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                              PUBLIC HEALTH SERVICE


                 COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT


This Cooperative Research and Development Agreement, hereinafter referred to as
the "CRADA," consists of this Cover Page, an attached Agreement, and various
Appendices referenced in the Agreement. This Cover Page serves to identify the
Parties to this CRADA:

                  (1) the following Bureau(s), Institute(s), Center(s) or
Division(s) of the National Institutes of Health ("NIH"), the Food and Drug
Administration ("FDA"), and the Centers for Disease Control and Prevention
("CDC"):

THE NATIONAL CANCER INSTITUTE,

hereinafter singly or collectively referred to as the Public Health Service
("PHS"); and

                  (2) NEOPHARM, INC., which has offices at 100 Corporate North,
Bannockburn, IL 60015 hereinafter referred to as the "Collaborator."

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                 COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT

ARTICLE 1.  INTRODUCTION

This Cooperative Research and Development Agreement (CRADA) between PHS and the
Collaborator will be effective when signed by all Parties. The research and
development activities which will be undertaken by each of the Parties in the
course of this CRADA are detailed in the Research Plan (RP) which is attached as
Appendix A. The funding and staffing commitments of the Parties are set forth in
Appendix B. Any exceptions or changes to the CRADA are set forth in Appendix C.
This CRADA is made under the authority of the Federal Technology Transfer Act,
15 U.S.C. Section 3710a ET SEQ. and is governed by its terms.

ARTICLE 2.  DEFINITIONS

As used in this CRADA, the following terms shall have the indicated meanings:

2.1      "AFFILIATE" means any corporation or other business entity controlled
         by, controlling or under common control with Collaborator. For this
         purpose, "control" means direct or indirect beneficial ownership of at
         least fifty (50) percent of the voting stock or at least fifty (50)
         percent interest in the income of such corporation or other business.

2.2      "COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT" or "CRADA" means this
         Agreement, entered into by PHS pursuant to the Federal Technology
         Transfer Act of 1986, as amended, 15 U.S.C. 3710a ET SEQ. and
         Executive Order 12591 of October 10, 1987.

2.3      "GOVERNMENT" means the Government of the United States as represented
         through the PHS agency that is a Party to this agreement.

2.4      "IP" means intellectual property.

2.5      "INVENTION" means any invention or discovery which is or may be
         patentable or otherwise protected under title 35, United States Code,
         or any novel variety or plant which is or may be protectable under the
         Plant Variety Protection Act (7U.S.C. 2321 ET SEQ.).

2.6      "PRINCIPAL INVESTIGATOR(S)" OR "PIs" means the persons designated
         respectively by the Parties to this CRADA who will be responsible for
         the scientific and technical conduct of the RP.

2.7      "PROPRIETARY/CONFIDENTIAL INFORMATION" means confidential scientific,
         business, or financial information provided that such information does
         not include:

         2.7.1      information that is publicly known or available from
                    other sources who are not under a confidentiality
                    obligation to the source of the information;

         2.7.2      information which has been made available by its owners to
                    others without a confidentiality obligation;

         2.7.3      information which is already known by or available to the
                    receiving Party without a confidentiality obligation; or

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         2.7.4      information which relates to potential hazards or
                    cautionary warnings associated with the production,
                    handling or use of the subject matter of the Research
                    Plan of this CRADA.

2.8      "RESEARCH MATERIALS" means all tangible materials other than Subject
         Data first produced in the performance of this CRADA.

2.9      "RESEARCH PLAN" or "RP" means the statement in Appendix A of the
         respective research and development commitments of the Parties to this
         CRADA.

2.10     "SUBJECT INVENTION" means any Invention of the Parties, conceived or
         first actually reduced to practice in the performance of the Research
         Plan of this CRADA.

2.11     "SUBJECT DATA" means all recorded information first produced in the
         performance of this CRADA by the Parties.

ARTICLE 3.  COOPERATIVE RESEARCH

3.1      PRINCIPAL INVESTIGATORS. PHS research work under this CRADA will be
         performed by the PHS laboratory identified in the RP, and the PHS
         Principal Investigator (PI) designated in the RP will be responsible
         for the scientific and technical conduct of this project on behalf of
         PHS. Also designated in the RP is the Collaborator PI who will be
         responsible for the scientific and technical conduct of this project on
         behalf of the Collaborator.

3.2      RESEARCH PLAN CHANGE. The RP may be modified by mutual written consent
         of the Principal Investigators. Substantial changes in the scope of the
         RP will be treated as amendments under Article 13.6.

ARTICLE 4.  REPORTS

4.1      INTERIM REPORTS. The Parties shall exchange formal written interim
         progress reports on a schedule agreed to by the PIs, but at least
         within twelve (12) months after this CRADA becomes effective and at
         least within every twelve (12) months thereafter. Such reports shall
         set forth the technical progress made, identifying such problems as may
         have ben encountered and establishing goals and objectives requiring
         further effort, any modifications to the Research Plan pursuant to
         Article 3.2, and all CRADA-related patent applications filed.

4.2      FINAL REPORTS. The Parties shall exchange final reports of their
         results within four (4) months after completing the projects described
         in the RP or after the expiration or termination of this CRADA.

ARTICLE 5.  FINANCIAL AND STAFFING OBLIGATIONS

5.1      PHS AND COLLABORATOR CONTRIBUTIONS. The contributions of the Parties,
         including payment schedules, if applicable, are set forth in Appendix
         B. PHS shall not be obligated to perform any of the research specified
         herein or to take any other action required by this CRADA if the
         funding is not provided as set forth in Appendix B. PHS shall return
         excess funds to the Collaborator when it sends its final fiscal report
         pursuant to Article 5.2, except for staffing support pursuant to
         Article 10.3. Collaborator acknowledges that the U.S. Government will

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         have the authority to retain and expend any excess funds for up to one
         (1) year subsequent to the expiration or termination of the CRADA to
         cover any costs incurred during the term of the CRADA in undertaking
         the work set forth in the RP.

5.2      ACCOUNTING RECORDS. PHS shall maintain separate and distinct current
         accounts, records, and other evidence supporting all its obligations
         under this CRADA, and shall provide the Collaborator, a final fiscal
         report pursuant to Article 4.2.

5.3      CAPITAL EQUIPMENT. Equipment purchased by PHS with funds provided by
         the Collaborator shall be the property of PHS. All capital equipment
         provided under this CRADA by one party for the use of another Party
         remains the property of the providing Party unless other disposition is
         mutually agreed upon in writing by the Parties. If title to this
         equipment remains with the providing Party, that Party is responsible
         for maintenance of the equipment and the costs of its transportation to
         and from the site where it will be used.

ARTICLE 6.  INTELLECTUAL PROPERTY RIGHTS AND PATENT APPLICATIONS

6.1      REPORTING. The Parties shall promptly report to each other in writing
         each Subject Invention resulting from the research conducted under this
         CRADA that is reported to them by their respective employees. Each
         Party shall report all Subject Inventions to the other Party in
         sufficient detail to determine inventorship. Such reports shall be
         treated as Proprietary/Confidential Information in accordance with
         Article 8.4.

6.2      COLLABORATOR EMPLOYEE INVENTIONS. If the Collaborator does not elect to
         retain its IP rights, the Collaborator shall offer to assign these IP
         rights to the Subject Invention to PHS pursuant to Article 6.5. If the
         Collaborator declines such assignment, PHS may release IP rights in
         such Subject Invention to its employee inventors pursuant to Article
         6.6.

6.3      PHS EMPLOYEE INVENTIONS. PHS on behalf of the U.S. Government may elect
         to retain IP rights to each Subject Invention made solely by PHS
         employees. If PHS does not elect to retain IP rights, PHS shall offer
         to assign these IP rights to such Subject Invention to the Collaborator
         pursuant to Article 6.5. If the Collaborator declines such assignment,
         PHS may release IP rights in such Subject Invention to its employee
         inventors pursuant to Article 6.6.

6.4      JOINT INVENTIONS. Each Subject Invention made jointly by PHS and
         Collaborator employees shall be jointly owned by PHS and the
         Collaborator. The Collaborator may elect to file the joint patent or
         other IP application(s) thereon and shall notify PHS promptly upon
         making this election. If the Collaborator decides to file such
         applications, it shall do so in a timely manner and at its own expense.
         If the Collaborator does not elect to file such application(s), PHS on
         behalf of the U.S. Government shall have the right to file the joint
         application(s) in a timely manner and at its own expense. If either
         Party decides not to retain its IP rights to a jointly owned Subject
         Invention, it shall offer to assign such rights to the other Party
         pursuant to Article 6.5. If the other Party declines such assignment,
         the offering Party may release its IP rights as provided in Articles
         6.2, 6.3, and 6.6.

6.5       FILING OF PATENT APPLICATIONS. With respect to Subject Inventions made
          by the Collaborator as described in Article 6.2, or by PHS as
          described in Article 6.3, a Party exercising its right to elect to
          retain IP rights to a Subject Invention agrees to file patent or other
          IP applications in a timely manner and at its own expense and after
          consultation with the other Party. The Party

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         shall notify the other Party of its decision regarding filing in
         countries other than the United States in a timely manner. The Party
         may elect not to file a patent or other IP application thereon in any
         particular country or countries provided it so advises the other Party
         ninety (90) days prior to the expiration of any applicable filing
         deadline, priority period or statutory bar date, and hereby agrees to
         assign its IP right, title and interest in such country or countries to
         the Subject Invention to the other Party and to cooperate in the
         preparation and filing of a patent or other IP applications. In any
         countries in which title to patent or other IP rights is transferred to
         the Collaborator, the Collaborator agrees that PHS inventors will share
         in any royalty distribution that the Collaborator pays to its own
         inventors.

6.6      RELEASE TO INVENTORS. In the event neither of the Parties to this CRADA
         elects to file a patent or other IP application on a Subject Invention,
         either or both (if a joint invention) may retain or release their IP
         rights in accordance with their respective policies and procedures.
         However, the Government shall retain a nonexclusive, non-transferable,
         irrevocable, royalty-free license to practice any such Subject
         Invention or have it practiced throughout the world by or on behalf of
         the Government.

6.7      PATENT EXPENSES. The expenses attendant to the filing of patent or
         other IP applications generally shall be paid by the Party filing such
         application. If an exclusive license to any Subject Invention is
         granted to the Collaborator, the Collaborator shall be responsible for
         all past and future out-of-pocket expenses in connection with the
         preparation, filing, prosecution and maintenance of any applications
         claiming such exclusively-licensed inventions and any patents or other
         IP grants that may issue on such application. The Collaborator may
         waive its exclusive license rights on any application, patent or other
         IP grant at any time, and incur no subsequent compensation obligation
         for that application, patent or IP grant.

6.8      PROSECUTION OF INTELLECTUAL PROPERTY APPLICATIONS. Within one month of
         receipt or filing, each Party shall provide the other Party with copies
         of the applications and all documents received from or filed with the
         relevant patent or other IP office in connection with the prosecution
         of such applications. Each party shall also provide the other Party
         with the power to inspect and make copies of all documents retained in
         the patent or other IP application files by the applicable patent or
         other IP office. Where licensing is contemplated by collaborator, the
         Parties agree to consult with each other with respect to the
         prosecution of applications for PHS Subject Inventions described in
         Article 6.3 and joint subject Inventions described in Article 6.4. If
         the Collaborator elects to file and prosecute IP applications on joint
         Subject Inventions pursuant to Article, PHS will be granted an
         associate power of attorney (or its equivalent) on such IP
         applications.

ARTICLE 7.  LICENSING

7.1      OPTION FOR COMMERCIALIZATION LICENSE. With respect to Government IP
         rights to any Subject Invention not made solely by the Collaborator's
         employees for which a patent or other IP application is filed, PHS
         hereby grants to the Collaborator an exclusive option to elect an
         exclusive or nonexclusive commercialization license, which is
         substantially in the form of the appropriate model PHS license
         agreement. This option does not apply to Subject Inventions conceived
         prior to the effective date of this CRADA that are reduced to practice
         under this CRADA, if prior to that reduction to practice, PHS has filed
         a patent application on the invention and has licensed it or offered to
         license it to a third party. The terms of the license will fairly
         reflect the nature of the invention, the relative contributions of the
         Parties to the

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         invention and the CRADA, the risks incurred by the Collaborator and the
         costs of subsequent research and development needed to bring the
         invention to the marketplace. The field of use of the license will be
         commensurate with the scope of the RP.

7.2      EXERCISE OF LICENSE OPTION. The option of Article 7.1 must be exercised
         by written notice mailed within three (3) months after either (i)
         Collaborator receives written notice from PHS that the patent or other
         IP application has been filed; or (ii) the date Collaborator files such
         IP application. Exercise of this option by the Collaborator initiates a
         negotiation period that expires nine (9) months after the exercise of
         the option. If the last proposal by the Collaborator has not been
         responded to in writing by PHS within this nine (9) month period, the
         negotiation period shall be extended to expire one (1) month after PHS
         so responds, during which month the Collaborator may accept in writing
         the final license proposal of PHS. In the absence of such acceptance,
         or an extension of the time limits by PHS, PHS will be free to license
         such IP rights to others. In the event that the Collaborator elects the
         option for an exclusive license, but no such license is executed during
         the negotiation period, PHS agrees not to make an offer for an
         exclusive license on more favorable terms to a third party for a period
         of six (6) months without first offering Collaborator those more
         favorable terms. These times may be extended at the sole discretion of
         PHS upon good cause shown in writing by the Collaborator.

7.3      LICENSE FOR PHS EMPLOYEE INVENTIONS AND JOINT INVENTIONS. Pursuant to
         15 U.S.C. Section 3710a(b)(1)(A), for Subject Inventions made under
         this CRADA by a PHS employee(s) or jointly by such employee(s) and
         employees of the Collaborator pursuant to Articles 6.3 and 7.4 and
         licensed pursuant to the option of Article 7.1, the Collaborator
         grants to the Government a nonexclusive, nontransferable, irrevocable,
         paid-up license to practice the invention or have the invention
         practiced throughout the world by or on behalf of the Government.
         In the exercise of such license, the Government shall not publicly
         disclose trade secrets or commercial or financial information that
         is privileged or confidential within the meaning of 5 U.S.C.
         552(b)(4) or which would be considered as such if it had been obtained
         from a non-Federal party.

7.4      LICENSE IN COLLABORATOR INVENTIONS. Pursuant to 15 U.S.C. Section
         3710a(b)(2), for inventions made solely by Collaborator employees under
         this CRADA pursuant to Article 6.2, the Collaborator grants to the
         Government a nonexclusive, nontransferable, irrevocable, paid-up
         license to practice the invention or have the invention practiced
         throughout the world by or on behalf of the Government for research or
         other Government purposes.

7.5      THIRD PARTY LICENSE. Pursuant to 15 U.S.C. Section 3710a(b)(1)(B), if
         PHS grants an exclusive license to a Subject Invention made wholly by
         PHS employees or jointly with a Collaborator under this CRADA, pursuant
         to  Articles 6.3 and 6.4, the Government shall retain the right to
         require the Collaborator to grant to a responsible applicant a
         nonexclusive, partially exclusive, or exclusive sublicense to use the
         invention in Collaborator's licensed field of use on terms that are
         reasonable under the circumstances; or if the Collaborator fails to
         grant such a license, to grant the license itself. The exercise of
         such rights by the Government shall only be in exceptional
         circumstances and only if the Government determines (i) the action
         is necessary to meet health or safety needs that are not reasonably
         satisfied by Collaborator, (ii) the action is necessary to meet
         requirements for public use specified by Federal regulations, and
         such requirements are not reasonably satisfied by the Collaborator;
         or (iii) the Collaborator has failed to comply with an agreement
         containing provisions described in 15 U.S.C. 3710a(c)(4)(B). The
         determination made by the Government under this Article is subject
         to administrative appeal and judicial review under 35 U.S.C.203(2).

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7.6      JOINT INVENTIONS NOT EXCLUSIVELY LICENSED. In the event that the
         Collaborator does not acquire an exclusive commercialization license to
         IP rights in all fields in joint Subject Inventions described in
         Article 6.4, then each Party shall have the right to use the joint
         Subject Invention and to license its use to others in all fields not
         exclusively licensed to Collaborator. The Parties may agree to a joint
         licensing approach for such IP rights.

ARTICLE 8.  PROPRIETARY RIGHTS AND PUBLICATION

8.1      RIGHTS OF ACCESS. PHS and the Collaborator agree to exchange all
         Subject Data produced in the course of research under this CRADA.
         Research Materials will be shared equally by the Parties to the CRADA
         unless other disposition is agreed to by the Parties. All parties to
         this CRADA will be free to utilize Subject Data and Research Materials
         for their own purposes, consistent with their obligations under this
         CRADA.

8.2      OWNERSHIP OF SUBJECT DATA AND RESEARCH MATERIALS. Subject to the
         sharing requirements of paragraph 8.1 and the regulatory filing
         requirements of Paragraph 8.3, the producing Party will retain
         ownership of and title to all Subject Inventions, all Subject Data and
         all Research Materials produced solely by their investigators. Jointly
         developed Subject Inventions, Subject Data and Research Materials will
         be jointly owned.

8.3      DISSEMINATION OF SUBJECT DATA AND RESEARCH MATERIALS. To the extend
         permitted by law, the Collaborator and PHS agree to use reasonable
         efforts to keep subject Data and Research Materials confidential until
         published or until corresponding patent applications are filed. Any
         information that would identify human subjects of research or patients
         will always be maintained confidentially. To the extent permitted by
         law, the Collaborator shall have the exclusive right to use any and all
         CRADA Subject Data in and for any regulatory filing by or on behalf of
         Collaborator, except that PHS shall have the exclusive right to use
         Subject Data for that purpose, and authorize others to do so, if the
         CRADA is terminated or if Collaborator abandons its commercialization
         efforts.

8.4      PROPRIETARY/CONFIDENTIAL INFORMATION. Each Party agrees to limit its
         disclosure of Proprietary/Confidential Information to the amount
         necessary to carry out the Research Plan of this CRADA, and shall place
         a confidentiality notice on all such information. Confidential oral
         communications shall be reduced to writing within 30 days by the
         disclosing Party. Each Party receiving Proprietary/Confidential
         Information agrees that any information so designated shall be used by
         it only for the purposes described in the attached Research Plan. Any
         Party may object to the designation of information as
         Proprietary/Confidential Information by another Party. Subject Data and
         Research Materials developed solely by the Collaborator may be
         designated as Proprietary/Confidential Information when they are wholly
         separable from the Subject Data and Research Materials developed
         jointly with PHS investigators, and advance designation of such data
         and material categories is set forth in the RP. The exchange of other
         confidential information, e.g., patient-identifying data, should be
         similarly limited and treated. Jointly developed Subject Data and
         Research Material derived from the Research Plan may be disclosed by
         Collaborator to a third party under a confidentiality agreement for the
         purpose of possible sublicensing pursuant to the Licensing Agreement
         and subject to Article 8.7.

8.5      PROTECTION OF PROPRIETARY/CONFIDENTIAL INFORMATION.
         Proprietary/Confidential Information shall not be disclosed, copied,
         reproduced or otherwise made available to any other person or entity
         without the consent of the owning Party except as required under court
         order or the

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         Freedom of Information Act (5 U.S.C. 552). Each Party agrees to use its
         best efforts to maintain the confidentiality of
         Proprietary/Confidential Information. Each Party agrees that the other
         Party is not liable for the disclosure of Proprietary/Confidential
         Information which, after notice to and consultation with the concerned
         Party, the other Party in possession of the Proprietary/Confidential
         Information determines may not be lawfully withheld, provided the
         concerned Party has been given an opportunity to seek a court order to
         enjoin disclosure.

8.6      DURATION OF CONFIDENTIALITY OBLIGATION. The obligation to maintain the
         confidentiality of Proprietary/Confidential Information shall expire at
         the earlier of the date when the information is no longer Proprietary
         Information as defined in Article 2.5 or three (3) years after the
         expiration or termination date of this CRADA. The Collaborator may
         request an extension to this term when necessary to protect
         Proprietary/Confidential Information relating to products not yet
         commercialized.

8.7      PUBLICATION. The Parties are encouraged to make publicly available the
         results of their research. Before either Party submits a paper or
         abstract for publication or otherwise intends to publicly disclose
         information about a Subject Invention, Subject Data or Research
         Materials, the other Party shall be provided thirty (30) days to review
         the proposed publication or disclosure to assure that
         Proprietary/Confidential Information is protected. The publication or
         other disclosure shall be delayed for up to thirty (30) additional days
         upon written request by any Party as necessary to preserve U.S. or
         foreign patent or other IP rights.

ARTICLE 9.  REPRESENTATIONS AND WARRANTIES

9.1      REPRESENTATIONS AND WARRANTIES OF PHS. PHS hereby represents and
         warrants to the Collaborator that the official signing this CRADA has
         authority to do so.

9.2      REPRESENTATIONS AND WARRANTIES OF THE COLLABORATOR.

         (a) The Collaborator hereby represents and warrants to PHS that the
         Collaborator has the requisite power and authority to enter into this
         CRADA and to perform according to its terms, and that the
         Collaborator's official signing this CRADA has authority to do so. The
         Collaborator further represents that it is financially able to satisfy
         any funding commitments made in Appendix B.

         (b) The Collaborator certifies that the statements herein are true,
         complete, and accurate to the best of its knowledge. The Collaborator
         is aware that any false, fictitious, or fraudulent statements or claims
         may subject it to criminal, civil, or administrative penalties.

ARTICLE 10.  TERMINATION

10.1     TERMINATION BY MUTUAL CONSENT. PHS and the Collaborator may terminate
         this CRADA, or portions thereof, at any time by mutual written consent.
         In such event the Parties shall specify the disposition of all
         property, inventions, patent or other IP applications and other results
         of work accomplished or in progress, arising from or performed under
         this CRADA, all in accordance with the rights granted to the Parties
         under the terms of this Agreement.

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10.2     UNILATERAL TERMINATION. Either PHS or the Collaborator may unilaterally
         terminate this entire CRADA at anytime by giving written notice at
         least thirty (30) days prior to the desired termination date, and any
         rights accrued in property, patents or other IP rights shall be
         disposed of as provided in paragraph 10.1.

10.3     STAFFING. If this CRADA is mutually or unilaterally terminated prior to
         its expiration, funds will nevertheless remain available to PHS for
         continuing any staffing commitment made by the Collaborator pursuant to
         Article 5.1 above and Appendix B, if applicable, for a period of six
         (6) months after such termination. If there are insufficient funds to
         cover this expense, the Collaborator agrees to pay the difference.

10.4     NEW COMMITMENTS. No Party shall make new commitments related to this
         CRADA after a mutual termination or notice of a unilateral termination
         and shall, to the extent feasible, cancel all outstanding commitments
         and contracts by the termination date.

10.5     TERMINATION COSTS. Concurrently with the exchange of final reports
         pursuant to Articles 4.2 and 5.2, PHS shall submit to the Collaborator
         for payment a statement of all costs incurred prior to the date of
         termination and for all reasonable termination costs including the cost
         of returning Collaborator property or removal of abandoned property,
         for which Collaborator shall be responsible.

ARTICLE 11.  DISPUTES

11.1     SETTLEMENT. Any dispute arising under this CRADA which is not disposed
         of by agreement of the Principal Investigators shall be submitted
         jointly to the signatories of this CRADA. If the signatories are unable
         to jointly resolved the dispute within thirty (30) days after
         notification thereof, the Assistant Secretary for Health (or his/her
         designee or successor) shall propose a resolution. Nothing in this
         Article shall prevent any Party from pursuing any additional
         administrative remedies that may be available and, after exhaustion of
         such administrative remedies, pursuing all available judicial remedies.

11.2     CONTINUATION OF WORK. Pending the resolution of any dispute or claim
         pursuant to this Article, the Parties agree that performance of all
         obligations shall be pursued diligently in accordance with the
         direction of the PHS signatory.

ARTICLE 12.  LIABILITY

12.1     PROPERTY. The U.S. Government shall not be responsible for damages to
         any Collaborator property provided to PHS, where Collaborator retains
         title to the property, or any property acquired by Collaborator for its
         own use pursuant to this CRADA.

12.2     NO WARRANTIES. EXCEPT AS SPECIFICALLY STATED IN ARTICLE 9, THE PARTIES
         MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO ANY MATTER WHATSOEVER,
         INCLUDING THE CONDITIONS OF THE RESEARCH OR ANY INVENTION OR PRODUCT,
         WHETHER TANGIBLE OR INTANGIBLE, MADE, OR DEVELOPED UNDER THIS CRADA, OR
         THE OWNERSHIP, MERCHANTABILITY, OR

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         FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR ANY INVENTION
         OR PRODUCT.

12.3     INDEMNIFICATION. The Collaborator agrees to hold the U.S. Government
         harmless and to indemnify the Government for all liabilities, demands,
         damages, expenses and losses arising out of the use by the Collaborator
         for any purpose of any Subject Data, Research Materials and/or Subject
         Inventions produced in whole or part by PHS employees under this CRADA,
         unless due to the negligence or willful misconduct of PHS, its
         employees, or agents. The Collaborator shall be liable for any claims
         or damages it incurs in connection with this CRADA. PHS has no
         authority to indemnify the Collaborator.

12.4     FORCE MAJEURE. Neither Party shall be liable for any unforeseeable
         event beyond its reasonable control not caused by the fault or
         negligence of such Party, which causes such Party to be unable to
         perform its obligations under this CRADA, and which it has been unable
         to overcome by the exercise of due diligence. In the event of the
         occurrence of such a FORCE MAJEURE event, the Party unable to perform
         shall promptly notify the other Party. It shall further use its best
         efforts to resume performance as quickly as possible and shall suspend
         performance only for such period of time as necessary as a result of
         the FORCE MAJEURE event.

ARTICLE 13.  MISCELLANEOUS

13.1     GOVERNING LAW. The construction, validity, performance and effect of
         this CRADA shall be governed by Federal law, as applied by the Federal
         Courts in the District of Columbia. Federal law and regulations will
         preempt any conflicting or inconsistent provisions in this CRADA.

13.2     ENTIRE AGREEMENT. This CRADA constitutes the entire agreement between
         the Parties concerning the subject matter of this CRADA and supersedes
         any prior understanding or written or oral agreement.

13.3     HEADINGS. Titles and headings of the articles and subarticles of this
         CRADA are for convenient reference only, do not form a part of this
         CRADA, and shall in no way affect its interpretations. The PHS
         component that is the Party for all purposes of this CRADA is the
         Bureau(s), Institute(s), Center(s) or Division(s) listed on the Cover
         Page herein.

13.4     WAIVERS. None of the provisions of this CRADA shall be considered
         waived by the Party unless such waiver is given in writing to the other
         Party. The failure of a Party to insist upon strict performance of any
         of the terms and conditions hereof, or failure or delay to exercise any
         rights provided herein or by law, shall not be deemed a waiver of any
         rights of any Party.

13.5     SEVERABILITY. The illegality or invalidity of any provisions of this
         CRADA shall not impair, affect, or invalidate the other provisions of
         this CRADA.

13.6     AMENDMENTS. If either Party desires a modification to this CRADA, the
         Parties shall, upon reasonable notice of the proposed modification or
         extension by the Party desiring the change, confer in good faith to
         determine the desirability of such modification or extension. Such
         modification shall not be effective until a written amendment is signed
         by the signatories to this CRADA or by representatives duly authorized
         to execute such amendment.

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13.7     ASSIGNMENT. Neither this CRADA nor any rights or obligations of any
         Party hereunder shall be assigned or otherwise transferred by either
         Party without the prior written consent of the other Party.

13.8     NOTICES. All notices pertaining to or required by this CRADA shall be
         in writing and shall be signed by an authorized representative and
         shall be delivered by hand or sent by certified mail, return receipt
         requested, with postage prepaid, to the addresses indicated on the
         signature page for each Party. Notices regarding the exercise of
         license options shall be made pursuant to Article 7.2. Any Party may
         change such address by notice given to the other Party in the manner
         set forth above.

13.9     INDEPENDENT CONTRACTORS. The relationship of the Parties to this CRADA
         is that of independent contractors and not agents of each other or
         joint ventures or partners. Each Party shall maintain sole and
         exclusive control over its personnel and operations. Collaborator
         employees who will be working at PHS facilities may be asked to sign a
         Guest Researcher or Special Volunteer Agreement appropriately modified
         in view of the terms of this CRADA.

13.10    USE OF NAME OR ENDORSEMENTS. By entering into this CRADA, PHS
         does not directly or indirectly endorse any product or service
         provided, or to be provided, whether directly or indirectly
         related to either this CRADA or to any patent or other IP
         license or agreement which implements this CRADA by its
         successors, assignees, or licensees. The Collaborator shall
         not in any way state or imply that this CRADA is an
         endorsement of any such product or service by the U.S.
         Government or any of its organizational units or employees.
         Collaborator issued press releases that reference or rely upon
         the work of PHS under this CRADA shall be made available to
         PHS at least seven (7) days prior to publication for review
         and comment.

13.11    EXCEPTIONS TO THIS CRADA. Any exceptions or modifications to
         this CRADA that are agreed to by the Parties prior to their
         execution of this CRADA are set forth in Appendix C.

13.12    REASONABLE CONSENT. Whenever a Party's consent or permission
         is required under this CRADA, such consent or permission shall
         not be unreasonably withheld.

ARTICLE 14.  DURATION OF AGREEMENT

14.1     DURATION. It is mutually recognized that the duration of this project
         cannot be rigidly defined in advance, and that the contemplated time
         periods for various phases of the RP are only good faith guidelines
         subject to adjustment by mutual agreement to fit circumstances as the
         RP proceeds. In no case will the term of this CRADA extend beyond the
         term indicated in the RP unless it is revised in accordance with
         Article 13.6

14.2     SURVIVABILITY. The provisions of Articles 4-2, 5-8, 10.3-10.5, 11.1,
         12.2-12.4, 13.1, 13.10 and 14.2 shall survive the termination of this
         CRADA.


                          SIGNATURES BEGIN ON THE NEXT PAGE

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                                   SIGNATURES


FOR PHS:


/s/ Alan Rabson, M.D.                                                   5/14/99
--------------------                                                    -------
Alan Rabson, M.D.                                                       Date
Deputy Director, NCI

Mailing Address for Notices:

Technology Development and Commercialization Branch
National Cancer Institute
Executive Plaza South, Room 450
6120 Executive Blvd.
Rockville, MD 20852


FOR NeoPharm, Inc.:


/s/ Dr. Aquilur Rahman                                             5/19/99
----------------------                                             -------
Dr. Aquilur Rahman                                                 Date
Chief Scientific Officer
NeoPharm, Inc.

Mailing Address for Notices:

NeoPharm, Inc.
100 Corporate North
Bannockburn, IL 60015

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                                   APPENDIX A
                                  RESEARCH PLAN




                                 Title of CRADA

         Drug and Method for the Therapeutic Treatment of Ovarian Cancer and
                           Mesotheliomas SS(ds Fv)-PE38


                           NIH Principal Investigator
                                 Dr. Ira Pastan
                     Chief, Laboratory of Molecular Biology
                           Division of Basic Sciences
                            National Cancer Institute
                          National Institutes of Health


                      NeoPharm Inc. Principal Investigator
                               Dr. Aquilur Rahman
                            Chief Scientific Officer
                                 NeoPharm, Inc.

                                  Term of CRADA
                                   Four Years


ABSTRACT (for publication):

NeoPharm and NCI will collaborate to identify cancer cells expressing
mesothelin, to develop an immunotoxin/liposome pharmaceutical directed against
mesothelin expressed on cancer cells, and to develop preclinical data for the
use of this combination as a therapy for a variety of malignancies.

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GOALS

The goals of this CRADA are to:

1) Determine the effectiveness of SS(ds Fv)-PE38 against a variety of tumors
expressing mesothelin, both in vivo and in vitro.

2) To identify other potential tumor types which expresses mesothelin antigen
such as pancreatic cancers, gastric cancer and colon cancers, etc.

3) To identify the toxicity of this immunotoxin protein in at lest two animal
species by administering graded doses intravenously, and to define the LD10,
LD50 and LD90 doses in animals.

4) To develop a liposomal delivery system for the immunotoxin SS(ds Fv)-PE38 as
a new modality of treatment for cancer chemotherapy, using NeoPharm's
proprietary lipid compositions.

5) To determine the effectiveness of the immunotoxin SS(ds Fv)-PE38 on MDR
(Multiple Drug Resistant) cancer cells.

INTRODUCTION

Ovarian cancer is one of the leading causes of death in women. It is estimated
that of the 27,000 women diagnosed with ovarian cancer, over 15,000 of them will
die of cancer in 1998. The vast majority of ovarian cancers are found in
post-menopausal women with 15-20% discovered in pre-menopausal women (1). The
median age for epithelial ovarian cancer, the most common histologic type, is
between the age of 60-65 years. However, ovarian cancer is one of the most
treatable solid tumors since the majority are sensitive to chemotherapy
regimens. Hence, a reliable means of early detection for ovarian cancer is
highly warranted. The discovery of a non-metastatic malignancy usually relies on
pelvic examination, but even small tumors may have metastasized by the time they
are palpated.

Potentially ovarian cancer represents the disease type which could be treated by
immunotherapy since the ovaries are always removed during surgery for this
disease and reactivity with normal ovarian tissue is not a problem. Several
antibodies that recognize differentiation antigens on ovarian cancer cells have
been generated. One of these is OC125 which recognizes the CA125 antigen (2).
CA125 antigen is a high molecular weight glycoprotein that is shed by ovarian
cancer cells and has been an effective tool for the diagnosis of ovarian cancer.
However, immunotherapy cannot be directed with this antigen since CA125 is shed
into the blood stream. Another antigen for ovarian cancer is MOV18, which
recognizes the folate binding proteins (3). Though this protein is abundant in
ovarian cancers, unfortunately this protein is also significantly expressed in
the kidneys, hence specific immunotherapy is very much limited. For successful
immunotherapy, the antigen has to be specific for ovarian cancer and other
cancers and should have minimal levels of that protein in normal tissues.

BACKGROUND RESEARCH - LABORATORY OF MOLECULAR BIOLOGY

In an effect to obtain high affinity binding antibody, Pastan et al. immunized
mice with DNA encoding mesothelin. With the help of novel molecular biology
technology and persistent efforts, they were able

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to obtain single chain Fv (sc Fv) that bind specifically to recombinant
mesothelin and cells carrying mesothelin antigen with high affinity. Further
experiments were performed to use sc Fv and to construct an immunotoxin by
genetically fusing it with a truncated mutant Pseudomonas exotoxin A. It was
shown that the purified immunotoxin binds to mesothelin antigen expressed on
cells with a high affinity and is internalized effectively to produce
cytotoxicity in mesothelin expressing cells in picomole concentration (8).

Further improvement for this immunotoxin was carried out by Pastan and
colleagues and produced SS(ds Fv)-PE38 as a recombinant immunotoxin comprising
the single-stranded, disulfide linked Fv region of an anti-mesothelin antibody
(named SS) genetically linked to the 38 kDa truncated form of Pseudomonas
exotoxin, PE38. The construction is stabilized by the engineering of a disulfide
bond between the two Fv domains in the framework region of the immunoglobin. The
toxin moiety is molecularly attached to the c-terminus of the domain. This
recombinant immunotoxin has been produced from cytoplasmic inclusion bodies in
separate E. coli cultures containing the expression plasmid with the coding
region for either the VH-PE38 or VL chains. The recombinant immunotoxin thus
produced is quite stable at 37DEG.C and has extremely high binding affinity to
mesothelin expressing cells. The recombinant immunotoxin was found to have
significantly high cytotoxicity in human ovarian cancer cell line A431 that was
transfected with the cDNA of mesothelin. This cell line was inject
subcutaneously into immunodeficient mice to produce tumors. When the tumor mass
reached about 50mm(3), the animals were injected i.v. with 5, 8 and 10 mg of
SS(ds Fv)-PE38 every other day x3. At each dose of SS(ds Fv)-PE38 a complete
response rate of tumor was observed in mice. These studies demonstrate that the
recombinant immunotoxin can be effectively utilized as a therapeutic modality in
ovarian cancer, head and neck cancer and other cancers which express mesothelin
antigen.

Domain Ia of PE can be deleted, thus producing a 40-KDa protein (PE40) that has
minimal low cellular and animal cytotoxicity because it cannot bind to cellular
receptors (15). PE40 has also been used to make recombinant chimeric toxins by
fusing DNA fragments encoding growth factors, antibody combining sites, or other
recognition elements to the PE40 gene. The gene encoding of such chimeric toxin
is expressed in E. coli, from which source the chimeric toxin is purified.
Further deletion mapping studies have produced a derivative of PE, PE38, in
which domain la (amino acid 1-252) and amino acids 365-380 of PE are deleted
(16).

The initial work was performed to demonstrate that an antibody linked to
exotoxin has much more specificity and cytotoxicity to human solid tumors. These
studies utilized B3 monoclonal antibody chemically linked to PE38 and the
chimeric protein was termed as LMB-I. Immunotoxin LMB-I was found to produce
complete regression of human tumor xengrafts implanted in immunodeficient mice
(17). Recently, a Phase I clinical trial of this immunotoxin was completed in 38
patients with solid tumors. LMB-1 was found to be quite effective in patients
who had failed conventional therapy. In this trial, anti-tumor activity was
observed in 5 patients and 18 patients had stable disease. This is the first
clinical observation where the immunotoxin has shown activity in solid tumors.
However, the chimeric molecule exhibited vasculature leakage syndrome as major
toxicity which was manifested as hypoalbuminemia, fluid retention, hypotension
and pulmonary edema.

Basic research is being extended by Dr. Pastan and his colleagues to extend the
therapeutic application of Pseudomonas exotoxin and the recombinant monoclonal
antibodies, which has resulted in the development of present technology, SS(ds
Fv)PE 38. This CRADA application is based on the further development of this
technology.

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BACKGROUND RESEARCH - NEOPHARM, INC.

Liposomes, as a drug delivery system, have been adopted increasingly in recent
years primarily to modify toxicities and pharmacokinetics of encapsulated drugs.
The precise liposome composition is critical for assuring drug stability,
modifying drug kinetics in vivo and even introducing unanticipated pharmacologic
properties. NeoPharm will develop an optimal liposome delivery system for
immunotoxin SS(ds Fv)-PE38 with its proprietary technology. NeoPharm has
extensive expertise in the area of liposomes and in fact NeoPharm was founded on
the premise of exploiting the liposomal carrier system for a number of important
anti-cancer drugs. The Company has half a dozen patents for important
anti-cancer drugs and has two products in Phase I and Phase II trials.

The anthracycline antibiotic, doxorubicin, is one of the most important
anti-tumor agents demonstrating activity for a wide range of solid tumors.
However, doxorubicin produces treatment-limiting delayed cardiotoxicity which is
manifested in the form of congestive heart failure (18). It has been
demonstrated that liposomes as carriers of doxorubicin offer important
advantages with regard to the attenuation of the dose dependant cardiotoxicity
apparently due in part to the reduced uptake of liposome entrapped drug in
cardiac tissue (19). It has been further demonstrated that chronically
administered doxorubicin entrapped in cardiolipin liposomes completely protects
from drug-induced cardiotoxicity in beagle dogs (20). At the same time, liposome
encapsulated doxorubicin (LED) had equivalent or greater anti-tumor activity
than conventional doxorubicin against various murine tumor models (21).

Based on the extensive preclinical studies, a Phase I clinical trial was
performed with NeoPharm's formulation of LED in patients with advanced
malignancies (22). This Phase I trial demonstrated that the maximum tolerated
dose of LED to be 90 mg/m(2) with dose limiting granulocytopenia.

Phase II studies of liposome encapsulated doxorubicin were performed in
advanced breast cancer patients at doses of 60-75 mg/m(2) every three weeks
(23). Objective responses were noted in 9 of 20 patients and 5 of those
patients were complete responders of the disease. In this Phase II trial,
hematological and non-hematological toxicities were extremely mild. Twelve of
the 20 patients had cumulative doses of GREATER THAN 400 mg/m(2) with no
incidence of cardiotoxicity or decrease in left ventricular ejection
fraction. In this trial, five patients who have received doses of 600 mg/m(2)
underwent endomyuocardial biopsies: four of these had Billinghem grade 0 and
one patient had grade 1 histophathology. In addition, the acute
treatment-limiting toxicities such as mucositis and gastrointestinal
toxicities observed with free doxorubicin were minimally observed with LED
(23).

NeoPharm has performed substantial improvement in the formulation of LED. The
improvement in formulation has resulted in a very convenient and simple
industrial scale-up process of LED (24). With this newly scaled-up LED
preparation, NeoPharm has started a multi-center Phase II trial in hormone
refractory prostate cancer patients. The initial Phase II trial of LED in
prostate cancer demonstrates a significant activity of this modality of
treatment as represented by decrease in PSA levels, decrease in pain intensity
of the bones and overall substantial increase in the quality of life of prostate
cancer patients.

<PAGE>



RESEARCH PLAN

1.  EFFICACY EVALUATION, IN VITRO AND IN VIVO

The studies performed by Pastan et al (4) described the presence of mesothelin
as antigen on the surface of ovarian cancer and squamous cell carcinoma. They
created a small chain monoclonal, SS(ds Fv), which binds specifically to
mesothelin-expressing cells and the antibody-antigen complex is effectively
internalized in the cells. The recombinant monoclonal gene is then fused with
the truncated PE38 toxin gene to produce a gene which expresses immunotoxin
SS(ds Fv)-PE38. The immunotoxin is then expressed in E. coli and is obtained
from the inclusion bodies and purified. Based on this technology, the
immunotoxin has been extracted in sufficient quantities to perform the IN VITRO
experiments in several human cell lines to define the therapeutic potential of
this technology. It has been demonstrated that the immunotoxin SS(ds Fv)-PE38 is
cytotoxic in picomole concentration to human ovarian cancer cells. These are
highly exciting observations since mesothelin antigens are very exclusively
expressed by the human solid tumors such as ovarian cancer and head and neck
cancers and not by the normal cells of the body so far examined. Hence, specific
targeting to tumor sites with this immunotoxin should be more effective while
avoiding the toxicities to the normal cells. This modality of treatment in
cancer chemotherapy will be potentially preferred since treatment limiting
toxicities of anticancer drugs are the major obstacles for the successful
management of the disease. At present the technology describes the IN VITRO
application, however, some preliminary IN VIVO efficacy data recently became
available. Hence, a major thrust of this CRADA will be to a) define whether
immunotoxin is as effective IN VIVO as IN VITRO in a variety of tumors
expressing mesothelin antigen, and b) to identify other potential tumor types
which express mesothelin antigen such as pancreatic cancers, gastric cancer and
colon cancers, etc.

The IN VIVO therapeutic evaluation of the immunotoxin SS(ds Fv)-PE38 will be
performed in nude mice implanted with ovarian cancer cells (OVCAR) and head
and neck cancer cells (SQ20B). These tumor cells will be implanted
subcutaneously and when the tumor mass becomes about 50 mm(3) mice will be
randomly divided in a group often and will be injected intravenously with
this immunotoxin. The immunotoxin doses will range from 0.5-2.0 mg/kg and
will be administered three times at alternate days. The tumor volumes will be
calculated based on the formula, volume -- (length) x (width)(2)
2 x (0.4). These doses will give a determination of minimal effective dose,
most optimal dose as well as toxic therapeutic dose. The mice will be
observed till day 60. This experiment will determine the effectiveness of
this modality of treatment in delaying the growth of the tumor, in completely
curing the mice with tumor and also the cure rate of tumor with associated
toxicities.

2.  IN VIVO TOXICITY EVALUATION

NeoPharm will identify the toxicity of this immunotoxin protein in at least two
animal species by administering graded doses i.v., and will define the LD10,
LD50 and LD90 doses in animals. In addition NeoPharm will obtain a complete
hematology and blood chemistry profile at each dose level in the animals. A
complete histopathologic evaluation will be performed to identify organs which
could be at risk with this modality of treatment.

It is possible that the immunotoxin SS(ds Fv)-PE38 would bind and internalize
nonspecifically into normal tissues, particularly the liver, thus adversely
compromising the therapeutic potential of this modality of treatment. Further, a
safe starting dose for clinical trial in humans will be derived by the

<PAGE>



LD10 doses in mice and rats. Hence, nude mice will be injected i.v. with this
immunotoxin at doses of 0.5-2.0 mg/kg on day 1, 3 and 5, having 10 mice at each
dose level. Four days after the last dose, half of the mice in each group will
be bled by orbital sinus, blood will be collected and hematology and chemistries
will be performed. Mice will then be sacrificed by cervical dislocation and
tissues will be fixed in formalin for histopathologic evaluation. The blood
chemistry determination will define the alterations in liver function tests as
well as any abnormalities in metabolic processes. The tissues such as liver,
spleen, heart, lungs and GI tract with potential abnormalities will identify the
possible non-specific binding of this immunotoxin to these organs and
pathological lesions observed therein.

A major concern with this immunotoxin is the manifestation of VASCULATURE
LEAKAGE SYNDROME. VLS. This phenomenon has been observed with other immunotoxins
such as LMB-I. Though the chimeric protein LMB-I is much bigger than the
immunotoxin SS(ds Fv)-PE38, it is hoped that manifestations of VLS will be
minimal with this agent. The occurrence of this syndrome in mice and rats will
be evaluated by histopathologic determinations established in Dr. Pastan's
laboratory.

The dose range selected with this immunotoxin SS(ds Fv)-PE38 will define the
LD10 and LD50 dose in nude mice. The understanding of these doses will define
the safe starting dose of this immunotoxin in humans. THE SAME STUDIES WILL BE
PERFORMED IN RATS AT EQUIVALENT DOSES OF MICE. With the mutual concurrence of
NeoPharm, Dr. Pastan and his coworkers at NCI, if needed, large animal studies
will be added by amendment, in accordance with Article 13.6, to facilitate an
IND application for clinical trials.

3.  PHARMACOKINETIC STUDIES

The pharmacokinetic studies of the immunotoxin SS(ds Fv)-PE38 will be performed
in normal mice i.v. at a single maximum tolerated dose. For this study, four
mice at each time point will be used and will be bled from orbital sinus and
blood will be collected at 2, 5, 10, 15, 20, 30, 60 and 120 minutes and at 4, 6
and 24 hours. The serum will be separated and stored at -70 DEG. C before the
determination and immunotoxin levels. Levels of recombinant immunotoxin will be
determined by their cytotoxic activity toward ovarian cancer cells, A431/KS
expressing mesothelin antigen, using a standard curve generated by the cytotoxic
activity of purified immunotoxin toward A431 cells. (These methods are well
established in the Laboratory of Molecular Biology).

4. DEVELOPMENT OF SS(ds Fv)-PE38 IMMUNOTOXIN AS A LIPOSOME ENCAPSULATED MODALITY
OF TREATMENT FOR OVARIAN CANCER

NeoPharm will develop a liposomal delivery system for the immunotoxin SS(ds
Fv)-PE38 as a new modality of treatment for cancer chemotherapy, using
proprietary lipid compositions. This goal will be achieved by different
strategies. The first attempt will attempt to encapsulate the monoclonal MabKI
in liposomes. Previous studies by Pastan, et al (7) have demonstrated that this
monoclonal binds to the mesothelin antigen on the ovarian cancer cells but fails
to be internalized in the cells in sufficient quantities to be immunotoxic.
Since liposomes are internalized by a different process, it is possible that the
immonoliposomes thus formed, have sufficient capacity to penetrate the target
cells. The specificity of immunoliposomes to bind to the cells will be dictated
by the monoclonal portion of the liposomes thus becoming a targeted delivery
system exhibiting minimal non-specific binding to antigen depleted cell types.
The binding capacity and cytotoxicity of these immunoliposomes will be measured
in A431 ovarian cancer cells expressing high amounts of mesothelin antigen.

<PAGE>



Another approach will be to incorporate a cancer therapeutic agent such as
doxorubicin inside the immunoliposomes provided there is enough binding of these
liposomes to the target cells.

NeoPharm has developed a unique system of encapsulating doxorubicin in
cardiolipin containing liposomes. It only requires the mixing of free
doxorubicin solution with cardiolipin containing liposomes and this simple
process provides GREATER THAN 90% encapsulation of the drug inside the
liposomes. By this method, immunoliposomes will be prepared with entrapped
doxorubicin. Upon exposure of these liposomes, optimal binding to A431 cells
should be achieved because of the monoclonal specificity and subsequent
internalization should produce desired toxicity to the A431 ovarian cancer
cells. If this is achieved, it will represent a unique and very effective
delivery system for cancer chemotherapeutic agents to the target cancer
cells. Dependent on the success of the process, the IN VIVO therapeutic
evaluation of the immuno chemotherapeutic liposomes will be performed in nude
mice bearing ovarian cancer. In addition, a detailed toxicity evaluation will
be performed of these liposomes in dose-dependent and schedule-dependent
administration in mice.

Another approach to developing the liposomal delivery system for the immunotoxin
will be directed to encapsulate the whole SS(ds Fv)-PE38 molecule into the
liposomes. As the technology indicates, the monoclonal portion of the molecule
will be outside the lipid bilayers and the remainder of the molecule inside the
aqueous environment of the liposomes. This should facilitate the specific SS (ds
Fv)-PE38 interaction with the mesothelin antigen. The antibody-antigen complex
should be internalized efficiently as observed in previous studies (7). This
liposomal delivery system should provide a further protection from non-specific
toxicities which may be associated with this immunotoxin. The goal of using
liposomes as a drug delivery system involves a high concentration and/or long
duration of action at a target site, where beneficial effects may occur while
maintaining a low concentration and/or reduced duration at other sites, where
adverse effects may occur. Such an objective requires altering the organ
distribution of the drug substantially. Extensive studies have demonstrated that
liposomes can significantly alter the pharmacokinetic and organ distribution of
the encapsulated drugs. A favorable distribution profile of these immunotoxin
liposomes in the body can be expected. NeoPharm will perform an extensive
pharmacologic, therapeutic and toxicologic evaluation of these liposomes in
mice, followed by large animal studies to expedite clinical evaluation of these
liposomes.

All the studies on liposome delivery will be performed jointly by Dr. Ira Pastan
and his coworkers at NCI, and NeoPharm's scientists. These projects will develop
a close working relationship between the NCI and NeoPharm which will facilitate
the clinical and commercial development of these modalities of treatment.

5.  DETERMINATION OF MESOTHELIN ANTIGEN ON MULTIDRUG-RESISTANT CELLS

The studies performed by Dr. Pastan and his coworkers have described the
specific expression of a differentiation antigen present on the surface of
ovarian cancers, meotheliomas and several other types of human cancers. The
absence or low level expression of mesothelin antigen on T-cells, B-cells and
bone marrow cells makes the immunotoxin SS(ds Fv)-PE38 as a specific target for
cancel cells expressing this antigen. This specificity between the novelty of
this modality of treatment as a preferred chemotherapeutic agent.

It is highly desirable that studies are conducted to determine whether multiple
drug resistant cancer cells also express the mesothelin antigen. The phenomenon
of multidrug-resistance (MDR) is observed in

<PAGE>



those cancer cells which have been exposed to chemotherapeutic agents and is
related to major treatment failures in cancer patients. In addition, the
emergence of MDR is demonstrated in ovarian, breast, kidney, colon and
pancreatic cancer patients who have not been treated with any chemotherapy
protocols.

The dominant feature of the MDR phenotype is the reduced accumulation of the
drugs involved. For a given extracellular drug concentration,
multidrug-resistance cells maintain a lower intracellular drug level than the
drug sensitive parental cells. While this could result from either a decreased
influx or an increased efflux or both (25), several studies have shown that the
influx of many drugs involved in MDR occurs by unmediated diffusion, whereas
efflux is mediated by an energy-dependent pump. The apparent reason for this
failure of drug accumulation is that these cells express a protein at the cell
surface which prevents the drugs from accumulating within the cell. Juliano and
Ling (26) first detected this protein in the cell membranes of MDR phenotype
cells and named it P-glycoprotein. P-glycoprotein has a molecular weight of
about 170,000 and is both phosphorylated and glycosylated. This protein was not
expressed in the drug sensitive parental CHO (Chinese Hamster Ovary) cells from
which the MDR phenotype was derived. Monoclonal antibodies raised against plasma
membranes from multidrug-resistant CHO cells detect an increased amount of a
surface component with an apparent molecular mass identical to the CHO
P-glycoprotein in multidrug-resistant hamster, mouse and human cell lines (15).
Thus, P-glycoprotein is conserved both in molecular size and immunogenicity
among mammalian species. In any series of multidrug-resistant cells lines, the
degree of drug resistance correlates with the amount of P-glycoprotein
expressed. Studies involving over 20 multidrug-resistant cell lines from several
species and isolated by various investigators have confirmed the intimate
association of P-glycoprotein expression and multidrug-resistance (27).

Multidrug-resistance is often associated with cytogenic changes, such as double
minutes or homogenous staining regions in chromosomes, indicating the presence
of gene amplification. In 1985, Riordan, Ling and co-workers (28) used a
monoclonal antibody against the P-glycoprotein, P170, to clone the MDRI gene.
Meanwhile, several investigators (29-32), using a variety of techniques, have
isolated amplified DNA sequences from multidrug-resistant cells. Four of these
groups have isolated sequences homologous to the P170 gene and found them to be
amplified and overexpressed in multidrug-resistant cells. Transfection studies
with both genomic and cDNA copies of the MDR gene have confirmed that is confers
the MDR phenotype to the recipient cells (31, 32), although the degree of
resistance is considerably less than in naturally selected resistant cell lines.
The expression of drug resistance via P-glycoprotein is believed to reside in
its ability to function as an ATP-dependent drug efflux pump. Hence, any
modality of treatment which can overcome the MDR in cancer cells is highly
preferred.

It is very probably that MDR phenotype cells also express abundantly mesothelin
protein. If such is the case, the immunotoxin SS(ds Fv)-PE38 can be specifically
targeted to these cancer cells very effectively. Hence, it is a goal of this
CRADA to investigate the presence of mesothelin antigen in SKVLB cells which are
the Vinblastin-resistant phenotype of SKOV3 ovarian cancer cells as well as in
MCF-7/ADR cells which are derived from sensitive breast cancer cells MCF-7 and
made drug-resistant with adriamycin (doxorubicin). The differential expressing
of mesothelin protein in parental and resistant phenotype cells will be
determined by affinity binding studies well established in Dr. Pastan's
laboratory. Additional cell lines of ovarian and head and neck cancer both
parental and resistant phenotype will be evaluated for the differential
expression of mesothelin antigen.

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If the mesothelin antigen is found to be in more abundance in MDR phenotype
cells than parental cell lines, the immunotoxin SS(ds Fv)-PE38 can be quite
effectively targeted to these phenotype cells. On the other hand, if equal
number of mesothelin antigen is expressed in MDR phenotype cells as compared to
parental cells, even then the MDR cells will be susceptible to the cytotoxic
action of this immunotoxin. Hence, this immunotoxin can become a new modality of
treatment for overcoming MDR. These studies will be performed in Dr. Pastan's
laboratory and based on the outcome of these studies, further studies will be
designed to perform the in vivo therapeutic evaluation in animals bearing the
tumors derived from the MDR phenotype cells.

In addition, studies have demonstrated that liposomes of specific compositions
modulate very effectively the MDR phenotype in LZ cells, a Chinese hamster cell
line made resistant to doxorubicin, breast cancer resistant cells, MCF-7/ADR,
ovarian cancer resistant cells, SKVLB, resistant promyelocytic leukemia cells,
HL-60/VCR, and resistant colon cancer cells (33-36). In all these studies, the
cellular drug uptake was 2 to 3 fold higher with liposome encapsulated drug
exposure than with free drug. This modulation of drug resistance and enhanced
cellular drug uptake is effected by the direct binding of liposomes to
P-glycoprotein on the surface of MDR phenotype cells (35). Studies have shown
that liposomes completely inhibited the photo affinity labeling of
P-glycoprotein by azidopine in membrane vesicles of HL-60/VCR cells and in
KB-CSV2 cells transfected with the human MDR gene. In addition, liposome
encapsulated doxorubicin has been shown to modulate multidrug resistance in
transgenic mice expressing a functional mdr-1 gene in the bone marrow (37). This
capacity of liposomes to effectively overcome multidrug resistance in cancer
cells will become an added tool for SS(ds Fv)-PE38 liposomes as a new modality
of treatment in cancer chemotherapy.

6. IMPLEMENT PLANS TO INDEPENDENTLY SECURE FUTURE CONTINUING SUPPLIES OF SS(ds
Fv)-PE38 FOR PRECLINICAL AND CLINICAL DEVELOPMENT

The immunotoxin SS(ds Fv)-PE38 is extracted from Escherichia coli from the
inclusion bodies. The process developed by Dr. Pastan and colleagues at NCI
provides quantities which are sufficient for IN VITRO and in a limited scale for
IN VIVO studies. However, for enlarged preclinical evaluation and for Phase I
clinical use, the immunotoxin has to be produced in larger quantities under Good
Laboratory Practice (cGLP) and Good Manufacturing Practice (cGMP). NeoPharm
believes that this task can be easily achieved by contracting out the scale-up
production. NeoPharm will select the site for scale-up production after the
formal approval of this CRADA.

NeoPharm has substantial experience in the scale-up production of immunotoxin. A
similar technology, IL-13 PE38QQR which has been licensed from FDA and NIH for
the commercial and clinical development by NeoPharm is being produced in large
scale at Advanced BioScience Laboratories. The cGLP derived fusion protein is
now being evaluated in mice, rats and monkey for toxicological, pharmacologic
and therapeutic activity in renal cell carcinoma and glioblastoma.

The scale-up production of this immunotoxin will be achieved with the full
cooperation and participation of NCI personnel. The exact methodology of
transfecting E. coli with the combined gene of recombinant monoclonal SS(ds Fv)
and the exotoxin gene expressing PE38 will be provided to contract manufacturer.
The manufacturer will perform this transfection, and induction in the E. coli
which has grown in controlled and well characterized conditions. From the
inclusion bodies of E. coli SS(ds Fv)-PE38 is extracted, purified by gel
chromatography and HPLC and analyzed by Western Blot for biological
characterization and cytotoxic characterization in A431/KS cells. The scale-up

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immunotoxin has to meet all the criteria which are established by Dr. Pastan's
laboratory at NCI. It is expected that the production of SS(ds Fv)-PE38 at the
contract facility would be sufficient in quality for preclinical and Phase I
studies with this immunotoxin. In any situation, the investigators at NCI will
interact closely with this pharmaceutical manufacturer and NeoPharm to validate
the method and biologic activity of this immunotoxin with the established
laboratory methods for commercial scale production.

              NEOPHARM'S QUALIFICATIONS, EXPERIENCES AND RESOURCES

NeoPharm is an emerging pharmaceutical company engaged in the research and
development and commercialization of drugs for the diagnosis and treatment of
various forms of cancer. The company has several drugs in Phase I and Phase II
clinical evaluation. The Company's business strategy is to target drug
development programs for those cancer types which do not respond to chemotherapy
at present. The company has half dozen full employees and about 12 part-time
employees and consultants currently devoted to clinical development, regulatory
affairs and manufacturing. The major emphasis of the company is research and
development of cancer drugs.


                                OTHER AGREEMENTS

CRADA CACR-157 Cooperative Research and Development
               Agreement for the Clinical Development of BUDR/IUDR,
               expired.

CRADA CACR-623 Interleukin-13-Pseudomonas Exotoxin as an
               Anticancer Agent: Amendment adding the National
               Cancer Institute as a Party, negotiating.

There are no MTAs or CDAs between LMB and NeoPharm.


                              INTELLECTUAL PROPERTY

PHS holds the domestic patent rights to the PE 38 exotoxin, US Patent
#4,892,827. NeoPharm has licensed the following NIH patent applications:

08/776,271       60/067,175     06/911,227       08/077,252         09/002,753

NeoPharm holds numerous patents to its proprietary liposome technology.

<PAGE>



               RESPECTIVE SCIENTIFIC CONTRIBUTIONS OF THE PARTIES

NCI WILL:

1)   Supply NeoPharm with expression plasmids to SS(ds Fv)-PE38.

2)   Supply a protocol to produce the recombinant immunotoxin.

3)   Supply a master cell bank and a working cell bank that can be used for GMP
     production of SS(ds Fv)-PE38.

4)   Supply a protocol to grow the bacteria that express dsFv-PE38.

5)   Supply SS(ds Fv)-PE38 protein as a standard.

6)   Test SS(ds Fv)-PE38 preparations that have been incorporated into
     liposomes by NeoPharm for bioactivity.

7)   Collaborate in the design of toxicity studies in relevant animals for
     clinical development.

8)   Isolate new high-affinity forms of SS(ds Fv)-PE38.

9)   Isolate mutants of SS(ds Fv)-PE38 that have better internalization
     properties without requiring a change in affinity.

10)  Supply NeoPharm with antibodies to PE for use in assays for SS(ds Fv)-PE38
     in blood.


NEOPHARM WILL:

1)   Perform experiments to determine the efficacy of SS(ds Fv)-PE38 in vitro
     and in vivo.

2)   Perform experiments to determine the toxicity of SS(ds Fv)-PE38 in mice and
     rats.

3)   Perform pharmacokinetic studies on SS(ds Fv)-PE38.

4)   Develop a liposomal preparation of SS(ds Fv)-PE38 in NeoPharm's
     proprietary liposomal materials.

5)   Perform experiments to identify mesothelin on multiple drug resistant
     cells and determine the efficacy of SS(ds Fv)-PE38 in killing them.

6)   Establish a GMP supply of SS(ds Fv)-PE38.

<PAGE>



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84:804-805, (1992).

<PAGE>



                                   APPENDIX B

               FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES

LABORATORY OF MOLECULAR BIOLOGY (LMB), NCI:

LMB will provide scientific staff and other support as necessary to conduct the
research outlined in Appendix A, Research Plan. It is estimated that Dr. Ira
Pastan will devote 5% of his time to the CRADA. Other LMB scientific and
technical staff will contribute the balance of the approximately 0.5
person-years per year to be committed to this CRADA project.

NEOPHARM, INC.:

NeoPharm will provide scientific staff and other support as necessary to conduct
its research responsibilities outlined in Appendix A, Research Plan. It is
estimated that Dr. Aquilur Rahman will devote approximately 5% of his time to
this CRADA. Other NeoPharm scientific and technical staff will contribute the
balance of the approximately 0.5 person-years per year to be committed to this
CRADA project.

NeoPharm will provide $100,000 per year for four years, to be deposited to an
NCI CAN account established for the administration of this CRADA, to support
personnel, supplies, services and equipment.

A check in the amount of $50,000 payable to the National Cancer Institute will
be provided to the NCI by NeoPharm upon execution of the CRADA and payments of
$50,000 are due every six months thereafter. The check should indicate CRADA
#784 and be sent to the NCI CRADA Funds Coordinator at 6120 Executive Boulevard,
Executive Plaza South, Suite 450, Rockville, MD 20852.

In accordance with NIH policy, no full-time tenured NCI employees will be
supported by funds provided to the NCI under this CRADA by NeoPharm. As
precluded by the Federal Technology Transfer Act, no funds are being provided to
NeoPharm by the NCI under this CRADA.

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                                   APPENDIX C

                             EXCEPTIONS AND CHANGES

There are no exceptions or changes to the CRADA.