United States
SECURITIES & 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, 1999
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 33-35938
PAINEWEBBER R&D PARTNERS III, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3588219
(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
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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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<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 III, 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
III, L.P. on the skills of certain scientific personnel; and the dependence of
PaineWebber R&D Partners III, L.P. on the General Partner (hereinafter defined).
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Form 10-Q
September 30, 1999
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition (unaudited) at
September 30, 1999 and December 31, 1998 2
Statements of Operations
(unaudited) for the three months and nine months
ended September 30, 1999 and 1998 3
Statement of Changes in Partners' Capital
(unaudited) for the nine months ended
September 30, 1999 4
Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 1999 and 1998 5
Notes to Financial Statements
(unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
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.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
(unaudited)
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
Assets:
Marketable securities, at market value $12,640,970 $ 9,147,266
Advances to product development projects 21,784 21,784
----------- -----------
Total assets $12,662,754 $ 9,169,050
=========== ===========
Liabilities and partners' capital:
Accrued liabilities $ 71,255 $ 74,205
Partners' capital 12,591,499 9,094,845
----------- -----------
Total liabilities and partners' capital $12,662,754 $ 9,169,050
=========== ===========
- --------------------------------------------------------------------------------
See notes to financial statements.
2
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
For the three months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Revenues:
Interest income $ 49,240 $ 14,758
Unrealized appreciation of marketable securities 2,197,460 1,094,099
Realized gain on sale of marketable securities 1,322,042 598,750
----------- -----------
3,568,742 1,707,607
----------- -----------
Expenses:
General and administrative costs 45,247 38,457
----------- -----------
Net income $ 3,523,495 $ 1,669,150
=========== ===========
Net income per partnership unit:
Limited partners (based on 50,000 units) $ 69.77 $ 33.05
General partner $ 35,234.95 $ 16,691.50
================================================================================
For the nine months ended September 30, 1999 1998
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 94,653 $ 40,871
Unrealized appreciation (depreciation) of
marketable securities 1,840,915 (2,288,577)
Realized gain on sale of marketable securities 1,697,867 598,750
----------- -----------
3,633,435 (1,648,956)
----------- -----------
Expenses:
General and administrative costs 136,781 118,562
----------- -----------
Net income (loss) $ 3,496,654 $(1,767,518)
=========== ===========
Net income (loss) per partnership unit:
Limited partners (based on 50,000 units) $ 69.23 $ (35.00)
General partner $ 34,966.54 $(17,675.18)
- --------------------------------------------------------------------------------
See notes to financial statements.
3
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statement of Changes in Partners' Capital
(unaudited)
<TABLE>
<CAPTION>
Limited General
For the nine months ended September 30, 1999 Partners Partner Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1999 $ 9,002,361 $ 92,484 $ 9,094,845
Net income 3,461,687 34,967 3,496,654
----------- -------- -----------
Balance at September 30, 1999 $12,464,048 $127,451 $12,591,499
=========== ======== ===========
- -------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
4
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
For the nine months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 3,496,654 $(1,767,518)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Unrealized (appreciation) depreciation of
marketable securities (1,840,915) 2,288,577
Increase in operating assets:
Marketable securities (1,652,789) (506,798)
Decrease in operating liabilities:
Payable to PaineWebber Development Corporation -- (3,613)
Accrued liabilities (2,950) (10,648)
----------- -----------
Cash provided by operating activities -- --
----------- -----------
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ -- $ --
=========== ===========
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the nine months ended
September 30, 1999 and 1998.
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
PAINEWEBBER R&D PARTNERS III, 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,
1999 and 1998 is unaudited. However, in the opinion of management of PaineWebber
R&D Partners III, 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, 1999, are not necessarily indicative of results to be expected for
the year ended December 31, 1999. 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, 1998 and the previously issued quarterly reports
on Forms 10-Q for the quarters ended March 31, 1999 and June 30, 1999.
The Partnership is a Delaware limited partnership that commenced
operations on June 3, 1991. Paine Webber Development Corporation ("PWDC" or the
"General Partner"), an indirect, wholly-owned subsidiary of Paine Webber Group
Inc., is the general partner and manager of the Partnership. The Partnership
will terminate on December 15, 2015, 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 and biotechnology 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 Sponsor Companies. Once
the product development phase has been completed, the Sponsor Companies have the
option to license and commercialize the products resulting from the product
development project, and the Partnership has the right to receive payments based
upon the sale of such products. The Partnership obtained warrants to purchase
the common stock of Sponsor Companies to provide additional capital appreciation
to the Partnership which was not directly dependent upon the outcome of the
Projects (see Note 5).
6
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 1 Continued)
All distributions from the Partnership to the General Partner and the
limited partners of the Partnership (the "Limited Partners"; collectively, the
"Partners") have been made pro rata in accordance with their respective capital
contributions. The table below 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 $1,000 plus simple interest on such
amount accrued at 5% per annum ("Contribution Payout"); At September
30, 1999, Contribution Payout was $1,412 per
Unit..................................................................... 99% 1%
II. After Contribution Payout and until the value of the aggregate
distributions for each Unit equals $5,000 ("Final Payout")............... 80% 20%
III. After Final Payout....................................................... 75% 25%
</TABLE>
During the quarter ended September 30, 1999, the Partnership made no
cash or security distributions. At September 30, 1999, the Partnership has made
cash and security distributions, as valued on the dates of distribution, since
inception of $1,143 and $98 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, 1999, the cumulative profits of the Partnership were $628 per Unit.
2. Summary of Significant Accounting Policies
The financial statements are prepared in conformity with generally
accepted accounting principles 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.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115"), the Partnership accounted for its investments
in restricted common stock (where the restriction period expired in one year or
less) at market value with unrealized gains and losses reflected in the
Statements of Operations during the period in which the change in value
occurred. Investments in restricted common stock, whereby the restriction period
exceeded one year, were accounted for at the lower of cost or fair value.
7
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 2 Continued)
Marketable securities consist of a money market fund and common stock
which are 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.
The Partnership invests 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.
The Partnership's warrants are currently exercisable and the Sponsor
Company's stock is publicly traded, therefore, the warrants are carried at
intrinsic value (the excess, if any, of market price per share over the exercise
price per share), which approximates fair value.
8
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. Marketable Securities
The Partnership held the following marketable securities at:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------- -------------------------
Carrying Carrying
Value Cost Value Cost
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money market fund $ 8,482,509 $ 8,482,509 $ 1,565,184 $ 1,565,184
Biocompatibles International plc
(815,000 common shares) -- -- 1,162,957 815,000
Gensia Sicor, Inc.
(137,772 common shares) -- -- 624,280 936,850
Genzyme Molecular Oncology
(713,091 common shares) 4,100,274 1,000,000 2,317,546 1,000,000
Medarex, Inc.
(281,708 restricted common shares) -- -- 853,927 --
(722,915 and 441,207 unrestricted -- -- 1,337,409 --
common shares at June 30, 1999 and
December 31, 1998, respectively)
Pharming Group N.V
(129,555 ordinary shares) -- -- 1,285,963 3,500,000
Repligen Corporation
(Warrant to purchase 133,000 shares) 58,187 -- -- --
----------- ----------- ----------- -----------
$12,640,970 $ 9,482,509 $ 9,147,266 $ 7,817,034
=========== =========== =========== ===========
</TABLE>
During the quarter ended September 30, 1999, the Partnership sold its
shares of Medarex, Inc. ("Medarex") for aggregate proceeds of $4,304,067
(average price of $5.9538 per share). The carrying value of the shares was
$2,982,025 ($4.125 per share) and $2,191,336 ($3.03125 per share) at June 30,
1999 and December 31, 1998, respectively. Accordingly, the Partnership
recognized a gain upon the sale for the three months and nine months ended
September 30, 1999 of $1,322,042 and $2,112,731, respectively. The market value
of Medarex at September 30, 1998 was $3.9375 per share. The carrying value of
the 281,708 restricted shares as of June 30, 1998 was $1,866,315 ($6.625 per
share) and the Partnership recorded unrealized depreciation for the three months
ended September 30, 1998 of $757,090. In September 1998 the Partnership received
an additional 441,207 unrestricted Medarex shares which it recorded at a market
value of $1,737,253 and recognized unrealized appreciation of this amount for
the quarter ended September 30, 1998.
During the nine months ended September 30, 1999, the Partnership sold its
investments in Biocompatibles International plc ("Biocompatibles"), Gensia
Sicor, Inc. ("Gensia") and Pharming Group N.V. ("Pharming"). Upon the sale of
Biocompatibles the Partnership received aggregate proceeds of $1,302,967
(average price of $1.60 per share) and recognized a gain for the nine months
ended September 30, 1999 of $140,010. Aggregate proceeds from the sale of Gensia
were $558,564 (average price of $4.05 per share) resulting in a loss for the
nine months ended September 30, 1999 of $65,716. The sale of Pharming generated
proceeds of $796,804 ($6.15 per share) which resulted in a loss of $489,159 for
this same period ended September 30, 1999. The market value of the
Biocompatibles shares at September 30, 1998, was $1.527 per share as compared to
$1.99 and $8.124 per share at June
9
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 3 Continued)
30, 1998 and December 31, 1997, respectively. Accordingly, the Partnership
recognized unrealized depreciation on its investment of 815,000 shares for the
three months and nine months ended September 30, 1998, of $377,068 and
$5,376,278, respectively. As of September 30, 1998, the market value of Gensia
shares decreased to $4.0625 per share as compared to $4.00 and $5.813 per share
as of June 30, 1998 and December 31, 1997, respectively. Accordingly, the
Partnership recognized unrealized appreciation (depreciation) of $8,611 and
$(241,170) for the three months and nine months ended September 30, 1998,
respectively. At September 30, 1998, the Partnership's investment of 129,555
shares of Pharming were not saleable until January 1, 1999. In accordance with
Statement No. 115, the Partnership recorded the shares at a market value of
$1,632,393 ($12.60 per share) as of September 30, 1998 as compared to a carrying
value of $1,150,000 as of June 30, 1998. Accordingly, the Partnership recognized
unrealized appreciation of $482,393 for the three months ended September 30,
1998.
In November 1998, Genzyme Molecular Oncology ("GMO") commenced trading on
the Nasdaq National Market. The Partnership reclassified its investment of
713,091 non-publicly traded common shares (with a carrying value of $1,000,000)
from investments to marketable securities and recorded the investment at its
market value of $2,317,546 ($3.25 per share) at December 31, 1998 and $1,961,001
($2.75 per share) at June 30, 1999. As of September 30, 1999 the Partnership
recorded its investment in GMO at the market value of $5.75 per share resulting
in unrealized appreciation of $2,139,273 and $1,782,728 for the three months and
nine months then ended.
At September 30, 1999, the market value of Repligen Corporation
("Repligen") was $2.9375 per share. The Partnership recorded its warrant to
purchase 133,000 shares with an exercise price of $2.50 per share at the
intrinsic value of $58,187 and recognized unrealized appreciation of this amount
for the periods ended September 30, 1999 (see Note 5).
4. Related Party Transactions
The General Partner is entitled to receive an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1997, the General Partner 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 product
development limited partnerships as the Partnership.
5. Product Development Projects
Of the Partnership's seven original Projects, the following two Projects
are currently active: a $6.0 million investment in Alkermes Clinical Partners,
L.P., a $46.0 million limited partnership formed to fund the development,
clinical testing, manufacturing and marketing of Receptor-Mediated
Permeabilizers for use in the treatment of diseases of the brain and central
nervous system by enabling the delivery of drugs across the blood brain barrier;
and a $6.0 million investment in Cephalon Clinical Partners, L.P., a $45.0
million limited partnership formed to fund the development, clinical testing,
manufacturing and marketing of Myotrophin(TM) for use in the treatment of
amyotrophic lateral sclerosis and certain other peripheral neuropathies.
10
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 5 Continued)
If the Projects produce any product for commercial sale, the Sponsor
Companies have the option to license the Partnership's technology to manufacture
and market the products developed. In addition, the Sponsor Companies have the
option to purchase the Partnership's interest in the technology. In
consideration for granting such purchase options, the Partnership has received
warrants to purchase shares of common stock of certain of the Sponsor Companies.
At September 30, 1999, the Partnership owned warrants to purchase 133,000 shares
and 252,700 shares of Repligen Corporation at an exercise price of $2.50 per
share and $3.50 per share, respectively. The exercise period expires March 2001.
The market price of Repligen Corporation stock at September 30, 1999 was $2.9375
per share (see Note 3).
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
share of realized income or loss on their individual federal and state income
tax returns.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Partners' capital increased from $9.1 million at December 31, 1998 to
$12.6 million at September 30, 1999 resulting from the recognition of net income
for the nine months ended September 30, 1999 of $3.5 million (as discussed in
Results of Operations below).
The Partnership's funds are invested in a money market fund and marketable
securities 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 $9.2 million at
December 31, 1998 to $12.6 million at September 30, 1999 resulting from a net
increase in the market values of marketable securities held as of these dates.
Results of Operations
Three months ended September 30, 1999 compared to the three months ended
September 30, 1998:
Net income for the three months ended September 30, 1999 and 1998 was $3.5
million and $1.7 million, respectively, resulting primarily from the recognition
of revenues of these amounts.
The increase in revenues of $1.8 million was a result primarily of a
favorable change in unrealized appreciation of $1.1 million and an increase in
realized gain on sale of marketable securities of $0.7 million. For the quarter
ended September 30, 1999 the Partnership recorded its investment of 0.713
million shares of GMO at the market value of $5.75 per share as compared to
$2.75 per share at June 30, 1999 and recognized unrealized appreciation of $2.1
million. Also, as of this date, the market value of Repligen was $2.9375 per
share. Accordingly, the Partnership recorded its warrant to purchase 0.133
million shares with an exercise price of $2.50 per share at its intrinsic value
of $0.1 million and recognized unrealized appreciation of this amount. For the
three months ended September 30, 1998, the Partnership recognized net unrealized
appreciation of $1.1 million resulting from its investments of 0.815 million
shares of Biocompatibles, 0.130 million shares of Pharming, and 0.723 million
shares of Medarex. The market value of Biocompatibles decreased from $1.99 per
share at June 30, 1998 to $1.527 per share as of September 30, 1998, resulting
in unrealized depreciation for the three months ended September 30, 1998 of $0.4
million. Likewise, the market value of Medarex decreased from $6.625 per share
at June 30, 1998 to $3.9375 per share as of September 30, 1998, resulting in
unrealized depreciation for the three months ended September 30, 1998 of $0.7
million on the Partnership's investment of 0.282 million shares. During the
quarter ended September 30, 1998, the Partnership (as a former GenPharm
shareholder) received 0.441 million additional Medarex shares and recorded the
shares at September 30, 1998 at an aggregate market value of $1.7 million
recognizing unrealized appreciation of this amount. Also for this period, in
connection with an initial public offering in July 1998, the Partnership's
investment in Pharming Class A stock was converted into ordinary shares with a
restriction period expiring January 1, 1999. In accordance with Statement
No.115, the Partnership recorded the shares at an aggregate market value of $1.6
million ($12.60 per share) as compared to a carrying value of $1.1 million and
recognized unrealized appreciation of $0.5 million. Realized gain upon sale of
marketable securities for the quarters ended September 30, 1999 and 1998 was
$1.3 million and $0.6 million, respectively. During the quarter ended September
30, 1999 the Partnership sold its investment in Medarex for aggregate proceeds
of $4.3 million. The carrying value of the investment at June 30, 1999 was $3.0
million and, accordingly, the Partnership recognized a gain of $1.3 million.
During the three months ended September 30, 1998, the Partnership sold its
rights, in part, as a former stockholder of GenPharm and received proceeds of
$0.6 million upon the sale. Accordingly, the Partnership recognized a gain of
this amount for this period.
There were no material variances in expenses for the three months ended
September 30, 1999 as compared to the same period in 1998.
12
<PAGE>
(Item 2 Continued)
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998:
Net income (loss) for the nine months ended September 30, 1999 and 1998
was $3.5 million and $(1.8) million, respectively. The increase of $5.3 million
resulted from an increase in revenues of this amount.
Net revenues for the nine months ended September 30, 1999 and 1998 were
$3.6 million and $(1.7) million, respectively. The increase resulted primarily
from a favorable change in unrealized appreciation (depreciation) of marketable
securities of $4.1 million and an increase in realized gain on sale of
marketable securities of $1.1 million. For the nine months ended September 30,
1999, the Partnership recognized unrealized appreciation of $1.8 million on its
investment of 0.713 million shares of GMO resulting from the increase in its
market value from $3.25 per share at December 31, 1998 to $5.75 per share as of
September 30, 1999. For the nine months ended September 30, 1998, the
Partnership recognized net unrealized depreciation of $2.3 million resulting
from its investments of 0.815 shares of Biocompatibles, 0.138 million shares of
Gensia, 0.723 million shares of Medarex and 0.13 million shares of Pharming. The
market value of Biocompatibles decreased from $8.125 per share at December 31,
1997 to $1.527 per share as of September 30, 1998, resulting in unrealized
depreciation for the nine months ended September 30, 1998 of $5.4 million.
Likewise, the market value per share of Gensia decreased as of these dates from
$5.9813 to $4.063 resulting in unrealized depreciation for the nine months ended
September 30, 1998 of $0.2 million. During the nine months ended September 30,
1998, in accordance with Statement No. 115, the Partnership recorded its
investment in Medarex restricted shares (with a restriction period of less than
one year) at a market value of $3.9375 per share at September 30, 1998 and,
accordingly, recognized unrealized appreciation of $2.8 million. Previously,
such shares were recorded at zero value. The Partnership recognized unrealized
appreciation on its investment in Pharming of $0.5 million (see Results of
Operations - Three months ended September 30, 1999 compared to the three months
ended September 30, 1998). During the nine months ended September 30, 1999, the
Partnership recognized a net gain from the sale of marketable securities of $1.7
million. The Partnership sold its investment in Biocompatibles with a carrying
value as of December 31, 1998 of $1.2 million for proceeds of $1.3 million and
realized a gain of $0.1 million for the nine months ended September 30, 1999.
The sale of Pharming shares (with a carrying value of $1.3 million) for proceeds
of $0.8 million resulted in a loss of $0.5 million for this same period. In
addition, the Partnership recognized a gain of $2.1 million from its sale of
Medarex for proceeds of $4.3 million as compared to a carrying value at December
31, 1998 of $2.2 million. For this same period in 1998 the Partnership
recognized a gain on the sale of marketable securities of $0.6 million (see
Results of Operations - Three months ended September 30, 1999 compared to the
three months ended September 30, 1998).
There were no material variances in expenses for the nine months ended
September 30, 1999 as compared to the same period in 1998.
13
<PAGE>
(Item 2 Continued)
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Calculations
performed with these abbreviated date fields may misinterpret the Year 2000 as
1900 resulting in erroneous calculations or program failures. Currently, the
Partnership utilizes computer programs, through services provided by a
third-party servicing agent, that can adversely affect the Partnership's
operations if they are not Year 2000 compliant. The servicing agent has informed
the Partnership that it has been executing a plan to modify or replace
significant applications as necessary to ensure Year 2000 compliance.
Programming changes and final testing were completed by June 30, 1999.
Conversion of client databases was also completed by June 30, 1999. Incremental
costs associated with the development and implementation of the above plan have
been, and will continue to be, borne by the servicing agent. The status of the
Partnership's investments in Sponsor Companies could be adversely affected if
the computer systems of the Sponsor Companies are not Year 2000 compliant. Based
on the recent available public disclosure of those Sponsor Companies in which
the Partnership has investments of value, the Sponsor Companies have stated that
they have undertaken programs to insure Year 2000 compliance. As of the dates of
disclosure, these Sponsor Companies do not expect that the Year 2000 Issue will
adversely affect their future financial condition. However, they cannot provide
assurances that unanticipated problems or costs will not arise.
14
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
None
b) Reports on Form 8-K:
None
15
<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 15th day of
November 1999.
PAINEWEBBER R&D PARTNERS III, L.P.
By: PaineWebber Development Corporation
(General Partner)
By: /s/ Dhananjay M. Pai
---------------------------
Dhananjay M. Pai
President
By: /s/ Anthony M. DiIorio
---------------------------
Anthony M. DiIorio
Principal Financial and Accounting Officer
17
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<NAME> PAINEWEBBER R&D PARTNERS III, L.P.
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