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

**FORM10-Q**

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

**For Quarter Ended June 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 the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x   No  ̈

As of July 20, 2001 the number of sharesoutstanding of each of the issuer’s classes of common stock was as follows:
| Title  of each class                | Number  of shares outstanding |
|-------------------------------------|-------------------------------|
|                                     |                               |
| Common Stock  ($.0002145 par value) | 14,661,838                    |

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NEOPHARM,INC.(A DELAWARE CORPORATION)

| PART I. FINANCIAL INFORMATION                                                                 |                                                                                                 |
|-----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                                                                          | Item 1. Financial  Statements                                                                        |   |
| Balance Sheets as  of June 30, 2001 and December 31, 2000                                     |                                                                                                 |
| Statements  of Operations for the three and six months ended June 30, 2001 and June 30,  2000 |                                                                                                 |
| Statements  of Cash Flows for the six months ended June 30, 2001 and June 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**
|                                                                                                                                     | **June 30,****2001**                           |        | **December 31,****2000** |        |
|------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|-------------|--------------------------|-------------|
|                                                                                                                                     | ****                                           |        | ****                     | ** **  |
|                                                                                                                                     | **(Unaudited)**                                |        |                     |        |
| **ASSETS**                                                                                                                               |                                           |        |                     |        |
| Current assets:                                                                                                                          |                                           |        |                     |        |
|                                                                                                                                     | Cash and cash equivalents                      | $           | 127,776,757              |        | $ | 139,777,330 |   |
|                                                                                                                                     | Short-term investment in marketable securities | 4,964,381   |                     | —      |   |
|                                                                                                                                     | Prepaid expenses                               | 1,075,890   |                     | 500,737     |   |
|                                                                                                                                     | Other current assets                           | 109,321     |                     | 3,366       |   |
|                                                                                                                                     | ****                                           | ** **  | ****                     | ** **  |
|                                                                                                                                     | Total current  assets                          | $           | 133,926,349              |        | $ | 140,281,433 |   |
| Equipment and furniture:                                                                                                                 |                                           |        |                     |        |
|                                                                                                                                     | Equipment                                      | 1,195,169   |                     | 131,981     |   |
|                                                                                                                                     | Furniture                                      | 432,851     |                     | 205,903     |   |
|                                                                                                                                     | Leasehold improvements                         | 201,136     |                     | 76,840      |   |
| Less accumulated depreciation                                                                                                            | (325,079                                       | )           | (164,380                 | )           |
|                                                                                                                                     | ****                                           | ** **  | ****                     | ** **  |
|                                                                                                                                     | Total equipment and furniture, net             | 1,504,077   |                     | 250,344     |   |
| Long-term investment in marketable securities                                                                                            | 2,714,638                                      |        | —                   |        |
|                                                                                                                                     |                                                |        |                          |        |
|                                                                                                                                     | Total assets                                   | $           | 138,145,064              |        | $ | 140,531,777 |   |
|                                                                                                                                     |                                                |        |                          |        |
|                                                                                                                                     |                                           |        |                     |        |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                 |                                           |        |                     |        |
| Current liabilities:                                                                                                                     |                                           |        |                     |        |
|                                                                                                                                     | Accrued compensation                           | $           | 269,576                  |        | $ | — |   |
|                                                                                                                                     | Accrued clinical trial expenses                | 213,952     |                     | —      |   |
|                                                                                                                                     | Accounts payable                               | 213,488     |                     | 323,797     |   |
|                                                                                                                                     | Obligations under research agreements          | 23,333      |                     | 8,333       |   |
|                                                                                                                                     | Other accrued expenses                         | 196,150     |                     | 107,569     |   |
|                                                                                                                                     | ****                                           | ** **  | ****                     | ** **  |
|                                                                                                                                     | Total current liabilities                      | 916,499     |                     | 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                                                                                                               | 142,322,124                                    |        | 142,181,732              |        |
| Accumulated deficit                                                                                                                      | (5,183,167                                     | )           | (2,092,799               | )           |
| Unrealized appreciation in marketable securities                                                                                         | 86,463                                         |        | —                   |        |
|                                                                                                                                     | ****                                           | ** **  | ****                     | ** **  |
|                                                                                                                                     | Total stockholders' equity                     | 137,228,565 |                     | 140,092,078 |   |
|                                                                                                                                     | ****                                           | ** **  | ****                     | ** **  |
|                                                                                                                                     | Total  liabilities and stockholders' equity    | $           | 138,145,064              |        | $ | 140,531,777 |   |
|                                                                                                                                     |                                                |        |                          |        |
|                                                                                                                                          |                                                |             |                          |             |  |  |  |  |

Theaccompanying notes are an integral part of these balance sheets.

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

|                                  | **Three  Months Ended**       |       | **Six Months  Ended** |       |
|---------------------------------------|-------------------------------|------------|-----------------------|------------|
|                                  | ****                          |       | ****                  |       |
|                                  | **June 30,**                  |       | **June 30,**          |       | **June 30,** |   | **June 30,** |   |
|                                  | **2001**                      |       | **2000**              |       | **2001** |   | **2000** |   |
|                                  | ****                          |       | ****                  |       | **** |   | **** |   |
| Revenues                              | $                             | —     |                  | $          | — |   | $ | — |   | $ | 3,000,000 |   |
| Expenses:                             |                          |       |                  |       |   |   |   |   |
| Research and development              | 2,982,161                     |       | 818,304               |       | 4,565,557 |   | 1,337,385 |   |
| General and administrative            | 1,029,966                     |       | 706,526               |       | 1,974,437 |   | 1,204,009 |   |
| Related party expenses (Note 3)       | 31,606                        |       | 166,644               |       | 64,179 |   | 308,580 |   |
|                                  |                               |       |                       |       |  |   |  |   |
|                                  | Total Expenses                | 4,043,733  |                  | 1,691,474  |   | 6,604,173 |   | 2,849,974 |   |
|                                  | Income (loss) from operations | (4,043,733 | )                     | (1,691,474 | ) | (6,604,173 | ) | 150,026 |   |
| Other income                          | —                        |       | —                |       | 8,049 |   | — |   |
| Interest income                       | 1,537,191                     |       | 393,886               |       | 3,505,755 |   | 807,059 |   |
| Net income (loss) before income taxes | $                             | (2,506,542 | )                     | $          | (1,297,588 | ) | $ | (3,090,369 | ) | $ | 957,085 |   |
|                                  |                               |       |                       |       |  |   |  |   |
| Income taxes                          | —                        |       | —                |       | — |   | — |   |
|                                  |                               |       |                       |       |  |   |  |   |
| Net income (loss)                     | $                             | (2,506,542 | )                     | $          | (1,297,588 | ) | $ | (3,090,369 | ) | $ | 957,085 |   |
|                                  |                               |       |                       |       |  |   |  |   |
| Net Income (loss) per share           |                          |       |                  |       |   |   |   |   |
|                                  | Basic                         | $          | (0.17                 | )          | $ | (0.12 | ) | $ | (0.21 | ) | $ | 0.09 |   |
|                                  |                          |            |                  |            |   |  |   |  |   |
|                                  | Diluted                       | $          | (0.17                 | )          | $ | (0.12 | ) | $ | (0.21 | ) | $ | 0.08 |   |
|                                  |                          |            |                  |            |   |  |   |  |   |
| Weighted average shares outstanding   |                          |       |                  |       |   |   |   |   |
|                                  | Basic                         | 14,661,618 |                  | 11,141,305 |   | 14,659,711 |   | 11,092,092 |   |
|                                  |                          |            |                  |            |   |  |   |  |   |
|                                  | Diluted                       | 15,453,948 |                  | 11,845,771 |   | 15,474,304 |   | 11,902,365 |   |
|                                  |                          |            |                  |            |   |  |   |  |   |
|                                       |                               |            |                       |            |  |  |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of these financial statements.

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

|                                                                               | **Six Months Ended** |        |
|------------------------------------------------------------------------------------|----------------------|-------------|
|                                                                               | ****                 |        |
|                                                                               | **June 30,   2001**  |        | **June 30, 2000** |   |
|                                                                               | ****                 |        | **** |   |
| Cash flows provided by/(used in) operating activities:                             |                 |        |   |   |
| Net income/(loss)                                                                  | $                    | (3,090,369  | ) | $ | 957,085 |   |
|                                                                               |                 |        |   |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |                 |        |   |   |
| Depreciation and amortization                                                      | 160,699              |        | 11,883 |   |
| Compensation expense from non-employee stock options                               | —               |        | 157,112 |   |
| Restricted stock grants in lieu of cash compensation                               | —               |        | 49,610 |   |
| (Increase) in other assets                                                         | (681,108             | )           | (211,331 | ) |
| Increase/(decrease) in accounts payable and accrued  liabilities                   | 476,800              |        | (534,773 | ) |
|                                                                               |                      |        |  |   |
| Net cash provided by/(used in) operating activities                                | (3,133,978           | )           | 429,586 |   |
|                                                                               |                      |        |  |   |
| Cash flows used in investing activities:                                           |                 |        |   |   |
| Purchase of marketable securities                                                  | (7,592,556           | )           | — |   |
| Purchase of equipment and furniture                                                | (1,414,432           | )           | (1,557 | ) |
|                                                                               |                      |        |  |   |
| Net cash used in investing activities                                              | (9,006,988           | )           | (1,557 | ) |
|                                                                               |                      |        |  |   |
| Cash flows from financing activities:                                              |                 |        |   |   |
| Proceeds from issuance of common stock                                             | 140,393              |        | 203,687 |   |
| 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                    | 140,393              |        | 203,687 |   |
|                                                                               |                      |        |  |   |
| Net (decrease)/increase                                                            | (12,000,573          | )           | 631,716 |   |
| Cash and cash equivalents, beginning of period                                     | 139,777,330          |        | 24,664,567 |   |
|                                                                               |                      |        |  |   |
| Cash and cash equivalents, end of period                                           | $                    | 127,776,757 |   | $ | 25,296,283 |   |
|                                                                               |                      |        |  |   |
| 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 STATEMENTSJune 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 June 30,2001, the results of operations for the three and six months ended June 30,2001 and 2000, and the changes in cash flows for the six month period endedJune 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 six  months ended: |       |
|-------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------|------------|----------------------------------|------------|
|                                                                                                  |                                                                 |       |                                  |       |
|                                                                                                  | June  30  2001                                                  |       | June  30  2000                   |       | June  30  2001 |   | June  30  2000 |   |
|                                                                                                  |                                                                 |       |                                  |       |  |   |  |   |
| Numerator:                                                                                            |                                                            |       |                             |       |   |   |   |   |
|                                                                                                  | Net income/(loss) from  continuing operations                   | $          | (2,506,542                       | )          | $ | (1,297,588 | ) | $ | (3,090,369 | ) | $ | 957,085 |   |
|                                                                                                  |                                                            |            |                             |            |   |  |   |  |   |
| Denominator:                                                                                          |                                                            |       |                             |       |   |   |   |   |
|                                                                                                  | Denominator for basic  income per share-weighted average shares | 14,661,618 |                             | 11,141,305 |   | 14,659,711 |   | 11,092,602 |   |
| Effect of Dilutive securities:                                                                        |                                                            |       |                             |       |   |   |   |   |
|                                                                                                  | Stock options                                                   | 792,330    |                             | 704,466    |   | 814,593 |   | 786,293 |   |
|                                                                                                  | Warrant exercise                                                | —     |                             | —     |   | — |   | 23,470 |   |
|                                                                                                  |                                                                 |       |                                  |       |  |   |  |   |
| Dilutive potential  common shares                                                                     | 792,330                                                         |       | 704,466                          |       | 814,593 |   | 809,763 |   |
| Denominator for  diluted income per share—weighted   average shares and assumed conversions | 15,453,948                                                      |       | 11,845,771                       |       | 15,474,304 |   | 11,902,365 |   |
|                                                                                                  |                                                                 |       |                                  |       |  |   |  |   |
| Basic income/(loss)  per share                                                                        | $                                                               | (0.17      | )                                | $          | (0.12 | ) | $ | (0.21 | ) | $ | 0.09 |   |
|                                                                                                  |                                                                 |       |                                  |       |  |   |  |   |
| Diluted income/(loss)  per share                                                                      | $                                                               | (0.17      | )                                | $          | (0.12 | ) | $ | (0.21 | ) | $ | 0.08 |   |
|                                                                                                  |                                                                 |       |                                  |       |  |   |  |   |

**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 six  months ended: |   |
|----------------------------------|--------------------------------------------|--------|------------------------------|--------|----------------------------------|--------|
|                             |                                       |   |                              |   |                                  |   |
| Related  Party                   | Expense  Type                              |   | June  30  2001               |   | June  30  2000                   |   | June  30  2001 |   | June  30  2000 |   |
|                                  |                                            |   |                              |   |                                  |   |  |   |  |   |
| Unicorn Pharma  Consulting, Inc. | Consulting                                 |   | $                            | — |                             | $      | 5,000 |   | $ | — |   | $ | 5,000 |   |
| Georgetown University            | Research & Fees                        |   | —                       |   | 118,750                          |   | — |   | 217,233 |   |
| Gail Salzberg                    | Consulting                                 |   | —                       |   | —                           |   | — |   | 2,323 |   |
| E.J. Financial  Enterprises      | Consulting                                 |   | —                       |   | 31,250                           |   | — |   | 62,500 |   |
| E.J. Financial  Enterprises      | Direct Expenses                            |   | —                       |   | 3,251                            |   | — |   | 4,940 |   |
|                             |                                       |   |                              |   |                                  |   |  |   |  |   |
|                             | Total research and development expenses    |   | —                       |   | 158,251                          |   | — |   | 291,996 |   |
| E.J. Financial Enterprises       | Consulting                                 |   | $                            | 31,250 |                             | — |   | $ | 62,500 |   | — |   |
| E.J. Financial  Enterprises      | Direct Expenses                            |   | 356                          |   | —                           |   | 1,679 |   | — |   |
| Option Care, Inc.                | Rent and Expenses                          |   | —                       |   | 8,393                            |   | — |   | 16,584 |   |
|                             |                                       |   |                              |   |                                  |   |  |   |  |   |
|                             | Total general and  administrative expenses |   | 31,606                       |   | 8,393                            |   | 64,179 |   | 16,584 |   |
|                             |                                       |   |                              |   |                                  |   |  |   |  |   |
| Total related party  expenses    |                                       |   | $                            | 31,606 |                             | $      | 166,644 |   | $ | 64,179 |   | $ | 308,580 |   |
|                             |                                       |   |                              |   |                                  |   |  |   |  |   |
|                                  |                                            |        |                              |        |                                  |        |  |  |  |  |  |  |  |  |  |

Management believes that the terms of therelated party transactions listed above were at fair 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 liquidinvestments purchased with an original maturity of between three months and oneyear while long-term investment in marketable securities includes liquidinvestments purchased with an original maturity of greater that one year butless than two years.  As provided bySFAS No. 115, the Company has elected to treat all of its investments inmarketable 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 Financial Condition and Results ofOperations**

             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 eight anti-cancer drugs, five 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 June 30, 2001 vs.Three Months Ended June 30, 2000.**

             TheCompany recorded no revenue for the three months ended June 30, 2001 and June30, 2000.

             Researchand development expense for the three-month period ended June 30, 2001 was$2,982,161 compared to $976,555 for the same period in 2000. The overallincrease in research and development costs was the result of increased researchexpenses of approximately $1,078,000 related to the clinical and pre-clinicaldevelopment of our products, increased payroll and consulting expense ofapproximately $782,000 related to increases in our R&D staff, approximately$191,000 in expenses incurred for the operation of the new research anddevelopment facility the Company opened in Waukegan, Illinois during February2001, and a decrease of approximately $45,000 in other miscellaneous researchand development expenses.

             Generaland administrative expenses for the three-month period ended June 30, 2001 were$1,061,572 compared to $714,919 for the same period in 2000. The overall increase in general andadministrative expenses was the result of an increase of approximately $258,000for payroll and consulting expenses related to increases in our administrativestaff, an increase in depreciation expense of approximately $43,000, increasedrent expense of approximately $32,000 for the Company’s new headquarters inLake Forest, Illinois, and an increase of approximately $12,000 in othermiscellaneous expenses.

             TheCompany generated interest income of $1,537,191 and $393,886 for thethree-month periods ended June 30, 2001 and June 30, 2000, respectively.  The increase in 2001 was due to theCompany’s larger cash and marketable securities balances as a result of theproceeds raised in the follow-on stock offering completed in the fourth quarterof 2000.

             Netloss for the three months ended June 30, 2001 was $2,506,542 compared to a lossof $1,297,588 for the three-month period ended June 30, 2000. Net loss pershare for the three-month period ended June 30, 2001 was $0.17 basic anddiluted, compared to net loss of $0.12 basic and diluted for the three monthsended June 30, 2000.

**Results of Operations – Six Months Ended June 30, 2001 vs.Six Months Ended June 30, 2000.**

             TheCompany recorded no revenue for the six months ended June 30, 2001.  For the same period in 2000, the Companyreceived a $3,000,000 milestone payment from Pharmacia Corporation.

             Researchand development expense for the six-month period ended June 30, 2001 was$4,565,557 compared to $1,629,381 for the same period in 2000. The overallincrease in research and development costs was the result of increased researchexpenses of approximately $1,498,000 related to the clinical and pre-clinicaldevelopment of our products, increased payroll and consulting expense ofapproximately $1,208,000 related to increases in our R&D staff,approximately $283,000 in expenses incurred for the operation of the newresearch and development facility the Company opened in Waukegan, Illinoisduring February 2001, and a decrease of approximately $53,000 in othermiscellaneous research and development expenses.

             Generaland administrative expenses for the six-month period ended June 30, 2001 were$2,038,616 compared to $1,220,592 for the same period in 2000. The overall increase ingeneral and administrative expenses was the result of an increase ofapproximately $468,000 for payroll and consulting expenses related to increasesin our administrative staff, an increase in non-recurring registration fees ofapproximately $142,000, increased rent expense of approximately $66,000 for theCompany’s new headquarters in Lake Forest, Illinois, an increase indepreciation expense of approximately $65,000, and an increase of approximately$77,000 in other miscellaneous expenses.

             TheCompany generated interest income of $3,505,755 and $807,059 for the six-monthperiods ended June 30, 2001 and June 30, 2000, respectively.  The increase in 2001 was due to theCompany’s larger cash and marketable securities balances as a result of theproceeds raised in the follow-on stock offering completed in the fourth quarterof 2000.

             Netloss for the six months ended June 30, 2001 was $3,090,369 compared to netincome of $957,085 for the six-month period ended June 30, 2000. Net loss pershare for the six-month period ended June 30, 2001 was $0.21 basic and diluted,compared to net income of $0.09 per share basic and $0.08 per share diluted forthe six months ended June 30, 2000.

**Liquidity And Capital Resources**

             AtJune 30, 2001, we had $127,776,757 in cash and cash equivalents and net workingcapital of $133,009,850. We believe that our cash and equivalents should beadequate to fund our immediate needs. However, we can offer no assurances thatadditional funding will not be required in the foreseeable future.  All excess cash is invested in marketablesecurities that mature in two years or less.

             Ourassets at June 30, 2001 were $138,145,064 compared to $140,531,777 at December31, 2000. The decrease in total assets resulted from a decrease in cash andinvestments in marketable securities of approximately $4,322,000, an increasein net fixed assets of approximately $1,254,000, an increase in prepaidexpenses of approximately $575,000 and an increase in other current assets ofapproximately $106,000.  Our liabilitiesat June 30, 2001 increased to approximately $916,000 from approximately$440,000 at December 31, 2000. This increase was attributable to an increase inaccrued compensation of approximately $270,000, an increase in accrued clinicaltrial expenses of approximately $214,000, an increase in other accrued expensesof approximately $89,000, an increase in obligations under research agreementsof approximately $15,000 and a decrease in trade accounts payable ofapproximately $110,000.

             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, approval by the Food and Drug Administration ("FDA") andforeign health authorities, and market acceptance of the Company's products indevelopment, 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**

Item1.               Legal Proceedings                           None

Item2.               Changes in Securities andUse of Proceeds                           None

Item 3.               Defaults Upon Senior Securities                           None

Item4.               Submission of Matters toa Vote of Security-Holders

OnJune 7, 2001, the Company held its Annual Meeting of Stockholders for thepurpose of electing six directors to serve until the 2002 Annual Meeting ofStockholders.

Withrespect to the election for directors, the votes were as follows:

 

|             | VOTES  FOR |   | VOTES  AGAINST |   | VOTES  WITHHELD |
|------------------|------------|--------|----------------|--------|-----------------|
|             |       |   |           |   |            |
| John N. Kapoor   | 12,884,695 |   | 0              |   | 2,483           |
| James M. Hussey  | 12,027,688 |   | 0              |   | 859,490         |
| Matthew P. Rogan | 12,881,526 |   | 0              |   | 5,652           |
| Kaveh T. Safavi  | 12,885,628 |   | 0              |   | 1,550           |
| Sander A. Flaum  | 12,013,844 |   | 0              |   | 873,334         |
| Erick E. Hanson  | 12,883,628 |   | 0              |   | 3,550           |

 

Item5.               Other Information                           None

Item 6.               Exhibits and Reports on Form 8-K                           No reports onForm 8-K were filed during the quarter ended June 30, 2001.

**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: August 7, 2001 | By:     /s/   Lawrence A. Kenyon                                                         |
|                      |                                                                                                                   |
|                 | Lawrence A. Kenyon, *Chief  Financial Officer**(Principal  Accounting Officer and**Principal  Financial Officer)* |