SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q


(Mark One)
[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2001

                                       or

[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period from ____ to ____

                         Commission file number 0-13634

                              MACROCHEM CORPORATION
             (Exact name of registrant as specified in its charter)


         Delaware                                              04-2744744
---------------------------------                         -------------------
 (State or Other Jurisdiction                              (I.R.S. Employer
of Incorporation or Organization)                         Identification No.)

            110 Hartwell Avenue, Lexington, Massachusetts 02421-3134
               (Address of principal executive offices, Zip Code)

                                  781-862-4003
                                  ------------
              (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 issuer's classes
of common stock, as of the latest practicable date.

         Class                                 Outstanding at October 31, 2001:
----------------------------                   --------------------------------
Common Stock, $.01 par value                               27,897,941

<PAGE>

                              MACROCHEM CORPORATION

                               INDEX TO FORM 10-Q
                               ------------------


                                                                    Page Number
                                                                    -----------
PART I   FINANCIAL INFORMATION

Item 1   Unaudited Financial Statements

            Condensed Balance Sheets
            September 30, 2001 and December 31, 2000                       3

            Condensed Statements of Operations for the
            Three and Nine Months Ended
            September 30, 2001 and 2000                                    4

            Condensed Statements of Cash Flows for the
            Nine Months Ended September 30, 2001 and 2000                  5

            Notes to Unaudited Condensed Financial
            Statements                                                    6-9


Item 2   Management's Discussion and Analysis of
         Financial Condition and Results of Operations                    9-12

Item 3   Quantitative and Qualitative Disclosures About Market Risk      12-13


PART II  OTHER INFORMATION

Item 6   Exhibits and Reports on Form 8-K                                  14

SIGNATURES                                                                 15


                                       2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                              MACROCHEM CORPORATION
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)
                    (Amounts in thousands except share data)

                                                   September 30,    December 31,
                                                       2001             2000
                                                   -------------    ------------

                                     ASSETS
Current assets:
       Cash and cash equivalents                     $    970          $    589
       Short-term investments                          18,775            16,179
       Accounts receivable                                 40                31
       Receivable due from related party                   24                23
       Prepaid expenses and other current assets          243               241
                                                      -------            ------
           Total current assets                        20,052            17,063
                                                      -------            ------


Property and equipment, net                               524               377
                                                      -------            ------

Other assets:
       Patents, net                                       587               513
       Deposits                                            29                29
                                                      -------            ------
           Total other assets                             616               542
                                                      -------            ------

Total assets                                         $ 21,192          $ 17,982
                                                      =======            ======

                                   LIABILITIES
Current liabilities:
       Accounts payable                              $    ---          $    331
       Accrued expenses                                 1,529               763
                                                       ------            ------
           Total current liabilities                    1,529             1,094

Deferred rent                                              47                37
Deferred revenue                                          225               ---
                                                       ------            ------

Total liabilities
       Commitments and contingencies                    1,801             1,131
                                                       ------            ------


                              STOCKHOLDERS' EQUITY
Preferred stock                                           ---               ---
Common stock, $.01 par value, 60,000,000
       shares authorized; 28,158,054 and
       24,730,783 shares issued at September 30,
       2001 and December 31, 2000, respectively           282               247
Additional paid-in capital                             72,881            60,787
Accumulated deficit                                   (52,711)          (43,040)
Unearned compensation                                 (    23)          (    25)
Less treasury stock, at cost, 260,113 and
       276,174 shares at September 30, 2001
       and December 31, 2000, respectively            ( 1,038)          ( 1,118)
                    --- -----                          ------            ------
           Total stockholders' equity                  19,391            16,851
Total liabilities and stockholders' equity           $ 21,192          $ 17,982
                                                       ======            ======

The accompanying notes are an integral part of these unaudited condensed
financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>
                              MACROCHEM CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
         For the three and nine months ended September 30, 2001 and 2000
                                   (Unaudited)
             (Amounts in thousands except share and per share data)

                                           For the three months ended Sept 30,  For the nine months ended Sept 30,
                                           -----------------------------------  ----------------------------------
                                                  2001            2000              2001               2000
                                                  ----            ----              ----               ----

<S>                                         <C>              <C>               <C>                <C>

Research contract revenues                  $        189     $         29      $        189       $        601
                                              ----------      -----------        ----------        -----------


Costs and expenses:
    Research and development                       2,456            1,187             7,481              3,316
    Marketing, general and administrative            942              754             2,862              2,183
    Nonrecurring noncash stock compensation
       charge                                        ---              ---               ---              2,810
    Consulting fees with related parties              15               13                46                 37
                                              ----------       ----------        ----------         ----------
       Total costs and expenses                    3,413            1,954            10,389              8,346
                                              ----------       ----------        ----------         ----------

Loss from operations                         (     3,224)     (     1,925)      (    10,200)       (     7,745)
                                              ----------       ----------        ----------         ----------

Other income (expense):
    Interest income                                  185              175               530                553
    Interest expense                                 ---              ---               ---        (         1)
                                              ----------       ----------        ----------         ----------
       Total other income                            185              175               530                552
                                              ----------       ----------        ----------         ----------

Net loss                                    $(     3,039)    $(     1,750)     $(     9,670)      $(     7,193)
                                              ==========       ==========        ==========         ==========

Net loss per common share -
    basic and diluted                       $(      0.11)    $(      0.08)     $(      0.39)      $(      0.32)
                                              ==========       ==========        ==========         ==========

Weighted average common shares                27,177,000       22,593,000        24,574,000         22,494,000
outstanding (basic and diluted)

</TABLE>

The accompanying notes are an integral part of these unaudited condensed
financial statements.

                                       4
<PAGE>

                              MACROCHEM CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS
                For the nine months ended Sept 30, 2001 and 2000
                                   (Unaudited)
                             (Amounts in thousands)

                                              For the nine months ended Sept 30,
                                              ----------------------------------
                                                          2001           2000
                                                          ----           ----

Cash flows from operating activities:
  Net loss                                            $(  9,670)      $( 7,193)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
    Depreciation and amortization                           131            131
    Stock-based compensation                                382          2,757
    401(k) contribution in Company common stock              71             54
    Deferred rent                                            10            ---
    Deferred revenue                                        225        (   500)
  Changes in assets and liabilities:
    Accounts receivable                                (     10)            35
    Prepaid expenses and other current assets          (      2)       (    90)
    Accounts payable and accrued expenses                   435            105
                                                         ------         ------


Net cash used by operating activities                  (  8,428)       ( 4,701)
                                                         ------         ------

Cash flows from investing activities:
  Sales of short-term investments                      (  2,596)       (10,192)
  Expenditures for property and equipment              (    257)       (   135)
  Additions to patents                                 (     95)       (    53)
                                                         ------         ------
Net cash provided (used) by investing activities       (  2,948)       (10,380)
                                                         ------         ------
Cash flows from financing activities:
  Purchases of treasury stock                               ---        (    21)
  Proceeds from exercise of warrants                        371            ---
  Proceeds from issuance of common stock                  9,406            ---
  Proceeds from exercise of common stock options          1,980             81
                                                         ------         ------
Net cash provided by financing activities                11,757             60
                                                         ------         ------

Net change in cash and cash equivalents                     381        (15,021)
Cash and cash equivalents at beginning of period            589         15,183
                                                         ------         ------
Cash and cash equivalents at end of period             $    970       $    162
                                                        =======        =======


The accompanying notes are an integral part of these unaudited condensed
financial statements.


                                       5
<PAGE>

                              MACROCHEM CORPORATION
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1)  BASIS OF PRESENTATION

     The financial statements included herein have been prepared by MacroChem
     Corporation ("MacroChem" or the "Company") without audit, pursuant to the
     rules and regulations of the Securities and Exchange Commission. 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. In the opinion of management, the
     accompanying unaudited financial statements include all adjustments
     (consisting only of normal recurring adjustments) necessary to present
     fairly the financial position, results of operations and cash flows of the
     Company at the dates and for the periods indicated. The unaudited financial
     statements included herein should be read in conjunction with the audited
     financial statements and the notes thereto included in the Company's Annual
     Report on Form 10-K for the fiscal year ended December 31, 2000.

     The results disclosed in the Statement of Operations for the nine months
     ended September 30, 2001 are not necessarily indicative of the results to
     be expected for the full year.

     MacroChem is a biopharmaceutical company engaged in the development and
     commercialization of a portfolio of products through the application of
     SEPA(R) (Soft Enhancer of Percutaneous Absorption), its patented topical
     drug delivery technology.

(2)  REVENUE RECOGNITION

     Research contract revenues consist of non-refundable research and
     development funding under collaborative agreements with various corporate
     or government organizations. Research and development funding is generally
     recognized as revenue at the time the research and development activities
     are performed under the terms of the related agreements, when the corporate
     partner is obligated to pay and when no future performance obligations
     exist. Payments received in advance of services provided result in the
     deferral of revenue recognition to future periods.

                                       6
<PAGE>

(3)  BASIC AND DILUTED LOSS PER SHARE

     The following table sets forth the computation of basic and diluted loss
     per share:

<TABLE>
<CAPTION>
                                              Three Months Ended Sept 30,         Nine Months Ended Sept 30,
                                              ---------------------------         --------------------------
                                                2001              2000              2001               2000
                                                ----              ----              ----               ----
     <S>                                   <C>               <C>               <C>               <C>

     Numerator for basic and diluted
     loss per share:
         Net loss                          $  3,039,000      $  1,750,000      $  9,670,000      $  7,193,000
                                            ===========       ===========       ===========       ===========

     Denominator for basic
     and diluted loss per share:
         Weighted average shares
         outstanding                         27,177,000        22,593,000        24,574,000       22,494,000
                                             ==========        ==========        ==========       ==========

     Net loss per share - basic
     and diluted                           $       0.11      $       0.08      $       0.39      $      0.32
                                            ===========       ===========       ===========       ==========
</TABLE>

     Potential common shares are not included in the per share calculations for
     diluted EPS, because the effect of their inclusion would be anti-dilutive.
     Anti-dilutive potential shares not included in per share calculations for
     the nine months ended Sept 30, 2001 and 2000 were 4,685,175 and 4,304,625
     respectively.

(4)  STOCKHOLDERS' EQUITY

     During the three months ended September 30, 2001, no options were granted
     under the 2001 Incentive Plan (the "Plan"). No options were exercised
     during the same period. Outright grants of 1,000 shares were issued under
     the Plan to each non-employee member of the Board of Directors for services
     rendered from January through June 2001. Also during the same period, 6,600
     options were canceled under the Plan.

     Under the 1994 Equity Incentive Plan (the "1994 Plan"), 21,400 shares were
     exercised during the three month period ended September 30, 2001. No
     options were canceled under the 1994 Plan during the same period.

     During the three months ended September 30, 2001, no options were exercised
     under the 1984 Non Qualified Plan (the "1984 Plan"). In June 2000, the
     Company extended the exercise period for 620,000 options that were
     previously issued to two former officers under the 1984 Plan, resulting in
     a noncash stock compensation charge to operations of approximately $2.8
     million.

     Warrants to purchase common stock were issued in connection with an October
     2000 private placement to two institutional investors. The warrants issued
     consist of warrants to purchase an aggregate of 363,322 shares of common
     stock at a purchase price of $5.90 per share for five years. Through
     September 30, 2001, none of the $5.90 warrants had been exercised.
     Additionally, each investor received a warrant to purchase additional
     shares of common stock at a purchase price of $.01 per share exercisable


                                       7
<PAGE>

     only upon certain conditions relating to the trading price of common stock
     during the period following the effectiveness of the related registration
     statement. The warrants may be exercised on a "cashless" basis. Through
     September 30, 2001, 880,314 of the $.01 warrants had been exercised. There
     are no further exercises available under these $.01 warrants. The placement
     agent received a warrant to purchase 108,999 shares of common stock at a
     purchase price of $7.43 for five years. Through September 30, 2001, 50,000
     of the $7.43 warrants had been exercised.

     In July 2001, the Company sold 1,566,047 shares of its common stock for
     approximately $10,148,000 in gross proceeds ($9,406,000 net of issuance
     costs) in a private placement to institutional investors.

     The investors in the July 2001 transaction also received warrants to
     purchase an aggregate of 313,209 shares of common stock at a purchase price
     of $8.995 per share. These warrants expire five years from the closing date
     and are callable by the Company if the closing price of the stock is higher
     than $17.99 for 15 consecutive trading days at any time before expiration.
     As of September 30, 2001, none of the $8.995 warrants had been exercised.

(5)  COMPREHENSIVE INCOME

     The Company reports comprehensive income in accordance with Statement of
     Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
     Income", which requires businesses to disclose comprehensive income and its
     components in their general-purpose financial statements. Comprehensive
     income (loss) is equal to the Company's net loss for the three and nine
     months ended September 30, 2001 and 2000.

(6)  RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
     for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
     No. 133 establishes accounting and reporting standards for derivative
     instruments, including certain derivative instruments embedded in other
     contracts (collectively referred to as derivatives), and for hedging
     activities. The adoption of SFAS No. 133 on January 1, 2001 had no impact
     on the Company's financial statements.

     In June 2001, the FASB issued two new pronouncements: SFAS No. 141,
     Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
     Assets. SFAS 141 is effective as follows: a) use of the pooling-of-interest
     method is prohibited for business combinations initiated after June 30,
     2001; and b) the provisions of SFAS 141 also apply to all business
     combinations accounted for by the purchase method that are completed after
     June 30, 2001 (that is, the date of acquisition is July 2001 or later).
     There are also transition provisions that apply to business combinations
     completed before July 1, 2001, that were accounted for by the purchase
     method. SFAS 142 is effective for fiscal years beginning after December 15,
     2001 to all goodwill and other intangible assets recognized in an entity's
     statement of financial position at that date, regardless of when those
     assets were initially recognized. The Company is currently evaluating the
     provisions of SFAS 141 and SFAS 142 and has not adopted such provisions in
     its September 30, 2001 condensed consolidated financial statements.

                                       8
<PAGE>

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses
     financial accounting and reporting for the impairment or disposal of
     long-lived assets. This Statement supercedes SFAS 121, and the accounting
     and reporting provisions of APB 30, for the disposal of a segment of a
     business. The provisions of SFAS 144 are required to be adopted by the
     Company effective January 1, 2002. The Company has not yet determined the
     effect that the adoption of SFAS 144 will have on the business, results of
     operations, and the financial condition of the Company.

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

GENERAL

MacroChem Corporation's primary business is the development of pharmaceutical
products for commercialization by employing SEPA(R) (Soft Enhancer of
Percutaneous Absorption), its patented topical drug delivery technology. SEPA
compounds, when properly combined with drugs, provide pharmaceutical
formulations (creams, gels, solutions, etc.) that enhance the transdermal
delivery of drugs into the skin or into the bloodstream. The Company currently
derives no significant revenue from product sales, royalties or license fees.
The Company plans to develop specific SEPA formulations for use with proprietary
and non-proprietary drugs manufactured by pharmaceutical companies, and to
commercialize these products through the formation of partnerships, strategic
alliances and license agreements with those companies. In order to attract
strategic partners, the Company is conducting clinical testing of certain
SEPA-enhanced drugs.

The Company's results of operations can vary significantly from year to year and
quarter to quarter, and depend, among other factors, on the signing of new
licenses and product development agreements, the timing of revenues recognized
pursuant to license agreements, the achievement of milestones by licensees, the
progress of clinical trials conducted by the licensees and the Company and the
degree of research, marketing and administrative effort. The timing of the
Company's revenues may not match the timing of the Company's associated product
development expenses. To date, research and development expenses have generally
exceeded revenue in any particular period and/or fiscal year.

RESULTS OF OPERATIONS

Revenues, consisting of research contract revenues, increased $160,000, or 552%,
to $189,000 in the three month period ended September 30, 2001 from $29,000 in
the three month period ended September 30, 2000 and decreased $412,000, or 69%
in the nine month period ended September 30, 2001 from $601,000 in the nine
month period ended September 30, 2000. The increase in revenues during the three
month period ended September 30, 2001 is the result of the Company entering into
a contract to conduct a preliminary feasibility study. Also during that period
the Company obtained a small business grant funded by the Department of Health
and Human Services. The decrease in revenues during the nine months ended
September 30, 2001 primarily reflects the Company's recognition of $500,000 in
deferred revenue upon termination of the American Home Products agreement in
2000 compared to the above mentioned revenue in 2001.

                                       9
<PAGE>

Research and development expenses increased $1,269,000, or 107%, to $2,456,000
in the three month period ended September 30, 2001 from $1,187,000 in the three
month period September 30, 2000 and increased 126%, or $4,165,000, to $7,481,000
in the nine month period ended September 30, 2001 from $3,316,000 in the nine
month period ended September 30, 2000. This increase in the three and nine month
periods is primarily attributable to Topiglan Phase III clinical trial studies
being performed throughout 2001 and an increase in R&D salaries.

Marketing, general and administrative expenses increased $188,000, or 25%, to
$942,000 in the three months ended September 30, 2001 from $754,000 in the three
month period ended September 30, 2000 and increased $679,000, or 31%, to
$2,862,000 in the nine month period ended September 30, 2001 from $2,183,000 in
the nine month period ended September 30, 2000. The increase in the three month
period is primarily attributable to an increase in salaries, public relations
and directors fees, offset by a decrease in fees paid for financial advisory
services. The increase in the nine month period is attributable to an increase
in salaries, public relations, legal fees, directors fees and printing expense.

The nonrecurring noncash stock compensation charge in the nine month period
ended September 30, 2000 is related to the one time charge associated with the
extension of the terms of certain stock options in June 2000 to two former
officers of the Company.

Other income increased $10,000, or 6%, to $185,000 in the three month period
ended September 30, 2001 from $175,000 in the three month period ended September
30, 2000 and decreased $23,000, or 4% to $530,000 in the nine month period ended
September 30, 2001 from $553,000 in the nine months ended September 30, 2000.
The increase in the three month period is due to additional cash invested
earning interest resulting from the receipt of financing proceeds in July. The
decrease in the nine month period is due to an average lower invested balance of
cash and cash equivalents resulting from funds used in Company operations.

For the reasons described above, net loss increased $1,289,000, or 74%, to
$3,039,000 in the three month period ended September 30, 2001 from $1,750,000 in
the three month period ended September 30, 2000 and increased $2,477,000, or 34%
to $9,670,000 in the nine month period ended September 30, 2001 from $7,193,000
in the nine months ended September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the primary source of funding for the Company's operations has
been the private and public sale of its securities, and to a lesser extent, the
licensing of its proprietary technology and products, government grants and the
limited sales of products and test materials. During the first nine months of
2001, the Company received aggregate net proceeds of approximately $2,352,000
from the exercise of stock options and warrants compared to approximately
$81,000 from the exercise of stock options for the nine months ended September
30, 2000. In July 2001, the Company sold 1,566,047 shares of its common stock
for approximately $10,148,000 in gross proceeds ($9,406,000 net of issuance
costs) in a private placement to institutional investors. The investors also
received warrants to purchase an aggregate of 313,209 shares of common stock at
a purchase price of $8.995 per share. These warrants expire five years from the
closing date and are callable by the Company if the closing price of the stock
is greater than $17.99 for 15 consecutive trading days at any time before
expiration.

                                       10
<PAGE>

At September 30, 2001 working capital was approximately $18,523,000, compared to
$15,969,000 at December 31, 2000. The increase in the Company's working capital
was due primarily to the cash received from financing proceeds in July 2001.
Until such time as the Company obtains agreements with third-party licensees or
partners to provide funding for the Company's anticipated business activities or
the Company is able to obtain additional funds through the private or public
sale of its securities, the Company's working capital will be utilized primarily
to fund its operating activities.

Pursuant to a plan approved by the Company's Board of Directors, the Company is
authorized to repurchase 1,000,000 shares of its Common Stock to be held as
treasury shares for future use. During the nine month period ended September 30,
2001, the Company did not repurchase any shares of Common Stock. At September
30, 2001, 260,113 repurchased shares remain available for future use and 679,587
shares remain available for repurchase under the plan.

Capital expenditures and additional patent development costs for the nine months
ended September 30, 2001 were approximately $352,000. The Company anticipates
additional capital expenditures of approximately $117,000 for the remainder of
the current year.

The Company's long term capital requirements will depend upon numerous factors,
including the progress of the Company's research and development programs; the
resources that the Company devotes to self-funded clinical testing of
SEPA-enhanced compounds, proprietary manufacturing methods and advanced
technologies; the ability of the Company to enter into additional licensing
arrangements or other strategic alliances; the ability of the Company to
manufacture products under those arrangements and the demand for its products or
the products of its licensees or strategic partners if and when approved for
sale by regulatory authorities. In any event, substantial additional funds may
be required before the Company is able to generate revenues sufficient to
support its operations. There is no assurance that the Company will be able to
obtain such additional funds on favorable terms, if at all. The Company's
inability to raise sufficient funds could require it to delay, scale back or
eliminate certain research and development programs. The Company believes that
its existing cash, cash equivalents and short term investments will be
sufficient to meet its operating expenses and capital expenditure requirements
for at least the next twelve months. The Company's cash requirements may vary
materially from those now planned because of changes in focus and direction of
the Company's research and development programs, competitive and technical
advances, patent developments or other developments. It is not believed that
inflation will have any significant effect on the results of the Company's
operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The adoption of SFAS No. 133 on
January 1, 2001 had no impact on the Company's financial statements.

                                       11
<PAGE>

In June 2001, the FASB issued two new pronouncements: SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141
is effective as follows: a) use of the pooling-of-interest method is prohibited
for business combinations initiated after June 30, 2001; and b) the provisions
of SFAS 141 also apply to all business combinations accounted for by the
purchase method that are completed after June 30, 2001 (that is, the date of
acquisition is July 2001 or later). There are also transition provisions that
apply to business combinations completed before July 1, 2001, that were
accounted for by the purchase method. SFAS 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. The Company is
currently evaluating the provisions of SFAS 141 and SFAS 142 and has not adopted
such provisions in its September 30, 2001 condensed consolidated financial
statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supercedes SFAS 121, and the accounting and reporting provisions
of APB 30, for the disposal of a segment of a business. The provisions of SFAS
144 are required to be adopted by the Company effective January 1, 2002. The
Company has not yet determined the effect that the adoption of SFAS 144 will
have on the business, results of operations, and the financial condition of the
Company.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

As of September 30, 2001, the Company is exposed to market risks which relate
primarily to changes in U.S. interest rates. The Company's cash equivalents and
short term investments are subject to interest rate risk and will decline in
value if interest rates increase. Due to the short duration of these financial
instruments, generally three months or less, changes to interest rates would not
have a material effect upon the Company's financial position. A hypothetical 10%
change in interest rates would not have a material effect on our Statement of
Operations or Cash Flows for the three and nine months September 30, 2001.

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN THIS REPORT AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING: THE COMPANY'S HISTORY
OF OPERATING LOSSES AND NEED FOR CONTINUED WORKING CAPITAL; TECHNOLOGICAL
UNCERTAINTY RELATING TO TRANSDERMAL DRUG DELIVERY SYSTEMS AND THE EARLY STAGE OF
DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS; THE COMPANY'S NEED FOR
SIGNIFICANT ADDITIONAL PRODUCT DEVELOPMENT EFFORTS AND ADDITIONAL FINANCING;
UNCERTAINTIES RELATED TO CLINICAL TRIALS OF THE COMPANY'S PROPOSED PRODUCTS; THE
COMPANY'S DEPENDENCE ON THIRD PARTIES FOR COMMERCIALIZATION; NO ASSURANCE OF


                                       12
<PAGE>

LICENSE ARRANGEMENTS; THE LACK OF SUCCESS OF THE COMPANY'S PRIOR DEVELOPMENT
EFFORTS; UNCERTAINTIES RELATING TO GOVERNMENT REGULATION AND REGULATORY
APPROVALS; THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR THE FDA APPLICATION
PROCESS; THE COMPANY'S LACK OF EXPERIENCED MARKETING PERSONNEL AND DEPENDENCE ON
THIRD PARTIES FOR MARKETING AND DISTRIBUTION; THE COMPANY'S DEPENDENCE ON THIRD
PARTIES FOR MANUFACTURING; THE COMPANY'S RELIANCE ON KEY EMPLOYEES, THE LIMITED
PERSONNEL OF THE COMPANY AND ITS DEPENDENCE ON ACCESS TO SCIENTIFIC TALENT;
UNCERTAINTIES RELATING TO COMPETITION, PATENTS AND PROPRIETARY TECHNOLOGY;
UNCERTAINTIES RELATING TO RISKS OF PRODUCT LIABILITY CLAIMS, LACK OF PRODUCT
LIABILITY INSURANCE, AND EXPENSE AND DIFFICULTY OF OBTAINING ADEQUATE INSURANCE
COVERAGE; UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; AND OTHER
FACTORS. ADDITIONAL INFORMATION ON THESE AND OTHER FACTORS WHICH COULD AFFECT
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE ARE INCLUDED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 AND, IN PARTICULAR, THE
SECTION ENTITLED "RISK FACTORS".

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PART II - OTHER INFORMATION


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

           (a)    The following exhibits are filed herewith:

                  10.1     Form of Employment Agreement between the Company and
                           Thomas C.K. Chan.

           (b)    A report on Form 8-K was filed on July 24, 2001 disclosing
                  the Company's financing obtained on July 12. Also a report on
                  Form 8-K was filed on September 6, 2001 disclosing a press
                  release discussing preliminary results from a Phase III study
                  of patients treated with Topiglan(R).



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                                   SIGNATURES


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


                                                   MacroChem Corporation
                                                   ---------------------
                                                   (Registrant)



November 14, 2001                                  /s/ Robert Palmisano
                                                   ----------------------------
                                                   Robert Palmisano
                                                   President and Chief Executive
                                                   Officer
                                                   (Principal Executive Officer)

                                                   /s/ Bernard Patriacca
                                                   ----------------------------
                                                   Bernard Patriacca
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)





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