8-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported)   December 20, 2001  

NeoPharm, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction
of Incorporation) 33-90516 (Commission
File Number) 51-0327886 (I.R.S. Employer
Identification No.)

150 Field Drive, Suite 195, Lake Forest, IL 60045
(Address of principal executive offices) (Zip Code)

(847) 295-8678 (Registrant's Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Item 5: Other Events and Regulation FD Disclosure

    On December 20, 2001, Neopharm, Inc., a Delaware corporation ("Neopharm"), loaned Akorn, Inc., a Louisiana corporation ("Akorn"), $3,250,000 (the "Loan") to fund Akorn's efforts (a) to develop its pharmaceuticals manufacturing and lyophilization facility, and (b) to remove all Form 483 warning letter sanctions issued to Akorn by the Food and Drug Administration ("FDA") with respect to Akorn's manufacturing facility to the extent such sanctions may impair Akorn's ability to operate a lyophilization facility. In exchange for the Loan, Neopharm has the right to receive preferential access to Akorn's manufacturing capacity for production of Neopharm's chemotherapeutic compounds and products at the lowest prices being charged by Akorn for similar services. Neopharm believes that this preferred access to, and pricing for, manufacture of its products will enhance its ability to execute its plans for expansion of its operations.

    Under the terms of a Promissory Note, dated December 20, 2001, by Akorn to Neopharm (the "Note"), interest on the Loan will accrue and compound at a rate equivalent to that received by Neopharm on all of its investments in marketable securities. The Note provides that Akorn will use the loan proceeds solely (a) to achieve removal of all warning letter sanctions pursuant to Form 483 or current Good Manufacturing Practice regulations issued or imposed by the Food and Drug Administration ("FDA") with regard to Borrower's ability to handle and manufacture sterile pharmaceuticals and provide lyophilization services; (b) to obtain FDA validation for Borrower's operation of its facility located at 1222 West Grand Avenue, Decatur, Illinois (the "Facility") to offer and provide lyophilization services for the handling and manufacturing of sterile pharmaceuticals; (c) to obtain any other required license, consent, permit or approval from the FDA or any other governmental authority in the United States or its political subdivisions as shall be required to establish operations at the Facility to handle and manufacture sterile pharmaceuticals and provide lyophilization services; (d) to establish operations at the Facility to provide lyophilization services and to handle and manufacture sterile pharmaceuticals; and (e) to make any capital expenditure necessary to provide lyophilization services. The Note further provides that the Loan and accrued interest will become due and payable on or before December 20, 2006.

    In addition, under the terms of a Processing Agreement, dated December 20, 2001, between the Corporation and Akorn, once Akorn establishes lyophilization operations at the Decatur Facility, Neopharm will be entitled to (a) at least 15% of Akorn's lyophilization manufacturing capacity at the lowest prices then being offered by Akorn for similar services for manufacture of Neopharm's chemotherapeutic products; and (b) confidential treatment of all trade secrets relating to Neopharm's NeoLipid™ technology. In addition, the Processing Agreement provides for an initial term of five (5) years with two (2) additional, consecutive five (5) year terms at the option of the parties.

    In connection with the Note, Neopharm entered into a Subordination Agreement, dated December 20, 2001, with The Northern Trust Company ("Northern"), Akorn's primary lender pursuant to an Amended and Restated Credit Agreement, dated September 15, 1999, as amended by a Forbearance Agreement, dated July 12, 2001 ("Akorn's Credit Facility"). This Subordination Agreement provides that Neopharm will subordinate its rights to repayment of amounts due under the Note to Northern's rights to repayment of amounts due under Akorn's Credit Facility.

    In addition, in connection with these transactions, Neopharm entered into a Subordination and Intercreditor Agreement, dated December 20, 2001, with John N. Kapoor, Ph.D., as Trustee under The John N. Kapoor Trust, dated September 20, 1989 (the "Trust"). Pursuant to this Subordination and Intercreditor Agreement, Dr. Kapoor, on behalf of the Trust, subordinated the Trust's rights to repayment of amounts due under a Convertible Bridge Loan and Warrant Agreement, dated July 13, 2001, between Akorn and the Trust, to Neopharm's rights to repayment of amounts due under the Note. Dr. Kapoor, Neopharm's Chairman, is also the Chairman and Chief Executive Officer of Akorn, and holds a substantial stock position in both companies. Although Dr. Kapoor voted in favor of the transaction, because of his role in both companies, he refrained from participating in the deliberations of Neopharm's Board of Directors on these transactions.

Regulation FD Disclosure

    On December 21, 2001, Neopharm issued a press release relating to the transactions discussed in this Current Report on Form 8-K. A copy of the press release is attached as Exhibit 99.2.

Item 7.  Financial Statements, Pro Forma Financials and Exhibits

(c)

Exhibits

Exhibit Number	Description
99.2	Press Release dated December 21, 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.
Dated: December 31, 2001	By:	/s/ LAWRENCE A. KENYON Lawrence A. Kenyon, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

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Item 5: Other Events and Regulation FD Disclosure
Item 7. Financial Statements, Pro Forma Financials and Exhibits

SIGNATURE PAGE

EX-99.2

Contact:	NeoPharm, Inc.	Investors please contact:
	Larry Kenyon	Janet Dally
	CFO	MontRidge, LLC
	Tel: 847.295.8678	Tel: 203.894.8038

NEOPHARM SIGNS AGREEMENT TO SECURE COMMERCIAL GMP MANUFACTURING CAPACITY
-Capacity available in 2003 for future product launches-

LAKE FOREST, IL, DECEMBER 21, 2001—NeoPharm, Inc. (Nasdaq National Market: NEOL) announced today that it has entered into an agreement with Akorn, Inc. (Nasdaq National Market: AKRN) that is intended to provide NeoPharm with the capacity to manufacture over 2 million vials of cGMP material annually, beginning in 2003. Under the terms of the agreement, NeoPharm will loan Akorn $3.25 million to complete the validation of Akorn's state-of-the-art lyophilization facility in Decatur, Illinois. Interest will accrue and compound at a rate equivalent to that received by NeoPharm on its investments in marketable securities. The loan is due and payable on December 6, 2006. In return for the loan, NeoPharm has the option to secure at least 15% of Akorn's lyophilization manufacturing capacity for up to fifteen years. This option also provides NeoPharm with preferred pricing on all NeoPharm products manufactured at Akorn and confidential treatment of all trade secrets relating to NeoPharm's Easy-to-Use (ETU) NeoLipid™ technology. Dr. John N. Kapoor, NeoPharm's Chairman, is also the Chairman and Chief Executive Officer of Akorn, and holds a substantial stock position in both companies. Because of his role in both companies, Dr. Kapoor refrained from participating in the NeoPharm Board of Directors' deliberation on this transaction.

"We are pleased to announce that we have secured long-term commercial manufacturing capacity for our compounds as they move through development and into the market," said James Hussey, President and Chief Executive Officer of NeoPharm. "NeoPharm currently has four compounds in Phase I clinical trials that we anticipate will progress into Phase II trials in 2002. This agreement with Akorn represents a cost effective opportunity for NeoPharm to secure the ability to scale-up production in 2003 in anticipation of moving our compounds through development and into the market."

NeoPharm, Inc., based in Lake Forest, Illinois, is a publicly traded biopharmaceutical company dedicated to the research, development and commercialization of new and innovative cancer drugs for therapeutic applications. The Company has a broad portfolio of cancer compounds in various stages of development using two novel proprietary technology platforms.

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, any statements relating to the Company's drug development program and any other statements that are not historical facts. Such statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to difficulties or delays in development, testing, regulatory approval, production and marketing of the Companies' drug candidates, unexpected adverse side effects or inadequate therapeutic efficacy of the Companies' drug candidates that could slow or prevent products coming to market, the uncertainty of patent protection for the Company's intellectual property or trade secrets and other risks detailed from time to time in filings the Company makes with Securities and Exchange Commission including their annual reports on Form 10-K and their quarterly reports on Forms 10-Q. Such statements are based on management's current expectations, but actual results may differ materially due to various factors, including those risks and uncertainties mentioned or referred to in this press release.