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, 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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--------------
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Form 10-Q
June 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition
(unaudited) at June 30, 1996 and December 2
31, 1995
Statements of Operations
(unaudited) for the three months ended
June 30, 1996 and 1995 3
Statements of Operations
(unaudited)for the six months ended
June 30, 1996 and 1995 3
Statement of Changes in Partners' Capital
(unaudited) for the six months ended
June 30, 1996 4
Statements of Cash Flows
(unaudited) for the six months ended
June 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
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>
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,
1996 1995
- -----------------------------------------------------------------------
Assets:
Cash $ 25,215 $ 74,542
Marketable securities, at market value 77,053 105,814
Interest receivable - 581
Royalty income receivable 1,500 1,500
-------------- -------------
Total assets $ 103,768 $ 182,437
============== =============
Liabilities and partners' capital:
Accrued liabilities $ 50,100 $ 92,372
Partners' capital 53,668 90,065
-------------- -------------
Total liabilities and partners' capital $ 103,768 $ 182,437
============== =============
- ------------------------------------------------------------------------
See notes to financial statements.
2
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
For the three months ended June 30, 1996 1995
- -----------------------------------------------------------------------
Revenues:
Interest income $ 1,268 $ 9,520
Income from product development projects 2,242 (69,137)
Realized loss on sale of marketable
securities - (5,247)
----------- -------------
3,510 (64,864)
----------- -------------
Expenses:
General and administrative costs 29,514 46,053
----------- -------------
Net loss $ (26,004) $ (110,917)
=========== =============
Net loss per partnership unit:
Limited partners (based on 37,799 unit)$ (0.68) $ (2.91)
General partner $ (260.04) $ (1,109.17)
- -------------------------------------------------------------------------------
For the six months ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 3,201 $ 17,757
Income from product development projects 3,028 1,072,316
Realized loss on sale of marketable
securities - (10,456)
------------ ----------
6,229 1,079,617
------------ ----------
Expenses:
General and administrative costs 63,339 97,460
----------- ----------
Net income (loss) $ (57,110) $ 982,157
=========== ==========
Net income (loss) per partnership unit:
Litmited partners (based on 37,799 units)$ (1.50) $ 25.72
General partner $ (571.10) $ 9,821.57
- ------------------------------------------------------------------------------
See notes to financial statements
3
<PAGE>
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, 1996 Partners Partner Total
- -------------------------------------------------------------------------------
Balance at January 1, 1996 $ 109,899 $ (19,834) $ 90,065
Net loss (56,539) (571) (57,110)
Partner contribution - 20,713 20,713
------------- ------------ --------
Balance at June 30, 1996 $ 53,360 $ 308 $ 53,668
============== ============ ========
- -------------------------------------------------------------------------------
See notes to financial statements.
4
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
For the six months ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (57,110) $ 982,157
Decrease in operating assets:
Marketable securities 28,761 308,668
Interest receivable 581 840
Royalty income receivable - 1,329,634
Decrease in operating liabilities:
Accrued liabilities (42,272) (93,181)
------------ -----------
Cash provided by (used for) operating
activities (70,040) 2,528,118
============ ===========
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) 46,366
Cash at beginning of period 74,542 25,667
----------- -----------
Cash at end of period $ 25,215 $ 72,033
=========== ===========
- -------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the six months
ended June 30, 1996 and 1995.
- -------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
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, 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 June 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 report on Form 10-Q for the quarter ended March 31, 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 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.
6
<PAGE>
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:
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%
For the six months ended June 30, 1996, the Partnership made no cash or
security distributions. At June 30, 1996, the Partnership has made cash and
security distributions since inception of $889 and $593 per Unit,
respectively. The security distributions of $593 does 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.
7
<PAGE>
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.
8
<PAGE>
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.
9
<PAGE>
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 $53,700 at June 30, 1996. The decrease resulted from a
net loss of $57,000 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 $102,000 as
of June 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 June 30, 1996 compared to the three months ended
June 30, 1995:
The net loss for the quarter ended June 30, 1996, was approximately
$26,000 compared to a net loss of $111,000 for the quarter ended June 30, 1995.
Revenues for the quarter ended June 30, 1995, consisting primarily of income
from product development projects, approximated $(65,000) as compared to
$3,500 for the same period in 1996. As of March 31, 1995, the Partnership
over-accrued the product development income due from Amgen by approximately
$76,000. This amount was reversed against revenues for the quarter ended June
30, 1995. Expenses, consisting of general and administrative costs, were
$30,000 for the quarter ended June 30, 1996, as compared to $46,000 for the
same period in 1995. The decrease in expenses is attributable to the
decreased activity of the Partnership.
Six months ended June 30, 1996 compared to the six months ended June 30,
1995:
The net loss for the six months ended June 30, 1996, was $57,000 compared
to net income of $982,000 for the same period in 1995. The unfavorable variance
of $1,039,000 was due primarily to a decrease in revenues of $1,073,000 offset
by a decrease in expenses of $34,000.
Revenues for the six months ended June 30, 1995, were $1,080,000
consisting primarily of the product development income from Amgen relating to
sales of Neupogen as compared to $7,000 for the six months ended June 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 six months ended June 30, 1996.
Expenses, consisting of general and administrative costs, were $63,000
and $97,000 for the six months ended June 30, 1996 and 1995. The decrease in
expenses is reflective of the decreased activity of the Partnership.
10
<PAGE>
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 Form 10-Q
for the quarter ended March 31, 1996. In July 1996, Centocor Inc.'s motion to
dismiss or stay the Partnership's action was denied by the Delaware Superior
Court.
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. 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. The order entered
by the Court provides for notice to be mailed to class members and schedules
a final hearing on the proposed settlement for October 25, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS:
None
b) REPORTS ON FORM 8-K:
On June 7, 1996, the Partnership filed a current report
on Form 8-K relating to the resignation of the President of PaineWebber
Development Corporation and PWDC Holding Company.
11
<PAGE>
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 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:
-------------------------------
James M. Voytko
Executive Vice President
By:
--------------------------------
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.
12
<PAGE>
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 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: James M. Voytko/s/
--------------------------
James M. Voytko
Executive Vice President
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.
13
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<ARTICLE> 5
<CIK> 0000770470
<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,215
<SECURITIES> 77,053
<RECEIVABLES> 1,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,768
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,768
<CURRENT-LIABILITIES> 50,100
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 53,668
<TOTAL-LIABILITY-AND-EQUITY> 103,768
<SALES> 0
<TOTAL-REVENUES> 6,229
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 63,339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (57,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,110)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
