United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2000
Or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______ to ______
Commission File Number 33-35938
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
----------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
----------------------
<PAGE>
SPECIAL NOTE REGARDING
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained herein, the matters discussed herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of PaineWebber R&D Partners 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
March 31, 2000
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition (unaudited) at
March 31, 2000 and December 31, 1999 2
Statements of Operations
(unaudited) for the three months ended March 31,
2000 and 1999 3
Statement of Changes in Partners' Capital
(unaudited) for the three months ended
March 31, 2000 3
Statements of Cash Flows
(unaudited) for the three months ended
March 21, 2000 and 1999 4
Notes to Financial Statements
(unaudited) 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Marketable securities, at market value $ 21,837,402 $ 6,846,730
Advances to product development projects 19,399 19,399
Prepaid expense 7,525 -
------------------ -----------------
Total assets $ 21,864,326 $ 6,866,129
================== =================
Liabilities and partners' capital:
Accrued liabilities $ 82,605 $ 79,844
Partners' capital 21,781,721 6,786,285
------------------ -----------------
Total liabilities and partners' capital $ 21,864,326 $ 6,866,129
================== =================
- -------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
2
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31, 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Interest income $ 32,937 $ 17,662
Realized gains on sale of marketable securities 9,465,802 -
Unrealized appreciation of marketable securities 5,533,221 101,094
------------------ -----------------
15,031,960 118,756
------------------ -----------------
Expenses:
General and administrative costs 36,524 43,156
------------------ -----------------
Net income $ 14,995,436 $ 75,600
================== =================
Net income per partnership unit:
Limited partners (based on 50,000 units) $ 296.91 $ 1.50
General partner $ 149,954.36 $ 756.00
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Changes in Partners' Capital
(unaudited)
Limited General
For the three months ended March 31, 2000 Partners Partner Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Janury 1, 2000 $ 6,716,887 $ 69,398 $ 6,786,285
Net income 14,845,482 149,954 14,995,436
------------------ ----------------- ----------------
Balance at March 31, 2000 $ 21,562,369 $ 219,352 $ 21,781,721
================== ================= ================
- ----------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
3
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the three months March 31, 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,995,436 $ 75,600
Adjustments to reconcile net income to
cash provided by operating activities:
Unrealized appreciation of marketable securities (5,533,221) (101,094)
Increase in operating assets:
Marketable securities (9,457,451) (8,818)
Prepaid expense (7,525) -
Increase in operating liabilities:
Accrued liabilities 2,761 34,312
------------------ -----------------
Cash provided by operating activities - -
------------------ -----------------
Increase in cash - -
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 three months ended
March 31, 2000 and 1999.
- -------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
4
<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 March 31, 2000
and 1999 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 period ended
March 31, 2000, are not necessarily indicative of results to be expected for the
year ended December 31, 2000. These financial statements should be read in
conjunction with the most recent annual report of the Partnership on Form 10-K
for the year ended December 31, 1999.
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 had
the option to license and commercialize the products resulting from the product
development project, and the Partnership has had the right to receive payments
based upon the sale of such products. 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).
5
<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:
Limited General
Partners Partner
-------- -------
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 March 31, 2000,
Contribution Payout was $1,438 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%
During the quarter ended March 31, 2000, the Partnership made no cash or
security distributions. At March 31, 2000, the Partnership has made cash and
security distributions, as valued on the dates of distribution, since inception
of $1,283 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 March 31,
2000, the cumulative profits of the Partnership were $950 per Unit.
2. Summary of Significant Accounting Policies
The financial statements are prepared in conformity with accounting
principles generally accepted in the United States which require management to
make certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Marketable securities consist of a money market fund 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 generally determined on a
specific identification method and are reflected in the Statements of Operations
during the period in which the change in value occurs.
6
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 2 Continued)
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.
To the extent the Partnership's warrants were currently exercisable and
the Sponsor Company's stock was publicly traded, the warrants were carried at
intrinsic value (the excess of market price per share over the exercise price
per share), which approximated fair value.
3. Marketable Securities
The Partnership held the following marketable securities at:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------------ -----------------------------
Carrying Carrying
Value Cost Value Cost
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Money market fund $ 12,113,538 $ 12,113,538 $ 1,450,164 $ 1,450,164
Genzyme Molecular Oncology
(461,091 and 713,091 common shares at
March 31, 2000 and December 31, 1999,
respectively) 6,974,002 646,609 4,991,638 1,000,000
Alkermes, Inc.
(Warrant to purchase 7,293 shares) ---- ---- 321,804 ----
Repligen Corporation
(285,700 common shares at March 31,
2000 and a warrant to purchase 133,000
common shares at December 31, 1999) 2,749,862 901,433 83,124 ----
------------ ------------ ----------- -----------
$ 21,837,402 $ 13,661,580 $ 6,846,730 $ 2,450,164
============ ============ =========== ===========
</TABLE>
During the quarter ended March 31, 2000 the Partnership sold 252,000
shares of Genzyme Molecular Oncology ("GMO") for proceeds of $8,968,599 (average
price per share of $35.59). The shares had a carrying value as of December 31,
1999 of $1,764,000 ($7.00 per share) and, accordingly, the Partnership
recognized a gain from the sale of $7,204,599. At March 31, 2000, the market
value of GMO was $15.125 per share. The Partnership recognized unrealized
appreciation of $3,746,364 for the quarter ended March 31, 2000, on its
remaining investment of 461,091 shares. As of March 31, 1999, the market value
of the Partnership's investment of 713,091 shares was $2,674,092 ($3.75 per
share) as compared to a carrying value at December 31, 1998 of $2,317,546 ($3.25
per share). The Partnership recognized unrealized appreciation of $356,546 for
the quarter ended March 31, 1999.
At December 31, 1999 the Partnership owned warrants to purchase 133,000
and 252,700 shares of Repligen Corporation ("Repligen") at exercise prices of
$2.50 per share and $3.50 per share,
7
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 3 Continued)
respectively. The market value of Repligen as of this date was $3.125 per share.
The Partnership recorded its warrant to purchase 133,000 shares at the intrinsic
value of $83,124. In March 2000 the Partnership exercised the warrants at an
aggregate exercise price of $1,216,950. The Partnership sold 100,000 shares for
aggregate proceeds of $1,584,026 (average price per share of $15.84). The
Partnership recognized a gain from the sale for the three months ended March 31,
2000 of $1,246,957. At March 31, 2000, the market value of Repligen was $9.625
per share and the Partnership recognized unrealized appreciation for the quarter
then ended of $1,786,857 on its remaining investment of 285,700 shares.
In January 2000 the Partnership exercised its warrant for 7,293 shares of
Alkermes, Inc. ("Alkermes") at an aggregate exercise price of $36,465 ($5.00 per
share). At December 31, 1999 the market value of Alkermes was $49.125 per share
and the Partnership recorded the warrant at its intrinsic value of $321,804. In
March 2000 the Partnership sold the Alkermes shares for aggregate net proceeds
of $1,372,515 ($188.20 per share) and recognized a gain from the sale of
$1,014,246 for the three months ended March 31, 2000.
For the three months ended March 31, 1999, the Partnership recognized net
unrealized depreciation of $255,452 from its investments in Biocompatibles
International plc ("Biocompatibles"), Gensia Sicor, Inc., ("Gensia"), Medarex,
Inc. ("Medarex"), and Pharming Group N.V. ("Pharming"). Biocompatibles stock had
a market value per share of $1.734 at March 31, 1999 as compared to a carrying
value per share of $1.427 at December 31, 1998. The Partnership recognized
unrealized appreciation on its investment of 815,000 shares of $250,046. As of
March 31, 1999, the market value of Gensia decreased to $2.8125 per share as
compared to $4.53125 per share at December 31, 1998 resulting in the recognition
of unrealized depreciation of $236,796 on its investment of 137,772 shares. The
Partnership recognized unrealized appreciation of $112,956 on its investment of
722,915 shares of Medarex resulting from an increase in its market value from
$3.03125 per share at December 31, 1998 to $3.1875 per share as of March 31,
1999. At March 31, 1999 the market value of Pharming was $6.98 per share as
compared to $9.926 per share at December 31, 1998 and, accordingly, the
Partnership recognized unrealized depreciation of $381,658 on its investment of
129,555 shares.
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.
8
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 March 31, 2000, the Partnership had exercised all of its warrants.
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.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Partners' capital increased from $6.8 million at December 31, 1999 to
$21.8 million at March 31, 2000 resulting from the recognition of net income for
the three months ended March 31, 2000 of $15.0 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 $6.8 million at
December 31, 1999 to $21.8 million at March 31, 2000 resulting from a net
increase in the market values of marketable securities held as of these dates of
$5.5 million and the sale of marketable securities during the quarter ended
March 31, 2000 for cash proceeds in excess of their carrying values at December
31, 1999 of $9.5 million.
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March 31,
1999:
Net income for the three months ended March 31, 2000 and 1999 was $15.0
million and $0.1 million, respectively, resulting primarily from the recognition
of revenues of these amounts.
The increase in revenues of $14.9 million was a result primarily of a
favorable change in unrealized appreciation of $5.4 million and an increase in
realized gain on sale of marketable securities of $9.5 million. For the quarters
ended March 31, 2000 and 1999 the Partnership recognized unrealized appreciation
of marketable securities of $5.5 million and $0.1 million, respectively. At
March 31, 2000 the market value of GMO was $15.125 per share as compared to a
carrying value of $7.00 per share at December 31, 1999. The Partnership
recognized unrealized appreciation of $3.7 million on its investment of 0.461
million shares for the three months ended March 31, 2000. Also, as of this date,
the market value of Repligen was $9.625 per share as compared to a
weighted-average carrying value of $3.371 per share and the Partnership
recognized unrealized appreciation of $1.8 million on its investment of 0.286
million shares. For the quarter ended March 31, 1999, the Partnership recognized
unrealized appreciation on the following investments: $0.35 million on 0.713
million shares of GMO resulting from an increase in the market value from $3.25
per share at December 31, 1998 to $3.75 per share at March 31, 1999; $0.25
million on 0.815 million shares of Biocompatibles whereby the market value at
December 31, 1998 and March 31, 1999 was $1.4272 per share and $1.73398 per
share, respectively; $0.1 million on 0.722 million shares of Medarex to reflect
an increase in the market value per share of $3.03125 to $3.18750 from December
31, 1998 to March 31, 1999. Unrealized depreciation of $0.4 million and $0.2
million was recognized on the Partnership's investments of 0.129 million shares
of Pharming and 0.138 million shares of Gensia. The market value of Pharming
decreased from $9.926 per share at December 31, 1998 to $6.98 per share at March
31, 1999. The market value of Gensia as of December 31, 1998 and March 31, 1999
was $4.53125 and $2.8125 per share, respectively. During the quarter ended March
31, 2000, the Partnership recognized a gain from the sale of marketable
securities of $9.5 million. The Partnership sold 0.252 million shares of GMO for
proceeds of $9.0 million (average price per share of $35.59) with a carrying
value of $1.8 million ($7.00 per share) at December 31, 1999 and recognized a
gain of $7.2 million. Also, the Partnership sold 0.1 million shares of Repligen
for proceeds of $1.6 million (average price per share of $15.84) and recognized
a gain of $1.3 million. The Partnership exercised its warrant for 7,293 shares
of Alkermes at $5.00 per share and sold the shares for $188.20 per share
recognizing a gain of $1.0 million.
10
<PAGE>
(Item 2 Continued)
There were no material variances in expenses for the three months ended
March 31, 2000, as compared to the same period in 1999.
Year 2000
Currently, the Partnership utilizes computer programs, through services
provided by a third-party servicing agent. The servicing agent has informed the
Partnership that it has successfully completed a comprehensive plan achieving
Year 2000 compliance. The incremental costs associates with the plan were borne
by the servicing agent.
The Partnership has not been advised by the Sponsor Companies of any Year
2000 complications experienced by them. The Partnership will continue to monitor
the Sponsor Companies as it relates to this issue.
11
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
None
b) Reports on Form 8-K:
None
12
<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/ Robert J. Chersi
---------------------------
Robert J. Chersi
Principal Financial and Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000865936
<NAME> PAINEWEBBER R&D PARTNERS III, L.P.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 21,837,402
<RECEIVABLES> 19,399
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,864,326
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,864,326
<CURRENT-LIABILITIES> 82,605
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,781,721
<TOTAL-LIABILITY-AND-EQUITY> 21,864,326
<SALES> 0
<TOTAL-REVENUES> 15,031,960
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,995,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,995,436
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
