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The purpose of the present investigation is to formulate liposomes of Lornoxicam for topical delivery using Central Composite Design, to provide a sustained release of the drug and thereby extend its elimination half-life. Liposomes were prepared by thin film hydration method with pH induced vesiculation. The liposomes were assessed for their particle size, charge, morphology and drug entrapment and characterized using TGA-DSC and FTIR analysis, to assess the interaction between the drug and excipients. The in vitro release study was performed using modified USP dissolution apparatus-I using three different dissolution media and the ex vivo release study was performed using goat skin. The cytotoxicity of Lornoxicam liposomes were studied on NIH 3T3 cells by MTT assay. The optimized formulation with particle size ranging from 100–200 nm provided sustained release for 8 h. The characterization studies proved very less interactions between the drug and the excipients. The ex vivo studies showed flux value of 23.29 μg/cm2/h and Kp 0.011645 cm/h. The cytotoxicity study showed increase in toxicity with increase in concentration more than 0.5 μg/mL. The in vivo skin toxicity studies and histopathology analysis showed absence of toxic lesions, which confirmed the suitability of the formulation for topical application. Lornoxicam liposomes with good skin permeation and sustained release of drug were finally optimized by the experimental design.