Side effects from finasteride are pretty uncommon in my experience, but they do occur. The most common side effect I see is decreased sex drive, which almost always goes back to normal when the drug is discontinued. Management of a side effect depends on how severe and persistent it is. Sometimes decreasing the dose can be helpful, sometimes not. There is risk with every drug we put in our bodies and sometimes it is best to stop the drug altogether and opt for a drug-free therapy.
From the photo, I doubt it is a type of scarring alopecia, but it is hard to be sure. Trichoscopy would be a good option. Sometimes in my clinic a trichoscopy yields more answers than scalp biopsies. Please keep in mind that the person who performed your scalp biopsy may have not have sampled the area that would produce a correct diagnosis. This is called sampling error and is very common with scalp biopsies. Other information would be helpful such as medical history, family history and of course a physical exam by a specialist dermatologist.
This is actually a fairly common occurrence in my experience. Sometimes the cyst compresses and "kills off" the hair follicles deep in the skin. Removing the cyst may lead to hair growth in the area, but it is not guaranteed.
Systemic absorption of topical dutasteride solution has not been validated and is unknown. That being said, there may be some that does in fact get in the bloodstream. That is why I would never recommend a pregnant or lactating person use dutasteride in any vehicle. Injectable dutasteride is a highly uncertain treatment for some types of hair loss, and is best not used at all. In conclusion, the likelihood of developing gynecomastia with topically applied or injected dutasteride is theoretically possible but highly unlikely.
Your biopsy result shows some general information in terms of what the doctor saw under the microscope, but it does not unequivocally provide you with a diagnosis. A biopsy is just one piece of the puzzle, so to speak. To reach a diagnosis that is factually accurate, it is best to consult with a board-certified dermatologist with expertise in hair loss. He/She will evaluate and assess your complete clinical case and come up with viable treatment options that you will hopefully be happy with.