** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM10-Q**
| **ý** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------|

**For Quarter Ended September 30,2001**

**or**
| **o** | **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 inits charter)

| **Delaware**                                                    |   | **51-0327886**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |

** **

**150 Field DriveSuite 195Lake 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 theregistrant (1)  has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý   No  ̈

As of October 26, 2001 the number ofshares outstanding of each of the issuer’s classes of common stock was asfollows:

| Title of each class                 |   | Number of shares outstanding |
|-------------------------------------|--------|------------------------------|
| Common Stock  ($.0002145 par value) |   | 14,661,838                   |

 

 

NEOPHARM,INC.(A DELAWARE CORPORATION)
|     |   |                                                                                                     |   |
|----------|--------|----------------------------------------------------------------------------------------------------------|--------|
| PART I   |   | FINANCIAL INFORMATION                                                                                    |   |
| Item  1  |   | Financial Statements                                                                                     |   |
|     |   | Balance  Sheets as of September 30, 2001 and December 31, 2000                                           |   |
|     |   | Statements  of Operations for the three and nine months ended September 30, 2001 and  September 30, 2000 |   |
|     |   | Statements  of Cash Flows for the nine months ended September 30, 2001 and September 30,  2000           |   |
|     |   | Notes  to Financial Statements                                                                           |   |
| Item  2  |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations              |   |
| Item  3  |   | Quantitative  and Qualitative Disclosures About Market Risk                                              |   |
| PART II. |   | OTHER INFORMATION                                                                                        |   |
| Item  1  |   | Legal Proceedings                                                                                        |   |
| Item  2  |   | Changes  in Securities and Use of Proceeds                                                               |   |
| Item  3  |   | Defaults  Upon Senior Securities                                                                         |   |
| Item  4  |   | Submission  of Matters to a Vote of Security-Holders                                                     |   |
| Item  5  |   | Other Information                                                                                        |   |
| Item  6  |   | Exhibits and  Reports on Form 8-K                                                                        |   |

SIGNATURE PAGE

 

**PART I - FINANCIAL INFORMATION**

**Item 1****- Financial Statements**

**NEOPHARM, INC.(A Delaware Corporation)Balance Sheets**
|                                                                                                                                     |   | **September 30, 2001** |        | **December 31,****2000** |       |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-------------|--------------------------|------------|
|                                                                                                                                     |   | **(Unaudited)**        |        |                     |       |
| **ASSETS**                                                                                                                               |   |                   |        |                     |       |
| Current assets:                                                                                                                          |   |                   |        |                     |       |
| Cash and cash equivalents                                                                                                                |   | $                      | 120,995,312 |                     | $          | 139,777,330 |   |
| Short-term investment in  marketable securities                                                                                          |   | 9,165,856              |        | —                   |       |
| Prepaid expenses                                                                                                                         |   | 500,076                |        | 500,737                  |       |
| Other current assets                                                                                                                     |   | 144,917                |        | 3,366                    |       |
| Total current assets                                                                                                                     |   | $                      | 130,806,161 |                     | $          | 140,281,433 |   |
|                                                                                                                                     |   |                   |        |                     |       |   |   |
| Equipment and furniture:                                                                                                                 |   |                   |        |                     |       |
| Equipment                                                                                                                                |   | 1,838,604              |        | 131,981                  |       |
| Furniture                                                                                                                                |   | 487,668                |        | 205,903                  |       |
| Leasehold improvements                                                                                                                   |   | 213,445                |        | 76,840                   |       |
| Less accumulated  depreciation                                                                                                           |   | (540,127               | )           | (164,380                 | )          |
| Total equipment and furniture,  net                                                                                                      |   | $                      | 1,999,590   |                     | $          | 250,344 |   |
|                                                                                                                                     |   |                   |        |                     |       |
| Long-term investment in  marketable securities                                                                                           |   | 2,771,000              |        | —                   |       |
|                                                                                                                                     |   |                   |        |                     |       |
| Total assets                                                                                                                             |   | $                      | 135,576,751 |                     | $          | 140,531,777 |   |
|                                                                                                                                     |   |                   |        |                     |       |
|                                                                                                                                     |   |                   |        |                     |       |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                 |   |                   |        |                     |       |
| Current liabilities:                                                                                                                     |   |                   |        |                     |       |
| Accrued compensation                                                                                                                     |   | $                      | 468,251     |                     | $          | — |   |
| Accrued clinical trial  expenses                                                                                                         |   | 175,568                |        | —                   |       |
| Accounts payable                                                                                                                         |   | 850,350                |        | 323,797                  |       |
| Obligations under  research agreements                                                                                                   |   | 273,451                |        | 8,333                    |       |
| Other accrued expenses                                                                                                                   |   | 328,512                |        | 107,569                  |       |
| Total current liabilities                                                                                                                |   | $                      | 2,096,132   |                     | $          | 439,699 |   |
|                                                                                                                                     |   |                   |        |                     |       |
| Stockholders' equity:                                                                                                                    |   |                   |        |                     |       |
| Common stock, $.0002145  par value; 25,000,000 shares authorized: 14,661,838 and 14,656,588 shares  issued and outstanding, respectively |   | 3,145                  |        | 3,145                    |       |
| Additional paid-in  capital                                                                                                              |   | 142,377,900            |        | 142,181,732              |       |
| Accumulated deficit                                                                                                                      |   | (9,059,917             | )           | (2,092,799               | )          |
| Unrealized appreciation  in marketable securities                                                                                        |   | 159,491                |        | —                   |       |
| Total stockholders'  equity                                                                                                              |   | $                      | 133,480,619 |                     | $          | 140,092,078 |   |
|                                                                                                                                     |   |                   | ** **  |                     | ** ** |
| Total liabilities and stockholders' equity                                                                                               |   | $                      | 135,576,751 |                     | $          | 140,531,777 |   |
|                                                                                                                                     |   |                   |        |                     |       |

Theaccompanying notes are an integral part of these balance sheets.

**NEOPHARM, INC.(A Delaware Corporation)Statements of OperationsThree and Nine Months Ended September 30, 2001 and 2000**(Unaudited)

 
|                                   |   | **Three Months Ended**  |       | **Nine Months Ended**   |       |
|----------------------------------------|--------|-------------------------|------------|-------------------------|------------|
|                                   |   | **September 30,  2001** |       | **September 30,  2000** |       | **September 30,  2001** |   | **September 30,  2000** |   |
|                                   |   |                    | ** ** |                    | ** ** |   | ** ** |   | ** ** |
| Revenues                               |   | $                       | —     |                    | $          | — |   | $ | — |   | $ | 3,000,000 |   |
| Expenses:                              |   |                    |       |                    |       |   |   |   |   |
| Research and development               |   | 4,091,492               |       | 594,626                 |       | 8,657,050 |   | 2,036,743 |   |
| General and  administrative            |   | 1,023,446               |       | 679,109                 |       | 2,997,882 |   | 1,883,119 |   |
| Related party expenses  (Note 3)       |   | 31,338                  |       | 292,636                 |       | 95,517 |   | 496,483 |   |
| Total Expenses                         |   | $                       | 5,146,276  |                    | $          | 1,566,371 |   | $ | 11,750,449 |   | $ | 4,416,345 |   |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Income (loss) from  operations         |   | (5,146,276              | )          | (1,566,371              | )          | (11,750,449 | ) | (1,416,345 | ) |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Other income                           |   | —                  |       | —                  |       | 8,049 |   | — |   |
| Interest income                        |   | 1,269,527               |       | 402,574                 |       | 4,775,282 |   | 1,209,633 |   |
| Net income (loss) before  income taxes |   | $                       | (3,876,749 | )                       | $          | (1,163,797 | ) | $ | (6,967,118 | ) | $ | (206,712 | ) |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Income taxes                           |   | —                  |       | —                  |       | — |   | — |   |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Net income (loss)                      |   | $                       | (3,876,749 | )                       | $          | (1,163,797 | ) | $ | (6,967,118 | ) | $ | (206,712 | ) |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Net Income (loss) per  share           |   |                    |       |                    |       |   |   |   |   |
| Basic                                  |   | $                       | (0.26      | )                       | $          | (0.10 | ) | $ | (0.48 | ) | $ | (0.02 | ) |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Diluted                                |   | $                       | (0.26      | )                       | $          | (0.10 | ) | $ | (0.48 | ) | $ | (0.02 | ) |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Weighted average shares  outstanding   |   |                    |       |                    |       |   |   |   |   |
| Basic                                  |   | 14,661,838              |       | 11,181,916              |       | 14,660,428 |   | 11,126,210 |   |
|                                   |   |                    |       |                    |       |   |   |   |   |
| Diluted                                |   | 15,344,075              |       | 12,095,398              |       | 15,430,404 |   | 12,001,685 |   |
|                                   |   |                    |       |                    |       |   |   |   |   |

Theaccompanying notes are an integral part of these financial statements.

**NEOPHARM, INC.(A Delaware Corporation)Statements of Cash FlowsNine months Ended September 30, 2001 and 2000**(Unaudited)

 
|                                                                           |   | **Nine Months Ended**   |        |
|--------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                           |   |                    |        |   |   |
|                                                                           |   | **September 30,  2001** |        | **September 30,  2000** | ** ** |
|                                                                           |   |                    | ** **  |   | ** ** |
| Cash flows provided  by/(used in) operating activities:                        |   |                    |        |   |   |
| Net income/(loss)                                                              |   | $                       | (6,967,118  | ) | $ | (206,712 | ) |
|                                                                           |   |                    |        |   |   |
| Adjustments to reconcile  net income to net cash used in operating activities: |   |                    |        |   |   |
| Depreciation and  amortization                                                 |   | 375,748                 |        | 22,288 |   |
| Compensation expense from  non-employee stock options                          |   | —                  |        | 235,668 |   |
| Restricted stock grants  in lieu of cash compensation                          |   | —                  |        | 66,540 |   |
| (Increase) in other  assets                                                    |   | (140,890                | )           | (127,581 | ) |
| Increase/(decrease) in  accounts payable and accrued liabilities               |   | 1,656,432               |        | (152,639 | ) |
|                                                                           |   |                    |        |   |   |
| Net cash used in  operating activities                                         |   | $                       | (5,075,828  | ) | $ | (162,436 | ) |
|                                                                           |   |                    |        |   |   |
| Cash flows used in  investing activities:                                      |   |                    |        |   |   |
| Purchase of marketable  securities                                             |   | (11,777,365             | )           | — |   |
| Purchase of equipment and  furniture                                           |   | (2,124,993              | )           | (32,789 | ) |
|                                                                           |   |                    |        |   |   |
| Net cash used in  investing activities                                         |   | $                       | (13,902,358 | ) | $ | (32,789 | ) |
|                                                                           |   |                    |        |   |   |
| Cash flows from financing  activities:                                         |   |                    |        |   |   |
| Proceeds from issuance of  common stock                                        |   | 196,168                 |        | 100,024,423 |   |
| Cashless exercise of  warrants, charge                                         |   | —                  |        | (1,844,314 | ) |
| Cashless exercise of  warrants, proceeds                                       |   | —                  |        | 1,844,314 |   |
|                                                                           |   |                    |        |   |   |
| Net cash and cash  equivalents provided by financing activities                |   | $                       | 196,168     |   | $ | 100,024,423 |   |
|                                                                           |   |                    |        |   |   |
| Net (decrease)/increase                                                        |   | (18,782,018             | )           | 99,829,198 |   |
| Cash and cash  equivalents, beginning of period                                |   | 139,777,330             |        | 24,664,567 |   |
|                                                                           |   |                    |        |   |   |
| Cash and cash  equivalents, end of period                                      |   | $                       | 120,995,312 |   | $ | 124,493,765 |   |
|                                                                           |   |                    |        |   |   |
| Supplemental disclosure  of cash paid for:                                     |   |                    |        |   |   |
| Interest                                                                       |   | $                       | —      |   | $ | — |   |
| Income taxes                                                                   |   | $                       | —      |   | $ | — |   |

Theaccompanying notes are an integral part of these financial statements.

**NEOPHARM, INC.(A Delaware Corporation)NOTES TO FINANCIAL STATEMENTSSeptember 30, 2001**

**Note 1**  **Basis of Presentation**

The financial information herein isunaudited, other than the Balance Sheet at December 31, 2000, which is derivedfrom the audited financial statements.

The accompanying unaudited financialstatements of NeoPharm, Inc. (the “Company”) have been prepared in accordancewith generally accepted accounting principles for interim financial informationand 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 requiredby generally accepted accounting principles for complete financial statements.In the opinion of the Company, the accompanying unaudited interim financialstatements contain all adjustments (consisting of normal recurring adjustments)necessary to present fairly the Company’s financial position as of September30, 2001, the results of operations for the three and nine months endedSeptember 30, 2001 and 2000, and the changes in cash flows for the nine monthperiods ended September 30, 2001 and 2000.

While the Company believes that thedisclosures presented are adequate to make the information not misleading, itis suggested that these financial statements be read in conjunction with thefinancial statements and notes included in the Company’s 2000 Annual Report onForm 10-K filed with the Securities and Exchange Commission.

**Note 2**  **Earnings Per Share**

The following table sets forth thecomputation of the basic and diluted earnings per share from continuingoperations:
|                                                                                                  |   | **For the three months ended:** |       | **For the nine months ended:** |   |
|-------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|--------------------------------|--------|
|                                                                                                  |   | **September 30,  2001**    |       | **September 30,  2000**   |   | **September 30,  2001** |   | **September 30,  2000** |   |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |
| Numerator:                                                                                            |   |                            |       |                           |   |   |   |   |   |
| Net  income/(loss) from continuing operations                                                         |   | $                               | (3,876,749 | )                              | $      | (1,163,797 | ) | $ | (6,967,118 | ) | $ | (206,712 | ) |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |
| Denominator:                                                                                          |   |                            |       |                           |   |   |   |   |   |
| Denominator  for basic income per share-weighted average shares                                       |   | 14,661,838                      |       | 11,181,916                     |   | 14,660,428 |   | 11,126,210 |   |
| Effect  of Dilutive securities:                                                                       |   |                            |       |                           |   |   |   |   |   |
| Stock  options                                                                                        |   | 682,237                         |       | 913,482                        |   | 769,976 |   | 859,264 |   |
| Warrant  exercise                                                                                     |   | —                          |       | —                         |   | — |   | 16,211 |   |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |
| Dilutive  potential common shares                                                                     |   | 682,237                         |       | 913,482                        |   | 769,976 |   | 875,475 |   |
| Denominator  for diluted income per share—weighted   average shares and assumed conversions |   | 15,344,075                      |       | 12,095,398                     |   | 15,430,404 |   | 12,001,685 |   |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |
| Basic  income/(loss) per share                                                                        |   | $                               | (0.26      | )                              | $      | (0.10 | ) | $ | (0.48 | ) | $ | (0.02 | ) |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |
| Diluted  income/(loss) per share                                                                      |   | $                               | (0.26      | )                              | $      | (0.10 | ) | $ | (0.48 | ) | $ | (0.02 | ) |
|                                                                                                  |   |                            |       |                           |   |   |   |   |   |

**Note 3**  **Related Party Expenses**

The Company’s former Chief ScientificOfficer, Dr. Aquilur Rahman, was employed on a full-time basis by GeorgetownUniversity until joining the Company in March 1996.  Upon Dr. Rahman’s retirement in January 2001, the Company nolonger considers Georgetown to be a related party.

The following table provides furtherdetail of the related party expenses reflected in the statement of operations:
|                                       |   |                |   | **For the three months ended:** |   | **For the nine  months  ended:** |   |
|--------------------------------------------|--------|---------------------|--------|---------------------------------|--------|---------------------------------------|--------|
| **Related  Party**                         |   | **Expense  Type**   |   | **September  30  2001**         |   | **September  30  2000**               |   | **September  30  2001** |   | **September  30  2000** |   |
|                                       |   |                |   |                            |   |                                  |   |   |   |   |   |
| Unicorn  Pharma Consulting, Inc.           |   | Consulting          |   | $                               | — |                                  | $      | 75,883 |   | $ | — |   | $ | 80,883 |   |
| Georgetown  University                     |   | Research & Fees |   | —                          |   | 171,875                               |   | — |   | 284,375 |   |
| Gail  Salzberg                             |   | Consulting          |   | —                          |   | 774                                   |   | — |   | 3,097 |   |
| E.J.  Financial Enterprises                |   | Consulting          |   | —                          |   | 31,250                                |   | — |   | 93,750 |   |
| E.J.  Financial Enterprises                |   | Direct  Expenses    |   | —                          |   | 4,592                                 |   | — |   | 9,532 |   |
| Total research and  development expenses   |   | $                   | — |                            | $      | 284,374                               |   | $ | — |   | $ | 471,637 |   |
|                                       |   |                |   |                            |   |                                  |   |   |   |
| E.J. Financial Enterprises                 |   | Consulting          |   | $                               | 31,250 |                                  | $      | — |   | $ | 93,750 |   | $ | — |   |
| E.J.  Financial Enterprises                |   | Direct  Expenses    |   | 88                              |   | —                                |   | 1,767 |   | — |   |
| Option  Care, Inc.                         |   | Rent  and Expenses  |   | —                          |   | 8,262                                 |   | — |   | 24,846 |   |
| Total general  and administrative expenses |   | $                   | 31,338 |                            | $      | 8,262                                 |   | $ | 95,517 |   | $ | 24,846 |   |
|                                       |   |                |   |                            |   |                                  |   |   |   |   |   |
| Total  related party expenses              |   |                |   | $                               | 31,338 |                                  | $      | 292,636 |   | $ | 95,517 |   | $ | 496,483 |   |
|                                       |   |                |   |                            |   |                                  |   |   |   |   |   |

Managementbelieves that the terms of the related party transactions listed above were atfair market rates.

**Note 4**  **Investments**

The Company considers all highly liquidinvestments purchased with an original maturity of three months or less to becash equivalents.  The carrying value ofthese investments approximate the fair market value.  Short –term investment in marketable securities includes liquid investmentspurchased with an original maturity of between three months and one year whilelong-term investment in marketable securities includes liquid investmentspurchased with an original maturity of greater than one year but less than twoyears.  As provided by SFAS No. 115, theCompany has elected to treat all of its investments in marketable securities as“available-for-sale”.  Accordingly,these investments are recorded at fair market value.  No investments were sold during the period.

**Item 2****- Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

             Thefollowing should be read in conjunction with the financial statements andrelated footnotes and Management’s Discussion and Analysis of Results ofOperations and Financial Conditions included in the Company’s Annual Report onForm 10-K.  The results discussed beloware not necessarily indicative of the results to be expected in any futureperiods.  The following discussioncontains forward-looking statements that are subject to risks and uncertaintieswhich could cause actual results to differ from the statements made.

**Overview**

             Weare a biopharmaceutical company engaged in the research, development andcommercialization of drugs for the treatment of various cancers. We currentlyhave a portfolio of nine anti-cancer drugs, six of which are in clinicaltrials. We have built our drug portfolio based on our two novel proprietarytechnology platforms: the NeoLipidTM electrostatic liposome drug deliveryplatform and a tumor-targeting platform. Our corporate strategy is to become aleader in the research, development and commercialization of new and innovativeanti-cancer treatments.

**Results of Operations – Three Months Ended September 30, 2001vs. Three Months Ended September 30, 2000.**

             TheCompany recorded no revenue for the three months ended September 30, 2001 andSeptember 30, 2000.

             Researchand development expense for the three-month period ended September 30, 2001 was$4,091,492 compared to $879,000 for the same period in 2000. The overallincrease in research and development costs was the result of increased researchexpenses of approximately $1,819,000 related to the clinical and pre-clinicaldevelopment of our products, increased payroll and consulting expense ofapproximately $1,016,000 related to increases in our R&D staff, andapproximately $378,000 in expenses incurred for the operation of the newresearch and development facility the Company opened in Waukegan, Illinoisduring February 2001.

             Generaland administrative expenses for the three-month period ended September 30, 2001were $1,054,784 compared to $687,371 for the same period in 2000. The overall increase ingeneral and administrative expenses was the result of an increase ofapproximately $184,000 for payroll and consulting expenses related to increasesin our administrative staff, increased professional fees of approximately$55,000, an increase in depreciation expense of approximately $40,000,increased rent expense of approximately $35,000 for the Company’s newheadquarters in Lake Forest, Illinois, and an increase of approximately $53,000in other miscellaneous office expenses.

             TheCompany generated interest income of $1,269,527 and $402,574 for thethree-month periods ended September 30, 2001 and September 30, 2000,respectively.  The increase in 2001 wasdue to the Company’s larger cash and marketable securities balances as a resultof investments made with the proceeds raised in the follow-on stock offeringcompleted in the fourth quarter of 2000.

             Netloss for the three months ended September 30, 2001 was $3,876,749 compared to aloss of $1,163,797 for the three-month period ended September 30, 2000. Netloss per share for the three-month period ended September 30, 2001 was $0.26basic and diluted, compared to net loss of $0.10 basic and diluted for thethree months ended September 30, 2000.

**Results of Operations – Nine Months Ended September 30, 2001vs. Nine Months Ended September 30, 2000.**

             TheCompany recorded no revenue for the nine months ended September 30, 2001.  For the same period in 2000, the Companyreceived a $3,000,000 milestone payment from Pharmacia Corporation forcompletion of Phase I and beginning Phase II/III clinical trials for LEP(liposome encapsulated paclitaxel).

             Researchand development expense for the nine-month period ended September 30, 2001 was$8,657,050 compared to $2,508,380 for the same period in 2000. The overallincrease in research and development costs was the result of increased researchexpenses of approximately $3,268,000 related to the clinical and pre-clinicaldevelopment of our products, increased payroll and consulting expense ofapproximately $2,224,000 related to increases in our R&D staff, andapproximately $661,000 in expenses incurred for the operation of the newresearch and development facility the Company opened in Waukegan, Illinoisduring February 2001.

             Generaland administrative expenses for the nine-month period ended September 30, 2001were $3,093,399 compared to $1,907,965 for the same period in 2000. The overall increase ingeneral and administrative expenses was the result of an increase ofapproximately $655,000 for payroll and consulting expenses related to increasesin our administrative staff, an increase in non-recurring registration fees ofapproximately $142,000, an increase in depreciation expense of approximately$105,000, increased rent expense of approximately $101,000 for the Company’snew headquarters in Lake Forest, Illinois, increased insurance expense ofapproximately $48,000, and an increase of approximately $134,000 in othermiscellaneous expenses.

             TheCompany generated interest income of $4,775,282 and $1,209,633 for thenine-month periods ended September 30, 2001 and September 30, 2000,respectively.  The increase in 2001 wasdue to the Company’s larger cash and marketable securities balances as a resultof investments made with the proceeds raised in the follow-on stock offeringcompleted in the fourth quarter of 2000.

             Netloss for the nine months ended September 30, 2001 was $6,967,118 compared tonet loss of $206,712 for the nine-month period ended September 30, 2000. Netloss per share for the six-month period ended September 30, 2001 was $0.48basic and diluted, compared to net loss of $0.02 per share basic and  diluted for the nine months ended September30, 2000.

**Liquidity And Capital Resources**

             AtSeptember 30, 2001, we had $120,995,312 in cash and cash equivalents and networking capital of $128,710,029. We believe that our cash and equivalentsshould be adequate to fund our immediate needs. However, we can offer noassurances that additional funding will not be required in the foreseeablefuture.  All excess cash is invested inmarketable securities that mature in two years or less.

             Ourassets at September 30, 2001 were $135,576,751 compared to $140,531,777 atDecember 31, 2000. The decrease in total assets resulted from a decrease incash and investments in marketable securities of approximately $6,845,000, anincrease in net fixed assets of approximately $1,749,000,  and an increase in other current assets ofapproximately $142,000.  Our liabilitiesat September 30, 2001 increased to approximately $2,096,000 from approximately$440,000 at December 31, 2000. This increase was attributable to an increase inaccrued compensation of approximately $468,000, an increase in accrued clinicaltrial expenses of approximately $176,000, an increase in other accrued expensesof approximately $221,000, an increase in obligations under research agreementsof approximately $265,000 and an increase in trade accounts payable ofapproximately $527,000.

             Wemay seek to satisfy our future funding requirements through public or privateofferings of securities, with collaborative or other arrangements withcorporate partners or from other sources. Additional financing may not beavailable when needed or on terms acceptable to us. If adequate financing isnot available, we may be required to delay, scale back or eliminate certain ofour research and development programs, relinquish rights to certain of ourtechnologies, cancer drugs or products, or license third parties tocommercialize products or technologies that we would otherwise seek to developourselves.

**Forward Looking Statements**

             Anystatements made by NeoPharm, Inc. (“we”, “us”, “our”, or the"Company") in this quarterly report that are forward looking are madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  The Companycautions readers that important factors may affect the Company's actual resultsand could cause such results to differ materially from forward-lookingstatements made by or on behalf of the Company.  Such factors include, but are not limited to, changing marketconditions, the impact of competitive products and pricing, the timelydevelopment and approval by the Food and Drug Administration ("FDA")and foreign health authorities, and market acceptance of the Company's productsin development, the Company's ability to further raise capital, the Company’sdependence 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 December31, 2000.

**Item 3****– Quantitative and Qualitative Disclosures About Market Risk**

             Notapplicable.

**PART II - OTHER INFORMATION**

Item 1.               Legal Proceedings                           None

Item 2.               Changes in Securities and Use ofProceeds                           None

Item 3.               Defaults Upon Senior Securities                           None

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

Item5.               Other Information

OnNovember 6, 2001 the Company’s Board of Directors declared a 10% stock dividendpayable on December 4, 2001 to shareholders of record on November 27,2001.  Upon payment of the stockdividend, the Company will have approximately 16,128,021 shares of its commonstock, .0002145 par value, issued and outstanding.

Item 6.               Exhibits and Reports on Form 8-K

OnSeptember 28, 2001 a Form 8-K was filed by the Company for the purpose ofreporting the Common Stock Repurchase Program adopted by the Company’s Board ofDirectors on that date.

**SIGNATURE PAGE**

**Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.**
|                     |   | NEOPHARM,  INC.                                                                                                |
|--------------------------|--------|----------------------------------------------------------------------------------------------------------------|
|                     |   |                                                                                                           |
| Date:  November 13, 2001 |   | By:     /s/   Lawrence A. Kenyon                                                      |
|                     |   |                                                                                                           |
|                     |   | Lawrence  A. Kenyon,*Chief  Financial Office  (Principal Accounting Officer and  Principal Financial Officer)* |