NeoPharm's ( NEOL) largest shareholder, founder and recently deposed chairman John Kapoor believes the drug company's four independent directors are doing a poor job. So he's asking shareholders to vote them out; in their places, Kapoor wants to install his own handpicked slate of directors.

While it's hard to find good things to say about the stewardship of NeoPharm's current board, Kapoor is no white knight, either. He's just as culpable for the company's current woes as anyone else, which should give investors pause before they decide whether to put him back in charge.

To this point, NeoPharm is a drug company that has been better at losing money and attracting the attention of the Securities and Exchange Commission vs. actually developing any of the cancer-fighting drugs in its pipeline. Kapoor and his wife collectively own 21.7% of NeoPharm.

In May, a panel of arbitrators dismissed a contract dispute between NeoPharm and Pharmacia -- now Pfizer ( PFE) -- in which NeoPharm was seeking hundreds of millions of dollars in damages. The company got nothing, but public comments made by NeoPharm regarding this dispute prompted the SEC to initiate a formal investigation, which is still ongoing. In June, CEO Jim Hussey resigned and Kapoor was forced out of his job as the company's chairman, although he remained a director.

NeoPharm shares have plunged from a 52-week high of $22.70 to a low of $4.66 on Aug. 24. The stock closed Wednesday down 26 cents, or 4%, to $6.24.

On Sept. 2, Kapoor filed a preliminary consent statement with the SEC, claiming that four of NeoPharm's six directors have failed in their duty to oversee management. Specifically, Kapoor claims that NeoPharm is burning too much cash and is too slow in developing its lead brain tumor drug, IL-13PE38. (For my previous take on why this drug and its ongoing phase III study is high risk, click here .)

Kapoor wants shareholders to remove directors Sander Flaum, Erick Hanson (who replaced Kapoor as chairman), Matthew Rogan and Kaveh Safavi -- each of whom is deemed independent, according to the company.

In their place, Kapoor has nominated three new directors -- Brian Tambi, Ronald Eidell and Bernard Fox. Kapoor and current CEO Greg Young would remain directors.

As noted above, given the sorry state of NeoPharm these days, investors seem justified in questioning the competence of the current board. But it seems disingenuous for Kapoor to say that, somehow, he hasn't also been responsible for the company's many screwups. He is a founder and the largest shareholder, after all, and served as the company's chairman.

Kapoor could not be reached for comment. But his spokesman Michael Babich says Kapoor, as chairman, tried to take the company in another direction, but was often overruled by the other directors. Kapoor "has been chairman, but that did not give him the authority to overrule the board. His vote counts only once, just like the other directors," Babich said, adding that "this is why Kapoor is being forced to take this action."

Kapoor's slate of chosen directors does not appear to be entirely independent. Tambi is currently CEO and chairman of privately held Morton Grove Pharmaceuticals. But from 1986 to 1990, Tambi worked for Kapoor at Lyphomed, which Kapoor eventually sold to Japanese drugmaker Fujisawa. (Tambi stayed on at Fujisawa for another two years.) After the deal closed, Fujisawa sued Kapoor for fraud under the federal civil racketeering statute; the case was eventually settled in 1999 under confidential terms.

A second Kapoor nominee, Bernard Fox, has also served as a consultant to the company.

And under Kapoor's previous leadership as chairman, NeoPharm has fallen far short of good corporate governance practices. The SEC first informed NeoPharm that it was under investigation in March, but this fact wasn't disclosed publicly until May.

Kapoor doesn't pull down a salary from NeoPharm, but the company has paid $125,000 each year to EJ Financial Services, a health care consulting firm owned by Kapoor. According to his SEC filing, Kapoor says those payments have now been stopped. Last year, NeoPharm helped bail out Akorn ( AKRN), a specialty drugmaker delisted by Nasdaq in which Kapoor is also the chairman and majority shareholder.

For its part, current NeoPharm management disagrees with Kapoor's action and intends to fight to retain the company's current slate of directors. If anything, this looming shareholder battle will only serve to distract the company further from developing its pipeline drugs.
Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to adam.feuerstein@thestreet.com.

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