<PAGE>   1
                                  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 JUNE 30, 1998

                                       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)                            8,195,810
                     
  Warrants to purchase shares of 
Common Stock ($.0002145 par value)                              837,067
</TABLE>
                   
<PAGE>   2
                                 NEOPHARM, INC.
                (A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)


                                                                     Page Number
                                                                     -----------

PART I.       Financial Information

      ITEM 1. Financial Statements

                      Balance Sheets                                           3

                      Statement of Operations                                  4

                      Statement of Cash Flows                                  5

                      Notes to Financial Statements                            6


      ITEM 2. Management's Discussion and Analysis of Financial
              Condition and Results of Operations                              7


PART II.      Other Information                                               10

SIGNATURE PAGE                                                                11


                                                                               2
<PAGE>   3
PART I - FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                                     JUNE 30,       DECEMBER 31,
                                                       1998            1997
                                                    -----------     -----------
<S>                                                 <C>             <C>
ASSETS

Current assets:
  Cash and cash equivalents                         $ 1,391,111     $ 2,776,697
  Notes Receivable - Shareholder                             --          52,634
  Prepaid expenses and other                             60,049              --
                                                    -----------     -----------
         Total current assets                         1,451,160       2,829,331

Equipment, furniture and leasehold improvements:
  Equipment                                              72,004          32,492
  Furniture                                              61,484          26,231
  Leasehold improvements                                 17,344              --
  Less accumulated depreciation                         (43,470)        (33,555)
                                                    -----------     -----------
         Total equipment, furniture
         and leasehold improvements, net                107,362          25,168
                                                    -----------     -----------

         Total assets                               $ 1,558,522     $ 2,854,499
                                                    ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities:
    Obligations under research agreements           $    90,000     $   150,000
    Accounts payable and accrued liabilities            188,700         275,427
    Accrued compensation                                     --          55,000
                                                    -----------     -----------

         Total current liabilities                      278,700         480,427
                                                    -----------     -----------

Commitments and contingencies                                --              --

Stockholders' equity:
  Common stock, $.0002145 par value;
    15,000,000 shares authorized:
    8,195,810 shares issued and
    outstanding, respectively                             1,758           1,758
  Additional paid-in capital                          6,259,636       6,259,636
  Deficit accumulated during the
    development stage                                (4,981,572)     (3,887,322)
                                                    -----------     -----------
         Total stockholders' equity                   1,279,822       2,374,072
                                                    -----------     -----------
         Total liabilities and stockholders'
           equity                                   $ 1,558,522     $ 2,854,499
                                                    ===========     ===========
</TABLE>

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


                                                                               3
<PAGE>   4
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)

<TABLE>
<CAPTION>
                                                                                         INCEPTION
                                                                                      (JUNE 15, 1990)
                                THREE MONTHS                   SIX MONTHS                 THROUGH
                                   JUNE 30,                      JUNE 30,                 JUNE 30,
                            1998             1997          1998            1997            1998
                         -----------     -----------    -----------     -----------     -----------
<S>                      <C>             <C>            <C>             <C>           <C>        
Revenues:
  Licensing Revenues     $        --     $   550,000    $        --     $   550,000     $   550,000

Expenses:
  Research and
   development               375,446         218,861        548,300         488,703       6,022,504
  General and
   administrative            319,761         267,249        611,400         479,273       3,758,579
                         -----------     -----------    -----------     -----------     -----------
    Total Expenses           695,207         486,110      1,159,700         967,976       9,781,083

(Loss) income
 from operations            (695,207)         63,890     (1,159,700)       (417,976)     (9,231,083)

Interest income               28,068          51,966         65,450         109,390         514,226
Interest expense                  --              --             --              --        (735,606)
                         -----------     -----------    -----------     -----------     -----------
  Interest income
    (expense) - net           28,068          51,966         65,450         109,390        (221,380)

Net (loss) income        $  (667,139)    $   115,856    $(1,094,250)    $  (308,586)    $(9,452,463)
                         ===========     ===========    ===========     ===========     ===========

Net (loss) income
 per share               $      (.08)    $       .01    $      (.13)    $      (.04)
                         ===========     ===========    ===========     ===========

Weighted average
 shares used in
 computing net (loss)
 income per share          8,195,810      8,131,435       8,195,810       8,130,851
                         ===========    ===========     ===========     ===========
</TABLE>

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


                                                                               4
<PAGE>   5
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
SIX  MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)

<TABLE>
<CAPTION>
                                                                              INCEPTION
                                                                           (JUNE 15, 1990)
                                                                               THROUGH
                                              JUNE 30,         JUNE 30,        JUNE 30,
                                                1998             1997            1998
                                             -----------     -----------     -----------
<S>                                          <C>             <C>           <C>
Cash flows used in operating activities:
  Net loss                                   $(1,094,250)    $  (308,586)    $(9,452,463)
  Adjustments to reconcile net loss
    to net cash used by operating
    activities:
  Depreciation and amortization                    9,915           2,890          55,269
  Gain on disposal of equipment
    and furniture                                     --              --            (408)
  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                                     --              --         219,035
  Restricted stock grant                              --              --          48,750
  Changes in assets and liabilities:
  (Increase) decrease in other assets             (7,415)        (35,080)        (71,149)
  Increase (decrease) in accounts
    payable and accrued liabilities             (201,727)       (282,344)        278,700

Net cash used in operating activities         (1,293,477)       (623,120)     (8,297,839)
                                             -----------     -----------     -----------
Cash flows used in investing activities:
  Purchase of equipment and furniture            (92,109)        (13,242)       (151,934)
  Proceeds from disposal of
    equipment and furniture                           --              --             810
                                             -----------     -----------     -----------

Net cash used in investing activities            (92,109)        (13,242)       (151,124)
                                             -----------     -----------     -----------
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              --          24,572         442,957
                                             -----------     -----------     -----------

Net cash provided by financing activities             --          24,572       9,840,074
                                             -----------     -----------     -----------

Net increase (decrease) in cash               (1,385,586)       (611,790)      1,391,111
  Cash, beginning of period                    2,776,697       4,479,041              --
                                             -----------     -----------     -----------
  Cash, end of period                        $ 1,391,111     $ 3,867,251     $ 1,391,111
                                             ===========     ===========     ===========

Supplemental disclosure of cash paid for:
  Interest                                   $        --     $        --     $   212,222
  Income taxes                                        --              --              --
</TABLE>

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


                                                                               5
<PAGE>   6
                                 NEOPHARM, INC.
                (A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1998


NOTE 1   BASIS OF PRESENTATION

The financial information herein is unaudited, other than the Balance Sheet at
December 31, 1997, 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 June 30, 1998, the results of operations for
the three and six months ended June 30, 1998 and 1997, the results of operations
from inception (June 15, 1990) to date (June 30, 1998), the changes in cash
flows for the six month periods ended June 30, 1998 and 1997 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 1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

NOTE 2   ACCOUNTING POLICIES

Effective the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No.
130"), which requires companies to report all changes in equity during a period,
except those resulting from investing by owners and distribution to owners, in a
financial statement for the period in which they are recognized. As of June 30,
1998, the Company has no items of other Comprehensive Income and accordingly, is
not required to report Comprehensive Income.


                                                                               6
<PAGE>   7
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, 1997

Overview

The Company was founded in 1990 and is a development stage company engaged in
the research and development of drugs for the diagnosis and treatment of various
forms of cancer. Originally incorporated under the name Oncomed, Inc., the
Company changed its name to NeoPharm, Inc. in March, 1995. 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 oligodeoxynucleotides
("LE-AON") and IL-13 chimeric protein (IL13-PE38QQR) ("IL-13").

Since its inception in 1990, the Company has devoted substantially all of its
efforts and resources to sponsoring and conducting research and development on
its own behalf and through collaborations with academic research and clinical
institutions. Through June 30, 1998, with the exception of license fees, the
Company has not generated any revenue from operations.

The Company has filed one New Drug Application ("NDA") related to the use of
BUdR as a prognostic indicator in breast cancer. This NDA was filed in December
of 1996. In December of 1997, FDA's Oncology Advisory Committee ("ODAC")
reviewed the NDA filing and voted not to recommend this indication to the FDA
for approval. Since that decision, the Company has met with the FDA to respond
to the concerns raised by ODAC. These discussions led to Company gathering
additional data and reanalyzing the existing data in order to obtain the FDA's
approval. The most recent NDA amendment was filed on March 6, 1998. However, the
review period for the BUdR submission had expired before the FDA could review
this most recent amendment. Having met with the FDA, gathered new data and
reanalyzed existing data, the Company intends to file an amendment to its NDA in
the third quarter of 1998, for the approval of BUdR as an S-Phase labeling
marker for breast cancer.

The Company's BUdR product is the subject of a Cooperative Research and
Development Agreement ("CRADA") with the National Cancer Institute ("NCI").
BUdR, which is intended to be marketed under the name Broxine (formerly
NeoMark(TM)), is a compound which is intended to provide information regarding
tumor cell behavior that can assist the oncologist in selecting appropriate
therapeutic regimens for patients and enable better monitoring of the
effectiveness of the chosen therapy.

The Company's IL-13 chimeric protein product is the subject of a CRADA with the
FDA and the subject of a licensing agreement with the National Institute of
Health. The IL-13 chimeric protein is the fusion of the receptor-binding ligand
IL-13 with a derivative of Pseudomonas exotoxin (PE38QQR). Research has
demonstrated that some solid tumors 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 concentrations. Normal
organs of the body are shown to exhibit minimal receptor sites thereby sparing
these organs from any toxic effect.

The Company's liposome products are spheres of subcellular size composed
primarily of phospholipids, certain of which are the primary components of
living cell membranes. By encapsulating certain chemotherapeutic drugs in
liposomes, the toxic side effects associated with the drug can be reduced and
the dose increased, thereby potentially increasing the effectiveness of therapy
through both increased drug action against cancer cells and reduced side
effects. 


                                                                               7
<PAGE>   8
The Company believes its liposomes overcome the effects of multiple drug
resistance which is observed in an estimated 300,000 cancer patients each year.

The Company's operating results may fluctuate from period to period as a result
of, among other things, the receipt of license fee payments, the timing and
costs associated with clinical trials and the regulatory approval process, and
the acquisition of additional product rights. The Company participates in a
highly dynamic industry, which often results in significant volatility of the
Company's common stock price. Any setbacks in clinical trials, in the regulatory
approval process or in relationships with collaborative partners, and any
shortfalls in revenue or earnings from levels expected by securities analysts,
among other developments, have in the past had and could in the future have an
immediate and significant adverse effect on the trading price of the Company's
common stock in any given period.

Results of Operations - Six Months Ended June 30, 1998 vs. Six Months Ended June
30, 1997

Research and development expenses increased by 12% or $59,597 for the six month
period ended June 30, 1998 compared to the six month period ended June 30, 1997.
The increase is due to the start up of LED, LEP and IL-13 research and
development efforts in 1998.

General and administration expenses increased 28% or $132,127 for the six month
period ended June 30, 1998 compared to the six month period ended June 30, 1997,
primarily due to increased payroll expenses and investor relation activities.

The Company generated interest income on excess cash balances of $65,450 and
$109,390 for the six month periods ended June 30, 1998 and June 30, 1997,
respectively.

The net loss for the six month period ended June 30, 1998 was $1,094,250
compared to a net loss of $308,586 for the six month period ended June 30, 1997.
The Company received $550,000 of licensing revenue in the second quarter of 1997
but recorded no revenues in 1998. The Company expects losses to continue as
planned product development continues.

Results of Operations - Three Months Ended June 30, 1998 vs. Three Months Ended
June 30, 1997

Research and development expenses increased by 72% or $156,585 for the three
month period ended June 30, 1998 compared to the three month period ended June
30, 1997. The increase is primarily attributable to LED, LEP and IL-13 research
and development efforts which began in 1998.

General and administration expenses increased 20% or $52,512 for the three month
period ended June 30, 1998 compared to the three month period ended June 30,
1997, primarily due to increased payroll expenses and investor relation
activities.

The Company generated interest income on excess cash balances of $28,068 and
$51,966 for the three month periods ended June 30, 1998 and June 30, 1997,
respectively.

The net loss for the three month period ended June 30, 1998 was $667,139
compared to the net income of $115,856 for the three month period ended June 30,
1997. The Company received $550,000 of licensing revenue in the second quarter
of 1997 but recorded no revenues in 1998. The Company expects losses to continue
as planned product development continues.

Liquidity and Capital Resources

Cash expenditures have exceeded revenues since the Company's inception.
Operations were initially funded through a loan from the Company's Chairman and
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 


                                                                               8
<PAGE>   9
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.

At June 30, 1998, the Company's cash and cash equivalents were $1,391,111
compared to $2,776,697 at December 31, 1997. 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 needed or on terms acceptable to the Company. Insufficient
funds my 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 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company has conducted a review of its computer
systems and has determined that it will not be materially impacted by the Year
2000 issues.


                                                                               9
<PAGE>   10
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

         On June 15, 1998, the Company held its annual meeting of Stockholders
         for the purpose of electing 5 directors to serve until the 1999 Annual
         Meeting of Stockholders.

         With respect to the election for directors, the votes were as follows:

<TABLE>
<CAPTION>
                                   Votes For    Votes Against    Votes Withheld
                                   ---------    -------------    --------------
<S>                                <C>          <C>              <C>  
         James M. Hussey            6,007,733               0              2,100
         John N. Kapoor             6,007,733               0              2,100
         Aquilur Rahman             6,007,733               0              2,100
         Anatoly Dritschilo         6,007,733               0              2,100
         Erick E. Hanson            6,007,733               0              2,100
</TABLE>

         Item 5.        Other Information

         Acting pursuant to a Unanimous Written Consent of the Board of
         Directors dated July 23, 1998, the Board of Directors (I) amended the
         Company's Bylaws to increase the authorized number of directors from
         five to seven; (ii) filled one of the two newly created vacancies by
         appointing Mr. Sander A. Flaum to the Board to serve until the next
         annual meeting of shareholders; and, (iii) directed the President of
         the Company, Mr. James M. Hussey, to undertake a search for additional
         qualified candidates for possible appointment to fill the remaining
         Board vacancy.

         Item 6.        Exhibits and Reports on Form 8-K

                        (a)  Exhibits                                       None

                        (b)  Reports on Form 8-K                            None


                                                                              10
<PAGE>   11
                                 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: August 12, 1998


                                                                              11