UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-Q SQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For Quarter Ended March 31, 2001 or £TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from __________to__________ Commission file number 33-90516 NEOPHARM,
INC.(Exact name of
Registrant as specified in its charter) Delaware
  51-0327886(State
  or other jurisdiction of
  incorporation or organization)
  (I.R.S.
  Employer
  Identification Number)
 150 Field Drive
Suite 195
Lake Forest, Illinois   60045(Address of principal executive offices) 
(Zip Code) (847) 295-8678(Registrants telephone number, including area code) Indicate by check mark whether the
registrant (1)  has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YesSNo ̈ As
of April 20, 2001 the number of shares outstanding of each of the issuers
classes of common stock was as follows: Title
  of each class
  Number
  of shares outstandingCommon
  Stock ($.0002145 par value)
  14,661,838
    NEOPHARM,
INC.
(A DELAWARE CORPORATION)

PART I.
  
  FINANCIAL INFORMATIONItem 1.
  Financial StatementsBalance Sheets as of March 31, 2001 and December 31, 2000Statements of Operations for the three months ended March 31, 2001 and March
  31, 2000Statements of Cash Flows for the three months ended March 31, 2001 and March
  31, 2000Notes to Financial StatementsItem 2.
  Managements Discussion and Analysis of Financial Condition and Results of
  OperationsItem 3.
  Quantitative and Qualitative Disclosures About Market RiskPART II.
  
  OTHER INFORMATIONItem 1.
  Legal ProceedingsItem 2.
  Changes in Securities and Use of ProceedsItem 3.
  Defaults Upon Senior SecuritiesItem 4.
  Submission of Matters to a Vote of Security-HoldersItem 5.
  Other InformationItem 6.
  Exhibits and Reports on Form 8-KSIGNATURE PAGE

PART I- FINANCIAL INFORMATION

Item 1- Financial Statements

NEOPHARM,
INC.
(A Delaware Corporation)Balance Sheets

March 31,2001
  December 31,2000(Unaudited)ASSETSCurrent assets:Cash and cash
  equivalents
  $139,250,789
  $139,777,330Other
  receivables
  36,254
  3,366Prepaid
  expenses
  430,375
  500,737Total current assets
  $139,717,418
  $140,281,433Equipment and furniture:Equipment
  634,435
  131,981Furniture
  295,847
  205,903Leasehold
  improvements
  153,655
  76,840Less accumulated depreciation
  (213,976)
  (164,380)Total equipment and furniture, net
  869,961
  250,344Total assets
  $140,587,379
  $140,531,777LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Obligations
  under research agreements
  $229,166
  $8,333Accounts
  payable
  457,911
  323,797Accrued
  compensation
  128,151
  0Other
  accrued expenses
  193,282
  107,569Total current liabilities
  1,008,510
  439,699Stockholders' equity:Common stock, $.0002145 par value; 25,000,000 shares
  authorized: 14,657,838 and 14,656,588 shares issued and outstanding,
  respectively
  3,145
  3,145Additional paid-in capital
  142,252,350
  142,181,732Accumulated deficit
  (2,676,626)
  (2,092,799)Total stockholders' equity
  139,578,869
  140,092,078Total liabilities and stockholders' equity
  $140,587,379
  $140,531,777The
accompanying notes are an integral part of these balance sheets.

NEOPHARM, INC.
(A Delaware Corporation)Statements of Operations
Three Months Ended March 31, 2001 and 2000(Unaudited)

Three Months EndedMarch 31,
  March 31,2001
  2000Revenues
  $-
  $3,000,000Expenses:Research and development
  1,244,849
  519,081General and administrative
  944,470
  497,483Related party expenses (Note 3)
  371,121
  141,936Total Expenses
  2,560,440
  1,158,500Income (loss) from
  operations
  (2,560,440)
  1,841,500Other income
  8,049
  -Other expense
  -
  -Other income
  (expense) - net
  8,049
  -Interest income
  1,968,564
  413,173Interest expense
  -
  -Interest
  income(expense) - net
  1,968,564
  413,173Net income (loss) before income taxes
  $(583,827)
  $2,254,673Income taxes
  -
  -Net income (loss)
  $(583,827)
  $2,254,673Net Income (loss) per shareBasic
  $(0.04)
  $0.20Diluted
  $(0.04)
  $0.19Weighted average shares outstandingBasic
  14,657,782
  11,054,798Diluted
  15,398,320
  11,972,088The
accompanying notes are an integral part of these financial statements.

NEOPHARM,
INC.
(A Delaware Corporation)Statements of Cash Flows
Three months Ended March 31, 2001 and 2000(Unaudited)

Three Months EndedMarch 31,
  2001
  March 31,
  2000Cash flows used in operating activities:Net income/(loss)
  $(583,827)
  $2,254,673Adjustments to reconcile net income to net cash
  provided by operating activities:Depreciation and amortization
  49,596
  5,969Compensation expense from non-employee stock options
  -
  78,556Restricted stock grants in lieu of cash compensation
  -
  15,750(Increase)/decrease in other assets
  37,473
  (20,155)Increase/(decrease) in accounts payable and accrued
  liabilities
  568,811
  (489,761)Net cash provided by operating activities
  72,053
  1,845,032Cash flows used in investing activities:Purchase of equipment and furniture
  (669,213)
  -Net cash used in investing activities
  (669,213)
  -Cash flows from financing activities:Proceeds from issuance of common stock
  70,619
  159,350Cashless exercise of warrants, charge
  -
  (1,844,314)Cashless exercise of warrants, proceeds
  -
  1,844,314Net cash and cash equivalents provided by financing
  activities
  70,619
  159,350Net increase/(decrease) in cash
  (526,541)
  2,004,382Cash and cash equivalents, beginning of period
  139,777,330
  24,664,567Cash and cash equivalents, end of period
  $139,250,789
  $26,668,949Supplemental disclosure of cash paid for:Interest
  $  -
  $  -Income taxes
  $  -
  $  -The accompanying notes are an integral part of these financial statements.

NEOPHARM,
INC.
(A Delaware Corporation)NOTES TO FINANCIAL STATEMENTS
March 31, 2001

Note 1Basis
of Presentation

The financial information herein is
unaudited, other than the Balance Sheet at December 31, 2000, which is derived
from the audited financial statements.

The accompanying unaudited financial
statements of NeoPharm, Inc. (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Companys financial position as of March 31,
2001, the results of operations for the three months ended March 31, 2001 and
2000, and the changes in cash flows for the three month periods ended March 31,
2001 and 2000.

While the Company believes that the
disclosures presented are adequate to make the information not misleading, it
is suggested that these financial statements be read in conjunction with the
financial statements and notes included in the Companys 2000 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.

Note 2Earnings
Per Share

The following table sets forth the
computation of the basic and diluted earnings per share from continuing
operations:

For
  the three months ended:March
  31
  March
  312001
  2000Numerator:Net income/(loss) from continuing
  operations
  $(583,827)
  $2,254,673Denominator:Denominator for basic income per
  share-weighted average shares
  14,657,782
  11,054,798Effect of Dilutive securities:Stock options
  740,538
  868,511Warrant exercise
  -
  48,779Dilutive potential
  common shares
  740,538
  917,290Denominator for
  diluted income per shareweighted Average shares and assumed conversions
  15,398,320
  11,972,088Basic income/(loss)
  per share
  $(0.04)
  $0.20Diluted income/(loss)
  per share
  $(0.04)
  $0.19Note 3Related
Party Expenses

The
following table provides further detail of the related party expenses reflected
in the statement of operations:

For
  the three months ended:Related
  Party
  Expense
  Type
  March
  31
  2001
  March
  31
  2000Georgetown University
  Research & Fees
  $338,548
  $98,483Gail Salzberg
  Consulting
  -
  2,323E.J. Financial
  Enterprises
  Consulting
  -
  31,250E.J. Financial
  Enterprises
  Direct Expenses
  -
  1,689Total research and
  development expenses
  338,548
  133,745E.J. Financial Enterprises
  Consulting
  $31,250
  -E.J. Financial
  Enterprises
  Direct Expenses
  1,323
  -Option Care, Inc.
  Rent and Expenses
  -
  8,191Total general and
  administrative expenses
  32,573
  8,191Total related party
  expenses
  
  $371,121
  $141,936Management believes that the terms of the
related party transactions listed above were at fair market rates.

Item 2- Managements Discussion and Analysis of Financial
Condition and Results of Operations

The
following should be read in conjunction with the financial statements and
related footnotes and Managements Discussion and Analysis of Results of
Operations and Financial Conditions included in the Companys Annual Report on
Form 10-K.  The results discussed below
are not necessarily indicative of the results to be expected in any future periods.  The following discussion contains
forward-looking statements that are subject to risks and uncertainties which
could cause actual results to differ from the statements made.

Overview

We
are a biopharmaceutical company engaged in the research, development and
commercialization of drugs for the treatment of various cancers. We currently
have a portfolio of eight anti-cancer drugs, five of which are in clinical
trials. We have built our drug portfolio based on our two novel proprietary
technology platforms: the NeoLipid electrostatic liposome drug delivery
platform and a tumor-targeting platform. Our corporate strategy is to become a
leader in the research, development and commercialization of new and innovative
anti-cancer treatments.

Results of Operations
 Three Months Ended March 31, 2001 vs. Three Months Ended March 31, 2000.

The
Company recorded no revenue for the three months ended March 31, 2001.  For the same period in 2000, the Company
received a $3,000,000 milestone payment from Pharmacia Corporation.

Research
and development expense for the three-month period ended March 31, 2001 was
$1,583,397 compared to $652,826 for the same period in 2000. The overall
increase in research and development costs was the result of increased research
expenses of approximately $420,000 related to the clinical and pre-clinical
development of our products, increased payroll and consulting expense of
approximately $418,000 related to increases in our R&D staff, and
approximately $92,000 in expenses incurred for the operation of the new
research and development facility the Company opened in Waukegan, Illinois
during February 2001.

General
and administrative expenses for the three-month period ended March 31, 2001
were $977,043 compared to $505,674 for the same period in 2000. The overall
increase in general and administrative expenses was the result of an increase
of approximately $211,000 for payroll and consulting expenses related to
increases in our administrative staff, an increase in non-recurring registration
fees of approximately $142,000, increased professional fees of approximately
$38,000, and increased rent expense of approximately $32,000 for the Companys
new headquarters in Lake Forest, Illinois.

The
Company generated interest income on excess cash balances of $1,968,564 and
$413,173 for the three-month periods ended March 31, 2001 and March 31, 2000,
respectively.  The increase in 2001 was
due to the Companys larger cash balance as a result of the proceeds raised in
the follow-on stock offering completed in the fourth quarter of 2000.

Net
loss for the three months ended March 31, 2001 was $583,827 compared to net
income of $2,254,673 for the three-month period ended March 31, 2000. Net loss
per share for the three-month period ended March 31, 2001 was $0.04 basic and
diluted, compared to net income of $0.20 basic and $0.19 diluted for the three
months ended March 31, 2000.

Liquidity And
Capital Resources

At
March 31, 2001, we had $139,250,789 in cash and cash equivalents and net
working capital of $138,708,908. We believe that our cash and equivalents
should be adequate to fund our immediate needs. However, we can offer no
assurances that additional funding will not be required in the foreseeable
future. All excess cash has been invested in short-term investments which
mature in less than 90 days.

Our
assets at March 31, 2001 were $140,587,379 compared to $140,531,777 at December
31, 2000. Our liabilities at March 31, 2001 increased to approximately
$1,009,000 from approximately $440,000 at December 31, 2000. This increase was
attributable to an increase in trade payables of approximately $134,000, an
increase in accrued expenses of approximately $87,000, an increase in accrued
compensation of approximately $128,000 and an increase in obligations under
research agreements of approximately $220,000.

We
may seek to satisfy our future funding requirements 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.

Forward Looking
Statements

Any
statements made by NeoPharm, Inc. (we, us, our, or the
"Company") in this quarterly report that are forward looking are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.  The Company
cautions readers that important factors may affect the Company's actual results
and could cause such results to differ materially from forward-looking
statements made by or on behalf of the Company.  Such factors include, but are not limited to, changing market
conditions, the impact of competitive products and pricing, the timely
development, approval by the Food and Drug Administration ("FDA") and
foreign health authorities, and market acceptance of the Company's products in
development, the Company's ability to further raise capital, the Companys
dependence on key personnel, and other factors referenced under Risk Factors
in the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2000.

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

PART II- OTHER INFORMATION

Item
1.Legal
Proceedings

NoneItem
2.               Changes in Securities and
Use of Proceeds

NoneItem
3.               Defaults Upon Senior
Securities

NoneItem
4.               Submission of Matters to
a Vote of Security-Holders

NoneItem
5.               Other Information

NoneItem
6.               Exhibits and Reports on
Form 8-K

No reports on Form 8-K
were filed during the quarter ended March 31, 2001.SIGNATURE
PAGE

Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

NEOPHARM,
  INC.Date:
  May 9, 2001
  By:/s/  Lawrence A. KenyonLawrence
  A. Kenyon,Chief
  Financial Officer(Principal
  Accounting Officer andPrincipal
  Financial Officer)