<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2000.


                                                      REGISTRATION NO. 333-44396

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                AMENDMENT NO. 1



                                       TO


                                    FORM S-3
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                                 NEOPHARM, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                             <C>                          <C>
           DELAWARE                        8731                    51-0327886
 (State or other jurisdiction        (Primary Standard          (I.R.S. Employer
              of                        Industrial           Identification Number)
incorporation or organization)  Classification Code Number)
</TABLE>

                           --------------------------

                         100 CORPORATE NORTH SUITE 215
                          BANNOCKBURN, ILLINOIS 60015
                                 (847) 295-8678
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                           --------------------------

                                JAMES M. HUSSEY
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                 NEOPHARM, INC.
                         100 CORPORATE NORTH SUITE 215
                          BANNOCKBURN, ILLINOIS 60015
                                 (847) 295-8678
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                           --------------------------

                                   COPIES TO:

<TABLE>
<S>                                           <C>
       CHRISTOPHER R. MANNING, ESQ.                       RODD M. SCHREIBER, ESQ.
 Burke, Warren, Mackay & Serritella, P.C.     Skadden, Arps, Slate, Meagher & Flom (Illinois)
     330 N. Wabash Avenue, Suite 2200                 333 W. Wacker Drive, Suite 2100
         Chicago, Illinois 60611                          Chicago, Illinois 60606
</TABLE>

                           --------------------------

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

    If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

    If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

    If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the prospectus is expected to be made pursuant to Rule 434
please check the following box. / /
                           --------------------------


    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.


--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NEOPHARM
AND THE SELLING STOCKHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>

                    SUBJECT TO COMPLETION--SEPTEMBER 6, 2000


PROSPECTUS
--------------------------------------------------------------------------------

                                3,000,000 Shares

                                     [LOGO]

                                  Common Stock

----------------------------------------------------------------------

NeoPharm, Inc. is offering 2,800,000 shares and the selling stockholder is
offering 200,000 shares of common stock. NeoPharm will not receive any proceeds
from the sale of shares by the selling stockholder.


NeoPharm is a biopharmaceutical company engaged in the research, development and
commercialization of drugs for the treatment of various forms of cancer.



The shares of NeoPharm are quoted in the Nasdaq National Market under the symbol
"NEOL." On September 5, 2000, the last reported sale price in the Nasdaq
National Market was $27.69 per share.


<TABLE>
<CAPTION>
                                                       Per Share       Total
<S>                                                  <C>             <C>
Public offering price..............................  $               $

Underwriting discounts and commissions.............  $               $

Proceeds, before expenses, to NeoPharm.............  $               $

Proceeds, before expenses, to selling
  stockholder......................................  $               $
</TABLE>

SEE "RISK FACTORS" ON PAGES 8 TO 17 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF NEOPHARM.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Neither the Securities and Exchange Commission nor any state securities
commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
--------------------------------------------------------------------------------

The underwriters may, under certain circumstances, purchase up to 450,000
additional shares from NeoPharm at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
             , 2000.

PRUDENTIAL VECTOR HEALTHCARE                          U.S. BANCORP PIPER JAFFRAY
   A UNIT OF PRUDENTIAL SECURITIES

                 , 2000
<PAGE>

Inside Front Cover             DESCRIPTION OF ARTWORK



HEADLINE: NeoPharm Product Pipeline



    Illustration: A chart is pictured which lists products in the left-hand
    column and the terms "Research," "Preclinical," "IND Filed," "Phase I/II,"
    "Phase II/III" and "FDA Approved" in a row across the top of six columns.
    Each product's development is illustrated by the column location where a
    corresponding bar terminates. The products are separated into two categories
    which are entitled "Electrostatic Liposome Platform" and "Tumor-Targeting
    Fusion Protein Platform," respectively. The "Electrostatic Liposome
    Platform" section includes "LEP," with a bar extending into the column
    entitled "Phase II/III," "LED," with a bar extending into the column
    entitled "Phase II/III," "LE-AON," with a bar extending through the column
    entitled "IND Filed," "LEM," with a bar extending into the column entitled
    "Preclinical," and "LEE," with a bar extending into the column entitled
    "Preclinical." The "Tumor-Targeting Fusion Protein Platform" section
    includes "IL13-PE38," with a bar extending into the column entitled "Phase
    I/II," and "SS1(dsFv)-PE38," with a bar extending through the column
    entitled "IND Filed." Each product listed also lists the cancer types the
    Company seeks to treat with the product.



Bi-fold first page in prospectus



    Illustration: The following pictures appear on the left hand side of the
    bi-fold page. On the upper half of the left bi-fold page is an artist's
    depiction entitled "Electrostatic Liposome Platform" illustrating the mode
    of action of NeoPharm's electrostatic liposome platform. Appearing on the
    bottom half of the left bi-fold page are a series of four pictures depicting
    the step by step process whereby (i) the drug is encapsulated in an
    oppositely charged liposome, (ii) the liposomes are attracted to and
    attached to the outer surface of the cancer cell, (iii) the liposomes are
    absorbed by the cancer cell, and (iv) the liposomes release the active drug
    within the cancer cell leading to cell death.



    Illustration: The following pictures appear on the right hand side of the
    bi-fold page. On the upper half of the right hand bi-fold page is an
    artist's depiction, entitled "Tumor-Targeting Platform" illustrating both
    the mode of action of NeoPharm's tumor-targeting fusion protein on a cancer
    cell as well as a separate depiction of a normal cell lacking a receptor.
    Appearing on the bottom half of the right hand bi-fold page are two
    pictures. The first picture depicts the step by step process whereby a
    fusion protein (i) seeks out a specific receptor normally present on the
    surface of some cancer cells, (ii) attaches to the specific receptor,
    (iii) enters the cancer cell, and (iv) destroys the cancer cell. The second
    picture on the right hand side of the bottom half of the right bi-fold page
    illustrates that normal cells, lacking receptors, neither attract nor
    receive the PE38 toxin and thus remain unaffected by drug therapy, resulting
    in lower toxicity to healthy cells.

<PAGE>
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                       PAGE
                                       ----
<S>                                    <C>
Prospectus Summary...................     3

Risk Factors.........................     8

Forward-Looking Statements...........    18

Use of Proceeds......................    19

Price Range of Common Stock and
  Dividend Policy....................    20

Capitalization.......................    21

Selected Financial Data..............    22

Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations......................    23

Business.............................    26
</TABLE>



<TABLE>
<CAPTION>
                                       PAGE
                                       ----
<S>                                    <C>

Management...........................    41

Principal and Selling Stockholders...    44

Certain Relationships and Related
  Transactions.......................    46

Description of Capital Stock.........    48

Underwriting.........................    50

Legal Matters........................    51

Experts..............................    52

Where You Can Find More Information..    52

Documents Incorporated by
  Reference..........................    52

Index to Financial Statements........   F-1
</TABLE>


--------------------------------------------------------------------------------

    You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making any offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus.
<PAGE>
                               PROSPECTUS SUMMARY

    This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our common stock. Investors should read the
entire prospectus carefully.

                                    NEOPHARM

    We are a biopharmaceutical company engaged in the research, development and
commercialization of drugs for the treatment of various forms of cancer. We are
currently developing a portfolio of seven anti-cancer drugs, three of which have
advanced to clinical trials. We have built our drug portfolio based on our two
novel technology platforms: an electrostatic liposome drug delivery platform and
a tumor-targeting fusion protein platform. In February 1999, we established a
worldwide collaborative relationship with Pharmacia Corporation to develop and
commercialize our two late-stage development products: liposome encapsulated
paclitaxel, referred to as LEP, and liposome encapsulated doxorubicin, referred
to as LED. Pharmacia is currently conducting multi-center Phase II/III clinical
trials of LEP for the treatment of a variety of solid tumor cancers and
multi-center Phase II/III clinical trials for LED for the treatment of breast
and prostate cancers.


                 ELECTROSTATIC LIPOSOME DRUG DELIVERY PLATFORM


    We have discovered and patented a novel method for encapsulating drugs in
liposomes, which are microscopic spheres composed of lipid (or fat) membranes.
Liposomes are particularly suitable for the delivery of toxic drugs, such as
cancer drugs, because they are not as readily absorbed by the nervous system or
key organs, like the heart, thus helping to reduce toxicity. Our
electrostatically charged liposome technology encapsulates a drug within an
oppositely-charged liposome. Through this process we are able to achieve a
powerful electrostatic attraction between these two agents which creates a
stable drug formulation. We believe our liposome technology may provide the
following advantages:

    - broadened range of drugs which can be encapsulated;

    - reduced toxicity at higher doses;

    - increased stability, resulting in simplified handling and increased
      shelf-life;

    - reduced manufacturing cost; and

    - reduced multi-drug resistance, increasing the killing of otherwise
      resistant tumors.

Our goal is to improve the delivery of a variety of anti-cancer therapies,
including standard cancer drugs, paclitaxel and doxorubicin in particular,
genes, gene inhibitors, cytokines, and other biological molecules.

                                  LEP AND LED

    LEP is a liposome encapsulated formulation of the widely used cancer drug,
paclitaxel. Paclitaxel is marketed by Bristol-Myers Squibb Company under the
trade name "Taxol-Registered Trademark-" and is used in the treatment of a
number of cancers, including breast, ovarian and lung. Taxol is the largest
selling anti-cancer drug in the world, with 1999 sales of $1.5 billion, which
represented a 23% increase over 1998 sales. Despite paclitaxel's wide use and
its anti-tumor characteristics, its effectiveness has been limited both by side
effects, such as nausea, vomiting, hair loss and nerve and muscle pain, and by a
long infusion time. Because of the chemical characteristics of paclitaxel, it
cannot be introduced into the body unless it is first formulated in a toxic
mixture of castor oil and ethanol, which requires premedication of the patient.
LEP does not require administration with castor oil and ethanol, thus reducing
the need for premedication. Because LEP is stable, it is easier to store,
prepare and administer. Another potential advantage of LEP is its ability to
reduce multi-drug resistance, which is

                                       3
<PAGE>
the resistance to cancer drugs developed by cells that have been exposed to
several rounds of chemotherapy.


    We believe LEP is the first and only liposomal form of paclitaxel to enter
clinical trials. Our Phase I/II clinical trials provided evidence of LEP's
ability to reduce the incidence and severity of certain of the side effects
associated with paclitaxel, allowing higher dosage levels and increasing the
number of treatment cycles that could be given. Although our Phase I/II trial
was not designed to determine efficacy, six of the 31 lung cancer patients
enrolled through April 2000 who were unresponsive to other treatments
experienced tumor reduction greater than 35%. The tumors in 12 other patients
did not increase in size after 12 weeks, and in four of these 12 patients, the
tumors had not increased in size after one year.



    LED is a liposome encapsulated formulation of the widely used cancer drug,
doxorubicin. Though effective in treating a number of cancer types, doxorubicin
causes suppression of white blood cell production and side effects, such as
nausea, vomiting and hair loss, and may produce irreversible heart damage. Our
clinical results to date provided evidence that LED may reduce the occurrence
and severity of these side effects. We believe LED, unlike other liposomal
doxorubicin products, may be effective in reducing multi-drug resistance and be
easier to manufacture. Pharmacia is currently testing LED in an on-going
Phase II/III clinical trial. In the Phase I/II clinical trials, LED provided
evidence of lower toxicity than unencapsulated doxorubicin and could be given at
approximately double the current standard dose.


                          PHARMACIA LICENSE AGREEMENT

    In February 1999, we established a collaborative relationship with Pharmacia
for the development and commercialization of LEP and LED. Under our agreement,
Pharmacia obtained exclusive rights to develop and market LEP and LED throughout
the world. Pharmacia has assumed all further responsibility for, and the costs
associated with, the clinical development and regulatory filings for both
products. The license agreement provides for up to $69 million in payments to us
from Pharmacia. To date, Pharmacia has paid us $22 million, including the
purchase of $8 million of our common stock. We will receive royalties on any
foreign sales, and in the United States we have the right to purchase co-
promotion rights from Pharmacia instead of receiving royalties.

                    TUMOR-TARGETING FUSION PROTEIN PLATFORM

    We are also developing a tumor-targeting fusion protein platform that is
designed to deliver toxins directly to cancer cells. This technology consists of
a single molecule composed of two parts: a tumor-targeting mechanism and a
cytotoxic agent. We have developed two highly selective targeting mechanisms:
Interleukin-13, referred to as IL13, and a mesothelin monoclonal antibody,
referred to as SS1(dsFv). Both IL13 and SS1(dsFv) target receptors which are
present in significantly higher numbers on tumor cells than on healthy cells.
Our tumor-targeting fusion protein platform uses PE38, a cytotoxic agent, due to
its effective cell killing action on a wide variety of tumor types. We are
currently in Phase I/II clinical trials for our IL13-PE38 product and expect to
commence Phase I/II clinical trials for our SS1(dsFv)-PE38 product in the second
half of 2000.

                                       4
<PAGE>
                               BUSINESS STRATEGY

    Our corporate strategy is to become a leader in the research, development
and commercialization of new and innovative anti-cancer treatments. Our strategy
involves the following elements:

    - focus on the growing cancer market;

    - develop our existing product portfolio;

    - create new products by capitalizing on our electrostatic liposome
      technology platform;

    - reduce risk through a broad portfolio of products; and

    - develop specialized sales and marketing capabilities for the United States
      market and form strategic international collaborations for foreign
      markets.

    Our principal executive offices are located at 100 Corporate North, Suite
215, Bannockburn, Illinois 60015, and our telephone number is (847) 295-8678.

                                       5
<PAGE>
                                  THE OFFERING


<TABLE>
<S>                                                  <C>
Shares offered by NeoPharm.........................  2,800,000 shares

Shares offered by the selling stockholder..........  200,000 shares

Total shares outstanding after this offering.......  13,947,230 shares

Use of proceeds by NeoPharm........................  To finance product development activities and
                                                     clinical trials, the commercialization of our
                                                     products, including the development of a sales
                                                     force in the United States, the acquisition of
                                                     complementary products, technologies or
                                                     businesses and capital expenditures and for
                                                     working capital and general corporate purposes.

Nasdaq National Market symbol......................  NEOL
</TABLE>



    The number of shares of common stock outstanding after this offering is
based on the number of shares outstanding on September 1, 2000 and does not
include the following:



    - 1,352,358 shares of common stock issuable upon the exercise of outstanding
      stock options;



    - 1,199,665 shares of common stock available for future issuance under our
      employee stock option plans; and


    - up to 450,000 shares that the underwriters may purchase from NeoPharm if
      they exercise their over-allotment option in full.

                                  RISK FACTORS

    You should carefully consider the risk factors and the impact of various
events which could adversely affect our business before investing in our common
stock.

                                       6
<PAGE>
                             SUMMARY FINANCIAL DATA

    The summary financial data should be read in conjunction with our financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.


    The as adjusted balance sheet data presented below gives effect to our sale
of 2,800,000 shares of common stock in this offering at an assumed public
offering price of $27.69 per share, after deducting underwriting discounts and
commissions and estimated offering expenses.


<TABLE>
<CAPTION>
                                                                              SIX MONTHS ENDED
                                        YEAR ENDED DECEMBER 31,                   JUNE 30,
                                ---------------------------------------   -------------------------
                                   1997          1998          1999          1999          2000
                                -----------   -----------   -----------   -----------   -----------
                                                                                 (UNAUDITED)
<S>                             <C>           <C>           <C>           <C>           <C>
STATEMENTS OF OPERATIONS DATA:
Revenues(1)...................  $   550,000   $        --   $11,000,000   $ 9,000,000   $ 3,000,000
Operating expenses:
  Research and development....    1,411,692     1,611,343     3,758,980     2,017,326     1,629,381
  General and
    administrative............    1,370,486     1,691,132     2,446,926     1,100,349     1,220,593
                                -----------   -----------   -----------   -----------   -----------
Income/(loss) from
  operations..................   (2,232,178)   (3,302,475)    4,794,094     5,882,325       150,026
Interest income...............      210,501        88,752       626,508        98,595       807,059
Interest expense..............           --   --.........        (2,126)       (2,126)           --
                                -----------   -----------   -----------   -----------   -----------
Income (loss) before income
  taxes.......................   (2,021,677)   (3,213,723)    5,418,476     5,978,794       957,085
Income taxes
  (benefit)/expense...........           --    (1,640,000)    1,664,000     2,392,000            --
                                -----------   -----------   -----------   -----------   -----------
Net income (loss).............  $(2,021,677)  $(1,573,723)  $ 3,754,476   $ 3,586,794   $   957,085
                                ===========   ===========   ===========   ===========   ===========
Net income/(loss) per Share
  Basic.......................  $     (0.25)  $     (0.19)  $      0.39   $      0.43   $      0.09
  Diluted.....................  $     (0.25)  $     (0.19)  $      0.34   $      0.31   $      0.08
Weighted average shares
  outstanding
  Basic.......................    8,146,746     8,213,980     9,567,661     8,438,570    11,092,602
  Diluted.....................    8,939,143     8,757,187    11,155,092    11,552,102    11,902,365
</TABLE>


<TABLE>
<CAPTION>
                                                                     JUNE 30, 2000
                                                              ---------------------------
                                                                 ACTUAL      AS ADJUSTED
                                                              ------------   ------------
<S>                                                           <C>            <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................  $ 25,296,283   $ 97,936,092
Working capital.............................................    25,316,504     97,870,004
Total assets................................................    25,884,469     98,437,969
Accumulated deficit.........................................      (749,484)      (749,484)
Total stockholders' equity..................................    25,372,552     97,926,052
</TABLE>


------------------------

 (1) For the six-month period ended June 30, 2000, we recorded $3,000,000 in
     milestone payments from Pharmacia for the completion of Phase I clinical
     trials and commencement of Phase II/III clinical trials for LEP. We
     recorded a nonrefundable license fee of $9,000,000 for the same period in
     1999 for entering into the licensing agreement with Pharmacia for the
     development and commercialization of LEP and LED.

                                       7
<PAGE>
                                  RISK FACTORS

    You should carefully consider the following risk factors, in addition to the
other information set forth in this prospectus, before purchasing shares of our
common stock. Each of these risk factors could adversely affect our business,
operating results and financial condition, as well as the value of an investment
in our common stock. This investment involves a high degree of risk.

    RISKS RELATED TO OUR BUSINESS

    IF WE ARE UNSUCCESSFUL IN DEVELOPING OUR PRODUCTS, OUR ABILITY TO GENERATE
    REVENUES MAY BE SIGNIFICANTLY IMPAIRED.

    Our research and development programs are at various stages and we have not
successfully completed the development of nor have we received regulatory
approval for any products. If we, or our collaborators, do not successfully
complete development of or receive regulatory approvals for our product
candidates, particularly LEP and LED, our ability to generate revenues from
operations will be significantly impaired and our stock price will be harmed. We
will need to conduct substantial additional clinical research in order to
develop our products. We do not know whether our research and development will
lead to commercially viable products that will be approved by the United States
Food and Drug Administration, referred to as the FDA. Our products will also
require additional clinical testing, regulatory approval and substantial
additional investment prior to commercialization. Our products are subject to
the risks of failure inherent in the development of pharmaceutical products.
These risks include the following:

    - some of our products may be found to be unsafe or ineffective, or may fail
      to receive the necessary regulatory clearances in a timely fashion, if at
      all;


    - the results of preclinical trials may be inconclusive or they may not be
      indicative of results that will be obtained in human clinical trials;


    - safety and efficacy results attained in early human clinical trials with a
      relatively small number of patients, as in our LEP and LED trials, may not
      be indicative of results that may be obtained in later clinical trials
      with much larger numbers of patients;

    - we, our collaborators or regulators may suspend or terminate clinical
      trials if the participating subjects or patients are being exposed to
      unacceptable health risks;

    - our potential products may not have the desired effects or may include
      undesirable side effects or other characteristics that preclude regulatory
      approval or limit their commercial use if approved;

    - we may not meet expected testing and development schedules, which has
      occurred in the past; and

    - our products, even if safe and effective, may be difficult to manufacture
      on a large scale or may be uneconomical to market.

As a result of these and other factors, we do not know whether we will
successfully develop any of our products, or if our products will become
commercially viable or achieve market acceptance.

    WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT AS OF JUNE
    30, 2000 OF APPROXIMATELY $749,484; WE EXPECT TO CONTINUE TO INCUR LOSSES
    FOR THE NEAR FUTURE AND MAY NEVER BE PROFITABLE.


    We have only a limited history and our operations consist primarily of the
development of our products and the sponsorship of research and clinical trials.
Until 1999, when we received $11,000,000 in payments from Pharmacia, we had
incurred losses every year since we began operations and as of


                                       8
<PAGE>

June 30, 2000, our accumulated deficit was approximately $749,484. We have not
generated revenues from the sale of our products and it is possible that
revenues from product sales will never be achieved. Until we executed our
agreement with Pharmacia, we generated only limited amounts of revenue from our
license fees and it is possible that additional license revenue will not be
significant. We cannot predict when or if we will be able to develop other
sources of revenue or when or if our operations will become profitable, even if
we are able to commercialize some of our products.


    IF WE LOSE OR ARE UNABLE TO SECURE COLLABORATIVE PARTNERS, SUCH AS
    PHARMACIA, OR IF OUR COLLABORATORS DO NOT APPLY ADEQUATE RESOURCES TO OUR
    COLLABORATIONS, OUR PRODUCT DEVELOPMENT EFFORTS AND PROFITABILITY MAY
    SUFFER.

    Our business strategy includes entering into collaborations with academic,
governmental and corporate partners, primarily pharmaceutical companies, for the
research, development, manufacturing, marketing and other commercialization
activities relating to our products. We have entered into an important corporate
collaboration with Pharmacia covering our most advanced products, LEP and LED.
Our success will depend in large part on the results of this collaboration,
which are uncertain. Adverse developments in our relationship with Pharmacia can
have a significant and adverse effect on us and our stock price. Pursuant to our
agreement with Pharmacia, we have granted them an exclusive worldwide license to
manufacture, develop, use, market and sell LEP and LED. We will receive
royalties on any foreign sales, and in the United States we have the right to
purchase co-promotion rights for these products from Pharmacia, instead of
receiving royalties. As a result of our agreement with Pharmacia, we are
dependent on Pharmacia to fund testing, to make regulatory filings and to
manufacture and market LEP and LED and potentially any future products resulting
from this collaboration.

    The resources dedicated by Pharmacia and our other partners to our
respective collaborations are not within our control. If any collaborator
breaches or terminates their agreement with us, fails to conduct their
collaborative activities in a timely manner, or fails to devote sufficient
resources to our collaborations, the commercialization of our products could be
slowed down or halted. We cannot assure you that Pharmacia or our other
collaborative partners will not change their strategic focus, or pursue
alternate technologies or develop competitive products, either on their own or
in collaboration with others, as a means for treating the diseases targeted by
these collaborative programs. Our revenues and earnings also will be dependent
on the effectiveness of our collaborative partners in marketing any successfully
developed products and our marketing efforts, if we choose to develop our own
sales and marketing force.

    We cannot assure you that our collaborations with Pharmacia or others will
continue or succeed or that we will receive any further research funding or
milestone or royalty payments. If our partners do not develop products under
these collaborations, we cannot assure you that we would be able to do so on our
own. Disputes may arise between us and Pharmacia, or our other collaborators, as
to a variety of matters, including financial or other obligations under our
contracts, the most promising scientific or regulatory route to pursue or
ownership of intellectual property rights. These disputes may be both expensive
and time consuming and may result in delays in the development and
commercialization of our products.

    OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, WHICH CAN BE
    COSTLY, TIME CONSUMING AND SUBJECT US TO UNANTICIPATED DELAYS; EVEN IF WE
    OBTAIN REGULATORY APPROVAL FOR SOME OF OUR PRODUCTS, THOSE PRODUCTS MAY
    STILL FACE REGULATORY DIFFICULTIES.

    Public health authorities in the United States and other countries regulate
the research, testing, manufacturing, labeling, distribution, marketing and
advertising activities with respect to all of our products. The FDA and
comparable agencies in foreign countries impose substantial burdens on our
ability and the ability of others to introduce pharmaceutical products to the
public, including lengthy

                                       9
<PAGE>
and detailed clinical testing procedures to demonstrate safety and efficacy and
manufacturing procedures to insure compliance with good manufacturing practices.
This process can last many years, be very costly and still be unsuccessful. All
clinical, manufacturing, labelling and other information developed for
proprietary products will be required to be filed with the FDA in new drug
applications for review and be subject to approval by that agency. We cannot
assure you that this lengthy regulatory review process will result in the
approval and subsequent marketing of our products.

    Once we submit our products for review, we do not know whether the FDA or
other regulatory agencies will grant approvals for any of our products on a
timely basis or at all. The FDA can delay, limit or not grant approval for many
reasons, including:

    - a product candidate may not be safe or effective;

    - FDA officials may interpret data from preclinical testing and clinical
      trials in different ways than we interpret it;

    - the FDA might not approve our manufacturing processes or facilities or the
      processes or facilities of our collaboration partners;

    - the FDA may change its approval policies or adopt new regulations; and

    - the FDA may approve a product candidate for fewer than all the indications
      requested.

The process of obtaining approvals in foreign countries is subject to delay and
failure for the same reasons.


    The FDA's policy of granting "fast track" approval for cancer therapies may
reduce the risk of delays in the approval process of our products, but the
policy may also expedite the regulatory approval of our competitors' products.
In addition, any marketed product and its manufacturer continue to be subject to
strict regulation. Any unforseen problems with an approved product or delays in
receiving regulatory approval as fast as previously received approvals, or
failing to receive such approval, would delay or prevent product
commercialization and harm our business and stock price. Approval of a product
could also depend on post-marketing studies. Even if our products are approved
by the FDA, but we fail to comply with FDA marketing, manufacturing and other
regulatory requirements applicable to regulated products, we could be subjected
to regulatory or judicial enforcement actions, including product recalls or
seizures, injunctions, civil penalties, criminal prosecution, refusals to
approve new products, withdrawal of approvals, and product liability exposure.


    COMPETITION IN THE BIOPHARMACEUTICAL FIELD IS INTENSE AND SUBJECT TO RAPID
    TECHNOLOGICAL CHANGE, WHICH COULD RESULT IN OUR COMPETITORS DEVELOPING
    PRODUCTS SUPERIOR TO OURS.

    The extent to which any of our products achieve market acceptance will
depend, in part, on competitive factors. Competition in our industry is intense,
and it is increased by the rapid pace of technological development. Existing
products or new products developed by our competitors may be more effective or
have fewer side effects, or be more effectively marketed and sold, than any that
we may develop. Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial and managerial resources than do we. Competitive products may render
our technology and products obsolete or noncompetitive prior to our recovery of
research, development or commercialization expenses incurred with respect to any
of our products.

    WE REQUIRE SUBSTANTIAL FUNDS AND IT IS LIKELY THAT WE WILL NEED TO RAISE
    ADDITIONAL CAPITAL IN THE FUTURE.

    We require substantial funds to conduct research and development,
preclinical and clinical testing and to manufacture and market our potential
products. Our fixed commitments, including consulting

                                       10
<PAGE>
fees, rent, payments under license agreements and other contractual commitments
are substantial and are likely to increase. Our cash requirements may vary
materially from those now planned. Our future revenues may not be sufficient to
fund our operations. Based on currently projected operating and capital
requirements, we believe that the net proceeds of this offering and our cash on
hand will be sufficient to meet our projected operating and capital requirements
for at least the next 24 months.

    We may need additional financing within this timeframe depending on a number
of factors, including the following:

    - our degree of success in commercializing our products;

    - the amount of milestone payments we receive from our collaborators;

    - the rate of progress and cost of research and development and clinical
      trial activities relating to our products;

    - the costs of preparing, filing, prosecuting, maintaining and enforcing
      patent claims and other intellectual property rights;

    - emergence of competing technologies and other adverse market developments;

    - changes in or terminations of our existing collaboration and licensing
      arrangements;

    - the costs of acquiring or licensing new technology, products or businesses
      if we desire to expand our product portfolio; and

    - the cost of manufacturing scale-up and development of marketing
      operations, if we undertake those activities.

    Additional financing may not be available when we need it or be on terms
acceptable to us. If adequate financing is not available, we may be required to
delay, scale back or eliminate some or all of our research and development
programs, to relinquish rights to some or all of our technologies or products,
or to license to third parties the right to commercialize products or
technologies that we would otherwise seek to develop ourselves. We could also be
required to cease operations. If additional capital is raised through the sale
of equity, our stockholders' ownership interest could be diluted and such
securities may have rights, preferences or privileges superior to those of our
other stockholders. The terms of any debt securities we sell to raise additional
capital may place restrictions on our operating activities.

    WE DEPEND ON THIRD PARTIES FOR A VARIETY OF FUNCTIONS, INCLUDING THE
    RESEARCH AND DEVELOPMENT, MANUFACTURING, CLINICAL TESTING AND REGULATORY
    COMPLIANCE OF OUR PRODUCTS. WE CANNOT ASSURE YOU THAT THESE ARRANGEMENTS
    WILL ALLOW US TO SUCCESSFULLY DEVELOP AND MANUFACTURE OUR PRODUCTS.


    We rely, in part, on third parties to perform a variety of functions,
including research and development, clinical trials and regulatory affairs
management and production of our products. As of September 1, 2000, we had only
seven full-time employees. We currently do not possess the internal
infrastructure to independently conduct clinical testing or meet other
regulatory responsibilities. If we develop compounds with commercial potential,
we will either have to hire additional personnel skilled in the clinical testing
and the regulatory compliance processes or engage third parties to perform such
services. We currently are a party to several agreements which place substantial
responsibility on third parties for clinical development of our products. We
also in-license technology from govermental and academic institutions in order
to minimize investments in early research, and we enter into collaborative
arrangements with certain of these entities with respect to clinical trials of
products. We cannot assure you that we will be able to maintain any of these
relationships or establish new ones on beneficial terms, that we can enter into
these arrangements without undue delays or expenditures, or that these
arrangements will allow us to compete successfully.


                                       11
<PAGE>
    We do not have any manufacturing capacity for any products we are developing
and do not intend to develop manufacturing capacity in the future. Currently,
five of our products are produced at the Center for Advanced Drug Development
which is affiliated with the University of Iowa Pharmacy School. The Center has
indicated that it is currently able to meet our needs for research and clinical
trials, but we cannot be sure that they will be able to do so on a time or
cost-effective basis in the future or that suitable alternatives can be found in
a timely manner, or at all. Any failure to obtain adequate supplies of our
products could delay or prevent our product development efforts. In order to
commercialize our products successfully, we or our collaborators must be able to
manufacture products in commercial quantities in compliance with the FDA's
current good manufacturing practices, at acceptable costs and in a timely
manner. As our products have never been produced in commercial quantities, we
cannot be sure that the ease of manufacture, stability, cost and yield we have
experienced in small-scale production can be duplicated.

    WE DO NOT HAVE MARKETING OR SALES RESOURCES, WHICH MAKES US DEPENDENT ON
    THIRD PARTIES TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.

    We have no experience in sales, marketing or distribution. To date, our
focus has been on research and development and we currently do not have internal
marketing or sales resources. If we receive the required regulatory approvals,
we expect to market and sell our products principally through distribution,
co-marketing, co-promotion or licensing arrangements with third parties. Our
agreement with Pharmacia grants Pharmacia exclusive worldwide marketing rights
with respect to LED and LEP, although we have the option in the United States to
purchase co-promotion rights for these products from Pharmacia, in lieu of
receiving royalty payments. To the extent that we enter into distribution,
co-marketing, co-promotion or licensing arrangements with third parties for the
marketing and sale of our products, any revenues we receive will depend
primarily on the efforts of these third parties. We will not control the amount
and timing of marketing resources these third parties devote to our products. In
addition, if we market products directly, significant additional expenditures
and management resources will be required to develop an internal sales force. We
have no experience in establishing or maintaining an effective sales and
marketing effort. We cannot assure you that we would be able to establish a
successful sales force should we choose to do so.

    IF SUFFICIENT QUANTITIES OF THE MATERIALS NEEDED TO MAKE OUR PRODUCTS ARE
    NOT AVAILABLE, PRODUCT DEVELOPMENT AND COMMERCIALIZATION COULD BE SLOWED OR
    STOPPED.

    We cannot assure you that sufficient quantities of the materials needed to
make our products will be available to support the continued research,
development or commercial manufacture of our products. We currently obtain
synthetic cardiolipin, an important ingredient in our liposomal products, from a
single source, Avanti Polar Lipids, Inc. We have entered into an exclusive
supply agreement with Avanti that will supply us with all of our synthetic
cardiolipin requirements. However, we cannot assure you that Avanti will be able
to supply sufficient quantities of synthetic cardiolipin that meet all FDA
manufacturing requirements. In the event that Avanti elects to terminate this
supply agreement or cannot supply sufficient quantities to us, we have a right
under the agreement to obtain a non-exclusive license from Avanti that will
allow us to continue the manufacture of synthetic cardiolipin. In such an event,
we cannot assure you that we will have the capability to manufacture sufficient
quantities of synthetic cardiolipin or that we will be able to obtain an
alternate supplier.

    FDA regulatory requirements applicable to pharmaceutical products tend to
make changes in suppliers costly and time consuming. The unavailability of
adequate commercial quantities, the termination of existing supply agreements,
the supplier's inability to provide materials due to the failure to meet FDA
regulatory requirements, the inability to develop alternative sources, a
reduction or interruption in supply or a significant increase in the price of
materials could impair our ability to manufacture and commercialize our
products, which could adversely affect our business.

                                       12
<PAGE>
    OUR LACK OF OPERATING EXPERIENCE MAY CAUSE US DIFFICULTY IN MANAGING OUR
    GROWTH.

    We have no experience in selling pharmaceutical products and in
manufacturing or procuring products in commercial quantities in compliance with
FDA rules and only limited experience in negotiating, establishing and
maintaining collaborative relationships and conducting later-stage phases of the
regulatory approval process. Our ability to manage our growth, if any, will
require us to improve and expand our management and our operational and
financial systems and controls. If our management is unable to manage growth
effectively, our business and financial condition would be adversely affected.
In addition, if rapid growth occurs, it may strain our operational, managerial
and financial resources, which are limited.

    IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, WE MAY NOT BE ABLE TO
    COMPETE EFFECTIVELY OR OPERATE PROFITABLY.

    Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, patent and trade secret protection for new technologies, products
and processes is essential to us. We have obtained licenses to 16 United States
patents or patent applications relating to LEP, LED, IL13-PE38, SS1(dsFv)-PE38
and our liposome encapsulated antisense oligonucleotide product, referred to as
LE-AON, and we own one pending United States patent application relating to LEP
for which a notice of allowance has been received. With respect to these patents
and patent applications, however, no assurance can be given that:

    - any patents under any currently pending or future applications will be
      issued;

    - the scope of any patent protection will exclude competitors or provide
      competitive advantages to us;

    - any of our patents that may be issued or patents licensed to us will be
      held valid or will not be limited in scope if subsequently challenged;

    - our exclusive licenses will not be terminated;

    - others will not claim rights in or ownership to the patents and other
      proprietary rights held by us; or

    - others will not independently develop substantially equivalent proprietary
      information or otherwise obtain access to our know-how.

    We also rely on trade secrets, know-how and technological advantages to
protect the technology we develop. Although we use confidentiality agreements
and employee proprietary information and invention assignment agreements to
protect our trade secrets and other unpatented know-how, these agreements may be
breached or may otherwise be of limited effectiveness or enforceability.
Litigation to protect our trade secrets and other unpatented know-how could
result in significant costs to us as well as the diversion of management's
attention away from our business. Adverse determinations in any such proceedings
or unauthorized disclosure of our trade secrets could adversely affect our
business. In addition, the laws of certain foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United
States. We cannot assure you that we will be able to protect our intellectual
property in these markets.

    THE USE OF OUR TECHNOLOGIES COULD POTENTIALLY CONFLICT WITH THE RIGHTS OF
    OTHERS.

    Our commercial success depends to a large extent on our ability to operate
without infringing the patents and proprietary rights of others. We may incur
substantial costs in defending ourselves in suits that may be brought against us
claiming infringement of the patent rights of others, in asserting our patent
rights in a suit against another party, or in participating in opposition
proceedings in foreign

                                       13
<PAGE>
jurisdictions to determine the validity of our patents, or interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of invention in connection with our patent
applications or those of others. If we lose, we may be prohibited from pursuing
research, development or commercialization of our products or be forced to seek
licenses, which may not be available on commercially reasonable terms, if at
all, or be subjected to significant liabilities to third parties. Any of these
events could have a material adverse effect on us.

    CERTAIN OF OUR EXECUTIVE OFFICERS HAVE CONFLICTING OBLIGATIONS AND MAY NOT
    DEVOTE SUFFICIENT TIME TO OUR BUSINESS.

    Messrs. John N. Kapoor and Kevin M. Harris, who each hold executive
positions with us, are also associated with EJ Financial Enterprises, Inc., a
health care investment firm which is wholly owned by John N. Kapoor, and
therefore will have conflicts of interest in allocating their time among various
business activities and may have legal obligations to multiple entities. On
July 1, 1994, we entered into a consulting agreement with EJ Financial. The
consulting agreement provides that we will pay EJ Financial $125,000 per year
(paid quarterly) for certain business and financial services, including having
certain officers of EJ Financial serve as our officers. EJ Financial is involved
in the management of health care companies in various fields, and
Messrs. Kapoor and Harris are involved in various capacities with the management
and operation of these companies. Mr. Harris is also the Director of Taxes and
Planning of EJ Financial. Accordingly, Mr. Harris will not devote all of his
working hours to our affairs. In addition, EJ Financial is involved with other
companies in the cancer field. Although these companies are pursuing different
therapeutic approaches for the treatment of cancer, discoveries made by one or
more of these companies could render our products less competitive or obsolete.

    Two of our key products have been obtained under license agreements with
Georgetown University. Dr. Aquilur Rahman, currently our Chief Scientific
Officer, was formerly an associate professor of pathology and pharmacology at
Georgetown University. While employed by Georgetown, Dr. Rahman entered into an
agreement with Georgetown relating to the ownership of inventions and other
intellectual property developed while in Georgetown's employ. This relationship
may pose a conflict of interest for Dr. Rahman. As part of his agreement with
Georgetown University, Dr. Rahman has advised us that Georgetown University may
share with him payments which Georgetown receives from us under our license
agreements with Georgetown. While there were no royalty payments to Georgetown
University by us in 1999, as a result of our entering into a license agreement
with Pharmacia in February 1999, a payment of $800,000 was made to Georgetown
University. Additionally, if regulatory approval is obtained in the future for
LED and LEP, royalty payments, which could be substantial, would be made by us
to Georgetown, a portion of which may be paid to Dr. Rahman.

    IF WE LOSE KEY MANAGEMENT AND SCIENTIFIC PERSONNEL OR ARE UNABLE TO ATTRACT
    AND RETAIN THE TALENT REQUIRED FOR OUR BUSINESS, OUR BUSINESS COULD BE
    HARMED.


    We are highly dependent on the principal members of our management and
scientific staff, including our President, Mr. James M. Hussey, and our current
Chief Scientific Officer, Dr. Aquilur Rahman. The inability to replace either of
these individuals might delay product development or the achievement of our
strategic objectives. In addition, our success will depend on our ability to
attract and retain qualified scientific, technical and managerial personnel.
There is intense competition for qualified staff and we cannot assure you that
we will be able to retain existing personnel or attract and retain qualified
staff in the future.


    MEMBERS OF OUR SCIENTIFIC ADVISORY BOARD COMMIT ONLY A PORTION OF THEIR TIME
    TO OUR BUSINESS AND RESEARCH ACTIVITIES AND WE MAY NOT HAVE RIGHTS TO THEIR
    INVENTIONS OR DISCOVERIES.

    Due to our limited internal staff and resources, we rely heavily on members
of our scientific advisory board to advance our research and development
programs. Members of our scientific advisory

                                       14
<PAGE>
board are employed on a full-time basis by academic or research institutions.
These individuals will devote only a portion of their time to our business and
research activities. In addition, except for work performed specifically for and
at our direction, the inventions or processes discovered by our consultants and
scientific advisors will not become our property but will be the intellectual
property of other institutions with which they may have an affiliation. If this
happens, we would have to obtain licenses to such technology from such
institutions. Invention assignment agreements executed by scientific advisory
board members and consultants in connection with their relationships with us may
be subject to the rights of their primary employers or other third parties with
whom such individuals have consulting relationships.

    THE DEMAND FOR OUR PRODUCTS MAY BE ADVERSELY AFFECTED BY HEALTH CARE REFORM
    AND POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT.

    In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. We cannot predict
the effect that health care reforms may have on our business, and it is possible
that any reforms will hurt our business. In addition, in both the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in part on
the availability of reimbursement to the consumer from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services with respect to
new drug products in particular. If we or any of our collaborators succeed in
bringing one of our products to the market, we cannot be certain that our
products will be considered cost-effective and that reimbursement to the
consumer will be available or will be sufficient to allow us or our
collaborators to sell our products on a competitive basis.

    PHYSICIANS, PATIENTS, PAYORS OR THE MEDICAL COMMUNITY IN GENERAL MAY BE
    UNWILLING TO ACCEPT, UTILIZE OR RECOMMEND ANY OF OUR PRODUCTS, AND THE
    FAILURE TO ACHIEVE MARKET ACCEPTANCE WILL HARM OUR BUSINESS.

    Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance of our products will depend upon a
number of factors, including:

    - the establishment and demonstration in the medical community of the safety
      and clinical efficacy of our products and their potential advantages over
      existing therapeutic products, including unencapsulated forms of the
      active agents included in our products; and

    - pricing and reimbursement policies of government and third-party payors
      such as insurance companies, health maintenance organizations and other
      plan administrators.

    WE DEAL WITH HAZARDOUS MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
    REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS. WE
    COULD ALSO BE LIABLE FOR DAMAGES, PENALTIES OR OTHER FORMS OF CENSURE IF WE
    ARE INVOLVED IN A HAZARDOUS WASTE SPILL OR OTHER ACCIDENT.

    We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of hazardous materials and
certain waste products. While we currently outsource our research and
development programs involving the controlled use of biohazardous materials, we
might be required to incur significant costs to comply with environmental laws
and regulations if we conduct such programs. In the event of an accident, even
by a third party, we could be held liable for any damages that result, and such
liability would probably exceed our current insurance coverage and financial
resources.

                                       15
<PAGE>
    WE MAY HAVE PRODUCT LIABILITY EXPOSURE AND INSURANCE AGAINST SUCH CLAIMS MAY
    NOT BE AVAILABLE TO US AT REASONABLE RATES OR AT ALL.

    We currently do not have any product liability insurance and our business
exposes us to potential product liability risks which are inherent in the
testing, manufacturing and marketing of human therapeutic products. Although we
plan to obtain product liability insurance when and if our products become
commercially available, we cannot assure you that we will be able to obtain or
maintain this insurance on acceptable terms or that any insurance we obtain will
provide us with adequate coverage against potential liabilities. Claims or
losses in excess of any liability insurance coverage we obtain could have a
material adverse effect on our business.

    RISKS RELATED TO THIS OFFERING

    WE WILL HAVE BROAD DISCRETION TO ALLOCATE THE NET PROCEEDS OF THIS OFFERING
    AND WE MAY NOT ALLOCATE THESE PROCEEDS IN WAYS WITH WHICH YOU AGREE.

    Our management will retain broad discretion in allocating the proceeds of
this offering. We plan to use the net proceeds for the financing of product
development activities and clinical trials, the commercialization of our
products, including the development of a sales force for the United States, the
acquisition of complementary products, technologies or businesses and capital
expenditures and for working capital and general corporate purposes. However, we
have no commitments or agreements for any acquisitions or investments at this
time. We have no specific allocations for the net proceeds of this offering. The
amount of proceeds we will actually expend on any of these purposes may vary
depending on a number of factors, including:

    - the successful commercialization of our products;

    - progress in and the scope of our research and development activities;

    - changes in or termination of our existing collaboration and licensing
      arrangements; and

    - costs and magnitude of product or technology acquisitions.

    Consequently, management will retain a significant amount of discretion over
the application of these proceeds. Because of the number and variability of
factors that will determine the use of these proceeds, how we spend these
proceeds may vary substantially from our current intentions. We cannot be
certain that the proceeds from this offering will be used in a manner which will
yield a favorable return to our stockholders.

    FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET BY STOCKHOLDERS WITH
    SIGNIFICANT HOLDINGS COULD RESULT IN A DECREASE IN OUR STOCK PRICE.


    The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. After this offering, there will be 13,947,230 shares of common stock
outstanding, 14,397,230 shares if the underwriters exercise their over-allotment
option in full. The common stock offered by this prospectus will be freely
tradeable without restriction or registration under the Securities Act by
persons other than our "affiliates" (as defined in Rule 144 under the Securities
Act). The remaining shares of common stock which will be outstanding following
this offering are also freely transferable without restriction or registration
under the Securities Act, except for 452,861 shares which are held by Pharmacia.
We cannot predict the effect


                                       16
<PAGE>

that future sales of common stock or the availability of shares for future sales
will have on the market price of our common stock.


<TABLE>
<CAPTION>
NUMBER OF SHARES                               DATE OF ELIGIBILITY FOR RESALE INTO PUBLIC MARKET
----------------                               -------------------------------------------------
<S>                                            <C>
5,088,328....................................  90 days after the date of this prospectus due to
                                               lock-up agreements that our officers and
                                               directors and certain stockholders have with
                                               Prudential Securities Incorporated.
</TABLE>

    IF YOU PURCHASE COMMON STOCK YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL
    DILUTION IN THE BOOK VALUE OF YOUR SHARES.


    The public offering price for our shares will be substantially higher than
our net tangible book value per share of our common stock. You will suffer
immediate and substantial dilution of $20.66 per share in the net tangible book
value per share of our common stock, based on an assumed public offering price
of $27.69 per share. In addition, this dilution will increase to the extent that
holders of outstanding options to purchase common stock at prices below our net
tangible book value per share after this offering exercise such options or funds
are raised by us through future issuances of our common stock.


    OUR STOCK PRICE HAS A HISTORY OF VOLATILITY AND YOU SHOULD CONSIDER AN
    INVESTMENT IN OUR STOCK AS RISKY AND INVEST ONLY IF YOU CAN WITHSTAND A
    SIGNIFICANT LOSS.

    Our stock price has a history of significant volatility. This volatility has
existed even in the absence of significant news or developments relating to us.
Moreover, the stocks of biopharmaceutical companies and the stock market
generally have been subject to dramatic price swings in recent years.

    Price swings, both as to our stock and as to our industry and the stock
market generally, are apt to continue. As a result, you could be subject to
losses in your investment in our stock even if we successfully execute our
business plan. Moreover, the experiences of other companies would lead us to
expect a decline in our stock price if we experience an adverse development in
our business. Our business plan is risky, and we may not succeed in achieving
our goals. You should consider an investment in our stock as risky and only
invest if you can withstand the loss of a significant portion, if not all, of
your investment.

    WE ARE SUBJECT TO INFLUENCE FROM OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE
    OFFICERS AND DIRECTORS, AND WE ARE SUBJECT TO VARIOUS PROVISIONS THAT COULD
    DISCOURAGE OR PREVENT A CHANGE OF CONTROL THAT MAY BE BENEFICIAL TO OUR
    STOCKHOLDERS.


    Our executive officers and directors, and their affiliates, in the
aggregate, will beneficially own or control approximately 35.67% of our
outstanding common stock after this offering, 34.59% if the underwriters
exercise their over-allotment option in full, and will therefore have the
ability to exercise substantial influence over the outcome of most stockholders'
actions, including the election of the members of the board of directors. This
concentration of ownership could have an adverse effect on the price of our
common stock or have the effect of delaying or preventing a change in control of
us. In addition, certain provisions of Delaware law could make it more difficult
for a third party to acquire, or discourage a third party from attempting to
acquire, control of us. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
Further, provisions in our stock options provide for acceleration of
exercisability upon a change of control. Section 203 and other provisions of the
Delaware General Corporation Law could make our takeover or the removal of our
board of directors or management more difficult, discourage hostile bids for our
control in which the stockholders may receive a premium for their shares of
common stock or otherwise dilute the rights of holders of common stock and
depress the market price of our common stock.


                                       17
<PAGE>
                           FORWARD-LOOKING STATEMENTS

    This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about us, including, among other
things:

    - general economic and business conditions, both nationally and in our
      markets;

    - our expectations and estimates concerning future financial performance and
      financing plans;

    - anticipated trends in our business;

    - the impact of competition and technological change;

    - relationships with our collaborative partners;

    - our ability to enter into future collaborative relationships;

    - variability of our royalty, license and other revenues;

    - results of our research and development activities;

    - existing and future regulations affecting our business;

    - our ability to obtain rights to technology;

    - our ability to obtain and enforce patents;

    - our ability to obtain FDA approvals for our products;

    - the availability of qualified personnel; and

    - existing and future factors set forth under "Risk Factors" in this
      prospectus.

    In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to us, our business or our management, are intended
to identify forward-looking statements.

    We do not intend to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. In light of these risks and uncertainties,
the forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.

                                       18
<PAGE>

                                USE OF PROCEEDS



    We estimate that the net proceeds from the sale of 2,800,000 shares of
common stock by us in this offering will be approximately $72.6 million, or
$84.3 million if the underwriters exercise their over-allotment option in full,
based on an assumed public offering price of $27.69 per share and after
deducting underwriting discounts and commissions and our estimated offering
expenses. We intend to use these net proceeds for:


    - product development activities and clinical trials;

    - commercialization of our products, including the development of a sales
      force in the United States;

    - acquisition of complementary products, technologies or businesses;

    - capital expenditures; and

    - working capital and general corporate purposes.

    Although we may use a portion of the net proceeds for the purpose of
acquiring complementary products, technologies or businesses, we currently have
no agreements or commitments in this regard. We reserve the right, at the sole
discretion of our board of directors, to reallocate our use of proceeds. Until
we use the net proceeds of this offering, we intend to invest the funds in
short-term, investment-grade, interest-bearing securities. We will not receive
any proceeds from the sale of shares of common stock by the selling stockholder.

                                       19
<PAGE>
                PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

    Prior to April 14, 2000, our common stock was listed on the AMEX under the
symbol "NEO" and since that date it has been included for quotation in the
Nasdaq National Market under the symbol "NEOL". The following table sets forth
the high and low sales prices of the common stock as reported by the AMEX from
the beginning of 1998 through April 14, 2000, and since that date in the Nasdaq
National Market.


<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
1998

  First Quarter.............................................   $ 5.75     $ 3.75
  Second Quarter............................................     4.94       2.94
  Third Quarter.............................................     4.50       2.00
  Fourth Quarter............................................    13.25       3.63

1999

  First Quarter.............................................    19.88      10.00
  Second Quarter............................................    21.63      14.25
  Third Quarter.............................................    18.75      12.88
  Fourth Quarter............................................    21.56      13.13

2000

  First Quarter.............................................    32.50      18.38
  Second Quarter............................................    24.50      12.50
  Third Quarter (through September 5).......................    29.25      18.00
</TABLE>



    On September 5, 2000, the last reported sale price of our common stock in
the Nasdaq National Market was $27.69 per share. As of September 5, 2000, there
were approximately 55 record owners of our common stock.


    We have not declared or paid and do not anticipate declaring or paying any
dividends on our common stock in the foreseeable future. Any future
determination as to the declaration and payment of dividends will be at the
discretion of our board of directors and will depend on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and such
other factors as our board of directors deems relevant.

                                       20
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our capitalization as of June 30, 2000:

    - on an actual basis; and


    - as adjusted to reflect our receipt of the net proceeds from our sale of
      2,800,000 shares of common stock in this offering based upon an assumed
      public offering price of $27.69 per share.



    You should read this table in conjunction with our financial statements and
the notes to those statements, which are included in this prospectus.



<TABLE>
<CAPTION>
                                                                    JUNE 30, 2000
                                                              -------------------------
                                                                ACTUAL      AS ADJUSTED
                                                              -----------   -----------
<S>                                                           <C>           <C>
Cash and cash equivalents...................................  $25,296,283   $97,936,092
                                                              ===========   ===========
Stockholders' equity:
  Common stock, par value $0.0002145 per share; 15,000,000
    authorized; 11,144,432 shares issued and outstanding,
    actual; and 25,000,000 shares authorized, 13,944,432
    issued and outstanding, as adjusted(1)..................        2,391         2,991
                                                              -----------   -----------
  Additional paid-in capital................................   26,119,645    98,672,545
                                                              -----------   -----------
  Accumulated deficit.......................................     (749,484)     (749,484)
                                                              -----------   -----------
Total stockholders' equity..................................   25,372,552    97,926,052
                                                              -----------   -----------
Total capitalization........................................  $25,372,552   $97,926,052
                                                              ===========   ===========
</TABLE>


    The outstanding share information in the table is as of June 30, 2000 and
excludes:


    - 1,340,908 shares of common stock issuable on exercise of outstanding stock
      options at a weighted average exercise price of $9.17 per share as of
      June 30, 2000; and


    - 1,213,913 shares of common stock available for future issuance under our
      employee stock option plans.


(1) On August 31, 2000, we filed an amended and restated certificate of
    incorporation increasing our authorized common stock from 15,000,000 shares
    to 25,000,000 shares.


                                       21
<PAGE>
                            SELECTED FINANCIAL DATA

    The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes appearing
elsewhere in this prospectus. The statement of operations data set forth below
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data
as of December 31, 1998 and 1999 have been derived from our audited financial
statements included elsewhere in this prospectus, which have been audited by
Arthur Andersen LLP, independent auditors. The statement of operations data for
the years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 have been derived from our audited financial
statements not included in this prospectus, which have been audited by Arthur
Andersen LLP, independent auditors. The selected financial data as of June 30,
1999 and 2000 and for the six months ended June 30, 1999 and June 30, 2000 is
unaudited. We believe that the unaudited historical financial statements contain
all adjustments needed to present fairly the information included in those
financial statements and that the adjustments made consist only of normal
recurring adjustments. The historical results do not necessarily indicate the
results you should expect in any future period.

<TABLE>
<CAPTION>
                                                                                                        FOR THE SIX MONTHS
                                                FOR THE YEARS ENDED DECEMBER 31,                          ENDED JUNE 30,
                              --------------------------------------------------------------------   -------------------------
                                 1995          1996          1997           1998          1999          1999          2000
                              -----------   -----------   -----------   ------------   -----------   -----------   -----------
                                                                                                            (UNAUDITED)
<S>                           <C>           <C>           <C>           <C>            <C>           <C>           <C>
STATEMENT OF OPERATIONS
  DATA:
Revenues(1).................  $        --   $        --   $   550,000   $         --   $11,000,000   $ 9,000,000   $ 3,000,000
Operating expenses:
  Research and development..    1,068,683     1,099,631     1,411,692      1,611,343     3,758,980     2,017,326     1,629,381
  General and
    administrative..........      244,901       956,924     1,370,486      1,691,132     2,446,926     1,100,349     1,220,593
Income/(loss) from
  operations................   (1,313,584)   (2,056,555)   (2,232,178)    (3,302,475)    4,794,094     5,882,325       150,026
                              -----------   -----------   -----------   ------------   -----------   -----------   -----------
Interest income.............           --       238,275       210,501         88,752       626,508        98,595       807,059
Interest expense............     (356,043)      (47,365)           --             --        (2,126)       (2,126)           --
                              -----------   -----------   -----------   ------------   -----------   -----------   -----------
Income/(loss) before income
  taxes.....................   (1,669,627)   (1,865,645)   (2,021,677)    (3,213,723)    5,418,476     5,978,794       957,085
Income taxes
  (benefit)/expense.........           --            --            --     (1,640,000)    1,664,000     2,392,000            --
                              -----------   -----------   -----------   ------------   -----------   -----------   -----------
Net income (loss)...........  $(1,669,627)  $(1,865,645)  $(2,021,677)  $ (1,573,723)  $ 3,754,476   $ 3,586,794   $   957,085
                              ===========   ===========   ===========   ============   ===========   ===========   ===========
Basic net income/(loss) per
  share.....................  $     (0.36)  $     (0.24)  $     (0.25)  $      (0.19)  $      0.39   $      0.43   $      0.09
                              ===========   ===========   ===========   ============   ===========   ===========   ===========
Diluted net income/(loss)
  per share.................  $     (0.36)  $     (0.24)  $     (0.25)  $      (0.19)  $      0.34   $      0.31   $      0.08
                              ===========   ===========   ===========   ============   ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                       AS OF DECEMBER 31,                                 AS OF JUNE 30,
                              --------------------------------------------------------------------   -------------------------
                                 1995          1996          1997           1998          1999          1999          2000
                              -----------   -----------   -----------   ------------   -----------   -----------   -----------
                                                                                                            (UNAUDITED)
<S>                           <C>           <C>           <C>           <C>            <C>           <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents...  $       671   $ 4,479,041   $ 2,776,697   $     40,681   $24,664,567   $ 6,219,512   $25,296,283
Working capital/(deficit)...   (4,553,057)    4,013,010     2,348,904      1,077,255    23,938,684     5,034,832    25,316,504
Total assets................      495,891     4,492,208     2,854,499      1,781,548    25,051,748     6,500,273    25,884,469
Accumulated deficit.........           --    (1,865,645)   (3,887,322)    (5,461,045)   (1,706,569)   (1,874,250)     (749,484)
Total stockholders' equity/
  (deficit).................   (4,361,392)    4,026,177     2,374,072      1,178,122    24,005,058     5,120,456    25,372,552
</TABLE>

------------------------------

(1) For the six-month period ended June 30, 2000, we recorded $3,000,000 in
    milestone payments from Pharmacia for the completion of Phase I clinical
    trials and commencement of Phase II/III clinical trials for LEP. We recorded
    a nonrefundable license fee of $9,000,000 for the same period in 1999 for
    entering into the licensing agreement with Pharmacia for the development and
    commercialization of LEP and LED.

                                       22
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

    Since we began doing business in June 1990, we have devoted our resources
primarily to funding research and product development programs. We expect to
continue to incur losses as we expand our research and development activities
and sponsorship of clinical trials. As of June 30, 2000, we had an accumulated
deficit of $749,484.

RESULTS OF OPERATIONS

    SIX MONTHS ENDED JUNE 30, 2000 AND 1999

    For the six-month period ended June 30, 2000, we recorded $3,000,000 in
milestone payments from Pharmacia for the completion of Phase I clinical trials
and commencement of Phase II/III clinical trials for LEP. We recorded a
nonrefundable license fee of $9,000,000 for the same period in 1999 for entering
into the licensing agreement with Pharmacia for the development and
commercialization of LEP and LED.

    Research and development expense for the six-month period ended June 30,
2000 was $1,629,381 compared to $2,017,326 for the same period in 1999. The
overall reduction in research and development costs was the result of
nonrecurring 1999 expenses associated with licensing one of our tumor-targeting
products of approximately $256,000 and a sublicense fee paid to Georgetown of
$800,000. In 2000 we expended approximately $668,000 related primarily to the
preclinical development of LE-AON and our two tumor-targeting products.

    General and administrative expenses for the six-month period ended June 30,
2000 were $1,220,593 compared to $1,100,349 for the same period in 1999. The
overall increase in general and administrative expenses was the result of an
increase in franchise taxes of approximately $47,000, an increase in consulting
and compensation expense of approximately $83,000 and an increase in insurance
costs of approximately $27,000, all partially offset by a reduction in
professional fees and various other general administrative expenses of $36,300.
In the prior year period, we incurred additional professional fees and
administrative expenses in completing our license agreement with Pharmacia. The
current year's increase in franchise taxes resulted from the increase in our
capitalization due to the sale of shares to Pharmacia and the conversion of our
warrants into common stock following the calling for redemption of our warrants.

    We generated interest income on excess cash balances of $807,059 and $98,595
for the six-month periods ended June 30, 2000 and June 30, 1999, respectively,
due to higher average cash balances in the current year period.

    We incurred interest expense of $0 and $2,126 for the six-month periods
ended June 30, 2000 and June 30, 1999, respectively.

    We recorded no income tax expense or benefit for the six-month period ended
June 30, 2000 compared to income tax expense of $2,392,000 for the same period
ended June 30, 1999.

    YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

    We had no operating revenues during the three fiscal years ended
December 31, 1997, 1998 and 1999, except for a $550,000 payment received from
BioChem Pharma in 1997 as part of a licensing and distribution agreement and
$11,000,000 of upfront and milestone payments received from Pharmacia as part of
a licensing agreement. Interest income for 1997, 1998 and 1999 totaled $210,501,
$88,752 and $626,508, respectively. The 1999 increase in interest income was due
to higher levels of cash equivalent

                                       23
<PAGE>
investments resulting from cash received pursuant to the Pharmacia agreement and
the calling of our warrants.

    We incurred research and development expenses of $3,758,980 in 1999 compared
to $1,611,343 in 1998 and $1,411,692 in 1997. The increase in 1999 research and
development expenses is primarily due to the increased research expenses on
LE-AON and our two tumor-targeting products of $1,000,000, an amendment fee of
$800,000 paid to Georgetown in consideration for certain modifications to the
Georgetown research and license agreements, a termination fee of $50,000 paid to
BioChem related to one of our license agreements and increased payroll,
consulting and related expenses of $620,000. Our research and development
expenses related to LEP and LED decreased by approximately $330,000 in 1999
because Pharmacia assumed all future development costs of these products under
its licensing agreement. The increase of $199,651 in research and development
costs between 1998 and 1997 was primarily the result of hiring two additional
research staff members.

    We incurred general and administrative expenses of $2,446,926 in 1999 as
compared to $1,691,132 in 1998 and $1,370,486 in 1997. The increase in 1999
general and administrative expenses is primarily the result of increased
professional fees of $335,000, increased payroll costs of $271,000, increased
investor relations costs of $132,000, increased insurance costs of $59,000 and a
reduction in other miscellaneous expenses of $41,000. General and administrative
expenses for 1998 compared to 1997 increased approximately $321,000. The
increase was primarily the result of increased professional fees of $103,000,
executive recruitment costs of $81,000, increased investor relations costs of
$29,000, increased insurance costs of $9,000, increased space costs of $35,000
and an increase in other miscellaneous expenses of $64,000.

    LIQUIDITY AND CAPITAL RESOURCES

    At June 30, 2000, we had $25,296,283 in cash and cash equivalents and net
working capital of $25,316,504. All excess cash has been invested in short-term
investments.

    Our assets at June 30, 2000, were $25,884,469 compared to $25,051,748 at
December 31, 1999. This increase in assets was primarily due to an increase of
cash and cash equivalents of approximately $632,000 as a result of cash
generated by operating activities of approximately $430,000, cash provided by
financing activities of approximately $204,000 and cash used in investing
activities of approximately $2,000. The cash generated by operating activities
was primarily from the milestone payment received from Pharmacia. The cash
provided by financing activities resulted primarily from the exercise of stock
options that were held by consultants to the Company.

    Our liabilities at June 30, 2000 decreased to approximately $512,000 from
approximately $1,047,000 at December 31, 1999. This decrease was attributable to
a decrease in trade payables of approximately $391,000, a decrease in accrued
expenses of approximately $50,000, a decrease in accrued compensation of
approximately $174,000 and an increase in obligations under research agreements
of approximately $80,000.

    Our assets at December 31, 1999 were $25,051,748 compared to $1,781,548 at
December 31, 1998. This increase in assets was primarily due to an increase of
cash and cash equivalents of approximately $24,624,000 as a result of cash
generated by operating activities of approximately $6,058,000, cash used to
purchase equipment and furniture of approximately $4,000 and cash provided by
financing activities of approximately $18,570,000. The cash generated by
operating activities was primarily from the upfront and milestone payments
received from Pharmacia. The cash provided by financing activities resulted
primarily from the equity investment by Pharmacia and the calling of our
warrants.

    On October 22, 1998, we established a $3,000,000 line of credit (the "Line
of Credit") with the John N. Kapoor Trust dtd. 9/20/89, an entity affiliated
with the chairman of our board of directors. Interest on borrowings on the Line
of Credit were accrued at the rate of 2% over the prime rate of the

                                       24
<PAGE>
Northern Trust Bank. We borrowed $250,000 on the Line of Credit on January 8,
1999. The $250,000 plus all accrued interest was repaid on January 29, 1999. The
Line of Credit terminated upon the signing of the Pharmacia licensing agreement
on February 19, 1999.

    Our liabilities at December 31, 1999 increased to approximately $1,047,000
from approximately $603,000 at December 31, 1998. This increase was attributable
to an increase in trade payables of approximately $291,000, an increase in
accrued expenses of approximately $115,000, an increase in accrued compensation
at year end of approximately $228,500 and a reduction in obligations under
research agreements of approximately $192,000.

    Based on currently projected operating and capital requirements, we believe
that the net proceeds of this offering and our existing capital resources,
including interest earned, and expected milestone payments will be sufficient to
allow us to meet our projected operating and capital requirements for at least
the next 24 months. However, our actual needs will depend on numerous factors,
including the following:

    - our degree of success in commercializing our products;

    - the amount of milestone payments we receive from our collaborators;

    - the rate of progress and cost of research and development and clinical
      trial activities relating to our products;

    - the costs of preparing, filing, prosecuting, maintaining and enforcing
      patent claims and other intellectual property rights;

    - emergence of competing technologies and other adverse market developments;

    - changes in or terminations of our existing collaboration and licensing
      arrangements;

    - the costs of acquiring or licensing new technology, products or businesses
      if we desire to expand our product portfolio; and

    - the cost of manufacturing scale-up and development of marketing
      operations, if we undertake those activities.

    We may also seek additional funding through public or private offerings of
securities, with collaborative or other arrangements with corporate partners or
from other sources. Additional financing may not be available when needed or on
terms acceptable to us. If adequate financing is not available, we may be
required to delay, scale back or eliminate certain of our research and
development programs, relinquish rights to certain of our technologies, cancer
drugs or products, or license third parties to commercialize products or
technologies that we would otherwise seek to develop ourselves.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999, which requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and to measure those instruments at
fair value. In June 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133," effective for all fiscal
quarters beginning after June 15, 2000. SFAS No. 137 allows companies that have
not applied early adoption of SFAS No. 133 to delay implementation until
quarters beginning after June 15, 2000. SFAS No. 133/SFAS No. 137 is not
anticipated to have a significant impact on our operating results or financial
condition when adopted, since we do not currently engage in hedging activities.

                                       25
<PAGE>
                                    BUSINESS

OVERVIEW

    We are a biopharmaceutical company engaged in the research, development and
commercialization of drugs for the treatment of various forms of cancer. We are
currently developing a portfolio of seven anti-cancer drugs, three of which have
advanced to clinical trials. We have built our drug portfolio based on our two
novel technology platforms: an electrostatic liposome drug delivery platform and
a tumor-targeting fusion protein platform. In February 1999, we established a
worldwide collaborative relationship with Pharmacia to develop and commercialize
our two late-stage development products, LEP and LED. Pharmacia is currently
conducting multi-center Phase II/III clinical trials of LEP for the treatment of
a variety of solid tumor cancers and multi-center Phase II/III clinical trials
for LED for the treatment of breast and prostate cancers.


    In addition to LEP and LED, we have five other products under development.
Under our electrostatic liposome platform, we filed an investigational new drug
application in July 2000 for LE-AON, our liposome encapsulated gene inhibitor
for radiation resistant tumors, and we have initiated preclinical studies for
liposome encapsulated epirubicin, referred to as LEE, and liposome encapsulated
mitoxantrone, referred to as LEM. Under our tumor-targeting fusion protein
platform, we are currently in Phase I/II clinical trials for IL13-PE38 for the
treatment of kidney cancer. In March 2000, we filed an investigational new drug
application for our other tumor-targeting product, SS1(dsFv)-PE38, and expect to
commence Phase I/II clinical trials for SS1(dsFv)-PE38 for the treatment of
various cancers in the second half of 2000.


MARKET OVERVIEW

    Cancer is the second leading cause of death in the United States. The
American Cancer Society estimates that doctors will diagnose 1.2 million new
cases of cancer in the United States in 2000. The National Cancer Institute
estimates the costs of cancer in 2000 to be $107 billion, including $37 billion
in direct medical costs and $11 billion for morbidity costs, which includes the
cost of lost productivity. The worldwide cancer drug market is estimated at
$19 billion in 2000, representing 7% growth from 1999.

    Cancer is characterized by uncontrolled cell division resulting in the
growth of a mass of cells commonly known as a tumor. Cancerous tumors can arise
in almost any tissue or organ, and cancer cells, if not eradicated, spread, or
metastasize, throughout the body. Cancer is believed to occur as a result of a
number of factors, including heredity and environmental factors.

    For the most part, cancer treatment depends on the type of cancer and the
stage of disease progression. Generally, staging is based on the size of the
tumor and whether the cancer has metastasized. Following diagnosis, solid tumors
are typically surgically removed or the patient is given radiation therapy.
Chemotherapy is the principal treatment for tumors that have metastasized or are
likely to metastasize. Chemotherapy involves the administration of cytotoxic
drugs, which are designed to kill cancer cells, or the administration of
hormones which affect the growth of tumors.

    Because in most cases metastatic cancer is fatal, oncologists attempt to
attack the cancer aggressively and with as many therapies as available and with
as much dosage as the patient can tolerate. Since chemotherapy attacks both
normal and cancerous cells, treatment often tends to result in complicating side
effects. Additionally, cells which have been exposed to several rounds of
chemotherapy develop a resistance to the cancer drugs that are being
administered. This is known as "multi-drug resistance." The side effects of
chemotherapy often limit the effectiveness of treatment. Cancers often recur and
mortality rates remain high. Despite the large sums of money spent on cancer
research, current treatments are inadequate and improved cancer agents are
needed.

                                       26
<PAGE>
    The products we currently have under development target a broad range of
solid tumors. The table below shows the incidence and mortality estimated for
the year 2000 for the primary types of solid tumor cancers that our products
seek to treat:

<TABLE>
<CAPTION>
TYPE OF CANCER                                             NEW CASES    DEATHS
--------------                                             ---------   --------
<S>                                                        <C>         <C>
Breast...................................................   184,200     41,200
Prostate.................................................   180,400     31,900
Lung.....................................................   164,100    156,900
Kidney...................................................    31,200     11,900
Head and Neck............................................    30,200      7,800
Ovarian..................................................    23,100     14,000
Brain....................................................    16,500     13,000

Source: American Cancer Society, 2000 Cancer Facts and
  Figures
</TABLE>

BUSINESS STRATEGY

    Our corporate strategy is to become a leader in the research, development
and commercialization of new and innovative anti-cancer treatments. Our strategy
involves the following elements:

FOCUS ON THE GROWING CANCER MARKET.

    The worldwide cancer drug market is estimated at $19 billion in 2000,
representing a 7% increase from 1999. Despite the large sums of money spent,
cancer is the second leading cause of death in the United States, and current
treatments remain inadequate. Given the life-threatening nature of cancer and
the lack of effective treatments, the FDA has adopted procedures to accelerate
the approval of cancer drugs. We intend to use our expertise in the field of
cancer research to target this significant market opportunity for cancer drug
development.

DEVELOP OUR EXISTING PRODUCT PORTFOLIO.

    We are currently developing a portfolio of seven anti-cancer drugs, three of
which have advanced to clinical trials. We are collaborating with Pharmacia to
develop and commercialize two of these products. We intend to further develop
our other five products both by continuing to collaborate with leading
corporate, governmental and educational institutions and by expanding our
internal resources. We believe this strategy will maximize the commercial value
of our products by giving us the option to either directly market our products
or to license our products on more favorable terms.

CREATE NEW PRODUCTS BY CAPITALIZING ON OUR ELECTROSTATIC LIPOSOME TECHNOLOGY
  PLATFORM.

    We intend to use our electrostatic liposome technology platform to create
new products in two ways: by extending the patent life of existing cancer drugs
and by utilizing our unique platform to develop new drugs. We believe that
several widely used cancer drugs are nearing patent expiration. Many of these
drugs, while effective, have been limited in their use because of adverse side
effects and difficulties in administration. Using our electrostatic liposome
technology, we believe opportunities exist for us to increase the usefulness of
these compounds as improved anti-cancer treatments. When a drug is combined with
another agent or delivery system in a novel way, its marketing exclusivity may
be extended. We are intending to extend the marketing exclusivity for paclitaxel
and doxorubicin through our LEP and LED products, respectively.

    We believe that our electrostatic liposome technology may provide us with a
platform for the development of new therapeutic agents for cancer drug
development. For example, we are developing LE-AON, the encapsulation of a gene
therapy which inhibits a protein associated with radiation resistant tumors, to
treat various solid tumors.

                                       27
<PAGE>
REDUCE RISK THROUGH A BROAD PORTFOLIO OF PRODUCTS.

    We are currently developing seven products based on our electrostatic
liposome and tumor targeting fusion protein platforms. We are developing
multiple products simultaneously in order to reduce the impact of any single
product failure. In addition, by broadening our product portfolio, we increase
our flexibility to eliminate products which we determine have less market
potential while applying additional resources to products which show promise.

DEVELOP SPECIALIZED SALES AND MARKETING CAPABILITIES FOR THE UNITED STATES
MARKET AND FORM STRATEGIC INTERNATIONAL COLLABORATIONS FOR FOREIGN MARKETS.

    Under the terms of our license agreement with Pharmacia, we have the right
to purchase co-promotion rights for LEP and LED in the United States. We intend
to develop a specialized cancer sales and marketing capability within the United
States for LEP, LED and other products that we may develop. With respect to
foreign sales, we intend to enter into collaborations with established
international drug companies.

OUR TECHNOLOGY


ELECTROSTATIC LIPOSOME DRUG DELIVERY PLATFORM



    Liposomes, microscopic spheres composed of lipid membranes, were discovered
in the late 1960's and have been extensively investigated as drug delivery
vehicles. Liposomes were believed to be particularly suitable for the delivery
of toxic drugs, such as cancer drugs, because drugs encapsulated in liposomes
are preferentially absorbed into certain organs such as the liver, spleen and
gall bladder. Furthermore, liposomes, and the cytotoxic agents encapsulated
therein, are not as readily absorbed by the nervous system or key organs, like
the heart, thereby helping to reduce toxicity.


    While liposomes were initially viewed as an important advance in drug
delivery technology, there have been limited commercial successes. We estimate
that in excess of $700 million has been spent on the research and development of
liposomes, resulting in the commercialization of only two liposomal drugs,
doxorubicin and amphotericin B.

    To date, liposomes have commonly been produced with uncharged lipids.
Attempts at using uncharged liposomes as drug delivery vehicles have resulted in
many difficulties, including:

    - difficulty in achieving encapsulation that severely limits the scope of
      drugs available for encapsulation;

    - a need for expensive, complex manufacturing processes that result in
      higher manufacturing costs;

    - cumbersome and time-consuming reconstitution procedures required of
      pharmacy personnel; and

    - product stability being limited to hours.

    We believe that our second generation, proprietary electrostatic liposome
technology may overcome these limitations. Our electrostatic liposome technology
uses charged lipids rather than neutral lipids. By encapsulating a drug within
an oppositely charged liposome, we achieve a powerful electrostatic attraction
between these two agents which creates a stable drug formulation. We believe
that our proprietary electrostatic liposome technology provides a number of
advantages over previous liposome products, including the following:

    - BROADENED RANGE OF DRUGS WHICH CAN BE ENCAPSULATED

        Our technology provides an opportunity to efficiently encapsulate a wide
    range of compounds. Based on our research to date, we believe we can improve
    the delivery of a variety of cytokines and chemotherapy drugs, including
    paclitaxel, the number one selling chemotherapy drug which previously has
    not been successfully encapsulated in liposomes. In addition, we believe our
    electrostatic liposome technology may allow for the delivery of antisense
    compounds and genes, thereby avoiding the potential problems associated with
    viral delivery systems.

                                       28
<PAGE>
    - REDUCED TOXICITY AT HIGHER DOSES

        Our electrostatic liposome delivery system may allow for the treatment
    of patients with reduced toxic side effects. Accordingly, our delivery
    system may enable the administration of the liposome encapsulated drug in
    higher doses, thereby potentially increasing efficacy and possibly allowing
    for treatment over longer periods of time.

    - INCREASED STABILITY, RESULTING IN SIMPLIFIED HANDLING AND INCREASED SHELF
      LIFE

        The stability of our liposomal drugs makes freeze-drying possible, which
    provides for longer shelf life and simplified handling during preparation in
    the pharmacy and administration of the drug by the oncologist.

    - REDUCED MANUFACTURING COST

        Our electrostatic liposome technology does not require complex
    manufacturing techniques. The electrostatic interaction between the
    oppositely-charged liposome and the drug typically results in an
    encapsulation efficiency of over 95%, resulting in reduced manufacturing
    costs.

    - REDUCED MULTI-DRUG RESISTANCE, INCREASING THE KILLING OF OTHERWISE
      RESISTANT TUMORS

        Multi-drug resistance is the resistance that a patient's tumors usually
    develop after they have been exposed to several doses of chemotherapy. Some
    tumor cells remove the chemotherapy drugs via a pump which exists on the
    cell membrane of most cells. Previous liposomes have not had any significant
    inhibitory effects on this pump, and the tumors have been able to pump out
    the tumor-killing drugs. Based on our preclinical studies, we believe that
    cardiolipin, one of the patented ingredient lipids in our two lead liposome
    products, inhibits the function of the pump. As a result, we may be able to
    significantly increase the effectiveness of our cardiolipin containing
    liposomes against tumors, thereby maximizing the killing of otherwise
    resistant tumors.

TUMOR-TARGETING FUSION PROTEIN PLATFORM

    Fusion proteins consist of a single molecule composed of two parts, a
tumor-targeting mechanism and a cytotoxic agent. Our tumor-targeting mechanism
is a protein that detects and binds to a specific marker on the surface of
cancer cells. Since cancer cells may have unique markers on their surface, a
tumor-targeting mechanism with the appropriate specificity for those cells may
be used to deliver the cytotoxic agent directly to the tumors. The key to making
a useful tumor-targeting drug is the targeting mechanism that selects tumor
cells while ignoring healthy cells.


    Two fusion protein products have been approved by the FDA and commercialized
for the treatment of cancer: American Home Products Corporation's
Mylotarg-Registered Trademark- in May 2000 for relapsed adult acute myeloid
leukemia and Ligand Pharmaceuticals Incorporated's Ontak-Registered Trademark-
in February 1999 for persistent or recurrent cutaneous T-cell lymphoma. While
these fusion protein drugs are being marketed for leukemia, our fusion protein
products are being developed for the larger solid tumor market.


    We and our collaborative partners, the FDA and the National Institute of
Health, referred to as NIH, have identified two targeting mechanisms which we
believe possess the requisite characteristics for successful use in fusion
proteins. Both IL13, and SS1(dsFv), target receptors which are present in
significantly higher numbers on solid tumor cells than on healthy cells.
Specifically, IL13 targets receptors in kidney cancer, brain cancer, Kaposi's
sarcoma and possibly breast cancer, and SS1(dsFv) targets receptors in ovarian
cancer and head and neck cancers. We use PE38 as the cytotoxic component in both
of our tumor-targeting fusion protein products. We selected PE38 because of its
effective cell killing action on a wide variety of tumor types.

    Based upon our preclinical studies, we believe our tumor-targeting products
may provide the following benefits:

    - specifically target tumor cells with minimal toxicity to healthy cells;

                                       29
<PAGE>
    - successfully attack cancer cells resistant to standard cancer treatments;

    - kill slow-growing tumors, which are often difficult to treat;

    - a tolerable side-effect profile with a minimal disturbance to a patient's
      quality of life during treatment; and

    - product stability and extended shelf life.

OUR PRODUCTS

    We have utilized both our electrostatic liposome platform and our
tumor-targeting fusion protein platform to develop a group of potential
anti-cancer products. Presently, we have three products in clinical trials, two
in preclinical trials and two products for which preclinical trials have been
completed and for which investigational new drug applications have been filed.
The products we are currently developing are detailed in the following table:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S>                            <C>                            <C>
                               POTENTIAL
PRODUCTS IN DEVELOPMENT        CANCER INDICATIONS             DEVELOPMENT STATUS(1)
-------------------------------------------------------------------------------------------
ELECTROSTATIC LIPOSOME DRUG
  DELIVERY PLATFORM
-------------------------------------------------------------------------------------------
LEP--Liposome                  Various solid tumors           Phase II/III
    Encapsulated Paclitaxel

LED--Liposome                  Breast, Prostate, Blood        Phase II/III
    Encapsulated Doxorubicin

LE-AON--                       Various solid tumors           IND filed
    Liposome Encapsulated
    Antisense Oligonucleotide

LEM--Liposome                  Prostate                       Preclinical
    Encapsulated Mitoxantrone

LEE--Liposome                  Breast, Blood                  Preclinical
    Encapsulated Epirubicin
-------------------------------------------------------------------------------------------
TUMOR-TARGETING FUSION
  PROTEIN PLATFORM
-------------------------------------------------------------------------------------------
IL13-PE38                      Kidney, Brain                  Phase I/II

SS1(dsFv)-PE38                 Ovarian, Head and Neck,        IND filed
                               Mesothelioma

-------------------------------------------------------------------------------------------
</TABLE>


(1)  "Preclinical" means that a product is undergoing efficacy and safety
     evaluation in animals in preparation for human clinical trials.

   "IND filed" means that an investigational new drug application has been filed
    with the FDA. If the FDA approves the IND, clinical testing in humans may
    begin.


   "Phase I/II" clinical trials denote the evaluation of safety, with some
    measure of efficacy, and dosing in humans.


   "Phase II/III" clinical trials denote Phase II clinical trials evaluating
    safety and efficacy in humans, which trials may be expanded into larger
    scale Phase III clinical trials.

                                       30
<PAGE>

ELECTROSTATIC LIPOSOME DRUG DELIVERY PLATFORM


LIPOSOME ENCAPSULATED PACLITAXEL

    PRODUCT DESCRIPTION.  LEP is a liposome encapsulated formulation of the
widely-used cancer drug, paclitaxel. Paclitaxel is marketed by Bristol-Myers
Squibb Company under the trade name "Taxol-Registered Trademark-" and is used in
the treatment of a number of tumors, including breast, ovarian and lung cancer.
Taxol sales were $1.2 billion in 1998 and $1.5 billion in 1999, making it the
largest selling cancer drug in the world. Despite paclitaxel's wide use and its
anti-tumor characteristics, its effectiveness has been limited by its side
effects, such as nausea, vomiting, hair loss, and nerve and muscle pain. Because
of the chemical characteristics of paclitaxel, it cannot be introduced into the
body unless it is first formulated in a toxic mixture of castor oil and ethanol
which requires premedication of the patient. In addition, paclitaxel must be
infused over a period of at least three hours.

    We believe our technology may overcome many of the current limitations of
paclitaxel by utilizing cardiolipin, a naturally occurring, negatively charged
lipid found in cardiac tissue, to increase the solubility of paclitaxel. We have
been able to standardize the preparation of cardiolipin through the development
of a proprietary form of synthetic cardiolipin. Using cardiolipin eliminates the
need for the use of castor oil and ethanol and reduces the need for the
accompanying premedication. Since paclitaxel has a positive charge and
cardiolipin has a negative charge, cardiolipin electrostatically combines with
the paclitaxel to form a stable product that can be freeze-dried and easily
reconstituted. Based on preclinical studies, we believe another potential
advantage of LEP may be the ability of cardiolipin to reduce multi-drug
resistance. As a result, we may be able to significantly increase the
effectiveness of LEP against tumors, thereby maximizing the killing of otherwise
resistant tumors.


    DEVELOPMENT STATUS.  LEP is being developed for various solid tumor cancers.
We believe LEP is the first, and only, liposomal form of paclitaxel to enter
clinical trials. Enrollment of patients in our Phase I/II clinical trials for
LEP was completed in April 2000. These Phase I/II trials involved the treatment
of 31 cancer patients, none of whom were then responding to other forms of
treatment. Our Phase I/II trials have provided evidence that LEP may be able to
be administered at higher levels than paclitaxel is currently administered, with
fewer side effects. Although not designed to determine efficacy, six patients in
the Phase I/II trial experienced tumor reductions greater than 35%. The tumors
in 12 other patients did not increase in size after 12 weeks, and in four of
these 12 patients, the tumors were still stable in size one year later. Some
patients received significantly more cycles of LEP than can be given with
uncapsulated paclitaxel, including two patients who have received greater than
30 cycles of LEP. None of the patients showed signs of the nerve and muscle pain
commonly associated with paclitaxel and most patients did not experience the
hair loss or nausea often associated with paclitaxel treatment.


    Pharmacia has initiated large scale multi-center, multinational
Phase II/III clinical trials. These Phase II/III trials will assess LEP as both
a single and combination therapy for a variety of solid tumors to determine its
safety and efficacy.

LIPOSOME ENCAPSULATED DOXORUBICIN

    PRODUCT DESCRIPTION.  LED is a liposome encapsulated formulation of the
widely used cancer drug, doxorubicin. Doxorubicin is used to treat a number of
cancers, including solid tumors and leukemia, a form of blood cancer. Though
effective in treating these and other cancers, doxorubicin may produce
irreversible heart damage. The risk of heart failure increases with increasing
total doses of doxorubicin. Doxorubicin also causes suppression of white blood
cell production, which may limit the dose that may be administered, and produces
side effects such as nausea, vomiting and hair loss. Clinical results to date
suggest that LED may reduce these side effects. In addition, since doxorubicin
has a positive charge and cardiolipin has a negative charge, cardiolipin
electrostatically binds to the doxorubicin to form a stable product that can be
freeze-dried and easily reconstituted. We believe LED, unlike other

                                       31
<PAGE>
liposomal doxorubicin products currently available, may reduce multi-drug
resistance and be easier to manufacture because of its formulation with
cardiolipin.


    DEVELOPMENT STATUS.  We intend to develop LED for breast, prostate and blood
cancers. We completed a Phase I/II trial in May 1998, which provided evidence
that LED demonstrated lower toxicity when compared to unencapsulated doxorubicin
and could be given at approximately double the current standard dose for
doxorubicin. In June 1998, Phase II clinical trials for the treatment of
advanced prostate cancer in 10 patients were initiated. After four rounds of
treatment, the level of prostate specific antigen, an indicator of the extent of
disease progression, decreased by greater than 35% in two patients and
stabilized in two other patients. These four patients reported a significant
reduction in pain. Pharmacia is currently conducting multi-center Phase II/III
clinical trials of LED.


LIPOSOME ENCAPSULATED ANTISENSE OLIGONUCLEOTIDES

    PRODUCT DESCRIPTION.  We have developed a liposome encapsulated antisense
cRaf oligonucleotide, LE-AON, which we believe inhibits the expression of the
cRaf protein and thus may have potential to enhance the effectiveness of
radiation in the treatment of certain cancers. cRaf is a protein which is
expressed at higher levels in cancer cells which are resistant to radiation
therapy than in healthy cells. By inhibiting expression of this gene, the cell
becomes more susceptible to radiation therapy. Our liposomes provide a non-viral
method of delivering the gene inhibitor into the cell. An additional advantage
of LE-AON is that it can be administered intravenously and is relatively easy to
manufacture.

    DEVELOPMENT STATUS.  We intend to develop LE-AON as a treatment for
radiation resistant tumors. In our preclinical studies, intravenous
administration of LE-AON appeared to inhibit cRaf gene expression in tumor
tissue. When LE-AON was given in combination with radiation treatment, tumor
regression for at least 27 days was observed. We filed an investigational new
drug application for LE-AON for patients with radiation resistant solid tumor
cancers in July 2000 and expect to begin Phase I/II clinical trials in the
second half of 2000.

LIPOSOME ENCAPSULATED MITOXANTRONE

    We recently encapsulated mitoxantrone in our liposomes. Mitoxantrone is used
for the treatment of prostate cancer and multiple sclerosis. We believe LEM will
demonstrate a safety and efficacy advantage over unencapsulated mitoxantrone.
Currently we are conducting preclinical studies to evaluate the profile of this
drug.

LIPOSOME ENCAPSULATED EPIRUBICIN


    Epirubicin is a drug that is widely used in Europe for the treatment of
breast cancer and was recently introduced in the U.S. by our collaborative
partner, Pharmacia. We believe LEE will demonstrate a safety and efficacy
advantage over unencapsulated epirubicin. We have recently encapsulated
epirubicin in our liposomes and intend to evaluate its properties as a treatment
for breast cancer. We are currently conducting preclinical studies to evaluate
the profile of this drug.


TUMOR-TARGETING FUSION PROTEIN PLATFORM

IL13-PE38

    PRODUCT DESCRIPTION.  IL13-PE38 is a tumor-targeting agent we are developing
for the treatment of kidney and brain cancers. Research by scientists at the FDA
and the NIH has demonstrated that some solid tumors express higher numbers of
IL13 receptors on their cell surfaces in comparison with healthy cells.
IL13-PE38 links the cytotoxin PE38 to the tumor-targeting agent IL13. When
administered,

                                       32
<PAGE>
IL13-PE38 is expected to target the IL13 receptors, thereby killing the tumor
cells with minimal damage to the healthy cells.

    In September 1997, we entered into an exclusive worldwide licensing
agreement with the FDA and the NIH giving us rights to develop and commercialize
IL13-PE38. We also entered into a cooperative research and development agreement
with the FDA for the clinical and commercial development of IL13-PE38 as an
anti-cancer agent. We believe this is the first collaboration between the FDA
and a biopharmaceutical company.

    DEVELOPMENT STATUS.  We are evaluating IL13-PE38 as a treatment for kidney
and brain cancers. In preclinical studies, IL13-PE38 has provided evidence of
tumor regression in a number of cancers, which suggests the potential for a
favorable toxicity profile. We filed an investigational new drug application in
June 1999 for IL13-PE38 for the treatment of refractory kidney cancer and
entered Phase I/II clinical trials in October 1999 for this indication. In our
Phase I/II clinical trials we determined the maximum tolerated dose and schedule
and we are currently working to establish the proper dosage level and schedule.
We filed an investigational new drug application in March 2000 for brain cancer
and anticipate beginning Phase I/II clinical trials in the third quarter of
2000.

SS1(DSFV)-PE38

    PRODUCT DESCRIPTION.  SS1(dsFv)-PE38 links the cytotoxin PE38 to the
antibody SS1(dsFv). As is the case with IL13, SS1(dsFv) targets specific
receptors on cancer cells and delivers the cytotoxin directly to the cancer
cells with minimal effect on healthy cells. In March 1999, we executed a
worldwide exclusive licensing agreement with the NIH giving us rights to develop
and commercialize SS1(dsFv)-PE38. We also entered into a cooperative research
and development agreement with the NIH for the clinical and commercial
development of SS1(dsFv)-PE38 as an anti-cancer agent.

    DEVELOPMENT STATUS.  We are evaluating SS1(dsFv)-PE38 as a treatment for
ovarian cancer, head and neck cancer, and mesothelioma, a type of lung cancer.
In March 2000, we filed an investigational new drug application for
SS1(dsFv)-PE38 for the treatment of certain common cancers and we expect to
commence Phase I/II clinical trials in ovarian cancer, mesothelioma, and head
and neck cancers in the second half of 2000. In preclinical studies,
SS1(dsFv)-PE38 demonstrated very specific targeting to receptors for ovarian
cancer and head and neck cancer and a high level of tumor toxicity. Preclinical
studies demonstrated a high rate of response in ovarian tumors.

COLLABORATIVE RELATIONSHIPS AND LICENSES

    PHARMACIA LICENSE AGREEMENT

    In February 1999, we signed a license agreement with Pharmacia giving them
certain rights to develop and commercialize LEP and LED worldwide. The license
agreement provides for up to $69 million in payments to us from Pharmacia, as
follows:

    - a $9 million non-refundable up-front payment on execution of the license
      agreement;

    - up to $52 million in milestone payments as clinical progress occurs; and

    - an $8 million equity investment in our common stock.

    We have already received the $9 million non-refundable up-front payment upon
execution of the license agreement, the $8 million equity investment, a
$2 million milestone payment in July 1999 for transferring the investigational
new drug applications for LED and LEP to Pharmacia, and a $3 million milestone
payment in March 2000 upon initiation of the Phase II clinical trials for LEP.
Pharmacia has assumed all further responsibility for, and the costs associated
with, the development and testing of LEP and LED and obtaining all regulatory
approvals. We have the right to purchase from Pharmacia co-promotion rights in
lieu of receiving royalties on United States sales, for a price based upon a
percentage of Pharmacia's development costs. We will also receive a fixed
royalty on foreign sales.

                                       33
<PAGE>
    We may terminate the license agreement upon a material breach by Pharmacia
and Pharmacia may terminate the agreement upon our material breach. Upon
termination of the agreement by either party, Pharmacia's rights to the relevant
licenses granted under the agreement automatically revert to us. If Pharmacia
ceases to market, sell or launch the products relating to the licenses granted
under the agreement in the United States, certain European markets or Japan and
upon our request, Pharmacia is required to transfer the regulatory approvals
obtained in those countries to us and take all other actions necessary to permit
us to obtain regulatory approvals to market the products in those countries,
unless Pharmacia's cessation is due to reasons related to the safety or efficacy
of a product.

    GEORGETOWN UNIVERSITY AGREEMENTS

    We have entered into two license agreements, two contract research
agreements and a sponsored research agreement with Georgetown University
relating to LED, LEP, and LE-AON. Under the Georgetown licenses, and in return
for sponsoring related research, we were granted exclusive licenses to
manufacture and sell LED, LEP, and LE-AON. We are obligated to pay royalties to
Georgetown on commercial sales of these products. In addition, we are obligated
to make certain advance royalty payments, which will be credited against future
royalties. The Georgetown licenses may be terminated in the event of a default.
Our rights under the Georgetown licenses with respect to LED and LEP have been
sublicensed to Pharmacia.

    Under the contract research agreements, we pay or reimburse Georgetown for
all direct and indirect costs associated with research on specific projects. In
return, and upon payment of a one-time payment of $100,000 under one agreement
and $175,000 under the other, we retain all rights to all inventions,
developments, discoveries and other proprietary ideas which are first conceived,
discovered or developed during the conduct of the research.

    Under the terms of the sponsored research agreement with Georgetown, we have
agreed to pay the costs associated with additional research relating to certain
proprietary research information previously developed by Georgetown as well as
making certain milestone and royalty payments to Georgetown. In return for this
sponsored research, Georgetown has given us a license for certain existing
patent rights now owned by Georgetown as well as a right of first refusal to
exclusively license any invention or discovery conceived or reduced to practice
during the research. The terms of any such license, would be subject to good
faith negotiations.

    NIH

    In September 1997, we entered into an exclusive worldwide licensing
agreement with the NIH and the FDA whereby we were granted the right to develop
and commercialize IL13-PE38. The IL13-PE38 license required us to pay the NIH an
initial $75,000 non-refundable payment and requires minimum annual royalty
payments to the NIH of $10,000, which increase to $25,000 after the first
commercial sale. The IL13-PE38 license also requires us to make certain
milestone payments and pay royalties based on future product sales. The NIH and
the FDA may terminate the agreement upon our default in performing any material
obligations under the agreement or if they determine that such action is
necessary to meet the requirements for public use specified by federal
regulations and we do not reasonably satisfy such requirements. While providing
us with an exclusive license, it should be noted that, as is typical in such
agreements, neither the NIH nor the FDA make any representations or warranties
in the license agreement as to the validity or enforceability of the licensed
rights.

    In March 1999, we entered into a license agreement with the NIH for
SS1(dsFv)-PE38. The SS1(dsFv)-PE38 license required us to pay the NIH an initial
$75,000 non-fundable payment and requires minimum annual royalty payments to the
NIH beginning on January 1, 2000 of $20,000, which increase to $150,000 per year
if we fail to reach certain benchmarks. The other terms and conditions of the
SS1(dsFv)-PE38 license are substantially the same as those of the NIH IL13-PE38
license described

                                       34
<PAGE>
above. We also entered into a cooperative research and development agreement
with the NIH in May 1999 for IL13-PE38.

    FDA

    In August 1997, we entered into a cooperative research and development
agreement with the FDA covering the IL13-PE38 product which we license from the
NIH and FDA. Pursuant to the FDA agreement, we agree to commercialize IL13-PE38
and the FDA agrees to collaborate on the clinical development and
commercialization of the licensed product. In addition, we are required to pay
$150,000 per year for expenses incurred by the FDA in carrying out its
responsibilities under this agreement. Research and development costs related to
this research totaled $100,000 in each of 1997 and 1998 and $150,000 in 1999.
This research agreement is currently scheduled to expire on August 27, 2001,
however, the agreement provides that this expiration date will be adjusted by
mutual agreement to accommodate the parties progress as the research moves
forward.

MANUFACTURING

    We intend to develop manufacturing relationships with established
pharmaceutical manufacturers for the production of our electrostatic liposome
products and tumor-targeting fusion protein products. Currently, all five of our
electrostatic liposome products are produced at the Center for Advanced Drug
Development at the University of Iowa Pharmacy School which we believe has
sufficient production capabilities to satisfy our clinical trial needs through
the end of clinical testing. While commercial production of LEP and LED is
expected to be handled by Pharmacia, we have retained the right, under the terms
of our agreement with Pharmacia, to supply any liposomal products if we can do
so at lower cost.

    We have also entered into an exclusive supply agreement with Avanti Polar
Lipids, Inc. providing for the manufacture and supply of synthetic cardiolipin,
an important ingredient in our liposomal products. Under the terms of the
agreement, Avanti has agreed to supply us with synthetic cardiolipin in an
amount sufficient to commercialize our liposomal products. In addition, Avanti
agreed not to sell synthetic cardiolipin to competing third parties. Unless
terminated in accordance with its terms, the supply agreement will automatically
renew for additional two year terms on and after the initial expiration date of
May 1, 2008. If Avanti elects to terminate the manufacture of synthetic
cardiolipin, we have the right to obtain a non-exclusive license from Avanti to
allow us to continue the manufacture of synthetic cardiolipin.


    There are a number of suppliers of raw materials used in our other products
that appear to be acceptable to FDA. There are also a number of facilities for
contract manufacturing of our proposed products that have current Good
Manufacturing Practices that appear to be acceptable to FDA. We believe that, in
the event of the termination of our existing sources for product supplies and
manufacture, we will be able to enter into agreements with other suppliers or
manufacturers on similar terms. However, we cannot assure you that there will be
manufacturing capacity available to us at the time we are ready to manufacture
our products.


PATENTS AND PROPRIETARY RIGHTS

    We have licenses to 16 United States patents or patent applications relating
to LEP, LED, LE-AON, IL13-PE38 and SS1(dsFv)-PE38, and we own one pending United
States application covering methods of administering LEP, for which we have
received a notice of allowance. We have also filed applications in a number of
foreign jurisdictions which are counterparts of our allowed United States
applications. We believe all of our products under development are protected by
patents owned or licensed to us.

                                       35
<PAGE>
    Patent protection is important to our business. The patent position of
companies in the pharmaceutical field generally is highly uncertain, involves
complex legal and factual questions, and has recently been the subject of much
litigation. Therefore, we cannot assure you that any patent applications
relating to our products or processes will result in patents being issued, or
that the resulting patents, if any, will provide protection against competitors
who successfully challenge our patents, obtain patents that may have an adverse
effect on our ability to conduct business, or are able to circumvent our patent
position. It is possible that other parties have conducted or are conducting
research and could make discoveries of compounds or processes that would precede
any of our discoveries. Finally, we cannot assure you that others will not
independently develop similar pharmaceutical products which will compete against
ours or cause our products to become obsolete.

    Our competitive position is also dependent upon unpatented trade secrets. In
an effort to protect our trade secrets, we have a policy of requiring our
employees, scientific advisory board members, consultants and advisors to
execute proprietary information and invention assignment agreements upon
commencement of employment or consulting relationships with us. These agreements
provide that all confidential information developed or made known to the
individual during the course of their relationship with us must be kept
confidential, except in specified circumstances. However, we cannot assure you
that these agreements will provide meaningful protection for our trade secrets
or other proprietary information in the event of unauthorized use or disclosure
of confidential information. Further, invention assignment agreements executed
by scientific advisory board members, consultants and advisors may conflict
with, or be subject to, the rights of third parties with whom such individuals
have employment or consulting relationships. In addition, we cannot assure you
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets, that
such trade secrets will not be disclosed or that we can effectively protect our
rights to unpatented trade secrets.

    We may be required to obtain licenses to patents or proprietary rights of
others. We cannot assure you that any licenses required under any such patents
or proprietary rights would be made available on terms acceptable to us or at
all. If we do not obtain such licenses, we could encounter delays in product
market introductions while we attempt to design around such patents, or could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed. Litigation may be necessary to defend against
claims of infringement, to assert claims of infringement to enforce patents
issued to us or exclusively licensed to us, to protect trade secrets or know-how
owned by us, or to determine the scope and validity of the proprietary rights of
others. In addition, we may become involved in oppositions in foreign
jurisdictions or interference proceedings declared by the United States Patent
and Trademark Office to determine the priority of inventions with respect to our
patent applications or those of our licensors. Litigation, opposition or
interference proceedings could result in substantial costs to and diversion of
effort by, and may have a material adverse impact on, us. In addition, we cannot
assure you that our efforts in these proceedings will be successful.

GOVERNMENT REGULATION

    Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of our proposed products and in our ongoing research and product development
activities. The nature and extent to which such regulation will apply to us will
vary depending on the nature of any products developed. We anticipate that all
of our products will require regulatory approval by governmental agencies prior
to commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures of the
FDA and similar regulatory authorities in foreign countries. Various federal
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and record-keeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent
compliance with the appropriate federal statutes and regulations requires
substantial time and financial resources. Any failure by us or our collaborators
to obtain, or any delay

                                       36
<PAGE>
in obtaining, regulatory approval could adversely affect the marketing of any
products developed by us, our ability to receive product revenues and our
liquidity and capital resources.

    The development, manufacture, marketing and distribution of drug products is
extensively regulated by the FDA in the U.S. and similar regulatory agencies in
other countries. The steps ordinarily required before a new drug may be marketed
in the U.S., which are similar to steps required in most other countries,
include:

    - preclinical laboratory tests, preclinical studies in animals, formulation
      studies and the submission to the FDA of an investigational new drug
      application;

    - adequate and well-controlled clinical trials to establish the safety and
      efficacy of the drug for each type of cancer;

    - the submission of a new drug application to the FDA; and

    - FDA review and approval of the new drug application.


    Preclinical tests include laboratory evaluation of product chemistry,
toxicity and formulation, as well as animal studies. The results of preclinical
testing are submitted to the FDA as part of an investigational new drug
application. A 30-day waiting period after the filing of each investigational
new drug application is required prior to the commencement of clinical testing
in humans. At any time during this 30-day period or at any time thereafter, the
FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials
under specified terms. The investigational new drug application process may be
extremely costly and substantially delay development of our products. Moreover,
positive results of preclinical tests will not necessarily indicate positive
results in subsequent clinical trials.


    Clinical trials to support new drug applications are typically conducted in
three sequential phases, although the phases may overlap. During Phase I,
clinical trials are conducted with a small number of subjects to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves studies
in a limited patient population to:

    - assess the efficacy of the drug in specific, targeted indications;

    - assess dosage tolerance and optimal dosage; and

    - identify possible adverse effects and safety risks.

    If a compound is found to be potentially effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further demonstrate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical trial sites.


    After successful completion of the required clinical trials, a new drug
application is generally submitted. The FDA may request additional information
before accepting a new drug application for filing, in which case the
application must be resubmitted with the additional information. Once the
submission has been accepted for filing, the FDA reviews the application and
responds to the applicant. FDA requests for additional information or
clarification often significantly extend the review process. The FDA may refer
the new drug application to an appropriate advisory committee for review,
evaluation and recommendation as to whether the application should be approved,
but the FDA is not bound by the recommendation of an advisory committee.


    If the FDA evaluations of the new drug application and the manufacturing
facilities are favorable, the FDA may issue an approval letter or an
"approvable" letter. An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new drug
application and authorization of commercial marketing of the drug for certain
indications. The FDA

                                       37
<PAGE>
may also refuse to approve the new drug application or issue a "not approvable"
letter outlining the deficiencies in the submission and often requiring
additional testing or information.

    On November 21, 1997, President Clinton signed into law the Food and Drug
Administration Modernization Act. That act codified the FDA's policy of granting
"fast track" approval for cancer therapies and other therapies intended to treat
severe or life threatening diseases and having potential to address unmet
medical needs. Previously, the FDA approved cancer therapies primarily based on
patient survival rates or data on improved quality of life. The FDA considered
evidence of partial tumor shrinkage, while often part of the data relied on for
approval, insufficient by itself to warrant approval of a cancer therapy, except
in limited situations. Under the FDA's new policy, which became effective on
February 19, 1998, the FDA has broadened authority to consider evidence of
partial tumor shrinkage or other clinical outcomes for approval. This new policy
is intended to facilitate the study of cancer therapies and shorten the total
time for marketing approvals. We intend to take advantage of this policy;
however, it is too early to tell what effect, if any, these provisions may have
on the approval of our products.

    Under the Orphan Drug Act, the FDA may designate drug products as orphan
drugs if there is no reasonable expectation of recovery of the costs of research
and development from sales in the United States or if such drugs are intended to
treat a rare disease or condition, which is defined as a disease or condition
that affects less than 200,000 persons in the United States. If certain
conditions are met, designation as an orphan drug confers upon the sponsor
marketing exclusivity for seven years following FDA approval of the product,
meaning that the FDA cannot approve another version of the "same" product for
the same use during such seven year period unless the FDA finds that the sponsor
is not able to supply adequate quantities of the drug. The market exclusivity
provision does not, however, prevent the FDA from approving a different orphan
drug for the same use or the same orphan drug for a different use. The Orphan
Drug Act has been controversial, and many legislative proposals have from time
to time been introduced in Congress to modify various aspects of the Orphan Drug
Act, particularly the market exclusivity provisions. We cannot assure you that
new legislation will not be introduced in the future that may adversely impact
the availability or attractiveness of orphan drug status for any of our
products.


    Sales outside the United States of products we develop will also be subject
to regulatory requirements governing human clinical trials and marketing for
drugs. The requirements vary widely from country to country, but typically the
registration and approval process takes several years and requires significant
resources. In most cases, if the FDA has not approved a product for sale in the
United States, the product may be exported for sale outside of the United States
only if it has been approved in any one of the following countries: the European
Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South
Africa. There are specific FDA regulations that govern this process.


    We are also subject to various federal, state and local laws, regulations
and recommendations relating to safe working conditions, laboratory and
manufacturing practices and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the our research work. We cannot accurately
predict the extent of government regulation that might result from future
legislation or administrative action.

PRODUCT LIABILITY AND INSURANCE

    Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic
products. We do not have any product liability insurance at this time. Although
we plan to obtain product liability insurance when and if our products become
commercially viable, we don't know if we will be able to obtain or maintain this
insurance on acceptable terms or that any insurance we obtain will provide
adequate coverage against potential liabilities. Claims or losses in excess of
any liability insurance coverage we obtain could have a material adverse effect
on our business, financial condition or results of operations.

                                       38
<PAGE>
COMPETITION

    Competition in the discovery and development of methods for treating cancer
is intense. Numerous pharmaceutical, biotechnology and medical companies and
academic and research institutions in the United States and elsewhere are
engaged in the discovery, development, marketing and sale of products for the
treatment of cancer. These include surgical approaches, new pharmaceutical
products and new biologically derived products. We expect to encounter
significant competition for the principal pharmaceutical products we plan to
develop. Companies that complete clinical trials, obtain regulatory approvals
and commence commercial sales of their products before their competitors may
achieve a significant competitive advantage. A number of pharmaceutical
companies are developing new products for the treatment of the same diseases
being targeted by us. In some instances, our competitors already have products
in clinical trials. In addition, certain pharmaceutical companies are currently
marketing drugs for the treatment of the same diseases being targeted by us and
may also be developing new drugs to address these disorders.

    We believe that our competitive success will be based on our ability to:

    - create and maintain scientifically advanced technology;

    - develop proprietary products;

    - attract and retain scientific personnel;

    - obtain patent or other protection for our products;

    - obtain required regulatory approvals;

    - obtain orphan drug status for certain products; and

    - manufacture and successfully market our products either independently or
      through outside parties.

Many of our competitors have substantially greater financial, clinical testing,
regulatory compliance, manufacturing, marketing, human and other resources. Our
competitors include Bristol-Myers Squibb Company, ELAN Corporation plc., ALZA
Corporation and Gilead Sciences, Inc. In addition, we will continue to seek
licenses with respect to key technologies related to our fields of interest and
may face competition with respect to such efforts.

HUMAN RESOURCES


    As of September 1, 2000, we had seven full-time employees and consulting
arrangements with 11 consultants. In connection with our agreements with
Georgetown University, 15 Georgetown employees work on the research and
development of our products in two of Georgetown's labs. None of our employees
or consultants are represented by a collective bargaining arrangement, and we
believe our relationship with our employees and consultants is good. We intend
to continue to retain consultants and to add personnel as our business strategy
is implemented.


                                       39
<PAGE>
SCIENTIFIC ADVISORY BOARD

    The following table lists the members of our Scientific Advisory Board and
their principal positions:

<TABLE>
<CAPTION>
NAME                                                       PRINCIPAL POSITION(S)
----                                           ---------------------------------------------
<S>                                            <C>
William Bradner, Ph.D........................  Consultant in research and development of
                                               cancer therapeutics.

Bernard A. Fox, Ph.D.........................  Chief of the Laboratory of Molecular and
                                               Tumor Immunology, of the Robert W. Franz
                                               Cancer Research Center, at the Earle A.
                                               Chiles Research Institute, and Associate
                                               Professor of Molecular Microbiology and
                                               Immunology at Oregon Health Sciences
                                               University, and of Biochemistry and Molecular
                                               Biology at the Oregon Graduate Institute of
                                               Science and Technology.

Timothy J. Kinsella, M.D.....................  Professor and Chairman of the Department of
                                               Human Oncology, University of Wisconsin
                                               Medical School and Deputy Director of the
                                               University of Wisconsin Clinical Cancer
                                               Center, Madison, Wisconsin.

Theodore S. Lawrence, M.D., Ph.D.............  Associate Professor in the Department of
                                               Radiation Oncology at the University of
                                               Michigan Medical Center.

Harvey D. Preisler, M.D......................  Director of the Rush Cancer Institute and
                                               Professor of Medicine at Rush Medical Center,
                                               Chicago, Illinois.

Ralph R. Weichselbaum, M.D...................  Professor and Chairman of the Department of
                                               Radiation and Cellular Oncology, University
                                               of Chicago.

Alfred Yung, M.D.............................  Professor of Neurology and Deputy Chairman in
                                               the Department of Neuro-Oncology and Tumor
                                               Biology at the University of Texas M.D.
                                               Anderson Cancer Center.

Michael D. Prados, M.D., FACP................  Professor and Chief, Neuro-Oncology Service,
                                               University of California, San Francisco,
                                               California.

Joseph Treat, M.D............................  Professor of Medicine, Department of
                                               Medicine, Division of Hematology/Oncology at
                                               MCP-Hahnemann University Hospital,
                                               Philadelphia, Pennsylvania.
</TABLE>

FACILITIES

    Our administrative offices are located in approximately 2,158 square feet of
subleased office space in Bannockburn, Illinois. This subleased space is
provided to us at a market rate by Option Care, Inc., which is affiliated with
the chairman of our board of directors.

LEGAL PROCEEDINGS

    We are not a party to any material litigation or other legal proceedings.

                                       40
<PAGE>
                                   MANAGEMENT


    Our directors and executive officers, their positions and ages as of
September 1, 2000 are as follows:


<TABLE>
<CAPTION>
                                                                                                  POSITION
                                                                                                    HELD
NAME                                  AGE                          POSITION                        SINCE
----                                --------   ------------------------------------------------   --------
<S>                                 <C>        <C>                                                <C>
John N. Kapoor, Ph.D.(2)..........     56      Director, Chairman of the Board                      1990
James M. Hussey...................     41      President, Chief Executive Officer, and Director     1998
Erick E. Hanson(1) (2)............     53      Director                                             1997
Sander A. Flaum(1) (2)............     63      Director                                             1998
Matthew P. Rogan, M.D.............     54      Director                                             2000
Kaveh T. Safavi, M.D., J.D........     40      Director                                             2000
Aquilur Rahman, Ph.D..............     57      Chief Scientific Officer                             1990
Kevin M. Harris...................     39      Chief Financial Officer                              1998
Lewis Strauss, M.D................     49      Vice President, Chief Medical Officer                1998
</TABLE>

------------------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.


    All directors hold office until the next annual meeting of the stockholders
and until their successors are duly elected. Officers are appointed to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed. As described below, Jeffrey W. Sherman will become our Chief Medical
Officer and Lawrence A. Kenyon will become our Chief Financial Officer later in
September 2000.


    JOHN N. KAPOOR, PH.D., Chairman of the Board of Directors, joined us in July
1990 as a member of our board of directors. Prior to forming us, Dr. Kapoor
formed EJ Financial Enterprises, Inc., a health care consulting and investment
company, in March 1990, of which Dr. Kapoor is currently President. Dr. Kapoor
is presently Chairman of Option Care, Inc., a provider of home health care
services, Chairman of Akorn, Inc., a manufacturer, distributor and marketer of
generic ophthalmic products, a director of Introgen Therapeutics, Inc., a gene
therapy company, a director of First Horizon Pharmaceuticals, Inc., a
distributor of pharmaceuticals, and a director of Integrated Surgical Systems,
Inc., a manufacturer and distributor of robotic surgical products. Dr. Kapoor
received his Ph.D. in medicinal chemistry from the State University of New York
in 1970 and a B.S. in pharmacy from Bombay University in India.


    JAMES M. HUSSEY joined us in March 1998 as our President, Chief Executive
Officer, and a member of the board of directors. Mr. Hussey was previously the
Chief Executive Officer of Physicians Quality Care, a managed care organization
from 1994 to January 1998. Previous to that, Mr. Hussey held several positions
with Bristol-Myers Squibb Company from 1984 to 1994, most recently as the
General Manager Midwest Integrated Regional Business Unit. Mr. Hussey is
currently a director of Option Care, Inc., a provider of home health care
services. Mr. Hussey received a B.S. from the College of Pharmacy at Butler
University and an M.B.A. from the University of Illinois.


    ERICK E. HANSON joined us as a Director in April 1997. Mr. Hanson is
currently President of Hanson and Associates, a consulting firm working with
venture capital companies. Previously, Mr. Hanson served as President and Chief
Executive Officer of Option Care, Inc., a provider of home health care services.
Prior to joining Option Care, Inc. Mr. Hanson held a variety of positions with
Caremark, Inc., including from 1991-1995, Vice President Sales and Marketing.
Mr. Hanson served as President and Chief Operating Officer of Clinical
Partners, Inc. in Boston, MA, from 1989-1991 and prior to 1989 was associated
with Blue Cross and Blue Shield of Indiana for over twenty years.

                                       41
<PAGE>
Mr. Hanson presently serves on the Board of Directors for Condell Medical
Centers and Integrity Healthcare, Inc., a home healthcare provider.

    SANDER A. FLAUM joined us as a Director in July 1998. Mr. Flaum is President
and Chief Executive Officer of Robert A. Becker EURO/RSCG, a marketing and
advertising company. Prior to becoming President of Robert A. Becker, Mr. Flaum
was Executive Vice President of Kleinter Advertising and prior to that served as
Marketing Director of Lederle Laboratories, a division of American Cyanamid
where he was employed from 1965-1984.

    DR. MATTHEW P. ROGAN is President and CEO of Unicorn Pharma Consulting,
Inc., a provider of customized pharmaceutical and biotechnology medical
services. From 1997 to 1999, Dr. Rogan was Vice President, Medical Affairs for
Sanofi Pharmaceuticals in the United States. Prior to joining Sanofi, Dr. Rogan
served as Senior Medical Director, Medical Affairs for Zeneca Pharmaceuticals
from 1996-1997 and was director of Clinical Support at Burroughs Wellcome from
1993-1995. Prior to 1993, Dr. Rogan held senior positions with Bristol-Myers
Squibb. Dr. Rogan is a Diplomate of the American Board of Pediatrics, a Fellow
of the American Academy of Pediatrics and a member of the American Academy of
Pharmaceutical Physicians.

    DR. KAVEH T. SAFAVI is Vice President of Business and Strategic Development
for Alexian Brothers of Illinois, Inc., a multi-hospital health system in
metropolitan Chicago, Illinois. Prior to assuming his current position in
January 2000, Dr. Safavi served as Vice President, Medical Affairs for United
Healthcare of Illinois, Inc., a large managed care organization from 1996 to
1999 and served as President of Health Springs Medical Group of Illinois, a
primary care group practice and physician practice management company from 1993
to 1995. Dr. Safavi is board certified in Internal Medicine and Pediatrics and
is licensed to practice law in the State of Illinois.

    AQUILUR RAHMAN, PH.D., joined us as Chief Scientific Officer and as a member
of the board of directors in July 1990, although he elected not to stand for
re-election to the board at our most recent annual meeting of stockholders.
Dr. Rahman joined us on a full time basis in March 1996. Dr. Rahman is currently
adjunct professor of radiology and was an associate professor of pathology and
pharmacology at Georgetown University until March 1996. Dr. Rahman has more than
15 years of research experience in developing methods of chemotherapy treatment
for cancer. Dr. Rahman received his Masters of Science in Biochemistry from the
University of Dacca (Bangladesh) in 1964 and his Ph.D. in Pharmaceutics from the
University of Strathclyde (Glasgow, U.K.) in 1972.


    KEVIN M. HARRIS joined us in June 1998 as our Chief Financial Officer and
Secretary. Mr. Harris is also Director of Taxes and Planning at EJ Financial
Enterprises, Inc. a health care consulting and investment Company. Prior to
joining EJ Financial Enterprises in 1997, Mr. Harris was Vice-President of
Finance of Duo-Fast Corporation. Previously, Mr. Harris worked eleven years in
public accounting, including six years with Arthur Andersen & Company.
Mr. Harris received a B.Sc. in accounting from Illinois State University in 1983
and a M.S. from DePaul University in 1988. Mr. Harris is a Certified Public
Accountant and a Certified Financial Planner. Upon Mr. Lawrence Kenyon joining
us on or about September 11, 2000, as Chief Financial Officer and Secretary,
Mr. Harris will continue on with us in a consulting relationship during a
transition period.



    LEWIS STRAUSS, M.D., joined us as Chief Medical Officer, in April 1998.
After completing his medical training at Cornell Medical College and his
pediatric residency at The John Hopkins School of Medicine in Baltimore,
Dr. Strauss served as a Pediatric Oncologist at John Hopkins Oncology Center
(1980-1991) and at Northwestern University (1991-1997). Upon Dr. Jeffrey Sherman
joining us on or about September 18, 2000, as Chief Medical Officer,
Dr. Strauss will become Vice President, Clinical Development.



    MR. JEFFREY W. SHERMAN, M.D., F.A.C.P., will be joining us on or about
September 18, 2000, as Chief Medical Officer. Dr. Sherman joins us from
G.D. Searle & Co. where, since joining that firm in 1992, he has held a variety
of positions, most recently serving as Executive Director, Immunoinflammatory/


                                       42
<PAGE>

Infectious Disease, Clinical Research, with his focus being on Oncology Clinical
Research. Dr. Sherman received his medical degree from the Finch University of
Health Sciences/The Chicago Medical School and is a member of numerous
professional societies and a Diplomate of the National Board of Medical
Examiners and the American Board of Internal Medicine.



    MR. LAWRENCE A. KENYON will join us as our Chief Financial Officer and
Corporate Secretary on or about September 11, 2000 in place of Mr. Kevin Harris
who has filled the position on a part-time basis since 1998. Mr. Kenyon comes to
us from Mathers and Company, Inc., an investment management firm, where since
1989 he has held a variety of positions, most recently serving as Chief
Financial Officer. Mr. Kenyon is a CPA and received his B.B.A. in Accounting
from the University of Wisconsin in 1987.


    John N. Kapoor, PhD., one of our directors and a principle stockholder, was
previously the Chairman and President of Lyphomed, Inc. Fujisawa Pharmaceutical
Co., Ltd. was a major stockholder of Lyphomed from the mid-1980's until 1990, at
which time Fujisawa completed a tender offer for the remaining shares of
Lyphomed, including the shares held by Dr. Kapoor. In 1992, Fujisawa filed suit
in federal District Court in Illinois against Dr. Kapoor alleging that between
1980 and 1986, Lyphomed filed a large number of allegedly fraudulent new drug
applications with the FDA, and that Dr. Kapoor's failure to make certain
disclosures to Fujisawa constituted a violation of federal securities laws and
the Racketeer Influenced and Corrupt Organizations Act. Fujisawa also alleged
state law claims. Dr. Kapoor countersued, and in 1999, the litigation was
settled on terms mutually acceptable to the parties. The terms of the settlement
are subject to a confidentiality agreement.

    Officers serve at the discretion of the board of directors. There are no
family relationships between any of our directors or executive officers.

                                       43
<PAGE>

                       PRINCIPAL AND SELLING STOCKHOLDERS



    The following table sets forth certain information regarding the beneficial
ownership of common stock as of September 1, 2000 and as adjusted to reflect the
completion of this offering by:


    - each of our directors and executive officers,

    - all of our directors and executive officers as a group,

    - each person who is known by us to own beneficially more than five percent
      of the outstanding shares of the common stock.


    Percentage of shares beneficially owned is based on 11,147,230 shares of
common stock outstanding as of September 1, 2000 and 13,947,230 shares of common
stock to be outstanding upon consummation of this offering. Unless otherwise
noted, each person's address is in care of NeoPharm, Inc., 100 Corporate North,
Suite 215, Bannockburn, Illinois 60015.



<TABLE>
<CAPTION>
                                        SHARES BENEFICIALLY                      SHARES BENEFICIALLY
                                               OWNED                                    OWNED
                                       PRIOR TO THE OFFERING     NUMBER OF       AFTER THE OFFERING
                                      -----------------------   SHARES BEING   -----------------------
NAME                                     NUMBER      PERCENT      OFFERED        NUMBER      PERCENT
----                                  ------------   --------   ------------   ----------   ----------
<S>                                   <C>            <C>        <C>            <C>          <C>
John N. Kapoor, Ph.D................  3,996,410(1)    35.77%            --     3,996,410      28.60%

Aquilur Rahman, Ph.D................    925,540(2)     8.26        200,000       725,540       5.18

John P. Curran......................    658,165(3)     5.90             --       658,165       4.72

First Union Corporation.............    622,500(4)     5.58             --       622,500       4.46

James M. Hussey.....................    299,073(5)     2.63             --       299,073       2.11

Lewis Strauss, M.D..................     46,118(6)        *             --        46,118          *

Kevin M. Harris.....................     28,876(7)        *             --        28,876          *

Erick E. Hanson.....................      5,000(8)        *             --         5,000          *

Sander A. Flaum.....................     12,000(8)        *             --        12,000          *

Matthew P. Rogan....................          0           *             --             0          *

Kaveh T. Safavi.....................          0           *             --             0          *

All Directors and Executive Officers
  as a Group (9 persons)............  5,313,017       46.07%       200,000     5,113,017      35.67%
</TABLE>


------------------------

*   Less than 1%


 (1) Includes 25,000 shares that may be acquired pursuant to options exercisable
     as of September 1, 2000 or that will become exercisable within 60 days of
     September 1, 2000, 906,422 shares held by the John N. Kapoor Trust, dated
     9/20/89 (the "JNK Trust"), of which Dr. Kapoor is the sole trustee and sole
     beneficiary and 904,812 shares held by EJ Financial/NEO Management, L.P.
     (the "Limited Partnership") of which John N. Kapoor is Managing General
     Partner. The address of the Trust and the Limited Partnership is 225 East
     Deerpath, Suite 250, Lake Forest, Illinois 60045 The amount shown also
     includes: 300,000 shares which are held by the John N. Kapoor Charitable
     Trust (the "Charitable Trust"), of which Dr. Kapoor and his spouse are
     co-trustees; 1,549,687 shares of common stock which are owned by the John
     N. Kapoor 1994-A Annuity Trust (the "Annuity Trust") of which the sole
     trustee is Editha Kapoor, Dr. Kapoor's spouse; and 310,848 shares which are
     owned by four trusts which have been established for Dr. Kapoor's children
     (the "Children's Trusts") of which the sole trustee is Editha Kapoor. Dr.
     Kapoor does not have or share voting, investment or dispositive power with
     respect to the shares owned by the Annuity Trust or the Children's Trusts
     and Dr. Kapoor disclaims beneficial ownership of these shares as well as
     the shares held by the Charitable Trust.


                                       44
<PAGE>

 (2) Includes 60,000 shares that may be acquired pursuant to options exercisable
     as of September 1, 2000 or that will become exercisable within 60 days of
     September 1, 2000. Dr. Rahman holds the position of Chief Scientific
     Officer and has been a member of our board of directors until June of this
     year.



 (3) Includes 550,265 shares of common stock which are held by Curran Partners,
     L.P., of which John Curran is general partner. The address for Curran
     Partners and John P. Curran is 237 Park Avenue, New York, N.Y. 10017.


 (4) The address of First Union Corporation is One First Union Center,
     Charlotte, N.C. 28288.


 (5) Includes 235,000 shares that may be acquired pursuant to options
     exercisable as of September 1, 2000 or that will become exercisable within
     60 days of September 1, 2000.



 (6) Includes 30,000 shares that may be acquired pursuant to options exercisable
     as of September 1, 2000 or that will become exercisable within 60 days of
     September 1, 2000.



 (7) Includes 26,000 shares that may be acquired pursuant to options exercisable
     as of September 1, 2000 or that will become exercisable within 60 days of
     September 1, 2000.



 (8) Includes 5,000 shares that may be acquired pursuant to options exercisable
     as of September 1, 2000 or that will become exercisable within 60 days of
     September 1, 2000.


                                       45
<PAGE>
                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    On June 19, 2000, we entered into a consulting agreement with Unicorn Pharma
Consulting, Inc. and Unicorn's principal owner, Dr. Matthew P. Rogan. Dr. Rogan
was elected to our board of directors at the June 2000 annual meeting of
stockholders. Under the terms of the consulting agreement, Dr. Rogan will assist
our Chief Scientific Officer by providing, among other specifically-enumerated
services: guidance regarding clinical development of our products;
recommendations with respect to a medical infrastructure to conduct our clinical
plan; and assistance in the identification and recruitment of professional
staff. Dr. Rogan has also agreed to serve as our chief scientific officer, on an
interim basis, should the need arise. Under the terms of the consulting
agreement, which has an initial term of six months, and automatically renews for
successive one-month periods unless terminated by either party, Unicorn will
receive $5,000 per week in return for Dr. Rogan's services. Either party may
terminate the consulting agreement upon seven days prior written notice.

    In November 1997, we relocated our principal corporate office to space
subleased from Option Care Inc. Mr. Hanson, one of our directors, was formerly
President, CEO and a director of Option Care Inc. In addition, Dr. Kapoor,
Chairman of our board of directors, is a director and principal shareholder of
Option Care Inc. Dr. Kapoor holds approximately 51.9% of the outstanding shares
of Option Care Inc. The sublease was negotiated at arms length and during 1999
we expensed approximately $33,025 for rent under the Option Care sublease. The
lease term is month to month and at the present time we are negotiating a new
lease with an unrelated third party which, if a lease is signed, would result in
our relocating our principal office.

    Messrs. John N. Kapoor and Kevin M. Harris, who each hold executive
positions with us, are also associated with EJ Financial Enterprises, Inc., a
health care investment firm which is wholly owned by John N. Kapoor, and
therefore will have conflicts of interest in allocating their time among various
business activities and may have legal obligations to multiple entities. On
July 1, 1994, we entered into a consulting agreement with EJ Financial. The
consulting agreement provides that we will pay EJ Financial $125,000 per year
(paid quarterly) for certain business and financial services, including having
certain officers of EJ Financial serve as our officers. EJ Financial is involved
in the management of health care companies in various fields, and
Messrs. Kapoor and Harris are involved in various capacities with the management
and operation of these companies. The John N. Kapoor Trust, dated September 20,
1989, the beneficiary of which is Dr. John Kapoor, is a principal shareholder of
each of these companies and us. The John N. Kapoor Trust and other entities
controlled by or affiliated with John N. Kapoor beneficially own approximately
36% of our outstanding shares of common stock, prior to this offering.

    Effective January 1, 2000, Mr. Harris, our Chief Financial Officer, is paid
$20,000 per quarter pursuant to a consulting arrangement and will receive up to
25,000 stock options per year based on the attainment of milestones established
by the Board at the beginning of the fiscal year. Mr. Harris is also the
Director of Taxes and Planning of EJ Financial. Accordingly, Mr. Harris will not
devote all of his working hours to our affairs. In addition, EJ Financial is
involved with other companies in the cancer field. Although these companies are
pursuing different therapeutic approaches for the treatment of cancer,
discoveries made by one or more of these companies could render our products
less competitive or obsolete.

    Two of our key products have been obtained under license agreements with
Georgetown University. Dr. Aquilur Rahman, currently our Chief Scientific
Officer, was formerly an associate professor of pathology and pharmacology at
Georgetown University. While employed by Georgetown, Dr. Rahman entered into an
agreement with Georgetown relating to the ownership of inventions and other
intellectual property developed while in Georgetown's employ. This relationship
may pose a conflict of interest for Dr. Rahman. As part of his agreement with
Georgetown University, Dr. Rahman has advised us that Georgetown University may
share with him payments which Georgetown receives

                                       46
<PAGE>
from us under our license agreements with Georgetown. While there were no
royalty payments to Georgetown University by us in 1999, as a result of our
entering into a license agreement with Pharmacia in February 1999, a payment of
$800,000 was made to Georgetown University. Additionally, if regulatory approval
is obtained in the future for LED and LEP, royalty payments, which could be
substantial, would be made by us to Georgetown, a portion of which may be paid
to Dr. Rahman.

    We have adopted a policy whereby any transactions between us and our
officers, directors, principal stockholders and any affiliates of the foregoing
persons will be on terms no less favorable to us than could reasonably be
obtained in arm's length transactions with independent third parties, and that
any such transactions also be approved by a majority of our disinterested
outside directors.

                                       47
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    The following is a description of the material terms of our capital stock
and charter documents. While complete in material respects, this description is
nonetheless a summary and is qualified in each instance by reference to the full
text of these documents.


    On August 31, 2000, we filed an amended and restated certificate of
incorporation increasing our authorized common stock from 15,000,000 to
25,000,000 shares of common stock, $0.0002145 par value.


COMMON STOCK

    The holders of our common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Subject to any
outstanding preferred stock preference, the holders of our common stock are
entitled to receive ratably the dividends, if any, that may be declared from
time to time by our board of directors out of funds legally available for such
dividends. We have never declared a dividend and do not anticipate doing so.
Subject to any outstanding preferred stock preference, in the event of a
liquidation, dissolution or winding up of us, the holders of our common stock
are entitled to share ratably in all assets remaining after the payment of
liabilities. Holders of our common stock have no preemptive rights and no right
to convert their shares of common stock into any other securities. There are no
redemption or sinking fund provisions applicable to our common stock. All the
outstanding shares of our common stock are validly issued, fully paid and
nonassessable.

OPTIONS


    We have granted options to purchase our common stock to employees and
certain non-employees under our employee stock option plans. As of September 1,
2000, there were 1,352,358 options outstanding, of which 590,018 were vested and
exercisable, and 1,199,665 shares were available for future issuance under our
plans.


REGISTRATION RIGHTS

    We have granted Pharmacia certain registration rights regarding the shares
of common stock that it acquired pursuant to its license agreement with us.
Specifically, upon a request being made by the holders of two-thirds of the
shares issued to Pharmacia, we are required to register, at our expense, the
number of shares of common stock for which the request has been made. Pharmacia
may also exercise rights to have such registrable common stock registered at any
time that we file a registration statement for other shares of our common stock.
However, Pharmacia has waived its rights to exercise these registration rights
in connection with this offering.

DELAWARE LAW

    We are subject to Section 203 of the Delaware General Corporation Law, which
prevents an "interested stockholder," defined as a person who owns or within
three years did own 15% or more of a corporation's outstanding voting stock,
from engaging in a business combination with a publicly-held Delaware
corporation for three years following the date that person became an interested
stockholder. An exception is made where the business combination is approved in
a prescribed manner. A corporation may, at its option, elect to exempt itself
from Section 203 by amending it certificate of incorporation or bylaws by action
of its stockholders. We did not elect to exempt ourselves.

                                       48
<PAGE>

INDEMNIFICATION OF DIRECTORS AND OFFICERS


    Our certificate of incorporation limits, to the maximum extent permitted by
Delaware law, the personal liability of directors for monetary damages for
breach of their fiduciary duties as directors. Our bylaws provide that we shall
indemnify our officers and directors and may indemnify our employees and other
agents to the fullest extent permitted by law. We have entered into
indemnification agreements with our officers and directors containing provisions
which are, in some respects, broader than the specific indemnification
provisions contained in Delaware law. The indemnification agreements may require
us, among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms. We believe that these
agreements are necessary to attract and retain qualified persons as directors
and officers.

    Section 145 of the Delaware law provides that a corporation may indemnify a
director, officer, employee or agent made or threatened to be made a party to an
action by reason of the fact that he was a director, officer, employee or agent
of the corporation or was serving at the request of the corporation. The
corporation may indemnify a director, officer, employee or agent expenses
actually and reasonable incurred in connection with such action if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

    Delaware Law does not permit a corporation to eliminate a director's duty of
care, and the provisions of our certificate of incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended, may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions and agreements, we have been informed that in the opinion
of the staff of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

TRANSFER AGENT

    The transfer agent for our common stock is Computershares Limited.

                                       49
<PAGE>
                                  UNDERWRITING

    We and the selling stockholder have entered into an underwriting agreement
with the underwriters named below, for whom Prudential Securities Incorporated
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives. We and the
selling stockholder are obligated to sell, and the underwriters are obligated to
purchase, all of the shares offered on the cover page of this prospectus, if any
are purchased. Subject to certain conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the shares indicated opposite its
name:

<TABLE>
<CAPTION>
                                                                 NUMBER
UNDERWRITERS                                                    OF SHARES
------------                                                    ---------
<S>                                                           <C>
Prudential Securities Incorporated..........................
U.S. Bancorp Piper Jaffray Inc..............................
                                                                ---------
    Total...................................................   3,000,000
                                                                =========
</TABLE>


    The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of
30 days from the date of this prospectus, an over-allotment option to purchase
up to 450,000 additional shares from us. If any additional shares are purchased,
the underwriters will severally purchase the shares in the same proportion as
per the table above.


    The representatives of the underwriters have advised us and the selling
stockholder that the shares will be offered to the public at the offering price
indicated on the cover page of this prospectus. The underwriters may allow to
selected dealers a concession not in excess of $      per share and such dealers
may reallow a concession not in excess of $      per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions.

    We and the selling stockholder have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment option to purchase additional shares.

<TABLE>
<CAPTION>
                                                                        TOTAL FEES
                                                       ---------------------------------------------
                                              FEE       WITHOUT EXERCISE OF      FULL EXERCISE OF
                                           PER SHARE   OVER-ALLOTMENT OPTION   OVER-ALLOTMENT OPTION
                                           ---------   ---------------------   ---------------------
<S>                                        <C>         <C>                     <C>
Fees paid by us..........................   $            $                      $
Fees paid by the selling stockholder.....   $            $                      $
</TABLE>

    In addition, we estimate that we will spend approximately $320,000 in
expenses for this offering. The selling stockholder will pay his own expenses
for this offering. We and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in respect of these liabilities.

    We, our officers and directors and certain stockholders, including the
selling stockholder, have entered into lock-up agreements under which we and
they have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for a
period of 90 days from the date of this prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the underwriters.
Prudential Securities Incorporated may, at any time and without notice, waive
the term of these lock-up agreements specified in the underwriting agreement.

                                       50
<PAGE>
    Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:

    - Create a syndicate short position by making short sales of our common
      stock and may purchase our common stock on the open market to cover
      syndicate short positions created by short sales. Short sales involve the
      sale by the underwriters of a greater number of shares of common stock
      than they are required to purchase in the offering. Short sales can be
      either "covered" or "naked". "Covered" short sales are sales made in an
      amount not greater than the underwriters' over-allotment option to
      purchase additional shares in the offering. "Naked" short sales are sales
      in excess of the over-allotment option. A "naked" short position is more
      likely to be created if the underwriters are concerned that there may be
      downward pressure on the price of the common stock in the open market
      after pricing that could adversely affect investors who purchase in the
      offering.

    - Stabilizing and short covering. Stabilizing bids to purchase the shares
      are permitted if they do not exceed a specified maximum price. Prudential
      Securities Incorporated, on behalf of the underwriters, may close out any
      covered short position by either exercising the over-allotment option or
      purchasing shares in the open market and must close out any naked short
      position by purchasing shares in the open market. In determining the
      source of shares to close out the covered short position, Prudential
      Securities Incorporated, on behalf of the underwriters, will consider,
      among other things, the price of shares available for purchase in the open
      market as compared to the price shares may be purchased through the
      over-allotment option. These activities may cause the price of the shares
      to be higher than would otherwise exist in the open market.

    - Penalty bids permitting the representatives to reclaim concessions from a
      syndicate member of the shares purchased in the stabilizing or short
      covering transactions.

    Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also, prior to the pricing of the shares and until such time when a
stabilizing bid may have been made, some or all of the underwriters who are
market makers in the shares may make bids for or purchases of shares subject to
certain restrictions, known as passive market making activities.

    Each underwriter has represented that it has compiled and will comply with
all applicable laws and regulations in connection the offer, sale or delivery of
the shares and related offering materials in the United Kingdom, including:

    - the Public Offers of Securities Regulations 1995;

    - the Financial Services Act 1986; and

    - the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
      order 1996 (as amended).

    Prudential Securities incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.

                                 LEGAL MATTERS


    The validity of the issuance of the Shares offered hereby will be passed
upon for us by Burke, Warren, MacKay & Serritella, P.C., Chicago, Illinois and
for the selling stockholder by Katten Muchin Zavis, Chicago, Illinois. Certain
legal matters will be passed upon for the underwriters by Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois.


                                       51
<PAGE>
                                    EXPERTS

    The financial statements and schedules included (incorporated by reference)
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts (or, as experts in accounting and auditing) in
giving said reports.

                      WHERE YOU CAN FIND MORE INFORMATION

    We file annual, quarterly, and current reports, proxy statements, and other
documents with the Securities and Exchange Commission. You may read and copy any
document we file at the SEC's Public Reference Room at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You should call
1-800-SEC-0330 for more information on the Public Reference Room. The SEC
maintains an Internet site at http://www.sec.gov where certain information
regarding issuers (including us) may be found.


    This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC (Registration No. 333-44396). The registration statement
contains more information than this prospectus regarding us and our common
stock, including certain exhibits and schedules. You can obtain a copy of the
registration statement from the SEC at the address listed above or from its
Internet site.


                      DOCUMENTS INCORPORATED BY REFERENCE

    The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information may include documents filed after the date of this
prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus, and all future documents filed with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
we terminate the offering of these shares.

    - Our Annual Report on Form 10-K for the fiscal year ended December 31,
      1999;

    - Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
      March 31, 2000 and June 30, 2000; and

    - Our Proxy Statement, dated April 28, 2000, in connection with our June 8,
      2000 Annual Meeting of Stockholders.

    You may request a copy of these documents, at no cost to you, by writing or
telephoning us at:

                                 NeoPharm, Inc.
                         100 Corporate North, Suite 215
                          Bannockburn, Illinois 60015
                           Attention: James M. Hussey
                            Telephone: 847-295-8678

                                       52
<PAGE>
                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              --------
<S>                                                           <C>
Report of Arthur Andersen LLP, Independent Public
  Accountants...............................................     F-2
Balance Sheets..............................................     F-3
Statements of Operations....................................     F-4
Statement of Stockholders' Equity/(Deficit).................     F-5
Statements of Cash Flows....................................     F-6
Notes to Financial Statements...............................     F-8
</TABLE>

                                      F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of NeoPharm, Inc.:

    We have audited the accompanying balance sheets of NeoPharm, Inc. (a
Delaware corporation) as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NeoPharm, Inc. as of
December 31, 1998 and 1999, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Chicago, Illinois
March 13, 2000

                                      F-2
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               DECEMBER 31,           JUNE 30,
                                                         -------------------------   -----------
                                                            1998          1999          2000
                                                         -----------   -----------   -----------
                                                                                     (UNAUDITED)
<S>                                                      <C>           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents............................  $    40,681   $24,664,567   $25,296,283
  Other receivables....................................           --        76,007        49,079
  Tax refund receivable................................           --       126,000       126,000
  Prepaid expenses.....................................           --       118,800       357,059
  Deferred taxes (Note 5)..............................    1,640,000            --            --
                                                         -----------   -----------   -----------
    Total current assets...............................  $ 1,680,681   $24,985,374   $25,828,421

Equipment and furniture:
  Equipment............................................       82,690        85,447        87,004
  Furniture............................................       78,877        80,210        80,210
  Less accumulated depreciation........................      (60,700)      (99,283)     (111,166)
                                                         -----------   -----------   -----------
    Total equipment and furniture, net.................      100,867        66,374        56,048
                                                         -----------   -----------   -----------
    Total assets.......................................  $ 1,781,548   $25,051,748   $25,884,469
                                                         ===========   ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Obligations under research agreements................  $   260,000   $    68,333   $   148,333
  Accounts payable.....................................      275,926       567,357       176,569
  Accrued compensation.................................       67,500       296,000       121,690
  Other accrued expenses...............................           --       115,000        65,325
                                                         -----------   -----------   -----------
    Total current liabilities..........................  $   603,426   $ 1,046,690   $   511,917
                                                         -----------   -----------   -----------
Stockholders' equity:
  Common stock, $.0002145 par value; 15,000,000 shares
    authorized, 8,341,779, 11,028,617 and 11,144,432
    shares issued and outstanding as of December 31,
    1998, December 31, 1999 and June 30, 2000,
    respectively.......................................        1,789         2,366         2,391
  Additional paid-in capital...........................    6,637,378    25,709,261    26,119,645
  Accumulated deficit..................................   (5,461,045)   (1,706,569)     (749,484)
                                                         -----------   -----------   -----------
    Total stockholders' equity.........................  $ 1,178,122   $24,005,058   $25,372,552
                                                         -----------   -----------   -----------
    Total liabilities and stockholders' equity.........  $ 1,781,548   $25,051,748   $25,884,469
                                                         ===========   ===========   ===========
</TABLE>

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

                                      F-3
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                          FOR THE YEARS ENDED             FOR THE SIX MONTHS ENDED
                                             DECEMBER 31,                         JUNE 30,
                                ---------------------------------------   -------------------------
                                   1997          1998          1999          1999          2000
                                -----------   -----------   -----------   -----------   -----------
                                                                                 (UNAUDITED)
<S>                             <C>           <C>           <C>           <C>           <C>
Revenues......................  $   550,000   $        --   $11,000,000   $ 9,000,000   $ 3,000,000
                                -----------   -----------   -----------   -----------   -----------
Expenses:
Research and development......      712,007     1,119,524     2,375,458     1,037,220     1,337,385
General and administrative....    1,367,486     1,655,469     2,413,901     1,082,745     1,204,009
Related party expenses (Note
  8)..........................      702,685       527,482     1,416,547       997,710       308,580
                                -----------   -----------   -----------   -----------   -----------
  Total expenses..............    2,782,178     3,302,475     6,205,906     3,117,675     2,849,974
                                -----------   -----------   -----------   -----------   -----------
Income/(loss) from
  operations..................   (2,232,178)   (3,302,475)    4,794,094     5,882,325       150,026
Interest income...............      210,501        88,752       626,508        98,595       807,059
Interest expense..............           --            --         2,126         2,126            --
                                -----------   -----------   -----------   -----------   -----------
Interest income
  -net........................      210,501        88,752       624,382        96,469       807,059
                                -----------   -----------   -----------   -----------   -----------
Income/(loss) before income
  taxes.......................  $(2,021,677)  $(3,213,723)  $ 5,418,476   $ 5,978,794   $   957,085
Income taxes
  (benefit)/expense...........           --    (1,640,000)    1,664,000     2,392,000            --
                                -----------   -----------   -----------   -----------   -----------
Net income/(loss).............  $(2,021,677)  $(1,573,723)  $ 3,754,476   $ 3,586,794   $   957,085
                                -----------   -----------   -----------   -----------   -----------
Net income/(loss) per share
  Basic.......................  $     (0.25)  $     (0.19)  $      0.39   $      0.43   $      0.09
  Diluted.....................  $     (0.25)  $     (0.19)  $      0.34   $      0.31   $      0.08

Weighted average shares
  outstanding
  Basic.......................    8,146,746     8,213,980     9,567,661     8,438,570    11,092,602
  Diluted.....................    8,939,143     8,757,187    11,155,092    11,552,102    11,902,365
</TABLE>

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

                                      F-4
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                  STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)

<TABLE>
<CAPTION>
                                                         ADDITIONAL                              TOTAL
                               COMMON STOCK     PAR        PAID-IN                           STOCKHOLDERS'
                                  SHARES       VALUE       CAPITAL     ACCUMULATED DEFICIT      EQUITY
                               ------------   --------   -----------   -------------------   -------------
<S>                            <C>            <C>        <C>           <C>                   <C>
Balance at December 31,
  1996.......................    8,130,268     $1,744    $ 5,890,078       $(1,865,645)      $  4,026,177
                               -----------     ------    -----------       -----------       ------------
Issuance of stock pursuant to
  exercise of stock
  options....................       55,542         12        175,166                --            175,178
Issuance of stock pursuant to
  restricted stock grants....       10,000          2         48,748                --             48,750
Net loss.....................           --         --             --        (2,021,677)        (2,021,677)
Issuance of options to non-
  employees..................           --         --        145,644                --            145,644
                               -----------     ------    -----------       -----------       ------------
Balance at December 31,
  1997.......................    8,195,810     $1,758    $ 6,259,636       $(3,887,322)      $  2,374,072
                               -----------     ------    -----------       -----------       ------------
Issuance of stock pursuant to
  exercise of stock
  options....................       22,500          5         82,339                --             82,344
Issuance of stock pursuant to
  restricted stock grants....       74,235         16        263,109                --            263,125
Exercise of warrants.........       49,234         10            (10)               --                 --
Net loss.....................           --         --             --        (1,573,723)        (1,573,723)
Issuance of options to non-
  employees..................           --         --         32,304                --             32,304
                               -----------     ------    -----------       -----------       ------------
Balance at December 31,
  1998.......................    8,341,779     $1,789    $ 6,637,378       $(5,461,045)      $  1,178,122
                               -----------     ------    -----------       -----------       ------------
Issuance of stock pursuant to
  exercise of stock
  options....................      356,000         76      1,495,424                --          1,495,500
Issuance of stock pursuant to
  restricted stock grants....        5,372          1         79,826                --             79,827
Issuance of stock to
  Pharmacia & Upjohn.........      452,861         97      7,999,903                --          8,000,000
Exercise of warrants.........    1,872,605        403      9,073,983                --          9,074,386
Net income...................           --         --             --         3,754,476          3,754,476
Issuance of options to non-
  employees..................           --         --        422,747                --            422,747
                               -----------     ------    -----------       -----------       ------------
Balance at December 31,
  1999.......................   11,028,617     $2,366    $25,709,261       $(1,706,569)      $ 24,005,058
                               -----------     ------    -----------       -----------       ------------
Issuance of stock pursuant to
  exercise of stock
  options....................       45,916         10        203,677                --            203,687
Issuance of stock pursuant to
  restricted stock grants....        2,480          1         49,609                --             49,610
Exercise of warrants.........       67,419         14            (14)               --                 --
Net income...................           --         --             --           957,085            957,085
Issuance of options to non-
  employees..................           --         --        157,112                --            157,112
                               -----------     ------    -----------       -----------       ------------
Balance at June 30, 2000
  (Unaudited)................   11,144,432     $2,391    $26,119,645       $  (749,484)      $ 25,372,552
                               -----------     ------    -----------       -----------       ------------
</TABLE>

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

                                      F-5
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                              FOR THE YEARS ENDED              FOR THE SIX MONTHS ENDED
                                                 DECEMBER 31,                          JUNE 30,
                                    ---------------------------------------   --------------------------
                                       1997          1998          1999          1999           2000
                                    -----------   -----------   -----------   -----------   ------------
                                                                                     (UNAUDITED)
<S>                                 <C>           <C>           <C>           <C>           <C>
Cash flows provided by/(used in)
  operating activities:
Net income/(loss).................  $(2,021,677)  $(1,573,723)  $ 3,754,476   $ 3,586,794   $    957,085
Adjustments to reconcile net
  income/ (loss) to net cash
  provided by/(used in) operating
  activities:
Depreciation and amortization.....        6,727        27,145        38,583        18,000         11,883
Deferred income taxes.............           --    (1,640,000)    1,640,000     2,317,000             --
Compensation expense from non-
  employee stock options..........      145,644        32,304       422,747            --        157,112
Restricted stock grants in lieu of
  cash compensation...............       48,750       263,125        79,827            --         49,610
(Increase)/decrease in other
  assets..........................      (52,634)       52,634      (320,807)     (195,137)      (211,331)
(Decrease)/Increase in accounts
  payable and accrued
  liabilities.....................       14,396       122,999       443,264        99,391       (534,773)
                                    -----------   -----------   -----------   -----------   ------------
  Net cash and cash equivalents
    provided by/(used in)
    operating activities..........   (1,858,794)   (2,715,516)    6,058,090     5,826,048        429,586
                                    -----------   -----------   -----------   -----------   ------------
Cash flows used in investing
  activities:
Purchase of equipment and
  furniture.......................      (18,728)     (102,844)       (4,090)       (2,757)        (1,557)
                                    -----------   -----------   -----------   -----------   ------------
Net cash and cash equivalents used
  in investing activities.........      (18,728)     (102,844)       (4,090)       (2,757)        (1,557)
                                    -----------   -----------   -----------   -----------   ------------
Cash flows provided by financing
  activities:
Proceeds from issuance of common
  stock...........................      175,178        82,344     9,495,500       183,750        203,687
Proceeds from exercise of
  warrants........................           --            --     9,074,386       171,790             --
Cashless exercise of warrants,
  charge..........................           --      (484,955)   (1,074,208)   (1,074,208)    (1,844,314)
Cashless exercise of warrants,
  proceeds........................           --       484,955     1,074,208     1,074,208      1,844,314
                                    -----------   -----------   -----------   -----------   ------------
  Net cash and cash equivalents
    provided by financing
    activities....................      175,178        82,344    18,569,886       355,540        203,687
                                    -----------   -----------   -----------   -----------   ------------
Net increase/(decrease) in cash...   (1,702,344)   (2,736,016)   24,623,886     6,178,831        631,716
Cash and cash equivalents,
  beginning of period.............    4,479,041     2,776,697        40,681        40,681     24,664,567
                                    -----------   -----------   -----------   -----------   ------------
Cash and cash equivalents, end of
  period..........................  $ 2,776,697   $    40,681   $24,664,567   $ 6,219,512   $ 25,296,283
                                    ===========   ===========   ===========   ===========   ============
Supplemental disclosure of cash
  paid for:
Interest..........................  $    84,585   $        --   $     2,126   $     2,126   $         --
Income taxes......................  $        --   $        --   $   150,000   $    75,000   $         --
</TABLE>

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

                                      F-6
<PAGE>
    Supplemental disclosure of cash flow information:

    In 1997, two consultants to the Company each received 5,000 shares of
restricted common stock as compensation. These grants were valued at the closing
price of the traded common shares on the date of the grants. In 1998, the
Company granted 69,235 shares of restricted common stock to employees as
compensation and recorded compensation expense of $222,500. The Company also
donated a total of 5,000 shares of restricted common stock to two charitable
organizations on behalf of a consultant who provided services to the Company and
recorded an administrative expenses of $40,625. Additionally, holders of the
Company's Representatives warrants that were issued as part of the initial
public offering exercised on a cashless basis 49,000 of the 135,000 outstanding
warrants. Each warrant entitles the holder to two shares of common stock for an
exercise price of $9.80.

    In 1999, the company granted 5,372 shares of restricted common stock to
employees as compensation and recorded compensation expense of $79,827 based on
the fair market value of the shares on the date of grant. Additionally, holders
of the Company's Representative warrants that were issued as part of the initial
public offering exercised on a cashless basis 44,935 of 86,000 outstanding
warrants. Each warrant entitles the holder to two shares of common stock for an
exercise price of $9.80.

    The Company called its 837,067 redeemable common stock purchase warrants and
the 67,500 warrants underlying its representative's warrants on June 24, 1999.
The period for exercising the outstanding warrants closed at the close of
business on July 27, 1999. Warrant holders exercised 836,942 of the redeemable
warrants and 67,500 of the underlying warrants for total net proceeds to the
Company of $9,074,386.

    Pursuant to its license agreement, Pharmacia Corporation ("Pharmacia")
purchased 452,861 shares of the Company's common stock at a per share price of
$17.6655 on July 23, 1999.

    During the six month period ended June 30, 2000, the Company granted 2,480
shares of restricted common stock to employees as compensation and recorded
compensation expense of $49,610 based on the fair market value of the shares on
the date of grant. Additionally, holders of the remaining 41,065 Representative
warrants exercised their warrants on a cashless basis and received 67,419 shares
of the Company's common stock.

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

                                      F-7
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

    NeoPharm, Inc. (the "Company"), a Delaware corporation, was incorporated on
June 15, 1990, under the name of OncoMed, Inc. In March 1995, the Company
changed its name to NeoPharm, Inc. The Company is engaged in the research,
development and commercialization of drugs for the treatment of various forms of
cancer. The Company currently has a portfolio of seven anticancer drugs, three
of which are in human clinical trials.

    The Company has one product which is the subject of a Cooperative Research
and Development Agreement ("CRADA") with the National Institute of Health
("NIH") and two products, licensed from the NIH, one of which is the subject of
a CRADA with the United States Food and Drug Administration ("FDA"). The Company
also has rights to products developed under license and sponsored research
agreements with Georgetown University ("Georgetown").

    The Company is continuing to develop its products which requires substantial
capital for research, product development and market development activities. The
Company has not yet initiated marketing of a commercial product. Future product
development will require clinical testing, regulatory approval and substantial
additional investment prior to commercialization. The future success of the
Company is dependent on its ability to obtain additional working capital to
develop, manufacture and market its products and, ultimately, upon its ability
to attain future profitable operations. There can be no assurance that the
Company will be able to obtain necessary financing or regulatory approvals to be
able to successfully develop, manufacture and market its products, or attain
successful future operations. Insufficient funds could require the Company to
delay, scale back or eliminate one or more of its research and development
programs or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop without relinquishing its
rights thereto. Accordingly, the predictability of the Company's future success
is uncertain.

    The Company's rights to its products are subject to the terms of its
agreements with NIH, FDA and Georgetown. Termination of any, or all, of these
agreements would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, uncertainty exists
as to the Company's ability to protect its rights to patents and its proprietary
information. There can also be no assurance that research and discoveries by
others will not render some or all of the Company's programs or products
noncompetitive or obsolete. Nor can there be any assurance that unforeseen
problems will not develop with the Company's technologies or applications, or
that the Company will be able to address successfully technological challenges
it encounters in its research and development programs. Although the Company
plans to obtain product liability insurance, it currently does not have any nor
is there any assurance that it will be able to attain or maintain such insurance
on acceptable terms or with adequate coverage against potential liabilities.

    From its inception on June 15, 1990, through December 31, 1998, the Company
was classified as a development stage entity. The Company completed its
development stage upon the out-licensing of its first major compound to
Pharmacia in February of 1999. Accordingly, the inception to date information is
not presented in these financial statements.

                                      F-8
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION

    The interim financial statements as of June 30, 2000 and for the six months
ended June 30, 2000 and 1999 are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position with respect to the interim
financial statements, and the results of operations and cash flows for the
interim periods then ended, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.

RESEARCH AND DEVELOPMENT

    Research and development costs are expensed when incurred. These costs
include, among other things, consulting fees and costs reimbursed to Georgetown
pursuant to the agreements as described in Note 6. Payments related to the
acquisition of technology rights, for which development work is in process, are
expensed and considered a component of research and development costs. The
Company also allocates indirect costs, consisting primarily of operational costs
for administering research and development activities, to research and
development expenses.

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments purchased with an
original maturity of six months or less to be cash equivalents. The carrying
value of these investments approximate the fair market value.

EQUIPMENT AND FURNITURE

    Equipment and furniture are recorded at cost and are depreciated using an
accelerated method over the estimated useful economic lives of the assets
involved. The estimated useful lives employed in computing depreciation are five
years for computer equipment and seven years for furniture. Maintenance and
repairs that do not extend the life of assets are charged to expense when
incurred.

INCOME PER SHARE

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Financial Standards ("SFAS") No. 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share for publicly held common stock or potential common stock. Effective
December 31, 1997, the Company adopted the principles of SFAS No. 128 in
calculating and presenting its earnings per share. The computation of net
earnings (loss) per share is based on the weighted average common shares
outstanding during the periods, and includes, when dilutive, common stock
equivalents consisting of warrants and stock options.

                                      F-9
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    The following table sets forth the computation of the basic and diluted loss
per share from continuing operations:

<TABLE>
<CAPTION>
                                                                            FOR THE SIX MONTHS ENDED
                                                                                    JUNE 30,
                                                                            -------------------------
                                      1997          1998          1999         1999          2000
                                   -----------   -----------   ----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                                <C>           <C>           <C>          <C>           <C>
Numerator:
  Net income/(loss)..............  ($2,021,677)  ($1,573,723)  $3,754,476   $3,586,794    $  957,085
                                   ===========   ===========   ==========   ==========    ==========

Denominator:
  Denominator for basic income/
    (loss) per share
  Weighted average shares........    8,146,746     8,213,980    9,567,661    8,438,570    11,092,602

Effect of dilutive securities:
  Stock options..................      445,742       467,379      833,694    1,777,595       786,293
  Warrant exercise...............      346,655        75,829      753,737    1,335,937        23,470
                                   -----------   -----------   ----------   ----------    ----------
Dilutive potential common
  shares.........................      792,397       543,207    1,587,431    3,113,532       809,673
  Denominator for diluted income/
    (loss) per share-
  Weighted average shares and
    assumed
  Conversions....................    8,939,143     8,757,187   11,155,092   11,552,102    11,902,365
                                   ===========   ===========   ==========   ==========    ==========
  Basic income/(loss) per
    share........................  $     (0.25)  $     (0.19)  $     0.39   $     0.43    $     0.09
                                   ===========   ===========   ==========   ==========    ==========
  Diluted income/(loss) per
    share........................  $     (0.25)  $     (0.19)  $     0.34   $     0.31    $     0.08
                                   ===========   ===========   ==========   ==========    ==========
</TABLE>

    Options to purchase 255,962, 242,521 and 10,000 shares of common stock were
outstanding as of December 31, 1997, 1998 and 1999, respectively but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares
and, therefore, would be antidilutive. For additional disclosure regarding the
Company's stock options and warrants, see Notes 4 and 9.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.

                                      F-10
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK-BASED COMPENSATION

    As provided by SFAS No. 123, the Company has elected to continue to account
for its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, compensation expense has been recognized to the extent
of employee or director services rendered based on the intrinsic value of
compensatory options or shares granted under the plans. The Company has adopted
the disclosure provisions required by SFAS No. 123 (see Note 4).

REVENUE RECOGNITION-LICENSE FEES

    The Company has licensed certain of its technologies to third parties in
return for up-front license fees and subsequent milestone-based payments. The
Company's policy is to recognize revenue upon receipt of the license fees or
milestone payments provided the payments are non-refundable and are not subject
to future performance obligations. All payments received to-date have been
non-refundable. Further, the Company has no material obligations to provide
future services or financial support under the terms of the license agreements.

RECLASSIFICATION

    Certain amounts in previously issued financial statements have been
reclassified to conform to 1999 classifications.

COMPREHENSIVE INCOME

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997. The Company had no comprehensive income items to report for
the years ended December 31, 1997, 1998 and 1999.

SEGMENT INFORMATION

    In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segment of an
Enterprise and Related Information." SFAS No. 131 changes the way companies
report selected segment information in annual financial statements and requires
companies to report selected segment information in interim financial reports to
stockholders. The Company adopted SFAS No. 131 in the year ended December 31,
1998. The Company operates under a single segment.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999, which requires an entry to recognize

                                      F-11
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
all derivatives as either assets or liabilities in the balance sheet and to
measure those instruments at fair value. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,"
effective for all fiscal quarters beginning after June 15, 2000. SFAS No. 137
allows companies that have not applied early adoption of SFAS No. 133 to delay
implementation until quarters beginning after June 15, 2000. SFAS No. 133/SFAS
No. 137 is not anticipated to have a significant impact on the Company's
operating results or financial condition when adopted, since the Company does
not currently engage in hedging activities.

3. DEBT

    On October 22,1998, the Company established a $3,000,000 line of credit with
the John N. Kapoor Trust dtd. 9/20/89, an entity affiliated with the Company's
Chairman. Interest on borrowings on the line of credit accrued at the rate of 2%
over the prime rate of the Northern Trust Bank. The Company borrowed $250,000 on
the line of credit on January 8, 1999. The $250,000 plus all accrued interest
was repaid on January 29, 1999. The line of credit terminated upon the signing
of the Pharmacia license agreement on February 19, 1999

4. STOCK OPTIONS

OPTION AGREEMENTS

    The Company adopted a stock option plan in 1990. The Company granted options
under the plan to purchase 1,460,978 shares. The options have an exercise price
of $.0002145 per share with the exception of options to purchase 248,676 shares
issued in December 1993, which have an exercise price of $.03217 per share.
Effective January 1995, this plan has been terminated. No additional grants will
be made under this plan.

    On January 25, 1995, the board of directors approved the NeoPharm, Inc. 1995
Stock Option Plan (the "Plan"), which provided for the grant of up to 900,000
options to acquire the Company's common stock. The board of directors amended
the Plan on May 16, 1997, increasing the number of options to 1,400,000. The
option prices shall be not less than 85% of the fair market value of the stock
as determined by the Administrator pursuant to the Plan. The board also approved
the NeoPharm, Inc. 1995 Director Option Plan, which provides for the grant of up
to 100,000 options to acquire the Company's common stock. The option prices
shall be the fair market value on the date of grant. Vesting under these plans
range from 0 to 4 years and all options expire after 10 years. Effective
July 23, 1998, the 1995 Stock Option Plan and the 1995 Directors Option Plan
were suspended. No additional grants will be made under either plan.

    On July 23, 1998, the board of directors approved the NeoPharm, Inc. 1998
Equity Incentive Plan (the "1998 Plan"), which provides for the grant of options
to acquire up to 2,000,000 shares of the Company's common stock. Additionally,
250,000 of the 2,000,000 shares can be used for restricted stock

                                      F-12
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

4. STOCK OPTIONS (CONTINUED)
grants to employees and consultants. The option prices shall be not less than
85% of the fair market value of the stock as determined by the Administrator
pursuant to the 1998 Plan. The consideration paid for shares of restricted stock
shall not be less that the par value of the Company's common stock.

    The Company accounts for the plans under APB Opinion No. 25, under which no
compensation cost has been recognized for stock option awards to employees. Had
compensation cost for such stock option awards under the plans been determined
consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                               1997             1998             1999
                                                            -----------      -----------      ----------
<S>                                <C>                      <C>              <C>              <C>
Net Income/(Loss):                 As Reported              $(2,021,677)     $(1,573,723)     $3,754,476
                                   Pro Forma                 (2,236,526)      (1,962,971)      2,981,413

Primary EPS:                       As Reported              $     (0.25)     $     (0.19)     $     0.39
                                   Pro Forma                      (0.27)           (0.24)           0.31

Fully Diluted EPS:                 As Reported              $     (0.25)     $     (0.19)     $     0.34
                                   Pro Forma                      (0.27)           (0.24)           0.27
</TABLE>

    The Company has granted options to purchase 685,866 shares to certain
non-employees of which 287,824 such options remain outstanding and unexercised
at December 31, 1999. The Company accounts for these options using a fair value
method with the fair value of these options determined at the date of grant.
From inception through December 31, 1995 the Company deemed the fair value of
these options on the date of grant to be nominal, and no expense was recorded.
For all subsequent years, the fair value of option grants was calculated using
the Black-Scholes pricing model. For the year ended December 31, 1997, 1998 and
1999, an expense of $145,644, $32,304 and $422,747 was recorded respectively.

                                      F-13
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

4. STOCK OPTIONS (CONTINUED)
    A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                        OPTIONS OUTSTANDING
                                                              ---------------------------------------
                                                              NUMBER OF            EXERCISE PRICE
GRANT/EXERCISE DATE                                             SHARES               PER SHARE
-------------------                                           ----------       ----------------------
<S>                                                           <C>              <C>
Balance at December 31, 1996................................    748,866        $.03217,3.50,6.00,7.00
                                                              ----------       ----------------------

Grants:
January, 1997...............................................      1,000        $                 7.38
April, 1997.................................................      2,000                          7.00
May, 1997...................................................      5,000                         4.875
August, 1997................................................      5,000                        4.9375

Exercises:
June, 1997..................................................     (7,000)       $                 3.50
July, 1997..................................................    (15,000)                         3.50
October, 1997...............................................     (9,042)                 3.50, .03217
November, 1997..............................................     (1,500)                         3.50
December, 1997..............................................    (23,000)                         3.50
Cancellations: July 1997....................................    (15,000)                         7.00
                                                              ----------       ----------------------
Balance at December 31, 1997................................    691,324        $          .03217-7.38
                                                              ==========       ======================

Grants:
January, 1998...............................................    400,000        $                 4.75
April, 1998.................................................     20,000                          3.75
July, 1998..................................................     37,000                         3.875
September, 1998.............................................    100,000                          2.25

Exercises:
December, 1998..............................................    (22,500)       $          3.50-4.9375
Cancellations:
April, 1998.................................................    (50,000)                         7.00
                                                              ----------       ----------------------
Balance at December 31, 1998................................  1,175,824        $           2.25-$7.00
                                                              ----------       ----------------------

Grants:
January, 1999...............................................    337,000        $               11.875
June, 1999..................................................     10,000                         18.50

Exercises:
January, 1999...............................................     (2,000)       $                 3.50
February, 1999..............................................    (50,000)                         3.50
April, 1999.................................................       (500)                         3.50
July, 1999..................................................    (31,000)                  3.875-7.375
August, 1999................................................   (169,000)                    3.50-7.00
September, 1999.............................................    (73,000)                   2.25-3.875
October, 1999...............................................    (20,000)                         2.25
November, 1999..............................................     (3,000)                   3.50-4.875
December, 1999..............................................     (7,500)                  3.875-4.875
                                                              ----------       ----------------------
Balance at December 31, 1999................................  1,166,824        $        .03217-$18.50
                                                              ==========       ======================
</TABLE>

                                      F-14
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

4. STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        OPTIONS OUTSTANDING
                                                              ---------------------------------------
                                                              NUMBER OF            EXERCISE PRICE
GRANT/EXERCISE DATE                                             SHARES               PER SHARE
-------------------                                           ----------       ----------------------
<S>                                                           <C>              <C>
Grants:
January, 2000...............................................    170,000        $               21.563
June, 2000..................................................     50,000                  17.00-18.938

Exercises:
January, 2000...............................................     (3,108)       $               .03217
February, 2000..............................................    (15,000)                         3.50
March, 2000.................................................    (15,500)                    3.50-7.00
April, 2000.................................................    (11,108)                  .03217-7.00
June, 2000..................................................     (1,200)                       4.9375
                                                              ----------       ----------------------
                                                              1,340,908        $       .03217-$21.563
                                                              ==========       ======================
</TABLE>

    Options vested and eligible for exercise on December 31, 1996 included
14,866 at an exercise price of $.03217 and 444,000 options at an exercise price
of $3.50. Options eligible for exercise on December 31, 1997 included 9,324 at
an exercise price of $.03217, 394,000 options at an exercise price of $3.50,
15,000 options at an exercise price of $6.00, 124,500 options at an exercise
price of $7.00, and 1,000 options at an exercise price of $7.375. Options vested
and eligible for exercise on December 31, 1998 include 9,324 options at an
exercise price of $0.03217, 374,000 options at an exercise price of $3.50, 2,500
options at an exercise price of $4.875, 30,000 options at an exercise price of
$6.00, 197,000 options at an exercise price of $7.00 and 1,000 options at an
exercise price of $7.375. Options vested and eligible for exercise on
December 31, 1999 include 9,324 options at an exercise price of $0.03217,
144,000 options at an exercise price of $3.50, 5,000 options at an exercise
price of $3.75, 8,000 options at an exercise price of $3.875, 100,000 options at
an exercise price of $4.75, 2,500 options at an exercise price of $4.9375,
22,500 options at an exercise price of $6.00 and 122,000 options at an exercise
price of $7.00. Options vested and eligible for exercise on June 30, 2000
include 3,108 options at an exercise price of $0.03217, 128,500 options at an
exercise price of $3.50, 10,000 options at an exercise price of $3.75,
3,000 options at an exercise price of $3.875, 200,000 options at an exercise
price of $4.75, 300 options at an exercise price of $4.9375, 30,000 options at
an exercise price of $6.00, 105,000 options at an exercise price of $7.00
84,500 options at an exercise price of $11.875 and 10,000 options at an exercise
price of $18.50.

    The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for the option grants in 1997, 1998 and 1999 respectively:
risk-free interest rates of 6.58 percent, 5.50 percent and 5.31 percent;
expected dividend yields of 0.00 percent; expected life of 10 years; expected
volatility of 79.93 percent, 89.82 percent and 91.05 percent.

                                      F-15
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

5. FEDERAL INCOME TAXES:

    From inception through October 11, 1995, the Company operated as an S
Corporation for income tax purposes. Losses incurred during this period are
reported on the stockholders' tax return, and are not available to the Company
as a net operating loss carry forward.

    On October 11, 1995, the Company voluntarily terminated its S Corporation
election. Since that time, losses incurred represent net operating loss carry
forwards which can be used to offset future taxable income. Total net operating
loss carry forwards were approximately $8,445,000 and approximately $6,864,000
as of December 31, 1998 and 1999, respectively. The net operating loss carry
forwards will expire as follows:

<TABLE>
<CAPTION>
YEAR OF EXPIRATION                                              AMOUNT
------------------                                            ----------
<S>                                                           <C>
2011........................................................  $1,773,000
2012........................................................   1,969,000
2013........................................................   3,122,000
</TABLE>

    The Company has general business credit carry forwards of approximately
$276,000 which expire in the years 2011-2014.

    The Company made payments of $150,000 towards federal alternative minimum
tax during 1999 of which $126,000 was refundable at year end. The remaining
payments of $24,000 generated alternative minimum tax credit carry forwards of a
like amount that are available to reduce future federal regular income taxes, if
any, over an indefinite period.

    The components of income tax expense/(benefit) consist of the following:

<TABLE>
<CAPTION>
                                                            1997          1998          1999
                                                         -----------   -----------   -----------
<S>                                                      <C>           <C>           <C>
Current:
Federal................................................  $        --   $        --   $        --
State..................................................           --            --            --
                                                         -----------   -----------   -----------
Total Current Expenses.................................  $        --   $        --   $        --
                                                         ===========   ===========   ===========
Deferred:
Federal................................................  $        --   $(1,435,000)  $ 1,456,000
State..................................................           --      (205,000)      208,000
                                                         -----------   -----------   -----------
Total Deferred Expense.................................           --   $ 1,640,000   $ 1,664,000
                                                         ===========   ===========   ===========
Total Income Tax Expense/(Benefit).....................           --   $(1,640,000)  $ 1,664,000
                                                         ===========   ===========   ===========
</TABLE>

                                      F-16
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

5. FEDERAL INCOME TAXES: (CONTINUED)
    Significant components of the Company's deferred tax assets as of
December 31 are as follows:

<TABLE>
<CAPTION>
                                                              1997         1998         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Net Operating Loss Carry Forwards........................  $2,132,000   $3,432,800   $2,746,000
General Business Credit Carry Forwards...................     128,000      128,000      276,000
Alternative Minimum Tax Carry Forwards...................          --           --       24,000
Expenses Not Currently Deductible for tax purposes.......      82,000      150,000      181,000
                                                           ----------   ----------   ----------
Total Deferred Tax Assets................................   2,342,000    3,710,800    3,227,000
Valuation Allowance......................................  (2,342,000)  (2,070,800)  (3,227,000)
                                                           ----------   ----------   ----------
Net Deferred Tax Assets..................................  $       --   $1,640,000   $       --
                                                           ==========   ==========   ==========
</TABLE>

    Prior to December 31, 1998 the Company had engaged in substantive
discussions with Pharmacia regarding the licensing of certain of its
technologies (see Note 6). As a result, at December 31, 1998, it was more likely
than not a portion of the deferred tax asset would be realized during 1999. The
valuation allowance was reduced accordingly and the tax benefit related to
$1,640,000 net operating loss carry forward was recognized as of December 31,
1998. At December 31, 1999, in accordance with the provisions of SFAS No. 109, a
valuation allowance has been established on the deferred tax asset due to the
uncertainty of its realization.

6. COMMITMENTS:

LICENSE AND RESEARCH AGREEMENTS

    From time to time the Company enters into license and research agreements
with third parties. At December 31, 1999, the Company had five significant
agreements in effect as described below.

NATIONAL INSTITUTE OF HEALTH

    The Company entered into a CRADA with NIH. Pursuant to the agreement, the
Company committed to commercialize certain products received from NIH. The
Company agreed to provide product to support NIH sponsored clinical trials and
use its best efforts to file an NDA. NIH agreed to collaborate on the clinical
development of the products and to provide access to the data necessary to
obtain pharmaceutical regulatory approval.

    During the year ended December 31, 1997, the Company paid approximately
$102,000 for product used in the sponsored clinical trials. During 1998 and
1997, the Company expensed, as research and development costs, the $120,000
payable to NIH for these expenses. NIH was required to provide the Company an
accounting of the use of funds. Any amounts not expended at the end of the
agreement were refundable to the Company. All amounts were expended pursuant to
the CRADA.

    The CRADA expired on September 13, 1998. The Company then entered into a
Clinical Trials Agreement ("CTA") with the NIH. The CTA covers the same research
that were the subject of the

                                      F-17
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

6. COMMITMENTS: (CONTINUED)
NIH CRADA. The CTA provides for collaboration on the clinical development of the
products and access to clinical data necessary for future regulatory approval.
The Company has no further financial obligations to NCI other than an agreement
to provide supplies of test product for the covered clinical protocols. The
Company incurred no expenses under this agreement during 1999.

    The Company entered into an exclusive worldwide licensing agreement with the
NIH and the FDA to develop and commercialize an IL13-PE38 chimeric protein
therapy. The agreement required a $75,000 non-refundable license issue payment
and minimum annual royalty payments of $10,000 which increases to $25,000 after
the first commercial sale. The agreement further provided for milestone payments
and royalties based on future product sales. The Company made its first
milestone payment of $25,000 to NIH in November 1999 after the filing of the
U.S. Investigational New Drug ("IND") application for IL13-PE38. The Company is
required to pay the costs of filing and maintaining product patents on the
licensed products. The agreement shall extend to the expiration of the last to
expire of the patents on the licensed products, if not terminated earlier. The
agreement may be terminated by mutual consent of NIH and the Company. Either
party may terminate if the other party breaches a material term or condition and
such breach is not cured within a certain period of time. Also, either Party may
unilaterally terminate by giving advanced notice. During 1997, 1998 and 1999,
the Company expensed approximately $10,000, $117,000 and $35,000, respectively
under this agreement.

U.S. FOOD AND DRUG ADMINISTRATION

    In 1997 the Company entered into a CRADA with the FDA. Pursuant to the
CRADA, the Company committed to commercialize the IL13-PE38 chimeric protein
product which it licensed from the NIH and FDA. The FDA agreed to collaborate on
the clinical development and commercialization of the licensed product.

    The Company is committed to pay $100,000 per year for the reasonable and
necessary expenses incurred by the FDA in carrying out the FDA's
responsibilities under the CRADA. During 1999, the parties agreed to expand the
scope of the CRADA and increase the Company's funding requirement to $150,000
for the final two years of the agreement. During 1997, 1998 and 1999, we spent
$100,000, $100,000 and $150,000 respectively under these agreements. The term of
the FDA CRADA expires on August 27, 2001.

BIOCHEM PHARMA

    In 1997, the Company entered into a collaboration agreement with BioChem
Therapeutics, Inc., the wholly owned subsidiary of BioChem Pharma, under which
BioChem will have an exclusive license to develop, market and distribute
broxuridine in Canada. The agreement required BioChem to make an initial
non-refundable up-front payment of $550,000 and subsequent milestone-based
payments. The Company and BioChem were to share product revenue from any future
sales of broxuridine in Canada. The Company terminated this agreement in
October, 1999 by making a $50,000 termination payment to

                                      F-18
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

6. COMMITMENTS: (CONTINUED)
BioChem Pharma. The Company retained the Canadian rights to BUdR under the
termination agreements.

PHARMACIA CORPORATION

    On February 19, 1999 the Company entered into an exclusive worldwide license
agreement with Pharmacia. Pursuant to the agreement, the Company granted
Pharmacia an exclusive worldwide license to develop, use, manufacture,
distribute, market, and sell the Company's Liposomal Encapsulated Doxorubicin
("LED") and Liposomal Encapsulated Paclitaxel ("LEP") products for all approved
indications. All of the development costs, clinical and pre-clinical, regulatory
and manufacturing scale up expenses for LED and LEP incurred after the date of
the agreement shall be borne by Pharmacia. The Company shall use reasonable
efforts to assist Pharmacia in obtaining and confirming the rights granted to
Pharmacia under the agreement. However, any reasonable costs or expenses
incurred by the Company to provide such assistance shall be reimbursed by
Pharmacia.

    The Company received a $9,000,000 non-refundable license fee upon signing
the agreement. Upon the transfer of the IND's for LED and LEP to Pharmacia,
Pharmacia was to purchase $8,000,000 of the Company's newly issued common stock.
The share price was equal to 110% of the average closing price of the Company's
Common Stock for the 60-day period preceding the Pharmacia purchase date. On
July 23, 1999, Pharmacia purchased 452,861 shares of the Company's common stock
at a per share price of $17.6655. The Company recorded the newly issued shares
at $.0002145 par value with the remaining proceeds reflected as additional paid
in capital.

    The Company shall receive milestone payments upon the completion of each
phase of clinical development and upon regulatory approval for both LED and LEP.
If all milestone goals set forth in the agreement are met, the Company would be
eligible to receive $52,000,000 in milestone payments. During 1999, the Company
received a $2,000,000 milestone payment in addition to the $9,000,000 license
fee. In March, 2000 the Company received a $3,000,000 milestone payment for the
completion of Phase I/beginning of Phase II clinical studies for LEP.

    If the LED product were to be approved for commercial sale and thereafter
marketed, the Company would receive a royalty payment for sales outside of the
U.S. for the first seven years after commercial sale at a rate of 8% declining
to 5% for the eighth through tenth years of such commercial sales. With respect
to the LEP product, the Company is entitled to receive a royalty of 12.5% for
LED products sold outside of the United States for the valid life of an
enforceable NeoPharm patent, determined on a country-by-country basis. With
respect to sales of both LEP and LED products in the United States, the Company
is permitted to elect, in lieu royalty payments for U.S. sales, to co-promote
the products within the United States. Under the terms of the co-promotion, the
Company's participations in net profits is to be in proportion to its monetary
contribution to the promotion of each product in the United States, but in no
event shall the Company's share of profits exceed 37.5% of total net profits. In
addition, the Company's right to co-promote is contingent upon the Company
reimbursing Pharmacia for an amount equal to the amount of the Company's net
profit percentage

                                      F-19
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

6. COMMITMENTS: (CONTINUED)
multiplied by the amount expended by Pharmacia in development costs for the
products in the United States (which may not exceed 60 percent of Pharmacia's
total development costs throughout the world). If the Company does not elect to
co-promote the product within the U.S., then the Company would receive a flat
royalty with respect to LED equal to 10% of net sales for the first ten years of
sales in the United States, and with respect to LEP, a royalty equal to 12 1/2%
of net sales for the period in which Pharmacia has exclusivity to LEP product.
Because of the uncertainty surrounding the ability of the Company to attain the
milestones and obtain FDA approval for the product, and the uncertainty that the
product would be accepted by the medical community, it is not possible to
project with any degree of certainty what the potential revenues (other than the
milestone payments) under the contract would be.

GEORGETOWN UNIVERSITY

    The Company entered into two license and research agreements with Georgetown
whereby the Company obtained an exclusive worldwide license to use certain
technologies. In exchange for the grant of these exclusive licenses, the Company
will pay Georgetown, beginning with the first commercial sale of a product
incorporating the licensed technologies, a royalty on net sales by the Company
of products incorporating any of such technologies. The royalty will be payable
for the life of the related patents. In January 1999, the Company and Georgetown
University agreed to amend the agreements in addition to other modifications to
reduce the level of future sublicense royalties on LEP and LED sales payable to
Georgetown in return for a one time sublicense fee of $800,000. The Company made
the $800,000 payment to Georgetown in March 1999, after the execution of the
Pharmacia agreement.

    During the years ended December 31, 1997, 1998 and 1999, the Company paid
and expensed approximately $247,000, $123,000 and $1,019,000 respectively,
pursuant to the license and research agreements. The $800,000 payment referred
to above is included in the 1999 total.

OTHER

    The Company entered into consulting arrangements with members of its
Scientific Advisory Board who are also employed on a full-time basis by academic
or research institutions. Since inception through December 31, 1999, members of
the Scientific Advisory Board were issued options (see Note 4) to purchase an
aggregate 168,324 shares of Company stock at the fair market value at the dates
of grant. At December 31, 1999, 128,324 options remained unexercised.
Additionally, the Scientific Advisory Board members receive a nominal annual
retainer.

    The Company is obligated for rental payments under a sublease arrangement
with OptionCare, Inc. for office space in Bannockburn, Illinois. Until moving to
the Bannockburn location in November of 1997, the Company occupied office space
in Lake Forest, Illinois. This space was provided as part of a consulting
agreement with EJ Financial. (See Note 8). This sublease expired on
November 30, 1998. The Company continues to sublease the same space on
comparable terms under a month to month lease.

                                      F-20
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

7. CONTINGENCIES

    The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company, it
could have a material adverse effect upon the Company's operations and financial
condition.

    Currently, the Company is not a party to any litigation or other legal
proceedings.

8. TRANSACTIONS WITH RELATED PARTIES

    The Company receives management services from EJ Financial
Enterprises, Inc. ("EJ Financial"), a healthcare consulting and investment firm
in which Dr. Kapoor is the principal stockholder. Under its management
consulting agreement, EJ Financial charges the Company $125,000 per year for
services provided plus actual expenses incurred. The agreement provides for
technical management support in the areas of research and development and
operations. Charges to the Company are based on actual time spent by EJ
Financial personnel on the Company's affairs. Management believes that the cost
for management services allocated to the Company represents the cost of the
services provided. For the years ended December 31, 1997, 1998 and 1999, the
Company expensed $191,081, $136,331 and $131,251 respectively under this
agreement.

    The Company subleases office space from Option Care Inc., a home infusion
company in which Dr. Kapoor, the Company's Chairman, is a major stockholder. For
the years ended December 31, 1997, 1998 and 1999, the Company expensed $3,000,
$35,663 and $33,025 respectively under the subleases.

    From October, 1998 through February, 1999 the Company had a $3,000,000 line
of credit in place with the John N. Kapoor Trust dtd 9/20/89, an entity
affiliated with the Company's Chairman. The Company borrowed $250,000 on the
line of credit on January 8, 1999. The $250,000 plus all accrued interest was
repaid on January 29, 1999. The line of credit terminated upon the signing of
the Pharmacia licensing agreement on February 19, 1999 (See Note 6).

    The Company's Chief Scientific Officer, Dr. Aquilur Rahman, was employed on
a full-time basis by Georgetown until joining the Company in March 1996.
Additionally, Anatoly Dritschilo, M.D., the Chairman of the Department of
Radiation Medicine and Medical Director of the Georgetown University Medical
Center was a Director of the Company from June, 1990 through June, 1999. As was
previously mentioned, Georgetown and the Company are parties to license and
sponsored research agreements for product research and development (see
Note 6). During 1997, 1998 and 1999, the Company paid approximately $247,000,
$123,000 and $1,019,000 related to work performed and expenses incurred by
Georgetown.

    On July 16, 1997, the Company loaned $50,000 to Dr. Rahman pursuant to a
promissory note. The note accrued interest at a rate of 9%. The principal
together with accrued interest of $3,255 was repaid on April 6, 1998.

                                      F-21
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
    Prior to February 1996, the Company's former President and Chief Executive
Officer ("CEO"), William C. Govier, was a consultant to the Company on clinical
trials and NDA filing matters, both as an individual and as a consultant with
Aegis Technology, Inc. ("Aegis"), an entity co-founded by Govier and Gail
Salzberg. Dr. Govier retired from the Company on January 16, 1998. Salzberg also
provided consulting services to the Company both as an individual and as a
consultant with Aegis. During 1997, 1998 and 1999, the Company paid to Salzberg
and expensed approximately $261,600, $232,300 and $196,807 respectively, related
to these arrangements.

    During 1999, the Company paid $36,825 to Taylor Pharmaceuticals for the
consulting services of Dr. Abu Alam regarding the manufacturing scale-up of the
Company's liposomal products. Taylor Pharmaceuticals is a subsidiary of
Akorn, Inc., a company in which Dr. Kapoor is a major shareholder and Chairman.

                                      F-22
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
    The Following table summarizes the related party expenses discussed above:

<TABLE>
<CAPTION>
                                                                                FOR THE SIX MONTHS
                                                   FOR THE YEARS ENDED                 ENDED
                                                       DECEMBER 31,                  JUNE 30,
                                             --------------------------------   -------------------
RELATED PARTY             EXPENSE TYPE         1997       1998        1999        1999       2000
-------------          -------------------   --------   --------   ----------   --------   --------
                                                                                    (UNAUDITED)
<S>                    <C>                   <C>        <C>        <C>          <C>        <C>
Unicorn Pharma
  Consulting, Inc....  Consulting            $     --   $     --   $       --   $     --   $  5,000
Georgetown
  University.........  Research & Fees        247,052    123,205    1,018,639    854,098    217,233
Gail Salzberg........  Consulting             261,552    232,283      196,807     60,705      2,323
Taylor
  Pharmaceuticals....  Consulting                  --         --       36,825         --         --
E.J. Financial
  Enterprises........  Consulting             125,000    125,000      125,000     62,500     62,500
E.J. Financial
  Enterprises........  Direct Expense          66,081     11,331        6,251      2,803      4,940
                                             --------   --------   ----------   --------   --------
Total Research and
  Development
  expenses...........                        $699,685   $491,819   $1,383,522   $980,106   $291,996
                                             --------   --------   ----------   --------   --------

Option Care, Inc.....  Rent and Expenses        3,000     35,663       33,025     17,604     16,584
                                             --------   --------   ----------   --------   --------

Total general and
  Administration
  expenses...........                        $  3,000   $ 35,663   $   33,025   $ 17,604   $ 16,584
                                             --------   --------   ----------   --------   --------
Total related party
  expenses:..........                        $702,685   $527,482   $1,416,547   $997,710   $308,580
                                             ========   ========   ==========   ========   ========
</TABLE>

    Management believes that the terms of the related party transactions
described above were at fair market rates.

                                      F-23
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

9. STOCKHOLDERS' EQUITY

    In January 1995, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock to 15,000,000 shares.
In October 1995, the Company amended its Certificate of Incorporation to convert
each 1.28681 shares of outstanding Common Stock into one share of Common Stock
and to restate the par value of the Common Stock from $0.000333 per share to
$0.000429 per share. The reverse stock split has been reflected retroactively in
these financial statements for all periods presented.

    In January 1996, the Company completed a public offering of newly issued
1,350,000 shares of common stock and 675,000 warrants, for proceeds of
approximately $8,585,000 net of expenses. On March 8, 1996 the Company issued
36,130 shares of common stock and 18,565 warrants related to the underwriter's
over-allotment option for proceeds of approximately $267,000, net of expenses.
Additionally, the Company issued 574,008 shares and 143,502 warrants upon
conversion of its debt. Since July 25, 1997, the warrants have been subject to
redemption at $0.01 per warrant on thirty (30) days prior written notice to the
warrant holders. However, the warrants can only be redeemed if the average
closing price of the Company's stock as reported on AMEX equals or exceeds $5.60
per share for twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. Each warrant can be converted into two shares of
common stock at $4.90 per share.

    In connection with the public offering, the Company issued 135,000
Representative's warrants to the underwriter. The warrants can be converted into
270,000 shares of common stock at $4.90 per share and/or 67,500 underlying
warrants at $0.14 per warrant. The underlying warrants in turn can be converted
into 135,000 shares of common stock at $6.86 per share.

    The Company called its 837,067 redeemable common stock purchase warrants and
the 67,500 warrants underlying its representative's warrants on June 24, 1999.
The period for exercising the outstanding warrants closed at the close of
business on July 27, 1999. Warrant holders exercised 836,942 of the redeemable
warrants and 67,500 of the underlying warrants for total net proceeds to the
Company of $9,074,386.

    Additionally, holders of the Company's Representative warrants that were
issued as part of the initial public offering exercised on a cashless basis
44,935 of 86,000 outstanding warrants. Each warrant entitles the holder to two
shares of common stock for one exercise price of $9.80. At December 31, 1999
there were 41,065 Representative Warrants outstanding.

                                      F-24
<PAGE>
                                 NEOPHARM, INC.
                            (A DELAWARE CORPORATION)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1998 AND 1999

                  (INFORMATION AS OF JUNE 30, 2000 AND FOR THE

             SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS UNAUDITED)

10. QUARTERLY FINANCIAL DATA (unaudited)

    The following table summarizes the quarterly financial data for the years
ended December 31, 1999 and 1998 and the interim period ended June 30, 2000.

<TABLE>
<CAPTION>
                                        RESEARCH &      GENERAL &
                                       DEVELOPMENT    ADMINISTRATIVE     OPERATING                         EARNINGS PER    SHARE
2000                    NET REVENUES     EXPENSE         EXPENSE       INCOME/(LOSS)   NET INCOME/(LOSS)      BASIC       DILUTED
----                    ------------   ------------   --------------   -------------   -----------------   ------------   --------
<S>                     <C>            <C>            <C>              <C>             <C>                 <C>            <C>
March 31, 2000........    3,000,000        652,826        505,674         1,841,500        2,254,673           0.20         0.19
June 30, 2000.........           --        976,555        714,919        (1,691,474)      (1,297,588)         (0.12)       (0.12)

1999

March 31, 1999........    9,000,000      1,500,434        597,994         6,901,572        4,160,719           0.49         0.38
June 30, 1999.........           --        516,892        502,355        (1,019,247)        (573,925)         (0.07)       (0.07)
September 30, 1999....    2,000,000        567,698        501,462           930,840          698,237           0.07         0.06
December 31, 1999.....           --      1,173,956        845,115        (2,019,071)        (530,555)         (0.05)       (0.05)

1998

March 31, 1998........           --        172,527        291,966          (464,493)        (427,111)         (0.05)       (0.05)
June 30, 1998.........           --        375,446        319,761          (695,207)        (667,139)         (0.08)       (0.08)
September 30, 1998....           --        372,786        325,346          (698,132)        (682,545)         (0.08)       (0.08)
December 31, 1998.....           --        690,584        754,059        (1,444,643)         203,072           0.02         0.02
</TABLE>

                                      F-25
<PAGE>
--------------------------------------------------------------------------------

                                     [LOGO]

                          PRUDENTIAL VECTOR HEALTHCARE
                        A UNIT OF PRUDENTIAL SECURITIES

                           U.S. BANCORP PIPER JAFFRAY

-----------------------------------------------------
<PAGE>
                                    PART II
                   INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

    The following table sets forth the various expenses to be paid by the
registrant in connection with the sale and distribution of the securities being
registered. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee.

<TABLE>
<S>                                                           <C>
Securities and Exchange Commission Registration Fee.........  $ 18,216
NASD Filing Fee.............................................     7,400
Nasdaq National Market Additional Shares Listing Fee........    17,500
Accounting Fees and Expenses................................    50,000
Legal Fees and Expenses.....................................   120,000
Printing....................................................   100,000
Miscellaneous...............................................     6,884
                                                              --------
  Total.....................................................  $320,000
                                                              ========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    Our certificate of incorporation limits, to the maximum extent permitted by
Delaware law, the personal liability of directors for monetary damages for
breach of their fiduciary duties as a director. Our bylaws provide that we shall
indemnify our officers and directors and may indemnify our employees and other
agents to the fullest extent permitted by law. We have entered into
indemnification agreements with our officers and directors containing provisions
which are in some respects broader than the specific indemnification provisions
contained in Delaware law. The indemnification agreements may require us, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms. We believe that these
agreements are necessary to attract and retain qualified persons as directors
and officers.

    Section 145 of the Delaware law provides that a corporation may indemnify a
director, officer, employee or agent made or threatened to be made a party to an
action by reason of the fact that he was a director, officer, employee or agent
of the corporation or was serving at the request of the corporation against
expenses actually and reasonable incurred in connection with such action if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.

    Delaware law does not permit a corporation to eliminate a director's duty of
care, and the provisions of our Certificate of Incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act") may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions and agreements, we have been informed
that in the opinion of the staff of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

                                      II-1
<PAGE>
ITEM 16. EXHIBITS.


<TABLE>
<C>                     <S>
         1.1            Form of Underwriting Agreement.

         3.1            Amended and Restated Certificate of Incorporation.

         3.2            Bylaws of the Registrant, as amended.

         4.1            Specimen Common Stock Certificate filed with the Commission
                        as Exhibit 4.1 to our Registration Statement on Form S-1
                        (File No. 33-90516), is incorporated by reference.

         5.1            Opinion of Burke, Warren, MacKay & Serritella, P.C.*

        23.1            Consent of Arthur Andersen LLP.

        23.2            Consent of Burke, Warren, MacKay & Serritella, P.C. (See
                        Exhibit 5.1).*

        24.1            Power of Attorney (See page II-3).**

        27.1            Financial Data Schedule.**
</TABLE>


------------------------

*   To be filed by amendment.


**  Previously filed.


ITEM 17. UNDERTAKINGS.

    The undersigned Registrant hereby undertakes that:

    (a) For purposes of determining any liability under the Securities Act of
       1933, each filing of the Registrant's annual report pursuant to
       section 13(a) or section 15(d) of the Securities Exchange Act of 1934
       (and, where applicable, each filing of an employee benefit plan's annual
       report pursuant to section 15(d) of the Securities Exchange Act of 1934)
       that is incorporated by reference in the registration statement shall be
       deemed to be a new registration statement relating to the securities
       offered therein, and the offering of such securities at that time shall
       be deemed to be the initial bona fide offering thereof.

    (b) Insofar as indemnification for liabilities arising under the Securities
       Act may be permitted to directors, officers and controlling persons of
       the Registrant, the Registrant has been advised that in the opinion of
       the Securities and Exchange Commission, such indemnification is against
       public policy as expressed in the Securities Act and is, therefore,
       unenforceable. In the event that a claim for indemnification against such
       liabilities (other than the payment by the Registrant of expenses
       incurred or paid by a director, officer or controlling person of the
       Registrant in the successful defense of any action, suit or proceeding)
       is asserted by such director, officer or controlling person in connection
       with the securities being registered, the Registrant will, unless in the
       opinion of counsel the matter has been settled by controlling precedent,
       submit to a court of appropriate jurisdiction the question whether such
       indemnification by it is against public policy as expressed in the
       Securities Act and will be governed by the final adjudication of such
       issue.

    (c) For purposes of determining any liability under the Securities Act of
       1933, the information omitted from the form of prospectus filed as part
       of this registration statement in reliance upon Rule 430A and contained
       in a form of prospectus filed by the registrant pursuant to
       Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
       to be part of this registration statement as of the time it was declared
       effective.

    (d) For the purpose of determining any liability under the Securities Act of
       1933, each post-effective amendment that contains a form of prospectus
       shall be deemed to be a new registration statement relating to the
       securities offered therein, and the offering of such securities at that
       time shall be deemed to be the initial bona fide offering thereof.

                                      II-2
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bannockburn, Illinois, on
the 5th day of September, 2000.



<TABLE>
<S>                                                    <C>  <C>
                                                       NEOPHARM, INC.

                                                       By:             /s/ JAMES M. HUSSEY
                                                            -----------------------------------------
                                                                         James M. Hussey
                                                              PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>



    Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
                        NAME                                      TITLE                    DATE
                        ----                                      -----                    ----
<C>                                                    <S>                          <C>
                          *                            Director, Chairman of the    September 5, 2000
     -------------------------------------------       Board
                   John N. Kapoor

                 /s/ JAMES M. HUSSEY                   Director, President, and     September 5, 2000
     -------------------------------------------       Chief Executive Officer
                   James M. Hussey                     (Principal Executive
                                                       Officer)

                          *                            Director                     September 5, 2000
     -------------------------------------------
                   Sander A. Flaum

                          *                            Director                     September 5, 2000
     -------------------------------------------
                   Erick E. Hanson

                          *                            Director                     September 5, 2000
     -------------------------------------------
                  Matthew P. Rogan

                          *                            Director                     September 5, 2000
     -------------------------------------------
                    Kaveh Safavi

                 /s/ KEVIN M. HARRIS                   Chief Financial Officer      September 5, 2000
     -------------------------------------------       (Principal Financial
                   Kevin M. Harris                     Officer and Principal
                                                       Accounting Officer)
</TABLE>


------------------------


*   By James M. Hussey or Kevin M. Harris as attorney-in-fact.


                                      II-3
<PAGE>
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
      EXHIBITS
---------------------
<C>                     <S>                                                           <C>
         1.1            Form of Underwriting Agreement.

         3.1            Amended and Restated Certificate of Incorporation.

         3.2            Bylaws of the Registrant, as amended.

         4.1            Specimen Common Stock Certificate filed with the Commission
                          as Exhibit 4.1 to our Registration Statement on Form S-1
                          (File No. 33-90516), is incorporated by reference.

         5.1            Opinion of Burke, Warren, MacKay & Serritella, P.C.*

        23.1            Consent of Arthur Andersen LLP.

        23.2            Consent of Burke, Warren, MacKay & Serritella, P.C. (See
                          Exhibit 5.1).*

        24.1            Power of Attorney.**

        27.1            Financial Data Schedule.**
</TABLE>


------------------------

 *  To be filed by amendment.


**  Previously filed.