-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LAfWTeUtGYMJbfgnbknZTCM76j3ht5iwXRNhNp5lx22d5biZl6FGwKTJjf69I0h4 W+ZVFvoVaZAm64FbL8SlJw== 0000912057-00-013019.txt : 20000324 0000912057-00-013019.hdr.sgml : 20000324 ACCESSION NUMBER: 0000912057-00-013019 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: SEC FILE NUMBER: 333-31548 FILM NUMBER: 576099 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 424B5 1 424B5 Filed Pursuant to Rule 424(b)(5) Reg No. 333-31548 SUBJECT TO COMPLETION, DATED MARCH 22, 2000 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 9, 2000 3,000,000 Shares [LOGO] Common Stock Genzyme Corporation is offering 3,000,000 shares of Genzyme Molecular Division Common Stock, which is referred to as "GZMO Stock." GZMO Stock is traded on the Nasdaq National Market under the symbol "GZMO." On March 22, 2000, the last sale price for GZMO Stock as reported by Nasdaq was $24.25 per share. Investing in GZMO Stock involves significant risk. These risks are described under the caption "Risk Factors" beginning on page S-8 of this prospectus supplement and page 4 of the accompanying prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement and the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------- Per Share Total Public offering price....................................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds, before expenses, to Genzyme Molecular Oncology.... $ $
The underwriters may also purchase up to an additional 450,000 shares of GZMO Stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments. The underwriters expect to deliver the shares against payment in New York, New York on or about , 2000. --------------------- SG COWEN PAINEWEBBER INCORPORATED CHASE H&Q , 2000 TABLE OF CONTENTS
PAGE -------- PROSPECTUS SUPPLEMENT Prospectus Supplement Summary......... S-3 Risk Factors.......................... S-8 Use of Proceeds....................... S-15 Capitalization........................ S-16 Price Range of GZMO Stock and Genzyme Dividend Policy..................... S-17 Genzyme Molecular Oncology Selected Financial Data...................... S-18 Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations.......................... S-20 Business.............................. S-25 Management of Genzyme Molecular Oncology............................ S-40 Underwriting.......................... S-41 Validity of the Shares................ S-42
PAGE -------- PROSPECTUS Genzyme Corporation................... 3 Risk Factors.......................... 4 Note Regarding Forward-Looking Statements.......................... 24 Use of Proceeds....................... 25 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends........... 25 Description of Debt Securities........ 26 Description of Preferred Stock........ 35 Description of Genzyme Common Stock... 37 Description of Warrants............... 46 Description of Management and Accounting Policies................. 48 Plan of Distribution.................. 53 Legal Matters......................... 54 Experts............................... 54 Where You Can Find More Information... 55
------------------------ You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with information that is different. We are offering to sell and seeking offers to buy shares of GZMO Stock only in jurisdictions where offers and sales are permitted. Any information in the accompanying prospectus or incorporated by reference that is inconsistent with information in this prospectus supplement, is automatically superseded by the information in this prospectus supplement. The information in this prospectus supplement, the accompanying prospectus or any document incorporated by reference is accurate only as of the date of those documents. S-2 PROSPECTUS SUPPLEMENT SUMMARY THE FOLLOWING SUMMARY HIGHLIGHTS SOME OF THE INFORMATION FOUND IN GREATER DETAIL ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IN ADDITION TO THIS SUMMARY, WE URGE YOU TO READ THE ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS DISCUSSED UNDER "RISK FACTORS," BEFORE YOU DECIDE TO BUY GZMO STOCK. UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS SUPPLEMENT ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. IN THIS PROSPECTUS SUPPLEMENT, THE WORDS "WE," "US," AND "OUR" REFER TO GENZYME MOLECULAR ONCOLOGY, AND "GENZYME" REFERS TO GENZYME CORPORATION. GENZYME MOLECULAR ONCOLOGY Genzyme Molecular Oncology is developing a new generation of cancer therapeutics, with a focus on: - VACCINES that treat cancer by stimulating the body's immune system to fight tumor cells; - ANGIOGENESIS INHIBITORS that treat cancer by preventing the formation and development of blood vessels that tumors require for growth; and - PATHWAY REGULATORS that treat cancer by regulating one or more of the metabolic processes necessary for tumor cells to grow and survive. These three novel classes of therapy are based upon the growing understanding of the molecular basis of cancer and have the potential to treat multiple types of cancer, minimize toxicity and side effects, and complement both existing and novel therapies. We utilize our functional genomics tools and draw upon Genzyme's capabilities in gene therapy, cell therapy, protein therapy and small molecule drugs to select and pursue the most appropriate of these approaches for each cancer target. We believe that our focus on novel classes of therapy, combined with our multiple approaches for cancer targets, should enable us to address the significant unmet needs of cancer patients. Our product pipeline includes: - an antigen-specific vaccine in a Phase I/II trial for melanoma; - a cell therapy vaccine in a Phase I/II trial for breast cancer; - five additional cancer vaccine clinical trials expected to begin during 2000; and - multiple preclinical development and research programs to develop additional cancer vaccines, angiogenesis inhibitors and cancer pathway regulators. We initiated an EX VIVO Phase I/II antigen-specific vaccine trial for melanoma in April 1999 at Massachusetts General Hospital in Boston. We plan to enroll approximately 24 patients with late stage disease in this trial and to complete enrollment later this year. We initiated the Phase I/II trial of our cell therapy vaccine for breast cancer in September 1999 at the Dana-Farber Cancer Institute and the Beth Israel Deaconess Medical Center in Boston. We plan to enroll approximately 20 patients in this trial and to complete the trial by the end of 2000. Of the five cancer vaccine clinical trials that we expect to begin later this year, one will be an IN VIVO Phase I/II antigen-specific vaccine trial for melanoma, two will be Phase I cell therapy vaccine trials for kidney cancer, and two will be Phase I cell therapy vaccine trials for melanoma. In addition, we have licensed our gene therapy rights to the p53 gene to Schering-Plough, who is currently conducting a Phase II/III clinical study of a p53 gene therapy product. S-3 We use our broad technology platforms to support and expand our product pipeline. Our powerful SAGE-TM- gene expression technology is the cornerstone of our functional genomics platform. We apply SAGE in all of our programs to identify genes involved in cancer and to understand the role of these genes in the disease process. To expand our cancer vaccine pipeline, we have built a proprietary, state-of-the-art antigen discovery platform that combines identification and validation in one step. We are using this platform to rapidly and efficiently identify and validate target antigens for incorporation into novel antigen-specific cancer vaccines. We complement our internal resources through our collaborations with some of the world's preeminent researchers in cancer research. These researchers include Drs. Judah Folkman, Kenneth Kinzler, Donald Kufe, Lloyd Old, Steven Rosenberg, and Bert Vogelstein. Our collaborations with these researchers enable us to remain at the forefront of the development of novel cancer therapies by providing us with new technologies, novel therapeutic targets and drug candidates, access to leading clinical research centers, state-of-the-art research programs in the laboratories of our collaborators, and expert advice. We are an operating division of Genzyme, one of the world's largest biopharmaceutical companies. We have technology and personnel dedicated to our business and access to Genzyme's extensive technology base and development infrastructure. We believe our access to Genzyme's infrastructure together with our development strategy increases the likelihood that we will develop effective novel therapeutics and accelerate the speed at which we expect to bring them to market. RECENT DEVELOPMENTS In March 2000, we reported that our total revenues for 1999 were $4.6 million, as compared to $19.4 million in 1998, a decrease of $14.8 million. This decrease was primarily attributable to $10.0 million in license fees and milestones that we recorded in 1998 from our p53 gene therapy license to Schering-Plough and to the completion of research collaborations for which we received revenue during 1998. Our net loss for 1999 was $28.8 million, or $2.25 per share, as compared to a net loss of $19.1 million, or $3.81 per share, in 1998, an increase in net loss of $9.7 million. Our 1999 net loss included $13.7 million of non-cash expenses related to the amortization of intangibles and the losses from a joint venture that dissolved in December 1999. Our 1999 operating expenses included $17.3 million in research and development expense and cost of revenues, and $5.5 million in selling, general and administrative expense. At December 31, 1999, we had $3.6 million in cash and marketable securities and access to a $30.0 million equity line of credit from Genzyme General. PROPOSED CHARTER AMENDMENT Genzyme's board of directors currently plans to solicit stockholder approval of an amendment to Genzyme's charter at Genzyme's annual stockholder meeting in May 2000. The charter amendment would modify the terms of GZMO Stock, as well as the terms of Genzyme Surgical Products Division Common Stock and Genzyme Tissue Repair Division Common Stock. The summary of the proposed amendment we have included below provides an overview, but not a complete description, of the proposed amendment. We urge you to review Genzyme's Current Report on Form 8-K that Genzyme intends to file on or about March 23, 2000, which will include a form of amended and restated charter reflecting the proposed amended terms for GZMO Stock. See "Where You Can Find More Information" on page 55 of the accompanying prospectus. The proposed amendment would update the terms of Genzyme's tracking stocks to include rights and other terms contained in the more recently introduced tracking stocks of other companies. Specifically, it would modify the provisions of the charter governing the treatment of shares of GZMO Stock upon a sale of all or substantially all of the assets allocated by Genzyme to Genzyme Molecular Oncology. Under Genzyme's current charter, subject to certain exceptions, if Genzyme were to sell all S-4 or substantially all of the assets allocated to Genzyme Molecular Oncology, then, in exchange for their GZMO Stock, GZMO stockholders would receive Genzyme General Division Common Stock and/or cash with a value equal to 130% of the market value of GZMO Stock BEFORE announcement of the sale. Under the proposed amendment, subject to other exceptions, if Genzyme were to sell all or substantially all of the assets allocated to Genzyme Molecular Oncology, then, in exchange for their GZMO Stock, GZMO stockholders would receive, at the discretion of Genzyme's board of directors, either: - cash, securities (other than Genzyme common stock) and/or other property equal in value to the after-tax net proceeds from the sale; or - a number of shares of Genzyme General Division Common Stock determined based on 110% of the ratio of the average market price per share of GZMO Stock to the average market price per share of Genzyme General Division Common Stock during a ten day trading period beginning AFTER the announcement of the estimated net proceeds from the sale. This amendment is designed to permit GZMO stockholders to receive a distribution that more accurately reflects the value assigned to those assets by a third party purchaser. The proposed amendment would also: - add provisions permitting Genzyme's board of directors to exchange all shares of GZMO Stock for Genzyme General Division Common Stock at no premium to market value in the event that a change in federal tax law or regulations results in adverse tax treatment of Genzyme's tracking stock structure; - add provisions permitting: -- holders of Genzyme common stock, voting together as one class, to eliminate special series-based voting rights; or -- Genzyme's board of directors to modify or eliminate exchange provisions governing GZMO Stock; if those rights or exchange provisions would result, under a change in federal tax law or regulations, in adverse tax treatment of Genzyme's tracking stock structure; - add provisions to the charter permitting Genzyme to "spin-off" the division to the holders of GZMO Stock; and - modify the provisions governing the content of notices to stockholders regarding exchanges of or distributions on GZMO Stock. These amendments are designed to permit Genzyme to modify or unwind its tracking stock structure without incurring the substantial costs and dilutive effects of exchanging any series of its tracking stock for Genzyme General Division Common Stock at a premium. The terms of the proposed amendment relating to GZMO Stock will not become effective unless the proposed amendment is presented at the annual meeting and approved by: - the affirmative vote of a majority of all shares of GZMO Stock outstanding and entitled to vote, voting as a separate class; and - the affirmative vote of a majority of all shares of Genzyme common stock outstanding and entitled to vote, voting together as one class. S-5 THE OFFERING GZMO Stock we are offering......................... 3,000,000 shares GZMO Stock to be outstanding and reserved for issuance after this offering (1)................. 17,826,692 shares Underwriters' over-allotment option................ 450,000 shares Use of proceeds.................................... We intend to use the net proceeds from this offering to fund our research and preclinical and clinical development programs, repay existing indebtedness, and for working capital and general corporate purposes. See "Use of Proceeds" in this prospectus supplement. Nasdaq National Market Symbol...................... GZMO
- ------------------------ (1) The number of shares of GZMO Stock that will be outstanding and reserved for issuance immediately after the offering includes: - 13,519,186 shares of GZMO Stock outstanding as of February 29, 2000; and - 1,307,506 GZMO designated shares. GZMO designated shares are authorized but unissued shares of GZMO Stock that Genzyme's board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds to us. Of these designated shares, 973,951 were reserved for issuance as of February 29, 2000, of which 682,316 are issuable upon conversion of Genzyme's 5 1/4% convertible subordinated notes and under Genzyme's directors' deferred compensation plan and 291,635 are available for distribution. The remaining 333,555 designated shares will be reserved for issuance upon completion of this offering based on an assumed offering price of $24.25 per share, the last sale price of GZMO Stock as reported by Nasdaq on March 22, 2000. This number excludes: - 1,700,068 shares of GZMO Stock reserved for issuance upon exercise of options outstanding as of February 29, 2000 with a weighted average exercise price of $6.14 per share; and - 9,563 shares of GZMO Stock issuable upon exercise of warrants outstanding as of February 29, 2000 with an exercise price of $8.04 per share. "GENZYME" IS A TRADEMARK AND SERVICE MARK, AND "SAGE" IS A TRADEMARK, OF GENZYME. ALL RIGHTS RESERVED. S-6 GENZYME MOLECULAR ONCOLOGY SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
FROM DECEMBER 1, 1994 (DATE NINE MONTHS OF YEAR ENDED ENDED INCEPTION) TO DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ----------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ------------- -------- -------- -------- -------- -------- -------- (UNAUDITED) COMBINED STATEMENT OF OPERATIONS DATA: Revenues........................................ $ -- $ -- $ -- $ 782 $ 19,407 $ 6,491 $ 3,455 Operating costs and expenses: Cost of revenues.............................. -- -- -- 337 5,447 3,534 1,074 Research and development...................... 29 377 818 5,341 12,743 8,772 12,448 Selling, general and administrative........... 8 87 185 2,118 7,155 5,260 4,205 Amortization of intangibles................... -- -- -- 5,127 11,983 9,026 8,869 Charge for in-process technology.............. -- -- -- 7,000 -- -- -- ------ ------ ------- -------- -------- -------- -------- Total operating costs and expenses.......... 37 464 1,003 19,923 37,328 26,592 26,596 ------ ------ ------- -------- -------- -------- -------- Operating loss................................ (37) (464) (1,003) (19,141) (17,921) (20,101) (23,141) Other income (expense): Equity in loss of joint venture............. -- -- -- (258) (1,647) (1,244) (2,030) Interest income............................. -- -- -- 392 782 633 416 Interest expense............................ -- -- -- (1,663) (2,968) (3,341) (8) ------ ------ ------- -------- -------- -------- -------- Total other income (expense).............. -- -- -- (1,529) (3,833) (3,952) (1,622) ------ ------ ------- -------- -------- -------- -------- Loss before income taxes...................... (37) (464) (1,003) (20,670) (21,754) (24,053) (24,763) Tax benefit................................... -- -- -- 1,092 2,647 1,986 1,986 ------ ------ ------- -------- -------- -------- -------- Net loss...................................... $ (37) $ (464) $(1,003) $(19,578) $(19,107) $(22,067) $(22,777) ====== ====== ======= ======== ======== ======== ======== Per GZMO common share (basic and diluted): Net loss.................................... $ (3.81) $ (5.62) $ (1.80) ======== ======== ======== Weighted average shares outstanding........... 5,019 3,929 12,672 ======== ======== ======== Pro forma net loss per GZMO common share (basic and diluted) (1)..................... $(0.01) $(0.12) $ (0.26) $ (4.98) ====== ====== ======= ======== Pro forma weighted average shares outstanding................................. 3,929 3,929 3,929 3,929 ====== ====== ======= ========
DECEMBER 31, SEPTEMBER 30, 1999 1998 ------------------------------------ ACTUAL ACTUAL AS ADJUSTED (2) ------------ -------------- --------------- (UNAUDITED) COMBINED BALANCE SHEET DATA: Cash and investments...................................... $ 11,900 $ 1,685 $ 69,570 Working capital........................................... 9,189 (6,257) 61,628 Total assets.............................................. 35,952 10,859 78,744 Accumulated deficit....................................... (40,189) (62,966) (62,966) Division equity........................................... 23,364 750 68,635
- ------------------------------ (1) We present pro forma per share information for periods ending prior to June 18, 1997 because no shares of GZMO Stock were outstanding before that date. (2) As adjusted to reflect the net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses) from the sale of the 3,000,000 shares of GZMO Stock offered by this prospectus supplement at an assumed price of $24.25 per share, the last sale price for GZMO Stock as reported by Nasdaq on March 22, 2000. S-7 RISK FACTORS IF YOU PURCHASE THE SHARES OF GZMO STOCK OFFERED BY THIS PROSPECTUS SUPPLEMENT YOU WILL TAKE ON FINANCIAL RISK. IN DECIDING WHETHER TO INVEST, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND THE OTHER INFORMATION TO WHICH WE HAVE REFERRED YOU. IT IS ESPECIALLY IMPORTANT TO KEEP THESE RISK FACTORS IN MIND WHEN YOU READ FORWARD-LOOKING STATEMENTS. RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY WE MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE ANY OF OUR CANCER THERAPIES. We do not have any cancer therapies on the market and our only therapies in clinical development are our melanoma and breast cancer vaccines. Before commercializing any cancer therapies, we will need to conduct substantial research and development, including, in some cases, the replication of preclinical studies performed by our collaborators, undertake preclinical and clinical testing and obtain regulatory approvals. This process involves a high degree of uncertainty and may take several years. Our product development efforts may fail for many reasons, including: - the product fails in preclinical studies; - clinical trials may not support the safety or effectiveness of the product; or - we fail to obtain the required regulatory approvals. We cannot guarantee that we will successfully develop any particular product or that any product we successfully develop will gain market acceptance. WE ANTICIPATE FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. We have not generated significant revenues to date and do not expect to do so for several years. As of September 30, 1999, we had an accumulated deficit of approximately $63.0 million. We expect to have significant operating losses for the next several years. We plan to spend substantial amounts of money on, among other things: - research and development; - preclinical and clinical testing; and - pursuing regulatory approvals. We cannot guarantee that the efforts underlying these expenditures will be successful or that our operations will ever be profitable. IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that the estimated net proceeds from this offering, together with our current cash resources, amounts available under a line of credit from Genzyme General, and revenues generated from our SAGE-TM- technology and license agreements, will be sufficient to fund our operations through 2002. Our cash needs may differ from those planned, however, because of many factors, including the: - results of research and development and clinical testing; - achievement of milestones under existing strategic collaborations; S-8 - ability to establish and maintain additional strategic collaborations and licensing arrangements; - costs of protecting our intellectual property rights; - development of competing products and services; and - ability to satisfy regulatory requirements of the U.S. Food and Drug Administration (FDA) and other government authorities. We may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that we will be able to obtain any additional financing or find it on favorable terms. If we have insufficient funds or are unable to raise additional funds, we may have to delay, reduce or eliminate some of our programs. We may also have to give third parties rights to commercialize technologies or products that we would otherwise have sought to commercialize ourselves. WE MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE COLLABORATIONS. Our strategy to develop and commercialize some of our products and services includes entering into various arrangements with academic and corporate collaborators and licensees. We depend on the success of these parties in performing research, preclinical and clinical testing and marketing. These arrangements may require us to transfer important rights to our corporate collaborators and licensees. Our collaborators and licensees could choose not to devote resources to these arrangements or, under certain circumstances, may terminate them early. In addition, our collaborators and licensees, outside of their arrangements with us, may develop technologies or products that are competitive with those that we are developing. As a result, we cannot guarantee that we will receive revenues from these relationships or that any of our strategic collaborations will continue or not terminate early. In addition, we cannot guarantee that we will be able to enter into collaborations in the future. OUR COMPETITORS MAY TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY. Our long-term success largely depends on our ability to obtain and maintain patent and other proprietary right protection for our technology and products. If we fail to obtain or maintain these protections, we may not be able to prevent third parties from using our proprietary rights. Patents based on our currently pending or our future patent applications may not issue. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage. Further, our patents, our collaborators' patents, and those patents for which we have license rights may be challenged, narrowed, invalidated or circumvented. The U.S. Patent and Trademark Office (PTO) and the courts have not established a consistent policy regarding the breadth of claims allowed in biotechnology patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights. In the past, the PTO has considered proposals regarding the appropriateness and scope of patent protection for genes and gene fragments. These or other proposals may result in changes in or interpretations of the patent laws that adversely affect our patent position. We also rely upon trade secrets, proprietary know-how, and continuing technological innovation to remain competitive. We have taken measures to protect our trade secrets and know-how, including the use of confidentiality agreements with our employees, consultants and corporate collaborators. It is possible that these agreements may be breached and that any remedies for a breach will not make us whole. We also cannot guarantee that other parties will not independently develop our know-how or otherwise obtain access to our technology. S-9 WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products we are developing or testing. As a result, we may be required to obtain licenses from the holders of these patents in order to use or sell certain products and services. We cannot guarantee that these licenses will be made available to us on acceptable terms or at all. If these licenses are not available to us, our ability to commercialize our products and services may be impaired. In our cancer vaccine program, we are in the process of evaluating the therapeutic administration of peptide products and genes that encode specific tumor antigens, including MART-1 and gp100. We know of two issued U.S. patents directed to the gene that encodes MART-1. While we have obtained rights under one of these patents, we are still in the process of evaluating the scope and validity of the other to determine whether we need to obtain a license. We are also evaluating an issued U.S. patent covering the gene that encodes gp100 and three published Patent Cooperation Treaty applications by three different applicants which may cover antigens derived from gp100. We are in the process of evaluating the scope and validity of these patents and patent applications to determine whether we need to obtain licenses. WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS. If we or one of our strategic collaborators initiate litigation to enforce our patent or license rights, or are required to defend these rights in response to third party claims, it could consume a substantial portion of our resources. We cannot guarantee that we or our strategic collaborator would prevail in such litigation. If we do not prevail, we or our strategic collaborators may be required to: - pay monetary damages; - stop commercial activities relating to the affected products or services; or - obtain a license in order to continue manufacturing or marketing the affected products or services. If we are required to pay damages or if commercial activities are disrupted, our business or financial position may be negatively impacted. In addition, if we or our strategic collaborators are required to obtain a license, we cannot guarantee that one would be made available to us on acceptable terms or at all. We have licensed our p53 gene therapy rights to Schering-Plough. These patent rights are the subject of an interference proceeding in the U.S. and an opposition proceeding in Europe. Adverse determinations in these proceedings may negatively affect our ability to receive future milestones and product royalties under our agreement with Schering-Plough. ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF OUR GENE THERAPY PRODUCTS. The recent death of a patient undergoing gene therapy using an adenoviral vector to deliver a therapeutic gene has been widely publicized. This death and any other adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation and potential regulatory delays relating to the testing or approval of our gene therapy products. As a result of this death, the U.S. Senate has commenced hearings to determine whether additional legislation is required to protect volunteers and patients who participate in gene therapy clinical trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory body to the National Institutes of Health (NIH), has extensively discussed the use of adenoviral vectors in gene therapy clinical trials and recently issued a draft report on the safety of adenoviral vectors. While this draft report recommends S-10 that clinical trials using adenoviral vectors should continue with caution, it also suggested a number of changes in the way gene therapy clinical trials are conducted. If any new guidelines are adopted by the NIH, our gene therapy clinical trials could be delayed or become more expensive to conduct. We have reported to the FDA and the NIH that there have been three deaths in our Phase I/II melanoma cancer vaccine trial at Massachusetts General Hospital. The principal investigator for this trial indicated that each of these deaths was due to disease progression and not related to the patient's treatment. Deaths are not unexpected in a clinical trial treating patients with advanced stage melanoma because these patients have short life expectancies. We cannot, however, rule out the possibility that our cancer vaccines may be a contributing cause of death for patients in the future. The commercial success of any gene therapy products that we develop will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product labeling requirements of gene therapies and could cause a decrease in the demand for any gene therapy product that we may develop. REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES. Our ability to successfully satisfy regulatory requirements will significantly determine our future success. We cannot guarantee that any required regulatory approvals will be granted or that they will be granted on a timely basis. The manufacture and sale of health care products and the provision of health care services are highly regulated. In particular, the FDA and comparable agencies in foreign countries must approve human therapeutic and diagnostic products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. This regulation may delay the time at which a product or service first can be sold, limit how a product or service may be used, or adversely impact third party reimbursement. OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE SUPERIOR RESEARCH AND DEVELOPMENT, MARKETING AND MANUFACTURING CAPABILITIES. The field of cancer therapeutics is extremely competitive. Major pharmaceutical companies and other biotechnology companies compete with us in each of our primary areas of focus. These competitors may have superior research and development, marketing and manufacturing capabilities. Some competitors also may have greater financial resources than we do. Our future success will depend on our ability to effectively develop and market our products against those of our competitors. Competition can arise from the use of the same or similar technologies as those we currently use or contemplate using, as well as from existing therapies. Any or all of these may be more effective or less expensive than those we develop. In addition, technological advances or different approaches developed by one or more of our competitors may render our products obsolete, less effective or uneconomical. IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR SERVICES MAY BECOME OBSOLETE. The field of biotechnology is characterized by significant and rapid technological change. Although we attempt to expand our technological capabilities in order to remain competitive, research and discoveries by others may make our products or services obsolete. For example, certain of our competitors may develop genomics technology that make our SAGE technology obsolete. S-11 IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR ONCOLOGY PRODUCTS AND SERVICES FROM THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS AND SERVICES WILL BE SIGNIFICANTLY LIMITED. A substantial portion of our future revenue may come from payments by third party payers, including government health administration authorities and private health insurers. Third party payers may not reimburse patients for newly approved health care products. Increasingly, third party payers are attempting to contain health care costs by: - challenging the prices charged for health care products and services; - limiting both coverage and the amount of reimbursement for new therapeutic products; - denying or limiting coverage for products that are approved by the FDA, but are considered experimental or investigational by third party payers; and - refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval. Government and other third party payers may provide inadequate or no insurance coverage and reimbursement for our products and services. In addition, Congress has occasionally discussed implementing broad-based measures to contain health care costs. It is possible that Congress will enact legislation specifically designed to contain health care costs. We cannot predict the effect that legislation of this type would have on our business. RISKS RELATED TO GENZYME TRACKING STOCKS GZMO Stock is one of four series of Genzyme tracking stock. Genzyme has three other series of tracking stock: GENZ Stock, GZSP Stock, and GZTR Stock. These stocks reflect the value and track the performance of Genzyme's three other operating divisions: - GENZ Stock tracks the performance of Genzyme General; - GZSP Stock tracks the performance of Genzyme Surgical Products; and - GZTR Stock tracks the performance of Genzyme Tissue Repair. There are risks related to owning shares of Genzyme's tracking stock. Accordingly, before investing in GZMO Stock, you should review the risks and uncertainties referred to below related to Genzyme's tracking stock that are described in more detail under the heading "Risk Factors" beginning on page 10 and ending on page 13 of the accompanying prospectus. - Holders of GZMO Stock are stockholders of a single company and unfavorable financial trends affecting another division could negatively affect us. - Genzyme's board of directors may take actions that, while in the best interests of Genzyme as a whole, have an unequal and adverse effect on the holders of one or more series of Genzyme's tracking stock, including GZMO Stock. - Members of Genzyme's board of directors may favor one series of tracking stock over GZMO Stock if they own a disproportionate amount of that series. - Holders of GZMO Stock have limited decision-making power because they have limited separate voting rights. - The liquidation rights for GZMO Stock are not adjusted to reflect changes in its market value. - Genzyme's board of directors may change Genzyme's management and accounting policies to the detriment of the holders of GZMO Stock without stockholder approval. S-12 - Genzyme may eliminate tracking stock if a corporate level tax is imposed on the issuance or receipt of tracking stock. - The use of our operating losses to lower the reported tax liability of Genzyme's profitable divisions will cause us to report lower earnings in the future. - Future sales or distributions of GZMO designated shares may significantly dilute your ownership of GZMO Stock. RISKS RELATED TO GENZYME Holders of GZMO Stock are stockholders of Genzyme. Liabilities or contingencies of the other divisions of Genzyme that affect Genzyme's resources or financial condition could affect our financial condition or the results of our operations. Accordingly, you should review the risks and uncertainties referred to below related to Genzyme that are described in more detail under the heading "Risk Factors" beginning on page 4 and ending on page 10 of the accompanying prospectus. - A reduction in revenues from sales of products that treat Gaucher disease would have an adverse effect on Genzyme's business. - Government regulation imposes significant costs and restrictions on the development and commercialization of Genzyme's products and services. - Legislative changes may adversely impact Genzyme's business. - Because the development of Genzyme's products involves a lengthy and complex process, it is uncertain whether Genzyme will be able to commercialize any of its products currently in development. - Any marketable products that Genzyme develops may not be commercially successful. - Genzyme may require significant additional financing, which may not be available or available on favorable terms. - Genzyme may fail to protect adequately its proprietary technology, which would allow competitors to take advantage of its research and development efforts. - Genzyme may be required to license technology from competitors in order to develop and commercialize some of its products and services, and it is uncertain whether these licenses will be available. - Genzyme may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights. - Genzyme may be liable for product liability claims not covered by insurance. - Genzyme's competitors in the biotechnology and pharmaceutical industries may have superior products, manufacturing capabilities or marketing expertise. - If Genzyme is unable to keep up with rapid technological changes, its products or services may become obsolete. - If Genzyme fails to obtain adequate levels of reimbursement for its products from third-party payers, the commercial potential of its products will be significantly limited. - Changes in the economic, political, legal and business environments in the foreign countries in which Genzyme does business could cause its international sales and operations, which account for a significant percentage of its consolidated net sales, to be limited or disrupted. S-13 - Several anti-takeover provisions may deprive Genzyme's stockholders of the opportunity to receive a premium for their shares upon a change in control. - Genzyme could experience system failures and disruptions of its operations as a result of the year 2000 date recognition problem. RISKS RELATED TO THIS OFFERING VOLATILITY IN THE PRICE OF GZMO STOCK COULD RESULT IN A DECREASE IN THE PRICE OF GZMO STOCK AND THE LOSS OF A SUBSTANTIAL AMOUNT OF YOUR INVESTMENT. Stock prices of many companies in the biotechnology industry have experienced wide fluctuations that have often been unrelated to the operating performance of these companies. The market price for GZMO Stock may vary widely as a result of several factors, including: - announcements of technological innovations or new commercial products by us or our competitors; - governmental regulatory initiatives; - patent or proprietary rights developments; - results of our preclinical studies and clinical trials; - public concern as to the safety or other implications of biotechnology products; - quarterly fluctuations in our revenues and other financial results; and - general market conditions. These factors could lead to a significant decrease in the market price of GZMO Stock and you could lose a substantial amount of your investment. S-14 USE OF PROCEEDS We estimate the net proceeds from the sale of 3,000,000 shares of GZMO Stock in this offering will be approximately $67.9 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming a public offering price of $24.25 per share, the last sale price for GZMO Stock as reported by Nasdaq on March 22, 2000. Our net proceeds are estimated to be approximately $78.1 million if the underwriters exercise their over-allotment option in full. The principal purpose of this offering is to fund our research and preclinical and clinical development activities. We also anticipate that the net proceeds will be used to repay approximately $5.1 million of outstanding indebtedness and for working capital and general corporate purposes. The indebtedness that we are repaying was borrowed under Genzyme's revolving credit facility with a syndicate of commercial banks. This indebtedness currently bears interest at the rate of 6.74% per annum and is due in May 2000. We may use a portion of the net proceeds to acquire or invest in complementary businesses, joint ventures, products or technologies. From time to time we may enter into discussions regarding acquisitions or investments. Our management will have broad discretion to allocate the proceeds from this offering to uses that it believes are appropriate. Pending these uses, the net proceeds from this offering will be invested in short-term, interest-bearing securities or deposit accounts. S-15 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999 on an actual basis and on an as adjusted basis to reflect the net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses) from the sale of the 3,000,000 shares of GZMO Stock offered by this prospectus supplement at an assumed public offering price of $24.25 per share, the last sale price for GZMO Stock as reported by Nasdaq on March 22, 2000.
SEPTEMBER 30, 1999 ----------------------- ACTUAL AS ADJUSTED --------- ----------- (IN THOUSANDS) Long-term debt.............................................. $ -- $ -- Division equity: Common stock at par..................................... 127 157 Additional paid-in capital.............................. 63,589 131,444 Accumulated deficit..................................... (62,966) (62,966) --------- --------- Total division equity....................................... 750 68,635 --------- --------- Total capitalization.................................... $ 750 $ 68,635 ========= =========
S-16 PRICE RANGE OF GZMO STOCK AND GENZYME DIVIDEND POLICY GZMO Stock began trading on the Nasdaq National Market under the symbol "GZMO" on November 16, 1998. The following table shows for the periods indicated the high and low bid prices of GZMO Stock as reported by Nasdaq.
HIGH LOW -------- -------- Year Ended December 31, 1998: Fourth Quarter (from November 16, 1998)................... $15.00 $ 2.00 Year Ended December 31, 1999: First Quarter............................................. $ 5.47 $ 2.31 Second Quarter............................................ $ 3.97 $ 2.63 Third Quarter............................................. $10.50 $ 2.63 Fourth Quarter............................................ $ 7.13 $ 4.19 Year Ended December 31, 2000: First Quarter (through March 22, 2000).................... $44.00 $ 5.00
On March 22, 2000, the last sale price of GZMO Stock as reported by Nasdaq was $24.25. As of March 22, 2000, there were approximately 2,200 record holders of GZMO Stock. Genzyme has never paid a cash dividend on shares of its capital stock, including GZMO Stock. Genzyme has retained all its earnings for use in its business. Genzyme expects to continue to follow the policy of retaining funds for reinvestment in its business. S-17 GENZYME MOLECULAR ONCOLOGY SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) The table below represents our selected historical combined statement of operations and balance sheet data. The information for the nine months ended September 30, 1998 and 1999 includes all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Revenues, expenses, assets and liabilities may vary from quarter to quarter. Therefore, the results and trends for interim periods may not be the same as those for the full year. This information is only a summary. You should read it in conjunction with our historical financial statements and related notes contained in Genzyme's annual and quarterly reports and other information on file with the SEC, as well as "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations" in this prospectus supplement. In addition, Genzyme owns all the assets and is responsible for all the liabilities allocated to us. Liabilities or contingencies of any of Genzyme's other operating divisions that affect its resources or financial condition could affect our financial condition or results of operations. Therefore, we encourage you to review Genzyme's consolidated financial statements, related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Genzyme's annual and quarterly reports and other information on file with the SEC. See "Where You Can Find More Information" on page 55 of the accompanying prospectus. S-18
FROM DECEMBER 1, 1994 (DATE OF NINE MONTHS ENDED INCEPTION) TO FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ----------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ------------- -------- -------- -------- -------- -------- -------- (UNAUDITED) COMBINED STATEMENTS OF OPERATIONS DATA: Revenues: Service revenue............................... $ -- $ -- $ -- $ 467 $ 2,229 $ 1,698 $ 1,500 Service revenue--related party................ -- -- -- -- 466 324 11 Research and development revenue--related party....................................... -- -- -- 315 2,177 1,619 496 Research and development revenue.............. -- -- -- -- 14,535 2,850 1,448 ------ ------ ------- -------- -------- -------- -------- Total revenue............................. -- -- -- 782 19,407 6,491 3,455 Operating costs and expenses: Cost of revenues............................ -- -- -- 337 5,447 3,534 1,074 Research and development.................... 29 377 818 5,341 12,743 8,772 12,448 Selling, general and administrative......... 8 87 185 2,118 7,155 5,260 4,205 Amortization of intangibles................. -- -- -- 5,127 11,983 9,026 8,869 Charge for in-process technology............ -- -- -- 7,000 -- -- -- ------ ------ ------- -------- -------- -------- -------- Total operating costs and expenses........ 37 464 1,003 19,923 37,328 26,592 26,596 ------ ------ ------- -------- -------- -------- -------- Operating loss................................ (37) (464) (1,003) (19,141) (17,921) (20,101) (23,141) Other income (expense): Equity in loss of joint venture............. -- -- -- (258) (1,647) (1,244) (2,030) Interest income............................. -- -- -- 392 782 633 416 Interest expense............................ -- -- -- (1,663) (2,968) (3,341) (8) ------ ------ ------- -------- -------- -------- -------- Total other income (expense).............. -- -- -- (1,529) (3,833) (3,952) (1,622) ------ ------ ------- -------- -------- -------- -------- Loss before income taxes...................... (37) (464) (1,003) (20,670) (21,754) (24,053) (24,763) Tax benefit................................... -- -- -- 1,092 2,647 1,986 1,986 ------ ------ ------- -------- -------- -------- -------- Net loss attributable to GZMO Stock........... $ (37) $ (464) $(1,003) $(19,578) $(19,107) $(22,067) $(22,777) ====== ====== ======= ======== ======== ======== ======== Per GZMO common share (basic and diluted): Net loss.................................... $ (3.81) $ (5.62) $ (1.80) ======== ======== ======== Weighted average shares outstanding........... 5,019 3,929 12,672 ======== ======== ======== Pro forma per GZMO common share (basic and diluted)(1): Pro forma net loss.......................... $(0.01) $(0.12) $ (0.26) $ (4.98) ====== ====== ======= ======== Pro forma weighted average shares outstanding................................... 3,929 3,929 3,929 3,929 ====== ====== ======= ========
DECEMBER 31, SEPTEMBER 30, 1999 ------------------------------------------------------- -------------------------- 1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED (2) ----------- -------- -------- -------- -------- -------- --------------- (UNAUDITED) COMBINED BALANCE SHEET DATA: Cash and investments....................... $ -- $ -- $ -- $ 21,229 $ 11,900 $ 1,685 $ 69,570 Working capital............................ -- -- -- 11,953 9,189 (6,257) 61,628 Total assets............................... -- -- -- 53,801 35,952 10,859 78,744 Long-term debt and convertible debt........ -- -- -- 24,606 -- -- -- Accumulated deficit........................ (37) (501) (1,504) (21,082) (40,189) (62,966) (62,966) Division equity............................ -- -- -- 13,466 23,364 750 68,635
- ------------------------------ (1) We present pro forma per share information for periods ending prior to June 18, 1997 because no shares of GZMO Stock were outstanding before that date. (2) The combined balance sheet data as of September 30, 1999 is as adjusted to reflect the net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses) from the sale of 3,000,000 shares of GZMO Stock offered by this prospectus supplement at an assumed price of $24.25 per share, the last sale price for GZMO Stock as reported by Nasdaq on March 22, 2000. S-19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME MOLECULAR ONCOLOGY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND Genzyme formed Genzyme Molecular Oncology on June 18, 1997 by acquiring PharmaGenics, Inc. and combining it with several of Genzyme's ongoing programs in the field of oncology. The amounts we report in our financial statements for periods ending prior to June 18, 1997 are attributable to Genzyme's oncology programs that were allocated to us upon our formation. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES We recorded $3.5 million of total revenue for the nine months ended September 30, 1999 as compared to $6.5 million of total revenue for the corresponding period in 1998. Service revenue decreased from $2.0 million to $1.5 million in this period as a result of a decline in the provision of genomics services using our SAGE-TM- gene expression technology. Licensing revenue increased in this period from $0.6 million to $1.4 million as a result of our grant of licenses under our rights to the SAGE technology and the MDM2 protein. Research and development revenue decreased from $3.9 million to $0.5 million in this period. This decrease was a result of a reduction in work we performed on behalf of StressGen/Genzyme LLC (our joint venture with StressGen Biotechnologies Corporation and the Canadian Medical Discoveries Fund, Inc. to develop stress gene therapies for the treatment of cancer that was dissolved in December 1999) and the completion of research and development work we performed on behalf of Schering-Plough in 1998. MARGINS AND OPERATING EXPENSES Our cost of revenues for the nine months ended September 30, 1999 was $1.1 million as compared to $3.5 million in the same period in 1998. Our cost of revenues includes: - work performed on behalf of StressGen/Genzyme LLC; - services performed using the SAGE gene expression technology on behalf of third parties; - performance of gene therapy research on behalf of Schering-Plough; and - royalties payable to third parties. The decrease in cost of revenues was attributable to the completion of the Schering-Plough research project and a reduction in the royalty rate payable by us for using the SAGE technology on behalf of third parties. For the nine months ended September 30, 1999, we incurred $4.2 million of selling, general and administrative expenses, as compared to $5.3 million for the nine-month period ended September 30, 1998. This decrease was primarily the result of: - reduced legal costs associated with the prosecution and maintenance of our intellectual property portfolio; and - a one-time charge taken in the third quarter of 1998 to write off costs incurred in connection with a public offering of GZMO Stock that we did not complete. S-20 Our research and development expenses were $12.4 million for the nine months ended September 30, 1999 as compared to $8.8 million for the same period in 1998. The increase in research and development costs were the result of: - the initiation of a clinical trial for our melanoma tumor vaccine product; and - an increase in the number of research personnel and related expenses required to support the continued development of our cancer vaccine and angiogenesis inhibitor programs. We incur direct selling, general and administrative expenses and research and development expenses, as well as cross charges for the actual cost of selling, general and administrative and research and development services performed by Genzyme General on our behalf. Our amortization expense was $8.9 million for the nine months ended September 30, 1999 as compared to $9.0 million for the same period in 1998. This expense relates to intangible assets acquired in the PharmaGenics acquisition in 1997. OTHER EXPENSES Our other expenses decreased from $4.0 million in the first nine months of 1998 to $1.6 million in the same period in 1999. This decrease was a result of lower interest expense resulting from the transfer of our convertible debt to Genzyme General in August 1998. The decrease in interest expense, however, was partially offset by a $1.0 million charge we took in the third quarter of 1999 in connection with our repurchase of one-half of the Canadian Medical Discoveries Fund's interest in the StressGen joint venture. YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 REVENUES We recorded $19.4 million of total revenue in 1998 as compared to $0.8 million of total revenue in 1997. The increase in revenue in 1998 was primarily attributable to an increase of $16.4 million in research and development revenue. The increase in research and development revenue was primarily attributable to $13.0 million in revenue recorded in connection with a research and license agreement with Schering-Plough. Our revenue also included work performed on behalf of StressGen/Genzyme LLC. MARGINS AND OPERATING EXPENSES Our cost of revenues in 1998 was $5.4 million as compared to $0.3 million in 1997. This increase was primarily attributable to: - services performed using the SAGE gene expression technology on behalf of third parties; - performance of gene therapy research on behalf of Schering-Plough; and - research and development work performed on behalf of StressGen/Genzyme LLC. In 1998, we incurred $7.2 million of selling, general and administrative expenses, compared to $2.1 million in 1997. The increase was due to: - increased administrative support needed to support the growth of our business; and - a one-time charge taken in the third quarter of 1998 to write off costs incurred in connection with a public offering of GZMO Stock that we did not complete. S-21 Research and development expenses in 1998 increased to $12.7 million from $5.3 million in 1997. The increase was attributable to increases in research personnel and related expenses required to support our SAGE, gene therapy and small molecule programs. Amortization expenses in 1998 increased to $12.0 million from $5.1 million, in 1997. The increase was attributable to intangible assets we acquired in the PharmaGenics acquisition in June 1997. OTHER INCOME AND EXPENSES Interest income increased in 1998 to $0.8 million from $0.4 million in 1997, mainly as the result of higher average cash balances during 1998. Interest expense increased to $3.0 million in 1998 compared to $1.7 million in 1997. The increase in interest expense was the result of interest and related amortization of the discount on the 6% convertible debentures issued in August 1997. These debentures, which had been convertible into shares of GZMO Stock, were exchanged in August 1998 for 5% convertible debentures convertible into shares of GENZ Stock. We established StressGen/Genzyme LLC in July 1997. We recorded equity in net loss of the joint venture of $1.6 million in 1998 and $0.3 million in 1997. We recorded a tax benefit of $2.6 million in 1998 as compared to $1.1 million during 1997. The tax benefit resulted from the amortization of the deferred tax liability established upon the acquisition of PharmaGenics. YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 REVENUES We recorded $0.8 million total revenue in 1997 as compared to no revenue in 1996. We recorded service revenue of $0.5 million in connection with the provision of SAGE services to a third party. We also recorded research and development revenue of $0.3 million, which consisted of research and development work performed on behalf of StressGen/Genzyme LLC. MARGINS AND OPERATING EXPENSES Our cost of revenues in 1997 was $0.3 million and consisted of research and development work performed on behalf of StressGen/Genzyme LLC. In 1997, we incurred $2.1 million of selling, general and administrative expenses as compared to $0.2 million in 1996. The increase was attributable to increased administrative support corresponding to the growth of our business following the acquisition of PharmaGenics. Research and development expenses in 1997 increased to $5.3 million from $0.8 million in 1996. The increase in research and development costs related to an increase in the number of research personnel and related expenses required to support the development of our SAGE and gene therapy programs. Amortization expense of $5.1 million in 1997 was attributable to the PharmaGenics acquisition in June 1997. There were no similar amounts in 1996. OTHER INCOME AND EXPENSES Interest income was $0.4 million in 1997 and interest expense was $1.7 million in 1997. There were no similar amounts in 1996. The interest income resulted from higher average cash balances due to the issuance in August 1997 of the 6% convertible debentures. Interest expense consisted of interest and related amortization of the discount on these debentures. S-22 We recorded equity in net loss of StressGen/Genzyme LLC of $0.3 million in 1997. Because StressGen/Genzyme LLC was formed in July 1997, there were no comparable amounts in 1996. We recorded a tax benefit of $1.1 million during 1997. There was no similar amount in 1996. The tax benefit results from amortization of the deferred tax liability established upon the acquisition of PharmaGenics. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999, we had cash, cash equivalents and short-term investments of $1.7 million, a decrease of $10.2 million from December 31, 1998. Substantially all of this decrease is attributable to cash used for operating activities. In 1998, we used $8.1 million of cash for operations. Investing activities in 1998 provided $4.0 million of cash, which consisted of $7.1 million in proceeds from the maturities of investments, offset by $2.1 million used to purchase investments and $0.6 million used to acquire equipment. In 1998, Genzyme's board of directors made $30.0 million of Genzyme General's cash available to us under an equity line of credit. Under the terms of this equity line, we may draw down funds as needed in exchange for GZMO designated shares. GZMO designated shares are shares of GZMO Stock that are not issued and outstanding, but which Genzyme's board of directors may issue, sell, or distribute without allocating the proceeds to us. We have not yet drawn down any funds under this equity line. We anticipate that the estimated net proceeds from this offering, together with our current cash resources and amounts available from the following sources, will be sufficient to fund our operations through 2002: - the $30.0 million equity line of credit from Genzyme General; - revenues generated from the SAGE gene expression technology; and - revenues from license agreements. We expect to have significant operating losses for the next several years. We plan to spend substantial amounts of money on, among other things: - research and development; - preclinical and clinical testing; and - pursuing regulatory approvals. Our cash needs may differ from those planned as a result of many factors, including the: - results of research and development and clinical testing; - achievement of milestones under existing strategic collaborations; - ability to establish and maintain additional strategic collaborations and licensing arrangements; - costs of protecting our intellectual property rights; - development of competing products and services; and - ability to satisfy regulatory requirements of the FDA and other government authorities. We may require significant additional financing to continue operations. We cannot guarantee that we will be able to obtain any additional financing or find it on favorable terms. If we have insufficient funds or are unable to raise additional funds, we may have to delay, scale back or eliminate some of S-23 our programs. We may also have to give third parties rights to commercialize technologies or products that we would otherwise have sought to commercialize ourselves. For a discussion of the demands, commitments and events that may affect Genzyme's liquidity and capital resources, including those affecting Genzyme Molecular Oncology, see "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations--Liquidity and Capital Resources," contained in Genzyme's annual reports, quarterly reports and other information on file with the SEC. See "Where You Can Find More Information" on page 55 of the accompanying prospectus. S-24 BUSINESS OVERVIEW Genzyme Molecular Oncology is developing a new generation of cancer therapeutics based upon the growing understanding of the molecular basis of cancer. We are focusing on three novel classes of cancer therapy: cancer vaccines, angiogenesis inhibitors and cancer pathway regulators. We believe that each of these therapeutic classes will address multiple cancer indications with limited side effects and will enable us to capitalize on the large and growing market for cancer therapeutics. Our product pipeline includes: - an antigen-specific vaccine in a Phase I/II trial for melanoma; - a cell therapy vaccine in a Phase I/II trial for breast cancer; - five additional cancer vaccine clinical trials expected to begin during 2000; and - multiple preclinical development and research programs to develop additional cancer vaccines, angiogenesis inhibitors and cancer pathway regulators. We use our broad technology platforms to support and expand our product pipeline. Our powerful SAGE-TM- gene expression technology is the cornerstone of our functional genomics platform. We apply SAGE in all of our programs to identify genes involved in cancer and to understand their role in the disease process. To expand our cancer vaccine pipeline, we have built a proprietary, state-of-the-art antigen discovery platform that combines identification and validation in one step. We are using this platform to rapidly and efficiently identify and validate target antigens for incorporation into novel antigen-specific cancer vaccines. We complement our own capabilities through our collaborations with some of the world's preeminent cancer researchers. Our collaborators include Drs. Judah Folkman at Children's Hospital in Boston, Kenneth Kinzler at The Johns Hopkins University, Donald Kufe at the Dana-Farber Cancer Institute, Lloyd Old at the Ludwig Institute for Cancer Research, Steven Rosenberg at the National Cancer Institute, and Bert Vogelstein at The Johns Hopkins University and the Howard Hughes Medical Institute. These collaborations enable us to remain at the forefront of the development of novel cancer therapies by providing us with new technologies, novel therapeutic targets and drug candidates, access to leading clinical research centers, state-of-the-art research programs in the laboratories of our collaborators, and expert advice. We have established an extensive intellectual property estate. This estate allows us to generate out-licensing revenues in fields in which we are not developing products. Under an agreement with Schering-Plough covering gene therapy rights to the p53 gene, we have received $12 million in revenues to date, and may receive an additional $30 million in future milestones as well as royalties on product sales. Schering-Plough is currently conducting a Phase II/III clinical study of a p53 gene therapy product. We also generate revenues from SAGE through license and service agreements and database collaborations. In addition, our antigen discovery platform provides opportunities for out-licensing in the fields of infectious disease and autoimmune disorders. We are an operating division of Genzyme, one of the world's leading biopharmaceutical companies. We have technology and personnel dedicated to our business and access to Genzyme's extensive technology base and infrastructure. This infrastructure includes production capabilities for each of our classes of products, a large and experienced clinical, regulatory and biostatistics staff, and a broad intellectual property portfolio. We intend to selectively establish additional resources required to commercialize products that we develop, including a dedicated sales force to address the oncology market. S-25 OPPORTUNITY Cancer ranks second to cardiovascular disease as the leading cause of death in the U.S. The American Cancer Society estimates that 550,000 cancer patients will die and over 1,200,000 new cancer cases will be diagnosed in the U.S. this year. The National Cancer Institute (NCI) projects that within five years cancer will be the leading cause of death in the U.S. The following table presents information from the American Cancer Society regarding a number of common cancers in the U.S.:
ANNUAL GROWTH RATE NEW CASES DEATHS OF NEW CASES TYPE OF CANCER IN 2000 IN 2000 1995-2000 - -------------- --------- -------- ------------------ Breast.................................. 184,200 41,200 +0.1% Prostate................................ 180,400 31,900 -5.9% Lung.................................... 164,100 156,900 -0.7% Colorectal.............................. 130,200 56,300 -1.2% Melanoma................................ 47,700 7,700 +6.9% Kidney.................................. 31,200 11,900 +1.6%
The National Institutes of Health estimate overall annual costs for cancer in the U.S. at $107 billion, with direct medical costs totaling $37 billion. The worldwide market for cancer drugs was over $16 billion in 1998, and is expected to grow to over $26 billion by 2002. Novel treatments, such as tumor vaccines, gene therapies, monoclonal antibodies and antisense therapies, are expected to account for a growing portion of this market. We believe that there is substantial opportunity to expand the market for cancer drugs without increasing the overall cost of cancer by developing more effective therapies that reduce non-drug expenditures. To be effective, cancer therapies must eliminate the cancer both at its site of origin and at sites to which it has spread, or metastasized. Metastatic disease is often responsible for the relapse of previously-treated cancer and the ultimate death of patients. Current treatments for cancer consist primarily of surgery, radiation and chemotherapy. Surgery and radiation treat cancer at its origin, but are of limited utility against cancer that has already metastasized. Radiation and chemotherapy attack healthy cells as well as cancer cells, and many patients suffer debilitating side effects from these treatments, including fatigue, nausea, loss of appetite, immunosuppression and hair loss. Further, cancer cells often mutate and become resistant to chemotherapy over time. The overall five year survival rate for cancer patients has gradually increased to 59% due to improvements in diagnosis and treatment, but there is still a great need for more effective, less harsh therapies. High rates of failure from current therapies and the limitations posed by severe side effects and tumor resistance have compelled researchers to focus on alternative strategies for cancer treatment. This research, together with advances in the fields of genomics and gene-based medicine, offers promising therapies that may overcome the limitations of existing approaches to the treatment of cancer. The wealth of genomics information generated in the last decade has dramatically increased our understanding of the molecular basis of cancer and has provided us with new targets for therapeutic intervention and insights into how to control the disease at the genetic level. In addition, a variety of clinically validated, gene-based approaches to medicine have been developed in recent years, and these are facilitating the development of novel cancer therapies that specifically target cancer cells and/or the tumor's environment. We believe that these specific, selective therapies will enhance efficacy with fewer side effects than existing therapies. These advances in understanding the genetic basis of cancer are the cornerstone of our efforts to develop the next generation of cancer therapeutics. S-26 OUR NOVEL APPROACHES TO CANCER TREATMENT We are developing a new generation of cancer therapies to address the significant unmet needs of large segments of the worldwide population who suffer from cancer. These therapies are designed to: - ADDRESS MULTIPLE CANCERS. Because these treatment approaches target processes common to most cancers and are designed to act systemically, they may work effectively against virtually all types of solid tumors and against cancers which have metastasized. - MINIMIZE TOXICITY AND SIDE EFFECTS. Because these treatment approaches target processes that are specific to cancer and are highly selective, they should have less toxicity and cause fewer side effects than traditional chemotherapy and radiation therapy. This should improve the patient's quality of life and permit extended periods of therapy. - COMPLEMENT EXISTING AND NOVEL THERAPIES. Because these treatments work on selected novel targets and have limited toxicity, we believe that oncologists are likely to combine them with both existing and novel therapies, similar to today's multi-drug chemotherapy regimens. We are developing products in three therapeutic classes that have the characteristics outlined above. These classes are: - VACCINES that treat cancer by stimulating the body's immune system to fight tumor cells; - ANGIOGENESIS INHIBITORS that treat cancer by preventing the formation and development of blood vessels that tumors require for growth; and - PATHWAY REGULATORS that treat cancer by regulating one or more of the metabolic processes in cancer cells necessary for tumor cells to grow and survive. We employ a strong and diverse set of capabilities in developing products within these three therapeutic classes. We use our functional genomics tools to identify targets and to better understand the molecular basis of cancer, the mechanism of action of our drugs, and patients' response to drugs. We draw upon Genzyme's extensive experience in gene therapy, cell therapy, protein therapy and small molecules to select and pursue the most appropriate therapeutic approach for each target. Once we have identified a product candidate, we access Genzyme's worldwide resources and infrastructure to accelerate its development. We believe that the combination of these capabilities increases the likelihood and speed of bringing effective novel therapies to market. S-27 OUR PRODUCTS AND DEVELOPMENT PROGRAMS The following chart describes the development status of our current products and development programs:
PRODUCT/PROGRAM TYPES OF CANCER STATUS - --------------- --------------- ------------------------ CANCER VACCINES Dendritic/tumor cell fusion....................... Breast Phase I/II trial ongoing Melanoma IND filed Kidney Preclinical Melan-A/MART-1 and gp100 antigens................. Melanoma Phase I/II trial ongoing NY-ESO-1 antigen.................................. Multiple Preclinical ANGIOGENESIS INHIBITORS aaATIII........................................... Multiple Preclinical Small molecules................................... Multiple Research Gene therapy...................................... Multiple Research CANCER PATHWAY REGULATORS Small molecules................................... Multiple Research
We own all commercial rights to each of these programs other than aaATIII, which we are co-developing with the ATIII LLC, a joint venture between Genzyme General and Genzyme Transgenics Corporation. CANCER VACCINES OVERVIEW OF CANCER IMMUNOTHERAPY The immune system is the body's natural defense mechanism to prevent and fight disease, including cancer. The immune system responds to disease in two distinct ways: the humoral, or B cell system; and the cellular, or T cell system. Researchers have demonstrated that the cellular arm of the immune system plays the dominant role in anti-tumor immune response. Antigens are molecular markers in tumor cells that enable the immune system to recognize and respond to these cells as being foreign. Specialized immune system cells called dendritic cells capture the antigens and present them to T cells that selectively recognize them. Once a T cell recognizes an antigen, the T cell multiplies. These T cells then search out and kill cells containing that same antigen. Consequently, we are seeking to stimulate a cellular immune response against tumors by using vaccines to present tumor-specific antigens to the immune system. Unlike infectious disease vaccines that are predominantly used to prevent disease, current cancer vaccines are designed to treat patients with active disease. OUR CANCER VACCINE PROGRAMS We believe that the most successful cancer vaccines will be those that activate a cellular immune response directed at the tumor. Our program features two types of vaccines for generating a tumor-specific cellular immune response: - where the specific tumor antigens are not known, we use a technique that fuses the patient's own tumor cells with dendritic cells, creating a cell therapy product; and - where specific tumor antigens have been identified as targets of the cellular immune response, we use gene-based or peptide-based tumor vaccines. We believe that both of these vaccine types will provide clinical benefit and have commercial potential. Development of antigen-specific vaccines, however, is currently limited by the lack of known S-28 tumor-specific antigens. Therefore, cell fusion may be more broadly applicable in the near term. Over time, as we identify more tumor-specific antigens, we anticipate having the ability to provide off-the-shelf vaccines that are customized based on the set of specific antigens present in the patient's tumor. CELL FUSION VACCINES Cell fusion vaccines are produced by removing tumor tissue from a patient, fusing that tissue with dendritic cells and irradiating the fusion product. Fusion is achieved using either a chemical or electrical process. The vaccine is then injected into the patient. By using the entire tumor cell, the vaccine is designed to incorporate all of the antigens found in the original tumor cell. The potential market for cell fusion vaccines includes all cancers characterized by surgically accessible tumors of sufficient size, and may be particularly useful where antigens specific to the target cancer have not yet been identified. The initial indications we plan to address are breast cancer, melanoma and kidney cancer. DEVELOPMENT PROGRAMS BREAST CANCER. Working with the Dana-Farber Cancer Institute and the Beth Israel Deaconess Medical Center in Boston, we initiated a Phase I/II study for the treatment of metastatic breast cancer in September 1999. We plan to enroll up to 20 patients in this study and to complete the study in late 2000. The vaccine used in this trial is produced using a chemical fusion process to combine the patient's own cancer cells and dendritic cells derived from the patient. The patients receive three doses of vaccine over a six-week period. The end points for this trial are safety, immunologic response and clinical response. KIDNEY CANCER AND MELANOMA. An academic group in Germany has recently published clinical data for the treatment of kidney cancer with a vaccine produced using electrofusion to combine a patient's cancer cells with dendritic cells derived from another source. The clinical response rate reported in that study was significantly higher than has been achieved with standard therapy in that patient population. Because of the positive results reported in the German study, we plan to commence four additional Phase I clinical trials for cell fusion vaccines in 2000. These trials will be in kidney cancer and in melanoma. For each type of cancer, we intend to conduct two trials, one using vaccine produced in the manner used in our breast cancer trial and one using vaccine produced in the manner used in the German study. These trials should provide us insight into the safety and efficacy of cell fusion vaccines in a variety of cancer indications, as well as a comparison of these two processes for producing cell fusion vaccines. We plan to analyze the cancer cells extracted from the patients in these cell fusion vaccine clinical trials using our antigen discovery technologies in order to identify the antigens associated with anti-tumor response. We plan to use this knowledge to expand development of our antigen-specific vaccines. ANTIGEN-SPECIFIC VACCINES An antigen-specific vaccine is a vaccine that delivers one or more antigens or antigen fragments to a patient to activate the immune system to selectively identify and kill tumor cells. The vaccine can be formulated as a gene therapy or as a peptide vaccine. A gene therapy vaccine is comprised of a gene delivery vector that incorporates the gene encoding an antigen and presents it to the immune system. A peptide vaccine is comprised of an antigen fragment which may be combined with substances that enhance its ability to trigger an immune response. We are focusing our initial efforts on cancer indications where tumor-specific antigens have already been identified. S-29 DEVELOPMENT PROGRAMS MELAN-A/MART-1 AND GP100. In collaboration with Dr. Rosenberg at the National Cancer Institute, we have conducted two Phase I clinical trials. In these trials, adenoviral gene delivery vectors carrying either the Melan-A/MART-1 or gp100 gene were evaluated for safety, immunologic reactivity and potential therapeutic effect when administered IN VIVO alone or in conjunction with recombinant interleukin-2. The results from these clinical studies indicated that the adenoviral vectors were safe and well tolerated, and that a small but notable number of both the 36 patients immunized with Melan-A/ MART-1 and the 18 patients treated with gp100 showed clinically significant tumor regression. These responses were seen in very late stage (Stage IV) metastatic disease patients, who are a heavily pre-treated patient population not expected to mount a robust immune response and who, as a group, have a very short life expectancy. In April 1999, we initiated a Phase I/II trial in melanoma patients at Massachusetts General Hospital. This trial involves extracting dendritic cells from the patient and combining these cells with a vaccine containing Melan-A/MART-1 and gp100 EX VIVO. The treated cells are then injected into the patient. We expect to enroll approximately 24 Stage III or IV patients in this trial and to complete enrollment in 2000. Each patient receives six doses of vaccine over a 15-week period. In this trial, we will assess safety, immunologic response and clinical response. Throughout the trial we will be performing a comprehensive analysis of the patient's immune response to the vaccine to help us to understand better why some patients respond well to the therapy while others do not. This analysis should aid us in optimizing our antigen-specific vaccines. We are also conducting preclinical studies to support a Phase I/II IN VIVO melanoma trial expected to begin early in the second half of 2000. For this study, we plan to utilize both the Melan-A/MART-1 and gp100 tumor antigens. In this trial, we intend to monitor patient immune responses in order to further elucidate the immunology of cancer to enhance our antigen-specific vaccine development efforts. We plan to enroll 27 patients with Stage II, III and IV disease. The end-points of this trial will be safety and immunologic response. Through our melanoma trials, we are optimizing our vaccine delivery systems and dosing methods for use with other antigens that we may discover through our antigen discovery program or license from third parties such as the NY-ESO-1 antigen. NY-ESO-1. NY-ESO-1 is an antigen expressed in a subset of a number of different tumor types, including breast cancer, melanoma and lung cancer. We are conducting preclinical development to support a Phase I/II trial for NY-ESO-1-positive tumors to be performed in collaboration with the Ludwig Institute. In this trial we plan to enroll patients with tumors that express NY-ESO-1 regardless of the location of the tumor. In this way, the trial will offer an opportunity to shift the paradigm for treating cancer from one based on the anatomical location of the tumor to one based on the antigenic profile of the tumor. NOVEL PEPTIDE VACCINE. We are conducting validation and preclinical studies with novel peptides identified through our antigen discovery program. We expect to file an IND in late 2000 for a Phase I/ II clinical trial using the first of these novel peptides. ANGIOGENESIS INHIBITORS OVERVIEW OF ANGIOGENESIS Angiogenesis refers to the formation of new capillary blood vessels in tissues, including tumors. Without the formation of new blood vessels that supply oxygen and nutrients, solid tumors cannot grow beyond the size of a pea or spread throughout the body. Angiogenesis inhibitors are therapeutics that arrest the growth of a tumor by blocking the development of new blood vessels. In 1971, Dr. Judah Folkman discovered that tumor cells secrete proteins that induce angiogenesis. Dr. Folkman's discovery implies that introducing an agent into a patient's system that prevents angiogenesis in tumors could contribute significantly to fighting cancer. S-30 We believe that angiogenesis inhibitors represent a large market opportunity because they are potentially less toxic than conventional therapies and should be applicable to all solid tumors. Oncologists are likely to use angiogenesis inhibitors in combination with each other and with other therapies. In addition, unlike chemotherapies, angiogenesis inhibitors may provide a method for chronic treatment since they target stable endothelial cells rather than highly mutagenic tumor cells and are therefore less likely to induce drug resistance. OUR ANGIOGENESIS INHIBITOR PROGRAMS We are pursuing proteins, small molecules, and gene therapies for use as angiogenesis inhibitors. We are using SAGE in conjunction with our other integrated technologies to identify new angiogenesis inhibitor genes. We are also employing SAGE to provide insight into the mechanism of action of angiogenesis inhibitors discovered using other methods. In addition, we are taking advantage of Genzyme Surgical Products' angiogenesis gene discovery research in cardiovascular disease to identify targets for therapeutic intervention. AAATIII aaATIII is our lead development candidate in our angiogenesis inhibition program. aaATIII is a modified form of antithrombin III (ATIII), which is a protein normally found in human plasma that helps regulate blood clotting. While ATIII does not inhibit angiogenesis, preclinical studies have shown that when it is modified to aaATIII, the modified compound acts as a potent angiogenesis inhibitor. DEVELOPMENT PROGRAM Dr. Judah Folkman, Dr. Michael S. O'Reilly, and other scientists in the Surgical Research Laboratories at Children's Hospital in Boston discovered aaATIII. These scientists demonstrated the strength of aaATIII as an angiogenesis inhibitor and its ability to cause tumor regression in mice. The results, published in the September 17, 1999 issue of SCIENCE, also showed that in animal models and cell cultures aaATIII produced no toxic side effects or inflammatory reaction at any dose tested. Assays used to characterize angiogenesis inhibitors, including those used by Dr. Folkman's laboratory in the published studies, are complex. We are working with Dr. Folkman's laboratory to establish at Genzyme quantitative and reproducible IN VITRO and IN VIVO assays that should allow us to replicate the studies published in SCIENCE and to proceed with clinical development of aaATIII. We are co-developing aaATIII in collaboration with the ATIII LLC, a joint venture between Genzyme General and Genzyme Transgenics Corporation. The joint venture produces ATIII in the milk of transgenic goats and is conducting clinical trials using transgenically produced ATIII for a cardiac indication. Our collaboration with the ATIII LLC provides us with an ample supply of transgenic ATIII as starting material for producing aaATIII. SMALL MOLECULE ANGIOGENESIS INHIBITORS We are also investigating the role of small molecule inhibitors of angiogenesis. We have developed proprietary, high-throughput, functional, cell-based assays for screening against Genzyme's proprietary library of more than two million small molecule compounds. Cell-based assays are screens that use an intact, living cell to test whether different compounds have the desired effect in their "working environment." By contrast, assays that test compounds against isolated targets, such as receptor binding assays that measure the binding affinity of a compound to an isolated receptor, cannot determine whether the compound exerts the desired activity in a whole living cell. Over the last 12 months, we have developed high-throughput, cell-based assays to identify inhibitors of three key aspects of angiogenesis: endothelial cell activation and division, endothelial cell migration and the formation of tubes of endothelial cells. We are currently conducting lead S-31 optimization of several active compounds from these assays and intend to begin follow-up IN VIVO studies later this year. GENE THERAPY FOR ANGIOGENESIS INHIBITORS Gene therapy may offer the advantage of providing prolonged stable expression of angiogenesis inhibitors. Researchers have suggested that prolonged stable expression may be important because a constant level of the expressed protein may be required to maintain the suppression of growth of tumor blood vessels. We are exploring the use of viral and non-viral vectors to deliver genes encoding angiogenesis inhibitors to tumor blood vessels. Our non-viral vectors may be especially useful in the inhibition of angiogenesis since they preferentially target both tumor blood vessels and tumor cells when administered by intravenous injection. We intend to use these vectors to deliver antiangiogenic genes that we identify using SAGE or that we in-license from third parties. CANCER PATHWAY REGULATORS Cancer pathway regulators treat cancer by regulating one or more metabolic processes required for growth and survival of cancer cells. RESEARCH PROGRAM We have early stage programs focusing on small molecule drugs. Our small molecule drug discovery effort relies upon our access to extensive libraries of compounds and multiple high-throughput assays. We use robot-assisted, solution phase combinatorial chemistry synthesis to generate diverse compound libraries based on over 30 different chemical reactions. The number of small molecules in Genzyme's libraries of chemical compounds now exceeds two million compounds. We also have access to compound libraries of other companies. We use two types of assays in our program, both optimized for high throughput. We use functional cell-based assays to identify potent selective compounds that exhibit the desired effect in living cells. The fact that we can conduct these cell-based assays in a high-throughput manner distinguishes our program. We also use molecular pathway-based assays when specific molecular targets have been shown to be particularly important in tumor development. This allows us to find compounds that selectively impact particular targets, including proprietary targets such as MDM2/p53, which has been implicated in the genetic pathway for several different types of cancer and b-Catenin, which has been implicated in the colon and other cancer pathways. Our assays employ targets that we identify using SAGE and targets we obtain from third parties. In addition, we actively seek collaborations to complement our internal efforts. We have entered into an agreement with CellPath, Inc. under which our compound libraries are being screened against CellPath's proprietary human tumor cell-based assays. We also have a collaboration with the NCI under which the NCI is screening our compound libraries against a cancer screen incorporating 60 different tumor cell lines. Each of these collaborations has yielded active compounds which are currently undergoing optimization as lead compounds. We plan to conduct preclinical IN VIVO safety and efficacy studies with these lead compounds during 2000 to identify clinical candidates. OUR TECHNOLOGY PLATFORMS SAGE OVERVIEW SAGE is a patented high-throughput, high efficiency method of simultaneously detecting and measuring the expression level of virtually all genes expressed in a cell at a given time. SAGE detects and quantifies expression of novel as well as known genes and, because of its high efficiency and S-32 sensitivity, SAGE can detect genes expressed at low levels. Some of the uses of SAGE are comparison of disease tissue with healthy tissue, comparison of genes expressed at different stages of disease, elucidation of disease pathways and measurement of response to and toxicity of drug candidates. USE OF SAGE IN OUR DRUG DISCOVERY AND DEVELOPMENT PROGRAMS We have used SAGE to analyze the most prevalent types of cancer and corresponding normal tissue and also have access to SAGE data generated in the laboratories of Drs. Bert Vogelstein and Kenneth Kinzler at The Johns Hopkins University. We have accumulated from our proprietary analyses, our collaborators and the Cancer Genome Anatomy Project at the NCI a database of over 3.5 million SAGE gene sequence identification tags, representing over 125,000 unique genes. We are using SAGE extensively in our drug discovery and development efforts to identify genes that are functionally relevant. In cancer vaccines, we combine SAGE with other proprietary tools to identify tumor-specific antigens. In angiogenesis inhibition, we are using SAGE to dissect the genetic pathways for angiogenesis and to explore and understand the mechanism of action of drug candidates discovered in functional assays. In cancer pathway regulation, we are using SAGE to identify targets to use in high-throughput screens. We continue to enhance the power of SAGE through software and bioinformatics development, technology improvements, database expansion and the integration of SAGE with other genomics tools, such as microarrays. COMMERCIALIZATION OF SAGE In addition to using SAGE in our drug discovery and development programs, we are using SAGE technology and our proprietary SAGE database to generate revenues through licenses and service agreements and database collaborations. These arrangements are described below under the caption "--Commercial Arrangements--SAGE Collaborations." ANTIGEN DISCOVERY PROGRAMS Historically, the development of antigen-specific vaccines has been limited due to the lack of known antigens for indications other than melanoma. To overcome this limitation, we have integrated four proprietary technologies that allow us to rapidly identify potent tumor antigens and antigen fragments that are specifically recognized by T cells. OUR ANTIGEN DISCOVERY PLATFORM [Diagram depicting the relationship between the four technologies (SELEC-T, SCAN, SAGE and SPHERE) we use to identify and validate novel antigens for use in antigen-specific vaccines] SELEC-T: SELECTION OF T CELLS. We use SELEC-T to rapidly harvest T cells from primary tumor samples, to clone them and to grow relatively large numbers of identical patient-derived T cells. We obtain primary tumor samples from both the Massachusetts General Hospital tumor bank and the Beth Israel Deaconess Medical Center. These sources have allowed us to build a bank of melanoma, ovarian, S-33 breast, lung, colon and prostate cancer tissues. From a single tumor sample, we can isolate hundreds of T cell clones that recognize a variety of antigens. Because the extreme difficulty of cultivating T cells has posed a serious obstacle to antigen discovery, we believe that our success with SELEC-T provides us with a competitive advantage. SCAN: SYSTEMATIC CHARACTERIZATION OF CANCER ANTIGENS. We use SCAN to rapidly characterize individual T cell clones by exposing them to different defined tumor cell lines and assessing the T cell clones' ability to kill the tumor cells. This creates a fingerprint of the T cell clone which describes the degree to which the antigen recognized by the T cell clone is present in various tumor cell lines. By comparing the results from different tumor cell lines, we can determine whether the antigen is shared across several tumor cell types. We use the data provided by SCAN fingerprints to prioritize T cell clones for further analysis using our SAGE and SPHERE technologies. SAGE-TM-: SERIAL ANALYSIS OF GENE EXPRESSION. We use our SAGE library and bioinformatics tools to rapidly identify a short list of candidate genes whose expression pattern in the tumor cells matches the distribution pattern of the SCAN fingerprint. We are able to do this quickly because our SAGE database contains gene expression profiles for all tumor cell lines used in the SCAN analysis. By using T cell recognition of antigens as a sorting criterion, we can select a small number of candidate genes from hundreds of differentially-expressed genes. SPHERE: SOLID PHASE EPITOPE RECOVERY. We use SPHERE to screen the T-cell clones that were identified in the SCAN fingerprint against combinatorial libraries of over 47 million peptides to identify the specific peptides recognized by the T cell. These peptides, called epitopes, are fragments of antigens. Because SPHERE involves an efficient, high-throughput process, we can screen the entire peptide library against a T cell clone and identify individual epitopes in two weeks. By comparing candidates from SAGE with those from SPHERE, we identify not only target tumor antigens, but also the epitope(s) within the antigen that are specifically recognized by the T cell. We can also use SPHERE to optimize epitopes to increase the potency of the immune response. Several characteristics distinguish our program from traditional approaches to antigen discovery: - we start with T cells from cancer patients to ensure from the outset that the antigens we identify are clinically relevant; - SCAN, SAGE and SPHERE are all high-throughput processes that we can conduct in parallel to produce relevant data rapidly; - our access to phenotypic data from SCAN, genotypic data from SAGE and epitope data from SPHERE gives us a unique combination of information on which to base our conclusions about which antigens are the most promising clinical candidates; and - we can complete this entire process from commencing SELEC-T to completing SPHERE in as little as two months. We are using our integrated technology platform to identify new antigens to form the basis for novel antigen-specific peptide or gene vaccines. For antigens that we have already identified, such as gp100, we have used SPHERE to identify optimized epitopes that are more potent than the native epitopes. Additionally, we plan to use this integrated platform to analyze residual tumor material from patients who respond to cell-fusion cancer vaccines to identify the antigens that generate the immune response. This may enable us to develop antigen-specific vaccines to treat patients with that tumor type. This integrated technology platform can also be used to identify antigens and epitopes useful in non-cancer immunotherapies, such as infectious disease and autoimmune disorders. In addition, we have modified these technologies to identify antibody targets. We intend to seek collaboration partners to use our integrated platform in areas outside of cancer or for antibody target identification. S-34 PRODUCT COLLABORATIONS AND TECHNOLOGY IN-LICENSING ARRANGEMENTS Our collaboration strategy is designed to provide access to complementary technologies and products. We have outlined below the key terms of our principal product collaborations and technology in-licensing arrangements. CANCER VACCINES DANA-FARBER CANCER INSTITUTE. In March 2000, we obtained an exclusive, worldwide license from the Dana-Farber Cancer Institute to all therapeutic uses of the dendritic cell fusion technology developed by Dr. Donald Kufe. We paid an up-front fee for this license and will also be obligated to make milestone payments upon achievement of defined product development milestones and to pay royalties on worldwide sales of these products. NATIONAL CANCER INSTITUTE. We have a sponsored research agreement with the NCI relating to the development of treatments for metastatic melanoma. This agreement, which is effective until August 2002, covers the use of adenoviral vectors that incorporate the genes for the melanoma tumor antigens Melan-A/MART-1 and gp100. Under this agreement, we provide Dr. Steven Rosenberg with clinical grade adenoviral vectors, research funding and support for the conduct of clinical trials at the NCI relating to these vectors in exchange for an option to obtain either an exclusive or non-exclusive license to the technology developed under this agreement. LUDWIG INSTITUTE FOR CANCER RESEARCH. In March 1998, we entered into an agreement with the Ludwig Institute for Cancer Research granting us an exclusive option to obtain an exclusive, worldwide license to NY-ESO-1 for use with adenoviral and cationic lipid vectors in exchange for an up-front fee. We will be obligated to make milestone payments upon achievement of defined product development milestones and to pay royalties on worldwide sales of these products. In April 1999, we obtained a non-exclusive, worldwide license to Melan-A/MART-1 from the Ludwig Institute. The license gives us the ability to use Melan-A/MART-1 with adenoviral and cationic lipid vectors in exchange for an up-front fee. We will be obligated to make milestone payments upon achievement of defined product development milestones and to pay royalties on worldwide sales of these products. AAATIII CHILDREN'S HOSPITAL COLLABORATION. In February 1999, we exclusively licensed the worldwide rights to aaATIII from Children's Hospital in Boston. We will also be obligated to make milestone payments upon achievement of defined product development milestones and to pay royalties on worldwide sales of these products. We are currently collaborating with Dr. Folkman in the further development of aaATIII. ATIII LLC COLLABORATION. Effective February 1999, we entered into a collaboration agreement to develop and commercialize aaATIII for oncology indications with the ATIII LLC, the joint venture between Genzyme General and Genzyme Transgenics Corporation. Under the terms of this agreement, we have agreed with the ATIII LLC to share equally in the development costs of an aaATIII cancer therapy and equally share in any profits from a successful oncology product developed through the collaboration. The agreement also grants the ATIII LLC exclusive rights to develop aaATIII for potential non-oncology indications. SAGE EXCLUSIVE LICENSE AND SPONSORED RESEARCH WITH THE JOHNS HOPKINS UNIVERSITY. We have exclusively licensed the commercial rights to the SAGE technology from The Johns Hopkins University in S-35 exchange for license fees, milestone payments upon the issuance of patents relating to the technology, and royalties on sublicenses by us of SAGE patent rights and revenues generated from the provision of SAGE services and the sale of SAGE products. We also have a research agreement extending through December 2000 with JHU and Dr. Kinzler under which we provide funding for Dr. Kinzler's SAGE-related research at JHU. Under this research agreement, we are obligated to make milestone payments upon the fulfillment of research objectives. Furthermore, we have the rights to the SAGE data generated in Dr. Kinzler's laboratory and an option to license diagnostic and therapeutic rights to discoveries using SAGE that are developed in Dr. Kinzler's laboratory. We anticipate that we will renew this agreement. SAGE USER GROUP. JHU provides non-exclusive licenses, free of charge, to other academic laboratories for non-commercial use of SAGE. This program is led and supported by JHU in close collaboration with us. The academic user base now has hundreds of members that explore and validate SAGE in additional applications and generate potential collaborators for our future programs. We support further growth in the academic user base through our sponsorship of the SAGE User Group web site and SAGE User Group conferences. The first SAGE conference was held in Amsterdam in January 1999 and a second conference will be held in Baltimore in September 2000. We believe that the academic user group serves as an incubator for starting commercial relationships. We offer commercial licenses to academic laboratories that anticipate collaborating with commercial parties. We have granted these licenses to the University of California, the Institute for Clinical Biochemistry, Wuerzburg and Environment Canada. OTHER AGREEMENTS THE JOHNS HOPKINS UNIVERSITY. Under the terms of a research agreement with JHU, we sponsor cancer-based research (in addition to SAGE) in Dr. Kinzler's laboratory in exchange for an option to obtain an exclusive, worldwide license to technology developed in the course of the research. In addition, we have retained Drs. Kinzler and Vogelstein's services on a non-exclusive basis through consulting agreements. The research agreement is effective through December 2000, the consulting agreement with Dr. Vogelstein is effective through April 2000 and the agreement with Dr. Kinzler is effective through October 2000. We anticipate that we will renew each of these agreements. HOFFMAN LA-ROCHE AND THE JOHNS HOPKINS UNIVERSITY. We are also parties with JHU and Roche to a broad-based license agreement relating to the development and commercialization of technology developed by Dr. Vogelstein under an earlier research agreement. Under this license agreement, JHU has granted Roche a co-exclusive license, without the right to grant sublicenses, to certain diagnostic products. We have an exclusive license to therapeutic products and the diagnostic products not licensed to Roche, each with the right to sublicense. We also have a co-exclusive license (with the right to grant sublicenses) to the diagnostic rights also licensed to Roche. While the licenses from JHU are exclusive as to all rights that JHU possesses, some of the genes licensed from JHU are covered by patent applications that are co-owned with entities from which we and Roche have not obtained a license. We will owe royalties to JHU on net sales by us and our sublicensees of therapeutic and diagnostic products incorporating technology licensed under this license agreement. This obligation extends to each of the non-SAGE-related agreements described in "--Commercial Arrangements" below. COMMERCIAL ARRANGEMENTS By licensing our technology to third parties, we seek to generate revenues from technologies or in fields in which we are not developing products. We have outlined below the key terms of our principal out-licensing arrangements. SCHERING-PLOUGH. Effective October 1998, we entered into a license agreement with Schering-Plough Ltd. and its U.S. affiliate, Schering Corporation, under which we granted Schering-Plough an S-36 exclusive worldwide license under our intellectual property to develop and commercialize gene therapy products using the p53 tumor suppressor gene. Loss of function of the p53 gene is believed to be implicated in more than 50% of all human cancers, including breast, colon, lung, ovarian and prostate cancers. To date, we have received $12 million in license fees and milestones under the agreement. We could receive an additional $30 million in patent, product development and sales milestones under the agreement, in addition to royalty payments on product sales by Schering-Plough. Schering-Plough is in Phase II/III studies in ovarian cancer with a p53 gene therapy product. MERCK. In January 1998, we non-exclusively licensed an assay to Merck & Co. relating to methods for identifying small molecules that interfere with the binding of the MDM2 protein with the p53 protein. We received an up-front fee for this license and could receive approximately $8 million in milestone payments if the defined development milestones are achieved by Merck for a product developed by a method licensed from us or covered by our patent rights. In addition, we would receive royalties on worldwide sales of any developed products. ISIS/ASTRAZENECA. In December 1998, we non-exclusively licensed to Isis Pharmaceuticals, Inc. patent rights relating to antisense compounds that interfere with the expression of a cancer-related gene, methods for treating cancerous cells with these compounds, and methods for identifying these compounds. Isis licensed these rights from us in order to facilitate work on compounds being developed under its agreement with AstraZeneca. We received an up-front fee for this license and could receive several million dollars in milestone payments if defined development milestones are achieved by Isis or AstraZeneca for a product developed by a method licensed from us or covered by our patent rights. In addition, we would receive royalties on worldwide sales of any developed products. HYBRIDON. In September 1999, we non-exclusively licensed to Hybridon, Inc. patent rights relating to antisense compounds that interfere with the expression of MDM2, methods for treating cancerous cells with these compounds and methods for identifying these compounds. We received an up-front fee for this license and could receive significant milestone payments if defined development milestones are achieved by Hybridon for a product developed by a method licensed from us or covered by our patent rights. In addition, we would receive royalties on worldwide sales of any developed products. EXACT LABORATORIES. In March 1999, we granted EXACT Laboratories, Inc. a non-exclusive license to patent rights covering detection of mutations in two genes, p53 and APC. EXACT will use these rights to develop and provide diagnostic services, reagents and kits to determine the presence of these mutations in stool or stool-derived samples. EXACT is presently focused on the screening, diagnosis, prognosis and monitoring of colon cancer, but may use their rights in conjunction with other cancers in the future. We received an up-front fee for this license and will receive royalties on worldwide sales of EXACT services and products covered by the licensed patents. The agreement also provides for annual maintenance payments until the last of the patents licensed to EXACT expires. SAGE COLLABORATIONS We are commercializing our SAGE gene expression technology to generate near-term revenues and increase the long-term value of the technology. LICENSE AND SERVICE AGREEMENTS. We non-exclusively license the SAGE technology to pharmaceutical, biotechnology and agricultural companies in exchange for fees based on the licensee's use of the technology. We provide training, software and ongoing technical support to our licensees. Our licensees include the Parke-Davis Division of Warner-Lambert and the Novartis Agricultural Discovery Institute. We also offer SAGE service contracts to companies that require the production of a smaller number of SAGE libraries or where the company would like to evaluate SAGE in practice. Under these agreements, we generate SAGE libraries in exchange for a per-library fee. We have provided SAGE services to Ontogeny, Reprogen, Bayer and Monsanto. S-37 COMPUGEN. In January 2000, we entered into two agreements with Compugen Ltd. relating to access to our proprietary SAGE database. Under the first agreement, we will share revenue generated by customer use of SAGE data on Compugen's research Web site. Under the second agreement, we are sharing profits from sales of a product that combines our SAGE database with Compugen's proprietary LEADS computational biology platform technology. MEMOREC. We have entered into an agreement with Memorec Stoffel GmbH under which Memorec will provide SAGE services to customers in Europe. With this arrangement, we plan to take advantage of Memorec's access to the European market and complementary microarray technology to expand the use of SAGE. We share revenue for SAGE services performed by Memorec. PATENTS AND PROPRIETARY RIGHTS We have access to all of Genzyme's patents and proprietary rights for use in our programs. Genzyme pursues a policy of obtaining patent protection in both the U.S. and in other selected countries for subject matter considered patentable and important to its business. We also license patents and proprietary rights from third parties. These licenses generally require us to make up-front license fees and milestone payments and to pay royalties upon commercialization of products covered by the licensed technology. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products we are developing or testing. As a result, we may be required to obtain licenses from the holders of these patents in order to use or sell these products and services. We cannot guarantee that these licenses will be available to us on acceptable terms or at all. If these licenses are not available, our ability to commercialize our products and services may be impaired. In our immunotherapy program, we are in the process of evaluating the therapeutic administration of peptide products and genes that encode specific tumor antigens, including Melan-A/MART-1 and gp100. We know of two issued U.S. patents directed to the gene that encodes Melan-A/MART-1. While we have obtained rights under one of these patents, we are still in the process of evaluating the scope and validity of the other to determine whether we need to obtain a license. We are also evaluating an issued U.S. patent covering the gene that encodes gp100 and three published Patent Cooperation Treaty applications by three different applicants which may cover antigens derived from gp100. We are in the process of evaluating the scope and validity of these patents and patent applications to determine whether we need to obtain licenses. If we or one of our strategic collaborators initiate litigation to enforce our patent or license rights, or are required to defend these rights in response to third party claims, our business or financial position may be negatively affected. We have licensed our p53 gene therapy rights to Schering-Plough. These patent rights are the subject of an interference proceeding in the U.S. and an opposition proceeding in Europe. Adverse determinations in these proceedings may negatively affect our ability to receive future milestones and product royalties under our agreement with Schering-Plough. GOVERNMENT REGULATION All of our products are subject to regulation by the FDA and other government agencies in the U.S. as well as similar regulatory authorities in other countries. These regulations cover the preclinical and clinical testing of our product candidates, outline the steps we must follow for product approval and govern the manufacture, use and sale of any of our products that are approved. In addition, the Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 people in the U.S. at the time of application for orphan drug designation. The first entity to receive FDA marketing approval for a drug designated as an orphan drug is entitled to a seven-year exclusive marketing period in the U.S. for that S-38 product. Our Melan-A/MART-1 and gp 100 cancer vaccines have been designated as orphan drugs, and we intend to seek orphan drug protection on our other products that may qualify. COMPETITION The field of cancer therapeutics is extremely competitive. Major pharmaceutical companies and other biotechnology companies compete with us in each of our primary areas of focus. Many of these competitors have superior research and development, marketing and manufacturing capabilities. Some of our competitors also may have greater financial resources than us. Competition can arise from the use of the same or similar technologies as those currently used or contemplated to be used by us, as well as from existing therapies. Any or all of these may be more effective or less expensive than those developed by us. In addition, technological advances or different approaches developed by one or more of our competitors may render our products obsolete, less effective or uneconomical. For instance, other companies provide genomics services that are competitive with SAGE. We believe, however, that SAGE offers several advantages over competing genomics services, including that the genetic sequences used in SAGE for gene identification can be considerably shorter than those used in competing techniques, thus increasing the rate at which information can be analyzed. We rely on our strategic collaborators for support in a number of our research and development programs and intend to rely on collaborators for preclinical evaluation and clinical development of many of our products. Some of our strategic collaborators are conducting multiple product development programs in fields similar to their collaborations with us. Our product candidates may, therefore, be subject to competition with a potential product under development by one of our collaborators. S-39 MANAGEMENT OF GENZYME MOLECULAR ONCOLOGY Our senior management consists of the following individuals:
NAME AGE TITLE - ---- -------- ----- Gail J. Maderis......................... 42 President Katherine W. Klinger, Ph.D.............. 47 Senior Vice President, Research and Development Fredric J. Vinick, Ph.D................. 52 Senior Vice President, Drug Discovery Mark J. Enyedy.......................... 36 Vice President, Business Development Mark A. Goldberg, M.D................... 45 Vice President, Medical Affairs Clifford L. Hendrick.................... 48 Vice President, Operations Bruce L. Roberts, Ph.D.................. 44 Senior Director, Immunotherapy
MS. MADERIS joined Genzyme in 1992 as Director, Corporate Development, served as Vice President, Gene Therapy from 1993 through June 1997 and, upon the formation of Genzyme Molecular Oncology in June 1997, became its President. Ms. Maderis is a member of the scientific advisory board of the Canadian Medical Discoveries Fund. Prior to joining Genzyme, Ms. Maderis practiced strategy and health care consulting at Bain & Company, a management consulting firm, from 1985 to 1992. Ms. Maderis received an M.B.A. from Harvard Business School. DR. KLINGER joined Genzyme in August 1989 through its merger with Integrated Genetics, Inc. and has served as Senior Vice President, Genetics and Genomics of Genzyme and Senior Vice President, Science of Genzyme from October 1995 to August 1997. Prior to that, she served as Vice President--Science of IG Laboratories, Inc., a majority-owned subsidiary of Genzyme, from January 1990 until its merger with Genzyme in October 1995. From 1985 to 1989, Dr. Klinger held various positions in the genetic disease group at Integrated Genetics. Dr. Klinger received a Ph.D. in Biochemistry from the University of Texas Health Science Center at San Antonio. DR. VINICK joined Genzyme in 1994 as Vice President, Drug Discovery. He is currently Senior Vice President with responsibility for all small molecule research within Genzyme Molecular Oncology, including combinatorial chemistry, high throughput screening, lead optimization and development. Prior to joining Genzyme, Dr. Vinick was at Pfizer Central Research from 1978 to 1994 where his last position was Director, Exploratory Medicinal Chemistry. He was employed at CIBA-Geigy Corporation from 1975 to 1978. Dr. Vinick received a Ph.D. in organic chemistry from Yale University. MR. ENYEDY joined Genzyme in 1996 as Corporate Counsel, served as Director, Business Development for Genzyme Molecular Oncology from April 1998 through October 1999 and in November 1999 became Vice President, Business Development. Prior to joining Genzyme, Mr. Enyedy practiced law from 1990 to 1996 at Palmer & Dodge LLP, a Boston law firm, where he represented a number of companies in the biopharmaceutical industry in acquisition, partnering and financing transactions. Mr. Enyedy received his J.D. from Harvard Law School. DR. GOLDBERG joined the Medical Affairs Department at Genzyme in 1996 as Medical Director, Oncology and has served as Vice President Medical Affairs since 1998. He has been a member of the Hematology/Oncology staff at Brigham and Women's Hospital since 1987, and is also a staff physician at the Dana-Farber Cancer Institute and an Associate Professor of Medicine at Harvard Medical School. Dr. Goldberg received an M.D. from Harvard Medical School. MR. HENDRICK joined Genzyme in 1989 through its merger with Integrated Genetics and served as Senior Director of Development, Gene Therapy from 1995 through June 1997 prior to assuming responsibility for operations of Genzyme Molecular Oncology upon its formation. From 1990 to 1995, Mr. Hendrick was Director, Market Development for Genzyme Pharmaceuticals. From 1983 to 1990, he held various positions in research and development and operations for Integrated Genetics. Mr. Hendrick received an M.B.A. from Northeastern University. S-40 DR. ROBERTS joined Genzyme in 1995 as Senior Staff Scientist, Gene Therapy. From 1995 through 1999, Dr. Roberts held various positions in gene therapy at Genzyme. In 1997, Dr. Roberts assumed responsibility for cancer gene therapy. Prior to joining Genzyme, Dr. Roberts was a staff scientist at Protein Engineering Corporation (now Dyax Corp.) from 1989 until 1995. Dr. Roberts received a Ph.D. in Protein Chemistry from the University of Ottawa. UNDERWRITING Subject to the terms and conditions of the underwriting agreement dated , 2000, the underwriters named below, through their representatives SG Cowen Securities Corporation, PaineWebber Incorporated and Chase Securities Inc., have severally agreed to purchase from us the number of shares of GZMO Stock set forth opposite their names at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus supplement.
UNDERWRITERS NUMBER OF SHARES - ------------ ---------------- SG Cowen Securities Corporation............................. PaineWebber Incorporated.................................... Chase Securities Inc........................................ --------- Total..................................................... 3,000,000 =========
The underwriting agreement provides that the obligations of the underwriters are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the occurrence of other events specified in the underwriting agreement. The underwriters are severally committed to purchase all of the GZMO Stock offered by Genzyme if any shares are purchased, other than those covered by the over-allotment option described below. The underwriters propose to offer the GZMO Stock directly to the public at the public offering price set forth on the cover page of this prospectus supplement. The underwriters may offer the GZMO Stock to securities dealers at that price less a concession not in excess of $ per share. Securities dealers may reallow a concession not in excess of $ per share to other dealers. After the shares of the GZMO Stock are released for sale to the public, the underwriters may vary the offering price and other selling terms from time to time. Genzyme has granted to the underwriters an option to purchase up to an aggregate of additional shares of GZMO Stock at the public offering price set forth on the cover of this prospectus supplement to cover over-allotments, if any. The option is exercisable for a period of 30 days. If the underwriters exercise the over-allotment option, the underwriters have severally agreed to purchase shares in approximately the same proportion as shown in the table above. The following table shows the per share and total public offering price, the underwriting discount to be paid by us to the underwriters and the proceeds from the sale of shares to the underwriters before our expenses. This information is presented assuming either no exercise or full exercise by the underwriters of their over-allotment option.
PER SHARE WITHOUT OPTION WITH OPTION --------- -------------- ----------- Public offering price..................... Underwriting discount..................... Proceeds, before expenses, to Genzyme Molecular Oncology......................
S-41 We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments that the underwriters may be required to make in respect of those liabilities. Genzyme has agreed that for a period of 90 days following the date of this prospectus supplement, without the prior written consent of SG Cowen Securities Corporation, not to directly or indirectly, offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, other than by operation of law, any shares of GZMO Stock or any securities convertible into or exercisable or exchangeable for GZMO Stock, except in connection with: (1) the exercise, conversion or exchange of warrants, options or other convertible securities outstanding on the date of this prospectus supplement; (2) grants of any stock options or other equity incentive awards to any employee, director or consultant under a plan in effect on the date of this prospectus supplement; or (3) any acquisition or investment in any complementary business, joint venture, technology or product, or any merger or combination with a complementary business, provided that the aggregate number of shares of GZMO Stock issued in connection with all transactions described in this clause (3) does not exceed 20% of the total number of shares of GZMO Stock outstanding on the date of this prospectus supplement. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of the GZMO Stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the GZMO Stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the GZMO Stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. We estimate that our out-of-pocket expenses for this offering, not including the underwriting discount, will be approximately $500,000. VALIDITY OF THE SHARES Our counsel, Palmer & Dodge LLP, Boston, Massachusetts, will give us an opinion on the validity of the GZMO Stock offered by this prospectus supplement. Brown & Wood LLP, New York, New York will act as counsel for the underwriters in connection with the offering of the GZMO Stock made by this prospectus supplement. S-42 PROSPECTUS $500,000,000 GENZYME CORPORATION DEBT SECURITIES, PREFERRED STOCK, GENZYME GENERAL DIVISION COMMON STOCK, GENZYME MOLECULAR ONCOLOGY DIVISION COMMON STOCK, GENZYME SURGICAL PRODUCTS DIVISION COMMON STOCK, GENZYME TISSUE REPAIR DIVISION COMMON STOCK, OTHER SERIES OF GENZYME COMMON STOCK AND WARRANTS We may offer to the public from time to time in one or more series or issuances: - debt securities consisting of debentures, notes or other evidences of indebtedness; - shares of our preferred stock; - shares of Genzyme General Division Common Stock, which we refer to as "GENZ Stock"; - shares of Genzyme Molecular Oncology Division Common Stock, which we refer to as "GZMO Stock"; - shares of Genzyme Surgical Products Division Common Stock, which we refer to as "GZSP Stock"; - shares of Genzyme Tissue Repair Division Common Stock, which we refer to as "GZTR Stock"; - shares of other series of our common stock; or - warrants to purchase any series of common stock, preferred stock or debt securities. GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock each trade on the Nasdaq National Market under the symbols "GENZ," "GZMO," "GZSP" and "GZTR." Any GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of our common stock sold by means of a prospectus supplement to this prospectus may be listed on the Nasdaq National Market. This prospectus provides you with a general description of the securities that we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading "Where You Can Find More Information" beginning on page 55 of this prospectus before you make your investment decision. SEE RISK FACTORS BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THESE SECURITIES. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This prospectus may not be used to sell securities unless it is accompanied by a prospectus supplement. ------------------------ The date of this prospectus is March 9, 2000 TABLE OF CONTENTS
PAGE -------- Genzyme Corporation......................................... 3 Risk Factors................................................ 4 Note Regarding Forward-Looking Statements................... 24 Use of Proceeds............................................. 25 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends................................................. 25 Description of Debt Securities.............................. 26 Description of Preferred Stock.............................. 35 Description of Genzyme Common Stock......................... 37 Description of Warrants..................................... 46 Description of Management and Accounting Policies........... 48 Plan of Distribution........................................ 53 Legal Matters............................................... 54 Experts..................................................... 54 Where You Can Find More Information......................... 55
2 GENZYME CORPORATION We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have four operating divisions: - Genzyme General, which develops and markets therapeutic products and diagnostic services and products. It has three therapeutic products on the market and a strong pipeline of products in development focused primarily on the treatment of rare genetic diseases; - Genzyme Molecular Oncology, which is developing cancer products, with a focus on cancer vaccines and angiogenesis inhibitors. It is shaping these new therapies through the integration of its gene discovery, gene therapy, small molecule drug discovery, and protein therapeutic efforts; - Genzyme Surgical Products, which develops and markets a portfolio of mechanical devices, biomaterials and biotherapeutics for the cardiovascular and general surgery markets. It is pioneering the field of "biosurgery," which is being created by the increasing convergence of mechanical and biological approaches to surgery and other interventional procedures; and - Genzyme Tissue Repair, which develops and markets biological products for the treatment of orthopedic injuries, such as cartilage damage, and severe burns. Each of our four designated series of common stock is intended to reflect the value and track the performance of one of our divisions. For purposes of financial presentation, we allocate programs, products, assets and liabilities among our divisions; however, Genzyme, the corporation, continues to own all of the assets and is responsible for all of the liabilities allocated to each of the divisions. We were founded in 1981 and became a Massachusetts corporation in 1991. You can find additional information about us in our filings with the SEC. See "Where You Can Find More Information" on page 55. Our principal offices are located at One Kendall Square, Cambridge, Massachusetts 02139 and our main telephone number is (617) 252-7500. In this prospectus, the words "we," "us," "our," and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole, and "our board of directors" or "our board" refer to the board of directors of Genzyme Corporation. "Genzyme" is a registered trademark and service mark of Genzyme Corporation. All rights reserved. 3 . RISK FACTORS If you purchase securities offered by this prospectus you will take on financial risk. In deciding whether to invest, you should carefully consider the following risk factors, the information contained in this prospectus and the other information to which we have referred you. It is especially important to keep these risk factors in mind when you read forward-looking statements. RISKS RELATED TO GENZYME The following risk factors relate to us generally and affect all of our divisions. Accordingly, you should consider these risk factors before you purchase any type of security offered by this prospectus. A REDUCTION IN REVENUES FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. We generate a majority of our product revenues from sales of enzyme-replacement products for patients with Gaucher disease. We entered this market in 1991 with Ceredase-Registered Trademark- enzyme. Because production of Ceredase-Registered Trademark- enzyme was subject to supply constraints, we developed Cerezyme-Registered Trademark- enzyme, a recombinant form of the enzyme. Recombinant technology uses specially engineered cells to produce enzymes, or other substances, by inserting into the cells of one organism the genetic material of a different species. In the case of Cerezyme-Registered Trademark- enzyme, Chinese hamster ovary cells are engineered to produce human alpha glucocerebrosidase. We stopped producing Ceredase-Registered Trademark- enzyme, except for small quantities, during 1998, after substantially all the patients who previously used Ceredase-Registered Trademark- enzyme converted to Cerezyme-Registered Trademark- enzyme. Sales of Ceredase-Registered Trademark- enzyme and Cerezyme-Registered Trademark- enzyme totaled $411.1 million for the year ended December 31, 1998, representing approximately 67% of our, and 81% of Genzyme General's, product revenues for that year, and $351.7 million for the nine months ended September 30, 1999, representing approximately 70% of our, and 84% of Genzyme General's, product revenues for that period. Because our business is highly dependent on Cerezyme-Registered Trademark- enzyme, a reduction in revenue from sales of this product would have an adverse effect on our operations and may cause the value of our securities to decline substantially. Revenues from Cerezyme-Registered Trademark- enzyme would be impacted negatively if competitors develop alternative treatments for Gaucher disease and these alternative products gained commercial acceptance. Some companies have initiated efforts to develop competitive products, and other companies may do so in the future. Cerezyme-Registered Trademark- enzyme has orphan drug status, providing it with market exclusivity in the U.S. until May 2001. We also have patents protecting its manufacturing method until 2010 and its composition until 2013. We cannot predict the effect that the expiration of orphan drug status and market exclusivity will have on sales of Cerezyme-Registered Trademark- enzyme after May 2001. GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES. Our ability to successfully satisfy regulatory requirements will significantly determine our future success. We cannot guarantee that any required regulatory approvals will be granted or that they will be granted on a timely basis. The production and sale of health care products and provision of health care services are highly regulated. In particular, the FDA and comparable agencies in foreign countries must approve human therapeutic and diagnostic products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. This regulation may delay the time at which a product or service first can be sold, limit how a product or service may be used, or adversely impact third party reimbursement. In addition, therapies that have received, or in the future receive, regulatory approval for commercial sale 4 may still face subsequent regulatory difficulties. The FDA and comparable foreign regulatory agencies, for example, may require postmarketing clinical trials. In addition, a marketed therapy, its manufacturer and the manufacturer's facilities are subject to continual review and periodic inspections by regulatory agencies. The discovery of previously unknown problems with a therapy, manufacturer or facility can result in restrictions on the therapy or manufacturer, including withdrawal of the therapy from the market. The failure to comply with applicable regulatory approval requirements can, among other things, result in: - warning letters; - fines and other civil penalties; - suspended regulatory approvals; - refusal to approve pending applications or supplements to approved applications; - suspension of product sales in the U.S. and/or exports from the U.S.; - product recalls; and - seizure of products. LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS. Some of our products, including Cerezyme-Registered Trademark- enzyme, have been designated as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a seven-year exclusive marketing period in the U.S. for that product. Legislation periodically has been introduced in recent years to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to allow marketing rights to simultaneous developers of the drug. We cannot be sure whether the Orphan Drug Act will be amended, or if amended, what effect the changes may have on us. In addition, healthcare reform is an area of significant government focus. Any reform measures, if adopted, could adversely affect: - the pricing of therapeutic products in the U.S. or internationally; and - the amount of reimbursement available from governmental agencies or other third party payers. BECAUSE THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS, IT IS UNCERTAIN WHETHER WE WILL BE ABLE TO COMMERCIALIZE ANY OF OUR PRODUCTS CURRENTLY IN DEVELOPMENT. Before we can commercialize our development-stage products, we will need to: - conduct substantial research and development; - undertake pre-clinical and clinical testing; and - pursue regulatory approvals. This process is risky and takes several years. We cannot guarantee that we will successfully develop any particular product. Several of our development-stage products are currently in clinical trials to test their safety and effectiveness. We may encounter problems in these clinical trials that cause us to delay or suspend development of these products. In addition, we cannot be sure that the clinical testing, if completed, will show any of these products to be safe and effective. 5 ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL. The commercial success of any marketable product that we develop will depend on many factors, including: - regulation by the FDA and other government authorities; - market acceptance by doctors and hospital administrators; - the effectiveness of our sales force; - the effectiveness of our production and marketing capabilities; - the success of competitive products; and - the availability of third party reimbursement. WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL. As of September 30, 1999, we had approximately $695.9 million in cash, cash equivalents and short- and long-term investments, excluding investments in equity securities. Although we currently have substantial cash resources and positive cash flow, we intend to use substantial portions of our available cash for: - product development and marketing; - expanding facilities; and - working capital. We will further reduce available cash reserves to pay principal and interest on the following debt: - In May 1998, we issued $250.0 million in convertible notes, the entire principal amount of which is allocated to Genzyme General. These convertible notes bear interest at an annual rate of 5.25% and mature on June 1, 2005. However, the holders of these notes may exchange principal on the notes for shares of GENZ Stock, GZMO Stock, and GZSP Stock. - As of December 31, 1999, we owed approximately $23.0 million under a revolving credit facility with a group of commercial banks. Of this amount, we have allocated $18.0 million to Genzyme Tissue Repair and $5.0 million to Genzyme Molecular Oncology. Amounts borrowed under this revolving credit facility bear interest at a floating rate based upon an applicable margin above either the prime rate announced by Fleet National Bank or the London InterBank Offered Rate. We must repay all borrowings under this facility no later than November 12, 2002. - In August 1998, we issued $21.2 million in convertible debentures, the entire principal amount of which is allocated to Genzyme General. These convertible debentures bear interest at an annual rate of 5% and mature on August 29, 2003, but the holders of these convertible debentures may exchange principal, and under some circumstances interest, on the convertible debentures for shares of GENZ Stock. If we use cash to pay or redeem this debt, including the principal and interest due on it, our cash reserves will be diminished. To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms. 6 WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS. Our long-term success largely depends on our ability to market technologically competitive products. We can prevent unauthorized third parties from using proprietary rights relating to our products and services only if these rights are covered by patents or are kept confidential. We cannot guarantee that the patents issued or licensed to us will remain free from challenge by third parties. While our employees, consultants and corporate partners with access to proprietary information generally are required to enter into confidentiality agreements, we cannot guarantee that these agreements will be honored. In addition, some of our consultants have developed portions of our proprietary technology at universities or in governmental laboratories. These universities or governmental authorities may claim rights to the intellectual property arising out of the research performed at the university or governmental laboratory. We rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We cannot be sure that other parties will not independently develop that know-how or otherwise obtain access to our technology. WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products that we or our strategic partners are developing or testing. As a result, we or a strategic partner may be required to obtain licenses from the holders of these patents in order to use, manufacture or sell these products and services, and payments under these licenses may reduce the profitability of the products. Furthermore, we cannot be sure that these licenses would be available on acceptable terms. If these licenses are not available, our ability to commercialize our products and services may be impaired. WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS. If we initiate or are required to defend ourselves in patent litigation, it could consume a substantial portion of our resources. We cannot guarantee that we, or our strategic partners, would prevail in any legal action. Any legal action against us or our strategic partners claiming damages or seeking to stop commercial activities relating to the affected products and processes could subject us to substantial liability for damages or negatively impact our financial results. WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE. Individuals who use our products or services may bring product liability claims against us. While we have taken, and continue to take, what we believe are appropriate precautions, we cannot guarantee that we will avoid significant liability exposure. We have only limited amounts of product liability insurance, and we cannot be sure that this insurance will provide sufficient coverage against any product liability claims. If we attempt to obtain additional insurance in the future, we may not be able to do so on acceptable terms, and any additional insurance we do obtain may not provide adequate coverage against any asserted claims. In addition, regardless of merit or eventual outcome, product liability claims may result in: - diversion of management time and attention; - expenditure of large amounts of cash on legal fees, expenses and payment of damages; 7 - decreased demand for our products and services; and - injury to our reputation. OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING EXPERTISE. The human health care products and services industry is extremely competitive. Our competitors include major pharmaceutical companies and other biotechnology companies. Some of these competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than us. Our future success will depend on our ability to develop and market effectively our products against those of our competitors. IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR SERVICES MAY BECOME OBSOLETE. The field of biotechnology is characterized by significant and rapid technological change. Although we attempt to expand our technological capabilities in order to remain competitive, research and discoveries by others may make our products or services obsolete. For example, some of our competitors may develop a product to treat Gaucher disease that is more effective or less expensive than Cerezyme-Registered Trademark- enzyme. IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS WILL BE SIGNIFICANTLY LIMITED. A substantial portion of our revenue comes from payments by third party payers, including government health administration authorities and private health insurers. Third party payers may not reimburse patients for newly approved health care products. More and more third party payers are attempting to contain health care costs by: - challenging the prices charged for health care products and services; - limiting both coverage and the amount of reimbursement for new therapeutic products; - denying or limiting coverage for products that are approved by the FDA, but are considered experimental or investigational by third party payers; and - refusing, in some cases, to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval. Government and other third party payers may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results. CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE FOREIGN COUNTRIES IN WHICH WE DO BUSINESS COULD CAUSE OUR INTERNATIONAL SALES AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR CONSOLIDATED NET SALES, TO BE LIMITED OR DISRUPTED. Our international operations accounted for 40% of our consolidated revenues for the nine month period ended September 30, 1999, 41% of our consolidated revenues in 1998 and 36% of our consolidated revenues in 1997, and we expect that international sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside of the U.S., primarily in Europe and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be adversely affected, by any of the following: - fluctuations in currency exchange rates; - the imposition of government controls; 8 - less favorable intellectual property or other applicable laws; - the inability to obtain any necessary foreign regulatory approvals of products in a timely manner; - import and export license requirements; - political instability; - trade restrictions; - changes in tariffs; - difficulties in staffing and managing international operations; and - longer payment cycles. A significant portion of our business is conducted in currencies other than the U.S. dollar, which is our reporting currency. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused foreign currency transaction gains and losses in the past and will likely do so in the future. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL. Provisions of Massachusetts law and our charter, by-laws and shareholder rights plan could delay or prevent a change in control of Genzyme or a change in our management. Our tracking stock structure may also deprive our stockholders of the opportunity to receive a premium for their shares upon a change in control because, in order to obtain control of a particular division, an acquiror would have to obtain control of the entire corporation. In addition, our board of directors may, in their sole discretion: - exchange shares of GZMO Stock, GZSP Stock or GZTR Stock for GENZ Stock at a 30% premium over the market value of the exchanged shares; and - issue shares of undesignated preferred stock from time to time in one or more series. Either of these board actions could increase the cost of an acquisition of Genzyme and thus discourage a takeover attempt. WE COULD EXPERIENCE SYSTEM FAILURES AND DISRUPTIONS OF OUR OPERATIONS AS A RESULT OF THE YEAR 2000 DATE RECOGNITION PROBLEM. The year 2000 date recognition problem could cause our computer systems to fail, resulting in miscalculations and incorrect data. Parties affected by a disruption in our operations and services could make claims or bring lawsuits against us. Depending upon the extent and duration of any disruptions caused by the year 2000 problem and the specific services affected, these disruptions could have an adverse affect on our business. Computer systems which may be affected by this year 2000 problem include computer systems embedded in production equipment; displays containing computer systems; business data processing systems; production, management and planning systems; and personal computers. Consequently, the year 2000 problem could disrupt our daily commercial activities if we do not take the steps necessary to address it effectively. 9 In addition, we cannot assure you that our customers, suppliers and other third parties that we deal with are or will be year 2000 compliant in a timely manner. Interruptions in the services provided to us or in the purchases made by these third parties could also disrupt our operations. Although, as of the date of this prospectus, we have not experienced any significant disruption in our operations as a result of the year 2000 date recognition problem, we cannot guarantee that we will not experience disruptions in the future. RISKS RELATED TO GENZYME TRACKING STOCKS We have four series of tracking stock: GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock. These stocks reflect the value and track the performance of our four operating divisions: - GENZ Stock tracks the performance of Genzyme General; - GZMO Stock tracks the performance of Genzyme Molecular Oncology; - GZSP Stock tracks the performance of Genzyme Surgical Products; and - GZTR Stock tracks the performance of Genzyme Tissue Repair. The following are risks related to owning shares of our tracking stock. Accordingly, you should consider these risk factors before investing in GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or any securities which may be exchanged for, exercised for or converted into shares of these tracking stocks. HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT OUR OTHER DIVISIONS. None of our divisions are separate legal entities. Holders of our tracking stock are stockholders of a single company and face all of the risks of an investment in Genzyme. For purposes of financial presentation, we allocate programs, products, assets and liabilities among our four divisions. Genzyme Corporation, however, continues to own all of the assets and is responsible for all of the liabilities of each division. A holder of GENZ Stock, for example, does not have any specific rights to the assets allocated to Genzyme General in our financial statements. Furthermore, if we are unable to satisfy one division's liabilities out of the assets we allocate to that division, we may be required to satisfy those liabilities with assets we have allocated to another division. Accordingly, we encourage you to review our consolidated financial statements and the financial statements of each of our divisions included in the reports that we file with the SEC. OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT, WHILE IN THE BEST INTERESTS OF GENZYME AS A WHOLE, HAVE AN UNEQUAL AND ADVERSE EFFECT ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK. There may be times when the interests of holders of each series of our common stock diverge or appear to diverge. Massachusetts law does not define a board of directors' duties in that situation. Based on the advice of counsel, however, we believe that a Massachusetts court would conclude that a board of directors owes an equal duty to all stockholders regardless of class or series and does not have separate or additional duties to any particular group of stockholders. That duty is the fiduciary duty to act in good faith and in a manner the board reasonably believes to be in the best interests of the corporation. Under Massachusetts law, if a disinterested and adequately informed board of directors determines in good faith that an action would be in the corporation's best interests, taking into account both the interests of holders of each series of tracking stock as well as the alternatives reasonably available, then the board of directors should be able to successfully defend against any stockholder claim that the action could have an unequal effect on different series of tracking stock. 10 In March 1999, the Delaware Court of Chancery, in two separate cases, dismissed all stockholder claims that the board of directors had violated its fiduciary duties under Delaware law by approving actions that had a disparate impact on holders of different classes of tracking stock. The court indicated in each case that even where the decision of the board of directors affected holders of separate classes of tracking stock differently, stockholders must allege facts sufficient to indicate that a board of directors' approval was not based on the good faith belief that the approved actions were in the corporation's best interests. While Delaware case law is not binding on a Massachusetts court, we believe that a Massachusetts court would be influenced by these decisions in addressing similar issues. A Massachusetts court hearing a case, however, may apply principles of Massachusetts law other than those described above or develop new principles of Massachusetts law to decide the case. MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES. A member of our board may own a disproportionate amount of tracking stock in a particular series, or the value of his or her holdings of a particular series of stock may be different from the value of his or her holdings in another series. This disparate stock ownership may cause the board member to favor one series of stock over another. Nevertheless, we believe that a member of our board could properly discharge his or her fiduciary responsibilities even if his or her interests in shares of different series were disproportionate or of unequal values. Our board members may create committees to review matters that raise conflict-of-interest issues. If a committee is formed, it would report to the full board. HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY HAVE LIMITED SEPARATE VOTING RIGHTS. Holders of all series of our tracking stock vote together as a single class on all matters requiring common stockholder approval, including the election of directors. Holders of one series of tracking stock do not have the right to vote on matters separately from the other series except in limited circumstances. These circumstances are dictated by Massachusetts law, our charter and the management and accounting policies adopted by our board of directors. Therefore, stockholders of one series of tracking stock generally could not make a proposal that would require approval only of the holders of that series. Instead, they would have to obtain approval from all common stockholders. THE LIQUIDATION RIGHTS FOR EACH SERIES OF TRACKING STOCK ARE NOT ADJUSTED TO REFLECT CHANGES IN THE SERIES' MARKET VALUE. If we dissolve, liquidate or wind up our affairs, other than as part of a merger, business combination or sale of substantially all of our assets, our stockholders will receive any remaining assets according to the percentage of total liquidation units that they hold. The number of liquidation units per share for each series of our tracking stock is as follows: - each share of GENZ Stock has 100 liquidation units; - each share of GZMO Stock has 25 liquidation units; - each share of GZSP Stock has 61 liquidation units; and - each share of GZTR Stock has 58 liquidation units. Although we adjust liquidation units to prevent dilution in the event of some subdivisions, combinations or distributions of common stock, we do not adjust them to reflect changes in the relative market value or performance of the divisions. Accordingly, at the time of a dissolution, liquidation or winding up, the relative liquidation units attributable to each series of tracking stock may not correspond to the value of the underlying assets of that division. 11 OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT STOCKHOLDER APPROVAL. Our board of directors has adopted management and accounting policies that are used to govern our business and to prepare our financial statements. These policies cover the allocation of corporate expenses, assets and liabilities and other accounting matters, and the reallocation of assets between divisions and other matters. Our board generally may modify or rescind these policies or adopt new ones without stockholder approval. Any revised policies could have different effects on each series of our tracking stock and could be detrimental to one series as compared to another. The discretion of our board to make changes is limited only by the policies themselves and the board's fiduciary duty to all of our stockholders. You can review the summary of our management and accounting policies beginning on page 48 of this prospectus. We also encourage you to review the full text of these policies, which are filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE LEVEL TAX IS IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK. In 1999 the Clinton Administration proposed legislation that would have imposed a corporate level tax on issuances of tracking stock. More recently, the Clinton Administration has proposed legislation that would tax stockholders upon the receipt of tracking stock from the issuing corporation as a distribution or in a recapitalization. Although Congress has not enacted either of these proposals into law, if these or similar proposals are enacted into law or effected through Treasury regulations in the future, we could be taxed on an amount up to the gain realized in future financings in which we sell tracking stock, including GENZ Stock. Also, any use of our tracking stock to acquire other companies could be taxed. We also may be taxed if we distribute to stockholders "designated" shares of tracking stock, which are shares designated by the tracked division as issuable at the option of our board for Genzyme General's benefit. In addition, stockholders could be taxed if they receive a distribution of designated shares of tracking stock or if they receive shares of tracking stock in exchange for other Genzyme stock. These or similarly adverse tax consequences could cause us to eliminate tracking stock from our capital structure. We cannot predict, however, whether Congress will enact legislation, or the Treasury Department will issue regulations, effecting these or similar proposals. THE USE OF OPERATING LOSSES TO LOWER THE REPORTED TAX LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE LOWER REPORTED EARNINGS IN THE FUTURE FOR THE DIVISIONS GENERATING THESE OPERATING LOSSES. Genzyme Corporation, rather than its divisions, is liable for taxes. Under our management and accounting policies, for financial reporting purposes we generally allocate taxes among our divisions as if they were separate taxpayers. However, our board of directors has adopted a policy that provides that if any of our divisions is unable to use our operating losses or other projected annual tax benefits to reduce our current or deferred income tax expense, we may reallocate these losses or benefits to our profitable divisions on a quarterly basis for financial reporting purposes. This will result in a division with current losses (such as Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair) reporting lower earnings available to its common stockholders in the future than would be the case if that division had retained its historical losses or other benefits in the form of a net operating loss carryforward. We encourage you to review the summary of our tax allocation policy on page 49 of this prospectus, and the full text of this policy which is filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES OF A PARTICULAR DIVISION. Our board of directors has adopted a policy regarding competition among our divisions. This non-compete policy requires that we develop certain products and services within a given division, as opposed to another division, or through joint ventures involving a given division, because the product 12 or service is within the field of activity of that division. This non-compete policy, however, does not cover the entire field of activity of each division. For example, Genzyme General Division or Genzyme Molecular Oncology may develop certain tissue repair products or services. In order words, we cannot guarantee that all products and services we develop in a given field of activity will be allocated to a division primarily engaged in that field of activity. We encourage you to review the summary of our non-compete policy on page 52 of this prospectus and the full text of this policy, which is filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK OR GZTR STOCK MAY SIGNIFICANTLY DILUTE YOUR OWNERSHIP OF THE AFFECTED SHARES OF TRACKING STOCK. Our management and accounting policies require us to sell or distribute any designated shares of GZMO Stock, GZSP Stock or GZTR Stock that may be created, subject to certain limitations. Proceeds from a sale or distribution will not be allocated to the affected divisions and the issuance and sale may substantially dilute your ownership of tracking stock of the affected divisions. Circumstances under which the designated shares of tracking stock will be sold or distributed are described in the section of this document entitled "DESCRIPTION OF GENZYME COMMON STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated Shares." RISKS RELATING TO GENZYME GENERAL The following risks and uncertainties may adversely affect the business of Genzyme General. Accordingly, you should consider these risks before investing in GENZ Stock or any securities which may be exchanged for, exercised for or converted into GENZ Stock. GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN-REGISTERED TRADEMARK- HORMONE AND RENAGEL-REGISTERED TRADEMARK- CAPSULES. In January 1999, Genzyme General, together with Knoll Pharmaceutical Company, launched U.S. sales of Thyrogen-Registered Trademark- recombinant thyroid stimulating hormone for use in the treatment of thyroid cancer. At about the same time, Genzyme General, in collaboration with GelTex Pharmaceuticals, Inc., launched Renagel-Registered Trademark- capsules, a non-absorbed phosphate binder used in the treatment of end-stage renal disease. The commercial success of Thyrogen-Registered Trademark- hormone and Renagel-Registered Trademark- capsules will depend on a number of factors, including: - regulation by the FDA; - the ability to obtain regulatory approvals in foreign countries; - the development and commercial success of competitive products; and - the availability of third party reimbursement. Genzyme General cannot be sure that market penetration of Thyrogen-Registered Trademark- hormone and Renagel-Registered Trademark- capsules will increase. IF THE STRATEGIC ALLIANCES GENZYME GENERAL HAS ENTERED INTO TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS ARE NOT SUCCESSFUL, GENZYME GENERAL'S RESULTS OF OPERATIONS WILL BE ADVERSELY IMPACTED. Several of Genzyme General's strategic initiatives involve alliances with other biotechnology companies and arrangements with academic medical centers. These include: - a joint venture with GelTex Pharmaceuticals, Inc. for the commercialization of Renagel-Registered Trademark- capsules, a non-absorbed phosphate binder for the treatment of end stage renal disease; - an agreement with Knoll Pharmaceutical Company for the marketing of our Thyrogen-Registered Trademark- hormone in the U.S.; 13 - an agreement with Biogen, Inc. for the marketing of AVONEX-Registered Trademark- (Interferon beta1a), Biogen's treatment for relapsing forms of multiple sclerosis, in Japan following regulatory approval; - a joint venture with BioMarin Pharmaceutical Inc. for the development and commercialization of alpha-L-iduronidase for the treatment of the lysosomal storage disorder known as mucopolysaccharidosis I; - a joint venture with Genzyme Transgenics Corporation for the development and commercialization of transgenic antithrombin III, a human protein that Genzyme Transgenics produces in the milk of genetically modified animals; - a joint venture with Pharming Group N.V. for the development and commercialization of human alpha-glucosidase for the treatment of Pompe disease; - an agreement with Genovo Inc. for the development of gene therapy products for the treatment of lysosomal storage disorders; - a relationship with Mount Sinai Medical Center for the development of a therapy for the treatment of Niemann-Pick disease; - a joint venture with Diacrin, Inc. to develop and commercialize products and processes using porcine fetal cells for the treatment of Parkinson's disease and Huntington's disease; and - an agreement with Dyax Corp. to develop and commercialize the protein EPI-KAL2 for the treatment of chronic inflammatory diseases. Genzyme General plans to enter into additional alliances in the future. The success of these arrangements are largely dependent on the efforts and skills of Genzyme General's partners. Genzyme General cannot guarantee that: - these agreements will not be terminated; - its strategic partners will devote significant resources to the collaborations; or - any of these alliances will result in the successful development or commercialization of any products. OUR OPTION TO PURCHASE LIMITED PARTNERSHIP INTERESTS COULD DILUTE THE RIGHTS OF HOLDERS OF GENZ STOCK. We organized Genzyme Development Partners, L.P., a special purpose research and development entity, in 1989 and transferred to it technology and commercial rights to our hyaluronic acid-based products designed to prevent the occurrence and severity of post-operative adhesions. These products, which we refer to as the Sepra products, are now allocated to Genzyme Surgical Products. We have an option to purchase the limited partnership interests in the partnership. If we exercise this option, we may have to issue shares of GENZ Stock or make substantial cash payments or both. If we make payments in GENZ Stock, the rights of holders of GENZ Stock could be diluted and the market price of that stock may fall. If we make cash payments, our cash resources would diminish. RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY The following risks and uncertainties may adversely affect the business of Genzyme Molecular Oncology. Accordingly, you should consider these risks before investing in GZMO Stock or any securities which may be exchanged for, exercised for or converted into GZMO Stock. 14 THE SAGE-TM- GENE EXPRESSION TECHNOLOGY GENERATES ONLY MODEST REVENUES AND IT IS UNCERTAIN WHETHER GENZYME MOLECULAR ONCOLOGY WILL BE ABLE TO DEVELOP AND COMMERCIALIZE OTHER MARKETABLE PRODUCTS AND SERVICES. We do not expect Genzyme Molecular Oncology's products and services to generate significant revenue for several years. Services based on the SAGE-TM- gene expression technology represent its only product or service that is not at an early stage of development. To date, these services have generated only modest revenue, and we compete with several companies in the genomics market. Before commercializing any other products and services, Genzyme Molecular Oncology will need to conduct substantial research and development, including, in some cases, the replication of pre-clinical studies performed by its collaborators, undertake preclinical and clinical testing and pursue regulatory approvals. We cannot guarantee that these efforts will be successful. Clinical trials, for example, may not support the safety or effectiveness of a particular product or service. Currently, Genzyme Molecular Oncology's gene therapy products for melanoma are its only therapeutic products in clinical development. Genzyme Molecular Oncology may encounter problems in these or other clinical trials that lead to delay or suspension of the trials. GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. We expect Genzyme Molecular Oncology to have significant operating losses for the next several years. Genzyme Molecular Oncology plans to spend substantial amounts of money on, among other things: - commercialization of the SAGE-TM- technology; - research and development; - preclinical and clinical testing; and - pursuing regulatory approvals. We cannot guarantee that the efforts underlying these expenditures will be successful or that Genzyme Molecular Oncology's operations will ever be profitable. It may be years before the division generates any revenue from sales of products or services other than those based on the SAGE-TM- technology. IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available under a line of credit from Genzyme General and revenues generated from the SAGE-TM- technology, license agreements and committed research funding from collaborators, will be sufficient to fund its operations through 2000. However, Genzyme Molecular Oncology's cash needs may differ from those planned because of many factors, including: - the results of research and development and clinical testing; - the achievement of milestones under existing strategic alliances; - the ability to establish and maintain additional strategic alliances and licensing arrangements; - the enforcement of patent and other intellectual property rights; - the development of competitive products and services; and - the ability to satisfy regulatory requirements of the FDA and other government authorities. Genzyme Molecular Oncology may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that the division will be able to obtain any additional 15 financing or find it on favorable terms. If Genzyme Molecular Oncology has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. Genzyme Molecular Oncology may also have to give rights to third parties to attempt to commercialize technologies or products that it would otherwise commercialize itself. GENZYME MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE COLLABORATIONS. Genzyme Molecular Oncology's strategy to develop and commercialize certain of its products and services includes entering into various arrangements with both academic collaborators, and corporate partners and licensees. Genzyme Molecular Oncology depends on the success of these parties in performing research, preclinical and clinical testing, and marketing. These arrangements may require Genzyme Molecular Oncology to transfer certain important rights to its corporate partners and licensees. While Genzyme Molecular Oncology believes its collaborators and licensees will want to perform their contractual responsibilities, in some cases the amount and timing of resources that they devote to their collaborations with the division, and the ability to terminate the collaboration, will be controlled by the collaborators. As a result, Genzyme Molecular Oncology cannot guarantee that it will receive revenues or profits from these arrangements, that any of its strategic alliances will continue or not terminate early, or that it will be able to enter into future collaborations. ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY PRODUCTS. The recent death of a patient undergoing gene therapy using an adenoviral vector to deliver the therapeutic gene has been widely publicized. This death and any other adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation and potential regulatory delays relating to the testing or approval of Genzyme Molecular Oncology's gene therapy product candidates. As a result of this death, the U.S. Senate has commenced hearings to determine whether additional legislation is required to protect volunteers and patients who participate in gene therapy clinical trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory body to the National Institutes of Health (NIH), has extensively discussed the use of adenoviral vectors in gene therapy clinical trials and intends to issue a report in March 2000 on the adverse events reported by investigators using adenoviral vectors. Any increased scrutiny could delay or increase the costs of Genzyme Molecular Oncology's product development efforts or clinical trials. The commercial success of any gene therapy products developed by Genzyme Molecular Oncology will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product labeling requirements of gene therapies and could cause a decrease in the demand for any gene therapy product that Genzyme Molecular Oncology may develop. GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME ITS PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products Genzyme Molecular Oncology is developing or testing. As a result, Genzyme Molecular Oncology may be required to obtain licenses from the holders of these patents in order to use or sell certain products and services. We cannot guarantee that these licenses will be available on acceptable terms. If these licenses are not available, Genzyme Molecular Oncology's ability to commercialize its products and services may be impaired. 16 In its immunotherapy program, Genzyme Molecular Oncology is in the process of evaluating the therapeutic administration of genes that encode specific tumor antigens and antigenic peptide products, including MART-1 and gp100. Genzyme Molecular Oncology knows of two issued U.S. patents directed to the gene which encodes MART-1. While Genzyme Molecular Oncology has obtained rights under one of these patents, it is still in the process of evaluating the scope and validity of the other. Genzyme Molecular Oncology is also evaluating an issued U.S. patent covering the gene that encodes gp100 and three published Patent Cooperation Treaty applications by three different applicants which may cover antigens derived from gp100. Genzyme Molecular Oncology is in the process of evaluating the scope and validity of these patents and patent applications to determine whether it needs to obtain licenses. RISKS RELATED TO GENZYME SURGICAL PRODUCTS The following risks and uncertainties may adversely affect the business of Genzyme Surgical Products. Accordingly, you should consider these risks before investing in GZSP Stock or any securities which may be exchanged for, exercised for or converted into GZSP Stock. GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. Genzyme Surgical Products expects to have significant operating losses for the next several years. It plans to spend substantial amounts of money on, among other things: - conducting research and development activities; - pursuing regulatory approvals; - conducting commercialization activities; and - providing surgeon education and training. We cannot guarantee that the efforts underlying these expenditures will be successful or that Genzyme Surgical Products' operations will ever be profitable. It may be years before the division generates any revenue from sales of products currently under development. IF GENZYME SURGICAL PRODUCTS FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Surgical Products' current cash resources, together with revenues generated from its products and distribution agreements, will be sufficient to fund its operations through 2001. However, its cash needs may differ from those planned because of many factors, including: - the ability to become profitable; - the results of research and development efforts; - the ability to establish strategic alliances and licensing arrangements for research and development programs; - the achievement of milestones under strategic alliances; - the ability to establish and maintain additional distribution arrangements; - the enforcement of patent and other intellectual property rights; - market acceptance of novel approaches and therapies; - the development of competitive products; and - the ability to satisfy regulatory requirements of the FDA and other government authorities. Genzyme Surgical Products may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that it will be able to obtain additional financing or find it on favorable terms. If the division has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. It may also have to give rights to third parties to attempt to commercialize technologies or products that it would otherwise commercialize itself. 17 IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE INTERESTS IN GENZYME DEVELOPMENT PARTNERS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS OF ITS STOCKHOLDERS MAY BE DILUTED. In 1989, we organized Genzyme Development Partners, L.P., a special purpose research and development entity, and transferred to it technology and commercial rights to the Sepra products. We have an option to purchase the limited partnership interests in the partnership under certain circumstances for approximately $26 million plus continuing royalties based on certain sales of the Sepra products. We have allocated the purchase option to Genzyme Surgical Products. The option's exercise price is payable in cash, shares of GENZ Stock or a combination of the two, as determined by Genzyme Surgical Products when it exercises the option. If Genzyme Surgical Products exercises this option, it will have to make substantial cash payments or compensate Genzyme General with shares of GZSP Stock for the GENZ Stock used, or both. If the division makes cash payments, its cash resources would diminish. If it makes the payment in whole or in part in shares of GENZ Stock, then our board of directors would need to approve the issuance of GENZ Stock in return for Genzyme General receiving a number of GZSP designated shares with a fair market value equal to the fair market value of the shares of GENZ Stock. Those GZSP designated shares would be shares of GZSP Stock that our board would have the option to issue from time to time with all proceeds allocable to Genzyme General. Beginning on June 30, 2000, and on every June 30(th) thereafter, we will have to distribute substantially all the GZSP designated shares if the number of those shares exceeds 10% of the number of shares of GZSP Stock then outstanding. See "DESCRIPTION OF GENZYME COMMON STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated Shares." We cannot guarantee that our board would authorize the issuance of shares of GENZ Stock for payment of the option exercise price and the creation of any GZSP designated shares. If our board creates and subsequently distributes or otherwise disposes of any GZSP designated shares, this would substantially dilute the rights of the holders of GZSP Stock and could significantly affect the market price of GZSP Stock. If Genzyme Surgical Products does not exercise the option, the partnership would have the right to sell or otherwise transfer to a third party a license to background technology that we granted to it. A sale or transfer of this technology may terminate our joint venture with the partnership to manufacture and sell the Sepra products in the U.S. and Canada. In addition, failure to exercise the option would cause the joint venture to become terminable upon 90 days' prior notice by either Genzyme or Genzyme Development Partners. GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL. Genzyme Surgical Products is devoting a significant amount of money to developing products that will represent alternatives to traditional surgical procedures or treatments. These products will likely require several years of aggressive and costly marketing before they might become widely accepted by the surgical community. Genzyme Surgical Products is developing products that are designed to enable surgeons to perform minimally invasive cardiovascular surgery. The medical conditions that can be treated with minimally invasive cardiovascular surgery are currently being treated with widely accepted surgical procedures such as coronary artery bypass grafting and catheter-based treatments, including balloon angioplasty, atherectomy and coronary stenting. To date, minimally invasive cardiovascular surgery has been performed on a limited basis and its further adoption by the surgical community will partly depend on Genzyme Surgical Products' ability to educate cardiothoracic surgeons about its effectiveness and to facilitate the training of cardiothoracic surgeons in minimally invasive cardiovascular surgery techniques. 18 Similarly, until recently surgeons have not used products designed to reduce the incidence and extent of postoperative adhesions. Since 1996, when Seprafilm-TM- bioresorbable membrane was introduced, market acceptance of anti-adhesion products has been slow. To increase sales of the Sepra products, Genzyme Surgical Products has had to educate surgeons and hospital administrators about the problems of, and costs associated with, adhesions and the benefit of preventing adhesions. It has also had to train surgeons on the proper handling and use of these products. We cannot guarantee that Genzyme Surgical Products' efforts in educating and training the surgical community will result in the widespread adoption of minimally invasive cardiovascular surgery and anti-adhesion products or that surgeons adopting these procedures and products will use Genzyme Surgical Products' products. ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF GENZYME SURGICAL PRODUCTS' GENE THERAPY PRODUCTS. The recent death of a patient undergoing gene therapy using an adenoviral vector to deliver the therapeutic gene has been widely publicized. This death and any other adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation and potential regulatory delays relating to the testing or approval of Genzyme Surgical Products' gene therapy product candidates. As a result of this death, the United States Senate has commenced hearings to determine whether additional legislation is required to protect volunteers and patients who participate in gene therapy clinical trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory body to the NIH, has extensively discussed the use of adenoviral vectors in gene therapy clinical trials and intends to issue a report in March 2000 on the adverse events reported by investigators using adenoviral vectors. Any increased scrutiny could delay or increase the costs of Genzyme Surgical Products' product development efforts or clinical trials. The commercial success of any gene therapy products developed by Genzyme Surgical Products will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product liability requirements of gene therapy products that Genzyme Surgical Products may develop. COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT GENZYME SURGICAL PRODUCTS' PERFORMANCE. The human health care products and services industry is extremely competitive. Major medical device and technology companies compete or may compete with Genzyme Surgical Products. These include such companies as: - Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco International, Ltd. in the cardiovascular chest drainage and fluid management market; - The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical Corporation, a division of Tyco in the cardiovascular closure market; - CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant Corporation, Baxter Healthcare Corporation and Ethicon in the minimally invasive cardiovascular surgery market; - Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and Gliatech, Inc. in the anti-adhesion market; and 19 - Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling Weck Surgical Instruments and the Codman division of Johnson & Johnson Ltd. in the reusable instruments market. These competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than Genzyme Surgical Products. The division is likely to incur significant costs developing and marketing new products without any guarantee that it will be commercially successful. The future success of Genzyme Surgical Products will depend on its ability to effectively develop and market its products against those of its competitors. THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY AFFECT GENZYME SURGICAL PRODUCTS' ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS TO SOME SIGNIFICANT PURCHASERS. The current trend among hospitals and other significant consumers of surgical devices is to combine into larger purchasing groups to increase their purchasing power and thus reduce their purchase price for surgical devices. Partly in response to this development, surgical device manufacturers have been consolidating to be able to offer a more comprehensive product line to these larger purchasing groups. In order to successfully market its products to larger purchasing groups, Genzyme Surgical Products may have to expand its product lines or enter into joint marketing or distribution agreements with other manufacturers of surgical devices. We cannot guarantee that it will be able to employ either of these initiatives or that, when employed, these initiatives will increase the marketability of its products. GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE COLLABORATIONS. Genzyme Surgical Products' strategy to develop and commercialize certain of its products, in particular its gene and cell therapies for the treatment of cardiovascular disease, includes entering into various arrangements with both academic collaborators and corporate partners and licensees. The division may depend on the success of these parties in performing research, pre-clinical and clinical testing and marketing. These arrangements may require the division to transfer certain important rights to these collaborators and licensees. While we believe that Genzyme Surgical Products' collaborators and licensees will want to perform their contractual responsibilities, in some cases the amount and timing of resources that they devote to their collaborations with Genzyme Surgical Products, and the ability to terminate the collaboration, will be controlled by the collaborators and licensees. As a result, we cannot guarantee that Genzyme Surgical Products will receive revenues or profits from these arrangements, that any of its strategic alliances will continue or not terminate early, or that it will be able to enter into future collaborations. RISKS RELATED TO GENZYME TISSUE REPAIR The following risks and uncertainties may adversely affect the business of Genzyme Tissue Repair. Accordingly, you should consider these risks before investing in GZTR Stock or any securities which may be exchanged for, exercised for or converted into GZTR Stock. THE COMMERCIAL SUCCESS OF GENZYME TISSUE REPAIR'S LEAD PRODUCT, CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES, IS UNCERTAIN. Carticel-Registered Trademark- chondrocytes are used to treat knee cartilage damage. This service involves a proprietary process for growing autologous (a patient's own) cartilage cells to replace those that are damaged or lost. Revenues from this service accounted for approximately 72% of Genzyme Tissue Repair's revenue 20 during the first nine months of 1999 and 64% of its 1998 revenue. The commercial success of Carticel-Registered Trademark- chondrocytes will depend on many factors including: - POSITIVE RESULTS FROM POST-MARKETING STUDIES. We have agreed with the FDA to conduct two post-marketing studies to confirm the effectiveness of Carticel-Registered Trademark- chondrocytes. The first study compares clinical outcomes of patients in Genzyme Tissue Repair's registry who did not respond to treatment before being implanted with Carticel-Registered Trademark- chondrocytes. This study will measure outcomes before and after implantation with Carticel-Registered Trademark- chondrocytes. The second study compares the long-term clinical effects of treatment with Carticel-Registered Trademark- chondrocytes to other available treatments. If these studies demonstrate that treatment with Carticel-Registered Trademark- chondrocytes is not superior to the alternatives studied, the FDA may suspend or withdraw its approval of Carticel-Registered Trademark- chondrocytes. If Genzyme Tissue Repair cannot market Carticel-Registered Trademark- chondrocytes in the U.S., its financial results will be negatively impacted. - FDA APPROVAL OF RELATED DEVICE Genzyme Tissue Repair has developed a device to improve the procedure for implanting Carticel-Registered Trademark- chondrocytes and plans to file for marketing approval with the FDA. Genzyme Tissue Repair believes it will begin marketing this device in 2000. We cannot guarantee that the FDA will approve this device, that this device will improve the procedure for implanting Carticel-Registered Trademark- chondrocytes, or that this device will gain commercial acceptance. - THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT. Since the FDA approved Carticel-Registered Trademark- chondrocytes, we have seen a substantial increase in the number of third party payers who cover it. Some third party payers, however, do not cover Carticel-Registered Trademark- chondrocytes. We cannot guarantee that any third party payers will continue to cover it or that additional third party payers will begin to provide reimbursement. Although FDA approval is a crucial factor in insurance plans deciding to cover new treatments, a number of major insurance plans also base such decisions on their own or third party evaluations of such treatments. One independent association that conducts such evaluations is the Blue Cross Blue Shield Association. The Blue Cross Blue Shield Association has determined that its Technology Assessment Committee does not believe that Carticel-Registered Trademark- chondrocytes meets all of its published criteria for new treatments. We believe that Carticel-Registered Trademark- chondrocytes does in fact meet all of such criteria and are discussing the evaluation with the Blue Cross Blue Shield Association. While individual Blue Cross Blue Shield plans representing more than 50% of Blue Cross Blue Shield policyholders have provided policy coverage for Carticel-Registered Trademark- chondrocytes without a favorable evaluation by the Blue Cross Blue Shield Association, many Blue Cross Blue Shield plans have delayed approving Carticel-Registered Trademark- chondrocytes from coverage under their policies as a direct result of this unfavorable ruling. Since these remaining plans represent a significant percentage of insured lives in the U.S., this ruling has delayed our access to a substantial portion of the market for Carticel-Registered Trademark- chondrocytes. - THE SUCCESS OF COMPETITIVE PRODUCTS. The process we use to grow a patient's cartilage cells is not patentable, and we do not yet have significant patent protection covering the other processes used in providing Carticel-Registered Trademark- chondrocytes. Consequently, we cannot prevent a competitor from developing the ability to grow cartilage cells and from offering a product or service that is similar or superior to Carticel-Registered Trademark- chondrocytes. If a competitor were to develop such ability and obtain FDA approval for a competitive product or service, Genzyme Tissue Repair's financial results of operations would be negatively impacted. We are aware of at least two other companies that are growing autologous cartilage cells for cartilage repair in the European market. Also, several pharmaceutical and 21 biotechnology companies are developing alternative treatments for knee cartilage damage. One or more of these companies may develop products or services superior to the Carticel-Registered Trademark- chondrocytes. - MARKET ACCEPTANCE BY ORTHOPEDIC SURGEONS. We are marketing Carticel-Registered Trademark- chondrocytes to orthopedic surgeons. We cannot guarantee that we will train enough surgeons who incorporate it into their practice to make it commercially successful. GENZYME TISSUE REPAIR ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. We expect Genzyme Tissue Repair to have significant operating losses at least through 2000 as it continues to commercialize Carticel-Registered Trademark- chondrocytes and to conduct research and development and clinical programs. We cannot guarantee that Genzyme Tissue Repair's operations will ever be profitable. IF GENZYME TISSUE REPAIR FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Tissue Repair's current cash resources, together with amounts available under an equity line of credit from Genzyme General, will be sufficient to fund Genzyme Tissue Repair's operations through the end of 2000. In 1999, Genzyme Tissue Repair received $25 million in cash from Genzyme General in connection with the transfer to Genzyme General of Genzyme Tissue Repair's interest in our joint venture with Diacrin, Inc. Of this amount, $20 million is subject to the successful achievement of product development milestones by the joint venture. Genzyme Tissue Repair may repay any amounts due to Genzyme General in cash, GZTR designated shares, or combination of both, at its option. These GZTR designated shares would be shares of GZTR Stock that our board would have the option to issue from time to time with all proceeds allocable to Genzyme General. If these milestones are not achieved, and Genzyme Tissue Repair elects to repay Genzyme General in cash, its cash reserves will be substantially diminished or depleted in their entirety. If Genzyme Tissue Repair elects to repay Genzyme General in shares of GZTR designated shares, this would substantially dilute the rights of the holders of GZTR Stock and could significantly affect the market price of GZTR Stock. Genzyme Tissue Repair's cash needs may differ from those planned as a result of various factors, including the: - ability to satisfy regulatory requirements of the FDA and other government agencies; - results of research and development and clinical testing; - enforcement of patent and other intellectual property rights; and - development of competitive products and services. Genzyme Tissue Repair will require substantial additional funds in order to continue operations at current levels beyond 2000. We cannot guarantee that Genzyme Tissue Repair will be able to obtain any additional financing or find it on favorable terms. If Genzyme Tissue Repair has insufficient funds or is unable to raise additional funds, it may be required to delay, scale back or eliminate certain of its programs. Genzyme Tissue Repair may also have to give rights to third parties to commercialize technologies or products that it would otherwise commercialize itself. 22 GENZYME TISSUE REPAIR'S RESULTS FLUCTUATE QUARTERLY AND THIS COULD HAVE AN ADVERSE EFFECT ON ITS OPERATIONS. We expect that the revenues from the sale of the Carticel-Registered Trademark- chondrocytes will fluctuate based on Genzyme Tissue Repair's success in penetrating the market, the availability of competitive procedures and the availability of third party reimbursement. We cannot predict the timing or magnitude of these fluctuations. Furthermore, we expect that revenues from Carticel-Registered Trademark- chondrocytes will be lower in the summer months because fewer operations are typically performed during those months. We also expect that revenues from the sale of Epicel-TM- skin grafts will continue to fluctuate from quarter to quarter. This fluctuation is a result of several unpredictable factors, including the number and survival rate of severe burn patients who are treated with Epicel-TM- skin grafts. Since the Genzyme Tissue Repair must maintain extensive tissue culture facilities and a trained staff for both Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts, a significant portion of its costs are fixed and, therefore, fluctuations in demand can have an adverse effect on its results of operations. GENZYME TISSUE REPAIR RELIES ON KEY COLLABORATORS TO SUPPORT FURTHER RESEARCH AND DEVELOPMENT OF CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES AND THESE EFFORTS COULD SUFFER IF IT EXPERIENCES PROBLEMS WITH THESE COLLABORATORS. Carticel-Registered Trademark- chondrocytes were developed based on the work of a group of Swedish physicians. Genzyme Tissue Repair had consulting agreements with the two leaders of that group. These agreements, however, expired in 1998 and Genzyme Tissue Repair is currently negotiating renewals of these agreements. Pending these negotiations, these physicians are continuing to advise Genzyme Tissue Repair on the commercialization and further development of Carticel-Registered Trademark- chondrocytes. We cannot guarantee that the two physicians will sign a new consulting agreement or continue to advise Genzyme Tissue Repair. In addition, individuals who are familiar with the know-how underlying Carticel-Registered Trademark- chondrocytes through their association with these physicians may disclose such information to our competitors. Either event could have an adverse effect on Genzyme Tissue Repair's results of operations. We have entered into a sponsored research agreement with the University of Gotenburg in Sweden and certain physicians, including the two physicians discussed above. The purpose of the agreement is to conduct additional research on Carticel-Registered Trademark- chondrocytes. The agreement prohibits each member of the research team from disclosing any information relating to Genzyme Tissue Repair or its business that they acquire in connection with their work under the agreement. The agreement also states that all inventions that the members conceive or reduce to practice during the course of the research program will be Genzyme Tissue Repair's property, with royalties payable to the inventing member. We cannot guarantee that these members will honor their obligations under the sponsored research agreement. 23 NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements about our: - product development activities and projected expenditures; - receipt of regulatory approvals; - plans for sales and marketing; - projected cash needs; - financial results; and - dividend policy. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Therefore, you should consider these forward-looking statements in light of all of the information included or referred to in this prospectus, including that set forth under the heading "Risk Factors." Words such as "estimate," "project," "plan," "intend," "expect," "believe," "should," "may" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this prospectus and the other documents incorporated by reference, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 1998, including any amendments, and our Current Reports on Form 8-K dated June 11, 1999 and June 30, 1999. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. We do not undertake any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events or developments. 24 USE OF PROCEEDS Except as otherwise provided in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities offered by this prospectus for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness or capital stock, working capital, capital expenditures, acquisitions of new technologies and businesses and investments. Additional information on the use of net proceeds from the sale of securities offered by this prospectus may be set forth in the prospectus supplement relating to the specific offering. RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth our ratio of earnings to combined fixed charges and preferred stock dividends on a historical basis for the periods indicated. For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest, amortization of debt issuance costs, preferred stock dividends and the component of rental expense believed by management to be representative of the interest factor on those amounts.
NINE MONTHS NINE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED --------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1994 1995 1996 1997 1998 1998 1999 -------- -------- ------------- -------- -------- ------------- ------------- Ratio of Earnings to Fixed Charges (1)(3)............... 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (2)(3)............. 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x Coverage Deficiency (3)........ n/a n/a $72.3 million n/a n/a n/a n/a
- ------------------------ (1) The ratio of earnings to fixed charges is computed by dividing net income (loss) before income taxes and extraordinary credits and fixed charges (excluding interest capitalized during the period), by fixed charges. (2) The ratio of earnings to fixed charges and preferred stock dividends is computed by dividing net income (loss) before income taxes and extraordinary credits and fixed charges (excluding interest capitalized during the period), by fixed charges and preferred stock dividend requirements. The preferred stock dividend requirements represent the pretax earnings which would have been required to cover the dividend requirements on any preferred stock outstanding. We did not have any preferred stock outstanding during the periods presented above and accordingly there were no preferred stock dividend requirements during these periods. (3) The ratio of earnings to fixed charges is not presented for the year ended December 31, 1996 because fixed charges in 1996 exceeded earnings by $72.3 million due primarily to charges for in-process research and development of $130.6 million. 25 DESCRIPTION OF DEBT SECURITIES We will issue the debt securities (the "Debt Securities") offered by this prospectus and any accompanying prospectus supplement under an indenture (the "Indenture") to be entered into between Genzyme and the trustee identified in the applicable prospectus supplement (the "Trustee"). The terms of the Debt Securities will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect on the date of the Indenture. We have filed a copy of the proposed form of Indenture as an exhibit to the registration statement in which this prospectus is included. Each Indenture will be subject to and governed by the terms of the Trust Indenture Act of 1939. We may offer under this prospectus up to an aggregate principal amount of $500,000,000 in Debt Securities. If Debt Securities are issued at a discount, or in a foreign currency, foreign currency units or composite currency, the principal amount as may be sold for an initial public offering price of up to $500,000,000. Unless otherwise specified in the applicable prospectus supplement, the Debt Securities will represent direct, unsecured obligations of Genzyme and will rank equally with all of our other unsecured indebtedness. The following statements relating to the Debt Securities and the Indenture are summaries and do not purport to be complete, and are subject in their entirety to the detailed provisions of the Indenture. GENERAL We may issue the Debt Securities in one or more series with the same or various maturities, at par, at a premium, or at a discount. We will describe the particular terms of each series of Debt Securities in a prospectus supplement relating to that series, which we will file with the SEC. To review the terms of a series of Debt Securities, you must refer to both the prospectus supplement for the particular series and to the description of Debt Securities in this prospectus. The prospectus supplement will set forth the following terms of the Debt Securities in respect of which this prospectus is delivered: - the title of the series; - the aggregate principal amount; - the issue price or prices, expressed as a percentage of the aggregate principal amount of the Debt Securities; - any limit on the aggregate principal amount; - the date or dates on which principal is payable; - the interest rate or rates (which may be fixed or variable) or, if applicable, the method used to determine such rate or rates; - the date or dates from which interest, if any, will be payable and any regular record date for the interest payable; - the place or places where principal and, if applicable, premium and interest, is payable; - the terms and conditions upon which we may, or the holders may require us to, redeem or repurchase the Debt Securities; - the denominations in which such Debt Securities may be issuable, if other than denominations of $1,000 or any integral multiple of that number; - whether the Debt Securities are to be issuable in the form of certificated Debt Securities (as described below) or global Debt Securities (as described below); 26 - the portion of principal amount that will be payable upon declaration of acceleration of the maturity date if other than the principal amount of the Debt Securities; - the currency of denomination; - the designation of the currency, currencies or currency units in which payment of principal and, if applicable, premium and interest, will be made; - if payments of principal and, if applicable, premium or interest, on the Debt Securities are to be made in one or more currencies or currency units other than the currency of denomination, the manner in which the exchange rate with respect to such payments will be determined; - if amounts of principal and, if applicable, premium and interest may be determined by reference to an index based on a currency or currencies or by reference to a commodity, commodity index, stock exchange index or financial index, then the manner in which such amounts will be determined; - the provisions, if any, relating to any collateral provided for such Debt Securities; - any addition to or change in the covenants and/or the acceleration provisions described in this prospectus or in the Indenture; - any Events of Default, if not otherwise described in this prospectus under "Events of Default"; - the terms and conditions for conversion into or exchange for shares of common stock or preferred stock; - any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents; - the terms and conditions, if any, upon which the Debt Securities shall be subordinated in right of payment to other indebtedness of Genzyme; - if applicable, whether the Debt Securities will be defeasible; and - any other terms, which may modify or delete any provision of the Indenture insofar as it applies to the series. We may issue discount Debt Securities ("Discount Securities") that provide for an amount less than the stated principal amount to be due and payable upon acceleration of the maturity of such Debt Securities in accordance to the terms of the Indenture. We may also issue Debt Securities in bearer form, with or without coupons. If we issue Discount Securities or Debt Securities in bearer form, we will describe U.S. federal income tax considerations and other special considerations which apply to these Debt Securities in the applicable prospectus supplement. We may issue Debt Securities denominated in or payable in a foreign currency or currencies or a foreign currency unit or units. If we do, we will describe the restrictions, elections, general tax considerations, specific terms and other information relating to the Debt Securities and the foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement. EXCHANGE AND/OR CONVERSION RIGHTS We may issue Debt Securities which can be exchanged for or converted into shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, other series of common stock or preferred stock. If we do, we will describe the term of exchange or conversion in the prospectus supplement relating to these Debt Securities. 27 TRANSFER AND EXCHANGE We may issue Debt Securities that will be represented by either: - "book-entry securities," which means that there will be one or more global securities registered in the name of The Depository Trust Company, as Depository (the "Depository"), or a nominee of the Depository; or - "certificated securities," which means that they will be represented by a certificate issued in definitive registered form. We will specify in the prospectus supplement applicable to a particular offering whether the Debt Securities offered will be book-entry or certificated securities. Except as set forth under "--Global Debt Securities and Book Entry System" below, book-entry Debt Securities will not be issuable in certificated form. CERTIFICATED DEBT SECURITIES If you hold certificated Debt Securities, you may transfer or exchange such debt securities at the Trustee's office or at the paying agency in accordance with the terms of the Indenture. You will not be charged a service charge for any transfer or exchange of certificated Debt Securities, but may be required to pay an amount sufficient to cover any tax or other governmental charge payable in connection with such transfer or exchange. You may effect the transfer of certificated Debt Securities and of the right to receive the principal of, premium, and/or interest, if any, on the certificated Debt Securities only by surrendering the certificate representing the certificated Debt Securities and having us or the Trustee issue a new certificate to the new holder. GLOBAL DEBT SECURITIES AND BOOK ENTRY SYSTEM The Depository has indicated that it would follow the procedures described below to book-entry Debt Securities. Beneficial interests in book-entry Debt Securities may be owned only by participants that have accounts with the Depository for the related global Debt Security or persons that hold interests through participants. Upon the issuance of a global Debt Security, the Depository will credit, on its book-entry registration and transfer system, each participants' account with the principal amount of the book-entry Debt Securities represented by such global Debt Security that is beneficially owned by the participant. The accounts to be credited will be designated by any dealers, underwriters or agents participating in the distribution of such book-entry Debt Securities. Ownership of book-entry Debt Securities will be shown on, and the transfer of such ownership interests will be effected only through, records maintained by the Depository for the related global Debt Security (with respect to interests of participants) and on the records of participants (with respect to interests of persons holding through participants). The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair your ability to own, transfer or pledge beneficial interests in book-entry Debt Securities. So long as the Depository for a global Debt Security, or its nominee, is the registered owner of a global Debt Security, the Depository or its nominee will be considered the sole owner or holder of the book-entry Debt Securities represented by the global Debt Security for all purposes under the Indenture. Except as described below, beneficial owners of book-entry Debt Securities will not be entitled to have such securities registered in their names, will not receive or be entitled to receive physical delivery of a certificate in definitive form representing the securities and will not be considered the owners or holders of the securities under the Indenture. Accordingly, each person who beneficially 28 owns book-entry Debt Securities and desires to exercise its rights as a holder under the Indenture, must rely on the procedures of the Depository for the related global Debt Security. If a person is not a participant, they must rely on the procedures of the participant through which they own their interest, to exercise the rights. We understand, however, that under existing industry practice, the Depository will authorize the persons on whose behalf it holds a global Debt Security to exercise certain rights of holders of Debt Securities. Genzyme, the Trustee, and any of their agents, will treat as the holder of a Debt Security the persons specified in a written statement of the Depository with respect to the global Debt Security for purposes of obtaining any consents or directions required to be given by holders of the Debt Securities under the Indenture. Payments of principal and, if applicable, premium and interest, on book-entry Debt Securities will be made to the Depository or its nominee, as the case may be, as the registered holder of the related global Debt Security. Genzyme and the Trustee, and any of their agents will not have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in such global Debt Security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. We expect that the Depository, upon receipt of any payment of principal of, premium, if any, or interest, if any, on a global Debt Security, will immediately credit participants' accounts with payments in amounts proportionate to the amounts of book-entry Debt Securities held by each participant as shown on the records of the Depository. We also expect that payments by participants to owners of beneficial interests in book-entry Debt Securities held through the participants will be governed by standing customer instructions and customary practices, as is now the case with the securities held for the accounts of customers in bearer form or registered in "street name." These payments will be the responsibility of the participants. If the Depository is at any time unwilling or unable to continue as Depository or ceases to be a clearing agency registered under the Securities Exchange Act of 1934, we will appoint a successor Depository. If we do not appoint a successor Depository registered as a clearing agency under the Securities Exchange Act of 1934 within 90 days, we will issue certificated Debt Securities in exchange for each global Debt Security. In addition, we may at any time and in our sole discretion determine not to have the book-entry Debt Securities of any series represented by one or more global Debt Securities. If this happens, we will issue certificated Debt Securities in exchange for the global Debt Securities of the effected series. Global Debt Securities will also be exchangeable by the holders for certificated Debt Securities if an Event of Default (see "Events of Default" below) with respect to the book-entry Debt Securities represented by the global Debt Securities has occurred and is continuing. Any certificated Debt Securities issued in exchange for a global Debt Security will be registered in such name or names as the Depository shall instruct the Trustee. We expect that such instructions will be based upon directions received by the Depository from participants. We obtained the information in this section concerning the Depository and the Depository's book-entry system from sources we believe to be reliable, but we do not take any responsibility for the accuracy of this information. NO PROTECTION IN THE EVENT OF CHANGE OF CONTROL The Indenture does not have any covenants or other provisions providing for a put or increased interest or otherwise that would afford holders of Debt Securities additional protection in the event of a recapitalization transaction, a change of control of Genzyme or a highly leveraged transaction. If we offer any covenants or provisions of this type with respect to any Debt Securities in the future, we will describe them in the applicable prospectus supplement. 29 COVENANTS Unless otherwise indicated in this prospectus or a prospectus supplement, the Debt Securities will not have the benefit of any covenants that limit or restrict our business or operations, the pledging of our assets or the incurrence by us of indebtedness. We will describe in the applicable prospectus supplement any material covenants in respect of a series of Debt Securities. With respect to any series of senior subordinated Debt Securities, we will agree not to issue debt which is, expressly by its terms, subordinated in right of payment to any other debt of Genzyme and which is not ranked on a parity with, or subordinate and junior in right of payment to, the senior subordinated Debt Securities. CONSOLIDATION, MERGER AND SALE OF ASSETS We have agreed in the Indenture that we will not consolidate with or merge into any other person or convey, transfer, sell or lease our properties and assets substantially as an entirety to any person, unless: - the person formed by the consolidation or into or with which we are merged or the person to which our properties and assets are conveyed, transferred, sold or leased, is a corporation organized and existing under the laws of the U.S., any state or the District of Columbia or a corporation or comparable legal entity organized under the laws of a foreign jurisdiction and, if we are not the surviving person, the surviving person has expressly assumed all of our obligations, including the payment of the principal of and, premium, if any, and interest on the Debt Securities and the performance of the other covenants under the Indenture; and - immediately after giving effect to the transaction, no event of default, and no event which, after notice or lapse of time or both, would become an Event of Default, has occurred and is continuing under the Indenture. EVENTS OF DEFAULT Unless otherwise specified in the applicable prospectus supplement, the following events will be Events of Default under the Indenture with respect to Debt Securities of any series: - we fail to pay any principal of, or premium, if any, when it becomes due; - we fail to pay any interest within 30 days after it becomes due; - we fail to observe or perform any other covenant in the Debt Securities or the Indenture for 60 days after written notice specifying the failure from the Trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities of that series; - we are in default under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of indebtedness under which we or any significant subsidiaries then has more than $25 million in outstanding indebtedness, individually or in the aggregate, and either (a) the indebtedness is already due and payable in full or (b) the default or defaults have resulted in the acceleration of the maturity of such indebtedness; - any final judgment or judgments which can no longer be appealed for the payment of more than $25 million in money (not covered by insurance) is rendered against us or any of our significant subsidiaries and has not been discharged for any period of 60 consecutive days during which a stay of enforcement is not in effect; and - certain events occur involving bankruptcy, insolvency or reorganization of Genzyme or any of our significant subsidiaries. 30 The Trustee may withhold notice to the holders of the Debt Securities of any series of any default, except in payment of principal or premium, if any, or interest on the Debt Securities of a series, if the Trustee considers it to be in the best interest of the holders of the Debt Securities of that series to do so. If an Event of Default (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization) occurs, and is continuing, then the Trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities of any series may accelerate the maturity of the Debt Securities. If this happens, the entire principal amount, plus the premium, if any, of all the outstanding Debt Securities of the affected series plus accrued interest to the date of acceleration will be immediately due and payable. At any time after the acceleration, but before a judgment or decree based on such acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding Debt Securities of such series may rescind and annul such acceleration if: - all Events of Default (other than nonpayment of accelerated principal, premium or interest) have been cured or waived; - all overdue interest and overdue principal has been paid; and - the rescission would not conflict with any judgment or decree. In addition, if the acceleration occurs at any time when Genzyme has outstanding indebtedness which is senior to the Debt Securities, the payment of the principal amount of outstanding Debt Securities may be subordinated in right of payment to the prior payment of any amounts due under the senior indebtedness, in which case the holders of Debt Securities will be entitled to payment under the terms prescribed in the instruments evidencing the senior indebtedness and the Indenture. If an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization occurs, the principal, premium and interest amount with respect to all of the Debt Securities of any series will be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Debt Securities of that series. The holders of a majority in principal amount of the outstanding Debt Securities of a series will have the right to waive any existing default or compliance with any provision of the Indenture or the Debt Securities of that series and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. No holder of any Debt Security of a series will have any right to institute any proceeding with respect to the Indenture or for any remedy under the Indenture, unless: - the holder gives to the Trustee written notice of a continuing Event of Default; - the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities of the affected series make a written request and offer reasonable indemnity to the Trustee to institute a proceeding as trustee; - the Trustee fails to institute a proceeding within 60 days of such request; and - the holders of a majority in aggregate principal amount of the outstanding Debt Securities of the affected series do not give the Trustee a direction inconsistent with such request during such 60-day period. However, these limitations do not apply to a suit instituted for payment on Debt Securities of any series on or after the due dates expressed in the Debt Securities. 31 MODIFICATION AND WAIVER From time to time, we and the Trustee may, without the consent of holders of the Debt Securities of one or more series, amend the Indenture or the Debt Securities of one or more series, or supplement the Indenture, for certain specified purposes, including: - to provide that the surviving entity following a change of control of Genzyme permitted under the Indenture will assume all of our obligations under the Indenture and Debt Securities; - to provide for uncertificated Debt Securities in addition to certificated Debt Securities; - to comply with any requirements of the SEC under the Trust Indenture Act of 1939; - to cure any ambiguity, defect or inconsistency, or make any other change that does not materially and adversely affect the rights of any holder; - to issue and establish the form and terms and conditions; and - to appoint a successor Trustee under the Indenture with respect to one or more series. From time to time we and the trustee may, with the consent of holders of at least a majority in principal amount of the outstanding Debt Securities, amend or supplement the indenture or the Debt Securities, or waive compliance in a particular instance by us with any provision of the indenture or the Debt Securities. However, we may not, without the consent of each holder affected by such action, modify or supplement the indenture or the Debt Securities or waive compliance with any provision of the indenture or the Debt Securities in order to: - reduce the amount of Debt Securities whose holders must consent to an amendment, supplement, or waiver to the Indenture or such Debt Security; - reduce the rate of or change the time for payment of interest; - reduce the principal of or premium on or change the stated maturity; - make any Debt Security payable in money other than that stated in the Debt Security; - change the amount or time of any payment required or reduce the premium payable upon any redemption, or change the time before which no such redemption may be made; - waive a default on the payment of the principal of, interest on, or redemption payment; or - take any other action otherwise prohibited by the Indenture to be taken without the consent of each holder affected by the action. DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES The Indenture permits us, at any time, to elect to discharge our obligations with respect to one or more series of Debt Securities by following certain procedures described in the Indenture. These procedures will allow us either: - to defease and be discharged from any and all of our obligations with respect to any Debt Securities except for the following obligations (which discharge is referred to as "legal defeasance"): (1) to register the transfer or exchange of such Debt Securities; (2) to replace temporary or mutilated, destroyed, lost or stolen Debt Securities; (3) to compensate and indemnify the Trustee; or 32 (4) to maintain an office or agency in respect of the Debt Securities and to hold monies for payment in trust; or - to be released from our obligations with respect to the Debt Securities under certain covenants contained in the Indenture, as well as any additional covenants which may be contained in the applicable supplemental indenture (which release is referred to as "covenant defeasance"). In order to exercise either defeasance option, we must deposit with the Trustee or other qualifying trustee, in trust for that purpose: - money; - U.S. Government Obligations (as described below) or Foreign Government Obligations (as described below) which through the scheduled payment of principal and interest in accordance with their terms will provide money; or - a combination of money and/or U.S. Government Obligations and/or Foreign Government Obligations sufficient in the written opinion of a nationally-recognized firm of independent accountants to provide money; which in each case specified above, provides a sufficient amount to pay the principal of, premium, if any, and interest, if any, on the Debt Securities of a series, on the scheduled due dates or on a selected date of redemption in accordance with the terms of the Indenture. In addition, defeasance may be effected only if, among other things: - in the case of either legal or covenant defeasance, we deliver to the Trustee an opinion of counsel, as specified in the Indenture, stating that as a result of the defeasance neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940; - in the case of legal defeasance, we deliver to the Trustee an opinion of counsel stating that we have received from, or there has been published by, the Internal Revenue Service a ruling to the effect that, or there has been a change in any applicable federal income tax law with the effect that (and the opinion shall confirm that), the holders of outstanding Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes solely as a result of such legal defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if legal defeasance had not occurred; - in the case of covenant defeasance, we deliver to the Trustee an opinion of counsel to the effect that the holders of the outstanding Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if covenant defeasance had not occurred; and - certain other conditions described in the Indenture are satisfied. If we fail to comply with our remaining obligations under the Indenture and applicable supplemental indenture after a covenant defeasance of the Indenture and applicable supplemental indenture, and the Debt Securities are declared due and payable because of the occurrence of any undefeased Event of Default, the amount of money and/or U.S. Government Obligations and/or Foreign Government Obligations on deposit with the Trustee could be insufficient to pay amounts due under the Debt Securities of the affected series at the time of acceleration. We will, however, remain liable in respect of these payments. 33 The term "U.S. Government Obligations" as used in the above discussion means securities which are direct obligations of or non-callable obligations guaranteed by the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. The term "Foreign Government Obligations" as used in the above discussion means, with respect to Debt Securities of any series that are denominated in a currency other than U.S. dollars (1) direct obligations of the government that issued or caused to be issued such currency for the payment of which obligations its full faith and credit is pledged or (2) obligations of a person controlled or supervised by or acting as an agent or instrumentality of such government the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by that government, which in either case under clauses (1) or (2), are not callable or redeemable at the option of the issuer. REGARDING THE TRUSTEE We will identify the Trustee with respect to any series of Debt Securities in the prospectus supplement relating to the applicable Debt Securities. You should note that if the Trustee becomes a creditor of the Company, the Indenture and the Trust Indenture Act of 1939 limit the rights of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim, as security or otherwise. The Trustee and its affiliates may engage in, and will be permitted to continue to engage in, other transactions with us and our affiliates. If, however, the Trustee, acquires any "conflicting interest" within the meaning of the Trust Indenture Act of 1939, it must eliminate such conflict or resign. The holders of a majority in principal amount of the then outstanding Debt Securities of any series may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. If an Event of Default occurs and is continuing, the Trustee, in the exercise of its rights and powers, must use the degree of care and skill of a prudent person in the conduct of his or her own affairs. Subject to that provision, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of the Debt Securities, unless they have offered to the Trustee reasonable indemnity or security. 34 DESCRIPTION OF PREFERRED STOCK We currently have authorized 6,600,000 shares of undesignated preferred stock, none of which were issued and outstanding as of the date of this prospectus. Under Massachusetts law and our charter, our board is authorized, without stockholder approval to issue shares of preferred stock from time to time in one or more series. Subject to limitations prescribed by Massachusetts law and our charter and by-laws, the board can determine the number of shares constituting each series of preferred stock and the designation, preferences, voting powers, qualifications, and special or relative rights or privileges of that series. These may include such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and other subjects or matters as may be fixed by resolution of the board or an authorized committee of the board. Our board could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of discouraging a takeover or other transaction which holders of some, or a majority, of these shares might believe to be in their best interests or in which holders of some, or a majority, of these shares might receive a premium for their shares over the then-market price of the shares. If we offer a specific series of preferred stock under this prospectus, we will describe the terms of the preferred stock in the prospectus supplement for such offering and will file a copy of the certificate establishing the terms of the preferred stock with the SEC. This description will include: - the title and stated value; - the number of shares offered, the liquidation preference per share and the purchase price; - the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for such dividends; - whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; - the procedures for any auction and remarketing, if any; - the provisions for a sinking fund, if any; - the provisions for redemption, if applicable; - any listing of the preferred stock on any securities exchange or market; - whether the preferred stock will be convertible into any series of Genzyme common stock, and, if applicable, the conversion price (or how it will be calculated) and conversion period; - whether the preferred stock will be exchangeable into Debt Securities, and, if applicable, the exchange price (or how it will be calculated) and exchange period; - voting rights, if any, of the preferred stock; - whether interests in the preferred stock will be represented by depositary shares; - a discussion of any material and/or special U.S. federal income tax considerations applicable to the preferred stock; - the relative ranking and preferences of the preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the company; 35 - any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of Genzyme; and - any other specific terms, preferences, rights, limitations or restrictions of the preferred stock. The preferred stock offered by this prospectus will, when issued, be fully paid and nonassessable and will not have, or be subject to, any preemptive or similar rights. Unless we specify otherwise in the applicable prospectus supplement, the preferred stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of Genzyme, rank as follows: - senior to all classes or series of Genzyme common stock, and to all equity securities issued by Genzyme the terms of which specifically provide that they rank junior to the preferred stock with respect to those rights; - on a parity with all equity securities issued by Genzyme that do not rank senior or junior to the preferred stock with respect to those rights; and - junior to all equity securities issued by Genzyme the terms of which do not specifically provide that they rank on a parity with or junior to the preferred stock with respect to these rights (including any entity with which Genzyme may be merged or consolidated or to which all or substantially all the assets of Genzyme may be transferred or which transfers all or substantially all of the assets of Genzyme). As used for these purposes, the term "equity securities" does not include convertible debt securities. 36 DESCRIPTION OF GENZYME COMMON STOCK AUTHORIZED COMMON STOCK We are authorized to issue 390,000,000 shares of common stock of which: - 200,000,000 shares have been designated GENZ Stock; - 40,000,000 shares have been designated GZMO Stock; - 60,000,000 shares have been designated GZSP Stock; - 40,000,000 shares have been designated GZTR Stock; and - 50,000,000 remain undesignated as to series. Under Massachusetts law and our charter, our board is authorized to issue undesignated shares of common stock from time to time in one or more series. Subject to limitations prescribed by Massachusetts law and our charter and by-laws, the board may determine the number of shares constituting each series of common stock and the designation, preferences, voting powers, qualifications, and special or relative rights or privileges of that series. These may include provisions concerning dividends, dissolution or the distribution of assets, conversion or exchange, and other subjects or matters as may be fixed by resolution of the board or an authorized committee of the board. If we offer a specific series of newly designated common stock under this prospectus, we will describe the terms of the common stock in the prospectus supplement for such offering and will file a copy of the certificate establishing the terms of the common stock with the SEC. This description will describe: - the title and stated value; - the number of shares offered and the purchase price; - the dividend rights; - any listing of the common stock on any securities exchange or market; - any conversion or exchange provisions; - voting rights - liquidation rights; and - other specific terms, preferences, rights, limitations or restrictions of the common stock. We may also issue shares of GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock. Below is a summary of the current terms of Genzyme common stock. For a more complete understanding of the terms of our capital stock you should read our charter and by-laws, which are incorporated by reference in this document. See "Where You Can Find More Information" on page 55. The common stock offered by this prospectus will, when issued, be fully paid and nonassessable and will not have, or be subject to, any preemptive or similar rights. In this description of Genzyme's common stock, the "fair market value" of any series of common stock means the average per share closing price for the 20 consecutive trading days beginning the 30(th) trading day before the shares are valued. 37 DIVIDENDS We have never paid cash dividends on our stock. Currently, we intend to retain our earnings to finance future growth. Accordingly, we do not expect to pay any cash dividends on our common stock in the near future. We can declare and pay dividends on a series of our common stock only in amounts permitted by our charter, and only if we have funds legally available. Under Massachusetts law, we can pay a dividend if we are solvent, would remain solvent after paying the dividend, and the payment would not violate our charter. Subject to these limitations and the preferences of any outstanding shares of preferred stock, our board may, in its sole discretion, declare and pay dividends exclusively on any series of our common stock in equal or unequal amounts. Our charter sets the amount available for dividends on a division's tracking stock. The amount available is the excess of the greater of either: - the fair value of the net assets allocated to the division; or - the equity amount initially allocated to the division as adjusted to reflect: -- the division's net income or loss; -- any dividends or other distributions, including by reclassification or exchange, declared or paid on shares of the division's capital stock, excluding those paid in shares of the division's own capital stock; -- repurchases or issuances of capital stock attributed to the division; and -- any other adjustments made to stockholders' equity of the division consistent with GAAP; over the sum of - the total par value of all outstanding shares of the division's capital stock; and - unless our charter permits otherwise, the total amount of preferential payments that would be due to the division's preferred stockholders, if any, upon our dissolution less that preferred stock's aggregate par value and any amount needed by the division to pay its debts as they become due. If that available dividend amount is less than would be otherwise available under Massachusetts law, assuming that the division were a separate corporation, then the greater amount permitted by law will be the available dividend amount. EXCHANGE OF GZMO STOCK, GZSP STOCK AND GZTR STOCK We may exchange GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock upon the terms described below. OPTIONAL EXCHANGE Under our charter, the board may, at any time, exchange all outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock with a fair market value of 130% of the fair market value of the series to be exchanged. We will determine the fair market value of the series on the day we first publicly announce the exchange. The optional exchange provision allows us to redeem all outstanding shares of GZMO Stock, GZSP Stock and/or GZTR Stock and leave outstanding one, two or three series of Genzyme common stock that would, after the exchange, collectively represent the entire equity interest in all of our businesses. We could exercise the optional exchange at any future time if our board determines that 38 considering current facts and circumstances, an equity structure consisting of four series of common stock is no longer in the best interests of all of our stockholders. We may make an exchange, however, at a time that is disadvantageous to the holders of a particular series of our common stock. The board's right to exchange at any time all outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock with a fair market value 30% greater than the fair market value of the stock being exchanged does not prevent the board from offering to exchange the shares on other terms. Although the holders of the shares to be exchanged would have to approve any alternative offer, we could make the offer on terms less favorable than those provided in our charter. See the risk factor entitled "Our board of directors may take actions that, while in the best interests of Genzyme as a whole, have an unequal and adverse effect on the holders of one or more series of our tracking stock" on page 10 of this prospectus. If at any time we receive an opinion of tax counsel that an "adverse tax event" has occurred due to a "tax law change," we may exchange the GZSP Stock for GENZ Stock, and not for cash, at its fair market value. This means that the holders of the GZSP Stock will not receive any premium in the exchange. The phrase "adverse tax event" means an event making it more likely than not, for U.S. federal income tax purposes, that: - Genzyme or its stockholders are, or will be in the future, taxed upon issuance of shares of GZSP Stock; or - GZSP Stock is not, or will not be in the future, treated solely as Genzyme common stock. When tax counsel renders this opinion, it will assume that any legislative or administrative proposals will be adopted or enacted as proposed. The phrase "tax law change" means either: - any enactment of or change in federal, state or other tax laws or regulations, including any proposed changes announced by a legislative committee or administrative agency; or - any official or administrative pronouncement, action or judicial decision interpreting or applying the tax laws or regulations. MANDATORY EXCHANGE If we transfer to a third party in one or more related transactions all or substantially all of the properties and assets allocated to Genzyme Molecular Oncology, Genzyme Surgical Products, or Genzyme Tissue Repair, we must exchange each outstanding share of GZMO Stock, GZSP Stock or GZTR Stock as follows:
IF WE ARE TRANSFERRING THE AMOUNT OF CASH AND/OR GENZ STOCK ASSETS OF . . . THEN WE MUST EXCHANGE GIVEN IN EXCHANGE WOULD EQUAL . . . - ----------------------------- ----------------------------- ------------------------------------ Genzyme Molecular Oncology each share of GZMO Stock for a 30% premium over the fair market cash and/or shares of GENZ value of the GZMO Stock being Stock. exchanged. Genzyme Surgical Products each share of GZSP Stock for the fair market value of the GZSP cash and/or shares of GENZ Stock being exchanged. Stock. Genzyme Tissue Repair each share of GZTR Stock for a 30% premium over the fair market cash and/or shares of GENZ value of the GZTR Stock being Stock. exchanged.
39 Fair market value will be determined as of the date the transfer is first publicly announced. This mandatory exchange does not apply, however, where we sell all or substantially all of our assets, or where the transfer is to a wholly-owned subsidiary or any entity formed at our direction to obtain financing for the programs or products of Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair, as the case may be. TERMINATION OF CASH EXCHANGE FEATURE If we receive an opinion of tax counsel at any time that, because of a tax law change, our right to exchange GZMO Stock, GZSP Stock or GZTR Stock for cash would cause an adverse tax event, then our board may by majority vote elect to terminate our cash exchange right. If Genzyme's board elects to terminate this right, then the GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, will only be exchangeable for GENZ Stock, and not for cash. VOTING RIGHTS Stockholders of all series of our common stock vote together as one class on all matters that common stockholders generally are entitled to vote, including the election of directors. The following chart shows the number of votes per share each series of common stock is entitled to on those matters, as well as each series' relative voting power based on the number of shares outstanding on December 31, 1999:
NUMBER OF VOTES PER SHARE APPROXIMATE PERCENTAGE SERIES (UNTIL DECEMBER 31, 2000) OF TOTAL VOTING POWER - ------ ------------------------- ---------------------- GENZ Stock......................................... 1.00 87.7% GZMO Stock......................................... 0.08 1.1% GZSP Stock......................................... 0.61 9.4% GZTR Stock......................................... 0.06 1.8%
You can calculate the percentage of the total voting power held by a series of common stock, at any time, by dividing that series' number of votes per share by the total number of votes per share held by all series. On January 1, 2001 and on January 1st every two years after this date, we will adjust the number of votes per share to which GZMO Stock, GZSP Stock and GZTR Stock are entitled as follows: Number of votes per share of GZMO Stock = fair market value of a share of GZMO Stock --------------------------------------- fair market value of a share of GENZ Stock Number of votes per share of GZSP Stock = fair market value of a share of GZSP Stock --------------------------------------- fair market value of a share of GENZ Stock Number of votes per share of GZTR Stock = fair market value of a share of GZTR Stock --------------------------------------- fair market value of a share of GENZ Stock
If no shares of GENZ Stock are outstanding on that date, then of the series that are outstanding, the one with the highest fair market value per share becomes the "base" series. That series becomes the denominator in the formula above and has one vote per share. Each other series then has the number of votes per share determined under the above formulas, after replacing GENZ Stock in the denominator with the new base series. We will adjust the voting rights of the GZMO Stock, GZSP Stock and the GZTR Stock to avoid dilution of any series' voting rights in the event the outstanding shares of any series are subdivided or combined by stock split, reverse stock split, reclassification or otherwise, or a stock dividend or distribution is issued to stockholders of that series. If shares of only one series are outstanding, or if shares of any series are entitled to vote separately as a class, each share of that series will have one vote. 40 While generally all common stockholders vote together as a single class, our charter requires that holders of a series affected by any of the following proposals approve the proposal at a meeting at which both a quorum is present and the votes in favor of the proposal exceed those against it: - to allow any proceeds from a disposition of the properties or assets allocated to a division to be used in the business of another division without fair compensation; - to allow any properties or assets allocated to a division to be used in the business of another division or to declare or pay any dividend or distribution on any series of common stock not attributed to that division without fair compensation; - to issue shares of any series of common stock without allocating the proceeds of the issuance to the division represented by that series except, however, for specifically "designated" shares as described below under the heading "GZMO Designated Shares, GZSP Designated Shares and GZTR Designated Shares"; - to change the rights or preferences of any series in a manner that affects the series adversely; or - to effect any merger or business combination in which (a) stockholders of all series together will no longer own, directly or indirectly, at least fifty percent (50%) of the voting power of the surviving corporation, and (b) stockholders of all series will not receive the same form of consideration, distributed among stockholders in proportion to the market capitalization of each series of our common stock as of the date of the first public announcement of the merger or business combination. If, however, we receive an opinion of tax counsel at any time that, because of a tax law change, the special voting rights described above for the GZMO Stock, GZSP Stock or GZTR Stock would cause an adverse tax event, then our board may amend our charter to delete the special voting rights of the GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, with the approval of holders of a majority of all series of our outstanding capital stock voting together as a single class. Under Massachusetts law, any amendment to our charter that would adversely alter or change the powers, preferences or special rights of any series of common stock, must be approved by a majority of the outstanding shares of each affected series, voting together as a single class. Massachusetts law does not currently provide for any other separate voting rights for a series of common stock. Consequently, because most matters brought to a stockholder vote will require only the approval of a majority of all of our outstanding capital stock entitled to vote and because the GENZ stockholders currently have more than the number of votes required to approve a matter, GENZ stockholders are currently in a position to control the outcome of the vote. See the risk factor entitled "Holders of our tracking stock have limited decision-making power because they have limited separate voting rights" on page 11 of this prospectus. LIQUIDATION RIGHTS If we voluntarily or involuntarily dissolve, liquidate or wind up our affairs, common stockholders will be entitled to receive any net assets remaining for distribution after we have satisfied or made provision for our debts and obligations and for payment to any stockholders with preferential rights to receive distributions of our net assets. We will distribute any remaining assets to common stockholders on a per share basis in proportion to each series' respective per share liquidation units. Common 41 stockholders will have no direct claim against any of our particular assets or those of our subsidiaries. Each series has the following number of liquidation units per share:
NUMBER OF SERIES LIQUIDATION UNITS - ------ ----------------- GENZ Stock................................................ 100 GZMO Stock................................................ 25 GZSP Stock................................................ 61 GZTR Stock................................................ 58
We will adjust the liquidation units of the GZMO Stock, the GZSP Stock and the GZTR Stock only to avoid dilution in the aggregate liquidation rights of any series in the event the outstanding shares of any series are subdivided or combined by stock split, reverse stock split, reclassification or otherwise, or a dividend or distribution is given to stockholders of that series. A merger or business combination or a sale of all or substantially all of our assets will not be treated as a liquidation. We may not, however, without approval from GENZ stockholders, GZMO stockholders, GZSP stockholders and GZTR stockholders voting as separate series of stock, effect a merger or business combination involving Genzyme that results in: - stockholders of all series no longer owning, directly or indirectly, at least 50% of the voting power of the surviving corporation; and - stockholders of each series not receiving the same form of consideration distributed among stockholders in proportion to the market capitalization of each series of common stock as of the date of the first public announcement of the merger or business combination. GZMO DESIGNATED SHARES, GZSP DESIGNATED SHARES AND GZTR DESIGNATED SHARES GZMO designated shares, GZSP designated shares or GZTR designated shares are authorized but unissued shares which our board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds or other benefits of the issuance, sale or distribution to the division tracked by the shares. Until the shares are issued by our board, designated shares are not outstanding shares of stock, may not receive dividends and cannot be voted by us. GZMO DESIGNATED SHARES On September 30, 1999, there were 1,409,992 GZMO designated shares, representing a potential 10.0% equity interest in Genzyme Molecular Oncology. Of these designated shares, 682,316 were reserved for issuance upon conversion of our 5 1/4% convertible subordinated notes and under our directors' deferred compensation plan. The number of GZMO designated shares, from time to time will be: - adjusted to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZMO Stock and dividends or distributions of shares of GZMO Stock to GZMO stockholders and other reclassifications of GZMO Stock; - decreased by -- the number of any designated shares of GZMO Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZMO Stock issued upon the exercise or conversion of securities convertible into GZMO Stock that are attributed to Genzyme General, and -- the number of any shares of GZMO Stock that we issue as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and 42 - increased by -- the number of any outstanding shares of GZMO Stock that we repurchase, the consideration for which is allocated to Genzyme General; or -- the number of shares of GZMO Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Molecular Oncology excluding reallocations that represent sales at fair value between those divisions divided by the fair market value of one share of GZMO Stock on the date of that reallocation. Our charter prohibits us from taking any action that would reduce the number of GZMO designated shares below zero. GZSP DESIGNATED SHARES On September 30, 1999, there were 1,164,839 GZSP designated shares, representing a potential 7.3% equity interest in Genzyme Surgical Products. That number from time to time will be: - adjusted to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZSP Stock and dividends or distributions of shares of GZSP Stock to GZSP stockholders and other reclassifications of GZSP Stock; - decreased by -- the number of any designated shares of GZSP Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZSP Stock issued upon the exercise or conversion of securities convertible into GZSP Stock that are attributed to Genzyme General, and -- the number of any shares of GZSP Stock that we issue as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and - increased by -- the number of any outstanding shares of GZSP Stock that Genzyme repurchases, the consideration for which is allocated to Genzyme General, -- the number of shares of GZSP Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Surgical Products excluding reallocations that represent sales at fair value between those divisions divided by the fair market value of one share of GZSP Stock as of the date of that reallocation, or -- the number of shares of GZSP Stock equal to (i) the aggregate fair market value of any shares of GENZ Stock issued to the limited partners of Genzyme Development Partners in connection with our exercise on behalf of Genzyme Surgical Products of our purchase option to reacquire all of the limited partnership interests of that partnership divided by (ii) the fair market value of one share of GZSP Stock on the date of the exercise. Our charter prohibits us from taking any action that would reduce the number of GZSP designated shares below zero. 43 GZTR DESIGNATED SHARES On September 30, 1999, there were 2,260,494 GZTR designated shares, representing a potential 8.1% equity interest in Genzyme Tissue Repair. That number from time to time will be: - adjusted as appropriate to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZTR Stock and dividends or distributions of shares of GZTR Stock to GZTR stockholders and other reclassifications of GZTR Stock; - decreased by -- the number of any designated shares of GZTR Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZTR Stock issued upon the exercise or conversion of securities convertible into GZTR Stock that are attributed to Genzyme General, and -- the number of any shares of GZTR Stock issued as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and - increased by -- the number of any outstanding shares of GZTR Stock that we repurchase, the consideration for which is allocated to Genzyme General; and -- the number of shares of GZTR Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Tissue Repair excluding reallocations that represent sales at fair value between those divisions, divided by the fair market value of one share of GZTR Stock on the date of the reallocation. Our charter prohibits us from taking any action that would reduce the number of GZTR designated shares below zero. Whenever we issue or sell additional shares of any series of common stock, we will identify: - the number of shares issued and sold for account of a particular division to which they relate, the proceeds of which will be allocated to and reflected in the financial statements of that division, and - the number of shares issued and sold from the designated shares of GZMO Stock, GZSP Stock and/or GZTR Stock, which will reduce the number of designated shares, and the proceeds of which may be used for any proper corporate purpose. If we repurchase outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock, we will identify the number of shares that are repurchased for consideration that were allocated to Genzyme General and the number of designated shares may increase accordingly. DETERMINATIONS BY OUR BOARD Any determination made by our board in good faith under any of the provisions described above will be final and binding on all stockholders. "ANTI-TAKEOVER" PROVISIONS CONTRACTUAL MEASURES Our charter and by-laws contain provisions that could discourage potential takeover attempts and prevent stockholders from changing our management. For example, our board is authorized to issue 44 shares of common stock and preferred stock in series, enlarge the board's size and fill any vacancies on the board. Also, stockholders face restrictions on calling a special meeting of stockholders, bringing business before an annual meeting and nominating candidates for election as directors. We also have agreements with some officers containing change of control provisions. In addition, we have a stockholder rights plan. Under the plan, each outstanding share of our common stock carries with it a right, currently unexercisable, that if triggered permits the holder to purchase large amounts of our or any successor entity's securities at a discount and/or trade those purchase rights separately from the common stock. The rights are triggered when a person acquires, or makes a tender or exchange offer to acquire, 15% of our common stock's voting power. The plan, however, prohibits the 15%- acquiror, or its affiliates, from exercising these purchase rights. As a result, the acquiror's interest in us is substantially diluted. The rights are described completely in a rights agreement between us and American Stock Transfer & Trust Company as rights agent. The agreement is an exhibit to our Form 8-A/A filed with the SEC on June 11, 1999, and is incorporated in this document by reference. BUSINESS COMBINATION STATUTE The Massachusetts Business Combination statute provides that, if a person acquires 5% or more of the outstanding voting stock of a Massachusetts corporation without the approval of its board of directors that person becomes an interested stockholder and he or she may not engage in business combination transactions with the corporation for three years. There are exceptions to this prohibition, including: - if the board of directors approves the acquisition of stock or the transaction before the time that the person became an interested stockholder; - if the interested stockholder acquires 90% of the outstanding voting stock of the company, excluding voting stock owned by directors who are also officers and some employee stock plans, in one transaction; or - if the transaction is approved by the board and by two-thirds of the outstanding voting stock not owned by the interested stockholder. We are subject to the Massachusetts Business Combination statute unless we elect not to be. We have not elected to be exempt and do not currently intend to do so. CONTROL SHARE ACQUISITION STATUTE The Massachusetts Control Share Acquisition statute provides that a person who offers to acquire, or acquires, shares of stock resulting in its controlling at least 20%, 33 1/3% or a majority of the voting power of a corporation, cannot vote those acquired shares unless the acquiror obtains the approval of a majority in interest of the shares held by all stockholders, excluding shares held by the acquiror, officers of the corporation, and directors who are also employees of the corporation. The statute does not require that the acquiror have already purchased the shares before the stockholder vote. As permitted under Massachusetts law, we have elected not to be governed by the Massachusetts Control Share Acquisition statute. However, our board could decide at a future date that it is in the best interests of Genzyme and its stockholders that we be governed by the statute. If so, our board may amend our by-laws accordingly. That amendment, however, would apply only to acquisitions that occur after the effective date of the amendment. 45 REGISTRATION RIGHTS The holders of 3,163,032 shares of our capital stock can, if the conditions to exercising the rights are met, require us to register those shares. Notwithstanding these rights, all of those shares, if held by our nonaffiliates, can be sold without restriction under the federal securities law. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company is the registrar and transfer agent for each series of our common stock. Its telephone number is (212) 936-5100. DESCRIPTION OF WARRANTS GENERAL We may issue warrants to purchase Debt Securities (the "Debt Warrants"), preferred stock (the "Preferred Stock Warrants") or one or more series of Genzyme common stock (the "Common Stock Warrants" and, collectively with the Debt Warrants and the Preferred Stock Warrants, the "Warrants"). Warrants may be issued independently or together with any other securities offered by this prospectus and may be attached to or separate from the other securities. If Warrants are issued, they will be issued under warrant agreements to be entered into between us and a bank or trust company, as warrant agent (the "Warrant Agent"), all of which will be described in the prospectus supplement relating to the Warrants being offered. DEBT WARRANTS We will describe the terms of the Debt Warrants offered in the applicable prospectus supplement, the Warrant Agreement relating to the Debt Warrants and the Debt Warrant certificates representing the Debt Warrants, including the following: - the title; - the aggregate number offered; - their issue price or prices; - the designation, aggregate principal amount and terms of the Debt Securities purchasable upon exercise, and the procedures and conditions relating to exercise; - the designation and terms of any related Debt Securities and the number of such Debt Warrants issued with each Debt Security; - the date, if any, on and after which the Debt Warrants and the related Debt Securities will be separately transferable; - the principal amount of Debt Securities purchasable upon exercise, and the price at which such principal amount of Debt Securities may be purchased upon exercise; - the commencement and expiration dates of the right to exercise; - the maximum or minimum number which may be exercised at any time; - a discussion of the material U.S. federal income tax considerations applicable to exercise; and - any other terms, procedures and limitations relating to exercise. Debt Warrant certificates will be exchangeable for new Debt Warrant certificates of different denominations, and Debt Warrants may be exercised at the corporate trust office of the Warrant Agent or any other office indicated in the applicable prospectus supplement. Before exercising their Debt 46 Warrants, holders will not have any of the rights of holders of the securities purchasable upon such exercise and will not be entitled to payments of principal of, or premium, if any, or interest, if any, on the securities purchasable upon such exercise. OTHER WARRANTS The applicable prospectus supplement will describe the following terms of Preferred Stock Warrants or Common Stock Warrants offered under this prospectus: - the title; - the securities issuable upon exercise; - the issue price or prices; - the number of such Warrants issued with each share of preferred stock or common stock; - any provisions for adjustment of (1) the number or amount of shares of preferred stock or common stock receivable upon exercise of the Warrants or (2) the exercise price; - if applicable, the date on and after which the Warrants and the related preferred stock or common stock will be separately transferable; - if applicable, a discussion of the material U.S. federal income tax considerations applicable to the exercise of the Warrants; - any other terms, including terms, procedures and limitations relating to exchange and exercise; - the commencement and expiration dates of the right to exercise; and - the maximum or minimum number which may be exercised at any time. EXERCISE OF WARRANTS Each Warrant will entitle the holder to purchase for cash such principal amount of Debt Securities or shares of preferred stock or common stock at the applicable exercise price set forth in, or determined as described in, the applicable prospectus supplement. Warrants may be exercised at any time up to the close of business on the expiration date set forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised Warrants will become void. Warrants may be exercised by delivering to the corporation trust office of the Warrant Agent or any other officer indicated in the applicable prospectus supplement (a) the Warrant certificate properly completed and duly executed and (b) payment of the amount due upon exercise. As soon as practicable following the exercise, we will forward the Debt Securities or shares of preferred stock or common stock purchasable upon the exercise. If less than all of the Warrants represented by a Warrant certificate are exercised, a new Warrant certificate will be issued for the remaining Warrants. 47 DESCRIPTION OF MANAGEMENT AND ACCOUNTING POLICIES OVERVIEW Because each of our operating divisions are part of a single company, our board has adopted policies to address issues that may arise among divisions and to govern the management of and the relationships between each division. The issues addressed by the policies include: - the financing of each division; - competition among the divisions; - inter-divisional business transactions; - access to technology and know-how; - corporate opportunities; and - the allocation of debt, corporate overhead, interest, taxes and other charges between the divisions. We have summarized below the policies as they relate to our four divisions. We recommend that you read the full text of the policies, which is contained in Exhibit 99.1 to the registration statement of which this prospectus is a part. With a few exceptions that are noted, our board may modify or rescind the policies, or adopt additional policies, in its sole discretion without approval of the stockholders, subject only to our board's fiduciary duty to our stockholders. PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL PRODUCTS AND GENZYME TISSUE REPAIR The purpose of Genzyme General is to develop and market therapeutic products and diagnostic services and products. The purpose of Genzyme Molecular Oncology is to create a focused, integrated oncology business that will develop and commercialize novel therapeutic and diagnostic products and services based on molecular tools and genomic information. The purpose of Genzyme Surgical Products is to create a business with a comprehensive approach to and portfolio of devices, biomaterials, biotherapeutics and other products for the field of biosurgery. The purpose of Genzyme Tissue Repair is to create a business with a comprehensive approach to the field of tissue repair by developing and commercializing a portfolio of novel products for the treatment and prevention of serious tissue injury (excluding products developed on behalf of Genzyme Development Partners). In addition to the programs initially assigned to each of the divisions, we expect that the product and service portfolio of each division will expand through the addition of complementary programs, products and services developed either internally or externally to the division, including outside of Genzyme. We will operate and manage each of the divisions similarly to Genzyme General except as provided in these policies. REVENUE ALLOCATION AND RECOGNITION We credit revenues received from third parties in connection with a particular division's products and services to that division. When products and services that are normally sold by a division to third parties are used by other divisions, we record interdivisional revenue and interdivisional purchases, which we describe in detail in our policy "Other Interdivisional Transactions." EXPENSE ALLOCATION We charge all direct expenses to the division that has incurred the expenses. Our policy "Other Interdivisional Transactions" addresses expenses other than direct expenses. 48 ASSET ALLOCATION We allocate assets that are exclusively dedicated to the production of goods and services of a particular division to that division. We address the use of production assets by more than one division in our policy "Other Interdivisional Transactions." TAX ALLOCATIONS We allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to it under generally accepted accounting principles as if it were a separate taxpayer. As of the end of any fiscal quarter, however, if a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to the other divisions in proportion to their taxable income without any compensating payment or allocation. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS If we acquire any programs, products or assets from a third party, we will allocate among our divisions the aggregate cost of the acquisition and the programs, products or assets acquired. In the case of material acquisitions, we will make the allocation in a manner that our board determines to be fair and reasonable to each division and to holders of the common stock representing each division, taking into account matters that our board and its financial advisors, if any, deem relevant. Our policies provide that the determinations by our board will be final and binding on all holders of common stock. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS If we dispose of any programs, products or assets that do not consist of all or substantially all of the assets of a division, we will allocate all proceeds to the division to which the program, product or asset had been allocated. If a program, product or asset was allocated to more than one division, we will allocate the proceeds among the divisions based on their interests in the program, product or asset. We will make the allocation in a manner that our board determines to be fair and reasonable to each of the divisions and to holders of the common stock representing each of the divisions, taking into account matters that our board and its financial advisors, if any, deem relevant. Our policies provide that the determinations by our board will be final and binding on all holders of common stock. INTERDIVISIONAL ASSET TRANSFERS Our board may at any time reallocate any program, product or other asset from one division to any other division. We will make reallocations at fair market value, determined by our board, taking into account the following criteria in the case of a program under development: - the commercial potential of the program; - the phase of clinical development of the program; - the expenses associated with realizing any income from the program and the likelihood and timing of the realization; and - other matters that our board and its financial advisors, if any, deem relevant. One division may pay another division the consideration for a reallocation in cash or other consideration with a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to another division, our board may elect instead to account for the reallocation as an increase in the designated shares representing the division to which the assets are reallocated in accordance with the provisions of our charter. 49 These policies regarding transfers of assets between divisions will not be changed by our board without the approval of the holders of the common stock representing each of the divisions voting as a separate class. If, however, the policy change affects one or more, but not all of the divisions, only holders of shares of the affected division(s) will be entitled to vote on the matter. OTHER INTERDIVISIONAL TRANSACTIONS Our divisions may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. These transactions may include agreements by one division to provide products and services for use by another division, license agreements and joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. These transactions will be subject to the following conditions: - We will charge research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for another division to the division for which the services are performed on a cost basis. We charge all direct expenses to the division that has incurred the expenses. We will allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - We will charge the manufacturing of goods and services by one division exclusively for another division to the division for which it is performed on a cost basis. We will include in manufacturing costs an interest charge on the gross fixed assets used in the manufacturing process. We will determine gross fixed assets for the facility used at the beginning of each fiscal year. The interest rate will be our short term borrowing rate at the beginning of each fiscal year. We will allocate direct labor and indirect costs in reasonable and consistent manners based on the benefit received by a division of related goods and services. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - Other than transactions involving research and development, distribution, sales, marketing, general and administrative services, which are addressed above, all interdivisional transactions will be on terms and conditions obtainable in arm's length transactions with third parties. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - Our board must approve interdivisional transactions that are performed on terms and conditions other than as described above and that are material to one or more of the participating divisions. In giving its approval, our board must determine that the transaction is fair and reasonable to each participating division and to holders of the common stock representing each participating division. - Divisions may make loans to other divisions. Any loan of $1 million or less will mature within 18 months and interest will accrue at the best borrowing rate available to Genzyme for a loan of a similar type and duration. Our board must approve any loan in excess of $1 million. In giving its approval, our board must determine that the material terms of such loan, including the interest rate and maturity date, are fair and reasonable to each participating division and to holders of the common stock representing each such division. - All material interdivisional transactions will be set forth in a written agreement signed by an authorized member of the management team of each division involved in the transaction. 50 ACCESS TO TECHNOLOGY AND KNOW-HOW Each division will have unrestricted access to all of our technology and know-how that may be useful in that division's business, subject to any obligations or limitations that apply to us. DISPOSITION OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK, AND GZTR STOCK Our Board may from time to time and in its sole discretion dispose of designated shares of GZMO Stock, GZSP Stock, and GZTR Stock in the following manner: - issue the designated shares upon the exercise or conversion of outstanding stock options, warrants or convertible securities allocated to Genzyme General; - sell the designated shares for any valid purpose, subject to the restrictions set forth in our policy entitled "Open Market Purchases of Shares of Common Stock," which is set forth below; and - distribute the designated shares as a dividend to the holders of shares of GENZ Stock. GZMO DESIGNATED SHARES. We will distribute substantially all of the designated shares of GZMO Stock to holders of record of GENZ Stock, if as of November 30 of each year, the number of GZMO designated shares exceeds 10% of the number of shares of GZMO stock then issued and outstanding. We will, however, reserve for issuance a number of shares equal to the sum of: - the number of GZMO designated shares reserved for issuance with respect to "GENZ convertible securities" which include stock options, stock purchase rights, warrants or other securities convertible into or exercisable for shares of GENZ Stock then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZMO designated shares reserved by our Board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. GZSP DESIGNATED SHARES. We will distribute substantially all of the designated shares of GZSP Stock to holders of record of GENZ Stock if, as of June 30 of each year, starting on June 30, 2000 the number of GZSP designated shares exceeds 10% of the number of shares of GZSP Stock then issued and outstanding. We will, however, reserve a number of shares equal to the sum of: - the number of GZSP designated shares reserved for issuance with respect to GENZ convertible securities which then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZSP designated shares reserved by our board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. GZTR DESIGNATED SHARES. We will distribute substantially all designated shares of GZTR Stock to holders of record of GENZ Stock, if as of May 31 of each year, the number of GZTR designated shares exceeds 10% of the number of shares of GZTR stock then issued and outstanding. We will, however, reserve for issuance a number of shares equal to the sum of: - the number of GZTR designated shares reserved for issuance with respect to the GENZ convertible securities then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZTR designated shares reserved by our Board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. 51 ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK When we issue additional shares of our common stock, we will identify both: - the number of shares issued and sold for the account of the division to which they relate and the corresponding proceeds, which we will allocate to and reflect in the financial statements of that division; and - the number of shares issued and sold for the account of Genzyme General, which will reduce the number of designated shares of that division. We will not, however, sell any designated shares of a division, except upon exercise or conversion of options, warrants or convertible securities issued by Genzyme General that were adjusted as a result of a dividend of GZSP Stock, GZMO Stock, or GZTR Stock paid to holders of GENZ Stock, unless either: - our board determines that the division has sufficient cash to fund its operations for at least the next 12 months; or - we are then selling shares of a division for its own account in an amount that will produce proceeds sufficient to fund that division's cash needs for the next 12 months. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK We may purchase our common stock in the open market in accordance with applicable securities law requirements. We will not, however, purchase our common stock if, as an immediate result, the number of designated shares of a division will exceed 60% of the sum of the number of shares of the division outstanding and the number of designated shares. Additionally, we may not, within 90 days of any open market purchase of the common stock of any division, exercise the right provided under our charter to exchange shares of that division for cash and/or shares of GENZ Stock. CLASS VOTING Where we have provided that the approval of the holders of a division's common stock is required to take any action pursuant to these policies or our charter, the requirement may be satisfied if the action is approved by a majority of the votes cast at a meeting of the holders of the division's common stock at which a quorum is present. This is in addition to any stockholder approval required by Massachusetts law. NON-COMPETE Our divisions may not materially engage in each other's principal businesses other than through joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. These permissible transactions are subject to the conditions set forth above in our policy entitled "Interdivisional Asset Transfers". The divisions may compete in a business which is not a principal business of another division. Our board may determine in its good faith business judgment whether particular activities of one division constitute a material engagement in the principal businesses of another division. CORPORATE OPPORTUNITIES Our board will review any matter which involves the allocation of a corporate opportunity to any of the divisions, or in part to one division and in part to another division. Our board will make its determination with regard to the allocation and benefit of an opportunity in accordance with its good faith business judgment of the best interests of Genzyme and all of its stockholders as a whole. In making this allocation, our board may consider, among other factors: 52 - whether a particular corporate opportunity is principally related to the business of a particular division; - whether one division, because of its managerial or operational expertise, will be better positioned to undertake the corporate opportunity; - whether one division, because of its financial resources, will be better positioned to undertake the corporate opportunity; and - existing contractual agreements and restrictions. PLAN OF DISTRIBUTION We may sell the securities being offered by us in this prospectus: - directly to purchasers; - through agents; - through dealers; - through underwriters; or - through a combination of any of these methods of sale. We and our agents and underwriters may sell the securities being offered by us in this prospectus from time to time in one or more transactions: - at a fixed price or prices, which may be changed; - at market prices prevailing at the time of sale; - at prices related to such prevailing market prices; or - at negotiated prices. We may solicit directly offers to purchase securities. We may also designate agents from time to time to solicit offers to purchase securities. Any agent that we designate, who may be deemed to be an "underwriter" as that term is defined in the Securities Act of 1933, may then resell such securities to the public at varying prices to be determined by such agent at the time of resale. If we use underwriters to sell securities, we will enter into an underwriting agreement with the underwriters at the time of the sale to them. The names of the underwriters will be set forth in the prospectus supplement which will be used by them together with this prospectus to make resales of the securities to the public. In connection with the sale of the securities offered, the underwriters may be deemed to have received compensation from us in the form of underwriting discounts or commissions. Underwriters may also receive commissions from purchasers of the securities. Underwriters may also use dealers to sell securities. If this happens, the dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Any underwriting compensation paid by us to underwriters in connection with the offering of the securities offered in this prospectus, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement. Underwriters, dealers, agents and other persons may be entitled, under agreements that may be entered into with us, to indemnification by us against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribution with respect to payments which they may be required to 53 make in respect of such liabilities. Underwriters and agents may engage in transactions with, or perform services for, us in the ordinary course of business. If so indicated in the applicable prospectus supplement, we will authorize underwriters, dealers, or other persons to solicit offers by certain institutions to purchase the securities offered by us under this prospectus pursuant to contracts providing for payment and delivery on a future date or dates. The obligations of any purchaser under these contracts will be subject only to those conditions described in the applicable prospectus supplement, and the prospectus supplement will set forth the price to be paid for securities pursuant to those contracts and the commissions payable for solicitation of the contracts. Any underwriter may engage in over-allotment, stabilizing and syndicate short covering transactions and penalty bids in accordance with Regulation M of the Securities Exchange Act of 1934. Over-allotment involves sales in excess of the offering size, which creates a short position. Stabilizing transactions involve bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate short covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim selling concessions from dealers when the securities originally sold by such dealers are purchased in covering transactions to cover syndicate short positions. These transactions may cause the price of the securities sold in an offering to be higher than it would otherwise be. These transactions, if commenced, may be discontinued by the underwriters at any time. Each series of securities offered under this prospectus will be a new issue with no established trading market, other than the GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock, which are each listed on the Nasdaq National Market. Any shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of Genzyme Common Stock sold pursuant to a prospectus supplement will be listed on the Nasdaq National Market or on the exchange on which the series of stock offered is then listed, subject to official notice of issuance. Any underwriters to whom we sell securities for public offering and sale may make a market in the securities that they purchase, but the underwriters will not be obligated to do so and may discontinue any market making at any time without notice. We may elect to list any of the securities we may offer from time to time for trading on an exchange or on the Nasdaq National Market, but we are not obligated to do so. The anticipated date of delivery of the securities offered hereby will be set forth in the applicable prospectus supplement relating to each offering. LEGAL MATTERS Our counsel, Palmer & Dodge LLP, Boston, Massachusetts, will give us an opinion on the legality and validity of the securities offered by this prospectus and any accompanying prospectus supplement. EXPERTS The financial statements of Genzyme Corporation, Genzyme Molecular Oncology and Genzyme Tissue Repair incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 1998, as amended, the combined financial statements of Genzyme Surgical Products incorporated in the prospectus by reference to our Form 8-K as filed on June 11, 1999 and the combined financial statements of Genzyme General incorporated in this prospectus by reference to our Form 8-K as filed on June 30, 1999, and the financial statements of the Genzyme Retirement Savings Plan incorporated in this prospectus by reference to the Form 10-K/A as filed on June 30, 1999 have been so incorporated in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 54 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at the SEC's public reference rooms at the following locations: Public Reference Room New York Regional Office Chicago Regional Office 450 Fifth Street, 7 World Trade Center Citicorp Center N.W Room 1024 Suite 1300 500 West Madison Street Washington, D.C. 20549 New York, NY 10048 Suite 1400 Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. These SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and other information concerning Genzyme may also be inspected at the offices of The Nasdaq Stock Market, which is located at 1735 K Street, N.W., Washington, D.C. 20006. The SEC allows us to "incorporate by reference" information into this prospectus, which means that we disclose important information to you by referring you to other documents that we filed separately with the SEC. The information incorporated by reference is considered part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. This prospectus incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important business and financial information about us that is not included in or delivered with this prospectus.
FILINGS (FILE NO. 0-14680) DATE FILED - -------------------------- --------------------------------------------- Annual Report on Form 10-K Filed on March 31, 1999 (except for the financial statements on pages 2-31 of Exhibit 13.1, which we restated and filed on June 30, 1999 as Exhibit 99 to our Form 8-K), as amended by Amendment No. 1 on Form 10-K/A filed on June 30, 1999 Quarterly Reports on Form 10-Q Filed on May 17, 1999 (except for pages 4-9 and 26-28 to the extent the financial statements and related discussion relates to Genzyme General, which we restated and filed on June 30, 1999 as Exhibit 99 to our Form 8-K), August 16, 1999 and November 15, 1999. Current Reports on Form 8-K Filed on March 17, 1999, June 11, 1999, June 30, 1999, October 21, 1999 and January 10, 2000 Proxy Statement on Schedule 14A Filed on April 16, 1999 The description of GENZ Stock, GZMO Stock and Filed on June 18, 1997 GZTR Stock contained in Genzyme's Registration Statement on Form 8-A
55
FILINGS (FILE NO. 0-14680) DATE FILED - -------------------------- --------------------------------------------- The description of GENZ Stock purchase Filed on June 11, 1999 rights, GZMO Stock purchase rights, GZSP Stock purchase rights and GZTR Stock purchase rights contained in Genzyme's Registration Statement on Form 8-A/A The description of GZSP Stock contained in Filed on June 11, 1999 Genzyme's Registration Statement on Form 8-A
We also incorporate by reference additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the sale of all of the securities covered by this prospectus. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. Documents incorporated by reference are available from us without charge, excluding all exhibits, except that if we have specifically incorporated by reference an exhibit in this prospectus, the exhibit will also be provided without charge. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or by telephone from us at the following address and telephone number. Genzyme Corporation Shareholder Relations One Kendall Square Cambridge, Massachusetts 02139 (617) 252-7526 You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different from what is contained in this prospectus. This prospectus is dated March 9, 2000. You should not assume that the information contained in this prospectus is accurate as of any date other than that date. Neither the delivery of this prospectus nor the sale of securities creates any implication to the contrary. 56 - --------------------------------------------------------- - --------------------------------------------------------- 3,000,000 Shares [LOGO] Common Stock ------------------------------- PROSPECTUS SUPPLEMENT ------------------------------- SG COWEN PAINEWEBBER INCORPORATED CHASE H&Q , 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----