<PAGE>


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


                                    FORM 10-Q


[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

FOR QUARTER ENDED MARCH 31, 1999
                                       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                 (I.R.S. Employer
       incorporation or organization)                Identification Number)


                               100 Corporate North
                                    Suite 215
                           Bannockburn, Illinois 60015
               (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.
        Yes  X  No    .
           ----   ----

        Indicate the number of shares outstanding of each of the issuer's
        classes of common stock, as of the close of the period covered by this
        report:


<TABLE>
<CAPTION>
                Title of Each Class            Number of Shares Outstanding
                -------------------            ----------------------------
        <S>                                    <C>
         Common Stock ($.0002145 par value)              8,454,621


        Warrants to purchase shares of
         Common Stock ($.0002145 par value)                837,067

</TABLE>


<PAGE>




                                 NEOPHARM, INC.
                (A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)


<TABLE>
<CAPTION>
                                                                          Page Number
                                                                          -----------
<S>                                                                       <C>
PART I             Financial Information

      ITEM 1.      Financial Statements

                   Balance Sheets                                              3

                   Statements of Operations                                    4

                   Statements of Cash Flows                                    5

                   Notes to Financial Statements                               6


      ITEM 2.      Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                        8


PART II            Other Information                                          13

                   SIGNATURE PAGE                                             14
</TABLE>


                                                                               2

<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
(Unaudited)

<TABLE>
<CAPTION>
                                                            MARCH 31,             DECEMBER 31,
                                                             1999                    1998
                                                          -----------             -----------
<S>                                                       <C>                     <C>
ASSETS

Current assets:
  Cash and cash equivalents                               $ 7,402,048             $    40,681
  Other receivables                                           319,688                    --
  Deferred taxes                                                 --                 1,640,000
                                                          -----------             -----------
         Total current assets                               7,721,736               1,680,681

Equipment and furniture:
  Equipment                                                    83,415                  82,690
  Furniture                                                    78,877                  78,877
  Less accumulated depreciation                               (69,699)                (60,700)
                                                          -----------             -----------
         Total equipment and furniture, net                    92,593                 100,867
                                                          -----------             -----------
         Total assets                                     $ 7,814,329             $ 1,781,548
                                                          -----------             -----------
                                                          -----------             -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable and accrued liabilities:
    Obligations under research agreements                 $   250,000             $   260,000
    Accounts payable                                          906,086                 275,926
    Accrued compensation                                         --                    67,500
    Income taxes payable - current                             35,000                    --
    Deferred taxes                                          1,099,000                    --
                                                          -----------             -----------
         Total current liabilities                          2,290,086                 603,426
                                                          -----------             -----------

Stockholders' equity:
  Common stock, $.0002145 par value;
    15,000,000 shares authorized:
    8,454,621 and 8,341,779 shares issued
    and outstanding, respectively                               1,801                   1,789
  Additional paid-in capital                                6,822,768               6,637,378
  Deficit accumulated during the
    development stage                                      (1,300,326)             (5,461,045)
                                                          -----------             -----------
         Total stockholders' equity                         5,524,243               1,178,122
                                                          -----------             -----------
         Total liabilities and stockholders'
           equity                                         $ 7,814,329             $ 1,781,548
                                                          -----------             -----------
                                                          -----------             -----------
</TABLE>


      The accompanying notes are an integral part of these balance sheets.


                                                                               3
<PAGE>


NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)

<TABLE>
<CAPTION>
                                                                                                      INCEPTION
                                                                                                   (JUNE 15, 1990)
                                                                                                       THROUGH
                                                      MARCH 31,              MARCH 31,                 MARCH 31,
                                                        1999                   1998                      1999
                                                    ------------            ------------             ------------
<S>                                                 <C>                     <C>                    <C>
Revenues                                            $  9,000,000            $       --               $  9,550,000

Expenses:
Research and development                                 639,729                  95,939                4,510,803
General and administrative                               556,008                 244,135                4,525,629
Related party expenses (Note 3)                          902,691                 124,419                4,985,854
                                                    ------------            ------------             ------------
  Total Expenses                                       2,098,428                 464,493               14,022,286

         Income (loss) from operations                 6,901,572                (464,493)              (4,472,286)

Interest income                                           35,007                  37,382                  572,535
Interest expense - principal shareholder                   1,062                    --                    579,281
Interest expense - other                                     798                    --                    158,185
                                                    ------------            ------------             ------------
  Interest income(expense) - net                          33,147                  37,382                 (164,931)

Net Income (loss) before income taxes               $  6,934,719            $   (427,111)            $ (4,637,217)
                                                    ------------            ------------             ------------
                                                    ------------            ------------             ------------

Income taxes                                           2,774,000                    --                  1,134,000
                                                    ------------            ------------             ------------

Net Income (loss)                                   $  4,160,719            $   (427,111)              (5,771,217)
                                                    ------------            ------------             ------------

Net Income (loss) per share
         Basic                                      $        .49            $       (.05)
                                                    ------------            ------------
                                                    ------------            ------------
         Diluted                                    $        .38            $       (.05)
                                                    ------------            ------------
                                                    ------------            ------------


Weighted average shares outstanding
         Basic                                         8,417,622               8,195,810
                                                    ------------            ------------
                                                    ------------            ------------
         Diluted                                      11,059,752               8,599,134
                                                    ------------            ------------
                                                    ------------            ------------
</TABLE>


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


                                                                               4
<PAGE>


NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)

<TABLE>
<CAPTION>
                                                                                                         INCEPTION
                                                                                                      (JUNE 15, 1990)
                                                                                                         THROUGH
                                                       MARCH 31,               MARCH 31,                 MARCH 31,
                                                         1999                    1998                      1999
                                                     ------------             ------------             ------------
<S>                                                  <C>                      <C>                     <C>
Cash flows used in operating activities:
Net income (loss)                                    $  4,160,719             $   (427,111)            $ (5,771,217)
Adjustments to reconcile net loss to
  net cash used by operating activities:
Depreciation and amortization                               8,999                    1,746                   81,498
Gain on disposal of equipment                                --                       --                       (408)
Deferred income taxes                                   2,739,000                     --                  1,099,000
Services contributed (non-cash)
  by related party                                           --                       --                    101,042
Interest payable to principal
  shareholder converted to stock                             --                       --                    523,385
Compensation expense from non-employee
  stock options                                              --                       --                    251,339
Restricted stock grants in lieu of
  cash compensation                                          --                       --                    311,875
Changes in assets and liabilities:
(Increase) decrease in other assets                      (319,688)                  52,933                 (330,788)
Increase (decrease) in accounts
  payable and accrued liabilities                         587,660                 (217,126)               1,191,086
                                                     ------------             ------------             ------------
Net cash provided by (used in)
 operating activities                                   7,176,690                 (695,424)              (2,543,188)
                                                     ------------             ------------             ------------
Cash flows used in investing activities:
Purchase of equipment and
  furniture                                                  (725)                 (63,218)                (163,394)
Proceeds from disposal of
  equipment and furniture                                    --                       --                        810
                                                     ------------             ------------             ------------
Net cash used in investing activities                        (725)                 (63,218)                (162,584)
                                                     ------------             ------------             ------------
Cash flows from financing activities:
Proceeds from loan payable to
  principal stockholder                                      --                       --                  1,500,000
Advance on line of credit                                    --                       --                  2,114,652
Reduction in line of credit                                  --                       --                 (2,114,652)
Costs incurred related to the
  initial public offering                                    --                       --                   (688,321)
Proceeds from initial public offering                        --                       --                  8,585,438
Proceeds from issuance of common stock                    182,000                     --                    707,301
Proceeds from exercise of warrants                          3,402                     --                      3,402
Cashless exercise of warrants, charge                  (1,019,104)                    --                 (1,504,059)
Cashless exercise of warrants, proceeds                 1,019,104                     --                  1,504,059
                                                     ------------             ------------             ------------
Net cash provided by financing activities                 185,402                     --                 10,107,820
                                                     ------------             ------------             ------------
Net increase (decrease) in cash                         7,361,367                 (758,642)               7,402,048
Cash, beginning of period                                  40,681                2,776,697                     --
                                                     ------------             ------------             ------------
Cash, end of period                                  $  7,402,048             $  2,018,055             $  7,402,048
                                                     ------------             ------------             ------------
                                                     ------------             ------------             ------------
Supplemental disclosure of cash paid for:
Interest                                             $      1,860             $       --               $    214,082
Income taxes                                                 --                       --                       --
</TABLE>


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


                                                                               5
<PAGE>


                                 NEOPHARM, INC.
                (A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1999

NOTE 1   BASIS OF PRESENTATION

The financial information herein is unaudited, other than the Balance Sheet at
December 31, 1998, which is derived from the audited financial statements.

The accompanying unaudited interim 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, 1999, the results of operations for
the three months ended March 31, 1999 and 1998, the results of operations from
inception (June 15, 1990) to date (March 31, 1999), the changes in cash flows
for the three month periods ended March 31, 1999 and 1998 and the changes in
cash flows from inception to date.

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 1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

NOTE 2   EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS ENDED:
                                                           ----------------------------------
                                                            March 31                March 31
                                                              1999                    1998
                                                           -----------            -----------
<S>                                                        <C>                    <C>
Numerator:
  Net income (loss) from continuing operations             $ 4,160,719            $  (427,111)
                                                           -----------            -----------
                                                           -----------            -----------
Denominator:
  Denominator for basic loss per share-weighted
  Average shares                                             8,417,622              8,195,810

Effect of Dilutive securities:
  Stock options                                              1,358,294                403,324
  Warrant exercise                                           1,283,836                      0
                                                           -----------            -----------
Dilutive potential common shares                             2,642,130                403,324
                                                           -----------            -----------
                                                           -----------            -----------
Denominator for diluted loss per share-weighted
  Average shares and assumed conversions                    11,059,752              8,599,134
                                                           -----------            -----------
                                                           -----------            -----------
Basic income (loss) per share                              $       .49            $      (.05)
                                                           -----------            -----------
                                                           -----------            -----------
Diluted income (loss) per share                            $       .38            $      (.05)
                                                           -----------            -----------
                                                           -----------            -----------
</TABLE>


                                                                               6
<PAGE>



NOTE 3   RELATED PARTY EXPENSES

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


<TABLE>
<CAPTION>
                                                        For the Three Months Ended:               Inception
                                                      -------------------------------          (June 15, 1990)
                                                       March 31              March 31          through March 31
Related Party                Expense Type                1999                  1998                  1999
                                                      ----------            ----------            ----------
<S>                          <C>                      <C>                   <C>                   <C>
Georgetown University        Research & Fees          $  800,000            $      170            $2,849,000
Dr. Aquilur Rahman           Consulting                     --                    --                  70,000
Gail Salzberg                Consulting                   60,705                76,418             1,124,726
Aegis Technology, Inc.       Consulting                     --                    --                  31,779
                                                      ----------            ----------            ----------
    Total research and development expenses              860,705                76,588             4,075,505

Option Care, Inc.            Rent and Expenses             9,256                 8,181                47,919
E.J. Financial Enterprises   Consulting                   31,250                31,250               594,150
E.J. Financial Enterprises   Direct Expenses               1,480                 8,400               268,280
                                                      ----------            ----------            ----------
    Total general and administrative expenses             41,986                47,831               910,349

  Total related party expenses                        $  902,691            $  124,419            $4,985,854
                                                      ----------            ----------            ----------
                                                      ----------            ----------            ----------
</TABLE>



                                                                               7
<PAGE>


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

Any statements made by NeoPharm Inc. (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, 1998

OVERVIEW

         NeoPharm is a pharmaceutical Company engaged in the research and
development of drugs for the diagnosis and treatment of various forms of cancer.
Presently the Company has several drugs which are in varying stages of
development; BudR (Broxuridine), liposome encapsulated doxorubicin ("LED"),
liposome encapsulated paclitaxel ("LEP"), liposome encapsulated antisense
oligodeoxynucleotide ("LE-AON" and with LED and LEP the "Liposome Products"),
IL-13 PE38QQR ("IL-13") and Mesothelin ss-(dsFv)-PE38 ("Mesothelin Mab"). IL-13
and Mesothelin Mab are both Ligand Target Cytotoxins that specifically target
cancer cells and leave normal cells unaffected.

         The Company has obtained rights to its various products as a result of
agreements and relationships entered into with various third parties including
the National Cancer Institute ("NCI"), the United States Food and Drug
Administration ("FDA"), the National Institute of Health ("NIH") and Georgetown
University.

         To date, the Company has been engaged primarily in research and
development of its developmental stage products. The Company has developed
expertise in identification, development and preparation for regulatory approval
of cancer drugs for both therapeutic and diagnostic purposes, although the
Company has no products that are currently approved for sale. The Company
currently has no marketing or sales staff and has conducted its activities
primarily through consultants and at university research facilities. Through
March 31, 1999, with the exception of license fees, the Company has not
generated any revenue from operations.

         NeoPharm, Inc., was incorporated in Delaware under the name OncoMed,
Inc. in June 1990, and changed its name to NeoPharm, Inc. in March, 1995.

NEOPHARM PRODUCTS

         The Company's Liposome Products consist of spheres of subcellular size
composed primarily of phospholipids, certain of which are the primary components
of living cell membranes, and can be made to contain and deliver drugs. This
membrane encapsulation feature of liposomes enables the entrapped drug to be
circulated in the bloodstream in higher concentrations for longer periods of
time than the free drug. When certain drugs, including chemotherapeutic agents,
are administered in conjunction with liposomes, they have been shown to produce
fewer and less severe local and systematic side effects. Although liposomes have
been

                                                                               8
<PAGE>

investigated and used for many years as drug delivery systems, the difficulty in
producing liposomes on a large scale, as well as the limited shelf life of many
liposomes, have limited their use in clinical settings.

         The Company's LED is currently under development in three Phase II
trials. The Company started a Phase II trial in hormone refractory prostate
cancer patients in June 1998. The Company is also starting an additional trial
in osteosarcoma (bone cancer) at higher doses of LED. These Phase II trials will
be conducted in several cancer centers in the United States. The Company has
also initiated a multi-center Phase II trial of LED in breast cancer patients
who have failed most of the chemotherapy protocols to appreciate the capacity of
LED in overcoming MDR in those patients. The Company also has a clinical trial
with LED in myeloma, a blood cancer. The Company has also initiated a Phase I
clinical study on LEP in September of 1998 for patients with lung cancer. These
trials are on-going at this time.

         In February 1999, the Company signed a License Agreement with 
Pharmacia and Upjohn ("P&U") to develop and commercialize LEP and LED 
worldwide. The Company received a $9,000,000 nonrefundable up-front payment 
upon execution of the License Agreement and will receive milestone payments 
as clinical progress occurs under the License Agreement, which could 
aggregate, if all milestone targets were to be achieved, $52,000,000. The 
Company will also receive royalties on overseas sales and a co-promotion 
profit split on sales in the United States. Pursuant to the License 
Agreement, P&U will assume all further responsibility for, and the costs 
associated with, the further development and testing of LED and LEP and the 
obtaining of all regulatory approvals. In addition, the Company has agreed to 
sell $8,000,000 of its common stock to P&U when certain Investigatory New 
Drug ("IND") applications are transferred to P&U in accordance with a 
separate Stock Purchase Agreement at a price per share equal to 110% of the 
then market price of the common stock during the sixty (60) day period 
preceeding the transfer of the INDs. The Company anticipates that the INDs 
will be transferred and the stock will then be issued and the cash proceeds 
received by early in the 3rd quarter of 1999.

         The Company has two license and research agreements with Georgetown
University that cover the use of certain technologies used in the Company's LED
and LEP products. In January 1999, the Company and Georgetown University agreed
to amend the agreements to reduce the level of future sublicense royalties on
LEP and LED sales payable to Georgetown in return for a one time sublicense fee
of $800,000. The Company made the $800,000 payment to Georgetown in March 1999,
after the execution of the P&U agreement. Additionally, the Company paid a 
one time bonus to employees of approximately $180,000 upon the execution of 
the P&U agreement.

         In October 1997, the Company entered into an exclusive worldwide 
licensing agreement with the FDA and the NIH to develop and commercialize a 
chimeric human protein known as "IL13-PE38QQR." The National Institute of 
Health received a $75,000 non-refundable license issue payment upon execution 
of the agreement and will receive minimum annual royalty payments of $10,000, 
which increase to $25,000 after our first commercial sale. The National 
Institute of Health license also provides for milestone payments which, if 
all milestones were to be attained, would require payments aggregating to 
$785,000 and royalties of 4% based on future product sales, if any. We are 
also required to pay the costs of filing and maintaining product patents on 
the licensed products as they are incurred.

         Extensive research by the scientists at FDA and NCI have demonstrated
that some solid human tumors such as kidney cancer (renal cell carcinoma), brain
cancer (glioblastoma), Kaposi's sarcoma and breast carcinoma express high
numbers of IL-13 receptors on their cell surfaces. These receptor sites become a
specific target for the IL-13 chimeric protein for inducing cytotoxicity at
nanogram concentration. On the other hand, normal organs of the body are shown
to exhibit minimal receptors sites thereby sparing these organs from any toxic
effect.

                                                                               9
<PAGE>

The Company expects to scale up the production of this chimeric protein to
complete preclinical studies in the second quarter of 1999 to be followed later
in the year by Phase I clinical program in humans with renal cell carcinoma and
glioblastoma.

         The Company also recently entered into a Licensing Agreement with 
the NIH for Mesothelin Mab for head and neck cancer and mesothelioma. Like 
IL-13, Mesothelin Mab targets mesothelin receptors on cancer cells and 
delivers a cytotoxin to destroy the cancer cell while leaving normal cells 
alone. Mesothelin Mab is expected to enter Phase I Clinical Studies in the 
later part of 1999. The terms and conditions of the Mesothelin Mab License 
Agreements with the National Institute of Health are substantially the same 
as those described above for our agreement with the National Institute of 
Health for IL-13 chimeric protein-therapy, with the exception that milestone 
payments by the Company (if all milestones were to be attained) would 
aggregate to $500,000. The royalty payable on future product sales, if any, 
would be 5% and the Company has agreed to reimburse the National Institute of 
Health, within 60 days of a request for reimbursement, for up to $175,000 of 
previously incurred patent prosecution costs.

         Clinical trials involving prognostic use of BUdR have indicated that
the information regarding tumor cell behavior provided by BUdR can assist the
oncologist in selecting appropriate therapeutic regimens for the patients and
enable better monitoring of the effectiveness of the chosen therapy.

         In December 1996, the Company filed an NDA with the FDA for BUdR as a
prognostic agent in the treatment of breast cancer. The Company's NDA as it
relates to BUdR as a prognostic indication in the treatment of breast cancer was
accepted for review by the FDA and was reviewed by the FDA's Oncology Advisory
Committee ("ODAC") on December 19, 1997, at which time ODAC voted not to
recommend this indication to the FDA for approval. Since the ODAC action, the
Company has met with the FDA to respond to concerns raised by ODAC for the
purpose of continuing to pursue FDA approval. Based on these discussions the
Company is gathering additional data and reanalyzing the existing data in order
to obtain the FDA's approval of the Company's NDA. The original NDA was filed in
December 1996. The application has already been extended once and the Company
was informed on March 31, 1998 that the time for processing the original
application has expired. The Company is continuing to work with FDA to explore
the requirements for a prognostic application. Additionally, the Company is 
exploring opportunities to license and/or sell its BUdR product.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED
MARCH 31, 1998

         For the three month period ended March 31, 1999, the Company received a
nonrefundable license fee of $9,000,000 related to the licensing agreement with
P&U for the development and commercialization of the Company's LEP and LED
products. The Company recorded no revenue for the three month period ended March
31, 1998.

         Research and development expense for the three month period ended 
March 31, 1999 were $1,500,434 compared to $172,527 for the same period in 
1998. Research and development spending increased primarily due to expenses 
for the addition of clinical staff to manage the ongoing clinical trials of 
$148,000, nonrecurring expenses associated with the licensing of Mesothelin 
Mab of $256,000, the sublicense fee paid to Georgetown of $800,000 and bonus 
payments to employees based upon milestone acheivement of $100,000.

         General and administrative expenses for the three month period ended
March 31, 1999 were $597,994 compared to $291,966 for the same period in 1998.
General and administrative

                                                                              10
<PAGE>

expense increased primarily due to additional payroll costs of $23,000, bonus
payments to employees based upon milestone achievements of $79,000, additional
insurance costs of $47,000 due to expanded coverages, increased investor
relation activities of $19,000 and increased professional fees of $125,000
related to licensing activities and other corporate matters, part of which 
are nonrecurring.

         The Company generated interest income on exess cash balances of $35,007
and $37,382 for the three month periods ended March 31, 1999 and March 31, 1998
respectively.

         The Company incurred $1,860 of interest expense during the three month
period ended March 31, 1999. The Company recorded no interest expense for the
same period in 1998.

         The Company recorded income tax expense of $2,774,000 for the three 
month period ended March 31, 1999. No income tax expense was recorded for the 
comparable period in the prior year.

         Net income for the three months ended March 31, 1999 was $4,160,719
compared to a net loss of $427,111 for the three month period ended March 31,
1998.

         Net income per share for the three month period ended March 31, 1999 
was $0.49 basic and $0.38 diluted compared to net loss per share of $0.05 
basic and diluted for the three months ended March 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

         Cash expenditures exceeded revenues from the Company's inception until
the 1st Quarter of 1999. Operations have principally been funded through a loan
from the Company's Chairman, a bank line-of-credit and since January 1996, the
initial public offering of common stock. The Company expects to incur additional
expenses, resulting in potentially significant losses, as it continues and
expands its research and development activities and undertakes additional
clinical trials of compounds obtained under proprietary licenses. The Company
also expects to incur substantial administrative and commercialization
expenditures in the future as it seeks FDA approval of drugs under development
and initiates marketing activities.

         From October 1998 through February 1999 the Company had a $3,000,000
line of credit in place with the John N. Kappor Trust dtd 9/20/89, an entity
affiliated with the Company's Chairman. The Company borrowed $250,000 on the
line of credit on January 8, 1999. The $250,000 plus accrued interest of $1,062
was repaid on January 29, 1999. The line of credit terminated upon the signing
of the licensing agreement with P&U on February 19, 1999.

         At March 31, 1999, the Company's cash and cash equivalents were
$7,402,048 compared to $40,681 at December 31, 1998. This increase in cash and
cash equivalents of $7,361,367 was the result of cash generated by operating
activities of $7,176,690, cash used to purchase equipment and furniture of $725
and cash provided by financing activities of $185,402. The Company plans to
finance its immediate needs principally from its existing capital resources and
interest thereon, and to the extent available, through collaborative agreements
with corporate partners and future public and private financing. The Company's
long term capital needs will require substantial additional funding in order to
continue its research and product development programs. The Company's long-term
capital requirements and the adequacy of its available funds will depend upon
many factors, including results of research and development, results of product
testing, relationships with potential partnerships and collaborations, and the
FDA regulatory process. No assurance can be given that additional funding will
be available when

                                                                              11
<PAGE>

needed or on terms acceptable to the Company. Insufficient funds may require the
Company to delay, scale-back or eliminate certain of its research and
development programs or to license third parties to commercialize products or
technologies that the Company would otherwise undertake itself.

THE YEAR 2000 ISSUE

         The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment software and devices with imbedded technology that are time sensitive
may treat years as occurring between 1900 and the end of 1999 and may not
self-convert to reflect the upcoming change in the century. If not corrected,
this problem could result in system failures or miscalculations and erroneous
results by, or at, Year 2000.

         The Company conducted an assessment of its business systems that could
encounter Year 2000 problems. This assessment included both information
technology systems and non-information technology systems. Based on this
internal assessment, the Company has not identified any material year 2000
issues. The Company retained an outside consultant to review its assessment. The
consultant recommended several minor corrective measures which are in the
process of being completed. The cost of the review and corrective measures is
expected to be less than $5,000.

         Because the Company expects that its internal systems will be Year 2000
compliant, the Company belives that the most likely worst case scenario would
result from third parties failing to achieve Year 2000 compliance. The Company
relies on vendors, service providers and collaboration partners for raw
materials, contract manufacturing, research activities, product testing,
clinical trials, administrative services and other services ("Service
Providers"). The Company is in the process of surveying its Service Providers to
determine if they are Year 2000 compliant or have effective plans in place to
address the Year 2000 issue and to determine the extent of the Company's
vulnerability to the failure of its Service Providers to remedy such issues.
Based upon the responses that the Company receives from its Service Providers,
the Company will assess its risks and develop appropriate contingency plans as
needed. The Company does not currently have a contingency plan in place; however
it is the Company's intention to complete its contingency plan by October 31,
1999.

         The Company does not expect the Year 2000 issue to have a material
adverse impact on the Company's business or results of operations. However, no
assurance can be given that unanticipated or undiscovered Year 2000 problems
will not arise that could have a material adverse effect on the Company's
business and results of operations. In addition, there can be no assurance that
Year 2000 non-compliance by any of the Company's significant Service Providers
will not have a material adverse effect on the Company's business or results of
operations.


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<PAGE>




PART II - OTHER INFORMATION

         Item 1.     Legal Proceedings                                   None

         Item 2.     Changes in Securities                               None

         Item 3.     Defaults Upon Senior Securities                     None

         Item 4.     Submission of Matters to a Vote
                     of Security-Holders                                 None

         Item 5.     Other Information                                   None

         Item 6.     Exhibits and Reports on Form 8-K

                     (a) Exhibits
                     Exhibit 10.1 is a License Agreement, dated as of
                     March 22, 1999 by and between the Company and
                     the National Institute of Health.

                     (b) Reports on Form 8-K
                     On March 9, 1999, the Company filed a report on
                     Form 8-K, reporting the execution of a
                     License Agreement between the Company and
                     Pharmacia and Upjohn Company and describing
                     the general terms of same.



                                                                              13
<PAGE>




                                 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.

                                               By: /s/  Kevin M. Harris
                                               ----------------------------
                                                   Kevin M. Harris,
                                                   CHIEF FINANCIAL OFFICER
                                                   AND AUTHORIZED OFFICER

                                                   Date: May 14, 1999
                                                         -------------


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