United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
Form
10-K
(X)
Annual Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934.
For
the fiscal year ended December 31, 2004
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 |
13-3437420 |
|
(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
_____________________
Securities
registered pursuant to Section 12(b) of the Act:
| |
Name
of each exchange on |
|
Title
of each class |
Which
registered |
|
None |
None |
Securities
registered pursuant to Section 12(g) of the Act:
Limited
Partnership Units
No voting
stock has been issued by the Registrant. Neither a public nor other market
exists for the Units, and no such market is expected to develop, therefore there
was no quoted market price for the 50,000 Units.
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
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X).
Indicate
by check mark whether the Registrant is an accelerated filer Yes o No x
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, actions or
achievements of the Partnership or industry results to be materially different
from any future results, performance, actions 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 having insufficient funds to
commercialize products to their maximum potential; the restructuring of Sponsor
Companies; the dependence of the Partnership on the skills of certain scientific
personnel; and the dependence of the Partnership on the General Partner.
PART
I
PaineWebber
R&D Partners III, L.P. (the “Partnership” or “Registrant”) is a Delaware
limited partnership that commenced operations on June 3, 1991, with a total of
$43.1 million available for investment. Paine Webber Development Corporation
(“PWDC” or “General Partner”), an indirect, wholly-owned subsidiary of UBS
Americas Inc. (“UBS Americas”), is the general partner and manager of the
Partnership. 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 (the “Projects”) with technology and
biotechnology companies (“Sponsor Companies”), which have been expected to
address significant market opportunities. The Partnership will terminate on
December 31, 2015, unless its term is extended or reduced by the General
Partner.
As of
December 31, 2004, the Partnership had an ongoing Project with Cephalon, Inc.
(See Note 5 of the “Notes to Financial Statements” included in this filing on
Form 10-K.) In addition, as of December 31, 2004, the Partnership owned
marketable securities as described in Note 3 of the “Notes to Financial
Statements” included in this filing on Form 10-K.
It is the
intention of the General Partner to liquidate the Partnership’s remaining
investments in a manner that preserves value for the Partners (hereinafter
defined), while minimizing associated expenses. However, the Partnership’s
remaining Project is illiquid with uncertain prospects. The General Partner
continues to consider ways in which it can terminate the Partnership while
maintaining the Partners’ rights to any future revenues that may accrue from
that Project.
Partnership
Management
The
Partnership has contracted with the General Partner, pursuant to a management
agreement (the “Management Contract”), responsibility for management and
administrative services necessary for the operation of the Partnership for which
it is entitled to receive an annual management fee. As of January 1, 1997, the
General Partner ceased to charge a management fee for services rendered to the
Partnership.
(Item
1 Continued)
Distributions
The
following table sets forth the proportion of each distribution to be received by
limited partners of the Partnership (the “Limited Partners”) and the General
Partner (collectively the “Partners”). All distributions to the Limited Partners
have been made pro rata in accordance with their individual capital
contributions.
| |
|
Limited
Partners |
|
General
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”). Contribution Payout as of December 31,
2004 is $1,675 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 year ended December 31, 2000, the Partnership made a cash distribution which
resulted in aggregate distributions per Unit to reach Contribution Payout. As a
result, the General Partner will be allocated 20% of future cash distributions
until Final Payout. No cash or security distributions were remitted by the
Partnership during the year ended December 31, 2004. As of this date, the
Partnership has made cash and security distributions, as valued on the dates of
distribution, since inception of $1,483 and $98 per Unit,
respectively.
Profit
and Loss Allocation
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 December 31, 2004, the
cumulative profits of the Partnership were $789 per Unit.
Other
At
December 31, 2004, the Partnership had no employees, and PWDC had no employees
other than its executive officers (see Item 10. Directors
and Executive Officers of the Registrant). The
Partnership is engaged in one primary business segment, the management of
investments in technology and biotechnology products and companies.
The
Partnership does not own or lease any office, manufacturing or laboratory
facilities.
|
Item
3. |
|
Legal
Proceedings. |
None.
|
Item
4. |
|
Submission
of Matters to a Vote of Security
Holders. |
None.
PART
II
|
Item
5. |
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities. |
There is
no existing public market for the Units, and no such market is expected to
develop. Units are transferable subject to certain restrictions as set forth in
the Partnership Agreement and applicable securities laws. As of December 31,
2004, there were 4,531 Limited Partners. The Partnership purchased none of its
limited partnership Units during the year ended December 31, 2004.
The
Partnership distributes to the Partners, when available, the net proceeds from
royalty distributions, net proceeds from dispositions of portfolio securities
and any other cash in excess of amounts that are necessary for the operation of
the Partnership’s business. During the years ended December 31, 2004, 2003
and 2002, the Partnership made no distributions to the Partners.
|
Item
6. |
|
Selected
Financial
Data. |
See the
“Selected Financial Data” on Page F-2 included in this filing on Form
10-K.
|
Item
7. |
|
Management’s
Discussion and Analysis
of Financial Condition and Results of
Operations. |
Liquidity
and Capital Resources
Partners’
capital of $2.5 million at December 31, 2003, decreased to $2.0 million at
December 31, 2004, resulting from the Partnership’s recognition of a net loss of
$0.5 million (as discussed in Results of Operations below).
The
Partnership’s funds are invested in marketable securities until cash is needed
to pay for the ongoing management and administrative expenses of the Partnership
or for distribution to the Partners. Liquid assets decreased from $2.5 million
at December 31, 2003 to $2.1 million at December 31, 2004. The decrease of $0.4
million resulted primarily from the sale of marketable securities during 2004.
On March 1, 2004, the Board of Directors of the General Partner consented that
the Partnership sell at the then prevailing market price at the end of each
calendar quarter, as many shares of marketable securities required to pay the
Partnership’s operating expenses for which no other funds are available to the
Partnership.
Results
of Operations
Year
ended December 31, 2004 compared to the year ended December 31,
2003:
Net loss
for the year ended December 31, 2004 was $0.5 million as compared to net income
for the year ended December 31, 2003 of $0.6 million. The unfavorable variance
of $1.1 million resulted primarily from an unfavorable change in unrealized
depreciation of marketable securities.
Net
revenues for the years ended December 31, 2004 and 2003 were $(0.2) million and
$0.9 million, respectively, comprised primarily of unrealized appreciation
(depreciation) of marketable securities. At December 31, 2004, the Partnership’s
investment in 0.026 million shares of Genzyme General Division (“GENZ”) had a
market value of $1.5 million ($58.07 per share) as compared to a market value of
$1.3 million ($49.29 per share) as of December 31, 2003. The Partnership
recognized unrealized appreciation
of $0.2 million for the year ended December 31, 2004. During 2004, the
Partnership sold 0.093 shares of Repligen Corporation (“Repligen”). The market
value of the remaining investment in Repligen of 0.192 shares as of December 31,
2004 was $0.54 million ($2.88 per share) as compared to $0.84 million ($4.37 per
share) as of December 31, 2003. The Partnership recognized unrealized
depreciation of $0.4 million for the year ended December 31, 2004, which
includes the change in unrealized appreciation previously recorded of $0.1
million related to the sale of the Repligen shares. The market value of the
Partnership’s investment of 0.286 million shares of Repligen as of December 31,
2003 and 2002 was $1.3 million ($4.37 per share) and $0.9 million ($3.04 per
share), respectively. The Partnership recognized unrealized appreciation of $0.4
million for the year ended December 31, 2003. During the year ended December 31,
2003, in accordance with Genzyme Corporation’s decision to eliminate its
tracking stock structure and pursuant to its Restated Articles of Organization,
each share of Genzyme Molecular Oncology (“GMO”) common stock was converted to
0.05653 shares of GENZ common stock. The Partnership’s investment of 0.461
million shares of GMO was converted to 0.026 million shares of GENZ. As of
December 31, 2003, the market value of the Partnership’s investment in Genzyme
Corporation was $1.3 million as compared to $0.8 million as of December 31,
2002. The Partnership recognized unrealized appreciation of $0.5 million for the
year ended December 31, 2003.
(Item
7 Continued)
There
were no material variances in expenses for the year ended December 31, 2004 as
compared to this same period in 2003.
Year
ended December 31, 2003 compared to the year ended December 31,
2002:
Net
income (loss) for the years ended December 31, 2003 and 2002 was $0.6 million
and $(2.9) million, respectively. The increase of $3.5 million resulted from an
increase in revenues of $3.6 million offset by an increase
in expenses of $0.1 million.
Net
revenues which consisted primarily of unrealized appreciation (depreciation) of
marketable securities were $(2.7) million for the year ended December 31, 2002
as compared to $0.9 million for the year ended December 31, 2003 (refer to the
year ended December 31, 2004 compared to the year ended December 31, 2003). At
December 31, 2002, the Partnership’s investments of 0.461 million shares of GMO
and 0.286 million shares of Repligen had a market value of $0.8 million ($1.75
per share) and $0.9 million ($3.04 per share), respectively. The market value of
GMO and Repligen as of December 31, 2001 was $3.7 million ($8.00 per share) and
$0.7 million ($2.43 per share), respectively. The Partnership recognized total
net unrealized depreciation on these investments of $2.7 million for the year
ended December 31, 2002.
Expenses
increased by $0.1 million from December 31, 2002 to December 31, 2003 resulting
primarily from an increase in legal expenses. The Partnership incurred
additional legal expenses for the year ended December 31, 2003, in connection
with the dissolution of its interest in Alkermes Clinical Partners, L.P.
(Item
7 Continued)
Critical
Accounting Policies
The
General Partner makes judgments in valuing its investments in product
development projects. (See Note 5 of the “Notes to Financial Statements”
included in this filing on Form 10-K.) The General Partner’s judgment involves
estimating the prospect of the Projects producing a commercially viable product.
These estimates are based on the General Partner’s experience in evaluating
similar investments, publicly
available information from the Sponsor Companies and other sources the General
Partner considers reliable. Based on these estimates, as of December 31, 2004,
the Partnership is carrying its investment in the remaining product development
project at zero.
Item
7A.
Quantitative
and Qualitative Disclosures about Market Risks.
The
Partnership’s non-cash assets subject to market risk consist of 26,065 shares of
GENZ and 192,300 shares of Repligen. The Partnership acquired these shares in
connection with its investments in Projects. The Partnership holds these shares
until cash is needed for the payment of Partnership expenses or to make cash
distributions to the Partners.
The
carrying values of marketable securities subject to equity price risks are based
on quoted market prices as of the dates of the Statements of Financial
Condition. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale may significantly differ from the
reported market value. Fluctuation in the market price of a security may result
from perceived changes in the underlying economic characteristics of the issuer,
the relative price of alternative investments and general market conditions.
Furthermore, amounts realized in the sale of a particular security may be
affected by the relative quantity of the security being sold.
The table
below summarizes the Partnership’s equity price risks as of December 31, 2004
and 2003 and shows the effects of a hypothetical 30% increase and a 30% decrease
in market prices as of those dates. The selected hypothetical change does not
reflect what could be considered the best or worst case scenarios. Indeed,
results could be far worse due to the nature of the equity markets.
| |
|
Market
Value |
|
Hypothetical
Price
Change |
|
Estimated
Market
Value After Hypothetical
Change
in Price |
|
Estimated
Partners’
Capital After
Hypothetical Change
in Price |
|
|
As
of December 31, 2004 |
|
$ |
2,067,430 |
|
|
30%
increase
30%
decrease |
|
$
$ |
2,687,659
1,447,201 |
|
$
$ |
2,607,906
1,367,448 |
|
|
As
of December 31, 2003 |
|
$ |
2,533,265 |
|
|
30%
increase
30%
decrease |
|
$
$ |
3,293,245
1,773,286 |
|
$
$ |
3,199,533
1,679,574 |
|
|
Item
8. |
|
Financial
Statements and Supplementary
Data. |
The
information in response to this item may be found under the following captions
included in this filing on Form 10-K:
Report of
Independent Registered Public Accounting Firm (Page F-4)
Statements
of Financial Condition (Page F-5)
Statements
of Operations (Page F-6)
Statements
of Changes in Partners’ Capital (Deficit) (Page F-6)
Statements
of Cash Flows (Page F-7)
Notes to
Financial Statements (Pages F-8 to F-12)
|
Item
9. |
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure. |
None.
|
Item
9A. |
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure. |
(a) Evaluation
of Disclosure Controls and Procedures. The
President and Principal Financial Officer of the General Partner, after
evaluating the effectiveness of the Partnership’s disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13(a)-15(e)
and 15(d)-15(e) as of a date within 90 days of the filing date of this Annual
Report on Form 10-K (the “Evaluation Date”)), have concluded that as of the
Evaluation Date, the Partnership’s disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Partnership would be made known to them by others within the General Partner, or
its affiliates particularly during the period in which this Annual Report on
Form 10-K was being prepared.
(b) Changes
in Internal Controls. There
were no significant changes in the Partnership’s internal controls or in other
factors that could significantly affect the Partnership’s internal controls
subsequent to the date of their evaluation, nor any significant deficiencies or
material weaknesses in such internal controls requiring corrective actions. As a
result, no corrective actions were taken.
PART
III
|
Item
10. |
|
Directors and Executive Officers of
the
Registrant. |
The
Registrant has no directors or executive officers. The Registrant is managed by
PWDC, which is the General Partner of the Partnership.
Pursuant
to the Management Contract, the General Partner is responsible for the
management and administrative services necessary for the operation of the
Partnership. The
following table sets forth certain information with respect to the persons who
are directors and executive officers of the General Partner as of December 31,
2004:
|
Name |
|
Age |
|
Position
and Date Appointed |
|
|
Directors |
|
|
|
|
|
|
Robert
J. Chersi |
|
|
43 |
|
|
Director
since March 2001 |
|
|
Stephen
R. Dyer |
|
|
45 |
|
|
Director
since April 1999 |
|
|
Rosemarie
Albergo |
|
|
47 |
|
|
Director
since December 2003 |
|
| |
|
|
|
|
|
|
|
|
Executive
Officers |
|
|
|
|
|
|
|
|
Stephen
R. Dyer |
|
|
45 |
|
|
President
since March 2001 |
|
|
Robert
J. Chersi |
|
|
43 |
|
|
Vice
President since March 2001 |
|
|
Rosemarie
Albergo |
|
|
47 |
|
|
Treasurer
since March 2001 |
|
Geraldine
L. Banyai |
|
|
63 |
|
|
Secretary
since June 1999 |
|
The
directors have a one-year term of office. The officers are elected by a majority
of the directors and hold office until their successors are chosen by the
directors.
(Item
10 Continued)
Directors
Robert
J. Chersi is the
Executive Vice President and Chief Financial Officer of UBS Financial Services
Inc. (“UBS FS”) (formerly, UBS PaineWebber Inc.). He served most recently (prior
to the UBS AG merger) as Senior Vice President and Controller of UBS FS. Mr.
Chersi joined UBS FS in 1995 following the Kidder, Peabody & Co.
Incorporated (“Kidder”) acquisition. Previous to his employment with Kidder, Mr.
Chersi worked for the accounting firm KPMG Peat Marwick from 1983-1988 serving
banking and brokerage industry clients. Mr. Chersi is a Certified Public
Accountant and earned a Bachelor of Business Administration in Accounting from
Pace University where he graduated summa cum laude in 1983.
Stephen
R. Dyer is a
Senior Vice President of UBS FS. Prior to joining UBS FS in 1988, Mr. Dyer had
been employed at L.F. Rothschild & Co., Incorporated and Thomson McKinnon
Securities, Inc. He received his Bachelor of Science degree from Boston College
and a Masters of Business Administration from Indiana University. Mr. Dyer is a
Certified Public Accountant.
Rosemarie
Albergo is a
First Vice President of UBS FS. Prior to joining UBS FS in 1983, Ms. Albergo was
employed at KPMG Peat Marwick. She received her Bachelor of Business
Administration degree from Pace University and is a Certified Public
Accountant.
Executive
Officers
Stephen
R Dyer,
President, see “Directors” above.
Robert
J. Chersi,
Vice-President, see “Directors” above.
Rosemarie
Albergo, Treasurer,
see “Directors” above.
Geraldine
L. Banyai,
Secretary, joined UBS FS in June 1993 as Assistant Secretary of UBS FS and was
elected Secretary in March, 1999. Ms. Banyai was elected Divisional Vice
President in April 1996 and Corporate Vice President in April 1997. In November
1996, Ms. Banyai was elected Assistant Secretary of UBS Americas. Prior to
joining UBS FS, Ms. Banyai was employed by the Philadelphia Savings Fund Society
(“PSFS”) in Philadelphia for 35 years and served as Vice President and Corporate
Secretary of PSFS and 28 of its subsidiaries.
Code
of Ethics
Neither
the General Partner nor the Partnership has adopted a code of ethics with
respect to the General Partner’s officers and directors. A code of ethics has
not been adopted because the General Partner believes that such a policy is not
required for the protection of the Limited Partners because the Partnership does
not engage in any substantial business activities, the Partnership intends to
terminate, and all
the General Partner’s officers and directors are officers and employees of UBS
Americas or its affiliates. As such, they are obligated to conduct all their
business activities, including those on behalf of the Partnership, in a fair,
honest and ethical fashion.
No
compensation was paid directly to executive officers of PWDC by the Registrant.
PWDC serves as General Partner for the Registrant, and pursuant to a Management
Contract, 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. See the section entitled “Related Party Transactions” under the
caption “Notes to Financial Statements” on pages F-8 through F-12 included in
this filing on Form 10-K.
|
Item
12. |
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters. |
There are
no investors known to the Partnership to be beneficial owners at March 1, 2005
of more than five percent of the Registrant’s Units. No member of management of
PWDC had any beneficial interest in the Registrant’s Units.
|
Item
13. |
|
Certain
Relationships and Related
Transactions. |
Information
in response to this item may be found in the section entitled “Related Party
Transactions” under the caption “Notes to Financial Statements” on pages F-8
through F-12 included in this filing on Form 10-K.