          $  (45,000 )


TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES
AND ROYALTIES                                             $ 1,226,000          $ 1,146,000          $   80,000


Non-PDT cost of product revenues and royalties            $   369,000          $   316,000          $   53,000


TOTAL COST OF PRODUCT REVENUES AND ROYALTIES              $ 1,595,000          $ 1,462,000          $  133,000


                                                                     NINE MONTHS ENDED SEPTEMBER 30,
                                                                                                     INCREASE/
                                                              2009                 2008              (DECREASE)

Levulan® Kerastick® cost of product revenues and
royalties
Direct Levulan® Kerastick® product costs                  $ 1,686,000          $ 1,778,000          $  (92,000 )
Other Levulan® Kerastick® production costs
including internal costs assigned to support
products, net                                                 498,000                5,000             493,000
Royalty and supply fees (1)                                   726,000              668,000              58,000


Subtotal Levulan® Kerastick® cost of product
revenues and royalties                                    $ 2,910,000          $ 2,451,000          $  459,000

BLU-U® cost of product revenues
Direct BLU-U® product costs                               $   712,000          $   553,000          $  159,000

Other BLU-U® product costs including internal costs
assigned to support products; as well as, costs
incurred to ship and install the BLU-U® in
physicians offices                                            605,000              585,000              20,000


Subtotal BLU-U® cost of product revenues                  $ 1,317,000          $ 1,138,000          $  179,000


TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES
AND ROYALTIES                                             $ 4,227,000          $ 3,589,000          $  638,000


Non-PDT cost of product revenues and royalties            $   747,000          $ 1,361,000          $ (614,000 )


TOTAL COST OF PRODUCT REVENUES AND ROYALTIES              $ 4,974,000          $ 4,950,000          $   24,000

1) Royalty and supply fees reflect amounts paid to our licensor, PARTEQ Research and Development Innovations, the licensing arm of Queen's University, Kingston, Ontario, and ongoing royalties paid to Draxis Health, Inc., on sales of the Levulan®Kerastick® in Canada.

MARGINS - Total product margins for the three- and nine-month periods ended September 30, 2009 were $5,335,000 and $16,060,000, respectively, as compared to $4,264,000 and $16,818,000 for the comparable 2008 periods, as shown below:

                                                                  THREE MONTHS ENDED SEPTEMBER 30,
                                                                                                                INCREASE/
                                              2009                               2008                           (DECREASE)

Levulan® Kerastick® gross margin          $  5,373,000            86 %       $  3,986,000            84 %      $  1,387,000
BLU-U® gross margin                            101,000            22 %             25,000             6 %            76,000


Total PDT drug & device gross margin      $  5,474,000            82 %       $  4,011,000            78 %      $  1,463,000


Total Non-PDT gross margin                    (139,000 )         (60 )%           253,000            44 %      $   (392,000 )


TOTAL GROSS MARGIN                        $  5,335,000            77 %       $  4,264,000            74 %      $  1,071,000

                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                                                                INCREASE/
                                              2009                               2008                           (DECREASE)

Levulan® Kerastick® gross margin          $ 15,349,000            84 %       $ 12,717,000            84 %      $  2,632,000
BLU-U® gross margin                            260,000            16 %            110,000             9 %           150,000


Total PDT drug & device gross margin      $ 15,609,000            79 %       $ 12,827,000            78 %      $  2,782,000


Total Non-PDT gross margin                     451,000            38 %          3,991,000            75 %      $ (3,540,000 )


TOTAL GROSS MARGIN                        $ 16,060,000            76 %       $ 16,818,000            77 %      $   (758,000 )

Kerastick® gross margins for the three- and nine-month periods ended September 30, 2009 were 86% and 84% versus 84% for both periods in 2008. The margin improvement for the third quarter is attributable to increased U.S. sales volumes and an increased overall average selling price. Our long-term goal is to achieve higher gross margins on Kerastick® sales which will be significantly dependent on increased volume. We believe that we could achieve improved gross margins on our Kerastick® from further volume growth and price increases in the U.S.
BLU-U® margins for the three- and nine-month periods ended September 30, 2009 were 22% and 16%, respectively, versus 6% and 9% for the comparable 2008 periods. The increase in gross margin is a result of increased sales volumes, partially offset by a decrease in our average selling price. It is important for us to sell BLU-U® units in an effort to drive Kerastick® sales volumes and accordingly, we may

sell BLU-U's at low profit margins. Non-PDT gross margins reflect the gross margin generated by the products acquired as part of our merger with Sirius. Total Non-PDT gross margins for the three- and nine-month periods ended September 30, 2009 were (60)% and 38%, respectively, compared to 44% and 75%, respectively, in the comparable prior year periods. Non-PDT Product margins in 2009 were negatively impacted by our discontinuance of sales of Nicomide®. RESEARCH AND DEVELOPMENT COSTS - Research and development costs for the three- and nine-month periods ended September 30, 2009 were $963,000 and $3,225,000 as compared to $1,488,000 and $5,049,000 in the comparable 2008 periods. The decrease in 2009 compared to 2008 was due primarily to the absence of spending related to our Phase IIb clinical trial on acne, which concluded in October 2008, and a one-time $600,000 Prescription Drug User Fee Act, or PDUFA charge, which occurred in the first quarter of 2008, related to our approved AK indication.
Based on the results of the Phase IIb clinical trial, which were previously announced, we will not pursue further clinical development of Levulan® PDT with BLU-U® for moderate to severe acne. However, we do expect to continue to support investigator initiated studies in moderate to severe acne with Levulan® and various light sources. In May 2009 we filed a 510(k) application with the FDA for an expansion of our BLU-U® label to include severe acne. We previously had filed a patent application to cover an invention arising from the study. We received a response to our 510(k) application from the FDA in June 2009. The agency requested additional information in order to complete its review of our application, which included supplementary clinical data in support of our claims. Based on the FDA's requests and the anticipated costs of additional clinical trials, we have decided that we will not pursue the 510(k) application for an expansion of our BLU-U® claims at this time. We initiated a Phase II pilot clinical trial, which we expect will include up to 36 patients at multiple centers across the United States, for the treatment of actinic keratoses and reduction in the incidence of non-melanoma skin cancers in immunosuppressed solid organ transplant recipients, or SOTRs, who have demonstrated that they are at risk of developing multiple squamous cell carcinomas. We expect enrollment of these patients to take approximately one year. We expect to receive preliminary results from the study in approximately 15 months and full results in . . .