UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
( ) 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 2-98260
PAINEWEBBER R&D PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3304143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1285 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 713-2000
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>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Form 10-Q
June 30, 1995
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Statements of Financial Condition
(unaudited) at June 30, 1995 and
December 31, 1994 2
Statements of Operations
(unaudited) for the three months
ended June 30, 1995 and 1994 3
Statements of Operations
(unaudited) for the six months
ended June 30, 1995 and 1994 3
Statement of Changes in Partners' Capital
(unaudited) for the six months
ended June 30, 1995 4
Statements of Cash Flows
(unaudited) for the six months
ended June 30, 1995 and 1994 5
Notes to Financial Statements
(unaudited) 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
All schedules are omitted either because they are not applicable or the
information required to be submitted has been included in the financial
statements or notes thereto.
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
(unaudited)
June 30, December 31,
1995 1994
- -------------------------------------------------------------------------------
Assets:
Cash $ 72,033 $ 25,667
Marketable securities, at market value 217,834 526,502
Interest receivable 726 1,566
Royalty income receivable 1,166 1,330,800
------------ -----------
Total assets $ 291,759 $ 1,884,535
============ ===========
Liabilities and partners' capital:
Accrued liabilities $ 62,363 $ 155,544
Partners' capital 229,396 1,728,991
------------ -----------
Total liabilities and partners' capital $ 291,759 $ 1,884,535
============ ===========
See notes to financial statements.
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Page 3
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
For the three months ended June 30, 1995 1994
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 9,520 $ 7,265
Income from product development projects (69,137) 1,309,253
Realized loss on sale of marketable
securities (5,247) -
Unrealized appreciation of marketable
securities - 3,125
----------- ----------
(64,864) 1,319,643
----------- ----------
Expenses:
General and administrative costs 46,053 109,008
----------- ----------
Net income (loss) $ (110,917) $ 1,210,635
=========== ===========
Net income (loss) per partnership unit:
Limited partners (based on 37,799 units) $ (2.91) $ 31.71
General partner $ (1,109.17) $ 12,106.35
- ------------------------------------------------------------------------------
For the six months ended June 30, 1995 1994
- ------------------------------------------------------------------------------
Revenues:
Interest income $ 17,757 $ 23,348
Income from product development projects 1,072,316 2,361,860
Realized loss on sale of marketable
securities (10,456) -
Unrealized depreciation of marketable
securities - (15,624)
----------- ----------
1,079,617 2,369,584
----------- ----------
Expenses:
General and administrative costs 97,460 136,244
Write-down of investment - 750,000
----------- ----------
97,460 886,244
----------- ----------
Net income $ 982,157 $ 1,483,340
=========== ==========
Net income per partnership unit:
Limited partners (based on 37,799 units) $ 25.72 $ 38.85
General partner $ 9,821.57 $ 14,833.40
- ------------------------------------------------------------------------------
See notes to financial statements.
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Page 4
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statement of Changes in Partners' Capital
(unaudited)
Limited General
For the six months ended June 30, 1995 Partners Partner Total
- -------------------------------------------------------------------------------
Balance at December 31, 1994 $ 1,732,435 $ (3,444) $ 1,728,991
Net income 972,335 9,822 982,157
Cash distributions to partners (2,456,934) (24,818) (2,481,752)
------------ ----------- ------------
Balance at June 30, 1995 $ 247,836 $ (18,440) $ 229,396
============ =========== ============
See notes to financial statements.
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Page 5
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
For the six months ended June 30, 1995 1994
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 982,157 $ 1,483,340
Adjustments to reconcile net income to cash
provided by operating activities:
Unrealized depreciation of marketable
securities - 15,624
Write-down of investment - 750,000
Decrease (increase) in operating assets:
Marketable securities 308,668 858,361
Interest receivable 840 3,019
Royalty income receivable 1,329,634 (94,504)
(Decrease) increase in operating liabilities:
Accrued liabilities (93,181) 8,385
--------- ---------
Cash provided by operating activities 2,528,118 3,024,225
--------- ---------
Cash flows from financing activities:
Distributions to partners (2,481,752) (3,245,368)
--------- ---------
Cash used for financing activities (2,481,752) (3,245,368)
--------- ---------
Increase (decrease) in cash 46,366 (221,143)
Cash at beginning of period 25,667 243,842
--------- ---------
Cash at end of period $ 72,033 $ 22,699
========= =========
- ------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest during the six months ended June 30,
1995 and 1994.
- ------------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
Page 6
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Business
The financial information as of and for the periods ended June 30, 1995 and
1994 is unaudited. However, in the opinion of management of PaineWebber R&D
Partners, L.P. (the "Partnership"), such information includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation. The results of operations reported for the interim periods ended
June 30, 1995, are not necessarily indicative of results to be expected for the
year ended December 31, 1995. These financial statements should be read in
conjunction with the most recent annual report of the Partnership on Form 10-K
for the year ended December 31, 1994, and the previously issued quarterly
report for the quarter ended March 31, 1995.
The Partnership is a Delaware limited partnership that commenced operations
on March 6, 1986 with a total of $62.1 million available for investment. PWDC
Holding Company (the "Manager") is the general partner of PaineWebber
Technologies, L.P. (the "General Partner"), which is the general partner of the
Partnership. PWDC Holding Company is a wholly owned subsidiary of PaineWebber
Development Corporation ("PWDC"), an indirect, wholly owned subsidiary of Paine
Webber Group Inc. The Partnership will terminate on December 31, 1998, unless
its term is extended or reduced by the General Partner.
The principal objective of the Partnership was to provide long-term capital
appreciation to investors through investing in the development and
commercialization of new products with technology companies ("Sponsor
Companies"), which were expected to address significant market opportunities.
In connection with product development projects (the "Projects"), the
Partnership sought to obtain warrants to purchase the common stock of Sponsor
Companies. These warrants provided additional capital appreciation to the
Partnership which was not directly dependent upon the outcome of the Projects.
As a result of restructuring some of the original Projects, the Partnership
also obtained common and preferred stock in some of the Sponsor Companies (See
Note 3). As such, the Partnership was engaged in diverse Projects through
contracts, participation in other partnerships and joint ventures and
investments in securities of the Sponsor Companies.
On November 14, 1994, the General Partner commenced with the dissolution of
the Partnership's assets but does not intend to terminate the Partnership until
the contingent payment rights ("CPR") due from Amgen, Inc. ("Amgen") from the
sale of Neupogen<reg-trade-mark> have been fully realized and a lawsuit with
Centocor, Inc. ("Centocor") has been fully resolved (See Note 6). On April
21, 1995, the Partnership distributed the CPR to its General Partner and
limited partners (the "Limited Partners"; together with the General Partner,
the "Partners"). Amgen is required to make CPR payments through the year 2005.
The Partnership received its final CPR payment for the quarter ended March 31,
1995, in June 1995.
<PAGE>
Page 7
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 1 Continued)
The Partnership has completed the funding of its eight Projects.
All distributions to the Partners from the Partnership will be made pro rata
in accordance with their respective net capital contributions. The following
table sets forth the proportion of each distribution to be received by the
Limited Partners and the General Partner, respectively:
Limited General
Partners Partner
-------- -------
I. Until the value of the aggregate distributions for
each limited partnership unit ("Unit") equals $1,850
plus interest on such amount accrued at 5% per annum,
compounded annually ("Contribution Payout") 99% 1%
II. After Contribution Payout and until the value of the
aggregate distributions for each Unit equals $9,250
("Final Payout") 80% 20%
III. After Final Payout 75% 25%
At June 30, 1995, the Partnership has made cash and securities distributions
since inception of $889 and $593 per Unit, respectively. The securities
distributions of $593 does not include the distribution of the CPR in April
1995.
2. Summary of Significant Accounting Policies
The Partnership adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115"), for investments held as of or acquired after
January 1, 1994. In accordance with Statement No. 115, prior period financial
statements have not been restated to reflect the change in accounting method.
There was no financial statement impact as of January 1, 1994 of adopting
Statement No. 115.
Marketable securities consist of readily marketable securities that are
valued at market value. Marketable securities are not considered cash
equivalents for the Statements of Cash Flows.
Realized and unrealized gains or losses are determined on a specific
identification method and are reflected in the Statements of Operations during
the period in which the change in value occurs.
<PAGE>
Page 8
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 2 Continued)
The Partnership had investments in Projects through one of the following two
vehicles:
- Product Development Contracts
The Partnership paid amounts to Sponsor Companies under product
development contracts. Such amounts were expensed by the Partnership
when incurred by the Sponsor Companies.
- Product Development Limited Partnerships
The Partnership participated as a limited partner in product
development limited partnerships formed to develop specific products.
Such participations were accounted for using the equity method. Such
partnerships expensed product development costs when incurred.
The Partnership carries warrants at a zero value in cases where the Sponsor
Company's stock is not publicly traded or the exercise period has not been
attained. To the extent that the Partnership's warrant is currently
exercisable and the Sponsor Company's stock is publicly traded, the warrant is
carried at intrinsic value (the excess of market price per share over the
exercise price per share), which approximates fair value.
3. Marketable Securities and Investments
Marketable Securities:
The money market fund consists of obligations with maturities of one year or
less that are subject to fluctuations in value.
At June 30, 1995, the Partnership held the following marketable security:
Market Cost
------ ----
Money market fund $217,834 $217,834
======== ========
At December 31, 1994, the Partnership held the following marketable
securities:
Market Cost
------ ----
Money market fund $469,211 $469,211
41,666 shares of AgriDyne Technologies
Inc. common stock 57,291 0
-------- --------
$526,502 $469,211
======== ========
<PAGE>
Page 9
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 3 Continued)
At December 31, 1994, the market value of AgriDyne Technologies, Inc. common
stock per share was $1.375. In June 1995 the Partnership sold its investment of
41,666 shares at $1.125 per share resulting in a loss of $10,456 for the six
months ended June 30, 1995.
Investments:
At December 31, 1994, the Partnership had an investment of 9,000,000 shares
of Applied Diagnostics, Inc. (a subsidiary of Teknowledge Corporation
("Teknowledge") (formerly Cimflex Teknowledge Corporation)) Series A
Convertible Preferred Stock with a carrying value of zero. As of June 30,
1995, the Partnership has been advised of the dissolution of Applied
Diagnostics, Inc. The Partnership received no distributions as a result of the
dissolution. In addition, the Partnership had one warrant to purchase
1,050,000 shares of Teknowledge common stock with an exercise price of $3.83
per share and an expiration date of September 1995. The warrant is carried at
a cost basis of zero. The market value of Teknowledge common stock was $0.17
on June 30, 1995. The share prices of technology companies are generally
highly volatile and the shares are often thinly traded. Therefore, the market
price of Teknowledge common stock of $0.17 may have changed significantly
subsequent to June 30, 1995 and/or may change significantly in the future.
4. Related Party Transactions
Prior to January 1, 1994, the Manager received an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1994, the Manager elected to discontinue the management fee charged
to the Partnership.
The Partnership's portfolio of a money market fund is managed by Mitchell
Hutchins Institutional Investors ("MHII"), an affiliate of PWDC. PWDC pays
MHII a fee with respect to such money management services.
PWDC and PaineWebber Incorporated, and its affiliates, have acted in an
investment banking capacity for several of the Sponsor Companies. In addition,
PWDC and its affiliates have had direct limited partnership interests in the
same product development limited partnerships as the Partnership.
The Partnership is involved in certain legal actions. The General Partner
believes these actions will be resolved without material adverse effect on the
Partnership's financial statements taken as a whole.
5. Income Taxes
The Partnership is not subject to federal, state or local income taxes.
Accordingly, the individual Partners are required to report their distributive
shares of realized income or loss on their individual federal and state income
tax returns.
<PAGE>
Page 10
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
6. Subsequent Event
On July 12, 1995, the Partnership commenced an action against Centocor in
the Supreme Court of New York arising from certain agreements entered into by
Centocor and Eli Lilly & Company in July 1992. The Partnership's complaint
seeks damages, interest and expenses. There is no assurance that the
Partnership's claim will be successful.
<PAGE>
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Partners' capital was $0.2 million at June 30, 1995, compared to $1.7
million at December 31, 1994, a decrease of $1.5 million. The reduction in
partners' capital was principally a result of cash distributions to the
Partners of $2.5 million that were offset by net income of $1.0 million (as
discussed in Results of Operations below).
The Partnership's working capital is invested in a money market fund.
Liquid assets at June 30, 1995, totaled $0.3 million, a decrease of $0.3
million from the balance of $0.6 million at December 31, 1994. The decrease is
primarily due to the excess of distributions paid to Partners over the income
from product development projects received by the Partnership. The balance of
the liquid assets will be used for the payment of administrative costs related
to the dissolution of the Partnership.
The Partnership adopted the provisions of Statement No. 115 for investments
held as of or acquired after January 1, 1994. In accordance with Statement No.
115, prior period financial statements have not been restated to reflect the
change in accounting method. There was no financial statement impact as of
January 1, 1994 of adopting Statement No. 115.
Results of Operations
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1994:
The net loss for the quarter ended June 30, 1995, was $0.1 million compared
to net income of $1.2 million for the quarter ended June 30, 1994, an
unfavorable variance of $1.3 million which is due primarily to a decrease in
revenues of this amount.
Revenues for the quarter ended June 30, 1994 were $1.3 million consisting
primarily of the product development income from Amgen relating to sales of
Neupogen <reg-trade-mark>. Effective April 1, 1995, the Partnership distributed
its rights to future payments from Amgen to its Partners. In addition, the
payment received from Amgen by the Partnership in the second quarter of 1995
attributable to the quarter ended March 31, 1995, was less than the amount
accrued by the Partnership as of March 31, 1995. The Partnership recognized
revenue from Amgen in the amount of $(75,789) which has been included in income
from product development projects in the Statement of Operations from the three
months ended June 30, 1995.
Expenses, consisting of general and administrative costs, were $46,000 for
the quarter ended June 30, 1995 as compared to $109,000 for the same period in
1994. The decrease in expenses is reflective of the decreased activity of the
Partnership.
<PAGE>
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994:
Net income for the six months ended June 30, 1995, was $1.0 million
compared to net income of $1.5 million for the six months ended June 30, 1994,
a decrease of $0.5 million. The variance of $0.5 million was due to a decline
in revenues of $1.3 million primarily due to a decrease in income from product
development projects and a decrease in expenses of $0.8 million primarily
attributable to the write-down of the investment in DAVID Systems, Inc. ("DSI")
in 1994.
Revenues, which consisted primarily of income from product development
projects, were $1.1 million for the six months ended June 30, 1995 compared to
$2.4 million for the same period in 1994. Income from product development
projects in the amount of $2.4 million for the first half of 1994 was primarily
attributable to royalty income accrued or received from Amgen as a result of
the product sales of Neupogen. Effective April 1, 1995, the Partnership
distributed its rights to future income from Amgen from the sales of Neupogen
to its Partners. Accordingly, the Partnership recognized income from Amgen
attributable to the first quarter of 1995 in the amount of $1.1.
Expenses were $0.1 million for the six months ended June 30, 1994 compared
to $0.9 million for the same period in 1994, a decrease of $0.8 million. The
favorable variance was primarily attributable to the write-down on the
investment in DSI from $0.8 million to zero during the six months ended June
30, 1994. On March 31, 1994, the Manager decided to write-down the DSI
investment due to unsatisfactory operating results.
<PAGE>
Page 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ACTION AGAINST CENTOCOR, INC.
In July 1995, the Partnership commenced an action in the Supreme
Court of the State of New York against Centocor, Inc. ("Centocor")
arising out of Centocor's July 1992 transaction with Eli Lilly & Company
("Lilly").
In 1986, the Partnership and others purchased limited partnership
interests in Centocor Partners II, L.P. ("CP II"), a limited partnership
formed to develop and sell Centoxin, a Centocor drug. On February 21,
1992, Centocor exercised its option to purchase all of the limited
partnership interests in CP II, including those held by the Partnership.
The purchase agreement provided that Centocor would thereafter pay to
the former limited partners 50% of Centocor's revenues from the
licensing or sublicensing of Centoxin and 8% of Centocor's revenues from
Centoxin sales, with such payments to be made on the last business day
of the calendar quarter in which they were earned.
In July 1992, Centocor entered into a set of agreements with Lilly
for the stated purposes of Lilly making an equity investment in Centocor
and furthering the testing and eventual distribution of Centoxin, a
Centocor drug. Pursuant to those agreements, Lilly paid Centocor a
total of $100 million, and Centocor conveyed to Lilly, among other
things, two million shares of Centocor common stock, exclusive marketing
rights to Centoxin, and an option to acquire exclusive marketing rights
to CentoRx (now ReoPro), another Centocor drug.
The Partnership's complaint alleges, among other things, that part
of the $100 million paid by Lilly constitutes revenues to Centocor from
the licensing, sublicensing and/or sale of Centoxin, and that Centocor
is obligated to pay a percentage of that part to the former limited
partners of CP II, including the Partnership. Centocor has taken the
position that it is not obligated to make any such payment. The
Partnership is seeking to proceed on behalf of itself and all other
former limited partners of CP II whose interests were acquired by
Centocor in February 1992. The complaint seeks damages, interest and
expenses.
IN RE PAINEWEBBER LIMITED PARTNERSHIP LITIGATION
Information on this class action was disclosed on the Partnership's
Form 10-Q for the quarter ended March 31, 1995. On May 30, 1995, the
court certified class action treatment of the plaintiff's claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
None
b) REPORTS ON FORM 8-K:
On July 12, 1995, the Partnership filed a current report on Form 8-K
relating to the Partnership's commencement of an action against
Centocor in the Supreme Court of New York.
<PAGE>
Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 14th day of
August 1995.
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(General partner of the General Partner)
By: Eugene M. Matalene, Jr. /S/
------------------------------
Eugene M. Matalene, Jr.
President and Principal Executive Officer
By: Pierce R. Smith /S/
------------------------------
Pierce R. Smith
Principal Financial and Accounting Officer
* The capacities listed are with respect to PWDC Holding Company, the Manager,
as well as the general partner of the General Partner of the Registrant.
<TABLE> <S> <C>
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<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 72,033
<SECURITIES> 217,834
<RECEIVABLES> 1,892
<ALLOWANCES> 0
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0
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<OTHER-SE> 229,396
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<SALES> 0
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