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 September 30, 1996
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
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition
(unaudited) at September 30, 1996 and 2
December 31, 1995
Statements of Operations
(unaudited) for the three months ended
September 30, 1996 and 1995 3
Statements of Operations
(unaudited) for the nine months ended
September 30, 1996 and 1995 3
Statement of Changes in Partners' Capital
(unaudited) for the nine months ended
September 30, 1996 4
Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 1996 and 1995 5
Notes to Financial Statements
(unaudited) 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 10
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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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.
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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)
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September 30, December 31,
1996 1995
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Assets:
Cash $ 25,215 $ 74,542
Marketable securities, at market value 33,914 105,814
Interest receivable - 581
Royalty income receivable 3,236 1,500
--------------- --------------
Total assets $ 62,365 $ 182,437
=============== ==============
Liabilities and partners' capital:
Accrued liabilities $ 52,255 $ 92,372
Partners' capital 10,110 90,065
--------------- --------------
Total liabilities and partners' capital $ 62,365 $ 182,437
=============== ==============
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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)
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<CAPTION>
For the three months ended September 30, 1996 1995
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Revenues:
Interest income $ 814 $ 5,183
Income from product development projects 1,736 1,100
-------------- --------------
2,550 6,283
-------------- --------------
Expenses:
General and administrative costs 46,108 81,485
-------------- --------------
Net loss $ (43,558) $ (75,202)
============== ==============
Net loss per partnership unit:
Limited partners (based on 37,799 units) $ (1.14) $ (1.97)
General partner $ (435.58) $ (752.02)
- ---------------------------------------------------------------------------------------------
For the nine months ended September 30, 1996 1995
- ---------------------------------------------------------------------------------------------
Revenues:
Interest income $ 4,015 $ 22,941
Income from product development projects 4,764 1,073,416
Realized loss on sale of marketable
securities - (10,456)
-------------- --------------
8,779 1,085,901
-------------- --------------
Expenses:
General and administrative costs 109,447 178,945
-------------- --------------
Net income (loss) $ (100,668) $ 906,956
============== ==============
Net income (loss) per partnership unit:
Limited partners (based on 37,799 units) $ (2.64) $ 23.75
General partner $ (1,006.68) $ 9,069.56
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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)
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<CAPTION>
<S> <C> <C> <C>
Limited General
For the nine months ended September 30, 1996 Partners Partner Total
- ---------------------------------------------------------------------------------------------------------------
Balance at January 1, 1996 $ 109,899 $ (19,834) $ 90,065
Net loss (99,661) (1,007) (100,668)
Partner contribution - 20,713 20,713
------------------ --------------- -------------
Balance at September 30, 1996 $ 10,238 $ (128) $ 10,110
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</TABLE>
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)
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<CAPTION>
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For the nine months ended September 30, 1996 1995
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (100,668) $ 906,956
Decrease (increase) in operating assets:
Marketable securities 71,900 376,616
Interest receivable 581 739
Royalty income receivable (1,736) 1,329,700
Decrease in operating liabilities:
Accrued liabilities (40,117) (85,214)
----------------- ------------------
Cash (used for) provided by operating activities (70,040) 2,528,797
----------------- ------------------
Cash flows from financing activities:
Contribution by partner 20,713 -
Distributions to partners - (2,481,752)
----------------- ------------------
Cash provided by (used for) financing activities 20,713 (2,481,752)
----------------- ------------------
(Decrease) increase in cash (49,327) 47,045
Cash at beginning of period 74,542 25,667
----------------- ------------------
Cash at end of period $ 25,215 $ 72,712
================= ==================
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</TABLE>
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the nine months
ended September 30, 1996 and 1995.
- -------------------------------------------------------------------------------
See notes to financial statements.
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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 September 30,
1996 and 1995 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 September 30, 1996, are not necessarily
indicative of results to be expected for the year ended December 31,
1996. 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, 1995 and the previously issued quarterly reports for
the quarters ended March 31, 1996 and June 30, 1996.
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 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.
The General Partner has commenced with the dissolution of the
Partnership's assets but does not intend to terminate the Partnership as
long as it continues to receive on behalf of the Partners (hereinafter
defined) the contingent payment rights ("CPR") due from Amgen, Inc.
("Amgen") from the sale of Neupogen<reg-trade-mark> and until a lawsuit
with Centocor, Inc. ("Centocor") has been fully resolved (see note 5).
Amgen is required to make CPR payments through the year 2005. 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"). The distribution of the CPR had no impact on
the financial statements of the Partnership at the date of distribution.
In June 1995, the Partnership received its final CPR payment for income
accrued as of March 31, 1995, but continues to receive CPR payments on
account of, and for distribution to, the Partners. The General Partner
has been advised that on September 17, 1996, a third-party commenced a
tender offer for the CPR's at a price of $420 per CPR unit.
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Page 7
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 1 Continued)
All distributions to the Partners from the Partnership will initially 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:
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Limited Partners General Partner
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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 80% 20%
("Final Payout")........................
III. After Final Payout...................... 75% 25%
</TABLE>
For the nine months ended Septemer 30, 1996, the Partnership made no
cash or security distributions. At September 30, 1996, the Partnership
has made cash and security distributions since inception of $889 and $593
per Unit, respectively. The security distributions of $593 do not
include the distribution of the CPR in April 1995.
In March 1996, the General Partner restored its deficit capital
account balance as of December 31, 1995, to appropriately reflect a 1%
investment in the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally
accepted accounting principles which require management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Marketable securities consist of a money market fund that is valued at
market value. Marketable securities were 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.
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Page 8
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. Related Party Transactions
The Partnership's portfolio of a money market fund is managed by affiliates
of PaineWebber Incorporated ("PWI").
PWDC and PWI, 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.
4. 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.
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Page 9
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
5. LEGAL PROCEEDING
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 ("Lilly") in July 1992. In April 1996, the
Court dismissed the action on the grounds that New York was an inconvenient
forum. Accordingly, the Partnership refiled its claims in Delaware Superior
Court.
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. 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 "Class"). The Partnership seeks damages,
interest and expenses. There is no assurance that the Partnership's claim will
be successful.
PWDC has been advancing, and may continue to advance, the funds necessary
to pay the Partnership's legal fees and expenses relating to this action. In
the event of a recovery on behalf of the Class, the court may award legal fees
and expenses to the Partnership's counsel, to be paid out of the recovery. It
is anticipated that: the net proceeds of any recovery will be distributed to
the members of the Class, including the Partnership, on a pro rata basis; the
Partnership and/or its counsel will reimburse PWDC; and any remaining
Partnership proceeds will be distributed to the Partners of the Partnership on
a pro rata basis.
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Page 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Partners' capital decreased from approximately $90,000 at December 31, 1995,
to approximately $10,000 at September 30, 1996. The decrease resulted from a
net loss of $100,700 offset by a contribution by the General Partner in the
amount of approximately $20,700. In March 1996, the General Partner restored
its deficit capital account balance as of December 31, 1995, to appropriately
reflect a 1% investment in the Partnership.
Liquid assets of the Partnership decreased from a balance of approximately
$180,000 as of December 31, 1995, to approximately $59,000 as of September 30,
1996. The liquid assets will be used for the payment of administrative costs
related to the dissolution of the Partnership.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995:
The net loss for the quarter ended September 30, 1996, was approximately
$43,600 compared to a net loss of $75,200 for the quarter ended September 30,
1995. Revenues for the two quarters ended September 30, 1996 and 1995
consisted of income from product development projects and interest income.
Expenses, consisting of general and administrative costs, were $46,100 for the
quarter ended September 30, 1996, as compared to $81,500 for the same period in
1995. The decrease in expenses is attributable to the decreased activity of
the Partnership.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995:
The net loss for the nine months ended September 30, 1996, was $100,700
compared to net income of $907,000 for the same period in 1995. The
unfavorable variance of $1,007,700 was due primarily to a decrease in revenues
of $1,077,200 offset by a decrease in expenses of $69,500.
Revenues for the nine months ended September 30, 1995, were $1,085,900
consisting primarily of the product development income from Amgen relating to
sales of Neupogen<reg-trade-mark> as compared to $8,700 for the nine months
ended September 30, 1996. Effective April 1, 1995, the Partnership distributed
its rights to future payments from Amgen to its Partners. Therefore, no income
from Amgen was recognized by the Partnership during the nine months ended
September 30, 1996.
Expenses, consisting of general and administrative costs, were $109,400 and
$178,900 for the nine months ended September 30, 1996 and 1995, respectively.
The decrease in expenses is reflective of the decreased activity of the
Partnership.
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Page 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ACTION AGAINST CENTOCOR, INC.
Information regarding this action was disclosed on the Partnership's
Form 10-K for the year ended December 31, 1995 and the Partnership's
Forms 10-Q for the quarters ended March 31, 1996 and June 30, 1996.
IN RE: PAINEWEBBER LIMITED PARTNERSHIP LITIGATION
Information regarding this action was disclosed on the Partnership's
Form 10-K for the year ended December 31, 1995 and Form 10-Q for the
quarter ended June 30, 1996. On July 17, 1996, the United States
District Court for the Southern District of New York (the "Court")
granted preliminary approval of the proposed settlement of the class
action litigation. As part of the class action settlement, PWI
agreed to pay $125 million and additional consideration to class
members. A final hearing on the proposed settlement commenced on
October 25, 1996, and is scheduled to continue in November 1996.
ACTION ENTITLED ABBATE V. PAINEWEBBER INC.
Information regarding this action filed in Sacremento, California
Superior Court against PWI and various affiliated entities was
disclosed on the Partnership's Form 10-K for the year ended December 31,
1995. In September, the California Superior Court dismissed many of the
plaintiffs claims as barred by the applicable statutes of limitation.
In June, 1996, additional complaints, similar to ABBATE VS. PAINEWEBBER
INC. but involving fewer plaintiffs, have been filed in Sacramento, San
Diego and Arizona. Certain of these complaints have been dismissed
with prejudice while others remain pending.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
None
b) REPORTS ON FORM 8-K:
On October 1, 1996, the Partnership filed a current report on
Form 8-K relating to the election of a President of PaineWebber
Development Corporation and PWDC Holding Company.
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Page 12
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 November 1996
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(general partner of the General Partner)
By: /s/ Dhananjay M. Pai
Dhananjay M. Pai
President
By: /s/ Pierce P. Smith
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.
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Page 12
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
November 1996.
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(general partner of the General Partner)
By: /s/Dhananjay M. Pai
Dhananjay M. Pai
President
By: /s/Pierce R. Smith
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.
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<CIK> 0000770470
<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,215
<SECURITIES> 33,914
<RECEIVABLES> 3,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,365
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,365
<CURRENT-LIABILITIES> 52,255
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 10,110
<TOTAL-LIABILITY-AND-EQUITY> 62,365
<SALES> 0
<TOTAL-REVENUES> 8,779
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 109,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,668)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (100,668)
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