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 Quarter Ended September 30, 1996
                                       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 of Organization)                              (I.R.S.Employer
                                                   Identification Number)



              110 Hartwell Avenue, Lexington, Massachusetts, 02173
              ----------------------------------------------------
               (Address of principal executive offices, Zip Code)

                                 (617) 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 and (2) has been  subject to such  filing
requirements for the past 90 days.

Yes __X__   No ____



         As of October 31, 1996,  there were 15,526,524  shares of Common Stock,
$.01 par value per share, of the Registrant outstanding.


<PAGE>


                              MACROCHEM CORPORATION

                                      INDEX

                                                                    Page Number
                                                                    -----------

Part I        Financial Information                           

Item I        Financial Statements (Unaudited)

                  Balance Sheets
                  September 30, 1996 and December 31, 1995              3 - 4

                  Statements of Operations
                  Three Months and Nine Months Ended 
                  September 30, 1996 and 1995                             5

                  Statements of Cash Flows
                  Nine Months Ended September 30, 1996 and 1995         6 - 7

                  Notes to Financial Statements                           8

Item 2        Management's Discussion and Analysis of
              Financial Condition and Results of Operations            9 - 10




<PAGE>


                              MACROCHEM CORPORATION
                           BALANCE SHEETS (UNAUDITED)

                                     ASSETS
                                     ------

                                                  September  30,   December  31,
                                                      1996            1995
                                                      ----            ----

CURRENT ASSETS

     Cash and cash equivalents                     $ 5,241,267      $ 3,591,779
     Accounts receivable                                   ---              ---
     Marketable securities                           2,200,760          971,492
     Certificates of deposit                           393,555          287,000
     Prepaid expenses and other current assets         103,850          112,291
                                                    -----------      -----------

           TOTAL CURRENT ASSETS                      7,939,432        4,962,562
                                                    ----------        ---------

PROPERTY AND EQUIPMENT, net of
     accumulated depreciation:
        1996 - $445,839; 1995 - $374,300               333,616          307,390
                                                    ----------       ----------

OTHER ASSETS

     Patents, net of accumulated amortization:
        1996 - $35,423; 1995 - $28,320                 219,289          188,213
     Deposits                                            4,460            4,460
                                                   -----------     ------------

           TOTAL OTHER ASSETS                          223,749          192,673
                                                    ----------       ----------




TOTAL ASSETS                                       $ 8,496,797      $ 5,462,625
                                                     =========        =========



                                                                     (Continued)


<PAGE>


                              MACROCHEM CORPORATION
                           BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------


                                                   September 30,    December 31,
                                                       1996           1995
                                                       ----           ----

CURRENT LIABILITIES

     Current portion of capital
       lease obligations                           $    39,192    $    36,616
     Accounts payable and accrued expenses             252,458        290,345
     Accrued compensation to stockholder/officer        47,050         97,050
     Deferred rent                                       2,496          5,928
                                                   -----------    -----------

          TOTAL CURRENT LIABILITIES                    341,196        429,939
                                                   -----------    -----------

LONG-TERM LIABILITIES

     Deferred rent, non-current portion                    ---          1,014
     Capital lease - long term                          26,910         55,245
                                                   -----------    -----------

          TOTAL LONG-TERM LIABILITIES                   26,910         56,259
                                                   -----------    -----------

          TOTAL LIABILITIES                            368,106        486,198
                                                   -----------    -----------

STOCKHOLDERS' EQUITY

     Common stock,  issued and  outstanding,  
       15,526,524  shares and  13,129,321
       shares at September 30, 1996 and 
       December 31, 1995, respectively                 155,265        131,293
     Additional paid-in capital                     24,974,192     19,801,473
     Accumulated deficit                           (17,000,766)   (14,956,339)
                                                   -----------    -----------

           TOTAL STOCKHOLDERS' EQUITY                8,128,691      4,976,427
                                                   -----------    -----------

           TOTAL LIABILITIES AND STOCKHOLDERS'
                EQUITY                            $  8,496,797   $  5,462,625
                                                   ===========    ===========






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



                                                                    (Concluded)


<PAGE>


                              MACROCHEM CORPORATION
                      STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                             For the three months          For the nine months
                                              ended September 30,          ended September 30,
                                              -------------------          -------------------
                                              1996          1995          1996            1995
                                              ----          ----          ----            ----
<S>                                       <C>            <C>           <C>            <C>    
REVENUES

    Product sales and royalty income      $    2,904     $      108    $     2,904    $       108
    Research contracts                           ---            ---         82,905         15,150
                                          ----------     ----------    -----------    -----------

          TOTAL                                2,904            108         85,809         15,258
                                          ----------     ----------    -----------    -----------

OPERATING EXPENSES

    Marketing, general and
      administrative                         269,323        319,775      1,092,118      1,014,635
    Research and development                 383,120        328,940      1,277,541        796,506
    Consulting fees with related
      parties                                  3,000          9,000         15,000         27,000
                                          ----------     ----------    -----------    -----------

          TOTAL OPERATING EXPENSES           655,443        657,715      2,384,659      1,838,141
                                          ----------     ----------    -----------    -----------

          LOSS FROM OPERATIONS            (  652,539)    (  657,607)    (2,298,850)   ( 1,822,883)
                                          ----------     ----------    -----------    -----------

OTHER INCOME (EXPENSE)

    Interest income                           67,487         68,036        263,995        183,150
    Interest expense                      (    1,196)    (    1,313)    (    9,568)   (     3,666)
    Other                                 (        1)    (      313)    (        4)   (        48)
                                          ----------     ----------    -----------    -----------

          TOTAL OTHER INCOME (EXPENSE)        66,290         66,410        254,423        179,436
                                          ----------     ----------    -----------    -----------

          NET LOSS                        $( 586,249)    $( 591,197)   $(2,044,427)   $(1,643,447)
                                          ----------     ----------    -----------    -----------

NET LOSS PER SHARE                        $(     .04)    $(     .05)   $(      .14)   $(      .14)
                                          ----------     ----------    -----------    -----------

WEIGHTED AVERAGE NUMBER OF
    COMMON SHARES OUTSTANDING             15,522,218     12,709,683     15,134,688     12,093,045
                                          ==========     ==========    ===========    ===========
</TABLE>



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



<PAGE>


                              MACROCHEM CORPORATION
                      STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                   For the nine months ended September 30,
                                                  ---------------------------------------
                                                           1996               1995
                                                           ----               ----
<S>                                                    <C>               <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                               $(2,044,427)      $(1,643,447)
                                                         ---------         ---------
Adjustments to reconcile net loss to net
    cash used by operating activities:
    Depreciation and amortization                           78,642            57,692
    Abandoned patent costs                                     ---            20,703
    Amortization of discounts on
      marketable securities                             (   62,336)       (  134,589)
    Gain on sale of equipment                                  ---        (    3,925)
    Stock option compensation                               21,220               ---
Increase (decrease) in cash from:
    Accounts receivable                                        ---               ---
    Prepaid expenses and other current assets                8,441        (    9,742)
    Accounts payable                                    (   37,887)           23,422
    Accrued compensation                                (   50,000)       (    4,202)
      Deferred rent                                     (    4,446)       (    4,446)
      Increase in other assets                                 ---        (    6,753)
                                                         ---------         ---------
         Total adjustments                              (   46,366)       (   61,840)
                                                         ---------         ---------

         NET CASH USED BY OPERATING ACTIVITIES          (2,090,793)       (1,705,287)
                                                         ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchases of marketable securities and 
      certificates of deposit                           (6,478,487)       (3,489,800)
    Proceeds from maturities of marketable 
      securities and certificates of deposit             5,205,000         5,259,000
    Expenditures for property and equipment             (   97,765)       (   50,521)
    Proceeds from sale of equipment                            ---             4,800
    Additions to patents                                (   38,179)              ---
                                                         ---------         ---------

         NET CASH USED FOR INVESTING ACTIVITIES         (1,409,431)        1,723,479
                                                         ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from issuance of common stock, net                ---         2,227,000
    Principal payments on capital lease                 (   25,759)       (   12,202)
    Proceeds from exercise of common stock options         424,157           533,270
    Proceeds from exercise of common stock warrants      2,170,064            90,000
    Proceeds from exercise of unit purchase options      2,581,250               ---
                                                         ---------         ---------
         NET CASH PROVIDED BY FINANCING ACTIVITIES       5,149,712         2,838,068
                                                         ---------         ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                1,649,488         2,856,260

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           3,591,779           585,458
                                                         ---------         ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD               $ 5,241,267       $ 3,441,718
                                                         =========         =========
</TABLE>

The accompanying notes are an integral part of these unaudited financial 
statements.                                                          (Continued)
<PAGE>

                              MACROCHEM CORPORATION
                      STATEMENTS OF CASH FLOWS (Continued)



SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

    During the nine months ended September 30, 1996 and 1995, cash paid for 
    interest was $9,568 and $3,666, respectively.  The Company did not pay any 
    income taxes during these periods.










































The  accompanying  notes are an integral part of these unaudited financial 
statements.
                                                                     (Concluded)
<PAGE>

                              MACROCHEM CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1)   As permitted by the rules of the  Securities and Exchange  Commission  (the
     "Commission") applicable to quarterly reports on Form 10-Q, these notes are
     condensed and do not contain all disclosures required by generally accepted
     accounting principles. Reference should be made to the financial statements
     and related notes included in the Company's  Annual Report on Form 10-K for
     the year ended December 31, 1995.

     In the opinion of management  of the Company,  the  accompanying  financial
     statements  reflect all adjustments which were of a normal recurring nature
     necessary  for a fair  presentation  of the Company's  financial  position,
     results of  operations  and cash flows for the three and nine months  ended
     September  30, 1996 and 1995. 

     The results  disclosed in the  Statements of  Operations  for the three and
     nine months ended September 30, 1996 are not necessarily  indicative of the
     results to be expected for the full year.

(2)  Research and development costs are charged to operations as incurred.  Such
     costs include proprietary research and development  activities and expenses
     associated  with research and development  contracts.  In 1996, the Company
     changed its  definition  of  operating  expenses to more  properly  reflect
     personnel  efforts  and other  resources.  This  change  affected  the 1995
     operating  expense  presentation  by  decreasing  research and  development
     expenses and increasing  general and  administrative  expenses from amounts
     previously  reported by  approximately  $104,000  for the nine months ended
     September  30, 1995 and  approximately  $34,000 for the three  months ended
     September 30, 1995.
        
(3)  In October 1995, the Financial  Accounting Standards Board issued Statement
     of  Financial   Accounting   Standards  (SFAS)  No.  123,  "Accounting  for
     Stock-Based  Compensation,"  which was effective for the Company  beginning
     January 1, 1996. SFAS No. 123 requires expanded  disclosures of stock-based
     compensation  arrangements  with  employees  and  encourages  (but does not
     require) compensation cost to be measured based on fair value of the equity
     instrument awarded. Companies are permitted,  however, to continue to apply
     APB  Opinion  No.  25,  which  recognizes  compensation  cost  based on the
     intrinsic value of the equity instrument awarded. The Company will continue
     to apply APB  Opinion  No.  25 to its  stock-based  compensation  awards to
     employees and will disclose the required pro forma effect on net income and
     earnings per share in the Company's Annual Report on Form 10-K for the year
     ending December 31, 1996.
         
(4)  Effective  January 1, 1996, the Company  adopted SFAS No. 121,  "Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be
     Disposed  Of." This  statement  establishes  accounting  standards  for the
     impairment of  long-lived  assets,  certain  identifiable  intangibles  and
     goodwill  related  to those  assets to be held and used and for  long-lived
     assets and certain  identifiable  intangibles  which are to be disposed of.
     The adoption of this statement had no effect on the financial position,  or
     results of operations or cash flows of the Company.

(5)  Research  contract  revenues  related  to the  Company's  proprietary  SEPA
     technology  are  recognized  upon  completion  of the  contract  due to the
     uncertainty of contract completion.
<PAGE>


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

GENERAL

       MacroChem's primary business is the development and  commercialization of
transdermal drug delivery compounds and systems designed to promote the delivery
of drugs from the surface of the skin into the skin tissues and bloodstream. The
Company currently derives no significant  revenue from product sales,  royalties
or license fees. The Company plans to develop specific SEPA(R)  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  limited
clinical testing of certain SEPA-enhanced drugs.

       The Company's results of operations 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 and
the progress of clinical trials conducted by the licensees and the Company.  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

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1995

       During the three months ended  September 30, 1996 and September 30, 1995,
the Company had no significant revenues.

       Marketing,  general and administrative  expenses decreased  approximately
$50,000 (16%) over the comparable 1995 period due primarily to lower legal fees.
This decrease was partially offset by increased employee additions.

       Research and development costs in the 1996 period increased approximately
$54,000  (16%) over the  comparable  1995  period  due  primarily  to  increased
employee  additions  partially offset by reduced  contract  spending to test and
evaluate the Company's potential products.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995

       Total  revenue  for  the  nine  months  ended   September  30,  1996  was
approximately  $86,000 compared to approximately  $15,000 for the same period in
1995. This increase is due primarily to two research contracts  completed in the
second quarter of 1996.

       Marketing,  general and administrative  expenses increased  approximately
$77,000 (8%) over the comparable 1995 period due primarily to increased employee
additions, and increased investment banking fees. These increases were partially
offset by reduced legal and accounting fees.

       Research and  development  costs increased  approximately  $481,000 (60%)
over the comparable  1995 period due primarily to increased  employee  additions
and increased efforts to test and evaluate the Company's  potential  products by
increased clinical investigation efforts and technical consulting.

       Other income increased  approximately  $75,000,  resulting primarily from
interest income earned on increased cash and short term investments.






<PAGE>


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,  government grants
and research contracts.

       As  of  September   30,  1996,   the  Company  had  working   capital  of
approximately  $7.6 million  compared to $4.5 million at December 31, 1995.  The
increase in working capital during the nine month period results  primarily from
the receipt of  approximately  $5.2 million  from the exercise of unit  purchase
options and of options  and  warrants to  purchase  common  stock.  Cash used in
operations for the nine months ended September 30, 1996 was  approximately  $2.1
million.

       The Company must rely on equity financing to fund operations, development
costs, and to obtain regulatory approvals and the manufacturing and marketing of
its products.

       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  funds  through  private or public
sale of its securities, the Company's working capital is expected to decline.

       The Company's long term financial  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  early clinical
testing  of  SEPA-enhanced  compounds,  proprietary  manufacturing  methods  and
advanced  technologies,  and the ability of the Company to manufacture  products
under those  agreements,  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 will 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, or obtain them on terms favorable to the Company. The Company's inability
to raise  such  sufficient  funds  could  require  it to  delay,  scale  back or
eliminate certain research and development programs.

       The Company anticipates  additional capital expenditures of approximately
$30,000 during the remainder of the fiscal year ending December 31, 1996.

       The  Company  believes  that its  existing  cash,  cash  equivalents  and
marketable  securities will be sufficient to meet its current operating expenses
and capital  expenditure  requirements  for a period of at least the next twelve
months.

       The foregoing statements include forward-looking statements which involve
risks and  uncertainties.  The Company's actual experience may differ materially
from that discussed above.  Factors that might cause such a difference  include,
but are not limited to, those discussed in this report. Reference should be made
to the Company's Annual Report on Form 10-K for the year ended December 31, 1995
and, in particular, the section entitled "Risk Factors".



<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)


November 14, 1996                                /s/Alvin J. Karloff
                                                 -------------------
                                                 Alvin J. Karloff
                                                 Chief Executive Officer and
                                                 Principal Financial Officer
<PAGE>