UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Consent Statement Pursuant to Section 14(a) of the Securities
and Exchange Act of 1934 (Amendment No. )
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[ ] Preliminary Proxy Statement
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14a-6(e)(2))
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[ ] Definitive Proxy Statement
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[X] Definitive Additional Materials
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[ ] Soliciting Material Pursuant to sec. 240.14a-12
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NEOPHARM, INC.
(Name of Registrant as Specified in its Charter)
JOHN N. KAPOOR, Ph.D.
(Name of Person(s) Filing Consent Statement, if other than the Registrant)
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John N. Kapoor, Ph.D.
225 Deerpath Road, Suite 250
Lake Forest, Illinois 60045
October 21, 2004
Dear Fellow NeoPharm Stockholder:
Institutional Shareholder Services ("ISS"), the nation's leading independent
proxy advisory firm, recently recommended that stockholders support my efforts
and consent to removing the Other Incumbent Directors and replacing them with
the Nominees. The ISS report was critical of what I call the "do nothing" policy
of the Other Incumbent Directors. ISS's decision is a great step forward for
NeoPharm stockholders. Electing the Nominees will give you an active, engaged
board that will be accountable to NeoPharm stockholders and put NeoPharm on the
road to a sustainable future.
You may have also seen a letter from Greg Young, CEO of NeoPharm, questioning my
solicitation.
It was an elegantly crafted letter that artfully hides the fact that the Other
Incumbent Directors have done nothing and have no plan. Let me put things in
context:
o Everything that Greg says in his letter was contained in the Other
Incumbent Directors' presentation to ISS. As you know, ISS soundly
rejected those arguments.
o I am not seeking to remove Greg or any other member of his management
team. My complaint is with the "do nothing" Other Incumbent Directors,
with whom I have put up with for years. To date, Greg has only had one
face-to-face Board meeting with them.
o Greg, as CEO, works for and at the pleasure of the Board, which is
firmly controlled by the Other Incumbent Directors, who are
desperately fighting to maintain control of your Company.
o I spoke to Greg when I commenced my consent solicitation. I explained
my plans and objectives and asked him for his support. Greg's
immediate response was that he worked for the Board and Mr. Hanson and
that if he supported me, he would lose his job. Greg is in a very
difficult position. The Other Incumbent Directors could terminate his
employment at any time. Please consider how confident you are that
Greg's statements are entirely his own. Absent pressure from the Other
Incumbent Directors, it is hard to see why Greg would feel compelled
to take a position in this dispute.
o Some corporate managers prefer to operate under a complacent "do
nothing" board like the Other Incumbent Directors rather than under an
active and engaged Board like the Nominees and me. I had not thought
that Greg was such a manager, but perhaps he is or, perhaps, other
influential members of the management team are. While it is
understandable that it might be more comfortable for management if
they are not
challenged or held accountable by the Board, such a situation can be a
disaster for stockholders.
o Greg says that from the outset he recalls that the Board emphasized
costcutting to delay the need for fundraising. While I believe Greg
may have perceived a need to cut costs when he took the CEO job (he
certainly heard it from me in his interview), he did not hear it from
the Other Incumbent Directors in the time frame he seems to recall. In
connection with the Board meeting held on June 17, the same day Greg
was appointed CEO and a full six weeks after the Pharmacia arbitration
loss, the Other Incumbent Directors) were contemplating a preliminary
2005 budget. Although Greg was not present at that meeting, the budget
projected a total 2005 loss of over $75 million, called for increasing
employee headcount to 162 by the end of 2004 (up from the level of 120
at March 31) and included, as its number one assumption, that the
Company would raise $85 million in financing in the fourth quarter of
2004. Perhaps the Other Incumbent Directors have now convinced Greg
that they always believed in cost cuts and avoiding financings, but
until I commenced my consent solicitation, their actions were
completely to the contrary. Greg does not have the historical
perspective on this issue that I do.
o I founded NeoPharm and served as the Chairman of its Board for nearly
14 years. I know the Company. I also know its management and many of
its other employees. I have worked with many of them for years and I
have the support and confidence of many of them. I am confident that
if I am successful in my consent solicitation I will be able to work
productively and effectively with NeoPharm's management and other
employees to put the Company back on track.
o By contrast, you should also remember that Greg has only been on the
job for a little over three months. While he is trying hard, he has
not witnessed the Company's lack of financial discipline and bloated
cost structure. Greg might not fully grasp that reducing the cash burn
rate to approximately $30 million per year is in fact possible. That's
ok. I am more than willing to work with Greg so that NeoPharm can get
there, while not sacrificing any of the critical clinical trials on
IL-13 or the Company's other promising products.
o You have heard a lot of talk about "management disruption". I believe
that if I am not successful in this consent solicitation, there is a
risk is that certain management members may leave NeoPharm because
they will not see a future with a company that has no financial
discipline, a bloated cost structure and a "do nothing" Board that is
not committed to implementing the reforms that your Company so
desperately needs.
o Greg mentioned in his letter that they proposed two "reasonable
compromises". What was proposed was, in fact, a sham. Their two
proposals were identical and would have resulted in a Board controlled
by the Other Incumbent Directors and Greg. In other words, the status
quo. Their "reasonable compromise" would have resulted in a Board that
was at best, dysfunctional--at worst, deadlocked.
Greg has indicated that he does not believe that my plan to cut the cash burn
rate to $30 million is achievable. I have provided a detailed plan which
demonstrates that the $30 million burn rate is achievable. Greg Young has never
spoken with me about my plan yet he now claims it is not realistic. I have laid
out a specific proposal to restore value to stockholders. ISS examined my plan,
and recommended that NeoPharm stockholders elect my nominees. The Other
Incumbent Directors, in contrast, have yet to propose a concrete plan for the
future of your Company. ISS made it clear that they were not impressed with the
lack of a plan from the Other Incumbent Directors. I am confident that NeoPharm
can operate with an approximately $30 million annual cash burn rate based on my
experience and the fact that many similar companies manage to do so. I am also
confident that such a burn rate reduction cannot be achieved if approached with
a "that's impossible" attitude.
But, this consent solicitation is not a debate about what the correct burn rate
is. This consent solicitation is about the need for action and accountability
and the need to replace the "do nothing" Other Incumbent Directors. As ISS said
so well, "the contribution of the four incumbent board members has been minimal
and as a board, they have failed to provide guidance and supervision to
management on critical issues...". The Nominees and I intend to work actively
with Greg and the management team to reduce the burn rate significantly in order
to conserve cash and, in so doing, to always consider what is in the long-term
best interest of the Company. The Nominees are highly qualified individuals who
understand their obligations to the stockholders of NeoPharm and the need for
balance and care in cost cutting.
NeoPharm stockholders deserve an active board that will be forthright with them.
You might not have been able to tell from the press release issued by the Other
Incumbent Directors regarding ISS's decision, that ISS clearly recommends that
its clients elect my nominees and support my other proposals. You should know
some of ISS's reasons for their decision to support me:
o "ISS conducted extensive discussions with both slates and believes
that the incumbent board does not appear to be as diligent as the
circumstances and the company's development dictate."
o "[W]e were positively impressed with the level of detail behind [Dr.
Kapoor's] estimates" and, in another section of the report it said
"[w]e would have preferred to see the same sense of urgency from the
incumbent board, which has not yet discussed in detail the plan which
resulted in the recent press release on the expected 2005 loss."
o "Overall, we are confident that [Dr. Kapoor] is aligned with
shareholders and that he would not take unnecessary risks at this
critical stage. The upside in choosing Mr. Kapoor's team is that he
has a sense of urgency to act on cost cutting opportunities."
o "We believe that Mr. Kapoor's significant ownership in NeoPharm aligns
his interests with shareholders and that a change in board control at
this stage would not threaten progress on IL-13."
It is important that you understand that the Nominees and I do not intend to
replace Greg or the rest of the management team. We intend to work actively and
constructively with them. I do not expect that we will always agree with
management, just as I do not agree with many of the things Greg said in his
letter. However, I respect him and what he has to say and I understand the
difficult position that he is in. I look forward, with your support, to working
with Greg, the Nominees and the entire management team to implement the actions
the collective Board determines to be in the best interest of stockholders.
Thank you for your support.
/s/ John N. Kapoor, Ph.D.
John N. Kapoor, Ph.D.