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 March 31, 2005

                                       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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

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

     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 MAY 3, 2005:
----------------------------                         ---------------------------
Common Stock, $.01 par value                                  41,613,455


                                       1
<PAGE>

                              MACROCHEM CORPORATION

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

                                                                     PAGE NUMBER
                                                                     -----------
PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

            Condensed Balance Sheets
            March 31, 2005 and December 31, 2004 (Unaudited)              3

            Condensed Statements of Operations for the
            Three Months Ended March 31, 2005
            and 2004 (Unaudited)                                          4

            Condensed Statements of Cash Flows for the
            Three Months Ended March 31, 2005
            and 2004 (Unaudited)                                          5

            Notes to Unaudited Condensed Financial
            Statements                                                   6-11

Item 2   Management's Discussion and Analysis of
         Financial Condition and Results of Operations                  12-19

Item 3   Quantitative and Qualitative Disclosures About Market Risk      19

Item 4   Control and Procedures                                          19


PART II  OTHER INFORMATION

Item 6   Exhibits                                                        20

SIGNATURES                                                               21

EXHIBIT INDEX                                                            22


                                       2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                              MACROCHEM CORPORATION
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                                                                            MARCH 31,         DECEMBER 31,
                                                                              2005                2004
                                                                           -----------        ------------
<S>                                                                        <C>                <C>
ASSETS
Current assets:

      Cash and cash equivalents                                            $  3,027,492       $  4,888,868
      Short-term investments                                                  1,191,790          1,185,406
      Prepaid expenses and other current assets                                 480,179            328,908
                                                                           ------------       ------------
          Total current assets                                                4,699,461          6,403,182

Property and equipment, net                                                     169,868            183,079

Patents, net                                                                    511,844            523,603

Total assets                                                               $  5,381,173       $  7,109,864
                                                                           ============       ============
LIABILITIES
Current liabilities:

      Accounts payable                                                     $    261,113       $    244,148
      Accrued expenses and other liabilities                                    609,486            523,703
                                                                           ------------       ------------
          Total current liabilities                                             870,599            767,851

Deferred rent                                                                       ---              5,509
                                                                           ------------       ------------
Total liabilities                                                               870,599            773,360

Commitments and contingencies (Note 5)

STOCKHOLDERS' EQUITY
Preferred stock, authorized and unissued, 6,000,000 shares                          ---                ---
Common stock, $.01 par value, 100,000,000 shares authorized; 38,903,983
      shares issued at March  31, 2005 and December 31, 2004                    389,040            389,040
Additional paid-in capital                                                   82,846,701         82,941,131
Unearned compensation                                                               ---                ---
Accumulated deficit                                                         (78,666,057)       (76,824,517)
Less treasury stock, at cost, 22,233 and 62,260 shares at March 31, 2005
      and December 31, 2004, respectively                                       (59,110)          (169,150)
                                                                           ------------       ------------
Total stockholders' equity                                                    4,510,574          6,336,504
                                                                           ------------       ------------
Total liabilities and stockholders' equity                                 $  5,381,173       $  7,109,864
                                                                           ============       ============
</TABLE>

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 months ended March 31, 2005 and 2004
                                   (Unaudited)

                                                             FOR THE THREE MONTHS ENDED
                                                  -------------------------------------------------
                                                                MARCH 31,
<S>                                               <C>                      <C>
                                                     2005                     2004
REVENUES

     TOTAL REVENUES                               $       ---              $       ---

OPERATING EXPENSES

     Research and development                       1,030,061                1,320,946
     Marketing, general and administrative            834,998                  919,383
                                                  -----------              -----------
         TOTAL OPERATING EXPENSES                   1,865,059                2,240,329

LOSS FROM OPERATIONS                               (1,865,059)              (2,240,329)

OTHER INCOME

     Interest income                                   23,519                   21,800
                                                  -----------              -----------
         TOTAL OTHER INCOME                            23,519                   21,800
                                                  -----------              -----------
NET LOSS                                          $(1,841,540)             $(2,218,529)
                                                  ===========              ===========
BASIC AND DILUTED NET LOSS PER SHARE              $     (0.05)             $     (0.06)
                                                  ===========              ===========
SHARES USED TO COMPUTE BASIC AND
   DILUTED NET LOSS PER SHARE                      38,842,168               34,394,805
                                                  ===========              ===========
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>


                              MACROCHEM CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS
               For the three months ended March 31, 2005 and 2004
                                   (Unaudited)

                                                                 FOR THE THREE MONTHS ENDED MARCH 31,
                                                                 ------------------------------------
                                                                       2005                2004
                                                                   ------------        ------------
<S>                                                                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                      $ (1,841,540)       $ (2,218,529)
     Adjustments to reconcile net loss to net cash used by
       operating activities:
         Depreciation and amortization                                   39,496              38,264
         Stock-based compensation                                           ---              11,063
         401(k) contributions in company common stock                    15,610              17,493
         Deferred rent                                                   (5,509)             (5,505)
     Change in assets and liabilities:
         Prepaid expenses and other current assets                     (151,271)           (212,531)
         Accounts payable and accrued expenses                          102,748              59,568
         Deposits                                                           ---                 ---
                                                                   ------------        ------------
Net cash used in operating activities                                (1,840,466)         (2,310,177)
                                                                   ------------        ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Sales of short-term investments                                        ---           1,000,000
     Purchases of short-term investments                                 (6,384)             (4,701)
     Expenditures for property and equipment                            (14,526)             (2,166)
     Additions to patents                                                   ---                 ---
                                                                   ------------        ------------
Net cash (used in) provided by investing activities                     (20,910)            993,133
                                                                   ------------        ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from sale of common stock (net of offering costs)             ---           6,782,211
     Proceeds from exercise of warrants                                     ---             443,816
                                                                   ------------        ------------
Net cash provided by financing activities                                   ---           7,226,027
                                                                   ------------        ------------

Net change in cash and cash equivalents                              (1,861,376)          5,908,983
Cash and cash equivalents at beginning of period                      4,888,868           3,839,772
                                                                   ------------        ------------
Cash and cash equivalents at end of period                         $  3,027,492        $  9,748,755
                                                                   ============        ============
</TABLE>

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 AND OPERATIONS
     ------------------------------------

     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 condensed 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
     condensed 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, 2004.

     The Company has been engaged primarily in research and development since
     its inception in 1981 and has derived limited revenues from the commercial
     sale of its products, licensing of certain technology and feasibility
     studies. The Company has had no revenues relating to the sale of any
     products currently under development. The Company has incurred net losses
     every year since its inception and the Company anticipates that losses may
     continue for the foreseeable future. At March 31, 2005, the Company's
     accumulated deficit was approximately $78.7 million. The Company believes
     that its cash, cash equivalents and short-term investments of $4,219,282 at
     March 31, 2005 will be sufficient to fund operations under the Company's
     current plan into July 2005. Accordingly, the Company's funds on hand at
     March 31, 2005 are not sufficient to fund its operation through the end of
     fiscal 2005. As the Company's funds on hand at December 31, 2004 were also
     not sufficient to fund its operations through fiscal 2005, the audit report
     of the Company's independent registered public accounting firm on the
     Company's 2004 financial statements includes an explanatory paragraph
     regarding the Company's ability to continue as a going concern. The
     Company's ability to continue operations after its current capital
     resources are exhausted depends on its ability to obtain additional
     financing and achieve profitable operations, as to which no assurances can
     be given. The accompanying financial statements do not include any
     adjustments that might result from the outcome of this uncertainty.

     The Company's cash requirements may vary materially from those now planned
     because of changes in the focus and direction of its research and
     development programs, competitive and technical advances, patent
     developments or other developments. To continue to operate, the Company
     will require significant additional funding. The Company is assessing
     opportunities to raise capital and expects to continue financing operations
     through sales of securities, strategic alliances and other financing
     vehicles, if any, that might become available to the Company on terms that
     it deems acceptable. The Company cannot assure that sufficient funds will
     be available to the Company, if they are available at all, to enable the

                                        6
<PAGE>

     Company to continue to operate. The financial statements do not include any
     adjustments that might result from the outcome of this uncertainty.

     The results disclosed in the Statement of Operations for the three months
     ended March 31, 2005 are not necessarily indicative of the results to be
     expected for the full year.

(2)  STOCK BASED COMPENSATION
     ------------------------

     The Company applies the intrinsic value method of accounting for stock
     options and awards granted to employees. The Company accounts for stock
     options and awards to non-employees using the fair value method.

     Under the intrinsic value method, compensation associated with stock awards
     to employees is determined as the difference, if any, between the current
     fair value of the underlying common stock on the date compensation is
     measured and the price an employee must pay to exercise the award. The
     measurement date for employee awards is generally the date of grant. Under
     the fair value method, compensation associated with stock awards to
     non-employees is determined based on the estimated fair value of the award
     itself, measured using either current market data or an established option
     pricing model. The measurement date for non-employee awards is generally
     the date performance of services is complete.

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 123R, Share-Based Payment
     ("SFAS No. 123R"). This Statement is a revision of SFAS No. 123, Accounting
     for Stock-Based Compensation, and supersedes Accounting Principles Board
     Opinion No. 25, Accounting for Stock Issued to Employees, and its related
     implementation guidance. SFAS No. 123R focuses primarily on accounting for
     transactions in which an entity obtains employee services in share-based
     payment transactions. The Statement requires entities to recognize stock
     compensation expense for awards of equity instruments to employees based on
     the grant-date fair value of those awards (with limited exceptions). SFAS
     No. 123R is effective as of the beginning of the first fiscal year after
     December 15, 2005. The Company expects to adopt SFAS No. 123R using the
     Statement's modified prospective application method. The Company does not
     yet have an estimate of the effect on its statements of operations of
     adopting SFAS No. 123.

     The Company has used the intrinsic value method to account for stock-based
     compensation to employees and directors. The following table illustrates
     the effect on net loss and net loss per share assuming the Company had
     applied the fair value method to stock-based employee and director
     compensation:

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED MARCH 31,
                                                                               2005              2004
                                                                               ----              ----
     <S>                                                                   <C>               <C>
     Net loss as reported                                                  $(1,841,540)      $(2,218,529)

     Add: Stock-based employee compensation expense included
         in reported net loss                                                      ---             7,325

     Deduct: Total stock-based employee compensation measured using
         the fair value method                                                (298,805)         (247,197)
                                                                           -----------       -----------

     Pro forma net loss                                                    $(2,140,345)      $(2,458,401)
                                                                           ===========       ===========

     Basic and diluted net loss per share - as reported                    $     (0.05)      $     (0.06)
                                                                           ===========       ===========

     Basic and diluted net loss per share - pro forma                      $     (0.06)      $     (0.07)
                                                                           ===========       ===========
</TABLE>

     The fair value of options on their grant date was measured using the
     Black-Scholes option pricing model. Key assumptions used to apply this
     pricing model are as follows:

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED MARCH 31,
                                                                                   2005              2004
                                                                                   ----              ----

        <S>                                                                       <C>             <C>
        Risk-free interest rate                                                    4.25%          3.33%-4.53%
        Expected life of option grants                                            6 years           6 years
        Expected volatility of underlying stock                                     95%               97%
        Expected dividend payment rate, as a percentage of the stock
             price on the date of grant                                             ---               ---

</TABLE>

     The option pricing model used was designed to value readily tradable stock
     options with relatively short lives. The options granted to employees are
     not tradable and have contractual lives of up to ten years.

(3)  REVENUE RECOGNITION
     -------------------

     The Company's business seeks to generate revenues through the development,
     commercialization and licensing of drug products based upon the Company's
     intellectual property. Revenues derived or expected to be derived from the
     sale, assignment, transfer, or licensing of patents or other intellectual
     property are recognized over various periods based upon the terms of the
     relevant agreement. 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.

                                       8
<PAGE>
(4)  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 MARCH 31,
                                                                 2005             2004

     <S>                                                    <C>              <C>
     Numerator for basic and diluted loss per share:        $ (1,841,540)    $ (2,218,529)
                                                            =============    =============
        Net loss

     Denominator for basic and diluted loss per share:        38,842,168       34,394,805
                                                            =============    =============
        Weighted average shares outstanding

     Net loss per share - basic and diluted                 $      (0.05)    $      (0.06)
                                                            =============    =============
</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 three months ended March 31, 2005 and 2004 were 7,169,359 and
     6,022,611, respectively.

(5)  PATENTS
     -------

     On April 14, 2004, the Company announced that preliminary data from its
     Phase 2 pharmacodynamic study of Topiglan(R), a topical cream for erectile
     dysfunction, demonstrated that Topiglan did not meet the study's primary
     clinical endpoints. The Company has conducted a more complete review of the
     data and has no plans for further clinical studies of Topiglan at this
     time. Accordingly, the Company recorded a reduction of $124,853 to the
     carrying value of certain patent assets related to Topiglan in June 2004.

(6)  STOCKHOLDERS' EQUITY
     --------------------

     During the three months ended March 31, 2005, 620,748 options were granted
     and no options were exercised or cancelled under the 2001 Incentive Plan
     (the "Plan").

     Under the 1994 Equity Incentive Plan (the "1994 Plan"), no options were
     granted, exercised or cancelled during the three-month period ended March
     31, 2005.

     In October 2000, warrants to purchase common stock were issued in
     connection with a private placement to two institutional investors. The
     warrants issued allow for the purchase of an aggregate of 363,332
     shares of common stock at an exercise price of $5.90 per share for five
     years. As a result of subsequent financing transactions, the exercise price
     of these warrants has been adjusted to $4.43 in accordance with the terms
     of the warrants. Through March 31, 2005, none of these warrants had been
     exercised. The placement agent for this transaction received a warrant to
     purchase 108,999 shares of common stock at a purchase price of $7.43 for
     five years. As a result of subsequent financing transactions, the exercise
     price of these warrants has been adjusted to $5.47 in accordance with the
     terms of the warrants. As of March 31, 2005, 50,000 of these warrants had
     been exercised. None were exercised in the three months ended March 31,
     2005.

                                       9
<PAGE>
     In July 2001, the Company sold 1,566,047 shares of its common stock for
     approximately $10,148,000 in gross proceeds ($9,406,291 net of issuance
     costs) in a private placement to institutional investors. The investors in
     the July 2001 common stock transaction received warrants to purchase an
     aggregate of 313,209 shares of common stock at a purchase price of $8.995
     per share. As a result of subsequent financing transactions, the exercise
     price of these warrants has been adjusted to $6.61 in accordance with the
     terms of the warrants. 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 March 31, 2005, none of these warrants had been
     exercised.


     In September 2003, the Company sold 4,553,680 shares of its common stock
     for approximately $3,246,000 in gross proceeds ($2,971,505 net of issuance
     costs) in a private placement to primarily institutional investors. The
     investors in the September 2003 common stock transaction received warrants
     to purchase an aggregate of 910,736 shares of common stock at a purchase
     price of $1.173 per share for a period of three years. As of March 31,
     2005, 378,360 of these investor warrants had been exercised. The placement
     agent for this transaction received a warrant to purchase 150,000 shares of
     common stock at a purchase price of $1.173 for a period of three years. As
     of March 31, 2005, none of these placement agent warrants had been
     exercised.

     On March 9, 2004, the Company sold 5,402,000 shares of its common stock for
     $7,292,700 in gross proceeds ($6,681,274 net of issuance costs) in a
     private placement to institutional investors. The investors also received
     warrants to purchase an aggregate of 1,080,400 shares of common stock at a
     purchase price of $2.09 per share expiring five years from the closing
     date. As of March 31, 2005, none of these warrants had been exercised.

     On June 23, 2004, at the Company's Annual Meeting of Stockholders, the
     Company's stockholders approved amendments to the Company's 2001 Incentive
     Plan to increase the number of shares of Common Stock authorized for
     issuance under the Incentive Plan by an additional 4,000,000. The Company's
     stockholders also approved a Certificate of Amendment to the Company's
     Certificate of Incorporation, as amended, to increase the number of
     authorized shares of capital stock from 60,000,000 shares of Common Stock
     and 6,000,000 shares of Preferred Stock to 100,000,000 shares of Common
     Stock and 6,000,000 shares of Preferred Stock. On August 6, 2004, the
     Company filed the Certificate of Amendment to its Certificate of
     Incorporation with the Secretary of State of the State of Delaware.

(7)  COMPREHENSIVE LOSS
     ------------------

     Comprehensive loss is equal to the Company's net loss for the three months
     ended March 31, 2005 and 2004.

(8)  SUBSEQUENT EVENT
     ----------------

     On April 19, 2005, the Company completed a private placement of 2,731,705
     shares of common stock and five-year warrants to purchase 1,365,852 shares
     of the Company's common stock for approximately $815,000 in gross proceeds.
     The securities were sold in units, with each unit containing one share of
     common stock and a warrant to purchase one-half of a share of common stock.
     Institutional investors purchased 2,000,000 units at a purchase price per
     unit of $0.25, with the accompanying warrants of 1,000,000 shares having an
     exercise price of $0.35 per share. Certain of the Company's executive
     officers and directors purchased 731,705 units at a per unit purchase price
     of $0.4305, with the accompanying warrants of 365,852 shares having an
     exercise price of $0.52 per share. The Placement Agent for the transaction
     received a five-year warrant to purchase 50,000 shares of the Company's
     common stock at an exercise price of $0.35 per share.

                                       10
<PAGE>

     On April 19, 2005, the Company received written notice from Nasdaq granting
     the Company an additional 180 calendar day compliance period, or until
     October 13, 2005, to regain compliance with the Nasdaq SmallCap Market's
     $1.00 minimum bid price requirement in accordance with Marketplace Rule
     4310(c)(8)(D). As previously disclosed, Nasdaq notified the Company on
     October 18, 2004 that the bid price of the Company's common stock had
     closed below the minimum $1.00 per share over the previous 30 consecutive
     business days, and, as a result, did not comply with a requirement for
     continued inclusion in The Nasdaq SmallCap Market under Marketplace Rule
     4310(c)(4). In accordance with Marketplace Rule 4310(c)(8), the Company was
     provided 180 calendar days, or until April 18, 2005, to regain compliance.
     In order to regain compliance, the company must demonstrate a closing bid
     price for its common stock of $1.00 per share or more for a minimum of 10
     consecutive business days.

                                       11
<PAGE>

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

NOTE REGARDING FORWARD LOOKING STATEMENTS

     This report and the documents incorporated in this report by reference may
contain "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). These
statements may be identified by the use of forward-looking words or phrases such
as "anticipate," "believe," "could," "expect," "intend," "look forward," "may,"
"planned," "potential," "should," "will," and "would." These forward-looking
statements reflect our current expectations and are based upon currently
available data. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for such forward-looking statements. In order to comply with the
terms of the safe harbor, we note that a variety of factors could cause actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the forward-looking statements. These factors
include, but are not limited to: our history of operating losses and our need
for continued working capital; our need for significant additional product
development efforts and additional financing; technological uncertainty relating
to transdermal drug delivery systems; no assurance of our entering into license
or strategic arrangements; the early stage of development of our proposed
products; the lack of success of our prior development efforts; uncertainties
related to clinical trials of our proposed products; uncertainties relating to
government regulation and regulatory approvals; our dependence on third parties
for the FDA application process; uncertainties regarding market acceptance of
our product candidates; uncertainties regarding the potential health risks of
hormone replacement therapies; our ability to identify and obtain rights to
products or technologies in order to build our portfolio of product candidates;
our dependence on third parties for marketing and distribution; our reliance on
key employees; our limited personnel and our dependence on continued access to
scientific talent; uncertainties relating to competition, patents and
proprietary technology; our dependence on third parties for manufacturing;
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; volatility
of our stock price; and our ability to comply with the minimum listing
qualifications of The Nasdaq SmallCap Market. 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, 2004 and, in particular, the section entitled "Risk Factors".

     These or other events or circumstances could cause our actual performance
or financial results in future periods to differ materially from those expressed
in the forward-looking statements. We undertake no obligation to make any
revisions to the forward-looking statements contained in this report or the
documents incorporated by reference in this report, or to update the
forward-looking statements to reflect events or circumstances occurring after
the date of this report.

GENERAL
-------

     We are a specialty pharmaceutical company that develops and seeks to
commercialize topically delivered pharmaceutical products by employing SEPA
(Soft Enhancement of Percutaneous Absorption), our patented topical drug
delivery technology. SEPA enhances the efficiency and rate of diffusion of drugs
into and through the skin. SEPA, when properly combined with active


                                       12
<PAGE>

pharmaceutical ingredients, can provide for a variety of convenient and
easy-to-apply formulations, including creams, gels, ointments, lacquers and
solutions for the treatment of a variety of systemic and localized conditions.
Currently, we are developing investigational new drugs for the endocrinology,
urology, dermatology and podiatry specialties: Opterone(R), for the treatment of
testosterone deficiency, and EcoNail(TM), for fungal infections of the nails. We
believe that products incorporating SEPA may allow selected drugs to be
administered more effectively and with improved patient compliance compared to
alternative methods of drug administration, such as ingestion and injection.

     Since inception, we have been engaged primarily in research and
development. We have not generated any meaningful revenues from operations and
we have sustained significant operating losses. We anticipate that we will
continue to incur significant losses for the foreseeable future. We cannot
guarantee that we will be successful in commercializing our products, or that we
will ever become profitable. As of March 31, 2005, we had an accumulated deficit
of approximately $78.7 million. Our product candidates are in discovery or
developmental stages and must undergo a rigorous regulatory approval process,
which includes costly and extensive pre-clinical and clinical testing, to
demonstrate safety and efficacy before we can market any resulting product. To
date, neither the FDA nor any of its international equivalents has approved any
of our product candidates for marketing.

     Our results of operations can vary significantly from year to year and
quarter to quarter, and depend, among other factors, on:

     o  the progress of clinical trials we conduct;

     o  the degree of our research, marketing and administrative efforts;

     o  the development, when appropriate, of our own sales and marketing
        capabilities;

     o  the signing of licenses and product development agreements;

     o  the timing of revenues recognized pursuant to license agreements; and

     o  the achievement of milestones by licensees.

The timing of our revenues may not match the timing of our associated product
development expenses. To date, our research and development expenses generally
have exceeded our revenues in any particular period or fiscal year.

     Assuming we are able to raise sufficient capital, we expect to continue to
spend significant amounts on developing and seeking regulatory approval of
Opterone and EcoNail. Ultimately, if we receive regulatory approval for Opterone
and EcoNail, we will incur significant expenses in connection with their
commercialization. In addition, we also plan to identify and develop, either
internally or through collaborative arrangements, additional product candidates
and technologies that complement our existing technologies and that fit within
our growth strategy. If we identify potential product candidates, we will incur
additional costs in connection with testing and seeking regulatory approval of
those product candidates.

                                       13
<PAGE>

     We believe that our existing cash and cash equivalents will be sufficient
to meet our operating expenses and capital expenditure requirements into July
2005. We are currently in the process of trying to secure additional capital.
Our current funds on hand are not sufficient to allow us to fund our operations
through the end of fiscal 2005. As our funds on hand at December 31, 2004 were
also not sufficient to fund our operations through fiscal 2005, the audit report
of our independent registered public accounting firm on our 2004 financial
statements includes an explanatory paragraph regarding our ability to continue
as a going concern. Our ability to continue operations after our current capital
resources are exhausted depends on our ability to obtain additional financing
and achieve profitable operations. We cannot assure you that sufficient funds
will be available to us, if they are available at all, to enable us to continue
to operate. As well, we will need to obtain stockholder approval for any
issuance of additional equity securities at a price less than the greater of
book or market value that would comprise more than 20 percent of the Company's
total shares of common stock outstanding at such time. The Company cannot assure
you that it will be successful in obtaining any required stockholder approval.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of:

     o  salaries and expenses for our research and development personnel;

     o  payments to consultants, investigators, contract research organizations
        and manufacturers in connection with our pre-clinical and clinical
        trials;

     o  costs associated with conducting our clinical trials;

     o  costs of developing and obtaining regulatory approvals; and

     o  allocable costs, including occupancy and depreciation.

     Because a significant portion of our research and development expenses
(including employee payroll and related benefits, laboratory supplies, travel,
dues and subscriptions, temporary help costs, consulting costs and allocable
costs such as occupancy and depreciation) benefit multiple projects or our drug
delivery technologies in general, we do not track these expenses by project. For
the three months ended March 31, 2005, we spent $1,030,061 on research and
development, including $258,940 and $172,469 in costs associated with clinical
trials for Opterone and EcoNail, respectively, and $598,652 in costs not
specifically tracked to a particular project. For the three months ended March
31, 2004, we spent $1,320,946 on research and development, including $348,198
and $215,199, and $92,314 in costs associated with clinical trials related to
Topiglan and Opterone, and EcoNail, respectively, and $665,235 in costs not
specifically tracked to a particular project. Assuming we are able to raise
sufficient capital, we expect to continue to spend significant amounts on
clinical trials for Opterone and EcoNail.

     Each of our research and development programs is subject to risks and
uncertainties, including the requirement to seek regulatory approval, that are
outside of our control. Moreover, the product candidates identified in these
research and development programs, which currently are in developmental stages,
must overcome significant technological, manufacturing and marketing challenges
before they can be successfully commercialized. As a result of these risks and
uncertainties, we are unable to predict with any certainty the period in which

                                       14
<PAGE>
material net cash inflows from these projects could be expected to commence or
the completion date of these programs. In addition, these risks and
uncertainties also prevent us from estimating with any certainty the specific
timing and future costs of our clinical development programs, although
historical trends at similarly situated companies indicate that research and
development expenses tend to increase in later stages of clinical development.
Our failure to obtain requisite governmental approvals timely or at all will
delay or preclude us from licensing or marketing our products or limit the
commercial use of our products, which could adversely affect our business,
financial condition and results of operations.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses consist primarily of salaries and other related costs
for personnel, marketing and promotion, professional fees and facilities costs.
We anticipate that marketing, general and administrative expenses will increase
over the next several years as we begin, when appropriate, to develop our own
sales and marketing capabilities to market our product candidates following
their regulatory approval.

CRITICAL ACCOUNTING POLICIES
----------------------------

     Our discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. Note 1 to our financial statements included within our
Form 10-K for the year ended December 31, 2004 includes a summary of the
significant accounting policies and methods we use in the preparation of our
financial statements. The following is a brief discussion of the more
significant accounting policies and methods that affect the judgments and
estimates used in the preparation of our financial statements.

     RESEARCH AND DEVELOPMENT. Generally, we recognize research and development
funding as revenue at the time the research and development activities are
performed under the terms of the related agreements, when the counterparty is
obligated to pay, and when no future performance obligation exists. We make
estimates of the status of performance with respect to research and development
contracts. In the past, we have found such estimates to be sufficiently accurate
for revenue recognition purposes. We bill research and development revenue on a
cost reimbursement basis, which includes direct costs we incur in connection
with research activities and an allocation of certain other costs we incur.

     PATENT ASSETS. We defer costs and expenses incurred in connection with
pending patent applications. We amortize costs related to successful patent
applications over the estimated useful lives of the patents using the
straight-line method. We charge accumulated patent costs and deferred patent
application costs related to patents that are considered to have limited future
value to operations. Estimates we use to determine the future value of deferred
patent costs include analysis of potential market size, time and cost to
complete clinical trials, anticipated interest in our products and potential
value for licensing or partnering opportunities. We recognize revenues derived
or expected to be derived from the sale, assignment, transfer, or licensing of
patents or other intellectual property over various periods based upon the terms
of the relevant agreement.

                                       15
<PAGE>

RESULTS OF OPERATIONS
---------------------

     We had no revenues for the three month periods ended March 31, 2005 and
March 31, 2004.

     For the three-month period ended March 31, 2005, research and development
expenses decreased by $290,885, or 22%, to $1,030,061 from $1,320,946 in the
three-month period ended March 31, 2004. The decrease is primarily attributable
to a decrease of $226,652 spent on clinical trials and other miscellaneous
savings of approximately $65,000 in the three-month period ended March 31, 2005
compared with the same three-month period of 2004. The level of research and
development expenses is highly dependent on the timing and extent of new and
ongoing research performed in our in-house laboratories as well as outside
contract laboratories. For each of the next three quarters, assuming we are able
to raise sufficient capital, we expect research and development spending to
approximate the same level seen in the first quarter of 2005 as we continue
clinical trials for both EcoNail and Opterone.

     For the three-month period ended March 31, 2005, marketing, general and
administrative expenses decreased by $84,385, or 9%, to $834,998 from $919,383
in the three-month period ended March 31, 2004. The decrease is primarily
attributable to an decrease of $43,900 in consulting fees relating to investor
relations and business development, a decrease in travel expenses of $26,500, a
reduction of insurance premiums of $23,503 and a reduction of other expenses of
$21,506 during the three months ended March 31, 2005 compared with the same
three-month period of 2004. For each of the next three quarters, assuming we
are able to raise sufficient capital, we expect marketing, general and
administrative spending to approximate the same level as seen in the first
quarter of 2005.

     Other income increased by $1,719, or 8%, to $23,519 in the three-month
period ended March 31, 2005 from $21,800 in the three-month period ended March
31, 2004. The increase is due to higher interest rate returns available for cash
that is invested.

     For the reasons described above, net loss decreased by $376,989, or 17%, to
$1,841,540 in the three-month period ended March 31, 2005 from $2,218,529 in
the three-month period ended March 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     Our current funds on hand are not sufficient to fund our operations through
the end of fiscal 2005. Because our funds on hand at December 31, 2004 were also
not sufficient to fund our operations through the end of fiscal 2005, the audit
report of our independent registered public accounting firm on our 2004
financial statements includes an explanatory paragraph concerning our ability to
continue as a going concern. Our ability to continue operations after our
current capital resources are exhausted depends on our ability to obtain
additional financing and achieve profitable operations. We are currently in the
process of trying to secure additional capital. We cannot assure you that
sufficient funds will be available to us, if they are available at all, to
enable us to continue to operate. As well, we will need to obtain stockholder
approval for any issuance of additional equity securities that would comprise
more than 20 percent of the Company's total shares of common stock outstanding
at such time. The Company cannot assure you that it will be successful in
obtaining any required stockholder approval.

                                       16
<PAGE>

     Since inception, our primary source of funding for our operations has been
the private and public sale of our securities, and, to a lesser extent, the
licensing of our proprietary technology and products, research collaborations,
feasibility studies, government grants and the limited sales of products and
test materials. During the first three months of 2005, we received no proceeds
from the exercise of options and warrants. During the first three months of
2004, we received net proceeds from the exercise of warrants of $443,816 and
proceeds of $6,681,275 (net of issuance costs) as a result of the sale of our
common stock in a private placement transaction.

     At March 31, 2005, working capital was approximately $3.8 million, compared
to $5.6 million at December 31, 2004. The decrease in our working capital
reflects the use of funds in operations. On April 19, 2005, the Company sold
2,731,705 shares of its common stock for gross proceeds of $815,000 in a private
placement to institutional investors and to certain executive officers and
directors of the Company. The institutional investors also received five year
warrants to purchase an aggregate of 1,000,000 shares of common stock at a
purchase price of $0.35 per share and the participating executive officers and
directors of the Company received warrants to purchase an aggregate of 365,852
shares of common stock at a purchase price of $0.52. Until such time as we
obtain agreements with third-party licensees or partners to provide funding for
our anticipated business activities, or otherwise generate revenue from the
commercialization of our products, our working capital will be utilized to fund
our operating activities.

     Pursuant to a plan approved by our Board of Directors in 1998, we are
authorized to repurchase 1,000,000 shares of our common stock to be held as
treasury shares for future use. During the three month period ended March 31,
2005, we did not repurchase any shares of common stock. At March 31, 2005,
repurchased shares remain available for future use and 679,587 shares remain
available for repurchase under the plan.

     Capital expenditures were $14,526 for the first three months of 2005. We
anticipate additional capital and patent expenditures will be approximately
$85,000 for the remainder of the fiscal year ending December 31, 2005, provided
that the Company is able to secure additional financing.

     On July 10, 2003, the Board of Directors approved retention payments for
certain key employees, including certain executive officers, in order to enhance
retention of those employees. Payments of approximately $80,000 were paid on
January 8, 2004 and payments of approximately $153,000 were paid on July 2,
2004.

                                       17
<PAGE>

     As of March 31, 2005, we had $4,219,282 in cash, cash equivalents and
short-term investments. We believe that our existing cash, cash equivalents and
short-term investments will be sufficient to meet our current operating plan and
capital expenditure requirements into July 2005. Our cash requirements may vary
materially from those now planned because of changes in the focus and direction
of our research and development programs, competitive and technical advances,
patent developments or other developments. We will require additional financing
to continue operations after our current capital resources are exhausted and to
continue our long-term plans for clinical trials and new product development. We
are assessing opportunities to raise capital and expect to continue financing
our operations through sales of securities, strategic alliances or other
financing vehicles, if any, that might become available to us on terms that we
deem acceptable.

     We do not enter into financial instrument transactions for trading or
speculative purposes. We do not intend to establish any special purpose entity
and do not have any material off balance sheet financing transactions. We do not
believe that inflation has or will have any significant effect on the results of
our operations.

     The following summarizes our contractual obligations at December 31, 2004,
and the effect that such obligations are expected to have on future cash flows
and liquidity:

<TABLE>
<CAPTION>
                                                                                  DUE IN
                                                            ---------------------------------------------------
                                                            1 YEAR OR                                5 YEARS OR
Obligations:                                TOTAL AMOUNT      LESS        1-3 YEARS     3-5 YEARS       MORE
                                            ------------    ---------     ---------     ---------    ----------
<S>                                         <C>             <C>           <C>           <C>          <C>
Lease commitment (through August 2005)...   $    313,600    $  313,600    $      --     $      --    $       --
Employment agreements (per year).......        1,085,200     1,085,200           --            --            --
                                            ------------    ----------    ---------     ---------    ----------
Total contractual cash obligations...       $  1,398,800    $1,398,800    $      --     $      --    $       --
                                            ============    ==========    =========     =========    ==========
</TABLE>

     We excluded from the above contractual obligation summary clinical trial
contracts that may approximate $1,200,000 in 2005. These contracts range in
duration from six (6) weeks to five (5) months and we may terminate the
contracts at our discretion.

     On October 18, 2004, we received written notice from Nasdaq that the bid
price of our common stock had closed below $1.00 for the prior 30 consecutive
business days. In accordance with Marketplace Rule 4310(c)(8), we had 180
calendar days, or until April 18, 2005, to regain compliance with this
requirement. In order to regain compliance, we had to demonstrate a closing bid
price for our common stock of $1.00 per share or more for a minimum of 10
consecutive business days. We were unable to regain compliance with the $1.00
minimum bid price requirement by April 18, 2005, but Nasdaq granted us an
additional 180 calendar days, or until October 13, 2005, to regain compliance
with the Nasdaq SmallCap Market's $1.00 minimum bid price requirement in
accordance with Marketplace Rule 4310(c)(8)(D). If we cannot regain compliance
with the $1.00 minimum bid price requirement by the end of this second 180 day
compliance period, our common stock may be delisted from trading on The Nasdaq
SmallCap Market.

                                       18
<PAGE>

     We cannot give any assurance that we will be able to regain compliance with
Nasdaq's present listing standards, including the minimum bid price of $1.00. If
our common stock were delisted from The Nasdaq SmallCap Market, it may become
eligible immediately thereafter for quotation on the Over-The-Counter Market on
the NASD Electronic Bulletin Board or in the "pink sheets" maintained by the
National Quotation Bureau, Inc., which are generally considered to be less
efficient systems than markets such as Nasdaq or other national exchanges.
Further, for companies whose securities are traded on the Over-The-Counter
Market, it is more difficult to obtain accurate quotations, to obtain coverage
for significant news events because major wire services, including the Dow Jones
News Service, generally do not publish press releases about these companies, and
to obtain needed capital.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     As of March 31, 2005, we are exposed to market risks which relate primarily
to changes in U.S. interest rates. Our 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 one year or less, changes in interest rates would not
have a material effect upon our 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 months ended March 31, 2005.

ITEM 4.   CONTROL AND PROCEDURES

     As of the end of the period covered by this report, we carried out a
review, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in the SEC
rules promulgated under the Securities Exchange Act of 1934, as amended), which
are designed to ensure that information required to be disclosed in our
Securities and Exchange Commission reports is properly and timely recorded,
processed, summarized and reported. Based upon that review, our Chief Executive
Officer and Chief Financial Officer concluded that these controls and procedures
are operating in an effective manner as of March 31, 2005.

     There were no changes in our internal control over financial reporting that
occurred during the quarter ended March 31, 2005 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

                                       19
<PAGE>

PART II - OTHER INFORMATION


ITEM 6.   EXHIBITS.

The following is a list of exhibits to this Quarterly Report on Form 10-Q:

     3.1  Certificate of Incorporation as amended, incorporated by reference to
     Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
     ended June 30, 2004 (File No. 0-13634).

     3.2  Amended and Restated By-Laws of the Company, incorporated by reference
     to Exhibit 5 to the Company's Current Report on Form 8-K dated August 13,
     1999 (File No. 0-13634).

     31.1 Certification of Principal Executive Officer Pursuant to Section 302
     of the Sarbanes-Oxley Act of 2002.

     31.2 Certification of Principal Financial Officer Pursuant to Section 302
     of the Sarbanes-Oxley Act of 2002.

     32.1 Certification of Principal Executive Officer Pursuant to Section 1350,
     Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section
     906 of the Sarbanes-Oxley Act of 2002.

     32.2 Certification of Principal Financial Officer Pursuant to Section 1350,
     Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section
     906 of the Sarbanes-Oxley Act of 2002.


                                       20
<PAGE>

                                   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)



May 13, 2005               /S/  ROBERT J. DELUCCIA
                           --------------------------------------------------
                           Robert J. DeLuccia
                           President and Chief Executive Officer
                           (Principal Executive Officer)

                           /S/  BERNARD R. PATRIACCA
                           --------------------------------------------------
                           Bernard R. Patriacca
                           Vice President, Chief Financial Officer and Treasurer
                           (Principal Financial Officer)


                                       21
<PAGE>

                                  EXHIBIT INDEX


The following is a list of exhibits to this Quarterly Report on Form 10-Q:

     3.1  Certificate of Incorporation as amended, incorporated by reference to
     Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
     ended June 30, 2004 (File No. 0-13634).

     3.2  Amended and Restated By-Laws of the Company, incorporated by reference
     to Exhibit 5 to the Company's Current Report on Form 8-K dated August 13,
     1999 (File No. 0-13634).

     31.1 Certification of Principal Executive Officer Pursuant to Section 302
     of the Sarbanes-Oxley Act of 2002.

     31.2 Certification of Principal Financial Officer Pursuant to Section 302
     of the Sarbanes-Oxley Act of 2002.

     32.1 Certification of Principal Executive Officer Pursuant to Section 1350,
     Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section
     906 of the Sarbanes-Oxley Act of 2002.

     32.2 Certification of Principal Financial Officer Pursuant to Section 1350,
     Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section
     906 of the Sarbanes-Oxley Act of 2002.

                                       22