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, 2000
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 33-14582
PAINEWEBBER R&D PARTNERS II, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3437420
(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>
SPECIAL NOTE REGARDING
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained herein, the matters discussed herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of PaineWebber R&D Partners II, L.P. or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions; fluctuations in the
value of securities for which only a limited, or no, public market exists;
dependence on the development of new technologies; dependence on timely
development and introduction of new and competitively priced products; the need
for regulatory approvals; the Sponsor Companies (hereinafter defined) having
insufficient funds to commercialize products to their maximum potential; the
restructuring of Sponsor Companies; the dependence of PaineWebber R&D Partners
II, L.P. on the skills of certain scientific personnel; and the dependence of
PaineWebber R&D Partners II, L.P. on the General Partner (hereinafter defined).
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
FORM 10-Q
JUNE 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition (unaudited) at 2
June 30, 2000 and December 31, 1999
Statements of Operations
(unaudited) for the three months and six months
ended June 30, 2000 and 1999 3
Statement of Changes in Partners' Capital
(unaudited) for the six months ended
June 30, 2000 4
Statements of Cash Flows
(unaudited) for the six months ended
June 30, 2000 and 1999 5
Notes to Financial Statements
(unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial 12-13
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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.
1
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Assets:
Cash $ 6,998 $ 6,998
Marketable securities, at market value 10,002,649 175,449
Royalty income receivable 1,550,000 1,119,656
------------ ------------
Total assets $ 11,559,647 $ 1,302,103
============ ============
Liabilities and partners' capital:
Accrued liabilities $ 156,515 $ 108,084
Partners' capital 11,403,132 1,194,019
------------ ------------
Total liabilities and partners' capital $ 11,559,647 $ 1,302,103
============ ============
--------------------------------------------------------------------------------
See notes to financial statements.
2
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Interest income $ 72,548 $ 3,759
Income from product development projects 963,970 1,740,002
Unrealized appreciation of marketable securities - 1,320,000
-------------- ------------
1,036,518 3,063,761
-------------- ------------
Expenses:
General and administrative costs 125,932 58,188
-------------- ------------
Net income $ 910,586 $ 3,005,573
============== ============
Net income per partnership unit:
Limited partners (based on 8,257 units) $ 109.18 $ 360.36
General partner $ 9,105.86 $ 30,055.73
--------------------------------------------------------------------------------------
For the six months ended June 30, 2000 1999
--------------------------------------------------------------------------------------
Revenues:
Interest income $ 76,579 $ 7,460
Income from product development projects 10,423,468 3,262,912
Unrealized appreciation of marketable securities - 1,949,998
-------------- ------------
10,500,047 5,220,370
-------------- ------------
Expenses:
General and administrative costs 290,934 128,011
-------------- ------------
Net income $ 10,209,113 $ 5,092,359
============== ============
Net income per partnership unit:
Limited partners (based on 8,257 units) $ 1,224.05 $ 610.57
General partner $ 102,091.13 $ 50,923.59
--------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
3
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(unaudited)
<TABLE>
<CAPTION>
Limited General
For the six months ended June 30, 2000 Partners Partner Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 2000 $ 1,177,996 $ 16,023 $ 1,194,019
Net income 10,107,022 102,091 10,209,113
-------------- -------------- --------------
Balance at June 30, 2000 $ 11,285,018 $ 118,114 $ 11,403,132
============== ============== ==============
-------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
4
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,209,113 $ 5,092,359
Adjustments to reconcile net income to cash
provided by operating activities:
Unrealized appreciation of marketable securities - (1,949,998)
(Increase) decrease in operating assets:
Marketable securities (9,827,200) 85,301
Royalty income receivable (430,344) (274,486)
Increase in operating liabilities:
Accrued liabilities 48,431 24,348
-------------- -------------
Cash provided by operating activities - 2,977,524
-------------- -------------
Cash flows from financing activities:
Distributions to partners - (2,977,524)
-------------- -------------
Increase in cash - -
Cash at beginning of period 6,998 6,998
-------------- -------------
Cash at end of period $ 6,998 $ 6,998
============== =============
----------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the six months ended
June 30, 2000 and 1999.
----------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
<PAGE>
PAINEWEBBER R&D PARTNERS II, 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, 2000
and 1999 is unaudited. However, in the opinion of management of PaineWebber R&D
Partners II, 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, 2000, are not necessarily indicative of results to be expected for the
year ended December 31, 2000. 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, 1999 and the previously issued quarterly report
on Form 10-Q for the quarter ended March 31, 2000.
The Partnership is a Delaware limited partnership that commenced
operations on September 30, 1987 with a total of $72.0 million available for
investment. PWDC Holding Company (the "Manager") is the general partner of
PaineWebber Technologies II, L.P. (the "General Partner"), which is the general
partner of the Partnership. PWDC Holding Company is a wholly-owned subsidiary of
Paine Webber Development Corporation ("PWDC"), an indirect, wholly-owned
subsidiary of Paine Webber Group Inc. ("PWG"). The Partnership will terminate on
December 31, 2012, unless its term is extended or reduced by the General
Partner.
The principal objective of the Partnership has been to provide
long-term capital appreciation to investors through investing in the development
and commercialization of new products with technology companies ("Sponsor
Companies"), which have been expected to address significant market
opportunities. The Partnership has been engaged in diverse product development
projects (the "Projects") including product development contracts, participation
in other partnerships and investments in securities of the Sponsor Companies.
Once the product development phase has been completed, the Sponsor Companies
have had the option to license and commercialize the products resulting from the
product development project, and the Partnership has had the right to receive
payments based upon the sale of such products.
6
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 1 CONTINUED)
All distributions to the limited partners of the Partnership (the
"Limited Partners") and the General Partner (collectively, the "Partners") from
the Partnership have been made pro rata in accordance with their respective
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 GENERAL
PARTNERS PARTNER
-------- -------
<S> <C> <C>
I. Until the value of the aggregate distributions for each limited partnership
unit ("Unit") equals $10,000 plus simple interest on such amount accrued at
7% per annum for each Unit sold at the Initial Closing (6% per annum for
each subsequent Unit sold up to the 5,000th Unit and 5% per annum for each
Unit sold thereafter) ("Contribution Payout"). At June 30, 2000,
Contribution Payout ranged from $15,500 per Unit to $18,925 per
Unit .......................................................................... 99% 1%
II. After Contribution Payout and until the value of the aggregate
distributions for each Unit equals $50,000 ("Final Payout") ................... 80% 20%
III. After Final Payout ............................................................ 75% 25%
</TABLE>
For the six months ended June 30, 2000, the Partnership made no cash or
security distributions. As of this date, the Partnership has made cash and
security distributions, as valued on the dates of distribution, since inception
of $4,466 and $7,206 per Unit, respectively (See Note 8 - Subsequent Events).
Profits and losses of the Partnership are allocated as follows: (i)
until cumulative profits and losses for each Unit equals Contribution Payout,
99% to Limited Partners and 1% to the General Partner, (ii) after Contribution
Payout and until cumulative profits and losses for each Unit equals Final
Payout, 80% to Limited Partners and 20% to the General Partner, and (iii) after
Final Payout, 75% to Limited Partners and 25% to the General Partner. As of June
30, 2000, the cumulative profit for the Partnership was $594 per Unit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with accounting
principles generally accepted in the United States which require management to
make certain 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 which is recorded
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.
7
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 2 CONTINUED)
The Partnership has invested in product development contracts with
Sponsor Companies either directly or through product development limited
partnerships. The Partnership expenses product development costs when incurred
by the Sponsor Companies and such costs are reflected as expenditures under
product development projects in the accompanying Statements of Operations.
Income received and/or accrued from investments in Projects is reflected in the
Statements of Operations for the period in which the income is earned.
3. MARKETABLE SECURITIES
As of June 30, 2000 and December 31, 1999, the Partnership had invested
$10,002,649 and $175,449, respectively, in a money market fund.
At June 30, 1999, the Partnership owned 240,000 shares of Cygnus, Inc.
whereby the market value as of this date was $13.00 per share. The carrying
value of the investment as of March 31, 1999 and December 31, 1998 was $7.50 and
$4.875 per share. The Partnership recognized unrealized appreciation of
$1,320,000 and $1,949,998 for the three months and six months ended June 30,
1999.
4. RELATED PARTY TRANSACTIONS
The Manager is entitled to receive a management fee for services
rendered to the Partnership. Commencing July 1, 1996, the Manager elected to
discontinue the management fee charged to the Partnership.
The money market fund invested in by the Partnership is managed by an
affiliate 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 direct limited partnership interests in some of the same
Projects as the Partnership.
5. PRODUCT DEVELOPMENT PROJECTS
On January 31, 1997, pursuant to the provision of the Partnership
Purchase Option Agreement between Centocor, Inc. ("Centocor") and the
Partnership, Centocor exercised its option to purchase the limited partnership
interests of Centocor Partners III, L.P. ("CP III"). The Partnership owned 22
Class A limited partnership units and 111 Class C limited partnership units. As
a result, the Partnership has been and will continue to receive future quarterly
payments (the "CPIs") based on sales of ReoPro(TM), a drug developed by CP III.
For the quarters ended June 30, 2000 and 1999, the Partnership accrued income
due from the CPIs of $1,550,000 [prior to an estimate adjustment of
approximately $587,000 as of March 31, 2000] and $1,700,000, respectively. For
the six months ended June 30, 2000 and 1999, the Partnership received and/or
accrued income from CP III in the amount of $3,163,970 and $3,256,609,
respectively. With respect to its current investment of 22 Class A CPIs and 111
Class C CPIs, on April 4, 2000, the Partnership entered into the First Amendment
to the Amended and Restated Payment Interest Purchase Agreement (the "DRI
Purchase Agreement") with Drug Royalty USA, Inc. ("DRI"). Subject to the terms
and conditions contained in the DRI Purchase Agreement, the Partnership agreed
to sell to DRI seven Class A and thirty-nine Class C CPIs for an aggregate
purchase price of
8
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 5 CONTINUED)
$15,444,800 subject to adjustment. The sale is subject to the fulfillment of
certain conditions including the consent of Centocor and the approval of the
Limited Partners. The DRI Purchase Agreement amended the previous agreements
between the Partnership and DRI entered into on February 17, 2000 and December
17, 1999. Also on April 5, 2000, the Partnership entered into an Amended and
Restated Contractual Payment Interest Purchase Agreement (the "Pharma Purchase
Agreement") with Pharmaceutical Partners, LLC and certain of its affiliates (the
"Pharma Purchaser") which amended the previous agreement entered into on
February 17, 2000. The Partnership agreed to sell to the Pharma Purchaser 8.75
Class A CPIs and 40.75 Class C CPIs for an aggregate purchase price of
$16,416,400 subject to adjustment. Also, the Partnership agreed to make a
distribution in-kind to the Pharma Purchaser (as the owner of 28.19% of the
Units) for an additional 6.25 Class A CPIs and 31.25 Class C CPIs. Upon receipt
of such distribution the Pharma Purchaser will waive any right as a Limited
Partner of the Partnership to receive a cash distribution from the Partnership
as a result of the transactions contemplated by the DRI Purchase Agreement and
the Pharma Purchase Agreement. The DRI Purchase Agreement and the Pharma
Purchase Agreement may be terminated by the parties if the closing of the
transactions thereunder do not occur prior to July 15, 2000 (See Note 8 -
Subsequent Events). If the sales contemplated by the foregoing agreements are
consummated in accordance with their terms, the Partnership will have sold all
its CPIs relating to the sale of ReoPro. As of June 30, 2000, the Partnership
has not recognized any income resulting from the transactions contemplated by
the foregoing agreements.
The Partnership's remaining active Project is an investment of 111
Class A limited partnership units in Genzyme Development Partners, L.P.
If the Projects produce any product for commercial sale, the Sponsor
Companies have had the option to enter into joint ventures or royalty agreements
with the Partnership to manufacture and market the products developed. In
addition, the Sponsor Companies have had the option to purchase the
Partnership's interest in the technology.
6. 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 and loss on their individual federal and state income
tax returns.
7. LEGAL PROCEEDING
On July 12, 1995, the Partnership commenced a derivative action against
Centocor and Centocor Development Corporation III ("CDC III") in the Chancery
Court of Delaware (the "Court") arising from certain agreements entered into by
Centocor and Eli Lilly & Company ("Lilly") in July 1992. The Partnership's
complaint alleged, among other things that: at least $25 million of the $100
million paid by Lilly to Centocor represented profits from the sale of ReoPro, a
Centocor drug, that Centocor is required to share with CP III; and because of
the Lilly transaction, Centocor was required to increase the percentages of
profits and revenues from ReoPro that it pays to CP III investors. Centocor had
taken the position that only
9
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 7 CONTINUED)
$500,000 of the $100 million had to be shared with CP III and that Centocor had
no obligation to increase the percentages of ReoPro profits and revenues that it
pays to CP III investors. The Partnership sought to proceed on behalf of CP III.
The complaint sought to require Centocor and CDC III to pay damages to CP III
and to increase the percentages of future ReoPro profits and revenues that
Centocor must pay to CP III and its investors.
In June 1997, the parties to the Partnership's action entered into an
agreement to settle the action. On March 15, 1999, the Court issued a memorandum
opinion and order approving the settlement as fair and reasonable. The agreement
provided, among other things, for Centocor to pay to CP III investors (including
the Partnership, a former limited partner in CP III) in the aggregate: $10.8
million, net of attorneys' fees and expenses as may be awarded by the Court (the
"Initial Payment"); an additional $5.0 million, if and when cumulative
world-wide sales of ReoPro exceed $600 million (the "Milestone Payment"); and
possible additional payments totaling $2.2 million, depending upon regulatory
developments in Japan.
The agreement further provided for revisions to the ReoPro royalties
payable by Centocor to CP III investors through 2007 (the "Retroactive
Payments"). Under the agreement, those royalties would be paid based on revenues
from end-sales by Lilly and other distributors, as opposed to Centocor's
revenues on its sales to distributors. For 1997 and 1998, Centocor would pay an
aggregate of 6.5% of the first $175 million of United States end-sales revenues,
3.25% of such revenues above $175 million, and 3.25% of foreign end-sales
revenues. For 1999 through 2007, Centocor would pay an aggregate of 6.5% of the
first $250 million of United States end-sales revenues, 4% of such revenues
above $250 million, and 3.25% of foreign end-sales revenues. The agreement
provided that investors would not receive less than Centocor would otherwise
have paid based on Centocor's sales of ReoPro.
On January 31, 2000, the Court awarded legal fees and expenses relating
to the Centocor litigation approximating $1,476,000 to the Partnership's counsel
plus interest at the statutory rate. PWDC, which had advanced the funds
necessary to pay the Partnership's legal fees and expenses relating to this
litigation, was reimbursed its applicable share of this award in the amount of
$1,244,000. Legal fees and expenses in the amount of $650,000 together with
interest at the statutory rate was awarded to counsel for certain objectors to
the settlement. On February 17, 2000, the Court signed an order of final
judgment resolving all settlement matters regarding the litigation with
Centocor. On March 24, 2000, the Partnership received $3,195,190 representing
its allocable share of the Initial Payment which has been included in income
from product development projects in the accompanying financial statements. As
of March 31, 2000 the Partnership accrued as income from product development
projects the amount of $4,064,308 relating to payments due pursuant to the
Milestone Payment as well as the Retroactive Payments for years 1997 through
1999. Such amount was received by the Partnership in April 2000. Additional
amounts relating to the Retroactive Payments for years 1997 through 1999 may be
paid to the Partnership in the future.
10
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
8. SUBSEQUENT EVENTS
On July 12, 2000, PWG entered into an agreement and plan of merger with
UBS AG ("UBS") and a subsidiary of UBS pursuant to which PWG will merge with and
into that subsidiary. The transaction, which is expected to be completed in the
fourth quarter of 2000, has been approved by PWG's Board of Diractors and is
subject to customary closing conditions, including certain regulatory approvals
and the approval of PWG's shareholders.
On July 17, 2000 the Partnership was advised by DRI that the
transactions contemplated under the DRI Purchase Agreement would not be
consummated. As a result, none of the Partnership's CPIs are being sold or
distributed to DRI or the Pharma Purchaser.
As of August 14, 2000, the General Partner has approved a cash
distribution to the Partners aggregating $9,174,444 ($91,744 to the General
Partner; $1,100 per Unit).
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Partners' capital increased from $1.2 million at December 31, 1999, to
$11.4 million at June 30, 2000, resulting from the recognition of net income of
$10.2 million (as more fully explained in Results of Operations below).
The Partnership's funds are invested in a money market fund until cash
is needed to pay for the ongoing management and administrative expenses of the
Partnership or upon the remittance of cash distributions to the Partners. Liquid
assets increased from $0.2 million at December 31, 1999 to $10.0 million at June
30, 2000 resulting primarily from the receipt of quarterly payments due from the
CPIs of $2.7 million and the receipt of payments from the settlement of the CP
III litigation of $7.3 million. As of August 14, 2000, the General Partner has
approved a cash distribution to the Partners aggregating $9.2 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1999
Net income for the quarters ended June 30, 2000 and 1999 was $0.9
million and $3.0 million, respectively. The unfavorable change of $2.1 million
resulted primarily from of a decrease in revenues of $2.0 million and an
increase in expenses of $0.1 million.
Revenues for the three months ended June 30, 2000 and 1999 were $1.0
million and $3.0 million, respectively. The decrease of $2.0 million was due
primarily to a decrease of $0.7 million in income from product development
projects and an unfavorable change in unrealized appreciation of marketable
securities of $1.3 million. Income from product development projects for the
three months ended June 30, 2000 and 1999 was $1.0 million and $1.7 million,
respectively, resulting primarily from the Partnership's accrual of income due
as a former limited partner of CP III. For the quarter ended June 30, 2000, the
Partnership accrued income of $1.6 million which was off-set by an estimate
adjustment of income for the previous quarter of $0.6 million. Unrealized
appreciation of marketable securities for the three months ended June 30, 1999
was $1.3 million resulting from the Partnership's investment of 0.24 million
shares of Cygnus. The market value of the shares increased from $7.50 per share
as of March 31, 1999 to $13.00 per share at June 30, 1999. The Partnership held
no Cygnus shares as of June 30, 2000.
Expenses for the three months ended June 30, 2000 and 1999 were $0.125
million and $.05 million, respectively. The increase was due primarily to
increased legal fees incurred with respect to the proposed sale of 22 Class A
CPIs and 111 Class C CPIs to DRI and the Pharma Purchaser.
12
<PAGE>
(ITEM 2 CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1999
Net income for the six months ended June 30, 2000 and 1999 was $10.2
million and $5.1 million, respectively. The favorable variance of $5.1 million
resulted from an increase in revenues of $5.3 million offset by an increase in
expenses of $0.2 million.
Revenues for the six months ended June 30, 2000 and 1999 were $10.5
million and $5.2 million, respectively, resulting primarily from an increase in
income from product development projects of $7.1 million offset by an
unfavorable change in unrealized appreciation of $1.9 million. Income from
product development projects for these periods was $10.4 million and $3.3
million, respectively. During 2000 the Partnership (as a former limited partner
of CP III) received payments due pursuant to a settlement agreement with
Centocor in the amount of $7.3 million. In addition, the Partnership received
and/or accrued quarterly payments from Centocor in regard to their investment of
CPIs in the amounts of $3.1 million and $3.3 million for the six months ended
June 30, 2000 and 1999, respectively. Unrealized appreciation of marketable
securities for the six months ended June 30, 1999 was $1.9 million. The market
value of the Partnership's investment in 0.24 million shares of Cygnus increased
form $4.875 per share as of December 31, 1998 to $13.00 per share as of June 30,
1999. The Partnership held no Cygnus shares as of June 30, 2000.
Expenses for the six months ended June 30, 2000 and 1999 were $0.291
million and $0.128 million, respectively. The increase was due primarily to
increased legal fees incurred with respect to the proposed sale of 22 Class A
CPIs and III Class C CPIs to DRI and Pharma Purchaser.
13
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ACTION AGAINST CENTOCOR, INC. AND CENTOCOR DEVELOPMENT CORPORATION III.
Information regarding this action was disclosed on the
Partnership's Form 10-K for the year ended December 31, 1999 and Form
10-Q for the quarter ended March 31, 2000.
ITEM 5. OTHER INFORMATION.
As a former partner of CP III the Partnership is entitled to
receive from Centocor CPIs relating to the sale of Reopro(TM). The
Partnership currently owns 22 Class A CPIs and 111 Class C CPIs. On
AprIl 4, 2000, the Partnership entered into the First Amendment to the
Amended and Restated Payment Interest Purchase Agreement (the "DRI
Purchase Agreement") with Drug Royalty USA, Inc. ("DRI"). Subject to
the terms and conditions contained in the DRI Purchase Agreement, the
Partnership agreed to sell to DRI seven Class A and thirty-nine Class C
CPIs for an aggregate purchase price of $15,444,800 subject to
adjustment. The sale was subject to the fulfillment of certain
conditions including the consent of Centocor and the approval of the
Limited Partners. The DRI Purchase Agreement amended the previous
agreements between the Partnership and DRI entered into on February 17,
2000 and December 17, 1999. Also on April 5, 2000, the Partnership
entered into an Amended and Restated Contractual Payment Interest
Purchase Agreement (the "Pharma Purchase Agreement") with
Pharmaceutical Partners, LLC and certain of its affiliates (the "Pharma
Purchaser") whereby the Partnership agreed to sell to the Pharma
Purchaser 8.75 Class A CPIs and 40.75 Class C CPIs for an aggregate
purchase price of $16,416,400 subject to adjustment. Also, the
Partnership agreed to make a distribution in-kind to the Pharma
Purchaser (as the owner of 28.19% of the Units) for an additional 6.25
Class A CPIs and 31.25 Class C. CPIs. Upon receipt of such distribution
the Pharma Purchaser would waive any right as a Limited Partner of the
Partnership to receive a cash distribution from the Partnership as a
result of the transactions contemplated by the DRI Purchase Agreement
and the Pharma Purchase Agreement. The DRI Purchase Agreement and the
Pharma Agreement could be terminated by the parties if the closing of
the transactions thereunder do not occur prior to July 15, 2000. On
July 17, 2000 the Partnership was advised by DRI that the transactions
contemplated under the DRI Purchase Agreement would not be consummated.
As a result, none of the Partnership's CPIs are being sold or
distributed to DRI or the Pharma Purchaser. If the sales contemplated
by the foregoing agreements were consummated in accordance with their
terms, the Partnership would have sold all its CPIs relating to the
sale of ReoPro.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) EXHIBITS:
None
B) REPORTS ON FORM 8-K:
On July 17, 2000, the Partnership filed a report on Form 8-K
advising that the transactions comtemplated under the DRI Purchase
Agreement would not be consummated. As a result none of the
Partnership's CPIs are being sold or distributed to DRI or the Pharma
Purchaser.
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<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 2000.
PAINEWEBBER R&D PARTNERS II, L.P.
By: PaineWebber Technologies II, 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/ Robert J. Chersi
----------------------------------
Robert J. Chersi
Principal Financial and Accounting Officer*
* The capacities listed are with respect to PWDC Holding Company, the Manager,
as well as PWDC, the parent company of the Manager.
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