<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(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
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Commission file number 0-18554
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GENZYME DEVELOPMENT PARTNERS, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3065192
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Kendall Square, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 252-7500
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(Registrant's telephone number, including area code)
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
--- ---
Total number of pages in document - 13
Exhibit index is located on page 12
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NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Report on Form 10-Q for Genzyme Development Partners L.P. (the
"Partnership") contains forward-looking statements concerning the Partnership's
expected future revenues, operations, and expenditures, estimates of the
potential markets for the Partnership's products, assessments of competitors
and potential competitors, projected timetables for the preclinical and
clinical development, regulatory approval and market introduction of the
Partnership's products and estimates of the capacity of manufacturing and other
facilities to support such products. All such forward looking statements are
necessarily only estimates of future results and the actual results due to a
number of factors, including (i) the Partnership's ability to complete
successfully preclinical and clinical development and obtain timely regulatory
approval and patent and other proprietary rights protection for its products,
(ii) the content and timing of decisions made by the U.S. Food and Drug
Administration and other agencies regarding the indications for which the
Partnership's products may approved, (iii) the accuracy of the Partnership's
estimates of the size and characteristics of markets to be addressed by the
Partnerships products, (iv) market acceptance of the Partnership's products,
(v) the Partnership's ability to obtain reimbursement for its products, (vi)
the accuracy of the Partnership's information concerning the products and
resources of competitors and potential competitors and (vii) continued funding
of the Partnership's research and development programs by Genzyme Corporation.
See also "Factors Affecting Future Operating Results" under Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995.
2
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GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q, JUNE 30, 1996
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Financial Statements
Statements of Operations for the Three and Six Months Ended
June 30, 1996 and 1995 and Cumulative from Inception
(September 7, 1989).......................................... 4
Balance Sheets as of June 30, 1996 and December 31, 1995..... 5
Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 and Cumulative from Inception
(September 7, 1989).......................................... 6
Notes to Unaudited Condensed Financial Statements............ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................... 10
Signatures........................................................... 11
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED CUMULATIVE
JUNE 30, JUNE 30, FROM INCEPTION
--------------- --------------- (SEPTEMBER 7,
1996 1995 1996 1995 1989)
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Investment income ............ $ 9 $ 6 $ 15 $ 15 $ 1,244
Royalty revenue .............. 7 - 9 - 9
----- --- ----- ---- ---------
16 6 24 15 1,253
----- --- ----- ---- ---------
Costs and expenses:
Retainer fee ............... - - - - 1,500
Research and development ... - - - - 27,060
Management fee ............. - - - - 2,613
Interest expense ........... - - - - 933
Amortization of organization
and start-up costs ........ - - - - 570
Administrative and other
expense .................... 53 4 63 19 911
----- --- ----- ---- ---------
53 4 63 19 33,587
----- --- ----- ---- ---------
Net income (loss) ............ $ (37) $ 2 $ (39) $ (4) $ (32,334)
===== === ===== ==== =========
Net loss per partnership unit:
Limited partners
(based on 737 units) ...... $ (50) $ 3 $ (53) $ (5) $ (43,420)
===== === ===== ==== =========
General partner
(based on 1 unit) ......... $(370) $20 $(390) $(40) $(323,340)
===== === ===== ==== =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
4
<PAGE> 5
GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents ...................... $483 $466
---- ----
Total assets .............................. $483 $466
==== ====
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Genzyme Corporation ............... $173 $117
Partners' capital (including deficit accumulated
during the development stage of $32,334):
General partner ............................. 43 43
Class A limited partners .................... 301 340
Class B limited partner ..................... - -
---- ----
344 383
Less: unpaid partners' capital .............. (34) (34)
---- ----
Total partners' capital .................... 310 349
---- ----
Total liabilities and partners' capital ... $483 $466
==== ====
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
5
<PAGE> 6
GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30, CUMULATIVE
--------------- FROM INCEPTION
1996 1995 (SEPTEMBER 7, 1989)
---- ---- -------------------
Cash flow from operating activities:
<S> <C> <C> <C>
Net loss ........................................ $(39) $ (4) $(32,334)
Reconciliation of net loss to net cash
used by operating activities:
Amortization .................................. - - 570
Organization and start-up costs ............... - - (570)
Increase (decrease) in cash from
working capital:
Payable to Genzyme Corporation................... 56 (183) 173
---- ----- --------
Net cash provided by (used by) operating
activities .................................... 17 (187) (32,161)
Cash flow from investing activities:
Purchases of short-term investments ............. - (300) (45,220)
Sales and maturities of short-term investments .. - - 45,220
---- ----- --------
Net cash used by investing activities ........... - (300) -
---- ----- --------
Cash flow from financing activities:
Issuance of partnership units ................... - - 32,644
Issuance of note payable - bank ................. - - 4,100
Repayment of note payable - bank ................ - - (4,100)
---- ----- --------
Net cash provided by financing activities ....... - - 32,644
---- ----- --------
Increase (decrease) in cash and cash equivalents ... 17 (487) 483
Cash and cash equivalents at beginning of period ... 466 618 -
---- ----- --------
Cash and cash equivalents at end of period ......... $483 $ 131 $ 483
==== ===== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
6
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GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
JUNE 30, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
Genzyme Development Partners, L.P. (the "Partnership") was formed on
September 7, 1989 as a development stage enterprise to develop, produce
and derive income from the sale in the United States and Canada of
products (the "Surgical Products") to be used during surgical procedures
to limit the formation of postoperative adhesions and, in arthroscopic
procedures, as a synovial fluid replacement. The Surgical Products are
based on hyaluronic acid, a biopolymer produced naturally by the body to
lubricate and protect tissue. The Partnership commenced operations on
November 3, 1989.
Per partnership unit information is based on the number of
partnership units outstanding at the end of each period. Units outstanding
have not changed since the date of capitalization of the Partnership.
These unaudited, condensed financial statements should be read in
conjunction with the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and the financial statements and
footnotes included therein. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations.
The financial statements for the three and six months ended June 30,
1996 and 1995 and cumulative from inception (September 7, 1989) are
unaudited but include, in the opinion of management, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. ACCOUNTING POLICIES
The accounting policies, except as noted below, underlying the
quarterly financial statements are those set forth in Note B of the
financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
3. ROYALTY REVENUE RECOGNITION
Under the terms of the Cross License Agreement with Genzyme, the
Partnership is entitled to receive a royalty of 6% of net revenues
recognized from European sales of the Surgical Products to the extent
necessary to pay certain projected distributions to the partners in any
year. The General Partner believes that the Partnership will continue to
be eligible to receive such royalties during 1996. Genzyme commenced
European sales of Seprafilm[Trademark] in late 1995.
4. DEVELOPMENT AGREEMENT
The Partnership's available funds were fully expended during the
first quarter of 1994. Pursuant to the Development Agreement, Genzyme has
committed to continue funding, for the twelve month period commencing
March 1, 1996, the development program at no expense to the Partnership.
5. WITHDRAWAL OF OFFER TO ACQUIRE THE ASSETS OF GENZYME DEVELOPMENT
PARTNERS, L.P.
On May 3, 1996, Genzyme announced that it was withdrawing its offer
to acquire substantially all of the assets of the Partnership for shares
of General Division Common Stock valued at $93 million at the time the
offer was made. Genzyme advised the Special Committee that its decision to
withdraw the offer was based in part on the prompt action taken by the FDA
advisory panel reviewing the pre-market approval application for
Seprafilm[Trademark]. The speed of the FDA review made in unlikely that
Genzyme could account for the acquisition as a purchase of in-process
research and
6. SUBSEQUENT EVENT
On August 13, 1996, the FDA granted approval to market
Seprafilm[Trademark] for use in any open abdominal or pelvic surgery.
There are estimated to be approximately 3.1 million such surgeries
performed annually in the United States. Genzyme, on behalf of the Joint
Venture formed between Genzyme and the Partnership, expects to launch
Seprafilm[Trademark] broadly in the United States in October, using the
70-personal sales force of Denknatel Snowden Pencer, Inc., a privately
held surgical products Company acquired by Genzyme in July 1996. Under the
terms of the agreements between Genzyme and the Partnership, the Joint
Venture will manufacture and market Seprafilm[Trademark] in North America
under contract with Genzyme. Genzyme and the Partnership expect to
conclude negotiations during the third quarter to establish definitive
terms for the Joint Venture, including the allocation between the parties
of profits and losses from the Joint Venture.
7
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GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The Partnership recognized royalty revenue of $7,000 and $9,000,
respectively, in the three and six months ended June 30, 1996 related to the
commencement of Genzyme's sales of Surgical Products in Europe. Administrative
expenses increased to $53,000 and $63,000, respectively, in the three and six
months ended June 30, 1996 from $4,000 and $9,000, respectively, in the
corresponding periods of 1995 due primarily to increased legal expenses incurred
by the Partnership related to maintenance of its patents and increased
professional fees. The Partnership incurred net losses of $37,000 for the three
months ended June 30, 1996 as compared to net income of $2,000 earned in the
corresponding period in 1995. Notwithstanding the addition of royalty revenues
in the first quarter of 1996, net income declined due to the increase in
administrative expenses. For the six months ended June 30, 1996 and 1995, net
losses increased to $39,000 from $4,000, respectively, due to increased
administrative expenses, partially offset by the addition of royalty revenue not
present in 1995 and despite consistent investment income.
Investment income for the three months ended June 30, 1996 and 1995 was
$9,000 and $6,000, respectively, primarily due to higher average cash balances.
Investment income was $15,000 for the respective six months ending June 30, 1996
and 1995, due to a decline in the interest rate available in the debt markets in
the first quarter of 1996 which offset the impact of higher cash balances.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1996, the Partnership had $483,000 in cash and cash
equivalents reserved for general and administrative expenses and the
Partnership's commitment to the Joint Venture formed with Genzyme to manufacture
and market the Partnership's products in the North America. Genzyme, for its own
account, initiated marketing efforts for Seprafilm[TM] in Europe late in 1995.
Under the terms of the Cross License Agreement with Genzyme, the Partnership is
entitled to receive a royalty of 6% of net revenues recognized from European
sales of the Surgical Products to the extent necessary to pay certain projected
distributions to the partners in any year. The General Partner believes that the
Partnership will continue to be eligible to receive such royalties during 1996.
The General Partner believes that substantial additional funds will be required
to complete the development, clinical testing and commercialization of the
Surgical Products. Genzyme has funded the research and development program for
the Surgical Products on an annual basis since the first quarter of 1994, when
all the available funds of the Partnership were substantially depleted, and
currently has committed to provide such funding through February 28, 1997. While
Genzyme is not obligated to fund the research and development program, Genzyme's
option to purchase all of the limited partnership interests would terminate
unless Genzyme commits annually to provide such funding until FDA approval of
any of the Surgical Products.
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of the Partnership for shares of General
Division Common Stock valued at $93 million at the time the offer was made.
Genzyme advised the Special Committee that its decision to withdraw the offer
was based in part on the prompt action taken by the FDA advisory panel reviewing
the pre-market approval application for Seprafilm[TM]. The speed of the FDA
review made it unlikely that Genzyme could account for the acquisition as a
purchase of in-process research and
8
<PAGE> 9
development, which was a condition to Genzyme's offer. In addition, Genzyme
stated that its decision was also influenced by the decline in the price of the
General Division Stock during the negotiations, which increased the dilutive
potential of the offer and reduced the value of the offer to the Partnership.
The withdrawal of the offer by Genzyme does not affect the respective
rights and obligations of the Partnership and Genzyme under any of the existing
agreements between the parties.
SUBSEQUENT EVENT
On August 13, 1996, the FDA granted approval to market
Seprafilm[Trademark] for use in any open abdominal or pelvic surgery. There are
estimated to be approximately 3.1 million such surgeries performed annually in
the United States. Genzyme, on behalf of the Joint Venture formed between
Genzyme and the Partnership, expects to launch Seprafilm[Trademark] broadly in
the United States in October, using 70-person sales force of Deknatel
Snowden Pencer, Inc., a privately held surgical products company acquired by
Genzyme in July 1996. Under the terms of the agreements between Genzyme and
the Partnership, the Joint Venture will manufacture and market
Seprafilm[Trademark] in North America under contract with Genzyme. Genzyme and
the Partnership expect to conclude negotiations during the third quarter to
establish definitive terms for the Joint Venture, including the allocation
between the parties of profits and losses from the Joint Venture.
9
<PAGE> 10
GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1996
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for Genzyme Development
Partners, L.P. (for EDGAR filing purposes only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ending
June 30, 1996.
10
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1996
SIGNATURES
----------
Pursuant to the requirements 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.
GENZYME DEVELOPMENT PARTNERS, L.P.
(Registrant)
By: GENZYME DEVELOPMENT CORPORATION II
General Partner
DATE: August 14, 1996 By: /s/ David J. McLachlan
-----------------------
David J. McLachlan
Duly Authorized Officer and
Principal Financial Officer
11
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1996
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
27 Financial Data Schedule for Genzyme Development
Partners, L.P. (for EDGAR filing purposes only). 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF GENZYME DEVELOPMENT PARTNERS, L.P. FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
EARININGS FOR THE PARTNERSHIP ARE REPORTED BASED ON PARTNERSHIP UNITS,
THEREFORE, EARNINGS PER SHARE DATA IS NOT APPLICABLE AND HAS BEEN EXCLUDED FROM
THESE SCHEDULES. NET LOSS PER PARTNERSHIP UNIT FOR LIMITED PARTNERS, BASED ON
737 UNITS WAS $ PER UNIT. THE NET LOSS FOR THE GENERAL PARTNER, BASED ON ONE
UNIT WAS $(390)K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 483
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 483
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 483
<CURRENT-LIABILITIES> 173
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 310
<TOTAL-LIABILITY-AND-EQUITY> 483
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 63
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (39)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
