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 MARCH 31, 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> Page 1
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Form 10-Q
March 31, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition
(unaudited) at March 31, 1996 and December 2
31, 1995
Statements of Operations
(unaudited) for the three months ended
March 31, 1996 and 1995 3
Statement of Changes in Partners' Capital
(unaudited) for the three months ended
March 31, 1996 3
Statements of Cash Flows
(unaudited) for the three months ended
March 31, 1996 and 1995 4
Notes to Financial Statements
(unaudited) 5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 9
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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)
March 31, December 31,
1996 1995
- -----------------------------------------------------------------------
Assets:
Cash $ 76,370 $ 74,542
Marketable securities, at market value 78,391 105,814
Interest receivable 370 581
Royalty income receivable 1,100 1,500
-------------- -------------
Total assets $ 156,231 $ 182,437
============== =============
Liabilities and partners' capital:
Accrued liabilities $ 76,559 $ 92,372
Partners' capital 79,672 90,065
-------------- -------------
Total liabilities and partners' capital $ 156,231 $ 182,437
============== =============
- ------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page 3
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
For the three months ended March 31, 1996 1995
- -----------------------------------------------------------------------
Revenues:
Interest income $ 1,933 $ 8,239
Income from product development projects 785 1,141,452
Unrealized depreciation of marketable
securities - (5,209)
----------- -------------
2,718 1,144,482
----------- -------------
Expenses:
General and administrative costs 33,824 51,407
----------- -------------
Net income (loss) $ (31,106) $ 1,093,075
=========== =============
Net income (loss) per partnership unit:
Limited partners (based on 37,799 unit) (0.81) $ 28.63
General partner $ (311.06) $ 10,930.75
- -------------------------------------------------------------------------------
See notes to financial statements.
Statement of Changes in Partners' Capital
(unaudited)
Limited General
For the three months ended March 31, 1996 Partners Partner Total
- -------------------------------------------------------------------------------
Balance at December 31, 1995 $ 109,899 $ (19,834) $ 90,065
Net loss (30,795) (311) (31,106)
Partner contribution - 20,713 20,713
------------- ------------ --------
Balance at March 31, 1996 $ 79,104 $ 568 $ 79,672
============== ============ ========
- -------------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page 4
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
For the three months ended March 31, 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (31,106) $ 1,093,075
Adjustments to reconcile net income (loss) to cash
(used in) provided by operating activities:
Unrealized depreciation of marketable securities - 5,209
Decrease in operating assets:
Marketable securities 27,423 96,458
Interest receivable 211 321
Royalty income receivable 400 129,800
(Decrease) increase in operating liabilities:
Accrued liabilities (15,813) 10,851
------------ -----------
Cash (used in) provided by operating
activities (18,885) 1,335,714
============ ===========
Cash flows from financing activities:
Distributions to partners - (1,336,328)
Contribution by partner 20,713 -
----------- -----------
Cash provided by (used for) financing
activities 20,713 (1,336,328)
----------- -----------
Increase (decrease) in cash 1,828 (614)
Cash at beginning of period 74,542 25,667
----------- -----------
Cash at end of period $ 76,370 $ 25,053
- -------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the three months
ended March 31, 1996 and 1995.
- -------------------------------------------------------------------------
See notes to financial statements.
<PAGE> Page 5
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 March 31,
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 period ended March 31, 1996, is 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.
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.
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 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. The Partnership received its final CPR payment for income accrued
as of March 31, 1995, in June 1995, but continues to receive CPR payments on
account of, and for distribution to, the Partners.
<PAGE> Page 6
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 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:
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL PARTNER
<S> <C> <C>
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%
</TABLE>
For the three months ended March 31, 1996, the Partnership made no cash or
security distributions. At March 31, 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 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 7
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 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.
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.
<PAGE> Page 8
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 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.
<PAGE> Page 9
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 $80,000 at March 31,1996. The decrease resulted from a net
loss of $31,000 offset by a contribution by the General Partner in the amount of
approximately $21,000. 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 Partnerhship.
Liquid assets of the Partnership decreased from a balance of approximately
$180,000 as of December 31, 1995, to approximately $155,000 as of March 31,
1996. The balance of 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 MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1995:
The net loss for the quarter ended March 31, 1996, was approximately
$31,000 compared to net income of $1.1 million for the quarter ended March 31,
1995. Net income for the quarter ended March 31, 1995 consisted primarily of
the product development income received 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. Expenses, consisting
of general and administrative costs, were $34,000 for the quarter ended
March 31, 1996, as compared to $51,000 for the same period in 1995. The
decrease in expenses is attributable to the decreased activity of the
Partnership.
<PAGE> Page 10
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDING.
ACTION AGAINST CENTOCOR, INC.
Information regarding this action was disclosed on the Partnership's
Form 10-K for the year ended December 31, 1995. In April 1996, the Supreme
Court of the State of New York granted Centocor, Inc.'s ("Centocor") motion to
dismiss this action on the grounds that New York was an inconvenient forum and
the action would be better adjudicated in Delaware or Pennsylvania.
Accordingly, the Partnership refiled its claims in Delaware Superior Court.
Centocor has taken the position that the Partnership is not a proper class
representative and that its claims should not be prosecuted in Pennsylvania,
where the other former limited partner of Centocor Partners II, L.P. filed his
action.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
None
<PAGE> Page 11
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 15th day of
May 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: 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.
<PAGE> Page 11
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 15th day of May
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: 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>
<ARTICLE> 5
<CIK> 0000770470
<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 76,370
<SECURITIES> 78,391
<RECEIVABLES> 1,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,231
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 156,231
<CURRENT-LIABILITIES> 76,559
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 79,672
<TOTAL-LIABILITY-AND-EQUITY> 156,231
<SALES> 0
<TOTAL-REVENUES> 2,718
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (31,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,106)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
