NeoPharm enters merger agreement with Insys Therapeutics

NeoPharm, Inc. (Other OTC: NEOL.PK), a biopharmaceutical company dedicated to the research, development and commercialization of new and innovative therapeutic applications of drugs for cancer and other diseases, today announced it has entered into a merger agreement with Insys Therapeutics, a Phoenix-based drug development company focused on pain and oncology.

Under the terms of the merger agreement, NeoPharm will issue approximately 19.5 million shares of common stock and 14.9 million shares of a newly-created convertible preferred stock to the stockholders of Insys, and a newly-formed subsidiary of NeoPharm will merge into Insys, with Insys surviving as a wholly-owned subsidiary of NeoPharm. Each share of the new convertible preferred stock of NeoPharm will be convertible into 35 shares of NeoPharm common stock and, until converted, will be entitled to the voting, dividend and liquidation rights of the same number of shares of common stock into which it is convertible. Upon completion of the merger and conversion of the new preferred stock, the shares issued to the former Insys stockholders will represent 95% of the outstanding shares of NeoPharm common stock. The transaction is expected to be consummated on or about November 8, 2010.

Insys is a privately held corporation that is majority owned by Dr. John N. Kapoor. Dr. Kapoor also serves as a director of NeoPharm and owns approximately 21% of the outstanding common stock of NeoPharm. Accordingly, NeoPharm's board established a special committee consisting solely of independent directors not affiliated with Dr. Kapoor and Insys to evaluate the proposed transaction and strategic alternatives. The special committee retained its own advisers and counsel, received a fairness opinion from an investment bank and unanimously recommended the merger to the NeoPharm board, which also unanimously approved the transaction. No vote or approval of NeoPharm stockholders is required to complete the merger. The approval of the NeoPharm stockholders is needed to increase the authorized shares of common stock of NeoPharm in order to provide sufficient shares for the conversion of the convertible preferred stock. NeoPharm intends to obtain that approval after the closing of the merger.

The NeoPharm board also has approved the distribution, immediately after the merger, of non-transferable contingent payment rights to its stockholders of record as of November 5, 2010. These rights will entitle the pre-merger stockholders to receive cash payments aggregating $20 million (equivalent to $0.70402 per share) if, prior to the five year anniversary of the merger, the U.S. Food and Drug Administration approves a new drug application for any one or more of NeoPharm's drugs currently under development (LEP-ETU, LE-DT and IL13-PE38) pursuant to an approval letter that grants NeoPharm the right to market and sell the drug immediately and provides for labeling that does not contain a "black box warning." The cash payments would be made within nine months of FDA approval. The distribution and payment of the contingent payment rights are subject to completion of the merger and applicable Delaware corporation law.

Upon effectiveness of the merger, the current officers and directors of NeoPharm are expected to resign and be replaced by the officers and directors of Insys. Stockholders of NeoPharm may obtain copies of the merger agreement and other transaction documents by contacting: Martin McCarthy, CPA, Corporate Controller and Acting CFO of NeoPharm, at 847-775-4597 or [email protected].

Source: NeoPharm, Inc.