NeoPharm Announces Fiscal 2005 Financial Results

Fourth Quarter 2005 Results

The Company reported a fourth quarter 2005 net loss ofapproximately $9.7 million, or $0.41 per basic and diluted share. Thefourth quarter loss represents a $4.9 million, or 33.6%, improvementcompared to the $14.6 million loss, or $0.63 per basic and dilutedshare, in the fourth quarter of 2004. Additionally, the fourth quarter2006 results also represent a $0.8 million improvement compared to the$10.5 million loss, or $0.45 per basic and diluted share, in the thirdquarter of 2005.

Net cash used in operations in the fourth quarter of $9.4 millionwas $3.7 million, or 28.2% lower than the $13.1 million in the fourthquarter of 2004.

Fiscal Year 2005 Results

The Company reported a net loss of approximately $38.7 million, or$1.64 per basic and diluted share, for the fiscal year ended December31, 2005. The fiscal year loss represents an improvement of $18.9million, or 32.8%, compared to the $57.6 million loss, or $2.51 perbasic and diluted share in fiscal 2004.

The improvement in 2005 net loss as compared to 2004 is a directresult of a reduction in research and development expenses ofapproximately $12.7 million in 2005 primarily from the Company'songoing cost rationalization program, which included a November 2004headcount reduction, and a more focused effort in research anddevelopment, resulting in a significant reduction in the number andscope of clinical trials conducted by the Company in 2005.Additionally, the Company received $2.5 million in 2005 from anoutstanding note receivable previously deemed impaired, and reducedlegal expenses by approximately $2.5 million in 2005 as both anarbitration case against a former licensing partner and a consentsolicitation filed by the Company's largest shareholder were completedin 2004.

Net cash used in operations in the fiscal year of $33.6 millionwas $18.6 million lower than the $52.2 million in fiscal 2004.

Total cash and short-term investments on hand as of December 31,2005 were $30.3 million, and decreased approximately $9.8 million and$32.8 million, respectively, when compared to $40.1 million as ofSeptember 30, 2005 and $63.1 million as of December 31, 2004.

"I believe the Company has made great progress in 2005," saidGuillermo A. Herrera, NeoPharm's President and CEO. "This progressreflects the implementation of a highly focused strategy to convertour R&D successes into regulatory and commercial success, includingthe achievement of key milestones in the development of our mostadvanced drug product candidate, cintredekin besudotox, for thetreatment of brain cancer due to glioblastoma multiforme. Key PRECISETrial milestones achieved in December included the completion ofenrollment and the second futility analysis, and we are nowprogressing towards the next milestone, the interim efficacy analysis.Our priorities are now centered on preparations to support acintredekin besudotox BLA submission, possibly in the second half of2006, and the related commercial launch of cintredekin besudotox atthe earliest opportunity, in the event we are able to obtain FDAapproval. Also, we continue to make progress in our liposomaltechnology through an ongoing dialogue with the FDA to discuss theappropriate regulatory pathway. Key components of our focus andexecution strategy were to address short term financial needs and addmanagement depth. In January 2006, we successfully completed afollow-on stock offering and hired Tim Walbert as our Executive VicePresident, Commercial Operations. We now have the cash and necessaryexpertise to begin to execute on our commercial strategy."

Financial Projections

The Company currently projects a net loss range for 2006 ofapproximately $39 million to $41 million, or approximately $1.64 to$1.73 per share. The Company currently estimates that the 2006research and development expenses will be approximately 10% lower thanin 2005 due primarily to the completion of enrollment in PRECISE, butthis reduction is expected to be offset by increased expenses as theCompany executes on its cintredekin besudotox regulatory andpre-marketing commercial strategy.

The Company also currently estimates that the 2006 projected netloss will result in cash used in operations of less than $38 million.On January 10, 2006 the Company announced that it had completed afollow-on stock offering resulting in net proceeds to NeoPharm ofapproximately $39.0 million, net of underwriting fees and commissions,but before expenses. NeoPharm believes that the cash and short-termmarketable securities as of December 31, 2005, when combined with thecash raised in the January 2006 follow-on stock offering, can supportthe Company's activities through the fourth quarter of 2007 at currentand projected levels of development and general corporate activity.

Conference Call

NeoPharm will host a conference call to discuss these financialresults on:

Tuesday, February 28, 2006 at 11:00 a.m. Eastern/8:00 a.m. Pacific
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Domestic: 866-356-4281, passcode 97438786
International: 617-597-5395, passcode 97438786

Audio replays will be available through March 8, 2006.
Domestic: 888-286-8010, passcode 91398582
International: 617-801-6888, passcode 91398582

The live call and replay will also be available via webcast atwww.neophrm.com.

About Cintredekin Besudotox (IL13-PE38QQR)

Cintredekin besudotox is a recombinant protein consisting of asingle molecule composed of two parts: a tumor-targeting molecule(Interleukin-13, or IL13) and a cytotoxic agent (Pseudomonas Exotoxin,or PE). The drug is delivered via Convection Enhanced Delivery (CED),a novel drug delivery system using catheters specifically placedfollowing tumor resection (removal), in areas with microscopic tumorspread or at risk of tumor spread around the tumor resection cavity.IL13 receptors are present in appreciable numbers on malignant gliomacells, but only to a minimal amount if at all on healthy brain cells.The IL13 portion is designed to bind to receptors on tumor cells likea key fits into a lock. Research has demonstrated that the cancer celllatches onto and absorbs the IL13 and the attached PE, causingdestruction of the cancer cell. Healthy brain cells appear to beunharmed because they do not internalize the PE.

Promising data for this potential therapeutic advance in thetreatment of GBM was observed in Phase I/II studies and presented byinvestigators at scientific meetings, with 1-year and 2-year survivalrates for recurrent GBM patients of 40% and 20%, respectively. Inaddition, the importance of adequate catheter positioning in order toachieve optimal distribution of cintredekin besudotox in brain tissuewas assessed, leading to specific guidelines for catheter positioningand deferred catheter placement used in the PRECISE Trial. Thistranslated into a better patient outcome for the 45 recurrent GBMpatients treated post-tumor resection in the Phase I/II studies, wherepatients with at least 2 catheters adequately positioned experiencedmedian survival of 51.7 weeks (95% CI: 36.1-78.0). Overall mediansurvival for GBM patients in the Phase I/II studies was 44.0 weeks(95% Confidence Interval (CI): 36.1-52.4). Additionally, a Phase Iclinical trial of cintredekin besudotox in patients with malignantglioma at initial diagnosis is currently ongoing.

Cintredekin besudotox has received orphan drug designation andfast track drug development program status from the U.S. Food and DrugAdministration (FDA). NeoPharm's cintredekin besudotox developmentprogram was also selected to participate in the FDA ContinuousMarketing Application Pilot 2 Program. Cintredekin besudotox has alsoreceived orphan drug designation in Europe.

About PRECISE

PRECISE, an acronym for Phase III Randomized Evaluation ofConvection Enhanced Delivery of IL13-PE38QQR with Survival Endpoint,www.precisetrial.com, is a randomized, controlled Phase III clinicaltrial. It was designed to enroll up to 300 patients in order to obtain270 patients with confirmed GBM at first recurrence at study entrysurgical resection for the intent-to-treat patient population, andcompare overall survival, drug safety and quality of life of patientsreceiving cintredekin besudotox with patients receiving Gliadel(R)Wafer in the treatment of first recurrent GBM following surgical tumorresection. PRECISE achieved the 270 patient intent-to-treat milestonein early December after enrolling 288 patients. Patients wererandomized so that 2 patients received cintredekin besudotox via CEDfor every 1 patient that received Gliadel(R) Wafer placed in theresection cavity at the time of resection. Enrollment is now completeand included a total of 294 patients, resulting in 276 patients in theintent-to-treat population.

The primary efficacy analysis of PRECISE will be based on thecomparison of the overall patient survival curves of the two treatmentgroups upon reaching 215 total deaths in the study, with an interimefficacy analysis scheduled to be performed upon reaching 160 deaths.

About NeoPharm, Inc.

NeoPharm, Inc., based in Waukegan, Illinois, is a publicly tradedbiopharmaceutical company dedicated to the research, development, andcommercialization of new and innovative cancer drugs for therapeuticapplications. The Company has a portfolio of cancer compounds invarious stages of development. Additional information can be obtainedby visiting NeoPharm's Website at www.neophrm.com.

Forward Looking Statements - This press release contains"forward-looking statements" within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. The Company has tried to identify such forward-lookingstatements by use of such words as "expects," "intends," "hopes,""anticipates," "believes," "could," "may," "evidences" and"estimates," and other similar expressions, but these words are notthe exclusive means of identifying such statements. Such statementsinclude, but are not limited to, any statements relating to theCompany's drug development program, including, to the Company'sability to make a BLA submission, the initiation, progress andoutcomes of clinical trials of the Company's drug product candidates,including, but not limited to, the PRECISE trial,, projectionsregarding cash used in operations, financial projections, and anyother statements that are not historical facts. Such statementsinvolve risks and uncertainties, including, but not limited to, thoserisks and uncertainties relating to difficulties or delays infinancing, development, testing, regulatory approval, production, andmarketing of the Company's drug and non-drug compounds including, butnot limited to the Company's ability to develop a program forcommercializing cintredekin besudotox and the liposomal technologydrug product candidates, uncertainty regarding the outcomes of ongoingor proposed FDA studies, uncertainty regarding the availability ofthird party production capacity, uncertainty regarding the outcome ofdamage claims made by or against the Company, the Company's financialguidance and projections, the Company's ability to cut back on itsfunding of certain of its development projects in order to conserveits cash resources, the ability of the Company to procure additionalfuture sources of financing, unexpected adverse side effects orinadequate therapeutic efficacy of the Company's drug and non-drugcompounds, including, but not limited to, cintredekin besudotox andthe liposomal technology drug product candidates, that could slow orprevent products coming to market, uncertainty regarding the Company'sability to market its drug and non-drug products, including, but notlimited to, cintredekin besudotox and the liposomal technology drugproduct candidates, directly or through independent distributors, theuncertainty of patent protection for the Company's intellectualproperty or trade secrets, and other risks detailed from time to timein filings the Company makes with the Securities and ExchangeCommission including its annual reports on Form 10-K and quarterlyreports on Forms 10-Q. Such statements are based on management'scurrent expectations, but actual results may differ materially due tovarious factors, including those risks and uncertainties mentioned orreferred to in this press release. Accordingly, you should not rely onthese forward-looking statements as a prediction of actual futureresults.
NeoPharm, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

Three-Months Ended Year Ended
December 31 December 31
--------------------------- ---------------------------

2005 2004 2005 2004
------------- ------------- ------------- -------------

Revenues $7,360 $40,760 $542,740 $156,780

Expenses:
Cost of
revenues 275 1,228 2,011 5,236
Research and
development 7,277,558 11,625,282 31,850,602 44,512,937
Selling,
general,
and
admini-
strative 2,748,508 3,409,545 11,421,494 14,366,892
Recovery of
note
receivable - - (2,500,000) -
------------- ------------- ------------- -------------
Total
expenses 10,026,341 15,036,055 40,774,107 58,885,065

Loss from
operations (10,018,981) (14,995,295) (40,231,367) (58,728,285)

Interest
income 348,809 347,821 1,506,680 1,119,576
------------- ------------- ------------- -------------

Net loss $(9,670,172) $(14,647,474) $(38,724,687) $(57,608,709)
============= ============= ============= =============

Net loss per
share-basic
and diluted $(0.41) $(0.63) $(1.64) $(2.51)
============= ============= ============= =============

Shares used in
computation
of net loss
per share:
Basic and
diluted 23,731,870 23,317,254 23,601,643 22,941,668
============= ============= ============= =============



Balance Sheet Data:
(Unaudited)

December 31, December 31,
2005 2004
--------------- ---------------
Cash and cash equivalents $1,486,172 $52,736,320
Short-term investments $28,776,020 $10,370,335
Total assets $33,369,985 $67,434,371
Current liabilities $9,388,474 $9,204,096
Accumulated deficit $(228,024,715) $(189,300,028)
Total stockholders equity $21,945,324 $58,230,275