I encountered the same problem. If you got a dragon skill book you can max your fire sphere skill.
I Fought Zagan like this.
my Dragon sphere skill is level 3. after the chit chat with zagan i quickly search for the nest tower and take it out. and then went to the upper ceiling of the cave where i transformed back to human. There i regenerate my hp. Then again i morph back into Dragon and completely destroy the nest tower. Then i flew back to the upper ceiling and transform into human and regenerate back. Then i morph into Dragon and take out Zagans Minion and save Zagan for last.
it was pretty hard but after 10 mins i succeeded.
