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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 MARCH 31, 1999
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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.
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(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 02139-1562
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(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
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1999
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Statements of Operations for the Three Months
Ended March 31, 1999 and 1998......................................3
Unaudited Balance Sheets as of March 31, 1999
and December 31, 1998..............................................4
Unaudited Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998......................................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.....................................8
Signature ....................................................................9
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-Q for Genzyme Development Partners, L.P. (the
"Partnership") contains forward-looking statements, including statements
concerning the Partnership's expected future revenues, operations and
expenditures, and the intention of Genzyme Corporation ("Genzyme") to fund the
Partnership's general and administrative expenses and research and development
programs. These forward looking statements represent the expectations of Genzyme
Development Corporation II (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 adequate
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
("FDA") and other agencies regarding the Partnership's products and 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) funding of the Partnership's
general and administrative expenses and continued funding of the Partnership's
research and development programs by 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" set forth in the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998
(the "1998 10-K").
2
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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 data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Royalty revenue from Genzyme ........................... $ 48 $ 16
Costs and expenses:
Administrative expenses ........................... 18 19
------- ---------
Operating income (loss) ................................ 30 (3)
Equity in net loss of joint venture .................... -- (509)
Investment income ...................................... 1 --
------- ----------
Total other income (expenses) ..................... 1 (509)
Net income (loss) ...................................... $ 31 $ (512)
======= ==========
Net income (loss) attributable to each partnership unit:
Limited partners - based on 737 units ............. $ 42 $ --
======= ==========
General partner - based on 1 unit ................. $ 310 $ (512,000)
======= ==========
</TABLE>
The accompanying notes are an integral
part of these unaudited financial statements.
3
<PAGE> 4
GENZYME DEVELOPMENT PARTNERS, L.P.
BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents ........................................... $ 136 $ 97
Royalty receivable from Genzyme ..................................... 100 90
Investment in Joint Venture ......................................... -- --
----- -----
Total assets ................................................... $ 236 $ 187
===== =====
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accrued expenses .................................................... $ 48 $ 61
Payable to Genzyme .................................................. 376 345
----- -----
Total liabilities .............................................. 424 406
----- -----
Commitments and contingencies (Note 2) .............................. -- --
Partners' capital (deficit) (including accumulated deficit of $34,339):
General partner ................................................ (192) (192)
Class A limited partners ....................................... 31 --
Class B limited partners ....................................... -- --
----- -----
(161) (192)
Less: unpaid partners' capital .................................. (27) (27)
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Total partners' capital (deficit) ............................ (188) (219)
----- -----
Total liabilities and partners' capital (deficit) ............ $ 236 $ 187
===== =====
</TABLE>
The accompanying notes are an integral
part of these unaudited financial statements.
4
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GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
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<S> <C> <C>
Cash flow from Operating Activities:
Net income (loss) ........................................................ $ 31 $(512)
Reconciliation of net loss to net cash provided by operating activities:
Equity in net loss of joint venture ................................. -- 509
Increase (decrease) in cash from working capital:
Royalties receivable from Genzyme ............................... (10) (1)
Payable to Genzyme and accrued expenses ......................... 18 19
----- -----
Net cash provided by operating activities ................................ 39 15
Increase in cash and cash equivalents ......................................... 39 15
Cash and cash equivalents at beginning of period .............................. 97 22
----- -----
Cash and cash equivalents at end of period .................................... $ 136 $ 37
===== =====
</TABLE>
The accompanying notes are an integral
part of these unaudited financial statements.
5
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GENZYME DEVELOPMENT PARTNERS, L.P.
MARCH 31, 1999
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
Genzyme Development Partners, L.P., a Delaware limited partnership, was
formed in September 1989 with the objective to develop, produce and derive
income from the sale of products intended to be used to limit the
incidence and severity of postoperative adhesions (the "Sepra Products").
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(R) Bioresorbable Membrane in the U.S. on behalf
of Genzyme Ventures II (the "Joint Venture"), a joint venture between the
Partnership and Genzyme.
Per partnership unit information is based on the number of partnership
units outstanding at the end of each period. The number of units
outstanding has not changed since the date of capitalization of the
Partnership.
These unaudited financial statements should be read in conjunction with the
1998 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 months ended March 31, 1999 and 1998
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. DEVELOPMENT AGREEMENT
The Development Agreement calls for Genzyme to develop the Sepra Products
for the Partnership to be used as surgical aids to limit the incidence and
severity of postoperative adhesions. The Partnership was required to
reimburse Genzyme for all direct costs, a reasonable allocation of indirect
costs as they relate to the development effort and a ten percent (10%)
management fee, up to the available Partnership funds. A non-refundable
retainer fee of $1.5 million was paid by the Partnership to Genzyme when
the Partnership commenced. The General Partner, which is a wholly owned
subsidiary of Genzyme, has the authority to terminate the research program
at any time if it is deemed to be unfeasible or uneconomical. Genzyme has
no obligation to fund the research and development programs beyond the
available Partnership funds but has done so after the available Partnership
funds were expended in the first quarter of 1994. Genzyme currently intends
to fund the programs through 1999 on a level consistent with previous years
and the 1999 budget for the program.
3. JOINT VENTURE AGREEMENT
For financial accounting purposes, Genzyme consolidates 100% of the losses
of the Joint Venture funded by its non-interest bearing loans or capital
contributions. The Partnership has not recognized losses from the Joint
Venture for the quarter ended March 31, 1999, because its basis in the
Joint Venture was reduced to zero in 1998. For the three months ended March
31, 1999 and March 31, 1998, the Joint Venture incurred net losses of
approximately $0.5 million and $1.3 million, respectively. These losses
were due to the costs associated with the selling and marketing of
Seprafilm(R) Bioresorbable Membrane.
Unaudited condensed financial information of the Joint Venture is
summarized below (in thousands):
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
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Revenues ............................. $ 1,405 $ 1,248
Operating expenses ................... (1,249) (2,192)
Net loss ............................. (472) (1,272)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Venturer's capital (deficit) - Genzyme ................ $(452) $20
Venturer's capital - GDP ............................. -- --
</TABLE>
6
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GENZYME DEVELOPMENT PARTNERS, L.P.
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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 income for the three months ended March 31, 1999 was $31,000 as compared to
a net loss of $512,000 in the corresponding period of 1998. The increase was
primarily the result of the absence of any loss allocation from the Joint
Venture due to the reduction of the Partnership's basis in the Joint Venture to
zero during the second quarter of 1998. Royalty revenue recognized by the
Partnership on European sales of the Sepra Products by Genzyme increased to
$48,000 in the three months ended March 31, 1999 from $16,000 in the same period
of 1998. Under the terms of the Cross License Agreement with Genzyme, the
Partnership is currently entitled to receive a royalty equal to 6% of net
revenues recognized from 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 1999.
FINANCIAL CONDITION
As of March 31, 1999, the Partnership had $136,000 in cash and cash equivalents,
an increase of $39,000 from December 31, 1998 due to the receipt of a royalty
payment from Genzyme in the first quarter of 1999. This cash balance is reserved
for general and administrative expenses.
The Partnership's future profitability is entirely dependent upon the Joint
Venture's sales of the Sepra Products. Under the Amended and Restated 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.
The General Partner believes that substantial additional funds will be required
to complete the development and clinical testing of the Sepra Products. 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 currently intends to continue
such funding during 1999 at a level consistent with prior years and the 1999
budget for these programs.
EURO - The New European Currency
All of the Partnership's revenues to date have been royalties derived from
Genzyme's European sales of Sepra Products. Since December 31, 1998, there have
been no material changes related to Genzyme's outstanding derivatives and
forward contracts or any other material contracts as a result of the Euro
conversion, nor have there been any material changes in Genzyme's or the
Partnership's competitive position as a result of the conversion. The
Partnership's disclosure related to the Euro conversion is described in the
1998 10-K under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Euro - The New European Currency," which
is incorporated herein by reference.
YEAR 2000
The Partnership relies upon Genzyme to provide general and administrative and
other services, and the Joint Venture relies upon Genzyme to perform
manufacturing, marketing and sales services, pursuant to certain agreements
between Genzyme, the Partnership and the Joint Venture that involve the use of
Genzyme's computer systems and equipment. There have been no material changes in
Genzyme's Year 2000 compliance program or its potential Year 2000 exposures
since December 31, 1998. The Partnership's disclosure related to Year 2000
issues is described in the 1998 10-K under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000,"
which is incorporated herein by reference.
7
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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). Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ending March 31, 1999.
8
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1999
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: May 14, 1999 By: /s/ David J. Mclachlan
---------------------------
David J. McLachlan
Duly Authorized Officer and
Principal Financial Officer
9
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1999
EXHIBIT INDEX
Exhibit
NO. DESCRIPTION
- ------- -------------
27 Financial Data Schedule for Genzyme Development
Partners, L.P. (for EDGAR filing purposes only).
Filed herewith.
10
<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
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 136
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 236
<CURRENT-LIABILITIES> 424
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (188)
<TOTAL-LIABILITY-AND-EQUITY> 236
<SALES> 0
<TOTAL-REVENUES> 48
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31
<INCOME-TAX> 0
<INCOME-CONTINUING> 31
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
GENZYME DEVELOPMENT PARTNERS, L.P. IS A DELAWARE LIMITED PARTNERSHIP. NET
EARNINGS OR LOSS ARE REPORTED PER PARTNERSHIP UNIT INSTEAD OF PER SHARE. THE
PARTNERSHIP RECORDED NET EARNINGS OF $31,000 IN THE THREE MONTHS ENDED MARCH
31, 1999 WHICH WERE ALLOCATED 99% TO THE LIMITED PARTNERS AND 1% TO THE GENERAL
PARTNER.
</FN>
</TABLE>
