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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, 1997
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 0-18554
GENZYME DEVELOPMENT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3065192
(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
(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
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996......... 3
Balance Sheets as of June 30, 1997 and December 31, 1996................................... 4
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996................... 5
Notes to Unaudited Financial Statements.................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk................................... 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 9
Signatures ............................................................................................. 10
</TABLE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-Q for Genzyme Development Partners, L.P., a
Delaware limited partnership (the "Partnership"), contains forward-looking
statements concerning the Partnership's expected future revenues from and plans
for marketing of the Partnership's products. These forward looking statements
represent the expectations of the General Partner as of the filing date of this
Form 10-Q. The Partnership's actual results could differ materially from those
anticipated by the forward looking statements 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 (the "FDA") and other
agencies regarding the indications for which the Partnership's products may be
approved, (iii) the actual size and characteristics of markets to be addressed
by the Partnership's 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, (vii) continued
funding of the Partnership's research and development programs by Genzyme
Corporation ("Genzyme"), and (viii) the risks and uncertainties described under
the caption "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 fiscal year
ended December 31, 1996 (the "1996 10-K").
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1997 1996 1997 1996
----- ------ ----- -----
<S> <C> <C> <C> <C>
Royalty revenue from Genzyme Corporation ... $ 15 $ 7 $ 25 $ 9
Costs and expenses:
General and administrative .............. 41 53 99 63
-------- ----- -------- -----
Operating loss.............................. (26) (46) (74) (54)
Investment income .......................... 4 9 13 15
-------- ----- -------- -----
Net loss .......................... $ (22) $ (37) $ (61) $ (39)
======== ===== ======== =====
Net loss per partnership unit:
Limited partners (based on 737 units) . $ (0) $ (50) $ (0) $ (52)
======== ===== ======== =====
General partner (based on 1 unit) ..... $(22,000) $(370) $(61,000) $(390)
======== ===== ======== =====
</TABLE>
The accompanying notes are an integral part of these unaudited
financial statements.
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GENZYME DEVELOPMENT PARTNERS, L.P.
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----- -----
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................... $ 179 $ 151
Royalty receivable from Genzyme Corporation ................. 18 8
----- -----
Total assets ......................................... $ 197 $ 159
===== =====
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable to Genzyme Corporation (Note 5) ............ $ 302 $ 245
Accrued expenses ............................................ 152 110
----- -----
Total liabilities .................................... 454 355
Commitments and contingencies (Note 2) ...................... -- --
----- -----
Partners' capital (deficit) (including accumulated deficit
of $32,908):
General partner ......................................... (230) (169)
Class A limited partners ................................ -- --
Class B limited partners ................................ -- --
----- -----
(230) (169)
Less: unpaid partners' capital .......................... (27) (27)
----- -----
Total partners' capital (deficit) .................... (257) (196)
----- -----
Total liabilities and partners' capital (deficit)..... $ 197 $ 159
===== =====
</TABLE>
The accompanying notes are an integral part of these unaudited
financial statements.
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GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1997 1996
----- -----
<S> <C> <C>
Cash flow from operating activities:
Net loss ............................................................ $ (61) $ (39)
Reconciliation of net loss to net cash provided by operating
activities:
Increase (decrease) in cash from changes in working capital:
Royalty receivable from Genzyme Corporation ...................... (10) --
Accounts payable and accrued expenses............................. 99 56
----- -----
Net cash provided by operating activities ........................... 28 17
----- -----
Increase in cash and cash equivalents ................................... 28 17
Cash and cash equivalents at beginning of period ........................ 151 466
----- -----
Cash and cash equivalents at end of period .............................. $ 179 $ 483
===== =====
</TABLE>
The accompanying notes are an integral part of these unaudited
financial statements.
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GENZYME DEVELOPMENT PARTNERS, L.P.
JUNE 30, 1997
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
The Partnership was formed in September 1989 to develop, produce and
derive income from the sale of products (the "Sepra Products") to be
used to limit the incidence and severity of postoperative adhesions.
The Sepra Products are based on hyaluronic acid ("HA"), a naturally
occurring biopolymer with unique physical properties. In August 1996,
Genzyme received marketing approval from the FDA for the Partnership's
first product, Seprafilm(TM), and commenced commercial sales of
Seprafilm(TM) in the U.S. on behalf of a joint venture (the "Joint
Venture") between Genzyme and the Partnership.
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 financial statements should be read in conjunction
with the 1996 10-K 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
rules and regulations of the Securities and Exchange Commission.
The financial statements for the three and six months ended June 30,
1997 and 1996 are unaudited but include, in the opinion of the General
Partner, all adjustments (consisting only of normally recurring
accruals) necessary for a fair presentation of the results for the
periods presented.
2. DEVELOPMENT AGREEMENT
The Partnership's available funds were fully expended during the first
quarter of 1994. Genzyme has funded the development program for the
Sepra Products on an annual basis since the first quarter of 1994,
when all of the Partnership's available funds were substantially
depleted. Genzyme is not obligated to fund additional development of
the Sepra Products but will fund the program during 1997 at a level
consistent with prior years and the 1997 budget for the program at
no expense to the Partnership.
3. JOINT VENTURE
For financial accounting purposes, Genzyme consolidates 100% of the
losses of the Joint Venture funded by its non-interest bearing
loans or capital contributions. For the three and six months ended
June 30, 1997, the Joint Venture incurred net losses of approximately
$1.0 million and $1.7 million, respectively, due primarily to the
costs associated with the U.S. market introduction of Seprafilm(TM).
Condensed financial information of the Joint Venture is summarized
below (in thousands)(1):
<TABLE>
<CAPTION>
For the For the
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues..................... $ 648 $ 1,054
Operating expenses........... (1,625) (2,733)
Net loss..................... (977) (1,679)
<CAPTION>
As of
June 30,
1997
--------
<S> <C>
Payable to Genzyme............................... $ 3,958
Joint venturer's capital (deficit)-Genzyme....... (3,958)
Joint venturer's capital (deficit)-GDP........... --
</TABLE>
(1) The Joint Venture began to engage in business activities on August 17, 1996
(date of commencement of operations) and, therefore, comparative condensed
financial information for the three and six months ended June 30, 1996
(prior to the commencement of operations) is not presented.
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GENZYME DEVELOPMENT PARTNERS, L.P.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion is a summary of the key factors the General Partner
considers necessary in reviewing the Partnership's results of operations,
liquidity and capital resources.
RESULTS OF OPERATIONS
Net loss for the three months ended June 30, 1997 declined 41% to $22,000 as
compared to the corresponding period in 1996 due primarily to a 114% increase in
royalty revenue recognized by the Partnership on European sales of the Sepra
Products by Genzyme and a reduction in legal expenses incurred by the
Partnership related to the maintenance of its patents. Net loss for the six
months ended June 30, 1997 increased 56% to $61,000 in comparison to the same
period in 1996 due primarily to increased legal costs incurred by the
Partnership related to the amendment and restatement of the joint venture
agreement between the Partnership and Genzyme, which costs were partially offset
by growth in royalty revenue related to Genzyme's European sales of the Sepra
Products. Under the terms of the Cross License Agreement with Genzyme, the
Partnership is entitled to receive a royalty equal to 6% of net revenues
recognized by Genzyme from the European sales of the Sepra 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 1997.
Investment income, including income which the Partnership receives from
Partnership unit holders related to changes in Partnership unit ownership
("Transfer Fee Income"), decreased for the three and six months ended June 30,
1997 to approximately $4,000 and $13,000, respectively, from approximately
$9,000 and $15,000 for the corresponding periods in 1996, due largely to a
decrease in Transfer Fee Income in the second quarter of 1997. Excluding the
effect of the decrease in Transfer Fee Income, investment income declined to
approximately $2,000 and $4,000 in the three and six months ended June 30, 1997,
respectively, from $6,000 and $11,000 in the corresponding periods of 1996 due
to lower average cash balances resulting primarily from the Partnership's
contribution of $200,000 in cash to the Joint Venture in the fourth quarter of
1996.
FINANCIAL CONDITION
As of June 30, 1997, the Partnership had $179,000 in cash and cash equivalents
which is reserved for general and administrative expenses.
The Partnership's future profitability is primarily dependent upon the Joint
Venture's sales of the Sepra Products. Under the Amended and Restated the Joint
Venture Agreement, Genzyme has agreed, during the term of the Joint Venture,
to make non-interest bearing loans to the Joint Venture to fund any working
capital deficiency of the Joint Venture and to make capital contributions to
the extent deemed necessary by the two venturers in connection with the
business of the Joint Venture. For the three and six months ended June 30,
1997, Genzyme funded Joint Venture net losses of approximately $1.0 million and
$1.7 million, respectively, due primarily to the costs associated with the U.S.
market introduction of Seprafilm(TM).
On May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA
Medical Devices Advisory Committee recommended that Genzyme not be granted
approval to market Sepracoat(TM) coating solution for the reduction of
adhesions in abdominal and pelvic surgery. Genzyme has since withdrawn
the pre-market approval application for Sepracoat(TM). Although there are no
current plans to submit a new application, Genzyme General plans to continue
to market Sepracoat(TM) in Europe.
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The General Partner believes that substantial additional funds will be required
to complete the development, clinical testing and commercialization of
Sepracoat(TM) and Sepragel(TM). Genzyme has funded the research and development
program for the Sepra Products on an annual basis since the first quarter of
1994, when all the available funds of the Partnership were substantially
depleted. Genzyme is not obligated to fund additional development of the Sepra
Products but will continue such funding during 1997 at a level consistent with
prior years and the 1997 budget for the programs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index following the signature page
to this Form 10-Q.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ending June 30, 1997.
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1997
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, 1997 By: /s/ DAVID J. MCLACHLAN
--------------------------------------
David J. McLachlan
Duly Authorized Officer and
Principal Financial Officer
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, JUNE 30, 1997
EXHIBIT INDEX
Exhibit
No. Description Page No.
--- ----------- --------
27 Financial Data Schedule for Genzyme Development 12
Partners, L.P. (for EDGAR filing purposes only).
Filed herewith.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF GENZYME DEVELOPMENT PARTNERS, L.P. FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 179
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 197
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 197
<CURRENT-LIABILITIES> 454
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (257)
<TOTAL-LIABILITY-AND-EQUITY> 197
<SALES> 0
<TOTAL-REVENUES> 25
<CGS> 0
<TOTAL-COSTS> 99
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (61)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
(F1) Earnings per share for the Partnership are reported based on Partnership
units, therefore, earnings per share data is not applicable. The
Partnership incurred net losses of $61,000 in the six months ended
June 30, 1997 which were allocated 100% to Genzyme Corporation as General
Partner.
</FN>
</TABLE>
