The financial information herein is unaudited, other than the Balance Sheet at December 31, 2000, which is derived from the audited financial statements.
The accompanying unaudited financial statements of NeoPharm, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s financial position as of 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 ended June 30, 2001 and 2000.
While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company’s 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The following table sets forth the computation of the basic and diluted earnings per share from continuing operations:
Note 3 Related Party Expenses
The Company’s former Chief Scientific Officer, Dr. Aquilur Rahman, was employed on a full-time basis by Georgetown University until joining the Company in March 1996. Upon Dr. Rahman’s retirement in January 2001, the Company no longer considers Georgetown to be a related party.
The following table provides further detail of the related party expenses reflected in the statement of operations:
| | | | For the three months ended: | | For the six months ended: | |
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| Related Party | Expense Type | | June 30
2001 | | June 30
2000 | | June 30
2001 | | June 30
2000 | |
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| 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 | |
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| | 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 | |
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| | Total general and administrative expenses | | 31,606 | | 8,393 | | 64,179 | | 16,584 | |
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| Total related party expenses | | | $ | 31,606 | | $ | 166,644 | | $ | 64,179 | | $ | 308,580 | |
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Management believes that the terms of the related party transactions listed above were at fair market rates.
Note 4 Investments
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of these investments approximate the fair market value. Short –term investment in marketable securities includes liquid investments purchased with an original maturity of between three months and one year while long-term investment in marketable securities includes liquid investments purchased with an original maturity of greater that one year but less than two years. As provided by SFAS No. 115, the Company 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 Financial Condition and Results of Operations
The following should be read in conjunction with the financial statements and related footnotes and Management’s Discussion and Analysis of Results of Operations and Financial Conditions included in the Company’s Annual Report on Form 10-K. The results discussed below are not necessarily indicative of the results to be expected in any future periods. The following discussion contains forward-looking statements that are subject to risks and uncertainties which could cause actual results to differ from the statements made.
Overview
We are a biopharmaceutical company engaged in the research, development and commercialization of drugs for the treatment of various cancers. We currently have a portfolio of eight anti-cancer drugs, five of which are in clinical trials. We have built our drug portfolio based on our two novel proprietary technology platforms: the NeoLipid™ electrostatic liposome drug delivery platform and a tumor-targeting platform. Our corporate strategy is to become a leader in the research, development and commercialization of new and innovative anti-cancer treatments.
Results of Operations – Three Months Ended June 30, 2001 vs. Three Months Ended June 30, 2000.
The Company recorded no revenue for the three months ended June 30, 2001 and June 30, 2000.
Research and 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 overall increase in research and development costs was the result of increased research expenses of approximately $1,078,000 related to the clinical and pre-clinical development of our products, increased payroll and consulting expense of approximately $782,000 related to increases in our R&D staff, approximately $191,000 in expenses incurred for the operation of the new research and development facility the Company opened in Waukegan, Illinois during February 2001, and a decrease of approximately $45,000 in other miscellaneous research and development expenses.
General and 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 and administrative expenses was the result of an increase of approximately $258,000 for payroll and consulting expenses related to increases in our administrative staff, an increase in depreciation expense of approximately $43,000, increased rent expense of approximately $32,000 for the Company’s new headquarters in Lake Forest, Illinois, and an increase of approximately $12,000 in other miscellaneous expenses.
The Company generated interest income of $1,537,191 and $393,886 for the three-month periods ended June 30, 2001 and June 30, 2000, respectively. The increase in 2001 was due to the Company’s larger cash and marketable securities balances as a result of the proceeds raised in the follow-on stock offering completed in the fourth quarter of 2000.
Net loss for the three months ended June 30, 2001 was $2,506,542 compared to a loss of $1,297,588 for the three-month period ended June 30, 2000. Net loss per share for the three-month period ended June 30, 2001 was $0.17 basic and diluted, compared to net loss of $0.12 basic and diluted for the three months ended June 30, 2000.
Results of Operations – Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000.
The Company recorded no revenue for the six months ended June 30, 2001. For the same period in 2000, the Company received a $3,000,000 milestone payment from Pharmacia Corporation.
Research and development expense for the six-month period ended June 30, 2001 was $4,565,557 compared to $1,629,381 for the same period in 2000. The overall increase in research and development costs was the result of increased research expenses of approximately $1,498,000 related to the clinical and pre-clinical development of our products, increased payroll and consulting expense of approximately $1,208,000 related to increases in our R&D staff, approximately $283,000 in expenses incurred for the operation of the new research and development facility the Company opened in Waukegan, Illinois during February 2001, and a decrease of approximately $53,000 in other miscellaneous research and development expenses.
General and 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 in general and administrative expenses was the result of an increase of approximately $468,000 for payroll and consulting expenses related to increases in our administrative staff, an increase in non-recurring registration fees of approximately $142,000, increased rent expense of approximately $66,000 for the Company’s new headquarters in Lake Forest, Illinois, an increase in depreciation expense of approximately $65,000, and an increase of approximately $77,000 in other miscellaneous expenses.
The Company generated interest income of $3,505,755 and $807,059 for the six-month periods ended June 30, 2001 and June 30, 2000, respectively. The increase in 2001 was due to the Company’s larger cash and marketable securities balances as a result of the proceeds raised in the follow-on stock offering completed in the fourth quarter of 2000.
Net loss for the six months ended June 30, 2001 was $3,090,369 compared to net income of $957,085 for the six-month period ended June 30, 2000. Net loss per share 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 for the six months ended June 30, 2000.
Liquidity And Capital Resources
At June 30, 2001, we had $127,776,757 in cash and cash equivalents and net working capital of $133,009,850. We believe that our cash and equivalents should be adequate to fund our immediate needs. However, we can offer no assurances that additional funding will not be required in the foreseeable future. All excess cash is invested in marketable securities that mature in two years or less.
Our assets at June 30, 2001 were $138,145,064 compared to $140,531,777 at December 31, 2000. The decrease in total assets resulted from a decrease in cash and investments in marketable securities of approximately $4,322,000, an increase in net fixed assets of approximately $1,254,000, an increase in prepaid expenses of approximately $575,000 and an increase in other current assets of approximately $106,000. Our liabilities at June 30, 2001 increased to approximately $916,000 from approximately $440,000 at December 31, 2000. This increase was attributable to an increase in accrued compensation of approximately $270,000, an increase in accrued clinical trial expenses of approximately $214,000, an increase in other accrued expenses of approximately $89,000, an increase in obligations under research agreements of approximately $15,000 and a decrease in trade accounts payable of approximately $110,000.
We may seek to satisfy our future funding requirements through public or private offerings of securities, with collaborative or other arrangements with corporate partners or from other sources. Additional financing may not be available when needed or on terms acceptable to us. If adequate financing is not available, we may be required to delay, scale back or eliminate certain of our research and development programs, relinquish rights to certain of our technologies, cancer drugs or products, or license third parties to commercialize products or technologies that we would otherwise seek to develop ourselves.
Forward Looking Statements
Any statements made by NeoPharm, Inc. (“we”, “us”, “our”, or the "Company") in this quarterly report that are forward looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions readers that important factors may affect the Company's actual results and could cause such results to differ materially from forward-looking statements made by or on behalf of the Company. Such factors include, but are not limited to, changing market conditions, the impact of competitive products and pricing, the timely development, approval by the Food and Drug Administration ("FDA") and foreign health authorities, and market acceptance of the Company's products in development, the Company's ability to further raise capital, the Company’s dependence on key personnel, and other factors referenced under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
On June 7, 2001, the Company held its Annual Meeting of Stockholders for the purpose of electing six directors to serve until the 2002 Annual Meeting of Stockholders.
With respect 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 |
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | NEOPHARM, INC. |
Date: August 7, 2001 | By: /s/ Lawrence A. Kenyon |
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| | Lawrence A. Kenyon,
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer) |
