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, 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
SEPTEMBER 30, 2000
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition (unaudited) at
September 30, 2000 and December 31, 1999 2
Statements of Operations
(unaudited) for the three months and nine months
ended September 30, 2000 and 1999 3
Statement of Changes in Partners' Capital
(unaudited) for the nine months ended
September 30, 2000 4
Statements of Cash Flows
(unaudited) for the nine months ended
September 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)
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Assets:
Cash $ 6,998 $ 6,998
Marketable securities, at market value 2,304,298 175,449
Royalty income receivable 1,435,000 1,119,656
----------- -----------
Total assets $ 3,746,296 $ 1,302,103
=========== ===========
Liabilities and partners' capital:
Accrued liabilities $ 93,578 $ 108,084
Other liability 325,000 -
----------- -----------
418,578 108,084
Partners' capital 3,327,718 1,194,019
----------- -----------
Total liabilities and partners' capital $ 3,746,296 $ 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)
For the three months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Revenues:
Interest income $ 93,674 $ 5,064
Income from product development projects 1,420,274 1,774,066
Realized loss on sale of marketable securities - (315,148)
----------- -----------
1,513,948 1,463,982
----------- -----------
Expenses:
General and administrative costs 414,918 91,189
----------- -----------
Net income $ 1,099,030 $ 1,372,793
=========== ===========
Net income per partnership unit:
Limited partners (based on 8,257 units) $ 131.77 $ 164.60
General partner $ 10,990.30 $ 13,727.93
================================================================================
For the nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Revenues:
Interest income $ 170,253 $ 12,524
Income from product development projects 11,843,742 5,036,978
Realized gain on sale of marketable securities - 1,634,850
----------- -----------
12,013,995 6,684,352
----------- -----------
Expenses:
General and administrative costs 705,852 219,200
----------- -----------
Net income $11,308,143 $ 6,465,152
=========== ===========
Net income per partnership unit:
Limited partners (based on 8,257 units) $ 1,355.83 $ 775.16
General partner $113,081.43 $ 64,651.52
--------------------------------------------------------------------------------
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 nine months ended September 30, 2000 Partners Partner Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 2000 $ 1,177,996 $ 16,023 $ 1,194,019
Net income 11,195,062 113,081 11,308,143
Cash distributions (9,082,700) (91,744) (9,174,444)
------------- ---------- ------------
Balance at September 30, 2000 $ 3,290,358 $ 37,360 $ 3,327,718
============= ========== ============
------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
4
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $11,308,143 $ 6,465,152
Adjustments to reconcile net income to cash
provided by operating activities:
(Increase) decrease in operating assets:
Marketable securities (2,128,849) 1,322,839
Royalty income receivable (315,344) (327,051)
(Decrease) increase in operating liabilities:
Accrued liabilities (14,506) 37,084
Other liability 325,000 -
----------- -----------
Cash provided by operating activities 9,174,444 7,498,024
Cash flows from financing activities:
Distributions to partners (9,174,444) (7,498,024)
----------- -----------
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 nine months ended
September 30, 2000 and 1999.
--------------------------------------------------------------------------------
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 September 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
September 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 reports
on Forms 10-Q for the quarters ended March 31, 2000 and June 30, 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" - See Note 8). 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> <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 September 30, 2000, Contribution Payout ranged from
$15,625 per Unit to $19,100 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 three months and nine months ended September 30, 2000, the
Partnership made cash distributions totalling $9,174,444 ($1,100 per Unit;
$91,744 to the General Partner). As of this date, the Partnership has made cash
and security distributions, as valued on the dates of distribution, since
inception of $5,566 and $7,206 per Unit, respectively.
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
September 30, 2000, the cumulative profit for the Partnership was $726 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 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 has expensed product development costs when
incurred by the Sponsor Companies and such costs have been 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 has
been earned.
3. MARKETABLE SECURITIES
As of September 30, 2000 and December 31, 1999, the Partnership had
invested $2,304,298 and $175,449, respectively, in a money market fund.
During the quarter ended September 30, 1999, the Partnership sold its
investment of 240,000 shares of Cygnus, Inc. ("Cygnus") for net proceeds of
$2,804,852 ($11.6875 per share). The carrying value of the shares at June 30,
1999 and December 31, 1998 was $3,120,000 ($13.00 per share) and $1,170,002
($4.875 per share), respectively. Accordingly, the Partnership recognized a gain
(loss) upon the sale for the three months and nine months ended September 30,
1999 of $(315,148) and $1,634,850, respectively.
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 September 30, 2000 and 1999, the Partnership accrued
income due from the CPIs of $1,435,000 and $1,750,000, respectively. For the
nine months ended September 30, 2000 and 1999, the Partnership received and/or
accrued income from CP III in the amount of $4,584,244 and $5,028,109,
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
8
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 5 CONTINUED)
Drug Royalty USA, Inc. ("DRI"). Subject to the terms and conditions contained in
the DRI Purchase Agreement, the Partnership agreed to sell to DRI 7 Class A and
39 Class C CPIs for an aggregate purchase price of $15,444,800 subject to
adjustment. 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"). 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. 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 had been consummated in
accordance with their terms, the Partnership would have sold all its CPIs
relating to the sale of ReoPro. Pursuant to the terms of the DRI Purchase
Agreement the Partnership owes DRI the amount of $325,000 as liquidating damages
resulting from the termination of the DRI Purchase Agreement. Such amount has
been accrued by the Partnership in the accompanying financial statements.
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 $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
9
<PAGE>
PAINEWEBBER R&D PARTNERS II, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE 7 CONTINUED)
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 EVENT
On October 23, 2000, the stockholders of PWG adopted the Agreement and
Plan of Merger dated as of July 12, 2000, by and among PWG, UBS AG and a
subsidiary of UBS AG, pursuant to which PWG will merge with and into that
subsidiary. The transaction was completed on November 3, 2000.
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
$3.3 million at September 30, 2000, resulting from the recognition of net income
of $11.3 million (as more fully explained in Results of Operations below) offset
by a cash distribution to the Partners of $9.2 million for the nine months ended
September 30, 2000.
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 $2.3 million at
September 30, 2000, resulting primarily from the receipt of quarterly payments
due from the CPIs of $4.3 million and the receipt of payments from the
settlement of the CP III litigation of $7.3 million offset by a cash
distribution to the Partners of $9.2 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
Net income for the quarters ended September 30, 2000 and 1999 was $1.1
million and $1.4 million, respectively. The decrease in net income was due to an
increase in expenses of $0.3 million.
Revenues for the three months ended September 30, 2000 and 1999 were
$1.5 million consisting primarily of income from product development projects
for both periods offset, in 1999, by a realized loss on sale of marketable
securities. Income from product development projects for the quarters ended
September 30, 2000 and 1999 was $1.4 million and $1.8 million, respectively,
resulting from the Partnership's accrual of income due as a former limited
partner of CP III. Realized loss on sales of marketable securities for the three
months ended September 30, 1999 was $0.3 million resulting from the
Partnership's sale of its investment of 0.24 million shares of Cygnus (with a
carrying value at June 30, 1998 of $3.1 million) for proceeds of $2.8 million.
Expenses increased from $0.1 million for the three months ended
September 30, 1999 to $0.4 million for the same period ended September 30, 2000.
During 2000 the Partnership entered into the DRI Purchase Agreement whereby the
Partnership intended to sell a portion of its investment in its Class A CPIs and
Class C CPIs to DRI. The DRI Purchase Agreement was terminated effective July
15, 2000. Pursuant to its terms, the Partnership was obligated to pay to DRI
liquidating damages in the amount of $0.3 million.
12
<PAGE>
(ITEM 2 CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
Net income for the nine months ended September 30, 2000 and 1999 was
$11.3 million and $6.5 million, respectively. The favorable variance of $4.8
million resulted from an increase in revenues of $5.3 million offset by an
increase in expenses of $0.5 million.
Revenues for the nine months ended September 30, 2000 and 1999 were
$12.0 million and $6.7 million, respectively. The increase of $5.3 million
resulted primarily from an increase in income from product development projects
of $6.8 million offset by an unfavorable change in realized gains on sales of
marketable securities of $1.6 million. Income from product development projects
for these periods was $11.8 million and $5.0 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 its investment of CPIs in the amounts of $4.5 million and
$5.0 million for the nine months ended September 30, 2000 and 1999,
respectively. For the nine months ended September 30, 1999 the Partnership sold
its investment of 0.24 million shares of Cygnus (with a carrying value at
December 31, 1998 of $1.2 million) for proceeds of $2.8 million resulting in a
realized gain of $1.6 million.
Expenses for the nine months ended September 30, 2000 and 1999 were
$0.7 million and $0.2 million, respectively. The variance was due primarily to
(i) 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 and (ii) the accrual of
liquidating damages of $0.3 million due to DRI upon termination of the DRI
Purchase Agreement (see three months ended September 30, 2000 compared to the
three months ended September 30, 1999).
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. 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.
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 were 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.
14
<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 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.
15
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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 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
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Dhananjay M. Pai
President*
By: /s/ Robert J. Chersi
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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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