Exhibit (a)(3)
August 15, 1997
OFFER TO PURCHASE AT $3,650 PER UNIT IN CASH
Dear Limited Partner of PaineWebber R&D Partners II, L.P.:
BioRoyalties, L.L.C., a Delaware limited liability company (the "Purchaser"),
is offering to purchase from holders (each a "Holder") any and all of the 8,257
outstanding units of limited partnership interest (the "Units") in PaineWebber
R&D Partners II, L.P. (the "Partnership") at a cash purchase price of $3,650
per Unit (the "Purchase Price"). The terms and conditions of the offer are set
forth in the Offer to Purchase, which is enclosed with this letter. IT IS
IMPORTANT THAT YOU READ THE ENCLOSED MATERIAL CAREFULLY IN ORDER TO EVALUATE
THE OFFER.
From the inception of the Partnership in 1987 through the second quarter of
this year, Holders have received cumulative distributions totaling $9,722 per
Unit, of which $2,516 were in cash and $7,206 were in stock and warrants. The
Purchase Price, together with cumulative distributions to date, will enable a
Holder who purchased Units pursuant to the original offering in 1987 to recover
the remainder of his or her original $10,000 per Unit investment and realize a
$3,372 profit. In the alternative, a Holder may need to wait an additional 10-
12 years to realize the full value of the assets held by the Partnership.
Following are some important features of the Offer:
- LIQUIDITY OPPORTUNITY. The Offer provides each Holder the opportunity to
liquidate his or her investment in the Partnership without transfer fees
and transaction costs generally incurred in secondary market sales (which
can range from 5% to 8.75% of the sale price). Although there are limited
resale mechanisms available to Holders through partnership matching
services, there is no formal trading market for the Units. According to
the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, "there is no established trading market for the limited
partnership interests, and no such market is expected to develop."
- PURCHASE PRICE GREATER THAN GENERAL PARTNER'S JULY 1996 VALUATION FOR
ERISA PURPOSES. The aggregate Purchase Price is greater than the $29
million valuation of the Partnership prepared by the General Partner in
July 1996 for ERISA purposes. In addition, since the date of the General
Partner's valuation, the Partnership has distributed approximately $7.7
million in cash.
- PREMIUM TO HISTORICAL PRICES. The Purchase Price represents a premium of
46% to the most recent and highest selling price ($2,500 per Unit) of a
Unit traded on the Chicago Partnership Board or in any other transaction
of which Purchaser is aware.
- POTENTIAL TAX BENEFIT, ENHANCED BY CHANGE IN CAPITAL GAIN RATES TO 20%.
Each holder is generally taxable on his or her allocable share of
Partnership profits, a portion of which are ordinary income. Ordinary
income is taxed to individuals at rates of up to 39.6%. A portion of the
gain resulting from the sale of a Unit should be taxed to non-corporate
Holders at capital gain rates (currently 20% for most individuals)
disposing of capital assets held more than 18 months, possibly resulting
in tax savings. In addition, the sale of a Unit may enable a Holder to
use previously disallowed passive loss carryforwards, accelerating their
recognition. THE PURCHASER IS NOT EXPRESSING AN OPINION AS TO THE TAX
CONSEQUENCES OF TENDERING UNITS. Holders are strongly advised to consult
their tax advisors with respect to the tax consequences of accepting the
Offer.
- RESOLUTION OF LITIGATION. On June 6, 1997, Centocor and the Partnership
reached an agreement to settle a dispute over payments owed to investors
in Centocor Partners III, L.P. The settlement is subject to court
approval, for which a hearing is scheduled on September 4, 1997. If
approved, the agreement would result in one-time cash payments per Unit of
approximately $420 in 1997, $280 in 1998, and $95 if and when ReoPro is
approved for marketing in Japan. The Partnership is also entitled to
receive payments based on the sales of ReoPro over the next 10 years,
which have been revised under the settlement agreement. The Purchaser has
considered the value of these payments in determining the Purchase Price.
- SIMPLIFIED TAX RETURNS. The Offer may be attractive to certain Holders
who wish in the future to avoid the expenses, delays and complications of
filing complex income tax returns resulting from Form K-1s necessitated by
ownership of Units.
- VALUE DEPENDENT ON ONE PRODUCT. The Purchaser believes that a substantial
portion of the value of the Partnership is attributable to the right to
receive cash payments based on the future sales of ReoPro. There are at
least four other products having a mechanism of action similar to that of
ReoPro that are in clinical development for the same or similar
indications. There can be no assurance that the sales of ReoPro will not
be adversely affected by these products.
- POSSIBLE REGULATORY ISSUES. The Partnership's Centocor CPRs may be
considered securities under the Investment Company Act of 1940 (the
"Act"). As a result, the Partnership will need to determine whether it is
subject to the Act and possible implications for its future business
strategy. One possible way to avoid issues that might arise under the Act
is to distribute the CPRs. In a partnership with similar investments,
PaineWebber R&D Partners, L.P., the partnership distributed to its limited
partners securities similar to the CPRs. If the General Partner were to
distribute to each Holder his or her PRO RATA share of CPRs, each Holder
would receive an asset for which there is not likely to be a market, and
for which the value depends exclusively on the sales of a single
pharmaceutical product over a 10 year period. The Purchaser believes that
if this strategy were pursued it would negatively impact the ability of a
Holder to maximize the value of his or her interest.
In purchasing these Units, BioRoyalties is assuming the performance risk of
ReoPro over the next several years. The Purchaser is engaged in a long-term
investment program to create a diversified portfolio of assets that derive cash
flow from the sales of biotechnology and pharmaceutical drugs. The Purchaser's
financial structure and strategic plan are geared to address risk factors such
as illiquidity, single-product risk, competition, and other factors which
affect the value of assets such as those held by the Partnership, and its
financial returns are largely dependent on the success of its overall program,
rather than any individual investment.
Please review the enclosed Offer to Purchase carefully. As this Offer is
available for a limited period of time, we urge you to tender your Units
promptly by completing and signing page 2 of the Letter of Transmittal and
returning the Letter of Transmittal in the enclosed postage-paid envelope or by
facsimile to the information agent. The Offer will expire at 12:00 midnight,
New York City time, September 12, 1997.
If you have any questions or need assistance, please call the Xxxxxx Group at
(000) 000-0000, or call BioRoyalties, L.L.C. at (000) 000-0000.
Sincerely,
BioRoyalties, L.L.C.
