UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 2-89332
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
(Exact name of registrant as specified in its charter)
New Jersey 22-2502556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
783 Jersey Avenue, New Brunswick, New Jersey 08901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (908) 249-3250
Securities registered pursuant to Section 12(g) of the Act None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___
<PAGE>
TABLE OF CONTENTS
Page
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 12
Item 9. Disagreements on Accounting and
Financial Disclosure 21
Item 10. Directors and Executive Officers of
the Registrant 21
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners 22
and Management
Item 13. Certain Relationships and Related Transactions 23
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 23
PART 1
Item 1. Business
Interferon Sciences Research Partners, Ltd., a limited
partnership (the "Partnership"), was formed on February 2, 1984,
under the laws of the State of New Jersey, and commenced
operations on October 26, 1984. The Agreement of Limited
Partnership is among the Partnership, Interferon Sciences
Development Corporation (the "General Partner"), a wholly owned
subsidiary of Interferon Sciences, Inc. ("ISI"), and those
parties admitted to the Partnership as Limited Partners.
The business of the Partnership is (i) to develop
externally applied (topical) formulations of alpha interferon
produced by recombinant DNA techniques to be used in the
treatment of herpes genitalis (the "Product"), (ii) to develop
large-scale processes for the formulation of the Product, (iii)
to establish the safety and efficacy of the Product through
clinical testing, (iv) to obtain the regulatory approvals
necessary for the manufacture and sale of the Product, and (v) to
earn income from the worldwide sale of the Product.
In order to conduct these activities, the Partnership
entered into certain agreements with ISI during 1984, the
contents of which are summarized below.
The Cross License Agreement
ISI granted the Partnership a worldwide, nonexclusive
license, with the right to grant sublicenses, to use all of ISI's
know-how, patent rights and biological materials, (the "ISI
Technology") solely for the development, manufacture, and sale of
the Product. The Partnership granted ISI a worldwide, exclusive
license, with the right to grant sublicenses, to use all of the
Partnership's know-how, patent rights, and biological materials
developed during the development period (the "Partnership
Technology") for all purposes other than the development,
manufacture, or sale of the Product. ISI agreed to pay royalties
to the Partnership based on sales of, and revenues received from
sublicensing to other companies the right to manufacture and
sell, the Product.
ISI agreed to pay royalties to the Partnership in respect
of products which compete with the Partnership's Product (the
"Competitive Products") and products which utilize Partnership
Technology (the "Other Products").
Under the Cross License Agreement and the Interim License
Agreement (see below), the Partnership will be entitled to
receive a royalty equal to 4% of the sales by ISI of the Product
and Competitive Products and 15% of the revenues received by ISI
from sublicensing the Product and Competitive Products.
<PAGE>
The Development Contract
ISI and the Partnership entered into a Development
Contract to develop the Product. As of December 31, 1986,
$4,555,000 was paid to ISI for the work it performed as
contractor under the Development Contract.
Under the Development Contract, ISI agreed to use its best
efforts to perform all research and development necessary to
complete development, to conduct clinical tests, and to obtain
regulatory approval of the Product. In May 1987, ISI filed a
Product License Application with the Food and Drug Administration
for approval to market the Product.
Under the terms of the Development Contract, if the
Partnership does not have sufficient funds to complete the
development of the Product, ISI was required, subject to certain
conditions, to make sufficient funds available to the General
Partner to allow it to make an additional contribution (the
"Overrun Contribution") to the Partnership of $433,138. As of
September 30, 1986, the Partnership expended all of its funds and
since such time all of the activities of the Partnership have
been funded by the General Partner. Through December 31, 1995,
the General Partner had made an Overrun Contribution of
$1,997,000. Under the terms of the Partnership Agreement, the
General Partner's Overrun Contribution changes the way in which
distributions are made by the Partnership. For a description of
the extent of changes in distributions by the Partnership to the
Limited Partners due to the General Partner making the Overrun
Contribution, see Item 5 "Market for the Registrant's Common
Equity and Related Stockholder Matters."
The Partnership has not made any payments to ISI for
research and development pursuant to the Development Contract
since 1986.
Interim License Option
ISI has an option (the "Interim License Option") to
acquire a worldwide, exclusive license (the "Interim License") to
use the Partnership Technology for the development, manufacture,
and sale of the Product. The Interim License Option will be
exercisable for a period of 90 days, commencing on the date (the
"Interim License Option Date") which is the earlier of the dates
on which the Product is (i) approved for sale in the United
States by the FDA or (ii) for sale in any of the Major Market
Countries by a similar regulatory authority.
If the Interim License Option is exercised, the
Partnership will continue to be entitled to receive royalties
with respect to Product, Competitive Products, and Other
Products.
Purchase Option
ISI has an option (the "Purchase Option") to acquire from
each Limited Partner all of such Limited Partner's interest in
the Partnership. The Purchase Option will be exercisable for a
period (the "Purchase Option Period") of 90 days (subject to a
90-day extension under certain circumstances) commencing on the
date (the "Purchase Option Date") which is the earlier of (i) the
date on which the Partnership has received from ISI under the
Interim License an aggregate of $3,000,000 in payments with
respect to the Product (provided that the Purchase Option may not
be exercised earlier than 14 months after the Interim License
Option Date) or (ii) the fourth anniversary of the date the
Interim License Option is exercised. If ISI exercises the
Purchase Option, it will be obligated to make a one-time payment
of $557 per Unit to the Limited Partners in exchange for their
Units on the date it exercises the Purchase Option (the "Purchase
Option Exercise Date") and to pay royalties for a period of 15
years thereafter. In the event the Purchase Option is exercised,
the royalty rates (i) will increase to 5% of sales and 20% of
sublicensing revenues and (ii) no royalties will be payable in
respect of Other Products.
Recent Developments
ISI does not presently intend to exploit the Product. In
the past, ISI conducted clinical trials utilizing its ALFERON Gel
proprietary formulation containing its recombinant alpha
interferon for the treatment of the symptoms of recurrent genital
herpes. However, ISI is currently focusing its clinical efforts
on ALFERON N Gel, a formulation containing ISI's natural source
alpha interferon (interferon alfa-n3) which was developed for the
topical treatment of viral diseases and cancers affecting the
skin and mucosal tissues. In November 1992, ISI submitted an
investigational new drug application for a clinical trial
utilizing its reformulated ALFERON N Gel containing natural alpha
interferon for the treatment of cervical dysplasia, a disease
that affects approximately 500,000 to one million women each year
in the United States alone. ISI has completed this Phase 2 dose
ranging study using ALFERON N Gel at the Columbia Presbyterian
Medical Center in New York for the treatment of mild cervical
dysplasia. Based upon Pap smears, identification tests for the
presence of virus and cervical biopsies, ALFERON N Gel appears to
have the potential for improving the course of cervical dysplasia
in the majority of patients who completed the treatment course.
However, since this study utilized small numbers of patients,
there can be no assurance that these results will be reproduced
in a larger scale placebo-controlled trial. Based upon these
results, a physician-sponsored study in HIV-infected women with
cervical dysplasia commenced in August 1995 as described below.
Cervical dysplasia is particularly difficult to treat in
HIV-infected women. These women have a high recurrence rate of
cervical dysplasia after their initially successful surgical
treatment. As a result of the preliminary results in the initial
cervical dysplasia study described above, the investigator at
Columbia-Presbyterian Medical Center is conducting this
physician-sponsored study in which ALFERON N Gel is being used as
an adjuvant to surgical treatment in HIV-infected women with mild
and more severe forms of cervical dysplasia.
Under the terms of the Partnership Agreement, a royalty
may be payable to the Partnership by reason of the commercial
exploitation of ALFERON N Gel which may be considered an Other
Product under the terms of the Partnership Agreement to the
extent that it utilizes any of the Partnership Technology. This
royalty will be adjusted based upon the proportional funding
contributions to the development of such Other Product by the
Partnership and ISI. However, ISI will not start clinical trials
for genital herpes unless it obtains additional funding or a
sponsor. ISI may exploit ALFERON N Gel for herpes which under
the terms of the Partnership Agreement may be considered a
Competitive Product which may entitle the Partnership to a
royalty in respect of products which compete with the Product.
This royalty will be adjusted based upon the funding contribution
to the development of such Competitive Product by ISI. See Item
5 "Market for the Registrant's Common Equity and Related
Stockholder Matters."
THE PRODUCT
Herpes Virus Infections
Human herpes viruses either cause or are associated with a
whole spectrum of diseases. A distinctive feature of the herpes
virus is its ability to establish a latent infection following a
primary infection. Reactivation of the latent infection causes
recurrent acute symptoms. Herpes genitalis is one of the most
common of the sexually transmitted diseases. In the acute
primary phase it causes painful genital lesions which may persist
for several weeks. These may recur several times a year and
persist for approximately seven days during each recurrence. The
goal of the research and development program of the Partnership
will be to develop a treatment for herpes genitalis which will,
in general, accelerate symptom relief and shorten healing time.
Natural Human Alpha Interferon
Interferons are a group of proteins produced and secreted
by cells to combat diseases. Researchers have identified four
major classes of human interferon: alpha, beta, gamma and omega.
Alpha interferons are manufactured commercially in three
ways: by genetic engineering, by cell culture, and from human
white blood cells. In the United States, only two types of alpha
interferon are approved for commercial sale: recombinant
(genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells.
Outside of the United States, sales of alpha interferon produced
by cell culture account for a significant portion of the market.
An analysis of Natural Alpha Interferon shows that it is
composed of a family of proteins containing many different
molecular species of interferon. In contrast, recombinant alpha
interferons each contain only a single species. Researchers have
reported that the various species of interferon may have
differing anti-viral activity depending upon the strain of virus.
Natural Alpha Interferon presents a broad complement of species.
Natural Alpha Interferon is also glycosylated, or partially
covered with sugar molecules, which does not occur with
recombinant alpha interferon.
Published studies suggest that natural human alpha
interferon, if applied topically to the area of herpes virus
infections, can accelerate symptom relief and shorten healing
time. This is important epidemiologically because it reduces the
potential of transmitting these diseases through personal
contact. In addition, controlled human clinical testing
conducted by ISI with topical formulations of natural alpha
interferon have shown some evidence of efficacy in the treatment
of herpes genitalis.
Competition
The General Partner believes that only one product
presently sold in the United States is indicated for the
treatment of recurrent genital herpes. The product, ZoviraxR,
produced by Burroughs Wellcome Co., contains a drug called
acyclovir which is administered orally in either solution or
capsule form for the management of recurrent episodes of genital
herpes. Two other Zovirax formulations, one of which is an
ointment and the other of which is an intravenous product, also
are sold by Burroughs Wellcome in the United States for this use.
In addition, two foreign companies claim to have developed
topical interferon treatments for genital herpes, although ISI
believes that such products have not received FDA approval.
Patents
Unpredictability of Patent Protection
The United States Patent and Trademark Office has granted
two patents to ISI which disclose and claim topical interferon
preparations. The patents encompass interferon preparations for
the topical delivery of one or more interferons to the site of a
disease which responds therapeutically to interferon, and a
system for delivering interferon topically which prevents
oxidation of the protein. The inventions specifically encompass
the topical treatment for treating viral diseases, such as herpes
genitalis, with alpha interferon. It is not certain that other
patents will be issued, or, if issued, that they will afford ISI
protection from competitive products.
Notwithstanding any patent obtained with respect to
ALFERON N Gel, it is possible that others have or may develop
equivalent or superior products or technologies.
Potential Patent Infringement Claims Against ISI
F. Hoffmann-LaRoche ("Roche"), the parent of Hoffmann-
LaRoche ("Hoffmann"), has also been issued patents covering human
alpha interferon in many countries throughout the world. If ISI
desires to exploit ALFERON N Gel for any indication in any
country in which Roche has such a patent and it did not or was
not able to obtain a license from Roche, it may be subject to a
patent infringement lawsuit by Roche. If such a suit were
brought, ISI would have to either counterclaim to attempt to
invalidate such patent or prove ALFERON N Gel (using natural
interferon) does not infringe such patent.
Royalty Obligations
ISI is a party to certain license agreements pursuant to
which it is obligated to pay royalties based upon commercial
exploitation of ALFERON N Gel. Under the terms of such license
agreements, ISI would pay royalties up to 13% of the net sales of
ALFERON N Gel.
Personnel
The Partnership and its General Partner, Interferon
Sciences Development Corporation, a wholly owned subsidiary of
ISI, do not have any full-time employees. As of January 31,
1996, ISI employed 69 persons, who, on an as needed basis, could
dedicate a portion of their time to Partnership activities.
Item 2. Properties
The Partnership itself does not own or lease any
properties. The Partnership's business is conducted at the
facilities of the General Partner, Interferon Sciences
Development Corporation, located in New Brunswick, New Jersey.
Under the Development Agreement, ISI utilizes a portion of its
facilities to conduct the research and development activities of
the Partnership.
ISI owns two free-standing buildings comprising
approximately 44,000 square feet located in New Brunswick, New
Jersey. ISI occupies approximately 25,000 square feet, for staff
offices, for the production and purification of interferon, for
quality control and research activities, and for the storage of
raw, in process and finished materials. ISI also shares
approximately 9,000 square feet with National Patent Development
Corporation ("National Patent"), an approximately 22% Stockholder
of ISI and leases approximately 10,000 square feet to National
Patent at such location.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
No public or other market exists for interests in the
Partnership. Partnership interests are transferable subject to
the satisfaction of certain conditions contained in Article 6 (as
amended) of the Agreement of Limited Partnership incorporated
herein by reference.
The following information as of December 31, 1995 relates
to the ownership of Partnership interests:
Title of Class Number of
Record Holders
General Partner Interest One
Limited Partnership Interests 827
There have been no cash distributions to the partners to
date. Future distributions, if any, will be made by the General
Partner to the partners as soon as practicable after the end of
any fiscal quarter, in proportion to the partners' respective
capital accounts as of the end of such quarter. Distributable
cash, which must be distributed to the partners, is generally
defined as the excess of cash revenues over certain expenditures
and other amounts determined by the General Partner to be
necessary for the proper operation of the Partnership's business.
The capital account of each partner will be credited with such
partner's cash contributions to the Partnership, debited by the
amount of any such distribution from the Partnership to such
partner, and credited or debited with such partner's allocation
of the net gain or loss of the Partnership for Federal income tax
purposes ("Profits" and "Losses", respectively).
Profits and losses of the Partnership and each item of
Partnership income, gain, credit, loss, and deduction shall be
allocable as of the end of each Partnership fiscal year 99% to
the Limited Partners and 1% to the General Partner, provided,
however, if the General Partner contributes additional funds to
continue the development of a Product prior to FDA approval, each
item of deduction arising from the expenditure of such funds will
be allocable 100% to the General Partner, and each item of
income, gain, or credit will be allocated (i) 99% to the Limited
Partners and 1% to the General Partner until such time as the
Limited Partners have received distributions from the Partnership
equal to 50% of their aggregate capital contributions, (ii)
thereafter, 50% to the General Partner and 50% to the Limited
Partners until the General Partner has received distributions
equal to 120% of such contributed funds, and (iii) thereafter,
99% to the Limited Partners and 1% to the General Partner.
Similarly, if the General Partner has contributed funds to
the development of any Product prior to FDA approval, and, as of
the Purchase Option Exercise Date, has not yet received
distributions equal to 120% of such contributed funds as required
by the Partnership Agreement (see "Summary of the Partnership
Agreement"), then 50% of the royalties otherwise payable to the
Final Limited Partners shall be paid to the General Partner until
the amounts so paid to the General Partner, together with all
distributions received after the date of such contribution by the
General Partner, equal 120% of such contribution. If, after the
Purchase Option Exercise Date, ISI contributes funds to the
development of any Products prior to FDA approval, then 50% of
the royalties otherwise payable to the Final Limited Partners
shall be retained by ISI until ISI has retained 120% of the funds
so contributed by ISI. However, in no event will the royalties
payable to the Final Limited Partners be so reduced until the
Limited Partners and the Final Limited Partners have received
aggregate distributions and royalty payments equal to 50% of
their aggregate capital contributions.
Because of the foregoing allocation and royalty
adjustments, the contribution of funds by the General Partner (or
ISI) will have a material effect on the potential distributions
(or royalties) to be received by the Limited Partners (or the
Final Limited Partners).
<PAGE>
Item 6. Selected Financial Data
Year Ended
December 31,
1995 1994 1993 1992 1991
Net loss NONE NONE NONE NONE NONE
Net loss per limited
partnership unit NONE NONE NONE NONE NONE
Net loss-General NONE NONE NONE NONE NONE
Partner
Distributions NONE NONE NONE NONE NONE
to partners
December 31,
1995 1994 1993 1992 1991
Total assets NONE NONE NONE NONE NONE
Long-term debt NONE NONE NONE NONE NONE
Working capital NONE NONE NONE NONE NONE
Partners' capital NONE NONE NONE NONE NONE
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
During 1984, the Partnership sold 1038.7 units of limited
partnership interests and received net proceeds of approximately
$4,415,000 from such sale. The primary use of the proceeds was
to fund research and development and clinical trials necessary
for obtaining regulatory approval of a topical formulation
containing recombinant alpha interferon for the treatment of
herpes genitalis (ALFERON Gel). The Partnership entered into a
Development Contract with Interferon Sciences, Inc. (ISI) to
conduct such research. The Partnership paid ISI $4,555,000 under
such agreement through 1986. By September 30, 1986, the
Partnership had exhausted all of its available funds for the
funding of research and development of ALFERON Gel. The General
Partner agreed to contribute up to an additional $433,000, under
certain conditions, to continue the research. Such amount was
based on the number of units sold in the offering.
Notwithstanding that commitment, from September 1986 to October
1990, the General Partner contributed $1,997,000 towards the cost
of such research. During May 1987, ISI filed a Product License
Application with the Food and Drug Administration (FDA) for
approval to market ALFERON Gel. This filing was supplemented in
1989 with an updated clinical summary and a comprehensive
statistical analysis of the completed trials. At a meeting with
the FDA in February, 1990, the FDA indicated that additional
process development and clinical trials would be necessary prior
to approval of ALFERON Gel. ISI believed, at that time, that the
costs to complete the required process development and clinical
trials would be substantial, and there could be no assurance that
the clinical trials would be successful. As a result of the
above events, in March 1992, ISI withdrew its FDA Product License
Application for ALFERON Gel containing recombinant interferon.
The General Partner does not anticipate that the
Partnership will receive any revenues in 1996. In addition, the
Partnership is not in a position to incur additional expenses
since it has exhausted all its available funds, and ISI is
currently developing ALFERON Gel using ISI's natural source,
multi-species alpha interferon (ALFERON N Gel) in place of
recombinant interferon.
ISI does not presently intend to exploit ALFERON Gel (the
Partnership Product). ISI is currently focusing its clinical
efforts on ALFERON N Gel, a formulation containing ISI's natural
alpha interferon (interferon alfa-n3) which was developed for the
topical treatment of viral diseases and cancers affecting the
skin and mucosal tissues. Now that ISI has expanded capacity to
manufacture sufficient quantities of its natural-source alpha
interferon due to the expansion of its manufacturing facilities
in 1991, ISI resumed clinical trials of this topical preparation
utilizing its natural-source alpha interferon as the active
ingredient. A Phase 2 pilot clinical trial utilizing its
reformulated ALFERON N Gel has been completed for the treatment
of cervical dysplasia and a physician-sponsored study in HIV-
infected women with cervical dysplasia is currently being
conducted (see "Recent Developments", page 3). Under the terms
of the Partnership Agreement, a royalty may be payable to the
Partnership by reason of the commercial exploitation of ALFERON N
Gel to the extent that it utilizes any of the Partnership
Technology, which royalty will be adjusted based upon the
proportional funding contributions to the development of ALFERON
N Gel by the Partnership and ISI. If ISI obtains additional
financing in the future, ISI may exploit ALFERON N Gel for herpes
genitalis which may entitle the Partnership to a royalty in
respect to a product which competes with the Partnership Product;
however, this royalty will be adjusted based upon the
proportional funding contributions to the development of ALFERON
N Gel by the Partnership and ISI.
Results of Operations
Since ISI did not make any contributions to the
Partnership in 1995, 1994 and 1993, the Partnership did not
record any expense or loss.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 13
Financial Statements:
Balance Sheet -
December 31, 1995 and 1994 14
Statement of Operations -
Years ended December 31, 1995, 1994 and 1993 15
Statement of Cash Flows -
Years ended December 31, 1995, 1994 and 1993 16
Statement of Changes in Partners' Capital -
Years ended December 31, 1995, 1994 and 1993 17
Notes to Financial Statements 18
<PAGE>
Independent Auditors' Report
The Partners
Interferon Sciences Research Partners, Ltd.
We have audited the financial statements of Interferon
Sciences Research Partners, Ltd. as listed in the accompanying
index. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Interferon Sciences Research Partners, Ltd. at December 31,
1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 16, 1996
<PAGE>
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
BALANCE SHEET
December 31,
1995 1994
ASSETS
Total assets $ --- $ ---
LIABILITIES AND PARTNERS' CAPITAL
Partners' capital
Limited partners $ --- $ ---
General Partner --- ---
Total partners' capital --- ---
Total liabilities and partners' capital $ --- $ ---
The accompanying notes are an integral part of these financial
statements.
<PAGE>
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENT OF OPERATIONS
Year Ended December 31,
1995 1994 1993
Net income (loss) $ -- $ -- $ --
Net income (loss) - Limited Partners $ -- $ -- $ --
Net income (loss) - General Partner -- -- --
Net income (loss) $ -- $ -- $ --
Net loss Net loss Net loss
per unit per unit per unit
Net income (loss) -
Limited Partners
(1038.7 units outstanding) $ -- $ -- $ --
The accompanying notes are an integral part of these financial
statements.
<PAGE>
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENT OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
Net change in cash $ -- $ -- $ --
Cash at beginning of year -- -- --
Cash at end of year $ -- $ -- $ --
The accompanying notes are an integral part of these financial
statements.
<PAGE>
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Years ended December 31, 1995, 1994 and 1993
Total
General Partners'
Limited Partners Partner Capital
Units Amount Amount Amount
Balance at
December 31, 1992 1038.7 $ -- $ -- $ --
Capital contribution -- -- -- --
Net loss -- -- -- --
Balance at
December 31, 1993 1038.7 -- -- --
Capital contribution -- -- -- --
Net loss -- -- -- --
Balance at
December 31, 1994 1038.7 -- -- --
Capital contribution -- -- -- --
Net loss -- -- -- --
Balance at
December 31, 1995 1038.7 $ -- $ -- $ --
The accompanying notes are an integral part of these financial
statements.
<PAGE>
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Interferon Sciences Research Partners, Ltd., a New Jersey
Limited Partnership (the Partnership), was established in
February 1984 and commenced operations in October 1984. The
General Partner is Interferon Sciences Development Corporation
(ISD), a wholly owned subsidiary of Interferon Sciences, Inc.
(ISI).
In February 1984, the Partnership filed a registration
statement, which became effective in May 1984, with the
Securities and Exchange Commission, covering a public offering of
Limited Partnership interests (Units). During 1984, the
Partnership sold 1,038.7 Units for gross proceeds of $5,193,500
resulting in net proceeds of $4,414,475 to the Partnership. The
offering expired April 1, 1985 with no additional Units being
sold.
The business of the Partnership is to fund research and
development and clinical trials necessary for obtaining
regulatory approval of a topical formulation ("the Product")
containing recombinant alpha interferon for the treatment of
herpes genitalis (ALFERON Gel). In order for the Partnership to
commence its business activities, the Partnership entered into a
Cross License Agreement, a Development Contract, an Interim
License Option and a Purchase Option with ISI (see Note 5).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Research and development costs - Payments to ISI for
research and development, pursuant to the Development Contract,
were expensed in the period the payments were made.
Income taxes - The Partnership's financial statements do
not include provisions for income taxes. Taxes, if any, are the
liability of the individual partners. The Partnership reports its
operations on the cash method of accounting for Federal income
tax purposes.
Net loss per limited partnership unit - Aggregate losses
allocated to the limited partners were limited to the extent of
their capital accounts.
NOTE 3. PARTNERSHIP ALLOCATION OF PROFIT AND LOSS
Profits and losses of the Partnership are allocated 99% to
the Limited Partners and 1% to the General Partner, subject to
adjustment when the General Partner contributes additional funds
to the Partnership. Since 1986, all losses have been funded by
the General Partner, and consequently all losses since that time
have been allocated to the General Partner.
NOTE 4. FUNDING
The Partnership exhausted its available funds in 1986.
The General Partner had originally agreed to contribute up to an
additional $433,000 to continue research, under certain
circumstances. During the period beginning September 30, 1986,
the date on which the Partnership had exhausted its available
funds, through October 31, 1990, the General Partner contributed
$1,997,000 towards the cost of such research. Beginning November
1990, the General Partner discontinued funding the development of
ALFERON Gel containing recombinant interferon. Beginning in
1992, ISI commenced further development of ALFERON Gel using
ISI's natural source multi-species alpha interferon (ALFERON N
Gel) in place of recombinant interferon. If the General Partner
does not resume funding or other sources of cash do not become
available, the Partnership will not be able to fund the
Partnership Product.
NOTE 5. RELATED PARTY TRANSACTIONS
During 1984, the Partnership and ISI entered into several
agreements including a Development Contract whereby substantially
all of the net proceeds of the offering were paid to ISI in
periodic payments over the term of the Partnership's development
program. Such payments were used to fund research and
development and clinical trials necessary for obtaining
regulatory approval with respect to ALFERON Gel. In 1986, 1985
and 1984, the Partnership paid ISI $690,000, $2,289,000 and
$1,576,000, respectively, under this agreement. Additionally, in
1990, 1989, 1988, 1987 and 1986, ISD contributed $56,000,
$144,000, $520,000, $1,177,000 and $100,000, respectively, to the
Partnership, which used such funds to pay for additional research
and development for the benefit of the Partnership. Beginning in
1992, ISI commenced further development of ALFERON Gel using
ISI's natural source multi-species alpha interferon in place of
recombinant interferon.
The Partnership and ISI have also entered into a Cross
License Agreement pursuant to which the Partnership has obtained
from ISI a worldwide, nonexclusive license to use the ISI
Technology (as defined) and ISI has obtained from the Partnership
a worldwide, exclusive license to use the Partnership Technology
(as defined) for all purposes other than the development,
manufacture, or sale of ALFERON Gel. The agreement also provides
for the payment by ISI to the Partnership of royalties based on
specified levels of sales during the development phase at the
rates specified below.
For a period of 90 days commencing on the earlier of the
dates on which ALFERON Gel is approved for sale in the United
States by the Food and Drug Administration or approved for sale
in any of the Major Market Countries (as defined) by a similar
regulatory authority, ISI will have an option to acquire a
worldwide, exclusive license to use the Partnership Technology
for the development, manufacture and sale of ALFERON Gel. If ISI
exercises the option, it will be obligated to pay the Partnership
royalties at the rates of 4% of sales and 15% of sublicense
revenues.
ISI will also have an option to acquire from each Limited
Partner all of such Limited Partner's interest in the
Partnership. If ISI exercises this option, it will be obligated
to make a one time payment of approximately $580,000, plus
royalties of 5% and 20% of specified sales and sublicense
revenues, respectively, for a period of 15 years. All of the
payments made by ISI will be divided among the Limited Partners
in proportion to their respective partnership unit percentages.
ISI may terminate its obligation to pay future royalties to the
Partnership by making a one time payment in cash or common stock
of ISI having a fair market value equal to $20,774,000 on or
before the second anniversary of the purchase option exercise
date and increasing to $31,161,000 after the third anniversary of
such date, all reduced by royalty payments actually made under
the terms of the purchase option, provided, however, that such
payment may not be less than $12,118,000.
<PAGE>
NOTE 6. INTERFERON SCIENCES DEVELOPMENT CORPORATION AND
INTERFERON SCIENCES, INC.
ISD, the General Partner, is a wholly owned subsidiary of
ISI. From September 1986 through October 1990, ISD's total
capitalization was used to fund Partnership expenses. ISD was
totally dependent upon ISI for capital to be able to fund the
Partnership during this period. Beginning in 1992, ISI commenced
development of ALFERON N Gel using its own funds.
Summarized consolidated financial information of ISI is as
follows:
December 31,
Assets 1995 1994
Cash, cash equivalents and
marketable securities $ 7,221,108 $ 330,617
Receivables from affiliated companies 27,211 20,001
Accounts and other receivables 47,351 35,546
Inventories 815,978 1,249,568
Other current assets 76,000 55,221
Property, plant and equipment, net 5,133,995 5,812,230
Intangible and other assets, net 630,939 678,919
$ 13,952,582 $ 8,182,102
Liabilities and Stockholders' Equity
Current liabilities 1,125,806 2,472,647
Common stock subject to
repurchase commitment -- 2,729,976
Stockholders' equity 12,826,776 2,979,479
$ 13,952,582 $ 8,182,102
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
There has been no Form 8-K filed within 24 months prior to
the date of the most recent financial statements reporting a
change of accounting and/or reporting disagreement on any matter
of accounting principle or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
Exclusive management and control of the business of the
Partnership is vested in the General Partner, Interferon Sciences
Development Corporation. Accordingly, the following information
pertains to the Directors and Officers of Interferon Sciences
Development Corporation:
Positions Held with General Partner
and Principal Occupations for
Name Age the Past Five Years
Samuel H. Ronel 59 President and a Director of the
General Partner; Vice President of
Research and Development of National
Patent; Vice Chairman of the Board and
a Director of ISI.
Stanley G. Schutzbank 50 Executive Vice President and a
Director of the General Partner,
President and a Director of ISI, and
Corporate Director of Regulatory and
Clinical Affairs of National Patent.
Donald W. Anderson 46 Chief Financial Officer of the General
Partner; Controller and Secretary of
ISI.
Martin M. Pollak 68 Director of the General Partner;
Founder; Executive Vice President,
Treasurer, and a Director of National
Patent; Chairman of the Board of ISI.
Jerome I. Feldman 67 Director of the General Partner;
Founder, President, Chief Executive
Officer, and a Director of National
Patent; Chairman of the Executive
Committee and a Director of ISI.
Directors of Interferon Sciences Development Corporation are
elected annually by ISI, the sole shareholder, and officers are
elected annually by the Board of Directors. There are no family
relationships between any of the directors or officers.
Item 11. Executive Compensation
The Directors and Officers of the General Partner,
Interferon Sciences Development Corporation, do not receive any
direct remuneration from the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding security ownership of all persons
known to the Partnership to be the beneficial owners of more than
5% of any class of the Partnership's securities as of December
31, 1995 is as follows:
Title Name and Address Amount and Nature
of of Beneficial of Beneficial Percent
Ownership Ownership Ownership of Class
General Interferon Sciences One General 100%
Partner Development Corporation Partner
Interest 783 Jersey Avenue Interest
New Brunswick, NJ
As of December 31, 1995, no Limited Partner owns more than
five percent of the Limited Partnership Units outstanding.
Exclusive management and control of the Partnership's
business is vested in Interferon Sciences Development
Corporation, the General Partner of the Partnership. Information
regarding ownership of limited partnership interests of the
directors, and all directors and officers as a group, of the
General Partner as of December 31, 1995 is as follows:
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership of Class
Samuel Ronel One Interest ---
Stanley Schutzbank One Interest ---
(Directors and Officers
as a Group) Two Interests ---
<PAGE>
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner
are officers and/or directors of ISI. During 1984, the
Partnership entered into certain agreements with ISI, the
summarized contents of which are set forth in Item 1.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
Page
(a) (1) The following financial statements are
included in Part II, Item 8:
Independent Auditors' Report 13
Financial Statements:
Balance Sheet - December 31, 1995 and 1994 14
Statement of Operations - Years Ended
December 31, 1995, 1994 and 1993 15
Statement of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993 16
Statement of Changes in Partners' Capital -
Years Ended December 31, 1995, 1994 and 1993 17
Notes to Financial Statements 18
(a) (2) All schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the financial statements or
notes thereto.
(a) (3) See accompanying Index to Exhibits
<PAGE>
SIGNATURE
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Interferon Sciences Research Partners, Ltd.
A Limited Partnership
(Registrant)
By: Interferon Sciences
Development Corporation
General Partner
/s/ Samuel H. Ronel, Ph.D.
Samuel H. Ronel, Ph.D.
President
Dated: March 21, 1996
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title
/s/ Martin M. Pollak Chairman of the Board
Martin M. Pollak
/s/ Samuel H. Ronel, Ph.D. President and Director
Samuel H. Ronel, Ph.D.
/s/ Ogden Reid Director
Ogden Reid
/s/ Stanley G. Schutzbank, Ph.D. Executive Vice President
Stanley G. Schutzbank, Ph.D. and Director
/s/ Donald W. Anderson Controller (Principal
Donald W. Anderson Accounting and
Financial Officer)
____________________ Chairman of the Executive
Jerome I. Feldman Committee and Director
Dated: March 21, 1996
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